As filed with the Securities and Exchange Commission on
October 24, 1997 Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement
Under
The Securities Act of 1933
RIVER ASSET SUB, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6513, 6514 Pending
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------------------------
645 Fifth Avenue, 8th Floor, New York, NY 10022 (212) 848-0201
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RIVER DISTRIBUTION SUB, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6513, 6514 Pending
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------------------------
645 Fifth Avenue, 8th Floor, New York, NY 10022 (212) 848-0201
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
As to both Registrants:
Jerome R. McDougal
Chairman, President and Chief Executive Officer
River Bank America
645 Fifth Avenue, 8th Floor
New York, New York 10022
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please send copies of all correspondence to:
Thomas E. Kruger, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the effective date of this Registration
Statement and all conditions to the Reorganization described herein have been
waived or satisfied.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box./ /
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box./ /
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered(1) Registered Per Share $ Price $ Registration Fee $
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001par value 7,100,000 (2) -- -- --
15% Non-Cumulative Perpetual Preferred
Stock, Series A, $0.001 par value 1,400,000 (2) -- -- --
Common Stock, $1.00 par value 7,100,000 (3) (4) (4) 27,345.76(4)
15% Non-Cumulative Perpetual Preferred
Stock, Series A, $1.00 par value 1,400,000 (3) (4) (4) 5,392.12(4)
Total: 32,737.88
</TABLE>
(1) This Registration Statement relates to: (i) the securities of River
Distribution Sub, Inc. ("River Distribution Sub") distributable in the proposed
Distribution described herein without consideration therefore by River Bank
America, a New York chartered stock savings bank ("River Bank"), to holders of
common stock, $1.00 par value, of River Bank and to holders of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value, of River
Bank; and (ii) the securities of River Asset Sub, Inc. ("River Asset Sub")
issuable to the stockholders of River Distribution Sub
(footnotes continued on next page)
<PAGE>
in the proposed Merger described herein whereby River Distribution Sub will
merge with and into River Asset Sub; each of the foregoing transactions to be
consummated in connection with and as part of the Reorganization described
herein whereby River Bank would, through a series of steps, in a manner intended
to constitute a tax-free reorganization, change its legal form of organization
by which it conducts its business, holds its assets and is obligated for its
liabilities from a New York chartered stock savings bank into a business
corporation incorporated in the State of Delaware.
(2) Represents the maximum number of shares of such class of River
Distribution Sub capital stock which may be distributed to the stockholders of
River Bank in the Distribution described therein.
(3) Represents the maximum number of shares of such class of River
Asset Sub capital stock which may be issued to the stockholders of River
Distribution Sub in the Merger described herein.
(4) Pursuant to Rule 457(f), the registration fee was computed on the
basis of the book value of the securities of River Asset Sub to be canceled in
the Merger described herein. The book value of River Asset Sub has been
determined by reference to the book value of River Bank, as of September 30,
1997, since prior to the Merger described herein, River Asset Sub will have
succeeded to the business, assets and liabilities of River Bank. Attributing
such value to River Asset Sub, the registration fee for each class of securities
of River Asset Sub to be issued in the Merger has been calculated based on the
per share pro rata portion of the book value attributable to each such class of
securities ($12.71).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
RIVER BANK AMERICA
645 Fifth Avenue, 8th Floor
New York, New York 10022
October __, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
of River Bank America, a New York chartered stock savings bank (the "Bank"), to
be held at the Grand Hyatt of New York Hotel, Park Avenue at Grand Central
Station, New York, New York 10017, on October __, 1997 at 10:00 a.m., local time
(the "Special Meeting").
At the Special Meeting, you will be asked again to approve a proposal
to direct that the Bank be closed and its affairs wound up. As you may recall,
at the 1997 annual meeting of stockholders held on October 7, 1997, you voted
upon a similar proposal so that after the approval thereof by stockholders, the
Bank could file a petition for a closing order in the Supreme Court of the State
of New York by October 15, 1997. Under New York Banking Law, stockholder
approval of the earlier proposal to close the Bank was required before a
petition for a closing order could be filed in New York Supreme Court. The
petition for the closing order was filed on October __, 1997 and is currently
pending before the court.
By filing the petition for the closing order in the New York Supreme
Court prior to October 15, 1997, the Bank is able to comply with certain
conditions imposed by the New York State Banking Department (the "Banking
Department") in its approval of the Bank's previously announced plan to change,
through a series of steps, in a manner intended to constitute a tax-free
reorganization, the legal form of organization of the Bank from a New York
chartered bank to a business corporation incorporated in the State of Delaware.
The Bank's board of directors proposed this plan as an alternative to a
liquidation of the Bank in accordance with conditions imposed by the Banking
Department in connection with the Banking Department's approval of the Bank's
June 1996 Branch Sale referred to below.
As you may recall, following stockholder and Banking Department
approval, on June 28, 1996, the Bank sold all of its branches and transferred
substantially all of its deposits to Marine Midland Bank (the "Branch Sale").
Although the Bank has ceased operation as a depository institution, it remains a
banking organization legally chartered and subject to regulation, examination
and supervision by the New York State Banking Department. As conditions to its
approval of the Branch Sale, the Banking Department required the Bank to agree
(i) to submit a plan of dissolution for Banking Department approval within one
year of the Branch Sale closing date (the "Dissolution Plan Condition") and (ii)
to file a petition in New York State Supreme Court for a closing order within 13
months of the closing of the Branch Sale and for a final order of dissolution of
the Bank within five months following the filing of a petition for a closing
order (the "Closing Condition"). In April 1997, River Bank announced that the
Board of Directors was evaluating a proposal to reorganize the Bank into a
business corporation, consistent with the Bank's goal of managing its assets to
maximize stockholder value. To that end, in June 1997, the Bank proposed to the
Banking Department an alternative under which the Dissolution Plan Condition
would be satisfied through the implementation of a plan whereby the Bank would,
through a series of steps, on what is intended to be a tax-free basis, change
its legal form of organization by which it conducts its business, holds its
assets and is obligated for its liabilities from a New York chartered stock
savings bank into a business corporation incorporated in the State of Delaware
(the "Reorganization"). Thereafter, the Bank would voluntarily dissolve (the
"Dissolution" and together with the Reorganization, the "Alternate Proposal").
In a letter dated June 24, 1997, the Banking Department, indicating its
conditional approval, stated that it did not object to the Alternate Proposal
and advised, among other things, that it required that the petition for the
closing order required by the Closing Condition be filed by October 15, 1997.
In accordance with the Bank's undertaking made in connection with the
annual meeting, the Closing Order Petition provides that no substantive legal
steps will be taken to implement the Reorganization and Dissolution until
stockholders again approve the closing of the Bank which approval will not be
obtained until a proxy statement/prospectus detailing the Bank's plans to
implement the Reorganization and Dissolution have been provided to all
stockholders. The accompanying proxy statement/prospectus describes the Bank's
plans to implement the Reorganization and the Dissolution which we urge you to
read carefully.
Reorganizing the Bank into a Delaware corporation will remove the
Bank's business and assets from the jurisdiction of the Banking Department. This
will permit the successor to the Bank's assets to manage its
<PAGE>
approximately $212 million in assets without banking regulatory restraints in an
effort to maximize returns to stockholders.
Upon completion of the Reorganization transactions:
# The Bank's successor will be incorporated in the
State of Delaware as a business corporation with the
name RB Asset, Inc. ("RB Asset").
# RB Asset's capital structure will be substantially
identical to that of the Bank.
# Holders of the Bank's common stock and preferred
stock will receive shares of common stock and
preferred stock of RB Asset on a share-for-share
basis. The stock to be received by the Bank's
stockholders will be substantially identical in all
material respects to the outstanding stock of the
Bank.
# RB Asset will succeed to and continue with the
business, assets, liabilities and operations of the
Bank.
# RB Asset will be managed by independent contractors
in a manner similar to the management of the affairs
and business of River Bank.
The Reorganization is structured in a manner intended to qualify as a
tax-free reorganization in which neither River Bank, RB Asset, nor their
stockholders will recognize taxable gain. The Reorganization is also intended to
preserve for use by RB Asset the availability of approximately $100.2 million of
net operating loss carryforwards and other tax assets previously recorded by
River Bank.
At the Special Meeting, holders of River Bank common stock and series A
preferred stock will be asked to approve a proposal to direct that the Bank be
closed and its business wound up by means of the Reorganization and the
Dissolution. Holders of River Bank common stock will also be asked to approve
certain amendments (necessary to implement the Reorganization) to the
certificate of designations for River Bank's outstanding series A preferred
stock. The Board of Directors has determined that implementation of the
Reorganization and Dissolution is in the best interests of the Bank, and its
stockholders and therefore unanimously recommends that stockholders approve the
proposal necessary to implement the Reorganization and Dissolution.
Sincerely,
Jerome R. McDougal
Chairman of the Board
<PAGE>
RIVER BANK AMERICA
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on October __, 1997
To the Stockholders of River Bank America:
NOTICE IS HEREBY GIVEN pursuant to the New York Banking Law that a
special meeting of stockholders (the "Special Meeting") of River Bank America, a
New York chartered stock savings bank ("River Bank" or the "Bank"), will be held
at the Grand Hyatt of New York Hotel, Park Avenue at Grand Central Station, New
York, New York 10017, on [__]day, October __, 1997, at 10:00 a.m., local time,
for the following purposes, all of which are more completely set forth in the
accompanying proxy statement/prospectus:
1. To consider and vote upon a proposal to direct
that the Bank be closed and its business wound up by means of
the Reorganization (as defined below) and the Dissolution (as
defined below) as set forth in the accompanying proxy
statement/prospectus (the "Bank Closing Resolution");
2. To consider and vote upon a proposal to approve an
amendment, necessary to implement the Reorganization, to the
certificate of designations for the 15% non-cumulative perpetual
preferred stock, series A, $1.00 par value, of River Bank in the form
attached to the accompanying proxy statement/prospectus as annex A (the
"Certificate of Designations Amendment"); and
3. The transaction of such other business as may properly come
before the Special Meeting or at any adjournment or postponement
thereof.
The Bank Closing Resolution will be implemented through a series of
steps under which the Bank will, in a manner intended to qualify as a tax-free
reorganization, change the legal form of organization by which it conducts its
business, holds its assets and is obligated for its liabilities from a New York
state chartered stock savings bank into a business corporation incorporated in
the State of Delaware (the "Reorganization"). Thereafter, the Bank will
voluntarily dissolve (the "Dissolution"). In connection with and as part of the
Reorganization, (i) the existing business and all of the assets and liabilities
of River Bank will be transferred to or assumed by River Asset Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of River Bank ("River Asset
Sub") (the "Business Disposition"), (ii) all of the issued and outstanding
shares of common stock, $0.001 par value ("River Distribution Common Stock"),
and all of the issued and outstanding shares of 15% non-cumulative perpetual
preferred stock, series A, $0.001 par value ("River Distribution Series A
Preferred Stock" and, together with River Distribution Common Stock, "River
Distribution Capital Stock"), of River Distribution Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of River Bank ("River Distribution
Sub"), will be distributed to the stockholders of River Bank (the
"Distribution") such that each holder of common stock, $1.00 par value, of River
Bank ("River Bank Common Stock") will receive one share of River Distribution
Common Stock for each share of River Bank Common Stock and each holder of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value, of River
Bank ("River Bank Series A Preferred Stock") will receive one share of River
Distribution Series A Preferred Stock for each share of River Bank Series A
Preferred Stock and (iii) following the Business Disposition and the
Distribution, River Distribution Sub will merge with and into River Asset Sub
(which shall have succeeded to the business, assets and liabilities of River
Bank, except that it will not be chartered as a banking institution) with River
Asset Sub as the surviving corporation, whereupon (a) each share of River Asset
Sub common stock, $1.00 par value (held entirely by River Bank), shall be
canceled, (b) the outstanding shares of River Distribution Sub Capital Stock
will be converted into and shall represent the shares of identical capital stock
of the surviving corporation (except that the par value of the capital stock
will be changed to $1.00) and (c) River Asset Sub, the surviving corporation in
the merger, will be renamed RB Asset, Inc. (the "Merger").
The Reorganization is being undertaken by River Bank in contemplation
of the Dissolution following the consummation thereof and will not occur unless
the Bank Closing Resolution and the Certificate of Designations Amendment are
approved by River Bank's stockholders and until all of the conditions to the
Reorganization and Dissolution have been satisfied, including the receipt by
River Bank of a closing order from the Supreme Court of the State of New York
declaring the business of River Bank closed and the approval of the Banking
Department. On October __, 1997, the Bank filed a petition for a closing order
in New York State Supreme Court which is currently pending before the court.
<PAGE>
The Board of Directors has fixed the close of business on October __,
1997 as the record date (the "Record Date") for the determination of
stockholders entitled to receive notice of, and to vote at, the Special Meeting
and any adjournment or adjournments thereof. Holders of River Bank Common Stock
and Series A Preferred Stock at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or adjournments thereof.
By order of the Board of Directors,
Jerome R. McDougal
Chairman of the Board
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN.
WHETHER OR NOT YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. STOCKHOLDERS CAN HELP THE BANK AVOID UNNECESSARY EXPENSE AND DELAY
BY PROMPTLY RETURNING THE ENCLOSED PROXY CARD.
October __, 1997
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated October 24, 1997
PROXY STATEMENT/PROSPECTUS
--------------------
RIVER BANK AMERICA
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER __, 1997
---------------------
RIVER ASSET SUB, INC.
RIVER DISTRIBUTION SUB, INC.
PROSPECTUS
COMMON STOCK
$0.001 PAR VALUE
15% NON-CUMULATIVE PERPETUAL PREFERRED STOCK SERIES A
$0.001 PAR VALUE
---------------------
INTRODUCTION
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus")
is being furnished to stockholders of River Bank America, a New York chartered
stock savings bank ("River Bank" or the "Bank"), in connection with the
solicitation of proxies by the board of directors of River Bank (the "River Bank
Board") for use at a special meeting of stockholders (including any adjournment
or postponement thereof) to be held on October __, 1997 (the "Special Meeting").
This Proxy Statement/Prospectus is also being furnished to the stockholders of
River Bank in connection with (a) the proposed distribution to River Bank's
stockholders of all the outstanding shares of capital stock of River
Distribution Sub, Inc., a Delaware corporation and wholly-owned subsidiary of
River Bank ("River Distribution Sub") and (b) the merger of River Distribution
Sub with and into River Asset Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of River Bank (which shall have succeeded to the business, assets and
liabilities of River Bank, except that it will not be chartered as a banking
institution) ("River Asset Sub"), in connection with and as part of the
reorganization of River Bank into a business corporation incorporated in the
State of Delaware.
River Bank is proposing to close the corporation and wind up
its affairs. To implement the foregoing, River Bank would through a series of
steps, in a manner intended to constitute a tax-free reorganization, change its
legal form of organization by which it conducts its business, holds its assets
and is obligated for its liabilities from a New York state chartered stock
savings bank into a business corporation incorporated in the State of Delaware
(the "Reorganization") and thereafter voluntarily dissolve (the "Dissolution").
The Reorganization will implement a proposal that was presented to the New York
State Banking Department (the "Banking Department") as an alternative means of
complying with certain conditions imposed by the Banking Department in
connection with its approval of the Branch Sale discussed below. On June 28,
1996, River Bank sold all of its branches and transferred substantially all of
its deposits to Marine Midland Bank (the "Branch Sale"). As a condition to its
approval of the Branch Sale, the Banking Department required River Bank to
agree, among other things, (i) to submit a plan of dissolution for Banking
Department approval within one year of the Branch Sale closing date and (ii) to
file a petition in the Supreme Court of the State of New York for a closing
order within 13 months of the closing of the Branch Sale and for a final order
of dissolution of River Bank within five months following the filing of a
petition for a closing order. The Reorganization will remove River Bank's
business and assets from the jurisdiction of the Banking Department. This will
allow the successor to the Bank's assets to manage its approximately $212
million in assets without regulatory restraints and, where appropriate, to
actively develop and operate its properties, enter into joint ventures with
others and otherwise further encumber or restructure the debt on its properties
and other assets in an effort to maximize returns to stockholders.
(continued on the next page)
SEE "RISK FACTORS" ON PAGE 6 OF THIS PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT RIVER BANK
STOCKHOLDERS SHOULD CONSIDER WITH RESPECT TO THE REORGANIZATION AND THE
SECURITIES BEING DISTRIBUTED HEREBY.
THE SECURITIES ISSUABLE IN THE DISTRIBUTION AND THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES BEING DISTRIBUTED HEREBY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, RIVER BANK.
This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to stockholders on or about October __, 1997.
<PAGE>
At the Special Meeting, all stockholders of River Bank will consider
and vote upon a proposal to direct that the Bank be closed and its business
wound up by means of the Reorganization and Dissolution (the "Bank Closing
Resolution") ("Proposal 1"). Holders of River Bank Common Stock will also
consider and vote upon a proposal to approve an amendment, necessary to
implement the Reorganization, to the certificate of designations (the
"Certificate of Designations") for the River Bank Series A Preferred Stock (the
"Certificate of Designations Amendment") ("Proposal 2" and, together with
Proposal 1, the "Proposals"), and will transact such other business as may
properly come before the Special Meeting or at any adjournment or postponement
thereof.
In connection with and as part of the Reorganization (i) the existing
business and all of the assets and liabilities of River Bank will be transferred
to or assumed by River Asset Sub (the "Business Disposition"), (ii) all of the
issued and outstanding shares of common stock, $0.001 par value ("River
Distribution Common Stock"), and all of the issued and outstanding shares of 15%
non-cumulative perpetual preferred stock, series A, $0.001 par value ("River
Distribution Series A Preferred Stock" and, together with River Distribution
Common Stock, "River Distribution Capital Stock"), of River Distribution Sub
will be distributed to the stockholders of River Bank (the "Distribution") such
that each holder of common stock, $1.00 par value, of River Bank ("River Bank
Common Stock") will receive one share of River Distribution Common Stock for
each share of River Bank Common Stock and each holder of 15% non-cumulative
perpetual preferred stock, series A, $1.00 par value, of River Bank ("River Bank
Series A Preferred Stock" and together with River Bank Common Stock, "River Bank
Capital Stock") will receive one share of River Distribution Series A Preferred
Stock for each share of River Bank Series A Preferred Stock and (iii) following
the Business Disposition and the Distribution, River Distribution Sub will merge
with and into River Asset Sub (which shall have succeeded to the business,
assets and liabilities of River Bank, except that it will not be chartered as a
banking institution) with River Asset Sub as the surviving corporation,
whereupon (a) each share of River Asset Sub common stock, $1.00 par value (held
entirely by River Bank), shall be canceled, (b) the outstanding shares of River
Distribution Capital Stock will be converted into and will represent shares of
identical capital stock of the surviving corporation (except that the par value
of the capital stock will be changed to $1.00) and (c) River Asset Sub, the
surviving corporation in the merger, will be renamed RB Asset, Inc. ("RB Asset")
(the "Merger").
If the Bank Closing Resolution and the Certificate of Designations
Amendment are approved, one share of River Distribution Common Stock and one
share of River Distribution Series A Preferred Stock will be distributed for
each share of River Bank Common Stock and River Bank Series A Preferred Stock,
respectively, issued and outstanding on the record date set by the River Bank
Board for the Distribution (the "Distribution Record Date"). The Distribution
will be made by means of stock transfer ledger entry on the Distribution Record
Date so that no ex-dividend transfers of River Distribution Capital Stock
separate from the River Bank Capital Stock on which it is paid can occur prior
to the Merger. No consideration will be paid by River Bank's stockholders for
the shares of River Distribution Common Stock and River Distribution Series A
Preferred Stock to be received by them, as the case may be, in the Distribution.
The Merger will be consummated as soon as practicable after the Distribution.
Upon consummation of the Merger, RB Asset will mail to each recordholder of
River Distribution Capital Stock, indicated on the stock transfer ledger of
River Bank, a stock certificate representing the number of shares of capital
stock of RB Asset issuable to them in the Merger. The capital stock of RB Asset,
the renamed surviving corporation in the Merger, shall hereinafter be referred
to as "RB Asset Common Stock" and "RB Asset Series A Preferred Stock," as the
case may be.
YOUR VOTE IS IMPORTANT TO THE BANK. WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES YOU OWN,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE
ENCLOSED PRE-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. YOU MAY, OF COURSE, ATTEND THE SPECIAL MEETING, REVOKE YOUR PROXY AND
VOTE IN PERSON EVEN IF YOU HAVE ALREADY RETURNED YOUR PROXY CARD.
The River Bank Board unanimously recommends a vote in favor of approval
of each of the Proposals for which you are entitled to vote at the Special
Meeting.
-ii-
<PAGE>
THE RIVER BANK BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AND DISSOLUTION AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE BANK CLOSING RESOLUTION AND THE CERTIFICATE OF DESIGNATIONS
AMENDMENT NECESSARY FOR IMPLEMENTATION OF THE REORGANIZATION AND DISSOLUTION.
The affirmative vote of holders of 662/3% of the outstanding shares of
River Bank Common Stock and River Bank Series A Preferred Stock, together as a
single class, is required to approve the Bank Closing Resolution. The
affirmative vote of holders of a majority of the outstanding shares of River
Bank Common Stock is required to approve the Certificate of Designations
Amendment. Certain stockholders, owning an aggregate of 50.8% of the outstanding
shares of River Bank Common Stock (representing approximately 42.4% of the
outstanding shares of River Bank Common Stock and River Bank Series A Preferred
Stock together as a single class) have advised River Bank that they intend to
vote in favor of the Proposals.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the enclosed proxy. The enclosed proxy is
solicited on behalf of the River Bank Board. You may revoke or change your proxy
at any time prior to its use at the Special Meeting by giving River Bank written
direction to revoke your proxy, giving River Bank a new proxy or by attending
the Special Meeting and voting in person.
The principal executive offices of River Bank, River Asset Sub and
River Distribution Sub is 645 Fifth Avenue, 8th Floor, New York, New York 10022
and the telephone number at that address is (212) 848-0201.
-iii-
<PAGE>
AVAILABLE INFORMATION
River Bank is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the FDIC. Such reports, proxy statements (including this Proxy
Statement/Prospectus) and other information may be inspected at and copies may
be obtained at prescribed rates upon request in writing or by telephone from the
FDIC Registration and Disclosure Section, 1776 F Street, N.W., Rm. F-643,
Washington, D.C. 20006, (202) 898-8913.
River Distribution Sub and River Asset Sub have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the River Distribution Capital Stock and the
River Asset Sub Capital Stock offered hereby. This Proxy Statement/Prospectus
constitutes the prospectus of River Distribution Sub in connection with the
Distribution and the prospectus of River Asset Sub in connection with Merger and
is filed as part of the Registration Statement. This Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is made to the Registration Statement and to the
exhibits relating thereto for further information with respect to River
Distribution Sub and River Asset Sub and the River Distribution Capital Stock
and the River Asset Sub Capital Stock offered hereby. Statements contained in
this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document,
each such statement being qualified in all respects by such reference.
Following consummation of the Reorganization, RB Asset, as the
ultimate successor to the business, assets and liabilities of River Bank by
virtue of its legal status as the surviving corporation in the Merger, will
succeed to River Bank's obligations to file periodic reports, proxy statements
and other information under the Exchange Act.
Such reports and other information will be filed with the Commission and may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and may be available at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Atrium Center, 14th Floor, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Northeast Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a site on the
World Wide Web portion of the Internet that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RIVER BANK, RIVER ASSET SUB, RIVER DISTRIBUTION SUB OR ANY
OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF RIVER BANK, RIVER ASSET SUB OR RIVER DISTRIBUTION SUB
SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION..................................................................................................-iv-
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.....................................................................-vii-
SUMMARY .................................................................................................................1
The Companies ........................................................................................................1
The Special Meeting.......................................................................................................2
The Proposals ........................................................................................................2
Interests of the Principal Stockholder....................................................................................4
Recommendation of the River Bank Board....................................................................................4
Certain Tax Considerations................................................................................................4
Accounting Treatment......................................................................................................4
No Appraisal Rights.......................................................................................................4
Reorganization Transaction Steps..........................................................................................5
RISK FACTORS..............................................................................................................8
Recent Operating Losses ..................................................................................................8
Voting Power and Interest of Principal Stockholder........................................................................8
Risks Associated with Lack of Direct Management; Reliance on Management Company...........................................8
Uncertainty as to Dividend Payments to Holders of RB Asset Series A Preferred Stock and RB
Asset Common Stock......................................................................................9
No Assurance of Successful Management of Retained Assets..................................................................9
No Assurance of Continued Liquidity.......................................................................................9
Effect of Changes in Economic Conditions.................................................................................10
No Assurance of Use of Loss Carryforward.................................................................................10
Absence of Prior Trading Market..........................................................................................10
No Appraisal Rights......................................................................................................11
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF RB ASSET.........................................................................................12
HISTORICAL MARKET PRICE AND DIVIDENDS....................................................................................18
Market Prices .......................................................................................................18
Dividend Policy .......................................................................................................18
RIVER BANK RECENT DEVELOPMENTS...........................................................................................20
BUSINESS OF RB ASSET FOLLOWING THE REORGANIZATION........................................................................23
Overview .......................................................................................................23
Retained Assets .......................................................................................................23
Asset Management Strategy................................................................................................28
THE SPECIAL MEETING......................................................................................................30
Introduction .......................................................................................................30
Matters to be Considered at the Special Meeting..........................................................................30
Voting Rights and Vote Required..........................................................................................30
Voting of Proxies; Solicitation..........................................................................................31
PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION.....................................................................32
Overview .......................................................................................................32
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<TABLE>
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Background of and Reasons for the Bank Closing Resolution; Recommendation of River Bank
Board .................................................................................................32
The Bank Closing Resolution..............................................................................................33
Accounting Treatment.....................................................................................................36
PROPOSAL 2 -- APPROVAL OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT.......................................................37
MANAGEMENT...............................................................................................................38
Board of Directors and Nominees for Director ............................................................................38
Board of Directors Committees............................................................................................39
Compensation of Directors................................................................................................39
Executive Officers.......................................................................................................39
Executive Compensation...................................................................................................40
Employment Arrangement...................................................................................................40
Certain Relationships and Related Transactions...........................................................................41
Compliance with Section 16(a)............................................................................................43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................................................44
DESCRIPTION OF RB ASSET CAPITAL STOCK....................................................................................46
General .......................................................................................................46
RB Asset Common Stock....................................................................................................46
RB Asset Series A Preferred Stock........................................................................................47
Note Exchange .......................................................................................................52
Restrictions on Dividends and Redemptions................................................................................54
DESCRIPTION OF NOTES.....................................................................................................55
General .......................................................................................................55
Redemption .......................................................................................................55
Subordination .......................................................................................................56
Limitations on Dividends.................................................................................................57
Certain Covenants .......................................................................................................57
Mergers, Consolidations, Etc.............................................................................................58
Modification of the Indenture; Waiver of Covenants.......................................................................58
Events of Default .......................................................................................................58
COMPARISON OF RIGHTS OF HOLDERS OF RIVER BANK CAPITAL STOCK
AND RB ASSET CAPITAL STOCK......................................................................................60
FEDERAL INCOME TAX CONSIDERATIONS........................................................................................67
Tax Consequences of the Reorganization...................................................................................67
Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred Stock...........................................68
Certain Tax Attributes...................................................................................................70
EXPERTS ................................................................................................................73
LEGAL MATTERS............................................................................................................73
ANNEXES
Annex A -- Certificate of Designations Amendment
Annex B -- River Bank Annual Report on Form on F-2
</TABLE>
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Proxy Statement/Prospectus contains
"forward-looking statements" relating to, without limitation, future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items, which can be identified by the
use of forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The cautionary statements set
forth under the caption "Risk Factors" and elsewhere in this Proxy
Statement/Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties that could
cause actual results to differ materially from those in such forward-looking
statements. Such factors include, among other things, the following factors: the
successful implementation of the asset management plans for RB Asset's assets,
changes in the real estate market, prevailing interest rates and general
economic conditions referred to in this Proxy Statement/Prospectus.
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<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the annexes hereto. This summary is
qualified in its entirety by reference to the more detailed information and
financial statements contained or incorporated by reference in this Proxy
Statement/Prospectus. Stockholders are urged to read this Proxy
Statement/Prospectus and the annexes hereto in their entirety.
The Companies
River Bank. River Bank is a New York chartered savings bank which was
founded in 1848. On June 28, 1996, River Bank consummated the Branch Sale,
thereby disposing of all of its branches and substantially all of its deposits.
Following the Branch Sale closing, River Bank ceased accepting deposits and
otherwise disposed of its remaining deposits. Since that time, River Bank has
been proceeding with a business plan to manage the assets remaining with River
Bank after the Branch Sale (the "Retained Assets") in accordance with the
individual business plans developed for each asset prior to the consummation of
the Branch Sale. The Retained Assets consist primarily of real estate assets
(including investments in joint ventures), non-performing loans, performing
loans (including subordinated participations, junior subordinated participations
and loans classified by River Bank), investment securities and cash. The
majority of the performing loans include subordinated loans, including second
mortgages and participation interests (which generally involve more risk than
senior loans), loans to facilitate the disposition of real estate owned and
loans which had been classified by River Bank.
As a condition to the Banking Department's approval of the Branch Sale,
River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (the "Dissolution Plan Condition") and (ii) to
file with the Supreme Court of the State of New York a petition for a closing
order within 13 months of the closing of the Branch Sale and for a final order
of dissolution within five months following the filing of an application for a
closing order (the "Closing Condition"). In April 1997, River Bank announced
that the River Bank Board was evaluating a proposal to reorganize the Bank into
a business corporation, consistent with the Bank's goal of managing the Bank's
assets to maximize stockholder value. To that end, in June 1997, River Bank
proposed to the Banking Department an alternative under which the Dissolution
Plan Condition would be satisfied. Under such proposal, the Bank would, through
a series of steps, in a manner intended to constitute a tax-free reorganization,
change its legal form of organization by which it conducts its business, holds
its assets and is obligated for its liabilities from a New York state chartered
stock savings bank into a business corporation incorporated in the State of
Delaware (the "Reorganization"). Thereafter, the Bank would voluntarily dissolve
(the "Dissolution" and together with the Reorganization, the "Alternate
Proposal"). In a letter dated June 24, 1997, the Banking Department, indicating
its conditional approval, stated that it did not object to the Alternate
Proposal and further advised, among other things, that it required that the
petition for the closing order be filed by October 15, 1997. The petition of the
closing order was filed in New York State Supreme Court on October 15, 1997
following stockholder approval of an earlier proposal to close the Bank at the
1997 annual meeting of stockholders held on October 7, 1997. The Reorganization
and Dissolution cannot be implemented until after stockholder approval of the
Bank Closing Resolution and the Certificate of Designations Amendment. See
"RIVER BANK RECENT DEVELOPMENTS."
In connection with and as a condition to the Branch Sale, River Bank
borrowed from Marine Midland Bank ("Marine Midland") approximately $89.8 million
pursuant to a senior secured loan facility not to exceed $99.06 million (the
"Marine Senior Loan"). As of June 30, 1997, approximately $66.1 million remains
outstanding under the Marine Senior Loan. In accordance with restrictive
covenants contained in the credit agreement governing the Marine Senior Loan,
Marine Midland has consented to implementation of the Reorganization and
Dissolution. See "RIVER BANK RECENT DEVELOPMENTS."
River Asset Sub; River Distribution Sub. River Asset Sub and River
Distribution Sub are newly organized, wholly-owned subsidiaries of River Bank
incorporated under the laws of the State of Delaware. In order to effect the
Reorganization, the existing business and all of the assets (other than $100,000
to be used to fund administrative
<PAGE>
expenses) and liabilities of River Bank will be transferred to or assumed by
River Asset Sub. In connection with the Reorganization, River Bank will
distribute one share of River Distribution Common Stock and one share of River
Distribution Series A Preferred Stock for each share of River Bank Common Stock
and River Bank Series A Preferred Stock, respectively, outstanding on the
Distribution Record Date. Promptly thereafter, River Distribution Sub will merge
with and into River Asset Sub, whereupon River Asset Sub (renamed RB Asset), as
the surviving corporation in the Merger, will succeed to the business, assets
and liabilities of River Bank, including the Marine Senior Loan, except that it
will not be chartered as a banking institution, and the stockholders of River
Distribution Sub (the stockholders of River Bank) will become stockholders of RB
Asset.
The mailing address of the principal executive offices of River Bank,
River Asset Sub and River Distribution Sub is 645 Fifth Avenue, 8th Floor, New
York, New York 10022, and the telephone number at that address is (212)
848-0201. Following the Reorganization, RB Asset's principal executive offices
and phone number will be the same as indicated above.
The Special Meeting
Meeting Date and Record Date. The Special Meeting will be held at 10:00
a.m., local time, on October __, 1997 at the Grand Hyatt of New York Hotel, Park
Avenue at Grand Central Station, New York, New York 10017. The close of business
on October __, 1997 has been fixed by the River Bank Board as the record date
for determining stockholders entitled to notice of, and to vote at, the Special
Meeting (the "Record Date"). Holders of River Bank Common Stock and River Bank
Series A Preferred Stock as of the Record Date are entitled to vote at the
Special Meeting and any adjournment or postponement thereof.
Matters to be Considered. At the Special Meeting, River Bank
stockholders will consider and vote upon the Bank Closing Resolution, the
Certificate of Designations Amendment, and will transact such other business as
may properly come before the Special Meeting or any adjournment or postponement
thereof. See "THE SPECIAL MEETING -- Matters to be Considered at the Special
Meeting."
Vote Required. As of October __, 1997, River Bank has a total of
7,100,000 shares of River Bank Common Stock and 1,400,000 shares of River Bank
Series A Preferred Stock outstanding, all of which are entitled to be voted on
at least one of the Proposals at the Special Meeting. Approval of the Bank
Closing Resolution requires the affirmative vote of holders of 662/3% of the
outstanding shares River Bank Common Stock and River Bank Series A Preferred
Stock, together as a single class. Approval of the Certificate of Designations
Amendment requires the affirmative vote of holders of a majority of the shares
of River Bank Common Stock outstanding. See "THE SPECIAL MEETING -- Voting
Rights and Vote Required."
Certain stockholders, owning an aggregate of 50.8% of the outstanding
shares of River Bank Common Stock (representing approximately 42.4% of the
outstanding shares of River Bank Common Stock and River Bank Series A Preferred
together as a single class) have advised River Bank that they intend to vote in
favor of the Proposals. See "THE SPECIAL MEETING -- Voting Rights and Vote
Required."
The Proposals
Proposal 1 -- Approval of the Bank Closing Resolution
At the Special Meeting, the holders of River Bank Common Stock and
River Bank Series A Preferred Stock, together as a single class, will be asked
to approve the Bank Closing Resolution which will be implemented by means of the
Reorganization and the Dissolution. The Reorganization and the Dissolution
represent an alternative to submitting for Banking Department approval a plan of
dissolution requiring the Bank to proceed with a liquidation of the Retained
Assets.
The Reorganization and the Dissolution will not occur unless the Bank
Closing Resolution and the Certificate of Designations Amendment are approved by
River Bank's stockholders and until all of the conditions to the Reorganization
and the Dissolution have been satisfied, including the receipt by River Bank of
a closing order
2
<PAGE>
from the Supreme Court of the State of New York declaring the business of River
Bank closed with the approval of the Banking Department. Pursuant to the Banking
Department's June 24, 1997 letter authorizing the Bank to proceed with the
Reorganization and Dissolution, the Bank was required to apply for a closing
order before October 15, 1997. River Bank filed a petition for a closing order
in New York Supreme Court on October 15, 1997 which is pending before the court.
Pursuant to the Reorganization, the form of organization by which the
Bank conducts its business, holds its assets and is obligated for its
liabilities will be changed, through a series of steps, in a manner intended to
constitute a tax-free reorganization, from a New York state chartered stock
savings bank into a business corporation incorporated in the State of Delaware.
The Reorganization will result in the removal of River Bank's business and
assets from the jurisdiction of the Banking Department. RB Asset, as successor
to the Bank's business and assets, will thereafter be able to manage its
approximately $212 million in Retained Assets without banking regulatory
restraints, and where appropriate, to actively develop and operate its
properties, enter into joint ventures with others and otherwise further encumber
or restructure the debt on its properties and other assets in an effort to
maximize returns to its stockholders (the former stockholders of River Bank).
Upon consummation of the Reorganization, RB Asset's capital structure will be
substantially identical to that of River Bank and RB Asset will succeed to and
continue with the business, assets and operations of River Bank (except that it
will not be chartered as a banking institution). The Reorganization is intended
to be generally tax-free to River Bank's stockholders for federal income tax
purposes. See "FEDERAL INCOME TAX CONSIDERATIONS."
The Reorganization and the Dissolution will be implemented through a
series of steps. In the first step, River Bank will complete the Business
Disposition whereby the existing business and all of the assets (other than
$100,000] to be used to fund administrative expenses) and liabilities of River
Bank will be transferred to or assumed by River Asset Sub. In the second step,
after the expiration of the notice period to creditors ordered by the court,
River Bank will effect the Distribution, pursuant to which all of the issued and
outstanding shares of River Distribution Common Stock and River Distribution
Series A Preferred Stock will be distributed to River Bank's stockholders on the
basis of one share of River Distribution Common Stock for each share of River
Bank Common Stock and one share of River Distribution Series A Preferred Stock
for each share of River Bank Series A Preferred Stock held by a stockholder as
of the Distribution Record Date. In the third step, the Merger will be
consummated whereby River Distribution Sub will merge with and into River Asset
Sub (which shall have succeeded to the business, assets and liabilities of River
Bank) with River Asset Sub as the surviving corporation. At the effective time
of the Merger, (a) each issued and outstanding share of River Asset Sub common
stock (held entirely by River Bank) will be canceled, (b) the outstanding shares
of River Distribution Capital Stock will be converted into and will represent
the shares of identical capital stock of the surviving corporation (except that
the par value of the capital stock will be changed to $1.00) and (c) River Asset
Sub, the surviving corporation in the Merger, will be renamed RB Asset, Inc. As
a consequence of the Merger, River Bank's consolidated liabilities will be
reduced to zero and its sole assets will be $100,000 in cash which will be used
to fund administrative expenses incurred in connection with completing the
Dissolution. RB Asset will be obligated to fund all administrative expenses not
satisfied by River Bank and any funds remaining in River Bank upon completion of
the Dissolution will be paid to RB Asset.
River Bank initiated the legal steps necessary to complete the
Dissolution with the filing of its petition with the Supreme Court of the State
of New York for a closing order declaring the business of River Bank closed.
This action followed stockholder approval of an earlier proposal to close the
Bank and wind up its affairs. The petition, which is pending before the court,
provides that, upon entry of the order declaring the Bank closed, River Bank
will cease to do business and will proceed with a voluntary liquidation under
which River Bank will satisfy or make provision for all of its creditors and
wind up its business. In connection with the undertaking made in connection with
the 1997 annual meeting of stockholders, the closing order petition provides
that no substantive legal steps will be taken to implement the Reorganization
and Dissolution until stockholders again approve the closing of the Bank which
approval will not be obtained until a proxy statement/prospectus detailing the
Bank's plans to implement the Reorganization and Dissolution have been provided
to all stockholders. Upon the approval of the Bank Closing Resolution and the
Certificate of Designations Amendment, River Bank will report to the court that
the necessary stockholder approval has been obtained following distribution of
this Proxy Statement/Prospectus to all stockholders which describes in detail
the Bank's plans to implement the Reorganization and the Dissolution, including
the unconditional assumption by River Asset Sub of all of River Bank's
liabilities (including contingent liabilities) and
3
<PAGE>
the provision for River Bank's creditors principally by means of such assumption
of River Bank liabilities by River Asset Sub.
Following the entry of the closing order, and after the expiration of
the 30-day creditors' notice period, River Bank will complete the Reorganization
and the Dissolution. To that end, River Bank will file a petition in the Supreme
Court of the State of New York for an order declaring River Bank dissolved and
its corporate existence terminated. Prior to the entry of the final order of
dissolution, River Bank will effect the Distribution and the Merger. Upon the
entry and the filing of a certified copy of the final order of dissolution with
the Banking Department, River Bank will cease to exist as a banking institution
under applicable New York Banking Law. River Bank expects to file the petition
for the final order of dissolution as soon as practicable after expiration of
the creditors' notice period.
The Reorganization and the Dissolution are described more specifically
herein under "PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION."
Proposal 2 -- Approval of the Certificate of Designations Amendment. At
the Special Meeting, the holders of River Bank Common Stock will be asked to
approve the Certificate of Designations Amendment. The Certificate of
Designations Amendment will modify the Certificate of Designations to permit
River Bank to effect the Distribution. The Distribution is a necessary step for
implementation of the Reorganization. The Certificate of Designations Amendment
is described more specifically herein under "PROPOSAL 2 -- APPROVAL OF THE
CERTIFICATE OF DESIGNATIONS AMENDMENT."
Interests of the Principal Stockholder
Stockholders should be aware that River Bank's largest stockholder,
Alvin Dworman, has certain interests in the Reorganization that are in addition
to the interests of River Bank and its stockholders generally. RB Management
Company LLC ("RB Management"), a company 100% owned by Mr. Dworman, currently
provides day-to-day general management services and individual asset management
services to River Bank. RB Management will continue to provide such services to
RB Asset following the Reorganization. See "MANAGEMENT -- Certain Relationships
and Related Transactions."
Recommendation of the River Bank Board
The River Bank Board has unanimously determined to recommend a vote in
favor of approval of each of the Proposals which must be approved before River
Bank can proceed with the Reorganization and the Dissolution. For a discussion
of the factors considered by the River Bank Board in making its recommendation,
see "PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION--Background of and
Reasons for the Reorganization; Board of Directors' Recommendation."
Certain Tax Considerations
The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes, in which case no gain or loss generally should
be recognized by River Bank stockholders, River Bank or RB Asset.
See "FEDERAL INCOME TAX CONSIDERATIONS."
Accounting Treatment
The Reorganization is intended to be accounted for as a reorganization
of entities under common control for financial reporting purposes in accordance
with generally accepted accounting principles. See "PROPOSAL 1 -- APPROVAL OF
THE BANK CLOSING RESOLUTION--Accounting Treatment."
No Appraisal Rights
Under the New York Banking Law, the holders of River Bank Capital Stock
are not entitled to any dissenters' appraisal rights in connection with the
Reorganization and the Dissolution. See "RISK FACTORS--No Appraisal Rights."
4
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Reorganization Transaction Steps
The following diagrams depict the transaction steps to implement the
Reorganization.
[GRAPHIC OMITTED]
[Three diagrams depicting steps in the Reorganization are set forth here]
(footnotes appear on page 7)
5
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[GRAPHIC OMITTED]
[Two diagrams depicting steps in the Reorganization are set forth here]
(footnotes appear on page 7)
6
<PAGE>
[GRAPHIC OMITTED]
[A diagram depicting a step in the Reorganization is set forth here]
(1) River Bank has formed two subsidiaries, River Asset Sub and River
Distribution Sub. River Asset Sub has issued a single class of common
stock held entirely by River Bank. River Distribution Sub has issued
two classes of capital stock, River Distribution Common Stock and River
Distribution Series A Preferred Stock, held entirely by River Bank.
River Bank holds 7,100,000 shares of River Distribution Common Stock
and 1,400,000 shares of River Distribution Series A Preferred Stock
which equal, respectively, the number of shares of outstanding River
Bank Common Stock and River Bank Series A Preferred Stock . The terms
of the River Distribution Capital Stock are substantially identical to
the terms of the River Bank Capital Stock, except that certain
bank-specific provisions that will not be applicable to River Bank's
successor in the Reorganization have been eliminated.
(2) River Distribution Sub and River Asset Sub have entered into an
agreement and plan of merger with respect to the Merger which will be
consummated promptly following the Distribution. River Bank, as sole
stockholder of both subsidiaries, has approved the agreement and plan
of merger.
(3) Following stockholder approval of the Bank Closing Resolution and the
entry of a closing order by the New York Supreme Court, River Bank will
enter into an assignment and assumption agreement with River Asset Sub
governing the Business Disposition whereby the existing business and
all of the assets and liabilities of River Bank will be transferred to
or assumed by River Asset Sub.
(4) During the pendency of the petition for an order of dissolution in New
York Supreme Court necessary to complete the Dissolution, River Bank
will effect the Distribution and thereby distribute all of the shares
of River Distribution Common Stock and all of the shares of River
Distribution Series A Preferred Stock on a share-for-share basis to the
holders of River Bank Common Stock and River Bank Series A Preferred
Stock, respectively. Immediately after the Distribution, River Bank and
River Distribution Sub will each be publicly held by the same
stockholders.
(5) Promptly after the Distribution, River Asset Sub and River Distribution
Sub will consummate the Merger. Pursuant to the Merger, River
Distribution Sub will merge with and into River Asset Sub (which shall
have succeeded to the business, assets and liabilities of River Bank,
except that it will not be chartered as a banking institution) with
River Asset Sub as the surviving corporation, whereupon (a) each share
of River Asset Sub common stock, $1.00 par value (held entirely by
River Bank), shall be canceled, (b) the outstanding shares of River
Distribution Capital Stock will be converted into and will represent
shares of identical capital stock of the surviving corporation (except
that the par value of the capital stock will be changed to $1.00) and
(c) River Asset Sub, the surviving corporation in the merger, will be
renamed RB Asset, Inc.
(6) Upon entry of the order of dissolution by the New York Supreme Court,
River Bank will voluntarily dissolve and thereafter cease to exist and
River Bank Capital Stock will thereby be extinguished.
7
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RISK FACTORS
While the River Bank Board recommends approval of the Bank Closing
Resolution and the Certificate of Designations Amendment which must be approved
before River Bank can proceed with the Reorganization and the Dissolution, River
Bank stockholders should carefully consider the following factors in determining
whether to approve the Bank Closing Resolution and the Certificate of
Designations Amendment.
Recent Operating Losses
RB Asset will succeed to the business of River Bank which has
experienced significant losses in recent years. River Bank had net losses for
fiscal years 1993, 1994 and 1995 of approximately $4.4 million, $462,000 and $30
million, respectively, a profit of $49.8 million in fiscal year 1996 (resulting
from the one time gain of $77.6 million on the Branch Sale) and a net loss of
approximately $30.1 million in fiscal year 1997. The foregoing losses were
caused by significant increases in the bank's non-performing assets which
resulted in significant increases in provisions for losses and valuation
write-downs of its assets. The increases in non-performing assets resulted
largely from the deterioration of the bank's commercial real estate loan
portfolio, which was impacted by the collapse of the real estate markets in the
late 1980s and the last general economic recession that followed thereafter.
River Bank's losses and the resultant impact on its capital position subjected
it to increased regulatory scrutiny and oversight which ultimately lead River
Bank to sell its depositary banking operations in June 1996. There can be no
assurance that RB Asset will not continue to incur losses in the future as it
continues to manage the Retained Assets.
Voting Power and Interest of Principal Stockholder
Following consummation of the Reorganization, Mr. Dworman will
beneficially own 39.0% of the outstanding shares of RB Asset Common Stock. As a
result, as has been the case with River Bank prior to the Reorganization and the
Dissolution, Mr. Dworman will be the largest stockholder of RB Asset and will be
able to significantly influence elections of directors of RB Asset and the vote
on other matters requiring RB Asset stockholder approval.
Following the Reorganization, RB Asset will continue to engage RB
Management, a company 100% owned by Mr. Dworman, to provide to RB Asset the
general management services and asset management services previously provided to
River Bank pursuant to the terms of the existing management agreement with the
Bank. Under the terms of the agreement, RB Management is paid an annual base fee
for general management services in an amount not to exceed $1.25 million subject
to annual review and adjustment based upon actual costs incurred. RB Management
also receives an annual fee for certain asset management services equal to 0.75%
of the average month-end book value of the Bank's assets and an asset
disposition success fee equal to 0.75% of the proceeds from the sale or
collection of any asset sold or collected by the Bank. River Bank paid RB
Management an aggregate of approximately $1.7 million in fees for services
provided in fiscal year 1997.
As contemplated in the management agreement discussed above, during
fiscal year 1997, RB Management engaged Fintek Inc., a firm 50% owned by Mr.
Dworman, as a third party service subcontractor. Fintek has previously provided
certain advisory services to the Bank. All fees paid to Fintek, Inc. for such
advisory services are the obligation of RB Management and were paid out of the
fees received by RB Management from River Bank.
See "MANAGEMENT -- Certain Relationships and Related Transactions."
Risks Associated with Lack of Direct Management; Reliance on Management Company
As is the case currently with River Bank, following the Reorganization,
RB Asset will not maintain any significant staff of employees to manage its
affairs. Rather, the day-to-day management responsibilities of RB Asset will be
vested with RB Management. It is anticipated that a significant amount of the
services necessary to manage the Retained Assets will be provided by RB
Management or by third party subcontractors who will not have any
8
<PAGE>
continuing fiduciary obligations to RB Asset and its stockholders. The selection
of third party subcontractors to provide various services to RB Asset will be
made by RB Management, subject to ratification by committees of the board of
directors of RB Asset (the "RB Asset Board") but without stockholder approval.
RB Asset's success in maximizing returns from the management of the Retained
Assets will depend on the efforts of RB Management and third-party contractors
retained to provide services to RB Asset.
Uncertainty as to Dividend Payments to Holders of RB Asset Series A Preferred
Stock and RB Asset Common Stock
No dividends have been declared with respect to River Bank Common Stock
since its original issuance in 1994 and River Bank has no policy providing for
the payment of dividends on the River Bank Common Stock. River Bank declared and
paid quarterly dividends on the River Bank Series A Preferred Stock for every
quarter since the issuance thereof through March 30, 1996. River Bank declared,
subject to the receipt of required approvals from its regulators and Marine
Midland, but did not pay, a dividend on the River Bank Series A Preferred Stock
for the quarter ended June 30, 1996, and thereafter has taken no action to
declare or pay dividends on the River Bank Series A Preferred Stock primarily
due to the fact that the necessary approvals from the Banking Department and
Marine Midland were not provided. The declaration and payment of dividends by
River Bank is subject to Banking Department approval, and the credit agreement
and related documents with respect to the Marine Senior Loan prohibit the
declaration and payment of dividends without the consent of Marine Midland.
Any dividend policy of RB Asset with respect to RB Asset Capital Stock
will be determined in the discretion of the RB Asset Board and it is expected
that RB Asset will have no policy providing for the payment of dividends on the
RB Asset Common Stock. As successor to River Bank, RB Asset will assume the
Marine Senior Loan. While RB Asset will not be subject to Banking Department
jurisdiction, payment of any future dividends on the RB Asset Series A Preferred
Stock will be subject to the consent of Marine Midland as long as the Marine
Senior Loan remains outstanding. There can be no assurance that RB Asset will
declare or pay dividends on the RB Asset Series A Preferred Stock in the event
the Marine Senior Loan is repaid, or that consent to the declaration or payment
of such dividends will otherwise be provided by Marine Midland. The declaration
or payment of any dividend on the RB Asset Series A Preferred Stock in the
future will be based upon conditions then existing, including RB Asset's
financial condition and capital requirements and other factors that RB Asset may
deem relevant at that time.
No Assurance of Successful Management of Retained Assets
The Retained Assets to which RB Asset will succeed following the
Reorganization will consist primarily of real estate assets and, to a lesser
extent, performing and non-performing loans. RB Asset presently intends to
continue substantially the same management strategy for such assets subsequent
to the Reorganization as is currently employed by River Bank. While River Bank's
strategies have allowed it to manage its assets in an orderly manner, there can
be no assurance that by continuing such strategies RB Asset will be able to
realize positive returns for RB Asset. The ability of RB Asset to maximize
returns from the Retained Assets will be subject to a number of factors beyond
the control of RB Asset. Among other things, an increase in interest rates, a
decline in real estate market values or the inability of prospective purchasers
of the Retained Assets to obtain third party financing, the effect of which
cannot be predicted, could negatively affect RB Asset's planned management of
Retained Assets. There can be no assurance that particular assets will realize
value greater than their book value and that RB Asset will not incur losses from
subsequent operations or disposition transactions.
No Assurance of Continued Liquidity
RB Asset's operations subsequent to the Reorganization will continue to
be dependent, among other things, upon the availability of adequate amounts of
cash to fund the management and disposition of the Retained Assets. While RB
Asset believes that expected operating cash flow and cash from the on-going
disposition of Retained Assets will provide sufficient working capital for the
continuation of its asset management strategy, if RB Asset's sources
9
<PAGE>
of cash prove insufficient to accomplish the foregoing, RB Asset may find it
necessary to obtain additional financing or dispose of assets at less than their
fair value. Any additional financing would be subject to the approval of Marine
Midland as long as the Marine Senior Loan remains outstanding. There can be no
assurance that Marine Midland would approve any additional financing. RB Asset's
need to secure additional operating cash flow will depend, in part, on the cash
flow and net profits or losses from its operations. No assurance can be given
that the operating cash flow from operations and from any asset dispositions,
will be sufficient to support its operations in the near term or that additional
borrowings, which may not be either available, available on economic terms or
approved by Marine Midland, will not be required.
In the event funds are not available from existing cash sources or
future financings, RB Asset may not be able to advance funds to purchasers of
Retained Assets to facilitate the sale thereof or fund related construction
costs or operating expenses. Accordingly, the disposition of real estate assets
included in the Retained Assets may be dependent on the ability of purchasers to
obtain third-party financing. The need for such third-party financing may impede
RB Asset's ability, when appropriate, to dispose of the real estate assets
included in the Retained Assets. In addition, loans to facilitate the sale of
real estate assets or to fund construction costs or operating expenses will
involve certain credit risks. While RB Asset intends to employ appropriate
underwriting standards, no assurance can be given as to any borrower's ability
to repay any loan.
Effect of Changes in Economic Conditions
In addition to changes in interest rates, RB Asset's operations
subsequent to the Reorganization will continue to be subject to fluctuations in
general national and local economic and political conditions, as well as
consumer confidence. These fluctuations are neither predictable nor
controllable, and may have material adverse consequences upon RB Asset's ability
to continue to pursue or change existing asset management strategies for the
Retained Assets. The majority of the loans and real estate assets comprising the
Retained Assets are or are secured by properties located in New York and
Pennsylvania. Excess construction of housing, office space and retail space,
coupled with regional economic declines, had a materially adverse effect on the
real estate markets in these areas in recent years. Future declines in real
estate values in the New York metropolitan area and in Pennsylvania, or a
worsening or a continuation for longer than expected of current economic
conditions in these areas, could negatively affect the values of the Retained
Assets.
No Assurance of Use of Loss Carryforward
There can be no assurance that River Bank's initial public offering of
River Bank Common Stock and River Bank Series A Preferred Stock in 1994 will not
be determined to have constituted an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986. If it were determined that an
ownership change occurred, the amount of net operating loss carryforward
("NOLs") (and certain other built in losses) available to offset taxable income
would be subject to an annual limitation. If it is determined that an ownership
change occurred in 1994, the amounts of NOLs that may be used to offset taxable
income of the Bank (and RB Asset as successor) would be limited to approximately
$865,000 annually. However, River Bank believes that no ownership change
occurred. An inability to use the NOLs to offset income (including the income
recognized on the Branch Sale) would result in increased tax expenses and a
reduction in stockholders' equity for RB Asset which will succeed to River
Bank's liabilities upon consummation of the Reorganization.
Absence of Prior Trading Market
There is no existing market for the RB Asset Capital Stock into which
the River Distribution Capital Stock to be received by River Bank's stockholders
in the Distribution shall be converted upon consummation of the Reorganization.
RB Asset has no current plans to list the RB Asset Capital Stock on any stock
exchange or organized trading system. RB Asset Capital Stock will only be
available for trading in the inter-dealer over-the-counter market and,
consequently, there can be no assurance that an active public trading market in
the securities
10
<PAGE>
will develop or be sustained or as to whether and at what prices holders will be
able to resell share of RB Asset Capital Stock.
No Appraisal Rights
Holders of River Bank Capital Stock do not have any statutory appraisal
rights under New York Banking Law to elect to have the fair value of their
shares of River Bank Capital Stock judicially appraised and paid to them in cash
in connection with or as a result of the Reorganization and the Dissolution.
11
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF RB ASSET
The following unaudited pro forma consolidated financial statements
assume completion of the Reorganization and related transactions by RB Asset.
The pro forma consolidated financial statements are based on and should be read
in conjunction with the historical consolidated financial statements of River
Bank, which are included in River Bank's Annual Report on Form F-2 which is
attached to this Proxy Statement/Prospectus as Annex B.
Notwithstanding the legal structure of the proposed transactions, for
accounting/financial reporting purposes, the Reorganization will be treated as a
reorganization of River Bank into RB Asset. RB Asset will be treated as the
continuation of River Bank and RB Asset will continue to reflect the historical
cost basis and liabilities of River Bank. The following pro forma consolidated
statement of financial condition as of June 30, 1997 assumes the Reorganization
and related transactions occurred on June 30, 1997. The following pro forma
consolidated statement of operations for the year ended June 30, 1997 assumes
the Reorganization and related transactions occurred on July 1, 1996. The
following pro forma consolidated financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
operating results or combined financial position that would have occurred if the
Reorganization had been consummated on the dates indicated, nor is it indicative
of RB Asset's future consolidated operating results or consolidated financial
position.
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION UTILIZES
CERTAIN ASSUMPTIONS DEEMED TO BE REASONABLE BY RIVER BANK'S MANAGEMENT AND
OUTLINED IN THE ACCOMPANYING FOOTNOTES, WHICH ARE AN INTEGRAL COMPONENT OF THE
PRO FORMA FINANCIAL STATEMENTS AND SHOULD BE READ IN CONJUNCTION THEREWITH. THE
PRO FORMA FINANCIAL STATEMENTS DO NOT PURPORT TO REPRESENT WHAT RIVER BANK'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD HAVE BEEN ASSUMING THE
COMPLETION OF THE REORGANIZATION.
12
<PAGE>
<TABLE>
RB ASSET
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 1997
(in thousands)
<CAPTION>
River Bank RB Asset
Historical Pro Forma Pro Forma
June 30,1997 Adjustments Notes June 30, 1997
------------ ----------- ----- -------------
<S> <C> <C> <C>
Cash, due from banks and cash equivalents $8,940 -- $8,940
Cash, due from banks - restricted cash 5,096 -- 5,096
Investment securities available for sale 6,275 -- 6,275
Loans receivable, net
Secured by real estate 80,093 -- 80,093
Commercial and consumer 15,677 -- 15,677
Loans sold with recourse -- $24,451 (1) 24,451
Allowance for possible credit losses (31,570) -- (31,570)
------- ---------- -------
Total loans receivable, net 64,200 24,451 88,651
-------- -------- -------
Loans sold with recourse, net 24,451 (24,451) (1) --
Other real estate owned, net 7,127 (7,127) (2) --
Real estate held for investment, net 90,222 (84,809) (2) 5,413
Real estate held for disposal, net -- 7,127 (2) 107,156
84,809 (2)
15,220 (2)
Allowance for fair market value reserve
under FASB 121 -- (15,220) (2) (15,220)
---------- ------- -------
Total real estate held for disposal, net -- 91,936 91,936
---------- ------- -------
Other assets 5,348 -- 5,348
---------- --------- --------
$211,659 $ -- $211,659
======== ========= ========
Borrowed funds $84,272 $ -- $84,272
Other liabilities 18,877 -- 18,877
-------- --------- -------
103,149 -- 103,149
------- --------- -------
Stockholders' equity:
15% non-cumulative perpetual preferred stock, Series A par
value $1, liquidation
value $25 (1,400,000 shares authorized,
issued and outstanding at June 30, 1997). 1,400 -- 1,400
Common Stock par value $1 (30,000,000 share authorized,
7,100,000 shares issued and outstanding at June 30, 1997). 7,100 -- 7,100
Additional paid in capital 111,170 -- 111,170
Accumulated (deficit)/retained earnings (10,055) -- (10,055)
Securities valuation account (1,105) -- (1,105)
Total Stockholders' Equity 108,510 -- 108,510
-------- --------- --------
$211,659 $ -- $211,659
======== ======== ========
See accompanying footnotes to the Unaudited Pro Forma Consolidated Statement of Financial Condition.
</TABLE>
13
<PAGE>
<TABLE>
RB ASSET
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
June 30, 1997
(in thousands)
<CAPTION>
River Bank
Historical RB Asset
June 30, Pro Forma Pro Forma
1997 Adjustments Notes June 30, 1997
---- ----------- ----- -------------
<S> <C> <C> <C>
Interest, fees on loans and dividend income:
Loans receivable $ 4,504 -- $4,504
Mortgage backed securities 2 -- 2
Investment securities 574 -- 574
Money market investments 155 -- 155
Other 234 -- 234
-------- -------- ------
5,469 -- 5,469
------- -------- ------
Interest expense
Borrowed funds 7,132 -- 7,132
Other 228 -- 228
------- ------- --------
7,360 -- 7,360
------- -------- -------
Net interest income (1,891) -- (1,891)
Provision for possible credit losses 1,000 -- 1,000
------- -------- -------
Net interest income after provision for possible
credit loss (2,891) -- (2,891)
-------- -------- -------
Real estate operations:
Writedown of other real estate owned and real
estate held for investment (19,745) -- (19,745)
Net loss on sale of real estate (1,754) -- (1,754)
Income from real estate owned 3,131 $ (3,131) (4) --
Rental income -- 16,157 (4) 16,157
Less:
Rental expenses -- (12,826) (4) (12,826)
Depreciation -- (200) (4)(3) (200)
-------- -------- --------
(18,368) -- (18,368)
------- -------- --------
Other income
Net losses on sale of investment securities and
other assets (1,495) -- (1,495)
Provision for Marine Sale (3,300) -- (3,300)
Other 159 -- 159
------- -------- --------
(4,636) -- 4,636)
------- -------- --------
Other expenses
Salaries 927 -- 927
Employee benefits 243 -- 243
Legal and professional fees 1,892 -- 1,892
Other operating 4,466 -- 4,466
------ -------- --------
7,528 -- 7,528
------ -------- --------
(Loss) before provision for income taxes (33,423) -- (33,423)
Benefit from income taxes 3,300 -- 3,300
--------- -------- --------
Net loss applicable to common shares $(30,123) -- $(30,123) (5)
========= ======== =========
Net loss per common share $ (4.24) $ -- $ (4.24) (6)
========== ========= =========
See accompanying footnotes to the Unaudited Pro Forma Consolidated Statement of Operations.
</TABLE>
14
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AT JUNE
30, 1997 AND FOR THE YEAR ENDED JUNE 30, 1997
Notes to the Unaudited Pro Forma Consolidated Statement of Financial Condition
as of June 30, 1997 (in 000's)
The Pro Forma Consolidated Statement of Financial Condition reflects the
historical assets and liabilities of River Bank at June 30, 1997, including the
Reorganization. In, addition, this unaudited condensed financial information
gives effect to certain adjustments that would have been appropriate had River
Bank operated as a non-banking corporate entity for the year ended June 30,
1997. River Asset Sub (renamed RB Asset), as the surviving corporation in the
Merger, will succeed to the business, assets and liabilities of River Bank.
The principal differences relate to bank regulatory and operational requirements
requiring foreclosed and other real estate assets to be held for sale and
carried at an amount equal to their estimated fair market value. As a company
not subject to state or federal bank regulation, RB Asset will have the ability
to resolve and dispose of its real estate assets over a longer period of time,
and where appropriate, to actively develop, manage and operate its properties,
and enter into joint ventures with others and further encumber or restructure
the debt on its properties and assets in an effort to maximize returns to
stockholders.
1. All loans sold with recourse, net have been reclassified at June 30, 1997
within the Pro Forma Consolidated Statement of Financial Condition into the
Loans Receivable, net category.
2. All banking categories relating to real estate (other real estate owned,
net and real estate held for investment, net) were reclassified in
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," as follows:
Real estate held for disposal - SFAS 121 requires that all real estate
assets that RB Asset plans to sell within one year be accounted for as a
real estate asset held for disposal. SFAS 121 states the following
reporting and disclosure requirements related to real estate assets held
for disposal:
# Real estate assets held for disposal are to be valued at the lower
of carrying amount or fair value less cost to sell.
# The results of operations for assets to be disposed of, to the
extent that those results are included in an entity's results of
operations for the period and can be identified, should be
separately disclosed in the footnotes to the statements.
Real estate held for disposal consists of two properties that are
classified as commercial properties, one that is cooperative apartment
units and five others that are multi-family housing. River Bank currently
believes that, except for the cooperative units, all real estate assets
will be sold during the next fiscal year. The cooperative units will be
sold off on a unit by unit basis. The related rental income and expenses
for these properties and other assets sold during the year are as follows:
Rental income $14,611,167
Less: Rental expenses 11,467,841
------------------
Net Income $3,143,326
==================
Since RB Asset will no longer be constrained by bank regulatory
requirements, RB Asset will be able to continue to evaluate alternatives
available after the Reorganization to maximize returns to stockholders. It
may
15
<PAGE>
alter its current plans to market some or all of the properties held for
disposal and reclassify them as real estate held for investment as
alternatives are implemented.
o Real estate held for investment - SFAS 121 requires that all assets
that RB Asset plans to hold and to continue as an operating property be
classified as real estate held for investment until such time as RB
Asset decides to dispose of the real estate asset.
At June 30, 1997 real estate held for investment consisted of one property
which was commercial retail space.
16
<PAGE>
Notes to the Unaudited Pro Forma Consolidated Statement of Operations for the
year ended June 30, 1997 (in 000's)
The Pro Forma Consolidated Statement of Operations reflects historical income
and expenses attributable to River Bank's assets and liabilities for the year
ended June 30, 1997, in a format that is representative of the financial
statement presentation appropriate for the anticipated corporate form of RB
Asset, the successor to River Bank's business, assets and liabilities following
the Reorganization. In addition, this unaudited financial information gives
affect to certain adjustments that would have been appropriate had River Bank
operated as a non-banking corporate entity during the period ended June 30,
1997.
3. Under Generally Accepted Accounting Principles ("GAAP"), assets held for
investment are required to be systematically depreciated over their
estimated useful lives.
4. Income from real estate operations in the amount of $3,131 has been
presented in the Unaudited Pro Forma Consolidated Statement of Operations
in a more detailed form, which is representative of the financial statement
presentation appropriate for RB Asset's anticipated corporate form
following the Reorganization
5. See "FEDERAL INCOME TAX CONSIDERATIONS" for a discussion of taxes related
to River Bank.
6. Pro Forma net loss per common share is based on the pro forma net loss over
the weighted average number of common shares outstanding during the period.
There were 7,100,000 weighted average common shares outstanding for the
twelve months ending June 30, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which is required to be adopted on December 31, 1997. At that time RB
Asset will be required to change the method currently used to compute
earnings per share and to restate prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The implementation of SFAS
No. 128 is not expected to have any effect on RB Asset's primary
earnings per share for the year ended June 30, 1997.
In August, 1997, investment securities available for sale were sold at a
gain of approximately $2 million.
17
<PAGE>
HISTORICAL MARKET PRICE AND DIVIDENDS
Market Prices
As of October ___, 1997, there are eight holders of record of River
Bank Common Stock. River Bank Common Stock is traded in the inter-dealer
over-the-counter market and historical actual trading price information and
current market-maker bid and ask quotations are available from the National
Association of Securities Dealers, Inc.'s ("NASD" ) OTC Bulletin Board. Bid and
ask quotations reflect inter-dealer prices, without retail mark-up or mark-down
or commissions, and may not represent actual trading transactions. River Bank
Common Stock is thinly and sporadically traded and the availability of bid and
ask quotations can provide no assurance as to whether and at what prices holders
may be able to resell their shares of Common Stock. River Bank understands that
Bear, Stearns & Co., Inc. and Friedman Billings Ramsey & Co. are currently
market-makers for the Common Stock. Neither market-maker is obligated to make a
market in the Common Stock and their market activities may be interrupted or
discontinued at any time without notice. Accordingly, there can be no assurances
as to the development or the liquidity of any market for the Common Stock.
The table below shows the high and low weekly closing prices of River
Bank Common Stock during the periods quarterly indicated as reported on the
NASD's OTC Bulletin Board.
High Low
1996
First Quarter ended 9/30/95............................ 7.25 7.25
Second Quarter ended 12/31/95.......................... 8.63 5.50
Third Quarter ended 3/31/96............................ 9.13 8.50
Fourth Quarter ended 6/30/96........................... 9.75 7.75
1997
First Quarter ended 9/30/96............................ 9.13 8.25
Second Quarter ended 12/31/96.......................... 9.25 9.00
Third Quarter ended 3/31/97............................ 9.25 6.50
Fourth Quarter ended 6/30/97........................... 6.50 5.75
Dividend Policy
River Bank has not declared any dividends on River Bank Common Stock
since the River Bank Common Stock was issued in 1994. River Bank declared and
paid quarterly dividends on the River Bank Series A Preferred Stock for every
quarter since the issuance thereof through March 30, 1996. River Bank declared,
subject to the receipt of required approvals from its regulators and Marine
Midland, but did not pay, a dividend on the River Bank Series A Preferred Stock
for the quarter ended June 30, 1996, and thereafter has taken no action to
declare or pay dividends on the River Bank Series A Preferred Stock primarily
due to the fact that the necessary approvals from the Banking Department and
Marine Midland were not provided. The declaration and payment of dividends by
River Bank is subject to Banking Department approval, and the credit agreement
and related documents with respect to the Marine Senior Loan prohibit the
declaration and payment of dividends without the consent of Marine Midland.
Any dividend policy of RB Asset with respect to RB Asset Capital Stock
will be determined in the discretion of the RB Asset Board and it is expected
that RB Asset will have no policy providing for the payment of dividends on the
RB Asset Common Stock. As successor to the business, assets and liabilities of
River Bank, RB Asset will
18
<PAGE>
assume the Marine Senior Loan. While RB Asset will not be subject to Banking
Department jurisdiction, payment of any future dividends on the RB Asset Series
A Preferred Stock will be subject to the consent of Marine Midland as long as
the Marine Senior Loan remains outstanding. There can be no assurance that RB
Asset will declare or pay any dividends on the RB Asset Series A Preferred Stock
in the event the Marine Senior Loan is repaid, or that the consent to the
declaration or payment of such dividends will otherwise be provided by Marine
Midland. The declaration or payment of any dividend on the RB Asset Series A
Preferred Stock in the future will be based upon conditions then existing,
including RB Asset's financial condition and capital requirements and other
factors that RB Asset may deem relevant at that time.
19
<PAGE>
RIVER BANK RECENT DEVELOPMENTS
River Bank is a New York chartered stock savings bank which was founded
in 1848. River Bank operated as a depository banking institution until it
disposed of its principal depository banking operations pursuant to the Branch
Sale on June 28, 1996.
Pursuant to the Branch Sale, River Bank sold all of its branches and
transferred substantially all of its deposits to Marine Midland. Following the
Branch Sale, River Bank ceased accepting deposits and otherwise disposed of its
remaining deposits. Since that time, River Bank has been proceeding with a
business plan to dispose of the Retained Assets in accordance with the
individual business plans developed for each asset prior to the consummation of
the Branch Sale. The Retained Assets consist primarily of real estate assets
(including investments in joint ventures), non-performing loans, performing
loans (including subordinated participations, junior subordinated participations
and loans classified by River Bank), investment securities and cash. The
majority of the performing loans include subordinated loans, including second
mortgages and participation interests (which generally involve more risk than
senior loans), loans to facilitate the disposition of real estate owned and
loans which had been classified by River Bank.
Following the Branch Sale, River Bank continued to be regulated by the
FDIC and the Banking Department. On October 31, 1996, River Bank requested that
the FDIC terminate its status as an insured depository institution. Termination
of FDIC insurance was required in order for the waiver of the deposit insurance
requirements under New York Banking Law granted by the New York Banking Board to
become effective. Such waiver was granted in connection with the Banking
Department's approval of the Branch Sale. On April 14, 1997, River Bank received
an order of termination of insurance from the FDIC terminating River Bank's
status as an insured depository institution effective as of December 31, 1997.
At that time, River Bank will no longer be subject to FDIC jurisdiction and
regulation and the New York Banking Board's waiver of the New York Banking Law
deposit insurance requirements will become effective.
As a condition to the Banking Department's approval of the Branch Sale,
River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (previously defined herein as the Dissolution
Plan Condition); (ii) to file with the Supreme Court of the State of New York a
petition for a closing order within 13 months of the closing of the Branch Sale
and for a final order of dissolution within five months following the filing of
an application for a closing order (previously defined herein as the Closing
Condition); (iii) to maintain specified levels of minimum capital ($106 million
as of May 1997); (iv) to make no distributions on the River Bank Common Stock
and River Bank Series A Preferred Stock without the approval of the Banking
Department until such time as a final order of dissolution has been signed;(v)
to obtain prior Banking Department approval for any additional financing; and
(vi) to submit specified periodic reports with respect to, among other things,
assets, dispositions, expenditures for improvements and cash receipts and
disbursements. In April 1997, River Bank announced that the River Bank Board was
evaluating a proposal to reorganize the Bank into a business corporation,
consistent with its goal of managing the Bank's assets to maximize stockholder
value. To that end, in June 1997, River Bank submitted to the Banking Department
an alternative under which the Dissolution Plan Condition would be satisfied
through the Reorganization. In the Reorganization, the Bank would, through a
series of steps, in a manner intended to constitute a tax-free reorganization,
change its legal form of organization by which it conducts its business, holds
its assets and is obligated for its liabilities from a New York state chartered
stock savings bank into a business corporation incorporated in the State of
Delaware. Thereafter, the Bank would voluntarily dissolve in the Dissolution.
The Reorganization and the Dissolution, which constitute the proposal to the
Banking Department (previously defined herein as the Alternate Proposal) are
intended to satisfy the conditions set forth in clauses (i) and (ii) above (the
"Branch Sale Conditions") by alternative means.
20
<PAGE>
In a letter dated June 24, 1997, the Banking Department, indicating its
conditional approval, stated that it did not object to the Alternate Proposal
and further advised, among other things, that: (a) the Branch Sale Condition set
forth in clause (i) above would be deemed satisfied upon stockholder approval of
the plan to implement the Reorganization and the Dissolution; (b) the petition
for the closing order required by the Branch Sale Condition set forth in clause
(ii) above was required to be filed by October 15, 1997; (c) the current $106
million minimum capital requirement would remain until final dissolution; and
(d) any material sale or transfer of the Bank's assets or any proposed
development or renovation expenditures would require prior Banking Department
approval. The Banking Department also advised that all other conditions to its
approval of the Branch Sale would remain in full force and effect. The petition
of the closing order was filed in New York State Supreme Court on October __,
1997 following stockholder approval of an earlier proposal to close the Bank at
the 1997 annual meeting of stockholders held on October 7, 1997.
In connection with and as a condition to the Branch Sale, River Bank
borrowed from Marine Midland approximately $89.8 million under the Marine Senior
Loan pursuant to a credit agreement, dated as of June 28, 1996 (the "Credit
Agreement") among River Bank and certain of its subsidiaries (collectively,
"Borrowers") and Marine Midland. The following summary of the material terms of
the Credit Agreement does not purport to be complete and is subject to the
detailed provisions of the Credit Agreement. See "AVAILABLE INFORMATION."
The Marine Senior Loan consists of eleven independent mortgage loans
with additional collateral. Borrowings under the Marine Senior Loan may be used
to refinance Federal Home Loan Bank debt which was owed by River Bank's
predecessor at the time of the Branch Sale and to develop and complete two
individual real estate assets as part of River Bank's operations subsequent to
the Branch Sale. Each Borrower's obligations under the Credit Agreement are
cross-guaranteed by each of the other Borrowers.
The Marine Senior Loan was secured by first priority mortgage liens on
eleven of River Bank's real estate assets and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross-defaulted with each other and cross-collateralized by all
collateral for the Marine Senior Loan. As additional collateral for the Marine
Senior Loan, each loan is also secured by first priority mortgages (or, where
applicable, a collateral assignment of first priority mortgages held by River
Bank), stock pledges and assignment of partnership interests and assignment of
miscellaneous interests in additional Bank assets (the "Additional Collateral").
The Bank collaterally assigned to Marine Midland all of the cash flow from the
Primary Collateral and the Additional Collateral. All of the net cash flow from
the Primary Collateral and Additional Collateral is required to be applied to
the prepayment of the Marine Senior Loan. In addition, all net proceeds from the
sale of any Primary Collateral, and the proceeds from the sale of any Additional
Collateral, are required to be applied to the prepayment of the Marine Senior
Loan subject to River Bank's right to establish reserves for its operating
needs. River Bank is permitted to prepay the Marine Senior Loan in whole or in
part at any time without prepayment penalty or premium (subject to customary
London interbank market interest rate breakage provisions).
The Marine Senior Loan matures on June 30, 1999, subject to two
extensions, each for a one year period, provided that (i) with respect to the
first extension, the aggregate outstanding principal balance of the Marine
Senior Loan shall have been reduced to no more than $60 million by June 30,
1999, (ii) with respect to the second extension, the aggregate outstanding
principal balance of the Marine Senior Loan shall have been reduced to no more
than $30 million by June 30, 2000, (iii) no event of default or default is
continuing at the time the request for extension is made and on the then
maturity date, and (iv) Marine Midland shall have received a certificate signed
by a senior executive of the Bank confirming that no event of default or default
is continuing.
The Credit Agreement permits Borrowers to elect from time to time an
interest rate on the Marine Senior Loan based upon (i) the interest rates
prevailing on the date of determination in the London interbank market ("LIBOR")
for the interest period selected by the Bank or (ii) the prime rate of Marine
Midland (the "Prime Rate"), plus, in each case, a margin (the "Interest Margin")
over LIBOR or the Prime Rate. The Interest Margin will vary
21
<PAGE>
based on the interest period, but range (i) for LIBOR based loans from 1.75%
from June 28, 1996 through December 31, 1996 to 2.75% after June 30, 1998 and
(ii) for Prime Rate based loans from -0.50% from June 28, 1996 through December
31, 1996 to 0.50% after June 30, 1998. The Interest Margin for LIBOR based loans
during the first extension period (from July 1, 1999 through June 30, 2000) is
3.00% and during the second extension period (from July 1, 2000 to June 30,
2001) is 3.25%. The Interest Margin for Prime Rate based loans during the first
extension period (from July 1, 1999 through June 30, 2000) is 0.75% and during
the second extension period (from July 1, 2000 to June 30, 2001) is 1.00%.
The Credit Agreement contains covenants restricting the ability of the
Borrowers to, among other things, (i) incur any liens on any of their properties
or assets, (ii) incur any indebtedness, (iii) dispose of assets, (iv) merge or
consolidate, (v) make investments outside of the ordinary course of business,
(vi) sell receivables or promissory notes, (vii) change their accounting or
financial reporting practices, (viii) prepay any indebtedness other than the
Marine Senior Loan or make any distributions, dividends or redemptions of
capital stock, (ix) modify their charter documents in any material respect, any
documents evidencing any indebtedness or River Bank's plan of dissolution and
(x) terminating or modifying the management agreement between River Bank and RB
Management. The Bank has also made certain customary affirmative covenants,
including among other things with respect to (i) maintaining its legal
existence, (ii) preserving its business and properties, (iii) maintaining
adequate insurance with respect to its business and properties, (iv) the payment
of taxes and (v) financial reporting.
Events of default under the Credit Agreement include (i) the Borrowers'
failure to pay principal or interest when due, (ii) the Borrowers' breach of any
representation or warranty in the loan documents in any material respect which
results in a material adverse effect on the ability of Borrowers, in the
aggregate, to perform or pay the Marine Senior Loan or on Marine Midland's liens
on a material portion of the collateral or the priority of such liens, (iii) the
breach by Borrowers of any covenant contained in the loan documents, which
breach shall continue without cure, (iv) events of bankruptcy, insolvency or
dissolution of any Borrower, (v) the levy of certain judgments against any
Borrower, (vi) certain adverse events under ERISA plans of the Borrowers, (vii)
the actual or asserted invalidity of security documents or guarantees of the
Borrowers, and (viii) any event after which Alvin Dworman ceases to either own
at least 39% of the River Bank Common Stock or be actively involved in the
oversight and general management of the Borrowers' affairs and assets.
As of June 30, 1997, approximately $66.1 million remains outstanding
under the Marine Senior Loan. In accordance with restrictive covenants contained
in the Credit Agreement, Marine Midland has consented to implementation of the
Reorganization and Dissolution.
FURTHER INFORMATION REGARDING RIVER BANK, INCLUDING THE AUDITED
HISTORICAL FINANCIAL STATEMENTS OF THE BANK AND ITS SUBSIDIARIES, SUPPLEMENTARY
FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE BANK'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, IS CONTAINED IN RIVER BANK'S
ANNUAL REPORT ON FORM F-2 FOR THE FISCAL YEAR ENDED JUNE 30, 1997, WHICH REPORT
IS ATTACHED HERETO AS ANNEX B.
22
<PAGE>
BUSINESS OF RB ASSET FOLLOWING THE REORGANIZATION
Overview
RB Asset will succeed to the business, assets and liabilities of River
Bank. RB Asset expects thereafter to continue to manage the Retained Assets.
The Retained Assets consist primarily of real estate assets (including
investments in joint ventures), non-performing loans, performing loans
(including subordinated participations, junior subordinated participations and
whole loans classified by River Bank), investment securities and cash. The
majority of the performing loans include subordinated loans, including second
mortgages and participation interests (which generally involve more risk than
senior loans), loans to facilitate the disposition of real estate owned and
other loans which had been classified by River Bank.
Following consummation of the Reorganization, RB Asset expects to
proceed with the individual business plans developed for each asset prior to
consummation of the Branch Sale. Since it will no longer be constrained by the
Bank's banking regulatory requirements, RB Asset will be able to continue to
evaluate alternatives available after the Reorganization to maximize returns to
its stockholders. Where appropriate, RB Asset expects to actively develop and
operate its properties, enter into joint ventures with others and otherwise
further encumber or restructure the debt on its properties and other assets.
Retained Assets
Real Estate Assets. Set forth in the table below are the largest real
estate assets included in the Retained Assets. At June 30, 1997, such assets
approximated $95.4 million or approximately 97.9% of all of the real estate
assets included in the Retained Assets.
<TABLE>
<CAPTION>
Approximate
Description Carrying Value Category Location
(Dollars in Millions)
<S> <C> <C> <C>
Multi-family apartments $ 55.9 Held for Disposal (2) Philadelphia, PA
Office buildings 14.1 Held for Disposal (2) Atlanta, GA
Co-operative apartment shares 14.8 Held for Disposal (2) New York, NY
Office building 5.4 Held for Investment (1) Valley Stream, NY
Residential condominium units 3.3 Held for Disposal (2) Staten Island, NY
Single family development 1.9 Held for Disposal (2) Murietta, CA
---
Total $ 95.4
====
</TABLE>
(1) These assets are categorized for RB Asset pro forma financial reporting
purposes as real estate held for investment as of June 30,1997.
(2) These assets are categorized for RB Asset pro forma financial reporting
purposes as real estate held for disposal as of June 30, 1997.
The real estate assets included in the Retained Assets consist of a
total of approximately nine properties, including multi-family residential
properties (primarily unsold shares and units in co-operative and condominium
properties, respectively), office properties, industrial properties, land and
properties under development which were acquired upon foreclosure or by
deed-in-lieu thereof, as well as equity interests in joint ventures formed for
the acquisition, development and construction of real estate. The real estate
assets included in the Retained Assets have been previously categorized by River
Bank in accordance with banking regulations, as (i) other real estate owned, net
and (ii) real estate held for investment, net. Following the Reorganization and
the consequent elimination of
23
<PAGE>
Banking Department and FDIC regulatory requirements to dispose of all assets
held in such categories, the foregoing assets will be accounted for by RB Asset
under the provisions of SFAS No. 121. SFAS No. 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amounts. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Set forth below are the categories of assets under SFAS 121 to be utilized
by RB Asset for pro forma financial reporting purposes and a description of the
assets to be included in such categories:
Real estate held for investment - SFAS 121 requires that all assets
that RB Asset plans to hold and to continue as an operating property be
classified as "real estate held for investment" until such time as RB
Asset decides to dispose of the real estate asset. On a pro forma
basis, as of June 30, 1997, real estate held for investment consisted
of one property, which is a commercial retail space.
Real estate held for disposal - SFAS 121 requires that all real estate
assets that RB Asset plans to sell within one year be accounted for as
a "real estate asset held for disposal." Real estate assets held for
disposal are to be valued at the lower of carrying amount or fair value
less cost to sell. On a pro forma basis, as of June 30, 1997, real
estate held for disposal consists of two properties that are classified
as commercial properties, one asset consisting of co-operative
apartment units and five properties that are classified as multi-family
housing. RB Asset expects that, except for the co-operative units, all
real estate assets held for disposal will be sold during the next
fiscal year. The co-operative units will be sold off on a unit by unit
basis.
The above categories reflect RB Asset's asset management strategy with respect
to each individual real estate asset. See "--Asset Management Strategy."
Joint Ventures. Included in the real estate assets also are three
properties representing approximately $3.2 million of joint venture equity
investments. During the mid-to-late 1980s, River Bank sought to supplement the
income derived from its mortgage activities by engaging in real estate
development activities, most commonly through participations in joint ventures.
These activities generally were conducted through subsidiaries of the bank and,
unlike loans, were intended to provide a return which was based on the overall
profitability of each project. The structure of each of River Bank's joint
venture investments generally involved the formation of a partnership between
the Bank's co-venturer and a subsidiary of the Bank. River Bank's subsidiary
generally had up to a 50% interest in the partnership, which was responsible for
the acquisition, development and sale of a project. River Bank's subsidiary
generally functioned as both a non-managing general partner and in many cases a
limited partner in the partnership. Upon completion and sale of a project, and
after all partnership obligations were satisfied, the bank's equity investment
is expected to be paid in full and any profits would then be distributed to the
partners in accordance with the terms of the partnership agreement. The joint
venture projects to which RB Asset will succeed include a shopping center,
industrial buildings and warehouses.
24
<PAGE>
The following table sets forth certain information relating to the pro
forma joint venture investments RB Asset owned as of June 30, 1997.
<TABLE>
<CAPTION>
Percentage Approximate Approximate
Ownership by Equity Senior
Joint Venture Name The Bank Balance Indebtedness Location Description
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Escondido Retail Assoc. 35% $1.6 $10.2 Escondido, CA Shopping center
Raley Assoc. 50% 1.2 6.7 Sacramento, CA Four industrial buildings
and 27 acres of land
Cicero Industrial Assoc. 50% 0.4 0.8 Cook City, IL Warehouse
---- ----
$3.2 $17.7
==== =====
</TABLE>
The following table sets forth certain information relating to the
joint ventures as of June 30, 1997:
June 30, 1997
-------------------------
No. Amount
(dollars in
thousands)
Loans to joint ventures, net 1 $471
Investments in joint ventures, net 3 $3,113
At June 30, 1997, RB Asset did not have any material amounts left to be
funded pursuant to legally binding commitments relating to its pro forma joint
ventures, except certain ongoing operating expenses and capital investments.
Notwithstanding the foregoing, certain of the joint venture properties are
operating at a loss or do not have current cash flow from which to fund ongoing
operating expenses (including debt service). The failure by RB Asset or its
joint venture partner to fund operating expenses under these circumstances could
result in the loss of the asset.
Loan Portfolio. The Retained Assets include multi-family residential,
commercial real estate, construction and commercial business loans and, to a
lesser extent, single-family residential loans and education loans originated by
River Bank prior to the Branch Sale.
25
<PAGE>
Set forth in the table below are the ten largest loans included in the
Retained Assets. As of June 30, 1997 such loans approximated $73.4 million or
approximately 75.9% of all such loans.
<TABLE>
<CAPTION>
Approximate
Carrying Security
Asset Description Value Interest Status Location
(Dollars in millions)
<S> <C> <C> <C> <C>
Office/ industrial property $22.1 First mortgage Performing Brooklyn, NY
Co-operative apartments 16.0 First lien Non-Performing Queens, NY
(unsold shares)
Hotel 10.2 Second mortgage Performing(1) Orlando, FL
Co-operative apartments 6.8 First lien Performing(2) Queens, NY
(underlying first mortgage)
Commercial business 3.9 Unsecured Non-Performing Providence, RI
Commercial business 3.6 Unsecured Performing New York, NY
Office building 3.1 First mortgage Non-Performing Ulster, NY
Office building 3.0 First mortgage Performing(3) New York, NY
Student loans 2.5 Unsecured Non-Performing Various
Commercial business 2.2 Unsecured Non-Performing New York, NY
----
Total $73.4
=====
</TABLE>
- -----------------------
(1) Represents a subordinated participation interest in loans which were
transferred to Marine Midland in the Branch Sale.
(2) Represents a subordinated participation interest in loans which were
transferred to Marine Midland in the Branch Sale.
(3) Represents a junior subordinated participation interest in loans which
were transferred to Marine Midland in the Branch Sale providing for a
junior subordinated participation in future proceeds collected with
respect to amounts previously charged-off by River Bank.
The loans included within the Retained Assets consist of performing and
non-performing loans categorized as multi-family residential, commercial real
estate or commercial business loans. Commercial real estate and multi-family
residential loans are generally considered to involve more risk than
single-family residential loans due to, among other things, the higher principal
amount of such loans and the effects of general economic conditions, which may
result in excessive vacancy rates, inadequate rental income levels and
volatility in real estate values.
RB Asset's multi-family residential loans consist primarily of loans
secured by rental apartment buildings, unsold condominium units, cooperative
apartment buildings and unsold shares secured by cooperative apartments. RB
Asset's commercial real estate loans consist primarily of loans secured by
office buildings, shopping centers,
26
<PAGE>
industrial warehouse buildings, hotels and other income-producing properties.
The terms of RB Asset's multi-family residential and commercial real estate
loans are most commonly five to ten years. Certain of these loans have options
to extend the term of the loan at interest rates which may be fixed or adjusted
upward for one, or in certain instances two, additional five-year periods. These
loans include amortizing loans which require the monthly payment of interest and
principal. The amortization periods for the payment of principal on such loans
generally is 20 to 30 years, with balloon payments of the remaining principal
amount due upon the maturity of the loan. Certain of the commercial real estate
loans were made on an interest-only basis, with the payment of the entire
principal amount due at maturity. The multi-family residential and commercial
loans included in the Retained Assets are nearly all fixed interest rate loans.
The Retained Assets include approximately $12.8 million of secured and
unsecured commercial business loans. The commercial business loans previously
consisted primarily of loans which involved the buyout, acquisition or
recapitalization of an existing business (including management buyouts and
corporate mergers and acquisitions). Such loans involved a high degree of risk
in their origination since such transactions frequently resulted in a
substantial increase in both the borrower's liabilities and its
liabilities-to-assets leverage ratio, thus increasing the prospects for default.
Each of the commercial business loans included in the Retained Assets has a
principal amount which is less than $4 million.
The Retained Assets include both performing and non-performing loans.
The performing loans included in the Retained Assets at June 30, 1997 consist of
commercial real estate and commercial business loans which are wholly-owned by
RB Asset, as well as participation interests in multi-family residential and
commercial real estate loans pursuant to certain participation agreements
entered into by River Bank with Marine Midland in connection with the Branch
Sale. Approximately $47.8 million or approximately 22.6% of the total Retained
Assets comprise loans categorized as performing as of June 30, 1997. Of the
approximately $47.8 million of performing loans included in the Retained Assets,
approximately $24.5 million or approximately 51.3% of such loans are
subordinated loans. Subordinated loans, including second mortgages and
participation interests, generally involve more risk than senior loans. Set
forth below is a general description of the performing loans included in the
Retained Assets.
Whole Loans. At June 30, 1997, the Retained Assets include seven
performing loans (exclusive of participating loans) of approximately
$27.0 million, all of which are commercial real estate loans. All of
such loans have been modified since origination and are currently
performing in accordance with their terms. Approximately $22.1 million
or approximately 81.8% of RB Asset's performing loans (other than the
participating loans) which are included in the Retained Assets are
currently interest-only loans, with the payment of the entire principal
amount due at maturity.
Subordinated Participation Interests. The Retained Assets include
subordinated participation interests in 10 performing loans and one
non-performing loan with an aggregate principal amount of approximately
$24.5 million and $1.8 million, respectively. All of the performing
loans have been modified since origination and are currently performing
in accordance with their modified terms.
Junior Subordinated Participation Interests. The Retained Assets
include a junior subordinated participation interest in five performing
loans with an aggregate principal amount of approximately $6.2 million,
which are fully reserved (100%) for by RB Asset. All of such loans have
been modified since origination and are currently performing in
accordance with their terms.
The non-performing loans included in the Retained Assets consist of
multi-family residential, commercial real estate, commercial business loans and
student loans. Non-performing loans are those loans which have been placed on
non-accrual status and loans which are on accrual status but delinquent 90 days
or more. The non-performing loans in the Retained Assets are on non-accrual
status. Loans which are delinquent 90 days or more were
27
<PAGE>
placed on non-accrual status by River Bank unless such loan was well secured
and, in the opinion of management, collection appeared likely. In addition,
River Bank placed a loan on non-accrual status even when it was not yet
delinquent 90 days or more if the bank determined that such loan was not
collectible. When loans are placed on non-accrual status, any accrued but unpaid
interest on the loan is reversed and future interest income is recognized only
if actually received and collection of principal is not in doubt. Approximately
$47.9 million or approximately 22.6% of the Retained Assets are comprised of
loans categorized as non-performing as of June 30, 1997 and are all currently on
non-accrual status.
Asset Management Strategy
RB Asset intends to continue to follow an asset management strategy
with respect to the Retained Assets similar to the strategy pursued by River
Bank with respect to its assets since 1991. River Bank previously managed its
assets pursuant to an individualized work-out and disposition strategy for each
of its assets rather than implementing significant bulk sales. River Bank's
strategy, which RB Asset will continue, emphasized individual business plans for
each particular asset involving the application of management and development
expertise aimed as maximizing net recoveries and minimizing losses. The
performance or the value realized from any disposition of the Retained Assets
will depend on several factors, many of which are outside the control of the RB
Asset's management and third party contractors, including but not limited to,
conditions in the relevant real estate markets, prevailing interest rates and
local and national economic trends. Since it will no longer be constrained by
bank regulatory requirements, RB Asset will continue to evaluate alternatives
available after the Reorganization to maximize returns to stockholders. It may
alter its current plans to market some or all of the properties held for
disposal and reclassify them as real estate held for investment as such
alternatives are considered and implemented.
RB Asset will continue to engage RB Management to manage the day-to-day
business and affairs of RB Asset including developing and recommending
strategies to the RB Asset Board regarding the management of assets.
In the past, River Bank monitored its assets and developed individual
business plans, including cash flow analysis, for each asset after inspections,
analysis of economic factors and meetings with the borrower and counsel. These
plans were then documented for approval by the River Bank Board. RB Asset
anticipates that RB Management will generally continue to implement the
individual business plans for each of the Retained Assets in connection with an
asset management strategy as described below.
Non-Performing Loans. Loans made by River Bank which became delinquent
were analyzed by River Bank to determine the nature and extent of the problem
and whether a restructuring of the loan or some other method of resolution was
appropriate under the circumstances. River Bank worked with borrowers who were
cooperative with the bank to effect a restructuring that was economically
feasible for both parties. When River Bank concluded that a restructuring was
not economically feasible, however, or where the borrower did not demonstrate a
willingness to cooperate, the bank pursued available legal remedies. In most
cases, River Bank's strategy in recent years has been to aggressively pursue the
foreclosure process when a restructuring or other resolution of a non-performing
loan did not appear to be feasible or otherwise in the best interests of the
bank. RB Asset expects to continue this strategy so that it can acquire control
of the security property as soon as possible, and thereby implement a strategy
designed by RB Management for ultimate resolution.
Loans that go through the foreclosure process, particularly in New
York, are subject to extensive delays before the secured party can gain title to
the property. Non-judicial foreclosure generally is unavailable in New York, and
the procedures mandated by New York law can result in time-consuming litigation
in order to foreclose a mortgage loan. Moreover, the federal and state courts in
New York are overburdened with litigation and, as a result, decisions are often
delayed. Further complications occur when bankruptcy proceedings are involved.
For all these reasons, it can take an extended period of time, often two to
three years, for a lender to obtain title to property that secures a loan which
is in default. Although the foreclosure process can be long and complicated, RB
28
<PAGE>
Asset expects to aggressively pursue foreclosures and negotiations with
borrowers to acquire properties which secure problem loans by deed-in-lieu of
foreclosure.
Real Estate Assets. River Bank's general approach once it acquired an
investment in real estate has been to seek to minimize further losses to the
Bank through active management of the properties while they are held by the bank
and by developing asset management strategies tailored to the individual
properties and whose ultimate objective is to sell each property at, or above,
its net carrying value. River Bank generally pursued a specific disposition
strategy for each investment in real estate because it believed that the
depressed levels of the real estate markets in which the Bank had engaged in
lending activities would improve as national and regional economies recover and
that it has the requisite real estate expertise to individually address and
resolve each problem asset. RB Asset expects to continue to manage real estate
assets pursuant to individual asset management plans.
Although River Bank previously evaluated bulk-sales of non-performing
assets from time to time, it elected not to pursue such a strategy because it
believed that the discounts sought by potential purchasers were excessive and
that individual disposition strategies had the most potential for maximum
recovery and return to the Bank. RB Asset does not expect to engage in bulk
sales of assets. There can be no assurance, however, that RB Asset will be
successful in implementing the asset management strategies.
Where appropriate, RB Asset expects to actively manage properties
until such time as the assets are ready for sale and otherwise engage in
development activities of properties requiring further development. Each
Retained Asset's work-out strategy is expected to continue to be reviewed and
approved by the RB Asset Board. RB Asset expects to consider providing financing
in connection with the sale of real estate assets under appropriate
circumstances. All loans to finance the sale of real estate assets will be
approved in advance by the RB Asset Board and may involve a relatively low
percentage of borrower equity and other terms pursuant to which the transaction
may constitute a sale of the property under generally accepted accounting
principles.
Where the property is to be sold as soon as practicable, RB Asset
generally expects to work closely with a real estate brokerage firm, and may
specifically target known investors which may be interested in a particular
property owned by the Bank. RB Asset will use the public auction process to
offer for sale certain investments in real estate where appropriate. Such
auctions can provide broader exposure to potential purchasers than may be able
to be obtained through listings by a real estate brokerage firm in the area in
which a property is located. Public auctions involve the payment of fees to the
auctioneer, which can vary based on, among other things, whether the property is
sold and on what terms.
River Bank previously undertook to stabilize the cash flows from each
property by investing in necessary improvements and seeking to increase the
occupancy of property. This approach, which RB Asset will continue, potentially
increases the amount of time that the property must be held, but may enhance the
value of the property and be the best means of realizing the greatest return on
investment. Although RB Asset may take such cash flow stabilizing actions, real
estate markets in the area in which the property is located may not stabilize or
other factors may be present which prevent RB Asset from selling property at a
price which reflects its estimated value.
RB Asset will consider developing the properties in connection with the
management thereof. Although this approach may represent the best prospects for
maximizing the return to RB Asset, it may also involve more risk and, as a
result, RB Asset will only pursue this alternative when other alternatives are
clearly not preferable under the circumstances. In most cases in which this
alternative may be pursued, RB Asset expects that development would have
previously been initiated by the defaulted borrower prior to River Bank's
acquisition of the property upon foreclosure or by deed-in-lieu thereof. RB
Asset may commence development of an investment in real estate as a management
strategy.
Performing Loans. RB Asset intends to continue to closely monitor its
performing loans and, should problems arise, will manage a problem loan as
described above.
29
<PAGE>
THE SPECIAL MEETING
Introduction
This Proxy Statement/Prospectus is being furnished to the stockholders
as of the Record Date in connection with the Special Meeting to be held on
October __, 1997 at 10:00 a.m., local time, at the Grand Hyatt of New York
Hotel, Park Avenue at Grand Central Station, New York, New York 10017, and any
adjournment or postponement thereof.
Matters to be Considered at the Special Meeting
At the Special Meeting, stockholders will be asked to consider and vote
upon the following Proposals:
# Proposal 1: To consider and vote upon a proposal to
approve the Bank Closing Resolution.
# Proposal 2: To consider and vote upon a proposal to
approve the Certificate of Designations
Amendment.
River Bank's stockholders also will consider and vote upon such other
matters as may properly come before the Special Meeting.
Voting Rights and Vote Required
Only holders of record of River Bank Common Stock and River Bank Series
A Preferred Stock issued and outstanding as of the close of business on the
Record Date will be entitled to vote at the Special Meeting or any adjournment
or postponement thereof. As of the Record Date, there were 7,100,000 shares of
River Bank Common Stock and 1,400,000 shares of River Bank Series A Preferred
Stock issued and outstanding held by approximately eight holders of record,
respectively.
Holders of record of River Bank Common Stock at the close of business
on the Record Date are entitled to one vote per share upon each matter submitted
to a vote of the stockholders of River Bank at the Special Meeting or any
adjournment or postponement thereof. Holders of record of River Bank Capital
Stock at the close of business on the Record Date are entitled to one vote per
share upon the proposal to approve the Bank Closing Resolution. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
River Bank Common Stock entitled to vote on the Certificate of Designations
Amendment is necessary to constitute a quorum for the transaction of business on
the Certificate of Designations Amendment at the Special Meeting. The presence,
in person or by proxy, of the holders of a majority of the outstanding shares of
River Bank Capital Stock entitled to vote on the Bank Closing Resolution is
necessary to constitute a quorum for the transaction of business on the Bank
Closing Resolution at the Special Meeting. Stockholders voting or abstaining
from voting on any matter will be counted as present for purposes of
constituting a quorum. If a quorum with respect to each proposal is not present
at the Special Meeting, the holders of a majority of the shares of River Bank
Common Stock or River Bank Capital Stock, as the case may be, present in person
or by proxy and entitled to vote at the Special Meeting may, by majority vote,
adjourn the Special Meeting from time to time.
Pursuant to the New York Banking Law, the affirmative vote of the
holders of 662/3% of the outstanding shares of River Bank Common Stock and River
Bank Series A Preferred Stock, together as a single class, is required to
approve the Bank Closing Resolution. The affirmative vote of the holders of a
majority of the outstanding shares of River Bank Common Stock is necessary to
approve the Certificate of Designations Amendment.
30
<PAGE>
Under the rules of the principal stock exchanges, brokers who hold
shares of River Bank Common Stock and River Bank Series A Preferred Stock in
street name for customers will not have authority to vote such shares on the
Proposals unless they have received written instructions from beneficial owners.
Abstentions and broker "non-votes" will be considered in determining the
presence of a quorum at the Special Meeting, but will not be counted as votes
cast on any matter presented for a vote at the meeting. Because the Bank Closing
Resolution requires the approval of a specified affirmative vote of the holders
of shares of River Bank Common Stock and River Bank Series A Preferred Stock,
together as a single class, outstanding on the Record Date, and the Certificate
of Designations Amendment requires the approval of a specified affirmative vote
of the holders of shares of River Bank Common Stock outstanding on the Record
Date, abstentions and broker "non-votes", as the case may be, will have the same
effect as votes against such matters.
Alvin Dworman, East River Partnership B and Odyssey Partners, L.P.,
stockholders who own an aggregate of 3,600,000 or 50.8% of the outstanding
shares of River Bank Common Stock (representing approximately 42.4% of the
outstanding shares of River Bank Common Stock and River Bank Series A Preferred
Stock, together as a single class) have advised River Bank that they intend to
vote in favor of the Proposals.
Voting of Proxies; Solicitation
All shares of River Bank Common Stock and River Bank Series A Preferred
Stock which are entitled to vote and are represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting and not
revoked will be voted at the Special Meeting in accordance with the instructions
indicated on such proxies.
IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED IN FAVOR OF THE
PROPOSALS DESCRIBED HEREIN. The River Bank Board knows of no matters to be
presented at the Special Meeting other than those described in this Proxy
Statement/Prospectus. If any other matters are properly presented at the Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Special Meeting to another time and/or place, the persons
named in the enclosed form of proxies and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. River Bank's
by-laws provide that the Special Meeting may be adjourned by a majority vote of
the stockholders present represented by proxy and entitled to vote thereat from
time to time without notice other than announcement at the meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
giving the President or the Secretary of River Bank, at the address of the Bank
set forth in the notice of meeting, written notice of such revocation; (ii)
executing a later-dated proxy; or (iii) attending the meeting and giving notice
of such revocation in person. Mere attendance at the Special Meeting will not,
in and of itself, constitute revocation of a proxy. Any written notice of
revocation or subsequent proxy should be sent to River Bank at 645 Fifth Avenue,
8th Floor, New York, New York 10022, Attention: President, so as to be delivered
at or before the taking of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/ Prospectus, will be borne by River Bank. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of River Bank in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of proxy solicitation material to certain beneficial owners
of the shares of River Bank Common Stock and River Bank Series A Preferred
Stock, and River Bank will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
31
<PAGE>
PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION
Overview
At the Special Meeting, the holders of River Bank Common Stock and
River Bank Series A Preferred Stock, together as a single class, will be asked
to approve the Bank Closing Resolution which will be implemented by means of the
Reorganization and the Dissolution. The Reorganization and the Dissolution
represent an alternative to submitting for Banking Department approval a plan of
dissolution requiring River Bank to proceed with a supervised liquidation of the
Retained Assets. Pursuant to the Reorganization, the Bank's legal form of
organization by which it conducts its business, holds its assets and is
obligated for its liabilities will be changed, through a series of steps, in a
manner intended to qualify as a tax-free reorganization, from a New York state
chartered stock savings bank into a business corporation incorporated in the
State of Delaware. Pursuant to the Dissolution, River Bank will voluntarily
dissolve and thereafter River Bank will cease to exist and all outstanding
shares of River Bank Capital Stock will be extinguished.
Background of and Reasons for the Bank Closing Resolution; Recommendation of
River Bank Board
On June 28, 1996, River Bank consummated the Branch Sale, thereby
disposing of substantially all of its assets and deposits and all of its
branches. While following the Branch Sale closing River Bank ceased accepting
deposits and otherwise disposed of its remaining deposits, it remains a banking
organization legally chartered and subject to regulation, examination and
supervision by the Banking Department. Since the Branch Sale, River Bank has
been proceeding with a business plan to manage the Retained Assets remaining
with the Bank after the Branch Sale in accordance with the individual business
plans developed for each asset prior to the consummation of the Branch Sale.
As a condition to the Banking Department's approval of the Branch Sale,
River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (previously defined herein as the Dissolution
Plan Condition); (ii) to file with the Supreme Court of the State of New York a
petition for a closing order within 13 months of the closing of the Branch Sale
and for a final order of dissolution within five months following the filing of
an application for a closing order (previously defined herein as the Closing
Condition); (iii) to maintain specified levels of minimum capital ($106 million
as of May 1997); (iv) to make no distributions on the River Bank Common Stock
and River Bank Series A Preferred Stock without the approval of the Banking
Department until such time as a final order of dissolution has been signed; (v)
to obtain prior Banking Department approval for any additional financing; and
(vi) to submit specified periodic reports with respect to, among other things,
assets, dispositions, expenditures for improvements and cash receipts and
disbursements. River Bank believes that disposing of the Retained Assets
pursuant to a supervisory liquidation under the terms of a plan of dissolution
filed with and subject to the jurisdiction of the New York Supreme Court would
be administratively cumbersome. River Bank is concerned that the short
time-frame for the disposition of its assets and the final satisfaction of its
creditors and the wind up of its affairs to satisfy the condition set forth in
clause (ii) above would not be consistent with River Bank's ongoing efforts to
manage the Retained Assets pursuant to the previously developed individual
business plans intended to maximize stockholder value.
The Reorganization and the Dissolution are an alternative to the
adoption and implementation of a plan of dissolution pursuant to which River
Bank would be required to implement a supervised liquidation of the Retained
Assets. Upon consummation of the Reorganization, River Bank's business and
assets would no longer be subject to the jurisdiction of the Banking Department.
This will allow River Bank's successor, RB Asset, to manage the Retained Assets
without banking regulatory restraints, and where appropriate, to actively
develop and operate it properties, enter into joint ventures with others and
otherwise further encumber or restructure the debt on its properties and other
assets. RB Asset expects that it will continue the management of the Retained
Assets under
32
<PAGE>
existing business plans, but may consider the foregoing activities as
appropriate to maximize returns to stockholders. See "BUSINESS OF RB ASSET
FOLLOWING THE REORGANIZATION."
In a letter dated June 24, 1997, the Banking Department, indicating its
conditional approval, stated that it did not object to the Reorganization and
Dissolution advised, among other things, that: (a) the Branch Sale Condition set
forth in clause (i) above would be deemed satisfied upon stockholder approval of
the plan to implement the Reorganization and the Dissolution; (b) the petition
for the closing order required by the Branch Sale Condition set forth in clause
(ii) above was required to be filed by October 15, 1997; (c) the current $106
million minimum capital requirement would remain until final dissolution; and
(d) any material sale or transfer of the Bank's assets or any proposed
development or renovation expenditures would require prior Banking Department
approval. The Banking Department also advised that all other conditions to its
approval of the Branch Sale would remain in full force and effect. On October
15, 1997, River Bank filed a petition for a closing order in New York State
Supreme Court which is currently pending before the court.
The River Bank Board has considered all of the foregoing and
unanimously recommends that River Bank's stockholders vote in favor of approval
of the Bank Closing Resolution which must be approved before the Reorganization
and the Dissolution can be implemented.
The Bank Closing Resolution
General
Consummation of the Reorganization and completion of the Dissolution
involve a series of steps to be undertaken by River Bank following approval of
the Bank Closing Resolution and the Certificate of Designations Amendment. As
discussed below, the Bank initiated the legal steps necessary to complete the
Reorganization and the Dissolution with the filing of its petition for a closing
order declaring the business of River Bank closed. This action followed
stockholder approval of an earlier proposal to close the Bank and wind up its
affairs as required by New York Banking Law in order for the Bank to file the
petition for the closing order in New York State Supreme Court.
In the first step, after the stockholders' approval of the Bank Closing
Resolution and the entry of the closing order, River Bank will complete the
Business Disposition whereby the existing business and all of the assets (other
than $100,000 to be used to fund administrative expenses) and liabilities of
River Bank will be transferred to or assumed by River Asset Sub. In the second
step, after the expiration of the notice period to creditors ordered by the
court, River Bank will effect the Distribution, pursuant to which all of the
issued and outstanding shares of River Distribution Common Stock and River
Distribution Series A Preferred Stock will be distributed to River Bank's
stockholders on the basis of one share of River Distribution Common Stock for
each share of River Bank Common Stock and one share of River Distribution Series
A Preferred Stock for each share of River Bank Series A Preferred Stock held by
a stockholder as of the Distribution Record Date. In the third step, the Merger
will be consummated whereby River Distribution Sub will merge with and into
River Asset Sub (which shall have succeeded to the business, assets and
liabilities of River Bank) with River Asset Sub as the surviving corporation. At
the effective time of the Merger, (a) each issued and outstanding share of River
Asset Sub common stock (held entirely by River Bank) will be canceled, (b) the
outstanding shares of River Distribution Capital Stock will be converted into
and will represent the shares of identical capital stock of the surviving
corporation (except that the par value of the capital stock will be changed to
$1.00) and (c) River Asset Sub, the surviving corporation in the Merger, will be
renamed RB Asset, Inc. As a consequence of the Merger, River Bank's consolidated
liabilities will be reduced to zero and its sole assets will be $100,000 in cash
which will be used to fund administrative expenses incurred in connection with
completing the Dissolution. RB Asset will be obligated to fund all
administrative expenses not satisfied by River Bank and any funds remaining in
River Bank upon completion of the Dissolution will be paid to RB Asset pursuant
to the assignment and assumption agreement. Following the Reorganization, RB
Asset will own all of the
33
<PAGE>
assets formerly owned by River Bank, will have assumed all of River Bank's
liabilities and will continue River Bank's business. Upon the entry by the New
York State Supreme Court of the order of dissolution, River Bank will
voluntarily dissolve and, upon filing with the Banking Department of a certified
copy of the order of dissolution obtained from New York State Supreme Court,
River Bank will cease to exist. Each of the foregoing steps are discussed in
further detail below.
The Petition for a Closing Order
The Bank initiated the legal steps necessary to complete the
Reorganization and the Dissolution with the filing of its petition for a closing
order declaring the business of River Bank closed on October 15, 1997 with the
New York State Supreme Court. This action followed stockholder approval of an
earlier proposal to close the Bank and wind up its affairs as required by New
York Banking Law in order for the Bank to file the petition for the closing
order in New York State Supreme Court. The petition, which is pending before the
court, provides that, upon entry of the order declaring the Bank closed, River
Bank will (i) cease to do business and will proceed with a voluntary liquidation
under which River Bank will satisfy or make provision for all of its creditors
and wind up its business and (ii) give notice to its creditors to present their
claims to the Bank for payment in the manner provided in the court order. The
petition describes the Reorganization and the Dissolution, including that River
Asset Sub will unconditionally assume all of River Bank's liabilities (including
contingent liabilities), that by virtue of the Merger, all liabilities of River
Bank shall attach to and be enforceable against RB Asset as if such liabilities
had been incurred or contracted by it, and that provision for River Bank's
creditors will principally be made by means of the assumption of its liabilities
by RB Asset. In connection with the undertaking made in connection with the 1997
annual meeting of stockholders held on October 7, 1997, the closing order
petition provides that no substantive legal steps will be taken to implement the
Reorganization and Dissolution until stockholders again approve the closing of
the Bank which stockholder approval will not be obtained until a proxy
statement/prospectus detailing the Bank's plans to implement the Reorganization
and Dissolution have been provided to all stockholders.
The Business Disposition
Following the stockholder approval of the Bank Closing Resolution and
the entry of the closing order, River Bank will enter into an assignment and
assumption agreement with River Asset Sub whereby River Bank will assign to
River Asset Sub, and River Asset Sub will accept from River Bank, all of River
Bank's right, title and interest in and to all of River Bank's assets, other
than an amount in cash, estimated to be no more than $100,000, sufficient for
River Bank to pay the continuing costs of regulation and liquidation, to resolve
any claims made against River Bank during the notice period to creditors and to
abide by the statutory requirement that River Bank remain solvent until its
final dissolution (the "Transferred Assets"). In consideration of the assignment
to River Asset Sub of the Transferred Assets, River Asset Sub will assume and
agree to pay, perform and discharge when due all liabilities and obligations of
River Bank of any kind or nature, known or unknown, whether absolute,
contingent, accrued or otherwise, and whether arising before or after the date
of the assignment of the Transferred Assets, without limitation.
In addition, the assignment and assumption agreement will provide that
(i) no representation or warranty whatsoever is being made by River Bank with
respect to the Transferred Assets, including, without limitation, as to title,
value or legal sufficiency and (ii) the Transferred Assets are "as is, where is"
and that River Asset Sub bears the economic and legal risk that any conveyance
of such assets may be insufficient or that River Asset Sub's title to any such
assets may be other than good and marketable and free from encumbrances. In
connection with the assignment of the Transferred Assets, River Asset Sub will
agree to indemnify, defend and hold harmless River Bank, its affiliates,
subsidiaries, directors, officers and employees from and against any and all
losses, liabilities, claims, suits, proceedings, demands, judgments, damages,
expenses and costs, including reasonable attorneys' fees and costs of defense,
which River Bank or its affiliates, subsidiaries, directors, officers or
employees may suffer or
34
<PAGE>
incur by reason of the liabilities of River Bank expressly assumed and any
liabilities relating to the Transferred Assets or the business of River Bank or
River Asset Sub.
The Petition for Dissolution
After the entry of the closing order and the expiration of the notice
period to creditors prescribed in the closing order, River Bank is required
under the New York Banking Law to prepare and file with the Banking Department a
verified transcript or statement identifying all depositors, creditors,
stockholders, owners of personal property in the custody or possession of River
Bank as bailee, depository for hire or otherwise, who have not claimed or
received the property or amounts due them together with a certified copy of the
inventory retained by River Bank with respect to such property or amounts. River
Bank does not have any safe deposit boxes and does not have custody or
possession of any personal property as bailee, depository for hire or otherwise
and therefore the provisions in the New York Banking Law relating to the
treatment of unclaimed property are not applicable to River Bank's liquidation
and dissolution.
In accordance with the New York Banking Law, following the entry of the
closing order and after the expiration of the notice to creditors prescribed in
the closing order, River Bank will file a petition in the New York State Supreme
Court for the issuance of an order declaring River Bank dissolved and its
corporate existence terminated (the "Order of Dissolution"). In connection with
the foregoing, River Bank must show that (i) all debts and obligations of River
Bank have been discharged or satisfied except those for which no legal claimant
has been found, (ii) that proper notice has been given to creditors and that the
period for presentation of the claims as required under the closing order has
expired, (iii) that the New York Banking Law provisions concerning unclaimed
bailments and personal property have been complied with and (iv) that all
amounts from any sale or other disposition have been turned over to the Banking
Department.
The Distribution
During the pendency of the petition for the Order of Dissolution, River
Bank will implement the Distribution pursuant to which River Bank will
distribute to its stockholders River Distribution Capital Stock and River
Distribution Sub and River Asset Sub will consummate the Merger.
In order to implement the Distribution, River Bank will distribute all
of the issued and outstanding shares of River Distribution Common Stock and
River Distribution Series A Preferred Stock held by it to the stockholders of
River Bank such that each holder of River Bank Common Stock as of the
Distribution Record Date will receive one share of River Distribution Common
Stock for each share of River Bank Common Stock and each holder of River Bank
Series A Preferred Stock as of the Record Date will receive one share of River
Distribution Series A Preferred Stock for each share of River Bank Series A
Preferred Stock. The Distribution shall be made by means of a stock transfer
ledger entry on the Distribution Record Date so that no ex-dividend transfers of
River Distribution Capital Stock separate from the River Bank Capital Stock on
which it is paid can occur prior to the Merger. No consideration will be paid by
River Bank's stockholders for the shares of River Distribution Common Stock and
River Distribution Series A Preferred Stock to be received by them, as the case
may be, in the Distribution.
The Merger
Promptly after the Distribution, River Asset Sub and River Distribution
Sub will consummate the Merger pursuant to the terms of an agreement and plan of
merger, dated as of October 9, 1997, by and between River Asset Sub and River
Distribution Sub (the "Merger Agreement"). The Merger Agreement, which was
approved on October 9, 1997 by River Bank in accordance with section 251 of the
Delaware General Corporation Law ("DGCL") as the sole stockholder of River Asset
Sub and River Distribution Sub, provides that as soon as practicable following
the filing of the petition for the Order of Dissolution and distribution of the
River Distribution Common Stock and
35
<PAGE>
River Distribution Series A Preferred Stock, both parties will execute and
acknowledge a certificate of merger and file the same with the Secretary of
State of the State of Delaware. At the effective time of the Merger, (i) River
Distribution Sub will be merged with and into River Asset Sub, the separate
corporate existence of River Distribution Sub will cease, and River Asset Sub
will continue as the surviving corporation under Delaware corporate law and (ii)
the Merger will have the effects set forth in section 259 of the DGCL,
including, without limitation, the effect that all liabilities of River Asset
Sub (which shall have succeeded to the business, asset and liabilities of River
Bank) and River Distribution Sub will thereafter attach to and be enforceable
against the surviving corporation. The Merger Agreement provides that: (i) each
issued and outstanding share of River Distribution Common Stock will be
converted into and will become one fully paid and non-assessable share of common
stock, $1.00 par value, of the surviving corporation; (ii) each issued and
outstanding share of River Distribution Series A Preferred Stock will be
converted into and will become one fully paid and non-assessable share of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value, of the
surviving corporation; and (iii) all shares of River Asset Sub Common Stock
(held entirely by River Bank) will be canceled and retired and cease to exist
and no cash or other consideration will be delivered in exchange therefor. At
the effective time of the Merger, the stock transfer ledger of River
Distribution Sub will be closed and each share of River Distribution Capital
Stock outstanding as indicated on the stock transfer ledger of River Bank will
be deemed for all corporate purposes to represent the share of the capital stock
of RB Asset into which it was converted. As soon as practicable after the
effective time of the Merger, RB Asset will cause its transfer agent to mail to
each recordholder of River Distribution Capital Stock indicated on the stock
transfer ledger of River Bank immediately prior to the effective time a stock
certificate registered in such holder's name representing the number of shares
of capital stock of RB Asset issued in the Merger.
The Merger Agreement provides for the following other effects of the
Merger: (i) the name of the surviving corporation shall be "RB Asset, Inc.";
(ii) the certificate of incorporation of River Distribution Sub, as in effect
immediately prior to the Merger, shall be amended to change the name of the
surviving corporation from "River Distribution Sub, Inc." to "RB Asset, Inc."
and to change the par value of the surviving corporation capital stock from
$.001 per share to $1.00 per share, and as so amended, shall be the certificate
of incorporation of RB Asset until thereafter changed or amended; (iii) the
directors of River Distribution Sub immediately prior to the Merger will be the
directors of RB Asset, and the officers of River Distribution Sub immediately
prior to the Merger will be the officers of RB Asset, each to hold office until
their respective successors are duly elected or appointed and qualified; and
(iv) the by-laws of River Distribution Sub, as in effect immediately prior to
the Merger, will be the by-laws of RB Asset until thereafter changed or amended.
The Order of Dissolution
Upon the entry by the New York State Supreme Court of the Order of
Dissolution, River Bank will voluntarily dissolve and, on filing with the
Banking Department of a certified copy of the Order of Dissolution, River Bank
will cease to exist and all outstanding shares of River Bank Capital Stock will
thereby be extinguished. Upon the effectiveness of the Dissolution, River Bank's
transfer agent will be instructed to immediately close the stock transfer ledger
of River Bank and record thereon the cancellation of all of the outstanding
shares of River Bank Capital Stock and the CUSIP Bureau will be notified that
River Bank has ceased to exist and that all outstanding shares of River Bank
Capital Stock have been extinguished.
Accounting Treatment
The Reorganization is intended to be accounted for as a reorganization
of entities under common control for financial reporting purposes in accordance
with generally accepted accounting principles. Therefore, the assets and
liabilities transferred to RB Asset pursuant to the Reorganization will be
accounted for at historical cost in a manner similar to a pooling of interests.
36
<PAGE>
PROPOSAL 2 -- APPROVAL OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. THIS SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPLETE TEXT OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT, ATTACHED TO THIS
PROXY STATEMENT/PROSPECTUS AS ANNEX A. STOCKHOLDERS ARE URGED TO READ THE
ANNEXES TO THIS PROXY STATEMENT/PROSPECTUS IN THEIR ENTIRETY.
In connection with the Reorganization, the River Bank Board is
recommending that the Certificate of Designations Amendment be adopted by the
stockholders. The Certificate of Designations Amendment, when adopted by the
stockholders, will amend the Bank's Certificate of Designations with respect to
the River Bank Series A Preferred Stock to permit the Distribution.
Section 7(C)(ii)(d) of the Certificate of Designations provides for a
reorganization of the Bank as contemplated by the Reorganization and for the
distribution to the existing stockholders of the Bank of shares of a successor
corporation in such a reorganization. However, the distribution provisions of
Section 3 of the Certificate of Designations may conflict with the provisions of
Section 7(c)(ii)(d) of the Certificate of Designations. The Certificate of
Designations Amendment clarifies this ambiguity by providing that a
reorganization contemplated by Section 7(c)(ii)(d) of the Certificate of
Designations may be consummated notwithstanding anything to the contrary in
Section 3.
The Certificate of Designations Amendment will be filed with the
Banking Department when adopted by the stockholders.
37
<PAGE>
MANAGEMENT
Board of Directors and Nominees for Director
The River Bank Board is, and following the Reorganization, the RB Asset
Board will be, divided into three classes of directors, serving staggered
three-year terms. Following the Reorganization, all of River Bank's directors
will serve as directors of RB Asset for the same term of office they have been
elected to serve as a directors of River Bank.
The name, age as of October __, 1997, position with River Bank, if any,
term of office following the Special Meeting, period of service as a director,
of each of River Bank's directors are as follows:
<TABLE>
<CAPTION>
Name Age Position Class Term Director
Expires Since
<S> <C> <C> <C> <C>
Robin Chandler Duke.................. 73 Director, Vice President 1999 1977
and Secretary (1)
Robert N. Flint...................... 76 Director (1)(2) 1999 1976
William D. Hassett................... 61 Director (2) 2000 1976
Jerome R. McDougal................... 69 Director, Chairman of the 2000 1991
Board, Chief Executive
Officer and President (2)
Edward V. Regan...................... 67 Director (1)(2) 1998 1995
</TABLE>
- --------------------------
(1) Member of the audit committee.
(2) Member of the asset management committee.
The principal occupation for the last five years and selected
biographical information of each of the directors and executive officers is set
forth below.
Robin Chandler Duke. Ms. Duke has served in an unpaid capacity as vice
president and secretary of River Bank since June 1996. Ms. Duke is the national
chairman of Population Action International, a non-profit organization. She
serves as a director of International Flavors and Fragrances, a diversified
manufacturer of flavors and fragrances, and American Home Products Corporation,
a research-based manufacturer of pharmaceutical and healthcare products.
Robert N. Flint. Mr. Flint has been retired since 1984. Prior to his
retirement, he served as senior vice- president and comptroller of American
Telephone and Telegraph Company.
William D. Hassett. Mr. Hassett has been a real estate investor for
more than the past 30 years and a partner of Hassett-Belfer Senior Housing and
Services L.L.C. since 1995. He previously served as the chairman of the board of
the New York State Dormitory Authority from 1985 to 1994, as chairman of the
Battery Park City Authority from 1979 to 1981 and as chairman of the New York
State Urban Development Corporation from 1977 to 1981. Mr. Hassett was the New
York State Commerce Commissioner from 1979 to 1981. He is a member of the New
York State Comptroller's Real Estate Advisory Committee to the Common Retirement
Fund and served as a director of Olympia & York Holdings (USA), a real estate
development and management firm.
38
<PAGE>
Jerome R. McDougal. Mr. McDougal has been chairman of the board and
chief executive officer of River Bank since April 1995 and president of River
Bank since July 1997. He served as president and chief executive officer of
River Bank from March 1991 through April 1995. Mr. McDougal served as chairman
of the board and chief executive officer of the Apple Bank for Savings from 1986
to 1990 and as president and chief operating officer of the Apple Bank for
Savings from 1981 to 1986.
Edward V. Regan. Mr. Regan has served as the chairman of the Municipal
Assistance Corporation for the City of New York since 1995 and as a policy
advisor for the Jerome Levy Economics Institute, a private economic research
organization since 1993. He has served as a trustee to the Financial Foundation
which oversees the FASB and the GASB since 1997. Mr. Regan served as the New
York State Comptroller from 1979 to 1993. He is a trustee of Oppenheimer
Management Corp., a mutual fund investment advisor and a director of GranCare,
Inc., a nursing, home healthcare and assisted living service business.
Board of Directors Committees
The River Bank Board has two standing committees, an asset management
committee and an audit committee. The audit committee is comprised of Messrs.
Flint (Chairman) and Regan and Ms. Duke and the asset management committee is
comprised of Messrs. Hassett (Chairman), McDougal, Flint and Regan.
The asset management committee oversees the management of the
day-to-day business and affairs of River Bank and the implementation of the
management of River Bank's assets, subject to certain restrictions set forth in
River Bank's Amended and Restated By-Laws and under the New York Banking Law.
The audit committee reviews and provides recommendations to the River Bank Board
with respect to the engagement of River Bank's independent auditors, financial
reporting practices and internal accounting and financial controls and
procedures of River Bank and monitors River Bank's compliance with its policies
and procedures. In addition, the audit committee also administers and reviews
all compensation policies and will provide recommendations to the River Bank
Board with respect thereto. After the Reorganization, the RB Asset Board will
create and constitute an asset management committee and an audit committee. Such
RB Asset committees will have the same members, chairman and functions as the
asset management committee and the audit committee of the River Bank Board.
During fiscal year 1997, the River Bank Board held 15 meetings,
including telephonic meetings. The audit committee held five meetings during the
fiscal year. The asset management committee held twelve meetings. During 1996,
each director attended 100% of the total number of meetings of the River Bank
Board and 100% percent of the total number of meetings of committees on which he
or she served.
Compensation of Directors
Directors of River Bank receive an annual retainer of $20,000, plus
$1,000 for each board meeting attended and $750 for each committee meeting
attended. Chairmen of the committees are also paid an additional $2,500 annual
retainer for their service as chairmen. After the Reorganization, RB Asset will
pay the same compensation to directors and board committee members and chairmen.
Executive Officers
Inasmuch as River Bank has disposed of its depository banking
operations pursuant to the Branch Sale, the Bank no longer employs any
significant staff of officers or employees to manage the business and affairs of
the Bank. Rather, the day-to-day management of River Bank's business is vested
with RB Management pursuant to the terms of a management agreement. See
"--Certain Relationships and Related Transactions".
39
<PAGE>
River Bank's only officers are, and the initial officers of RB Asset
will be, Jerome R. McDougal, who serves as the chairman of the board, president
and chief executive officer of the Bank, and Robin Chandler Duke, who serves
without compensation as the vice president and secretary of the Bank.
Executive Compensation
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the chief executive
officer of River Bank for services rendered in all capacities to River Bank and
its subsidiaries during such period. There were no other executive officers who
received any compensation from River Bank (other than director fees).
Summary Compensation Table
<TABLE>
<CAPTION>
Special Compensation
All Other
Name and Principal Other Compensation
Position Year Salary($) Bonus($) Compensation($) ($)
- -------- ---- --------- -------- --------------- ----
<S> <C> <C> <C> <C> <C>
Jerome R. McDougal 1997 $300,000 -- $ 66,900 (1) $117,296(2)
Chairman of the 1996 300,000 -- 84,988 (1) 112,431(2)
Board, Chief 1995 305,116 -- 76,663 (1) 108,832(2)
Executive Officer
and President
</TABLE>
- ----------------------
(1) Consists of a housing allowance, club dues, automobile and driver
expenses (aggregating $25,324, $42,760 and $35,424 for the 1997, 1996
and 1995 periods presented, respectively), certain tax expense
reimbursements and health insurance premiums.
(2) Consists of contributions of $9,500, $9,370 and $9,000 made by River
Bank to its 401(k) Tax Deferred Savings Plan, accruals of and earnings
on deferred compensation in the amounts of $103,739, $100,551 and
$97,673 and payments of $4,057, approximately $2,400 and $2,159 for
life and personal liability insurance premiums for the 1997, 1996 and
1995 periods presented, respectively.
Employment Arrangement
Jerome R. McDougal, River Bank's chairman of the board and chief
executive officer, was elected to the office of president and chief executive
officer by the River Bank Board effective March 1, 1991. He served as president
until April 1995, at which time he became chairman of the board. Mr. McDougal
was elected to the offices of president in July 1997. The terms of Mr.
McDougal's employment are memorialized in the minutes of the January 22, 1991
River Bank Board meeting, which provide for an annual salary of $375,000 and
customary employee benefits commensurate with Mr. McDougal's position at the
Bank. $75,000 of Mr. McDougal's annual salary is in the form of deferred
compensation. Mr. McDougal's annual deferred compensation accrues quarterly in
equal amounts and earns a variable rate of interest on the cumulative balance.
Prior to the Branch Sale interest was compounded quarterly at the highest rate
offered on the Bank's customer deposits each quarter and is currently compounded
at the prime rate. Mr. McDougal receives additional compensation in the form of
a housing allowance, an automobile and payment of club membership dues. River
Bank also reimburses Mr. McDougal for the amount
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<PAGE>
of personal income taxes incurred as a result of the additional benefits. After
the Reorganization, Mr. McDougal will receive the same compensation from RB
Asset.
Certain Relationships and Related Transactions
Arrangements with RB Management. River Bank is a party to a management
agreement, dated as of June 28, 1996 (the "Management Agreement"), RB
Management, a firm 100% owned by Alvin Dworman, the Bank's largest stockholder
who owns 39% of the outstanding shares of River Bank Common Stock. Pursuant to
the Management Agreement, RB Management is engaged exclusively as an independent
contractor to provide the Bank with prescribed general management services and
asset management services. The general management services provided by RB
Management include the management of the general business affairs and corporate
activities of the Bank and the oversight of third party service subcontractors
providing services not provided directly by RB Management to the Bank. Such
services include, but are not limited to: (i) developing and implementing
policies and procedures for the ordinary day-to-day management of the Bank and
the disposition of its assets as approved by the River Bank Board; (ii) managing
corporate activities, including (a) preparing and maintaining business plans,
(b) providing treasury and tax services, (c) providing financial and accounting
services, (d) monitoring the Bank's progress (with e.g. internal controls,
internal audits and operational audits) and (e) monitoring portfolio progress
(e.g. reviewing asset business plans, loan status and restructuring plans); and
(iii) providing, obtaining and overseeing third party services when required,
such as loan servicing, general ledger, legal, accounting and audit services
(collectively, the "General Management Services").
The asset management services provided by RB Management pursuant to the
Management Agreement include the management of the Bank's assets, properties and
loans and the oversight of third party service subcontractors providing services
with respect thereto. Such services include, but are not limited to: (i)
managing assets, properties and loans, including (a) troubleshooting the loan
portfolio (with respect to e.g. delinquencies and loan status), (b) reviewing
loans to determine, develop and recommend loan plans, restructures or litigation
strategies, (c) restructuring loans (including planning, implementing and
monitoring), (d) foreclosing assets (including hiring attorneys, obtaining title
and commencing management), (e) preparing asset business plans (including
enhancement strategies), (f) managing and monitoring real estate owned
(including site visits, liaison with brokers and property managers, reviewing
property reports and leasing), disposing of real estate owned (including
solicitation, review and recommendation of offers and negotiation and closing of
sale), and (h) providing financial and operating reports (including monthly
reports, quarterly analysis, financial statements and reports to the River Bank
Board); and (ii) providing, obtaining and overseeing third party services when
required, such as property management, loan marketing, brokerage, leasing,
legal, accounting and audit (collectively, the "Asset Management Services").
Pursuant to the Management Agreement, for the General Management
Services, RB Management is paid an annual base fee, payable monthly, not to
exceed $1,250,000 (the "Base Fee"). The Base Fee is determined on the basis of
the costs expected to be incurred by RB Management in providing the General
Management Services. The agreement requires that the Base Fee be reviewed no
less frequently than annually by the audit committee of the River Bank Board and
adjusted based on costs expected to be incurred as aforesaid. The agreement
requires that the Base Fee be adjusted in the event a third party service
subcontractor is engaged to provide a function required of RB Management under
the agreement.
Pursuant to the Management Agreement, for the Asset Management
Services, RB Management is paid (i) an annual fee, payable monthly, equal to
.75% of the average month-end book value of the Bank's assets (the "Asset
Service Fee") and (ii) an asset disposition success fee equal to .75% of the
proceeds from the sale or collection or refinancing of any Bank asset (the
"Asset Disposition Fees"). Any fees payable under the Management Agreement not
paid within 30 days of the date billed bear interest at the prime rate published
by Citibank NA.
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<PAGE>
During the year ended June 30, 1997, River Bank accrued $1,250,000 in
expenses for the Base Fee payable to RB Management, $1,692,000 for the Asset
Service Fee and $778,000 for the Asset Disposition Fees. River Bank paid
$1,721,000 of the foregoing fees during the 1997 fiscal year. The $2,121,000
outstanding payable for such fees (including interest) at June 30, 1997 was paid
in July 1997. The Base Fee for fiscal year 1998 is $1,250,000.
Pursuant to the Management Agreement, RB Management may retain, subject
to the approval of the audit and asset management committees of the River Bank
Board, third party service subcontractors to provide services not provided
directly by RB Management. The agreement provides that RB Management is to be
reimbursed for all bills arising out of approved third party service agreements.
RB Management is also reimbursed for reasonable out-of-pocket expenses incurred
in connection with rendering the General Management Services. As contemplated in
the Management Agreement, during fiscal year 1997, RB Management retained Fintek
Inc. ("Fintek"), a firm which is 50% beneficially owned by Mr. Dworman and for
which an adult child of Mr. Dworman serves as a director. Fintek was retained to
continue to provide the advisory services that it had previously provided to
River Bank pursuant to direct arrangements with the Bank. In accordance with the
Management Agreement, all payments to Fintek are the obligation of RB Management
and were paid out of fees received by RB Management from the Bank pursuant to
the Management Agreement.
The Management Agreement has a term of three years that shall
automatically be extended for an additional one year term if the Marine Senior
Loan remains outstanding upon the termination of the initial term and thereafter
for an additional one year, if at the termination of the initial extension term,
the Marine Senior Loan remains outstanding. Subject to the consent of Marine
Midland, the agreement may be terminated by either party for any reason upon 180
days written notice to the other party, by RB Management in the event of a
payment default by River Bank, by River Bank for cause as prescribed in the
agreement and by mutual written consent. The agreement may also be terminated by
RB Management upon 60 days written notice that all of the assets of the Bank
have been sold. The Management Agreement provides for proration of the fees
payable to RB Management in the event of termination and for reimbursement of
any reasonable costs incurred by RB Management as a result of the termination,
including termination or severance payments made to third party service
subcontractors or employees terminated by RB Management as a result of such
termination. In addition, in the event of termination, RB Management is entitled
to Asset Disposition Fees on any proposed asset dispositions in process if such
assets are disposed of within six months from such termination.
As a result of the Reorganization, River Bank's obligations under the
Management Agreement will be assumed by RB Asset. It is anticipated that RB
Management will continue to manage the Retained Assets on behalf of RB Asset.
Arrangements with Fintek Inc. During the period October 1, 1991 through
June 28, 1996, Fintek provided certain financial consulting, strategic planning
and advisory services to River Bank (the "Services Arrangement"), including
providing advice and consulting services with regard to the Bank's treasury
functions. Fintek earned hourly rate-based fees under the Services Arrangement.
During the year ended June 30, 1995 and the six month period ended December 31,
1995, River Bank paid $116,000 and $65,000, respectively, to Fintek for services
provided under the Services Arrangement.
In September 1995, River Bank engaged Fintek to provide certain
advisory services in connection with the Branch Sale and related transactions
(the "Transaction Engagement"). Under the terms of the engagement, Fintek earned
hourly rate-based fees and was reimbursed for its reasonable out-of-pocket
expenses incurred in performing its services. Fintek was also entitled to
receive a success fee, upon consummation of the Branch Sale, equal to the sum of
(a) 0.6% of the excess of assumed liabilities over transferred assets under the
Branch Sale agreement (the "Success Fee") and (b) 0.6% of any principal payments
received by the Bank with respect to the junior subordinated participation
interests (as defined) (the "Participation-based Fee"). The Success Fee was
payable 20% on the closing date of the Branch Sale and 20% on each of the next
four anniversary dates of the closing, with quarterly interest
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<PAGE>
payments on any deferred amounts accrued at an annual rate equal to the prime
rate of Chemical Bank in effect from time to time. The Participation-based Fee
is to be paid when and to the extent such principal payments are collected.
Pursuant to the Transaction Engagement, Fintek earned a Success Fee equal to
$558,000.
At June 30, 1996, River Bank had payables due Fintek in the aggregate
amount of approximately $1,516,000, which represented the $558,000 Success Fee
and $696,000 in hourly fees and expense reimbursements under the Transaction
Engagement and $262,000 in hourly fees under the Services Arrangement. During
fiscal year 1997, River Bank made payments in the amount of approximately
$762,000 to reduce the foregoing payables. At June 30, 1997, River Bank had
outstanding payables of $754,000 with respect to the foregoing. In July 1997,
River Bank paid Fintek approximately $419,000 to further reduce the outstanding
payables. As a result of the Reorganization, River Bank's obligations to Fintek
will be assumed by RB Asset.
River Bank believes that the terms reached with respect to each of the
foregoing related party service agreements and arrangements represent terms that
are at least as favorable to the Bank as could be obtained from unaffiliated
parties providing comparable services.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires River Bank's officers and
directors, and persons who own more than ten percent of a registered class of
the Bank's equity securities, to file reports of ownership and changes in
ownership with the FDIC. Officers, directors and greater than ten percent
shareholders are required by regulation of the FDIC to furnish the Bank with
copies of all Section 16(a) forms they file.
River Bank believes that no director, officer or beneficial owner of
more than 10% of its registered equity securities failed to file on a timely
basis reports required pursuant to Section 16(a) of the Exchange Act with
respect to 1997. In making these disclosures, River Bank has relied solely on
written representations of its directors and executive officers and copies of
the reports that they have filed with the FDIC.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of River Bank Common Stock by (i) each person known by
River Bank to own beneficially or of record more than 5% of River Bank Common
Stock, (ii) each director, nominee for director and executive officer of the
Bank, and (iii) all directors, nominees for director and executive officers as a
group. This information has been obtained from reports provided by the
beneficial owners or filed with the FDIC pursuant to Sections 13(d) and 13(g) of
the Exchange Act and regulations promulgated by the FDIC. Unless otherwise
indicated, each stockholder listed in the table has sole voting and investment
powers as of October __, 1997 with respect to the shares owned beneficially or
of record by such person.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------- ----------------------- --------
<S> <C> <C>
Mr. Alvin Dworman 2,768,400 39.0%
645 Fifth Avenue
New York, New York 10022
Wellington Management Company(2) 702,900 9.9%
75 State Street
Boston, Massachusetts 02109
First Financial Fund, Inc.(3) 470,000 6.6%
One Seaport Plaza - 25th Floor
New York, New York 10292
East River Partnership B(4) 415,800 5.9%
Madison Plaza
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Odyssey Partners, L.P.(5) 415,800 5.9%
31 West 52nd Street
New York, New York 10019
John Hancock Advisors, Inc.(6) 315,000 4.4%
101 Huntington Avenue
Boston, Massachusetts 02199
Ms. Robin Chandler Duke -- --
Mr. Robert N. Flint 4,000 *
Mr. William D. Hassett 2,150 *
Mr. Jerome R. McDougal 4,000 *
Mr. Edward V. Regan -- --
All directors and executive officers 10,150 *
as a group (5 persons)
</TABLE>
- ----------------
* Less than 0.1%
(footnotes on next page)
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<PAGE>
(1) Based upon information provided by the respective beneficial owners and
filings with the FDIC made pursuant to the Exchange Act. Beneficial
ownership is direct except as otherwise indicated by footnote. In
accordance with Section 335.403 of the Rules and Regulations of the
FDIC, a person is deemed to be the beneficial owner of a security if he
or she has or shares voting power or investment power with respect to
such security or has the right to acquire such ownership within 60
days.
(2) Wellington Management Company ("WMC") holds all owned shares in
accounts in its capacity as an investment advisor for various clients.
WMC shares dispositive power over the shares with its investment
advisory clients. First Financial Fund, Inc. ("FFF") is an investment
advisory client of WMC.
(3) FFF holds all owned shares in its capacity as an investment company.
FFF has sole voting power and shares dispositive power over the owned
shares with WMC of which it is an investment advisory client.
(4) East River Partnership B is an Illinois general partnership, the
general partners of which are: (1) JAP Grandchildren Trust # 1, the
co-trustees of which are Marshall E. Eisenberg and Jay A. Pritzker; (2)
Don Trust #25, the co-trustees of which are Marshall E. Eisenberg and
Thomas J. Pritzker; and (3) R.A. Trust #25, the co-trustees of which
are Marshall E. Eisenberg and Thomas J. Pritzker.
(5) Odyssey Partners, L.P. is a Delaware limited partnership having six
general partners: Stephen Berger, Leon Levy, Jack Nash, Joshua Nash,
Brian Wruble and Nash Family Partnership, L.P. The general partners of
Odyssey Partners, excluding Nash Family Partnership, L.P., share voting
and dispositive power over all owned shares.
(6) John Hancock Advisors, Inc. ("JHA") is a wholly-owned subsidiary of The
Berkeley Financial Group, which is a wholly-owned subsidiary of John
Hancock Asset Management, which is a wholly-owned subsidiary of John
Hancock Subsidiaries, Inc., which is a wholly-owned subsidiary of John
Hancock Mutual Life Insurance Company. JHA has sole voting and
dispositive power over the 315,000 shares of common stock over which it
has direct beneficial ownership.
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<PAGE>
DESCRIPTION OF RB ASSET CAPITAL STOCK
General
The amended and restated certificate of incorporation and certificate
of designation of River Distribution Sub, as in effect immediately prior to the
Merger will be the certificate of incorporation and the certificate of
designation for RB Asset upon consummation of the Merger. The following
description of the capital stock of RB Asset assumes consummation of the Merger.
RB Asset's amended and restated certificate of incorporation (the "RB
Asset Certificate"), as amended by the certificate of merger filed in connection
with the Merger, authorizes the issuance of up to 30,000,000 shares of common
stock, $1.00 par value (the "RB Asset Common Stock"), and 10,000,000 shares of
RB Asset preferred stock, $1.00 par value, (the "RB Asset Preferred Stock"). Of
the 30,000,000 shares of authorized RB Asset Common Stock, 7,100,000 have been
issued and are outstanding. Of the 10,000,000 shares of authorized RB Asset
Preferred Stock, 1,400,000 shares of 15% non-cumulative perpetual preferred
stock, series A have been designated and issued pursuant to a certificate of
designation (the " RB Asset Certificate of Designation") and are outstanding
(the "RB Asset Series A Preferred Stock"). As of the date hereof, RB Asset has a
total of 7,100,000 shares of RB Asset Common Stock and 1,400,000 shares of RB
Asset Series A Preferred Stock outstanding, all of which are held by the Bank.
The RB Asset Certificate and the RB Asset Certificate of Designation
are substantially the same as the restated organization certificate of River
Bank (the "River Bank Organization Certificate") and the certificate of
designations with respect to the River Bank Series A Preferred Stock, with one
exception. In order to preserve certain rights of the holders of the River Bank
Series A Preferred Stock existing prior to the Reorganization, the RB Asset
Certificate of Designation for the RB Asset Series A Preferred Stock provides
that holders of the RB Asset Series A Preferred Stock will have the right to
elect two directors if RB Asset or the Bank shall have failed to make the
payment of full dividends on the RB Asset Series A Preferred Stock (or the
declaration of such full dividends and the setting apart of a sum sufficient for
payment thereof) with respect to each of any six (6) dividend periods, whether
consecutive or not. River Bank has not paid a quarterly dividend on the River
Bank Series A Preferred Stock since March 30, 1996.
As is the case with the Bank, the of RB Asset Board has the power from
time to time to issue additional shares of RB Asset Common Stock or RB Asset
Preferred Stock authorized by the RB Asset Certificate without obtaining
approval of RB Asset's stockholders. The rights, qualifications, limitations and
restrictions on each series of RB Asset Preferred Stock issued will be
determined by the RB Asset Board and approved as required by the DGCL or
otherwise, at the time of issuance and may include, among other things, rights
in liquidation, rights to participating dividends, voting rights and the right
to convert into RB Asset Common Stock.
RB Asset Common Stock
The following summary of the terms of the RB Asset Common Stock does
not purport to be complete and is subject to, and is qualified in its entirety
by, the provisions of the RB Asset Certificate and the by-laws of RB Asset (the
"RB Asset By-Laws"). See "AVAILABLE INFORMATION."
Dividends. RB Asset may pay dividends as declared from time to time by
the RB Asset Board out of funds legally available therefor. See "RISK FACTORS --
Uncertainty as to Dividend Payments to Holders of RB Asset Preferred Stock and
RB Asset Common Stock" for certain restrictions on the payment of dividends.
Voting Rights. Except as provided with respect to any series of RB
Asset Preferred Stock, the holders of RB Asset Common Stock possess exclusive
voting rights in RB Asset. Each holder of RB Asset Common Stock is
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<PAGE>
entitled to one vote for each share held on all matters voted upon by
stockholders. Stockholders are not permitted to cumulate votes in elections of
directors.
Liquidation. Subject to the prior rights of the holders of any shares
of RB Asset Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of RB Asset, the holders of the RB Asset
Common Stock would be entitled to receive, after payment of all debts and
liabilities of RB Asset, all assets of RB Asset available for distribution.
Preemptive Rights. Holders of the RB Asset Common Stock do not have any
preemptive rights with respect to any shares which may be issued by RB Asset in
the future; RB Asset, therefore, may sell shares of capital stock without first
offering them to the then stockholders of RB Asset.
Special Stockholders' Meetings. Special meetings of the stockholders of
RB Asset may be called at any time by the RB Asset Board, the President or the
Chairman of the Board and shall be called by the President or the Secretary upon
the written request of the holders of a majority of the outstanding shares of
capital stock of RB Asset entitled to vote at the meeting.
RB Asset Series A Preferred Stock
The following summary of the terms of the RB Asset Series A Preferred
Stock does not purport to be complete and is subject to, and is qualified in its
entirety by, the provisions of the RB Asset Certificate and RB Asset By-laws and
the RB Asset Certificate of Designation. SEE"AVAILABLE INFORMATION."
General. The RB Asset Certificate authorizes RB Asset to issue
10,000,000 shares of RB Asset Preferred Stock in series. The RB Asset Board has
the power to fix various terms with respect to such shares, including voting
powers, designations, preferences, price, dividend rate, conversion and exchange
provisions, redemption provisions and the amounts that holders are entitled to
receive upon any dissolution, liquidation or winding up of RB Asset.
The RB Asset Certificate of Designation authorizes the issuance of up
to 1,400,000 shares of RB Asset Series A Preferred Stock. The RB Asset Series A
Preferred Stock is perpetual and is not subject to any sinking fund or other
obligation of RB Asset to redeem or retire the RB Asset Series A Preferred
Stock.
Ranking. The RB Asset Series A Preferred Stock ranks prior to the RB
Asset Common Stock with respect to dividend rights and rights upon the voluntary
or involuntary dissolution, liquidation or winding up of RB Asset, and to all
other classes and series of equity securities of RB Asset hereafter issued,
other than any class or series of equity securities of RB Asset expressly
designated as being on a parity with or senior to the RB Asset Series A
Preferred Stock with respect to dividend rights or rights upon any such
dissolution, liquidation or winding up. The RB Asset Common Stock and any other
classes or series of equity securities of RB Asset not expressly designated as
being on a parity with or senior to the RB Asset Series A Preferred Stock are
referred to hereafter as "Junior Stock". The rights of holders of shares of RB
Asset Series A Preferred Stock are subordinate to the rights of RB Asset's
creditors. RB Asset has the power to create and issue additional RB Asset
Preferred Stock to other classes of stock ranking on a parity with the RB Asset
Series A Preferred Stock, or that constitute Junior Stock, without any approval
or consent of the holders of RB Asset Series A Preferred Stock. However, while
any shares of RB Asset Series A Preferred Stock are outstanding, RB Asset may
not issue any capital stock that ranks senior to the RB Asset Series A Preferred
Stock without the approval of holders of at least 662/3% of the outstanding
shares of RB Asset Series A Preferred Stock, voting as a class. See "-- Voting
Rights" below. The RB Asset Common Stock is the only other class of capital
stock of RB Asset which will be outstanding immediately following consummation
of the Reorganization.
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<PAGE>
Dividend Rights. Holders of RB Asset Series A Preferred Stock will be
entitled to receive, when, as and if declared by the RB Asset Board, out of
funds legally available therefor, non-cumulative cash dividends at the rate of
15% per annum ($3.75 per share per annum). Dividends on the RB Asset Series A
Preferred Stock will be payable, if declared, quarterly in as nearly as possible
equal proportions in arrears as provided in the RB Asset Certificate of
Designation on the 15th day of January, April, July and October in each year (or
if such day is not a business day, on the next business day) (each such date, a
"Dividend Payment Date"), commencing on the first Dividend Payment Date after
the effective time of the Merger. The amount of dividends payable for any period
of less than a full three months will be computed on the basis of a 360-day year
composed of 12 months of 30 days and the actual number of days elapsed.
Dividends declared, if any, will be payable to holders of record as they appear
on the stock books of RB Asset (or of any transfer agent for the RB Asset Series
A Preferred Stock) at the close of business on such record dates (each, a
"Dividend Record Date") not more than 50 calendar days nor fewer than ten
calendar days preceding the Dividend Payment Date thereof, as determined by the
Board.
The right of holders of RB Asset Series A Preferred Stock to receive
dividends is non-cumulative. Accordingly, if the RB Asset Board does not declare
a dividend payable in respect of any quarterly dividend period (a "Dividend
Period"), then holders of RB Asset Series A Preferred Stock will have no right
to receive, and RB Asset will have no obligation to pay, a dividend in respect
of such Dividend Period, whether or not dividends are declared payable in
respect of any future Dividend Period. Dividends on the RB Asset Series A
Preferred Stock will not be declared and paid if payment of such dividends is
then restricted by applicable law.
No full dividends may be declared or paid or set aside for payment as
dividends on any class or series of equity securities ranking, as to dividends,
on a parity with the RB Asset Series A Preferred Stock for any Dividend Period
unless full dividends on the RB Asset Series A Preferred Stock for such Dividend
Period shall have been paid or declared and set aside for payment. If, with
respect to any Dividend Period, dividends are not so declared and paid in full
upon the RB Asset Series A Preferred Stock, dividends on the RB Asset Series A
Preferred Stock and any such class or series of equity securities ranking on a
parity with the RB Asset Series A Preferred Stock shall only be declared pro
rata based upon the respective amounts that would have been paid on the RB Asset
Series A Preferred Stock and such other equity securities had dividends been
paid in full.
RB Asset may not (i) declare or (ii) pay or set apart funds for any
dividends or other distributions (other than in RB Asset Common Stock or other
Junior Stock) with respect to any RB Asset Common Stock or other Junior Stock or
(iii) (except by conversion into or exchange for Junior Stock) repurchase,
redeem, or otherwise acquire, or set apart funds for the repurchase, redemption
or other acquisition of, any RB Asset Common Stock or other Junior Stock through
a sinking fund or otherwise, unless RB Asset has, in the case of clause (i)
declared, or in the case of clauses (ii) or (iii), paid (or set aside an amount
for payment of) full dividends on the RB Asset Series A Preferred Stock with
respect to the same calendar quarter for which (a) the dividend or other
distribution is being declared or paid, as the case may be, on the RB Asset
Common Stock or other Junior Stock or (b) the RB Asset Common Stock or other
Junior Stock is being purchased, redeemed or otherwise acquired.
No dividend may be paid or set aside for holders of the RB Asset Series
A Preferred Stock for any Dividend Period unless full dividends have been paid
or set aside for the holders of each class of series of equity securities of RB
Asset ranking prior to the RB Asset Series A Preferred Stock as to dividends.
Therefore, RB Asset's ability to pay dividends on the RB Asset Series A
Preferred Stock may be subject to the prior and superior rights of holders of
any senior class or series of equity securities of RB Asset.
RB Asset's ability to pay dividends on the RB Asset Series A Preferred
Stock is subject to certain restrictions. See "-- Restrictions on Dividends and
Redemptions."
Liquidation. Holders of shares of RB Asset Series A Preferred Stock
shall be entitled to receive a liquidation distribution in the amount of $25.00
per share, plus unpaid dividends for the then-current Dividend Period
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<PAGE>
up to, but excluding, the date fixed for liquidation (the "Liquidation Date") in
the event of any voluntary or involuntary dissolution, liquidation or winding up
of RB Asset, out of the net assets of RB Asset legally available for
distribution to stockholders under applicable law, or the proceeds thereof,
before any payment or distribution of assets is made with respect to any RB
Asset Common Stock or any other Junior Stock (subject to the rights of the
holders of any class or series of equity securities having preference over the
RB Asset Series A Preferred Stock with respect to distributions upon liquidation
and the rights of RB Asset's creditors). After payment of the full amount of the
liquidating distribution to which they are entitled, holders of shares of RB
Asset Series A Preferred Stock will not be entitled to any further participation
in any liquidating distribution of assets by RB Asset.
If the amounts available for distribution in respect of shares of RB
Asset Series A Preferred Stock and any other outstanding equity securities
ranking on a parity with the RB Asset Series A Preferred Stock are not
sufficient to satisfy the full liquidation rights of all the outstanding shares
of the RB Asset Series A Preferred Stock and such other equity securities, then
the holders of such outstanding shares will share ratably in any such
distribution of assets in proportion to the full respective preferential amount
to which they are entitled. All distributions made in respect of the RB Asset
Series A Preferred Stock in connection with such a liquidation, dissolution or
winding up of RB Asset will be made pro rata to the holders of the RB Asset
Series A Preferred Stock entitled thereto. Neither the consolidation or merger
of RB Asset with or into any other entity, nor the consolidation or merger of
any other entity with or into RB Asset, nor a sale, transfer or lease of all or
any part of the assets of RB Asset will be considered a dissolution, liquidation
or winding up of RB Asset.
The liquidation preference of the RB Asset Series A Preferred Stock is
not necessarily indicative of the price at which the shares may actually trade
at or after the date of issuance.
Voting Rights. Holders of shares of RB Asset Series A Preferred Stock
are not entitled to any voting rights, except as required by applicable law and
in the limited circumstances described below.
So long as any shares of RB Asset Series A Preferred Stock are
outstanding, RB Asset will not, without the consent of the holders of at least
662/3% of the outstanding shares of RB Asset Series A Preferred Stock voting
together as a single class, (i) amend, alter or repeal or otherwise change any
provision of the RB Asset Certificate or the RB Asset Certificate of Designation
if such amendment, alteration, repeal or change would materially and adversely
affect the rights, preferences, powers or privileges of the RB Asset Series A
Preferred Stock or (ii) create, authorize, issue or increase the authorized or
issued amount of any class or series of any equity securities of RB Asset, or
any warrants, options or other rights convertible or exchangeable into any class
or series of any equity securities of RB Asset, ranking prior to the RB Asset
Series A Preferred Stock either as to dividend rights or rights upon the
voluntary or involuntary dissolution, liquidation or winding up of RB Asset. No
vote of the holders of the RB Asset Series A Preferred Stock will be required in
the case of any of the following, which are not deemed to be a material adverse
change to the rights, preferences, powers or privileges of the RB Asset Series A
Preferred Stock:
(a) an amendment of the RB Asset Certificate which increases
the number of shares of preferred stock which RB Asset is authorized to
issue;
(b) the creation or issuance of Parity Stock (as defined in
the RB Asset Certificate of Designation) or Junior Stock;
(c) the distribution of assets upon a voluntary or involuntary
liquidation, dissolution or winding up of RB Asset, or
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(d) in connection with a merger, consolidation, reorganization
or other business combination involving RB Asset (any such transaction
being hereinafter referred to as a "RB Asset Reorganization") if:
(1) the resulting, surviving or acquiring corporation, or,
if the direct owner of all the equity securities of such
resulting, surviving or acquiring corporation is a corporation
and such corporation will be the issuer of the shares of stock
issued as set forth in clause (d) (2) below, such corporation
(the "parent corporation"), will have after such RB Asset
Reorganization no stock outstanding ranking prior to the RB
Asset Series A Preferred Stock or the stock of the resulting,
surviving or acquiring corporation or the parent corporation,
as the case may be, issued in exchange therefor (except such
stock of the resulting, surviving, acquiring or parent
corporation (the "Mirror Stock") which is issued in exchange
for other series of preferred stock of RB Asset which are
outstanding immediately preceding such RB Asset Reorganization
and which were not issued in violation of the terms of the
Certificate of Designations (the "Exchanged Stock"), which
Mirror Stock contains the same relative powers, preferences,
privileges or rights, including, without limitation,
substantially equivalent voting and conversion rights, as the
Exchanged Stock); and
(2) either (A) each holder of shares of RB Asset Series A
Preferred Stock immediately preceding such RB Asset
Reorganization will receive in exchange therefor the same
number of shares of stock, with substantially the same powers,
preferences, privileges and rights, including, without
limitation, substantially equivalent voting and conversion
rights, of the resulting, surviving or acquiring corporation,
or such corporation's parent corporation, or (B) RB Asset is
the surviving corporation and the RB Asset Series A Preferred
Stock remains outstanding without any change to its powers,
preferences, privileges or rights, including, without
limitation, voting and conversion rights.
RB Asset may distribute to the holders of (a) the RB Asset Series A Preferred
Stock in exchange therefor the same number of shares of the resulting, surviving
or acquiring corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights, including,
without limitation, substantially equivalent voting and conversion rights, of
the resulting, surviving, or acquiring corporation, or such corporation's parent
corporation, and (b) the RB Asset Common Stock in exchange therefor the same
number of common shares of the resulting, surviving or acquiring corporation or
the parent corporation, as the case may be, with substantially the same powers,
preferences, privileges and rights, including, without limitation, substantially
equivalent voting and conversion rights, of the resulting, surviving, or
acquiring corporation, or such corporation's parent corporation as contemplated
by a RB Asset Reorganization notwithstanding any limitations otherwise described
under "--Dividend Rights."
Holders of the RB Asset Series A Preferred Stock will not be entitled
to vote upon the election of members of the Board or other matters in general.
Holders of the RB Asset Series A Preferred Stock, however, will be entitled to
elect two members of RB Asset's Board to fill two newly-created directorships
upon the occurrence of a "Voting Event." A Voting Event occurs if RB Asset or
the Bank fails to pay full dividends on the RB Asset Series A Preferred Stock or
the River Bank Series A Preferred Stock (or to declare such full dividends and
set apart a sum sufficient for payment thereof) with respect to each of any six
Dividend Periods, whether consecutive or not. River Bank has not paid a
quarterly dividend on the River Bank Series A Preferred Stock since March 30,
1996.
Upon the occurrence of a Voting Event, the holders of shares of RB
Asset Series A Preferred Stock voting together as a single class with the
holders of any other Parity Stock as to which the payment of dividends is in
arrears and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable for six quarterly dividend periods (or if dividends are
payable other than on a quarterly basis, a number of dividend periods, whether
or not consecutive, containing in the aggregate not less than 540 calendar days)
and upon which by its terms the same right to elect two directors has been
conferred and is exercisable ("Voting Parity Stock")), will have the exclusive
right
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to elect two directors of RB Asset to fill two newly-created directorships at RB
Asset's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders at which the terms of such directors expire until such
election right terminates. At any time when the right to elect directors has
been vested, RB Asset may, and upon the written request of the holders of record
of not less than 20% of the total number of shares of the RB Asset Series A
Preferred Stock and the Voting Parity Stock then outstanding will, call a
special meeting of the holders of such shares to fill such newly-created
directorships.
The right of holders of RB Asset Series A Preferred Stock to elect
directors will continue until dividends on the RB Asset Series A Preferred Stock
have been paid for four consecutive Dividend Periods, at which time such voting
rights of the holders of the RB Asset Series A Preferred Stock will, without
further action, terminate, subject to revesting in the event of the occurrence
of a subsequent Voting Event. The term of office of all directors elected by the
holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock in
office at any time when the aforesaid voting right is vested in such holders
will terminate upon the election of their successors at any meeting of
stockholders for the purpose of electing directors; provided, however, that,
without further action and unless otherwise required by law, any directors who
shall have been elected by the holders of the RB Asset Series A Preferred Stock
and the Voting Parity Stock as described above may be removed at any time,
either with or without cause by the affirmative vote of the holders of record of
a majority of the outstanding shares of the RB Asset Series A Preferred Stock
and the Voting Parity Stock, voting together as one class, at a duly held
stockholders' meeting. Upon termination of the voting rights of the RB Asset
Series A Preferred Stock in accordance with the foregoing provisions, the term
of office of all directors elected by the holders of the RB Asset Series A
Preferred Stock pursuant thereto then in office will, without further action,
terminate unless otherwise required by law (or at such later time as the voting
right of the Voting Parity Stock terminates by its terms). Upon such termination
the number of directors constituting the Board will, without further action, be
reduced by two, subject always to the increase of the number of directors
pursuant to the foregoing provisions in the case of the future right of such
holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock to
elect directors as described above.
Unless otherwise required by law, in the case of any vacancy occurring
among the directors so elected, the remaining director who shall have been so
elected may appoint a successor to hold office for the unexpired term of the
director whose place shall be vacant, and if both directors so elected by the
holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock
cease to serve as directors before their terms expire, the holders of the RB
Asset Series A Preferred Stock and the Voting Parity Stock then outstanding may,
at a meeting of such holders duly held, elect successors to hold office for the
unexpired terms of the directors whose places shall be vacant.
The RB Asset Certificate of Designation provides that if for any reason
the holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock
would not be able to elect the specified number of directors at the next annual
meeting of stockholders in the manner described above, RB Asset will use its
best efforts to take all actions necessary to permit the full exercise of such
voting rights which will include, if necessary, taking action to increase the
authorized number of directors standing for election at such next annual meeting
of stockholders or seeking to amend, alter or change the RB Asset Certificate or
the RB Asset By-laws.
In connection with any matter on which holders of the RB Asset Series A
Preferred Stock are entitled to vote as one class or otherwise pursuant to law
or the provisions of the Certificate of Incorporation, including, without
limitation, the election of directors as set forth above, each holder of the RB
Asset Series A Preferred Stock will be entitled to one vote for each share of
the RB Asset Series A Preferred Stock held by such holder.
No Other Rights. The shares of RB Asset Series A Preferred Stock have
no other preferences, voting powers or relative, participating, optional or
other special rights except as described in the RB Asset Certificate of
Designation or in the RB Asset Certificate or as otherwise required by law.
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Redemption. The RB Asset Series A Preferred Stock is perpetual and is
not redeemable prior to July 1, 2004. The RB Asset Series A Preferred Stock is
redeemable by RB Asset at its option at any time on or after July 1, 2004, in
whole or in part, at the per share redemption prices set forth below in cash,
plus in each case an amount in cash equal to accrued but unpaid dividends for
the then current Dividend Period up to, but excluding, the date fixed for
redemption (the "Redemption Date") without the accumulation of unpaid dividends
for prior Dividend Periods:
If redeemed during the
12-month period
beginning July 1, Price
- ------------------------------------------------------------------------------
2004...................................................... $ 27.50
2005...................................................... 27.25
2006...................................................... 27.00
2007...................................................... 26.75
2008...................................................... 26.50
2009...................................................... 26.25
2010...................................................... 26.00
2011...................................................... 25.75
2012...................................................... 25.50
2013...................................................... 25.25
2014 and thereafter....................................... 25.00
The aggregate redemption price payable to each holder of record of RB
Asset Series A Preferred Stock to be redeemed will be rounded to the nearest
cent ($0.01).
If fewer than all the outstanding shares of RB Asset Series A Preferred
Stock are to be redeemed, the shares to be redeemed shall be selected pro rata
or by lot or by such other method as the RB Asset Board, in its sole discretion,
determines to be equitable.
Redemption of the RB Asset Series A Preferred Stock will be subject to
compliance with legal and other restrictions described below.
Note Exchange
Subject to the terms and conditions set forth below, in the event of a
Change of Control (as defined below), the Note Issuer (as defined below) may, at
its option, exchange (the "Note Exchange") all or part of the outstanding RB
Asset Series A Preferred Stock for subordinated notes (the "Notes") of the Note
Issuer. Pursuant to a Note Exchange, each $1,000 in liquidation value of the
shares of RB Asset Series A Preferred Stock covered thereby will be exchangeable
for $1,000 principal amount of Notes. Such Notes shall have the terms, covenants
and conditions substantially as set forth in the indenture (the "Indenture")
described under "Description of Notes" below. The rate of interest on the Notes
shall be 15%, the maximum principal amount of the Notes shall be 100% of the
aggregate liquidation preference of the RB Asset Series A Preferred Stock to be
exchanged and the principal of such Notes shall not be payable prior to July 1,
2004 and shall be payable thereafter only in accordance with the redemption
provisions set forth in the Indenture.
"Change of Control" means the occurrence of any of the following
events:
(i) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act),
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directly or indirectly, of more than 50% of the stock of any class or
classes, however designated, of capital stock of RB Asset having
ordinary voting power for the election of a majority of the RB Asset
Board, other than any stock having such power only by reason of the
occurrence of a contingency, on a fully diluted basis (the "Voting
Stock"); or
(ii)RB Asset (x) shall consolidate with or merge into any
person, other than a wholly-owned subsidiary of RB Asset, and shall not
be the continuing or surviving corporation of such consolidation or
merger or (y) shall permit any person, other than a wholly-owned
subsidiary of RB Asset, to consolidate with or merge into RB Asset and
RB Asset shall be the continuing or surviving corporation, but, in
connection with such merger, the shares of Voting Stock outstanding
immediately prior to the consolidation or merger shall be changed into
or exchanged for stock or other securities of any other person or cash
or any other property or shall represent less than 50% of the shares of
Voting Stock immediately after giving effect to the consolidation or
merger;
provided that in the case of each of clause (i) and (ii) above a Change of
Control shall not be deemed to occur in the event (i) that Alvin Dworman, two
partnerships, the partners of which are trusts for the benefit of certain
descendants of Nicholas J. Pritzker, deceased or Odyssey Partners, L.P., a
Delaware limited partnership, or their respective affiliates, acquire,
individually or in the aggregate, more than 50% of the Voting Stock of RB Asset
or (ii) RB Asset reorganizes into the holding company form of organization in a
transaction which does not result in a material change in the holders of the
Voting Stock, other than by means of dissenting shares.
"Note Issuer" means, in the case of clause (i) of the definition of
"Change in Control," RB Asset, and in the case of clause (ii) of the definition
of "Change in Control," (a) the continuing or surviving corporation of a
consolidation merger with RB Asset (if other than RB Asset) and (b) the
corporation consolidating or merging into RB Asset in a consolidation or merger
in which RB Asset is the continuing or surviving person and in connection with
which the shares of Voting Stock outstanding immediately prior to the
consolidation or merger are changed into or exchanged for stock or other
securities of any other person or cash or any other property or shall represent
less than 50% of the shares of Voting Stock immediately after giving effect to
the consolidation or merger.
The Note Issuer may elect to consummate the Note Exchange at any time
following a Change of Control and prior to July 1, 2014. The Note Issuer shall
elect to consummate the Note Exchange by mailing to each holder of record of the
RB Asset Series A Preferred Stock (a "Holder") a notice of exchange (the "Note
Exchange Notice") at such Holder's address as it appears on the books of RB
Asset. The Note Exchange Notice shall specify (i) a date not less than 30 days
nor more than 60 days following the date of the Note Exchange Notice on which
the Note Exchange is to be consummated (the "Note Exchange Date"), (ii) the
procedures for exchanging certificates representing the RB Asset Series A
Preferred Stock for certificates representing the Notes and (iii) the number of
shares of RB Asset Series A Preferred Stock to be exchanged and, if applicable,
each Holder's pro rata portion of shares to be exchanged.
In the event that the Note Exchange shall be for less than all of the
outstanding shares of RB Asset Series A Preferred Stock, the Note Exchange shall
be effected pro rata among all Holders, unless the Holders otherwise agree, and,
in addition to certificates evidencing the Notes, all Holders shall receive a
certificate evidencing the shares of RB Asset Series A Preferred Stock not so
exchanged.
As of 5:00 p.m., New York City time, on the Note Exchange Date, the
shares of RB Asset Series A Preferred Stock to be exchanged pursuant to the Note
Exchange Notice shall no longer be deemed to be outstanding and shall be retired
and all rights with respect to such shares, including, without limitation, the
rights, if any, to receive dividends and to receive notices and to vote or
consent (except for the right of the Holders to receive the Notes to which such
Holder is entitled pursuant to the Note Exchange) shall forthwith cease.
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Upon any exchange of shares of RB Asset Series A Preferred Stock into
Notes, the Note Issuer will pay any documentary, stamp or similar issue or
transfer taxes which may be due with respect to the transfer and exchange of
such exchanged shares, if any; provided, however, that if the Notes into which
the shares of RB Asset Series A Preferred Stock are exchangeable are to be
issued in the name of any person other than the Holder of the shares of RB Asset
Series A Preferred Stock to be so exchanged, the amount of any transfer taxes
(whether imposed on the Note Issuer, the holder or such other person) payable on
account of the transfer to such person will be payable by the Holder.
A Note Exchange shall comply with all applicable federal and state
securities and blue sky laws and the provisions of the RB Asset Certificate of
Designation dealing therewith may be modified by the Note Issuer without the
approval of the holders of the RB Asset Series A Preferred Stock in order to
effect such compliance.
It will be a condition to the Note Exchange that: (i) the Notes have
been registered under the 1933 Act, unless an exemption from registration is
available, (ii) the Indenture pursuant to which the Notes are to be issued has
been executed and delivered by the Note Issuer, (iii) the trustee appointed
pursuant to the Indenture shall have received an opinion (in the form specified
in the Indenture) to the effect that the Notes will, when issued in accordance
with the terms of the Indenture, be legal, valid, binding and enforceable
obligations of the Note Issuer and (iv) immediately after the Note Exchange, no
default or event of default will exist under the Indenture.
Restrictions on Dividends and Redemptions.
RB Asset's ability to declare and pay dividends on the RB Asset Series
A Preferred Stock and to redeem the RB Asset Series A Preferred Stock is subject
to a number of restrictions. There can be no assurance that any dividend on the
RB Asset Series A Preferred Stock will be declared or, if so, in what amount.
Further, there can be no assurance that dividends, once declared, will continue
for any future Dividend Periods. The declaration and payment of future dividends
on, and any redemption of, the RB Asset Series A Preferred Stock will be subject
to business conditions, the earnings and financial condition of RB Asset and the
judgment of the Board. Dividends and redemptions are also affected by dividend
restrictions and limitations imposed by the Marine Senior Loan and the General
Corporation Law of the State of Delaware. See "RISK FACTORS -- Uncertainty as to
Dividend Payments to Holders of RB Asset Preferred Stock and RB Asset Common
Stock."
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DESCRIPTION OF NOTES
The Notes are to be issued under the Indenture between the Note Issuer
and a trustee to be appointed by it pursuant to the terms thereof (the
"Trustee"). The Indenture cannot be executed prior to consummation of a Change
of Control. The following summary of certain provisions of the form of Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the full text of the form of Indenture, including the
definition of certain terms in the Indenture. See "Available Information."
Wherever particular provisions and definitions of the Indenture are referred to,
such provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by those
references. Section references are to applicable sections of the Indenture.
The form of Indenture is subject to necessary and appropriate changes
prior to the Note Exchange, provided that such changes do not materially and
adversely affect the rights and interests of holders of RB Asset Series A
Preferred Stock. Such changes may include, among other things, changes necessary
to qualify the Indenture pursuant to the Trust Indenture Act, and other changes
as may be necessary based on the identity of the Note Issuer and the
circumstances of the issuance of the Notes. In the event that any of the
foregoing or other changes would result in a material and adverse effect on the
rights and interests of holders of the RB Asset Series A Preferred Stock, the
approval of the holders of at least 662/3% of the outstanding shares of RB Asset
Series A Preferred Stock will be required in order to make such change. The
inability to obtain such approval could result in the Note Issuer failing to
issue the Notes.
General
The Notes will be limited in aggregate principal amount to the
aggregate liquidation preference of the then outstanding shares of RB Asset
Series A Preferred Stock (maximum of approximately $35,000,000). The Notes will
mature on July 1, 2014. The Notes will be unsecured subordinated obligations of
the Note Issuer and will be issued in fully registered form only in
denominations of $1,000 and integral multiples thereof.
The Notes will bear interest from the date of their initial issuance,
at the rate of 15% per annum, payable quarterly in arrears on the 15th day of
January, April, July and October of each year following the Note Exchange, or if
such day is not a Business Day ("Interest Payment Date"), on the next Business
Day, to the holders of record, with certain exceptions, at the close of business
on the last day (whether or not a Business Day) of the month in which an
Interest Payment Date occurs (each, a "Regular Record Date"). Interest will be
computed on the basis of a 360- day year of 12 30-day months.
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Redemption
The Notes may not be redeemed by the Note Issuer prior to July 1, 2004.
The Notes will be redeemable at the option of the Note Issuer, in whole or in
part, at any time or from time to time on or after July 1, 2004 at the
redemption prices (expressed in percentages of $1,000 of principal amount) of
Notes set forth below, plus in each case an amount equal to accrued interest, if
any, to (and including) the redemption date.
Redemption
Price Per
If redeemed during the $1,000 of
twelve-month period Principal
beginning July 1, Amount
- ----------------------------------------------------------- -----------
2004...................................................... $ 1,100
2005...................................................... 1,090
2006...................................................... 1,080
2007...................................................... 1,070
2008...................................................... 1,060
2009...................................................... 1,050
2010...................................................... 1,040
2011...................................................... 1,030
2012...................................................... 1,020
2013...................................................... 1,010
2014 and thereafter....................................... 1,000
If at any time less than all of the outstanding Notes are to be
redeemed, selection of Notes for redemption will be made by the Trustee by lot.
Notes may be redeemed in part in integral multiples of $1,000 provided that the
remaining principal amount of any Note redeemed in part shall not be less than
$1,000. Notice of redemption will be mailed to each holder of a Note to be
redeemed at his address as set forth in the Note register at least 30 days but
not more than 60 days before the redemption date. On and after the date of
redemption interest will cease to accrue on Notes or portions thereof called for
redemption. (Sections 10.02 and 10.03)
Subordination
The Indenture will provide that the Notes will be subordinate in right
of payment to Senior Debt (as hereinafter defined). No amounts may be paid to
the holders of the Notes (until all Senior Debt has been paid in full) if there
occurs an acceleration of maturity of the Notes or an insolvency, bankruptcy,
reorganization or similar proceeding or a liquidation or other winding up of the
Notes. No payment on account of principal or interest in respect of the Notes
may be made if at the time of such payment there shall have occurred and be
continuing beyond any applicable grace period, a default in any payment with
respect to any Senior Debt, or there shall have occurred an event of default
with respect to any Senior Debt permitting the holders thereof to accelerate the
maturity thereof, unless and until the earlier of the date (a) on which such
default in payment or event of default has been cured or waived or shall have
ceased to exist and (b) which is 180 days after the occurrence of such default,
unless extended in the event of an uncured event of default on Senior Debt.
By reason of such subordination, in the event of an insolvency,
bankruptcy, reorganization or similar proceeding or a liquidation or other
winding up of the Note Issuer, holders of the Notes may recover less, ratably,
than other creditors of the Note Issuer, including holders of Senior Debt.
(Article 9)
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Senior Debt will be defined as the principal of and premium, if any,
and interest on all claims against the Note Issuer, including, without
limitation, commercial paper, repurchase agreements, secured debt and RB Asset's
other obligations to its general and secured creditors, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or guaranteed
by the Note Issuer, and all renewals, extensions or refunding thereof. Senior
Debt will not include the Notes, any indebtedness ranking on a parity with or
junior to the Notes or indebtedness for money borrowed by the Note Issuer from a
subsidiary or affiliate.
The Indenture will contain no restrictions upon the creation of Senior
Debt but will prohibit the creation of liabilities that are junior in right of
payment to Senior Debt and senior in right of payment to the Notes.
The Indenture will permit, without limitation, the creation of
liabilities ranking on a parity with, or junior in right of payment to, the
Notes. (Section 3.12)
Limitations on Dividends
The Note Issuer will agree in the Indenture that so long as any of the
Notes are outstanding, it will not declare or pay or set apart any funds for the
payment of dividends on, or make any other distribution in respect of, or make
or permit any subsidiary or affiliate to make any payment on account of the
purchase, redemption or other acquisition or retirement of, any shares of the
Note Issuer's capital stock (other than dividends or distributions payable
solely in shares of its capital stock) if (at the time of such action and after
giving effect, as if paid, to the proposed dividend, distribution or payment) a
Default or an Event of Default shall have occurred and be continuing. (Section
3.02)
Certain Covenants
In addition to the limitations on dividends described above, the
Indenture will contain certain other covenants of the Note Issuer. Among other
things, the Note Issuer will covenant (i) to punctually pay the principal of and
interest on the Notes on the dates and in the manner provided in the Notes; (ii)
that neither the Note Issuer nor any Subsidiary will engage in transactions with
any Affiliate, except that the Note Issuer or Subsidiary may (x) make such
payments and investments and enter into such transactions on terms and
conditions at least as favorable to the Note Issuer or such Subsidiary, as the
case may be, as those that could be obtained in a comparable arm's length
transaction with a person who is not an Affiliate (as determined in good faith
by the Board of Directors of the Note Issuer, whose determination shall be
conclusive) and (y) make payments or provide compensation (including the
extension of credit in accordance with the requirements of applicable laws
and-regulations) for services rendered by any Affiliate who is an officer,
director or employee of the Note Issuer or any Subsidiary; (iii) to (x) file
with the Trustee within five days after it files them with the Commission,
copies of all annual, quarterly and other reports filed by the Note Issuer with
the Commission pursuant to Section 13 of the Exchange Act or, if the Note Issuer
is not subject to the requirements of such section, certain other information
based on certain of such requirements and (y) as long as any Notes are
outstanding, mail to each Note holder copies of the annual and quarterly reports
that it is required to file with the Trustee (or summaries thereof) within 30
days after such filing is required to be made; (iv) to keep, and to cause each
Subsidiary to keep, all Property useful in its business in good working order
and condition and to maintain and to cause each Subsidiary to maintain, with
financially sound and reputable insurance companies, insurance on all its
Property in at least such amounts as are usually insured against in the same
general area by companies of established repute engaged in a similar business;
(v) to keep, and to cause each Subsidiary to keep, proper books of record and
account and to cause its books of record and account and those of each of its
Subsidiaries to be examined on a consolidated basis by a nationally recognized
firm of independent public accountants not less frequently than annually for
purposes of preparing audited consolidated financial statements; (vi) that it
and its Subsidiaries will comply with applicable laws, rules and regulations and
renew any license, permit and other authorizations necessary to the ownership or
operation of their Properties or to the conduct of their businesses, if the
failure to so comply, obtain, preserve and renew adversely affects in any
material respect the Note Issuer's consolidated business,
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prospects, earnings, Properties or condition; (vii) to pay and to cause each
Subsidiary to pay prior to delinquency (x) all taxes, assessments and
governmental charges or levies imposed upon it or its Property and (y) all
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
and other persons which, if unpaid, might result in the creation of a lien upon
its Property, provided that, among other things, the Note Issuer or a Subsidiary
is not contesting any such items in good faith by appropriate proceedings;
(viii) to take certain actions in the event that it elects to act as paying
agent for the Notes; and (ix) to deliver to the Trustee on an annual basis an
Officer's Certificate dealing with compliance with its obligations under the
Indenture, including the covenants set forth therein.
(Article 3)
Mergers, Consolidations, Etc.
The Indenture will provide that the Note Issuer shall not consolidate
or merge with or transfer all or substantially all of its Property to any person
unless (i) the corporation formed by or surviving any such consolidation or
merger, or the person to which such transfer, sale, lease or conveyance shall
have been made, unconditionally assumes by supplemental indenture all the
obligations of the Note Issuer under the Notes and the Indenture, including but
not limited to the due and punctual payment of the principal of and interest on
all the Securities; (ii) immediately after the transaction, the Consolidated
Tangible Capital of the corporation formed by or surviving such consolidation or
merger, or the person to which such transfer, sale, lease or conveyance has been
made, shall not be a negative amount; and (iii) immediately after the
transaction no Default or Event of Default exists. (Article 4)
Modification of the Indenture; Waiver of Covenants
With the consent of holders of not less than a majority in aggregate
principal amount of the then outstanding Notes, the Note Issuer and the Trustee
may execute one or more supplemental indentures adding to, revising or
eliminating any provision of the Indenture, except that without the consent of
the holder of each Note so affected, no such supplemental indenture shall (i)
reduce the amount of Notes whose holders must consent to an amendment; (ii)
reduce the rate of or change the time for or in any way affect the terms of
payment of interest, including default interest, on any Note; (iii) reduce the
principal or change the fixed maturity of any Note, or change the date on which
any Note may be subject to redemption, or reduce the redemption price therefor,
(iv) make any Note payable in money other than U.S. dollars; (v) make any change
in the provisions of the Indenture relating to waiver of default, rights of
holders to receive payments or the circumstances under which the consent of all
of the holders of the Notes must be received in order to amend the Indenture; or
(vi) make any change in the provisions of the Indenture relating to
subordination in a manner adversely affecting the rights of any holder of the
Notes. Certain modifications to the Indenture may be made without notice to, or
consent of, the holders of the Notes. (Sections 8.01 and 8.02)
Events of Default
An Event of Default will be defined in the Indenture to include: (i)
failure by the Note Issuer to pay interest on any Note when due and payable, if
such failure continues for a period of 30 days; (ii) failure by the Note Issuer
to pay the principal of any Note when due and payable at maturity or upon
redemption, acceleration or otherwise; (iii) failure by the Note Issuer to
comply with any other agreement or covenant contained in the Indenture if such
failure continues for a period of 30 days after notice to the Note Issuer by the
Trustee or to the Note Issuer and the Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding; (iv) if a default (other than a
default on certain nonrecourse indebtedness) occurs under any instrument or any
other obligation representing indebtedness of the Note Issuer or any of its
subsidiaries if as a result of such default the indebtedness may be accelerated
and the aggregate principal amount of such defaulted indebtedness exceeds $10
million; (v) occurrence of certain events of bankruptcy, insolvency or
reorganization of the Note Issuer and (vi) existence of judgments against the
Note Issuer or a subsidiary in excess of $10 million which remain undischarged
60 days after all rights to review such judgment have been exhausted or have
expired.
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The Note Issuer will covenant in the Indenture to file annually with
the Trustee a statement regarding compliance by the Note Issuer with the terms
of the Indenture and specifying any defaults of which the signers may have
knowledge. (Section 3.10)
If an Event of Default occurs and is continuing, the Trustee or the
holders of not less than 25% in principal amount of the Notes then outstanding
may declare all the Notes to be immediately due and payable by notice to the
Note Issuer (and to the Trustee if given by the holders). Under certain
circumstances, the holders of a majority in principal amount of the Notes then
outstanding may rescind such a declaration. (Section 5.02)
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COMPARISON OF RIGHTS OF HOLDERS OF RIVER BANK CAPITAL STOCK
AND RB ASSET CAPITAL STOCK
Upon the consummation of the transactions contemplated in the
Reorganization, the stockholders of River Bank will become stockholders of River
Asset Sub (to be renamed RB Asset, Inc.). Currently, the rights of River Bank
stockholders are governed by the River Bank Organization Certificate, its
amended and restated by-laws (the "River Bank By-laws"), the New York Banking
Law and the General Regulations of the Banking Board of the State of New York
(the "New York Banking Board Regulations"). The rights of RB Asset stockholders
will be governed by the RB Asset Certificate, the RB Asset By-laws and the DGCL.
The following is a summary of certain similarities and differences
between the rights of River Bank stockholders and RB Asset stockholders under
the foregoing governing documents and applicable law. This summary does not
purport to be a complete statement of such similarities and differences. The
identification of specific similarities and differences is not meant to indicate
that other equally or more significant similarities and differences do not
exist. Such similarities and differences can be examined in full by reference to
the New York Banking Law, the DGCL and the respective corporate documents of
River Bank and RB Asset.
Special Meetings of Stockholders. Under the DGCL and the New York
Banking Law, a special meeting of stockholders may be called by the board of
directors or by any other person authorized to do so in the certificate of
incorporation (or organization certificate) or the by-laws. Both the River Bank
By-laws and the RB Asset By-laws permit a special meeting to be called for any
purpose or purposes by (i) the chairman of the board, (ii) the president, (iii)
the board of directors, or (iv) by the president or the secretary at the written
request of the holders of record of not less than a majority of the outstanding
shares of capital stock entitled to vote in an election of directors.
Amendment of By-laws. Under the DGCL and the New York Banking Law,
by-laws may be amended by stockholders entitled to vote; provided, however, a
corporation may confer the power to amend by-laws upon the directors. The fact
that such power has been so conferred upon the directors does not divest the
stockholders of their power to amend the by-laws. The RB Asset Certificate and
the RB Asset By-laws state that they may be amended or repealed, or new By-laws
may be adopted, by the affirmative vote of a majority of the outstanding stock
entitled to vote in an election of directors or by a majority of the RB Asset
Board. This stockholder right to amend or repeal the RB Asset By-laws includes
by-laws made by the RB Asset Board, and to adopt by-laws which, if so expressed,
may be amended or repealed only by stockholders entitled to vote in an election
of directors. The River Bank Certificate and River Bank By-laws contain similar
provisions.
Amendment of RB Asset and River Bank Certificates. Under the DGCL, a
company's certificate of incorporation may be amended only if such amendment is
approved by the board of directors and by a majority of the outstanding stock
entitled to vote thereon. Under the New York Banking Law, the amendment of a
company's organization certificate may occur upon a majority vote of the
stockholders. In addition, under the DGCL and the New York Banking Law, if a
corporation has more than one class or series of stock outstanding, certain
amendments that would affect the rights of any such class or series require the
vote of a majority of the shares of such class or series.
Actions by Written Consent of Stockholders. Under the DGCL, unless
otherwise provided in the certificate of incorporation, any action which may be
taken at a meeting of stockholders may be taken without a meeting and without
prior notice if written consents setting forth the action so taken are signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all stock entitled to vote thereon were present and voted. The RB Asset
Certificate does not provide otherwise.
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The New York Banking Law also provides for written consent except that
such written consent must be signed by the holders of all outstanding shares
entitled to vote on such action; provided, however, that the organization
certificate of a bank may allow for such written consent by less than all of the
holders entitled to vote. The River Bank Certificate does not contain such a
provision.
Voting Rights. Both the DGCL and the New York Banking Law provide that
stockholders are entitled to one vote for each share of capital stock held by
such stockholders. Both the RB Asset By-laws and the River Bank Bylaws provide
for one vote per share of record for the election of directors and all other
purposes. Under the DGCL and the New York Banking Law, cumulative voting in the
election of directors is not available unless specifically provided for in the
certificate of incorporation or in the organization certificate. There is no
provision for cumulative voting in the RB Asset Certificate or in the River Bank
Organization Certificate; thus the election of directors is determined by
plurality vote.
Size of the Board of Directors. The DGCL provides that the board of
directors of a Delaware corporation shall consist of one or more members. The
number of directors may be fixed by, or in the manner provided in, the
corporation's by-laws unless the certificate of incorporation fixes the number
of directors. The New York Banking Law provides that the number of directors
constituting the entire board of directors of stock-form savings banks with
capital stock, surplus fund and undivided profits of five million dollars or
more may not have less than seven directors or more than thirty directors. The
RB Asset Certificate and the RB Asset By-laws require that the number of
directors shall be not less than seven nor more than twenty, subject to the
rights, if any, of holders of any RB Asset Preferred Stock to elect additional
directors. The River Bank By-laws set the number of directors for River Bank
between a minimum of seven and a maximum of twenty.
Classification of Board of Directors. The DGCL permits, but does not
require, a classified board of directors, divided into as many as three classes
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. The New York Banking Law
also permits, but does not require, a classified board of directors divided into
three classes with staggered terms under which one-third of the directors are
elected for terms of three years. The RB Asset Certificate, the RB Asset
By-laws, as well as the River Bank By-laws require that their respective boards
be divided into three classes. Both the RB Asset By-laws and the River Bank
By-laws require that each class consists, as nearly as possible, of one-third of
the total number of directors constituting the entire board of directors and
that the terms of directors be staggered, with directors elected for a term of
three years.
Removal of Directors. Under the DGCL, a director of a corporation with
a classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. A director of a corporation
that does not have a classified board of directors or cumulative voting may be
removed with the approval of a majority of the outstanding shares entitled to
vote with or without cause. The RB Asset By-laws provide that the RB Asset Board
or any individual director may be removed from office at any time with cause by
the affirmative vote of the holders of the majority of the voting power of all
outstanding stock entitled to vote thereon.
Under the New York Banking Law, if the organization certificate or the
by-laws so provide, directors may be removed with or without cause by a majority
vote of the stockholders. The River Bank By-laws provide that any director may
be removed from the River Bank Board with or without cause, by the holders of a
majority of the shares of outstanding stock. In addition, under the DGCL and the
New York Banking Law, if holders of the shares of any class or series, voting as
a class, are entitled to elect one or more directors, any director so elected
may be removed only by the applicable vote of the holders of the shares of that
class or series, voting as a class.
Filling Vacancies in the Board of Directors. Under the DGCL, vacancies
may be filled by a majority of the directors then in office (even though less
than a quorum) unless otherwise provided in the certificate of incorporation or
by-laws. In addition, the DGCL provides that if, at the time of filling any
vacancy, the directors then in office
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constitute less than a majority of the board (as constituted immediately prior
to any such increase), the Delaware Court of Chancery may, upon application of
any holder or holders of at least ten percent of the total number of the
outstanding stock having the right to vote for directors, summarily order a
special election be held to fill any such vacancy or to replace directors chosen
by the board to fill such vacancies. The RB Asset By-laws provide, subject to
the rights of the holders of any series of RB Asset Preferred Stock outstanding,
that any vacancies occurring on the RB Asset Board, including newly created
directorships, may be filled by the affirmative vote of the majority of the
directors then in office.
Under the New York Banking Law all vacancies in the office of director,
including newly created directorships resulting from an increase in the number
of directors will be filled by election by the stockholders; however, vacancies
not exceeding one-third of the entire board may be filled by the affirmative
vote of a majority of the directors then in office, and the directors so elected
will hold office for the balance of the unexpired term. If the number of
directors required is nine or more, two vacancies may, with the consent of the
Superintendent, be left unfilled until the next annual election, and when the
number of directors required is more than five and less than nine, one vacancy
may, with the Superintendent's consent, be left unfilled until the next annual
election. The River Bank By-laws do not provide otherwise.
Payment of Dividends. The DGCL permits a corporation to declare and pay
dividends out of statutory surplus or, if there is no surplus, out of net
profits for the fiscal years in which the dividend is declared and/or for the
preceding fiscal year as long as the amount of capital of the corporation
following the declaration and payment of the dividend is not less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. In addition,
the DGCL generally provides that a corporation may redeem or repurchase its
shares only if such redemption or repurchase would not impair the capital of the
corporation. The RB Asset By-laws provide for the declaration of dividends in
accordance with the DGCL, subject to the provisions of the RB Asset Certificate
relating to RB Asset Series A Preferred Stock. The RB Asset By-laws also provide
that the RB Asset board may set aside as a reserve any funds the RB Asset board
believes necessary prior to the payment of dividends.
The New York Banking Law generally provides that a corporation may
declare and pay dividends or make other distributions in cash or property,
including the shares or bonds of other corporations, on its outstanding shares,
out of net profits or surplus, except when there is an impairment of capital
stock, or when the declaration, payment or distribution would be contrary to any
restrictions contained in the organization certificate. The River Bank
Certificate provides that no dividends, whether in cash, stock or other property
(except a dividend payable in River Bank Common Stock to River Bank), will be
paid or declared, nor any distribution made on the River Bank Common Stock, nor
shall any shares of River Bank Common Stock be purchased, retired or otherwise
acquired by River Bank, if after such action, the capital of River Bank would be
less than the minimum regulatory capital requirement set by the applicable
regulatory agencies. River Bank is currently subject to regulation by the FDIC
under the Federal Deposit Insurance Act (the "FDIA") and other federal banking
laws. Under the FDIA, River Bank is prohibited from declaring or paying
dividends or making any other capital distribution if, after such distribution,
the Bank would fail to meet its regulatory capital requirements. The FDIC also
has the authority to prohibit River Bank from paying dividends if the FDIC
determines that such payment constitutes an unsafe or unsound banking practice.
Appraisal Rights. Under the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal (or dissenters') rights pursuant to
which such stockholder may receive cash in the amount of the fair market value
of his or her shares in lieu of the consideration he or she would otherwise
receive in the transaction. Under the DGCL, such rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation, the shares of which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the NASD, or are held of record by more than 2,000 holders
if such stockholders receive only shares of the surviving corporation or shares
of any other
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corporation which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders, plus cash in lieu of fractional shares, or (c) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger because the
merger agreement does not amend the existing certificate of incorporation, each
share of the surviving corporation outstanding prior to the merger is an
identical outstanding or treasury share after the merger, and the number of
shares to be issued in the merger does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the merger and if certain
other conditions are met.
Under the New York Banking Law, the following stockholders have the
right to exercise dissenters' rights to obtain payment for the "fair value" of
their shares (excluding any appreciation or depreciation directly or indirectly
induced by such corporate action or its proposal): (a) in the case of a merger
pursuant to a plan submitted to stockholders, any stockholder of a merging
corporation entitled to vote on such merger and does not assent thereto; (b) in
the case of a plan of acquisition of assets submitted to stockholders, any
stockholder of the selling corporation entitled to vote on such acquisition of
assets and does not assent thereto; and (c) in the case of a sale, lease,
exchange or other disposition not made in the regular course of business and
involving all or substantially all of the corporation's property, rights,
privileges and franchises, or an integral part thereof essential to the conduct
of the business of the corporation, any stockholder, entitled to vote thereon,
of the corporation making such sale, lease, exchange or other disposition who
does not assent thereto, except in the case of a transaction wholly for cash
where the stockholders' authorization thereof is conditioned upon the
distribution of all the net proceeds of such transaction to the stockholders in
accordance with their respective interests within one year after the date of
such transaction and upon the dissolution of the company. In order to exercise
such rights, a stockholder must comply with all of the procedural requirements
of Section 6022 of the New York Banking Law including filing a written
objection. The "fair value" of dissenters' shares would be determined in
judicial proceedings. Failure to take any of the steps required under Section
6022 may result in a loss of such dissenters' rights.
Inspection of Books and Records. Under the DGCL, any stockholder may
inspect, for any proper purpose, a company's stock ledger, a list of its
stockholders and any other books and records and to make copies or extracts
therefrom. Under the New York Banking Law, any person who has been a stockholder
of record of a corporation for at least six months immediately preceding his
demand, or any person holding at least five percent of any class of the
outstanding shares, upon at least five days' written demand has the right to
examine the minutes of the proceedings of the corporation's stockholders and
record of stockholders and to make extracts therefrom.
Limitation of Liability of Directors. The DGCL permits corporations to
adopt a provision in their certificate of incorporation eliminating, with
certain exceptions, the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty as a director. Under the DGCL, RB Asset may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve directors from the necessity of complying with, federal or
state securities laws, or affect the availability of nonmonetary remedies such
as injunctive relief or rescission. The RB Asset Certificate eliminates the
liability of the RB Asset board to the fullest extent permissible under the
DGCL.
There is no similar provision under the New York Banking Law.
Loans to Directors, Officers and Employees. Under the DGCL RB Asset may
make loans to, guarantee the obligations of, or otherwise assist its officers or
other employees (including any officer or employee who is a director of the
corporation) when such action, in the judgment of the directors, may reasonably
be expected to benefit RB Asset. The DGCL also provides that such assistance may
be with or without interest and may be unsecured, or secured in such a manner as
the RB Asset board shall approve.
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Under the New York Banking Board Regulations a stock-form savings bank
may not make a loan to an officer or director unless the loan (i) is made on
terms, including interest rate and collateral, that are not more favorable to
the officer or director than those customarily offered by the institution to
persons who are not officers or directors and who are not employed by the
institution, and (ii) does not involve more than the normal risk of repayment or
present other unfavorable features. Generally the amount of a loan, when
aggregated with the unpaid principal of all other loans to an officer or
director, may not exceed $25,000 or five percent of the institution's capital
stock, surplus fund and undivided profits unless (a) the loan has been approved
in advance by a majority of the entire board of directors of the institution;
and (b) the interested party has abstained from participating directly or
indirectly in the voting. Federal statutes and regulations also impose
restrictions on extensions of credit by an insured depository institution to
that institution's directors and executive officers and their related interests.
Interested Director and Officer Transactions. The DGCL provides that
contracts or transactions between a corporation and one or more of its directors
or officers or between a corporation and any other entity in which one or more
of its directors or officers are directors or officers or have a financial
interest, are not void or voidable because of such interest or because such
director or officer is present at a meeting of the board which authorizes or
approves the contract or transaction, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under the DGCL, either (a) the stockholders or the
board of directors must approve any such contract or transaction in good faith
after full disclosure of the material facts, or (b) the contract or transaction
must have been "fair" as to the corporation at the time it was approved. Under
the DGCL, if board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors (even though the
disinterested directors are less than a quorum).
The New York Banking Board Regulations generally provide that a
business transaction (as defined below) by, between or on behalf of a stock-form
savings bank and, (i) any director, trustee or officer or (ii) a person related
to any director, trustee or officer or (iii) any other person where a
transaction made in contemplation of such person becoming a director, trustee or
officer of the institution, is an insider transaction (an "Insider
Transaction"). Generally, any Insider Transaction which, either alone or when
aggregated involves assets or services having a fair market value or payments in
excess of certain monetary amounts must be specifically reviewed and approved by
the bank's board of directors or board of trustees. The term "business
transaction" can include, but is not limited to (i) loans or other extensions of
credit; (ii) purchase of assets or services or agreements to purchase assets
from the bank; (iii) sales of assets or services or agreements to sell assets to
the bank; (iv) use of the bank's facilities, its real or personal property, or
its personnel; (v) leases of real or personal property to or from the bank; (vi)
payment of commissions and fees by the bank, including brokerage commissions and
management, consultant, architectural, legal and appraisal fees; and (vii)
payments on time deposits or other obligations of the bank by the bank if the
payments would result in a yield which is more favorable than for a comparable
transaction made in the ordinary course of business to persons not deemed
insiders of the bank. The River Bank By-laws provide, more generally, that River
Bank will not enter into any contract or other transaction between River Bank
and one or more of its directors or officers, or between itself and any other
entity in which one or more of its directors or officers are directors, officers
or are financially interested, if such contract or transaction (i) violates
applicable federal and/or state laws, rules or regulations or (ii) contravenes
any policy or procedure established by River Bank.
Indemnification. The DGCL and the New York Banking Law contain similar
provisions with regard to indemnification. Both the DGCL and the New York
Banking Law generally permit indemnification of expenses incurred in the defense
or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by the stockholders, that the person seeking indemnification acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to a criminal proceeding,
which such person had no reasonable cause to believe his or her conduct was
unlawful. The DGCL states further that no indemnification may be made, without
court approval, in respect of any derivative action in which such person is
adjudged liable to the corporation. The DGCL
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and New York Banking Law also require indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
Stockholder Approval of Certain Business Combinations. Section 203 of
the DGCL prohibits a corporation from engaging in a "business combination" with
an "interested stockholder" for three years following the date that such person
becomes an interested stockholder. With certain exceptions, an interested
stockholder is a person or entity who or which owns 15% or more of the
corporation's outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions of the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increases the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date at which such stockholder becomes
an interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also approved
at a stockholder meeting by 662/3% of the voting stock not owned by the
interested stockholder. Section 203 does not apply if the business combination
is proposed prior to the consummation or abandonment of and subsequent to the
earlier of the public announcement or a 20-day notice required under Section 203
of the proposed transaction which (i) constitutes certain (a) mergers or
consolidations, (b) sales or other transfers of assets having an aggregate
market value equal to 50% or more of the aggregate market value of all of the
assets of the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation, or (c) proposed
tender or exchange offer for 50% or more of the corporation's outstanding voting
stock; (ii) is with or by a person who was either not an interested stockholder
during the last three years or who became an interested stockholder with the
approval of the corporation's board of directors; and (iii) is approved or not
opposed by a majority of the board members elected prior to any person becoming
an interested stockholder during the previous three years (or their chosen
successors).
The New York Banking Board Regulations provide that a business
transaction (as defined above) by, between or on behalf of a stock-form savings
bank and, (i) a person who has direct or indirect control over the voting rights
of 10 percent of the shares of any class of voting stock of a stock form savings
bank or otherwise controls the management or policies of such an institution (an
"Interested Party") or (ii) a person related to an Interested Party or (iii) any
other person where a transaction made in contemplation of such person becoming
an Interested Party must, generally, either alone or when aggregated (when
involving assets or services having a fair market value or payments in excess of
certain amounts), be specifically reviewed and approved by the bank's board of
directors or board of trustees. The term "business transaction" is broadly
defined in the New York Banking Board Regulations and would include a business
combination as defined in the DGCL.
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Stockholder Voting on Mergers and Similar Transactions. The DGCL
generally requires that a majority of the stockholders of both the acquiring and
target corporations approve statutory mergers. The DGCL does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (a) the
merger agreement does not amend the existing certificate of incorporation, (b)
each share of stock of the surviving corporation outstanding before the merger
is an identical outstanding or treasury share after the merger, and (c) the
number of shares to be issued by the surviving corporation in the merger does
not exceed 20% of the shares outstanding immediately prior to the merger. The
DGCL also generally requires that a sale of all or substantially all of the
assets of a corporation be approved by a majority of the voting shares of the
corporation transferring such assets.
The New York Banking Law generally requires that at least two-thirds
(662/3%) of the stockholders of both the acquiring and target corporations
approve statutory mergers. The New York Banking Law does not require a
stockholder vote of the surviving corporation in a merger if, (a) the total
assets of the target corporation or corporations do not exceed ten percent of
the total assets of the acquiring corporation and, (b) the plan of merger does
not change the name or the authorized shares of capital stock of the acquiring
corporation or make or require any other change or amendment for which the
approval or consent of stockholders of the acquiring corporation would be
required.
Stockholder Derivative Suit. Under the DGCL and the New York Banking
Law, a person may only bring a derivative action on behalf of the corporation if
the person was a stockholder of the corporation at the time of the transaction
in question or his or her stock thereafter devolved upon him or her by operation
of law.
Dissolution. Under the DGCL, if a dissolution is initiated by the board
of directors it may be approved by the holders of a majority of the
corporation's shares. If the board of directors does not approve the proposal to
dissolve, it must be consented to in writing by all stockholders entitled to
vote thereon. In the event of a board- initiated dissolution, the DGCL allows a
Delaware corporation to include in its certificate of incorporation a super
majority voting requirement in connection with dissolutions. RB Asset's
Certificate contains no such super majority voting requirement with regard to
dissolution; thus a majority of the outstanding shares entitled to vote, voting
at a meeting at which a quorum is present, would be sufficient to approve a
dissolution of RB Asset that had previously been approved by the RB Asset Board.
Under the New York Banking Law a voluntary dissolution of a banking
organization must be approved by the vote of the holders of at last two-thirds
(662/3%) of the entire capital stock of such corporation. A copy of the minutes
of the stockholders meeting must be filed with the Superintendent of Banks (the
"Superintendent") within five days after the date of the meeting and, within
three months after such stockholder meeting, an application may be made to the
New York State Supreme Court, after due notice to the Superintendent, for an
order declaring the business of such corporation closed.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the principal material federal
income tax considerations of the Reorganization that are generally applicable to
holders or River Bank Common Stock and River Bank Series A Preferred Stock,
River Bank, RB Asset and River Distribution Sub. It does not describe the actual
tax effect any of such matters will have on a particular taxpayer in light of
such taxpayer's tax status and other income, deductions, and credits. This
section is addressed to the holders of River Bank Capital Stock entitled to vote
on the Reorganization. This section does not discuss all the tax consequences
that may be relevant to a holder of River Bank Capital Stock in light of such
holder's particular circumstances or to holders subject to special rules, such
as foreign persons, financial institutions, tax-exempt organizations, persons
subject to the alternative minimum tax, insurance companies, dealers in
securities, or persons who have hedged their investment in River Bank Capital
Stock. This section also does not discuss all the tax consequences that may be
relevant to a holder of River Bank Capital Stock who has at any time owned (or
has at any time been considered to own by reason of applicable rules of
constructive ownership) more than 5% in value of the outstanding stock of the
Bank or who has at any time owned stock which was considered by reason of
applicable rules of constructive ownership to be owned by another shareholder
who then owned (or was considered by reason of such rules to own) more than 5%
in value of the outstanding stock of the Bank.
Except as otherwise indicated, conclusions of tax treatment, tax
effect, or tax consequences set forth in this section are based on the Internal
Revenue Code (the "Code"), Regulations of the United States Treasury Department
thereunder, Internal Revenue Service ("IRS" or the "Service") Rulings, and
judicial and administrative decisions in effect as of the date of this Proxy
Statement/Prospectus, all of which are subject to change at any time, possibly
with retroactive effect. Such conclusions have no binding effect on the IRS or
the courts. The Bank believes that seeking either a private letter ruling from
the IRS or an opinion of counsel with regard to the tax treatment of the
Reorganization would not provide additional certainty. As with all such complex
matters, there is a risk that the IRS could disagree with the conclusions stated
herein.
This discussion assumes that each holder's River Bank Capital Stock, RB
Asset Common Stock, and RB Asset Series A Preferred Stock is a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Code. The following conclusions assume that the holders of the River Bank
Capital Stock will approve the Reorganization.
This section is not intended as a substitute for careful tax planning.
HOLDERS OF RIVER BANK CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL, OR FOREIGN TAXING JURISDICTION, BEFORE VOTING ON THE REORGANIZATION OR
DECIDING WHETHER AND WHEN TO DISPOSE OF THEIR RIVER BANK CAPITAL STOCK, RB ASSET
COMMON STOCK OR RB ASSET SERIES A PREFERRED STOCK.
Tax Consequences of the Reorganization
The Reorganization has been structured and will be implemented in a
manner intended to constitute a tax-free "reorganization" for Federal income tax
purposes, within the meaning of section 368 of the Code. Assuming that the
Reorganization does constitute such a "reorganization," the following
consequences should pertain:
1. The transaction would be treated for Federal income tax purposes as
though River Bank had transferred substantially all of its assets to RB
Asset in exchange for RB Asset Capital Stock followed by a distribution
of the RB Asset Capital Stock by River Bank to its stockholders in
exchange for their River Bank Capital Stock in constructive liquidation
of River Bank.
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2. No gain or loss will be recognized to a holder of River Bank Common
Stock who is deemed to exchange such stock for RB Asset Common Stock.
No gain or loss will be recognized to a holder of River Bank Series A
Preferred Stock who is deemed to exchange such stock for RB Asset
Series A Preferred Stock. The basis of any RB Asset Common Stock or RB
Asset Series A Preferred Stock shall be the same as that of the River
Bank Common Stock or River Bank Series A Preferred Stock, respectively,
deemed exchanged therefor. In determining the period for which a holder
of RB Asset Common Stock or RB Series A Preferred Stock has held such
stock received in the Reorganization, there will be included the period
for which such holder held the River Bank Common Stock or River Bank
Series A Preferred Stock deemed exchanged therefor. The foregoing
conclusions do not address taxation to holders of the River Bank Series
A Preferred Stock of the dividend declared, but not paid, for the
quarter ended June 30, 1996; those holders should consult their own tax
advisers concerning the tax treatment of such dividends.
3. No gain or loss will be recognized to River Bank on its disposition
or distribution of property in connection with the Reorganization. The
basis of the property of River Bank acquired by RB Asset shall be the
same as it would be in the hands of River Bank. RB Asset will succeed
to and take into account various tax attributes of River Bank
(including net operating loss carryovers, to the extent not used to
offset income or gain of River Bank, and accumulated earnings and
profits).
River Bank believes that the Reorganization is appropriately viewed as
a tax-free "reorganization." However, the ability of the Reorganization to
qualify as a tax-free reorganization turns on certain unresolved and complex
issues of tax law as to which there are no clearly established legal precedents
and for which the Bank has not requested a ruling from the IRS. Further, an
opinion of counsel would not provide additional certainty. As a result, the IRS
or a court could determine that the proposed transactions do not constitute a
tax-free reorganization. If such a determination were made and sustained,
certain of the tax consequences described above would not apply. In particular,
the Bank's stockholders would be required to recognize gain upon the deemed
exchanges of River Bank Capital Stock for RB Asset Common Stock and RB Asset
Series A Preferred Stock to the extent that the fair market value of any RB
Asset Capital Stock received exceeded the basis of the River Bank Capital Stock
deemed exchanged therefor, and their holding period would begin on the date of
the exchange. Recognition of loss on such deemed exchanges might not be allowed
until the stockholders dispose of some or all of their RB Asset Capital Stock.
Moreover, the Bank would be required to recognize gain on its disposition and
distribution of property in connection with the Reorganization and any loss on
such disposition and distribution may be required to be deferred until RB Asset
were to sell the assets to an unrelated third party; and, to the extent its tax
attributes were not used to offset any gain, RB Asset would not succeed to them.
Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred Stock
Dividend Payments. Dividend distributions paid on the RB Asset Common
Stock or the RB Asset Series A Preferred Stock should be includible as ordinary
income to a holder to the extent of RB Asset's current or accumulated earnings
and profits as determined for Federal income tax purposes. To the extent a
dividend distribution exceeds RB Asset's current and accumulated earnings and
profits, such distribution will be treated first as a return of capital,
reducing the holders' tax basis in the RB Asset Common Stock or the RB Asset
Series A Preferred Stock, and then as a capital gain. The availability and
amount of any such earnings and profits will depend in part upon the future
operations and profitability of RB Asset.
Under section 243 of the Code, dividends received by a corporate holder
on the RB Asset Common Stock or the RB Asset Series A Preferred Stock may be
eligible for the 70% dividends-received deduction to the extent they are paid
out of current or accumulated earnings and profits. The applicability of the
dividends-received deduction is subject to certain limitations, however, such as
those set forth in sections 246 and 246A of the Code. Section 246(c) of the Code
disallows the dividends-received deduction in its entirety if the stock with
respect to which the dividend is paid does not satisfy the requisite holding
period. Generally, the shareholder must hold common stock for more than 45 days
during the 90-day period beginning on the date that is 45 days before the date
on which the
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stock becomes ex-dividend with respect to the dividend. Longer holding periods
may apply to certain dividends on preferred stock. Under section 246(c)(4), a
taxpayer's holding period for these purposes is suspended during any period in
which the taxpayer has an option to sell, is under a contractual obligation to
sell, has made (but not closed) a short sale of or is the grantor of an option
to buy substantially identical stock or securities, or has diminished its risk
of loss by holding one or more positions with respect to substantially similar
or related property. The U.S. Treasury Department has issued regulations that
provide when a taxpayer must reduce its holding period of stock for purposes of
the dividends-received deduction because the taxpayer has diminished its risk of
loss by holding one or more positions with respect to substantially similar or
related property. Section 246A of the Code reduces the dividends-received
deduction to the extent the RB Asset Common Stock or the RB Asset Series A
Preferred Stock is "debt-financed" within the meaning of section 246A. Corporate
holders of RB Asset Common Stock or the RB Asset Series A Preferred Stock also
should consider the application of section 1059 of the Code as well as the
possible reduction or elimination of the benefit of the dividends-received
deduction due to the corporate alternative minimum tax provisions of the Code.
Section 1059 provides that the basis of stock held by a corporation must be
reduced by the non-taxed portion of any "extraordinary dividend" received by the
corporation unless the corporation has held the stock for more than two years
before the date on which the dividend is declared, agreed to, or announced --
whichever is earliest. Generally, a dividend is deemed "extraordinary" for
purposes of section 1059 when it exceeds 10% (5%, in the case of preferred
stock) of a corporate taxpayer's adjusted basis in a share of stock. For these
purposes, dividends with an ex-dividend date within the same 85-day period will
be aggregated and certain transactions may trigger the application of section
1059 without regard to the size of the dividend on the holding period for the
shares.
Sale or Exchange of the RB Asset Common Stock or the RB Asset Series A
Preferred Stock. Upon the sale or exchange of shares of RB Asset Common Stock or
RB Asset Series A Preferred Stock, a holder generally will recognize gain or
loss equal to the difference between the amount realized and the holder's tax
basis in the RB Asset Common Stock or the RB Asset Series A Preferred Stock, as
the case may be. Such gain or loss will generally be capital gain or loss. If
the deemed exchange for RB Asset Series A Preferred Stock has substantially the
same effect as the receipt of a stock dividend, then to that extent, the RB
Asset Series A Preferred Stock may constitute "section 306 stock" under the
Code. Sales of part of a holder's position in section 306 stock may be treated
partially as ordinary income, and losses are deferred until any remaining stock
of the company is disposed of.
Redemption of the RB Asset Series A Preferred Stock. Any future
redemption of the RB Series A Preferred Stock for cash, while not presently
contemplated, would be treated under section 302 of the Code as a distribution
that is taxable as a dividend to the extent of RB Asset's current or accumulated
earnings and profits unless the redemption generally (i) results in a "complete
termination" of the holder's stock interest in RB Asset under section 302(b)(3)
of the Code, (ii) is "substantially disproportionate" with respect to the holder
under section 302(b)(2) of the Code, or (iii) is "not essentially equivalent to
a dividend" with respect to the holder under section 302(b)(1) of the Code. In
determining whether any of these tests has been met, shares considered to be
owned by the holder by reason of certain constructive ownership rules applicable
under section 302(c) of the Code, as well as shares actually owned, must
generally be taken into account. If any of these tests are met, the redemption
of the RB Asset Series A Preferred Stock for cash should generally result in
capital gain or loss equal to the difference between the amount of cash received
and the holder's tax basis in the shares redeemed. Such capital gain or loss
will be long-term capital gain or loss if the holding period for the redeemed
shares is more than one year. If a redemption of the RB Asset Series A Preferred
Stock is treated as a distribution taxable as a dividend, the holder's tax basis
in the redeemed stock will be transferred to any remaining stock in RB Asset
held by such holder. Corporate holders should consider the applicability of
section 1059 of the Code. If the RB Asset Series A Preferred Stock is section
306 stock, then the redemption will be treated as a dividend to the extent of RB
Asset's current or accumulated earnings and profits unless the redemption
constitutes a "complete termination" under section 302(b)(3) of the holder's
interest in RB Asset.
Persons whose RB Asset Series A Preferred Stock is redeemed should
consult their own tax advisers as to the application of section 302 of the Code
to their own particular situations.
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In the event of a change of control of RB Asset, terms of the RB Asset
Series A Preferred Stock permit the redemption of such stock for notes at the
option of the RB Asset. The tax consequences should be the same as in the case
of a cash redemption, with the notes generally valued at their fair market
value; interest on the notes may be taxed to the holder even if interest is not
paid currently, and the interest deduction of RB Asset may be partly limited.
Redemption Premium on the RB Asset Series A Preferred Stock. Under
Section 305 of the Code and regulations of the U.S. Treasury, if (i) the
"redemption price" of the RB Asset Series A Preferred Stock exceeds its "issue
price" and (ii) such excess constitutes an "unreasonable redemption premium,"
such excess will be taxable as a dividend (to the extent of current and
accumulated earnings and profits) to a holder of the RB Asset Series A Preferred
Stock over the period during which the RB Asset Series A Preferred Stock cannot
be redeemed. A safe harbor in the regulations of the U.S. Treasury provides that
a redemption premium will be considered reasonable if it does not exceed 10% of
the issue price and if the preferred stock to which the redemption premium
relates cannot be redeemed for five years from the date of issuance. In
addition, if the redemption premium on the RB Asset Series A Preferred Stock did
not literally meet the safe harbor test, it would nevertheless not be considered
to be an "unreasonable redemption premium" if it is in the nature of a penalty
for a premature redemption and if such premium does not exceed the amount that
RB Asset would be required to pay for such redemption right under market
conditions existing at the time of the issuance of the RB Asset Series A
Preferred Stock. The Bank believes that the redemption premium on the RB Asset
Series A Preferred Stock would be considered to be in the nature of a penalty
for premature redemption and that such premium does not exceed the amount that
RB Asset would be required to pay for such redemption right under market
conditions existing at the time of issuance of the Series A Preferred Stock.
Accordingly, the Bank believes that the redemption premium for the RB Asset
Series A Preferred Stock will be considered to be reasonable and holders of the
RB Asset Series A Preferred Stock should not be in constructive receipt of an
unreasonable redemption premium over the period during which the RB Asset Series
A Preferred Stock cannot be redeemed.
Certain Tax Attributes
As of June 30, 1997, the Bank had recorded a gross deferred tax
liability of approximately $19.6 million in its consolidated financial
statements. Also, as of June 30, 1997, the Bank had recorded a gross deferred
tax asset of approximately $56.4 million, primarily attributable to NOLs of
approximately $35.0 million, reserves for loan losses and real estate valuation
allowances of approximately $9.9 million and general business tax credits of
approximately $7.4 million. RB Asset's ability to realize the excess of the
gross deferred tax asset over the gross deferred tax liability is dependent upon
its ability to earn taxable income in the future. As a result of recent losses
and other evidence, this realization is uncertain and a valuation allowance has
been established to reduce the deferred tax asset to the amount that management
of the Bank believes will more likely than not be realized. Accordingly, neither
a net overall liability nor a net overall asset was reflected in the Bank's
consolidated financial statements. The tax attributes associated with the
deferred tax assets have not been reviewed or approved by the IRS. As described
further below, the Equity Offering and related transactions may have adversely
affected the ability of the Bank to realize its deferred tax assets, with the
effect that the Bank would have an overall net deferred tax liability and
concomitant reduction to its stockholders' equity. As a result of the Equity
Offering, the Bank could be subject to substantial increased out-of-pocket tax
expenditures.
Section 382 of the Code generally provides that if a corporation
undergoes an "ownership change," the amount of taxable income that the
corporation may offset after the date of the ownership change (the "Change
Date") by NOLs (and certain built-in losses, as described below) existing on the
Change Date will be subject to an annual limitation. In general, the annual
limitation is equal to the product obtained by multiplying (i) the fair market
value of the corporation's equity immediately prior to the Change Date (with
certain adjustments, including an exclusion of capital contributions made during
the two years preceding the Change Date), by (ii) the long-term tax-exempt bond
rate determined for the month in which the Change Date occurs, as published by
the IRS. For "ownership changes" occurring during June 1994, that rate is 6.01%.
If an "ownership change" of the Bank took place during June 1994, the Bank might
be permitted to use no more than approximately $865,000 of its NOLs annually to
offset taxable
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income realized after the Change Date, including income which will be realized
in connection with the Branch Sale. Accordingly, the Bank's ability to use its
deferred tax assets may be reduced materially, resulting in the recognition of
additional tax expense and a reduction to its stockholders' equity and the
Bank's liquidity.
Built-in losses, measured by the excess, if any, of the tax basis of
each asset of the corporation over its fair market value, also may be limited
under Section 382, if, as is believed to be the case with respect to the Bank,
the corporation had a net unrealized built-in loss in excess of the lesser of
$10.0 million or 15% of the fair market value of its assets, and if the built-in
losses are recognized within five years after the Change Date. Certain
deductions that have accrued economically on the Change Date and would otherwise
have been taken after the Change Date (possibly including suspended passive
activity losses) may also be treated as built-in losses.
In general, an "ownership change" occurs with respect to a corporation
if any of its stockholders who own, directly or indirectly, five percent or more
of the stock of the corporation ("5-percent stockholders") increase their
aggregate percentage ownership of such stock by more than 50 percentage points
over the lowest percentage of stock owned by those stockholders at any time
during a three-year testing period. In applying Section 382, newly-issued stock
generally is considered to have been acquired by one or more 5-percent
stockholders, even if none of the persons acquiring that stock in fact owns (or
owned) at least five percent of the issuer's stock.
Based on current ownership information available to the Bank, the Bank
is of the view that no ownership change of the Bank occurred within the three
years preceding and three years succeeding the Equity Offering. The Bank expects
that the Equity Offering, when combined with prior changes in ownership of stock
of the Bank and other contemplated transactions affecting ownership of the
capital stock of the Bank occurring in connection with the Equity Offering, did
not result in an ownership change of the Bank. However, the application of
Section 382 is in many respects uncertain. In assessing the effects of prior
transactions and of the Equity Offering under Section 382, the Bank has made
certain legal judgments and certain factual assumptions. The Bank has not
requested or received any rulings from the IRS with respect to the application
of Section 382 to the Equity Offering and the IRS could challenge the Bank's
determinations.
Although it may not have caused an ownership change, the Equity
Offering caused a significant increase in the percentage ownership of stock of
the Bank by one or more new 5-percent stockholders. Specifically, the Bank
believes that the Equity Offering resulted in 5-percent stockholders increasing
their ownership for purposes of Section 382 of the Code by approximately 49
percentage points. Therefore, the Equity Offering significantly increased the
likelihood that relatively small future issuances of, or transactions in or
affecting the direct or indirect ownership of, shares of Common Stock would
result in an ownership change.
As part of its efforts to avoid any limitation under Section 382 of the
Code on the use of its NOLs and other tax attributes, each of Mr. Dworman,
Odyssey Partners, L.P. and East River Partnership B agreed to certain
restrictions on the transfer of the Common Stock and any other security of the
Bank which is deemed to be "stock" for purposes of Section 382 of the Code and
regulations promulgated thereunder for a five-year period following consummation
of the Equity Offering. These restrictions on transfer are intended to reduce,
but do not eliminate, the possibility that there may be a future ownership
change affecting the ability of the Bank to use its then-existing losses, loss
carryovers and built-in losses. Mr. Dworman, as the largest stockholder of the
Bank following the Equity Offering, may continue to exert substantial influence
over decisions made by the River Bank Board, including its decisions whether to
approve a transfer of stock of the Bank that could result in an ownership
change, with the above-described consequences.
Section 269(a)(1) of the Code generally provides that, if one or more
persons acquire control of a corporation and the principal purpose of the
acquisition is to evade or avoid federal income tax by securing the benefit of a
deduction, credit or other allowance which those persons or the corporation
would not otherwise enjoy, then the IRS may disallow the corporation's
deductions, credits or other allowances. For this purpose, "control" means
ownership of stock possessing either at least 50% of the voting power or at
least 50% of the total value of all classes of stock
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of the corporation. Although the Bank's Equity Offering resulted in one or more
persons acquiring control of the Bank, the Bank understands that the principal
purpose of the investors for participating in the Equity Offering was not to
avail themselves of any tax benefits of the Bank. It is possible, however, that
the IRS may challenge this view. If any such challenge were successful, the Bank
could lose its future ability to use its losses, loss carryovers and built-in
losses to offset its future income.
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EXPERTS
The consolidated statements of financial condition of River Bank as of
June 30, 1997 and June 30, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1997, included in this Proxy Statement as part of
Annex B, which is referred to and made a part of this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing in Annex B and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares River Distribution capital stock to be
distributed in connection with the Distribution and the shares of River Asset
Sub capital stock to be issued in connection with the Merger will be passed upon
for River Distribution Sub and River Asset Sub by Battle Fowler LLP.
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ANNEX A
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF DESIGNATIONS
OF
15% NONCUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A
of
RIVER BANK AMERICA
Under Section 8005 of the
Banking Law of the State of New York
We, Jerome R. McDougal, Jr. and Robin Chandler Duke, being the
President and Secretary, respectively, of River Bank America, a New York
chartered stock savings bank (the "Corporation"), in accordance with the
provisions of Section 8005 of the Banking Law of the State of New York, do
hereby certify as follows:
1. The name of the Corporation is River Bank America. The Corporation
was originally formed under the name "East River Savings Institution" and
previously was known as "East River Savings Bank."
2. The Corporation was created by Special Act of the Legislature of the
State of New York, passed April 11, 1848, known as Chapter 256 of the Laws of
1848. Under Banking Law Section 1001(5), such Act was the Organization
Certificate of the Corporation. Such Organization Certificate was restated as of
June 28, 1994 pursuant to Section 8007 of the Banking Law of the State of New
York (as amended, the "Restated Organization Certificate"). Under Banking Law
Section 8007(5), such Restated Organization Certificate is the Organization
Certificate of the Corporation.
3. On October 6, 1997, pursuant to Section 5002(4) of the Banking Law
and the authority conferred upon the Board of Directors of the Corporation by
the Restated Organization Certificate, the Board of Directors of the Corporation
authorized the 15% Noncumulative Perpetual Preferred Stock, Series A, of the
Corporation by resolution set forth in the Certificate of Designations of 15%
Noncumulative Perpetual Preferred Stock, Series A (the "Certificate of
Designations").
4. The amendments of the Certificate of Designations effected by this
certificate of amendment are as follows: to provide that a reorganization
contemplated by Section 7(C)(ii)(d) of the Certificate of Designations may be
consummated notwithstanding anything to the contrary in Section 3 of the
Certificate of Designations.
627654.1
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5. To accomplish the foregoing amendments, Section 7(C)(ii)(d) of the
Certificate of Designations is amended by adding the following to the end of
such Section:
The Corporation may distribute to the holders of (a) the Series A
Preferred Stock in exchange therefor the same number of shares of the
resulting, surviving or acquiring corporation or the parent
corporation, as the case may be, with substantially the same powers,
preferences, privileges and rights, including, without limitation,
substantially equivalent voting and conversion rights, of the
resulting, surviving, or acquiring corporation, or such corporation's
parent corporation, and (b) the Common Stock in exchange therefor the
same number of common shares of the resulting, surviving or acquiring
corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights,
including, without limitation, substantially equivalent voting and
conversion rights, of the resulting, surviving, or acquiring
corporation, or such corporation's parent corporation as contemplated
by this Section 7(C)(ii)(d) notwithstanding anything to the contrary in
Section 3 hereof.
6. This Certificate of Amendment of the Certificate of Designations of
15% Noncumulative Perpetual Preferred Stock, Series A of the Corporation was
authorized by the affirmative vote of more than a majority of the board of
directors and the affirmative vote of more than a majority of the holders of all
outstanding shares of Common Stock of the Corporation.
IN WITNESS WHEREOF, we have made, signed and acknowledged this
certificate in duplicate this ___ day of __________, 1997.
Jerome R. McDougal, Jr.
President
Robin Chandler Duke
Secretary
-2-
627654.1
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ANNEX B
As filed with the FDIC on September 9, 1997
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C.
AMENDMENT NO. 1 TO
FORM F-2
Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997
FDIC Insurance Certificate Number 15645
RIVER BANK AMERICA
(Exact name of bank as
specified in its charter)
STATE OF NEW YORK 13-5041680
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eighth Floor, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code: (212) 848-0201
Securities registered pursuant
to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act: Common Stock, par value $1.00 per share
15% Noncumulative Perpetual Preferred
Stock, Series A
(Title of Classes)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of the Bank's
knowledge, in a definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment of this Form F-2. [ ]
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No / /
As of July 31, 1997, the aggregate market value of the 7,100,000 shares of
Common Stock of the Registrant issued and outstanding, excluding the 10,150
shares held by all directors and principal officers as a group, was $45,197,794,
and, excluding the aggregate of 2,778,550 shares held by all directors and
principal officers and by Mr. Alvin Dworman, the largest single holder of the
Bank's Common Stock, was $27,549,244. This figure is based on the last sales
price of $6.375 per share of the Bank's Common Stock on or prior to July 29,
1997.
The number of shares outstanding of the Registrant's Common Stock as of July 31,
1997 was 7,100,000.
624833.3
<PAGE>
PART I
ITEM 1
BUSINESS
General
River Bank America (the "Bank") is a New York State-chartered stock savings bank
which was founded in 1848. In 1925, the Bank adopted the name "East River
Savings Bank" which it continued to use in its retail business through June 28,
1996. In 1988, the Bank adopted the name "River Bank America." This report is
for the fiscal year ended June 30, 1997.
On June 28, 1996, the Bank consummated the transactions (the "Branch Sale")
contemplated by the Purchase of Assets and Liability Assumption Agreement (the
"Branch Agreement") by and between the Bank and Marine Midland Bank ("Marine").
Pursuant to the terms of the Branch Agreement, Marine assumed $1,159,616,300 of
deposit liabilities (the "Assumed Deposits") and acquired assets with an
aggregate carrying value of $1,066,616,300 (the "Transferred Assets"). The
Transferred Assets consisted primarily of loans secured by real estate,
mortgage-backed and investment securities, and 11 Bank branch offices. Included
in the Transferred Assets was approximately $32.4 million amount of loans in
which the Bank was granted subordinated participation interests. Also included
in the Transferred Assets were the proceeds of dispositions from five individual
asset sale transactions with third parties, aggregating $60.4 million composed
of real estate assets, loans and other receivables (the "Asset Sale
Transactions"). The Asset Sale Transactions were structured to include ongoing
recourse to, and participation by, the Bank with respect to the assets sold,
based upon the net proceeds realized on disposition of assets by the purchasers.
See "Asset Sale Transactions" and Notes 11 and 17 to the Consolidated Financial
Statements. The Assumed Deposits exceeded the Transferred Assets by
approximately $93.0 million, which amount represents the premium received by the
Bank in the Branch Sale. Marine also purchased the Bank's branch office realty
at 96th Street in Manhattan for $1.3 million.
At June 30, 1996, the Bank retained $285.5 million in assets, including
primarily real estate assets and non-performing loans; the balance of the
retained assets consisted of performing loans (including loans sold with
recourse, subordinated participations, junior subordinated participations, loans
to facilitate the sale of real estate owned and mortgage and other loans) and a
modest amount of cash and investment securities (collectively, the "Retained
Assets"). The Bank intends to continue substantially the same management and
disposition strategy for Retained Assets subsequent to the Branch Sale as was
previously employed by the Bank.
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine a facility (the "Facility") consisting of eleven
independent mortgage loans with additional collateral, in an aggregate amount
not to exceed $99.1 million. As of June 30, 1996, Marine had extended $89.8
million under the Facility to the Bank, which has been reduced by repayment
activity to $66.1 million at June 30, 1997.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from regulators and Marine (the Bank's principal lender). The
Bank intends to continue to seek approval for the payment of the declared Series
A Preferred dividend. Primarily as a result of the above, the Bank's Board of
Directors has taken no action as regards a quarterly dividend on the Bank's
Series A Preferred for the quarters ending June 30, 1997, March 31, 1997,
December 31, 1996 and September 30, 1996. Declaration or payment of future
dividends on the Bank's Series A Preferred Stock will also be subject to the
approval of the Banking Department and the FDIC, until the Bank is no longer
regulated by the Banking Department and the FDIC, and will be subject to the
approval of Marine for so long as the Facility remains outstanding.
-2-
624833.3
<PAGE>
The Bank held certain non-retail deposits at June 30, 1996. Marine assumed
substantially all of the Bank's retail deposits in connection with the Branch
Sale described above. In addition, the Bank ceased accepting retail deposits on
the date of the Branch Sale. During 1997, the Bank arranged for the assumption
by other insured depository institutions of its remaining non-retail deposits.
At June 30, 1997, the Bank continued to be regulated by the Federal Deposit
Insurance Corporation (the "FDIC") and New York State Banking Department (the
"Banking Department" or the "NYSBD"). On October 31, 1996 the Bank requested
that the FDIC terminate its insurance of accounts in accordance with the
requirements of the NYSBD's approval of the Branch Sale. On April 14, 1997, the
Bank received notice that the FDIC, as requested by the Bank, intends to
terminate the Bank's status as an insured state nonmember Bank on December 31,
1997. Upon the issuance of such order by the FDIC, the Bank will no longer be
subject to banking regulation by the FDIC. In connection therewith, the Bank has
received from the Banking Department a waiver of any applicable New York State
deposit insurance requirements. At this time, the Bank remains subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and continues to file periodic reports and other information
with the FDIC and the Banking Department.
Conditions imposed in connection with the Banking Department's approval of the
Branch Sale included: (i) the Bank's agreement to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution; (ii) the Bank's agreement to file with the
Supreme Court of the State of New York an application for a closing order within
13 months of the closing of the Branch Sale and an application for a final order
of dissolution within five months following the filing of an application for a
closing order; (iii) increased levels of minimum regulatory capital
requirements; (iv) the Bank's agreement to continue to submit its proposed
capital transactions to the Banking Department for prior approval; (v) the
continuation of the Bank's current periodic reporting obligations with respect
to its retained assets, as well as in connection with its ongoing activities
subsequent to the Branch Sale; and (vi) such other conditions and obligations as
the Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. 1 and No. 2 of the approval of the Branch Sale described above.
The Bank proposed to adopt a plan under which it would transfer all of its
assets and liabilities, including all contingent liabilities, to a successor
corporation ("Successor") incorporated under Delaware General Corporate Law.
Successor would acquire all of the assets of the Bank and continue all of the
business of the Bank under the same business plan as adopted by the Bank.
Following the transfer of its assets and liabilities to Successor, the Bank
would surrender its banking charter and dissolve. The implementation of the
proposed plan would result in a mere change of form from a banking corporation
to a corporation incorporated under the Delaware General Corporate Law, which
would not be subject to the jurisdiction of the Banking Department. The proposed
transfer is expected to qualify as a tax-free reorganization under the Internal
Revenue Code and, as such, the Bank expects that certain of its tax attributes
will be preserved. Successor will not be subject to regulation by the Banking
Department or the FDIC following implementation of the Alternate Proposal and
the surrender of the Bank's banking charter.
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that Successor will be owned by the same stockholders, in the same
proportions, as currently own the Bank. Following the surrender of its banking
charter, the Bank, reorganized as a regular corporation, expects to be able to
continue to pursue the orderly management and disposition of its assets under
plans intended to maximize shareholder value.
Prior to June 30, 1997, the Bank received the Banking Department's letter
indicating their conditional approval of the Alternate Proposal as meeting the
Conditions of the Banking Department's approval of the Branch Sale, if
implemented by the Bank on a timely basis. The Banking Department's conditional
approval of the Alternate Proposal and related modification of Condition No. 1
of the Approval of the Branch Sale provided that the approval of shareholders of
the Alternate Proposal not later than September 30, 1997 would be deemed to
satisfy Condition No. 1. Condition No. 2 of the Banking Department's approval of
the Branch Sale would be deemed to be satisfied if the petition required by
Condition No. 2 is filed by the Bank by October 15, 1997. In the event that the
Bank is unable to meet the dates for completion established by the Banking
Department the Bank intends to request such extensions as may be necessary to
complete implementation of the Alternate Proposal. No assurances can be given
that the Banking Department will provide such extensions.
-3-
624833.3
<PAGE>
A copy of the Alternate Proposal and the Banking Department's letter indicating
their conditional approval of the Alternate Proposal have been included as
Exhibits 14 and 15 to Form F-2.
The Banking Department also advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Further, the Banking Department's conditional approval of the Alternate Proposal
requires the Bank to seek prior approval for any material sale or transfer of
assets, or expenditures for development or renovation of any properties held by
the Bank prior to the completion of the dissolution of the Bank.
The Bank intends to proceed with the implementation of the Alternate Proposal
during the quarter ending September 30, 1997 and fully comply with the
conditions imposed by the Banking Department. Subsequent to the surrender of the
Bank's charter, Successor will continue to be subject to the requirements of the
Exchange Act and will be required to file periodic reports and other information
with the Securities Exchange Commission (the "SEC").
The Bank's principal business continues to be the management and orderly
disposition of real estate assets, mortgage loans and investment securities,
under a business plan intended to maximize shareholder value. Primarily as a
result of deterioration in the real estate markets and a general economic
recession in the New York metropolitan area and, later in other areas in which
the Bank was engaged in lending activities, particularly California, the Bank's
non-performing assets began increasing in 1989 and continued to increase in the
aggregate through 1992. The resolution of non-performing assets, which
substantially resulted from the Bank's lending strategy of the 1980s, required
significant time and attention by the Bank's management. Over the past five
years, the Bank's primary loan origination focus was single-family (one-to-four
units) and, to a lesser extent, multi-family (five or more units) residential
loans secured by properties in the New York City metropolitan area. Subsequent
to June 28, 1996, the Bank has not originated a material amount of loans.
In recent years, the earnings of the Bank have been negatively affected
primarily by the level of non-performing assets which consist of non-accrual
loans, loans which are on accrual status but delinquent 90 days or more, other
real estate owned, including in-substance foreclosures, and real estate held for
investment. These assets were largely commercial real estate related. The Bank
reduced the level of its non-performing assets by $457.5 million or 75.9% from a
high of $602.8 million at December 31, 1992 to $145.3 million at June 30, 1997
and continues to direct its efforts toward further reducing the level of
non-performing assets. While the Bank was able to reduce its level of
non-performing assets significantly during the 54 months ended June 30, 1997,
further reductions will be dependent on many factors, some of which are outside
the control of the Bank's management, including but not limited to, conditions
in the relevant real estate markets, prevailing interest rates and national
economic trends.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." The statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The SFAS No. 121 definition of long-lived assets includes the Bank's other
real estate owned and real estate held assets. There was no material effect on
the reported operations of the Bank resulting from the implementation of SFAS
No. 121, which was adopted by the Bank during the fiscal year ended June 30,
1997.
During the fiscal year ended June 30, 1997, the Bank reported a net loss
applicable to common shares of $30.1 million. Significant factors contributing
to the Bank's fiscal 1997 results include $19.7 million of write-downs of other
real estate owned and real estate held for investment, a $3.3 million provision
for contingent expenses arising from the Branch Sale and $1.0 million in
provisions for possible credit losses, partially offset by a $3.3 million
benefit from a reduction of state and local income taxes recorded following the
Bank's analysis of the tax liability arising from the Branch Sale.
-4-
624833.3
<PAGE>
The Bank has engaged RB Management Company, LLC (the "Management Company") to
manage its operations after the Branch Sale on a day-to-day basis, including
developing and recommending strategies to the Bank's board of directors
regarding the disposition of assets. The Management Company is a newly formed,
wholly-owned entity controlled by Alvin Dworman, who owns 39.0% of the
outstanding Common Stock of the Bank. See "Management."
Real Estate Assets
Concentrations of Real Estate Assets. The largest real estate assets included in
the Retained Assets at June 30, 1997 approximated $95.4 million or approximately
97.9% of all real estate assets included in the Retained Assets, as described in
the following table.
<TABLE>
<CAPTION>
DESCRIPTION APPROXIMATE CATEGORY LOCATION
CARRYING VALUE
(Dollars in Millions)
<S> <C> <C> <C>
Multi-family apartments $ 55.9 Development (1) Philadelphia, PA
Office buildings 14.1 Held and Used (1) Atlanta, GA
Co-operative apartment shares 14.8 Inventory (1) New York, NY
Office building 5.4 Held and Used (1) Valley Stream, NY
Residential condominium units 3.3 Inventory (2) Staten Island, NY
Single family development 1.9 Development (2) Murietta, CA
-----
Total $ 95.4
======
</TABLE>
(1) These assets are categorized for financial reporting purposes as Real
Estate Held for investment as of June 30, 1997.
(2) These assets are categorized for financial reporting purposes as Real
Estate Owned as of June 30, 1997.
The real estate assets included in the Retained Assets consist of a total of
approximately 12 properties, including multi-family residential properties
(primarily unsold shares and units in co-operative and condominium properties,
respectively), office properties, industrial properties, land and properties
under development which were acquired upon foreclosure or by deed-in-lieu
thereof, as well as equity interests in joint ventures formed for the
acquisition, development and construction of real estate. Real estate assets
included in the Retained Assets can be categorized in accordance with banking
regulations, as (i) assets held for disposal within one year and (ii) all other
assets held for disposal, which, subsequent to the removal of the regulatory
requirements of the NYSBD and the FDIC to dispose of all assets held in this
category, will be accounted for under the provisions of SFAS-121, as discussed,
above. Such categories and the holding periods described for the Retained Assets
cannot be assured since the Bank must obtain the prior approval of the Banking
Department with regard to the disposition strategy for the Retained Assets
subsequent to the Branch Sale.
Assets Held for Disposal Within One Year. This category is represented by assets
for which marketing activities are underway with a goal of consummating a sale
within one year.
All Other Assets Held for Disposal Subsequent to the Branch Sale.
Assets Held for Inventory. This category is represented by
assets determined to be inventory, consisting primarily of
co-operative shares and condominium units. The Bank intends to
sell such assets on a unit-by-unit basis in as expedient a
manner as possible. Marketing and sales activities are
underway for this category of assets.
-5-
624833.3
<PAGE>
Assets to Be Held and Used. This category is represented by
assets which the Bank intends to hold until such time as the
Bank determines that such asset is ready for sale. No
aggressive marketing activities would be commenced with
respect to these assets until such time. When the asset is
marketed, it is expected that the asset would be recategorized
as "Assets Held for Disposal Within One Year."
Assets to Be Developed. This category is represented by assets
for which, if the Bank obtains regulatory approval,
development activities are incidental to the Bank's operations
subsequent to the Branch Sale. Certain costs (such as interest
and overhead) will be capitalized until the project is
substantially complete. At the completion of the development
phase, the asset would be expected to be recategorized as
"Assets to Be Held and Used" or "Assets Held for Inventory."
These categories identify the Bank's disposition strategy with respect to each
individual real estate asset. See "Disposition Strategy." See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset Quality."
Joint Ventures. Included in the real estate assets also are three properties
representing approximately $3.2 million of joint venture equity investments.
During the mid- to late-1980s, the Bank sought to supplement the income derived
from its mortgage activities by engaging in real estate development activities,
most commonly through participations in joint ventures. These activities
generally were conducted through subsidiaries of the Bank and, unlike loans,
were intended to provide a return which was based on the overall profitability
of each project.
The structure of each of the Bank's joint venture investments generally
involved the formation of a partnership between the Bank's co-venturer
and a subsidiary of the Bank. The Bank's subsidiary generally had up to
a 50% interest in the partnership, which was responsible for the
acquisition, development and sale of a project. The Bank's subsidiary
generally functioned as both a non-managing general partner and in many
cases a limited partner in the partnership. Upon completion and sale of
a project, and after all partnership obligations were satisfied, the
bank's equity investment is expected to be paid in full and any profits
would then be distributed to the partners in accordance with the terms
of the partnership agreement. The Bank's joint venture projects include
a shopping center, industrial buildings and warehouses.
The following table sets forth certain information relating to the joint venture
investments the Bank owned as of June 30, 1997.
<TABLE>
<CAPTION>
JOINT VENTURE NAME PERCENTAGE APPROXIMATE EQUITY APPROXIMATE SENIOR LOCATION DESCRIPTION
OWNERSHIP BY BALANCE INDEBTEDNESS
THE BANK
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Escondido Retail Assoc. 35 $1.6 $10.2 Escondido, CA Shopping center
Raley Assoc. 50 1.2 6.7 Sacramento, CA Four industrial
buildings and 27
acres of land
Cicero Industrial Assoc. 50 0.4 0.8 Cook City, IL Warehouse
---- ---
$3.2 $17.7
==== =====
</TABLE>
During the year ended June 30, 1997, the Bank sold its investment to one joint
venture realizing a loss of $1,377.
-6-
624833.3
<PAGE>
The following table sets forth certain information relating to the Bank's joint
ventures at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
No. Amount No. Amount No. Amount
Loans to joint ventures,
net 1 $ 471 0 $ - 7 $ 42,456 (1)(2)
= ========= = ========== ====== ========
Investments in joint
ventures, net(2) 3 $ 3,113 4 $ 4,424 7 $ 4,711
= ======= = ========== ========= ========
</TABLE>
(1) As a result of the Bank's equity investments in joint ventures, the
Bank's proportional amount of the loans made by the Bank to joint
ventures amounted to $471,000, $0, and $18.4 million at June 30, 1997,
1996 and 1995, respectively.
(2) Does not include investments in joint ventures which have been charged
off.
At June 30, 1997, the Bank did not have any material amounts left to be funded
pursuant to legally binding commitments relating to its joint ventures, except
certain ongoing operating expenses and capital investments. Notwithstanding the
foregoing, certain of the joint venture properties are operating at a loss or do
not have current cash flow from which to fund ongoing operating expenses
(including debt service). Failure by the Bank or its joint venture partner to
fund operating expenses under these circumstances could result in the loss of
the asset. Any such funding by the Bank will require the approval of the Banking
Department. There can be no assurance that the Bank will obtain such approval.
Subsequent to the removal of the regulatory requirements of the NYSBD and the
FDIC to dispose of all assets held in this category, these assets will be
accounted for under the SFAS-121, as discussed, above.
Lending Activities and the Loan Portfolio
From 1985 until 1990, the Bank's lending activities emphasized multi-family
residential, commercial real estate, construction and commercial business loans
and, to a lesser extent, single-family residential loans and education loans. In
addition and pursuant to a business plan adopted by the Bank, the Bank during
this time restructured its assets and liabilities to reduce the vulnerability of
the Bank's operations to changes in interest rates. The Bank effected this
strategy by emphasizing multi-family residential, commercial real estate and
construction loans, including loans to joint ventures in which the Bank or a
subsidiary had an interest in the real estate development activities and loans
secured by properties primarily outside of the New York metropolitan area, as
well as commercial business lending activities.
As a result of deteriorating economic conditions in 1989 and the resultant
increases in non-performing assets during 1989, the Bank began to substantially
decrease its lending activities during 1990, particularly investments in
higher-risk multi-family residential, commercial real estate, construction and
commercial business loans, as well as its joint venture activities. These
practices were formalized by the Board of Directors of the Bank in April 1991
following the Bank's entering into a Memorandum of Understanding in December
1990. As a result of the Board's actions, the Bank changed its lending policy to
specifically exclude acquisition, development and construction loans, all
lending characterized as highly-leveraged transactions and joint venture
activities, as well as substantially curtailed multi-family residential and
commercial real estate lending. The foregoing loans were permitted, however, to
the extent that the Bank was obligated under legally binding commitments, as
well as in connection with the restructuring/refinancing of existing loans or in
connection with the sale of investments in real estate.
During this period, the Bank continued to originate relatively low volumes of
single-family residential loans and, to a lesser extent, certain consumer loans.
In addition, since 1990 and 1991 other than single-family residential loans, the
Bank has primarily originated loans secured by multi-family residential elevator
properties with approximately 75 units, generally in its market area and under
much stricter underwriting guidelines than had previously been in effect for
multi-family residential and commercial real estate loans.
Following consummation of the Branch Sale, the Bank no longer engages in lending
activities.
-7-
624833.3
<PAGE>
Concentrations of Loans. The aggregate principal amount outstanding on the ten
largest loans included in the Retained Assets the Bank owned as of June 30, 1997
are approximately $73.4 million or approximately 75.9% of all such loans, as
described in the table below.
<TABLE>
<CAPTION>
APPROXIMATE SECURITY CATEGORY LOCATION
CARRYING INTEREST
ASSET DESCRIPTION VALUE
(Dollars in millions)
<S> <C> <C> <C> <C>
Office/ industrial property $22.1 First mortgage Performing Brooklyn, NY
Co-operative apartments 16.0 First lien Non-Performing Queens, NY
(unsold shares)
Hotel 10.2 Second mortgage Performing1 Orlando, FL
Co-operative apartments 6.8 First lien Performing2 Queens, NY
(underlying first mortgage)
Commercial business 3.9 Unsecured Non-Performing Providence, RI
Commercial business 3.6 Unsecured Performing New York, NY
Office building 3.1 First mortgage Non-Performing Ulster, NY
Office building 3.0 First mortgage Performing3 New York, NY
Student loans 2.5 Unsecured Non-Performing Various
Commercial business 2.2 Unsecured Non-Performing New York, NY
----
Total $73.4
=====
</TABLE>
Multi-Family Residential Loans, Commercial Real Estate Loans and Commercial
Business Loans. The loans included within the Retained Assets consist of
performing and non-performing loans categorized as multi-family residential,
commercial real estate or commercial business loans.
Commercial real estate and multi-family residential loans are generally
considered to involve more risk than single-family residential loans due to,
among other things, the higher principal amount of such loans and the effects of
general economic conditions, which may result in excessive vacancy rates,
inadequate rental income levels and volatility in real estate values.
- --------
1 Represents a subordinated participation interest in loans which were
Transferred Assets included in the Branch Sale and for which the Branch
Sale reacquired a subordinated participation interest.
2 Represents a subordinated participation interest in loans which were
Transferred Assets included in the Branch Sale and for which the Branch
Sale reacquired a subordinated participation interest.
3 Represents a junior subordinated participation interest in loans which
were Transferred Assets included in the Branch Sale and for which the
Bank retained a junior subordinated participation interest in future
proceeds collected with respect to amounts previously charged-off by
the Bank.
-8-
624833.3
<PAGE>
The Bank's multi-family residential loans consist primarily of loans secured by
rental apartment buildings, unsold condominium units, cooperative apartment
buildings and unsold shares secured by cooperative apartments. The Bank's
commercial real estate loans consist primarily of loans secured by office
buildings, shopping centers, industrial warehouse buildings, hotels and other
income-producing properties.
The terms of the Bank's multi-family residential and commercial real estate
loans are most commonly five to ten years. Certain of these loans have options
to extend the term of the loan at interest rates which may be fixed or adjusted
upward for one, or in certain instances two, additional five-year periods. These
loans include amortizing loans which require the monthly payment of interest and
principal. The amortization period for the payment of principal on such loans
generally is 20 to 30 years, with balloon payments of the remaining principal
amount due upon the maturity of the loan. The Bank's commercial real estate
loans also were frequently made on an interest-only basis, with the payment of
the entire principal amount due at maturity. The multi-family residential and
commercial loans included in the Retained Assets are nearly all fixed interest
rate loans.
The Retained Assets include approximately $12.8 million of secured and unsecured
commercial business loans. The Bank's commercial business loans previously
consisted primarily of loans which involved the buyout, acquisition or
recapitalization of an existing business (including management buyouts and
corporate mergers and acquisitions). Such loans involved a high degree of risk
in their origination since such transactions frequently resulted in a
substantial increase in both the borrower's liabilities and its
liabilities-to-assets leverage ratio, thus increasing the prospects for default.
Each of the commercial business loans included in the Retained Assets has a
principal amount which is less than $4 million.
Performing Loans. Performing loans which are remaining Retained Assets at June
30, 1997 consist of commercial real estate and commercial business loans which
are wholly-owned by the Bank, as well as participation interests in multi-family
residential and commercial real estate loans pursuant to the Participation
Agreements with Marine. Approximately $47.8 million or approximately 22.6% of
the total Retained Assets comprise loans categorized as performing as of June
30, 1997. Of the approximately $47.8 million of performing loans included in the
Retained Assets, approximately $24.5 million or approximately 51.3% of such
loans are subordinated loans. Subordinated loans, including second mortgages and
participation interests, generally involve more risk than senior loans.
Whole Loans. At June 30, 1997, the Retained Assets include 7 performing loans
(exclusive of participating loans) of approximately $27.0 million, all of which
are commercial real estate loans. All of such loans have been modified since
origination and are currently performing in accordance with their terms.
Approximately $22.1 million or approximately 81.8% of the Bank's performing
loans (other than the participating loans) which are included in the Retained
Assets are currently interest-only loans, with the payment of the entire
principal amount due at maturity.
Subordinated Participation Interests. The Retained Assets include a subordinated
participation interest in 10 performing loans and one non-performing loan in
which the Bank retained an interest in approximately $24.5 million and $1.8
million principal amount, respectively. All of the performing loans have been
modified since origination and are currently performing in accordance with their
modified terms.
Junior Subordinated Participation Interests. The Retained Assets include a
junior subordinated participation interest in five performing loans in which the
Bank retains an interest of approximately $6.2 million in principal amount,
which are fully reserved (100%) for by the Bank. All of such loans have been
modified since origination and are currently performing in accordance with their
terms.
-9-
624833.3
<PAGE>
Non-Performing Loans. Non-performing loans consist of multi-family residential,
commercial real estate, commercial business loans and student loans.
Non-performing loans are those loans which have been placed on non-accrual
status and loans which are on accrual status but delinquent 90 days or more. The
non-performing loans in the Retained Assets are on non-accrual status. The Bank
generally places a loan which is delinquent 90 days or more on non-accrual
status unless it is well secured and, in the opinion of management, collection
appears likely. In addition, the Bank may place a loan on non-accrual status
even when it is not yet delinquent 90 days or more if the Bank makes a
determination that such loan is not collectible. When loans are placed on
non-accrual status, any accrued but unpaid interest on the loan is reversed and
future interest income is recognized only if actually received by the Bank and
collection of principal is not in doubt. Approximately $47.9 million or
approximately 22.6% of the Retained Assets are comprised of loans categorized as
non-performing as of June 30, 1997 and are all currently on non-accrual status.
-10-
624833.3
<PAGE>
Loan Portfolio Composition. The following table sets forth information
concerning the Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1997(1) June 30, 1996 June 30, 1995
----------------- ------------- -------------
% of % of % of
Type of Loan Amount Loans Amount Loans Amount Loans
- ---------------------- --------- ----- --------- ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential loans
Conventional $ 3,924 4.1% $ 4,557 4.4% $ 239,386 23.4%
Co-op single units - - - - - -
Condominium single units - - - - - -
Multi-family residential loans 26,092 27.2 31,336 30.4 249,252 24.9
Commercial real estate loans:
Office 33,497 35.0 33,498 32.5 123,763 12.3
Shopping center 1,644 1.7 1,644 1.6 86,179 8.6
Industrial/warehouse 2,619 2.7 2,148 2.1 80,769 8.1
Hotel 11,470 12.0 11,427 11.1 49,412 4.9
Other(2) 847 0.9 2,373 2.3 120,537 12.0
--------- ------- -------- ----- ------------ ----
Total 50,077 52.3 51,090 49.6 460,660 45.9
Construction loans:
One-to-four family - - - - - -
Multi-family - - - - 360 0.1
Commercial - - - - - -
--------- ------- -------- ----- ------------ ----
Total - - - - 360 0.1
Commercial business loans:
Secured 2,520 2.6 2,520 4.6 27,659 2.7
Unsecured 10,286 10.7 10,464 8.0 9,036 0.9
--------- ------- -------- ----- ------------ ----
Total 12,806 13.4 12,984 12.6 36,695 3.6
Consumer loans:
Student education loans 2,504 2.6 2,671 2.6 19,891 1.9
Passbook loans - - - - - -
Other 367 0.4 367 .4 574 0.1
--------- ------- -------- ----- ------------ ----
Total 2,871 3.0 3,038 3.0 21,274 2.1
Total loans receivable $ 95,770 100.0% $103,005 100.0% $ 1,002,627 100.0%
========= ======= ======== ====== ============= ======
Less:
Unearned discount and
deferred fees, net - - 2,220
Allowance for credit losses (3) 31,570 34,142 31,244
-------- ----------- --------
Net loans receivable $64,200 $68,863 $969,163
========= =========== ========
</TABLE>
(1) See the discussion above for a description of the Bank's loan
portfolios.
(2) Other real estate loans include loans secured by generally mixed-use
properties (retail/commercial) and shares of cooperative units from
apartment building conversions (these loans are primarily
non-performing).
(3) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset Quality -Allowance for Credit Losses."
-11-
624833.3
<PAGE>
The following table summarizes the Bank's portfolio secured by real estate, of
gross loans secured by real estate, by state, and type of mortgage loan at June
30, 1997.
<TABLE>
<CAPTION>
Type of Loan New York California Florida New Jersey S. Carolina Other Total
-------- ---------- ----------- ---------- ------------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $ 3,857 $ - $ - $ 67 $ - $ - $ 3,924
Multi-family residential 26,092 - - - - - 26,092
Commercial real estate:
Office 32,491 1,006 - - - - 33,497
Shopping center 620 1,024 - - - - 1,644
Industrial/warehouse - 360 - - - 2,259 2,619
Hotel - - 10,161 - 1,309 - 11,470
Other 847 - - - - - 847
----------- ------- --------- --------- --------- --------- --------
Total 33,959 2,390 10,161 - 1,309 2,259 50,077
----------- ------- --------- --------- --------- --------- --------
Gross loans receivable
secured by real estate $ $63,907 $ 2,390 $ 10,161 $ 67 $ 1,309 $ 2,259 $ 80,093
=========== ======= ========= ========= ========= ========= ========
</TABLE>
Origination, Purchase and Sale of Loans. The Bank's origination of loans in
recent periods reflects its decision to both revise its lending strategy and to
limit its lending activities as a means of reducing assets and maintaining
capital.
As of the close of business on June 28, 1996, the Bank's lending activities have
been substantially curtailed. During 1997, the Bank advanced funds only to fund
continuing construction involving a limited number of loans and investments in
real estate and one loan in the amount of $471,000 to a joint venture
partnership related to one of the Bank's joint venture investments held prior to
June 28, 1996. With the exception of the $471,000 loan to the joint venture
partnership mentioned above and $3.7 million of new multi-family residential
real estate loans originated during the year ended June 30, 1996, which were
loans secured by smaller multi-family residential properties located in the
Bank's market area, the multi-family residential and commercial real estate
loans originated by the Bank in recent periods have been primarily in connection
with the restructuring/refinancing of existing loans and loans to facilitate the
sale of investments in real estate.
-12-
624833.3
<PAGE>
The following table sets forth the activity in the Bank's loan portfolio during
the periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Originations:
Single-family residential loans - $105,850 $ 42,902
Multi-family residential loans - 3,701 864
Commercial real estate loans - 11,838 2,610
Construction loans - - -
Commercial business loans - - -
Consumer loans (1) - 3,237 16,712
---------- -------------- -----------
Total loans originated - 124,626 63,088
Loans to facilitate sale of
investments in real estate (2) - 83,992 69,960
Loan swap - - -
Repurchased from Marine Midland 471 - -
Total loan increases - 208,518 133,048
Sales (2) - (1,034,928) (276)
Loans transferred (to)/from
investments in real estate - (7,852) (4,116)
Principal repayments, net (7,706) (65,360) (66,849)
---------- -------------- ------------
Net increase(decrease) in total loans $ (7,235) $ (899,622) $ 61,807
========== ============== ===========
</TABLE>
During the year ended June 30, 1997, the Bank repurchased a loan from Marine
Midland Bank in the amount of $471 in accordance with the terms of the Branch
Sale agreement.
(1) Includes $5.6 million of student loans received in settlement of
litigation with the RTC.
(2) Primarily loans sold to Marine in connection with the Branch Sale and
included within Transferred Assets. Also includes the sale of $48.0
million of loans to facilitate sales to third parties. Such loans to
facilitate were delivered to Marine as part of the Transferred Assets
in the Branch Sale. See Asset Sale Transactions and Note 11 to the
Consolidated Financial Statements.
Concentrations of Loans by Loan and by Borrower. At June 30, 1997, the Bank's
loan portfolio included 3 loans aggregating $48.3 million with principal amounts
greater than $10.0 million, 1 loan with a principal balance of $6.8 million and
11 loans aggregating $26.5 million with principal amounts of $1.0 million to
$5.0 million. At the same date, the Bank's five largest borrowers (including
-13-
624833.3
<PAGE>
their related entities) had $22.1 million, $16.0 million, $10.2 million, $6.8
million and $3.9 million, respectively, of loans outstanding, and the aggregate
amount of loans to the Bank's five, 10 and 20 largest borrowers (including
related entities) amounted to $59.0 million, $72.8 million and $83.1 million,
respectively. At June 30, 1997, $40.5 million of the loans to the Bank's 20
largest borrowers were non-performing loans and $6.8 million had been
restructured and were performing according to their restructured terms.
The following table sets forth as of June 30, 1997 the size of the Bank's
multi-family residential, commercial real estate, construction and commercial
business loans.
<TABLE>
<CAPTION>
Loan Type/Size No. of Loans Amount
(Dollars in Thousands)
<S> <C> <C>
Multi-family residential loans:
More than $10.0 million 1 $15,979
More than $5.0 million to $10.0 million 1 6,804
$1.0 million to $5.0 million 1 1,501
Under $1.0 million 2 1,807
Commercial real estate loans:
More than $10.0 million 2 32,283
More than $5.0 million to $10.0 million - -
$1.0 million to $5.0 million 5 11,458
Under $1.0 million 15 6,337
Commercial business loans:
More than $10.0 million - -
More than $5.0 million to $10.0 million - -
$1.0 million to $5.0 million 4 11,071
Under $1.0 million 5 1,735
-- -------
36 $88,975
== =======
</TABLE>
The following table sets forth as of June 30, 1997 information relating to the
Bank's 20 largest borrowers.
(In Thousands)
Largest borrowers:
Five largest borrowers $59,004
Six-10 largest borrowers 13,829
11-20 largest borrowers 10,989
-------
20 largest borrowers $83,822 (1)
=======
(1) Includes 3 loans with a principal amount of more than $10.0 million,
which amounted to $48.3 million in the aggregate.
Multi-Family Residential, Commercial Real Estate and Construction Loans. At June
30, 1997, the Bank's multi-family residential and commercial real estate loans
aggregated $80.1 million.
The Bank's multi-family residential loans consist primarily of loans secured by
rental and cooperative apartment buildings. The Bank's commercial real estate
loans consist of loans secured by office buildings, shopping centers, industrial
warehouse buildings and other income-producing properties. The vast majority of
the Bank's multi-family residential and commercial real estate are secured by
first mortgages on the related properties.
-14-
624833.3
<PAGE>
The terms of the Bank's multi-family residential and commercial real estate
loans were most commonly five to ten years. These loans included amortizing
loans, which required the monthly payment of interest and principal. The
amortization periods for the payment of principal on such loans generally were
20 to 30 years, with balloon payments of the remaining principal amount due upon
the maturity of the loan. The Bank's commercial real estate loans also were
frequently made on an interest-only basis, with the payment of the entire
principal amount due at maturity. The multi-family residential and commercial
real estate loans originated by the Bank generally had either fixed or
adjustable interest rates.
Commercial Business Loans. The Bank has been winding down the portfolio of
commercial business loans, which consisted of $12.8 million of commercial
business loans and $3.5 million of equity investments, net at June 30, 1997. Of
the $12.8 million commercial business loans in the Bank's portfolio at June 30,
1997, $6.6 million or 51.5% was classified as non-performing and maintained on
non-accrual status. An additional $6.2 million was classified as non-performing
at June 30, 1997 although interest in an aggregate amount of $483,000 was
accrued in 1997 and is considered by Management to be collectible.
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the Bank
consummated $60.4 million of Asset Sale Transactions. The Asset Sale
Transactions, which were arranged by RB Management Company LLC, were structured
to include ongoing recourse to, and participation by, the Bank with respect to
the assets sold, based upon the proceeds realized by the purchasers. The assets
included within each pool of assets sold and the nature of related recourse
provisions are described below.
The Asset Sale Transactions were entered into with five entities, each of which
was independent of the Bank and Alvin Dworman, who owns 39% of the common stock
of the Bank. In connection with the Asset Sale Transactions, entities controlled
by Mr. Dworman loaned $12.8 million to the five entities on a non-recourse
basis.
Assets included within each pool sold were, with the exception of Pool C,
believed by the Bank and the purchasers to be in the final process of
disposition by the Bank. In essence the Asset Sale Transactions resulted in
disposition proceeds which the Bank expected to realize on the included assets
within the fiscal year following the Bank's 1997 fiscal year.
In each of the Asset Sale Transactions, the Bank sold a pool of assets and
received a 20% cash down payment and non-recourse purchase money notes (the
"Purchase Money Notes") which approximated 80% of the sale price. In all cases,
except for Pool C, the Purchase Money Notes had maturity dates, including any
extension options, of less than one year from June 30, 1996. The maturity date
on the Pool C Purchase Money Note was three years. The Bank also received
additional contingent proceeds notes for each of the five pools which provided
the Bank with rights to receive proceeds from subsequent asset sales by
purchasers in excess of the initial sales price after the purchaser had received
a return of 8%, a transaction fee of 25 basis points and reimbursement of
certain transaction expenses. In the event that proceeds of subsequent assets
sales exceed specified amounts for each pool, such amounts are to be retained by
the purchaser.
The Bank received aggregate cash down payments of $12.8 million in connection
with the Asset Sale Transactions. The Purchase Money Notes, aggregating $47.6
million, were included in the assets delivered to Marine Midland in connection
with the Branch Sale.
The Bank made representations and warranties ( the "Recourse Provisions") with
respect to the assets sold which included, among other things, the present
condition of each asset, the nature of disposition arrangements which had been
entered into by the Bank prior to June 28, 1996 and that each of the assets was
free of any liens or encumbrances. The Recourse Provisions also included
representations with respect to certain of the assets that the Bank had taken
all actions
-15-
624833.3
<PAGE>
to effect specific proposed dispositions or had made arrangements with third
parties to complete actions required to effect such dispositions.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools B and C as financings, primarily due to their longer term
nature and the more substantial risks related to ongoing construction for the
assets included in each of the Pools. Pool B and C Asset Sale Transactions have
been included in the Bank's consolidated financial statements as Loans sold with
recourse. Related financing for such assets has been included in the Bank's
consolidated financial statements as Borrowed Funds, secured by assets sold with
recourse. The Bank believes that it has made adequate provision at June 30, 1997
for all recourse amounts expected to result from the sale of the assets included
in Pools B and C.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools A, D, and E as sale transactions since each of the financial
receivables, asset sale contracts or other proceeds included in these pools
represented reasonably estimable amounts, including related recourse claims, in
transaction with limited duration. Substantial proceeds from dispositions
conducted within Pools A, D and E were realized by the purchasers during the
fiscal year ended June 30, 1997. The Bank believes that it has made adequate
provision at June 30, 1997 for all recourse amounts expected to result from the
sale of the assets included in Pools A, D and E.
Assets included in Asset Sale Transactions, and a description of the assets
sold, were as follows:
Pool A
Pool A originally included $13.8 million in assets, composed of $12.0 million of
receivables related to the collection of certain federally guaranteed, defaulted
student loans and other student loan related claims from the Student Loan
Marketing Agency ("SLMA") (collectively, the "Student Loan Receivables") and
$1.8 million related primarily to delinquent single family residential loans
(collectively the "Single Family Receivables").
The Bank's aggregate investment in the Student Loan Receivables and the Single
Family Receivables prior to the Asset Sale Transactions approximated $12.4
million and $7.1 million, respectively.
At June 30, 1997, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.3 million. This balance represented claims which had
been filed with state processing agencies for reimbursement for which the Bank
expected to receive reimbursement. At June 30, 1997, the remaining Single Family
Receivables balance, net of applicable reserves, of $5.7 million were in the
process of being disposed of through bulk sales or sales of individual loans or,
to a lesser degree, sales of real estate owned to bulk buyers or individuals.
Pool B
At June 30, 1996, Pool B was composed of a mortgage loan in the amount of $13.0
million secured by land and construction in process related to a single family
condominium project in Wayne, New Jersey (the "Wayne Project"). The Bank's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13.01 million.
The Bank believed at June 30, 1997 that the Wayne Project would be fully
completed and all individual units sold prior to June 30, 1998. The Wayne
Project is in the final phase of a three phase development project which was
nearing completion at June 30, 1997. The Bank's remaining investment in the
Wayne Project, net of applicable reserves, was $7.7 million at June 30, 1997.
-16-
624833.3
<PAGE>
Pool C
Pool C included contracts of sale, in the amount of $11.0 million for two
adjacent parcels of land located in the Bronx, New York (the "Bronx Projects").
The Bank's investment in the Bronx Projects prior to the Asset Sale Transactions
aggregated $17.7 million, including $12.1 million for one site ("Site One") and
$5.6 million for a second site ("Site Two"). The sale contract for the Bronx
Projects represented the sale of ownership and development rights for each of
the parcels of land and, for Site One, the Bank's investment at June 28, 1996 in
construction in process. Site Two was vacant on June 30, 1997 with no
development yet commenced. At June 30, 1997, the Bank expected that the two
parcels would be sold within the subsequent twelve months or that the Bank would
arrange for the sale and development of subparcels of the first site and sale of
the second site prior to the commencement of construction. The Bank's investment
in the Bronx Projects, net of applicable reserves, was $16.8 million at June 30,
1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
owned real estate properties, located in New York State, New Jersey and
California (collectively, the "Real Estate Properties"). The Bank's aggregate
investment in the Real Estate Properties prior to the Asset Sale Transactions
aggregated $16.1 million. Each of the properties included in Pool D were either
under contract of sale or contracts of sale for the remaining assets were being
actively negotiated. All properties were disposed of during 1997 with the
exception of one property, which the Bank estimated at June 30, 1997 would be
disposed of by June 30, 1998. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1997.
Pool E
Pool E, with an aggregate sales price of $8.3 million, included the rights to
proceeds from sale of two joint venture projects, the sale of which was
scheduled to close within 90 days, rights to proceeds of sale of 35 condominium
projects located in New York City, a mortgage secured by cooperative apartment
units in New York City and a mortgage secured by a multi-family apartment
complex in New York State (collectively, the "Venture Proceeds and Residential
Mortgages Pool"). The Bank's aggregate investment in the Venture Proceeds and
Residential Mortgages Pool prior to the Asset Sale Transactions aggregated $11.6
million. Each of the assets included in Pool E were disposed of during fiscal
1997.
-17-
624833.3
<PAGE>
Mortgage-Backed and Related Securities Available for Sale
The following table sets forth information relating to the Bank's
mortgage-backed and related securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ - $ 187 $ 26,397
FNMA - - 3,993
Privately issued - - 13,756
-------------- --------------- ---------------
Total 187 44,146
Mortgage-related securities:
CMO regular interests - - 28,497
CMO residual interests, net - - -
-------------- --------------- ---------------
Total - - 28,497
-------------- --------------- ---------------
Total mortgage-backed
and related
securities $ - $ 187 $ 72,643 (1)
============== =============== ===============
</TABLE>
(1) At June 30, 1996 and 1995, all of the Bank's mortgage-backed and
related securities were classified as available for sale and carried at
fair value.
For additional information relating to the Bank's mortgage-backed and related
securities, see Note 6 to the Consolidated Financial Statements.
-18-
624833.3
<PAGE>
The following table sets forth the Bank's investment securities portfolio at
carrying value at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Bonds:
U.S. Government and federal
agencies $ - $ - $ 23,023
Corporate - - -
Other (1) - - 565
-------- ------------ ----------
Total - - 23,588
-------- ------------ ----------
Equity Securities:
Marketable Equity Securities:
Common 2,298 2,298 1,665
Preferred - - -
Valuation allowance (1,105) (1,218) -
--------- ------------ ----------
Total 1,193 1,080 1,665
Non-marketable Equity Securities, net 5,082 4,605 6,119
-------- ----------- -----------
Total equity securities, net 6,275 5,685 7,784
-------- ----------- -----------
Total investment securities, net (2) $ 6,275 $ 5,685 $ 31,372
======== =========== ===========
</TABLE>
(1) At June 30, 1995, consists primarily of bonds issued by Community
Preservation Corp. for affordable housing programs and bonds of foreign
governments.
(2) At June 30, 1997, 1996 and 1995, all of the Bank's investment
securities were classified as available for sale and carried at market
value in accordance with SFAS No. 115. See Note 1 to the Consolidated
Financial Statements.
At June 30, 1997, the Bank's investments in common stocks and non-marketable
securities were comprised of investments in the stocks of one and two corporate
issuers, respectively. The Bank is required to divest these equity interests in
accordance with the requirements of federal laws and regulations.
The Bank's investments in equity securities prior to June 30, 1997 include a
historically required investment in the FHLB of New York, redeemed during the
Bank's 1997 fiscal year, which amounted to $9.0 million at June 30, 1996. The
Bank's investments in equity securities prior to June 30, 1997 also include
investments, liquidated in 1997, in two organizations, which amounted to
$790,000 at June 30, 1996. These organizations previously provided data
processing and related services to their shareholders on a cooperative basis.
The Bank had no debt securities as of June 30, 1997 and 1996. For additional
information relating to the Bank's investment securities, see Note 6 to the
Consolidated Financial Statements.
Sources of Financing
Subsequent to the Branch Sale, the primary source of the Bank's financing has
been secured financing provided by Marine.
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine the Facility, consisting of eleven independent
mortgage loans with additional collateral, in an aggregate amount not to exceed
$99.06 million. Proceeds of the Facility were utilized by the Bank to (i)
refinance all or part of the certain indebtedness secured by assets to be
transferred to Marine, including all or a substantial part of the outstanding
advances from the Federal Home Loan Bank ("FHLB") and (ii) provide additional
-19-
624833.3
<PAGE>
funds for the development and completion of two individual real estate assets as
part of the Bank's operations subsequent to the Branch Sale.
As a member of the FHLB, River Bank had been eligible to obtain borrowed funds
from the FHLB, subject to the availability of collateral, which was sufficient,
in the judgment of the FHLB, to fully secure advances and compliance with other
applicable requirements. At June 30, 1997, the Bank had no outstanding advances
from the FHLB of New York. The outstanding FHLB financing prior to June 28,
1996, was previously fully secured by individual assets of the Bank, a
substantial amount of which were being sold to Marine as part of the Branch
Sale. As a result, the Bank was required to repay or refinance substantially all
of its FHLB indebtedness at or prior to the closing of the Branch Sale.
Each of the individual loans included in the Facility were structured as
three-year term loans with options to extend the initial term for two additional
one-year periods subject to the Bank's achieving pre-agreed minimum repayment
amounts which are equal to 60% and 30% of the original aggregate amount of the
Facility and remaining fully current on all obligations and in compliance with
all covenants.
The Facility is priced at 175 basis points over LIBOR for the initial six months
following June 28, 1996, automatically increasing by 25 basis points at the
beginning of each of the subsequent three six month periods and will be priced
at 275 basis points over LIBOR for the third year of the Facility. In the event
that the Bank elects to exercise its option to extend the initial term of the
Facility, the Facility will be priced at 300 basis points over LIBOR during the
initial one year extension and 325 basis points over LIBOR during the second one
year extension. Following maturity or an event of default, the Senior Debt
Financing will accrue interest at a specified default rate.
The Facility is secured by first priority mortgage liens on eleven of River
Bank's real estate assets approved by Marine and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross defaulted with each other and cross collateralized by all
collateral for the Facility. As additional collateral for the Facility, each
loan is also secured by first priority mortgages (or, where applicable, a
collateral assignment of first priority mortgages held by the Bank), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Bank
collaterally assigned to Marine all of the cash flow from the Primary Collateral
and the Additional Collateral. All of the net cash flow from the Primary
Collateral and Additional Collateral will be applied to the prepayment of the
Facility. In addition, all net proceeds from the sale of any Primary Collateral,
and the proceeds from the sale of any Additional Collateral, shall be applied to
the prepayment of the Facility subject to the Bank's right to establish reserves
for its operating needs. The Bank will be permitted to prepay the Facility in
whole or in part at any time without prepayment penalty or premium (subject to
customary LIBOR breakage provisions).
The commitment letter for the Facility provided that the Bank may continue to
pursue additional debt financing of up to $25 million of additional debt
financing from other lenders or, in the alternative or in combination,
accelerate the Bank's disposition of assets so as to reduce or eliminate its
need for Supplemental Financing. If the Bank pursues additional debt financing,
the proceeds of such financing will be required to be utilized in a manner
approved by Marine (which may include the application of a percentage of such
proceeds to the prepayment of the Senior Debt Financing), such financing may not
be secured by any assets which are Primary Collateral and the lender must enter
into an intercreditor agreement with Marine satisfactory to Marine. If the Bank
elects to accelerate its disposition of assets, such dispositions must be of
assets which are not Primary Collateral and the proceeds of such asset
dispositions will be required to be utilized in a manner approved by Marine
(which may include the application of a percentage of such proceeds to the
prepayment of the Senior Debt Financing).
Additionally, Marine has indicated that it is willing to consider a request by
the Bank for an increase in the Facility by an amount not to exceed an
additional $25 million in mortgage loans (such increase in the Facility,
together with the initial Facility, the "Senior Debt Financing"). Any increase
in the Facility is subject to Marine's approval and will be secured by
additional mortgaged properties of the Bank or collateral assignments of
mortgage loans of the Bank acceptable to Marine, in its sole discretion. In
addition, any increase in the Facility will be subject, among other things, to
the acceptability to Marine of the terms of all regulatory approvals or
restrictions associated with the Bank's continuing operations. The increase in
the Facility, if any, will be utilized by the Bank only to facilitate the
retirement of the Series A Preferred Stock. Whether an increase in the Facility
is necessary to facilitate the retirement of the Series A Preferred Stock
pursuant to a plan of dissolution will ultimately depend on future events and
conditions, including the pace at which the Bank is able to dispose of its
assets, fund its operations and repay its Senior Debt Financing.
-20-
624883.3
<PAGE>
The Loan Agreement requires that while any amounts remain outstanding under the
senior debt financing, the Bank must receive Marine Midland's prior written
consent to, among other things, materially alter its charter or by-laws, incur
additional corporate indebtedness and liens, make any distributions to
stockholders or repurchases or redemptions of capital stock, acquire additional
assets, exchange existing assets with a third party or assume additional
liabilities as a result of any proposed merger transaction.
Deposits. The Bank no longer accepts any retail deposits and deposits are no
longer a source of funds available to the Bank. Prior to the Branch Sale,
deposits obtained through retail banking offices of the Bank had traditionally
been the primary source of the Bank's funds for use in lending and for other
general business purposes. The Bank has not offered and does not intend to offer
any retail deposit products subsequent to the Branch Sale.
-21-
624833.3
<PAGE>
The following table shows the distribution of the Bank's deposits by type of
deposit at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------------------------
1997 1996 1995
---------------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
(Dollars in Thousands)
Non-brokered deposits:
Regular savings $ - - % $ - - % $381,995 33%
Past due certificates (1) - - - - 41,493 4
Demand accounts:
Checking accounts(2) - - % 2,876 95 2,817 -
Bank checks outstanding (3) - - 146 5 12,809 1
-------- --------- -------- ------ -------- -------
- - 3,022 100 14,906 1
NOW accounts - - - - 66,613 6
Money market deposit
accounts - - - - 89,925 7
-------- --------- -------- ------ -------- -------
Total savings and
demand accounts - - - - 594,932 51
Certificates:
3 - 5 months - - - - 13,085 1
6 - 8 months - - - - 41,248 4
9 - 11 months - - - - 14,017 1
12 - 23 months - - - - 223,819 19
24 - 35 months - - - - 60,841 5
36 - 47 months - - - - 30,752 3
48 - 59 months - - - - 3,655 -
60 - 120 months - - - - 38,363 3
Negotiated-rate jumbo
certificates - - - - - -
-------- --------- -------- ------ -------- -------
Total certificates - - - - 425,780 36
Retirement
accounts - - - - 150,818 13
Total non-brokered
deposits - - - - 1,171,530 100
Brokered deposits - - - - - -
-------- --------- -------- ------ -------- -------
Total deposits at end
of period $ - - % $ 3,022 100% $1,171,530 100%
======== ========= ======== ====== ========== =======
</TABLE>
(1) Past due certificates consist of certificates which have matured but
have not been reinvested by the holder. Such certificates earn interest
at the Bank's day of deposit/day of withdrawal rate until the amount is
reinvested by the customer and as such are classified as regular
savings.
(2) At June 30, 1996, this amount principally related to outstanding checks
which had not yet been collected, and which were subsequently cleared
in July 1996.
(3) Consists of checks drawn by customers on certain deposit accounts which
were outstanding and not yet collected at fiscal year-end. All amounts
subsequently cleared in July 1996.
-22-
624833.3
<PAGE>
The following table sets forth the activity in the Bank's deposits during the
periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 3,022 $ 1,171,530 $ 1,254,199
Net decrease before interest credited (3,022) (56,611) (124,072)
Interest credited - 47,719 41,403
Transferred in connection with the
Branch Sale - (1,159,616) -
------------------ -------------- ----------------
Net decrease in deposits $(3,022) (1,168,508) (82,669)
------------------ -------------- ----------------
Ending balance $ - $ 3,022 $ 1,171,530
================== ============== =================
</TABLE>
For additional information relating to the Bank's deposits, see Note 14 to the
Consolidated Financial Statements.
Borrowed Funds
The following table sets forth certain information concerning the Bank's
borrowed funds at the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------
1997 1996 1995
------------- ----------- ---------
(In Thousands)
<S> <C> <C> <C>
FHLB advances $ - $ 2,026 $ 164,526
Marine Initial Facilities 66,065 89,760 -
Secured by loans sold
with recourse 18,206 24,000 -
Securities sold under
agreement to repurchase - - 14,535
----------- -------------- -------------
Total $ 84,271 $ 115,786 $ 179,061
=========== ============== =============
</TABLE>
For additional information relating to the Bank's borrowed funds, see Asset Sale
Transactions and Note 17 to the Consolidated Financial Statements.
Subsidiaries
Under the Banking Law, the Bank previously invested in subsidiaries which
engaged in various activities authorized for savings banks, as well as
additional activities authorized by the Banking Department. These activities
were subject to the requirements of federal laws and regulations.
A substantial amount of the Bank's activities in subsidiaries consists of
holding investments in real estate not held directly by the Bank. The Bank has
established a number of subsidiaries for the sole purpose of holding and/or
disposing of a single real estate asset. Real estate assets located in New York
City are generally held by subsidiaries of Rivercity Realty Corp. ("RRC"), and
those located in the eastern United States including New York State are held by
subsidiaries of Riverbank Properties, Inc. ("RPI") and certain other
subsidiaries of the Bank. RRC and RPI are New
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York corporations. The Bank's investments in real estate located in the western
United States are generally held by subsidiaries of Riverbank Financial Group
("RFG"), a California corporation which has an office in San Francisco. RPI, RRC
and RFG were originally formed to engage in real estate development and lending
activities.
During the mid-1980s, the Bank engaged in commercial business lending through a
subsidiary. The Bank is winding down the operations of that subsidiary and no
new activity has been conducted since 1991.
A wholly-owned subsidiary of the Bank, East River Financial Group, Inc.,
previously sold on an agency basis certain tax-deferred and variable annuities
issued by specified insurance companies. This subsidiary ceased origination and
sale activity as of the date of the Branch Sale.
Employees
Following the consummation of the Branch Sale, at June 30, 1996, the Bank had 37
full-time and 13 part-time employees. At June 30, 1997 the Bank maintained a
full time staff compliment of four personnel, the President and Chief Executive
Officer, one employee who performs administrative functions and two employees
directly involved in day-to-day management of certain real estate properties.
See Note 26 to the Consolidated Financial Statements. See "Directors and
Principal Officers of the Registrant."
Taxation
Federal Taxation. For federal income tax purposes, the Bank reports its income
and expenses using the accrual method of accounting. The Bank and certain of its
subsidiaries file consolidated federal income tax returns on a calendar year
basis and are subject to federal income tax under the rules of the Internal
Revenue Code ("Code") in the same manner as other corporations. Pursuant to the
Omnibus Budget Reconciliation Act of 1993, signed into law by President Clinton
on August 10, 1993, the maximum federal corporate income tax rate increased to
35%, effective January 1, 1993. In addition to regular income taxes,
corporations such as the Bank are subject to an alternative minimum tax which is
generally equal to the excess of 20% of alternative minimum taxable income
(taxable income, increased by tax preference items and adjusted for certain
other tax items) over regular income taxes. A portion of alternative minimum
taxes paid can be credited against regular taxes due in later years, subject to
certain limitations.
In prior years, the Bank maintained "qualifying assets," as defined in
regulations of the U.S. Treasury, in excess of 60% of its assets on an
unconsolidated basis, and as a result was considered to be a "domestic building
and loan association" which was able to use the percentage of taxable income
method for computing a deductible addition to its bad debt reserve for federal,
state and local income tax purposes. Beginning in 1992, the Bank failed to
maintain qualifying assets in excess of 60% of total assets and, as a result, is
no longer a "domestic building and loan association," but is considered to be a
"bank" for federal income tax purposes. As a result, as of December 31, 1992,
the Bank had recaptured the entire balance of the bad debt reserve which it had
previously maintained for federal tax purposes while it was a "domestic building
and loan association" into income. Due to operating losses incurred in 1991 and
1992, however, no tax was required to be paid on the recaptured amount.
As of June 30, 1997, the Bank had four existing tax attributes which could be
used to reduce federal tax liabilities in the current and future years. These
are its passive activity loss carryforwards and credits, net operating loss
(NOL) carryforwards, and alternative minimum tax credits, each of which is
discussed below and in Note 20 to the Consolidated Financial Statements.
At June 30, 1997, the Bank had suspended passive activity losses for federal
income tax purposes of approximately $674,000 and suspended passive activity
credits (consisting of rehabilitation tax credits) which it has not been able to
utilize in prior periods and are subject to substantially similar limitations,
of approximately $5.4 million. In addition, tax credits of $784,000, $555,000,
and $676,000 were generated in 1997, 1996, and 1995, respectively, and are
considered non passive. This credit is primarily attributable to the Bank's
investment in the rehabilitation of an historic
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multi-family residential project located in Philadelphia, Pennsylvania. See Note
20 to the Consolidated Financial Statements for additional information. The
primary source of the Bank's "passive" losses has been from losses incurred by
subsidiaries of the Bank in real estate joint ventures, and certain losses
incurred by the Bank in connection with real estate acquired through
foreclosure. "Passive" losses from these sources may be deducted against the
Bank's "active income" other than its "portfolio income." For tax years in which
the Bank is considered to be "closely held" within the meaning of the Code,
passive activity losses and credits in excess of the amounts currently allowed
are suspended and may be carried forward indefinitely to offset taxable income
and liabilities from passive activities or from an active trade or business in
future years, or will generally be fully deductible (but not creditable) upon a
complete disposition of the underlying passive activity. These tax credits are
only utilizable against tax liability which would otherwise be incurred, and,
accordingly, can not be used until after the available deductible loss
carryforwards have been utilized.
The passive activity loss limitations applied to the Bank in prior years because
the Bank was considered to be "closely held" within the meaning of the passive
activity loss limitation rules set forth in the Code. The Bank was previously
considered to be "closely held" for this purpose because more than 50% of the
value of its outstanding stock was owned, directly or indirectly, by or for not
more than five individuals. The determination of stock ownership for the
purposes of the passive activity loss limitation rules differs from the
requirements of Section 382 of the Code with regard to the ownership of certain
preferred stock (see Note 18 to the Consolidated Financial Statements). As a
result of the Offering, the Bank believes that it is not "closely held" for
purposes of the passive activity loss rules following consummation of the
Offering notwithstanding the absence of the occurrence of an "ownership change"
for purposes of Section 382 of the Code. The passive activity loss limitation
rules will continue to apply to losses and credits from any preceding period
during which the Bank was "closely held," but current losses and credits are not
subject to treatment as passive activity losses.
At June 30, 1997, the Bank had NOL carryforwards for federal income tax purposes
of approximately $100.2 million. The Bank's NOL's may be carried forward 15
years and will expire in 2006 through 2012.
The Bank is subject to Federal income tax on its operations conducted after the
Branch Sale and will recognize gain or loss at the time of the disposition of
those of its assets not sold therein. Commencing with the taxable year of the
making of any liquidating distribution with regard to the Series A Preferred
Stock, the Bank will become subject to the passive activity loss limitation
rules and the "at-risk" rules of the Code and, if at least 60% of the Bank's
"adjusted ordinary gross income" for any year is "personal holding company
income" (each as defined), the Bank may be subject to a personal holding company
tax on its undistributed personal holding company income for such year. The
passive activity loss limitation and "at-risk" rules have not applied to the
Bank during the period that the Series A Preferred Stock was outstanding
(although the Bank has passive activity loss carryovers and credits arising
before that period) and the personal holding company rules have not applied to
the Bank during the time that it has been a "bank" or a "domestic building and
loan association," each as defined in the relevant provisions of the Code.
Section 382 of the Code generally provides that if a corporation undergoes an
"ownership change," the amount of taxable income that the corporation may offset
after the date of the ownership change (the "Change Date") by NOLs (and certain
built-in losses, as described below) existing on the Change Date will be subject
to an annual limitation. In general, the annual limitation is equal to the
product obtained by multiplying (i) the fair market value of the corporation's
equity immediately prior to the Change Date (with certain adjustments, including
an exclusion of capital contributions made during the two years preceding the
Change Date), by (ii) the long-term tax-exempt bond rate determined for the
month in which the Change Date occurs, as published by the IRS. For "ownership
changes" occurring during June 1994, that rate was 6.01%. If an "ownership
change" of the Bank took place during June 1994, the Bank might be permitted to
use no more than approximately $865,000 of its NOLs carried over from prior to
the change date, annually to offset taxable income realized after the Change
Date, including income realized in connection with the Branch Sale. Accordingly,
the Bank's ability to use its deferred tax assets may be reduced materially,
resulting in the recognition of additional tax expense and a reduction to its
stockholders' equity and the Bank's liquidity. To the extent that it is
determined, after the Bank has made liquidating distributions to its
stockholders, that the Bank had incurred such additional tax expense, such
stockholders may be liable for any such additional tax expense up to the amount
of distributions received by such stockholder in the dissolution plus interest
thereon from the date of distribution, and future distributions to the
stockholders may be reduced.
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<PAGE>
In general, an "ownership change" occurs with respect to a corporation if any of
its stockholders who own, directly or indirectly, five percent or more of the
stock of the corporation ("5-percent stockholders") increase their aggregate
percentage ownership of such stock by more than 50 percentage points over the
lowest percentage of stock owned by those stockholders at any time during a
three-year testing period. In applying Section 382, newly-issued stock generally
is considered to have been acquired by one or more 5-percent stockholders, even
if none of the persons acquiring that stock in fact owns (or owned) at least
five percent of the issuer's stock.
Based on current ownership information available to the Bank, the Bank is of the
view that no ownership change of the Bank occurred within the three years
preceding the Equity Offering. The Bank expects that the Equity Offering, when
combined with prior changes in ownership of stock of the Bank and other
contemplated transactions affecting ownership of the capital stock of the Bank
occurring in connection with the Equity Offering, did not result in an ownership
change of the Bank. However, the application of Section 382 is in many respects
uncertain. In assessing the effects of prior transactions and of the Equity
Offering under Section 382, the Bank has made certain legal judgments and
certain factual assumptions. The Bank has not requested or received any rulings
from the IRS with respect to the application of Section 382 to the Equity
Offering and the IRS could challenge the Bank's determinations.
At June 30, 1997, the Bank had an alternative minimum tax credit carryforward of
approximately $2.5 million for federal income tax and financial reporting
purposes attributable to alternative minimum taxes paid in prior periods. This
tax credit is only utilizable against regular tax liabilities which would
otherwise be incurred, and, accordingly, can not be used until after the
available deductible loss carryforwards have been utilized.
The Bank's federal income tax returns have been audited or closed without audit
by the IRS through its 1991 taxable year.
The IRS has reviewed the Bank's federal income tax returns for calendar years
1991 and 1990 in connection with the Bank's claims for refunds of taxes paid in
1987 through 1989 as a result of the carryback of NOLs from 1991 and 1990. The
agent's adjustments have been issued to the Bank. The adjustments, which are not
material, have been approved by the Joint Committee review and a final
assessment was issued.
For additional information regarding Federal tax matters, see Note 20 to the
Consolidated Financial Statements.
State and Local Taxation. The Bank is subject to the New York State Franchise
Tax on Banking Corporations and to the New York City Banking Corporation Tax.
New York State and New York City each imposes these annual taxes on banking
corporations based on net income allocable to New York State or New York City at
a rate of 9%. An alternative minimum tax will be imposed, however, if the
application of an alternative minimum tax (based on taxable assets allocable to
New York, "alternative" net income, or a flat minimum fee) results in a greater
tax.
In addition to the foregoing, the New York State Tax Law also imposes a
Metropolitan Transportation Business Tax surcharge equal to 17% of the portion
of the net New York State franchise tax (after deduction of any allowable
credits against tax) otherwise payable which is attributable to the Bank's gross
income within New York City and in several other New York counties in the New
York Metropolitan Area. Also, New York State imposed through 1993 a surcharge on
banking corporations at a rate of 15% of the net franchise tax due (after
deduction of any allowable credits against tax). This rate was effectively
reduced to 2.5% for the Bank's tax year ending December 31, 1996.
The Bank files a combined New York State franchise tax return with several of
its currently active subsidiaries that do business in New York. The Bank's New
York State tax returns have either been audited or closed without audit by the
New York State Department of Taxation and Finance through its 1984 taxable year.
In October 1995, the Bank paid New York State $2.0 million to settle all amounts
claimed including penalties and interest for the tax years 1985 and 1986. In
addition, New York State agreed that no additional taxes will be assessed for
the years 1987, 1988 and 1989 as a result of any potential adjustment to the bad
debt reserve deduction reported for
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any of those years. Please see the Bank's Report F-3 filed for the month of
October 1995 which is incorporated herein by reference. In November 1995, the
bank paid New York State $761,000 to settle all amounts, including penalties and
interest for the calendar years 1987, 1988 and 1989.
The Bank has filed claims for refunds of New York State and local franchise
taxes of approximately $1.2 million related to calendar year 1982. The basis of
such claims relates to the applicability of the exemption from such taxes when
net worth certificates ("Certificates") are outstanding. Certificates were those
issued to the FDIC by the Bank under the 1982 Assistance Agreement. The Bank's
initial refund claims were denied on the basis that the exemption was applicable
only during the period Certificates were outstanding and not for the entire
year. On October 13, 1994, a decision was rendered in a court case involving a
similar claim for refund on behalf of another savings institution which
confirmed the position taken by New York State in denying the Bank's initial
refund claim. The Bank continues to review the impact of this decision on its
position.
The Bank's New York City tax returns have either been audited or closed without
audit by the New York City Department of Finance through its 1989 taxable year.
The New York City Department of Finance conducted an audit of the Bank's New
York City tax returns for calendar years 1985 to 1987. Various issues were
raised which resulted in an assessment of $1.1 million of additional taxes and
$900,000 of interest. The Bank paid the additional $2.0 million on June 30, 1994
from previously established reserves with no charges to income during the period
ended June 30, 1994.
REGULATION
The references to laws and regulations which are applicable to the Bank set
forth below and elsewhere herein do not purport to be complete and are qualified
in their entirety by reference to such laws and regulations.
General - The Bank is a stock-form savings bank chartered under the laws of the
State of New York, and its remaining non-retail deposit accounts and escrow
accounts are insured up to applicable limits by the BIF administered by the
FDIC. The Bank is therefore subject to extensive regulation, examination and
supervision by the Banking Department and by the FDIC.
Marine assumed all the Bank's remaining retail deposits in connection with the
Branch Sale, and has so notified the FDIC. The Bank ceased accepting deposits on
the date of the Branch Sale. At June 30, 1997, The Bank continued to be
regulated by the FDIC and the NYSBD. On October 31, 1996 the Bank requested that
the FDIC terminate its insurance of accounts in accordance with the requirements
of the NYSBD's approval of the Branch Sale. On April 14, 1997, the Bank received
notice that the FDIC, as requested by the Bank, intends to terminate the Bank's
status as an insured state non-member Bank on December 31, 1997. Upon the
issuance of such order by the FDIC, the Bank will no longer be subject to
banking regulation by the FDIC but will remain a banking organization chartered
and regulated by the Banking Department. In connection therewith, the Bank has
received from the Banking Department a waiver of any applicable New York State
deposit insurance requirements and intends, prior to September 30, 1997, to seek
approval from the Banking Department to surrender its banking charter.
While certain provisions of the New York State Banking Law ("NYBL") are
inapplicable, such as the Community Reinvestment Act, the Bank will continue to
be subject to regulations regarding, among other things, loans-to-one borrower,
transactions with affiliates and periodic reporting requirements. In addition,
unless the NYSBD terminates the 1995 MOU (see "1995 Memorandum of
Understanding"), the Bank will continue to be subject to the provisions thereof
including, among other things, regulatory capital maintenance, limitations on
dividend payments, valuation of real estate owned and periodic reporting. The
Bank has requested that the NYSBD and the FDIC terminate the 1995 MOU. If the
1995 MOU is terminated and no other such conditions are imposed by the NYSBD,
the Bank will no longer be subject to any currently existing regulatory capital
requirements, but will remain subject to the terms of the NYSBD approval of the
Branch Sale ("see Conditions of Branch Sale"), regulation, examination and
supervision by the NYSBD.
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The Bank is required to file reports with the Banking Department and, to the
extent its status as an insured depository institution has not terminated, the
FDIC, concerning its activities and financial condition, in addition to
obtaining regulatory approvals prior to entering into certain transactions, such
as any merger or acquisition with another institution. The regulatory system to
which the Bank is subject generally is intended for the protection of the
deposit insurance fund and depositors, not stockholders. The regulatory
structure also provides the Banking Department and, to the extent its status as
an insured depository institution has not terminated, the FDIC, with substantial
discretion in connection with their supervisory and enforcement functions,
including matters regarding the appropriate classification of assets and the
establishment of adequate loan loss reserves. Periodically, the Banking
Department and the FDIC conduct examinations of the Bank in order to assess its
compliance with federal and state regulatory requirements.
Certain aspects of the Bank's business have historically been subject to
numerous regulatory requirements and restrictions with respect to such matters
as, for example, the nature and amounts of loans and investments that may be
made, the issuance of securities, the establishment of branches, mergers,
non-banking activities and other operations. Numerous laws and regulations also
set forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
At this time, the Bank remains subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and continues
to file periodic reports and other information with the FDIC, and the Bank will
continue to submit such reports and information to the Banking Department until
it surrenders its banking charter and dissolves.
Conditions of the Branch Sale
The Banking Department imposed certain conditions in connection with approving
the Branch Sale. These conditions are, including but not necessarily limited to:
(i) the Bank's agreement to file an application with the Banking Department,
within one year of closing of the Branch Sale, for approval of a plan of
dissolution; (ii) the Bank's agreement to file with the Supreme Court of the
State of New York an application for a closing order within thirteen months
after the date of the Branch Sale and an order of final dissolution within five
months following the filing of the application for a closing order; (iii)
increased levels of minimum capital requirements; (iv) the Bank's agreement to
continue to submit its proposed capital transactions to the Banking Department
for approval; (v) the continuation of the Bank's current periodic reporting
obligations with respect to its Retained Assets, as well as in connection with
its ongoing activities; and (vi) such other conditions and obligations as the
Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
the Conditions No. 1 and No. 2 of the approval of the Branch Sale described
above. The Bank proposed to adopt a plan under which it would transfer all of
its assets and liabilities to a successor corporation ("Successor") incorporated
under Delaware General Corporate Law. Successor would acquire all of the assets
of the Bank and continue all of the business of the Bank under the same business
plan as adopted by the Bank. Successor would also assume all of the liabilities
of the Bank, including contingent liabilities. Following the transfer of its
assets and liabilities to Successor, the Bank would surrender its banking
charter and dissolve. The implementation of the proposed plan would result in a
mere change of form from a banking corporation to a corporation incorporated
under the Delaware General Corporate Law, which would not be subject to the
jurisdiction of the Banking Department. The proposed transfer is expected to
qualify as a tax-free reorganization under the Internal Revenue Code and, as
such, the Bank expects that certain of its tax attributes will be preserved.
Successor will not be subject to regulation by the Banking Department or the
FDIC following implementation of the Alternate Proposal and the surrender of the
Bank's banking charter.
In connection with the Alternative Proposal, common and preferred shareholders
of River Bank America will receive shares of Successor on a share-for-share
basis so that immediately following the reorganization and dissolution of the
Bank, Successor will be owned by the same stockholders, in the same proportions
as currently own the Bank. Following the surrender of its banking charter, the
Bank, reorganized as a regular corporation, expects to be able to continue to
pursue the orderly disposition of its assets under plans intended to maximize
shareholder value.
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<PAGE>
Prior to June 30, 1997, the Bank received the Banking Department's conditional
approval of the Alternate Proposal as meeting the Conditions of the Banking
Department's approval of the Branch Sale, if implemented by the Bank on a timely
basis. The Banking Department's conditional approval of the Alternate Proposal
and related modification of Condition No. 1 of the Approval of the Branch Sale
provided that the approval of shareholders of the Alternate Proposal not later
than September 30, 1997, would be deemed to satisfy Condition No. 1. Condition
No .2 of the Banking Department's approval of the Branch Sale would be deemed to
be satisfied if the petition required by Condition No. 2 is filed by the Bank by
October 15, 1997. In the event that the Bank is unable to meet the dates for
completion established by the Banking Department the Bank intends to request
such extensions as may be necessary to complete implementation of the Alternate
Proposal. No assurances can be given that the Banking Department will provide
such extensions.
There can be no assurance that the NYSBD will not impose additional requirements
on the Bank in the future, so long as the NYSBD maintains its role as the Bank's
primary regulator.
1995 Memorandum of Understanding - On September 20, 1995, the Bank executed the
1995 MOU. The Bank has requested that the Banking Department and the FDIC
terminate the 1995 MOU. If the 1995 MOU is terminated, the Bank will no longer
be subject to any regulatory capital requirements. No assurance can be given
that the Banking Department and the FDIC will approve the Bank's request that
the 1995 MOU be terminated, or that, in connection with the termination of the
1995 MOU, the Banking Department and the FDIC will not impose other regulatory
capital requirements and conditions. The 1995 MOU, among other things, requires
the Bank to: (i) maintain its adjusted Tier 1 capital ratio at an amount equal
to or greater than 5.5%; (ii) develop and maintain a written plan consisting of
goals and strategies for improving the earnings of the Bank; (iii) eliminate, by
collection or charge-off, all assets classified as "loss" and 50% of all assets
classified as "doubtful" pursuant to any examination by the FDIC or the Banking
Department; (iv) not, with certain exceptions, lend new or additional amounts to
any borrower who has a loan which has been charged-off or who has a loan which
has been adversely classified by the FDIC or the Banking Department; (v) develop
a written plan, acceptable to the FDIC and the Superintendent, to reduce the
Bank's remaining assets classified "doubtful" or "substandard" as a result of
the most recent examinations by the FDIC and the Banking Department; (vi) adopt
and implement a written program to address regulatory criticisms with respect to
all "problem assets," as defined, with carrying values in excess of $3.0 million
which were identified in the most recent regulatory exams by the FDIC and the
Banking Department; (vii) revise its policies to ensure that valuations of other
real estate collateral reflect a "fair market value" which is consistent with
the instructions for preparation of the FDIC's Consolidated Reports of Condition
and Income ("Call Reports") and other accounting guidance; (viii) revise and
implement the Bank's internal loan review and grading system; (ix) not declare
or pay any dividends (A) on its Common Stock unless the Bank's ratio of Tier 1
capital to total assets will be not less than 5.5% and such dividend payment is
approved in advance by the FDIC's Regional Director and the Superintendent or
(B) on its outstanding Perpetual Preferred Stock, Series A unless the Bank's
ratio of Tier 1 capital to total assets remains in excess of 5.0%, provided
that, if the Bank's Tier 1 capital to total assets falls below 5.5%, it has
submitted an acceptable revised capital plan to the Regional Director of the
FDIC and the Superintendent which demonstrates that the Bank will be able to
restore its Tier 1 capital ratio to 5.5% in a reasonably prompt time frame; (x)
appoint a committee of the Bank's Board of Directors to monitor compliance with
the 1995 MOU; (xi) receive from such Compliance Committee of the Board certain
reports; and (xii) provide the FDIC and the Superintendent with periodic reports
as to the Bank's compliance with the 1995 MOU.
Regulatory Capital Requirements - Federally-insured state-chartered banks are
required to maintain such minimum levels of regulatory capital as may be
established from time to time by regulatory authorities. These standards
generally must be as stringent as the comparable capital requirements imposed on
national banks. The FDIC also is authorized to impose capital requirements in
excess of these standards on individual banks on a case-by-case basis, so long
as the Bank is FDIC insured.
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
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Loans-to-One Borrower - With certain limited exceptions, a New York
state-chartered savings bank may not make loans or extend credit for commercial
(non-mortgage), corporate or business purposes (including lease financing) to a
single borrower, the aggregate amount of which would be in excess of 15% of the
bank's net worth if the loan is unsecured, or 25% of net worth if the loan is
secured. At June 30, 1997, the Bank had no credit concentrations that it
believes exceed the permitted amount.
Regulatory Approval for Certain Transactions - Until its status as an insured
depository institution is terminated, the deposits of the Bank are insured up to
$100,000 per insured account (as defined by law and regulation) by the BIF
administered by the FDIC.
Under the Banking Law, the prior approval of the Banking Board is required
before any "company," as defined in the New York State Banking Law, can acquire
all of the capital stock of a banking institution, which includes a stock-form
savings bank. The term "company" is defined generally as any individual, group,
corporation, partnership, trust, association or similar organization either
incorporated or doing business in the State of New York, but does not include
certain governmental, non-profit or investment banking organizations or
operations. In addition, prior approval of the Banking Board is required before
any individual or company, as defined, can acquire "control," as defined, of a
banking institution. Control is presumed to exist upon the direct or indirect
ownership, control or holding of 10% or more of the voting power of any banking
institution. Accordingly, no individual or company may acquire control of 10% or
more of the voting capital stock of a banking institution without the prior
approval of the Banking Board. Prior approval is also required before: (1) any
action is taken that causes any company to become a bank holding company; (2)
any action is taken that causes any banking institution to become or to be
merged or consolidated with a subsidiary of a bank holding company; (3) any bank
holding company acquires direct or indirect ownership or control of more than 5%
of the voting stock of a banking institution, or any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution. The term "bank holding company" is defined generally to include any
company or trust which directly or indirectly either controls the election of a
majority of the directors or owns, controls or holds the power to vote 10% of
the voting stock of a bank holding company, each of two or more banking
institutions or a banking institution held by another banking institution. The
statute requires the New York Banking Board to approve or deny an application
within 120 days of submission.
Restrictions on Dividends - In addition to the conditions imposed in connection
with approval by the NYSBD and Marine in connection with the Branch Sale,
dividends payable by the Bank are also subject to restrictions under the Banking
Law. According to the Banking Law, dividends may be declared and paid only out
of net profits of the Bank. The approval of the Superintendent is required if
the total of all dividends declared in any calendar year will exceed net profits
for that year plus the retained net profits of the preceding two years less any
required transfer to surplus or a fund for the retirement of any preferred
stock. There can be no assurance that the Board of Directors of the Bank will
deem it appropriate to pay dividends on the Series A Preferred Stock even if
permitted by the Bank's primary lender (Marine) and regulatory authorities.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from regulators and Marine (the Bank's principal lender). The
Bank intends to continue to seek approval for the payment of the declared Series
A Preferred dividend. Primarily as a result of the above, the Bank's Board of
Directors has taken no action as regards a quarterly dividend on the Bank's
Series A Preferred for the quarters ending June 30, 1997, March 31, 1997,
December 31, 1996 and September 30, 1996. Declaration or payment of future
dividends on the Bank's Series A Preferred Stock will also be subject to the
approval of the Banking Department and the FDIC, until the Bank is no longer
regulated by the Banking Department and the FDIC, and will be subject to the
approval of Marine for so long as the Facility remains outstanding.
Under the terms of the 1995 MOU, the Bank may not pay dividends on its Common
Stock unless (i) after the payment of such dividends, its ratio of adjusted Tier
1 capital to total assets will be not less than 5.5% and (ii) such dividend
payment is approved in advance by the Regional Director of the FDIC and the
Superintendent. In addition, pursuant
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<PAGE>
to the provisions of the 1995 MOU, the Bank, prior to June 30, 1996, was
permitted to pay dividends on its outstanding Perpetual Preferred Stock, Series
A even though the Bank's ratio of Tier 1 capital to total assets had fallen
below 5.5%, but remained in excess of 5.0%, provided that the Bank had submitted
an acceptable revised capital plan to the Regional Director of the FDIC and the
Superintendent which demonstrated that the Bank would be in a position to
restore its Tier 1 capital ratio to 5.5% in a reasonably prompt time frame.
Restrictions on Transactions with Affiliates and Insiders - A savings bank and
other financial institutions are subject to several types of restrictions on
transactions with affiliates and certain insiders. One set of restrictions is
found in Section 23A of the Federal Reserve Act ("FRA"), which, among other
things, imposes limits on the amount of loans to, and investments in, affiliates
of the bank and requires certain levels of collateral for such loans. Affiliates
of a bank include, among other entities, companies that control, are controlled
by or are under common control with the bank. A bank may not extend credit to
any one affiliate in an amount that exceeds 10% of its capital (20% of capital
to all affiliates in the aggregate). The Bank also is subject to the provisions
of Section 23B of the FRA, which, among other things, requires that certain
transactions between the Bank and its affiliates and certain other transactions
with or benefitting an affiliate must be on terms substantially the same, or at
least as favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving other non-affiliated companies. In the absence of
such comparable transactions, any transaction between the Bank and its
affiliates must be on terms and under circumstances, including credit standards,
that in good faith would be offered to or would apply to non-affiliated
companies. The Bank also is subject to certain prohibitions against advertising
which suggests that the Bank is responsible for the obligations of its
affiliates. In addition, the restrictions on loans to insiders contained in the
FRA and Regulation O apply to all insured institutions. The aggregate amount of
an institution's loans to insiders is limited to the amount of its unimpaired
capital and surplus, unless the FDIC determines that a lesser amount is
appropriate.
Federal Home Loan Bank System - The Bank had historically been a member of the
FHLB of New York, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. The FHLB is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System and makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. At
June 30, 1997, the Bank's FHLB advances amounted to $2.0 million. On June 28,
1996, the Bank requested that it be permitted to withdraw from the FHLB and
during 1997 the Bank's request was granted.
As a member, the Bank was required to hold shares of the capital stock of the
FHLB of New York in an amount at least equal to 1.0% of its aggregate unpaid
principal amount of its outstanding residential property loans at the beginning
of each year or one-twentieth of any borrowed funds from the FHLB of New York,
whichever amount is greater. At June 30, 1997, the Bank had $9.0 million in FHLB
stock, which was in compliance with this requirement. The Bank's investment in
FHLB stock was fully redeemed during the Bank's 1997 fiscal year.
Regulatory Enforcement Authority
General. The enforcement powers available to federal banking regulators are
substantial and include, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions, including misleading or untimely reports filed with
regulatory authorities, may provide the basis for enforcement action. Applicable
law also requires public disclosure of final enforcement actions by the federal
banking agencies. In addition, so long as the Bank is FDIC insured, the FDIC
must be given 30 days' notice of any changes in directors or senior executive
officers of the Bank and the FDIC may object to such changes.
Legislative and Regulatory Proposals. In addition, proposals to change the laws
and regulations governing the operations and taxation of, and federal insurance
premiums paid by, savings banks and other financial institutions and companies
that control such institutions are frequently raised in Congress, state
legislatures and before the FDIC and other bank regulatory authorities. The
likelihood of any major changes in the future and the impact such changes might
-31-
624833.3
<PAGE>
have on the Bank are impossible to determine. Similarly, proposals to change the
accounting treatment applicable to savings associations and other depository
institutions are frequently raised by the Commission, the FDIC and other
appropriate authorities, including, among others, proposals relating to fair
market value accounting for certain classes of assets and liabilities. Certain
pending accounting rule changes are discussed elsewhere herein. The likelihood
and impact of any additional future accounting rule changes and the impact such
changes might have on the Bank are impossible to determine.
-32-
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<PAGE>
ITEM 2
EXECUTIVE OFFICES AND OTHER PROPERTIES
During the year ended June 30, 1996 the Bank terminated all remaining lease
obligations involving properties and executive offices. The Bank is no longer
obligated under any material amounts of non-cancelable operating leases.
During 1997, the Bank paid rent in an aggregate amount that was not material to
its financial statements.
-33-
624833.3
<PAGE>
ITEM 3
LEGAL PROCEEDINGS
Litigation. The Bank is involved in various legal proceedings occurring in the
ordinary course of business. Management of the Bank, based on discussions with
litigation counsel, believes that such proceedings will not have a material
adverse effect on the financial condition or operations of the Bank. There can
be no assurance that any of the outstanding legal proceedings to which the Bank
is a party will not be decided adversely to the Bank's interests and have a
material adverse effect on the financial condition and operations of the Bank.
In recent periods, the Bank has been involved in several legal proceedings
relating to certain commercial business loans and joint venture investments made
by Quest in the mid- to late-1980s. Upon the defaults of certain of these loans
and the bankruptcy of one of the joint venture participants, the Bank and Quest
participated in a global settlement in September 1990 with an arbitrator and
accepted a $1.4 million payment in settlement of certain claims which the Bank
and Quest believed were available. As reported in the Bank's Current Report on
Form F-3 for the month of December 1994, all of such legal proceedings, except
for the Adversary Proceeding in the FBN Bankruptcy case discussed below, have
been settled. See also the Bank's Report on Form F-3 for the month of December
1994, which is incorporated by reference herein.
Regarding the Adversary Proceeding entitled In Re FBN Food Services, Inc.,
Debtor, et al. v. River Bank America and Quest Equities Corp., United States
Bankruptcy Court, Northern District of Illinois, Eastern Division (Chapter 7 No.
91 B 08983, Adversary No. 92 A 00961), as reported in the Bank's Current Report
on Form F-3 for the month of December 1994, on December 6, 1994, the Bankruptcy
Court issued a decision which dismissed Quest Equities and Quest Realty as
defendants and entered judgment against the Bank for $1,400,000, together with
prejudgment interest of approximately $150,000. The decision of the Bankruptcy
Court was affirmed by the United States District Court for the Northern District
of Illinois. On appeal, the United States Court of Appeals for the 7th Circuit
affirmed certain portions of the lower court decision and reversed other
portions remanding those issues to the Bankruptcy Court. The Bankruptcy Court
ordered the institution to which the collateral was pledged to turn over the
proceeds to the Trustee in the amount of $1,683,790. Proceedings continue with
regard to the disbursement of those funds by the Trustee; the Bank has a claim
for a refund. Since the Bank has satisfied the judgment, it has no further
exposure to the Bankruptcy Court Trustee.
Environmental Matters. Under various federal, state and local laws, ordinances
and regulations, an owner, operator or manager of real property, including under
certain circumstances the directors and officers of such entities, may become
liable for the costs of removal or remediation of certain hazardous substances
and materials released on or in its property or as a result of the disposal of
such substances or materials on the owner's or another person's property. Such
loans can impose liability without regard to whether the owner or operator knew
of, or was responsible for, the release of such hazardous substances. The
presence of such substances, or the failure to properly remediate such
substances when released, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. Under certain
circumstances secured lenders may become exposed to environmental liabilities
if, among other things, they take on an active management role with respect to
the real estate property that is the subject of their security interest. While
the Comprehensive Environmental Response, Compensation and Liability Act
provides certain exemptions from liability for secured lenders, the scope of
such exemptions are limited and may not be applicable to all the assets
currently or previously owned by the Bank and its subsidiaries.
The Bank has not been notified by any governmental authority of any material
noncompliance, liability or other claim in connection with any of the real
estate properties currently owned or classified as in-substance foreclosures by
the Bank or its subsidiaries, but it is aware of the presence of certain
hazardous substances and materials on certain of its properties (foreclosed and
in-substance foreclosed), which it has taken into account in connection with the
appraisals of such properties. The Bank believes that the expected costs of
remediation of such conditions are not significant and would not materially
impair the Bank's ability to sell such properties. It is the Bank's general
practice to take title to a property only if a Phase I environmental audit
(which involves only limited procedures) does not reveal a risk of a material
environmental condition and to establish a separate subsidiary to hold each
newly-foreclosed property. There can be no assurance, however, that such audits
reveal all potential environmental liabilities that might exist with respect
-34-
624833.3
<PAGE>
to a foreclosed property, that no prior owner created any material unknown
environmental condition, that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability on the Bank or its subsidiaries,
or that the establishment of separate subsidiaries for foreclosed properties
will insulate the Bank against potential environmental liability relating to
such properties.
-35-
624833.3
<PAGE>
ITEM 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only stockholders known by the Bank to own
beneficially or of record more than 5% of the common stock and the nature of
their holdings. This information has been obtained from reports provided by the
beneficial owners or filed with the FDIC pursuant to Sections 13 (d) and 13 (g)
of the Securities Exchange Act of 1934 (the "Exchange Act") and regulations
promulgated by the FDIC. Unless otherwise indicated, each stockholder listed in
the table has sole voting and investment powers as of July 31, 1997 with respect
to the shares owned beneficially or of record by such person.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership (1) of Class
----- --------------------- ---------------------------- --------
<S> <C> <C> <C>
Common Mr. Alvin Dworman 2,768,400 39.0%
645 Fifth Avenue
New York, New York 10022
Common Wellington Management Company (2) 702,900 9.9%
75 State Street
Boston, Massachusetts 02109
Common First Financial Fund, Inc. (3) 470,000 6.6%
One Seaport Plaza-25th Floor
New York, New York 10292
Common East River Partnership B (4) 415,800 5.9%
Madison Plaza
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Common Odyssey Partners (5) 415,800 5.9%
31 West 52nd Street
New York, New York 10019
Common John Hancock Advisors, Inc. (6) 315,000 4.4%
101 Huntington Avenue
Boston, Massachusetts 02199
</TABLE>
(1) Based upon information provided by the respective beneficial owners and
filings with the FDIC made pursuant to Exchange Act. Beneficial
ownership is direct except as otherwise indicated by footnote. In
accordance with Section 335.403 of the Rules and Regulations of the
FDIC, a person is deemed to be the beneficial owner of a security if he
or she has or shares voting power or investment power with respect to
such security or has the right to acquire such ownership within 60
days.
-36-
624833.3
<PAGE>
(2) Wellington Management Company ("WMC") holds all owned shares in
accounts in its capacity as an investment advisor for various clients.
WMC shares dispositive power over the shares with its investment
advisory clients.
(3) First Financial Fund, Inc. ("FFF") holds all owned shares in its
capacity as an investment company. FFF has sole voting power and shares
dispositive power over the owned shares with WMC of which it is an
investment advisory client.
(4) East River Partnership B is an Illinois general partnership, the
general partners of which are: (1) JAP Grandchildren #1, the
co-trustees of which are Marshall E. Eisenberg and Jay A. Pritzker; (2)
Don Trust #25, the co-trustees of which are Marshall E. Eisenberg and
Thomas J. Pritzker; and (3) R.A. Trust #25, the co-trustees of which
are Marshall E. Eisenberg and Thomas J. Pritzker.
(5) Odyssey Partners is a Delaware limited partnership having five general
partners: Stephen Berger, Leon Levy, Jack Nash, Joshua Nash and Nash
Family Partnership, L.P. The general partners of Odyssey Partners,
excluding Nash Family Partnership, L.P., share voting and dispositive
power over all owned shares.
(6) John Hancock Advisors, Inc. ("JHA") is a wholly owned subsidiary of the
Berkeley Financial Group, which is a wholly-owned subsidiary of the
John Hancock Asset Management, which is a wholly-owned subsidiary of
the John Hancock Asset Subsidiaries, Inc., which is a wholly-owned
subsidiary of the John Hancock Mutual Life Insurance Company. JHA has
sole voting and dispositive power of the 315,000 shares of common stock
over which it has direct beneficial ownership.
The following table sets forth certain information with respect to beneficial
ownership of common stock by the directors of the Bank and by the current
principal officers of the Bank. This information has been obtained from reports
filed by the directors and principal officers with the Bank and the FDIC. Unless
otherwise indicated, ownership figures are as of September 30, 1997, and each
indicated director or principal officer listed in the table has sole voting and
investment powers with respect to the shares owned beneficially by such person.
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Amount and Nature of Percent
Class and Position held in Bank Beneficial Ownership of Class
<S> <C> <C> <C>
Common Ms. Robin Duke Chandler -- *
Director, Vice President and Secretary
Common Mr. Robert N. Flint 4,000 *
Director
Common Mr. William D. Hassett 2,150 *
Director
Common Mr. Jerome R. McDougal 4,000 *
Director, Chairman of the Board
and Chief Executive Officer **
Common Mr. Edward V. Regan -- *
</TABLE>
* Amount represents less than .5% of the common shares outstanding as of
June 30, 1997.
** Effective July 2, 1997 Mr. McDougal took on the additional title of
President with duties as described in the Bank's amended By-Laws.
-37-
624833.3
<PAGE>
The following table sets forth certain information with respect to beneficial
ownership of 15% Noncumulative Perpetual Preferred Stock by the directors of the
Bank and by the current principal officers of the Bank. This information has
been obtained from reports filed by the directors and principal officers with
the Bank and the FDIC. Unless otherwise indicated, ownership figures are as of
September 30, 1997, and each indicated director or principal officer listed in
the table has sole voting and investment powers with respect to the shares owned
beneficially by such person.
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Amount and Nature of Percent
Class and Position held in Bank Beneficial Ownership of Class
<S> <C> <C> <C>
15% Noncumulative Ms. Robin Duke Chandler __ *
Perpetual Preferred Stock Director, Vice President and Secretary
15% Noncumulative Mr. Robert N. Flint 2,950 *
Perpetual Preferred Stock Director
15% Noncumulative Mr. William D. Hassett __ *
Perpetual Preferred Stock Director
15% Noncumulative Mr. Jerome R. McDougal 2,950 *
Perpetual Preferred Stock Director, Chairman of the Board and
Chief Executive Officer
15% Noncumulative Mr. Edward V. Regan __ *
Perpetual Preferred Stock
</TABLE>
* Amount represents less than 1% of the 15% Noncumulative Perpetual
Preferred shares outstanding as of July 1, 1997.
-38-
624833.3
<PAGE>
PART II
ITEM 5
MARKET FOR THE BANK'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Common Stock - The common stock of the Bank is traded in the over-the-counter
market. As of July 1, 1997, the Bank had approximately 12 holders of record of
its common stock. Trading in the Common Stock of the Bank commenced subsequent
to June 30, 1994. The Bank has not declared any dividends on the Common Stock
since trading commenced. See "Regulation - Restrictions on Dividends" in Item 1
hereof for certain information regarding the payment of dividends.
Stock Price
The table below shows the reported last trade prices of the common stock during
the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Quarterly Stock Prices
<S> <C> <C> <C>
High Low Quarter End
First Quarter ended September 30, 1996 $ 9.125 $ 8.250 $ 9.000
Second Quarter ended December 31, 1996 9.250 9.000 9.250
Third Quarter ended March 31, 1997 9.250 6.500 6.500
Fourth Quarter ended June 30, 1997 6.500 5.750 5.750
</TABLE>
Please reference the information contained in Note 18 of the Notes to
Consolidated Financial Statements.
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<PAGE>
ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
The following table sets forth selected consolidated financial and other data of
the Bank at the dates and for the periods indicated. The data at June 30, 1997,
1996, 1995, 1994 and at December 31, 1993 and for the years ended June 30, 1997,
1996, 1995, 1994 and December 31, 1993 have been derived from audited
consolidated financial statements of the Bank, including the audited
Consolidated Financial Statements and related Notes included elsewhere herein
and other schedules prepared for item 6 of this document. At a meeting on
September 21, 1995, the Board of Directors of the Bank authorized management to
change the Bank's fiscal year end from December 31 to June 30. The selected
consolidated financial and other data set forth below should be read in
conjunction with, and is qualified in its entirety by, the more detailed
information included in the Consolidated Financial Statements and related Notes,
included elsewhere herein.
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Total asset $211,659 $285,478 $1,463,637 $1,541,368 $1,496,222
Cash and due from banks and
money market instrument 14,036 17,129 108,540 173,631 60,209
Investment securities, net and
investment securities available
for sale (2) 6,275 5,685 31,372 49,185 45,989
Mortgage-backed and related
securities and mortgage-
backed and related securities
available for sale (2) - 187 72,643 82,074 104,827
Loans receivable:
Single-family residential 3,924 4,557 234,386 209,295 202,408
Multi-family residential 26,092 31,336 249,252 245,245 226,824
Commercial real estate 50,077 51,090 463,760 488,830 501,190
Construction - - 5,301 6,157 39,791
Commercial business 12,806 12,984 36,695 40,224 44,206
Consumer 2,871 3,038 21,274 15,421 15,904
Less:
Deferred fees and unearned
discount - - (2,220) (3,880) (4,487)
Allowance for credit losses (31,570) (34,142) (33,985) (41,076) (55,258)
-------- -------- -------- -------- -------
Total loans receivable, net 64,200 68,863 974,463 960,216 970,578
Investments in real estate, net (3) 97,349 146,440 231,302 233,286 272,841
Loans sold with recourse 24,451 29,914 - - -
Deposits - 3,022 1,171,530 1,254,199 1,293,635
Borrowed funds 84,272 115,786 179,061 141,592 141,592
Stockholders' equity 108,510 138,520 90,134 117,847 46,010
Shares of Common Stock outstanding 7,100 7,100 7,100 7,100 1,000
Book value per common
share (5) $10.35 $14.58 $7.77 $11.67 $13.01
</TABLE>
(Footnotes on second following page)
-40-
624833.3
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, December 31,
----------------------------------------------------- ------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operations Data(1):
Interest and dividend income $ 5,469 $ 94,409 $ 88,878 $ 93,478 $108,312
Interest expense 7,360 61,794 52,255 51,635 62,415
----- ------- ------ ------ ------
Net interest income (1,891) 32,615 36,623 41,843 45,897
Provision for credit losses 1,000 5,250 5,041 5,360 12,828
----- ------ ------- ------- ------
Net interest income (loss) after
provision for credit losses (2,891) 27,365 33,623 36,483 33,069
------- ------ ------ ------ ------
Other income:
Gains on sales of offices (6) - 77,560 - 18,045 20,410
Provision for Branch Sale
contingencies(4) (3,300) - - - -
Net gains (losses) on sales of
loans and securities (1,495) (605) 441 (222) (2,137)
Other 159 3,996 3,548 5,996 9,451
-------- ------- -------- ------- -------
Total (4,636) 80,591 3,989 23,819 27,724
Real estate operations, net (18,368) (4,800) (14,357) (11,077) (12,675)
Other expense:
Deposit insurance expense - 2,533 3,704 4,683 5,217
Foreclosure costs - 225 1,105 2,780 4,560
Other 7,528 33,996 38,666 39,616 40,107
------- ------ ------ ------ ------
Total 7,528 36,754 43,475 47,079 49,884
------- ------ ------ ------ ------
Income (loss) before income tax
expense (benefit) (33,423) 66,762 (22,261) 2,146 (1,766)
Income tax expense (benefit) (3,300) 11,749 2,113 2,608 2,622
-------- ------ ------- ------ -------
Net income (loss) (30,123) 55,013 (24,374) (462) (4,388)
Dividends declared on Preferred Stock - 5,250 5,250 - -
------ ------- ------- ------- -------
Net income (loss) applicable to
Common Shares $ (30,123) $49,763 $(29,624) $ (462) $(4,388)
Net income (loss) per share (5) $ (4.24) $ 7.01 $ (4.17) $ (0.45) $ (4.39)
=========== ======== ========== ======== ========
Other Data (1):
Average equity to average assets 50.97% 5.51% 7.18% 2.69% 2.28%
Equity to assets at period end 51.35 48.52 6.16 7.65 3.08
Weighted average yield on
interest-erning assets(8) 4.90 7.42 7.11 7.13 6.80
Weighted average rate paid on
interest-bearing deposits (8) 6.97 4.43 3.88 3.39 3.57
Interest rate spread (8) (2.07) 2.99 3.23 3.74 3.23
Net interest margin (1.70) 2.57 2.93 3.19 2.88
Return on average assets (1.27) 3.64 (1.65) (0.03) (0.23)
Return on stockholders' equity (9)(12) (24.84) 66.12 (27.04) (0.39) (9.54)
Expense ratio (9) 6.75 2.89 3.58 3.76 3.50
Efficiency ratio (10) n/m 95.30 108.22 98.41 93.44
Tier 1 leverage capital ratio (11) n/m 9.33 6.04 7.97 2.77
Tier 1 capital as a percent of
risk-weighted assets (11) n/m 49.77 7.94 9.78 3.53
Total capital as a percent of
risk-weighted assets (11) n/m 53.84 9.12 11.06 4.79
Full-service banking offices
at end of period (11) - - 11 11 11
</TABLE>
n/m - Not meaningful as a result of the Branch Sale and the Bank's cessation of
banking activities. (See footnotes on following page)
-41-
624833.3
<PAGE>
(1) Reflects the sale, effective June 28, 1996, of the Bank's remaining
eleven branch offices. As a result of such transaction, the Bank's
total assets, loans receivable, net, and deposits decreased by $1,066.6
million, $1,034.9 million and $1,159.6 million, respectively, and the
Bank recorded a pre-tax net gain of $69.6 million.
(2) At June 30, 1997, 1996, and 1995, all of the Bank's investment and
mortgage backed securities, were classified as available for sale
because of the possibility that they may be sold in response to changes
in interest rates, prepayment risk, liquidity needs or similar factors
in connection with its asset and liability management strategy.
(3) Investments in real estate consist of in-substance foreclosures, other
real estate owned and real estate held for investment, net of related
reserves.
(4) During the year ended June 30, 1997, the Bank and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such
review, the Bank has established a reserve of $3.3 million for
potential closing settlement adjustments and claims which it believes
may be asserted by Marine related to certain assets acquired by Marine
in the Branch Sale. The establishment of this reserve is reflected on
the Statement of Operations as provision for Marine Branch Sale
contingencies. The Bank believes that the reserve for closing
settlement adjustments adequately provides for claims which may be
asserted by Marine.
(5) Per share information is based on the weighted average number of
outstanding shares of Common Stock during the period.
(6) Consists of a $69.6 million net after-tax gain from the sale, in June
1996, of the Bank's eleven branch offices, the 96th Street branch
office realty and related deposits.
(7) With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods.
(8) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities (which do not include
non-interest-bearing demand accounts), and net interest margin
represents net interest income as a percent of average interest-earning
assets.
(9) The expense ratio is the ratio of other expense to average
interest-earning assets.
(10) The efficiency ratio is the ratio of other expense to net interest
income plus other income after adjustment to exclude gains from sale of
offices and net gains (losses) on sales of loans and securities.
(11) Data is as of the end of the indicated periods.
(12) Net incomes includes a $77.6 million pre-tax net gain from the Branch
Sale in June 1996. Excluding this gain, return on average assets and
return on stockholders' equity for 1996 would have been (0.83%) and
(15.09%), respectively.
-42-
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<PAGE>
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Non-performing Assets Data (1):
Non-performing loans (2):
Single-family residential $ 3,924 $ 4,557 $ 7,496
Multi-family residential 16,790 19,658 -
Commercial real estate 11,557 3,113 38,685
Construction - - 4,941
Commercial business 12,806 6,817 6,263
Consumer 2,871 2,671 165
---------- ---------- --------
47,948 36,816 57,550
---------- ---------- --------
Investments in real estate:
Other real estate owned and real
estate held for investment, net:
Single-family residential(3) 597 1,690 3,741
Multi-family residential 4,566 9,640 20,963
Commercial real estate 19,570 44,801 102,841
Construction 72,617 90,309 103,757
---------- --------- --------
97,350 146,440 231,302
---------- ---------- --------
Total non-performing assets $ 145,298 $183,256 $288,852
========== ========== ========
Other Asset Quality Data:
Delinquent loans(4) $ - $ - $ 9,206
Restructured loans(5) $ 24,454 $ 29,842 $166,291
Loans to facilitate(6) $ - $ - $215,191
========== ========== ========
Allowance for credit losses $ 31,570 $ 34,142 $ 33,985
========== ========== ========
Asset Quality Ratios:
Non-performing assets as a
percentage of total assets(1) 68.52% 64.19% 19.74%
Non-performing assets to total loans
and investments in real estate(1) 75.24 73.47 23.26
Non-performing loans as a
percentage of total loans(1) 32.96 35.74 5.69
Allowance for credit losses as a
percentage of total loans 50.06 33.15 3.36
Allowance for credit losses as a
percentage of non-performing
loans (1) 65.84 92.74 59.05
Net charge-offs as a percentage of
average loans during the period
ended 3.59 1.03 0.09
Investments in real estate as a
percentage of total non-performing
assets 67.00 79.91 80.08
</TABLE>
-43-
624833.3
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Non-performing Assets Data (1):
Non-performing loans (2):
Single-family residential $ 7,587 $ 8,047
Multi-family residential 2,900 2,900
Commercial real estate 89,569 117,578
Construction 5,641 25,461
Commercial business 3,938 6,283
Consumer 702 1,088
---------- -----------
110,337 161,357
---------- -----------
Investments in real estate:
Other real estate owned and real
estate held for investment, net:
Single-family residential(3) 18,786 16,951
Multi-family residential 50,851 68,260
Commercial real estate 114,237 106,716
Construction 49,412 80,914
---------- -----------
233,286 272,841
---------- -----------
Total non-performing assets $ 343,623 $ 434,198
========== ===========
Other Asset Quality Data:
Delinquent loans(4) $ 1,595 $ 13,421
========== ===========
Restructured loans(5) $ 132,944 $ 103,556
========== ===========
Loans to facilitate(6) $ 149,555 $ 120,939
========== ===========
Allowance for credit losses $ 41,076 $ 55,258
========== ===========
Asset Quality Ratios:
Non-performing assets as a
percentage of total assets(1) 22.29% 29.02%
Non-performing assets to total loans
and investments in real estate(1) 27.75 33.32
Non-performing loans as a
percentage of total loans(1) 10.98 15.66
Allowance for credit losses as a
percentage of total loans 4.09 5.36
Allowance for credit losses as a
percentage of non-performing
loans (1) 37.23 34.25
Net charge-offs as a percentage of
average loans during the period
ended 3.00 2.72
Investments in real estate as a
percentage of total non-performing
assets 67.89 62.84
</TABLE>
-44-
624833.3
<PAGE>
(1) Non-performing assets consist of (i) non-performing loans, which
consist of non-accrual loans and accruing loans 90 days or more
overdue, (ii) investments in real estate, which consist of other real
estate owned and real estate held for investment, net of related
reserves and (iii) investment securities in default. Non-performing
assets do not include restructured loans which are performing in
accordance with their terms and which have been removed from
non-performing status, which amounted to $24.5 million at June 30,
1997.
(2) The Bank's total non-performing assets decreased by $38.0 million or
20.7% to $145.3 million at June 30, 1997 compared to $183.3 million at
June 30, 1996. During the fiscal year ended June 30, 1997, other real
estate owned and real estate held for investment decreased by $49.1
million while non-performing loans increased by $11.1 million. Such net
decreases were due primarily to the sales/satisfactions of an aggregate
of $47.2 million of investments in real estate and loans, and
write-downs of $19.7 million in the carrying value of investments in
real estate and non-performing loans, offset by $27.9 million of
additions.
(3) Primarily consists of completed single-family residential developments
and lots for the development of single-family residences.
(4) Delinquent loans consist of loans which are 31 to 89 days overdue.
(5) Restructured loans consist of loans which have been restructured
primarily as a result of the financial condition of the property which
secures the loan and which are performing in accordance with their
restructured terms.
(6) Loans to facilitate consist of loans to finance the sale of investments
in real estate.
-45-
624833.3
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
General. The Bank's assets and liabilities have substantially decreased during
0the last five years due the effects of the Branch Sale at June 28, 1996 which
resulted in sale of all of the Bank's branches and a substantial portion of the
Bank's assets consistent with the Bank's ongoing efforts to improve its
regulatory capital ratios by, among other things, reducing the total assets of
the Bank. Total assets decreased from $285.5 million at June 28, 1996 to $211.7
million at June 30, 1997, and total liabilities decreased from $147 million to
$103.1 million at the same dates, respectively. Total assets decreased by $73.8
million or 25.9% during the year ended June 30,1997, following a decrease of
$1.2 billion or 80.1% during the year ended June 30, 1996. Total liabilities
decreased by $43.8 million, or 29.8% during the year ended June 30, 1997
following a decrease of $1.2 billion or 89.5% during the year ended June 30,
1996. Decreases in assets and liabilities in recent periods have been generally
comprised of decreases in most of the principal categories of assets and
liabilities.
The following table sets forth the principal categories of the Bank's assets and
liabilities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
-------------- -------------- ---------
(In Thousands)
<S> <C> <C> <C>
Assets:
Cash and due from banks and money
market instruments $14,036 $17,129 $108,540
Investment securities available for sale 6,275 5,685 31,372
Mortgage-backed and related
securities and mortgage-backed and
related securities available for
sale (1) - 187 72,643
Loans receivable, net 64,200 68,863 974,463
Investments in real estate, net 97,349 146,440 231,302
Loans sold with recourse 24,451 29,914 -
Total assets 211,659 285,478 1,463,637
Liabilities:
Deposits - 3,022 1,171,530
Borrowed funds 84,272 115,786 179,061
Total liabilities 103,149 146,958 1,373,503
Stockholders' equity 108,510 138,520 90,134
</TABLE>
(1) At June 30, 1996, and 1995, all of the Bank's mortgage-backed and
related securities, were classified as available for sale because of
the possibility that they may be sold in response to changes in
interest rates, prepayment risk, liquidity needs or similar factors in
connection with its asset and liability management strategy.
-46-
624833.3
<PAGE>
Cash and Due from Banks and Money Market Instruments. Cash and due from banks
and money market instruments decreased by $3.1 million or 18.1% during the year
ended June 30, 1997, following a decrease of $91.4 million or 84.2% during the
year ended June 30, 1996. The decrease in cash for the year ended June 30, 1997
was primarily due to the repayment of other liabilities related to the Branch
Sale and the settlement of the Bank's remaining non-retail deposit liabilities.
The decrease in cash and due from banks and money market instruments during the
year ended December 31, 1996 was reflective of the decrease in the Bank's total
assets and liabilities during the periods. For additional information, see Note
5 to the Consolidated Financial Statements.
At June 30, 1997, Marine Midland had restricted a total of approximately $5.1
million in funds, held on deposit at Marine, in accordance with the terms of the
Branch Sale and the Marine Facility agreements. Restricted funds held by Marine
are not available to the Bank for settlements of any of the Bank's current
obligations. Of the $5.1 million cash balance restricted by Marine at June 30,
1997, $5.0 million relates to reserve amounts specified under the Branch Sale
Agreement which are restricted to a maximum level of $5.0 million. The remaining
restricted cash reserves held by Marine are primarily to meet the currently
anticipated and other potential cash requirements of the properties serving as
collateral for the senior loan financed by Marine.
Investment Securities Available for Sale. Investment securities available for
sale increased by $589 or 10.4% during the year ended June 30, 1997, following a
decrease of $25.7 million or 81.9% during the year ended June 30, 1996. At June
30, 1997, investment securities available for sale were entirely comprised of
marketable and non-marketable equity securities. The increase in investment
securities available for sale during the fiscal year ended June 30, 1997
reflects the accrual of $476 in paid-in-kind preferred stock dividends, which
are expected to be paid in June 1998 and a $113 increase in the value of the
marketable equity security held in the portfolio and accounted for under
Statement of Financial Accounting Standards No. 115 (SFAS-115) "Accounting for
Marketable Equity Securities." The decrease in investment securities available
for sale in 1996 reflects the maturity of certain investment securities, the
sale of certain securities prior to the Branch Sale and the transfer of certain
securities to Marine to facilitate the Branch Sale. At June 30, 1997 and 1996
all of the Bank's investment securities were classified as available for sale
and, as a result, these securities are carried at estimated fair value. See
Notes 5 and 6 to the Consolidated Financial Statements.
Mortgage-Backed and Related Securities Available for Sale. The Bank held no
Mortgage-backed and related securities at June 30, 1997. Mortgage-backed and
related securities available for sale decreased by $187 or 100.0% during the
year ended June 30, 1997, and decreased by $72.5 million or 99.9% during the
year ended June 30, 1996. Decreases in mortgage-backed and related securities
available for sale during fiscal 1997 related to the sales of the remaining
mortgage-backed assets to provide funds for the reduction of other liabilities
related to the Branch Sale. Decreases in mortgage-backed and related securities
available for sale in fiscal 1996 reflects the transfer of certain securities to
Marine to facilitate the Branch Sale. Mortgage-backed and related securities
available for sale consisted primarily of mortgage-backed securities which are
guaranteed by U.S. Government agencies and sponsored enterprises and, to a
lesser extent, mortgage-related securities, which consist of collateralized
mortgage obligations. See Note 6 and 7 to the Consolidated Financial
Statements..
Loans Receivable, Net. Loans receivable, net, decreased by $4.7 million or 6.8%
and $905.6 million or 92.9% during the years ended June 30, 1997 and 1996
respectively. The decrease during the fiscal year ended June 30, 1997 was due
primarily to the disposition of $5.2 million in loans as part of the Bank's
continuing efforts to liquidate its remaining assets and the effects of normal
loan amortization and borrower prepayments activity, partially offset by the
addition of $471. The decrease during the fiscal year ended June 30, 1996 was
due primarily to the transfer of $974.5 million to Marine as a result of the
Branch Sale, partially offset by new originations of $148.1 million, including
$23.4 million in loans to facilitate. Since 1990, the Bank's new loan
originations have consisted of relatively low volumes of single-family
residential loans, certain consumer loans and, in 1993, loans secured by
multi-family residential elevator properties with approximately 75 units. In
addition, the Bank has historically made other loans to the extent that it was
obligated under legally binding commitments which were in effect prior to the
time that it changed its lending strategies, which have not been material in
recent years, as well as in connection with the restructuring/refinancing of
existing loans or in connection with the sale of investments in real estate. See
Notes 8, 9, 10 and 11 to the Consolidated Financial Statements.
-47-
624833.3
<PAGE>
Loans Sold with Recourse, Net. At June 30, 1997, the Bank held $24.5 million in
loans sold with recourse. At June 30, 1996, and in connection with, and to
facilitate the closing of, the Branch Sale, the Bank sold $29.9 million in loans
with recourse accounted for as financings. There were no such loans as of June
30, 1995. See Asset Sale Transactions and Notes 11 and 17 to the Consolidated
Financial Statements.
Investments in Real Estate, Net. Investments in real estate, which are comprised
of other real estate owned and real estate held for investment, net of related
reserves, decreased by $49.1 million or 33.5% during the year ended June 30,
1997, and decreased by $84.9 million or 36.7% during the year ended June 30,
1996. Investments in real estate decreased during the fiscal year ended June 30,
1997 as the result of the sale/satisfaction of $32.8 million (net of fundings of
$11.9 million) of investments in real estate and the write-down of $16.3 million
in investments in real estate. Investments in real estate decreased during the
fiscal year ended June 30, 1996 as the result of the sale/satisfaction of $82.5
million of investments in real estate, the write-down of $1.9 million in
investments in real estate and the restructuring or granting of loans to
facilitate sales in the amount of $23.4 million which were partially offset by
the transfer of $7.9 million of non-performing loans to investments in real
estate and $30.4 million of additions to investments in real estate. The
write-downs in investments in real estate of $16.3 million, recorded during the
year ended June 30, 1997, included a write-down of $11.3 million for an office
building complex in Atlanta, GA, categorized as real estate held for investment.
This charge followed a change in operating plans for the property and a
resultant reevaluation of projected operating cash flows related to this
property. The Bank is actively seeking a purchaser for the property. For
detailed information concerning the Bank's investments in real estate, see "Real
Estate Assets" Notes 11, 13 and 14 to the Consolidated Financial Statements.
Deposits. Deposits decreased by $3.0 million or 100% and by $1.2 billion or
99.8% during the years ended June 30, 1997 and 1996, respectively. The decrease
in deposits during the year ended June 30, 1997 was due to the settlement of
outstanding non-retail deposit obligations (primarily check deposits that had
not cleared following the Branch Sale) in July, 1996. The decrease in deposits
during 1996 was primarily the result of the transfer of $1.2 billion in deposits
to Marine in connection with the Branch Sale. For additional information, see
Note 16 to the Consolidated Financial Statements.
Borrowed Funds. The Bank's borrowed funds decreased by $31.5 million or 27.2%
and $63.3 million or 35.3% during the years ended June 30, 1997 and 1996,
respectively. Borrowed funds decreased during fiscal 1997 primarily as the
result of repayment transactions utilizing funds received from the liquidation
of certain assets under the Bank's plan of asset dispositions. Borrowed funds
decreased in 1996 primarily as the result of paying off $162.5 million in FHLB
borrowed funds partially offset by the Initial Facility granted by Marine,
amounting to $89.8 million, and borrowed funds secured by loans sold, with
recourse, amounting to $24.0 million in connection with the Branch Sale. See
Asset Sale Transactions and Notes 11 and 17 to the Consolidated Financial
Statements.
Stockholders' Equity. Total stockholders' equity decreased by $30.0 million or
21.7% during the year ended June 30, 1997, primarily as a result of the Bank's
reported operating loss of $30.1 million. Total stockholder's equity increased
by $48.4 million or 53.7% during the year ended June 30, 1996. The increase
during the year ended June 30, 1996 was primarily attributable to the net
after-tax gain of $69.6 million on the Branch Sale consummated in June 1996. At
June 30, 1997 and 1996, an aggregate of $1.1 million and $1.2 million,
respectively, were deducted from the Bank's stockholders' equity under Statement
of Financial Accounting Standards No. 115 (SFAS-115) "Accounting for Marketable
Equity Securities," reflecting net unrealized losses on investment securities
classified as available for sale. See the consolidated statements of changes to
stockholders' equity in the Consolidated Financial Statements and Note 19 to the
Consolidated Financial Statements.
-48-
624833.3
<PAGE>
The following table summarizes the calculation of the Bank's book value per
share at June 30, 1997, June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
(Amounts in Thousands)
<S> <C> <C> <C>
Total stockholders' equity $ 108,510 $138,520 $90,134
Less: liquidation value of preferred stock 35,000 35,000 35,000
--------- -------- ------
Net stockholders' equity $ 73,510 $103,520 $55,134
========= ======== =======
Total shares of Common Stock
issued and outstanding 7,100 7,100 7,100
Book value per common share $ 10.35 $ 14.58(1) $7.77
======= ======= =====
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality - Allowance for Credit Losses."
(1) As reduced by the preferred stock dividend for the quarter ending June
30, 1996 which was declared and not yet paid as of June 30, 1997.
-49-
624833.3
<PAGE>
Results of Operations - Fiscal year ended June 30, 1997 compared to fiscal year
ended June 30, 1996
General. The Bank reported a net loss attributable to common shares of $30.1
million or ($4.24) per share for the years ended June 30, 1997, as compared with
net income applicable to Common Shares of $49.8 million or $7.01 per share for
the fiscal year ended June 30, 1996. The primary reason for the decrease in the
Bank's net income in the fiscal year ended June 30, 1997 as compared to the
previous year was the net pre-tax gain of $69.6 million on the Branch Sale
recorded in 1996, a decrease in net interest income in fiscal 1997 as compared
to fiscal 1996 of $30.3 million as a result of the substantial decline in net
earning assets as a result of the Branch Sale and an increase in the loss from
other real estate owned from $4.8 million in fiscal 1996 to $18.4 million in
fiscal 1997, partially offset by reduction in operating expenses in 1997 as
compared to the previous year of $29.2 million and the payment of $5.3 million
of dividends on the Preferred Stock in fiscal 1996.
The operations of the Bank were substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets, including investment securities, mortgage-backed and
related securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits, FHLB advances and other
borrowed funds. Net interest income is determined by an institution's interest
rate spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amount of interest-earning assets and interest-bearing
liabilities. Net interest income can be positively or negatively impacted by
changes in interest rates.
Net interest income is affected by a number of variables. One such variable is
the interest rate spread, that is, the difference between the yields on average
interest-earning assets and the cost of average interest-bearing liabilities.
Another variable is the relative amounts of interest-earning assets and
interest-bearing liabilities. In part through the resolution of a substantial
amount of non-performing assets, the Bank reduced the excess of average
interest-earning liabilities over average interest-bearing assets for the fiscal
year ended June 30, 1997. The level of the Bank's non-performing assets
continues, however, to have a negative effect on net interest income.
In addition, the Bank's results of operations continue to be significantly
affected by the levels of its non-performing assets. During fiscal 1997, the
Bank's results were affected by $1.0 million and $5.3 million in provisions for
possible credit losses in 1997 and 1996, respectively. The Bank's operations
also have been affected by certain regulatory restrictions including the
Conditions of the Branch Sale and the 1995 MOU. See "Regulation - "1995
Memorandum of Understanding" and "Conditions of Branch Sale."
Net Interest Income. The combined effects of the changes in interest income and
interest expense resulted in a $34.5 million or (105.8%) decrease in net
interest income during the fiscal year ended June 30, 1997 compared to the
fiscal year ended June 30, 1996. The Bank's average interest rate spread
decreased from 2.99% during fiscal 1996 to (2.07%) during fiscal 1997. This
decrease was due primarily to the substantial reduction in net earning assets
resulting from the Branch Sale. The Bank's net interest margin, which measures
the ratio of the Bank's net interest income to its average interest-earning
assets, decreased from 2.57% to (1.70%) when comparing the fiscal year ended
June 30, 1997 to the results for the fiscal year ended June 30, 1996. This
decrease was due primarily to the factors described above related to the Branch
Sale.
-50-
624833.3
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) net interest margin and (v) interest rate spread.
Information is based on daily balances during the indicated periods.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 1996
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments $ 2,500 $ 155 6.20% $ 44,344 $ 2,489 5.61%
Investment securities 5,871 725 12.35 131,857 9,347 7.09
Mortgage-backed and
related securities - - - 67,926 5,342 7.86
Loans receivable, net(2) 99,403 4,363 4.39 1,018,427 76,614 7.52
Other interest-earning assets 3,800 225 5.92 8,976 617 6.87
----------- ------- ---- ----------- ---------
Total interest-earning assets,
interest income 111,574 5,468 4.90 1,271,530 94,409 7.42
------ ------
Non-interest-earning cash 11,770 11,266
Allowance for credit losses (32,289) (33,366)
Other assets 146,896 261,730
----------- -----------
Total assets $ 237,951 $ 1,511,160
=========== ===========
Average Liabilities and
Stockholders' Equity:
Retail certificates of deposit $ - $ - - $ 587,971 $ 33,288 5.66%
Other retail interest-bearing
deposits(3) - - - 568,915 14,431 2.54
Brokered certificates of
deposit - - - - - -
Total interest-bearing deposits - - - 1,156,886 47,719 4.12
Borrowed funds 93,247 6,373 6.83 233,429 14,025 6.01
Other 12,300 987 8.02 5,727 49 0.86
----------- ------- ----------- ---------
Total interest-bearing
liabilities, interest
expense 105,547 7,360 6.97 1,396,042 61,794 4.43
------- ---------
Non-interest-bearing
deposits 480 11,473
Other liabilities 10,648 20,443
----------- -----------
Total liabilities 116,675 1,427,958
Stockholders' equity 121,276 83,202
----------- -----------
Total liabilities and
stockholders' equity $ 237,951 $ 1,511,160
=========== ===========
Net interest income $ (1,892) $ 32,615
========= =========
Average interest rate spread (2.07%) 2.99%
======= =====
Net interest margin (1.70%) 2.57%
======= =====
Ratio of interest-earning
assets to interest-bearing
liabilities 94.6% 91.1%
====== ======
</TABLE>
(Footnotes on the following page)
-51-
624833.3
<PAGE>
(1) At June 30, 1997, the Bank's interest rate spread amounted to (2.07%)
and the yields earned and rates paid were as follows:
<TABLE>
<S> <C> <C> <C>
Money market instruments 6.20% Borrowed funds 6.83%
Investment securities 12.35 Other 8.02
Loans receivable, net 4.39 Total interest-bearing liabilities 6.97
Other interest-earning assets 5.92
Total interest-earning assets 4.90
</TABLE>
(2) The average balance of interest-earning assets includes accruing loans
90 days or more overdue and non-accrual loans, interest on the latter
of which is recognized on a cash basis.
(3) Includes passbook, demand on withdrawal ("DOW"), negotiable order of
withdrawal ("NOW"), club and money market deposit accounts.
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior rate), (ii) changes in rate (change
in rate multiplied by prior volume) and (iii) total change in rate and volume.
Changes attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 vs. 1996
Increase (Decrease) Due to
Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-Earning Assets:
Money market investments $ 15 $(2,349) $ (2,334)
Investment securities 9 (8,631) (8,622)
Mortgage-backed and related securities - (5,342) (5,342)
Loans receivable, net (3,449) (68,802) (72,251)
Other interest-earning assets (36) (356) (392)
---------- ----------- ----------
Total interest-earning assets (3,461) (85,480) (88,941)
---------- ----------- ----------
Interest-Bearing Liabilities:
Retail certificates of deposit - (33,288) (33,288)
Other interest-bearing deposits(1) - (14,431) (14,431)
Total interest-bearing deposits - (47,719) (47,719)
Borrowed funds 765 (8,417) (7,652)
Escrow deposits 880 58 938
---------- ----------- ----------
Total interest-bearing liabilities 1,645 (56,078) (54,433)
---------- ----------- ----------
Increase (decrease) in net interest income $ (5,106) $ (29,402) $ (34,508)
========= =========== ==========
</TABLE>
(1) Includes passbook, DOW, NOW, club and money market deposit accounts.
-52-
624833.3
<PAGE>
Interest Income. The Bank's interest and dividend income decreased by $ 88.9
million or 94.2% during the fiscal year ended June 30, 1997 compared to the same
period in 1996. Such decrease was attributable to the average balances of
interest-earning assets. The average balance of the Bank's interest-earning
assets decreased by $1.2 billion or 91.2% to $111.6 million for the fiscal year
ended June 30, 1997. Such increase primarily reflects the planned leverage in
the Bank's assets through the use of investment securities.
The weighted average yield on the Bank's interest-earning assets decreased from
7.42% during the fiscal year ended June 30, 1996 to 4.90% during the fiscal year
ended June 30, 1997. Such decrease was due primarily to a decrease in the
weighted average yield of the Bank's loans receivable from 7.52% to 4.39% during
the same periods. The decrease in the weighted average yield of the Bank's loan
portfolio reflects the general decreases in market rates of interest.
The Bank's interest income in recent periods has been adversely affected by the
high levels of non-performing assets. Gross interest income that would have been
recognized for the fiscal years ended June 30, 1997 and 1996 if all
non-performing loans classified as loans at such dates had been performing in
accordance with their original terms amounted to $3.4 million and $5.0 million,
respectively, and the actual amount of interest on these loans that was
collected during these periods and included in interest income was $164 and
$420, respectively.
Interest Expense. The Bank's interest expense decreased by $54.4 million or
88.1% during the fiscal year ended June 30, 1997 compared to fiscal 1996. Such
decrease was attributable to an increase in the average rate paid on the Bank's
deposits and a decrease in the average balances of interest-bearing liabilities.
The average balance of the Bank's interest-bearing liabilities decreased by $
1.3 billion or 92.4% from $1.40 billion during the fiscal year ended June 30,
1996 to $105.5 million during the fiscal year ended June 30, 1997.
The weighted average rate on the Bank's interest-bearing liabilities increased
from 4.43% during the fiscal year ended June 30, 1996 to 6.97% during the fiscal
year ended June 30, 1997. This increase was attributable to a reliance on
borrowed funds from the Facility provided by Marine Midland during the year.
Provision for Credit Losses. The provision for credit losses amounted to $1.0
million and $5.3 million during the fiscal year ended June 30, 1997 and 1996,
respectively. These provisions resulted from management's ongoing evaluation of
the adequacy of the allowance for credit losses in light of, among other things,
the amount of non-performing loans, the risks inherent in the Bank's loan
portfolio and depressed markets for real estate and economic conditions in the
New York metropolitan area and other areas in which the Bank had engaged in
lending activities. The provision for credit losses in the fiscal 1997 period
reflects management's internal analysis of its non-performing assets. See Note
10 to the Consolidated Financial Statements.
-53-
624833.3
<PAGE>
Other Income. The following table sets forth the composition of the Bank's other
income (loss) during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
1997 1996
(In Thousands)
<S> <C> <C>
Gains on sales of offices and branches (1) $ - $ 77,560
Banking fees and service charges - 2,463
Net gains (losses) on sales of loans and investment securities (1,495) (605)
Other (3,141) 1,533
-------------- -----------
Total $ (4,636) $ 80,951
============== ===========
</TABLE>
(1) The net gain on the sale of offices and branches included a deposit
premium of $93.0 million, partially offset by net losses on the sale of
assets to facilitate the closing of the Branch Sale of $1.1 million,
transaction costs of $5.8 million, professional fees of $3.2 million,
employee benefits and severance payments of $4.6 million and other net
Branch Sale costs of $700,000.
Gain on sale of offices during the fiscal year ended June 30, 1996 consisted
primarily of a $77.6 million net pre-tax gain from the sale of the Bank's
remaining eleven branch offices and 96 Street branch office realty to Marine
Midland along with the related deposits, and Transferred Assets, which amounted
to $1,159.6 million of deposits and $1,066.6 million in Transferred Assets on
June 28, 1996, the effective date of the transaction.
Other income amounted to $(3.1) million during the fiscal year ended June 30,
1997 compared to $1.5 million during the fiscal year ended June 30, 1996. The
primary reason for the $4.6 million decrease in other income was the curtailment
of the Bank's principal activities as a result of the Branch Sale.
Real Estate Operations, Net. The Bank's real estate operations, net, are
comprised of (i) writedowns of investments in real estate to the lower of cost
or fair value minus estimated costs to sell and (ii) other real estate
operations, net, which consists of net operating income or losses from
investments in real estate and net gains or losses on sales of investments in
real estate. Real estate operations, net, does not include foreclosure costs
related to the Bank's non-performing assets, which are included in other
expenses.
-54-
624833.3
<PAGE>
The following table sets forth the components of the Bank's real estate
operations during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
1997 1996
(In Thousands)
<S> <C> <C>
Other real estate operations:
Operating income from investments in real estate $ 16,158 $ 18,530
Operating expenses from investments in real estate 13,027 17,942
---------- -------------
Net income from investments in real estate 3,131 588
Net gains (losses) from sale of investments in real estate (1,754) (3,499)
---------- -------------
Other real estate operations, net 1,377 (2,911)
----------- -------------
Write-down of investments in real estate (19,745) (1,889)
----------- --------------
Total real estate operations, net $ (18,368) $ (4,800)
=========== ==============
</TABLE>
Real estate operations, net, for the fiscal year ended June 30, 1997 resulted in
a loss of $18.4 million as compared to a loss of $4.8 million for the same
period in 1996 primarily as a result of an increase in writedowns. The decrease
in rental income was due to the reduction in rental revenues resulting from the
sale of investments in real estate during 1996 and 1997. See "Real Estate
Assets" and Notes 11, 13 and 14 of the Consolidated Financial Statements.
Although the Bank's other real estate operations, net, are subject to a variety
of factors which are subject to change, it generally can be expected that such
operations are unlikely to improve, and may decline, in the near term in the
event that the Bank continues to reduce its investments in real estate. This is
because investments in real estate which have positive cash flows are likely to
be more attractive to potential purchasers, and thus sold earlier and achieve
higher sales proceeds than investments in real estate which do not have such
characteristics.
Other Expenses. Other expenses consist of the Bank's general and administrative
expense. With the exception of foreclosure costs related to the Bank's
non-performing assets, other expenses do not include direct real estate
operations expenses, which are included in "other real estate operations, net."
-55-
624833.3
<PAGE>
The following table sets forth the components of the Bank's other expenses
during the periods indicated.
Fiscal Year
Ended June 30,
1997 1996
(In Thousands)
Salaries $ 927 $ 9,814
Employee benefits 243 4,349
Premises and occupancy costs - 8,108
Electronic data processing - 3,700
Legal and professional fees 1,892 4,521
Management fees 2,942 -
Other operating expenses 2,024 3,504
------ -------
(1) 7,528 33,996
Deposit insurance expense - 2,533
Foreclosure costs - 225
------ -------
(2) $7,528 $36,754
====== =======
(1) Represents a 77.97% decrease in the fiscal year ended June 30, 1997
compared to fiscal 1996.
(2) Represents a 79.56% decrease in the fiscal year ended June 30, 1997
compared to fiscal 1996.
Other expenses decreased by $ 29.3 million or 79.5% from $36.8 million during
the fiscal year ended June 30, 1996 to $7.5 million during the fiscal year ended
June 30, 1997. Such reductions were primarily the result of a decrease in costs
incurred in connection with the foreclosure of properties securing real estate
loans and legal expenses.
Income Tax Expense. On January 1, 1993, the Bank adopted SFAS No. 109,
"Accounting for Income Taxes." Among other things, SFAS No. 109 requires the
Bank to recognize a deferred tax asset relating to the unrecognized benefit for
all temporary differences that will result in future tax deductions and for all
unused NOL and tax credit carryforwards, subject to, in certain circumstances,
reduction of the asset by a valuation allowance. A valuation allowance is
recorded if it is more likely than not that some portion or all of the deferred
tax asset will not be realized based on a review of available evidence.
Realization of tax benefits for deductible temporary differences and unused NOL
and tax credit carryforwards may be based upon the future reversals of existing
taxable temporary differences, future taxable income exclusive of reversing
temporary differences and carryforwards, taxable income in prior carryback years
and, if appropriate, from tax planning strategies.
The high levels of loan charge-offs and other losses, which were largely
responsible for losses during the periods, effectively eliminated federal income
tax liability for fiscal 1997, fiscal 1996, and fiscal 1995. The Bank's income
tax provision includes state and local taxes on the greater of combined entire
net income, combined alternative entire net income or combined taxable assets.
Certain subsidiaries provide for state and local taxes on a separate company
basis on income, capital, assets or an alternative minimum tax. For additional
information, see Note 20 to the Consolidated Financial Statements.
Under SFAS No. 109, at June 30, 1997, the Bank recorded a net deferred tax asset
of approximately $19.6 million and deferred tax liabilities of $19.6 million.
The net deferred tax asset reflects gross deferred tax assets of $56.4 million
and a valuation allowance of $36.9 million. The net deferred tax asset
represents primarily the anticipated federal and state and local tax benefits
that could be realized in future years upon the utilization of existing tax
attributes. The deferred tax asset primarily relates to provisions for
anticipated credit losses recognized for financial statement purposes that have
not yet been realized for tax purposes, suspended passive activity losses and
credits, deferred income on
-56-
624833.3
<PAGE>
venture investments and available NOL carryforwards. Generally, the amount of an
institution's net deferred tax asset may serve to increase its net worth under
generally accepted accounting principles. In addition, FDIC regulations permit
deferred tax assets that are dependent on future taxable income to be included
in Tier 1 capital in an amount equal to the lesser of the deferred tax asset
that can be realized based on projected taxable income for the immediately
subsequent one-year period or 10% of Tier 1 capital before any disallowed items.
However, because of the net losses incurred by the Bank in recent years, the
Bank established a $36.9 million valuation allowance, resulting in a net
deferred tax asset of $19.6 million. The valuation allowance increased by
approximately $2.9 million during the fiscal year ended June 30, 1997.
Realization of the net deferred tax asset is expected to occur upon reversal of
existing taxable temporary differences for which deferred tax liabilities of
$19.6 million have been recorded. As a result, the net deferred tax asset is not
dependent on future taxable income for purposes of the FDIC's regulations.
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the income (loss) before provision
for income taxes primarily due to state and local income and franchise taxes and
limitations on the recognition of tax benefits of net operating losses. During
the year ended June 30, 1997, the Bank completed a review of it's potential
current and deferred federal and state tax liability for the fiscal year in
light of the Branch Sale and its related effect. As a result of the review of
its potential current and deferred tax liabilities and the results of operations
for the twelve months ended June 30, 1997, the Bank reduced its provision
(recorded a benefit from) for state and local income taxes by $3.3 million.
Additionally, the Bank reduced its estimated current state and local income tax
liability at June 30, 1997 to reflect the effect of the Branch Sale and
disposition transactions completed during the twelve months ended June 30, 1997.
Results of Operations - Fiscal year ended June 30, 1996 compared to fiscal year
ended June 30, 1995
General. The Bank reported net income applicable to Common Shares of $51.8
million or $7.29 per share for the fiscal year ended June 30, 1996, compared to
a net loss of $29.6 million or ($4.17) per share for the fiscal year ended June
30, 1995. The primary reason for the increase in the Bank's net income in the
fiscal year ended June 30, 1996 compared to fiscal 1995 was a reduction in the
loss from other real estate owned from $14.4 million in fiscal 1995 to $4.8
million in fiscal 1996, the net pre-tax gain on the Branch Sale in 1997 of $69.6
million and the payment of $5.3 million of dividends on the Preferred Stock. The
decrease in net interest income after provision for credit losses was equally
offset by the reduction in other operating expenses.
The operations of the Bank were substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets, including investment securities, mortgage-backed and
related securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits, FHLB advances and other
borrowed funds. Net interest income is determined by an institution's interest
rate spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amount of interest-earning assets and interest-bearing
liabilities. Net interest income can be positively or negatively impacted by
changes in interest rates.
Net interest income is affected by a number of variables. One such variable is
the interest rate spread, that is, the difference between the yields on average
interest-earning assets and the cost of average interest-bearing liabilities.
Another variable is the relative amounts of interest-earning assets and
interest-bearing liabilities. In part through the resolution of a substantial
amount of non-performing assets, the Bank reduced the excess of average
interest-earning liabilities over average interest-bearing assets for the fiscal
year ended June 30, 1996. The level of the Bank's non-performing assets
continues, however, to have a negative effect on net interest income.
In addition, the Bank's results of operations continue to be significantly
affected by the levels of its non-performing assets. During fiscal 1997, the
Bank's results were affected by $5.3 million in provisions for possible credit
losses. The Bank's operations also have been affected by certain regulatory
restrictions including the Conditions of the Branch Sale and the 1995 MOU. See
"Regulation - "- 1995 Memorandum of Understanding" and "Conditions of Branch
Sale."
-57-
624833.3
<PAGE>
Net Interest Income. The combined effects of the changes in interest
income and interest expense resulted in a $6.2 million or 18.5% decrease in net
interest income during the fiscal year ended June 30, 1996 compared to the
fiscal year ended June 30, 1995. The Bank's average interest rate spread
decreased from 3.23% during fiscal 1995 to 2.99% during fiscal 1996. This
decrease was due primarily to a reduction in the interest rate earned on loans,
in part due to a large interest payment received on a non-accrual loan in fiscal
1995, and an increase in the rates offered on certificates of deposit which
were trending up at a faster rate than loans offset, in part, by a decrease in
non-performing assets which were returned to an interest-earning status or sold
and the proceeds invested as interest-earning assets. The Bank's net interest
margin, which measures the ratio of the Bank's net interest income to its
average interest-earning assets, decreased from 2.93% to 2.57% when comparing
the fiscal year ended June 30, 1995 to the results for the fiscal year ended
June 30, 1996. This decrease was due primarily to the items described above and
by the decrease in the ratio of interest-earning assets to interest-bearing
liabilities from 92.7% for the fiscal year ended June 30, 1995 to 91.1% for the
fiscal year ended June 30, 1996.
-58-
624833.3
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) net interest margin and (v) interest rate spread.
Information is based on daily balances during the indicated periods.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 1995
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments $ 44,344 $ 2,489 5.61% $ 65,850 $ 3,428 5.21%
Investment securities 131,857 9,347 7.09 35,516 1,859 5.23
Mortgage-backed and
related securities 67,926 5,342 7.86 133,268 9,337 7.01
Loans receivable, net(2) 1,018,427 76,614 7.52 1,007,333 73,681 7.31
Other interest-earning assets 8,976 617 6.87 7,707 573 7.43
----------- ------- ------------ ----------
Total interest-earning assets,
interest income 1,271,530 94,409 7.42 1,249,674 88,878 7.11
------- ----------
Non-interest-earning cash 11,266 13,666
Allowance for credit losses (33,366) (35,922)
Other assets 261,730 254,100
----------- ------------
Total assets $ 1,511,160 $ 1,481,518
=========== ============
Average Liabilities and
Stockholders' Equity:
Retail certificates of deposit $ 587,971 $33,288 5.66% $ 504,926 $ 24,284 4.81%
Other retail interest-bearing
deposits(3) 568,915 14,431 2.54 668,495 17,125 2.56
Brokered certificates of
deposit - - - 14,883 1,373 9.23
----------- ------------------ ------------ ----------
Total interest-bearing
deposits 1,156,886 47,719 4.12 1,188,304 42,782 3.60
Borrowed funds 233,429 14,025 6.01 153,044 9,411 6.15
Escrow deposits 5,727 49 0.86 6,601 62 0.94
----------- ------- ------------ ----------
Total interest-bearing
liabilities, interest
expense 1,396,042 61,794 4.43 1,347,949 52,255 3.88
------- ----------
Non-interest-bearing deposits 11,473 5,202
Other liabilities 20,443 22,041
----------- ------------
Total liabilities 1,427,958 1,375,192
Stockholders' equity 83,202 106,326
----------- ------------
Total liabilities and
stockholders' equity $ 1,511,160 $ 1,481,518
=========== ============
Net interest income $32,615 $ 36,623
======= ==========
Average interest rate spread 2.99% 3.23%
===== =====
Net interest margin 2.57% 2.93%
====== =====
Ratio of interest-earning
assets to interest-bearing
liabilities 91.1% 92.7%
====== =====
(Footnotes on the following page)
</TABLE>
-59-
624833.3
<PAGE>
(1) At June 30, 1996, the Bank's interest rate spread amounted to 3.61% and
the yields earned and rates paid were as follows:
<TABLE>
<S> <C> <C> <C>
Money market instruments 5.34% Retail certificates of deposit 5.73%
Investment securities 6.70 Other retail interest-bearing deposits 2.59
Mortgage-backed and related securities 7.39 Total interest-bearing deposits 4.23
Loans receivable, net 7.38 Borrowed funds 5.64
Other interest-earning assets 5.65 Total interest-bearing liabilities 4.43
Total interest-earning assets 7.27
</TABLE>
(2) The average balance of interest-earning assets includes accruing loans
90 days or more overdue and non-accrual loans, interest on the latter
of which is recognized on a cash basis.
(3) Includes passbook, demand on withdrawal ("DOW"), negotiable order of
withdrawal ("NOW"), club and money market deposit accounts.
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior rate), (ii) changes in rate (change
in rate multiplied by prior volume) and (iii) total change in rate and volume.
Changes attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
Fiscal Year Ended June 30,
1996 vs. 1995
Increase (Decrease) Due to
Rate Volume Total
(Dollars in Thousands)
Interest-Earning Assets:
Money market investments $ 177 $(1,116) $ (939)
Investment securities 2,453 5,035 7,488
Mortgage-backed and related securities 577 (4,572) (3,995)
Loans receivable, net (2,139) 794 2,933
Other interest-earning assets (50) 94 44
------- ------ ------
Total interest-earning assets 5,296 235 5,531
------- ------ ------
Interest-Bearing Liabilities:
Retail certificates of deposit 4,998 4,006 9,004
Other interest-bearing deposits(1) (114) (2,580) (2,694)
Brokered certificates of deposit - (1,373) (1,373)
------- ------ ------
Total interest-bearing deposits 4,884 53 4,937
Borrowed funds (327) 4,942 4,615
Escrow deposits (5) (8) (13)
------- ------ ------
Total interest-bearing liabilities 4,552 4,987 9,539
------- ------ -------
Increase (decrease) in net interest income $ 744 $(4,752) $(4,008)
======= ======== ========
(1) Includes passbook, DOW, NOW, club and money market deposit accounts.
-60-
624833.3
<PAGE>
Interest Income. The Bank's interest and dividend income increased by $5.5
million or 6.2% during the fiscal year ended June 30, 1996 compared to the same
period in 1995. Such increase was attributable to increases in both the average
balances of interest-earning assets and the weighted average yield earned on
interest-earning assets. The average balance of the Bank's interest-earning
assets increased by $21.9 million or 1.7% to $1.3 billion for the fiscal year
ended June 30, 1996. Such increase primarily reflects the planned leverage in
the Bank's assets through the use of investment securities.
The weighted average yield on the Bank's interest-earning assets increased from
7.11% during the fiscal year ended June 30, 1995 to 7.42% during the fiscal year
ended June 30, 1996. Such increase was due primarily to an increase in the
weighted average yield of the Bank's loans receivable from 7.31% to 7.52% during
the same periods. The increase in the weighted average yield of the Bank's loan
portfolio reflects the general increases in market rates of interest, the
effects of loans being refinanced at lower interest rates throughout fiscal 1995
and a reduction in the level of non-performing loans.
The Bank's interest income in recent periods has been adversely affected by the
high levels of non-performing assets. Gross interest income that would have been
recognized for the fiscal years ended June 30, 1995 and 1994 if all
non-performing loans classified as loans at such dates had been performing in
accordance with their original terms amounted to $5.0 million and $10.4 million,
respectively, and the actual amount of interest on these loans that was
collected during these periods and included in interest income was $420,000 and
$4.3 million, respectively. In addition, the Bank's gross interest income
excludes income from the Bank's investments in real estate which totaled $156.1
million and $231.3 million as of June 30, 1996 and 1995, respectively.
The changes in the level of the Bank's borrowed funds also resulted in a
decrease in the ratio of the Bank's average interest-earning assets (which do
not include investments in real estate with positive cash flows) to average
interest-bearing liabilities, which amounted to 91.1% and 92.7% during the
fiscal year ended June 30, 1996 and 1995, respectively. Because the Bank's
interest-bearing liabilities exceed its interest-earning assets, the Bank's
interest rate spread is not fully indicative of the Bank's net interest income.
Under such circumstances, net interest expense may be incurred even if the
interest rate spread is positive. Moreover, the more that interest-bearing
liabilities exceed interest-earning assets, the greater the interest rate spread
must be in order for interest income to exceed interest expense.
Interest Expense. The Bank's interest expense increased by $9.5 million or 18.3%
during the fiscal year ended June 30, 1996 compared to fiscal 1995. Such
increase was attributable to an increase in the average rate paid on the Bank's
deposits and an increase in the average balances of interest-bearing
liabilities.
The average balance of the Bank's interest-bearing liabilities increased by
$48.1 million or 3.6% from $1.35 billion during the fiscal year ended June 30,
1995 to $1.40 billion during the fiscal year ended June 30, 1996.
The weighted average rate on the Bank's interest-bearing liabilities increased
from 3.88% during the fiscal year ended June 30, 1995 to 4.43% during the fiscal
year ended June 30, 1996. This increase was attributable to increases in the
weighted average rate paid on the Bank's certificates of deposit and borrowed
funds in an interest rate environment which was increasing during all of 1996.
Rising market rates of interest generally can be expected to have a negative
effect on the Bank's interest rate spread.
Provision for Credit Losses. The provision for credit losses amounted to $5.3
million and $5.0 million during the fiscal years ended June 30, 1996 and 1995,
respectively. These provisions resulted from management's ongoing evaluation of
the adequacy of the allowance for credit losses in light of, among other things,
the amount of non-performing loans, the risks inherent in the Bank's loan
portfolio and depressed markets for real estate and economic conditions in the
New York metropolitan area and other areas in which the Bank had engaged in
lending activities. The increase in the provision for credit losses in the
fiscal 1996 period reflects management's internal analysis of its non-performing
assets. See Note 10 to the Consolidated Financial Statements.
-61-
624833.3
<PAGE>
Other Income. The following table sets forth the composition of the Bank's other
income during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
1996 1995
(In Thousands)
<S> <C> <C>
Gains on sales of offices and branches (1) $ 77,560 $ -
Banking fees and service charges 2,463 2,320
Net gains (losses) on sales of loans
and investment securities (605) 441
Other 1,533 1,228
-------- ------
Total $ 80,951 $3,989
======== ======
</TABLE>
(1) The net gain on the sale of offices and branches included a deposit
premium of $93.0 million, partially offset by net losses on the sale of
assets to facilitate the closing of the Branch Sale of $1.1 million,
transaction costs of $5.8 million, professional fees of $3.2 million,
employee benefits and severance payments of $4.6 million and other net
Branch Sale costs of $700,000.
Banking fees and service charges, which primarily consist of various fees and
charges related to the Bank's loan and deposit products, as well as commissions
from the sale of annuities, increased by $143,000 or 6.2% during the fiscal year
ended June 30, 1996 compared to the same period in 1995. The primary reason for
the increase in banking fees and service charges during the 1996 period was the
increase in the fee structure of deposit products and services.
Gain on sale of offices during the fiscal year ended June 30, 1996 consisted
primarily of a $69.6 million net pre-tax gain from the sale of the Bank's
remaining eleven branch offices and 96 Street branch office realty to Marine
Midland along with the related deposits, and Transferred Assets, which amounted
to $1,159.6 million of deposits and $1,066.6 million in Transferred Assets on
June 28, 1996, the effective date of the transaction.
Other income consists of a sundry of items, including rental income, prepayment
penalties and safe deposit rentals. Other income amounted to $1.5 million during
the fiscal year ended June 30, 1996 compared to $1.2 million during the fiscal
year ended June 30, 1995. The primary reason for the $305,000 or 24.8% increase
in other income was due to an increase in prepayment penalties collected from
holders of certificates of deposit.
Real Estate Operations, Net. The Bank's real estate operations, net, are
comprised of (i) writedowns of investments in real estate to the lower of cost
or fair value minus estimated costs to sell and (ii) other real estate
operations, net, which consists of net operating income or losses from
investments in real estate and net gains or losses on sales of investments in
real estate. Real estate operations, net, does not include foreclosure costs
related to the Bank's non-performing assets, which are included in other
expenses.
-62-
624833.3
<PAGE>
The following table sets forth the components of the Bank's real estate
operations during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
1996 1995
(In Thousands)
<S> <C> <C>
Other real estate operations:
Operating income from investments in real estate $ 18,530 $ 20,229
Operating expenses from investments in real estate 17,942 18,823
-------- --------
Net income from investments in real estate 588 (1,303)
Net gains (losses) from sale of investments in real estate (3,499) (1,303)
-------- --------
Other real estate operations, net (2,911) 103
-------- --------
Write-down of investments in real estate (1,889) (14,460)
-------- --------
Total real estate operations, net $ (4,800) $(14,357)
======== ========
</TABLE>
Real estate operations, net, for the fiscal year ended June 30, 1996 resulted in
a loss of $4.8 million as compared to a loss of $14.4 million for the same
period in 1995 primarily as a result of a decrease in writedowns and increased
losses on the sale of investments in real estate. The decrease in rental income
was due to the reduction in rental revenues resulting from the sale of
investments in real estate in 1996 and earlier. See "Real Estate Assets" and
Notes 11, 13 and 14 of the Consolidated Financial Statements.
Although the Bank's other real estate operations, net, is subject to a variety
of factors which are subject to change, it generally can be expected that such
operations are unlikely to improve, and may decline, in the near term in the
event that the Bank continues to reduce its investments in real estate. This is
because investments in real estate which have positive cash flows are likely to
be more attractive to potential purchasers, and thus sold earlier and achieve
higher sales proceeds than investments in real estate which do not have such
characteristics.
Other Expenses. Other expenses consist of the Bank's general and administrative
expense. With the exception of foreclosure costs related to the Bank's
non-performing assets, other expenses do not include direct real estate
operations expenses, which are included in "other real estate operations, net."
The following table sets forth the components of the Bank's other expenses
during the periods indicated.
Fiscal Year
Ended June 30,
1996 1995
(In Thousands)
Salaries $ 9,814 $11,329
Employee benefits 4,349 3,597
Premises and occupancy costs 8,108 7,203
Electronic data processing 3,700 3,326
Legal and professional fees 4,521 4,581
Other operating expenses (1) 3,504 8,630
------- -------
33,996 38,666
Deposit insurance expense 2,533 3,704
Foreclosure costs (2) 225 1,105
------- -------
$36,754 $43,475
======= =======
(1) Represents a 12.07% decrease in the fiscal year ended June 30, 1996
compared to fiscal 1995.
(2) Represents a 15.46% decrease in the fiscal year ended June 30, 1996
compared to fiscal 1995.
-63-
624833.3
<PAGE>
Other expenses decreased by $6.7 million or 15.5% from $43.4 million during the
fiscal year ended June 30, 1995 to $36.8 million during the fiscal year ended
June 30, 1996. Such reductions were primarily the result of a decrease in costs
incurred in connection with the foreclosure of properties securing real estate
loans and legal expenses and to a lesser extent, the reduction of staff and
operating costs as a result of the cost reduction efforts, including a reduction
in work force, in early fiscal 1996. The Bank reduced its work force by 146 full
and part-time employees or approximately 35% of the Bank's work force.
Deposit insurance expense is a function of the amount of deposits and the rate
of federal insurance premiums paid thereon. This expense decreased by $1.2
million or 31.6% during the fiscal year ended June 30, 1996 compared to the same
period in 1995. The decrease in deposit insurance expense during the fiscal year
ended June 30, 1996 reflects the substantial reduction in the Bank's annual
assessment rate which was decreased from 0.29% of insured deposits to 0.23%
beginning September 1995 by the FDIC.
Foreclosure costs, which consist of legal fees, taxes, insurance costs,
appraisal costs and various other expenses related to the foreclosure process,
are reflective of the costs associated with the Bank's high level of
non-performing assets.
Other operating expenses consist of a sundry of expenses, including affiliate
reimbursements, telephone and communications, printing and stationery,
advertising, bank service fees and mortgage servicing fees, as well as various
other expenses. The decrease in other operating expenses was due to the lack of
three items of litigation at a cost to the bank of $1.6 million and the
charge-off of the Bank's investment in National of $1.1 million in fiscal 1995.
In fiscal 1996, the Bank embarked on an aggressive cost reduction program which
had a substantial impact on other operating expenses.
Income Tax Expense. Under SFAS No. 109, at June 30, 1996, the Bank recorded a
net deferred tax asset of approximately $16.1 million and deferred tax
liabilities of $16.1 million. The net deferred tax asset reflects gross deferred
tax assets of $50.1 million and a valuation allowance of $34.0 million. The net
deferred tax asset represents primarily the anticipated federal and state and
local tax benefits that could be realized in future years upon the utilization
of existing tax attributes. The deferred tax asset primarily relates to
provisions for anticipated credit losses recognized for financial statement
purposes that have not yet been realized for tax purposes, suspended passive
activity losses and credits, deferred income on venture investments and
available NOL carryforwards. Generally, the amount of an institution's net
deferred tax asset may serve to increase its net worth under generally accepted
accounting principles. In addition, FDIC regulations permit deferred tax assets
that are dependent on future taxable income to be included in Tier 1 capital in
an amount equal to the lesser of the deferred tax asset that can be realized
based on projected taxable income for the immediately subsequent one-year period
or 10% of Tier 1 capital before any disallowed items.
However, because of the net losses incurred by the Bank in recent years, the
Bank established a $34.0 million valuation allowance, resulting in a net
deferred tax asset of $16.1 million. The valuation allowance decreased by
approximately $22.9 million during the fiscal year ended June 30, 1997.
Realization of the net deferred tax asset is expected to occur upon reversal of
existing taxable temporary differences for which deferred tax liabilities of
$16.1 million have been recorded. As a result, the net deferred tax asset is not
dependent on future taxable income for purposes of the FDIC's regulations. For
additional information, see Note 20 to the Consolidated Financial Statements.
During the year ended June 30, 1996, the Bank recorded a provision for income
and franchise taxes in the amount of $11.7 million. This provision represented
an increase of $9.6 million in comparison to the provision of $2.1 million
recorded in the year ended June 30, 1995. The increase in provision for income
taxes in 1996 as compared to the previous year was due primarily to a $10.0
million state and local income tax provision recorded in 1996
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<PAGE>
to reflect the estimated income tax liability at June 30, 1996 arising from the
$77.6 million gain resulting from the Branch Sale. The provision for income
taxes differs from the amount computed by applying the statutory Federal income
tax rate of 35% to the income (loss) before provision for income taxes primarily
due to state and local income and franchise taxes and limitations on the
recognition of tax benefits of net operating losses. See Note 20 to the
Consolidated Financial Statements for more information.
Asset Quality
Loan Portfolio Composition. The high levels of the Bank's non-performing assets
in recent years have been primarily attributable to the Bank's emphasis during
the mid- to late-1980s of loans to joint ventures for the acquisition,
development and construction of real estate in which the Bank or a subsidiary
had an equity interest, commercial business loans, commercial real estate loans
and multi-family residential loans. These loans generally are considered to
involve a significantly higher degree of risk than single-family residential
loans, and the Bank did not originate any such loans to new borrowers during the
years ended June 30, 1997 and 1996.
Commercial real estate, construction and multi-family residential loans are
generally considered to involve more risk than single-family residential loans
due to, among other things, the higher principal amount of such loans and the
effects of a downturn in general economic conditions, which may result in
excessive vacancy rates, inadequate rental income levels and volatility in real
estate values. At June 30, 1997, the Bank's total loan portfolio of $95.8
million included $26.1 million or 27.2% of multi-family residential loans and
$50.1 million or 52.3% of commercial real estate loans. The Bank substantially
curtailed originations of new multi-family residential and commercial real
estate loans during the early 1990s and, as a result, the balances in these
portfolios have been declining. The Bank continues to originate such loans in
connection with the sale of investments in real estate and other resolutions of
non-performing assets, however, and in 1993 commenced a program to originate
loans secured by multi-family elevator residences with approximately 75 units or
less under revised policies and procedures from those utilized by the Bank in
the mid- to late-1980s.
The Bank discontinued construction lending and loans to joint ventures in 1991.
At June 30, 1997, the Bank's construction loans and loans to joint ventures were
$0 and $471,000, respectively, compared to $0 and $0 at June 30, 1996,
respectively. Construction lending is considered to involve even more credit
risk than multi-family residential and commercial real estate lending.
Construction loans generally require only interest payments prior to the
ultimate sale or lease of the completed project, which are funded by the lender
and added to the outstanding principal of the loan. To evaluate a construction
loan prior to completion, leasing and/or sale of the underlying property, the
Bank must rely on estimates of anticipated completed cost and subjective
assessments of future demand for the completed project. Accurate assessments of
these factors have been (and continue to be) difficult to perform because of the
weakness of the local economies and the real estate markets in which the Bank
has engaged in lending activities. Loans to joint ventures are subject to the
same risks as construction loans and may even be more susceptible to risks of
uncertain costs and changing economic conditions due to the broader scope and
longer term of some ventures and the Bank's status in some ventures as an equity
participant.
The Bank's multi-family residential, commercial real estate and construction
lending activities included activities conducted outside of its primary market
area, primarily in states on the eastern and western coasts of the United
States. Although the Bank's largest concentration remains in New York, in which
the Bank had $63.9 million of multi-family residential, commercial real estate
and construction loans at June 30, 1997, primarily located in the New York
metropolitan area, at such date the Bank also had $2.4 million, $10.2 million
and $3.6 million of such loans in California, Florida and other states,
respectively. Like the New York metropolitan area, certain of these states,
particularly California, have experienced adverse economic conditions, including
declining business and real estate activity and declining real estate values,
resulting in increases in loan delinquencies, defaults and foreclosures.
Loans secured by properties located outside of the Bank's primary market area
may involve a higher degree of risk because the Bank may not be as familiar with
economic conditions and other relevant factors as it would be in the case of
loans secured by properties in its primary market area. In order to mitigate
these risks in California and other
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<PAGE>
western states, a subsidiary of the Bank established loan offices in Los Angeles
and San Francisco, California in the mid- to late-1980s, the former of which has
since been closed as a result of the Bank's changed lending strategies and
continued reduction of its loans in California. In addition to introducing
lending opportunities to the Bank, the California offices allowed the Bank to
more effectively monitor loans secured by properties in California and other
western states. At June 30, 1997, the San Francisco office had two full-time
equivalent employees, who have historically monitored the Bank's loans in
California.
The commercial business lending activities emphasized by the Bank during the
mid- to late-1980s also involved a high degree of risk. These activities were
conducted primarily through Quest, a wholly-owned subsidiary of the Bank which
was formed in 1986 to implement a program of secured and unsecured commercial
business lending. The loans, and in certain cases equity investments, made by
Quest generally involved the buyout, acquisition or recapitalization of an
existing business and included management buyouts and corporate mergers and
acquisitions. Such transactions frequently resulted in a substantial increase in
both the borrower's liabilities and its liabilities-to-assets leverage ratio,
thus increasing the prospects for default. The Bank discontinued its new
commercial business lending activities in 1991 and, as a result, the Bank's
gross commercial business loans decreased to $12.8 million or 16.0% of total
loans at June 30, 1997, as compared to $13.0 million or 12.6% of total loans at
June 30, 1996. At June 30, 1997, investments made through Quest consisted of two
loans which aggregated $3.4 million, net, as well as $6.3 million of equity
securities, net.
Non-Performing Assets - Composition. Primarily as a result of deterioration in
the real estate markets and a general economic recession in the New York
metropolitan area and in other areas in which the Bank was engaged in lending
activities at the time, particularly California, the Bank has had substantial
asset quality problems in recent years.
The Bank's non-performing assets began increasing during 1989 and increased to a
high of $602.8 million or 30.2% of total assets at December 31, 1992. From
December 31, 1992 to June 30, 1997, non-performing assets decreased by $457.5
million or 75.9% to $145.3 million, but, because of the substantial decrease in
the Bank's total assets during this period, amounted to 68.5% of the Bank's
total assets at such date. Non-performing assets consist of non-performing
loans, investments in real estate and investment securities in default.
Non-performing loans are those loans placed on non-accrual status and loans
which are on accrual status but delinquent 90 days or more. The Bank generally
places a loan which is delinquent 90 days or more on non-accrual status unless
it is well secured and, in the opinion of management, collection appears likely.
In addition, the Bank may place a loan on non-accrual status even when it is not
yet delinquent 90 days or more if the Bank makes a determination that such loan
is not collectible. When loans are placed on non-accrual status, any accrued but
unpaid interest on the loan is reversed and future interest income is recognized
only if actually received by the Bank and collection of principal is not in
doubt.
Investments in real estate consist of (i) real estate acquired upon foreclosure
or by deed-in-lieu thereof, which is classified as other real estate owned, and
(ii) real estate acquired as a result of the Bank's involvement in joint
ventures for the acquisition, development and construction of real estate, which
is classified as real estate held for investment.
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The following table sets forth information regarding the Bank's non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Single-family residential loans:
Non-accrual loans $ 3,924 $ 4,557 $ 4,482
Accruing loans 90 days overdue - - 3,014
--------- --------- -----------
Total 3,924 4,557 7,496
Multi-family residential loans:
Non-accrual loans 16,790 19,658 -
--------- --------- -----------
Total 16,790 19,658 -
Commercial real estate loans:
Non-accrual loan 11,557 3,113 42,601
Accruing loans 90 days overdue - - 22
--------- --------- -----------
Total 11,557 3,113 42,623
Construction loans:
Non-accrual loans - - 4,941
--------- --------- -----------
Total - - 4,941
Commercial business loans:
Non-accrual loans 6,639 6,817 2,212
Accruing loans 90 days overdue 6,167 - 113
--------- --------- -----------
Total 12,806 6,817 2,325
Consumer loans:
Non-accrual loans 2,871 - -
Accruing loans 90 days overdue - 2,671 165
--------- --------- -----------
Total 2,871 2,671 165
Total non-performing loans:
Non-accrual loans 41,781 34,145 54,236
Accruing loans 90 days overdue 6,167 2,671 3,314
--------- --------- -----------
Total 47,948 36,816 57,550
Investments in real estate:
Other real estate owned, net 7,128 30,386 105,458
Real estate held for investment,
net 90,222 116,054 125,844
--------- --------- -----------
Total 97,350 146,440 231,302
--------- --------- -----------
Total non-performing assets $ 145,298 $ 183,256 $ 288,852
========= ========= ===========
Total assets $ 211,695 $ 285,478 $ 1,463,637
========= ========= ===========
Total non-performing loans as a
percentage of total loans 50.06% 35.74% 5.69%
Total non-performing assets as a
percentage of total assets 68.52 64.19 19.74
Total non-performing assets as a
percentage of total loans and investments
in real estate 75.24 73.47 23.26
Percentage increase (decrease) in
the dollar amount of non-performing
assets from prior year-end (20.71) (36.56) (15.94)
</TABLE>
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Non-Performing Assets - Geographic Location. The following table summarizes the
Bank's non-performing loans and investments in real estate by state and type of
loan or property at June 30, 1997.
<TABLE>
<CAPTION>
Type of Loan New York California New Jersey Pennsylvania Other Total
-------- ---------- ---------- ------------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $ 3,857 $ - $ 67 $ - $ - $ 3,924
Multi-family residential 16,790 - - - - 16,790
Commercial real estate 8,500 298 - - 2,759 11,557
Construction - - - - - -
Commercial business 12,806 - - - - 12,806
Consumer 2,871 - - - - 2,871
------- ------- ------- ------- ------- --------
44,824 298 67 - 2,759 47,948
Other real estate owned, net:
Single-family residential 597 - - - - 597
Multi-family residential 4,566 - - - - 4,566
Commercial real estate 68 - - - -
68
Construction - 1,897 - - - 1,897
------- ------- ------- ------- ------- --------
5,231 1,897 - - - 7,128
Real estate held for investment, net:
Commercial real estate 5,413 - - - 14,089 19,502
Construction 14,839 - - 55,881 - 70,720
------- ------- ------- ------- ------- --------
20,252 - - 55,881 14,089 90,222
------- ------- ------- ------- ------- --------
Total investments in
real estate, net 25,483 1,897 - 55,881 14,089 97,350
------- ------- ------- ------- ------- --------
Total $70,307 $ 2,195 $ 67 $55,881 $16,848 $145,298
======= ======= ======= ======= ======= ========
</TABLE>
Non-Performing Assets - Carrying Values. At June 30, 1997, $97.4 million or
67.0% of the Bank's non-performing assets was comprised of investments in real
estate and $47.9 million or 33.0% of which were in-non-performing loans.
Real estate acquired through foreclosure or deed-in-lieu of foreclosure are
recorded on the books of the Bank at the lower of the balance of the loan at the
date of transfer or estimated fair value of the property minus estimated costs
to sell. Adjustments made to the value at transfer are charged to the allowance
for credit losses. See Notes 1, 10, 13 and 14 to the Consolidated Financial
Statements.
The Bank primarily utilizes two means of valuation in evaluating the carrying
value of its investments in real estate: (1) appraisals and (2) discounted cash
flows. The discounted cash flow ("DCF") is based on assumptions wherein the
forecasted future cash flow attributable to the benefits of ownership are
discounted, at a rate commensurate with the risk involved, to a present value.
The DCF is based on information from various sources, including: actual
operating results, recent appraisals, third party market information and current
investment parameters. The Bank believes that the DCF approach generally is the
most accurate predictor of value of a real estate asset over time. This approach
is an accepted means of valuation under generally accepted accounting principles
and has been addressed by the FDIC in an Interagency Policy Statement dated
November 7, 1991 (the "Policy"). Among other things, the Policy notes that when
markets are dominated by forced or liquidation sales, or when properties have
unusual characteristics, then value estimates should be based on rent levels and
occupancy "that are reasonably estimated to be achieved over time." The Policy
also advises against making adjustments to appraisal assumptions using "worst
case scenarios that are unlikely to occur," "direct capitalization of
non-stabilized income flows" or "simple projections of current levels of
operating income if markets are depressed but can be expected over a reasonable
period of time to return to (stabilized) conditions." Generally the Bank's cash
flows will extend until stabilization as it is the Bank's
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<PAGE>
intent to sell investments in real estate as quickly as possible, assuming a
stabilized sales price can be achieved. Assumptions in the DCF model are made to
most accurately reflect the subject asset's strategic plan.
The Bank's real estate loan appraisal policy generally requires that all
appraisals conform to the Uniform Standards of Professional Appraisal Practice
adopted by the Appraisal Standards Board of the Appraisal Foundation and
prepared by an appraiser who is either certified or licensed by the state in
which the property is located. Appraisals may be performed by an outside fee
appraiser or by a staff appraiser, provided that, among other things, such
appraiser is independent of the lending, investment and collection functions of
the Bank.
The Bank generally reviews the value of its investments in real estate on at
least a quarterly basis. In the event that such reviews indicate a decline in
the value of such investments, write-downs are recorded as appropriate.
The following table summarizes the gross and net carrying values of the Bank's
non-performing assets at June 30, 1997.
<TABLE>
<CAPTION>
Write-downs/ Net Book Value
Gross Specific Net as a Percentage of
Balance Reserves (1) Value Gross Balance
----------- ------------ ----- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $ 3,924 $ 911 $ 3,013 76.8%
Multi-family residential 16,790 6,485 10,305 61.4
Commercial real estate 11,558 7,198 4,360 37.7
Commercial business 12,806 3,528 9,278 72.5
Consumer 2,870 2,255 615 21.4
---------- --------- ---------- -----------
$ 47,948 $ 20,377 $ 27,571 57.5%
========== ========= ========== ===========
Other real estate owned:
Single-family residential (2) 1,145 549 596 52.1%
Multi-family residential 5,866 1,300 4,566 77.8
Commercial real estate 178 110 68 38.2
Construction 1,897 - 1,897 100.0
---------- --------- ---------- ----------
Total 9,086 1,959 7,127 78.4%
---------- --------- ---------- -----------
Real estate held for investment:
Commercial real estate 30,802 11,300 19,502 63.3%
Construction 72,681 1,960 70,721 97.3
---------- ---------- ---------- ----------
Total 103,483 13,260 90,223 87.2
---------- ---------- ---------- ----------
Total investments in real estate $ 112,569 $ 15,219 $ 97,350 86.5%
========== ========== ========== ===========
Total non-performing assets $ 160,517 $ 35,596 $ 124,921 77.8%
========== ========== ========== ===========
</TABLE>
(1) Specific reserves relate to non-performing loans. Such reserves are
charged to operations and maintained as a component of the Bank's
allowance for credit losses. Although a specific reserve for a loan
does not decrease the net book value of the loan unless and until the
amount of the loan which is the subject of the reserve is charged-off,
the presentation with respect to non-performing loans illustrates the
effects of the Bank's establishment of specific reserves with respect
to such loans. All write-downs and specific reserves are cumulative
since origination of the loan.
(2) Primarily consists of completed single-family residential developments
and lots for the development of single-family residences.
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<PAGE>
Strategy. Following the Branch Sale, RB Management assumed the duties of the
Bank's Work-Out Group which monitors the Bank's problem assets through the
Targeted Asset System and develops individual business plans, including cash
flow analysis, for each problem asset after inspections, analysis of economic
factors and meetings with the borrower and counsel. These plans are then
documented for senior management and approval of the Board of Directors of the
Bank. See "Management."
Loans which become delinquent are analyzed to determine the nature and extent of
the problem and whether a restructuring of the loan or some other method of
resolution is appropriate under the circumstances. Every effort is made by the
Bank to work with borrowers who are cooperative with the Bank to effect a
restructuring that is economically feasible for both parties. When the Bank
concludes that a restructuring is not economically feasible or where the
borrower does not demonstrate a willingness to cooperate, the Bank pursues
available legal remedies. In most cases, the Bank's strategy in recent years has
been to aggressively pursue the foreclosure process when a restructuring or
other resolution of a non-performing loan does not appear to be feasible or
otherwise in the best interests of the Bank. This strategy has been pursued so
that the Bank can acquire control of the security property as soon as possible,
and thereby implement a strategy designed by the Bank for disposition and
ultimate resolution.
Loans that go through the foreclosure process, particularly in New York, are
subject to extensive delays before the Bank can gain title to the property.
Non-judicial foreclosure generally is unavailable in New York, and the
procedures mandated by New York law can result in time-consuming litigation in
order to foreclose a mortgage loan. Moreover, the federal and state courts in
New York are overburdened with litigation and, as a result, decisions are often
delayed. Further complications occur when bankruptcy proceedings are involved.
For all these reasons, it can take an extended period of time, often two to six
years, for a lender to obtain title to property that secures a loan which is in
default.
Although the foreclosure process can be long and complicated, the Bank
aggressively pursues foreclosures or negotiates with borrowers to acquire
properties which secure problem loans by deed-in-lieu of foreclosure. Primarily
as a result of the Bank's efforts in this regard, the composition of the Bank's
non-performing assets in recent years changed from primarily non-performing
loans and in-substance foreclosures to primarily investments in real estate. At
June 30, 1997, investments in real estate amounted to 67.0% ($97.4 million) of
the Bank's non-performing assets, as compared to 51.6% ($310.8 million) of the
Bank's non-performing assets at December 31, 1992.
The Bank's general approach once it has acquired an investment in real estate
has been to seek to minimize further losses to the Bank through active
management of the properties while they are held by the Bank and by developing
disposition strategies tailored to the individual properties and whose ultimate
objective is to sell each property at, or above, its net book value. The Bank
generally pursues a specific disposition strategy for each investment in real
estate because it believes that the depressed levels of the real estate markets
in which the Bank has engaged in lending activities will improve as national and
regional economies recover and that it has the requisite real estate expertise
to individually address and resolve each problem asset. Although the Bank has
evaluated bulk sales of non-performing assets from time to time, it has not
elected to pursue this strategy to date because it believes that the discounts
which are sought by potential purchasers are excessive, that individual
disposition strategies have the most potential for maximum recovery and return
to the Bank and that the Bank did not have sufficient equity capital prior to
and following the Offering to support such a strategy. There can be no
assurance, however, that the Bank will be successful in its disposition
strategies.
The Bank's approach with respect to a particular investment in real estate
generally falls into one of the following categories: (i) attempt to sell the
investment as soon as practicable, (ii) actively manage the property until the
cash flow and other relevant factors have been stabilized or (iii) develop the
property to facilitate sale. Each of these strategies generally involves some
investment by the Bank to improve the property in order to make it more
saleable, which can range from minor fix-up costs to substantial costs to
develop the property. Each work-out strategy is reviewed and approved by the
Bank's Board of Directors.
In most cases, the Bank's strategy consists of an attempt to sell the property
as soon as practicable. The Bank generally works closely with a real estate
brokerage firm in this regard, and frequently will specifically target known
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<PAGE>
investors which it believes may be interested in a particular property which is
owned by the Bank. In addition, in a few cases during the year ended December
31, 1993, the Bank used the public auction process to offer for sale certain
investments in real estate. Such auctions can provide broader exposure to
potential purchasers than may be able to be obtained through listings by a real
estate brokerage firm in the area in which the property is located. Public
auctions involve the payment of fees to the auctioneer, which can vary based on,
among other things, whether the property is sold and on what terms.
Although the Bank generally seeks to dispose of its investments in real estate
as soon as practicable, in many cases it seeks to stabilize the cash flow from
the property by investing in necessary improvements and seeking to increase the
occupancy of the property. This approach increases the amount of time that the
Bank holds the property, but may enhance the value of the property and be the
best means of disposing of the investment without further loss. In certain
cases, the Bank will have made the investment and taken the actions necessary to
stabilize the cash flow from the property, but the real estate markets in the
area in which the property is located will not have stabilized or other factors
will be present which prevent the Bank from selling the property at a price
which is reflective of its estimated value. In some cases, the cash flow from
the property has been stabilized such that it is providing a yield above the
Bank's cost of funds, thus effectively making it an earning asset. Although such
assets continue to be classified by the Bank as investments in real estate and,
thus, non-performing assets, the yield provided by the properties increases the
Bank's flexibility to maximize their value in connection with a sale.
In a number of cases, the Bank's strategy to dispose of an investment in real
estate has consisted of development of the property. Although this approach may
involve the best prospects for maximizing the return to the Bank, it also may
involve more risk and, as a result, the Bank generally does not pursue this
alternative unless other alternatives are clearly not preferable under the
circumstances. Each development by the Bank of an investment in real estate to
date has been submitted and approved in advance by the FDIC and the Banking
Department pursuant to the Order. In most cases in which this alternative is
pursued, development previously has been initiated by the defaulted borrower
prior to the Bank's acquisition of the property upon foreclosure or by
deed-in-lieu thereof. On occasion, however, the Bank has commenced development
of an investment in real estate as a disposition strategy.
One of the development projects which has been undertaken in order to dispose of
an investment in real estate consists of a 395-unit condominium development
located in Wayne, New Jersey, which was classified as other real estate owned
and had a carrying value of $7.6 million at June 30, 1997. This project, which
started construction in late 1992, is being developed by a subsidiary of the
Bank in phases. Phase I, consisting of 54 units, and phase IIA, consisting of 96
units, has been successfully completed and sold out (less six units held as
models). All the project amenities, such as the pool, clubhouse, tennis court
and exercise facility, also were completed as part of Phase I. Of the 78 units
available and nearing completion in Phase IIB, 74 have closed title and 4 were
under contracts of sale at June 30, 1997, awaiting closing in the fall of 1997.
Of the 119 units available in Phase IIC which commenced construction in 1995, 70
units were under contracts of sale at June 30, 1997. See Asset Sale Transactions
and Note 11 to the Consolidated Financial Statements.
The following table sets forth information about the investments in real estate
which the Bank is in the process of developing at June 30, 1997.
<TABLE>
<CAPTION>
Net Carrying Value
Type of Property (Dollars in Thousands) Location Status of Development
Currently in Development:
<S> <C> <C> <C>
Apartment complex $ 55,989 Philadelphia, PA Construction substantially
completed; occupancy
approximately 88% of
completed units
</TABLE>
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<PAGE>
Non-Performing Assets - Activity. The following tables set forth the activity in
the Bank's non-performing assets during the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
Beginning balance:
Non-performing loans
("NPLs") $ 36,816 $ 57,550 $ 110,337
Investments in real estate ("REO") 146,440 231,302 233,286
--------- --------- ---------
183,256 288,852 343,623
--------- --------- ---------
NPL additions 16,032 27,662 28,080
Senior debt on REO
purchased - - 39,613
REO direct additions 11,920 30,438 27,485
--------- --------- ---------
27,952 58,100 95,178
--------- --------- ---------
NPL transfers to REO (34) (7,852) (48,477)
REO transfers from NPL 34 7,852 48,477
--------- --------- ---------
- - -
--------- --------- ---------
NPL write-offs - 7,825 15,401
REO write-offs 18,726 10,511 13,760
--------- --------- ---------
18,726 18,336 29,161
--------- --------- ---------
NPL moved to performing - 14,738 5,597
NPL satisfactions/sales 4,867 17,981 11,392
REO moved to performing - - 69,960
REO satisfactions/sales 42,317 112,641 33,839
--------- --------- ---------
47,184 145,360 120,788
--------- --------- ---------
NPL ending balance 47,948 36,816 57,550
REO ending balance 97,350 146,440 231,302
--------- --------- ---------
$ 145,298 $ 183,256 $ 288,852
========= ========= =========
</TABLE>
A net of $37.9 million of non-performing assets was resolved during the year
ended June 30, 1997, primarily as a result of the sale/satisfaction of $47.2
million of non-performing assets and the write-off of $18.7 million of
non-performing loans and investments in real estate, which was partially offset
by $27.9 million of additions. A net of $105.6 million of non-performing assets
was resolved during the year ended June 30, 1996, primarily as a result of the
sale/satisfaction of $130.6 million of non-performing assets, the write-off of
$18.3 million of non-performing loans and investments in real estate and the
return of $14.7 million of non-performing assets to performing status,
substantially through financing the sales of REO properties, which was partially
offset by $58.1 million of additions.
Non-performing loans increased by $11.1 million or 23.2% during the year ended
June 30, 1997 following a decrease of $20.7 million or 36.0% during the fiscal
year ended June 30, 1996. The increase in non-performing loans in fiscal 1997
reflects continued deterioration in certain loans placed in non-performing
status, net of sales and satisfactions of certain loans in whole or in part. The
decrease in non-performing loans in 1996 was the result of the Bank's continuing
effort s to liquidate its assets as part of the bank's plan of disposition.
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<PAGE>
Investments in real estate decreased by $49.1 million or 33.5% during the fiscal
year ended June 30, 1997 as the result of the sale/satisfaction of $42.3 million
of investments in real estate at a net loss of $1.8 million and the write-down
of $19.7 million in investments in real estate. Investments in real estate
decreased by $84.9 million or 36.7% during the fiscal year ended June 30, 1996
as the result of the sale/satisfaction of $89.2 million of investments in real
estate at a net loss of $8.6 million, the write-down of $1.9 million in
investments in real estate and the restructuring or granting of loans to
facilitate sales in the amount of $23.4 million which were partially offset by
the transfer of $7.9 million of non-performing loans to investments in real
estate and $30.4 million of additions to investments in real estate.
Loans to Finance the Sale of Real Estate. The Bank had previously financed the
sale of investments in real estate under appropriate circumstances. Such
financing was provided by the Bank on what management of the Bank considered to
be market terms, which generally were more flexible than the Bank's standard
underwriting guidelines for multi-family residential and commercial real estate
loans. All loans to finance the sale of investments in real estate were approved
in advance by the Board of Directors of the Bank and involve an amount of
borrower equity and other terms which result in the transaction constituting a
sale of the property under generally accepted accounting principles. At June 30,
1997 and 1996, the Bank did not retain any loans which had been made to finance
the sale of investments in real estate, except those reflected in Loans sold,
with recourse, net. (See Asset Sales and Notes 11 and 17 of the Consolidated
Financial Statements.) At June 30, 1997, all loans made by the Bank to finance
the sale of investments in real estate were performing in accordance with their
terms.
Restructured Loans. The Bank's asset resolution efforts previously included the
restructuring of loans primarily as a result of the financial condition of the
property which secures the loan. The Bank encourages restructure agreements only
when it is in the best interest of the Bank and it is practical for the
borrower.
The Work-Out Group, and after the Branch Sale RB Management, is responsible for
promptly responding to problem loans to determine if a restructuring is viable
or to commence foreclosure proceedings. Many problem loans are such due to
market conditions (particularly vacancies or market-driven rent reductions,
either of which may result in an impairment of the economic viability of the
underlying property). Therefore, non-performing loans may be restructured by an
agreement which recognizes that the borrowers' inability to meet contractual
terms may be remedied through a modification which both protects the financial
interests of the Bank and is economically feasible for the borrower.
At June 30, 1997, the Bank had restructured loans which aggregated $24.5 million
and were performing in accordance with their restructured terms. At the same
date, the Bank's restructured loans had been outstanding for periods which range
from 17 months to approximately five years. The Bank's restructured loans
generally have performed in accordance with their restructured terms. At June
30, 1997, the Bank had 3 restructured loans with an aggregate balance of $16.9
million which were included in the Bank's non-performing loans. Payments on
these loans are being made in accordance with the restructured terms.
As a result of restructurings which reduced the initial interest rate on certain
loans, the Bank's restructured loans had a weighted average rate of 7.11% at
June 30, 1997, as compared to an original weighted average rate of 10.13%. The
Bank's restructured loans generally do not call for the payment of foregone
interest at a later date, although many of such loans provide for increases in
the interest rate over the life of the loan.
The Bank's restructured loans may have been renegotiated to lower the interest
rate, to defer the payment of principal and/or interest or to effect other
concessions. Because restructured loans may include concessionary terms related
to interest rates, payment terms, loan-to-value ratios and debt service
coverage, however, such loans have a higher degree of credit risk than the
remainder of the performing loans in the Bank's loan portfolio.
-73-
624833.3
<PAGE>
The following table sets forth information regarding the Bank's restructured
loans at the dates indicated. In each case amounts exclude non-performing
restructured loans.
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Multi-family residential $23,594 $27,167 $ 32,305
Commercial real estate 860 2,675 106,165
Commercial business - - 17,084
------- ------- --------
Total $24,454 $29,842 $155,554
======= ======= ========
Total restructured loans as a percentage
of total loans 25.53% 34.65% 15.51%
Total restructured loans as a percentage
of total assets 11.55 10.45 10.63
</TABLE>
Classified Assets. In connection with examinations of insured banks, examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
"substandard," "doubtful" and "loss." Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. Another category designated "special
mention" is accorded assets which do not currently expose an insured institution
to a sufficient degree of risk to warrant classification as substandard,
doubtful or loss but do possess credit deficiencies or potential weaknesses
deserving management's close attention. A total of 50% and 100% of an asset or
portion thereof classified as doubtful and loss, respectively, is deducted by
examiners from an institution's stockholders' equity in analyzing the
institution's regulatory capital. See "Allowance for Credit Losses."
Asset classifications are inherently subjective and based on information known
at the time of the classification. There can be no assurance as to what
classifications may be imposed by regulatory examiners in the future or as to
what internal classifications may be made by the Bank as a result of future
internal and regulatory examinations of the Bank's loan portfolio. See
"Allowance for Credit Losses."
Allowance for Credit Losses. Although the process of evaluating the adequacy of
the Bank's reserves involves a high degree of management judgment, such judgment
is based, in part, on systematic procedures deemed helpful in assessing the
adequacy of the Bank's reserves. The Bank's reserve analysis is prepared
quarterly in conjunction with the Bank's internal asset classification system
and is used by management in determining if an additional provision is required
to maintain the allowance for credit losses at an appropriate level or
additional write-downs of equity investments and investments in real estate are
needed to reduce the carrying values of such assets in accordance with the
requirements of generally accepted accounting principles.
The Bank's reserve analysis is a computation of reserve requirements based upon
the risks inherent in the various asset portfolios. The various categories of
loans are grouped separately to recognize the various degrees of risk associated
with them. Loan portfolios are further stratified by internal asset
classification categories to assign higher risk weighted reserve percentages or
include targeted reserve definitions. Aggregated computed reserve balances are
compared to recorded reserves to measure the adequacy of reserve levels.
The Bank's provisions for credit losses and write-downs of investments in real
estate have been significant in recent years. Such provisions and write-downs
aggregated $20.8 million, $10.5 million and $19.5 million during the years ended
June 30, 1996, 1995 and 1994 and contributed significantly to the Bank's
recorded net losses (excluding the effects of the Branch Sale in 1996) during
those years.
-74-
624833.3
<PAGE>
At June 30, 1997, the Bank's allowance for credit losses amounted to $31.6
million or 33.0% of total loans and 65.87% of non-performing loans, as compared
to $34.1 million or 33.2% of total loans and 92.7% of non-performing loans at
June 30, 1996. The decrease in the Bank's allowance for credit losses in 1997
reflects the continued decrease in the size of the Bank's loan portfolio and
management's internal analysis of the composition of its non-performing assets.
Of the $31.6 million allowance for credit losses at June 30, 1997, $20.4 million
or 64.5% were specific reserves relating to particular loans and $11.2 million
or 35.5% were general reserves.
Management of the Bank, based on facts available to it, believes that the Bank's
allowance for credit losses at June 30, 1997 was adequate and that the net
carrying value of the Bank's investments in real estate equaled the lower of
cost or fair value minus estimated costs to sell. It is anticipated, however,
that the adverse effects of the high level of the Bank's non-performing assets,
consisting of provisions for credit losses, net loan charge-offs, loss of
interest income on non-performing loans, write-downs of investments in real
estate and increased operating expenses as a result of the allocation of
resources to the collection and work-out of non-performing assets, will continue
to adversely affect the Bank's operations. Because the nature and extent of
these adverse effects will be dependent on many factors outside the control of
the Bank, including conditions in the relevant real estate markets and
prevailing interest rates, these adverse effects are not presently determinable
by the Bank.
In establishing an appropriate level of loan loss reserves, the Bank does not
attempt to predict whether or how much the real estate market and general
economy of its market area may decline in the future. However, the Bank
continues to closely monitor the status of its loan portfolio in relation to the
economic and market conditions in the relevant area for any further signs of
weakening. If declining conditions in the relevant area continue, particularly
in the New York City metropolitan area, causing existing non-performing loan
situations to worsen and additional loans to be classified as non-performing,
significant additional provisions for credit losses may be required.
Moreover, the Bank's federal and state regulators, the FDIC and NYSBD, as an
integral part of their examination process, have historically periodically
reviewed the allowance for credit losses and the carrying values of its
investments in real estate and other assets of New York chartered savings banks,
such as the Bank. These regulators, including the FDIC so long as the Bank's
Deposits are insured by the FDIC, may require the Bank to establish additional
provisions for credit losses and write-offs or write-downs of investments in
real estate and other assets based on the regulators' subjective judgments
concerning information available to them during these examinations. Additional
provisions, write-offs and write-downs, if required by the regulators, result in
increases to the Bank's allowance for credit losses and reductions in the
carrying values of the Bank's assets, and thereby reduce or increase the level
of the Bank's net income or losses, respectively, and reduce the Bank's capital
accounts.
-75-
624833.3
<PAGE>
The following table sets forth information concerning the activity in the Bank's
allowance for credit losses during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Average loans outstanding $ 99,403 $ 1,018,427 $ 1,007,333
Allowance at the beginning of the
period 34,142 33,985 41,076
Charge-offs:
Single-family residential loans (3,523) (1,089) (1,302)
Multi-family residential loans (1,287) (2,665) (850)
Commercial real estate loans - (6,795) (11,160)
Commercial business loans (23) - (1,380)
Consumer loans and other - (21) (9)
Total loans charged off (4,833) (10,570) (14,701)
Recoveries:
Single-family residential loans 98 40 10
Multi-family residential loans 704 - 1,424
Commercial real estate loans 801 - 1,135
Consumer loans and other 22 1 -
Total loans recovered 1,261 41 2,569
Net charge-offs (3,572) (10,529) (12,132)
Additions charged to operating expenses 1,000 5,250 5,041
Additions charged to non-operating
expenses - 5,436 -
-------- -------- -----------
Allowance at end of period(1) $ 31,570 $ 34,142 $ 33,985
======== ======== ===========
Ratio of net charge-offs to average
loans outstanding 3.59% 1.03% 1.20%
Ratio of allowance to total loans at
end of period(1) 32.96 33.15 3.36
Ratio of allowance to non-performing
loans at end of period(1) 65.84 92.74 59.05
</TABLE>
(1) As noted above, the decrease in the Bank's allowance for credit losses
in recent periods reflects the transfer of a substantial amount of
non-performing loans to investments in real estate and the Bank's loan
restructuring activities, the continued decrease in the size of the
Bank's loan portfolio and management's internal analysis of the
composition of its non-performing assets.
-76-
624833.3
<PAGE>
The following table sets forth information concerning the allocation of the
Bank's allowance for credit losses by loan categories at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
Percent Percent Percent
of Total of Total of Total
Loans by Loans by Loans by
Amount Category Amount Category Amount Category
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family
residential $ 1,294 4.10% $ 1,410 4.42% $ 986 0.42%
Multi-family residential 8,553 27.09 12,359 39.44 2,969 1.19
Commercial real estate 16,543 52.40 10,822 33.91 21,302 4.59
Construction - 0.00 - 0.00 2,746 51.80
Commercial business 4,357 13.80 6,956 14.10 5,982 16.30
Consumer 823 2.61 2,595 8.13 - 0.00
------- -------- -------
$31,570 $ 34,142 $ 33,985
======= ========= =======
</TABLE>
Asset and Liability Management
Asset and liability management is concerned with the timing and magnitude of the
repricing of assets and liabilities. In general, management's goal has been to
match asset and liability balances within maturity categories to limit the
Bank's exposure to earnings variations and variations in the value of assets as
interest rates change over time. The Bank's asset and liability management
strategy was previously formulated by management, and subsequent to the
consummation of the Branch Sale, such function was assumed by RB Management.
The Bank's interest rate risk also is affected by the terms of its
adjustable-rate interest-earning assets, which may not be as responsive to
changes in interest rates as its interest-bearing liabilities due to the
floating rate terms of such debt which adjust their interest rate at specified
intervals. As a result of the foregoing, the weighted average rate paid on the
Bank's interest-bearing liabilities had historically adjusted to changes in
market interest rates more quickly and to a greater degree than changes in the
weighted average yield on the Bank's interest-earning assets.
The following table sets forth the anticipated maturities or repricing of the
Bank's interest-earning assets and interest-bearing liabilities at June 30,
1997. The amounts of assets and liabilities shown which mature or reprice within
a particular period were determined in accordance with the contractual terms of
the assets and liabilities, except (i) adjustable-rate loans, securities, and
Marine debt are included in the period in which they are first scheduled to
adjust and not in the period in which they mature, (ii) fixed-rate loans and
mortgage-backed and related securities reflect estimated prepayments, which vary
depending on the interest rate, contractual maturity and type of the loan and
security, and (iii) NOW and money market checking deposits and passbook savings
deposits, which do not have contractual maturities, reflect estimated levels of
attrition, which are based on recent historical experience of the Bank.
Management believes that these assumptions approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of the Bank's
assets and liabilities in the table could vary substantially if different
assumptions were used or actual experience differs from the historical
experience on which the assumptions are based.
-77-
624833.3
<PAGE>
As a result of the Branch Sale and the fact that the Bank no longer maintains or
accepts retail deposits, the table below is less significant than when the Bank
maintained such retail deposits.
<TABLE>
<CAPTION>
June 30, 1997
Within Seven to More than
six twelve one year to Three years
months months three years and over Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning Assets:
Investment securities $ - $ - $ - $ 6,275 $ 6,275
Loans receivable, net 20,884 3,567 24,451
Loans sold with recourse 6,420 6,420 19,260 32,100 64,200
-------- -------- -------- -------- ---------
Total interest-earning assets 27,304 6,420 19,260 41,942 94,926
-------- -------- -------- -------- ---------
Interest-bearing Liabilities:
Borrowed funds
Secured by loans
Sold with recourse 66,065 - - 66,065
Initial facilities (Marine) 18,206 - - - 18,206
------ -------- -------- -------- -------
Total interest-bearing
liabilities 84,271 - - - 84,271
------ -------- -------- -------- -------
Interest-rate sensitivity gap(1) $(56,967) $ 6,420 $ 19,260 $ 41,942
======== ======== ======== =======
Cumulative interest-rate sensitivity
gap $(56,967) $ (50,547) $(31,287) $ 10,655
======== ======== ======== =======
Cumulative interest-rate sensitivity
gap as a percentage of total
interest-earning assets -26.87% -23.84% -14.76% 5.03%
======= ======= ======= ======
</TABLE>
(1) Interest-rate sensitivity gap is the difference between
interest-earning assets and interest-bearing liabilities within the
indicated time frames.
Liquidity
The Bank must maintain sufficient liquidity to meet its funding requirements for
debt repayments related to asset sales, operating expenses, development costs
related to certain real estate projects, and to satisfy the regulatory
requirements described below.
At June 30, 1997, the Bank had $84.3 million in borrowed funds. In connection
with the Branch Sale, the Bank obtained financing with Marine Midland (Initial
Facilities) which amounted to $66.1 million as of June 30, 1997. Borrowed Funds
related to Asset Sale Transactions amounted to $18.2 million at June 30, 1997.
The Bank actively monitors and manages its cash inflows and outflows in an
attempt to maximize payment of its debt obligations to Marine and to invest, to
the extent possible, all cash balances.
The Bank seeks to maintain liquidity within a range of 5% to 10% of total
assets. Liquidity for this purpose is defined as the sum of unpledged cash,
investments due within one year and floating-rate investment grade securities.
At June 30, 1997, the Bank's liquidity ratio, as so defined, amounted to 6.0%
which was within the maintenance range.
-78-
624833.3
<PAGE>
Regulatory Capital
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Federally-insured state-chartered banks are required to maintain minimum levels
of regulatory capital. Under current FDIC regulations, insured state-chartered
banks generally must maintain (i) a ratio of Tier 1 leverage capital to total
assets of at least 4.0% to 5.0% (3.0% for the most highly-rated banks) and (ii)
a ratio of Tier 1 capital to risk weighted assets of at least 4.0% and a ratio
of total capital to risk weighted assets of at least 8.0%. Pursuant to the terms
of the 1995 MOU, the Bank was required to achieve a Tier 1 leverage capital
ratio equal to 5.5% as of September 30, 1995 and to maintain such level of
regulatory capital thereafter. Upon completion of the Branch Sale at June 28,
1997, the Bank was in compliance with applicable regulatory capital
requirements. As long as the Bank's deposit accounts are insured by the FDIC, as
a Federally-insured state-chartered bank, the Bank is required to maintain
minimum levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 4.0% to 5.0% (3.0% for the most highly-rated
banks) and (ii) a ratio of Tier 1 capital to risk weighted assets of at least
4.0% and a ratio of total capital to risk weighted assets of at least 8.0%.
On October 31, 1996, the Bank requested that the FDIC terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. As a result, the Bank expects that it will no longer be subject to the
capital requirements of the FDIC. On April 14, 1997, the Bank received notice
that the FDIC, as requested by the Bank, intends to terminate the Bank's status
as an insured state nonmember Bank on December 31, 1997.
Recent Accounting Developments
From time to time the Financial Accounting Standards Board ("FASB") adopts
accounting standards which set forth required generally accepted accounting
principles. Set forth below is a description of certain of the accounting
standards recently adopted by the FASB which are relevant to financial
institutions such as the Bank.
SFAS No. 121. In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of." The statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The SFAS No. 121 definition of long-lived assets includes the
Bank's other real estate owned and real estate held assets. There was no
material effect on the reported operations of the Bank resulting from the
implementation of SFAS No. 121, which was adopted by the Bank during the fiscal
year ended June 30, 1997.
SFAS No. 128. In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share," which is required to be adopted on December 31, 1997. At that time, the
Bank will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The implementation of SFAS No. 128 is not expected to have any
effect on the Bank's primary earnings per share for the years ended June 30,
1997, 1996 and 1995.
-79-
624833.3
<PAGE>
Impact of Inflation
The consolidated financial statements and related consolidated data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial positions and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of dollars over time due to inflation. The primary
impact of inflation on the operations of the Bank is reflected in increased
operating costs and increases in interest rates paid to depositors. Unlike most
commercial enterprises, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Over any given term, interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
-80-
624833.3
ITEM 8
FINANCIAL STATEMENTS
RIVER BANK AMERICA
Index to Consolidated Financial Statements
Page
Report of Independent Auditor 82
Consolidated Statements of Financial Condition
Years ended June 30, 1997 and 1996 83
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995 84
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1997, 1996, and 1995 85
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995 86
Notes to Consolidated Financial Statements 88
-81-
624833.3
<PAGE>
Report of Independent Auditors
The Board of Directors
River Bank America
We have audited the consolidated statements of financial condition of River Bank
American (the "Bank") as of June 30, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principle 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Bank at June
30, 1997 and 1996 and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank has adopted, as of
July 1, 1994, SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," as of July 1, 1995, SFAS No. 114, "Accounting By Creditors
for Impairment of a Loan" and as of July 1, 1996, SFAS No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of."
//Signature//
Ernst & Young LLP
New York, New York
July 18, 1997
-82-
624833.3
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
June 30, June 30,
1997 1996
------ -------
<S> <C> <C>
Cash, due from banks and cash equivalents (Note 5) $ 8,940 $ 13,129
Cash, due from banks - restricted (Note 5) 5,096 -
Money market investments (Note 5) - 4,000
Investment securities available for sale, net (Note 6) 6,275 5,685
Mortgage-backed securities available for sale, net (Note 7) - 187
Loans receivable, net:
Secured by real estate (Note 8) 80,093 86,983
Commercial and consumer (Note 9) 15,677 16,022
Allowance for possible credit losses (Note 10) (31,570) (34,142)
------------- -----------
Total loans receivable, net 64,200 68,863
------------- -----------
Loans sold with recourse, net (Note 11) 24,451 29,914
Premises and equipment, net (Note 12) - 146
Other real estate owned, net (Note 13) 7,127 30,386
Real estate held for investment, net (Note 14) 90,222 116,054
Other assets (Note 15) 5,348 17,114
------------ --------
$ 211,659 $ 285,478
============ ========
Liabilities and Stockholders' Equity
Due to depositors (Note 16) $ - $ 3,022
Borrowed funds (Note 17) 84,272 115,786
Mortgage escrow deposits - 271
Other liabilities (Note 18) 18,877 27,879
--------------- ------------
103,149 146,958
--------------- ------------
Stockholders' equity (Note 19):
15% non-cumulative perpetual preferred stock, Series A, par value
$1, liquidation value $25 (1,400,000 shares authorized, issued
and outstanding at June 30, 1997 and 1996) 1,400 1,400
Common stock, par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at June 30, 1997 and 1996) 7,100 7,100
Additional paid-in capital 111,170 111,170
Accumulated (deficit)/ retained earnings
(Notes 2 and 18) (10,055) 20,068
Securities valuation account (Notes 5 and 6) (1,105) (1,218)
------------- -----------
Total stockholders' equity 108,510 138,520
------------- -----------
$ 211,659 $ 285,478
============= ===========
</TABLE>
See Notes to Consolidated Financial Statements
-83-
624388.3
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------
1997 1996 1995
---- ---- ----
Interest, fees on loans and dividend income:
<S> <C> <C> <C>
Loans receivable $ 4,504 $ 76,614 $ 73,681
Mortgage-backed securities 2 5,342 9,337
Investment securities 574 9,347 1,859
Money market investments 155 2,489 3,428
Other 234 617 573
---------- ---------- ----------
5,469 94,409 88,878
---------- ---------- ----------
Interest expense:
Deposits (Note 16) - 47,719 42,782
Borrowed funds 7,132 14,026 9,411
Other 228 49 62
----------- ----------- -----------
7,360 61,794 52,255
----------- ----------- -----------
Net interest income (1,891) 32,615 36,623
Provision for possible credit losses (Note 10) 1,000 5,250 5,041
----------- ----------- -----------
Net interest income after
Provision for possible credit losses (2,891) 27,365 31,582
----------- ----------- -----------
Real estate operations:
Writedowns of other real estate owned and
real estate held for investment (19,745) (1,889) (14,460)
Net loss on sale of real estate, loans (1,754) - -
Income (loss) from other real estate owned, net 3,131 (2,911) 103
------------ ----------- -----------
(18,368) (4,800) (14,357)
Other income: ------------ ----------- -----------
Gains from sales of equity interests - - -
Gains on sales of offices and branches - 77,560 -
Banking fees and service charges - 2,463 2,320
Net gains (losses) on sales of investment
securities and other assets (1,495) (605) 441
Provision for Marine Sale contingencies (3,300) - -
Other 159 1,533 1,228
--------- --------- ----------
(4,636) 80,951 3,989
Other expenses:
Salaries (Note 22) 927 9,814 11,329
Employee benefits 243 4,349 3,597
Premises and occupancy costs - 8,108 7,203
Deposit insurance - 2,533 3,704
Electronic data processing - 3,700 3,326
Legal and professional fees 1,892 4,521 4,581
Foreclosure costs - 225 1,105
Other operating (Note 23) 4,466 3,504 8,630
--------- ----------- ----------
7,528 36,754 43,475
----- ----------- ----------
Income (loss) before provision for income taxes (33,423) 66,762 (22,261)
Benefit from (provision for) income taxes 3,300 (11,749) (2,113)
--------- --------- ----------
Net income (loss) (30,123) 55,013 (24,374)
Dividends declared on Preferred Stock - 5,250 5,250
---------- --------- ----------
Net income (loss) applicable to Common Shares $ (30,123) $ 49,763 $ (29,624)
========== ========== ===========
Net income (loss) per common share (Note 4) $ (4.24) $ 7.01 $ (4.17)
========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-84-
624833.3
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Series A
Non-
cumulative Total
Perpetual Additional Retained Stockholders'
Preferred Common Paid-in Earnings Securities Equity
Stock Stock Capital ( Deficit) Valuation Account
----- ----- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 $ 1,400 $ 7,100 $ 111,700 $ (71) $ (1,752) $ 117,847
Net loss for the year ended
June 30, 1995 - - - (24,374) - (24,374)
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - 1,911 1,911
------- ------- --------- -------- -------- ---------
Balances at June 30, 1995 1,400 7,100 111,170 (29,695) 159 90,134
Net income for the year ended
June 30, 1996 - - - 55,013 - 55,013
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - (1,377) (1,377)
------- ------- --------- -------- --------- ----------
Balances at June 30, 1996 1,400 7,100 111,170 20,068 (1,218) 138,520
------- ------- --------- -------- --------- ---------
Net loss for the year ended
June 30, 1997 - - - (30,123) - (30,123)
Preferred Stock dividends - - - - - -
Change in securities valuation
account - - - - 113 113
------- ------- --------- -------- -------- -----------
Balances at June 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,055) $ (1,105) $ 108,510
======== ======== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-85-
624833.3
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------
1997 1996 1995
---- ---- ----
Operating Activities
Cash Flows Provided by/(Used in) Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ (30,123) $ 55,013 $ (24,374)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for possible credit losses 1,000 5,250 5,041
Depreciation and amortization 215 1,159 1,362
Net (increase)/decrease in accrued interest an
dividends receivable (326) 5,939 (1,072)
Net increase/(decrease) in accrued interest payable 964 (1,341) 286
Net change in accrued income taxes (5,019) 18,018 442
Net increase/(decrease) in accrued expenses
and accounts payable (4,947) 4,944 (3,469)
Net (increase)/decrease in prepaid expenses 1,195 398 (525)
Amortization of deferred fees and premiums - (2,717) (1,294)
Loan fees collected net of expenses deferred - (761) (837)
Net (gains)/losses on sales of loans, investments
and investments in real estate 3,249 605 (441)
Gains on sales of branches - (77,560) -
Loss (recovery) on investment in savings bank organizations (353) - 1,078
Write-downs of other real estate owned and
Other real estate held for investment and real estate assets 19,745 1,889 14,460
- (37) 1,373
------------ --------- -----------
Net cash provided by/(used in) operating activities (14,400) 10,799 (7,970)
------------ --------- -----------
Investing Activities
Cash Flows Provided by/(Used in) Investing Activities:
Proceeds from sales and maturities of investment
securities - 285,084 60,129
Purchases of investment securities - (280,591) (42,735)
Purchases of mortgage-backed securities - - (71,913)
Proceeds from sales of mortgage-backed securities - 198 60,033
Net Transfer of securities in Branch Sale - 78,419 -
Principal collections on mortgage-backed securities 187 6,050 22,953
Transfer of loans in Branch Sale - 1,067,472 -
Net repayment/(origination) of loans secured by real
Net estate 4,252 (82,942) 6,497
Net decrease/(increase) in loans sold with recourse 3,463 (29,914) -
repayment/(origination) of commercial and
consumer loans 345 21,188 (2,239)
Proceeds from sale of premises and equipment - 1,300 -
Purchase of premises and equipment - (234) (441)
of fixed assets - 5,613 -
Proceeds from sales of real estate 43,161 97,827 31,797
Advances on real estate (14,270) (30,438) (27,485)
Purchases of underlying mortgages on other real estate
owned and real estate held for investment - - (39,613)
Redemption of Federal Home Loan Bank of New York
stock 8,976 - -
----------- -------------- ------------
Net cash provided by/(used in) investing activities $ 46,114 $ 1,139,032 $ (3,017)
----------- -------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
-86-
624833.3
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
1997 1996 1995
---- ---- ----
Financing Activities
Cash Flows Provided by/(Used in) Financing Activities:
<S> <C> <C> <C>
Increase in restricted cash $ (5,096) $ - $ -
Interest credited to time deposits and savings accounts - 47,719 41,403
Dividends paid on preferred stock - (5,250) (3,938)
Net decrease in deposit accounts (3,022) (56,611) (124,072)
Deposits transferred in Branch Sale - (1,159,616) -
Proceeds from borrowed funds 4,459 89,760 52,469
Repayments of borrowed funds (30,179) (177,035) (15,000)
Increase in borrowed funds secured by loans sold
under recourse (5,794) 24,000 -
Net decrease in escrow deposits (271) (4,209) (4,966)
-------------- ------------ ------------
Net cash used in financing activities (39,903) (1,241,242) (54,104)
-------------- ------------ ------------
Net increase/(decrease) in cash and money market
investments (8,189) (91,411) (65,091)
Beginning cash and money market investments 17,129 108,540 173,631
------------- ----------- -------------
Ending cash and money market investments $ 8,940 $ 17,129 $ 108,540
============= ============ ============
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Net transfer of mortgage loans to other real estate and real
estate held for investment $ - $ 7,852 $ 4,116
Loans charged-off, net of recoveries $ 3,572 $ 10,529 $ 12,132
Loans to facilitate real estate sales $ - $ 23,436 $ 69,960
Loans to facilitate investment sales $ - $ - $ 700
Changes in securities valuation account $ 113 $ (1,377) $ 1,911
Loans received in settlement of litigation $ - $ - $ 5,600
Cash paid for:
Interest $ 7,682 $ 61,429 $ 51,969
Federal, state and local taxes $ 1,952 $ 3,675 $ 1,671
</TABLE>
See Notes to Consolidated Financial Statements
-87-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
1. Organization, summary of significant accounting policies and accounting
change
Effective October 1, 1988, East River Savings Bank formally changed its
corporate name to River Bank America. On June 28, 1996, River Bank America sold
its remaining eleven branches to Marine Midland Bank, inclusive of the name East
River Savings Bank. (See Note 2). All retail banking activities have ceased.
River Bank America (the Bank), a New York State chartered savings bank,
converted to a stock-form savings bank through a plan of conversion in 1985.
Basis of presentation: The consolidated financial statements include the
accounts of River Bank America and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation. Due to the
anticipated short-term nature of such investments, investments in unconsolidated
real estate partnerships are generally carried at cost, subject to periodic
assessment of net realizable value. Gains on sales or dispositions of such
investments are recognized dependent upon the terms of the transaction. Losses
on sales or dispositions and any adjustments related to redetermination of net
realizable value are charged to operations of the current period.
For the purpose of the statements of cash flows, cash equivalents are defined as
those amounts included in cash and due from banks and money market investments.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation.
Money market investments: Money market investments are carried at cost, which
approximates market value.
Investment securities and Mortgage-backed securities: In May 1993, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As permitted under SFAS No. 115, the Bank elected to adopt
the provisions of the new standard at December 31, 1993. In accordance with the
statement, prior period financial statements were not restated. At June 30,
1997, the balance of stockholders' equity included a $1,105 unrealized loss on
securities classified as available for sale.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Available for sale securities are stated at estimated fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The cost of debt securities classified as available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security using a method approximating the level yield method. Such
amortization is included in interest income from these investments. Interest and
dividends are included in interest income from the respective investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary, are included in net securities gains and losses. The cost
of securities sold is based on the specific identification method.
-88-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Loans receivable, interest, and loan origination fees and costs: Loans
receivable are stated at principal balances, net of deferred fees and costs.
Interest on loans is accrued based on principal amounts outstanding. Loans are
placed on non-accrual status when they become 90 days past due or at any time
collection of principal or interest is doubtful unless, in the opinion of
management, collection appears likely. Accrued but unpaid interest on such loans
is reversed and interest income is subsequently recognized only to the extent
that payments are received and when no doubt exists as to the collectibility of
the remaining book balance of the asset. Interest is subsequently accrued when
such loans return to full current status and have had a period of performance in
accordance with a loan's terms.
Loan origination fees and certain loan origination direct costs are deferred,
and the net fee or cost is recognized as an adjustment to interest income over
the approximate lives of the related loans, adjusted for estimated prepayments
as appropriate to provide a level interest yield.
Allowance for possible credit losses: The allowance for possible credit losses
is provided by charges to operations. Credit losses, net of recoveries, are
charged directly to the allowance for possible credit losses. Additions to the
allowance are based on management's periodic review and evaluation of the Bank's
assets, the potential for loss in light of the current composition of the Bank's
assets, and economic conditions.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated statements of financial
condition and operations for the period. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for possible credit losses and the valuation of
other real estate owned and real estate held for investment. A substantial
portion of the Bank's loans are collateralized by real estate and, accordingly,
the performance of such loans may be affected by market conditions for real
estate. As of June 30, 1997, most of the Bank's OREO is located in New York. The
Bank has 42% of its total assets in five real estate properties and loans.
Accordingly, the ultimate collectibility of these assets collateralized by real
estate is particularly susceptible to changes in local market conditions.
Management believes that the allowance for possible credit losses is adequate
and that other real estate owned and real estate held for investment is properly
recorded at fair value minus estimated selling costs. While management uses
available information to recognize losses, future additions to the allowance or
writedowns of other real estate owned or real estate held for investment may be
necessary based on changes in economic conditions, as well as changes in
management strategies. In addition, the Federal Deposit Insurance Corporation
("FDIC") and the New York State Banking Department ("NYSBD"), as an integral
part of their examination processes, periodically review the adequacy of the
allowance for possible credit losses and the carrying amount of other real
estate owned and real estate held for investment. Such agencies may require the
Bank to recognize additions to the allowance or additional writedowns based on
their judgment or information available to them at the time of their
examinations.
Real estate: The Bank accounts for real estate foreclosed at the lower of fair
value, minus estimated costs to sell, or cost. The Bank has set up valuation
allowances that adjust the carrying value of foreclosed assets to the lower of
cost or fair value minus estimated costs to sell. Increases and decreases to the
valuation account are recognized in the statement of operations. Certain
foreclosed assets are accounted for net of nonrecourse senior debt. The results
are not materially different than if Statement of Position No. 92-3, "Accounting
for Foreclosed Assets," had been followed. The adoption of SFAS-121, which was
implemented during fiscal 1997, resulted in no material changes to the reported
operations of the Bank.
-89-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Premises and equipment: Premises and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings and capital improvements on
buildings are depreciated and amortized over the estimated useful lives of the
buildings. Leasehold improvements are generally amortized over the terms of the
related leases or the estimated life of the improvement, whichever is shorter.
Furniture, fixtures and equipment are depreciated over their estimated useful
lives. Depreciation and amortization are computed using the straight-line
method. Maintenance, repairs and minor improvements are charged to operations as
incurred while major improvements are capitalized.
Interest on due to depositors' accounts: Interest accruals on NOW, savings and
transaction accounts, and time deposit accounts are recorded monthly and
credited to the respective accounts in accordance with the terms of the account.
During 1995, all remaining brokered certificates of deposit matured and were
repaid. The Bank will not accept any new brokered certificates of deposit.
Retirement plan: The Bank has a contributory 401(k) plan and a non-contributory
pension plan (the "Plan") covering substantially all of its employees. During
1992, the Bank adopted an amendment to the Plan which ceased the accrual of
benefits under the Plan ("Plan suspension") effective April 30, 1992. The Plan
was further amended to exclude employees hired on or after April 30, 1992 from
participating in the Plan.
Income taxes: For federal income tax purposes, the Bank files a consolidated tax
return with its subsidiaries on a calendar year basis. The Bank files combined
New York State and New York City income tax returns with various subsidiaries.
In addition, certain subsidiaries file on a separate basis in New York and the
Bank and certain subsidiaries file income and franchise tax returns in various
other states.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability method is used
to account for income taxes. Accordingly, 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. To the extent that current available
evidence about the future raises doubt about the realization of deferred tax
assets, a valuation allowance must be established. Deferred tax assets and
liabilities are measured using enacted tax rates which are expected to be
applicable to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Effective January 1, 1993, the Bank adopted SFAS No. 109. As permitted by SFAS
No. 109, prior financial statements were not restated to reflect the change in
accounting method. The cumulative effect of the change in the method of
accounting for income taxes had no impact on the 1993 consolidated statement of
operations, and therefore, there was no cumulative effect adjustment.
Prior to the adoption of SFAS No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
differences originated.
Recent Accounting Pronouncements: In March 1995, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The
statement requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The SFAS No. 121 definition of
long-lived assets
-90-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
includes the Bank's other real estate owned and real estate held assets. The
Bank's adoption of SFAS No. 121 on July 1, 1996 did not have a material effect
on its consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Bank will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
implementation of SFAS No. 128 is not expected to have any effect on the Bank's
primary earnings per share for the years ended June 30, 1997, 1996 and 1995.
2. Purchase of Assets and Liability
Assumption Agreement On June 28, 1996, River Bank consummated the Purchase of
Assets and Liability Assumption Agreement ("Branch Agreement") by and between
the Bank and Marine Midland Bank ("Marine"). Marine purchased all eleven
branches of East River Savings Bank ("Branch Sale"), assumed $1.159 billion in
liabilities, $1.067 billion in assets and the Bank recorded a gross deposit
premium of $93 million and proceeds from the sale of one office building of $1.3
million. The bank will no longer accept retail deposits and will notify the
Federal Deposit Insurance Company ("FDIC") that it seeks to terminate its status
as a depository institution. Subsequent to the Branch Sale, the Bank transferred
mortgage escrow deposits (which are FDIC insured) to another financial
institution. Upon the transfer of such escrow deposits and the issuance of an
order by the FDIC terminating the Bank's status as a depository institution, the
Bank will no longer be subject to the banking regulations of the FDIC but will
remain a banking organization chartered and regulated by the New York State
Banking Department ("NYSBD").
The net pre-tax gain on the sale of offices and branches of $77.6 million
reflected the deposit premium of $93.0 million, partially offset by Branch Sale
transaction costs of $5.8 million, professional fees of $3.2 million, employee
benefits and severance costs of $4.6 million, net losses on the sale of assets
of $1.1 million and other net costs of $700,000. During the year, the
indemnification agreements with Marine were amended and a $3.3 million
contingency reserve was recorded.
The Bank retained $285.5 million in assets, including real estate assets
(including joint ventures), mortgage loans and investment securities ("Retained
Assets"). The Bank intends to continue substantially the same management and
disposition strategy for such assets previously employed by the Bank. While the
Bank's disposition strategy has previously resulted in a reduction of real
estate assets and non-performing loans, there can be no assurance that such
strategies will produce sufficient cash after debt service to make distributions
to stockholders.
The closing of the Branch Sale was conditioned upon River Bank's obtaining
financing with terms and in an amount reasonably acceptable to River Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine facilities ("Initial Facilities") consisting of
eleven independent mortgage loans in an aggregate amount not to exceed $99,060.
At June 30, 1997, the Bank had $66,066 outstanding under the Initial Facilities.
Proceeds of the Initial Facilities were utilized by River Bank to (i) refinance
all or part of the certain indebtedness secured by assets to be transferred to
Marine, including all or a substantial part of the outstanding advances from the
Federal Home Loan Bank ("FHLB") and (ii) provide additional funds for the
development and completion of two individual real estate assets as part of the
Bank's operations subsequent to the Branch Sale.
-91-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Subsequent to the closing of the Branch Sale, although the Bank will have
executive officers under NYBL, the bank no longer maintains any significant
staff of employees to manage the Bank's affairs. Rather, the day to day
management responsibilities of the Bank will be obtained from RB Management
Company, a newly formed management company affiliated with Mr. Dworman. It is
anticipated that a significant amount of services necessary to manage and
dispose of the Retained Assets will be provided by RB Management Company or
third party subcontractors who will not have any continuing fiduciary
obligations to the Bank or the stockholders. The selection of third party
subcontractors to provide various services to the Bank will be made by RB
Management Company, subject to the ratification by committees of the board of
directors but without stockholder approval. The Bank's success in maximizing
returns from the disposition of the Retained Assets will depend on the efforts
of RB Management Company and third party contractors retained to provide
services to the Bank.
3. Regulatory Capital Requirements
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement. So long as the Bank's deposit accounts
are insured by the FDIC, as a Federally-insured state-chartered bank, the Bank
is required to maintain minimum levels of regulatory capital. Under current FDIC
regulations, insured state-chartered banks generally must maintain (i) a ratio
of Tier 1 leverage capital to total assets of at least 4.0% to 5.0% (3.0% for
the most highly-rated banks) and (ii) a ratio of Tier 1 capital to risk weighted
assets of at least 4.0% and a ratio of total capital to risk weighted assets of
at least 8.0%.
On September 20, 1995, the Bank executed the 1995 Memorandum of Understanding
("1995 MOU") with the FDIC and the NYSBD. The 1995 MOU imposed certain
conditions and operating restrictions on the Bank, affecting ,among other
things, its ability to pay dividends in the future.
On October 31, 1996, the Bank requested that the FDIC terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. As a result, the Bank expects that it will no longer be subject to the
capital requirements of the FDIC. On April 14, 1997, the Bank received notice
that the FDIC, as requested by the Bank, intends to terminate the Bank's status
as an insured state nonmember Bank on December 31, 1997.
4. Earnings per Share
Earnings per share were based upon 7,100,000 weighted average shares of Common
Stock outstanding during the years ended June 30, 1997, 1996, and 1995,
respectively.
5. Cash due from banks and cash equivalents and money market investments
Included in Cash, due from banks and cash equivalents at June 30, 1997, are
approximately $4.7 million in Funds maintained on deposit by wholly-owned
subsidiaries and required to meet ongoing cash flow requirements of those
-92-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
subsidiaries. At June 30, 1997, Marine Midland had restricted a total of
approximately $5.1 million in funds, held on deposit at Marine, in accordance
with the terms of the Branch Sale and the Marine Facility agreements. Restricted
funds held by Marine are not available to the Bank for settlements of any of the
Bank's current obligations. Of the $5.1 million cash balance restricted by
Marine at June 30, 1997, $5.0 million relates to reserve amounts specified under
the Branch Sale Agreement which are restricted to a maximum level of $5.0
million. The remaining restricted cash reserves held by Marine are primarily to
meet the currently anticipated and other potential cash requirements of the
properties serving as collateral for the senior loan financed by Marine.
Money market investments at June 30, 1997 and 1996, at cost, which approximates
market value, consist of the following short-term instruments:
June 30, June 30,
1997 1996
Federal funds sold $ - $ -
Short-term time deposits - 4,000
Reverse repurchase agreements - -
----------- ------------
$ - $ 4,000
=========== ============
Money market investments at June 30, 1996 had a weighted average maturity of 29
days.
6. Investment securities available for sale, net
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity securities $ 7,380 $ - $ (1,105) $6,275
========= ======== ========= ======
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1996 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 6,903 $ - $ (1,218) $ 5,685
======== ======== ========= =======
</TABLE>
-93-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
7. Mortgage-backed securities available for sale, net
The Bank had no mortgage-backed securities available for sale at June 30, 1997.
During the year ended June 30, 1997, all remaining mortgage-backed securities,
totaling $187,000, were sold at book value.
8. Loans receivable, secured by real estate
Loans secured by real estate at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
Residential:
One-to-four family $ 3,924 $ 4,557
Multi-family 26,090 31,336
Commercial 50,078 51,090
Construction:
One-to-four family - -
Multi-family - -
Commercial - -
----------- -----------
Less:
Deferred fees, net - -
----------- -----------
$ 80,092 $ 86,983
=========== ===========
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to $32,271
at June 30, 1997. If interest on non-performing loans classified as loans
receivable had been accrued, such income would have approximated $2,100 for the
year ended June 30, 1997. Interest income collected and recognized on such loans
amounted to $161 for the year ended June 30, 1997.
At June 30, 1997 the Bank had 5 restructured loans secured by real estate which
aggregated $24,454. At June 30, 1997, approximately 85% of all the Bank's
outstanding mortgage loans were secured by properties located in New York and
California.
-94-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
9. Loans receivable, commercial and consumer
<TABLE>
<CAPTION>
Commercial and consumer loans at June 30, 1997 and 1996 consist of the following:
June 30, June 30,
1997 1996
Commercial loans:
<S> <C> <C>
Secured $ 2,520 $ 4,718
Unsecured 10,286 8,266
---------------- -------------
12,806 12,984
Less:
Deferred fees, net - -
--------------- -------------
12,806 12,984
Consumer loans:
Student education loans 2,504 2,671
Passbook loans - -
Other 367 367
----------- ---------
$ 15,677 $ 16,022
=========== ===========
</TABLE>
In connection with the Branch Sale, the Bank sold, with recourse, $12,000 in
SLMA receivables as further described in Note 11.
Loans on which the accrual of interest has been discontinued amounted to $6,639
at June 30, 1997. If interest on non-performing loans had been accrued, such
income would have approximated $547 for the year ended June 30, 1997. No
interest income was collected or recognized on such loans during the fiscal year
ended June 30, 1997.
10. Allowance for possible credit losses
The following is an analysis of the allowance for possible credit losses for the
years ended June 30, 1997 and 1996:
1997 1996
---- ----
Balance at July 1 $ 34,142 $ 33,985
Provision charged to operations 1,000 5,250
Provision not charged to operations - 5,436
Charge-offs, net of recoveries (3,572) (10,529)
------------- -------------
Balance at June 3 $ 31,570 $ 34,142
============= ============
-95-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Charge-offs, net of recoveries, relate to losses incurred and recoveries
realized in the sale or liquidation of assets or to transfers of loans to other
real estate owned. The Bank charges-off loans for regulatory purposes when
specific allocable reserves are identified, which results in a net allowance for
possible credit losses for regulatory purposes of $3,546 and $11,337, at June
30, 1997 and 1996, respectively.
11. Loans sold with recourse, net
Loans sold with recourse, net of $4,901 and $2,901 valuation allowances, at June
30, 1997 and 1996, respectively, consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 June 30,1996
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments 3 $24,451 3 $29,914
=== ======= === =======
</TABLE>
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the Bank
consummated $60.4 million of Asset Sale Transactions. The Asset Sale
Transactions, which were arranged by RB Management Company LLC, were structured
to include ongoing recourse to, and participation by, the Bank with respect to
the assets sold, based upon the proceeds realized by the purchasers. The assets
included within each pool of assets sold and the nature of related recourse
provisions are described below.
The Asset Sale Transactions were entered into with five entities, each of which
was independent of the Bank and Alvin Dworman, who owns 39% of the common stock
of the Bank. In connection with the Asset Sale Transactions, entities controlled
by Mr. Dworman loaned $12.8 million to the five entities on a non-recourse
basis.
Assets included within each pool sold were, with the exception of Pool C,
believed by the Bank and the purchasers to be in the final process of
disposition by the Bank. In essence the Asset Sale Transactions accelerated
receipt by the Bank of asset disposition proceeds which the Bank expected to
realize on the included assets within the fiscal year following the Bank's 1996
fiscal year.
In each of the Asset Sale Transactions, the Bank sold a pool of assets and
received a 20% cash down payment and non-recourse purchase money notes (the
"Purchase Money Notes") which approximated 80% of the sales price. In all cases,
except for Pool C, the Purchase Money Notes had maturity dates, including any
extension options, of less than one year from June 30, 1996. The maturity date
on the Pool C Purchase Money Note is three years. The Bank also received
additional contingent proceeds notes for each of the five pools which provided
the Bank with rights to receive proceeds from subsequent asset sales by
purchasers in excess of the initial sales price after the purchaser had received
a return of 8%, a transaction fee of 25 basis points and certain transaction
expenses. In the event that proceeds of subsequent assets sales exceed specified
amounts for each pool, such amounts are retained by the purchaser.
-96-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The Bank received aggregate cash down payments of $12.8 million in connection
with the Asset Sale Transactions. The Purchase Money Notes, aggregating $47.6
million, were included in the assets delivered to Marine Midland in connection
with the Branch Sale.
The Bank made representations and warranties ( the "Recourse Provisions")with
respect to the assets sold which included the present condition of each asset,
the nature of disposition arrangements which had been entered into by the Bank
prior to June 28, 1996 and that each of the assets were free of any liens or
encumbrances. The Recourse Provisions also included representations with respect
to certain of the assets that the Bank had taken all actions to effect specific
proposed dispositions or had made arrangements with third parties to complete
actions required to effect such dispositions.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools B and C as financings, primarily due to their longer term
nature and the more substantial risks related to ongoing construction for the
assets included in each of the Pools. Pool B and C Asset Sale Transactions have
been included in the Bank's consolidated financial statements as Loans Sold,
With Recourse. Related financing for such assets has been included in the Bank's
consolidated financial statements as Borrowed Funds, secured by Assets Sold with
Recourse. The Bank believes that it has made adequate provision at June 30, 1997
for all recourse amounts expected to result from the sale of the assets included
in Pools B and C.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools A, D, and E as sale transactions since each of the financial
receivables, asset sale contracts or other proceeds included in these pools
represented reasonably estimable amounts, including related recourse claims, in
a transaction with limited duration. Substantial proceeds from dispositions
conducted within Pools A, D and E were realized during the fiscal year ended
June 30, 1997. The Bank believes that it has made adequate provision at June 30,
1997 for all recourse amounts expected to result from the sale of the assets
included in Pools A, D and E.
Assets included in these transactions, and a description of the assets sold,
were as follows:
Pool A
Pool A originally included $13.8 million in assets, composed of $12.0 million of
receivables related to the collection of certain federally guaranteed, defaulted
student loans and other student loan related claims from the Student Loan
Marketing Agency ("SLMA") (collectively, the "Student Loan Receivables") and
$1.8 million related primarily to delinquent single family residential loans
(collectively the "Single Family Receivables").
The Bank's aggregate investment in the Student Loan Receivables and the Single
Family Receivables prior to the Asset Sale Transactions approximated $12.4
million and $7.1 million, respectively.
At June 30, 1997, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.3 million. This balance represented claims which had
been filed with state processing agencies for reimbursement for which the Bank
expected to receive reimbursement. At June 30, 1997, the remaining Single Family
Receivables balance, net of applicable reserves, of $5.7 million was in the
process of being disposed of through bulk sales or sales of individual loans or,
to a lesser degree, sales of real estate owned to bulk buyers or individuals.
-97-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Pool B
At June 30, 1996, Pool B was composed of a mortgage loan in the amount of $13.0
million secured by land and construction in process related to a single family
condominium project in Wayne, New Jersey (the "Wayne Project"). The Bank's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13.01 million.
The Bank believed at June 30, 1996 that the Wayne Project would be fully
completed and all individual units sold prior to June 30, 1997. The Wayne
Project is in the final phase of a three phase development project which was
nearing completion at June 30, 1997. The Bank's investment in the Wayne Project,
net of applicable reserves, has been reduced to $7.7 million at June 30, 1997.
Pool C
Pool C included contracts of sale, in the amount of $11.0 million, for two
adjacent parcels of land located in the Bronx, New York (the "Bronx Projects") .
The Bank's investment in the Bronx Projects prior to the Asset Sale Transactions
aggregated $17.7 million, including $12.1 million for one site ("Site One") and
$5.6 million for a second site ("Site Two"). The sale contract for the Bronx
Projects represented the sale of ownership and development rights for each of
the parcels of land and, for Site One, the Bank's investment at June 28, 1996 in
construction in process. Site Two was vacant on June 30, 1996 and 1997 with no
development yet commenced. At June 30, 1996, the Bank expected that the two
parcels would be sold within the subsequent twelve months or that the Bank would
arrange for the sale and development of subparcels of the first site and sale of
the second site prior to the commencement of construction. The Bank's investment
in the Bronx Projects, net of applicable reserves, was $16.8 million at June 30,
1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
owned real estate properties, located in New York State, New Jersey and
California (collectively, the "Real Estate Properties"). The Bank's aggregate
investment in the Real Estate Properties prior to the Asset Sale Transactions
aggregated $16.1 million. Each of the properties included in Pool D were either
under contract of sale or contracts of sale for the remaining assets were being
actively negotiated. All properties were disposed of during 1997 with the
exception of one property, which the Bank estimated at June 30, 1997 would be
disposed of by June 30, 1998. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1997.
Pool E
Pool E, with an aggregate sales price of $8.3 million, included the rights to
proceeds from sale of two joint venture projects, the sale of which was
scheduled to close within 90 days, rights to proceeds of sale of 35 condominium
projects located in New York City, a mortgage secured by cooperative apartment
units in New York City and a mortgage secured by a multi-family apartment
complex in New York State (collectively, the "Venture Proceeds and Residential
Mortgages Pool"). The Bank's aggregate investment in the Venture Proceeds and
Residential Mortgages Pool prior to the Asset Sale Transactions aggregated $11.6
million. Each of the assets included in Pool E were disposed of during fiscal
1997.
-98-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
12. Premises and equipment, net
Premises and equipment at June 30, 1997 and June 30, 1996 consist of the
following:
<TABLE>
<CAPTION>
Period of
depreciation
or amortization June 30, June 30,
(years) 1997 1996
---------------------- ---- ----
<S> <C> <C> <C>
Land $ - $ -
Bank premises 20-50 - -
Leasehold improvements Term of leases - 158
Furniture and fixtures 4-10 - 38
Computer equipment 7 1/2 - 41
--------- --------
- 237
Less accumulated depreciation and amortization - 91
----------- -----------
$ - $ 146
=========== ===========
</TABLE>
Depreciation and amortization expenses amounted to $15 and $1,159 for the years
ended June 30, 1997 and 1996, respectively. During the year, the Bank wrote off
the remaining balance of its fixed assets, amounting to $131, following the
assets disposal.
In June 1996, the Bank sold, as part of the Branch Sale, branch property located
in New York, New York for a net gain of $748.
-99-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
13. Other real estate owned, net
At June 30, 1997 and June 30, 1996, other real estate owned, net of a $1,959 and
$ 4,642 valuation allowance, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments 2 $ 2,493 3 $ 7,885
Multi-family 2 4,566 8 8,347
Commercial real estate:
Office / warehouse buildings 0 - 3 6,929
Retail 1 68 1 178
Other 0 - 2 7,047
---------------- ----------- ---------------- -----------
5 $ 7,127 17 $ 30,386
================ ========== =============== ==========
Activity in the valuation allowance for other real estate owned for the
years ended June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
Beginning balance - July 1 $ 4,642 $ 12,701
Provisions charged to operations 5,023 1,889
Transfers - (1,672)
Charge-offs (7,706) (8,276)
------------ ------------
Ending Balance - June 30 $ 1,959 $ 4,642
============ ===========
</TABLE>
At June 30, 1997, the Bank's principal real estate owned consists of residential
condominium units in Staten Island, NY and a single-family housing development
in Murietta, CA. The net book values of the two properties are $3.3 million and
$1.9 million, respectively.
Management believes that the allowance for possible losses is adequate and that
other real estate is properly valued. The Bank has used currently available
information to establish reserves and resultant net valuations for other real
estate at June 30, 1997. Future additions to the allowance or writedowns of real
estate held for investment may be necessary based on changes in economic
conditions, the receipt of newly-available information involving specific
properties, or changes in management strategies.
-100-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
14. Real estate held for investment
Real estate held for investment, net of a $13,261 and $3,429 valuation
allowance at June 30, 1997 and 1996, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C>
One-to-four family including
single-family developments - $ - 1 $12,840
Multi-family 2 70,720 2 72,567
Commercial real estate:
Office buildings 2 19,502 2 30,647
Shopping centers - - - -
Other - - - -
---------------- ------------ ------------------ ------------
4 $ 90,222 5 $ 116,054
================ ============ ================= ============
Activity in the valuation allowance for real estate held for the years ended
June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
Beginning balance - July 1 $ 3,429 $ 5,317
Provisions charged to operations 11,300 -
Charge-offs (1,468) (1,888)
------------ ----------------
Ending Balance - June 30 $ 13,261 $ 3,429
=========== ===========
</TABLE>
At June 30, 1997, the Bank's principal real estate held for investment
properties consists of a multi-family apartment complex located in Philadelphia,
PA, an office building complex in Atlanta, GA and co-operative apartment shares
in New York, NY. The net book values of the three properties are $55.9 million,
$14.1 million and $14.8 million, respectively. During the year ended June 30,
1997, the Bank recorded a provision of $11.3 million for the office building
complex in Atlanta, GA. This charge followed a change in operating plans for the
property and a resultant reevaluation of projected operating cash flows related
to this property. The Bank is actively seeking a purchaser for the property.
Management believes that the allowance for possible losses is adequate and that
real estate held for investment is properly valued. The Bank has used currently
available information to establish reserves and resultant net valuations
-101-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
for real estate held for investment at June 30, 1997. Future additions to the
allowance or writedowns of real estate held for investment may be necessary
based on changes in economic conditions, the receipt of newly-available
information involving specific properties, or changes in management strategies.
15. Other assets
Other assets at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
Accrued interest receivable $ 792 $ 943
Investments in unconsolidated subsidiaries,
joint ventures and partnerships (A) 3,113 4,424
Federal Home Loan Bank of
New York capital stock - 8,976
Investment in savings bank organizations (B) - 790
Prepaid pension expenses and other assets 1,443 1,981
--------- ---------
$ 5,348 $ 17,114
========= =========
</TABLE>
(A) Represents equity investments in 3 and 4 joint ventures engaged in
commercial real estate transactions at June 30, 1997 and 1996, respectively. The
joint ventures had aggregate total assets of approximately $3,113 and $4,424 at
June 30, 1997 and 1996, respectively. During the year ended June 30, 1997, the
Bank sold its investment to one joint venture realizing a loss of $1,377.
(B) The Bank invested in the capital debentures and stock of Nationar and
invests in the stock cooperative data processing entities (the Institutional
Group Information Corporation and Infoserve) and in return receives various
services for which the Bank is charged fees. Nationar was a New York chartered
trust company jointly owned by approximately sixty-five New York savings banks,
including the Bank. Nationar, which provided item processing, deposit,
securities safekeeping, trust, data processing, credit and cash and investment
management services, was placed into receivership by the NYSBD on February 6,
1995. Upon consideration of the receivership, the Bank wrote-off its investment
in the securities of Nationar. The write-off of $1,100 was accounted for as a
charge to income in the year ended June 30, 1995. During the year ended June 30,
1997, the Bank, along with several other investors, received a partial recovery
of its initial investment in Nationar. During the year ended June 30, 1997, the
Bank received $353 in settlement recoveries related to this investment, which
were accounted for as asset recoveries.
-102-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
16. Due to depositors
The amounts due to depositors and weighted average period-end interest rates at
June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
Weighted Weighted
Average Average
Year-end Deposit Year-end Deposit
Rate Liability Rate Liability
Demand deposits:
<S> <C> <C> <C> <C>
Checking accounts - - - $2,876
Bank checks issued and
outstanding - - - 146
---------- ---------- ---------- ---------
- - - 3,022
NOW accounts:
Fixed rate - - - -
Savings and transaction accounts:
Regular - - - -
Money market - - - -
Time deposits - - - -
---------- ---------- ---------- ----------
- $ - - $ 3,022
========== ========== ========== ==========
Interest expense on deposits for the years ended June 30, 1997 and 1996 was as
follows:
June 30, June 30,
1997 1996
NOW accounts $ - $ 1,064
Savings and transaction accounts - 13,367
Time deposit accounts - 33,288
-------------------- ------------
$ - $ 47,719
============== ===========
Average cost of funds
during the period - 4.12%
============== =============
</TABLE>
-103-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
17. Borrowed funds
Borrowed funds and weighted average year-end interest rates at June 30, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
Weighted Weighted
average average
year-end year-end
Amount Rate Amount Rate
Advances from the Federal Home
Loan Bank of New York
(FHLBNY):
<S> <C> <C> <C> <C>
Fixed $ - 3.81% $ 2,026 3.81%
Floating - - - -
---------- ---------- --------- --------
- 3.81 2,026 3.81
Initial Facilities (Marine Midland) 66,066 8.25 89,760 8.25
Borrowed funds secured by loans
sold with recourse (note 11) 18,206 8.25 24,000 8.25
Security sold under agreement to
repurchase - - % - - %
------------ ----------
$ 84,272 $ 115,786
=========== =========
Average cost of funds during the
year then ended 6.83% 6.01%
</TABLE>
-104-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
FHLBNY Advances: The fixed rate advances from the FHLBNY outstanding at June 30,
1997 and 1996 mature as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C> <C> <C>
Weighted Weighted
Year of Maturity average average
Fiscal Year year-end year-end
Ending June 30, Amount rate Amount rate
1997 $ - - % $ - - %
2006 - - 1,100 3.41
2008 - - 492 4.66
2010 - - 434 3.86
----------- -------- --------- -------
$ - - % $ 2,026 3.81%
=========== ======== ========= ========
</TABLE>
The advances from the FHLBNY outstanding at June 30, 1996 were collateralized by
all FHLBNY stock owned by the Bank. Additionally, specific eligible assets were
required to be pledged to the FHLBNY. At June 30, 1997, the Bank had no
outstanding obligations to, held no capital stock in, and had no remaining
assets pledged to the FHLBNY.
Borrowed funds secured by loans sold with recourse: In June 1996, the Bank
financed the sale of loans, in the amount of $24,000, in connection with and to
facilitate the closing of the Branch Sale. These loans were sold to third
parties, with recourse and have been accounted for as financings. (See Note 11).
Borrower funds secured by loans sold with recourse bear interest at the prime
rate (or, at the Bank's option, in LIBOR based rate). See Note 11 for more
information concerning the three properties securing this information.
Initial facility (Marine Midland): The closing of the Branch Sale was
conditioned upon the Bank's obtaining financing with terms and in an amount
reasonably acceptable to the Bank and determined to be reasonably adequate to
permit consummation of the Branch Sale. The Bank obtained from Marine the
Facility, consisting of eleven independent mortgage loans with additional
collateral, in an aggregate amount not to exceed $99.06 million. As of June 30,
1997, Marine had extended $66.1 million under the Facility to the Bank.
Proceeds of the Facility were utilized by the Bank to (i) refinance all or part
of the certain indebtedness secured by assets to be transferred to Marine,
including all or a substantial part of the outstanding advances from the Federal
Home Loan Bank ("FHLB") and (ii) provide additional funds for the development
and completion of two individual real estate assets as part of the Bank's
operations subsequent to the Branch Sale.
Each of the individual loans included in the Facility were structured as
three-year term loans with options to extend the initial term for two additional
one-year periods subject to the Bank's achieving pre-agreed minimum repayment
amounts which are equal to 60% and 30% of the original aggregate amount of the
Facility and remaining fully current on all obligations and in compliance with
all covenants.
-105-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The Facility is priced at 175 basis points over LIBOR for the initial six months
following June 28, 1996, automatically increasing by 25 basis points at the
beginning of each of the subsequent three six month periods and will be priced
at 275 basis points over LIBOR for the third year of the Facility. In the event
that the Bank elects to exercise its option to extend the initial term of the
Facility, the Facility will be priced at 300 basis points over LIBOR during the
initial one year extension and 325 basis points over LIBOR during the second one
year extension. Following maturity or an event of default, the Senior Debt
Financing will accrue interest at a specified default rate.
The Facility is secured by first priority mortgage liens on eleven of River
Bank's real estate assets approved by Marine and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross defaulted with each other and cross collateralized by all
collateral for the Facility. As additional collateral for the Facility, each
loan is also secured by first priority mortgages (or, where applicable, a
collateral assignment of first priority mortgages held by the Bank), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Bank
collaterally assigned to Marine all of the cash flow from the Primary Collateral
and the Additional Collateral. All of the net cash flow from the Primary
Collateral and Additional Collateral will be applied to the prepayment of the
Facility. In addition, all net proceeds from the sale of any Primary Collateral,
and the proceeds from the sale of any Additional Collateral, shall be applied to
the prepayment of the Facility subject to the Bank's right to establish reserves
for its operating needs. The Bank will be permitted to prepay the Facility in
whole or in part at any time without prepayment penalty or premium (subject to
customary LIBOR breakage provisions).
The Loan Agreement requires that while any amounts remain outstanding under the
senior debt financing, the Bank must receive Marine Midland's prior written
consent to, among other things, materially alter its charter or by-laws, incur
additional corporate indebtedness and liens, make any distributions to
stockholders or repurchases or redemptions of capital stock, acquire additional
assets, exchange existing assets with a third party or assume additional
liabilities as a result of any proposed merger transaction.
-106-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
18. Other liabilities
Other liabilities at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
Accrued interest payable $ 964 $ -
Accrued income taxes 5,771 10,790
Accounts payable 2,737 521
Accrued expenses:
Rent - 618
Tax settlement - City of New York - -
Postretirement benefits obligation 4,728 4,000
Preferred Stock dividend declared and unpaid 1,313 1,313
Other 3,364 10,637
----------- ----------
$ 18,877 $ 27,879
=========== ==========
</TABLE>
19. Stockholders' equity
On June 30, 1994, the Bank consummated the placement ("Offering") of 5,500,000
shares of its Common Stock, par value $1 per share, and 1,400,000 shares of 15%
noncumulative perpetual preferred stock, Series A, par value $1 per share
("Preferred Stock") which resulted in net proceeds to the Bank of $78,200. The
issuance price of the offered stock was $9 per share for the Common Stock and
$25 per share for the Preferred Stock. The Bank's Restated Organization
Certificate was amended prior to consummation of the Offering in order to
authorize the issuance of up to 30,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock. Prior to the offering, the Bank had 1,000,000 shares
of Common Stock issued and outstanding, plus warrants to purchase an additional
690,000 shares of Common Stock. The Bank also had 200,000 shares of 3%
Noncumulative Senior Preferred Stock and 130,000 shares of 4% Noncumulative
Preferred Stock issued and outstanding (each of which series of preferred stock
had a liquidation value of $100 per share) substantially concurrently with the
Offering these shares were exchanged for 600,000 shares of Common Stock and
outstanding warrants to purchase Common Stock were canceled. The Board of
Directors of the Bank has the power from time to time to issue additional shares
of Common Stock or Preferred Stock authorized by the Restated Organization
Certificate without obtaining approval of the Bank's stockholders. The rights,
qualifications, limitations and restrictions on each series of Preferred Stock
issued will be determined by the Board of Directors of the Bank and approved as
required by the Banking Law or otherwise, at the time of issuance and may
include, among other things, rights in liquidation, rights to participating
dividends, voting and convertibility to Common Stock.
As a result of the Offering, the Bank had 7,100,000 shares of its Common Stock
outstanding at June 30, 1997, 1996, and 1995. After the consummation of the
Offering, the investor continues to be the largest stockholder with 2,768,400
shares or 39% of the common stock outstanding. The Bank may pay dividends on
common stock as declared from time to time by the Board of Directors out of
funds legally available therefor. Except as provided with respect to any series
of Preferred Stock, the holders of Common Stock possess exclusive voting rights
in the Bank. Each holder of Common Stock is entitled to one vote for each share
held on all matters voted upon by stockholders.
-107-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Stockholders are not permitted to cumulate votes in elections of directors.
Subject to the prior rights of the holders of any shares of Preferred Stock that
may be outstanding, in the event of any liquidation, dissolution or winding up
of the Bank, the holders of the Common Stock would be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon) and, after distribution of the balance, if any, in
the liquidation account maintained for certain depositors of the Bank at the
time of the Conversion, all assets of the Bank available for distribution.
The Bank has 1,400,000 shares of its Preferred Stock, which were issued in
connection with the Offering, outstanding at June 30, 1997, 1996, and 1995. This
stock is perpetual and is not subject to any sinking fund or other obligation of
the Bank to redeem or retire it. The par value of the Preferred Stock is $1.00
per share.
The Preferred Stock ranks prior to the Common Stock with respect to dividend
rights and rights upon the voluntary or involuntary dissolution, liquidation or
winding up of the Bank, and to all other classes and series of equity securities
of the Bank hereafter issued, other than any class or series of equity
securities of the Bank expressly designated as being on a parity with or senior
to the Preferred Stock with respect to dividend rights or rights upon any such
dissolution, liquidation or winding up. The Common Stock and any other classes
or series of equity securities of the Bank not expressly designated as being on
a parity with or senior to the Preferred Stock are referred to hereafter as
"Junior Stock." The rights of holders of shares of Preferred Stock are
subordinate to the rights of the Bank's creditors, including its depositors. The
Bank may not issue any capital stock that ranks senior to the Preferred Stock
without the approval of holders of at least 66% of the outstanding shares of
Preferred Stock, voting as a class.
Holders of Preferred Stock will be entitled to receive, when, as and if declared
by the Board of Directors of the Bank, out of funds legally available therefor,
noncumulative cash dividends at the rate of 15% per annum. The right of holders
of Preferred Stock to receive dividends is noncumulative. Accordingly, if the
Board does not declare a dividend payable in respect of any quarterly dividend
period (a "Dividend Period"), then holders of Preferred Stock will have no right
to receive, and the Bank will have no obligation to pay, a dividend in respect
of such Dividend Period, whether or not dividends are declared payable in
respect of any future Dividend Period. No full dividends may be declared or paid
or set aside for payment as dividends on any class or series of equity
securities ranking, as to dividends, on a parity with the Preferred Stock for
any Dividend Period unless full dividends on the Preferred Stock for such
Dividend Period shall have been paid or declared and set aside for payment.
Dividends on the Preferred Stock will not be declared and paid if payment of
such dividends is then restricted by (i) laws, rules, regulations or regulatory
conditions applicable to the Bank or (ii) orders, judgments, injunctions or
decrees issued by, or agreements with, federal or state authorities with respect
to the Bank. The Bank is not permitted to declare or pay dividends (whether in
cash, stock or otherwise) on its common stock without the prior written consent
of the FDIC, NYSBD and Marine Midland Bank.
New York-chartered banks may only pay dividends or make other distributions on
their outstanding shares out of undivided profits or surplus, and may not pay
dividends when there is any impairment of capital stock, or when the
declaration, payment or distribution would be contrary to the bank's charter.
Without specific approval from the Superintendent, the total of all dividends
declared by a bank in a given calendar year cannot exceed the total of the
bank's net profits for that year, plus the bank's retained net profits from the
preceding two years, less any required transfer to surplus or a fund for the
retirement of any preferred stock.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this
-108-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
time. In June 1996, the Bank's Board of Directors declared a Series A Preferred
dividend for the quarter ending June 30, 1996, payment of which was subject to
the receipt of required approvals from regulators and Marine (the Bank's
principal lender). The Bank intends to continue to seek approval for the payment
of the declared Series A Preferred dividend. Primarily as a result of the above,
the Bank's Board of Directors has taken no action as regards a quarterly
dividend on the Bank's Series A Preferred for the quarters ending June 30, 1997,
March 31, 1997, December 31, 1996 and September 30, 1996. Declaration or payment
of future dividends on the Bank's Series A Preferred Stock will also be subject
to the approval of the Banking Department and the FDIC, until the Bank is no
longer regulated by the Banking Department and the FDIC, and will be subject to
the approval of Marine for so long as the Facility remains outstanding.
Holders of shares of Preferred Stock shall be entitled to receive a liquidation
distribution in the amount of $25.00 per share, plus unpaid dividends for the
then-current Dividend Period up to, but excluding, the date fixed for
liquidation (the "Liquidation Date") in the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Bank, out of the net
assets of the Bank legally available for distribution to stockholders under
applicable law, or the proceeds thereof, before any payment or distribution of
assets is made with respect to any Common Stock or any other Junior Stock
(subject to the rights of the holders of any class or series of equity
securities having preference over the Preferred Stock with respect to
distributions upon liquidation and the rights of the Bank's creditors, including
its depositors). After payment of the full amount of the liquidating
distribution to which they are entitled, holders of shares of Preferred Stock
will not be entitled to any further participation in any liquidating
distribution of assets by the Bank.
Holders of the Preferred Stock will not be entitled to vote upon the election of
members of the Board or other matters in general. Holders of the Preferred
Stock, however, will be entitled to elect two members of the Bank's Board to
fill two newly-created directorships upon the occurrence of a "Voting Event." A
Voting Event occurs if the Bank fails to pay full dividends on the Preferred
Stock (or to declare such full dividends and set apart a sum sufficient for
payment thereof) with respect to each of any six Dividend Periods, whether
consecutive or not.
The Preferred Stock is perpetual and is not redeemable prior to July 1, 2004.
The Preferred Stock is redeemable by the Bank at its option at any time on or
after July 1, 2004, in whole or in part, at the per share redemption prices set
forth below in cash, plus in each case an amount in cash equal to accrued but
unpaid dividends for the then-current Dividend Period up to, but excluding, the
date fixed for redemption (the "Redemption Date") without the accumulation of
unpaid dividends for prior Dividend Periods:
July 1, 2004 to June 30, 2005 $27.50
July 1, 2005 to June 30, 2006 27.25
July 1, 2006 to June 30, 2007 27.00
July 1, 2007 to June 30, 2008 26.75
July 1, 2008 to June 30, 2009 26.50
July 1, 2009 to June 30, 2010 26.25
July 1, 2010 to June 30, 2011 26.00
July 1, 2011 to June 30, 2012 25.75
July 1, 2012 to June 30, 2013 25.50
July 1, 2013 to June 30, 2014 25.25
July 1, 2014 and thereafter 25.00
-109-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
If fewer than all the outstanding shares of Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected pro rata or by lot or by such other
method as the Board of Directors of the Bank, in its sole discretion, determines
to be equitable.
In the event of a change of control, the acquirer ("Note Issuer") may, at its
option, exchange (the "Note Exchange") all or part of the outstanding Preferred
Stock for subordinated notes (the "Notes") of the Note Issuer, provided that any
such Note Issuer is an insured depository institution within the meaning of the
FDIC. Pursuant to a Note Exchange, each $1,000 in liquidation value of the
shares of Preferred Stock covered thereby will be exchangeable for $1,000
principal amount of Notes. Such Notes shall have the terms, covenants and
conditions set forth under "Description of Notes" below. The rate of interest on
the Notes shall be 15%, the maximum principal amount of the Notes shall be 100%
of the aggregate liquidation preference of the Preferred Stock to be exchanged
and the principal of such Notes shall not be payable prior to July 1, 2004.
Subject to the FDIC approval of the Notes as Tier 2 capital of the Note Issuer,
the Note Issuer may elect to consummate the Note Exchange at any time following
a change of control and prior to July 1, 2014.
20. Income taxes
Effective January 1, 1993, the Bank changed its method of accounting for income
taxes from the deferred method to the liability method as required by SFAS No.
109, "Accounting for Income Taxes" (See Summary of Significant Accounting
Policies - Note 1). As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of the change in the
method of accounting for income taxes had no impact on the 1993 consolidated
Statement of Operations and, therefore, there was no cumulative effect.
At June 30, 1997, the Bank had a net operating loss ("NOL") carryforward for
federal income tax purposes of approximately $100.2 million attributable to
operating losses incurred in 1991 through 1997. The remaining NOL carryforward
of approximately $100.2 million will expire in years 2006 through 2012.
For income tax purposes, certain deductions of "closely held" corporations from
"passive activities" are generally deductible only against either income from
passive activities or net income from an active trade or business. Passive
activity losses in excess of the amounts currently allowed are suspended and may
be carried forward indefinitely to offset taxable income from passive activities
or from an active trade or business in future years, or will generally be fully
deductible upon a complete disposition of the underlying passive activity. The
passive activity loss limitations applied to the Bank in prior years because the
Bank was considered to be closely held. As a result of the consummation of the
offering described in Note 2, the Bank believes that it is no longer subject to
the limitations for passive activity losses incurred after December 31, 1993.
The limitation rules continue to apply to suspended passive activity losses from
preceding years. At June 30, 1997, the Bank had suspended passive activity
losses for federal income tax purposes of approximately $674 suspended passive
activity credits, which are subject to similar limitations, of approximately
$5.4 million, and additional non-passive credits of $784, $555, and $675 which
were generated in 1994, 1995 and 1996, respectively, and will expire in the
years 2009 to 2012 if not used. Alternative minimum tax payments of $2.5 million
may be carried forward as a credit to offset regular federal tax liabilities in
future years, subject to certain limitations.
Under current tax law, the Bank's ability to utilize certain tax benefits in the
future may be limited in the event of an "ownership change," as defined by the
Internal Revenue Code Section 382 and the regulations thereunder. In the event
that the Offering discussed in Note 2 is deemed to result in an ownership
change, the subsequent utilization of net operating loss carryforwards,
suspended passive activity losses and credits, alternative minimum tax credit
-110-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
carryforwards and certain other built-in losses would be subject to an annual
limitation as prescribed by current regulations. The application of this
limitation could have a material effect on the Bank's ability to realize its
deferred tax assets. The Bank is of the view that no ownership change of the
Bank has occurred as a result of the Offering. The Bank believes that the
Offering, when combined with prior changes in ownership of stock of the Bank and
other transactions affecting ownership of the capital stock of the Bank which
occurred in connection with the Offering, also did not result in an ownership
change of the Bank. However, the application of Section 382 is in many respects
uncertain. In assessing the effects of prior transactions and of the Offering
under Section 382, the Bank made certain legal judgments and certain factual
assumptions. The Bank has not requested nor received any rulings from the IRS
with respect to the application of Section 382 to the Offering and the IRS could
challenge the Bank's determinations.
The significant components of the net tax effects of temporary differences and
carryforwards that give rise to the deferred tax assets and liabilities at June
30, 1997, June 30, 1996 and June 30, 1995 are presented below:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
Deferred tax assets:
<S> <C> <C> <C>
Net operating loss carryforwards $ 35,074 $ 10,375 $ 26,875
Allowance for credit losses and valuation allowances 4,718 20,320 16,733
Suspended passive activity losses 277 933 6,736
Suspended passive activity credit carryforward 5,391 5,391 5,391
Non-passive activity credit carryforward 2,015 1,339 784
Deferred income on venture investments - - 5,338
Deferred loan fees and income on
mortgage-backed securities - - 1,326
Interest accrued on non-performing loans 758 6,043 5,249
Alternative minimum tax credit carryforward 2,500 2,500 2,500
Non-deductible reserves and contingencies 5,197 2,387 -
Other 514 880 476
--------- --------- ---------
Total gross deferred tax assets 56,444 50,168 71,408
Less: Valuation allowance 36,874 34,059 55,631
--------- --------- ---------
Net deferred tax assets $ 19,570 $ 16,109 $ 15,777
========= ========= =========
Deferred tax liabilities:
Tax losses on partnership ventures $ 18,184 $ 14,754 $ 14,453
Tax over book depreciation 1,386 1,355 1,324
--------- --------- ---------
Total deferred tax liabilities $ 19, 570 $ 16,109 $ 15,777
========= ========= =========
</TABLE>
The Bank's ability to realize the excess of the gross deferred tax asset over
the gross deferred tax liability is dependent upon its ability to earn taxable
income in the future. As a result of recent losses and other evidence, this
realization is uncertain and a valuation allowance has been established to
reduce the deferred tax asset to the amount that management of the Bank believes
will more likely than not be realized. The valuation allowance increased during
the fiscal year ended June 30, 1997 by $2.8 million. This increase relates to
the increase in the excess of the gross deferred tax assets over the gross
deferred tax liability.
-111-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The components of the provision for income taxes for the fiscal years ended June
30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $ - $ 1,000 $ -
State and Local (benefit) (3,300) 10,749 2,113
Deferred - - -
--------- --------- ------
$ (3,300) $ 11,749 $ 2,113
========= ========= ======
</TABLE>
The provision for state income taxes for the year ended June 30, 1997 includes a
current tax benefit in the amount of $3.3 million. The credit is the result of
the Bank's redetermination of its state income tax liability at June 30, 1997.
During the year ended June 30, 1997, the Bank completed a review of its
potential current and deferred federal and state tax liability in light of the
Branch Sale and its related tax effects. As a result of the review of its
potential current and deferred tax liabilities and the results of operations for
the year ended June 30, 1997, the Bank reduced its provision for state and local
income taxes by $3.3 million. Additionally, the Bank reduced its estimated
current state and local income tax liability at June 30, 1997 to reflect the
effect of the Branch Sale and subsequent disposition transactions completed
during the fiscal year.
The table below presents a reconciliation between the expected tax expense
(benefit) and the recorded tax provision for the fiscal years ended June 30,
1997, 1996 and 1995 which have been computed by applying the statutory federal
income tax rate (35%) to loss before provision for income taxes.
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense (benefit) at statutory rates $ (32,147) $ 23,364 $ (7,791)
Increases/(reductions) in tax resulting from:
State and local income taxes, (benefit) net of federal
income tax effect (2,145) 7,939 1,373
Effect of net operating loss currently utilized - (19,559) -
Effect of net operating loss not currently
recognized 34,292 - 8,521
Other, net - 5 10
---------- ----------- ----------
$ - $ 11,749 $ 2,113
========== =========== ==========
</TABLE>
In October 1995, the Bank paid New York State $2,000 to settle all amounts
claimed including penalties and interest for the tax years 1985 and 1986. In
addition, New York State agreed that no additional taxes will be assessed for
the years 1987, 1988 and 1989 as a result of any potential adjustment to the bad
debt reserve deduction reported for any
-112-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
of those years. In November 1995, the Bank paid New York State $761,000 to
settle all amounts, including penalties and interest for the calendar years
1987, 1988 and 1989.
The New York City Department of Finance conducted an audit of the Bank's New
York City tax returns for calendar years 1985 through 1987. Various issues were
raised which resulted in an assessment of $1,100 of additional taxes and $900 of
interest. The Bank paid the additional $2,000 on June 30, 1994 from previously
established reserves with no charges to income in the fiscal year ended June 30,
1994.
The Bank has filed claims for refunds of New York State and local franchise
taxes of approximately $1,200 related to calendar year 1982. The basis of such
claims relates to the applicability of the exemption from such taxes when net
worth certificates ("Certificates") are outstanding. Certificates were those
issued to the FDIC by the Bank under the 1982 Assistance Agreement. The Bank's
initial refund claims were denied on the basis that the exemption was applicable
only during the period Certificates were outstanding and not for the entire
year. On October 13, 1994, a decision was rendered in a court case involving a
similar claim for refund on behalf of another savings institution which
confirmed the position taken by New York State in denying the Bank's initial
refund claim. The Bank continues to review the impact of this decision on its
position.
21. Leases
The Bank is no longer obligated under any material amounts of non-cancelable
operating leases.
Rental expense, including amounts paid under month-to-month cancelable leases,
was $43 and $4,330 for the years ended June 30, 1997 and 1996, respectively.
These amounts are net of sublease rental income of $0, $677 for the years ended
June 30, 1997 and 1996, respectively.
22. Salaries
Due to the general cessation of all loan origination activities in anticipation
of and subsequent to the Branch Sale, salaries were not reduced by any
capitalized direct loan origination costs in the years ended June 30, 1996 and
1997.
23. Other operating expenses
Prior to 1995, affiliate reimbursements which were included in other operating
expenses had been reduced by capitalized direct origination costs. There were no
capitalized direct origination costs related to affiliate reimbursements during
the fiscal years ended June 30, 1997 and 1996.
During the year ended June 30, 1997, the Bank accrued expenses for services
provided by RB Management, LLC in the amount of $1,250 for Bank Management
Services, $1,692 for Asset Management Services, and $778 for Asset Disposition
Fees in accordance with a fee schedule agreement between the two entities.
During 1997, the Bank paid RB Management, LLC an aggregate $1,721. At June 30,
1997, the Bank had a remaining payable balance due to RB Management, LLC in the
amount of $2,121, including interest, which is included in accrued liabilities
on the Statement of Condition.
-113-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
24. Retirement and other employee benefits
The Bank maintains a noncontributory defined benefit retirement plan (the
"Plan") in which substantially all employees participated.
The net periodic pension benefit of the Bank's Plan for the years ended June 30,
1997, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ - $ - $ -
Interest cost 381 375 370
Actual return on plan assets (436) (331) (502)
Net amortization and deferral 33 (61) 106
--------- ----------- ----------
Net periodic pension benefit $ (22) $ (17) $ (26)
========= =========== ==========
Assumptions used in accounting were:
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Weighted average discount rates 7.25% 7.25% 8.00%
Expected weighted average long-term rate of return on assets 7.25% 7.25% 7.25%
</TABLE>
-114-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The funded status of the Bank's Plan at June 30, 1997, June 30, 1996 and June
30, 1995 is as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Actuarial value of benefit obligations:
<S> <C> <C> <C>
Vested benefit obligation $ (5,481) $ (5,402) $ (5,283)
Non-vested benefit obligation - - (125)
------------ ----------- ------------
Accumulated benefit obligation (5,481) (5,402) (5,408)
Effect of projected future salary increases - - -
------------ ----------- ------------
Projected benefit obligation (5,481) (5,402) (5,408)
Plan assets at fair value (excluding receivables) 5,872 5,749 5,779
------------ ----------- ------------
Funded status 391 347 371
Unrecognized net losses 908 931 890
Unrecognized prior service cost - - -
Unrecognized net obligation - - -
------------- ------------ ------------
Prepaid pension expense $ 1,299 $ 1,278 $ 1,261
============= ============ ============
</TABLE>
In connection with contractual termination agreements, certain former officers
of the Bank have been granted additional retirement benefits, net of amounts
provided by the Plan, based in part on additional years of service and early
retirement subsidies. These retirement benefits are accounted for as deferred
compensation arrangements. The liability for these retirement benefits at June
30, 1997, 1996 and 1995 aggregated $ 554, $791 and $808, respectively. The
related expense for the years ended June 30, 1997, 1996, and 1995 was $58, $58
and $59, respectively.
Retirement benefits are also provided through a 401(K) plan which, through
December 1993, allowed participants to contribute up to 6% of their compensation
to the plan. The Bank matched 100% of employee contributions. In January 1994,
the 401(K) plan was amended to allow "non-highly compensated" participants to
contribute up to 15% of their compensation to the Plan with the Bank matching
100% of the contributions up to 6% of their compensation. In addition, the Bank
provides for the cost of administering the 401(K) plan. The costs of providing
such benefits are not material to the results of operations.
In addition to providing retirement benefits, the Bank provides various health
care and life insurance benefits for active and retired employees. These
benefits are provided through insurance companies and health care organizations
and are primarily funded by contributions from the Bank and its employees.
Subsequent to December 31, 1993, the Bank amended its retiree health care which
became effective April 1, 1994 to require contributions from retirees including
deductibles, co-insurance and reimbursement limitations.
-115-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
25. Postretirement Benefits Other Than Pensions
The Bank sponsors a voluntary, unfunded defined benefit postretirement medical
and a funded postretirement life insurance plan to all full time employees who
retired from the Bank prior to July 1, 1991. In addition, full time active
employees with ten years of service as of July 1, 1991 and who retire early with
at least twenty years of service, or retire on or after age 65 are eligible to
participate.
The Bank adopted SFAS No. 106, 'Employers' Accounting for Postretirement
Benefits Other Than Pensions" as of July 1, 1994.
The funded status of the Bank's Plan at June 30, 1997, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retired employees $ (3,968) $ (5,203) $ (4,533)
Fully eligible plan participants - (383) (247)
Other active plan participants - (545) (571)
------------ ----------- ------------
Unfunded postretirement benefit obligation (3,968) (6,131) (5,351)
Unrecognized net (gains)/losses (760) 1,047 379
Unrecognized transition obligation - 4,273 4,511
------------ ---------- ------------
Accrued postretirement benefit liability $ (4,728) $ (811) $ (461)
============= ========== ============
The net periodic postretirement benefit cost of the Bank's Plan for the
years ended June 30, 1997, 1996, and 1995 include the following components:
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Service cost $ - $ 28 $ 27
Interest cost 302 425 373
Amortization of transition obligation (29) 277 237
------------- ----------- ------------
Net periodic postretirement benefit cost $ 273 $ 730 $ 637
============= ============= ============
</TABLE>
For measurement purposes, an 8.8% and 10.0% annual increase in the per capita
cost of covered health care benefits was assumed for fiscal 1997 and 1996,
respectively; the rate was assumed to decrease gradually down to 5.5% for fiscal
2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
June 30, 1997 by $322 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for fiscal 1997 by
$23.
-116-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for the years ended June 30, 1997
and 1996. As the plan is unfunded, no assumption was needed as to the long term
rate of return of assets.
26. Former Management Incentive Plan and Bonus Plan
In April 1994, the Board of Directors of the Bank approved a phantom stock plan
(the "Phantom Stock Plan") for the Bank. The Phantom Stock Plan provides for the
grant of 200,000 performance units, which will vest at the rate of 33% per year
on each anniversary of the date of grant and become fully vested after three
years, to key employees selected by the Compensation Committee of the Board of
Directors. Vesting of the performance units would be accelerated upon a change
in control of the Bank, as defined in the Phantom Stock Plan, or upon death or
disability. Upon the third anniversary of the date of grant, a recipient of
performance units would be entitled to receive from the Bank an amount equal to
the book value of a share of Common Stock as of the date of grant of such
performance unit, as determined by the independent accountants for the Bank,
plus the accretion to the value, or minus the loss of value of such performance
unit since the date of grant, calculated based upon the Bank's earnings or loss
per share in the second and third years following the date of grant, and
disregarding the Bank's earnings or loss per share in the first year following
the date of grant. In the event of an earlier change in control of the Bank, as
defined, or upon death or disability, the value of the performance units would
be calculated in relation to the Bank's earnings or loss per share since the
date of grant. The amount payable pursuant to each performance unit would never
be less than (i) the book value per share of the Bank's Common Stock at the time
of a payment or (ii) the book value of a share of common stock of the Bank on
the date of grant ($11.67). As of July 1, 1994, 127,000 performance unit awards
were granted under the Phantom Stock Plan. During the fiscal year ended June 30,
1995, two participants terminated employment with the Bank and, as a result,
forfeited 48,500 performance units which were not vested. A new participant was
granted 3,500 performance units during the same period. During the fiscal year
ended June 30, 1996, two participants terminated employment with the Bank and,
as a result, forfeited 13,500 performance units which were not vested. At June
30, 1996, no performance units were granted and outstanding due to the
accelerated vesting and payment of the Phantom Stock Plan due to the closing of
the Branch Sale. The vesting of these performance units resulted in compensation
expense to the Bank over the three year vesting period. Compensation expense of
$319 and $319 relating to the vesting of performance units was recorded for the
years ended June 30, 1996 and June 30, 1995, respectively.
The Board of Directors of the Bank approved a bonus plan ("Bonus Plan") which
provided for a payment of a total amount of $350,000 during March 1995 or upon a
change of control of the Bank, if earlier, to certain executive and other senior
officers of the Bank as determined by the Compensation Committee of the Board of
Directors. These payments were recorded as compensation expense during the
fiscal year ended June 30, 1995. No amounts were approved under the Bonus Plan
during fiscal year 1997 or 1996.
27. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Bank to disclose estimated fair values for its financial instruments. SFAS
No. 107 defines fair value of financial instruments as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. SFAS No. 107 uses the same
definition for a financial instrument as SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit
-117-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Risk". SFAS No. 105 defines a financial instrument as cash, evidence of
ownership interest in an entity, or a contract that imposes on an entity a
contractual obligation to deliver cash or another financial instrument to a
second entity or to exchange other financial instruments on potentially
favorable terms with the second entity and conveys to that second entity a
contractual right to receive cash or another financial instrument from the first
entity or to exchange other financial instruments on potentially favorable terms
with the first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no ready market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the deferred tax amounts and
office premises and equipment.
In addition, there are intangible assets that SFAS No. 107 does not recognize,
such as the value of "core deposits", the Bank's branch network and other items
generally referred to as "goodwill".
-118-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The following table presents the carrying amounts and estimated fair values of
the Bank's financial instruments at June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 14,036 $ 14,036 $ 13,129 $ 13,129 $ 12,040 $ 12,040
Money market investments - - 4,000 4,000 96,500 96,500
Investment securities available for
sale, net 6,275 6,275 5,685 5,685 31,372 31,372
Mortgage-backed securities available
for sale, net - - 187 187 72,643 72,643
Accrued interest receivable 2,047 2,047 943 943 8,882 8,882
Gross loans receivable:
Secured by real estate 80,093 80,093 86,983 79,154 944,658 930,962
Consumer 15,677 15,677 16,022 15,566 21,274 21,274
Loans sold with recourse, net 24,451 24,451 29,914 29,914 - -
- -
Demand deposits - - 3,022 3,022 14,906 14,906
NOW Accounts - - - - 66,619 66,619
Savings and transaction accounts - - - - 533,947 533,947
Time Deposits - - - - 556,058 554,037
Borrowed funds 84,272 84,272 115,786 115,786 179,061 179,524
Mortgage escrow deposits - - 271 271 4,480 4,480
Accrued interest payable 964 964 - - 1,341 1,341
</TABLE>
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Short term instruments: For short term financial instruments, defined
as those with remaining maturities of 90 days or less, the carrying
amount was considered to be a reasonable estimate of fair value. The
following instruments were predominately short term: cash and due from
banks, money market investments, U.S. Treasury obligations, demand
deposits, certain time deposits, accrued interest receivable and
payable, mortgage escrow deposits and other financial liabilities.
Debt and equity securities (including mortgage-backed securities):
Estimated fair values for securities are based on quoted market prices,
if available. If quoted market prices are not available, fair values
are estimated using discounted cash flow analyses, using interest rates
currently being offered for investments with similar terms and credit
quality.
Loans receivable: Fair values of performing loans receivable, secured
by real estate, is calculated by discounting the contractual cash flows
adjusted for prepayment estimates using discount rates based on
secondary market sources adjusted to reflect the credit risk inherent
in the loans. Fair values of non-
-119-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
performing loans, secured by real estate, are based on recent
appraisals of the underlying real estate or discounted cash flow
analyses. The fair value of consumer loans is based on a third party
offer.
Approximately $12,806 and $12,984 of the Bank's $95,770 and $132,919
total loans receivable relate to commercial loans at June 30, 1997 and
1996, respectively. The Bank believes that dollar amounts relating to
commercial loans are relatively small in comparison to total loans
receivable at June 30, 1997, 1996 and 1995, and that an estimate of
fair value of commercial loans cannot be made without incurring
excessive costs. Therefore, the Bank concludes that it is not
practicable to estimate the fair value of its commercial loan
portfolio. The Bank's estimates of impairment due to collectibility
concerns related to these loans are included in the allowance for
possible credit losses.
Deposit liabilities: Fair values of time deposits maturing in excess of
90 days are calculated using contractual cash flows discounted at rates
equal to current rates offered in the market for similar deposits with
the same remaining maturities. These fair value estimates do not
include the intangible value of the existing customer base.
Borrowed funds: Fair values of borrowed funds are based on the
discounted values of contractual cash flows. The discount rate is
estimated using the rates currently offered for borrowed funds of
similar remaining maturities.
28. Commitments and Contingencies
Outstanding loan commitments, which generally expire within one year, to
originate or purchase loans at June 30, 1997, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Residential mortgage loans:
One-to-four family $ - $ - $ 13,436
Multi-family - 10,000 3,072
Commercial mortgage loans - - -
Construction loans:
Commercial - - -
Home equity lines of credit $ - - 241
------------ ----------- --------------
$ - $ 10,000 $ 16,749
============ =========== ==============
</TABLE>
-120-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis.
Standby letters of credit and financial guarantees outstanding are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The amount of collateral obtained upon extension of credit varies and is based
on management's credit evaluation of the counterparty.
At June 30, 1997, 1996 and 1995, the Bank and its wholly-owned subsidiaries had
arranged letters of credit aggregating $1,197, $3,225, and $4,269, respectively.
In the normal course of the Bank's business, there are outstanding various
claims, commitments and contingent liabilities. The Bank also is involved in
various other legal proceedings which have occurred in the ordinary course of
business. Management, based on discussions with legal counsel, believes that the
Bank will not be materially affected by the actions of such legal proceedings.
However, there can be no assurance that any outstanding legal proceedings will
not be decided adversely to the Bank and have a material adverse effect on the
financial condition and the results of operations of the Bank.
29. Subsequent Events
Conditions imposed in connection with the Banking Department's approval of the
Branch Sale included: (i) the Bank's agreement to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution; (ii) the Bank's agreement to file with the
Supreme Court of the State of New York an application for a closing order within
13 months of the closing of the Branch Sale and an application for a final order
of dissolution within five months following the filing of an application for a
closing order; (iii) increased levels of minimum regulatory capital
requirements; (iv) the Bank's agreement to continue to submit its proposed
capital transactions to the Banking Department for prior approval; (v) the
continuation of the Bank's current periodic reporting obligations with respect
to its retained assets, as well as in connection with its ongoing activities
subsequent to the Branch Sale; and (vi) such other conditions and obligations as
the Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. 1 and No. 2 of the approval of the Branch Sale described in the
immediately preceding paragraph. The Bank proposed to adopt a plan under which
it would transfer all of its assets and liabilities, including all contingent
liabilities, to a successor corporation ("Successor") incorporated under
Delaware General Corporate Law. Successor would acquire all of the assets of the
Bank and continue all of the business of the Bank under the same business plan
as adopted by the Bank. Successor would not be subject to the jurisdiction of
the Banking Department. Following the transfer of its assets and liabilities to
Successor, the Bank would surrender its banking charter and dissolve. The
implementation of the proposed plan would result in a mere change of form from a
banking corporation to a corporation incorporated under the Delaware General
Corporate Law, which would not be subject to the jurisdiction of the Banking
Department. The proposed transfer is expected to qualify as a tax-free
reorganization under the Internal Revenue Code and, as such, the Bank expects
that certain of its tax attributes will be preserved. Successor will not be
subject to regulation by the Banking Department or the FDIC following
implementation of the Alternate Proposal and the surrender of the Bank's banking
charter.
-121-
624833.3
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that immediately following the reorganization and dissolution of the Bank,
Successor will be owned by the same stockholders, in the same proportions as
currently own the Bank.
Prior to June 30, 1997, the Bank received the Banking Department's conditional
approval of the Alternate Proposal as meeting the Conditions of the Banking
Department's approval of the Branch Sale, if implemented by the Bank on a timely
basis. The Banking Department's conditional approval of the Alternate Proposal
and related modification of Condition No. 1 of the Approval of the Branch Sale
provided that the approval of shareholders of the Alternate Proposal not later
than September 30, 1997, would be deemed to satisfy Condition No. 1. Condition
No. 2 of the Banking Department's approval of the Branch Sale would be deemed to
be satisfied if the petition required by Condition No. 2 is filed by the Bank by
October 15, 1997. In the event that the Bank is unable to meet the dates for
completion established by the Banking Department the Bank intends to request
such extensions as may be necessary to complete implementation of the Alternate
Proposal. No assurances can be given that the Banking Department will provide
such extensions.
The Banking Department also advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Further, the Banking Department's conditional approval of the Alternate Proposal
requires the Bank to seek prior approval for any material sale or transfer of
assets, or expenditures for development or renovation of any properties held by
the Bank prior to the completion of the dissolution of the Bank.
The Bank intends to proceed with the implementation of the Alternate Proposal
during the quarter ending September 30, 1997 and fully comply with the
conditions imposed by the Banking Department.
-122-
624833.3
<PAGE>
PART III
ITEM 9
DIRECTORS AND PRINCIPAL OFFICERS OF THE REGISTRANT
Subsequent to the closing of the Branch Sale, although the Bank has executive
officers under NYBL, the Bank no longer maintains any significant staff of
employees to manage the Bank's affairs. Rather, the day to day management
responsibilities of the Bank are vested with RB Management Company, a newly
formed management company affiliated with Mr. Dworman. A significant amount of
services, necessary to manage and dispose of the Retained Assets, have been and
will be provided by RB Management Company or third party subcontractors who will
not have any continuing fiduciary obligations to the Bank or the stockholders.
The selection of third party subcontractors to provide various services to the
Bank will be made by RB Management Company, subject to the ratification by
committees of the board of directors but without stockholder approval. The
Bank's success in maximizing returns from the disposition of the Retained Assets
will depend on the efforts of RB Management Company and third party contractors
retained to provide services to the Bank.
Directors of the Bank
The following table set forth certain information about the directors of the
Bank during the fiscal year ended June 30, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Director
Name Age(1) Position Class Since
- ---- ----- -------- ----- -----
Robin Chandler Duke 73 Director 1999 1977
Robert N. Flint 76 Director 1999 1976
William D. Hassett, Jr. 61 Director 1997 1976
Jerome R. McDougal 69 Director, Chairman of the Board 1997 1991
and Chief Executive Officer
Edward V. Regan 67 Director 1998 1995
</TABLE>
The principal occupation for the last five years of each director of the Bank
who served as such during the fiscal year ended June 30, 1997, as well as
certain other information, is set forth below.
Robin Chandler Duke. Ms. Duke is National Chairman of Population Action
International, and she serves as a director of International Flavors and
Fragrances and American Home Products Corporation.
Robert N. Flint. Mr. Flint has been retired since 1984. Previously Mr. Flint was
Senior Vice President and Comptroller of American Telephone and Telegraph
Company.
William D. Hassett, Jr. Mr. Hassett, a real estate investor and managing member
of Hassett-Belfer Senior Housing L.L.C. is also owner of W.D. Hassett, Inc., a
real estate management company. Mr. Hassett, formerly a director of Olympia &
York Holdings (USA), was the Chairman of the New York State Urban Development
Corporation from 1977 to 1981, Chairman of the Battery Park City Authority from
1979 to 1981, Chairman of the Board of the New York State Dormitory Authority
from 1985 to 1994 and is a former New York State Commerce Commissioner. He
presently serves as a member of the Real Estate Advisory Committee to the New
York State Common Retirement Fund.
-123-
624833.3
<PAGE>
Jerome R. McDougal. Mr. McDougal presently serves as chairman Chief Executive
Officer and President, effective July 2, 1997. Mr. McDougal served as President
and Chief Executive Officer of the Bank from March 1991 to April 1995, at which
time he became Chairman of the Board and Chief Executive Officer. Prior to
joining the Bank, Mr. McDougal was Chairman and Chief Executive Officer of the
Apple Bank for Savings for four years. Prior to joining Apple Bank, Mr. McDougal
held various positions, including management positions in a manufacturing
concern, operating a consulting company, and running one of the largest
automotive retail chains in the New York metropolitan area.
Edward V. Regan. Mr. Regan is Chairman of the Municipal Assistance Corporation
and Policy Advisor for the Jerome Levy Economics Institute. Mr. Regan previously
served as the New York State Comptroller from 1979 to 1993.
The Board of Directors and Its Committees
The Board of Directors holds regular monthly meetings every month and special
meetings when called from time to time. The Board of Directors held a total of
17 meetings during the fiscal year ended June 30, 1997. During the fiscal year
ended June 30, 1997, no director attended less than 75% of the aggregate of the
number of meetings held by the Board of Directors and by all committees of the
Board of Directors on which such director served. The Board of Directors of the
Bank had established various committees, including Executive, Mortgage and Real
Estate, Compensation and Benefits, Audit, Compliance, Investment and Nominating
Committees. Subsequent to the consummation of the Branch Sale, the new board of
directors of the Bank terminated committees in existence prior to the
consummation of the Branch Sale and established new committees, including Asset
Management and Audit Committees. A brief description of the Asset Management and
Audit Committees is set forth below.
The Asset Management Committee has the authority to oversee the management of
the day-to-day business and affairs of River Bank and the implementation of
the orderly disposition of its assets, subject to certain restrictions set
forth in River Bank's Amended and Restated By-Laws and under the NYBL. The
Asset Management Committee does not, however, have the authority to review
the engagement of River Bank's auditors nor compensation matters. The Asset
Management Committee assumed the duties previously delegated to the Special
Transactions, Mortgage and Real Estate, Compliance and Investment Committees
of the board. The members of the Asset Management Committee initially consist
of Messrs. Hassett (Chairman), McDougal, Flint and Regan.
The Audit Committee reviews and provides recommendations to the board of
directors with respect to the engagement of River Bank's independent
auditors, who have been engaged to monitor and audit the financial reporting
practices and internal controls procedures of River Bank as well as River
Bank's compliance with its policies and procedures. In addition, the Audit
Committee also administers and reviews all compensation policies and will
provide recommendations to the board of directors with respect thereto. The
members of the Audit Committee initially consist of Mr. Flint and Ms. Duke.
The new board of directors may from time to time establish certain other
committees of the Board to facilitate the management of River Bank.
Advisory Board: Upon consummation of the Branch Sale, the new board of directors
established an Advisory Board. The purpose of the Advisory Board is to provide
such additional support and advice to the board of directors as may from time to
time be requested by the board of directors. Members of the Advisory Board will
be selected annually. The initial members of the Advisory Board are Messrs.
Austin `S. Murphy (Chairman), David L. Yunich, Thomas A. Coleman, Alan V.
Tishman and John T. Sargent, each of whom served as a director of the Bank in
the previous year through June 28, 1996.
Directors will be elected in a manner consistent with, and shall serve for a
term, as provided in the Bank's Restated Organization Certificate as Amended and
Bylaws.
-124-
624833.3
<PAGE>
The Management Company; The Management Agreement: The Bank has engaged the
Management Company under a management agreement (the "Management Agreement") to
provide Bank Management Services and Asset Management Services (each as defined
below). The responsibilities of the Management Company include, but are not
limited to, development and recommendation to the Bank's board of directors of
strategies intended to maximize stockholder value. The Management Company is
responsible for developing, recommending and maintaining business plans and
operating budgets, individual asset and liability strategies and decisions
relating to sales and retentions of assets. The Management Company reports to
the Bank's board of directors or its Asset Management Committee.
The Management Company is a newly formed company controlled by Alvin Dworman,
who serves as its President and Chief Executive Officer. Mr. Dworman also owns
39.0% of the outstanding Common Stock of the Bank.
The Management Company has access to the expertise, resources and business
relationships accumulated by Mr. Dworman over 35 years in a wide variety of
general business activities. Mr. Dworman currently serves as a member of the
Real Estate Advisory Committee of the New York State Employee Retirement System
and is a member of the Board of Trustees of the New York Law School. As an
individual and as Chairman and Chief Executive Officer of the ADCO Financial
Group, Mr. Dworman maintains investments in a number of financial services,
banking and real estate entities. During his career, Mr. Dworman has founded,
developed, owned and managed a wide variety of entities throughout the United
States. Mr. Dworman, Odyssey Partners, L.P. and East River Partnership B hold in
the aggregate 50.8% of the Common Stock. In connection with the equity
recapitalization offering in June 1994, Mr. Dworman, Odyssey Partners, L.P. and
East River Partnership B agreed not to sell their Common Stock for a period of
three years. In addition, such agreement provided that, for an additional two
years, they would not sell their Common Stock without the approval of the board
of directors of the Bank under certain circumstances.
The terms of the Loan Agreement with Marine include a requirement that, while
any amount remains outstanding under the Facility, Mr. Dworman retain his 39%
common stock interest in the Bank and remain actively involved in the day-to-day
management of the affairs of the Bank and its assets.
The Management Company also employs certain individuals previously employed by
River Bank who were directly involved in managing the Bank's real estate
portfolio.
"Bank Management Services" includes the management of the general business
affairs of the Bank, including:
1. Developing and recommending policies and procedures appropriate for
continuing the orderly disposition of the Bank's assets and
implementation of all policies and procedures approved by the Bank's
board of directors or the Asset Management Committee of the board.
2. Providing quarterly and annual financial and operating reports and
such other information to the Bank's board of directors and the Asset
Management Committee and Audit Committee as may be necessary and
reasonably requested by the Bank's board of directors or such
committee.
3. Analyzing the Bank's performance, including progress in continuing
the orderly disposition of the Bank's assets and preparation of
financial forecasts and periodic variance analyses of actual
performance relative to plan.
4. Overseeing provision of all accounting and financial reporting
services, including maintenance and control of a general ledger,
controlling accounts payable and processing services and payroll
processing services, preparation of financial reports and regulatory
compliance reports and preparation and filing of tax returns, and
establishing and maintaining management information systems.
5. Providing treasury services and control functions, including:
- implementing cost and disbursement controls.
- cash management and investment of short-term funds.
- debt management, corporate finance and development and
implementation of alternative financing arrangement.
-125-
624833.3
<PAGE>
6. Overseeing legal and accounting services required by the Bank.
7. Using best efforts to ensure compliance with any conditions imposed
by the Banking Department on the Bank as a predicate to its approval
of the Branch Sale, including but not limited to, the preparation and
submission to the Banking Department of required reports.
"Asset Management Services" entails management of all of the Bank's assets on a
day-to-day basis and include the following:
8. Maintaining and implementing individual business plans for each asset
of the Bank, as modified from time to time to reflect changes in
conditions and circumstances.
9. Development, marketing, negotiation and execution of transactions
necessary to continue to effect the Bank's asset disposition plans,
subject to the ongoing approval of the Banking Department.
10. Obtaining and overseeing marketing and brokerage activities relating
to real estate dispositions and property leasing.
11. Managing real estate activities, including retention and oversight of
third-party property managers.
12. Obtaining and overseeing third-party loan servicing, including
ordinary course monthly payment collections and pay-offs.
13. Providing loan administration services, including delinquency
monitoring and response and enforcement of rights under loan
agreements.
14. Overseeing loan servicing activities for subordinated participations
in loans acquired by Marine Midland in connection with the Branch
Sale.
15. Administration of joint ventures and oversight of the business
activities of the joint ventures.
The Management Company obtains and oversees the provision, on an outsourced
basis, of those services not provided directly by the Management Company. All
outsourcing arrangements is subject to prior review and recommendation as to
compensation terms by the Audit Committee and as to the other terms of the
engagement subject to prior approval by the Asset Management Committee of River
Bank's board of directors. The cost of approved outsourced arrangements is borne
by the Bank. The Bank expects that the Banking Department will monitor and
periodically review the Bank's arrangement with the Management Company and the
arrangements with third party service providers.
The Management Company offers similar services to entities not affiliated with
Mr. Dworman, and also renders services to affiliates of Mr. Dworman.
The Management Company is paid an annual base fee for Bank Management Services
in an amount not to exceed $1.25 million. The annual base fee is reviewed no
less frequently than annually by the Audit Committee of the Bank and adjusted
based upon the costs expected to be incurred by the Management Company to
provide the Bank Management Services. In addition, the Management Company also
receives an annual fee for Asset Management Services of 0.75% of the average
month-end book value of the Bank's assets and an Asset Disposition Success Fee
of 0.75% of the proceeds from the sale or collection of any asset sold by the
Bank.
During the year ended June 30, 1997, the Bank accrued expenses for services
provided by RB Management, LLC in the amount of $1,250,000 for Bank Management
Services, $1,692,000 for Asset Management Services, and $778,000 for Asset
Disposition Fees in accordance with the fee schedule outlined above. During
1997, the Bank paid RB Management, LLC an aggregate $1,721,000. At June 30,
1997, the Bank had a remaining payable to RB Management in the amount of
$2,121,000, including interest, which was paid in full in July 1997.
-126-
624833.3
<PAGE>
The Kenneth Leventhal Real Estate Group of Ernst & Young LLP, which has been
engaged for this purpose by the Special Transactions Committee of the Bank's
board of directors, reviews the form and amount of the fees payable to the
Management Company and advises upon the comparability of the fees and terms to
similar arrangements negotiated on an arm's-length basis.
The Management Agreement has an initial term of three years, which will be
extended for up to two additional one-year terms if the Marine senior debt is so
extended. The Management Agreement is terminable by either party at any time on
180 days' notice with the consent of Marine Midland or other senior lenders, as
applicable. In addition, the Bank's board of directors, subject to the consent
of Marine Midland, may terminate the Management Agreement without notice for
"Cause." "Cause" is defined as a material breach of the Management Agreement
and/or willful act or omission by the Management Company that is materially
detrimental to the best interests of the Bank. In addition, the Management
Agreement may be terminated by the Bank's board of directors during the last
year of any term 60 days after the sale of the last asset of the Bank.
Upon any termination of the Management Agreement, the fees payable to the
Management Company will be pro rated for such year to the date of termination.
If the Management Agreement is terminated prior to the expiration of any term,
the Bank also reimburses the Management Company for the reasonable costs
incurred by the Management Company in terminating its services to the Bank
including, but not limited to, reasonable termination or severance payments made
to service providers or employees terminated by the Management Company as a
result of such termination.
Employees; Other Service Providers: In addition to retaining the Management
Company to provide the Bank with the services described above, the Bank, subject
to regulatory approval, terminated most of its employees and retained third
parties (including Fintek, Inc. and other entities controlled by Mr. Dworman) to
provide much of the administrative and non-real estate operating functions of
the Bank's operations.
The Management Company has engaged Fintek, Inc. ("Fintek"), a firm 50%
beneficially owned by Mr. Dworman which has previously provided certain advisory
services to the Bank, to continue to provide such services to the Bank. All fees
paid to Fintek for such advisory services were the obligation of the Management
Company and were paid out of the fees received by the Management Company from
the Bank. On June 28, 1996 Fintek and the Bank mutually agreed to the
termination of the previous contract between Fintek and the Bank.
Persons or entities engaged by the board of directors, the Asset Management
Committee or by the Management Company on behalf of the Bank entered into a
service contract with the Bank and are compensated in accordance with market
rates for similar services. The terms of these contracts, including
compensation, were reviewed prior to execution by the Audit Committee of the
board of directors, and the board of directors engaged the Kenneth Leventhal
Real Estate Group of Ernst & Young LLP to review each service contract and to
advise the Audit Committee on the terms of the contracts and the comparability
to similar arrangements for similar services.
-127-
624833.3
<PAGE>
ITEM 10
MANAGEMENT COMPENSATION AND TRANSACTIONS
Remuneration of Executive Officers - Summary Compensation Table: The
following table discloses compensation received by the Bank's chief executive
officer for the years indicated. The cash compensation amounts below reflect
compensation received from the Bank and its subsidiaries. There were no other
executive officers who received compensation in 1997 from the Bank (other than
director fees).
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other All Other
Executive Officer Base Salary Bonus Compensation Compensation
- ----------------- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerome R. McDougal Year ended
Chairman of the Board and June 30, 1997 $300,000 -- $66,990 (1) $117,296 (2)
Chief Executive Officer Year ended
June 30, 1996 300,000 -- 84,988 (1) 112,431 (2)
Year ended
June 30, 1995 305,116 -- 76,663 (1) 108,832 (2)
</TABLE>
(1) Consists of a housing allowance, club dues, automobile and driver expenses
(aggregating $25,324, $42,760 and $35,424 for the 1997, 1996 and 1995
periods presented, respectively), certain tax expense reimbursements and
health insurance premiums.
(2) Consists of contributions of $9,500, $9,370 and $9,000 made by the Bank to
its 401(k) Tax Deferred Savings Plan, accruals of and earnings on deferred
compensation in the amounts of $103,739, $100,551 and $97,673 and payments
of $4,057, approximately $2,400 and $2,159 for life and personal liability
insurance premiums for the 1997, 1996 and 1995 periods presented,
respectively.
Board of Directors Compensation: Directors of the Bank receive an annual
retainer of $20,000, plus $1,000 for each Board meeting attended and $750 for
each committee meeting attended. In addition, the Chairmen of the Asset
Management Committee and the Audit Committee will receive an annual stipend of
$2,500.
Compensation Committee Interlocks and Insider Participation: Determinations
regarding compensation of the Bank's employees were previously made by the
Compensation and Benefits Committee of the Board of Directors prior to the
Branch Sale. Mr. McDougal was a member of the Compensation and Benefits
Committee. Subsequent to the Branch Sale such determinations will be made by the
Audit Committee.
Retirement Plan: Effective April 30, 1992, the Bank determined to suspend the
Bank's Retirement Plan. As of the date of suspension, there have been no new
enrollments in the Retirement Plan and no further benefit accruals. As of June
30, 1997, Mr. McDougal was entitled to an accrued benefit of less than $5,000
pursuant to the terms of the Retirement Plan.
Payments to Officers and Employees Pursuant to Phantom Stock Plan: No awards
were granted under The Phantom Stock Plan during fiscal year 1997 or 1996.
-128-
624833.3
<PAGE>
In connection with the Branch Sale, The Phantom Stock Plan was terminated and
participants, all of whom were officers and/or employees of the Bank received
cash payments in exchange for surrender of their performance units. The
following table details payments made to certain former officers and employees
subsequent to June 28, 1996:
Mr. Jerome R. McDougal $ -
Mr. John P. Sullivan -
Mr. Peter L. Dinardi 57,766 (1)(2)
Mr. Joseph Guastavino 85,525 (1)(3)
Mr. Edward Shugrue 175,050 (1)
All other officers and
employees as a group 422,704 (1)
-------------
$741,045
=============
(1) Amounts distributed on June 28, 1996.
(2) Mr. Dinardi resigned effective November 21, 1995 received one third of
the value of his performance units granted under the Phantom Stock Plan
and severance payments of $208,000.
(3) Mr. Guastavino has resigned effective October 16, 1997 and was entitled
to receive severance payments of $144,200.
Subsequent to the payments described above, no units remained outstanding under
The Phantom Stock Plan. It is not anticipated at this time that the Board of
Directors will grant additional performance units in the future.
Termination of Bank's Former Severance Plan. The Board of Directors has also
approved a severance plan for designated key senior management personnel which
provides for the payment of one year's salary upon termination for any reason
other than cause, and including a change of control. The Bank also maintained a
general severance plan for all other officers and employees. In connection with
the Branch Sale payments under the severance plans were made on or after June
28, 1996 in an amount aggregating $2.5 million.
Indebtedness of Management: The Bank's current policy is not to make loans to
its directors, executive officers or members of their immediate families,
although it did so from time to time in the past. All loans to directors and
executive officers and all other loans to the Bank's employees were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and do
not involve more than the normal risk of collection or present other unfavorable
features. All such loans were transferred to Marine as Transferred Assets in
connection with the Branch Sale.
Transactions With Affiliates: The Bank previously obtained certain services
from Fintek. Effective October 31, 1991, substantially all of the employees of
the Bank's then-existing capital markets group became employees of Fintek, a
newly-formed corporation. At the same time, Nelson L. Stephenson, a Senior
Executive Vice President of the Bank at the time, resigned as an officer of the
Bank and became the President and Chief Executive Officer of Fintek, as well as
a director of Fintek. Fintek may be deemed to be under common control with the
Bank as a result of interests of Mr. Dworman, and, in addition, an adult child
of Mr. Dworman's is a director of Fintek. Fintek, pursuant to a written
agreement approved by the Bank's Board of Directors, provided certain financial
consulting, strategic planning and advisory services to the Bank, including
providing advice and consulting services with regard to the Bank's treasury
functions. The Bank had the right to terminate the agreement (which was for a
term of one year with automatic annual renewals) by giving Fintek 180 day's
notice of such termination. In addition, the Bank had the right to terminate the
agreement by giving Fintek thirty day's notice prior to any renewal.
-129-
624833.3
<PAGE>
At June 30, 1996, the Bank had an accrued aggregate liability to Fintek in the
amount of $1,516,000 for services performed prior to that date. The services
performed by Fintek on behalf of the Bank prior to June 30, 1996 were primarily
in connection with the Branch Sale. During 1997 the Bank made aggregate cash
payments to Fintek in the amount of $762,000. At June 30, 1997, the Bank had a
remaining aggregate liability to Fintek in the amount of $754,000. During July,
1997 the Bank made additional payments to Fintek in the amount of $419,000.
The Fintek Agreement was terminated by mutual consent of the Bank and Fintek on
June 28, 1996. Fintek has been engaged by RB Management Company LLC to provide
similar services to RB Management and the Bank subsequent to the Branch Sale.
See "Management."
-130-
624833.3
<PAGE>
PART IV
ITEM 11
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3
(a)(1) The following financial statements of the Bank are included elsewhere
in Item 8 of this Form F-2 at the pages indicated and are incorporated
by reference: Page
----
Report of Independent Auditors 82
Consolidated Statements of Financial Condition
June 30, 1997 and 1996 83
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995 84
Consolidated Statements of Changes in Stockholders' Equity
Year ended June 30, 1997, 1996, and 1995 85
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995 86
(a)(2) Financial statement schedules are omitted due to inapplicability or
because the required financial information is shown in the Consolidated
Financial Statements or Notes thereto.
(b) Reports on Form F-3 filed during the last quarter of the period covered
by this report:
(i) The Bank filed on April 15, 1997 a Current Report on Form F-2, for
the month of April 1997, reporting under Item 12 a press release
with respect to the status of dividends on the Bank's 15%
noncumulative perpetual preferred stock, series A.
(c) Exhibits:
1.* Form of Restated Organization Certificate of the Bank.
2.** Certificate of Amendment to Restated Organization Certificate of
the Bank.
3.*** Certificate of Amendment to Restated Organization Certificate of
the Bank.
4.* Form of Certificate of Designations of 15% Noncumulative Perpetual
Preferred Stock, Series A.
5. ***** Form of Amended and Restated Bylaws of the Bank.
6.* Specimen certificate of Common Stock, par value $1.00 per share,
of the Bank.
7.* Specimen certificate of 15% Noncumulative Perpetual Preferred
Stock, Series A, par value $1.00 per share, of the Bank.
-131-
624833.3
<PAGE>
8.* Employment Agreement entered into by and between the Bank and Peter
L. Dinardi, and Amendment thereto.
9.* Phantom Stock Plan.
10.**** Bonus Plan.
11.***** Subsidiaries of the Bank.
12.**** Memorandum of understanding dated September 20, 1995.
13.***** Management Agreement.
14. Alternate Proposal submitted to the Banking Department.
15. Banking Department Conditional Approval of Alternate Proposal.
* Incorporated by reference to the registration statement
on Form F-1 as filed with the FDIC on June 24, 1994.
** Incorporated by reference to the Form F-3 as filed with the
FDIC on November 3, 1994.
*** Incorporated by reference to the Form F-3 as filed with the
FDIC on October 15, 1996.
**** Incorporated by reference to the Form F-2 as filed with
the FDIC on September 28, 1995.
***** Incorporated by reference to the Form F-2 as filed with the
FDIC on October 15, 1996.
-132-
624833.3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
River Bank America
-------------------------------------------
(Registrant)
Date: September , 1997 By:/s/ Jerome R. McDougal
----------------------- --------------------------------------------
Jerome R. McDougal
Director, Chairman of the Board of Directors
and Chief Executive Officer
-133-
624833.3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The registrants are Delaware corporations. In accordance with Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), the certificates
of incorporation of the registrants contain a provision to limit the personal
liability of directors for violations of their fiduciary duties. Such provisions
eliminate each director's liability to the corporation or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The effect of such provisions is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
Section 145 of the DGCL provides that a corporation may indemnify any
person, including officers and directors, who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer, director, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such officer, director, employee or agent acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in defense of any action referred to above, the corporation
must indemnify him against the expenses which such officer or director actually
or reasonably incurred. The by-laws of the registrants provide for
indemnification of officers and directors to the fullest extent permitted by the
DGCL. In addition, Section 145 authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise against any liability asserted against him in any such capacity, or
arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145. The registrants may
maintain officers' and directors' liability insurance to insure against
liabilities that officers and directors of the corporation may incur in such
capacities.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
2.1-- Agreement and Plan of Merger, dated as of October 9, 1997, by
and between River Asset Sub, Inc. and River Distribution Sub,
Inc.
II-1
<PAGE>
2.2-- Petition for a Closing Order, made by River Bank America to the
New York State Supreme Court, dated October 15, 1997.
2.3-- Form of Assignment and Assumption Agreement, by and between
River Bank America and River Asset Sub, Inc.
3.1-- Certificate of Incorporation of River Distribution Sub, Inc.
3.2-- By-Laws of River Distribution Sub, Inc.
3.3-- Certificate of Incorporation of River Asset Sub, Inc. and Form
of Certificate of Merger.
3.4-- By-Laws of River Asset Sub, Inc.
4.1 -- Certificates of Designation of the 15% Non-Cumulative Perpetual
Preferred Stock, Series A, $1.00 par value, of River
Distribution Sub, Inc.
*5.1 -- Opinion of Battle Fowler LLP.
10.1 -- Credit Agreement dated as of June 28, 1996 among River Bank
America and other borrowers and Marine Midland Bank and related
loan documents.
10.2-- Management Agreement dated as of June 28, 1996, by and between
River Bank America and RB Management Company LLC.
23.1-- Consent of Ernst & Young LLP.
*23.2 -- Consent of Battle Fowler LLP (to be included in and
incorporated by reference to Exhibit 5.1 hereto).
24.1-- Power of Attorney (included in the signature pages of this
Registration Statement).
99.1-- Forms of Proxies for Special Meeting of the Stockholders.
- -------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules are omitted as inapplicable.
Item 22. Undertakings
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrants undertake that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
(d) The undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement on Form S-4 to be
signed on their behalf by the undersigned thereunto duly authorized in the City
of New York, State of New York on October 23, 1997.
RIVER DISTRIBUTION SUB, INC.
By: /s/Jerome R. McDougal
---------------------
Name: Jerome R. McDougal
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Jerome R. McDougal and Robin
Chandler Duke, or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, in
connection with the undersigned Registrant's Registration Statement on Form S-4
under the Securities Act of 1933, as amended, including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name and
on behalf of the Registrant or on behalf of the undersigned as a director or
officer of the Registrant, and any and all amendments or supplements to the
Registration Statement, including any and all stickers and post-effective
amendments to the Registration Statement, and to sign any and all additional
registration statements relating to the same offering of securities as the
Registration Statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission 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 attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/Robin Chandler Duke Vice President, Secretary and October 23, 1997
- -----------------------------
Robin Chandler Duke Director
/s/Robert N. Flint Director October 23, 1997
- -----------------------------
Robert N. Flint
/s/William D. Hassett Director October 23, 1997
- -----------------------------
William D. Hassett
/s/Jerome R. McDougal President, Chief Executive October 23, 1997
- -----------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
/s/Edward V. Regan Director October 23, 1997
- -----------------------------
Edward V. Regan
</TABLE>
II-5
<PAGE>
RIVER ASSET SUB, INC.
By: /s/Jerome R. McDougal
---------------------
Name: Jerome R. McDougal
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Jerome R. McDougal and Robin Chandler
Duke, or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for such person
and in his name, place and stead, in any and all capacities, in connection with
the undersigned Registrant's Registration Statement on Form S-4 under the
Securities Act of 1933, as amended, including, without limiting the generality
of the foregoing, to sign the Registration Statement in the name and on behalf
of the Registrant or on behalf of the undersigned as a director or officer of
the Registrant, and any and all amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities as the Registration
Statement that are filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
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 attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/Robin Chandler Duke Vice President, Secretary and October 23, 1997
- ---------------------------
Robin Chandler Duke Director
/s/Robert N. Flint Director October 23, 1997
- ---------------------------
Robert N. Flint
/s/William D. Hassett Director October 23, 1997
- ---------------------------
William D. Hassett
/s/Jerome R. McDougal President, Chief Executive October 23, 1997
- ---------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
/s/Edward V. Regan Director October 23, 1997
- ---------------------------
Edward V. Regan
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1-- Agreement and Plan of Merger, dated as of October 9, 1997, by
and between River Asset Sub, Inc. and River Distribution Sub,
Inc.
2.2-- Petition for a Closing Order, made by River Bank America to the
New York State Supreme Court, dated October 15, 1997.
2.3-- Form of Assignment and Assumption Agreement, by and between
River Bank America and River Asset Sub, Inc.
3.1-- Certificate of Incorporation of River Distribution Sub, Inc.
3.2-- By-Laws of River Distribution Sub, Inc.
3.3-- Certificate of Incorporation of River Asset Sub, Inc. and Form
of Certificate of Merger.
3.4-- By-Laws of River Asset Sub, Inc.
4.1-- Certificates of Designation of the 15% Non-Cumulative Perpetual
Preferred Stock, Series A, $1.00 par value, of River
Distribution Sub, Inc.
*5.1 -- Opinion of Battle Fowler LLP.
10.1 -- Credit Agreement dated as of June 28, 1996 among River Bank
America and other borrowers and Marine Midland Bank and related
loan documents.
10.2-- Management Agreement dated as of June 28, 1996, by and between
River Bank America and RB Management Company LLC.
23.1-- Consent of Ernst & Young LLP.
*23.2 -- Consent of Battle Fowler LLP (to be included in and
incorporated by reference to Exhibit 5.1 hereto).
24.1-- Power of Attorney (included in the signature pages of this
Registration Statement).
99.1-- Forms of Proxies for Special Meeting of the Stockholders.
- -------------------
* To be filed by amendment.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 9th day of
October, 1997, by and between River Asset Sub, Inc., a Delaware corporation
("River Asset Sub"), and River Distribution Sub, Inc., a Delaware corporation
("River Distribution Sub").
Preliminary Statement
River Asset Sub and River Distribution Sub are wholly-owned
subsidiaries of River Bank.
River Bank proposes to engage with River Distribution Sub and
River Asset Sub in a series of transactions (collectively, the "Reorganization")
whereby, among other things:
(i) first, River Bank will file a petition for a closing order in
accordance with section 605(4) of the Banking Law, and will
send a notice to its creditors of the proposed closing and
dissolution of River Bank;
(ii) second, after the issuance of the closing order, the existing
business and all of the assets and liabilities of River Bank
will be transferred to or assumed by River Asset Sub (the
"Business Disposition");
(iii) third, River Bank will file a petition for an order of
dissolution pursuant to section 605(6) of the Banking Law;
(iv) fourth, all of the issued and outstanding shares of River
Distribution Sub Common Stock and shares of River Distribution
Sub Series A Preferred Stock will be distributed by River Bank
to its stockholders (the "Distribution") such that each holder
of River Bank common stock, par value $1.00 per share, will
receive one share of River Distribution Sub Common Stock for
each share of River Bank common stock and each holder of River
Bank 15% noncumulative perpetual preferred stock, series A,
par value $1.00 per share, will receive one share of River
Distribution Sub Series A Preferred Stock for each share of
River Bank series A preferred stock;
(v) fifth, immediately following the Distribution, but during the
pendency of the petition for dissolution, River Distribution
Sub will merge with and into River Asset Sub (which shall have
succeeded to substantially all of the business, assets and
liabilities of River Bank) with River Asset Sub as the
surviving corporation of the merger, whereupon each share of
River Asset Sub Common Stock shall be canceled and each share
of River
627498.3
- 1 -
<PAGE>
Distribution Sub Common Stock and River Distribution Sub
Series A Preferred Stock shall be converted into and will
represent one share of identical capital stock of the
surviving corporation (except that the par value of the
capital stock will be changed to $1.00) and shall remain
outstanding (the "Merger"); and
(vi) immediately following the Merger, River Bank will dissolve.
Following the Reorganization, the surviving corporation will own substantially
all of the assets formerly owned by River Bank, will have assumed all of River
Bank's liabilities and will continue River Bank's business.
River Distribution Sub and River Asset Sub wish to enter into this
Agreement and Plan of Merger for the purpose of effectuating the Merger.
Accordingly, the parties hereto agree as follows:
Article I
Definitions
"Agreement and Plan of Merger" means this Agreement and Plan
of Merger, as the same may be amended or modified from time to time.
"Banking Law" means the Banking Law of the State of New York.
"Business Disposition" has the meaning set forth in the second
paragraph of the preliminary statement.
"Certificate of Merger" means the certificate of merger,
substantially in the form of Exhibit A attached hereto.
"Delaware GCL" means the General Corporation Law of the State
of Delaware, as amended.
"Distribution" has the meaning set forth in the second
paragraph of the preliminary statement.
"FDIC" means the Federal Deposit Insurance Corporation.
"Merger" has the meaning set forth in the second paragraph of
the preliminary statement.
"Merger Closing" has the meaning set forth in section 2.4.
627498.3
- 2 -
<PAGE>
"Merger Closing Date" has the meaning set forth in section
2.4.
"RB Asset" means the surviving corporation of the Merger under
the laws of the State of Delaware.
"RB Asset Common Stock" means the shares of common stock, par
value $1.00 per share, of RB Asset.
"RB Asset Series A Preferred Stock" means the shares of 15%
noncumulative perpetual preferred stock, series A, par value $1.00 per share, of
RB Asset.
"NYSBD" means the New York State Banking Department.
"Reorganization" has the meaning set forth in the second
paragraph of the preliminary statement.
"River Asset Sub" means River Asset Sub, Inc., a Delaware
corporation.
"River Asset Sub Common Stock" means the shares of common
stock, par value $1.00 per share, of River Asset Sub.
"River Bank" means River Bank America, a New York chartered
savings bank.
"River Distribution Sub" means River Distribution Sub, Inc., a
Delaware corporation.
"River Distribution Sub Common Stock" means the shares of
common stock, $.001 par value per share, of River Distribution Sub.
"River Distribution Sub Series A Preferred Stock" means the
shares of 15% noncumulative perpetual preferred stock, series A, $.001 par value
per share, of River Distribution Sub.
"Surviving Corporation" means the surviving corporation in the
Merger as set forth in section 2.1(b).
Article II
Merger of River Asset Sub and River Distribution Sub
Section 2.1. The Merger.
627498.3
- 3 -
<PAGE>
(a) Subject to the terms and conditions of this Agreement and
Plan of Merger, at the time of the Merger Closing, the Certificate of Merger
shall be duly executed and acknowledged by River Distribution Sub and River
Asset Sub in accordance with section 251 of the Delaware GCL, and shall be filed
with the Secretary of State of the State of Delaware on the Merger Closing Date.
The Merger shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at the time specified in
the Certificate of Merger in accordance with section 251 of the Delaware GCL
(the "Effective Time").
(b) At the Effective Time, River Distribution Sub shall be
merged with and into River Asset Sub and the separate corporate existence of
River Distribution Sub shall cease, and River Asset Sub shall continue as the
surviving corporation (the "Surviving Corporation") under the laws of the State
of Delaware.
(c) From and after the Effective Time, the Merger shall have
the effects set forth in section 259 of the Delaware GCL, including, without
limitation, the effect that all liabilities of River Distribution Sub and River
Asset Sub shall thenceforth attach to and be enforceable against the Surviving
Corporation as if said liabilities had been incurred or contracted by it.
Section 2.2. Effect on Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of River
Distribution Sub or River Asset Sub or any holder of shares of any capital stock
thereof:
(a) Capital Stock of River Distribution Sub. Each issued and
outstanding share of River Distribution Sub Common Stock shall canceled and
extinguished and converted automatically into the right to receive one fully
paid and non-assessable share of common stock, $1.00 par value, of the Surviving
Corporation ("Surviving Corporation Common Stock"). Each issued and outstanding
share of River Distribution Sub Series A Preferred Stock shall be canceled and
extinguished and converted automatically into the right to receive one fully
paid and non-assessable share of 15% noncumulative perpetual preferred stock,
series A, $1.00 par value, of the Surviving Corporation ("Surviving Corporation
Preferred Stock").
(b) Cancellation of River Bank Owned Stock. All shares of
River Asset Sub Common Stock outstanding prior to the Effective Time shall be
canceled and retired and cease to exist and no cash or other consideration shall
be delivered in exchange therefor.
(c) Issuance of Surviving Corporation Capital Stock
Certificates. As soon as practicable after the Effective Time, the Surviving
Corporation shall cause its transfer agent to mail to each record holder of
River Distribution Sub Common Stock and River Distribution Sub Series A
Preferred Stock outstanding immediately prior to the Effective Time certificates
registered in such holder's name evidencing the shares of Surviving
627498.3
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Corporation Common Stock or Surviving Corporation Series A Preferred Stock, as
the case may be, into which the River Distribution capital stock was converted.
At the Effective Time the stock transfer ledger of River Distribution Sub shall
be closed and each share of River Distribution Sub capital stock outstanding
will be deemed for all corporate purposes to represent the share of Surviving
Corporation capital stock into which it was converted.
Section 2.3. Other Effects of Merger.
(a) Name of Surviving Corporation. The name of the Surviving
Corporation upon and after the Effective Time shall be "RB Asset, Inc."
(b) Certificate of Incorporation of Surviving Corporation. The
certificate of incorporation of River Distribution Sub, as in effect immediately
prior to the Effective Time, shall be amended to change the name of Surviving
Corporation from "River Distribution Sub, Inc." to "RB Asset, Inc." and to
change the par value of the Surviving Corporation capital stock from $.001 par
value per share to $1.00 par value per share, and, as so amended, shall be the
certificate of incorporation of Surviving Corporation until thereafter changed
or amended as provided therein or by law.
(c) Directors and Officers of Surviving Corporation. The
directors of River Distribution Sub immediately prior to the Effective Time
shall be the directors of Surviving Corporation, and the officers of River
Distribution Sub immediately prior to the Effective Time shall be the officers
of Surviving Corporation, each of such directors and officers to hold office,
subject to the applicable provisions of the certificate of incorporation and
bylaws of Surviving Corporation, until their respective successors shall be duly
elected or appointed and qualified.
(d) Bylaws of Surviving Corporation. The bylaws of River
Distribution Sub, as in effect immediately prior to the Effective Time, shall be
the bylaws of Surviving Corporation until thereafter changed or amended as
provided therein or by law.
Section 2.4. Closing of the Merger. The closing of the Merger
(the "Merger Closing") shall take place at the offices of Battle Fowler LLP, 75
East 55th Street, New York, New York 10022, as soon as practicable after the
last of the conditions set forth in section 2.6 hereof has been fulfilled or
waived (subject to applicable law) but in no event later than the fifth business
day thereafter, or at such other time and place and on such other date as River
Bank shall specify (the "Merger Closing Date").
Section 2.5. River Bank Approval. Notwithstanding anything to
the contrary herein, at any time prior to the time that the Certificate of
Merger is filed with the Secretary of State of the State of Delaware as provided
in section 2.1, the Merger may be terminated by the board of directors of River
Bank notwithstanding the prior
627498.3
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approval of this Agreement and Plan of Merger by the board of directors or
stockholders of River Distribution Sub and River Asset Sub.
Section 2.6. Conditions to Closing. The obligations of River
Distribution Sub and River Asset Sub to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the Merger
Closing Date of each of the following conditions:
(a) Consummation of Business Disposition and Distribution. The
Business Disposition and Distribution shall have occurred.
(b) Petition for Dissolution. River Bank shall have filed a
petition for dissolution in accordance with section 605(6) of the Banking Law.
(c) Approval of Board of Directors of River Distribution Sub
and River Asset Sub. The Merger shall have been approved and adopted by the
requisite vote or consent of the board of directors of each of River Asset Sub
and River Distribution Sub.
(d) Approval of Stockholders. The Merger shall have been
approved by the requisite vote or consent of the stockholders of River
Distribution Sub and River Asset Sub.
(e) Governmental Approvals. All required governmental
approvals, including any required approvals from the NYSBD and the FDIC, to the
Merger shall have been obtained.
Article III
Miscellaneous
Section 3.1. Further Assurances. From time to time, each of
the parties hereto shall, if requested by any other party hereto, make, execute
and deliver to such requesting party any such additional instruments, documents,
certificates and agreements as may be reasonably necessary or appropriate to
consummate the transactions contemplated hereby.
Section 3.2. Entire Agreement. This Agreement and Plan of
Merger and the exhibits and other documents referred to herein or delivered
pursuant hereto, collectively contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings, oral and written, with respect thereto.
627498.3
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Section 3.3. Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented in writing by the
parties hereto in any and all respects before the Effective Time
(notwithstanding any stockholder approval), by action taken by their respective
boards of directors or by the respective officers authorized by such boards of
directors, at any time before or after the approval of this Agreement and Plan
of Merger by the stockholders of River Distribution Sub and River Asset Sub, but
after any such stockholder approval, no amendment shall be made which decreases
or changes the form of consideration to be paid to stockholders of River
Distribution Sub in the Distribution or the Merger or which has a material
adverse affect on the rights of River Distribution Sub's stockholders or by law
requires further approval by such stockholders, without further approval of
River Distribution Sub's stockholders.
Section 3.4. Headings. The descriptive headings of the several
articles and sections of this Agreement and Plan of Merger are inserted for
convenience only, do not constitute a part of this Agreement and Plan of Merger
and shall not affect in any way the meaning or interpretation of this Agreement
and Plan of Merger.
Section 3.5. Counterparts. This Agreement and Plan of Merger
may be executed in several counterparts, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument.
Section 3.6. Governing Law. This Agreement and Plan of Merger
and the legal relations between the parties hereto shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
[End of Text]
627498.3
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IN WITNESS WHEREOF, each of River Distribution Sub and River
Asset Sub has caused this Agreement and Plan of Merger to be executed by its
respective officers thereunto duly authorized, all as of the date first above
written.
River Distribution Sub, Inc.
By: /s/ Jerome R. McDougal
----------------------
Name: Jerome R. McDougal
Title: Chairman, Pres. & CEO
River Asset Sub, Inc.
By: /s/ Jerome R. McDougal
----------------------
Name: Jerome R. McDougal
Title: Chairman, Pres. & CEO
627498.3
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<PAGE>
ACKNOWLEDGMENT
I, Robin Chandler Duke, Secretary of River Asset Sub, Inc., a
corporation organized and existing under the laws of the State of Delaware, and
Secretary of River Distribution Sub, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certify, as such Secretary, that
the Agreement and Plan of Merger to which this certificate is attached, after
having been first duly signed on behalf of the said corporations, was duly
adopted pursuant to section 228 of the Delaware General Corporation Law by the
unanimous written consent of the stockholders holding all of the outstanding
shares of capital stock of each corporation which Agreement and Plan of Merger
was thereby adopted as the act of the stockholders of such corporations, and the
duly adopted agreement and act of the said corporations.
WITNESS my hand on this 19th day of October, 1997.
/s/ Robin Chandler Duke
------------------------------
Robin Chandler Duke, Secretary
627498.3
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<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
RIVER ASSET SUB, INC.
AND
RIVER DISTRIBUTION SUB, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) River Asset Sub, Inc., which is incorporated in the State
of Delaware ("River Asset Sub"); and
(ii) River Distribution Sub, Inc., which is incorporated in
the State of Delaware ("River Distribution Sub").
2. An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 251
of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is River Asset Sub, which will continue its existence as said
surviving corporation under the name "RB Asset, Inc." upon the effective date of
said merger pursuant to the provisions of the General Corporation Law of the
State of Delaware.
4. The Amended and Restated Certificate of Incorporation of
River Distribution Sub, as now in force and effect, is to be further amended and
changed by reason of the merger herein certified by striking out Article FIRST
thereof, relating to the name of such corporation, and by substituting in lieu
thereof the following article:
"FIRST: the name of the corporation is RB Asset, Inc.
(hereinafter called the "Corporation").";
and by striking out Article FOURTH thereof, relating to the par value of the
capital stock of such corporation, and by substituting in lieu thereof the
following article:
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"FOURTH: A. The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is forty
million (40,000,000) shares, of which ten million (10,000,000) shares shall be
preferred stock, par value $1.00 per share (the "Preferred Stock"), and thirty
million (30,000,000) shares shall be common stock, par value $1.00 per share
(the "Common Stock"). The Preferred Stock and the Common Stock are sometimes
hereinafter collectively referred to as "Capital Stock."";
and said Amended and Restated Certificate of Incorporation, including, without
limitation, the Certificate of Designation, Preferences and Rights of the 15%
Noncumulative Perpetual Preferred Stock, Series A, as so amended and changed
shall be the Certificate of Incorporation of said surviving corporation until
further amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed agreement and plan of merger between the
constituent corporations is on file at an office of the aforesaid surviving
corporation, the address of which is as follows:
645 Fifth Avenue
New York, New York 10022
6. A copy of the aforesaid agreement and plan of merger will
be furnished by the aforesaid surviving corporation, on request, and without
cost, to any stockholder of each of the aforesaid constituent corporations.
7. The agreement and plan of merger between the aforesaid
constituent corporations provides that the merger herein certified shall be
effective upon the filing of this certificate.
Dated: October __, 1997
RIVER ASSET SUB, INC.
By:_____________________________
Its President
Dated: October __, 1997
RIVER DISTRIBUTION SUB, INC.
627498.3
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<PAGE>
By:_____________________________
Its President
627498.3
- 3 -
EXHIBIT 2.2
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- --------------------------------------x
In the Matter of the Voluntary Index No. 97/118830
Liquidation and Dissolution of
Date Purchased: 10/15/97
RIVER BANK AMERICA,
NOTICE OF PETITION
Petitioner
- --------------------------------------x
PLEASE TAKE NOTICE that upon the annexed verified petition of River
Bank America (the "Bank"), sworn to by Jerome R. McDougal, Jr., President, on
the 14th day of October, 1997, together with the exhibits annexed thereto, an
application will be made to the Supreme Court in and for the County of New York,
60 Centre Street, New York, New York, at the Motion Submission Part, Room 130,
on the 25th day of November, 1997, at 9:30 a.m. or as soon thereafter as counsel
may be heard for an order pursuant to Section 605(4) of the New York State
Banking Law declaring the business of the Bank closed and prescribing the notice
to be given to the creditors of the Bank to present their claims to the Bank for
payment.
PLEASE TAKE FURTHER NOTICE that pursuant to Section 403(b) of the New
York Civil Practice Law and Rules, answering affidavits, if any, must be served
upon the undersigned at least two days before the time at which the annexed
application is noticed to be heard.
629049.4
<PAGE>
New York County is designated as the county for venue in this
proceeding upon the ground that the Bank's sole office is located here.
Dated: New York, New York
October 15, 1997
BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
Tel: (212) 856-7020
Attorneys for River Bank America
TO: Superintendent of Banks
New York State Banking Department
Two Rector Street
New York, New York 10006
Attention: Kathleen A. Scott, Esq.
Federal Deposit Insurance Corporation
Registration and Disclosure Section
1776 F Street, NW, Room F-36
Washington, D.C. 20006
Office of the Attorney General
120 Broadway
New York, New York 10271
629049.4
2
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - -X
In the Matter of the Voluntary Index No.
Liquidation and Dissolution of
VERIFIED PETITION
RIVER BANK AMERICA, FOR CLOSING ORDER
Petitioner,
- - - - - - - - - - - - - - - - - - - - - -X
Petitioner River Bank America (the "Bank" or "River Bank"), by
its attorneys Battle Fowler LLP, as and for its verified petition herein states
as follows:
1. Jerome R. McDougal, President of River Bank, respectfully
makes this petition for a special proceeding pursuant to Article 4 of New York
Civil Practice Law and Rules ("CPLR") for an order pursuant to Section 605(4) of
the New York State Banking Law (the "Banking Law"): (a) declaring the business
of the Bank closed; and (b) prescribing the notice to be given to the creditors
and depositors of the Bank to present their claims to the Bank for payment.
The Bank and Its Objectives
2. The Bank is a New York-chartered stock savings bank
organized and existing under the Banking Law, with its principal place of
business at 645 Fifth Avenue, 8th Floor, New York, New York 10022. The Bank
currently is an insured depositary institution for purposes of the Federal
Deposit Insurance Act; however, pursuant to a determination of the Federal
Deposit
628228.5
<PAGE>
Insurance Corporation (the "FDIC") set forth in a letter dated April 14, 1997,
the Bank's deposit insurance will be terminated effective December 31, 1997.
3. The Bank was founded in 1848. In 1925, the Bank adopted the
name "East River Savings Bank" which, until June of 1996, it used to conduct its
retail business, and, in 1988, the Bank adopted its current name which it uses
for general corporate purposes. The Bank operated as a deposit-taking banking
institution until June 28, 1996.
The Branch Sale
4. As a result of, among other things, substantial levels of
non-performing assets, significant provisions for loan and real estate losses
and net losses, River Bank has been subject to increased regulatory oversight
since December 1990. In December 1991, River Bank was required to increase its
regulatory capital which had fallen below minimum regulatory requirements. In
June 1994, River Bank consummated an offering of Common Stock and Series A
Preferred Stock which resulted in net proceeds of $78.2 million, thereby
increasing its capital to a level which enabled the Bank to meet the required
minimum regulatory capital requirements. However, after the FDIC and the New
York State Banking Department (the "Banking Department") undertook a joint
examination of the Bank in September 1994, the Bank was required to increase its
capital reserves. During the three months ended September 30, 1995 and the
fiscal year ended June 30, 1995, River Bank reported net
628228.5
2
<PAGE>
losses of $4.1 million and $29.6 million, respectively, after payment of
dividends on its outstanding Series A Preferred Stock.
5. The Bank's board of directors and its principal stockholder
became concerned that further losses and erosion of the Bank's capital base, the
failure of the Bank to meet asset disposition timetables and the possibility of
action by the FDIC or the Banking Department could create a risk of irreparably
devaluing the Bank's branch system and deposit base.
6. During 1994 and 1995, the Bank's representatives undertook
to identify potential buyers interested in acquiring the entire Bank. No party
contacted expressed an interest in acquiring all of the assets of the Bank
including its assets classified as nonperforming assets and real estate owned.
7. On June 28, 1996, with the approval of the Banking
Department, River Bank sold to Marine Midland Bank ("Marine Midland")
substantially all of its banking assets and deposits and all of its branch
offices (the "Branch Sale"). Following the Branch Sale closing, the Bank ceased
accepting deposits and otherwise disposed of its limited remaining deposits,
which consisted primarily of trust deposits. Since that time, the Bank has been
proceeding with a business plan to manage the assets remaining with the Bank
after the Branch Sale (the "Retained Assets") in accordance with the individual
business plans developed for each asset prior to the consummation of the Branch
Sale.
8. In connection with and as a condition to the Branch
Sale, River Bank borrowed from Marine Midland approximately $89.8
628228.5
3
<PAGE>
million to permit consummation of the Branch Sale and provide additional working
capital for the continuation of the Bank's asset management strategy pursuant to
a credit agreement, dated as of June 28, 1996 (the "Marine Senior Loan"). As of
June 30, 1997, approximately $66.1 million remained outstanding under the Marine
Senior Loan.
The Decision to Reorganize and to Close
9. Although in connection with the Branch Sale the Bank
has ceased operations as a depository institution, it remains a banking
organization legally chartered and subject to regulation, examination and
supervision by the Banking Department and the FDIC.
10. As a condition to the Banking Department's approval of the
Branch Sale, River Bank agreed, among other things, (i) to file an application
with the Banking Department, within one year of the closing of the Branch Sale,
for approval of a plan of dissolution (the "Dissolution Plan Condition") and
(ii) to file with this Court a petition for a closing order (the "Closing
Order") within 13 months of the closing of the Branch Sale and for a final order
of dissolution within five months following the filing of an application for the
Closing Order (the "Closing Condition").
11. In June 1997, River Bank proposed to the Banking
Department an alternative under which the Dissolution Plan Condition would be
satisfied through the implementation of a plan whereby River Bank would, through
a series of steps, on what is intended to be a tax free basis, change its legal
form of
628228.5
4
<PAGE>
organization by which it conducts business, holds its assets and is obligated
for its liabilities from a New York state chartered stock savings bank into a
business corporation incorporated in the State of Delaware (the
"Reorganization"). Thereafter, the Bank would dissolve (the "Dissolution" and,
together with the Reorganization, the "Alternative Proposal") pursuant to
Section 605(6) of the New York Banking Law. A copy of the proposal to the
Banking Department is attached hereto as Exhibit "A".
12. In a letter dated June 24, 1997, a copy of which is
attached hereto as Exhibit "B," the Banking Department, indicating its
conditional approval, stated that it did not object to the Alternate Proposal
and advised, among other things, that it required that the petition for the
Closing Order required by the Closing Condition be filed by October 15, 1997.
13. The Reorganization will remove River Bank's business and
assets from the jurisdiction of the Banking Department. This will allow River
Bank's successor, RB Asset, Inc., to manage its approximately $212 million (at
June 30, 1997) in Retained Assets without bank regulatory restraints and, where
appropriate, to actively develop and operate its properties, enter into joint
ventures with others and otherwise further encumber or restructure the debt on
its properties and other assets in an effort to maximize returns to its
stockholders. Consummation of the Alternate Proposal involves a series of steps
to be undertaken by River Bank. Following the entry of the Closing Order, River
Bank will commence implementing the Alternate Proposal. The diagram
628228.5
5
<PAGE>
attached hereto as Exhibit "C" depicts the transaction steps to implement the
Alternate Proposal.
14. In order to implement the Reorganization, River Bank will
form River Asset Sub, Inc., a Delaware corporation ("River Asset Sub"), and
River Distribution Sub, Inc., a Delaware corporation ("River Distribution Sub"),
each as wholly-owned subsidiaries of River Bank. The capital structure of River
Distribution Sub will be substantially identical to River Bank's capital
structure, except that the shares of capital stock of River Distribution Sub
will initially have a par value of $.001 instead of $1.00 par value. River Asset
Sub's capital structure will consist of 1,000 shares of common stock, $1.00 par
value, 100 shares of which will be issued to River Bank.
15. River Bank will then enter into an assignment and
assumption agreement (the "Assignment Agreement") with River Asset Sub whereby
River Bank will assign to River Asset Sub, and River Asset Sub will accept from
River Bank, all of River Bank's right, title and interest in and to all of River
Bank's assets, other than an amount in cash, estimated to be no more than
$100,000, sufficient for River Bank to pay the continuing costs of regulation
and liquidation, to resolve any claims made against River Bank during the notice
period to creditors and to abide by the statutory requirement that River Bank
remain solvent until its Dissolution. In consideration of the assignment to
River Asset Sub of all of River Bank's assets, River Asset Sub will assume and
agree to pay, perform and discharge when due all liabilities and obligations of
628228.5
6
<PAGE>
River Bank of any kind or nature, known or unknown, whether absolute,
contingent, accrued or otherwise, and whether arising before or after the date
of the assignment to River Asset Sub, without limitation. A copy of the form of
Assignment Agreement is attached hereto as Exhibit "D."
16. After the expiration of the notice period to creditors
under section 605(4) of the Banking Law, River Bank will file a petition with
this court for the issuance of an order declaring River Bank dissolved and its
corporate existence terminated. As authorized by the Banking Department in its
June 24, 1997 letter, during the pendency of the petition for the order of
dissolution, River Bank will distribute all of the issued and outstanding shares
of capital stock of River Distribution Sub to the stockholders of River Bank
such that each holder of a share of River Bank common stock will receive a share
of River Distribution Sub common stock and each holder of a share of River Bank
Series A Preferred Stock will receive a share of River Distribution Sub Series A
Preferred Stock. Accordingly, River Distribution Sub will become wholly-owned by
the stockholders of River Bank pro rata to their ownership interests in the
Bank.
17. Immediately after the distribution of the shares of River
Distribution Sub, River Distribution Sub and River Asset Sub will be merged (the
"Merger") pursuant to an agreement and plan of merger (the "Merger Agreement")
in the form attached hereto as Exhibit "E". At the effective time of the merger,
(i) River Distribution Sub will be merged with and into River Asset Sub, the
628228.5
7
<PAGE>
separate corporate existence of River Distribution Sub will cease, and River
Asset Sub will continue as the surviving corporation under Delaware corporate
law under the name "RB Asset, Inc." ("New River") and (ii) the merger will have
the effects set forth in section 259 of the Delaware General Corporation Law,
including, without limitation, the effect that all liabilities of River Asset
Sub will thereafter attach to and be enforceable against New River. The Merger
Agreement will provide that (a) each issued and outstanding share of River
Distribution Sub common stock, $.001 par value, will be converted into and will
become one fully paid and non-assessable share of common stock, $1.00 par value,
of New River, (b) each issued and outstanding share of River Distribution Sub
preferred stock, $.001 par value, will be converted into and will become one
fully paid and non-assessable share of preferred stock, $1.00 par value, of New
River, and (c) all shares of River Asset Sub common stock, $1.00 par value, will
be canceled and retired.
18. Upon completion of the Reorganization steps described
above, New River will own substantially all of the assets formerly owned by
River Bank, will have assumed all of River Bank's liabilities, will have the
same stockholders and capital structure as River Bank and will continue River
Bank's business.
19. Upon completion of the Reorganization, River Bank
would dissolve.
628228.5
8
<PAGE>
20. The board of directors of River Bank has unanimously
determined that the Reorganization and the Dissolution is fair to, and in the
best interests of, the Bank's stockholders.
21. Marine Midland is the Bank's only significant creditor.
River Bank's obligations under the Marine Senior Loan are being expressly
assumed by New River in the merger. Marine Midland has advised that it will not
object to the Alternate Proposal and the entry of the Closing Order. A copy of
Marine Midland's consent to the Reorganization and Dissolution will be submitted
to this Court by amendment to this petition prior to the hearing of this motion.
Compliance with Section 605
Voluntary Liquidation Procedures
22. Section 605 of the Banking Law sets forth the procedures
for voluntary liquidation applicable to any "banking organization." The Bank is
included within the meaning of this term as defined in Section 2(11) of the
Banking Law.
(a) Section 605(1):
Assets Exceeding Liabilities
23. To be eligible to utilize Section 605, a banking
organization's assets must "have a value at least equal to its liabilities,
exclusive of any liability to shareholders or stockholders" and must not be in
the possession of the New York State Superintendent of Banks (the
"Superintendent"). See Section 605(1). In the present case, the Bank satisfied
these threshold requirements. First, it is not in the possession of the
Superintendent. Second, as of June 30, 1997, River Bank's assets
628228.5
9
<PAGE>
exceeded its liabilities. A copy of the audited balance sheet of the Bank as of
June 30, 1997, is attached hereto as Exhibit "F". A copy of the pro forma
balance sheet of River Bank immediately prior to the Dissolution and after
giving effect to the Reorganization is attached hereto as Exhibit "G."
24. In order to facilitate the Reorganization, including the
orderly dissolution of the Bank, and to ensure that the valid claims of the
Bank's creditors are not adversely affected thereby, (i) the Bank has entered
into the Assignment Agreement with River Asset Sub and (ii) River Asset Sub and
River Distribution Sub have entered into the Merger Agreement. Pursuant to the
terms of the Assignment Agreement and by operation of section 259 of the
Delaware General Corporation Law, upon the effectiveness of the Merger, all
liabilities of River Bank shall attach to and be enforceable against New River
as if such liabilities had been incurred or contracted by it. As a result of the
consummation of these transactions, the Bank's assets will exceed its
liabilities.
See Exhibit "G."
(b) Section 605(2)-(3):
Valid Stockholder Approval
25. Assuming a banking organization meets these threshold
requirements, Sections 605(2) and (3) of the Banking Law require that a meeting
of the banking organization's stockholders be held on at least twenty days'
notice, that at least two-thirds of the owners of its capital stock vote in
favor of closing the business, that such resolution be recorded in the minutes
and that
628228.5
10
<PAGE>
such minutes be filed with the office of the Superintendent within five days
after the date of such meeting.
26. In accordance with the above statutory requirements, the
Annual Meeting of Stockholders of the Bank was held on October 7, 1997, upon not
less than twenty days' written notice, in order, among other things, to
generally approve the closing of the Bank and the winding up of its business
(the "Bank Closing Proposal"). Proof by affidavit of due service of such notice
was filed in the office of the Bank before the time of such meeting. A verified
copy of the minutes of such meeting approving the Bank Closing Proposal is
attached hereto as Exhibit "H."
27. Also pursuant to Section 605(3), a verified copy of the
minutes of the October 7, 1997 stockholders' meeting was delivered to the office
of the Superintendent within the required five day period set forth in Section
605(3). A copy of the letter transmitting the minutes of such meeting, with
acknowledgment of its receipt, is attached hereto as Exhibit "I."
28. In connection with the stockholders' approval of the Bank
Closing Proposal at the October 7, 1997 meeting, River Bank advised its
stockholders that the Reorganization and the Dissolution would not be
implemented without specific stockholder approval thereof at a subsequent
special meeting of stockholders to be convened as soon as practicable after
completion of regulatory review of the Reorganization and the Dissolution and
the proxy statement/prospectus with respect thereto (the "Special Meeting"). In
accordance with the statutory requirements of Sections 605(2)
628228.5
11
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and (3) of the Banking Law, the Special Meeting of Stockholders of the Bank will
be called, upon not less than twenty days' written notice, in order, among other
things, to specifically approve the closing of the Bank and the winding up of
its business pursuant to the Reorganization and the Dissolution described
herein. Proof by affidavit of due service of such notice will be filed in the
office of the Bank before the time of the Special Meeting. A verified copy of
the minutes of the Special Meeting approving the Reorganization and the
Dissolution, as well as evidence of the filing of a copy thereof with the office
of the Superintendent within the required five day period set forth in Section
605(3), will be submitted to this Court by amendment to this petition prior to
the hearing of this motion.
(c) Section 605(4): Application
Within 3 Months of Valid
Stockholder Consent
29. Finally, Section 605(4) provides that within three months
after the date of the Special Meeting approving voluntary dissolution, "an
application may be made to the supreme court, after due notice to the
Superintendent, for an order declaring the business of such corporation closed."
Assuming this Court deems it a proper case, Section 605(4) further provides that
the Court "shall make such order which shall prescribe the notice to be given to
creditors and depositors to present their claims to the corporation for
payment." A certified copy of such order must be delivered within five days of
being made to the Superintendent.
628228.5
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<PAGE>
Moreover, upon the entry of such an order, the banking organization must cease
operations.
30. In the present case, the Bank ceased all retail banking
activities following the Branch Sale. Pursuant to the Bank Closing Proposal
adopted at the Special Meeting, the Bank will engage in activities related to
the Reorganization and the implementation thereof, including the continued
management of its assets until the Reorganization is consummated.
31. As noted above, the Branch Sale Conditions require that
the Bank file a petition for a Closing Order by October 15, 1997.
32. Accordingly, the Bank makes the present application within
the prescribed three month period following stockholder approval as required by
Section 605(4) as well as within the time period envisioned by the Branch Sale
Conditions. A copy of the Closing Order that the Bank proposes submitting
following a hearing on its application is attached hereto as Exhibit "J."
(d) Section 605(4-a):
Safe Deposit Boxes; Custodial Property; Etc.
33. Section 605(4-a) relating to safe deposit boxes, custodial
property and similar matters is not applicable because the Bank's safe deposit
boxes and all custodial property were transferred to Marine Midland, and the
Bank's custodial duties with respect thereto were assumed by Marine Midland, in
connection with the Branch Sale.
628228.5
13
<PAGE>
(e) Further Procedures
34. Although Section 605 does not specify a method for
resolving disputed, unliquidated or contingent claims, the attached proposed
Closing Order provides that the Bank or any creditor, upon notice, may apply to
this Court for a determination as to any disputed claim or for any other relief
necessary to effectuate the liquidation of the Bank.
35. Section 605 sets forth the remaining procedures after
entry of a Closing Order with which the Bank must, and intends to, comply. These
procedures are also set forth in the attached proposed Closing Order. These
steps will include: (a) compliance with the Closing Order's directions as to
notice and publication, and expiration of the period in which creditors may file
their claims, (b) the filing of a statement with the Superintendent, listing the
names of all depositors, creditors, and others who have not received the
deposits, debts, dividends or other amounts due them and (c) payment of such
unclaimed amounts to the Superintendent as trustee for the persons entitled to
receive them. Having followed these procedures, the Bank will then be required
to return to this Court for an order pursuant to Section 605(6) affirming the
disposition of such unclaimed amounts and declaring such corporation dissolved
and its corporate existence terminated. On filing a certified copy of the order
of dissolution with the Superintendent, Section 605(7) provides that the banking
organization shall cease to exist.
628228.5
14
<PAGE>
36. The New York State Banking Department has no objection to
the filing of the Closing Order as evidenced by its letter dated October 14,
1997, a copy of which is attached hereto as Exhibit "K."
37. No prior request for the relief sought herein has
been made.
WHEREFORE, the Bank prays that:
(a) the Court find that the Bank meets the statutory
prerequisites for voluntary dissolution and has complied with the
procedures set forth in subparagraphs (2)-(4) of Section 605 of the
Banking Law for making the present application;
(b) an order, in a form similar to the one annexed
hereto, be made pursuant to the provisions of Section 605(4) of the
Banking Law declaring the business of the Bank closed and prescribing
the notice to be published and given to creditors of the Bank to
present their claims to the Bank for payment; and
(c) the Court grant such other and further relief as
may be necessary or appropriate.
Dated: New York, New York
October 14, 1997
Respectfully submitted,
BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
tel (212) 856-7020
Attorneys for River Bank America
628228.5
15
<PAGE>
STATE OF NEW YORK )
COUNTY OF NEW YORK ) ss:
I, JEROME R. MCDOUGAL, JR., being duly sworn, depose and say that I am
the President of River Bank America (the "Bank"), a bank organized under Article
III of the New York State Banking Law, that its principal place of business is
located in New York, New York, that this petition by myself as President of the
Bank is made by and for the Bank, and that I make this petition as a
representative of the Bank and with its consent.
I have read the foregoing petition and know the contents thereof; and
that the same is true to my own knowledge, except as to matters therein stated
upon information and belief, and as to those matters I believe them to be true
and that this verification is not made by the Bank because it is a corporation.
/s/ Jerome R. McDougal, Jr.
-------------------------------
Jerome R. McDougal, Jr.
Sworn to before me this
14th day of October, 1997.
/s/ Beatrice Benjamin
- -------------------------------
Notary Public
628228.5
16
<PAGE>
Exhibits
Ex. A - June 17, 1997 Reorganization and Dissolution
Proposal presented by River Bank to the Banking
Department.
Ex. B - Letter dated June 24, 1997 from the Banking
Department to River Bank conditionally approving
the Alternate Proposal.
Ex. C - Diagram depicting transaction steps to implement
the Reorganization.
Ex. D - Form of Assignment Agreement between River Bank
and River Asset Sub.
Ex. E - Form of Merger Agreement between River Asset Sub
and River Distribution Sub.
Ex. F - Audited Balance Sheet of River Bank as of June 30,
1997.
Ex. G - Pro Forma Balance Sheet of River Bank immediately
prior to the Dissolution and after giving effect
to the Reorganization.
Ex. H - Minutes of the meeting of the October 7, 1997
Stockholders' Meeting of River Bank.
Ex. I - Letter dated October 14, 1997 from River Bank to
the Banking Department transmitting a verified
copy of the minutes of the Stockholders' Meeting.
Ex. J - Form of Closing Order.
Ex. K - Letter dated October 14, 1997 from the Banking
Department indicating that the Banking Department
has no objection to the entry of the closing
order.
628228.5
17
<PAGE>
EXHIBIT "A"
[River Bank America Letterhead]
June 17, 1997
Mr. Vincent Conlon
Deputy Superintendent of Banks
New York State Banking Department
Two Rector Street
New York, New York 10006
Dear Mr. Conlon:
You will find attached a draft entitled "Plan of Voluntary Dissolution of River
Bank America and Continuation of Operations of Successor Corp." We are offering
this proposal as an alternative to Condition No. 1 of the "Asset Sale Order"
dated June 18, 1996 issued by the New York State Superintendent of Bank in
approving the Marine Midland Bank transaction. This alternative proposal will be
considered by our Board of Directors at its meeting tomorrow, June 18, 1997.
We anticipate meeting with you shortly to discuss our proposal and request that
NYSBD approval occur as soon as possible but before June 30, 1997.
Thank you for your cooperation.
Sincerely yours,
/s/ Jerome R. McDougal
Jerome R. McDougal
Chairman, President and
Chief Executive Officer
JRM;lj
644903.1
<PAGE>
Plan of Voluntary Dissolution of River Bank America
and Continuation of Operations of Successor Corp.
1. Background. River Bank America ("River Bank") is a New York State
chartered savings bank. In a transaction that closed on June 28, 1996,
River Bank sold substantially all of its assets and transferred
substantially all of its deposits as well as all of its branches to
Marine Midland Bank. Since that date, River Bank has disposed of its
remaining deposits. Following the closing of the sale to Marine
Midland, River Bank applied to the Federal Deposit Insurance
Corporation (the "FDIC") for permission to terminate its deposit
insurance and on April 22, 1997 received permission for such
termination effective December 31, 1997. River Bank has no holding
company. It currently has issued and outstanding 7,100,000 shares of
common stock, par value $1.00 per share (the "River Bank Common
Stock"), and 1,400,000 shares of preferred stock, par value $25.00 per
share (the "River Bank Preferred Stock").
2. Brief description of the proposal. River Bank intends to adopt a plan
under which it will transfer all of its assets and liabilities to a
successor corporation ("Successor Corp.") incorporated under the
Delaware General Corporation Law. Successor Corp. will acquire all of
the assets of River Bank and will continue the business of River Bank
under the same business plan as had been adopted by River Bank.
Successor Corp. will assume all of the liabilities of River Bank,
including contingent liabilities. Successor Corp. will not be subject
to the jurisdiction of the New York State Banking Department. Following
the transfer of its assets and liabilities to Successor Corp., River
Bank will surrender its banking charter and dissolve. The
implementation of the proposed plan will result only in a change in
form from a corporation incorporated under the New York Banking Law
(the "Banking Law") to a corporation incorporated under the Delaware
General Corporation Law. The successor entity conducting business will
result in no change in the business to be carried on by Successor
Corp., or in its assets or liabilities.
3. The proposed Plan. This memorandum describes River Bank's plan for the
continuation of its business by Successor Corp. and the voluntary
dissolution of River Bank and the surrender of River Bank's charter
(the "Plan"). The various steps comprising the Plan are collectively
referred to herein as the "Reorganization." The Reorganization is
intended to qualify as a tax-free reorganization of River Bank under
the Internal Revenue Code and, as such, certain tax attributes of River
Bank will be preserved.
a. Providing for creditors of River Bank under the
Reorganization. Under the proposed Plan, River Bank will
transfer all of its assets and liabilities, including
contingent liabilities to Successor Corp. Provision will be
made for all of River Bank's liabilities by having Successor
Corp. assume those liabilities in their entirety. The
creditors of River Bank and others with claims against River
Bank
605781.6
<PAGE>
will look to Successor Corp. for the satisfaction of their
claims. Successor Corp. will have exactly the same resources
out of which to satisfy those liabilities as River Bank had
prior to the Reorganization and accordingly the rights of
River Bank's creditors will be unaffected by the
Reorganization.
b. No change in stockholders rights. Successor Corp. will have
the same number of common and preferred shares outstanding as
River Bank. Successor Corp.'s shares will be distributed to
River Bank's shareholders on a share-for-share basis so that,
immediately following the distribution and at the conclusion
of the Reorganization, the Successor Corp. shares will be
owned by the same stockholders, in the same proportions, as
currently own River Bank's stock.
c. Surrender of banking charter. Immediately prior to its
dissolution, River Bank's assets will be the shares of Newco 1
referred to below and its banking charter. Under the terms of
the Reorganization, the shares of Newco 1 held by River Bank
will be canceled and River Bank will surrender its charter to
the Banking Department and dissolve.
4. The Reorganization. This section describes the proposed Reorganization
on a step-by- step basis.
a. Step 1: Formation of two new subsidiaries of River Bank. River
Bank will form under the Delaware General Corporation Law two
new wholly owned subsidiaries, Newco 1, which will have a
single class of common stock, and Newco 2, which will have a
number of shares of common stock equal to the number of
outstanding shares of River Bank Common Stock and a number of
shares of preferred stock equal to the number of outstanding
shares of River Bank Preferred Stock. The terms of each class
of Newco 2 stock will be essentially identical to the terms of
the corresponding class of River Bank stock.
b. Step 2: Entering into and approving the merger agreement.
Following the formation of Newco 1 and Newco 2, the boards of
directors of those companies will approve a merger agreement
between Newco 1 and Newco 2, the merger agreement will be
executed on behalf of each of Newco 1 and Newco 2 and it will
be approved by River Bank as the sole stockholder of each of
Newco 1 and Newco 2. The merger to be effectuated under the
merger agreement is referred to herein as the "Merger." Under
the terms of the merger agreement, on the Merger effective
date, the stock of Newco 1 will be canceled and the stock of
Newco 2 will remain outstanding as the stock of the survivor
of the Merger, although Newco 1 will be the surviving
corporation (referred to herein as "Successor Corp.").
605781.6
-2-
<PAGE>
c. Step 3: FDIC and SEC filings. River Bank and Successor Corp.
will file a combined proxy statement/registration statement
with the FDIC and SEC. Upon completion of FDIC and SEC review,
the combined statement will be mailed to River Bank
stockholders.
d. Step 4: River Bank's shareholder meeting. Following the
mailing of the combined statement and the passing of the
requisite period of notice to stockholders, River Bank will
hold a meeting of its shareholders at which the dissolution of
River Bank pursuant to a plan of dissolution and certain
related matters will be voted on by stockholders.
e. Step 5: Transfer of River Bank assets and liabilities to Newco
1. River Bank will contribute all of its assets to Newco 1 and
Newco 1 will assume all of River Bank's liabilities (the
"Transfer").
f. Step 6: Distribution of Newco 2 stock. Following stockholder
approval, River Bank will distribute, on a share-for-share
basis, the Newco 2 common stock to the holders of the River
Bank Common Stock and the Newco 2 preferred stock to the
holders of the River Bank Preferred Stock. Newco 2 will have
no assets at the time of the distribution, and accordingly the
Newco 2 shares being distributed will have no value and the
distribution will have no impact on River Bank's surplus. The
distribution of the Newco 2 common stock and the Newco 2
preferred stock will be registered under the Securities Act of
1933, as amended.
g. Step 7: Merger of Newco 1 and Newco 2. Newco 1 and Newco 2
will complete the Merger. Following the consummation of the
Merger, the current holders of River Bank Preferred Stock and
River Bank Common Stock will continue to own their shares of
River Bank and they will also own, in substantially the same
proportions, all the issued and outstanding shares of
Successor Corp. River Bank will own no assets at this point
other than its banking charter.
h. Step 8: Dissolution of River Bank. River Bank will surrender
its banking charter and dissolve. For many reasons, it is
important that River Bank's charter be surrendered and River
Bank be dissolved by December 31, 1997.
i. Step 9: Continuation by Successor Corp. of the business of
River Bank following River Bank's dissolution. Following the
dissolution of River Bank, Successor Corp. will own all of the
assets formerly owned by River Bank, will have assumed all of
River Bank's liabilities and will continue River Bank's
business, implementing the same business plan as River Bank.
605781.6
-3-
<PAGE>
5. River Bank's request. River Bank is proposing this Plan as an
alternative to condition no. 1 of an order (the "Asset Sale Order"),
dated June 18, 1996, issued by the New York State Superintendent of
Banks approving an application of River Bank under section 605(8) of
the Banking Law requesting permission for River Bank to transfer
substantially all of its assets to Marine Midland Bank. River Bank is
requesting that the New York State Banking Department approve the
proposed Plan, prior to June 30, 1997, as an alternative to condition
no. 1 of the Asset Sale Order.
605781.6
-4-
<PAGE>
EXHIBIT "B"
[State of New York Banking Department Letterhead]
June 24, 1997
Mr. Jerome R. McDougal
President and Chief Executive Officer
River Bank America
645 Fifth Avenue
New York, New York 10022
Dear Mr. McDougal:
The Department has reviewed the plan of voluntary dissolution that you have
proposed for Riverbank ("Bank"). While the Department generally has no objection
to the specifics of the proposed plan (i.e., forming two subsidiaries of the
Bank, dividending one subsidiary to the shareholders and dropping the Bank's
assets and liabilities to the other subsidiary and merging that subsidiary with
the spun-off subsidiary), there are several requirements involving the
liquidation of the Bank which must be followed.
The two subsidiaries contemplated by the Plan may be formed at any time. The
transfer of the assets to one of those subsidiaries may not take place until
after the shareholder meeting referred to in Step 4. The Department will not
object to the transfer by the Bank of substantially all of its assets to one of
the subsidiaries (despite the 10% of assets aggregate limit on subsidiaries
contained in section 235-d of the Banking Law and Part 85 of the General
Regulations of the Banking board), but the merger of this subsidiary with the
spun-off subsidiary may not take place until after notice of the liquidation of
the Bank has been given to all of the creditors on the books of the Bank. Once
the time for any creditors to come forward has expired, then the subsidiary may
be merged with the spun-off subsidiary, provided that the Bank maintains a
sufficient amount of assets to pay the costs of continuing regulation and
liquidation and to resolve any claims that may have been made during the notice
period. While the subsidiary will sign an agreement between the Bank and itself,
assuming all liabilities whether real or contingent and arising now or in the
future, there must remain sufficient assets in the Bank itself so as to pay the
costs of continuing regulation and liquidation and to abide by the statutory
requirement that it remain solvent until the final dissolution. See section 605
of the Banking Law.
Thus, unless the Bank wishes to have a special shareholder's meeting now to vote
just on the resolution to wind up its affairs, liquidate and dissolve (the exact
wording of the
644912.1
<PAGE>
resolution is contained in section 605(3) of the Banking Law), the Department
would envision that shortly after the shareholder meeting contemplated by Step
4, the Bank would file a petition for a closing order in accordance with section
605(4) of the Banking Law. The petition would explain the entire liquidation
plan and also would include a form of notice to be provided to each creditor
that appears on the books of River Bank, including shareholders. The vote that
was taken last year on the overall plan, with no specifics as to when and how
the liquidation will take place, cannot suffice for purposes of this notice
requirement. The notice to creditors must be specific and explain exactly what
will happen to the assets and liabilities of the Bank and providing a point of
contact at the Bank. The Legal Division should review the documents once they
are in final draft form and if the Legal Division and my office approve of them,
I will sign a letter offering no objection to the entering of a closing order,
which letter should be used as an exhibit to the petition. The petition should
provide for a notice period for any of the creditors to come forward, usually at
least 30 calendar days. Once the notice period has ended, assuming that any
objections that creditors may have made in response to the notice have been
resolved, and assuming that there are no other unresolved issues, then the Bank
should comply with the filing requirements of section 605(5) of the Banking Law,
and file a petition for a dissolution pursuant to section 605(6) of the Banking
Law. During the pendency of this petition, the Department would not object to
the merger of the subsidiaries, provided that an amount sufficient to meet the
continuing costs of regulation and the costs of liquidation are maintained in
the Bank. Once the dissolution order has been signed, any remaining funds in the
Bank may be paid out and a certified copy of the executed dissolution order
should be filed with the Department, and with that filing, the Bank's existence
will be terminated.
With adherence to the conditions noted above, the subsidiaries may be merged
before a final dissolution order has been issued and the Bank will have complied
with the Banking Law. In addition, waiting until after a closing order has been
issued and the notice period to creditors has expired, the requirements of
section 601-c of the Banking Law should be inapplicable. We would like to stress
that it is imperative that the Bank remain solvent until final dissolution.
The timeframe for the plan will, of course, require amendments to the June 18,
1996 Consent Order. Accordingly, you are hereby advised that:
1. Item 1 of the Consent Order required the filing of a plan of
dissolution within one year from the closing of the branch sale, which
took place on June 28, 1996. We understand that a meeting of the
shareholders will be held in September. Upon approval by the
shareholders of the draft plan referred to above, item 1 of the Order
would be deemed to be satisfied.
2. Item 2 required that a petition for a closing order be filed with the
Supreme Court of the State of New York within thirteen months after the
closing of the branch sale. The petition is hereby required to be filed
by October 15, 1997.
644912.1
<PAGE>
3. The minimum capital requirement, which was set at $115 million by item
10, and subsequently amended to $106 million by letter of May 29, 1997,
shall remain at $106 million until final dissolution, unless the
Superintendent shall provide prior approval upon receipt of a written
request.
4. Any material sale or transfer of bank assets, or expenditures for
development of renovation of any properties held by the Bank, shall
require the prior approval of the Superintendent.
All other provisions of the June 18, 1996 Consent Order remain in full force and
effect. Additionally, you are also advised that, as a result of the delay in
meeting the original timetable contained in the Order, the Superintendent may
require an asset review prior to September 30, 1997.
Sincerely yours,
/s/ P. Vincent Conlon
P. Vincent Conlon
Deputy Superintendent of Banks
Cc: Thomas E. Kruger, Battle Fowler LLP
644912.1
<PAGE>
EXHIBIT "C"
RIVER BANK REORGANIZATION STEPS
Step 1: River Bank will form two subsidiaries, River Asset Sub, Inc. ("River
Asset Sub") and River Distribution Sub, Inc. ("River Distribution
Sub"). River Asset Sub will have a single class of common stock. River
Distribution Sub will have common stock and preferred stock. River
Distribution Sub will issue a number of shares of common stock equal to
the number of outstanding shares of common stock of River Bank and the
number of shares of preferred stock equal to the number of outstanding
shares of preferred stock of River Bank. The terms of the River
Distribution Sub preferred stock will be as close as possible to the
terms of the River Bank preferred stock, subject to such changes as are
necessary to eliminate bank-specific provisions.
[GRAPHIC OMITTED]
641783.2
<PAGE>
Step 2: River Bank will contribute all of its assets to River Asset Sub and
River Asset Sub will assume all of River Bank's liabilities.
[GRAPHIC OMITTED]
641783.2
-2-
<PAGE>
Step 3: River Bank will distribute to its common stockholders on a
share-for-share basis all of the common stock of River Distribution Sub
and will distribute to its preferred stockholders on a share-for-share
basis all the preferred stock of River Distribution Sub.
[GRAPHIC OMITTED]
641783.2
-3-
<PAGE>
Step 4: River Asset Sub and River Distribution Sub will enter into a merger
agreement pursuant to which River Asset Sub and River Distribution Sub
will merge with River Asset Sub surviving, renamed "RB Asset, Inc."
("New River").
[GRAPHIC OMITTED]
641783.2
-4-
<PAGE>
Step 5: The merger of River Asset Sub and River Distribution Sub will become
effective. When the merger becomes effective, the separate existence of
River Distribution Sub will cease, the stock of River Asset Sub will be
cancelled, and the outstanding stock of River Distribution Sub will
represent the stock of the survivor.
[GRAPHIC OMITTED]
641783.2
-5-
<PAGE>
Step 6: River Bank will be dissolved, ending its existence.
[GRAPHIC OMITTED]
641783.2
-6-
<PAGE>
EXHIBIT "D"
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of , 1997, by and between
River Bank America, a New York chartered savings bank ("Assignor"), and River
Asset Sub, Inc., a Delaware corporation ("Assignee").
1. For value received, Assignor hereby grants, transfers, conveys, assigns
and delivers to Assignee all of Assignor's right, title and interest in
and to all of Assignor's assets (the "Assets"), other than an amount in
cash, estimated to be no more than $_________, sufficient for Assignor
to pay the costs of continuing regulation and liquidation, to resolve
any claims made against Assignor during the notice period to creditors
and to abide by the statutory requirement under the New York State
Banking Law that Assignor remain solvent until its final dissolution,
to have and to hold the same unto Assignee, its successors and assigns
forever.
2. In consideration of the assignment of the Assets by Assignor to
Assignee, Assignee hereby assumes and agrees to pay, perform and
discharge when due all liabilities and obligations of Assignor of any
kind or nature, known or unknown, whether absolute, contingent, accrued
or otherwise, and whether arising before or after the date hereof,
without limitation.
3. Each of the parties hereto understands and agrees that no party hereto
or in any other agreement or document contemplated by this Assignment
and Assumption Agreement or otherwise is making any representation or
warranty whatsoever with respect to the Assets, including, without
limitation, as to title, value or legal sufficiency. It is also agreed
and understood that all assets either transferred to or retained by the
parties, as the case may be, shall be "as is, where is" and that the
party to which such assets are to be transferred hereunder shall bear
the economic and legal risk that any conveyance of such assets shall
prove to be insufficient or that such party's title to any such assets
shall be other than good and marketable and free from encumbrances.
4. Assignee shall indemnify, defend and hold harmless Assignor, its
affiliates, subsidiaries, directors, officers and employees from and
against any and all losses, liabilities, claims, suits, proceedings,
demands, judgments, damages, expenses and costs, including reasonable
attorneys' fees and costs of defense, which Assignor or its affiliates,
subsidiaries, directors, officers or employees may suffer or incur by
reason of the liabilities of Assignor expressly assumed pursuant to
paragraph 2 hereof and any other liability relating to the Assets or
the business of Assignor.
620812.4
-1-
<PAGE>
5. From time to time, each of the parties hereto shall, if requested by
any other party hereto, make, execute and deliver to such requesting
party any such additional deeds, assignments, bills of sale and other
instruments, documents, certificates and agreements as may be
reasonably necessary or appropriate to consummate the transactions
contemplated hereby.
IN WITNESS WHEREOF, Assignor and Assignee have caused this instrument
to be duly executed as of the ____ day of , 1997.
RIVER BANK AMERICA
By:
Name:
Title:
RIVER ASSET SUB, INC.
By:
Name:
Title:
620812.4
-2-
<PAGE>
EXHIBIT "E"
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the ___ day of
October, 1997, by and between River Asset Sub, Inc., a Delaware corporation
("River Asset Sub"), and River Distribution Sub, Inc., a Delaware corporation
("River Distribution Sub").
Preliminary Statement
River Asset Sub and River Distribution Sub are wholly-owned
subsidiaries of River Bank.
River Bank proposes to engage with River Distribution Sub and
River Asset Sub in a series of transactions (collectively, the "Reorganization")
whereby, among other things:
(i) first, River Bank will file a petition for a closing order in
accordance with section 605(4) of the Banking Law, and will
send a notice to its creditors of the proposed closing and
dissolution of River Bank;
(ii) second, after the issuance of the closing order, the existing
business and all of the assets and liabilities of River Bank
will be transferred to or assumed by River Asset Sub (the
"Business Disposition");
(iii) third, River Bank will file a petition for dissolution
pursuant to section 605(6) of the Banking Law;
(iv) fourth, all of the issued and outstanding shares of River
Distribution Sub Common Stock and shares of River Distribution
Sub Series A Preferred Stock will be distributed by River Bank
to its stockholders (the "Distribution") such that each holder
of River Bank common stock, par value $1.00 per share, will
receive one share of River Distribution Sub Common Stock for
each share of River Bank common stock and each holder of River
Bank 15% noncumulative perpetual preferred stock, series A,
par value $1.00 per share, will receive one share of River
Distribution Sub Series A Preferred Stock for each share of
River Bank series A preferred stock;
(v) fifth, immediately following the Distribution, but during the
pendency of the petition for dissolution, River Distribution
Sub will merge with and into River Asset Sub (which shall have
succeeded to substantially all of the business, assets and
liabilities of River Bank) with River Asset Sub as the
surviving corporation of the merger ("New River"), whereupon
each share of River Asset Sub Common Stock shall be canceled
and each share of
627498.2
<PAGE>
River Distribution Sub Common Stock and River Distribution Sub
Series A Preferred Stock shall be changed from $.001 par value
per share to $1.00 par value per share and shall remain
outstanding (the "Merger"); and
(vi) immediately following the Merger, River Bank will dissolve.
Following the Reorganization, New River will own substantially all of the assets
formerly owned by River Bank, will have assumed all of River Bank's liabilities
and will continue River Bank's business.
River Distribution Sub and River Asset Sub wish to enter into
this Agreement and Plan of Merger for the purpose of effectuating the Merger.
Accordingly, the parties hereto agree as follows:
Article I
Definitions
"Agreement and Plan of Merger" means this Agreement and Plan
of Merger, as the same may be amended or modified from time to time.
"Banking Law" means the Banking Law of the State of New York.
"Business Disposition" has the meaning set forth in the second
paragraph of the preliminary statement.
"Certificate of Merger" means the certificate of merger,
substantially in the form of Exhibit A attached hereto.
"Delaware GCL" means the General Corporation Law of the State
of Delaware, as amended.
"Distribution" has the meaning set forth in the second
paragraph of the preliminary statement.
"FDIC" means the Federal Deposit Insurance Corporation.
"Merger" has the meaning set forth in the second paragraph of
the preliminary statement.
"Merger Closing" has the meaning set forth in section 2.4.
"Merger Closing Date" has the meaning set forth in
section 2.4.
627498.2
- 2 -
<PAGE>
"New River" means the surviving corporation of the Merger
under the laws of the State of Delaware.
"New River Common Stock" means the shares of common stock, par
value $1.00 per share, of New River.
"New River Series A Preferred Stock" means the shares of 15%
noncumulative perpetual preferred stock, series A, par value $1.00 per share, of
New River.
"NYSBD" means the New York State Banking Department.
"Reorganization" has the meaning set forth in the second
paragraph of the preliminary statement.
"River Asset Sub" means River Asset Sub, Inc., a Delaware
corporation.
"River Asset Sub Common Stock" means the shares of common
stock, par value $1.00 per share, of River Asset Sub.
"River Bank" means River Bank America, a New York chartered
savings bank.
"River Distribution Sub" means River Distribution Sub, Inc., a
Delaware corporation.
"River Distribution Sub Common Stock" means the shares of
common stock, $.001 par value per share, of River Distribution Sub.
"River Distribution Sub Series A Preferred Stock" means the
shares of 15% noncumulative perpetual preferred stock, series A, $.001 par value
per share, of River Distribution Sub.
Article II
Merger of River Asset Sub and River Distribution Sub
Section 2.1. The Merger.
(a) Subject to the terms and conditions of this Agreement and
Plan of Merger, at the time of the Merger Closing, the Certificate of Merger
shall be duly executed and acknowledged by River Distribution Sub and River
Asset Sub in accordance with section 251 of the Delaware GCL, and shall be filed
with the Secretary
627498.2
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<PAGE>
(b) of State of the State of Delaware on the Merger Closing
Date. The Merger shall become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or at the time
specified in the Certificate of Merger in accordance with section 251 of the
Delaware GCL (the "Effective Time").
(c) At the Effective Time, River Distribution Sub shall be
merged with and into River Asset Sub and the separate corporate existence of
River Distribution Sub shall cease, and River Asset Sub shall continue as the
surviving corporation under the laws of the State of Delaware.
(d) From and after the Effective Time, the Merger shall have
the effects set forth in section 259 of the Delaware GCL, including, without
limitation, the effect that all liabilities of River Distribution Sub and River
Asset Sub shall thenceforth attach to and be enforceable against New River as if
said liabilities had been incurred or contracted by it.
Section 2.2. Effect on Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of River
Distribution Sub or River Asset Sub or any holder of shares of any capital stock
thereof:
(a) Capital Stock of River Distribution Sub. Each issued and
outstanding share of River Distribution Sub Common Stock shall be changed from
$.001 par value per share to $1.00 par value per share and shall remain
outstanding and become one fully paid and non-assessable share of common stock,
$1.00 par value per share, of New River. Each issued and outstanding share of
River Distribution Sub Series A Preferred Stock shall be changed from $.001 par
value per share to $1.00 par value per share and shall remain outstanding and
become one fully paid and non-assessable share of 15% noncumulative perpetual
preferred stock, series A, par value $1.00 per share, of New River.
(b) Cancellation of River Bank Owned Stock. All shares of
River Asset Sub Common Stock shall be canceled and retired and cease to exist
and no cash or other consideration shall be delivered in exchange therefor.
(c) Issuance of New River Capital Stock. As soon as
practicable after the Effective Time, New River shall cause its transfer agent
to mail to each record holder of River Distribution Sub Common Stock and River
Distribution Sub Series A Preferred Stock outstanding immediately prior to the
Effective Time certificates registered in such holder's name evidencing the same
number of shares of New River Common Stock or New River Series A Preferred
Stock, as the case may be. At the close of business on the date on which the
Effective Time occurs the stock transfer ledger of River Distribution Sub shall
be closed.
627498.2
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<PAGE>
Section 2.3. Other Effects of Merger.
(a) Name of Surviving Corporation. The name of the surviving
corporation upon and after the Effective Time shall be "RB Asset, Inc."
(b) Certificate of Incorporation of New River. The certificate
of incorporation of River Distribution Sub, as in effect immediately prior to
the Effective Time, shall be amended to change the name of New River from "River
Distribution Sub, Inc." to "RB Asset, Inc." and to change the par value of the
New River capital stock from $.001 par value per share to $1.00 par value per
share, and, as so amended, shall be the certificate of incorporation of New
River until thereafter changed or amended as provided therein or by law.
(c) Directors and Officers of New River. The directors of
River Distribution Sub immediately prior to the Effective Time shall be the
directors of New River, and the officers of River Distribution Sub immediately
prior to the Effective Time shall be the officers of New River, each of such
directors and officers to hold office, subject to the applicable provisions of
the certificate of incorporation and bylaws of New River, until their respective
successors shall be duly elected or appointed and qualified.
(d) Bylaws of New River. The bylaws of River Distribution Sub,
as in effect immediately prior to the Effective Time, shall be the bylaws of New
River until thereafter changed or amended as provided therein or by law.
Section 2.4. Closing of the Merger. The closing of the Merger
(the "Merger Closing") shall take place at the offices of Battle Fowler LLP, 75
East 55th Street, New York, New York 10022, as soon as practicable after the
last of the conditions set forth in section 2.6 hereof has been fulfilled or
waived (subject to applicable law) but in no event later than the fifth business
day thereafter, or at such other time and place and on such other date as River
Bank shall specify (the "Merger Closing Date").
Section 2.5. River Bank Approval. Notwithstanding anything to
the contrary herein, at any time prior to the time that the Certificate of
Merger is filed with the Secretary of State of the State of Delaware as provided
in section 2.1, the Merger may be terminated by the board of directors of River
Bank notwithstanding the prior approval of this Agreement and Plan of Merger by
the board of directors or stockholders of River Distribution Sub and River Asset
Sub.
Section 2.6. Conditions to Closing. The obligations of River
Distribution Sub and River Asset Sub to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the Merger
Closing Date of each of the following conditions:
627498.2
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<PAGE>
(a) Consummation of Business Disposition and Distribution. The
Business Disposition and Distribution shall have occurred.
(b) Petition for Dissolution. River Bank shall have filed a
petition for dissolution in accordance with section 605(6) of the Banking Law.
(c) Approval of Board of Directors of River Distribution Sub
and River Asset Sub. The Merger shall have been approved and adopted by the
requisite vote or consent of the board of directors of each of River Asset Sub
and River Distribution Sub.
(d) Approval of Stockholders. The Merger shall have been
approved by the requisite vote or consent of the stockholders of River
Distribution Sub and River Asset Sub.
(e) Governmental Approvals. All required governmental
approvals, including any required approvals from the NYSBD and the FDIC, to the
Merger shall have been obtained.
Article III
Miscellaneous
Section 3.1. Further Assurances. From time to time, each of
the parties hereto shall, if requested by any other party hereto, make, execute
and deliver to such requesting party any such additional instruments, documents,
certificates and agreements as may be reasonably necessary or appropriate to
consummate the transactions contemplated hereby.
Section 3.2. Entire Agreement. This Agreement and Plan of
Merger and the exhibits and other documents referred to herein or delivered
pursuant hereto, collectively contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings, oral and written, with respect thereto.
Section 3.3. Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented in writing by the
parties hereto in any and all respects before the Effective Time
(notwithstanding any stockholder approval), by action taken by their respective
boards of directors or by the respective officers authorized by such boards of
directors, at any time before or after the approval of this Agreement and Plan
of Merger by the stockholders of River Distribution Sub and River Asset Sub, but
after any such stockholder approval, no amendment shall be made which decreases
or changes the form of consideration to be paid to stockholders of River
Distribution Sub in the Distribution or the Merger or which
627498.2
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<PAGE>
has a material adverse affect on the rights of River Distribution Sub's
stockholders or by law requires further approval by such stockholders, without
further approval of River Distribution Sub's stockholders.
Section 3.4. Headings. The descriptive headings of the several
articles and sections of this Agreement and Plan of Merger are inserted for
convenience only, do not constitute a part of this Agreement and Plan of Merger
and shall not affect in any way the meaning or interpretation of this Agreement
and Plan of Merger.
Section 3.5. Counterparts. This Agreement and Plan of Merger
may be executed in several counterparts, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument.
Section 3.6. Governing Law. This Agreement and Plan of Merger
and the legal relations between the parties hereto shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, each of River Distribution Sub and River
Asset Sub has caused this Agreement and Plan of Merger to be executed by its
respective officers thereunto duly authorized, all as of the date first above
written.
River Distribution Sub, Inc.
By:
Name:
Title:
River Asset Sub, Inc.
By:
Name:
Title:
627498.2
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<PAGE>
ACKNOWLEDGMENT
I, Robin Chandler Duke, Secretary of River Asset Sub, Inc., a
corporation organized and existing under the laws of the State of Delaware, and
Secretary of River Distribution Sub, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certify, as such Secretary, that
the Agreement and Plan of Merger to which this certificate is attached, after
having been first duly signed on behalf of the said corporations, was duly
adopted pursuant to section 228 of the Delaware General Corporation Law by the
unanimous written consent of the stockholders holding all of the outstanding
shares of capital stock of each corporation which Agreement and Plan of Merger
was thereby adopted as the act of the stockholders of such corporations, and the
duly adopted agreement and act of the said corporations.
WITNESS my hand on this ____ day of ____________, 1997.
Robin Chandler Duke, Secretary
627498.2
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<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
RIVER ASSET SUB, INC.
AND
RIVER DISTRIBUTION SUB, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) River Asset Sub, Inc., which is incorporated in
the State of Delaware ("River Asset Sub"); and
(ii) River Distribution Sub, Inc., which is
incorporated in the State of Delaware ("River Distribution Sub").
2. An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 251
of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is River Asset Sub, which will continue its existence as said
surviving corporation under the name "RB Asset, Inc." upon the effective date of
said merger pursuant to the provisions of the General Corporation Law of the
State of Delaware.
4. The Amended and Restated Certificate of Incorporation of
River Distribution Sub, as now in force and effect, is to be further amended and
changed by reason of the merger herein certified by striking out Article FIRST
thereof, relating to the name of such corporation, and by substituting in lieu
thereof the following article:
"FIRST: the name of the corporation is RB Asset, Inc.
(hereinafter called the "Corporation").";
and by striking out Article FOURTH thereof, relating to the par value of the
capital stock of such corporation, and by substituting in lieu thereof the
following article:
627498.2
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<PAGE>
"FOURTH: A. The total number of shares of all classes
of capital stock which the Corporation shall have authority to
issue is forty million (40,000,000) shares, of which ten
million (10,000,000) shares shall be preferred stock, par
value $1.00 per share (the "Preferred Stock"), and thirty
million (30,000,000) shares shall be common stock, par value
$1.00 per share (the "Common Stock"). The Preferred Stock and
the Common Stock are sometimes hereinafter collectively
referred to as "Capital Stock."";
and said Amended and Restated Certificate of Incorporation as so amended and
changed shall be the Certificate of Incorporation of said surviving corporation
until further amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed agreement and plan of merger between the
constituent corporations is on file at an office of the aforesaid surviving
corporation, the address of which is as follows:
645 Fifth Avenue
New York, New York 10022
6. A copy of the aforesaid agreement and plan of merger will
be furnished by the aforesaid surviving corporation, on request, and without
cost, to any stockholder of each of the aforesaid constituent corporations.
7. The agreement and plan of merger between the aforesaid
constituent corporations provides that the merger herein certified shall be
effective upon the filing of this certificate.
Dated: October __, 1997
RIVER ASSET SUB, INC.
By:
Its President
Dated: October __, 1997
RIVER DISTRIBUTION SUB, INC.
By:
Its President
627498.2
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<PAGE>
EXHIBIT "F"
FINANCIAL STATEMENTS
RIVER BANK AMERICA
Index to Consolidated Financial Statements
Page
Report of Independent Auditor 75
Consolidated Statements of Financial Condition
Years ended June 30, 1997 and 1996 76
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995 77
Consolidated Statements of Changes in Stockholders' Equity
Year ended June 30, 1997, 1996, and 1995 78
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995 79
Notes to Consolidated Financial Statements 81
644923.1
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<PAGE>
Report of Independent Auditors
The Board of Directors
River Bank America
We have audited the consolidated statements of financial condition of River Bank
America (the "Bank") as of June 30, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Bank at June
30, 1997 and 1996 and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank has adopted, as of
July 1, 1994, SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," as of July 1, 1995, SFAS No. 114, "Accounting By Creditors
for Impairment of a Loan" and as of July 1, 1996, SFAS No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of.)"
Ernst & Young LLP
New York, New York
July 18, 1997
644923.1
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash, due from banks and cash equivalents (Note 5) $ 8,940 $ 13,129
Cash, due from banks - restricted (Note 5) 5,096 -
Money market investments (Note 5) - 4,000
Investment securities available for sale, net (Note 6) 6,275 5,685
Mortgage-backed securities available for sale, net (Note 7) - 187
Loans receivable, net:
Secured by real estate (Note 8) 80,093 86,983
Commercial and consumer (Note 9) 15,677 16,022
Allowance for possible credit losses (Note 10) (31,570) (34,142)
----------- -----------
Total loans receivable, net 64,200 68,863
----------- -----------
Loans sold with recourse, net (Note 11) 24,451 29,914
Premises and equipment, net (Note 12) - 146
Other real estate owned, net (Note 13) 7,127 30,386
Real estate held for investment, net (Note 14) 90,222 116,054
Other assets (Note 15) 5,348 17,114
----------- -----------
$ 211,659 $ 285,478
=========== ===========
Liabilities and Stockholders' Equity
Due to depositors (Note 16) $ - $ 3,022
Borrowed funds (Note 17) 84,272 115,786
Mortgage escrow deposits - 271
Other liabilities (Note 18) 18,877 27,879
----------- -----------
103,149 146,958
----------- -----------
Stockholders' equity (Note 19):
15% non-cumulative perpetual preferred stock, Series A, par value
$1, liquidation value $25 (1,400,000 shares authorized issued
and outstanding at June 30, 1997 and 1996)) 1,400 1,400
Common stock, par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at June 30, 1997 and 1996 7,100 7,100
Additional paid-in capital 111,170 111,170
Accumulated (deficit)/ retained earnings
(Notes 2 and 18) (10,055) 20,068
Securities valuation account (Notes 5 and 6) ( 1,105) (1,218)
----------- -----------
Total stockholders' equity 108,510 138,520
----------- -----------
$ 211,659 $ 285,478
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
644923.1
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
June 30,
1997 1996 1995
<S> <C> <C> <C>
Interest, fees on loans and dividend income:
Loans receivable $ 4,504 $ 76,614 $ 73,681
Mortgage-backed securities 2 5,342 9,337
Investment securities 574 9,347 1,859
Money market investments 155 2,489 3,428
Other 234 617 573
---------- ---------- ----------
5,469 94,409 88,878
---------- ---------- ----------
Interest expense:
Deposits (Note 16) - 47,719 42,782
Borrowed funds 7,132 14,026 9,411
Other 228 49 62
---------- ---------- ----------
7,360 61,794 52,255
---------- ---------- ----------
Net interest income (1,891) 32,615 36,623
Provision for possible credit losses (Note 10) 1,000 5,250 5,041
Net interest income after
provision for possible credit losses (2,891) 27,365 31,582
---------- ---------- ----------
Real estate operations:
Writedowns of other real estate owned and
real estate held for investment (19,745) (1,889) (14,460)
Net loss on sale of real estate, loans (1,754) - -
Income (loss) from other real estate owned, net 3,131 (2,911) 103
---------- ---------- ----------
(18,368) (4,800) (14,357)
---------- ---------- ----------
Other income:
Gains from sales of equity interests - - -
Gains on sales of offices and branches - 77,560 -
Banking fees and service charges - 2,463 2,320
Net gains (losses) on sales of investment
securities and other assets (1,495) (605) 441
Provision for Marine Sale contingencies (3,300) - -
Other 159 1,533 1,228
---------- ---------- ----------
(4,636) 80,951 3,989
---------- ---------- ----------
Other expenses:
Salaries (Note 22) 927 9,814 11,329
Employee benefits 243 4,349 3,597
Premises and occupancy costs - 8,108 7,203
Deposit insurance - 2,533 3,704
Electronic data processing - 3,700 3,326
Legal and professional fees 1,892 4,521 4,581
Foreclosure costs - 225 1,105
Other operating (Note 23) 4,466 3,504 8,630
---------- ---------- ----------
7,528 36,754 43,475
---------- ---------- ----------
Income (loss) before provision for income taxes (33,423) 66,762 (22,261)
Benefit from (provision for) income taxes 3,300 (11,749) (2,113)
---------- ---------- ----------
Net income (loss) (30,123) 55,013 (24,374)
Dividends declared on Preferred Stock - 5,250 5,250
Net income (loss) applicable to Common Shares $ (30,123) $ 49,763 $ (29,624)
========== ========== ==========
Net income (loss) per common share (Note 4) $ (4.24) $ 7.01 $ (4.17)
========== ========== ==========
</TABLE>
See notes to Consolidated Financial Statements
644923.1
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Series A
Non-
cumulative Total
Perpetual Additional Retained Stockholders'
Preferred Common Paid-in Earnings Securities Equity
Stock Stock Capital (Deficit) Valuation Account
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 $ 1,400 $ 7,100 $ 111,700 $ (71) $ (1,752) $ 117,847
Net loss for the year ended
June 30, 1995 - - - (24,374) - (24,374)
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - 1,911 1,911
-------- -------- ---------- ---------- ---------- ----------
Balances at June 30, 1995 1,400 7,100 111,170 (29,695) 159 90,134
-------- -------- ---------- ---------- ---------- ----------
Net income for the year ended
June 30, 1996 - - - 55,013 - 55,013
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - 1,377 (1,377)
-------- -------- ---------- ---------- ---------- ----------
Balances at June 30, 1996 1,400 7,100 111,170 20,068 (1,218) 138,520
-------- -------- ---------- ---------- ---------- ----------
Net loss for the year ended
June 30, 1997 - - - (30,123) - (30,123)
Preferred Stock dividends - - - - - -
Change in securities valuation
-------- -------- ---------- ---------- ---------- ----------
account - - - - 113 113
Balances at June 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,055) $ (1,105) $ 108,510
======== ======== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
644923.1
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Cash Flows Provided by/(Used in) Operating Activities:
Net income (loss) $ (30,123) $ 55,013 $ (24,374)
Adjustments to reconcile net loss to net cash
provided by (used in) operating
activities:
Provision for possible credit losses 1,000 5,250 5,041
Depreciation and amortization 215 1,159 1,362
Net (increase)/decrease in accrued interest and
dividends receivable (326) 5,939 (1,072)
Net increase/(decrease) in accrued interest payable 964 (1,341) 286
Net change in accrued income taxes (5,019) 18,018 442
Net increase/(decrease) in accrued expenses
and accounts payable (4,947) 4,944 (3,469)
Net (increase)/decrease in prepaid expenses 1,195 398 (525)
Amortization of deferred fees and premiums - (2,717) (1,294)
Loan fees collected net of expenses deferred - (761) (837)
Net (gains)/losses on sales of loans, investments
and investments in real estate 3,249 605 (441)
Gain on sales of branches - (77,560) -
Loss (recovery) on investment in savings bank organizations (353) - 1,078
Write-downs of other real estate owned and
real estate held for investment and real estate assets (19,745) 1,889 14,460
Other - (37) 1,373
---------- ------------ ----------
Net cash provided by/(used in) operating activities (14,400) 10,799 (7,970)
---------- ------------ ----------
Investing Activities
Cash Flows Provided by/(Used in) Investing Activities:
Proceeds from sales and maturities of investment
securities - 285,084 60,129
Purchases of investment securities - (280,591) (42,735)
Purchases of mortgage-backed securities - - (71,913)
Proceeds from sales of mortgage-backed securities - 198 60,033
Transfer of securities in Branch Sale - 78,419 -
Principal collections on mortgage-backed securities 187 6,050 22,953
Transfer of loans in Branch Sale - 1,067,472 -
Net repayment/(origination) of loans secured by real
estate 4,252 (82,942) 6,497
Net decrease/(increase) in loans sold with recourse 3,463 (29,914) -
Net repayment/(origination) of commercial and
consumer loans 345 21,188 (2,239)
Proceeds from sale of premises and equipment - 1,300 -
Purchase of premises and equipment - (234) (441)
Sale of fixed assets - 5,613 -
Proceeds from sales of real estate 43,161 97,827 31,797
Advances on real estate (14,270) (30,438) (27,485)
Purchases of underlying mortgages on other real estate
owned and real estate held for investment - - (39,613)
Redemption of Federal Home Loan Bank of New York
stock 8,976 - -
---------- ------------ ----------
Net cash provided by/(used in) investing activities $ 46,114 $ 1,139,032 $ (3,017)
---------- ------------ ----------
</TABLE>
See notes to Consolidated Financial Statements
644923.1
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
1997 1996 1995
<S> <C> <C> <C>
Financing Activities
Cash Flows Provided by/(Used in) Financing Activities:
Increase in restricted cash $ (5,096) $ - $ -
Interest credited to time deposits and savings accounts - 47,719 41,403
Dividends paid on preferred stock - (5,250) (3,938)
Net decrease in deposit accounts (3,022) (56,611) (124,072)
Deposits transferred in Branch Sale - (1,159,616) -
Proceeds from borrowed funds 4,459 89,760 52,469
Repayments of borrowed funds (30,179) (177,035) (15,000)
Increase in borrowed funds secured by loans sold
under recourse (5,794) 24,000 -
Net decrease in escrow deposits (271) (4,209) (4,966)
---------- ------------ ----------
Net cash used in financing activities (39,903) (1,241,242 (54,104)
========== ============ ==========
Net increase/(decrease) in cash and money market
investments (8,189) (91,411) (65,091)
Beginning cash and money market investments 17,129 108,540 173,631
---------- ------------ ----------
Ending cash and money market investments $ 8,940 $ 17,129 $ 108,540
========== ============ ==========
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Net transfer of mortgage loans to other real estate and real
estate held for investment $ - $ 7,852 $ 4,116
Loans charged-off, net of recoveries $ 3,572 $ 10,529 $ 12,132
Loans to facilitate real estate sales $ - $ 23,436 $ 69,960
Loans to facilitate investment sales $ - $ - $ 700
Changes in securities valuation account $ 113 $ (1,377) $ 1,911
Loans received in settlement of litigation $ - $ - $ 5,600
Cash paid for:
Interest $ 7,682 $ 61,429 $ 51,969
Federal, state and local taxes $ 1,952 $ 3,675 $ 1,671
</TABLE>
See Notes to Consolidated Financial Statements
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
1. Organization, summary of significant accounting policies and accounting
changes
Effective October 1, 1988, East River Savings Bank formally changed its
corporate name to River Bank America. On June 28, 1996, River Bank America sold
its remaining eleven branches to Marine Midland Bank, inclusive of the name East
River Savings Bank. (See Note 2). All retail banking activities have ceased.
River Bank America (the Bank), a New York State chartered savings bank,
converted to a stock-form savings bank through a plan of conversion in 1985.
Basis of presentation: The consolidated financial statements include the
accounts of River Bank America and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation. Due to the
anticipated short-term nature of such investments, investments in unconsolidated
real estate partnerships are generally carried at cost, subject to periodic
assessment of net realizable value. Gains on sales or dispositions of such
investments are recognized dependent upon the terms of the transaction. Losses
on sales or dispositions and any adjustments related to redetermination of net
realizable value are charged to operations of the current period.
For the purpose of the statements of cash flows, cash equivalents are defined as
those amounts included in cash and due from banks and money market investments.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation.
Money market investments: Money market investments are carried at cost, which
approximates market value.
Investment securities and Mortgage-backed securities: In May 1993, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As permitted under SFAS No. 115, the Bank elected to adopt
the provisions of the new standard at December 31, 1993. In accordance with the
statement, prior period financial statements were not restated. At June 30,
1997, the balance of stockholders' equity included a $1,105 unrealized loss on
securities classified as available for sale.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Available for sale securities are stated at estimated fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The cost of debt securities classified as available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security using a method approximating the level yield method. Such
amortization is included in interest income from these investments. Interest and
dividends are included in interest income from the respective investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains and losses. The cost
of securities sold is based on the specific identification method.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Loans receivable, interest, and loan origination fees and costs: Loans
receivable are stated at principal balances, net of deferred fees and costs.
Interest on loans is accrued based on principal amounts outstanding. Loans are
placed on non-accrual status when they become 90 days past due or at any time
collection of principal or interest is doubtful unless, in the opinion of
management, collection appears likely. Accrued but unpaid interest on such loans
is reversed and interest income is subsequently recognized only to the extent
that payments are received and when no doubt exists as to the collectibility of
the remaining book balance of the asset. Interest is subsequently accrued when
such loans return to full current status and have had a period of performance in
accordance with a loan's terms.
Loan origination fees and certain loan origination direct costs are deferred,
and the net fee or cost is recognized as an adjustment to interest income over
the approximate lives of the related loans, adjusted for estimated prepayments
as appropriate to provide a level interest yield.
Allowance for possible credit losses: The allowance for possible credit losses
is provided by charges to operations. Credit losses, net of recoveries, are
charged directly to the allowance for possible credit losses. Additions to the
allowance are based on management, periodic review and evaluation of the Bank's
assets, the potential for loss in light of the current composition of the Bank's
assets, and economic conditions.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated statements of financial
condition and operations for the period. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for possible credit losses and the valuation of
other real estate owned and real estate held for investment. A substantial
portion of the Bank's loans are collateralized by real estate and, accordingly,
the performance of such loans may be affected by market conditions for real
estate. As of June 30, 1997, most of the Bank's OREO is located in New York. The
Bank has 42% of its total assets in five real estate properties and loans.
Accordingly, the ultimate collectibility of these assets collateralized by real
estate is particularly susceptible to changes in local market conditions.
Management believes that the allowance for possible credit losses is adequate
and that other real estate owned and real estate held for investment is properly
recorded at fair value minus estimated selling costs. While management uses
available information to recognize losses, future additions to the allowance or
writedowns of other real estate owned or real estate held for investment may be
necessary based on changes in economic conditions, as well as changes in
management strategies. In addition, the Federal Deposit Insurance Corporation
("FDIC") and the New York State Banking Department ("NYSBD"), as an integral
part of their examination processes, periodically review the adequacy of the
allowance for possible credit losses and the carrying amount of other real
estate owned and real estate held for investment. Such agencies may require the
Bank to recognize additions to the allowance or additional writedowns based on
their judgment or information available to them at the time of their
examinations.
Real estate: The Bank accounts for real estate foreclosed at the lower of fair
value, minus estimated costs to sell, or cost. The Bank has set up valuation
allowances that adjust the carrying value of foreclosed assets to the lower of
cost or fair value minus estimated costs to sell. Increases and decreases to the
valuation account are recognized in the statement of operations. Certain
foreclosed assets are accounted for net of nonrecourse senior debt. The results
are not materially different than if Statement of Position No. 92-3, "Accounting
for Foreclosed Assets" had been followed. The adoption of SFAS-121, which was
implemented during fiscal 1997, resulted in no material changes to the reported
operations of the Bank.
Premises and equipment: Premises and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings and capital improvements on
buildings are depreciated and amortized over the estimated useful lives of the
buildings. Leasehold improvements are generally amortized over the terms of the
related leases or the estimated life of the improvement whichever is shorter.
Furniture, fixtures and equipment are depreciated over their estimated useful
lives. Depreciation and amortization are computed using the straight-line
method. Maintenance, repairs and minor improvements are charged to operations as
incurred while major improvements are capitalized.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Interest on due to depositors' accounts: Interest accruals on NOW, savings and
transaction accounts, and time deposit accounts are recorded monthly and
credited to the respective accounts in accordance with the terms of the account.
During 1995, all remaining brokered certificates of deposit matured and were
repaid. The Bank will not accept any new brokered certificates of deposit.
Retirement plan: The Bank has a contributory 401(k) plan and a non-contributory
pension plan (the"Plan") covering substantially all of its employees. During
1992, the Bank adopted an amendment to the Plan which ceased the accrual of
benefits under the Plan ("Plan suspension") effective April 30, 1992. The Plan
was further amended to exclude employees hired on or after April 30, 1992 from
participating in the Plan.
Income taxes: For federal income tax purposes, the Bank files a consolidated tax
return with its subsidiaries on a calendar year basis. The Bank files combined
New York State and New York City income tax returns with various subsidiaries.
In addition, certain subsidiaries file on a separate basis in New York and the
Bank and certain subsidiaries file income and franchise tax returns in various
other states.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability method is used
to account for income taxes. Accordingly, 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. To the extent that current available
evidence about the future raises doubt about the realization of deferred tax
assets, a valuation allowance must be established. Deferred tax assets and
liabilities are measured using enacted tax rates which are expected to be
applicable to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Effective January 1, 1993, the Bank adopted SFAS No. 109. As permitted by SFAS
No. 109, prior financial statements were not restated to reflect the change in
accounting method. The cumulative effect of the change in the method of
accounting for income taxes had no impact on the 1993 consolidated statement of
operations, and therefore, there was no cumulative effect adjustment.
Prior to the adoption of SFAS No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
differences originated.
Recent Accounting Pronouncements: In March 1995, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The
statement requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The SFAS No. 121 definition of
long-lived assets includes the Bank's other real estate owned and real estate
held assets. The Bank's adoption of SFAS No. 121 on July 1, 1996 did not have a
material effect on its consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Bank will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
implementation of SFAS No. 128 is not expected to have any effect on the Bank's
primary earnings per share for the years ended June 30, 1997, 1996 and 1995.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
2. Purchase of Assets and Liability Assumption Agreement
On June 28, 1996, River Bank consummated the Purchase of Assets and Liability
Assumption Agreement ("Branch Agreement") by and between the Bank and Marine
Midland Bank ("Marine"). Marine purchased all eleven branches of East River
Savings Bank ("Branch Sale"), assumed $1.159 billion in liabilities, $1.067
billion in assets and the Bank recorded a gross deposit premium of $93 million
and proceeds from the sale of one office building of $1.3 million. The bank will
no longer accept retail deposits and will notify the Federal Deposit Insurance
Company ("FDIC") that it seeks to terminate its status as a depository
institution. Subsequent to the Branch Sale, the Bank transferred mortgage escrow
deposits (which are FDIC insured) to another financial institution. Upon the
transfer of such escrow deposits and the issuance of an order by the FDIC
terminating the Bank's status as a depository institution, the Bank will no
longer be subject to the banking regulations of the FDIC but will remain a
banking organization chartered and regulated by the New York State Banking
Department ("NYSBD").
The net pre-tax gain on the sale of offices and branches of $77.6 million
reflected the deposit premium of $93.0 million, partially offset by Branch Sale
transaction costs of $5.8 million, professional fees of $3.2 million, employee
benefits and severance costs of $4.6 million, net losses on the sale of assets
of $1.1 million and other net costs of $700,000. During the year, the
indemnification agreements with Marine were amended and a $3.3 million
contingency reserve was recorded.
The Bank retained $285.5 million in assets, including real estate assets
(including joint ventures), mortgage loans and investment securities ("Retained
Assets"). The Bank intends to continue substantially the same disposition
strategy for such assets previously employed by the Bank. While the Bank's
disposition strategy has previously resulted in a reduction of real estate
assets and non-performing loans, there can be no assurance that such strategies
will produce sufficient cash after debt service to make distributions to
stockholders.
The closing of the Branch Sale was conditioned upon River Bank's obtaining
financing with terms and in an amount reasonably acceptable to River Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine facilities ("Initial Facilities") consisting of
eleven independent mortgage loans in an aggregate amount not to exceed $99,060.
At June 30, 1997, the Bank had $66,066 outstanding under the Initial Facilities.
Proceeds of the Initial Facilities were utilized by River Bank to (i) refinance
all or part of the certain indebtedness secured by assets to be transferred to
Marine, including all or a substantial part of the outstanding advances from the
Federal Home Loan Bank ("FHLB") and (ii) provide additional funds for the
development and completion of two individual real estate assets as part of the
Bank's operations subsequent to the Branch Sale.
Subsequent to the closing of the Branch Sale, although the Bank will have
executive officers under NYBL, the bank no longer maintains any significant
staff of employees to manage the Bank's affairs. Rather, the day to day
management responsibilities of the Bank will be obtained from RB Management
Company, a newly formed management company affiliated with Mr. Dworman.
It is anticipated that a significant amount of services necessary to manage and
dispose of the Retained Assets will be provided by RB Management Company or
third party subcontractors who will not have any continuing fiduciary
obligations to the Bank or the stockholders. The selection of third party
subcontractors to provide various services to the Bank will be made by RB
Management Company, subject to the ratification by committees of the board of
directors but without stockholder approval. The Bank's success in maximizing
returns from the disposition of the Retained Assets will depend on the efforts
of RB Management Company and third party contractors retained to provide
services to the Bank.
644923.1
-84-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
3. Regulatory Capital Requirements
The Banking Department has advised the Bank that the Bank's minimum capital
requirement set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement. So long as the Bank's deposit accounts
are by the FDIC, as a Federally-insured state-chartered bank, the Bank is
required to maintain minimum levels of regulatory capital. Under current FDIC
regulations, insured state-chartered banks generally must maintain (i) a ratio
of Tier 1 leverage capital to total assets of at least 4.0% to 5.0% (3.0% for
the most highly-rated banks) and (ii) a ratio of Tier 1 capital to risk weighted
assets of at least 4.0% and a ratio of total capital to risk weighted assets of
at least 8.0%.
On September 20, 1995, the Bank executed the 1995 Memorandum of Understanding
("1995 MOU") with the FDIC and the NYSBD. The 1995 MOU imposed certain
conditions and operating restrictions on the Bank, affecting among other things,
its ability to pay dividends in the future.
On October 31, 1996, the Bank requested that the FDIC terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. As a result, the Bank expects that it will no longer be subject to the
capital requirements of the FDIC. On April 14, 1997, the Bank received notice
that the FDIC, as requested by the Bank, intends to terminate the Bank's status
as an insured state nonmember Bank on December 31, 1997.
4. Earnings per Share
Earnings per share were based upon 7,100,000 weighted average shares of Common
Stock outstanding during the years ended June 30, 1997, 1996, and 1995,
respectively.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
5. Cash due from banks and cash equivalents and Money market investments
Included in Cash, due from banks and cash equivalents at June 30, 1997 are
approximately $4.7 million in Funds maintained on deposit by wholly-owned
subsidiaries and required to meet ongoing cash flow requirements of those
subsidiaries. At June 30, 1997, Marine Midland had restricted a total of
approximately $5.1 million in funds, held on deposit at Marine, in accordance
with the term of the Branch Sale and the Marine Facility agreements. Restricted
funds held by Marine are not available to the Bank for settlements of any of the
Bank's current obligations. Of the $5.1 million cash balance restricted by
Marine at June 30, 1997, $5.0 million relates to reserve amounts specified under
the Branch Sale Agreement which are restricted to a maximum level of $5.0
million. The remaining restricted cash reserves held by Marine are primarily to
meet the currently anticipated and other potential cash requirements of the
properties serving as collateral for the senior loan financed by Marine.
Money market investments at June 30, 1997 and 1996, at cost, which approximates
market value, consist of the following short-term instruments:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
Federal funds sold $ - $ -
Short-term time deposits - 4,000
Reverse repurchase agreements - -
-------- ---------
$ - $ 4,000
======== =========
</TABLE>
Money market investments at June 30, 1996 had a weighted average maturity of 29
days.
6. Investment securities available for sale, net
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortize Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity securities $ 7,380 $ - $ (1,105) $ 6,275
========== ======== ========= ==========
</TABLE>
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity securities $ 6,903 $ - $ (1,218) $ 5,685
========== ======== ========= ==========
</TABLE>
7. Mortgage-backed securities available for sale, net
The Bank had no mortgage-backed securities available for sale at June 30, 1997.
During the year ended June 30, 1997, all remaining mortgage-backed securities,
totaling $187,000, were sold at book value.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
8. Loans receivable, secured by real estate
Loans secured by real estate at June 30, 1997 and 1996 consist of the following:
June 30, June 30,
1997 1996
Residential:
One-to-four family $ 3,924 $ 4,557
Multi-family 26,090 31,336
Commercial 50,078 51,090
Construction:
One-to-four family - -
Multi-family - -
Commercial - -
Less:
Deferred fees, net - -
--------- ---------
$ 80,092 $ 86,983
========= =========
Loans on which the accrual of interest has been discontinued amounted to $32,271
at June 30, 1997. If interest on non-performing loans classified as loans
receivable had been accrued, such income would have approximated $2,100 for the
year ended June 30, 1997. Interest income collected and recognized on such loans
amounted to $161 for the year ended June 30, 1997.
At June 30, 1997 the Bank had 5 restructured loans secured by real estate which
aggregated $24,454. At June 30, 1997, approximately 85% of all the Bank's
outstanding mortgage loans were secured by properties located in New York and
California.
9. Loans receivable, commercial and consumer
Commercial and consumer loans at June 30, 1997 and 1996 consist of the
following:
June 30, June 30,
1997 1996
Commercial loans:
Secured $ 2,520 $ 4,718
Unsecured 10,286 8,266
--------- ---------
12,806 12,984
Less:
Deferred fees, net - -
--------- ---------
12,806 12,984
Consumer loans:
Student education loans 2,504 2,671
Passbook loans - -
Other 367 367
--------- ---------
$ 15,677 $ 16,022
========= =========
In connection with the Branch Sale, the Bank sold with recourse, $12,000 in
SLMA receivables as further described in Note 11.
644923.1
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<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Loans on which the accrual of interest has been discontinued amounted to $6,639
at June 30, 1997. If interest on non-performing loans had been accrued, such
income would have approximated $547 for the year ended June 30, 1997. No
interest income was collected or recognized on such loans during the fiscal year
ended June 30, 1997.
10. Allowance for possible credit losses
The following is an analysis of the allowance for possible credit losses for the
years ended June 30, 1997 and 1996:
1997 1996
Balance at July 1 $ 34,142 $ 33,985
Provision charged to operations 1,000 5,250
Provision not charged to operations - 5,436
Charge-offs, net of recoveries (3,572) (10,529)
----------- -----------
Balance at June 3 $ 31,570 $ 34,142
=========== ===========
Charge-offs, net of recoveries, relate to losses incurred and recoveries
realized in the sale or liquidation of assets or to transfers of loans to other
real estate owned. The Bank charges-off loans for regulatory purposes when
specific allocable reserves are identified, which results in a net allowance for
possible credit losses for regulatory purposes of $3,546 and $11,337, at June
30, 1997 and 1996, respectively.
11. Loans sold with recourse, net
Loans sold with recourse, net of $4,901 and $2,901 valuation allowances, at June
30, 1997 and 1996, respectively, consist of the following:
June 30, 1997 June 30, 1996
Number of Number of
Properties Amount Properties Amount
One-to-four family including
single-family developments 3 $ 24,451 3 $ 29,914
= ========= = =========
644923.1
-88-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the Bank
consummated $60.4 million of Asset Sale Transactions. The Asset Sale
Transactions, which were arranged by RB Management Company LLC, were structured
to include ongoing recourse to, and participation by, the Bank with respect to
the assets sold, based upon the proceeds realized by the purchasers. The assets
included within each pool of assets sold and the nature of related recourse
provisions are described below.
The Asset Sale Transactions were entered into with five entities, each of which
was independent of the Bank and Alvin Dworman, who owns 39% of the common stock
of the Bank. In connection with the Asset Sale Transactions, entities controlled
by Mr. Dworman loaned $12.8 million to the five entities on a non-recourse
basis.
Assets included within each pool sold were, with the exception of Pool C,
believed by the Bank and the purchasers to be in the final process of
disposition by the Bank. In essence the Asset Sale Transactions accelerated
receipt by the Bank of asset disposition proceeds which the Bank expected to
realize on the included assets within the fiscal year following the Bank's 1996
fiscal year.
In each of the Asset Sale Transactions, the Bank sold a pool of assets and
received a 20% cash down payment and non-recourse purchase money notes (the
"Purchase Money Notes") which approximated 80% of the sale price. In all cases,
except for Pool C, the Purchase Money Notes had maturity dates, including any
extension options, of less than one year from June 30, 1996. The maturity date
on the Pool C Purchase Money Note is three years. The Bank also received
additional contingent proceeds notes for each of the five pools which provided
the Bank with rights to receive proceeds from subsequent asset sales by
purchasers in excess of the initial sales price after the purchaser had received
a return of 8%, a transaction fee of 25 basis points and certain transaction
expenses. In the event that proceeds of subsequent assets sales exceed specified
amounts for each pool, such amounts are retained by the purchaser.
The Bank received aggregate cash down payments of $12.8 million in connection
with the Asset Sale Transactions. The Purchase Money Notes, aggregating $47.6
million, were included in the assets delivered to Marine Midland in connection
with the Branch Sale.
The Bank made representations and warranties ( the "Recourse Provisions") with
respect to the assets sold which included the present condition of each asset,
the nature of disposition arrangements which had been entered into by the Bank
prior to June 28, 1996 and that each of the assets were free of any liens or
encumbrances. The Recourse Provisions also included representations with respect
to certain of the assets that the Bank had taken all actions to effect specific
proposed dispositions or had made arrangements with third parties to complete
actions required to effect such dispositions.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools B and C as financings, primarily due to their longer term
nature and the more substantial risks related to ongoing construction for the
assets included in each of the Pools. Pool B and C Asset Sale Transactions have
been included in the Bank's consolidated financial statements as Loans Sold,
With Recourse. Related financing for such assets have been included in the
Bank's consolidated financial statements as Borrowed Funds, secured by Assets
Sold with Recourse. The Bank believes that it has made adequate provision at
June 30, 1997 for all recourse amounts expected to result from the sale of the
assets included in Pools B and C.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools A, D, and E as sale transactions since each of the financial
receivables, asset sale contracts or other proceeds included in these pools
represented reasonably estimable amounts, including related recourse claims, in
a transaction with limited duration. Substantial proceeds from dispositions
conducted within Pools A, D and E were realized during the fiscal year ended
June 30, 1997. The Bank believes that it has made adequate provision at June 30,
1997 for all recourse amounts expected to result from the sale of the assets
included in Pools A, D and E.
644923.1
-89-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Assets included in these transactions, and a description of the assets sold,
were as follows:
Pool A
Pool A originally included $13.8 million in assets, composed of $12.0 million of
receivables related to the collection of certain federally guaranteed, defaulted
student loans and other student loan related claims from the Student Loan
Marketing Agency ("SLMA") (collectively, the "Student Loan Receivables") and
$1.8 million related primarily to delinquent single family residential loans
(collectively the "Single Family Receivables").
The Bank's aggregate investment in the Student Loan Receivables and the Single
Family Receivables prior to the Asset Sale Transactions approximated $12.4
million and $7.1 million, respectively.
At June 30, 1997, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.3 million. This balance represented claims which had
been filed with state processing agencies for reimbursement for which the Bank
expected to receive reimbursement. At June 30, 1997, the remaining Single Family
Receivables balance, net of applicable reserves, of $5.7 million were in the
process of being disposed of through bulk sales or sales of individual loans or,
to a lesser degree, sales of real estate owned to bulk buyers or individuals.
Pool B
At June 30, 1996, Pool B was composed of a mortgage loan in the amount of $13.0
million secured by land and construction in process related to a single family
condominium project in Wayne, New, New Jersey (the "Wayne Project"). The Bank's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13.01 million.
The Bank believed at June 30, 1996 that the Wayne Project would be fully
completed and all individual units sold prior to June 30, 1997. The Wayne
project is in the final phase of a three phase development project which was
nearing completion at June 30, 1997. The Bank's investment in the Wayne project,
net of applicable reserves has been reduced to $7.7 million at June 30, 1997.
Pool C
Pool C included contracts of sale, in the amount of $11.0 million for two
adjacent parcels of land located in Bronx, New York (the "Bronx Projects"). The
Bank's investment in the Bronx Projects prior to the Asset Sale Transactions
aggregated $17.7 million, including $12.1 million for one site ("Site One") and
$5.6 million for a second site ("Site Two"). The sale contract for the Bronx
Projects represented the sale of ownership and development rights for each of
the parcels of land and, for Site One, the Bank's investment at June 28, 1996 in
construction in process. Site Two was vacant on June 30, 1996 and 1997 with no
development yet commenced. At June 30, 1996, the Bank expected that the two
parcels would be sold within the subsequent twelve months or that the Bank would
arrange for the sale and development of subparcels of the first site and sale of
the second site prior to the commencement of construction. The Bank's investment
in the Bronx projects, net of applicable reserves, was $16.8 million at June 30,
1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
owned real estate properties, located in New York state, New Jersey and
California (collectively, the "Real Estate Properties"). The Bank's aggregate
investment in the Real Estate Properties prior to the Asset Sale Transactions
aggregated $16.l million. Each of the properties included in Pool
644923.1
-90-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
D were either under contract of sale or contracts of sale for the remaining
assets were being actively negotiated. All properties were disposed of during
1997 with the exception of one property, which the Bank estimated at June 30,
1997 would be disposed of by June 30, 1998. This property had a remaining asset
balance of approximately $2.0 million at June 30, 1997.
Pool E
Pool E, with an aggregate sales price of $8.3 million, included the rights to
proceeds from sale of two joint venture projects, the sale of which was schedule
to close within 90 days, rights to proceeds of sale of 35 condominium projects
located in New York City, a mortgage secured by cooperative apartment units in
New York City and a mortgage secured by a multi-family apartment complex in New
York State (collectively, the "Venture Proceeds and Residential Mortgages
Pool"). The Bank's aggregate investment in the Venture Proceeds and Residential
Mortgages Pool prior to the Asset Sale Transactions aggregated $11.6 million.
Each of the assets included in Pool E were disposed of during fiscal 1997.
12. Premises and equipment, net
Premises and equipment at June 30, 1997 and June 30, 1996 consist of the
following:
<TABLE>
<CAPTION>
Period of
depreciation
or amortization June 30, June 30,
(years) 1997 1996
<S> <C> <C> <C>
Land $ - $ -
Bank premises 20-50 - -
Leasehold improvements Term of leases - 158
Furniture and fixtures 4-10 - 38
Computer equipment 7 1/2 - 41
--------- ---------
- 237
Less accumulated depreciation and amortization - 91
--------- ---------
$ - $ 146
========= =========
</TABLE>
Depreciation and amortization expense amounted to $15 and $1,159 for the years
ended June 30, 1997 and 1996, respectively. During the year, the Bank wrote off
the remaining balance of its fixed assets, amounting to $131, following the
assets disposal.
In June 1996, the Bank sold, as part of the Branch Sale, branch property located
in New York, New York for a net gain of $748.
644923.1
-91-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
13. Other real estate owned, net
At June 30, 1997 and June 30, 1996, other real estate owned, net of a $1,959 and
$4,642 valuation allowance, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments 2 $ 2,493 3 $ 7,885
Multi-family 2 4,566 8 8,347
Commercial real estate:
Office/warehouse buildings 0 - 3 6,929
Retail 1 68 1 178
Other 0 - 2 7,047
- --------- -- ---------
5 $ 7,127 17 $ 30,386
= ========= == =========
</TABLE>
Activity in the valuation allowance for other real estate owned for the years
ended June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
Beginning balance - July 1 $ 4,642 $ 12,701
Provisions charged to operations 5,023 1,889
Transfers - (1,672)
Charge-offs (7,706) (8,276)
---------- ----------
Ending Balance - June 30 $ 1,959 $ 4,642
========== ==========
At June 30, 1997, the Bank's principal real estate owned consists of residential
condominium units in Staten Island, NY and a single-family housing development
in Murietta, CA. The net book values of the two properties are $3.3 million and
$1.9 million, respectively.
Management believes that the allowance for possible losses is adequate and that
other real estate is properly valued. The Bank has used currently available
information to establish reserves and resultant net valuations for other real
estate at June 30, 1997. Future additions to the allowance or writedowns of real
estate held for investment may be necessary based on changes in economic
conditions, the receipt of newly-available information involving specific
properties, or changes in management strategies.
644923.1
-92-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
14. Real estate held for investment
Real estate held for investment net of a $13,261 and $3,429 valuation allowance
at June 30, 1997 and 1996, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments - $ - 1 $ 12,840
Multi-family 2 70,720 2 72,567
Commercial real estate:
Office buildings 2 19,502 2 30,647
Shopping centers - - - -
Other - - - -
---- --------- ---- ---------
4 $ 90,222 5 $ 116,054
==== ========= ==== =========
</TABLE>
Activity in the valuation allowance for real estate held for the years ended
June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
Beginning balance - July 1 $ 3,429 $ 5,317
Provisions charged to operations 11,300 -
Charge-offs (1,468) (1,888)
---------- ----------
Ending Balance - June 30 $ 13,261 $ 3,429
========== ==========
At June 30, 1997, the Bank's principal real estate held for investment
properties consist of a multi-family apartment complex located in Philadelphia,
PA, an office building complex in Atlanta, GA and co-operative apartment shares
in New York, NY. The net book values of the three properties are $55.9 million,
$14.1 million and $14.8 million, respectively. During the year ended June 30,
1997, the Bank recorded a provision of $11.3 million for the office building
complex in Atlanta, GA. This charge followed a change in operating plans for the
property and a resultant reevaluation of projected operating cash flows related
to this property. The Bank is actively seeking a purchaser for the property.
Management believes that the allowance for possible losses is adequate and that
real estate held for investment is properly valued. The Bank has used currently
available information to establish reserves and resultant net valuations for
real estate held for investment at June 30, 1997. Future additions to the
allowance or writedowns of real estate held for investment may be necessary
based on changes in economic conditions, the receipt of newly-available
information involving specific properties, or changes in management strategies.
644923.1
-93-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
15. Other assets
Other assets at June 30, 1997 and 1996 consist of the following:
June 30, June 30,
1997 1996
Accrued interest receivable $ 792 $ 943
Investments in unconsolidated subsidiaries,
joint ventures and partnerships (A) 3,113 4,424
Federal Home Loan Bank of
New York capital stock - 8,976
Investment in savings bank organizations (B) - 790
Prepaid pension expenses and other assets 1,443 1,981
---------- ----------
$ 5,348 $ 17,114
========== ==========
(A) Represents equity investments in 3 and 4 joint ventures engaged in
commercial real estate transactions at June 30, 1997 and 1996, respectively. The
joint ventures had aggregate total assets of approximately $3,113 and $4,424 at
June 30, 1997 and 1996, respectively. During the year ended June 30, 1997, the
Bank sold its investment to one joint venture realizing a loss of $1,377.
(B) The Bank invested in the capital debentures and stock of National and
invests in the stock cooperative data processing entities (the Institutional
Group Information Corporation and Infoserve) and in return receives various
services for which the Bank is charged fees. National was a New York chartered
trust company jointly owned by approximately sixty-five New York savings banks,
including the Bank. National, which provided item processing, deposit,
securities safekeeping, trust, data processing, credit and cash and investment
management services, was placed into receivership by the NYSBD on February 6,
1995. Upon consideration of the receivership, the Bank wrote-off its investment
in the securities of National. The write-off of $1,100 was accounted for as a
charge to income in the year ended June 30, 1995. During the year ended June 30,
1997, the Bank, along with several other investors received a partial recovery
of its initial investment in National. During the year ended June 30, 1997, the
Bank, received $353 in settlement recoveries related to this investment, which
were accounted for as asset recoveries.
16. Due to depositors
The amounts due to depositors and weighted average period-end interest rates at
June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
Weighted Weighted
Average Average
Year-end Deposit Year-end Deposit
Rate Liability Rate Liability
<S> <C> <C> <C> <C>
Demand deposits:
Checking accounts - - - $ 2,876
Bank checks issued and
outstanding - - - 146
------- ------ ------- ----------
- - - 3,022
NOW accounts:
Fixed rate - - - -
Savings and transaction accounts:
Regular - - - -
Money market - - - -
Time deposits - - - -
------- ------ ------- ----------
- $ - - $ 3,022
======= ====== ======= ==========
</TABLE>
644923.1
-94-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
Interest expense on deposits for the years ended June 30, 1997 and 1996 was as
follows:
June 30, June 30,
1997 1996
NOW accounts $ - $ 1,064
Savings and transaction accounts - 13,367
Time deposit accounts - 33,288
---------- ----------
$ - $ 47,719
========== ==========
Average cost of funds
during the period - 4.12%
========== ==========
17. Borrowed funds
Borrowed funds and weighted average year-end interest rates at June 30, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
June 30 1997 June 30, 1996
Weighted Weighted
Average Average
year-end year-end
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Advances from the Federal Home
Loan Bank of New York
(FHLBNY):
Fixed $ - 3.81% $ 2,026 3.81%
Floating - - - -
---------- ------- -------- --------
- 3.81 2,026 3.81
Initial Facilities (Marine Midland) 66,066 8.25 89,760 8.25
Borrowed funds secured by loans
sold with recourse (note 11) 18,206 8.25 24,000 8.25
Security sold under agreement to
repurchase - - % - - %
---------- --------
$ 84,272 $115,786
========== ========
Average cost of funds during the
year then ended 6.83% 6.01%
</TABLE>
FHLBNY Advances: The fixed rate advances from the FHLBNY outstanding at June
30,1997 and 1996 mature as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
Weighted Weighted
Year of Maturity average average
Fiscal Year year-end year-end
Ending June, 30 Amount rate Amount rate
<S> <C> <C>
1997 $- - - % $ - - %
2006 - - 1,100 3.41
2008 - - 492 4.66
2010 - - 434 3.86
------- -------- ------ -----
$ - - % $2,026 3.81%
======= ======== ====== =====
</TABLE>
644923.1
-95-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The advances from the FHLBNY outstanding at June 30, 1996 were collateralized by
all FHLBNY stock owned by the Bank. Additionally, specific eligible assets were
required to be pledged to the FHLBNY. At June 30, 1997, the Bank had no
outstanding obligations to, held no capital stock in, and had no remaining
assets pledged to the FHLBNY.
Borrowed funds secured by loans sold with recourse: In June 1996, the Bank
financed the sale of loans, in the amount of $24,000, in connection with and to
facilitate the closing of the Branch Sale. These loans were sold to third
parties, with recourse and have been accounted for as financings. (See Note 11).
Borrower funds secured by loans sold with recourse bear interest at the prime
rate (or, at the Bank's option, in LIBOR based rate). See Note 11 for more
information concerning the three properties securing this information.
Initial facility (Marine Midland)
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine, the Facility, consisting of eleven independent
mortgage loans with additional collateral, in an aggregate amount not to exceed
$99.06 million. As of June 30, 1997, Marine had extended $66.1 million under the
Facility to the Bank.
Proceeds of the Facility were utilized by the Bank to (i) refinance all or part
of the certain indebtedness secured by assets to be transferred to Marine,
including all or a substantial part of the outstanding advances from the Federal
Home Loan Bank ("FHLB") and (ii) provide additional funds for the development
and completion of two individual real estate assets as part of the Bank's
operations subsequent to the Branch Sale.
Each of the individual loans included in the Facility were structured as
three-year term loans with options to extend the initial term for two additional
one-year periods subject to the Bank's achieving pre-agreed minimum repayment
amounts which are equal to 60% and 30% of the original aggregate amount of the
Facility and remaining fully current on all obligations and in compliance with
all covenants.
The Facility is priced at 175 basis points over LIBOR for the initial six months
following June 28, 1996, automatically increasing by 25 basis points at the
beginning of each of the subsequent three six month periods and will be priced
at 275 basis points over LIBOR for the third year of the Facility. In the event
that the Bank elects to exercise its option to extend the initial term of the
Facility, the Facility will be priced at 300 basis points over LIBOR during the
initial one year extension and 325 basis points over LIBOR during the second one
year extension. Following maturity or an event of default, the Senior Debt
Financing will accrue interest at a specified default rate.
The Facility is secured by first priority mortgage liens on eleven of River
Bank's real estate assets approved by Marine and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross defaulted with each other and cross collateralized by all
collateral for the Facility. As additional collateral for the Facility, each
loan is also secured by first priority mortgages (or, where applicable, a
collateral assignment of first priority mortgages held by the Bank), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Bank
collaterally assigned to Marine all of the cash flow from the Primary Collateral
and the Additional Collateral. All of the net cash flow from the Primary
Collateral and Additional Collateral will be applied to the prepayment of the
Facility. In addition, all net proceeds from the sale of any Primary Collateral,
and the proceeds from the sale of any Additional Collateral, shall be applied to
the prepayment of the Facility subject to the Bank's right to establish reserves
for its operating needs. The Bank will be permitted to prepay the Facility in
whole or in part at any time without prepayment penalty or premium (subject to
customary LIBOR breakage provisions).
The Loan Agreement requires that while any amounts remain outstanding under the
senior debt financing, the Bank must receive Marine Midland's prior written
consent to, among other things, materially alter its charter or by-laws, incur
additional corporate indebtedness and liens, make any distributions to
stockholders or repurchases or redemptions of capital stock, acquire additional
assets, exchange existing assets with a third party or assume additional
liabilities as a result of any proposed merger transaction.
644923.1
-96-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
18. Other liabilities
Other liabilities at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
<S> <C> <C>
Accrued interest payable $ 964 $ -
Accrued income taxes 5,771 10,790
Accounts payable 2,737 521
Accrued expenses:
Rent - 618
Tax settlement - City of New York - -
Postretirement benefits obligation 4,728 4,000
Preferred Stock dividend declared and unpaid 1,313 1,313
Other 3,364 10,637
------------------ ----------------
$ 18,877 $ 27,879
================== ================
</TABLE>
19. Stockholders' equity
On June 30, 1994, the Bank consummated the placement ("Offering") of 5,500,000
shares of its Common Stock, par value $1 per share, and 1,400,000 shares of 15%
noncumulative perpetual preferred stock, Series A, par value $1 per share,
("Preferred Stock") which resulted in net proceeds to the Bank of $78,200. The
issuance price of the offered stock was $9 per share for the Common Stock and
$25 per share for the Preferred Stock. The Bank's Restated Organization
Certificate was amended prior to consummation of the Offering in order to
authorize the issuance of up to 30,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock. Prior to the offering, the Bank had 1,000,000 shares
of Common Stock issued and outstanding, plus warrants to purchase an additional
690,000 shares of Common Stock. The Bank also had 200,000 shares of 3%
Noncumulative Senior Preferred Stock and 130,000 shares of 4% Noncumulative
Preferred Stock issued and outstanding (each of which series of preferred stock
had a liquidation value of $100 per share) substantially concurrently with the
Offering these shares were exchanged for 600,000 shares of Common Stock and
outstanding warrants to purchase Common Stock were canceled. The Board of
Directors of the Bank has the power from time to time to issue additional shares
of Common Stock or Preferred Stock authorized by the Restated Organization
Certificate without obtaining approval of the Bank's stockholders. The rights,
qualifications, limitations and restrictions on each series of Preferred Stock
issued will be determined by the Board of Directors of the Bank and approved as
required by the Banking Law or otherwise, at the time of issuance and may
include, among other things, rights in liquidation, rights to participating
dividends, voting and convertibility to Common Stock.
As a result of the Offering, the Bank had 7,100,000 shares of its Common Stock
outstanding at June 30, 1997, 1996, and 1995. After the consummation of the
Offering, the investor continues to be the largest stockholder with 2,768,400
shares or 39% of the common stock outstanding. The Bank may pay dividends on
common stock as declared from time to time by the Board of Directors out of
funds legally available therefor. Except as provided with respect to any series
of Preferred Stock, the holders of Common Stock possess exclusive voting rights
in the Bank. Each holder of Common Stock is entitled to one vote for each share
held on all matters voted upon by stockholders. Stockholders are not permitted
to cumulate votes in elections of directors. Subject to the prior rights of the
holders of any shares of Preferred Stock that may be outstanding, in the event
of any liquidation, dissolution or winding up of the Bank, the holders of the
Common Stock would be entitled to receive, after payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and, after distribution of the balance, if any, in the liquidation
account maintained for certain depositors of the Bank at the time of the
Conversion, all assets of the Bank available for distribution.
The Bank has 1,400,000 shares of its Preferred Stock, which were issued in
connection with the Offering, outstanding at June 30, 1997, 1996, and 1995. This
stock is perpetual and is not subject to any sinking fund or other obligation of
the Bank to redeem or retire it. The par value of the Preferred Stock is $1.00
per share.
644923.1
-97-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The Preferred Stock ranks prior to the Common Stock with respect to dividend
rights and rights upon the voluntary or involuntary dissolution, liquidation or
winding up of the Bank, and to all other classes and series of equity securities
of the Bank hereafter issued, other than any class or series of equity
securities of the Bank expressly designated as being on a parity with or senior
to the Preferred Stock with respect to dividend rights or rights upon any such
dissolution, liquidation or winding up. The Common Stock and any other classes
or series of equity securities of the Bank not expressly designated as being on
a parity with or senior to the Preferred Stock are referred to hereafter as
"Junior Stock". The rights of holders of shares of Preferred Stock are
subordinate to the rights of the Bank's creditors, including its depositors. The
Bank may not issue any capital stock that ranks senior to the Preferred Stock
without the approval of holders of at least 66% of the outstanding shares of
Preferred Stock, voting as a class.
Holders of Preferred Stock will be entitled to receive, when, as and if declared
by the Board of Directors of the Bank, out of funds legally available therefore,
noncumulative cash dividends at the rate of 15% per annum. The right of holders
of Preferred Stock to receive dividends is noncumulative. Accordingly, if the
Board does not declare a dividend payable in respect of any quarterly dividend
period (a "Dividend Period"), then holders of Preferred Stock will have no right
to receive, and the Bank will have no obligation to pay, a dividend in respect
of such Dividend Period, whether or not dividends are declared payable in
respect of any future Dividend Period. No full dividends may be declared or paid
or set aside for payment as dividends on any class or series of equity
securities ranking, as to dividends, on a parity with the Preferred Stock for
any Dividend Period unless full dividends on the Preferred Stock for such
Dividend Period shall have been paid or declared and set aside for payment.
Dividends on the Preferred Stock will not be declared and paid if payment of
such dividends is then restricted by (i) laws, rules, regulations or regulatory
conditions applicable to the Bank or (ii) orders, judgments, injunctions or
decrees issued by, or agreements with, federal or state authorities with respect
to the Bank. The Bank is not permitted to declare or pay dividends (whether in
cash, stock or otherwise) on its common stock without the prior written consent
of the FDIC, NYSBD and Marine Midland Bank.
New York-chartered banks may only pay dividends or make other distributions on
their outstanding shares out of undivided profits or surplus, and may not pay
dividends when there is any impairment of capital stock, or when the
declaration, payment or distribution would be contrary to the bank's charter.
Without specific approval from the Superintendent the total of all dividends
declared by a bank in a given calendar year cannot exceed the total of the
bank's net profits for that year, plus the bank's retained net profits from the
preceding two years, less any required transfer to surplus or a fund for the
retirement of any preferred stock.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June,
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from regulators and Marine (the Bank's principal lender). The
Bank intends to continue to seek approval for the payment of the declared Series
A Preferred dividend. Primarily as a result of the above, the Bank's Board of
Directors has taken no action as regards a quarterly dividend on the Bank's
Series A Preferred for the quarters ending June 30, 1997, March 31, 1997,
December 31, 1996 and September 30, 1996. Declaration or payment of future
dividends on the Bank's Series A Preferred Stock will also be subject to the
approval of the Banking Department and the FDIC, until the Bank is no longer
regulated by the Banking Department and the FDIC, and will be subject to the
approval of Marine for so long as the Facility remains outstanding.
Holders of shares of Preferred Stock shall be entitled to receive a liquidation
distribution in the amount of $25.00 per share, plus unpaid dividends for the
then-current Dividend Period up to, but excluding, the date fixed for
liquidation (the "Liquidation Date") in the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Bank, out of the net
assets of the Bank legally available for distribution to stockholders under
applicable law, or the proceeds thereof, before any payment or distribution of
assets is made with respect to any Common Stock or any other Junior Stock
(subject to the rights of the holders of any class or series of equity
securities having preference over the Preferred Stock with respect to
distributions upon liquidation and the rights of the Bank's creditors, including
its depositors). After payment of the full amount of the liquidating
distribution to which they are entitled, holders of shares of Preferred Stock
will not be entitled to any further participation in any liquidating
distribution of assets by the Bank.
Holders of the Preferred Stock will not be entitled to vote upon the election of
members of the Board or other matters in general. Holders of the Preferred
Stock, however, will be entitled to elect two members of the Bank's Board to
fill two newly-created directorships upon the occurrence of a "Voting Event." A
Voting Event occurs if the Bank fails to pay full dividends on the Preferred
Stock (or to declare such full dividends and set apart a sum sufficient for
payment thereof) with respect to each of any six Dividend Periods, whether
consecutive or not.
644923.1
-98-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The Preferred Stock is perpetual and is not redeemable prior to July 1, 2004.
The Preferred Stock is redeemable by the Bank at its option at any time on or
after July 1, 2004, in whole or in part at the per share redemption prices set
forth below in cash, plus in each case an amount in cash equal to accrued but
unpaid dividends for the then-current Dividend Period up to, but excluding, the
date fixed for redemption (the "Redemption Date") without the accumulation of
unpaid dividends for prior Dividend Periods:
July 1, 2004 to June 30, 2005 $27.50
July 1, 2005 to June 30, 2006 27.25
July 1, 2006 to June 30, 2007 27.00
July 1, 2007 to June 30, 2008 26.75
July 1, 2008 to June 30, 2009 26.50
July 1, 2009 to June 30, 2010 26.25
July 1, 2010 to June 30, 2011 26.00
July 1, 2011 to June 30, 2012 25.75
July 1, 2012 to June 30, 2013 25.50
July 1, 2013 to June 30, 2014 25.25
July 1, 2014 and thereafter 25.00
If fewer than all the outstanding shares of Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected pro rata or by lot or by such other
method as the Board of Directors of the Bank, in its sole discretion, determines
to be equitable.
In the event of a change of control, the acquirer ("Note Issuer") may, at its
option, exchange (the "Note Exchange") all or part of the outstanding Preferred
Stock for subordinated notes (the "Notes") of the Note Issuer, provided that any
such Note Issuer is an insured depository institution within the meaning of the
FDIC. Pursuant to a Note Exchange, each $1,000 in liquidation value of the
shares of Preferred Stock covered thereby will be exchangeable for $1,000
principal amount of Notes. Such Notes shall have the terms, covenants and
conditions set forth under "Description of Notes" below. The rate of interest on
the Notes shall be 15%, the maximum principal amount of the Notes shall be 100%
of the aggregate liquidation preference of the Preferred Stock to be exchanged
and the principal of such Notes shall not be payable prior to July 1, 2004.
Subject to the FDIC approval of the Notes as Tier 2 capital of the Note Issuer,
the Note Issuer may elect to consummate the Note Exchange at any time following
a change of control and prior to July 1, 2014.
20. Income taxes
Effective January 1, 1993, the Bank changed its method of accounting for income
taxes from the deferred method to the liability method as required by SFAS No.
109, "Accounting for Income Taxes" (See Summary of Significant Accounting
Policies - Note 1). As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of the change in the
method of accounting for income taxes had no impact on the 1993 consolidated
Statement of Operations and, therefore, there was no cumulative effect.
At June 30, 1997, the Bank had a net operating loss ("NOL") carryforward for
federal income tax purposes of approximately $100.2 million attributable to
operating losses incurred in 1991 through 1997. The remaining NOL carryforward
of approximately $100.2 million will expire in years 2006 through 2012.
For income tax purposes, certain deductions of "closely held" corporations from
"passive activities" are generally deductible only against either income from
passive activities or net income from an active trade or business. Passive
activity losses in excess of the amounts currently allowed are suspended and may
be carried forward indefinitely to offset taxable income from passive activities
or from an active trade or business in future years, or will generally be fully
deductible upon a complete disposition of the underlying passive activity. The
passive activity loss limitations applied to the Bank in prior years because the
Bank was considered to be closely held. As a result of the consummation of the
offering described in Note 2, the Bank believes that it is no longer subject to
the limitations for passive activity losses incurred after December 31, 1993.
The limitation rules continue to apply to suspended passive activity losses from
preceding years. At June 30, 1997, the Bank had suspended passive activity
losses for federal income tax purposes of approximately $674 suspended passive
activity credits, which are subject to similar limitations, of approximately
$5.4 million, and additional non-passive credits of $784, $555, and $675 which
were generated in 1994, 1995 and 1996, respectively, and will expire in the
years 2009 to 2012 if not used. Alternative minimum tax payments of $2.5 million
may be carried forward as a credit to offset regular federal tax liabilities in
future years, subject to certain limitations.
Under current tax law, the Bank's ability to utilize certain tax benefits in the
future may be limited in the event of an "ownership change", as defined by the
Internal Revenue Code Section 382 and the regulations thereunder. In the event
that the Offering discussed in Note 2
644923.1
-99-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
is deemed to result in an ownership change, the subsequent utilization of net
operating loss carryforwards, suspended passive activity losses and credits,
alternative minimum tax credit carryforwards and certain other built-in losses
would be subject to an annual limitation as prescribed by current regulations.
The application of this limitation could have a material effect on the Bank's
ability to realize its deferred tax assets. The Bank is of the view that no
ownership change of the Bank has occurred as a result of the Offering. The Bank
believes that the Offering, when combined with prior changes in ownership of
stock of the Bank and other transactions affecting ownership of the capital
stock of the Bank which occurred in connection with the Offering, also did not
result in an ownership change of the Bank. However, the application of Section
382 is in many respects uncertain. In assessing the effects of prior
transactions and of the Offering under Section 382, the Bank made certain legal
judgments and certain factual assumptions. The Bank has not requested nor
received any rulings from the IRS with respect to the application of Section 382
to the Offering and the IRS could challenge the Bank's determinations.
The significant components of the net tax effects of temporary differences and
carryforwards that give rise to the deferred tax assets and liabilities at June
30, 1997, June 30, 1996 and June 30, 1995 are presented below:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 35,074 $ 10,375 $26,875
Allowance for credit losses and valuation allowances 4,718 20,320 16,733
Suspended passive activity losses 277 933 6,736
Suspended passive activity credit carryforward 5,391 5,391 5,391
Non-passive activity credit carryforward 2,015 1,339 784
Deferred income on venture investments - - 5,338
Deferred loan fees and income on mortgage-backed securities - - 1,326
Interest accrued on non-performing loans 758 6,043 5,249
Alternative minimum tax credit carryforward 2,500 2,500 2,500
Non-deductible reserves and contingencies 5,197 2,387 -
Other 514 880 476
------------- ------------ ------------
Total gross deferred tax assets 56,444 50,168 71,408
Less: Valuation allowance 36,874 34,059 55,631
------------- ------------ ------------
Net deferred tax assets $ 19,570 $ 16,109 $ 15,777
============= ============ ===========
Deferred tax liabilities:
Tax losses on partnership ventures $ 18,184 $ 14,754 $ 14,453
Tax over book depreciation 1,386 1,355 1,324
------------- ------------ ------------
Total deferred tax liabilities $ 19,570 $ 16,109 $ 15,777
============= ============ ============
</TABLE>
The Bank's ability to realize the excess of the gross deferred tax asset over
the gross deferred tax liability is dependent upon its ability to earn taxable
income in the future. As a result of recent losses and other evidence, this
realization is uncertain and a valuation allowance has been established to
reduce the deferred tax asset to the amount that management of the Bank believes
will more likely than not be realized. The valuation allowance increased during
the fiscal year ended June 30, 1997 by $2.8 million. This increase relates to
the increase in the excess of the gross deferred tax assets over the gross
deferred tax liability.
The components of the provision for income taxes for the fiscal years ended June
30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Current:
Federal $ - $ 1,000 $ -
State and Local (benefit) (3,300) 10,749 2,113
Deferred - - -
-------- ----------- -----------
$ (3,300) $ 11,749 $ 2,113
======== =========== ===========
</TABLE>
644923.1
-100-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The provision for state income taxes for the year ended June 30, 1997 includes a
current tax benefit in the amount of $3.3 million. The credit is the result of
the Bank's redetermination of its state income tax liability at June 30, 1997.
During the year ended June 30, 1997, the Bank completed a review of it's
potential current and deferred federal and state tax liability in light of the
Branch Sale and its related tax effects. As a result of the review of its
potential current and deferred tax liabilities and the results of operations for
the year ended June 30, 1997, the Bank reduced its provision for state and local
income taxes by $3.3 million. Additionally, the Bank reduced its estimated
current state and local income tax liability at June 30, 1997 to reflect the
effect of the Branch Sale and subsequent disposition transactions completed
during the fiscal year.
The table below presents a reconciliation between the expected tax expense
(benefit) and the recorded tax provision for the fiscal years ended June 30,
1997, 1996 and 1995 which have been computed by applying the statutory federal
income tax rate (35%) to loss before provision for income taxes.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Federal income tax expense (benefit) at statutory rates $ (32,147) $ 23,264 $ (7,791)
Increase (reductions) in tax resulting from:
State and local income taxes, (benefit) net of federal income tax (2,145) 7,939 1,373
effect
Effect of net operating loss currently utilized (19,559) -
Effect of net operating loss not currently recognized 34,292 - 8,521
Other, net - 5 10
------------ ---------- ------------
$ - $ 11,749 $ 2,113
============ ========== ============
</TABLE>
In October 1995, the Bank paid New York State $2,000 to settle all amounts
claimed including penalties and interest for the tax years 1985 and 1986. In
addition, New York State agreed that no additional taxes will be assessed for
the years 1987, 1988 and 1989 as a result of any potential adjustment to the bad
debt reserve deduction reported for any of those years. In November 1995, the
bank paid New York State $761,000 to settle all amounts, including penalties and
interest for the calendar 1987, 1988 and 1989.
The New York City Department of Finance conducted an audit of the Bank's New
York City tax returns for calendar years 1985 through 1987. Various issues were
raised which resulted in an assessment of $ 1,100 of additional taxes and $900
of interest. The Bank paid the additional $2,000 on June 30, 1994 from
previously established reserves with no charges to income in the fiscal year
ended June 30, 1994.
The Bank has filed claims for refunds of New York State and local franchise
taxes of approximately $1,200 related to calendar year 1982. The basis of such
claims relates to the applicability of the exemption from such taxes when net
worth certificates ("Certificates") are outstanding. Certificates were those
issued to the FDIC by the Bank under the 1982 Assistance Agreement. The Bank's
initial refund claims were denied on the basis that the exemption was applicable
only during the period Certificates were outstanding and not for the entire
year. On October 13, 1994, a decision was rendered in a court case involving a
similar claim for refund on behalf of another savings institution which
confirmed the position taken by New York State in denying the Bank's initial
refund claim. The Bank continues to review the impact of this decision on its
position.
21. Leases
The Bank is no longer obligated under any material amounts of non-cancelable
operating leases.
Rental expense, including amounts paid under month-to-month cancelable leases
was $43 and $4,330 for the years ended June 30, 1997 and 1996, respectively.
These amounts are net of sublease rental income of $0, $677 for the years ended
June 30, 1997 and 1996, respectively.
644923.1
-101-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
22. Salaries
Due to the general cessation of all loan origination activities in anticipation
of and subsequent to the Branch Sale, salaries were not reduced by any
capitalized direct loan origination costs in the years ended June 30, 1996 and
1997.
23. Other operating expenses
Prior to 1995, affiliate reimbursements which were included in other operating
expenses had been reduced by capitalized direct origination costs. There were no
capitalized direct origination costs related to affiliate reimbursements during
the fiscal year ended June 30, 1997 and 1996.
During the year ended June 30,1997, the Bank accrued expenses for services
provided by RB Management, LLC in the amount of $1,250 for Bank Management
Services, $1,692 for Asset Management Services, and $778 for Asset Disposition
Fees in accordance with a fee schedule agreement between the two entities.
During 1997, the Bank paid RB Management, LLC an aggregate $1,721. At June 30,
1997, the Bank had a remaining payable balance due to RB Management, LLC in the
amount of $2,121, including interest, which is included in accrued liabilities
on the Statement of Condition.
24. Retirement and other employee benefits
The Bank maintains a noncontributory defined benefit retirement plan (the
"Plan") in which substantially all employees participated.
The net periodic pension benefit of the Bank's Plan for the years ended June 30,
1997, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Service cost $ - $ - $ -
Interest cost $ 381 $ 375 $ 370
Actual return on plan assets (436) (331) (502)
Net amortization and deferral 33 61 106
------------ ------------ -----------
Net periodic pension benefit $ (22) $ (17) $ (26)
============ ============ ===========
Assumptions used in accounting were:
June 30, 1997 June 30, 1996 June 30, 1995
Weighted average discounts rates 7.25% 7.25% 8.00%
Expected weighted average long-term rate of return on assets 7.25% 7.25% 7.25%
</TABLE>
644923.1
-102-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The funded status of the Bank's Plan at June 30, 1997, June 30, 1996 and June
30, 1995 is as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Actuarial value of benefit obligations:
Vested benefit obligation $ (5,481) $ (5,402) $ (5,283)
Non-vested benefit obligation - - (125)
------------- ------------- --------------
Accumulated benefit obligation (5,481) (5,402) (5,408)
Effect of projected future salary increases - - -
------------- ------------- --------------
Projected benefit obligation (5,841) (5,402) (5,408)
Plan assets at fair value (excluding receivables) 5,872 5,749 5,779
------------- ------------- --------------
Funded status 391 347 371
Unrecognized net losses 908 931 890
Unrecognized prior service cost - - -
Unrecognized net obligation - - -
------------- ------------- --------------
Prepaid pension expense $ 1,299 $ 1,278 $ 1,261
============= ============= ==============
</TABLE>
In connection with contractual termination agreements, certain former officers
of the Bank have been granted additional retirement benefits, net of amounts
provided by the Plan, based in part on additional years of service and early
retirement subsidies. These retirement benefits are accounted for as deferred
compensation arrangements. The liability for these retirement benefits at June
30, 1997, 1996 and 1995 aggregated $554, $791 and $808, respectively. The
related expense for the years ended June 30, 1997, 1996, and 1995 was $58, $58
and $59, respectively.
Retirement benefits are also provided through a 401(K) plan which, through
December 1993, allowed participants to contribute up to 6% of their compensation
to the plan. The Bank matched 100% of employee contributions. In January 1994,
the 401(K) plan was amended to allow "non-highly compensated" participants to
contribute up to 15% of their compensation to the Plan with the Bank matching
100% of the contributions up to 6% of their compensation. In addition, the Bank
provides for the cost of administering the 401(K) plan. The costs of providing
such benefits are not material to the results of operations.
In addition to providing retirement benefits, the Bank provides various health
care and life insurance benefits for active and retired employees. These
benefits are provided through insurance companies and health care organizations
and are primarily funded by contributions from the Bank and its employees.
Subsequent to December 31, 1993, the Bank amended its retiree health care which
became effective April 1, 1994 to require contributions from retirees including
deductibles, co-insurance and reimbursement limitations.
25. Postretirement Benefits Other Than Pensions
The Bank sponsors a voluntary, unfunded defined benefit postretirement medical
and a funded postretirement life insurance plan to all full time employees who
retired from the Bank prior to July 1, 1991. In addition, full time active
employees with ten years of service as of July 1, 1991 and who retire early with
at least twenty years of service, or retire on or after age 65 are eligible to
participate.
The Bank adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" as of July 1, 1994.
644923.1
-103-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The funded status of the Bank's Plan at June 30, 1997, 1996, and 1995 are as
follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retired employees $ (3,968) $ (5,203) $ (4,533)
Fully eligible plan participants - (383) (247)
Other active plan participants - (545) (571)
------------ -------------- -------------
Unfunded postretirement obligation (3,968) (6,131) (5,351)
Unrecognized net (gains) losses (760) 1.047 379
Unrecognized transition obligation - 4,273 4,511
------------ -------------- -------------
Accrued postretirement benefit liability $ 4,728 $ (811) $ (461)
============ ============== =============
The net periodic postretirement benefit cost of the Bank's Plan for the year
ended June 30, 1997, 1996, and include the following components:
June 30, 1997 June 30, 1996 June 30, 1995
Service cost $ - $ 28 $ 27
Interest cost $ 302 $ 425 $ 373
Amortization of transition obligation (29) 277 237
------------- ------------- ------------
Net periodic postretirement benefit cost $ 273 $ 730 $ 637
============= ============= ============
</TABLE>
For measurement purposes, a 8.8% and a 0.00/o annual increase in the per capita
cost of covered health care benefits was assumed for fiscal 1997 and 1996,
respectively; the rate was assumed to decrease gradually down to 5.5% for fiscal
2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
June 30, 1997 by $322 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for fiscal 1997 by
$23.
The weighted average discount rate used in determining the accumulate
postretirement benefit obligation was 7.25% for the years ended June 30, 1997
and 1996. As the plan is unfunded, no assumption was needed as to the long term
rate of return of assets.
26. Former Management Incentive Plan and Bonus Plan
In April 1994, the Board of Directors of the Bank approved a phantom stock plan
(the "Phantom Stock Plan") for the Bank. The Phantom Stock Plan provides for the
grant of 200,000 performance units, which will vest at the rate of 33% per year
on each anniversary of the date of grant and become fully vested after three
years, to key employees selected by the Compensation Committee of the Board of
Directors. Vesting of the performance units would be accelerated upon a change
in control of the Bank, as defined in the Phantom Stock Plan, or upon death or
disability. Upon the third anniversary of the date of grant, a recipient of
performance units would be entitled to receive from the Bank an amount equal to
the book value of a share of Common Stock as of the date of grant of such
performance unit, as determined by the independent accountants for the Bank plus
the accretion to the value, or minus the loss of value of such performance unit
since the date of grant calculated based upon the Bank's earnings or loss per
share in the second and third years following the date of grant, and
disregarding the Bank's earnings or loss per share in the first year following
the date of grant. In the event of an earlier change in control of the Bank, as
defined, or upon death or disability, the value of the performance units would
be calculated in relation to the Bank's earnings or loss per share since the
date of grant. The amount payable pursuant to each performance unit would never
be less than (i) the book value per share of the Bank's Common Stock at the time
of a payment or (ii) the book value of a share of common stock of the Bank on
the date of grant ($11.67). As of July 1, 1994, 127,000 performance unit awards
were granted under the Phantom Stock Plan. During the fiscal year ended June 30,
1995, two participants terminated employment with the Bank and, as a result,
forfeited 48,500 performance units which were not vested. A new participant was
granted 3,500 performance units during the same period. During the fiscal year
ended June 30, 1996, two participants terminated employment with the Bank and,
as a result, forfeited 13,500 performance units which were not vested. At June
30, 1996, no performance units were granted and outstanding due to the
accelerated vesting and payment of the Phantom Stock Plan due to the closing of
the Branch Sale. The vesting of these performance units resulted in compensation
expense to the Bank over the three year vesting period. Compensation expense of
$319 and $319 relating to the vesting of performance units was recorded for the
years ended June 30, 1996 and June 30, 1995, respectively.
644923.1
-104-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The Board of Directors of the Bank approved a bonus plan ("Bonus Plan") which
provided for a payment of a total amount of $350,000 during March 1995 or upon a
change of control of the Bank, if earlier, to certain executive and other senior
officers of the Bank as determined by the Compensation Committee of the Board of
Directors. These payments were recorded as compensation expense during the
fiscal year ended June.30, 1995. No amounts were approved under the Bonus Plan
during fiscal years 1997 or 1996.
27. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Bank to disclose estimated fair values for its financial instruments. SFAS
No. 107 defines fair value of financial instruments as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. SFAS No. 107 uses the same
definition for a financial instrument as SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off- Balance Sheet Risk and
Financial instruments with Concentrations of Credit Risk". SFAS No. 105 defines
a financial instrument as cash, evidence of ownership interest in an entity, or
a contract that imposes on an entity a contractual obligation to deliver cash or
another financial instrument to a second entity or to exchange other financial
instruments on potentially favorable terms with the second entity and conveys to
that second entity a contractual right to receive cash or another financial
instrument from the first entity or to exchange other financial instruments on
potentially favorable terms with the first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no ready market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the deferred tax amounts and
office premises and equipment.
In addition, there are intangible assets that SFAS No. 107 does not recognize,
such as the value of "core deposits", the Bank's branch network and other items
generally referred to as "goodwill".
644923.1
-105-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
The following table presents the carrying amounts and fair values of the Bank's
financial instruments at June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 14,036 $ 14,036 $ 13,129 $ 13,129 $ 12,040 $ 12,040
Money market investments - - 4,000 4,000 96,500 96,500
Investment securities available
for sale, net 6,275 6,275 5,685 5,685 31,372 31,372
Mortgage-backed securities
available for sale, net - - 187 187 72,643 72,643
Accrued Interest receivable 2,047 2,047 943 943 8,882 8,882
Gross loans receivable:
Secured by real estate 80,093 80,093 86,983 79,154 944,658 930,962
Consumer 15,677 15,677 16,022 15,566 21,274 21,274
Loans sold with recourse,
net 24,451 24,451 29,914 29,914 - -
Demand deposits - - 3,022 3,022 14,906 14,906
NOW Accounts - - - - 66,619 66,691
Savings and transaction
accounts - - - - 533,947 533,947
Time Deposits - - - - 556,058 556,058
Borrowed funds 84,272 84,272 115,786 115,786 179,061 179,524
Mortgage escrow deposits - - 271 271 4,480 4,480
Accrued interest payable 964 964 - - 1,341 1,341
</TABLE>
The following methods and assumptions were used by the Bank in its fair value
disclosures for financial instruments:
Short term instruments: For short term financial instruments, defined as those
with remaining maturities of 90 days or less, the carrying amount was considered
to be a reasonable estimate of fair value. The following instruments were
predominantly short term: cash and due from banks, money market investments,
U.S. Treasury obligations, demand deposits, certain time deposits, accrued
interest receivable and payable, mortgage escrow deposits and other financial
liabilities.
Debt and equity securities (including mortgage-backed securities) fair values
for securities are based on quoted market prices, if available. If quoted market
prices are not available, fair values are estimated using discounted cash flow
analyses, using interest rates currently being offered for investments with
similar terms and credit quality.
Loans receivable: Fair values of performing loans receivable, secured by real
estate is calculated by discounting the contractual cash flows adjusted for
prepayment estimates using discount rates based on market sources adjusted to
reflect the credit risk inherent in the loans. Fair values of non-performing
loans, secured by real estate are based on recent appraisals of the underlying
real estate or discounted cash flow analyses. The fair value of consumer loans
is based on a third party offer.
Approximately $12,806 and $12,994 of the Bank's $95,770 and $132,919 total loans
receivable relate to commercial loans at June 30, 1997 and 1996, respectively.
The Bank believes that dollar amounts relating to commercial loans are
relatively small in comparison to total loans receivable at June 30, 1997, 1996
and 1995, and that an estimate of fair value of commercial loans cannot be made
without incurring excessive costs. Therefore, the Bank concludes that it is not
practicable to the fair value of its commercial loan portfolio. The Bank's
estimates of impairment due to collectibility concerns related to these loans
are included in the allowance for possible credit losses.
Deposit liabilities: Fair values of time deposits in excess of 90 days are
calculated using contractual cash flows discounted at rates equal to current
rates offered in the market for similar deposits with the same remaining
maturities. These fair value do not include the intangible value of the existing
customer base.
Borrowed funds: Fair values of borrowed funds are based on the values of
contractual cash flows. The discount rate is using the rates currently offered
for borrowed funds of similar remaining maturities.
644923.1
-106-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
28. Commitments and Contingencies
Outstanding loan commitments, which generally expire within one year, to
originate or purchase loans at June 30, 1997, 1996 and 1995 are summarized as
follows:
June 30, 1997 June 30, 1996 June 30, 1995
Residential mortgage loans:
One-to-four family $ - $ - $ 13,436
Multi-family 10,000 3,072
Commercial mortgage loans - - 241
Commercial loans:
Commercial - - -
Home equity lines of credit - - 241
--------- ------------- -----------
$ - $ 10,000 $ 16,749
========= ============= ===========
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customers
creditworthiness on a case-by-case basis.
Standby letters of credit and financial guarantees outstanding are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The amount of collateral obtained upon extension of credit varies and is based
on management's credit evaluation of the counterparty.
At June 30, 1997, 1996 and 1995, the Bank and its wholly-owned subsidiaries had
arranged letters of credit aggregating SI, $1,197, $3,225, and $4,269,
respectively.
In the normal course of the Bank's business, there are outstanding various
claims commitments and contingent liabilities. The Bank also is involved in
various other legal proceedings which have occurred in the ordinary course of
business. Management, based on discussions with legal counsel, believes that the
Bank will not be materially affected by the actions of such legal proceedings.
However, there can be no assurance that any outstanding legal proceedings will
not be decided adversely to the Bank and have a material adverse effect on the
financial condition and the results of operations of the Bank.
644923.1
-107-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
29. Subsequent Events
Conditions imposed in connection with the Banking Department's approval of the
Branch Sale included: (i) the Bank's agreement to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution; (h) the Bank's agreement to file with the
Supreme Court of the State of New York an application for a closing order within
13 months of the closing of the Branch Sale and an application for a formal
order of dissolution within five months following the filing of an application
for a closing order; (iii) increased levels of minimum regulatory capital
requirements; (iv) the Bank's agreement to continue to submit its proposed
capital transactions to the Banking Department for prior approval; (v) the
continuation of the Bank's current periodic reporting obligations with respect
to its retained assets, as well as in connection with its ongoing activities
subsequent to the Bank Sale; and (vi) such other conditions and obligations as
the Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. I and No. 2 of the approval of the Branch Sale described in the
immediately preceding paragraph. The Bank proposed to adopt a plan under which
it would transfer all of its assets and liabilities, including all contingent
liabilities, to a successor corporation ("Successor") incorporated under
Delaware General Corporate Law. Successor would acquire all of the assets of the
Bank and continue all of the business of the Bank under the same business plan
as adopted by the Bank. Successor would not be subject to the jurisdiction of
the Banking Department. Following the transfer of its assets and liabilities to
Successor, the Bank would surrender its banking charter and dissolve. The
implementation of the proposed plan would result in a mere change of form from a
banking corporation to a corporation incorporated under the Delaware General
Corporate Law, which would not be subject to the jurisdiction of the Banking
Department. The proposed transfer is expected to qualify as a tax-free
reorganization under the Internal Revenue Code and, as such the Bank expects
that certain of its tax attributes will be preserved. Successor will not be
subject to regulation by the Banking Department or the FDIC following
implementation of the Alternate Proposal and the surrender of the Bank's banking
charter.
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that immediately following the reorganization and dissolution of the Bank,
Successor will be owned by the same stockholders, in the same proportions as
currently own the Bank.
Prior to June 30,1997, the Bank received the Banking Department's conditional
approval of the Alternate Proposal as meeting the Conditions of the Banking
Department's approval of the Branch Sale, if implemented by the Bank on a timely
basis. The Banking Department's conditional approval of the Alternate Proposal
and related modification of Condition No. 1 of the Approval of the Branch Sale
provided that the approval of shareholders of the Alternate Proposal not later
than September 30,1997, would be deemed to satisfy Condition No. 1. Condition
No. 2 of the Banking Department's approval of the Branch Sale would be deemed to
be satisfied if the petition required by Condition No. 2 is filed by the Bank by
October 15, 1997. In the event that the Bank is unable to meet the dates for
completion established by the Banking Department the Bank intends to request
such extensions as may be necessary to complete implementation of the Alternate
Proposal. No assurances can be given that the Banking Department will provide
such extensions.
The Banking Department also advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Further, the Banking Department's conditional approval of the Alternate Proposal
requires the Bank to seek prior approval for any material sale or transfer of
assets, or expenditures for development or renovation of any properties held by
the Bank prior to the completion of the dissolution of the Bank.
The Bank intends to proceed with the implementation of the Alternate Proposal
during the quarter ending September 30, 1997 and fully comply with the
conditions imposed by the Banking Department.
644923.1
-108-
<PAGE>
EXHIBIT "G"
RIVER BANK AMERICA
Pro Forma Balance Sheet
As of Immediately Prior to Dissolution
Assets
Cash $ 100,000 1
----------
Total Assets $ 100,000 1
==========
Liabilities and Shareholders'
Equity
Total Liabilities $ -
Shareholders' Equity $ 100,000 1
----------
Total Liabilities and Shareholders' Equity $ 100,000 1
==========
- --------
1 Such amount to be delivered to RB Asset, Inc. upon the dissolution pursuant
to the Assignment Agreement and the Merger Agreement.
643293.1
<PAGE>
EXHIBIT "H"
CERTIFICATE
Jerome R. McDougal, being the duly appointed chairman of the 1997
annual meeting of stockholders of River Bank America held on October 7, 1997
(the "Annual Meeting"), and Robin Chandler Duke, being the duly appointed
secretary of the Annual Meeting, hereby certify that:
A true and correct copy of the minutes of the 1997 annual
meeting of stockholders of River Bank America (the "Bank"),
held on October 7, 1997 at the Grand Hyatt of New York Hotel,
Park Avenue at Grand Central, New York, New York 10017, as
maintained by the Bank with the permanent records of the
Annual Meeting, is attached to this certificate as Exhibit A.
IN WITNESS WHEREOF, we have signed the certificate on the 10th day of
October, 1997.
/s/ Jerome R. McDougal
----------------------
Jerome R. McDougal
/s/ Robin Chandler Duke
-----------------------
Robin Chandler Duke
642559.1
<PAGE>
EXHIBIT "I"
[Battle Fowler LLP Letterhead]
October 14, 1997
BY HAND
P. Vincent Conlon
Deputy Superintendent
New York State Banking Department
2 Rector Street
New York, New York 10006
Re: Certified Minutes of Annual Meeting of Stockholders of
River Bank America
Dear Mr. Conlon:
On behalf of River Bank America (the "Bank"), we submit for
filing with the Department the enclosed minutes of the 1997 annual meeting of
stockholders of the Bank held on October 7, 1997, as certified by the chairman
and the secretary of the meeting.
Please call the undersigned at 212-856-6906 or Thomas E.
Kruger at 212-856-7070 should you have any questions with regard to this letter.
Very truly yours,
/s/ Michael L. Zuppone
Michael L. Zuppone
Enc.
cc: Kathleen Scott
Jerome R. McDougal
Thomas E. Kruger
643317.2
<PAGE>
EXHIBIT "J"
At a Term of the Supreme
Court of the State of New
York, held in and for the
County of New York on the
___ day of November, 1997.
Present: Hon. __________________________, J.S.C.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------x
Index No.
In the Matter of the Voluntary
Liquidation and Dissolution of RJI NO.
RIVER BANK AMERICA, CLOSING ORDER
Petitioner
- ---------------------------------------x
A proceeding having been commenced by Petitioner, River Bank America
(the "Bank"), on October __, 1997, by service of a notice of petition, and
verified petition together with exhibits, for a closing order pursuant to
Section 605 of the New York State Banking Law, and a request for judicial
intervention having been filed on October __, 1997, and the proceeding having
been assigned to the Honorable __________________________, a Justice of this
Court, and the Superintendent of Banks, New York State Banking Department (the
"Superintendent"), having been served, and proof of said service having been
duly filed with the Court and the application having duly come on to be heard
before the Court on the __________ day of November, 1997, and Battle Fowler LLP,
attorneys for the petitioner
629058.4
<PAGE>
having appeared in support of the application and the Superintendent having
interposed no objection to the petition;
NOW, upon reading and filing the notice of petition dated October __,
1997, and the verified petition for a closing order, duly verified by Jerome R.
McDougal, Jr., President of the Bank, dated October __, 1997, as amended,
together with its annexed exhibits with proof of service, it is hereby:
ORDERED, that the petition of the Bank is granted, and the
business of the Bank is hereby closed; and it is further
ORDERED, that within 30 days of the date of this Order, the Bank shall
serve upon all known creditors of the Bank a copy of this Order, together with a
notice permitting the presentation of claims to the Bank, at its offices at 645
Fifth Avenue, 8th Floor, New York, New York 10022, on or before _________, 1997
(a date not less than 30 days nor more than 60 days from the signing of this
Order) in the form annexed hereto ("Notice to Creditors"); and it is further
ORDERED, that the Bank shall cause a copy of the Notice to Creditors to
be published in the _______________ once a week for two (2) consecutive weeks
within 30 days from the signing of this Order; and it is further
ORDERED, that the Bank or any creditor, upon notice, may apply to the
Court for a determination as to any disputed claim or for any other relief
necessary to effectuate the liquidation of the Bank; and it is further
629058.4
2
<PAGE>
ORDERED, that the Bank shall file a certified copy of this Closing
Order with the office of the Superintendent within five (5) days of the date
hereof; and it is further
ORDERED, that within a reasonable time following the expiration of time
during which creditors may present their claims and following the Bank's
compliance with provisions of this Order with regard to the giving of notice to
creditors, the Bank shall file a verified statement with the Superintendent,
listing all the names of creditors, depositors and others who have not received
debt, deposits, dividends or other amounts due to them, together with all
identifying information, and shall thereupon pay over such unclaimed amounts to
the Superintendent as trustee for the persons entitled to receive them; and it
is further
ORDERED, that upon filing said verified statement the Bank may further
apply to this Court, pursuant to Section 605(6) requiring notice be given to the
Superintendent and the New York State Office of the Comptroller and such other
and further notice as this Court may prescribe, and for an order affirming the
disposition of any unclaimed amounts and declaring the Bank dissolved and its
corporate existence terminated, and directing the Bank to file a certified copy
of said order with the Superintendent.
Enter:
------------------------------
J.S.C.
629058.4
3
<PAGE>
NOTICE OF PRESENTMENT OF CLAIMS AGAINST
RIVER BANK AMERICA
Please take notice that River Bank America, a New York state
chartered stock savings bank (the "Bank"), has been granted
approval to close its operations by the Supreme Court of New York
by order dated November __, 1997 in a proceeding entitled, In the
Matter of the Voluntary Liquidation and Dissolution of River Bank
America, petitioner, Index No. __________ (Sup. Ct. New York
Co.)(Justice ____________________).
The Bank will close its operations through the implementation of a plan
whereby the Bank will, through a series of steps, change its legal form of
organization by which it conducts business, holds its assets and is obligated
for its liabilities from a New York state chartered stock savings bank into a
business corporation incorporated in the State of Delaware to be known as "RB
Asset, Inc." Upon completion of the reorganization steps, RB Asset, Inc. will
own substantially all of the assets formerly owned by the Bank, will have
assumed all of the Bank's liabilities, will have the same stockholders and
capital structure as the Bank and will continue the Bank's non-banking business.
Upon completion of the reorganization, the Bank will dissolve, and its
non-banking business will be continued by RB Asset, Inc.
Creditors of the Bank are not required to present their claims in order
for such claims and for their rights as creditors to be preserved against and
assumed by RB Asset, Inc. Creditors of the Bank may present their claim(s) to
the Bank at its office at 645 Fifth Avenue, 8th Floor, New York, New York 10022,
to the attention of Jerome R. McDougal, President, on or before
___________________, 1997. Such presentment, if any, must be made in writing,
stating the name and address of the claimant and basis for the claim.
629058.4
<PAGE>
EXHIBIT "K"
[State of New York Banking Department Letterhead]
October 10, 1997
Mr. Jerome R. McDougal, Jr.
President
River Bank America
645 Fifth Avenue
New York, NY 10022
Dear Mr. McDougal:
This letter is to inform you that the Superintendent of Banks has no
objection to the entry of a New York State Supreme Court order, pursuant to New
York Banking Law section 605(4), declaring the business of River Bank America
("Company") closed and requiring the Company to wind up its affairs and pay its
creditors.
Very truly yours,
/s/ P. Vincent Conlon
P. Vincent Conlon
Deputy Superintendent
Of Banks
644924.1
EXHIBIT "D"
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of , 1997, by and between
River Bank America, a New York chartered savings bank ("Assignor"), and River
Asset Sub, Inc., a Delaware corporation ("Assignee").
1. For value received, Assignor hereby grants, transfers, conveys, assigns
and delivers to Assignee all of Assignor's right, title and interest in
and to all of Assignor's assets (the "Assets"), other than an amount in
cash, estimated to be no more than $_________, sufficient for Assignor
to pay the costs of continuing regulation and liquidation, to resolve
any claims made against Assignor during the notice period to creditors
and to abide by the statutory requirement under the New York State
Banking Law that Assignor remain solvent until its final dissolution,
to have and to hold the same unto Assignee, its successors and assigns
forever.
2. In consideration of the assignment of the Assets by Assignor to
Assignee, Assignee hereby assumes and agrees to pay, perform and
discharge when due all liabilities and obligations of Assignor of any
kind or nature, known or unknown, whether absolute, contingent, accrued
or otherwise, and whether arising before or after the date hereof,
without limitation.
3. Each of the parties hereto understands and agrees that no party hereto
or in any other agreement or document contemplated by this Assignment
and Assumption Agreement or otherwise is making any representation or
warranty whatsoever with respect to the Assets, including, without
limitation, as to title, value or legal sufficiency. It is also agreed
and understood that all assets either transferred to or retained by the
parties, as the case may be, shall be "as is, where is" and that the
party to which such assets are to be transferred hereunder shall bear
the economic and legal risk that any conveyance of such assets shall
prove to be insufficient or that such party's title to any such assets
shall be other than good and marketable and free from encumbrances.
4. Assignee shall indemnify, defend and hold harmless Assignor, its
affiliates, subsidiaries, directors, officers and employees from and
against any and all losses, liabilities, claims, suits, proceedings,
demands, judgments, damages, expenses and costs, including reasonable
attorneys' fees and costs of defense, which Assignor or its affiliates,
subsidiaries, directors, officers or employees may suffer or incur by
reason of the liabilities of Assignor expressly assumed pursuant to
paragraph 2 hereof and any other liability relating to the Assets or
the business of Assignor.
620812.4
-1-
<PAGE>
5. From time to time, each of the parties hereto shall, if requested by
any other party hereto, make, execute and deliver to such requesting
party any such additional deeds, assignments, bills of sale and other
instruments, documents, certificates and agreements as may be
reasonably necessary or appropriate to consummate the transactions
contemplated hereby.
IN WITNESS WHEREOF, Assignor and Assignee have caused this instrument
to be duly executed as of the ____ day of , 1997.
RIVER BANK AMERICA
By:
Name:
Title:
RIVER ASSET SUB, INC.
By:
Name:
Title:
620812.4
-2-
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RIVER DISTRIBUTION SUB, INC.
RIVER DISTRIBUTION SUB, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The present name of the corporation is River
Distribution Sub Inc. (hereinafter called the "Corporation"), which is the name
under which the Corporation was originally incorporated; the date of filing of
the Corporation's original Certificate of Incorporation with the Secretary of
State of the State of Delaware was September 23, 1997.
SECOND: The Certificate of Incorporation of the Corporation is
hereby amended and restated in its entirety pursuant to this Amended and
Restated Certificate of Incorporation.
THIRD: This Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the provisions of Sections 241 and 245
of the Delaware General Corporation Law. The Corporation has not received any
payment for any of its stock.
FOURTH: The Certificate of Incorporation is hereby amended and
restated so as to read in its entirety as follows:
641314.1
-1-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RIVER DISTRIBUTION SUB, INC.
FIRST: The name of the corporation is River Distribution Sub,
Inc. (hereinafter called the "Corporation").
SECOND: The registered office of the Corporation is to be
located at 1013 Centre Road, in the City of Wilmington, in the County of New
Castle, in the State of Delaware. The name of its registered agent at that
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity, without limitation, for which a corporation may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is forty
million (40,000,000) shares, of which ten million (10,000,000) shares shall be
preferred stock, $.001 par value per share (the "Preferred Stock"), and thirty
million (30,000,000) shares shall be common stock, $.001 par value per share
(the "Common Stock"). The Preferred Stock and the Common Stock are sometimes
hereinafter collectively referred to as "Capital Stock."
641314.1
-2-
<PAGE>
B. The following is a statement of the designations,
powers, preferences and rights in respect of the classes of the Capital Stock,
and the qualifications, limitations or restrictions thereof, and of the
authority with respect thereto expressly vested in the Board of Directors of the
Corporation:
(1) Preferred Stock. The Preferred Stock may be
issued from time to time in one or more series, the number of shares and any
designation of each series and the powers, preferences and rights of the shares
of each series, and the qualifications, limitations or restrictions thereof, to
be as stated and expressed in a resolution or resolutions providing for the
issue of such series adopted by the Board of Directors, subject to the
limitations prescribed by law. The Board of Directors in any such resolution or
resolutions is expressly authorized to state for each such series:
(a) the voting powers, if any, of the holders
of shares of such series in addition to any voting
rights affirmatively required by law;
(b) the rate or rates per annum and the time or
times at and conditions upon which the holders of
shares of such series shall be entitled to receive
dividends and other distributions, and whether any
such dividends shall be cumulative or
non-cumulative and, if cumulative, the terms upon
which such dividends shall be cumulative;
(c) the terms and conditions upon which the
shares of such series shall be redeemable;
641314.1
-3-
<PAGE>
(d) the amount payable and the rights to which
the holders of the shares of such series shall be
entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(e) the terms, if any, upon which shares of
such series shall be convertible into, or
exchangeable for, shares of any other class or
classes or of any other series of the same or any
other class or classes, including the price or
prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
(f) any other designations, preferences, and
relative, participating, optional or other special
rights, and qualifications, limitations or
restrictions thereof, so far as they are not
inconsistent with the provisions of this
certificate of incorporation or the laws of the
State of Delaware.
All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting a series, the Board of Directors may be resolution or
resolutions likewise adopted increase or decrease (but not below the number of
shares of the series then outstanding) the number of shares of the series
subsequent to the issue of shares of
641314.1
-4-
<PAGE>
that series; and in case the number of shares of any series shall be so
decreased, the shares constituting the decrease shall resume that status which
they had prior to the adoption of the resolution originally fixing the number of
shares constituting such series.
2. Common Stock. Subject to the preferences, privileges and
voting powers, and the restrictions and qualifications thereof, with respect to
each class of Capital Stock of the Corporation having any priority over the
Common Stock, the holders of the Common Stock shall have and possess all rights
appertaining to Capital Stock of the Corporation. All shares of Common Stock
shall be identical with each other in every respect. The shares of Common Stock
shall entitle the holders thereof to one vote for each share upon all matters
upon which stockholders have the right to vote. The holders of Common Stock
shall not be permitted to cumulate their votes for the election of directors.
C. No holder of shares of Capital Stock shall be entitled as
such, as a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever of the Capital Stock or of
securities convertible into stock of any class whatsoever, whether now or
hereafter authorized or whether issued for cash or other consideration or by way
of dividend.
FIFTH: Except as may be otherwise provided for or fixed
pursuant to the provisions of Article FOURTH with respect to any rights of
holders of Preferred Stock to elect directors, the number of directors of the
Corporation shall be not less than seven nor more than twenty. The directors
shall be divided into three classes, as nearly equal in number as possible. The
members of each class shall be elected for
641314.1
-5-
<PAGE>
the term of three years and until their successors are elected and qualified.
One class shall be elected by ballot annually.
SIXTH: The Board of Directors shall have the power to adopt,
amend and repeal the By-laws of the Corporation. The holders of shares of
capital stock of the Corporation entitled to vote in an election of directors
("Voting Shares") also shall have the power to amend or repeal the By-laws,
including By-laws made by the Board of Directors, and to enact By-laws which if
so expressed may be amended or repealed only by the holders of the Voting
Shares.
SEVENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or
641314.1
-6-
<PAGE>
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders of
the Corporation, as the case may be, and also on the Corporation.
EIGHTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7)) of subsection (b) of Section 102 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented. Any repeal or
modification of this Article EIGHTH shall not increase the personal liability of
any director of the Corporation for any act or occurrence taking place prior to
such repeal or modification, or otherwise adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
NINTH: The Corporation shall indemnify, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, past and present
directors and officers, and may indemnify any and all other persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section and shall advance expenses incurred by any and all of such persons in
relation to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative. The indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any By-laws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official
641314.1
-7-
<PAGE>
capacity and as to action in any other capacity while holding such office, 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 heirs, executors and
administrators of such a person. Any repeal or modification of this paragraph by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect the right to indemnification or advancement of expenses
hereunder existing at the time of such repeal or modification.
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of
Delaware.
TENTH: A two-thirds vote of the entire Board of Directors
shall be required to renew or amend any employment contract between the
Corporation and any officer of the Corporation.
[END OF TEXT]
641314.1
-8-
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand the 8th day of
October, 1997.
/s/ Gloria M. Skigen
-----------------------------------
Gloria M. Skigen, Sole Incorporator
75 East 55th Street
New York, New York 10022
641314.1
-9-
EXHIBIT 3.2
B Y - L A W S
OF
RIVER DISTRIBUTION SUB, INC.
(a Delaware corporation)
--------------------------
ARTICLE I
OFFICES
SECTION 1. Offices. The Corporation shall maintain its
registered office in the State of Delaware at 1013 Centre Road, in the City of
Wilmington, in the County of New Castle, and its resident agent at such address
is The Prentice-Hall Corporation System, Inc. The Corporation may also have
offices in such other places in the United States or elsewhere as the Board of
Directors may, from time to time, appoint or as the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. Unless directors are elected by
written consent in lieu of an annual meeting as permitted by law, an annual
meeting of stockholders for the election of directors and for such other
business as may properly be conducted at such meeting shall be held at such
place, either within or without the State of Delaware, and at such time and date
as the Board of Directors shall determine by resolution and set forth in the
notice of the meeting. Stockholders may act by written
621870.4
<PAGE>
consent to elect directors; provided, however, that if such consent is less
thanunanimous, such action by written consent may be in lieu of holding an
annual meeting only if all of the directorships to which directors could have
been elected at an annual meeting held at the effective time of such action are
vacant and are filled by such action. In the event that the Board of Directors
fails to determine the time, date and place for the annual meeting and the
stockholders have not elected directors by written consent as permitted by law,
it shall be held, beginning in 1998, at the principal office of the Corporation
at 10 o'clock a.m. on the third Tuesday in March of each year. At the annual
meeting any business may be transacted and any corporate action may be taken,
whether stated in the notice of meeting or not, except as otherwise expressly
provided by statute or the Certificate of Incorporation. Notice of each annual
meeting shall be given in accordance with Section 3 of this Article II.
SECTION 2. Special Meetings. Special meetings of the
stockholders of the Corporation for any purpose or purposes may be called by the
Board of Directors, the President or the Chairman of the Board of Directors and
shall be called by the President or the Secretary at the written request of the
holders of record of not less than a majority of the outstanding shares of
capital stock of the Corporation entitled to vote in an election of directors.
Special meetings shall be held at such place or places within or without the
State of Delaware as shall be stated in the notice of such meeting or may
otherwise be designated by the Board of Directors. At a special meeting no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting. Notice of each special meeting shall
be given in accordance with Section 3 of this Article II.
-2-
621870.4
<PAGE>
SECTION 3. Notice of Meetings. Written notice of the date,
time and place of any stockholders' meeting, whether annual or special, shall be
mailed or delivered to each stockholder of record entitled to vote thereat at
his address as the same appears upon the records of the Corporation not less
than ten (10) days nor more than sixty (60) days before the date of any such
meeting. Notice of any special meeting shall state the purposes for which such
meeting is called. Notice of a meeting need not be given to any stockholder who
submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. The attendance of any stockholder at a meeting, in person or
by proxy, without protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by him.
SECTION 4. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of at least a majority of the capital
stock of the Corporation issued and outstanding and entitled to vote thereat,
who shall be present in person or by proxy at any meeting duly called, shall
constitute a quorum for the transaction of business at all meetings of
stockholders. When a quorum is once present to organize a meeting, the quorum is
not broken by the subsequent withdrawal of any stockholders.
SECTION 5. Adjournment. If less than a quorum be present at
any meeting of the stockholders, the meeting may be adjourned from time to time
by a majority vote of the stockholders present or by proxy and entitled to vote
thereat, without notice, other than by announcement at the meeting so adjourned,
until a quorum shall attend. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the
-3-
621870.4
<PAGE>
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting. Any meeting at which a quorum is present may also be adjourned
in like manner and for such time or upon such call as may be determined by a
majority vote of the stockholders present in person or by proxy and entitled to
vote thereat. At any adjourned meeting at which a quorum shall be present, any
business may be transacted and any corporate action may be taken which might
have been transacted at the meeting as originally called.
SECTION 6. Voting and Action Without a Meeting. Each
stockholder entitled to vote at any meeting, or to express consent or dissent
without a meeting, may vote or express consent or dissent either in person or by
proxy, duly appointed by an instrument in writing subscribed by such stockholder
or his attorney-in-fact and bearing a date not more than eleven months prior to
said meeting or expression of consent or dissent, unless said proxy provides for
a longer period. Each stockholder entitled to vote or express consent or dissent
shall be entitled to one vote for each share of voting stock registered in his
name on the books of the Corporation on the date fixed as a record date for the
determination of its stockholders entitled to vote or express consent or
dissent, as hereinafter provided. Except for the election of directors or as
otherwise provided by law, by the Certificate of Incorporation or by these
By-laws, at all meetings of stockholders all matters shall be determined by a
majority of the votes cast at such meeting by the holders of shares entitled to
vote thereon. Directors shall, except as otherwise required by this article or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
by each class of shares entitled to vote at a meeting of stockholders present in
person or by proxy and entitled to vote in
-4-
621870.4
<PAGE>
the election. All elections of directors shall be by written ballot. Any
stockholder executing a proxy in connection with an annual or special meeting of
stockholders of the Corporation may revoke such proxy at any time before it is
voted by (i) giving the President or the Secretary of the Corporation, at the
address of the Corporation set forth in the notice of meeting, written notice of
such revocation; (ii) executing a later-dated proxy; or (iii) attending the
meeting and giving notice of such revocation in person. Mere attendance at a
meeting will not, in and of itself, constitute revocation of a proxy. No
director or officer of the Corporation may act as proxy at any meeting of the
stockholders.
Unless otherwise provided by the Certificate of Incorporation,
any action required by law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at such meetings, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote were present and voted. Every written consent shall
bear the date of signature of each stockholder who signs the consent. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date of such meeting
had been the date that written consents signed by a sufficient number of holders
or members to take the action were delivered to the Corporation as provided by
law.
-5-
621870.4
<PAGE>
SECTION 7. Lists of Stockholders. The officer who has charge
of the stock ledger of the Corporation or the Corporation's transfer agent shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number and
class of shares held by each. Such a 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 ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which shall
be specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be provided and kept at the
meeting and may be inspected by any stockholder who is present. If the right to
vote at any meeting is challenged, the inspectors of election, or person
presiding thereat, shall require such list of stockholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be stockholders entitled to vote thereat
may vote at such meeting.
SECTION 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. The Board
shall exercise all of the powers and duties conferred by law except as provided
by the Certificate of Incorporation or these By-laws.
SECTION 2. Number, Election and Term. The number of directors
of the Corporation shall be no less than seven and no more than twenty. Within
the limits specified above, the number of directors constituting the Board of
Directors of the Corporation shall be fixed from time to time by or pursuant to
a resolution passed by the Board of Directors. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. The terms of directors
shall be staggered so that the term of the initial Class I directors shall
terminate on the date of the 1998 annual meeting of stockholders; the term of
the initial Class II directors shall terminate on the date of the 1999 annual
meeting of stockholders; and the term of the initial Class III directors shall
terminate on the date of the 2000 annual meeting of stockholders. At each annual
meeting of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term, with each director to hold office until his or her successor shall have
been duly elected and qualified.
The directors of one class shall be elected by stockholders at
each annual meeting of stockholders or as otherwise provided in Article II,
Section 1. The directors
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chosen at any annual meeting shall hold office, except as hereinafter provided,
until the third annual meeting of stockholders following their election and
until the election and qualification of their successors.
SECTION 3. Resignations. Any director may resign at any time.
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the Chairman of the Board of Directors, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
so specified therein.
SECTION 4. Removal. Any director may be removed from the Board
of Directors either with or without cause at any time by the affirmative vote of
the holders of a majority of the shares then entitled to vote for the election
of directors at any special meeting of stockholders called for that purpose or
by written consent as permitted by law. Vacancies thus created may be filled at
such meeting by the affirmative vote of the holders of a majority of the shares
then entitled to vote for the election of directors, by written consent as
permitted by law, or, if the vacancies are not so filled, by the directors as
provided in Section 5 of this Article III.
SECTION 5. Vacancies and Newly Created Directorships. Except
as otherwise provided in Section 4 of this Article III, vacancies in the office
of director, including newly created directorships resulting from an increase in
the number of directors may be filled by the affirmative vote of a majority of
the directors then holding office at any regular or special meeting of the Board
of Directors called for that purpose. Any director so elected by the Board of
Directors shall serve until the next election of
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the class for which such director shall have been chosen and until his or her
successor shall be elected and qualified.
SECTION 6. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. The Board of Directors shall hold an annual meeting for the purpose
of the election of officers and the transaction of any business within
twenty-five (25) days after the annual meeting of stockholders.
The Board of Directors shall hold a regular monthly meeting in
addition to the annual meeting at least ten (10) times a year; provided,
however, that during any three consecutive calendar months, the Board of
Directors shall meet at least twice.
Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, by the President or by written request
of two directors.
Regular monthly meetings of the Board of Directors may be held
without notice at such time and place as shall be designated by resolution of
the Board of Directors. Notice shall be required, however, for special meetings.
Notice of any special meeting shall be sufficiently given if (a) mailed to each
director at his residence or usual place of business at least five (5) days
before the day on which the meeting is to be held, or (b) delivered personally
or by telephone not later than 72 hours prior to the time at which the meeting
is to be held. No notice of the annual meeting shall be required if held
immediately after the annual meeting of the stockholders and if a quorum is
present. Notice of a meeting need not be given to any director who submits a
signed waiver of notice before or after the meeting, nor to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice.
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Any business may be transacted and any corporate action may be
taken at any regular or special meeting of the Board of Directors at which a
quorum shall be present, whether such business or proposed action be stated in
the notice of such meeting or not, unless special notice of such business or
proposed action shall be required by law.
SECTION 7. Quorum, Voting and Adjournment. A majority of the
entire Board of Directors shall be necessary to constitute a quorum for the
transaction of business unless otherwise required by law, and the acts of a
majority of the Directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors, unless otherwise provided by law,
the Certificate of Incorporation or these By-Laws. In the absence of a quorum, a
majority of the directors present may adjourn the meeting to such time and place
as they may determine without notice other than announcement at the meeting so
adjourned until enough directors to constitute a quorum shall attend.
SECTION 8. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or any committee thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
of Directors or such committee, as the case may be.
SECTION 9. Compensation. The Board of Directors may establish
by resolution reasonable compensation of all directors for services to the
Corporation as directors, including an annual retainer and a fixed fee, for
attending each meeting.
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Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 10. Participation By Telephone. Any one or more
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board or such committee by means
of conference telephone or similar communications equipment in which all persons
participating in the meeting can hear each other. Participation by such means
shall constitute the presence in person at such meeting.
SECTION 11. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if: (a) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors (even though the
disinterested directors be less than a quorum); (b) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and
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the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (c) the contract or transaction is fair to the Corporation
as of the time that it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee thereof that authorizes the contract or
transaction.
SECTION 12. Retirement of Directors. The office of a director
shall become vacant on the last day of the calendar year in which his
seventy-eighth birthday occurs.
SECTION 13. Director Emeritus. The Board of Directors may
elect as a director emeritus any director whose term of office shall have
terminated pursuant to Section 12 of this Article III. A director emeritus so
elected shall serve until the regular meeting of the Board of Directors in the
next succeeding month of December and may be re-elected annually thereafter in
each succeeding year at the regular meeting of the Board of Directors in such
month for a maximum of two additional terms. A director emeritus may attend the
regular meetings of the Board of Directors and shall have no vote at such
meetings, shall receive a fee for attendance at each such meeting equal to
one-half of the fee paid to a director who is not a director emeritus and shall
not serve on any committee.
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ARTICLE IV
COMMITTEES
SECTION 1. Committees of the Board of Directors. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more committees, including but not limited to an Executive Committee and
an Audit Committee, each such committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board establishing such committee, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any By-law of the Corporation. All committees of the Board
shall keep minutes of their
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meetings and shall report their proceedings to the Board when requested or
required by the Board.
SECTION 2. Resignation. Any member of a Committee may resign
at any time. Such resignation shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective unless
so specified therein.
SECTION 3. Quorum. A majority of the members of a Committee
shall constitute a quorum. The act of a majority of the members of a Committee
present at any meeting at which a quorum is present shall be the act of such
Committee. The members of a Committee shall act only as a Committee, and the
individual members thereof shall have no powers as such.
SECTION 4. Record of Proceedings. Each Committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
SECTION 5. Meetings. A Committee may hold its meetings at the
principal office of the Corporation, or at any other place upon which a majority
of the Committee may at any time agree. Each Committee may make such rules as it
may deem expedient for the regulation and carrying on of its meetings and
proceedings.
SECTION 6. Compensation. The members of any Committee shall be
entitled to such compensation as may be allowed them by resolution of the Board
of Directors.
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ARTICLE V
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
President and one or more Vice-Presidents, and other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V.
SECTION 2. Election, Term of Office and Qualifications. The
officers, except as provided in Section 3 of this Article V, shall be chosen
annually by the Board of Directors. Each such officer shall, except as herein
otherwise provided, hold office until the selection and qualification of his
successor. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
SECTION 3. Other Officers. Other officers, including, without
limitation, a Secretary and a Treasurer or Chief Financial Officer, may from
time to time be appointed by the Board of Directors, which other officers shall
have such powers and perform such duties as may be assigned to them by the Board
of Directors.
SECTION 4. Removal of Officers. Any officer of the Corporation
may be removed from office, with or without cause, by a vote of a majority of
the Board of Directors.
SECTION 5. Resignation. Any officer of the Corporation may
resign at any time. Such resignation shall be in writing and shall take effect
at the time specified therein, and if no time be specified, at the time of its
receipt by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation shall not be necessary in order to make it
effective, unless so specified therein.
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SECTION 6. Filling of Vacancies. A vacancy in any office shall
be filled by the Board of Directors unless a resolution waiving such requirement
has been approved by the Board of Directors.
SECTION 7. Compensation. The compensation of the officers
shall be fixed by the Board of Directors, or by any Committee upon whom power in
that regard may be conferred by the Board of Directors.
SECTION 8. President. The President, who may be the Chief
Executive Officer, shall see that all orders and resolutions of the Board of
Directors are carried into effect and shall perform such other duties as may be
delegated to him by the Board of Directors. He shall also preside at all
meetings of the Stockholders and, if the Board of Directors has not selected a
Chairman of the Board, he shall perform all of the duties and responsibilities
of the Chairman of the Board.
SECTION 9. Vice Presidents. In the absence or disability of
the President or if the office of President be vacant, the Vice Presidents in
the order determined by the Board of Directors, or if no such determination has
been made in the order of their seniority, shall perform the duties and exercise
the powers of the President, subject to the right of the Board of Directors at
any time to extend or confine such powers and duties. Each Vice President shall
have such other powers and perform such other duties as may be assigned to him
from time to time by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall attend all meetings
of the Board of Directors and of the Stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall,
upon request, perform
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like duties for any Committee appointed by the Board. He shall give or cause to
be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the
Corporation and affix it to any instrument as deemed appropriate.
SECTION 11. Treasurer or Chief Financial Officer. The
Treasurer or Chief Financial Officer shall oversee the custody of corporate
funds and financial assets, management of receipts and disbursements and
utilization of such depositories as may be designated by the Board of Directors.
Further, he shall oversee the maintenance of accurate financial and accounting
records belonging to the Corporation including the timely reporting of all
financial transactions, periodic assessment of the Corporation's financial
condition and sensitivity to changes in the level of interest rates. He shall
report all transactions and the financial condition of the Corporation to the
Directors at the regular meetings of the Board, or whenever they, the President
or the Chairman of the Board may require it.
SECTION 12. Corporate Funds and Checks. The funds of the
Corporation shall be kept in such depositories as shall from time to time be
prescribed by the Board of Directors. All checks or other orders for the payment
of money shall be signed by the Chairman of the Board of Directors, the
President or the Treasurer or such other person or agent as may from time to
time be authorized and with such countersignature, if any, as may be required by
the Board of Directors.
SECTION 13. Contracts and Other Documents. The Chairman of the
Board of Directors, the Vice Chairman of the Board of Directors, the President,
any
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Vice President, the Treasurer, and such other officers and agents as may
from time to time be authorized by these By-laws, by the Board of Directors, by
the Chairman of the Board of Directors or by the President, shall have the power
to sign and execute on behalf of the Corporation deeds, conveyances and
contracts, and any and all other documents requiring execution by the
Corporation.
SECTION 14. Ownership of Securities of Another Corporation or
Entity. Except as otherwise ordered by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote at any meeting of the stockholders of any corporation of
which the Corporation is a stockholder and to execute a proxy to any other
person to represent the Corporation at any such meeting, and at any such meeting
the President or the holder of any such proxy, as the case may be, shall possess
and may exercise any and all rights and powers incident to ownership of such
stock and which, as owner thereof, the Corporation might have possessed and
exercised if present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
ARTICLE VI
STOCK
SECTION 1. Certificates of Stock. Certificates of capital
stock shall be in such form as shall be approved by the Board of Directors,
provided that each certificate shall when issued state upon the face thereof (1)
that the Corporation is a corporation organized under the laws of the State of
Delaware; (2) the name of the person or persons to whom the certificate is
issued; (3) the number, class and series, if
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any, which the certificate represents; and (4) the par value of each share
represented by the certificate; and further provided, that each certificate will
indicate any restrictions on transferability and will state that the Corporation
will furnish to any stockholder upon request and without charge a full statement
of the designation, relative rights, preferences and limitations of the shares
of each class or series of stock authorized to be issued, or shall set forth
such statement on the certificate itself. The certificates shall be numbered in
the order of their issue. Every holder of stock in the Corporation shall be
entitled to have such certificate signed by, or in the name of the Corporation
by, the Chairman of the Board of Directors or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any or all of the signatures on the certificate may be a facsimile.
The Board of Directors shall have the power to appoint one or more transfer
agents and/or registrars for the transfer or registration of certificates of
stock of any class, and may require stock certificates to be countersigned or
registered by one or more of such transfer agents and/or registrars. The seal of
the Corporation or a facsimile thereof shall be impressed, affixed or reproduced
thereon. In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been issued by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates had not ceased to be such officer or officers of the
Corporation.
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SECTION 2. Registration and Transfer of Shares. The name of
each person owning a share of the capital stock of the Corporation shall be
entered on the books of the Corporation, together with the number of shares held
by him, the numbers of certificates covering such shares and the dates of issue
of such certificates. Subject to the conditions set forth in Section 3 of
Article VI of these By-laws, shares of stock of the Corporation shall be
transferable upon its books by the holders thereof, in person or by their duly
authorized attorneys or legal representatives, upon surrender to the Corporation
by delivery thereof to the person in charge of the stock and transfer books and
ledgers. Such certificates shall be canceled and new certificates shall
thereupon be issued. A record shall be made of each transfer. Whenever any
transfer of shares shall be made for collateral securities, and not absolutely,
it shall be so expressed in the entry of the transfer if, when the certificates
are presented, both the transferor and transferee request the Corporation to do
so. The Board of Directors shall have power and authority to make such rules and
regulations as it may deem necessary or proper concerning the issue, transfer
and registration of certificates for shares of stock of the Corporation.
SECTION 3. Lost Certificates. A new certificate of stock may
be issued in the place of any certificate previously issued by the Corporation,
alleged to have been lost, stolen, destroyed or mutilated, and the Board of
Directors may, in their discretion, require the owner of such lost, stolen,
destroyed or mutilated certificate, or his legal representative, to give the
Corporation a bond, in such sum as the Board of Directors may direct, not
exceeding double the value of the stock, in order to indemnify the Corporation
against any claims that may be made against it in connection therewith.
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SECTION 4. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder thereof in fact, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
SECTION 5. Stockholder Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
(a) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the next
day preceding the day on which notice is given, or if no notice is given, the
day on which the meeting is held; and (b) the record date for determining
stockholders for any purpose other than that specified in clause (a) above shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided that the Board of Directors may fix a new
record date for the adjourned meeting.
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SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may at any regular or
special meeting, out of funds legally available therefor, declare dividends upon
the stock of the Corporation. Before the declaration of any dividend, the Board
of Directors may set apart, out of any funds of the Corporation available for
dividends, such sum or sums as from time to time in their discretion may be
deemed proper for working capital or as a reserve fund to meet contingencies or
for such other purposes as shall be deemed conducive to the interests of the
Corporation.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments. These By-laws may be amended or
repealed or new By-laws may be adopted by the affirmative vote of a majority of
the entire Board of Directors at any regular or special meeting of the Board of
Directors. If any By-law regulating an impending election of directors is
adopted, amended or repealed, notice of such adoption, amendment or repeal shall
be provided to the stockholders promptly (and in any event within ten days after
the adoption of any such amendment or repeal). Stockholders entitled to vote in
an election of Directors also shall have the power to amend or repeal these
By-laws, including By-laws made by the Board of Directors, and to adopt By-laws
which, if so expressed, may be amended or repealed only by stockholders entitled
to vote in an election of Directors.
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ARTICLE VIII
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings
Other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article IX, 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, suit or proceeding, whether civil, criminal, administrative or
investigative, including all appeals (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director or officer or partner of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
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 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
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
reasonable cause to believe that his conduct was unlawful.
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SECTION 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article IX,
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 is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer or partner of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and 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 to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. Authorization of Indemnification. Any
indemnification under this Article IX (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article IX, as the case
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may be. Such determination shall be made (i) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (ii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(iii) by the stockholders. To the extent, however, that a director or officer of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
SECTION 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article IX, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer,
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employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article IX,
and notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article IX. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 1 or 2 of this Article IX, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article IX nor the absence of any determination thereunder shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. Expenses Payable in Advance. Expenses (including
attorneys' fees) incurred by an officer or director in defending or
investigating any civil,
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<PAGE>
criminal, administrative or investigative action, suit
or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article IX. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
SECTION 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article IX shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, By-law, agreement, vote of stockholders or disinterested
directors, direction (however embodied) of any court of competent jurisdiction
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article IX shall be made to the fullest extent permitted by law. The
provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the
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<PAGE>
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, or partner of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Certain Definitions. For purposes of this Article
IX, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, or partner of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article IX with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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621870.4
<PAGE>
SECTION 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article IX to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article IX to directors and officers of the Corporation.
ARTICLE IX
MISCELLANEOUS
SECTION 1. Corporate Seal. The seal of the Corporation shall
be circular in form and shall have the name of the Corporation on the
circumference and the jurisdiction and year of incorporation in the center. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
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621870.4
<PAGE>
SECTION 2. Fiscal Year. The fiscal year of the Corporation
shall end June 30 of each year, or such other twelve consecutive months as
the Board of Directors may designate.
SECTION 3. Execution of Documents. Only persons designated by
resolution of the Board of Directors adopted from time to time are authorized to
execute contracts and transfers of property of the Corporation, and to execute
such other documents as the business of the Corporation may require. The
Corporation shall not be bound by any agreement which is not in conformity with
these By-laws.
Date of Adoption: October 8, 1997
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621870.4
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
RIVER ASSET SUB, INC.
THE UNDERSIGNED, in order to form a corporation for the
purposes herein stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the corporation is River Asset Sub, Inc.
(hereinafter called the "Corporation").
SECOND: The registered office of the Corporation is to be
located at 1013 Centre Road, in the City of Wilmington, in the County of New
Castle, in the State of Delaware. The name of its registered agent at that
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity, without limitation, for which a corporation may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares of all classes of stock
which the Corporation is authorized to issue is One Thousand (1,000) shares,
designated Common Stock, of the par value of One Dollar ($1.00) per share.
FIFTH: The name and mailing address of the incorporator is:
NAME ADDRESS
Gloria M. Skigen c/o Battle Fowler LLP
75 East 55th Street
New York, New York 10022
621004.1
<PAGE>
SIXTH: The election of directors need not be by written ballot
unless the By-laws so provide.
SEVENTH: The Board of Directors of the Corporation is
authorized and empowered from time to time in its discretion to make, alter,
amend or repeal By-laws of the Corporation, except as such power may be
restricted or limited by the General Corporation Law of the State of Delaware.
EIGHTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number represent ing three-fourths in value of the creditors or class of
creditors, and/or of the stock holders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a conse quence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the stock
621004.1
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<PAGE>
holders or class of stockholders, of this Corporation, as the case may be, and
also on this Corporation.
NINTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
TENTH: The Corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify past and
present directors and officers, and may indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, 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 heirs, executors, and administrators of such person.
621004.1
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<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand the 23rd day
of September, 1997.
/s/ Gloria M. Skigen
-----------------------------------
Gloria M. Skigen, Sole Incorporator
75 East 55th Street
New York, New York 10022
621004.1
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<PAGE>
FORM OF CERTIFICATE OF MERGER
OF
RIVER ASSET SUB, INC.
AND
RIVER DISTRIBUTION SUB, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) River Asset Sub, Inc., which is incorporated in the
State of Delaware ("River Asset Sub"); and
(ii) River Distribution Sub, Inc., which is incorporated in
the State of Delaware ("River Distribution Sub").
2. An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 251
of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is River Asset Sub, which will continue its existence as said
surviving corporation under the name "RB Asset, Inc." upon the effective date of
said merger pursuant to the provisions of the General Corporation Law of the
State of Delaware.
4. The Amended and Restated Certificate of Incorporation of River
Distribution Sub, as now in force and effect, is to be further amended and
changed by reason of the merger herein certified by striking out Article FIRST
thereof, relating to the name of such corporation, and by substituting in lieu
thereof the following article:
"FIRST: the name of the corporation is RB Asset, Inc.
(hereinafter called the "Corporation").";
and by striking out Article FOURTH thereof, relating to the par value of the
capital stock of such corporation, and by substituting in lieu thereof the
following article:
622147.2
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<PAGE>
"FOURTH: A. The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is
forty million (40,000,000) shares, of which ten million (10,000,000)
shares shall be preferred stock, par value $1.00 per share (the
"Preferred Stock"), and thirty million (30,000,000) shares shall be
common stock, par value $1.00 per share (the "Common Stock"). The
Preferred Stock and the Common Stock are sometimes hereinafter
collectively referred to as "Capital Stock."";
and said Amended and Restated Certificate of Incorporation, including, without
limitation, the Certificate of Designation, Preferences and Rights of the 15%
Noncumulative Perpetual Preferred Stock, Series A, as so amended and changed
shall be the Certificate of Incorporation of said surviving corporation until
further amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed agreement and plan of merger between the
constituent corporations is on file at an office of the aforesaid surviving
corporation, the address of which is as follows:
645 Fifth Avenue
New York, New York 10022
6. A copy of the aforesaid agreement and plan of merger will be
furnished by the aforesaid surviving corporation, on request, and without cost,
to any stockholder of each of the aforesaid constituent corporations.
7. The agreement and plan of merger between the aforesaid
constituent corporations provides that the merger herein certified shall be
effective upon the filing of this certificate.
Dated: October __, 1997
RIVER ASSET SUB, INC.
By:_____________________________
Its President
Dated: October __, 1997
RIVER DISTRIBUTION SUB, INC.
By:_____________________________
Its President
622147.2
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EXHIBIT 3.4
B Y - L A W S
OF
RIVER ASSET SUB, INC.
(a Delaware corporation)
--------------------------
ARTICLE I
OFFICES
SECTION 1. OFFICES. The Corporation shall maintain its
registered office in the State of Delaware at 1013 Centre Road, in the City of
Wilmington, in the County of New Castle, and its resident agent at such address
is The Prentice-Hall Corporation System, Inc. The Corporation may also have
offices in such other places in the United States or elsewhere as the Board of
Directors may, from time to time, appoint or as the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Unless directors are elected by
written consent in lieu of an annual meeting as permitted by law, an annual
meeting of stockholders shall be held for the election of directors at such
place, either within or without the State of Delaware, and at such time and date
as the Board of Directors shall determine by resolution and set forth in the
notice of the meeting. Stockholders may act by written consent to elect
directors; provided, however, that if such consent is less
621013.3
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<PAGE>
than unanimous, such action by written consent may be in lieu of holding an
annual meeting only if all of the directorships to which directors
could have been elected at an annual meeting held at the effective time of such
action are vacant and are filled by such action. In the event that the Board of
Directors fails to determine the time, date and place for the annual meeting and
the stockholders have not elected directors by written consent as permitted by
law, it shall be held, beginning in 1998, at the principal office of the
Corporation at 10 o'clock A.M. on the last Friday in March of each year.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders,
unless otherwise prescribed by statute, may be called by the Chairman of the
Board, the President or by resolution of the Board of Directors and shall be
called by the President or Secretary upon the written request of not less than
10% in interest of the stockholders entitled to vote thereat. Notice of each
special meeting shall be given in accordance with Section 3 of this Article II.
Unless otherwise permitted by law, business transacted at any special meeting of
stockholders shall be limited to the purpose stated in the notice.
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting, which shall state the place, date and time of the meeting, and, in the
case of a special meeting, the purposes for which the meeting is called, shall
be mailed to or delivered to each stockholder of record entitled to vote
thereat. Such notice shall be given not less than ten (10) days nor more than
sixty (60) days before the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the issued and
outstanding
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<PAGE>
stock entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of stockholders. When a quorum is once present to organize a meeting, the quorum
is not broken by the subsequent withdrawal of any stockholders.
SECTION 5. VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall be entitled to one vote for
each share of capital stock held by such stockholder. Upon the request of not
less than 10% in interest of the stockholders entitled to vote at a meeting,
voting shall be by written ballot. All elections of directors shall be decided
by plurality vote of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of directors. Unless otherwise
provided in the Certificate of Incorporation, all elections of directors shall
be by written ballot. Unless otherwise required by law, the vote of a majority
of the outstanding shares, present in person or represented by proxy and
entitled to vote on the subject matter, at a meeting at which a quorum is
present shall constitute the act of the stockholders.
SECTION 6. CHAIRMAN OF MEETINGS. The Chairman of the Board of
Directors of the Corporation, if one is elected, or, in his absence or
disability, the President of the Corporation, shall preside at all meetings of
the stockholders.
SECTION 7. SECRETARY OF MEETING. The Secretary of the
Corporation shall act as Secretary at all meetings of the stockholders. In the
absence or disability of the Secretary, the Chairman of the Board of Directors
or the President shall appoint a person to act as Secretary at such meetings.
621013.3
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<PAGE>
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided
by the Certificate of Incorporation, any action required by law to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at such meetings, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote were present and voted.
Every written consent shall bear the date of signature of each stockholder who
signs the consent. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date of such meeting had been the date that written consents signed by a
sufficient number of holders or members to take the action were delivered to the
Corporation as provided by law.
SECTION 9. ADJOURNMENT. At any meeting of stockholders of the
Corporation, if less than a quorum be present, a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have the power to
adjourn the meeting from time to time without notice other than announcement at
the meeting until a quorum shall be present. Any business may be transacted at
the adjourned meeting which might have been transacted at the meeting originally
noticed. If the adjournment is for
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<PAGE>
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stock holder of record entitled to vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. The Board
shall exercise all of the powers and duties conferred by law except as provided
by the Certificate of Incorporation or these By-Laws.
SECTION 2. NUMBER AND TERM. The number of directors shall be
fixed at no less than one nor more than seven. Within the limits specified
above, the number of directors shall be fixed from time to time by the Board of
Directors. The Board of Directors shall be elected by the stockholders at their
annual meeting, and each director shall be elected to serve for the term of one
year and until his successor shall be elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time.
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. REMOVAL. Any director or the entire Board of
Directors may be removed either with or without cause at any time by the
affirmative vote of the holders of a majority of the shares then entitled to
vote for the election of directors at
621013.3
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<PAGE>
any annual or special meeting of the stockholders called for that purpose or by
written consent as permitted by law. Vacancies thus created may be filled at
such meeting by the affirmative vote of the holders of a majority of the shares
then entitled to vote for the election of directors, by written consent as
permitted by law, or, if the vacancies are not so filled, by the directors as
provided in Section 5 of this Article III.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except
as provided in Section 4 of this Article III, vacancies occurring in any
director ship and newly created directorships may be filled by a majority vote
of the remaining directors then in office. Any director so chosen shall hold
office for the unexpired term of his predecessor and until his successor shall
be elected and qualify or until his earlier death, resignation or removal. The
Board may not fill the vacancy created by removal of a director by electing the
director so removed.
SECTION 6. MEETINGS. The newly elected directors shall hold
their first meeting to organize the Corporation, elect officers and transact any
other business which may properly come before the meeting. An annual
organizational meeting of the Board of Directors shall be held immediately after
each annual meeting of the stock holders, or at such time and place as may be
noticed for the meeting.
Regular meetings of the Board may be held without notice at
such places and times as shall be determined from time to time by resolution of
the directors.
Special meetings of the Board shall be called by the President
or by the Secretary on the written request of any director with at least two
days' notice to each director and shall be held at such place as may be
determined by the directors or as shall be stated in the notice of the meeting.
621013.3
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<PAGE>
SECTION 7. QUORUM, VOTING AND ADJOURNMENT. A majority of the
total number of directors or any committee thereof shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum, a majority of the directors present thereat may adjourn
such meeting to another time and place. Notice of such adjourned meeting need
not be given if the time and place of such adjourned meeting are announced at
the meeting so adjourned.
SECTION 8. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, including but not limited to an Executive Committee and an Audit
Committee, each such committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee to replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board establishing such committee, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter
621013.3
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<PAGE>
expressly required by law to be submitted to stockholders for approval or (ii)
adopting, amending or repealing any bylaw of the Corporation. All committees of
the Board shall keep minutes of their meetings and shall report their
proceedings to the Board when requested or required by the Board.
SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or any committee
thereof, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or such
committee, as the case may be.
SECTION 10. COMPENSATION. The Board of Directors shall have
the authority to fix the compensation of directors for their services. A
director may also serve the Corporation in other capacities and receive
compensation therefor.
SECTION 11. TELEPHONIC MEETING. Unless otherwise restricted by
the Certificate of Incorporation, members of the Board, or any committee
designated by the Board, may participate in a meeting by means of conference
telephone or similar communications equipment in which all persons participating
in the meeting can hear each other. Participation in a meeting by means of
conference telephone or similar communications equipment shall constitute the
presence in person at such meeting.
621013.3
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<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall include a
President and a Secretary, both of whom shall be elected by the Board of
Directors and who shall hold office for a term of one year and until their
successors are elected and qualify or until their earlier resignation or
removal. In addition, the Board of Directors may elect a Chairman of the Board,
one or more Vice Presidents, including an Executive Vice President, a Treasurer
and one or more Assistant Treasurers and one or more Assistant Secretaries, who
shall hold their office for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors. The initial officers shall be elected at the first meeting of the
Board of Directors and, thereafter, at the annual organizational meeting of the
Board. Any number of offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors
may appoint such other officers and agents as it deems advisable, who shall hold
their office for such terms and shall exercise and perform such powers and
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors
shall be a member of the Board and shall preside at all meetings of the Board of
Directors and of the stockholders. In addition, the Chairman of the Board shall
have such powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
621013.3
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<PAGE>
SECTION 4. PRESIDENT. The President shall be the Chief
Executive Officer of the Corporation. He shall exercise such duties as
customarily pertain to the office of President and Chief Executive Officer, and
shall have general and active management of the property, business and affairs
of the Corporation, subject to the supervision and control of the Board. He
shall perform such other duties as prescribed from time to time by the Board or
these By-Laws.
In the absence, disability or refusal of the Chairman of the
Board to act, or the vacancy of such office, the President shall preside at all
meetings of the stock holders and of the Board of Directors. Except as the Board
of Directors shall otherwise authorize, the President shall execute bonds,
mortgages and other contracts on behalf of the Corporation, and shall cause the
seal to be affixed to any instrument requiring it and, when so affixed, the seal
shall be attested by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENTS. Each Vice President, if any are
elected, of whom one or more may be designated an Executive Vice President,
shall have such powers and shall perform such duties as shall be assigned to him
by the President or the Board of Directors.
SECTION 6. TREASURER. The Treasurer shall have custody of the
corporate funds, securities, evidences of indebtedness and other valuables of
the Corporation and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the
621013.3
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<PAGE>
Corporation, taking proper vouchers therefor. He shall render to the President
and Board of Directors, upon their request, a report of the financial condition
of the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe.
The Treasurer shall have such further powers and perform such
other duties incident to the office of Treasurer as from time to time are
assigned to him by the Board.
SECTION 7. SECRETARY. The Secretary shall be the Chief
Administrative Officer of the Corporation and shall: (a) cause minutes of all
meetings of the stockholders and directors to be recorded and kept; (b) cause
all notices required by these By-Laws or otherwise to be given properly; (c) see
that the minute books, stock books, and other nonfinancial books, records and
papers of the Corporation are kept properly; and (d) cause all reports,
statements, returns, certificates and other documents to be prepared and filed
when and as required. The Secretary shall have such further powers and perform
such other duties as prescribed from time to time by the Board.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRE TARIES.
Each Assistant Treasurer and each Assistant Secretary, if any are elected, shall
be vested with all the powers and shall perform all the duties of the Treasurer
and Secretary, respectively, in the absence or disability of such officer,
unless or until the Board of Directors shall otherwise determine. In addition,
Assistant Treasurers and
621013.3
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Assistant Secretaries shall have such powers and shall perform such duties as
shall be assigned to them by the Board.
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the
Corporation shall be kept in such depositories as shall from time to time be
prescribed by the Board of Directors. All checks or other orders for the payment
of money shall be signed by the President or the Treasurer or such other person
or agent as may from time to time be authorized and with such countersignature,
if any, as may be required by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The President or
Treasurer, or such other officer or officers as may from time to time be
authorized by the Board of Directors or any other committee given specific
authority in the premises by the Board of Directors during the intervals between
the meetings of the Board of Directors, shall have power to sign and execute on
behalf of the Corporation deeds, conveyances and contracts, and any and all
other documents requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The
President or the Treasurer, or such other officer or agent as shall be
authorized by the Board of Directors, shall have the power and authority, on
behalf of the Corporation, to attend and to vote at any meeting of stockholders
of any corporation in which the Corporation holds stock and may exercise, on
behalf of the Corporation, any and all of the rights and powers incident to the
ownership of such stock at any such meeting, including the authority to execute
and deliver proxies and consents on behalf of the Corporation.
621013.3
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SECTION 12. DELEGATION OF DUTIES. In the absence, disability
or refusal of any officer to exercise and perform his duties, the Board of
Directors may delegate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the
Corporation may be removed from office for or without cause at any time by the
Board of Directors. Any officer may resign at any time in the same manner
prescribed under Section 3 of Article III of these By-Laws.
SECTION 14. VACANCIES. The Board of Directors shall have power
to fill vacancies occurring in any office.
ARTICLE V
STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board or the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number and class of shares of stock in the
Corporation owned by him. Any or all of the signatures on the certificate may be
a facsimile. The Board of Directors shall have the power to appoint one or more
transfer agents and/or registrars for the transfer or registration of
certificates of stock of any class, and may require stock certificates to be
countersigned or registered by one or more of such transfer agents and/or
registrars.
621013.3
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<PAGE>
SECTION 2. TRANSFER OF SHARES. Shares of stock of the
Corporation shall be transferable upon its books by the holders thereof, in
person or by their duly authorized attorneys or legal representatives, upon
surrender to the Corporation by delivery thereof to the person in charge of the
stock and transfer books and ledgers. Such certificates shall be cancelled and
new certificates shall thereupon be issued. A record shall be made of each
transfer. Whenever any transfer of shares shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer if,
when the certificates are presented, both the transferor and transferee request
the Corporation to do so. The Board shall have power and authority to make such
rules and regulations as it may deem necessary or proper concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES.
A new certificate of stock may be issued in the place of any certificate
previously issued by the Corporation, alleged to have been lost,
stolen or destroyed, and the Board of Directors may, in their discretion,
require the owner of such lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond, in such sum as the Board may
direct, not exceeding double the value of the stock, in order to indemnify the
Corporation against any claims that may be made against it in connection
therewith. A new certificate of stock may be issued in the place of any
certificate previously issued by the Corporation which has become mutilated
without the posting by the owner of any bond upon the surrender by such owner of
such mutilated certificate.
621013.3
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<PAGE>
SECTION 4. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by Delaware General Corporation Law
ss. 219 or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may at any regular or
special meeting, declare dividends upon the stock of the Corporation either (i)
out of its surplus, as defined in and computed in accordance with Delaware
General Corporation Law ss. 154 and ss. 244 or (ii) in case there shall be no
such surplus, out of its net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year. Before the declaration of any
dividend, the Board of Directors may set apart, out of any funds of the
Corporation available for dividends, such sum or sums as from time to time in
their discretion may be deemed proper for working capital or as a reserve fund
to meet contingencies or for such other purposes as shall be deemed conducive to
the interests of the Corporation.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written notice is required to
be given by law, the Certificate of Incorporation or these By-Laws, such notice,
if mailed, shall be deemed to be given when deposited in the United States mail,
postage
621013.3
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prepaid, addressed to the person entitled to such notice at his address as it
appears on the books and records of the Corporation.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be
given by law, the Certificate of Incorporation or these By-Laws, a written
waiver thereof signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, 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 stock holders, directors, or members of a
committee of the Board need be specified in any written waiver of notice.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be amended or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the Board of Directors at any regular or special meeting of the Board. By-Laws
adopted by the Board of Directors may be amended or repealed by shareholders.
621013.3
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<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 1. SEAL. The seal of the Corporation shall be circular
in form and shall have the name of the Corporation on the circumference and the
jurisdiction and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation
shall end on June 30 of each year, or such other twelve consecutive months as
the Board of Directors may designate.
SECTION 3. INDEMNIFICATION. Any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was 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, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
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 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
621013.3
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<PAGE>
manner which he 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 reasonable cause to believe that his conduct was unlawful.
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 is or was 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, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and 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 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 liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of Delaware,
or such other court shall deem proper.
Any indemnification pursuant to paragraphs (a) and (b) of this
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable
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<PAGE>
standard of conduct set forth in paragraphs (a) and (b) of this Article VIII.
Such determination shall be made (i) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in written opinion, or (iii) by the stockholders.
SECTION 4. Advance of Expenses. Expenses (including attorneys'
fees) incurred by an officer, director, employee or agent in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking satisfactory to the
Board of Directors by or on behalf of such director, officer, employee or agent
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.
SECTION 5. Remedies Not Exclusive. The indemnification and
advancement of expenses provided by this Article VIII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
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<PAGE>
SECTION 6. INSURANCE. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
Date of Adoption: September 23, 1997
621013.3
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE
15% NONCUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A
(Par Value $0.001 Per Share)
of
RIVER DISTRIBUTION SUB, INC.
------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
River Distribution Sub, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), does hereby certify that, pursuant to authority conferred on
its Board of Directors by the Certificate of Incorporation of the Corporation,
and pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors, by consent dated as of
October 9, 1997, adopted the following resolution providing for the issuance
of a series of one million four hundred thousand (1,400,000) shares of preferred
stock, par value $0.001 per share, designated as 15% Noncumulative Perpetual
Preferred Stock, Series A:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of preferred stock of the Corporation be,
and it hereby is, created, and that the designation and amount thereof and the
powers, preferences and relative, participating, optional or other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount.
(A) The shares of this series of preferred stock shall be designated as
15% Noncumulative Perpetual Preferred Stock, Series A ("Series A Preferred
Stock") and the number of shares constituting such series shall be one million
four hundred thousand
621709.4
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<PAGE>
(1,400,000) shares. Shares of Series A Preferred Stock shall have a par value of
$0.001 per share.
(B) The number of authorized shares of Series A Preferred Stock may be
reduced from time to time, but not below the number of shares of Series A
Preferred Stock then outstanding, by further resolution duly adopted by the
Board of Directors. The number of authorized shares of Series A Preferred Stock
shall not be increased.
Section 2. Ranking; Attributable Capital and Adequacy of Surplus.
(A) With respect to dividend rights, the Series A Preferred Stock shall
rank prior to common stock of all classes of the Corporation (collectively, the
"Common Stock") and to all other classes and series of equity securities of the
Corporation now or hereafter authorized, issued or outstanding other than Parity
Dividend Stock and Senior Dividend Stock. Parity Dividend Stock shall mean any
class or series of equity securities of the Corporation expressly designated as
ranking, with respect to dividend rights, on a parity with Series A Preferred
Stock, and Senior Dividend Stock shall mean any class or series of equity
securities of the Corporation expressly designated as ranking, with respect to
dividend rights, as senior to the Series A Preferred Stock.
(B) With respect to rights upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the Series A
Preferred Stock shall rank prior to the Common Stock and to all other classes
and series of equity securities of the Corporation now or hereafter authorized,
issued or outstanding other than Parity Liquidation Stock and Senior Liquidation
Stock. Parity Liquidation Stock shall mean any class or series of equity
securities of the Corporation expressly designated as ranking, with respect to
rights upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, on a parity with the Series A Preferred Stock, and Senior
Liquidation Stock shall mean any class or series of equity securities of the
Corporation expressly designated as ranking, with respect to rights upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, as senior to the Series A Preferred Stock.
(C) To the extent not expressly prohibited by the Certificate of
Incorporation, the Series A Preferred Stock shall be subject to the creation of
Parity Dividend Stock and Parity Liquidation Stock (collectively, "Parity
Stock") and of Common Stock and all other classes and series of equity
securities of the Corporation ranking junior to the Series A Preferred Stock
with respect to dividend rights ("Junior Dividend Stock") or rights upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation ("Junior Liquidation Stock" and, collectively with Junior Dividend
Stock, "Junior Stock"). Shares of the Corporation's Junior Participating
Preferred Stock are hereby designated as Junior Dividend Stock and as Junior
Liquidation Stock. No shares of Senior Dividend Stock or Senior Liquidation
Stock shall be created without the consent of the holders of Series A Preferred
Stock as provided in Section 7(C) hereof.
621709.4
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<PAGE>
(D) The capital of the Corporation allocable to the Series A Preferred
Stock for purposes of Section 154 of the General Corporation Law of the State of
Delaware shall be $1,400.00. In addition to any vote of stockholders required by
law, the vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock shall be required to increase the par value of the Common Stock
or otherwise increase the capital of the Corporation allocable to the Common
Stock for the purpose of Section 154 of the General Corporation Law of the State
of Delaware if, as a result thereof, the surplus of the Corporation for purposes
of the General Corporation Law would be less than the amount of dividends that
would accrue on the then-outstanding shares of Series A Preferred Stock during
the following three years.
Section 3. Noncumulative Dividends; Priority.
(A) (i) Subject to the restrictions and limitations on declaration and
payment of dividends specified in Section 12, the holders of record of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor,
noncumulative cash dividends at an annual rate of 15% of the $25.00 liquidation
preference per share ($3.75 per share per annum), and no more. Dividends on the
Series A Preferred Stock shall be declared and paid in cash only. Such
noncumulative cash dividends shall be declared and payable quarterly in arrears
in the amount set forth in Section 3(A)(iii) on January 15, April 15, July 15
and October 15 of each year or, if such day is not a Business Day (as defined in
Section 10), on the next Business Day (each such date, a "Dividend Payment
Date"). The first Dividend Payment Date shall be the first to occur of January
15, April 15, July 15 and October 15 after the Initial Dividend Period (as
defined below). Each declared dividend shall be payable to holders of record of
the Series A Preferred Stock as they appear on the stock books of the
Corporation (or of any transfer agent for the Series A Preferred Stock) at the
close of business on such record dates, not more than fifty (50) calendar days
nor less than ten (10) calendar days preceding the Dividend Payment Date
therefor, as determined by the Board of Directors (each such date, a "Record
Date"). The initial period for which dividends shall be paid (the "Initial
Dividend Period") shall commence on the effective time of the merger of the
corporation and River Asset Sub, Inc., a Delaware corporation (the "Merger"),
and shall end on the first to occur of November 30, February 28, May 31 and
August 31 after the Merger. Thereafter, quarterly dividend periods (each, a
"Dividend Period") shall commence on and include September 1, December 1, March
1 and June 1 of each year (each such date, a "Dividend Period Commencement
Date") and shall end on and include the date next preceding the Dividend Period
Commencement Date of the following Dividend Period.
(ii) Dividends on the Series A Preferred Stock shall be noncumulative.
If a dividend on the Series A Preferred Stock with respect to any Dividend
Period (including the Initial Dividend Period) is not declared by the Board of
Directors, the Corporation shall have no obligation at any time to pay a
dividend on the Series A Preferred Stock with respect to such Dividend Period,
whether or not dividends are declared payable with respect to any future
Dividend Period. The holders of the Series A Preferred Stock shall
621709.4
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<PAGE>
not be entitled to any dividends in excess of the noncumulative dividends
declared by the Board of Directors, as set forth in this paragraph (A).
(iii) The amount of dividends payable on each share of Series A
Preferred Stock for each full Dividend Period during which such share is
outstanding shall be $0.94. The amount of dividends payable for the Initial
Dividend Period and for any Dividend Period which is less than a full three (3)
months shall be computed on the basis of a 360- day year composed of twelve (12)
30-day months and the actual number of days elapsed in the Initial Dividend
Period or such Dividend Period.
(iv) The Series A Preferred Stock shall not participate in dividends
with the Common Stock.
(v) The holders of the Series A Preferred Stock shall not be entitled
to any interest, or any sum of money in lieu of interest, in respect of any
dividend payment or payments on the Series A Preferred Stock declared by the
Board of Directors which may be unpaid.
(B) (i) No full dividends shall be declared or paid or set apart for
payment on any Parity Dividend Stock for any Dividend Period unless full
dividends have been or contemporaneously are declared and paid (or declared and
a sum sufficient for the payment thereof set apart for such payment) on the
Series A Preferred Stock for such Dividend Period. When dividends are not paid
in full (or declared and a sum sufficient for such full payment is not so set
apart) for any Dividend Period on the Series A Preferred Stock and any other
Parity Dividend Stock, dividends declared on the Series A Preferred Stock and
other Parity Dividend Stock shall only be declared pro rata, such that the
amount of dividends declared per share on the Series A Preferred Stock and other
Parity Dividend Stock shall bear to each other the same ratio that, at the time
of such declaration, all accrued and payable but unpaid dividends for such
Dividend Period per share on shares of the Series A Preferred Stock (which shall
not include any accumulation in respect of unpaid dividends for prior Dividend
Periods) and other Parity Dividend Stock bear to each other.
(ii) The Corporation shall not (a) declare or (b) pay or set apart
funds for any dividends or other distributions (other than in Common Stock or
other Junior Stock) with respect to any Common Stock or other Junior Dividend
Stock of the Corporation, or (c) (except by conversion into or exchange for
Junior Stock) repurchase, redeem or otherwise acquire, or set apart funds for
the repurchase, redemption or other acquisition of, any Common Stock or other
Junior Stock through a sinking fund or otherwise, unless the Corporation shall
have, in the case of clause (a) declared, or in the case of clauses (b) or (c)
paid or set apart funds for the payment of, full dividends on the Series A
Preferred Stock with respect to the same calendar quarter for which (x) the
dividend or other distribution is being declared or paid, as the case may be, on
the Common Stock or other Junior Stock or (y) the Common Stock or other Junior
Stock is being repurchased, redeemed or otherwise acquired.
621709.4
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<PAGE>
(C) Any reference to "dividends" or "distributions" in this Section 3
shall not be deemed to include any distribution made in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation.
Section 4. Redemption at the Option of the Corporation.
(A) (i) The shares of Series A Preferred Stock shall not be subject to
mandatory redemption, and shall not be redeemable by the Corporation prior to
July 1, 2004. On or after July 1, 2004, shares of Series A Preferred Stock may
be redeemed by the Corporation, at its option, in whole or in part, at any time
or from time to time, upon notice as provided in paragraph (B) of this Section
4, by resolution of the Board of Directors, at the redemption prices set forth
below in cash, plus, in each case, an amount in cash equal to all accrued and
unpaid dividends thereon (whether or not declared) from the Dividend Period
Commencement Date next preceding the date fixed for redemption (the "Redemption
Date") to, but excluding, the Redemption Date (without accumulation of unpaid
dividends for prior Dividend Periods):
During the
Twelve-month Period Redemption Price
Beginning July 1, Per Share
- ------------------------ ----------------
2004 $27.50
2005 27.25
2006 27.00
2007 26.75
2008 26.50
2009 26.25
2010 26.00
2011 25.75
2012 25.50
2013 25.25
2014 and thereafter 25.00
(ii) The aggregate redemption price payable to each holder of record of
Series A Preferred Stock to be redeemed shall be rounded to the nearest cent
($0.01).
(B) (i) Notice of any redemption shall be given by first-class mail,
postage prepaid, mailed at least twenty (20) days but not more than sixty (60)
days prior to the Redemption
621709.4
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<PAGE>
Date to each holder of record of Series A Preferred Stock to be redeemed at such
holder's address as the same shall appear on the stock books of the Corporation
(or of any transfer agent for the Series A Preferred Stock). Each such notice
shall set forth: (a) the Redemption Date; (b) the redemption price; (c) the
number of shares of Series A Preferred Stock to be redeemed and, if fewer than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (d) the place or places where certificates for
such shares are to be surrendered for payment of the redemption price; and (e) a
statement that dividends on the shares of Series A Preferred Stock to be
redeemed shall cease to accrue on the Redemption Date. Neither failure to mail
such notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives such notice.
(ii) On or after the Redemption Date, each holder of shares of Series A
Preferred Stock to be redeemed shall present and surrender the certificate or
certificates for such shares to the Corporation at the place designated in the
notice given to such holder, and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled. If fewer than all the shares represented by any
such certificate are redeemed, a new certificate representing the unredeemed
shares shall be issued to the holder of such shares.
(iii) If such notice of redemption shall have been so mailed, and if,
on or before the Redemption Date specified in such notice, all funds necessary
for such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the account of the holders of shares of
Series A Preferred Stock to be redeemed (so as to be and continue to be
available therefor), then, on and after the Redemption Date, notwithstanding
that any certificates for shares of Series A Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares of
Series A Preferred Stock so called for redemption shall be deemed to be no
longer outstanding and the holders of such shares shall cease to be stockholders
of the Corporation and shall have no voting or other rights with respect to such
shares, except for the right to receive out of the funds so set aside in trust
the amount payable on redemption thereof, without interest, upon surrender (and
endorsement or assignment for transfer, if required by the Corporation) of their
certificates.
(iv) In the event that holders of shares of Series A Preferred Stock
that have been redeemed shall not within two (2) years (or any longer period
required by law) after the Redemption Date, claim any amount deposited in trust
with a bank or trust company for the redemption of such shares, such bank or
trust company shall, upon demand by the Corporation and if permitted by
applicable law, pay over to the Corporation any such unclaimed amount so
deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable
621709.4
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<PAGE>
escheat laws, look only to the Corporation for payment of the redemption price
thereof, but without interest from the Redemption Date. Any interest accrued on
funds deposited in trust as aforesaid shall be paid to the Corporation from time
to time.
(C) If fewer than all the outstanding shares of Series A Preferred
Stock are to be redeemed, the shares to be redeemed shall be selected pro rata
or by lot or by such other method as the Board of Directors, in its sole
discretion, determines to be equitable.
(D) Shares of Series A Preferred Stock redeemed, purchased or otherwise
acquired for value by the Corporation shall, after such redemption, purchase or
acquisition, be retired and canceled in accordance with the General Corporation
Law of the State of Delaware. And such shares shall upon their cancellation
become authorized but unissued shares of preferred stock and may be reissued as
part of a new series of preferred stock to be created by resolution or
resolutions of the Board of Directors as permitted by law (other than as shares
of Series A Preferred Stock).
(E) The Series A Preferred Stock shall not be subject to the operation
of any mandatory purchase, retirement or sinking fund.
Section 5. Note Exchange.
(A)(i) Subject to the terms and conditions set forth herein, following
a Change of Control (as defined below) the Note Issuer (as defined below) may,
at the option of the Note Issuer, exchange all or part of the outstanding Series
A Preferred Stock for subordinated notes (the "Subordinated Notes") of the Note
Issuer (the "Note Exchange"). Pursuant to a Note Exchange, each $1,000 in
liquidation value of the shares of Series A Preferred Stock covered thereby will
be exchangeable for $1,000 principal amount of Subordinated Notes. Such
Subordinated Notes shall have the terms, covenants and conditions substantially
as provided in the form of Indenture attached hereto (the "Indenture"). The rate
of interest on the Subordinated Notes shall be 15%, the maximum principal amount
of the Subordinated Notes shall be 100% of the aggregate liquidation preference
of the Series A Preferred Stock to be exchanged, as set forth in Section 6
hereof, and the principal of such Subordinated Notes shall not be payable by the
Note Issuer prior to July 1, 2004 and shall be payable thereafter only in
accordance with the redemption provisions set forth in the Indenture. Interest
shall be payable at the times and in the manner set forth in the form of
Subordinated Note included as Exhibit A to the Indenture.
(ii) The Note Issuer may elect to consummate the Note Exchange at any
time following a Change of Control and prior to July 1, 2014. The Note Issuer
shall elect to consummate the Note Exchange by mailing to each holder of record
of the Series A Preferred Stock (a "Holder") a notice of exchange (the "Note
Exchange Notice") at such Holder's address as it appears on the books of the
Corporation. The Note Exchange Notice shall specify (a) a date not less than 30
days nor more than 60 days following the date of the Note Exchange Notice on
which the Note Exchange is to be consummated (the
621709.4
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<PAGE>
"Note Exchange Date"), (b) the procedures for exchanging certificates
representing Series A Preferred Stock for certificates representing Subordinated
Notes and (c) the number of shares of Series A Preferred Stock to be exchanged
and, if applicable, each Holder's pro rata portion of shares to be exchanged.
(iii) In the event that the Note Exchange shall be for less than all of
the outstanding shares of Series A Preferred Stock, the Note Exchange shall be
effected pro rata among all Holders, unless the Holders otherwise agree, and, in
addition to certificates evidencing the Subordinated Notes, all Holders shall
receive a certificate evidencing the shares of Series A Preferred Stock not so
exchanged.
(iv) As of 5:00 p.m., New York City time, on the Note Exchange Date,
the shares to be exchanged pursuant to the Note Exchange Notice shall no longer
be deemed to be outstanding and shall be retired and all rights with respect to
such shares, including, without limitation, the rights, if any, to receive
dividends and to receive notices and to vote or consent (except for the right of
the Holders to receive the Subordinated Notes to which such Holder is entitled
pursuant to the Note Exchange) shall forthwith cease.
(v) Upon any exchange of shares of Series A Preferred Stock into
Subordinated Notes, as provided herein, the Note Issuer will pay any
documentary, stamp or similar issue or transfer taxes which may be due with
respect to the transfer and exchange of such exchanged shares, if any; provided,
however, that if the Subordinated Notes into which the shares of Series A
Preferred Stock are exchangeable are to be issued in the name of any person
other than the Holder of the shares of Series A Preferred Stock to be so
exchanged, the amount of any transfer taxes (whether imposed on the Note Issuer,
the holder or such other person) payable on account of the transfer to such
person will be payable by the Holder.
(B) (i) "Change of Control" means the occurrence of any of the
following events:
(a) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
of more than 50% of the stock of any class or classes, however
designated, of capital stock of the Corporation having ordinary voting
power for the election of a majority of the Board of Directors of the
Corporation, other than any stock having such power only by reason of
the occurrence of a contingency, on a fully diluted basis (the "Voting
Stock"); or
(b) other than the Merger, the Corporation (x) shall
consolidate with or merge into any person, other than a wholly-owned
subsidiary of the Corporation, and shall not be the continuing or
surviving corporation of such consolidation or merger, or (y) shall
permit any person, other than a wholly-owned subsidiary of the
Corporation, to consolidate with or merge into the Corporation and the
Corporation shall be the continuing or surviving corporation, but, in
connection with such merger,
621709.4
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<PAGE>
the shares of Voting Stock outstanding immediately prior to the
consolidation or merger shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or
shall represent less than 50% of the shares of Voting Stock immediately
after giving effect to the consolidation or merger;
provided that in the case of each of clause (a) and (b) above a Change of
Control shall not be deemed to occur in the event (i) that Alvin Dworman, two
partnerships, the partners of which are trusts for the benefit of certain
descendants of Nicholas J. Pritzker, deceased or Odyssey Partners, L.P., a
Delaware limited partnership, or their respective affiliates, acquire,
individually or in the aggregate, more than 50% of the Voting Stock of the
Corporation or (ii) the Corporation reorganizes into the holding company form of
organization in a transaction which does not result in a material change in the
holders of the Voting Stock, other than by means of dissenting shares.
(ii) "Note Issuer" shall mean:
(a) in the case of Section 5(B)(i)(a), the Corporation and
(b) in the case of Section 5(B)(i)(b), (1) the continuing or
surviving corporation of a consolidation or merger with the Corporation (if
other than the Corporation) and (2) the corporation consolidating or merging
into the Corporation in a consolidation or merger in which the Corporation is
the continuing or surviving person and in connection with which the shares of
Voting Stock outstanding immediately prior to the consolidation or merger are
changed into or exchanged for stock or other securities of any other person or
cash or any other property or shall represent less than 50% of the shares of
Voting Stock immediately after giving effect to the consolidation or merger.
(C) It will be a condition to the Note Exchange that: (i) the
Subordinated Notes have been registered under the Securities Act of 1933, unless
an exemption from registration is available, (ii) the Indenture pursuant to
which the Subordinated Notes are to be issued has been executed and delivered by
the Note Issuer, (iii) the Trustee appointed pursuant to the Indenture shall
have received an opinion (in the form specified in the Indenture) to the effect
that the Subordinated Notes will, when issued in accordance with the terms of
the Indenture, be legal, valid, binding and enforceable obligations of the Note
Issuer and (iv) immediately after the Note Exchange, no default or event of
default will exist under the Indenture.
(D) A Note Exchange shall comply with all applicable federal and state
securities and blue sky laws and the provisions of this Section 5 may be
modified by the Note Issuer without the approval of the holders of the Series A
Preferred Stock in order to effect such compliance.
621709.4
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<PAGE>
Section 6. Liquidation Preference.
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock shall be entitled to receive for each share thereof, out of the
assets of the Corporation which are legally available for distribution to
stockholders under applicable law, or the proceeds thereof, before any payment
or distribution of such assets or proceeds shall be made to holders of shares of
Common Stock or any other Junior Liquidation Stock, liquidating distributions in
the amount of $25.00 per share, plus an amount per share equal to all accrued,
undeclared and unpaid dividends thereon from the Dividend Period Commencement
Date next preceding the date fixed for such liquidation, dissolution or winding
up (the "Liquidation Date") to, but excluding, the Liquidation Date (without
accumulation of unpaid dividends for prior Dividend Periods), and no more;
provided, however, that the holders of shares of Series A Preferred Stock and
any Parity Liquidation Stock shall be entitled to such liquidating distributions
only after payment in full of liquidating distributions to holders of shares of
any Senior Liquidation Stock. If the amounts available for distribution in
respect of shares of Series A Preferred Stock and any Parity Liquidation Stock
are not sufficient to satisfy the full liquidation rights of all the outstanding
shares thereof, the holders of such outstanding shares of Series A Preferred
Stock and such Parity Liquidation Stock shall share ratably in any such
distribution of assets in proportion to the full respective preferential amounts
to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of Series A
Preferred Stock as such shall not be entitled to any further participation in
any distribution of assets by the Corporation. All distributions made in respect
of the Series A Preferred Stock in connection with such a liquidation,
dissolution or winding up of the Corporation shall be made pro rata to the
holders of the Series A Preferred Stock entitled thereto.
(B) Neither the merger or consolidation of the Corporation with or into
any other entity, nor the merger or consolidation of any other entity with or
into the Corporation, nor the sale, transfer or lease of all or any portion of
the assets of the Corporation, shall be deemed to be a liquidation, dissolution
or winding up of the affairs of the Corporation for purposes of this Section 6.
(C) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to holders of
Series A Preferred Stock in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than twenty (20) days
prior to any payment date stated therein, to each holder of record of Series A
Preferred Stock, at such holder's address as the same shall appear on the stock
books of the Corporation (or of any transfer agent for the Series A Preferred
Stock).
621709.4
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<PAGE>
Section 7. Voting Rights.
(A) Except as expressly provided in this Section 7, or as otherwise
required by applicable law or regulation, the holders of shares of Series A
Preferred Stock shall have no voting rights.
(B)(i) The holders of shares of Series A Preferred Stock shall be
entitled to exercise the voting rights provided for in this paragraph (B) of
Section 7 (the "Election Right") upon the occurrence of a "Voting Event." It
shall be a Voting Event if the Corporation or River Bank America, a New York
chartered savings bank ("River Bank"), shall have failed to make the payment of
full dividends on the Series A Preferred Stock or the 15% noncumulative
perpetual preferred stock, series A, of River Bank (or the declaration of such
full dividends and the setting apart of a sum sufficient for payment thereof)
with respect to each of any six (6) Dividend Periods, whether consecutive or
not. A Voting Event shall be deemed to have occurred as of the Dividend Payment
Date of the Dividend Period that is the sixth (6th) Dividend Period for which
the payment of full dividends on the Series A Preferred Stock has not been made
(or declared and set apart for payment).
(ii) Upon the occurrence of a Voting Event, the maximum authorized
number of directors of the Corporation, without further action, shall be
increased by two (2). The holders of shares of Series A Preferred Stock and the
holders of any other class or series of Parity Stock as to which the payment of
dividends is in arrears and unpaid in an aggregate amount equal to or exceeding
the amount of dividends payable for six (6) quarterly Dividend Periods (or if
dividends are payable other than on quarterly basis the number of dividend
periods, whether or not consecutive, containing in the aggregate not less than
five hundred forty (540) calendar days) and upon which by its terms the same
right to elect two (2) directors has been conferred and is exercisable ("Voting
Parity Stock"), shall have the exclusive right, voting together as a single
class, to elect the two (2) additional directors at the Corporation's next
annual meeting of stockholders or at a special meeting of stockholders as
provided below and to reelect two (2) directors at each subsequent annual
meeting of stockholders at which the terms of such directors expire until the
Election Right terminates as provided in subsection (iv) of this paragraph (B).
At any time when the Election Right shall have so vested, the Corporation may,
and upon the written request of the holders of record of not less than 20% of
the total number of shares of the Series A Preferred Stock and such Voting
Parity Stock then outstanding shall, call a special meeting of the holders of
such shares to fill such newly-created directorships for the election of
directors. In the case of such a written request, such special meeting shall be
held within ninety (90) days after the delivery of such request and, in either
case, at the place and upon the notice provided by law and in the by-laws of the
Corporation, provided that the Corporation shall not be required to call such a
special meeting if such request is received less than one hundred twenty (120)
days before the date fixed for the next succeeding annual meeting of
stockholders of the Corporation, at which meeting such newly-created
directorships shall be filled by the holders of such shares. If, prior to the
end of the term of any director elected as aforesaid, a vacancy in the office of
such director
621709.4
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<PAGE>
shall occur by reason of death, resignation, disability or disqualification, the
remaining director elected as aforesaid shall appoint a successor to hold office
for the unexpired term of such former director, and if both directors elected as
aforesaid shall cease to serve as directors before their terms shall expire, the
holders of Series A Preferred Stock and any Voting Parity Stock then outstanding
may, at a meeting of such holders duly held, elect successors to hold office for
the unexpired terms of such directors whose places shall be vacant.
(iii) The majority of the holders of the Series A Preferred Stock and
any Voting Parity Stock then outstanding, voting together as a single class,
shall have the right at any time to remove without cause and replace any
directors which such holders have elected or who have been appointed pursuant to
this Section 7.
(iv) The Election Right of the holders of the Series A Preferred Stock
and the term of the directors elected to the Board of Directors pursuant to a
particular exercise of such Election Right shall continue until full dividends
have been declared and paid for four (4) consecutive Dividend Periods following
the vesting of such Election Right, at which time such Election Right and the
term of such directors shall, without further action, terminate, subject to
revesting of the Election Right upon the occurrence of a subsequent Voting
Event; provided, however, that if, at the time of termination of the Election
Right of the holders of the Series A Preferred Stock, there shall be outstanding
any Voting Parity Stock having similar voting rights which remain in effect, the
term of any directors elected by the holders of the Series A Preferred Stock and
such Voting Parity Stock shall continue until such time as the voting right of
the holders of such Voting Parity Stock shall terminate by its terms. Upon such
termination the number of directors constituting the Board of Directors of the
Corporation shall, without further action, be reduced by two (2), subject always
to increase of the number of directors pursuant to the foregoing provisions in
case of the revesting of the Election Right upon the occurrence of a subsequent
Voting Event.
If for any reason the holders of the shares of Series A Preferred Stock
and any Voting Parity Stock then outstanding are not able to elect the specified
number of directors at the next annual meeting of stockholders in the manner
described above, the Corporation shall use its best efforts to take all actions
necessary to permit the full exercise of such voting rights (including, if
necessary, taking action to increase the authorized number of directors standing
for election at such next annual meeting of stockholders or seeking to amend,
alter or change the Certificate of Incorporation or by-laws of the Corporation).
(C)(i) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the consent of the holders of at
least 66-2/3% of the outstanding shares of Series A Preferred Stock, voting
together as a single class, (a) amend, alter or repeal or otherwise change any
provision of the Certificate of Incorporation or this Certificate of
Designation (including any such amendment, alteration, repeal or change
effected by any merger or consolidation in which the Corporation is the
surviving or resulting corporation) if such amendment, alteration, repeal or
change would materially and adversely affect the rights, preferences, powers or
privileges of the Series A Preferred
621709.4
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<PAGE>
Stock or (b) authorize, create or issue or increase the authorized or issued
amount of any class or series of Senior Dividend Stock or Senior Liquidation
Stock or any warrants, options or other rights convertible into or exchangeable
for any class or series of Senior Dividend Stock or Senior Liquidation Stock.
(ii) No vote of the holders of the Series A Preferred Stock shall be
required pursuant to this paragraph (C) in the case of any of the following,
which are not deemed to be a material adverse change to the rights, preferences,
powers or privileges of the Series A Preferred Stock:
(a) an amendment of the Certificate of Incorporation which
increases the number of shares of preferred stock which the Corporation
is authorized to issue;
(b) the creation or issuance of Parity Stock or Junior
Stock;
(c) the distribution of assets upon a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
or
(d) in connection with a merger, consolidation,
reorganization or other business combination involving the Corporation
(any such transaction being hereinafter referred to as a
"Reorganization") if:
(1) the resulting, surviving or acquiring
corporation, or, if the direct owner of all the equity
securities of such resulting, surviving or acquiring corporation
is a corporation and such corporation will be the issuer of the
shares of stock issued as set forth in clause (d)(2) below, such
corporation (the "parent corporation"), will have after such
Reorganization no stock outstanding ranking prior to the Series
A Preferred Stock or the stock of the resulting, surviving or
acquiring corporation or the parent corporation, as the case may
be, issued in exchange therefor (except such stock of the
resulting, surviving, acquiring or parent corporation (the
"Mirror Stock") which is issued in exchange for other series of
preferred stock of the Corporation which are outstanding
immediately preceding such Reorganization and which were not
issued in violation of the terms of this Certificate of
Designation (the "Exchanged Stock"), which Mirror Stock
contains the same relative powers, preferences, privileges or
rights, including, without limitation, substantially equivalent
voting and conversion rights, as the Exchanged Stock); and
(2) either (A) each holder of shares of Series A
Preferred Stock immediately preceding such Reorganization will
receive in exchange therefor the same number of shares of stock,
with substantially the same powers, preferences, privileges and
rights, including, without limitation, substantially equivalent
voting and conversion rights, of the resulting, surviving, or
acquiring corporation, or such corporation's parent corporation,
or (B) the Corporation
621709.4
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<PAGE>
is the surviving corporation and the Series A Preferred Stock
remains outstanding without any change to its powers,
preferences, privileges or rights, including, without
limitation, voting and conversion rights.
The Corporation may distribute to the holders of (a) the Series A
Preferred Stock in exchange therefor the same number of shares of the
resulting, surviving or acquiring corporation or the parent
corporation, as the case may be, with substantially the same powers,
preferences, privileges and rights, including, without limitation,
substantially equivalent voting and conversion rights, of the
resulting, surviving, or acquiring corporation, or such corporation's
parent corporation, and (b) the Common Stock in exchange therefor the
same number of common shares of the resulting, surviving or acquiring
corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights,
including, without limitation, substantially equivalent voting and
conversion rights, of the resulting, surviving, or acquiring
corporation, or such corporation's parent corporation as contemplated
by this Section 7(C)(ii)(d) notwithstanding anything to the contrary in
Section 3 hereof.
(iii) No vote of the Series A Preferred Stock shall be required if the
Series A Preferred Stock is to be redeemed in whole on a Redemption Date
occurring on or prior to the date of occurrence of any event otherwise requiring
a class vote by the Series A Preferred Stock.
(D) Except as provided by law or the provisions of the Certificate of
Incorporation, the presence at a meeting, in person or by proxy, of stockholders
entitled to a majority of the shares of Series A Preferred Stock outstanding and
entitled to vote on any matter shall constitute a quorum of such stockholders;
provided, however, if any matter shall require a vote of holders of shares of
Series A Preferred Stock and any Voting Parity Stock, voting together as a
single class, the presence at a meeting, in person or proxy, of stockholders
entitled to cast a majority of the shares of Series A Preferred Stock and such
Voting Parity Stock which is outstanding and entitled to vote on any matter
shall constitute a quorum of such stockholders. In connection with any matter on
which holders of the Series A Preferred Stock are entitled to vote as one class
or otherwise pursuant to law or regulation or the provisions of the Certificate
of Incorporation, each holder of Series A Preferred Stock shall be entitled to
one vote for each share of Series A Preferred Stock held by such holder.
Section 8. No Conversion, Preemptive or Subscription Rights.
The holders of shares of Series A Preferred Stock shall not have any
rights to convert such shares into shares of any other class or series of
capital stock or into any other securities of, or any interest in, the
Corporation. The Series A Preferred Stock is not entitled to any preemptive or
subscription rights with respect to any securities of the Corporation.
621709.4
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Section 9. No Other Rights.
The shares of Series A Preferred Stock shall not have any powers,
designations, preferences and relative, participating, optional and other
special rights except as set forth herein or in any other provision of the
Certificate of Incorporation or as otherwise required by applicable law or
regulation.
Section 10. Business Day.
For purposes hereof, the term "Business Day" shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in New York,
New York are obligated or authorized by law or executive order to be closed.
Section 11. Action by Committee of Board of Directors.
To the extent permitted by applicable law, any action specified herein
as being authorized or required to be taken by the Board of Directors may be
taken by a duly autho rized committee thereof.
Section 12. Compliance with Applicable Law.
Declaration by the Board of Directors and payment by the Corporation of
dividends to the holders of the Series A Preferred Stock, the repurchase,
redemption or other acqui sition by the Corporation of shares of Series A
Preferred Stock and any Note Exchange shall be subject in all respects to any
restrictions and limitations placed on dividends, repurchases, redemptions or
other distributions by the Corporation or otherwise under applicable law.
Section 13. Miscellaneous.
(A) All notices referred to herein shall be in writing, and except as
otherwise provided all notices hereunder shall be deemed to have been given upon
the earlier of receipt thereof or three (3) Business Days after the mailing
thereof if sent by registered mail, (unless first-class mail shall be
specifically permitted for such notice under the terms of this Certificate of
Designation) with postage prepaid, addressed: (i) if to the Corporation, to its
office at 645 Fifth Avenue, New York, New York 10022 (Attention: Secretary) or
to the transfer agent for the Series A Preferred Stock, if any, or other agent
of the Corporation designated as permitted by this Certificate of Designations;
or (ii) if to any holder of the Series A Preferred Stock, to such holder at the
address of such holder as listed in the stock books of the Corporation (which
may include the records of any transfer agent for the Series A Preferred Stock);
or (iii) to such other address as the Corporation or any such holder, as the
case may be, shall have designated by notice similarly given.
621709.4
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(B) In the event that a holder of shares of Series A Preferred Stock
shall not by written notice designate to whom payment upon redemption of shares
of Series A Preferred Stock should be made or the address to which such payment
should be sent, the Corporation shall be entitled to make such payment in the
name of the holder of such Series A Preferred Stock as shown on the records of
the Corporation and to send such payment to the address of such holder shown on
the records of the Corporation.
(C) Unless otherwise provided herein or in the Certificate of
Incorporation, all payments in the form of dividends, distributions on the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, or otherwise made upon the shares of Series A Preferred Stock and
any Parity Stock shall be made pro rata, so that amounts paid per share on the
Series A Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that the required dividends, distributions or payments, as
the case may be, then payable per share on the shares of the Series A Preferred
Stock and such Parity Stock bear to each other.
(D) The Corporation may appoint, and from time to time discharge and
change, a transfer agent and registrar for the Series A Preferred Stock. Upon
any such appointment, discharge or change of a transfer agent and registrar, the
Corporation shall send notice thereof by first-class mail, postage prepaid, to
each holder of record of Series A Preferred Stock.
IN WITNESS WHEREOF, River Distribution Sub, Inc. has caused this
Certificate of Designation to be duly signed by James R. McDougal, its President
and Chief Executive Officer, and attested by Robin Chandler Duke, its Secretary,
this 16th day of October, 1997.
RIVER DISTRIBUTION SUB, INC.
By: /s/ Jerome R. McDougal
__________________________
Name: Jerome R. McDougal
Title: President and Chief
Executive Officer
Attest:
By: /s/ Robin Chandler Duke
________________________
Name: Robin Chandler Duke
Title: Secretary
621709.4
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FORM OF INDENTURE1
- -------------------------------------------------------------------------------
[RIVER DISTRIBUTION SUB, INC.2]
15% Subordinated Capital Debentures
due 2014
---------------
INDENTURE
---------------
Dated as of [ ]
[ ]
Trustee
- -------------------------------------------------------------------------------
- --------
1 Form of Indenture for Subordinated Notes to be issued in the event of an
exchange of the 15% Noncumulative Perpetual Preferred Stock, Series A, of
River Distribution Sub, Inc.. The Form of Indenture is subject to necessary
and appropriate changes prior to the exchange of the Series A Preferred
Stock, provided that, without the consent of the holders of 66 2/3% of the
outstanding shares of Series A Preferred Stock, such changes do not
materially adversely affect the rights and interests of holders of Series A
Preferred Stock.
2 Or the successor upon a Change of Control, the "Note Issuer" as defined in
the Certificate of Designation of the Series A Preferred Stock.
620797.2
<PAGE>
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C> <C>
Page
DEFINITIONS AND INCORPORATION BY REFERENCE....................................................1
Section 1.01 Definitions.........................................................................................1
Section 1.02 Other Definitions...................................................................................5
Section 1.03 Incorporation by Reference of Trust Indenture Act...................................................5
Section 1.04 Rules of Construction...............................................................................5
ARTICLE II
THE SECURITIES..................................................................6
Section 2.01 Form and Dating.....................................................................................6
Section 2.02 Execution and Authentication........................................................................6
Section 2.03 Registrar and Paying Agent..........................................................................7
Section 2.04 Payment by the Corporation to the Trustee; Paying Agent to Hold Money in
Trust...........................................................................................7
Section 2.05 Securityholder Lists................................................................................7
Section 2.06 Transfer and Exchange...............................................................................8
Section 2.07 Replacement Securities..............................................................................9
Section 2.08 Outstanding Securities..............................................................................9
Section 2.09 Treasury Securities................................................................................10
Section 2.10 Temporary Securities...............................................................................10
Section 2.11 Cancellation.......................................................................................10
Section 2.12 Defaulted Interest.................................................................................10
Section 2.13 Certain Limitations on Securities..................................................................10
ARTICLE III
COVENANTS....................................................................11
Section 3.01 Payment of Securities..............................................................................11
Section 3.02 Dividends and Certain Other Elements...............................................................11
Section 3.03 Transactions with Affiliates.......................................................................11
Section 3.04 Reports by Corporation.............................................................................12
Section 3.05 Maintenance of Properties; Insurance...............................................................12
Section 3.06 Maintenance of Books and Records...................................................................13
Section 3.07 Conduct of Business................................................................................13
Section 3.08 Taxes and Claims...................................................................................13
</TABLE>
620797.2
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<TABLE>
<S> <C> <C>
Page
Section 3.09 Money for Security Payments to Be Held in Trust....................................................13
Section 3.10 Compliance Certificate.............................................................................14
Section 3.11 Continued Existence................................................................................14
Section 3.12 Limitation on Subordinated Indebtedness............................................................14
ARTICLE IV
SUCCESSORS....................................................................15
Section 4.01 When Corporation May Merge, etc....................................................................15
Section 4.02 Successor Substituted..............................................................................15
ARTICLE V
DEFAULTS AND REMEDIES............................................................16
Section 5.01 Events of Default..................................................................................16
Section 5.02 Acceleration; Limitations on Acceleration..........................................................17
Section 5.03 Other Remedies.....................................................................................18
Section 5.04 Waiver of Default..................................................................................18
Section 5.05 Control by Majority................................................................................18
Section 5.06 Limitation on Suits................................................................................18
Section 5.07 Rights of Holders to Receive Payment...............................................................19
Section 5.08 Collection Suit by Trustee.........................................................................19
Section 5.09 Trustee May File Proofs of Claim...................................................................19
Section 5.10 Priorities.........................................................................................19
Section 5.11 Undertaking for Costs..............................................................................20
ARTICLE VI
TRUSTEE.....................................................................20
Section 6.01 Duties of Trustee..................................................................................20
Section 6.02 Rights of Trustee..................................................................................21
Section 6.03 Individual Rights of Trustee.......................................................................22
Section 6.04 Disclaimer.........................................................................................22
Section 6.05 Notice of Defaults.................................................................................22
Section 6.06 Reports by Trustee to Holders......................................................................22
Section 6.07 Compensation and Indemnity.........................................................................22
Section 6.08 Replacement of Trustee.............................................................................23
Section 6.09 Successor Trustee by Merger........................................................................24
</TABLE>
620797.2
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<TABLE>
<S> <C> <C>
Page
Section 6.10 Eligibility; Disqualification......................................................................24
Section 6.11 Preferential Collection of Claims Against Corporation..............................................24
ARTICLE VII
SATISFACTION AND DISCHARGE..........................................................24
Section 7.01 Satisfaction and Discharge of Indenture............................................................24
Section 7.02 Application of Trust Money.........................................................................25
Section 7.03 Repayment to Corporation...........................................................................25
ARTICLE VIII
AMENDMENTS...................................................................26
Section 8.01 Without Consent of Holders.........................................................................26
Section 8.02 With Consent of Holders............................................................................26
Section 8.03 Reserved...........................................................................................27
Section 8.04 Revocation and Effect of Consents..................................................................27
Section 8.05 Notation on or Exchange of Securities..............................................................27
Section 8.06 Trustee Protected..................................................................................27
Section 8.07 Rights of Holders to Receive Payment...............................................................27
Section 8.08 Collection Suit by Trustee.........................................................................27
Section 8.09 Trustee May File Proofs of Claim...................................................................28
Section 8.10 Priorities.........................................................................................28
Section 8.11 Undertaking for Costs..............................................................................28
ARTICLE IX
SUBORDINATION..................................................................29
Section 9.01 Agreement to Subordinate...........................................................................29
Section 9.02 Subordination......................................................................................29
Section 9.03 Notice to Trustee of Specified Events; Reliance on Certificate of Custodian........................30
Section 9.04 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice............................31
Section 9.05 Absolute Obligation to Pay.........................................................................31
Section 9.06 Trustee's Rights as Holder of Senior Debt..........................................................31
Section 9.07 No Implied Obligations to Holders of Senior Debt...................................................32
Section 9.08 Enforceability of Subordination....................................................................32
Section 9.09 Trustee Authorized to Effectuate Subordination.....................................................32
</TABLE>
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<TABLE>
<S> <C> <C>
Page
ARTICLE X
REDEMPTION...................................................................32
Section 10.01 Optional Redemption; Notice to Trustee............................................................32
Section 10.02 Selection of the Securities to Be Redeemed........................................................33
Section 10.03 Notice of Redemption..............................................................................33
Section 10.04 Effect of Notice of Redemption....................................................................33
Section 10.05 Deposit of the Redemption Price on Optional Redemption............................................33
Section 10.06 Securities Redeemed in Part.......................................................................34
ARTICLE XI
MISCELLANEOUS..................................................................34
Section 11.01 Trust Indenture Act Controls......................................................................34
Section 11.02 Notices...........................................................................................34
Section 11.03 Communication by Holders with Other Holders.......................................................35
Section 11.04 Certificate and Opinion as to Conditions Present..................................................35
Section 11.05 Statements Required in Certificate or Opinion.....................................................35
Section 11.06 Rules by Trustee and Agents.......................................................................36
Section 11.07 Legal Holidays....................................................................................36
Section 11.08 No Recourse Against Others........................................................................36
Section 11.09 Duplicate Originals...............................................................................36
Section 11.10 Governing Law.....................................................................................36
Section 11.11 No Adverse Interpretation of Other Agreements.....................................................36
Section 11.12 Successors........................................................................................36
Section 11.13 Severability......................................................................................36
Section 11.14 Table of Contents, Headings, etc..................................................................36
</TABLE>
Exhibit A Form of Security
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INDENTURE dated as of [_________________] between [River Distribution
Sub, Inc., a Delaware corporation,] and [______________________], a
[_______________] corporation, as trustee.
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the 15% Subordinated Capital
Debentures due 2014.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purpose of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Board of Directors" means the Board of Directors of the Corporation or
any authorized committee of such Board.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the city in which the
Corporate Trust Office is located are authorized or obligated by law or
executive order to close.
"Commission" means the Securities and Exchange Commission, and its
successors.
"Consolidated Tangible Capital" of any Person means, at any date, the
total amount of non-redeemable preferred stock and common shareholders' equity
(excluding amounts attributable to securities which are exchangeable for or
convertible into securities other than non-redeemable preferred stock or common
stock and any amounts attributable to shares issued pursuant to an acquisition
by such Person) which would appear on a consolidated statement of financial
condition of such Person as at such date prepared in accordance with generally
accepted accounting principles, less all intangible assets appearing thereon.
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"Corporate Trust Office" means the corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which on the date hereof is [______________________].
"Corporation" means River Distribution Sub, Inc. or its successor "Note
Issuer" upon a "Change of Control" as defined in the Certificate of Designation
of Series A Preferred Stock, provided that any such successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter, "Corporation" shall mean each successor Person, and any other
obligor upon the Securities.
"Default" means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
"Depository" means [The Depository Trust Company] and includes any
successor thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and as in effect from time to time.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered in the register of the Securities kept by the Registrar.
"Indebtedness" means, with respect to any Person, at any date, (i) all
indebtedness, obligations or other liabilities for borrowed money, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, and whether now existing or hereafter created; (ii) all indebtedness
secured by any mortgage, lien, pledge, charge or encumbrance upon Property owned
by such Person; (iii) all indebtedness, obligations or liabilities of others of
the type described in the preceding clauses (i) and (ii) which the Corporation
has guaranteed or is in any other way liable for; and (iv) all amendments,
renewals, extensions or refundings of any such indebtedness, obligation or
liability.
"Indenture" means this instrument as amended from time to time by one
or more indentures supplemental hereto entered into pursuant to the applicable
provisions hereto.
"Interest Payment Due" means the date specified in the Securities as
the fixed date on which interest is due and payable.
"Officer" means the Chairman of the Board of Directors, the President,
any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by (i) the Chairman
or Vice Chairman of the Board of Directors, President or any Vice President and
(ii) the Treasurer, Secretary or
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any Assistant Treasurer or any Assistant Secretary of the Corporation and
delivered to the Trustee by the terms of this Indenture; provided that, in the
event an Officer of the Corporation holds a position set forth in (i) or (ii)
above, such Officer may sign an Officer's Certificate only in his capacity as an
Officer under either clause (i) or (ii), but not both.
"Opinion of Counsel" means a written opinion from legal counsel, which
opinion and legal counsel are acceptable to the Trustee. The counsel may be an
employee of or counsel to the Corporation.
"Order of the Corporation" means a written order signed in the name of
the Corporation by its President or any Vice President and by its Treasurer,
Secretary or any Assistant Treasurer or Assistant Secretary of the Corporation
and delivered to the Trustee.
"Person" means an individual, partnership, corporation or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Principal" means principal amount of a debt security plus the premium,
if any, on the security.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Ranking Junior to the Securities" means, as respects any obligation of
the Corporation, an obligation that by express provisions in the instrument
creating, evidencing or governing such obligation (i) is specifically designated
as ranking junior to the Securities, (ii) ranks junior to and not equally with
or prior to the Securities (or to the Securities and any other obligations of
the Corporation ranking on a parity with the Securities) in right of payment
upon the happening of a Specified Event and (iii) is also made junior and
subordinate in right of payment to other obligations of the Corporation to at
least the same extent as the Securities are made junior and subordinate thereto
by the provisions of Section 9.02.
"Ranking on a Parity with the Securities" means, with respect to any
obligation of the Corporation, an obligation that by express provisions in the
instrument creating, evidencing or governing such obligation (i) is specifically
designated as ranking on a parity with the Securities, (ii) ranks equally with
and not prior to the Securities in right of payment upon the happening of a
Specified Event and (iii) is also made junior and subordinate in right of
payment to other obligations of the Corporation to the same extent as the
Securities are made junior and subordinate thereto by the provisions of Section
9.02.
"Redemption Date" means, when used with respect to any Security to be
redeemed, the date fixed for such redemption pursuant to this Indenture and the
Security.
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"Redemption Price" means, when used with respect to any Security to be
redeemed, the price fixed for such redemption pursuant to this Indenture and the
Security as set forth in Section 10.01.
"Regular Record Date" means the 15th day (whether or not a Business
Day) of the month preceding the month in which an Interest Payment Date occurs.
"Securities" means the "15% Subordinated Capital Debentures due 2014"
described above and issued under this Indenture.
"Senior Debt" means principal of and premium, if any, and interest on
all claims against the Corporation, including, without limitation, commercial
paper, repurchase agreements, secured Indebtedness and the Corporation's other
obligations to its general and secured creditors, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed by the
Corporation (and all renewals, extensions or refundings thereof); provided,
however, that "Senior Debt" shall not include the Securities, any Indebtedness
Ranking on a Parity with the Securities, any Indebtedness Ranking Junior to the
Securities or any Indebtedness for money borrowed by the Corporation from any
Subsidiary or Affiliate.
"Series A Preferred Stock" means the 15% Noncumulative Perpetual
Preferred Stock, Series A of the Corporation.
"Subsidiary" means any corporation of which the Corporation owns,
directly or indirectly, more than 50% of the Voting Stock.
"TIA" means the Trust Indenture Act of 1939, as amended, and as in
effect from time to time.
"Trustee" means the party named as such in this indenture until a
successor replaces it and thereafter means such successor.
"Trust Officer" means any officer within the Corporate Trust Office (or
any successor group) of the Trustee, including any Vice President, any Assistant
Vice President, any Assistant Secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of or familiarity with the particular subject.
"Voting Stock" means securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for corporate directors (or Persons performing
similar functions).
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Section 1.02 Other Definitions.
Term Defined in
"Blockage Period"...............................................Section 9.02(b)
"Custodian".....................................................Section 5.01
"Default Notice"................................................Section 9.02(b)
"Event of Default"..............................................Section 5.01
"Legal Holiday".................................................Section 11.07
"Paying Agent"..................................................Section 2.03
"Registrar".....................................................Section 2.03
"Special Record Date"...........................................Section 2.12
"Specified Event"...............................................Section 9.02(a)
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture, notwithstanding
the fact that the Indenture is not qualified under the TIA.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the securities means the Corporation.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by rule of the Commission
under the TIA have the meanings assigned to them thereby.
Section 1.04 Rules of Construction. Unless the context otherwise
requires: (i) a term has the meaning assigned to it; (ii) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles in effect in the United States at the date of
such computation; (iii) "or" is always used inclusively (for example, the phrase
"A" or "B" means "A or B or both," not "either A or B, but not both"); (iv)
words in the singular include the plural, and in the plural include the
singular; (v) provisions apply to successive events and transactions; and unless
specifically stated, the
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words "herein," "hereof," "hereto" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE II
THE SECURITIES
Section 2.01 Form and Dating. The Securities and Trustee's certificate
of authentication shall be substantially in the form of Exhibit A, which is part
of this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Security shall be dated the
date of its authentication.
Section 2.02 Execution and Authentication. The Securities shall be
executed on behalf of the Corporation by its Chairman of the Board, its
President or one of its Vice Presidents under its corporate seal and attested by
its Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be actual or facsimile.
If an officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. Such manual signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
Except as otherwise provided in Section 2.06, the Securities will be
issued in global form only registered in the name of the Depository or its
nominee. The Securities will not be issued in definitive form, except as
otherwise provided in Section 2.06, and ownership of the Securities shall be
maintained in book entry form by the Depository for the accounts of
participating organizations of the Depository.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 5 of the Securities upon an Order
of the Corporation. The aggregate principal amount of Securities outstanding at
any time may not exceed the amount as stated in paragraph 5 of the Securities
except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Corporation to authenticate Securities, which authenticating agent shall be
compensated by the Corporation. An authenticating agent may authenticate
Securities whenever the Trustee may do so, other than the authentication of
Securities issued upon original issue or pursuant to Section 2.07. Except as
provided in the previous sentence, each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the
Corporation or an Affiliate.
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Section 2.03 Registrar and Paying Agent. The Corporation shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange ("Registrar") and an office or agency where Securities
may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Corporation
may appoint one or more additional Paying Agents. The term "Paying Agent"
includes any additional Paying Agent. The Corporation or any of its Subsidiaries
may act as Paying Agent or Registrar.
The Corporation shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Corporation shall
give prompt written notice to the Trustee of the name and address of any such
Agent and any change in the address of such Agent. If the Corporation fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such.
The Corporation initially appoints the Trustee as Registrar and Paying
Agent.
Section 2.04 Payment by the Corporation to the Trustee; Paying Agent to
Hold Money in Trust. On each due date for the payment of principal of, or
interest on, any of the Securities, the Corporation shall deposit with the
Trustee or Paying Agent, as the case may be, in immediately available funds a
sum sufficient to pay the principal or interest so becoming due.
The Corporation will require each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Corporation
(or any other obligor upon the Securities) in the making of any payment
of principal or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
Section 2.05 Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Corporation shall furnish to the Trustee at least 10 days before
each Interest Payment Date and at such other times as the Trustee may request in
writing all information in the possession or control of the Corporation
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or any Paying Agent as to the names and addresses of the Securityholders in such
form and as of such date as the Trustee may reasonably require.
Section 2.06 Transfer and Exchange. When Securities are presented to
the Registrar or a co-Registrar with a request to register the transfer of such
Securities or to exchange them for an equal principal amount of Securities of
authorized denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Corporation shall execute and the
Trustee shall authenticate Securities at the Registrar's request. The Trustee,
the Registrar and the Paying Agent shall be entitled to rely on such
representation in authenticating, registering the transfer or exchange of, or
making of payments on, the Securities.
The Registrar shall not be required (i) to issue, register the transfer
of or exchange Securities during a period beginning at the opening of 15
Business Days before the day of any selection of Securities for redemption under
Section 10.02 and ending at that close of business on the day of such selection,
or (ii) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except for the unredeemed portion of any
Security being redeemed in part.
Notwithstanding anything to the contrary contained herein, any global
Security shall be exchangeable for definitive securities only if (i) the
Depository is at any time unwilling, unable or ineligible to continue as
Depository and a successor depository is not appointed by the Corporation within
90 days of the date the Corporation is so informed in writing, (ii) the
Corporation executes and delivers to the Trustee an Order of the Corporation to
the effect that such global Security shall be so exchangeable, or (iii) an Event
of Default has occurred and is continuing with respect to the Securities. If the
beneficial owners of interests in a global Security are entitled to exchange
such interest for definitive Securities, then without unnecessary delay but in
any event not later than the earliest date on which such interests may be so
exchanged, the Corporation shall deliver to the Trustee definitive Securities in
such form and denominations as are required by or pursuant to this Indenture,
containing identical terms and in aggregate principal amount equal to the
principal amount of, such global Security, executed by the Corporation. On or
after the earliest date on which such interests may be so exchanged, such global
Security shall be surrendered by the Depository, and in accordance with
instructions given to the Trustee and the Depository (which instructions shall
be in writing but need not be contained in or accompanied by an Officer's
Certificate or be accompanied by an Opinion of Counsel), as the Corporation's
agent for such purpose, to be exchanged, in whole or in part, for definitive
Securities as described above without charge. The Trustee shall authenticate and
make available for delivery, in exchange for each portion of such surrendered
global Security, a like aggregate principal amount of definitive Securities of
authorized denominations and of like tenor as the portion of such global
Security to be exchanged, which shall be in the form of fully registered
Securities; provided, however, that no such exchanges may occur during a period
beginning at the opening of 15 Business Days before the day of any selection of
Securities for redemption under Section 10.02 and ending on the relevant
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Redemption Date. Promptly following any such exchange in part, such global
Security shall be returned by the Trustee to such Depository, or such other
Depository referred to above in accordance with the instructions of the
Corporation referred to above. If a definitive Security is issued in exchange
for any portion of a global Security after the close of business at the
Corporate Trust Office on or after (i) any Regular Record Date for such Security
and before the opening of business at such Corporate Trust Office on the next
Interest Payment Date, or (ii) any Special Record Date for such Security and
before the opening of business at such Corporate Trust Office on the related
proposed date for payment of interest or defaulted interest, as the case may be,
interest shall not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of such Security, but shall be payable
on such Interest Payment Date or proposed date for payment, as the case may be,
only to the Person to whom interest in respect of such portion of such global
Security shall be payable in accordance with the provisions of this Indenture.
Section 2.07 Replacement Securities. If the Holder of a mutilated
Security surrenders such Security to the Trustee, the Corporation shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Corporation shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Corporation, such Holder shall provide an
indemnity bond sufficient in the judgment of both the Corporation and the
Trustee to protect the Corporation, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Corporation may charge for its expenses in replacing a Security.
Every replacement Security issued under this Section shall constitute
an obligation of the Corporation, entitled to all the benefits of this Indenture
equally and proportionately with any and all other Securities.
Section 2.08 Outstanding Securities. The Securities outstanding at any
time are all the Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced security is held by a bona fide purchaser.
If Securities are considered paid under Section 3.01, they cease to be
outstanding and interest on them ceases to accrue.
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A Security does not cease to be outstanding because the Corporation or
an Affiliate of the Corporation holds the Security.
Section 2.09 Treasury Securities. In determining whether the Holders of
the required principal amount of Securities have concurred in any direction,
waiver or consent, Securities owned by the Corporation or an Affiliate of the
Corporation shall be considered as though they are not outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee actually knows are so owned shall be so disregarded.
Section 2.10 Temporary Securities. Until definitive Securities are
ready for delivery, the Corporation may prepare and the Trustee shall, upon
Order of the Corporation, authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Corporation considers appropriate for temporary
Securities including, without limitation, a legend stating that such temporary
Security is a temporary Security. Without unreasonable delay, the Corporation
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until such exchange, such temporary
Securities shall be entitled to the same rights, benefits and privileges as the
definitive Securities.
Section 2.11 Cancellation. The Corporation at any time may deliver
Securities to the Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy canceled Securities and deliver a certificate of
such destruction to the Corporation, unless the Corporation directs the Trustee
to deliver canceled Securities to the Corporation. The Corporation may not issue
new Securities to replace securities that it has paid or that have been
delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest. If the Corporation fails to make a
payment of interest on the Securities on the due date therefor or within the
grace period set forth in Section 5.01(1), it shall pay such interest thereafter
in any lawful manner. It may pay such interest, plus any interest lawfully
payable on it, to the Persons who are Securityholders on a subsequent special
record date (a "Special Record Date"). The Corporation shall fix the Special
Record Date and related payment date. At least 10 days before the Special Record
Date, the Corporation shall mail to Securityholders a notice that states the
Special Record Date, related payment date, and amount of such interest to be
paid.
Section 2.13 Certain Limitations on Securities. Notwithstanding
anything to the contrary in this Indenture (or in any related document):
(a) In the event that the obligations represented by the
Securities are assumed in full by another corporation, which shall
succeed by merger or otherwise to substantially
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all of the assets and the business of the Corporation, and payment or
provision for payment shall have been made in respect of all matured
installments of interest upon the Securities together with all matured
installments of principal on such Securities which shall have become
due otherwise than by acceleration, then any default caused by the
appointment of a receiver for the Corporation shall be deemed to have
been cured, and any declaration consequent upon such default declaring
the principal and interest on the Securities to be immediately due and
payable shall be deemed to have been rescinded.
(b) The Securities are unsecured by the assets of the
Corporation, or any of its affiliates.
(c) The Securities are subordinated and junior in right of
payment to the Corporation's obligations to its depositors and to the
Corporation's other obligations to its general and secured creditors.
(d) The Securities are ineligible as collateral for a loan by
the Corporation.
ARTICLE III
COVENANTS
Section 3.01 Payment of Securities. The Corporation shall punctually
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities. Principal and interest shall be considered
paid on the date due if the Trustee or all Paying Agents hold on that date money
designated for and sufficient to pay all principal and interest then due.
The Corporation shall pay interest on overdue principal at the rate
borne by the Securities; it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
Section 3.02 Dividends and Certain Other Elements. The Corporation
shall not (i) declare or pay or set apart any funds for the payment of dividends
on, or make any other distribution in respect of, any shares of its capital
stock (other than dividends or distributions payable solely in shares of its
capital stock) or (ii) make, or permit any Subsidiary or Affiliate to make, any
payment on account of the purchase, redemption or other acquisition or
retirement of any such shares or obligations, if at the time of such action and
after giving effect thereto a Default or an Event of Default shall have occurred
and be continuing.
Section 3.03 Transactions with Affiliates. Neither the Corporation nor
any Subsidiary will pay, directly or indirectly, any funds to or for the account
of, make any investment in, enter into any transaction including, without
limitation, the purchase, sale or exchange of
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Property or the rendering of any service, or effect any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate, except that the Corporation or any Subsidiary may (i) make such
payments and investments or enter into such transactions on terms and conditions
at least as favorable to the Corporation or such Subsidiary, as the case may be,
as those that could be obtained in a comparable arm's-length transaction with a
Person not an Affiliate (as determined in good faith by the Board of Directors,
whose determination shall be conclusive) and (ii) make payments or provide
compensation (including the extension of credit upon such favorable terms as are
permitted by applicable laws and regulation) for services rendered by any
Affiliate who is an officer, director or employee of the Corporation or any
Subsidiary; and provided, further, that for purposes of this Section, the term
"Affiliate" shall not include, in the case of the Corporation, any Subsidiary,
or, in the case of any Subsidiary, the Corporation.
Section 3.04 Reports by Corporation.
(a) The Corporation shall file with the Trustee within 5 days
after it files them with the Commission copies of the annual and
quarterly reports and of the information, documents and other reports
which the Corporation files, or which are filed in respect of the
Corporation, with the Commission pursuant to Section 13 of the Exchange
Act and the regulations of the Commission thereunder, or any other
rules and regulations of the Commission under the Exchange Act as may
from time to time be in effect. If the Corporation is not subject to
the requirements of Section 13 of the Exchange Act, the Corporation
shall file with the Trustee, within 15 days after it would have
otherwise been required to file pursuant to the Exchange Act, financial
statements including any notes thereto, and a "Management's Discussion
and Analysis of Financial Condition and Results of Operations," both
comparable to that which the Corporation would have been required to
include in the annual and quarterly reports, information documents or
other reports (under rules currently in effect on the date hereof)
which the Corporation would have been required to file pursuant to
Section 13 of the Exchange Act.
(b) While any of the Securities are outstanding, the
Corporation shall mail to each Holder copies of the annual and
quarterly reports of the Corporation that it is required to file with
the Trustee pursuant to Section 3.04(a) (or summaries thereof) within
30 days after such filing is required to be made.
Section 3.05 Maintenance of Properties; Insurance. The Corporation will
keep, and will cause each Subsidiary to keep, all Property useful and necessary
in its business in good working order and condition. The Corporation will
maintain and will cause each Subsidiary to maintain (either in the name of the
Corporation or in such Subsidiary's own name) with financially sound and
reputable insurance companies, insurance on all its Property in at least such
amounts as are usually insured against in the same general area by companies of
established repute engaged in a similar business.
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Section 3.06 Maintenance of Books and Records. The Corporation will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full and correct entries will be made of all its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves. The Corporation shall cause its books of record and
account and those of each of its Subsidiaries to be examined on a consolidated
basis by a nationally recognized firm of independent public accountants not less
frequently than annually for purposes of preparing audited consolidated
financial statements and shall not make any change in the accounting principles
applied to its financial statements not concurred in by such firm or firms. The
Corporation shall prepare its financial statements in accordance with generally
accepted accounting principles consistently applied, except as otherwise stated
therein.
Section 3.07 Conduct of Business. The Corporation shall, and shall
cause each of its Subsidiaries to, comply with all statutes, laws, ordinances or
government rules and regulations to which it is subject and to obtain, preserve
and renew any licenses, permits, franchisees or other governmental
authorizations necessary to the ownership or operation of its Properties or to
the conduct of its business, if failure to so comply, obtain, preserve and renew
adversely affects, or so far as the Corporation can at the time foresee is
reasonably likely to adversely affect, in any material respect the business,
prospects, earnings, Properties or condition, financial or otherwise, of the
Corporation and its Subsidiaries taken as a whole.
Section 3.08 Taxes and Claims. The Corporation shall, and shall cause
each of its Subsidiaries to, pay prior to delinquency:
(i) all taxes, assessments and governmental charges or
levies imposed upon it or its Property, and
(ii) all claims or demands of material men, mechanics,
carriers, warehousemen, landlords and other like Persons which, if
unpaid, might result in the creation of a lien upon its Property;
Provided that items in clauses (i) and (ii) need not be paid while
being contested in good faith by appropriate proceedings, and provided, further,
that adequate book reserves (in the opinion of the Corporation's independent
accountants) have been established with respect thereto; and provided, further,
that the owning company's title to, and its right to use, its Property is not
materially adversely affected thereby.
Section 3.09 Money for Security Payments to Be Held in Trust. If the
Corporation shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on the Securities, segregate and
hold in trust in a trust or special deposit account for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal; or interest so
becoming due until such sum shall be paid to such Person or otherwise disposed
of as herein provided, and will promptly notify the Trustee of its action or
failure so to act.
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Whenever the Corporation shall have one or more Paying Agents, it will,
on or prior to each date for the payment of the principal of or interest on the
Securities, deposit with the Paying Agents sums sufficient to pay the principal
or interest so becoming due, such sums to be held in trust for the benefit of
the Persons entitled to such payments pursuant to the agreement referred to in
Section 2.04; and, unless such Paying Agent is the Trustee, the Corporation will
promptly notify the Trustee of its action or failure so to act.
For the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, the Corporation may at any time pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Corporation or such Paying Agent, such sums to be held by the Trustee, the
Corporation or such Paying Agent, as the case may be, shall be released from all
further liability with respect to such money.
Section 3.10 Compliance Certificate. The Corporation shall deliver to
the Trustee, within 120 days after the end of each fiscal year of the
Corporation, an Officers' Certificate stating that a review of the activities of
the Corporation and its Subsidiaries during the preceding fiscal year has been
made under the supervision of the signing Officers with a view to determining
whether the Corporation has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such officer
signing such Certificate, that to the best of his knowledge the Corporation has
kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions hereof (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he may have knowledge and specifying what action the Corporation is
taking or proposes to take with respect thereto) and that to the best of his
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest on the Securities are
prohibited.
The Corporation will, so long as any of the Securities are outstanding,
deliver to the Trustee at its Corporate Trust Office, forthwith upon becoming
aware of any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in this Indenture, an Officers'
Certificate describing such Default, Event of Default or default and specifying
what action the Corporation is taking or proposes to take with respect thereto.
Any such Certificate delivered under this Section 3.10 shall comply with Section
314 of the TIA.
Section 3.11 Continued Existence. Subject to Article IV, the
Corporation will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence.
Section 3.12 Limitation on Subordinated Indebtedness. The Corporation
shall not incur or suffer or permit to exist any Indebtedness that is by its
terms subordinated in right of payment to Senior Debt except for Indebtedness
Ranking on a Parity with the Securities or Ranking Junior to the Securities.
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ARTICLE IV
SUCCESSORS
Section 4.01 When Corporation May Merge, etc. Subject to Section 2.13,
the Corporation shall not consolidate or merge with or into, or transfer, sell,
lease or convey all or substantially all of its Property to, any Person unless:
(i) the corporation formed by or surviving any such
consolidation or merger, or the Person to which such transfer, sale,
lease or conveyance shall have been made, unconditionally assumes by
supplemental indenture all the obligations of the Corporation under the
Securities and this Indenture including but not limited to the due and
punctual payment of the principal of and interest on all the
Securities;
(ii) immediately after the transaction, the Consolidated
Tangible Capital of the corporation formed by or surviving such
consolidation or merger, or the Person to which such transfer, sale,
lease or conveyance has been made, shall not be a negative amount; and
(iii) immediately after the transaction no Default or
Event of Default exists.
The Corporation shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with this Indenture and that all conditions precedent to the consummation
of the transaction under this Indenture have been met.
The surviving corporation shall be the successor Corporation, but the
predecessor Corporation in the case of a transfer, sale, lease or conveyance
shall not be released from the obligation to pay the principal of and interest
on the Securities.
The parties hereto recognize that the remedies otherwise provided in
this Indenture may not provide an adequate remedy in the case of noncompliance
by the Corporation under this Section. The parties hereto therefore agree that,
in any such case of noncompliance, the Trustee shall be entitled to seek an
injunction or specific performance of the Corporation's obligations under this
Section, or any other equitable remedies, in addition to other remedies provided
in this Indenture.
Section 4.02 Successor Substituted. Upon any consolidation or merger,
or any transfer, sale, lease or conveyance of all or substantially all of the
assets of the Corporation in accordance with Section 4.01, the successor Person
formed by such consolidation or into which the Corporation is merged or to which
such transfer, sale, lease or conveyance is made
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shall succeed to, and be substituted for, and may exercise every right and power
of, the Corporation under this Indenture with the same effect as if such
successor had been named as the Corporation herein.
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.01 Events of Default. An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any
Security when the same becomes due and payable and the Default
continues for a period of 30 days;
(2) the Corporation defaults in the payment of the principal
of or premium on any Security (including any sinking fund payment) when
the same becomes due and payable at maturity or upon redemption,
acceleration or otherwise;
(3) the Corporation fails to comply with any of its other
agreements or covenants in or provisions of the Securities or this
Indenture, and such default continues for a period of 30 days after the
Trustee notifies the Corporation, or the Holders of at least 25% in
principal amount of the then-outstanding Securities notify the
Corporation and the Trustee, of such Default;
(4) a default (other than default under any mortgage indenture
or instrument securing or evidencing any indebtedness secured by an
interest in a particular real estate development project, or under any
guarantee of payment of indebtedness which guarantee is secured by an
interest in a particular real estate development project, in either
case which is expressly stated to be without recourse to the
Corporation or any of its Subsidiaries or which is a purchase money or
similar mortgage indebtedness that is without recourse to the
Corporation or any of its Subsidiaries under applicable state law from
the date of its execution) occurs under any instrument or any other
obligation representing Indebtedness of the Corporation or any
Subsidiary if (i) the effect of such default is to permit the
acceleration of such Indebtedness and (ii) the aggregate principal
amount of such indebtedness as to which any such default or defaults
shall have occurred exceeds $10 million;
(5) a court or governmental agency or authority having
jurisdiction in the premises enters a decree or order (i) declaring the
Corporation or any Subsidiary to be bankrupt or insolvent, (ii)
approving as properly filed a petition seeking reorganization,
arrangement, adjustment, composition of or in respect of the
Corporation or any Subsidiary in an involuntary case under any
bankruptcy or similar law for the benefit of creditors, (iii)
appointing a receiver, conservator, liquidator, custodian, trustee,
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sequestrator, assignee in bankruptcy or insolvency or any similar
official (collectively, a "Custodian") of the Corporation or any
subsidiary or of its Property or (iv) for the winding up or liquidation
of the affairs of the Corporation or any Subsidiary, and such decree or
order shall have continued undischarged and unstayed for a period of 30
days;
(6) the Corporation or any Subsidiary commences a voluntary
case, consents to the entry of any order of relief in an involuntary
case under any bankruptcy or similar law for the benefit of creditors,
seeks or consents to the appointment of a Custodian or to the taking
possession by a Custodian of it or of any substantial part of its
Property, makes an assignment for the benefit of creditors, fails
generally to pay its debts as they become due, or takes corporate
action in furtherance of any of such purposes;
(7) a Custodian shall be appointed for the Corporation; or
(8) one or more judgments have been rendered against the
Corporation or any Subsidiary in an aggregate amount exceeding $10
million which judgments remain undischarged for a period of 60 days
after all rights to directly review such judgment, whether by appeal or
writ, have been exhausted or have expired.
Section 5.02 Acceleration; Limitations on Acceleration. Subject to
Section 2.13, if an Event of Default (other than an Event of Default specified
in clause (5) or (6) as such clauses relate to the Corporation or clause (7) of
Section 5.01) occurs and is continuing, the Trustee by notice to the
Corporation, or the Holders of at least 25% in principal amount of the
then-outstanding Securities by notice to the Corporation and the Trustee, may
declare the principal of an accrued interest on all the securities to be due and
payable. Upon such declaration the principal and interest shall be due and
payable immediately without any presentment, demand, protest or notice to the
Corporation, all of which the Corporation expressly waives. Subject to Section
2.13, if an Event of Default specified in clause (5) or (6) as such clauses
relate to the Corporation or clause (7) of Section 5.01 occurs, such an amount
shall become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then-outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if:
(1) the rescission would not conflict with any judgment or
decree;
(2) all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely
because of the acceleration;
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(3) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of
acceleration, has been paid; and
(4) all payments then due the Trustee and any predecessor
Trustee under Section 6.07 have been made.
Section 5.03 Other Remedies. Subject to Section 2.13, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy by
an action at law, suit in equity or other appropriate proceeding to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon a Default or Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in such Default or Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 5.04 Waiver of Default. The Holders of at least a majority in
principal amount of the then-outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except a
continuing default or Event of Default in the payment of the principal of or
interest on any Security. No such waiver shall extend to any subsequent or other
Default or Event of Default.
Section 5.05 Control by Majority. The Holders of a majority in
principal amount of the then-outstanding Securities may direct the time, method
and place of conducting any pro ceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law, regulation or this
Indenture, is unduly prejudicial to the rights of other Securityholders or would
subject the Trustee to personal liability.
Section 5.06 Limitation on Suits. A Securityholder may pursue a remedy
with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the
then-outstanding Securities make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer(s) to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60
days after the receipt of the notice, the request and the offer of
indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then-outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
Section 5.07 Rights of Holders to Receive Payment. Subject only to
Article IX, Section 2.13 and the provisions of Section 5.02 regarding rescission
of acceleration, notwith standing any other provision of this Indenture, the
right of any holder of a Security to receive payment of principal of and
interest on the Security on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
Section 5.08 Collection Suit by Trustee. If an Event of Default
specified in clause (1) or (2) of Section 5.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest remaining
unpaid on the Securities and any compensation due the Trustee under Section
6.07.
Section 5.09 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its Property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 5.10 Priorities. If the Trustee collects any money pursuant to
this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.07;
Second: to holders of Senior Debt to the extent required by
Article IX;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to
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the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth: to the Corporation, its successors or assigns, or to
whomever may be legally entitled to receive the remainder, or as a
court of competent jurisdiction may determine.
The Trustee may fix a record date and a payment date for any payment to
the Securityholders pursuant to this Article.
Section 5.11 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder for the enforcement of rights set forth in Section
5.07, or a suit by Holders of at least 15% in principal amount of the
then-outstanding Securities.
ARTICLE VI
TRUSTEE
Section 6.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others;
and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture
but shall not be required to verify the accuracy of the
contents of such certificates or opinions. However,
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the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action or failure to act, or its own willful misconduct,
except that:
(1) this paragraph does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of
judgement made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
5.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives an indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Corporation.
Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
Section 6.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers.
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Section 6.03 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Corporation or an Affiliate with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to Sections 6.10 and 6.11.
Section 6.04 Disclaimer. The Trustee makes no representation as to the
validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Corporation's use of the proceeds from the Securities, and
it shall not be responsible for any statement in the Securities other than its
authentication.
Section 6.05 Notice of Defaults. If a Default or Event of Default has
occurred and is continuing of which a Trust Officer of the Trustee has actual
knowledge, the Trustee shall mail to Securityholders a notice of the Default or
Event of Default within 90 days after it becomes known to the Trustee. Except in
the case of a Default or Event of Default in payment of principal of or interest
on any Security, the Trustee may withhold notice if and so long as a committee
of its Trust Officers in good faith determines that withholding the notice is in
the interest of Securityholders.
Section 6.06 Reports by Trustee to Holders.
(a) Within 60 days after each April 15, the Trustee shall mail
to each Securityholder and the Corporation a brief report dated as of
such April 15 that complies with TIA Section 313(a). The Trustee shall
also comply with TIA Section 313(b)(2).
(b) In lieu of the foregoing reports, so long as this
Indenture is not qualified under the TIA, the Trustee may transmit by
mail to the Corporation a statement as to its qualifications and
eligibility hereunder, and shall transmit by mail a copy of such
statement to such Holders who have previously furnished a written
request therefor to the Trustee.
Section 6.07 Compensation and Indemnity. The Corporation shall pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Corporation shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it. Such expenses
shall include the reasonable compensation and out-of-pocket expenses of the
Trustee's agents and counsel.
The Corporation shall indemnify the Trustee against any loss or
liability incurred by it in connection with its services hereunder except as set
forth in the next paragraph. The Trustee shall notify the Corporation promptly
of any claim for which it may seek indemnity.
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The Corporation shall settle or defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel, at the expense of the
Corporation.
The Corporation need not reimburse any expense or indemnity against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or Property held
or collected by the Trustee, except that held in trust to pay principal of and
interest on particular securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clauses (5), (6) and (7) of Section 5.01 occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy or similar law for the benefit
of creditors.
Section 6.08 Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Corporation. The Holders of
a majority in principal amount of the then-outstanding Securities may remove the
Trustee by so notifying the Trustee and the Corporation. The Corporation may
remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
bankruptcy or similar law for the benefit of creditors;
(3) a custodian or public officer takes charge of the Trustee
or its Property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Corporation shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then-outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Corporation.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of at least 10% in principal amount of the then-outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
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If the Trustee fails to comply with Section 6.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Thereupon the
resignation or removal of the retiring Trustee shall become effective and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
Property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 6.07.
Section 6.09 Successor Trustee by Merger. If the Trustee consolidates,
merges or converts into, or transfers all or substantially all of its corporate
trust business to, another corporation, the successor corporation without any
further act shall be the successor Trustee.
Section 6.10 Eligibility; Disqualification. This Indenture shall always
have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The
Trustee shall always have a combined capital and surplus of at least $10 million
as set forth in its most recent published annual report of condition. The
Trustee is subject to TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9).
Section 6.11 Preferential Collection of Claims Against Corporation. The
Trustee shall comply with TIA Section 311 (a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall comply with TIA Section 311(a) to the extent indicated therein.
ARTICLE VII
SATISFACTION AND DISCHARGE
Section 7.01 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect (except as to (i) any rights of
substitution, registration of transfer and exchange of Securities herein
expressly provided for, (ii) rights hereunder of Holders to receive payments of
principal of, or interest on, the Securities and (iii) the rights, obligations
and immunities of the Trustee hereunder, including without limitation, its
rights under Section 6.07), and the Trustee, on the demand and at the expense of
the Corporation, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when:
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been
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replaced or paid as provided in Article II, and (ii)
Securities for the payment of which money has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Corporation and thereafter
repaid to the Corporation or discharged from such trust, as
provided in Section 7.03) have been delivered to the Trustee
for cancellation; or
(B) the principal of all such Securities not
theretofore delivered to the Trustee for cancellation has
become due and payable and the Corporation has deposited or
caused to be deposited in trust with the Trustee, solely for
the benefit of the Holders, funds in an amount sufficient to
pay and discharge the entire Indebtedness on such Securities
not theretofore delivered to the Trustee for cancellation;
(2) the Corporation has irrevocably paid or caused to be
irrevocably paid all other sums payable hereunder by the Corporation;
and
(3) the Corporation has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for herein to be complied with by the Corporation
relating to the satisfaction and discharge of this Indenture have been
complied with.
Section 7.02 Application of Trust Money. The Trustee shall hold in
trust money deposited with it pursuant to Section 7.01. It shall apply the
deposited money through the Paying Agents and in accordance with the Indenture
to the payment of principal and Interest, on the Securities. Money so held in
trust shall not be subject to Article IX.
Section 7.03 Repayment to Corporation. Any money deposited with the
Trustee or any Paying Agent, or then held by the Corporation in trust for the
payment of principal or interest that remains unclaimed for two years after such
principal or interest has become due and payable shall be paid to the
Corporation upon request, or, if then held by the Corporation, shall be released
from such trust; provided, however, that the Trustee or such Paying Agent, may,
at the expense of the Corporation, cause to be published once in a newspaper of
general circulation in the City of New York or mail to each such Holder, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication or
mailing, any unclaimed balance of such money then re maining will be repaid to
the Corporation. After such money has been paid to the Corporation or released
from trust, Securityholders entitled to the money must look to the Corporation
for payment as general creditors unless an applicable abandoned property law
designates another person.
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ARTICLE VIII
AMENDMENTS
Section 8.01 Without Consent of Holders. The Corporation and the
Trustee may amend this Indenture or the Securities without the consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 4.01;
(3) to provide for definitive Securities in exchange for
global Securities;
(4) to make any change that does not adversely affect the
legal rights hereunder of any Securityholder; or
(5) to take any action necessary to qualify this Indenture
under the TIA.
Section 8.02 With Consent of Holders. The Corporation and the Trustee
may amend this Indenture or the Securities with the written consent of the
holders of at least a majority in principal amount of the then-outstanding
Securities. However, without the consent of each Securityholder affected, an
amendment under this Section may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or change the time for or in any way
affect the terms of payment of interest, including default interest, on
any Security;
(3) reduce the principal of or change the fixed maturity of
any Security, or change the date on which any Security may be subject
to redemption, or reduce the Re demption Price therefor;
(4) make any Security payable in money other than that stated
in the Security;
(5) make any change in Section 5.04 or 5.07 or the second
sentence of this Section 8.02; or
(6) make any change in Article IX that adversely affects the
rights of any Securityholder.
After an amendment under this Section becomes effective, the
Corporation shall mail to Securityholders a notice briefly describing the
amendment.
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Section 8.03 Reserved.
Section 8.04 Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Security or portion of a Security
that evidences the same date as the consenting Holder's Security, even if
notation of the consent is not made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to his security or portion of a
Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. An amendment or waiver becomes effective
in accordance with its terms and thereafter binds every Securityholder.
Section 8.05 Notation on or Exchange of Securities. If an amendment,
supplement or waiver changes the terms of the Securities, the Trustee may
require the Holders of such Securities to deliver them to the Trustee. The
Trustee may place an appropriate notation on such Securities about the changed
terms and return them to such Holders. Alternatively, the Corporation in
exchange for all securities may issue and the Trustee shall authenticate new
Securities that reflect the changed terms.
Section 8.06 Trustee Protected. The Trustee shall sign any amendment,
supplement or waiver if requested by the Corporation, so long as the same
complies with the requirements of this indenture and in doing so shall be
entitled to receive, and shall be fully protected in relying upon an opinion of
counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article is authorized or permitted by this
Indenture, is not inconsistent herewith and is valid and binding on the
Corporation in accordance with its terms. However, the Trustee need not sign any
amendment, supplement or waiver that adversely affects its rights, duties,
liabilities or immunities. The Corporation may not sign an amendment or
supplement until its Board of Directors approves it (a certified copy of the
resolutions in which such approval is given shall be delivered to the Trustee
prior to its signing any amendment, supplement or waiver).
Section 8.07 Rights of Holders to Receive Payment. Subject only to
Article IX, Section 2.13 and the provisions of Section 8.02 regarding rescission
of acceleration, notwith standing any other provision of this Indenture, the
right of any holder of a Security to receive payment of principal of and
interest on the Security on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates shall not be impaired or affected without the consent of
the Holder.
Section 8.08 Collection Suit by Trustee. If an Event of Default
specified in clause (1) or (2) of Section 8.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest remaining
unpaid on the Securities and any compensation due the Trustee under Section
6.07.
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Section 8.09 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its Property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 8.10 Priorities. If the Trustee collects any money pursuant to
this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.07;
Second: to holders of Senior Debt to the extent required by
Article IX;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Fourth: to the Corporation, its successors or assigns, or to
whoever may be legally entitled to receive the remainder, or as a court
of a competent jurisdiction may determine.
The Trustee may fix a record date and a payment date for any payment to
the Securityholders pursuant to this Article.
Section 8.11 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder for the enforcement of rights set forth in Section
8.07, or a suit by Holders of more than 15% in principal amount of the
then-outstanding Securities.
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ARTICLE IX
SUBORDINATION
Section 9.01 Agreement to Subordinate. The Corporation, and each
Securityholder by accepting a Security, agrees that the Indebtedness evidenced
by the Security is subordinated and junior in right of payment to the prior
payment in full of all Senior Debt (which, defined below, includes among other
things the Corporation's obligations to its general and secured creditors) to
the extent and in the manner provided in this Article.
Each Holder, by his acceptance of a Security, acknowledges that the
provisions of this Article are for the benefit of all holders of Senior Debt
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt.
Section 9.02 Subordination.
(a) The Indebtedness evidenced by the Securities shall be
subordinate and junior in right of payment to all Senior Debt to the
extent and in the manner set forth in this Section. During the
continuance of (i) any default in the payment on any principal of or
premium or interest on any Senior Debt, (ii) any event of default in
respect of any Senior Debt or (iii) any Insolvency, receivership,
conservatorship, reorganization, readjustment of debt, marshaling of
assets and liabilities or similar proceedings or any liquidation
relating to or winding up of the Corporation as a whole, whether
voluntary or involuntary (each, a "Specified Event" and collectively,
the "Specified Events"), the holders of Senior Debt shall be entitled
to payment in full of all principal of and interest on Senior Debt
before the Holders are entitled to any payment on account of the
principal of or interest on the Securities. Subject to Section 2.13, in
the event of any Specified Event, after payment in full of all sums
owing on the Senior Debt, the Holders, together with the holders of any
Indebtedness of the Corporation Ranking on a Parity with the
Securities, shall be entitled to be paid from the remaining assets of
the Corporation. In addition, during the continuance of any Specified
Event, all principal of and interest on the Securities which shall have
become due and payable shall be in full to the Securityholders entitled
thereto before any payment or other distribution shall be made on
account of any Indebtedness or other obligation of the Corporation
Ranking Junior to the Securities.
(b) If any event of default occurs and is continuing (or if
such an event of default would occur upon any payment with respect to
the Securities), as such event of default is defined in any Senior Debt
or in the instrument under which such Senior Debt is outstanding,
permitting the holders thereof to accelerate the maturity thereof and
if the holder or holders or a representative thereof gives written
notice of such event of default (which notice makes specific reference
to this subparagraph) to the Corporation and the Trustee (a "Default
Notice"), then, unless and until such event of default has
620797.2
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been cured or waived or has ceased to exist, then, during the 180 days
after the delivery of such Default Notice (the "Blockage Period") (i)
no payment of or with respect to the principal of or interest on the
Securities (including any payment or distribution that may be payable
or deliverable to holders of Securities by reason of the payment of any
other debt of the Corporation subordinated to the payment of the
Securities) shall be made directly or indirectly by or on behalf of the
Corporation and (ii) no direct or indirect payment shall be made by or
on behalf of the Corporation with respect to any repurchase, redemption
or other retirement of any of the Securities for cash or property or
otherwise. For all purposes of this Section 9.02(b), an event of
default which existed or was continuing with respect to the Senior
Debt, the holders of which initiated the Blockage Period, on the date
such Blockage Period commenced may be or be made the basis for the
commencement of any subsequent Blockage Period by the holder or holders
of such Senior Debt (or a representative of such holder or holders)
unless such event of default is cured or waived or has ceased to exist
for a period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any
payment shall be received directly or indirectly by the Trustee or any
Holder when such payment is prohibited by Section 9.02(a) or 9.02(b),
such payment shall be held in trust for the benefit of, and shall
forthwith be paid over or delivered to, the holders of Senior Debt, of
their respective representatives, or to the trustee or trustees under
any indenture pursuant to which any of such Senior Debt may have been
issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Senior
Debt, as the case may be, that such prohibited payment has been made,
the holders of the Senior Debt notify the Trustee of the amounts then
due and owing on the Senior Debt, if any, and only the amounts
specified in such notice to the Trustee shall be paid to the holders of
Senior Debt.
The foregoing subordination provisions shall in no way be affected,
modified, waived or revoked by the occurrence of any Event of Default hereunder
or any acceleration of the maturity of the Securities in consequence thereof.
Section 9.03 Notice to Trustee of Specified Events; Reliance on
Certificate of Custodian. The Corporation shall give prompt written notice to
the Trustee and the Paying Agent of any Specified Event affecting the
Corporation. The Trustee and the Paying Agent shall be entitled to assume that
no Specified Event has occurred unless the Corporation has given such notice.
Upon any distribution of assets of the Corporation or payment by or on
behalf of the Corporation referred to in Section 9.02, the Trustee and the
Securityholders shall be entitled to rely upon any order or decree of a court or
governmental body of competent jurisdiction in which any proceedings relating to
a Specified Event are pending, and the Trustee and the Securityholders shall be
entitled to rely upon a certificate of the custodian or agent or other
620797.2
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Person making any distribution to the Trustee or to the Securityholders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt and other Indebtedness of the
Corporation, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article.
Section 9.04 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
(a) Subject to Section 2.13, nothing contained in this Article
or elsewhere in this Indenture, or in any of the Securities, shall
prevent the Corporation from making payment of or on account of the
principal of or interest on the Securities, or from depositing with the
Trustee moneys for such payments, or prevent the Trustee from making
payments from moneys deposited with it hereunder for the payment of or
on account of the principal of or interest on the Securities if such
payment or deposit is not contrary to the conditions described in
Section 9.02 on the date of such payment or deposit.
(b) The Trustee shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making
of any payment to or by the Trustee, unless and until the Trustee shall
have received written notice thereof at its Corporate Trust Office from
the Corporation at least three business days prior to any payment date.
Thereafter, the Trustee shall use its best efforts to prevent any
prohibited payment under Section 9.02. Prior to the receipt of any such
written notice the Trustee shall be entitled to assume conclusively
that no such facts exist, and shall be fully protected in making any
such payment in any such event.
Section 9.05 Absolute Obligation to Pay. Subject to Section 2.13,
nothing contained in this Indenture or in the Securities shall:
(1) impair, as between the Corporation and the
Securityholders, the obligation of the Corporation, which is absolute
and unconditional, to pay the principal of and interest on the
Securities in accordance with their terms;
(2) affect the relative rights of the Securityholders and
creditors of the Corporation other than holders of Senior Debt;
(3) prevent the Trustee or any Securityholder from exercising
all or any of its available remedies upon a Default or an Event of
Default.
Section 9.06 Trustee's Rights as Holder of Senior Debt. The Trustee in
its individual or any other capacity may hold Senior Debt with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights.
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Section 9.07 No Implied Obligations to Holders of Senior Debt. No
implied covenants or obligations with respect to the holders of Senior Debt
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be
liable to any such holder if it shall pay over or distribute to or on behalf of
Securityholders or the Corporation moneys or assets to which any holder of
Senior Debt shall be entitled.
Section 9.08 Enforceability of Subordination. The rights of any holder
of Senior Debt to enforce the subordination of the Indebtedness evidenced by the
Securities shall not be prejudiced or impaired by any act or failure to act by
the Corporation or by its failure to comply with the Indenture.
Section 9.09 Trustee Authorized to Effectuate Subordination. Each
Securityholder, by accepting a Security, authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
ARTICLE X
REDEMPTION
Section 10.01 Optional Redemption; Notice to Trustee. The Corporation
may redeem all of the Securities at any time or some of them from time to time
at the Redemption Prices (expressed in $1,000 of principal amount) set forth
below plus accrued and unpaid interest to the Redemption Date, if redeemed
during the 12-month period beginning July 1, 2004 of the years indicated below:
Redemption Price
Per $1,000
Year Principal Amount
2004........................................ $1,100
2005........................................ 1,090
2006........................................ 1,080
2007........................................ 1,070
2008........................................ 1,060
2009........................................ 1,050
2010........................................ 1,040
2011........................................ 1,030
2012........................................ 1,020
2013........................................ 1,010
2014........................................ 1,000
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If the Corporation elects to redeem Securities pursuant to this
subparagraph, it shall furnish to the Trustee an Officer's Certificate notifying
the Trustee of the Redemption Date and the principal amount of Securities to be
redeemed at least 50 days but not more than 90 days before such Redemption Date.
Section 10.02 Selection of the Securities to Be Redeemed. If less than
all the Securities are to be redeemed, the Trustee shall select, subject to the
remainder of this Section, the Securities to be redeemed by lot. The Trustee
shall make the selection not more than 75 days and not less than 45 days before
each Redemption Date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal
amount of Securities in denominations of $1,000 and integral multiples of $1,000
provided that the remaining principal amount of any Security redeemed in part
shall not be less than $1,000 (such allocations for this purpose to be made by
the Trustee in its discretion). Provisions of this Indenture that apply to
Securities called for redemption shall also apply to portions of the Securities
called for redemption. The Trustee shall notify the Corporation promptly of the
Securities or portions of Securities to be called for redemption.
Section 10.03 Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Trustee shall mail a notice of redemption
by first-class mail to each Holder whose Securities are to be redeemed in the
Corporation's name and at its expense.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued and unpaid
interest to be paid;
(3) the name and address of the Paying Agent or Agents; and
(4) that the Securities called for redemption on the
Redemption Date must be surrendered to a Paying Agent to collect the
Redemption Price.
Section 10.04 Effect of Notice of Redemption. Once notice of redemption
is mailed, the Securities called for redemption become due and payable on the
specified Redemption Date at the Redemption Price plus accrued and unpaid
interest to the Redemption Date.
Section 10.05 Deposit of the Redemption Price on Optional Redemption.
On or before each Redemption Date, the Corporation shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the Redemption
Price and accrued and unpaid interest to the Redemption Date on all Securities
to be redeemed on that date.
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Section 10.06 Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Corporation shall issue and the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls. Any provision of this
Indenture which would be required to be contained herein if the Indenture were
qualified under the TIA shall be construed and interpreted in accordance with
interpretations of the TIA by courts and the Commission.
Section 11.02 Notices. Any notice or communication to the Corporation
or the Trustee is duly given if in writing and delivered in person or mailed by
first-class mail to the following address:
The Corporation's address is:
[River Distribution Sub, Inc.
645 Fifth Avenue, 8th Floor
New York, New York 10022]
Attention: Chief Executive Officer
The Trustee's address is:
[ ]
[ ]
[ ]
Attention: [ ]
Telephone: [ ]
Telecopy: [ ]
With respect to notices between the Trustee and the Corporation only,
notices may also be given by facsimile transmission with receipt confirmed by
telephone and followed by an original sent by guaranteed overnight courier.
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
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Any notice or communication to a Securityholder shall be in writing and
mailed by first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or a communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
If a notice or communication is delivered or mailed, as the case may
be, in the manner provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
If the Corporation mails a notice or communication to Securityholders,
it shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03 Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Trustee shall comply with the provisions of TIA Section 312(b).
The Corporation, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
Section 11.04 Certificate and Opinion as to Conditions Present. Upon
any request or application by the Corporation to the Trustee to take any action
under this Indenture, the Corporation shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 11.05 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
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(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 11.06 Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or a meeting of Securityholders. The Registrar or
Paying Agents may make reasonable rules and set reasonable requirements for
their functions.
Section 11.07 Legal Holidays. A "Legal Holiday" with respect to any
place is a Saturday, a Sunday or a day on which banking institutions are not
required to be open in such place. If a payment date is a Legal Holiday at a
place of payment, payment may be made at the place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
Section 11.08 No Recourse Against Others. The Securities and the
obligations of the Corporation under this Indenture are solely obligations of
the Corporation and no officer, director, employee or stockholder shall as such
be liable for any failure by the Corporation to pay amounts on the Securities
when due or perform any such obligation.
Section 11.09 Duplicate Originals. The parties may sign any number of
copies of this Indenture. One signed copy is enough to prove this Indenture.
Section 11.10 Governing Law. The internal laws of the State of New York
shall govern this Indenture and the Securities.
Section 11.11 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Corporation or a Sub sidiary. Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.
Section 11.12 Successors. All agreements of the Corporation in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
Section 11.13 Severability. In case any provision in this Indenture or
in the Securities 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 11.14 Table of Contents, Headings, etc. The Table of Contents
and headings of the Articles and Sections of this Indenture have been inserted
for the convenience of reference only, are not to be considered a part thereof,
and shall in no way modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
[RIVER DISTRIBUTION SUB, INC.]
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Attest:
- -------------------------
[ ]
as Trustee
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Attest:
- -----------------------------
620797.2
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Exhibit A
[Form of Face of Security4]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
[DEPOSITORY TRUST COMPANY], A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF [CEDE & CO.] OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, [CEDE & CO., HAS AN INTEREST HEREIN.]
THE DEBENTURES EVIDENCED BY THIS CERTIFICATE MAY BE ISSUED AND TRANSFERRED ONLY
IN DENOMINATIONS OF $1,000 AND INTEGRAL MULTIPLES THEREOF (OR SUCH GREATER
AMOUNT AS MAY BE REQUIRED BY APPLICABLE STATE OR FEDERAL LAW).
No. __________ $__________
[RIVER DISTRIBUTION SUB, INC.]
15% Subordinated Capital Debentures due 2014
[River Distribution Sub, Inc.], a [Delaware corporation], promises to pay
[CEDE & CO.] or registered assigns, the principal sum of ____________ Dollars on
July 1, 2014, unless earlier redeemed or accelerated after an Event of Default
on the terms and in the manner described in the Indenture, as hereinafter
defined, and to pay interest thereon quarterly in arrears at the rate of 15% per
annum on each Interest Payment Date, as hereinafter defined, until the principal
hereof is paid or duly provided for. Payment of principal and interest shall be
made in the method and subject to the terms set forth in provisions appearing on
the reverse hereof, which provisions, in their entirety, shall for all purposes
have the same effect as if set forth at this place.
- --------
4 Both the face and reverse of this form of Security are subject to change to
reflect any changes made in the Form of Indenture to which this Form of
Security is attached. Any such change in the Form of Security shall not be
deemed to materially adversely affect the rights and interests of holders
of Series A Preferred Stock without the consent of the holders so affected,
as provided in the Indenture.
634635.1
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<PAGE>
IN WITNESS WHEREOF, [River Distribution Sub, Inc.] has caused this
instrument to be executed in its corporate name by the manual or facsimile
signature of its President or a Vice President and attested by its Secretary or
an Assistant Secretary.
Dated: [ ]
[RIVER DISTRIBUTION SUB, INC.]
(SEAL)
By: _______________________________
Attest:
By: _______________________________
634635.1
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<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 15% Subordinated Capital Debentures due 2014
referred to in the within-mentioned Indenture.
Dated: [________________]
as Trustee
By: _________________________________
Authorized Signatory
634635.1
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<PAGE>
[Form of Reverse of Security]
[RIVER DISTRIBUTION SUB, INC.]
1. The Securities. This Security is one of a duly authorized Issue of
subordinated capital debentures issued by [River Distribution Sub, Inc.], a
[Delaware corporation] the "Corporation"), designated as its 15% Subordinated
Capital Debentures due July 1, 2014 and referred to hereinafter as the
"Securities".
2. Interest. The Corporation promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Corporation will
pay interest quarterly in arrears on January 15, April 15, July 15 and October
15 of each year (each an "Interest Payment Date"), commencing on the first
Interest Payment Date following the date of issuance hereof. Interest on the
Securities will accrue from the most recent Interest Payment Date to which
interest has been paid or, if no interest has been paid, from the date hereof.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
3. Method of Payment; Form. The Corporation will pay interest on the
Securities (except defaulted interest) to the persons who are registered Holders
of Securities at the close of business on the last day (whether or not such day
is a Business Day) of the month preceding the month in which an Interest Payment
Date (a "Regular Record Date") even though Securities are canceled after the
Regular Record Date and on or before the Interest Payment Date. Any such
interest not so punctually paid or duly provided for within the grace period set
forth in Section 5.01(1) and any interest lawfully payable on such defaulted
interest, will forthwith cease to be payable to the Holder on such Regular
Record Date and shall be payable to the person in whose name this Security is
registered at the close of business on a special Record Date for the payment of
such defaulted interest to be fixed by the Corporation, notice of which shall be
given to Holders not less than 10 days prior to such Special Record Date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Corporation will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Corporation or the Paying Agent may, at its
election, pay principal and interest by check payable in such money. It may mail
an interest check to a Holder's registered address.
Except as otherwise provided in the Indenture, the Securities will be
issued in global form only registered in the name of [CEDE & Co.]. The
Securities will not be issued in definitive form except as otherwise provided in
the Indenture, and ownership of the Securities shall be maintained in book entry
form by [DTC] for the account of participating organizations of [DTC].
4. Paying Agents and Registrar. [The Trustee (as defined herein) will
act as a Paying Agent and Registrar.] The Corporation may change any Paying
Agent or Registrar without notice to any Securityholder. The Corporation may act
in any such capacity.
634635.1
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<PAGE>
5. Indenture. The Corporation issued the Securities under an Indenture
dated as of [ ] (the "Indenture"), between the Corporation and [ ], as trustee
(the "Trustee"). The Securities were issued pursuant to the exchange of the 15%
Noncumulative Perpetual Preferred Stock, Series A, of the Corporation (the
"Series A Preferred Stock") pursuant to the terms thereof. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 as amended, and as in
effect from time to time (the "Trust Indenture Act"). The Securities are subject
to all such terms and Securityholders are referred to the Indenture and such Act
for a statement of such terms. The Securities are unsecured general obligations
of the Corporation limited in amount to the aggregate liquidation preference of
the Series A Preferred Stock exchanged therefor (a maximum of approximately $35
million). The indebtedness evidenced by this Security is unsecured by the assets
of the Corporation or any of its affiliates. This Security is not eligible as
collateral for any loan by the Corporation.
6. Subordination. The Securities are subordinated to Senior Debt on
liquidation of the Corporation, any event of default in respect of Senior Debt
and certain other events specified in the Indenture. "Senior Debt" means all
principal and interest on all claims against the Corporation, including, without
limitation, commercial paper, repurchase agreements, secured Indebtedness and
the Corporation's other obligations to its general and secured creditors,
whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed by the Corporation (and all renewals, extensions or refundings of
the liabilities arising out of such claims), provided, however, that "Senior
Debt" does not include the Securities, any Indebtedness (as defined in the
Indenture) Ranking on a Parity with the Securities (as defined in the
Indenture), any Indebtedness Ranking Junior to the Securities (as defined in the
Indenture) or any Indebtedness for money borrowed by the Corporation from any
Subsidiary or Affiliate of the Corporation. "Indebtedness" means, as to any
Person at any date (i) all indebtedness, obligations or other liabilities for
borrowed money, whether matured or unmatured, liquidated or unliquidated, direct
or contingent, joint or several, and whether now existing or hereafter created;
(ii) all indebtedness secured by any mortgage, lien, pledge, charge or
encumbrance upon Property owned by such Person; (iii) all indebtedness,
obligations or liabilities of others of the type described in the preceding
clauses (i) and (ii) which the Corporation has guaranteed or is in any other way
liable for; and (iv) all amendments, renewals, extensions or refundings of any
such indebtedness, obligation or liability. "Ranking on a Parity with the
Securities" means, with respect to any obligation of the Corporation, an
obligation that by express provisions in the instrument creating, evidencing or
governing such obligation (i) is specifically designated as Ranking on a Parity
with the Securities, (ii) ranks equally with and not prior to the Securities in
right of payment upon the happening of certain events specified in the Indenture
and (iii) is also made junior and subordinate in right of payment to other
obligations of the Corporation to the same extent as the Securities are made
junior and subordinate thereto by the provisions of the Indenture.
7. Denominations, Transfer, Exchange. The Securities are in registered
form without coupons in denominations of $1,000 (or such greater amount as may
be required by applicable
634635.1
A-5
<PAGE>
State or Federal law) and integral multiples of $1,000 in excess thereof. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes or other governmental charges and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
8. Redemption. The Corporation may redeem all of the Securities at any
time or some of them from time to time at the Redemption Prices (expressed in
$1000 of principal amount) set forth below plus accrued interest to the
Redemption Date, if redeemed during the 12-month period beginning July 1 of the
years indicated below:
Redemption Price
Per $1000 of Principal
Year Amount
- ---- ---------------------
2004.......................................... $1,100
2005.......................................... 1,090
2006.......................................... 1,080
2007.......................................... 1,070
2008.......................................... 1,060
2009.......................................... 1,050
2010.......................................... 1,040
2011.......................................... 1,030
2012.......................................... 1,020
2013.......................................... 1,010
2014.......................................... 1,000
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at his registered address. Securities may be redeemed in part but only in
multiples of $1,000 and only if the remaining principal amount of any Security
redeemed in part will not be less than $1,000. On and after the Redemption Date
interest ceases to accrue on Securities or portions of them called for
redemption.
634635.1
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<PAGE>
The securities are not subject to any sinking fund.
9. Persons Deemed Owners. The registered Holder of a Security may be
treated as its owner for all purposes.
10. Amendments and Waivers. The Indenture or the Securities may be
amended with the consent of the Holders of at least a majority in principal
amount of the then-outstanding Securities, and may be amended without the
consent of any Securityholder, to cure any ambiguity, defect or inconsistency,
to provide for assumption of the Corporation's obligations to Securityholder, to
make any change that does not adversely affect the rights of any Securityholder
or to take any action necessary to qualify the Indenture under the Trust
Indenture Act, provided that the approval of the holders of at least 66-2/3% of
the outstanding shares of Series A Preferred Stock shall be required in the
event that such change shall have a material adverse effect on the interests of
such holders.
11. Defaults and Remedies. An Event of Default is: default for 30 days
in payment of interest on the Securities; default in payment of principal or
premium on the Securities (including any sinking fund payments) when it becomes
due and payable at maturity or upon redemption, acceleration or otherwise;
failure by the Corporation for 30 days after notice to it to comply with any of
its other agreements or covenants in the Indenture or the Securities; default
under any instrument or obligations representing Indebtedness of the Corporation
or any Subsidiary (other than certain nonrecourse Indebtedness) if (i) the
effect of such default is to permit the acceleration of such Indebtedness, and
(ii) the aggregate principal amount of such indebtedness as to which any such
default or defaults shall have occurred exceeds $10 million; appointment of a
Custodian of the Corporation; certain events of bankruptcy or insolvency; or the
rendering of one or more judgments against the Corporation or any Subsidiary in
an aggregate amount exceeding $10 million, which judgments remain undischarged
for a period of 60 days after the right to appeal them has expired. Subject to
paragraph 17 of this Security, if an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
then-outstanding Securities may declare all the Securities to be due and payable
immediately. Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations described in the Indenture, Holders of a majority in
principal amount of the then-outstanding Securities may direct the Trustee in
its exercise of any trust or power.
12. Trustee Dealings with Corporation. The Trustee in its individual or
any other capacity, may make loans to, and perform services for the Corporation
or its Affiliates, and may otherwise deal with the Corporation or its
Affiliates, as if it were not Trustee.
13. No Recourse Against Others. The Securities and the obligations of
the Corporation under the Indenture are solely obligations of the Corporation
and no officer, director, employee or stockholder of the Corporation shall as
such be liable for any failure of the Corporation to pay amounts on the
Securities when due or perform any such obligation.
634635.1
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<PAGE>
14. Unclaimed Money. If money for the payment of principal of or
interest on any Security remains unclaimed for two years, the Trustee or its
Agents will pay the money back to the Corporation at the Corporation's request.
After that, Holders entitled to this money must look to the Corporation for
payment, unless a law governing abandoned property designates another person.
15. Discharge Upon Redemption or Maturity. Subject to the terms of the
Indenture, the Indenture will be discharged and canceled upon the payment of all
the Securities.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Certain Limitations on Securities. This Security is not secured by
the assets of the Corporation, or any of its Affiliates or Subsidiaries, and is
not eligible as collateral for any loan by the Corporation.
18. Definitions. Terms defined in the Indenture and not otherwise
defined in this Security are used in this Security with the meanings so defined.
19. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT
MIN ACT (= Uniform Gifts to Minors Act).
The Corporation will furnish to any Securityholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Requests may be made to: [River Distribution Sub, Inc.,
645 Fifth Avenue, 8th Floor, New York, New York 10022], Attention: Chief
Executive Officer.
634635.1
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: For valuable
consideration, the undersigned registered Holder or Holders of this Security
assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably constitute and appoint _________________ agent transfer this
Security on the books of the Corporation. The agent may substitute another act
for him.
- --------------------------------------------------------------------------------
Date: Your signature _____________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guaranteed
By _________________________________________
634635.1
A-9
EXHIBIT 10.1
CREDIT AGREEMENT
Dated as of June 28, 1996
among
RIVER BANK AMERICA and
the other Borrowers named herein,
Borrowers
and
MARINE MIDLAND BANK
Lender
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
I. DEFINITIONS....................................................................1
SECTION 1.01. Certain Defined Terms......................................1
SECTION 1.02. Accounting Terms..........................................18
II. THE LOANS....................................................................18
SECTION 2.01. Commitment................................................18
SECTION 2.02. Loans.....................................................18
SECTION 2.03. Notes; Repayment of Loans.................................19
SECTION 2.04. Interest on Loans.........................................19
SECTION 2.05. Alternate Rate of Interest................................20
SECTION 2.06. Payments and Computations.................................21
SECTION 2.07. Overdue Amounts...........................................21
SECTION 2.08. Prepayment of Loans.......................................21
SECTION 2.09. Extension of the Maturity Date............................22
SECTION 2.10. Change in Circumstances...................................23
SECTION 2.11. Indemnity.................................................25
SECTION 2.12. Taxes.....................................................25
III. COLLATERAL SECURITY.........................................................27
SECTION 3.01. In General................................................27
SECTION 3.02. Filing and Recording......................................27
IV. REPRESENTATIONS AND WARRANTIES...............................................28
SECTION 4.01. General...................................................28
SECTION 4.02. Controlled Properties.....................................34
SECTION 4.03. Pledged Loans.............................................39
SECTION 4.04. Visutton Co-operatives....................................40
SECTION 4.05. Co-operatives and Condominiums Generally..................42
SECTION 4.06. Secondary Collateral......................................44
V. CONDITIONS OF BORROWING.......................................................44
SECTION 5.01. Contemporaneous Transactions..............................44
SECTION 5.02. Initial Borrowing.........................................44
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Page
SECTION 5.03. Alden Park and Alta Murrieta Loan
Disbursements...................................................48
VI. AFFIRMATIVE COVENANTS........................................................50
SECTION 6.01. Legal Existence...........................................51
SECTION 6.02. Businesses and Properties.................................51
SECTION 6.03. Insurance.................................................51
SECTION 6.04. Taxes.....................................................55
SECTION 6.05. Financial Statements, Reports, etc........................56
SECTION 6.06. Refinancings..............................................58
SECTION 6.07. ERISA.....................................................58
SECTION 6.08. Maintaining Records; Access to Properties and
Inspections; Right to Audit.....................................60
SECTION 6.09. Use of Proceeds...........................................60
SECTION 6.10. Environmental Laws........................................60
SECTION 6.11. Pay Obligations to Lender and Perform Other
Covenants.......................................................63
SECTION 6.12. Termination of Property Managers.......................63
SECTION 6.13. Co-operatives and Condominiums.........................63
SECTION 6.14. Further Assurances........................................64
VII. NEGATIVE COVENANTS..........................................................64
SECTION 7.01. Liens.....................................................64
SECTION 7.02. Indebtedness..............................................65
SECTION 7.03. Sales of Assets...........................................66
SECTION 7.04. Consolidations and Mergers................................67
SECTION 7.05. Investments...............................................67
SECTION 7.06. Sales of Receivables......................................68
SECTION 7.07. Use of Proceeds...........................................68
SECTION 7.08. ERISA.....................................................68
SECTION 7.09. Accounting Changes........................................69
SECTION 7.10. Prepayment of Indebtedness; Dividends.....................69
SECTION 7.11. Transactions with Affiliates..............................69
SECTION 7.12. Modification of Documents.................................69
SECTION 7.13. Property Management.......................................69
VIII. EVENTS OF DEFAULT..........................................................70
IX-A FHLB LOAN.............................................................74
SECTION 9A.01. Conflicts................................................74
SECTION 9A.02. FHLB Representations.....................................74
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Page
SECTION 9A.03. FHLB Covenants...........................................75
SECTION 9A.04. Mandatory Prepayment.....................................75
IX. MISCELLANEOUS................................................................76
SECTION 9.01. Notices...................................................76
SECTION 9.02. Survival of Agreement.....................................77
SECTION 9.03. Successors and Assigns; Participations....................77
SECTION 9.04. Expenses; Indemnity.......................................78
SECTION 9.05. Applicable Law............................................79
SECTION 9.06. Right of Setoff...........................................80
SECTION 9.07. Payments on Business Days.................................80
SECTION 9.08. Waivers; Amendments.......................................80
SECTION 9.09. Severability..............................................81
SECTION 9.10. Entire Agreement; Waiver of Jury Trial, etc...............81
SECTION 9.11. Submission to Jurisdiction................................82
SECTION 9.12. Counterparts..........................................82
SECTION 9.13. Headings..................................................83
SECTION 9.14. Exercise of Cure Rights...................................83
X. CROSS-GUARANTEES..............................................................83
iii
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SCHEDULES
1.1 Collateral Properties, Owned Properties,
Controlled Properties, Pledged Loans
1.2 Secondary Collateral
2.01 Commitments
2.02 Initial Advances
2.04 Example of Pricing Option Application
4.01(f) Litigation
4.01(o) Subsidiaries
4.02(b) Exceptions to Legal Compliance
4.02(c) Exceptions to Environmental Compliance
4.02(f) Rent Roll
4.02(g) Management and Leasing Agreements
4.03(b) Pledged Loan Documents
4.03(c) Defaults under Pledged Loan Documents
4.03(d) Fulton Rent Rolls
4.04(a) Visutton Offering Plans
4.04(c) Visutton Unsold Units
4.04(h) Bonds, Security Deposit, Letters of Credit, Etc.
4.05(a) York/Elizabeth Offering Plans
4.05(c) York/Elizabeth Unsold Units
7.03 Release Price Schedules
9A.02 Letter to FHLB
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<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of June 28, 1996, among RIVER BANK
AMERICA, a New York banking corporation, 260 WEST SUNRISE CORP., a New York
corporation, KIRKHAM STOWE, INC., a California corporation, HESTER PROPERTY
CORP., a New York corporation, ACACIAS-MURRIETA, INC., a California corporation,
OLD CROW CANYON OFFICE, INC., a California corporation, and R.R. IRVINGTON
ASSOCIATES, L.P., a New York limited partnership, each having offices c/o RB
Management Company, 645 Fifth Avenue, New York, New York 10022 (each
individually, a "Borrower" and, collectively, "Borrowers"); and MARINE MIDLAND
BANK, a New York banking corporation having an office at One MMB Center,
Buffalo, New York 14203 ("Lender").
W I T N E S S E T H :
WHEREAS, Borrowers have applied to Lender for loans up to an
aggregate principal amount of $99,060,000.
WHEREAS, Lender is willing to extend such loans to Borrowers
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and for good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
I. DEFINITIONS
SECTION 1.01. Certain Defined Terms. For purposes
hereof, the following terms shall have the meanings specified
below:
"Adjusted LIBOR" shall mean, with respect to any Interest
Period for any Loan, a rate per annum (rounded to the nearest 1/10 of 1%)
determined by Lender to be equal to sum of (1) the quotient of (a) LIBOR for
such Interest Period, divided
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<PAGE>
by (b) one minus the LIBOR Reserve Requirement; plus (2) the
Interest Margin.
"Adjusted Prime Rate" shall mean a rate per annum equal to the
Prime Rate plus the Interest Margin.
"Affiliate" shall mean, with respect to any person, any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For the purposes of this definition, the term
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"AJM Loan" shall mean the Loan to River Bank in the maximum
principal amount of $3,175,000 secured by, among other things, the Pledged Loan
relating to the Anita Terrace Apartments, James Monroe Apartments and the Van
Buren Apartments.
"Alden Park Loan" shall mean the Loan to River Bank in the
maximum principal amount of $42,750,000 secured by, among other things, the
Pledged Loan relating to the Alden Park Property.
"Alden Park Property" shall mean the real property owned by
Eastview and commonly known as the Alden Park Apartments, 5500 Wissahickon
Avenue, Philadelphia, Pennsylvania.
"Applicable Laws" shall have the meaning assigned to such term
in Section 4.02(b) hereof.
"Alta Murrieta Loan" shall mean the Loan to Acacias-
Murrieta, Inc. in the maximum principal amount of $7,500,000
secured by, among other things, the Mortgages encumbering the
Alta Murrieta Property.
"Alta Murrieta Property" shall mean the real property
owned by Acacias-Murrieta, Inc. at Alta Murrieta and Avenida
Acacias Avenues, Hot Springs, California.
2
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<PAGE>
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrowers" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Business Day" shall mean any day, other than a Saturday,
Sunday or legal holiday in the State of New York, on which banks are open for
substantially all their banking business in New York City except that, if any
determination of a "Business Day" shall relate to an Adjusted LIBOR Loan, the
term "Business Day" shall in addition exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.
"Capital Proceeds" shall mean the cash proceeds received by,
or paid to or for the benefit of, a Loan Party or Subsidiary in connection with
a Capital Transaction after payment of all reasonable costs and expenses which
are approved by Lender and are payable in connection with such Capital
Transaction, including (a) all approved brokers' commissions, loan fees, loan
payments, repayments of indebtedness, other closing costs, (b) the cost of any
alteration, improvement, restoration, or repair necessitated by or incurred in
connection with such Capital Transaction and (c) the funding of any reserves
required to be funded pursuant to applicable Pledged Loan Documents or a
Collateral Property Lockbox Agreement. Lender may pre-approve certain expenses
in connection with asset sales by listing same on the Release Price Schedule for
the subject asset, if any.
"Capital Transaction" shall mean a transaction pursuant to
which (a) assets of a Loan Party or Subsidiary are sold, (b) any Loan Party or
Subsidiary incurs, creates or assumes Indebtedness, (c) any treasury stock of
River Bank is sold or any stock of River Bank is issued, (d) insurance proceeds
are recovered by a Loan Party or Subsidiary in respect of any damage or
destruction, (e) amounts are paid or payable to a Loan Party or Subsidiary in
connection with any taking by condemnation or eminent domain or other similar
proceeding; or (f) any other transaction which, in accordance with GAAP, is
considered capital in nature.
3
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<PAGE>
"Cash Available for Principal Reduction" shall have the
meaning assigned to such term in the Master Account Agreement.
"Certificate of Occupancy" shall have the meaning assigned to
such term in Section 4.02(b) hereof.
"Closing Date" shall mean the date of the first borrowing
under this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean all collateral and security as
described in the Security Documents.
"Collateral Assignment of Loan" shall mean a pledge and
security agreement, dated as of the date hereof, and granted to Lender by River
Bank, together with such other documents as Lender may require in order to grant
to Lender a perfected security interest in a Pledged Loan, as amended, modified
or supplemented from time to time. Each Collateral Assignment of Loan secures
the obligations of River Bank under its Notes and this Agreement, and requires
that River Bank irrevocably direct its Ultimate Borrower to pay all amounts due
to River Bank directly into the applicable Collateral Property Lockbox Account.
"Collateral Properties" shall mean, collectively, the
properties listed on Schedule 1.1 hereto.
"Collateral Property Lockbox Accounts" shall mean the blocked
account for each Collateral Property established and maintained pursuant to the
Collateral Property Lockbox Agreement for such Collateral Property.
"Collateral Property Lockbox Agreement" shall mean a
cash collateral account and security agreement dated as of the
date hereof and granted to Lender by a Borrower, as amended,
modified or supplemented from time to time. Each Collateral
Property Lockbox Agreement secures the applicable Borrower's
obligations under its Note and this Agreement.
4
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<PAGE>
"Commercial Space" shall mean 103-27/39 Queens Boulevard,
Queens, New York.
"Commitment" shall mean the Commitment of Lender as set forth
in Section 2.01, as adjusted from time to time pursuant to this Agreement.
"Condominiums" shall mean, collectively, the Elizabeth
Condo and the York Condo.
"Controlled Owners" shall mean, collectively, the Owner
Borrowers, Eastview and Royal York Associates, L.P., a New York limited
partnership.
"Controlled Properties" shall mean, collectively, the
properties listed as "controlled" on Schedule 1.1 hereto.
"Co-op and Condo Laws" shall mean all governmental laws, rules
and regulations pertaining, directly or indirectly, to the operation,
maintenance and sale of co-operatives and condominium units, including without
limitation, any filings with or pursuant to the rules, regulations or
requirements of the Department of Law, Bureau of Real Estate Finance, State of
New York in effect on the date hereof.
"Co-operative Corporations" shall mean Anita Terrace
Apartment, James Monroe Apartments, Van Buren Apartments and the residential
unit of the York Condo.
"Crow Canyon Property" shall mean the real property
owned by Old Crow Canyon Office, Inc. and commonly known as 2500
Old Crow Canyon Road, San Ramon, California.
"Default" shall mean any condition, act or event which, with
notice or lapse of time or both, would constitute an Event of Default.
"Default Rate" shall mean the lesser of (a) a rate per annum
equal to four percent (4%) in excess of the Adjusted Prime Rate, and (b) the
maximum rate permitted by law.
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"Deposit" shall mean all deposits and downpayments, together
with interest thereon, made by a purchaser in connection with a Purchase
Agreement or other document delivered in connection therewith, including without
limitation, any payment for special work or items.
"dollars" or the symbol "$" shall mean dollars in lawful
currency of the United States of America.
"Eastview" shall mean Eastview Realty Associates, L.P., a New
Jersey limited partnership.
"Elizabeth Condo" shall mean The Royal Elizabeth Condominium,
a condominium located at 80 Elizabeth Street, New York, New York.
"Environmental Claim" shall mean any written notice received
by a Borrower of violation, claim, demand, abatement or other order by any
governmental authority or any person for bodily injury (including sickness,
disease or death), tangible or intangible property damage, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or deed or use restrictions, resulting from
or based upon (i) the existence, or the continuation of the existence, of a
Release (including, without limitation, sudden or non-sudden, accidental or
nonaccidental Releases), of, or exposure to, any Hazardous Material at, in, by
or from any of the Controlled Properties, (ii) the transportation, storage,
treatment or disposal of Hazardous Materials in connection with the operation of
any of the Controlled Properties (other than Routine Uses in compliance with
Environmental Laws) or (iii) the violation, or alleged violation by Borrowers or
any of the Subsidiaries, of any statutes, ordinances, orders, rules,
regulations, Permits or licenses of or from any governmental authority, agency
or court relating to environmental matters connected with any of the Controlled
Properties, under any applicable Environmental Law.
"Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation, and Liability Act (42
U.S.C. ss. 9601 et seq.), the Hazardous Material Transportation Act
(49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
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Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Oil
Pollution Act of 1990 (33 U.S.C. ss. 2701 et. seq.), the Safe
Drinking Water Act (42 U.S.C. ss. 300f, et seq.), the Clean Air Act
(42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), as
such laws have been and hereafter may be amended or supplemented,
and any related or analogous present or future Federal, state or
local, statutes, rules, regulations, ordinances, licenses,
permits and interpretations and orders of regulatory and
administrative bodies.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder, as in
effect from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) which together with any of Borrowers or any subsidiary of any
thereof would be treated as a single employer under the provisions of Title I or
Title IV of ERISA.
"Events of Default" shall have the meaning assigned to such
term in Article VIII hereof.
"FHLB" shall mean the Federal Home Loan Bank of New
York.
"FHLB Loan" shall mean the Loan to River Bank in the principal
amount of $7,200,000.
"FHLB Stock" shall mean all capital stock in FHLB held by
River Bank.
"FHLB Stock Certificate" shall mean the certificate(s)
evidencing the FHLB Stock.
"First Extension Period" shall have the meaning assigned to
such term in Section 2.09 hereof.
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"First Mortgage" shall mean a first mortgage and/or deed of
trust, dated as of the date hereof, and granted to or for the benefit of Lender
by an Owner Borrower, as amended, modified or supplemented from time to time.
Each First Mortgage granted by an Owner Borrower secures such Owner Borrower's
Note.
"Fulton Loan" shall mean the Loan to River Bank in the maximum
principal amount of $7,650,000 secured by, among other things, the Pledged Loan
relating to the Fulton Property.
"Fulton Property" shall mean the real property owned by
Washington Group LLC and commonly known as 39 Main Street, Brooklyn, New York.
"GAAP" shall have the meaning assigned to such term in Section
1.02 hereof.
"General Security Agreement" shall mean the Enhancement
Collateral Pledge and Security Agreement with respect to the Secondary
Collateral, dated as of the date hereof, and granted to Lender by River Bank and
various Subsidiaries, as amended, modified or supplemented from time to time.
"Grantors" shall mean, collectively, the owners of the
Secondary Collateral.
"Guarantee" shall mean any obligation, contingent or
otherwise, of any person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or obligation of any other person in any manner,
whether directly or indirectly, and shall include, without limitation, any
obligation of such person, direct or indirect, to (i) purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Indebtedness or obligation, (ii) purchase
property, securities or services for the purpose of assuring the owner of such
Indebtedness or obligation of the payment of such Indebtedness or obligation, or
(iii) maintain working capital, equity capital, available cash or other
financial condition of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or obligation.
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"Hartz Irvington Property" shall mean the real property
owned by RR Irvington Associates, L.P. and commonly known as 100
Cyrus Field Road, Irvington, New York.
"Hazardous Material" shall mean any pollutant, contaminant,
chemical, or industrial or hazardous, toxic or dangerous waste, substance or
material, defined or regulated as such in (or for purposes of) any Environmental
Law and any other toxic, reactive, or flammable chemicals, including (without
limitation) any asbestos, any petroleum (including crude oil or any fraction),
any radioactive substance and any polychlorinated biphenyls; provided, in the
event that any Environmental Law is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment.
"HPC" shall mean Hester Property Corp.
"Impositions" shall mean all real estate taxes, personal
property taxes, betterments, assessments (general and special), imports, levies,
water, utility and sewage charges, any and all income, franchise, withholding,
profits and gross receipts taxes, all other taxes and public charges, imposed
upon or assessed against a Controlled Owner or a Controlled Property or upon the
revenues, rents, issues, income and profits of use or possession thereof, any
stamp or other taxes which may be required to be paid with respect to any of the
Loan Documents, any of which might, if unpaid, result in a Lien on the
Controlled Properties, regardless to whom paid or assessed, any assessment,
license fee, license tax, business license fee or tax, commercial rental tax,
levy, charge, penalty, tax or similar imposition, imposed by any governmental
authority having the direct power to tax, or any school, architectural,
lighting, drainage or other improvement or special assessment district thereof,
against any legal or equitable interest in the Controlled Properties.
"Indebtedness" shall mean, with respect to any person, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments or upon which interest charges
are customarily paid, (c) all obligations of such person for the
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deferred purchase price of property or services, except current accounts payable
arising in the ordinary course of business and not overdue beyond such period as
is commercially reasonable for such person's business, (d) all obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real and/or personal property which
obligation is required to be classified and accounted for as a capital lease on
a balance sheet prepared in accordance with GAAP, (e) all payment obligations of
such person with respect to interest rate or currency protection agreements, (f)
all obligations of such person as an account party under any letter of credit or
in respect of bankers' acceptances, (g) all obligations of any third party
secured by property or assets of such person (regardless of whether or not such
person is liable for repayment of such obligations), (h) all Guarantees of such
person and (i) the redemption price of all redeemable preferred stock of such
person (other than redeemable preferred stock of River bank existing on the date
hereof).
"Indemnitees" shall have the meaning assigned to such
term in Section 9.04(b) hereof.
"Interest Margin" shall mean, with respect to any Loan, the
amounts set forth below for the periods indicated:
LIBOR Prime Rate
Period Interest Margin Interest Margin
From the Closing Date through
December 31, 1996 + 1.75% - 0.50%
January 1, 1997 through
June 30, 1997 + 2.00% - 0.25%
July 1, 1997 through
December 31, 1997 + 2.25% 0%
January 1, 1998 through
June 30, 1998 + 2.50% + 0.25%
July 1, 1998 through
June 30, 1999 + 2.75% + 0.50%
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First Extension Period + 3.00% + 0.75%
Second Extension Period + 3.25% + 1.00%
"Interest Payment Date" shall mean the first Business Day of
each calendar month, commencing August 1, 1996.
"Interest Period" shall have the meaning assigned to such term
in Section 2.04(c).
"Leases" shall have the meaning assigned to such term in
Section 4.02(f) hereof.
"Lender" shall have the meaning assigned to such term in the
preamble to this Agreement.
"LIBOR" shall mean the rate of interest that Lender, on the
first day of the applicable Interest Period, pays at its London office, on
Eurodollar deposits from leading banks in London interbank market in principal
amounts of $1,000,000 or more.
"LIBOR Reserve Requirement" shall mean the daily average of
the stated maximum rate (expressed as a decimal) at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be maintained
by Lender, if any, during such time period under Regulation D against
"Eurocurrency Liabilities" (as such term is used in Regulation D), but without
benefit of or credit for proration, exemptions or offsets that might otherwise
be available to Lender from time to time under Regulation D. Without limiting
the affect of the foregoing, the LIBOR Reserve Requirement shall reflect any
other reserves required to be maintained by Lender against (i) any category of
liabilities that includes deposits by reference to which Adjusted LIBOR is to be
determined or (ii) any category of extension of credit or other assets that
include loans where interest is determined at LIBOR.
"Lien" shall mean, with respect to any asset, (i) any
mortgage, lien, pledge, encumbrance, charge or security interest in or on such
asset, (ii) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or other
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title retention agreement relating to such asset, (iii) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities or (iv) any other right of or arrangement with any
creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of the owner thereof.
"Loan" shall mean a Loan made pursuant to Section 2.01
hereof. "Loans" shall mean, collectively, all the Loans made
pursuant to Section 2.01 hereof.
"Loan Documents" shall mean this Agreement, each Security
Document, each Guarantee executed and delivered at any time with respect to the
Obligations, the Notes and each other document, instrument, or agreement now or
hereafter delivered to Lender in connection herewith or therewith.
"Loan Parties" shall mean, collectively, Borrowers, RB Alden
Corp., the Grantors and any other Subsidiary that is a party to a Loan Document.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Master Account" shall have the meaning assigned to such term
in the Master Account Agreement.
"Master Account Agreement" shall mean the master cash
collateral agreement, dated as of the date hereof, among Borrowers and Lender,
as amended, modified or supplemented from time to time.
"Material Adverse Effect" shall mean a material adverse effect
on (i) the business, assets, prospects, operations or financial or other
condition of any Borrower, (ii) the ability of any Borrower to perform or pay
the Obligations in accordance with the terms hereof or of any other Loan
Document, (iii) the rights of, or benefits available to, Lender under any Loan
Document or (iv) Lender's Lien on any material portion of the Collateral or the
priority of such Lien.
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"Maturity Date" shall mean June 30, 1999, subject to extension
as provided in Section 2.09.
"Mortgages" shall mean, collectively, the First
Mortgages and the Second Mortgages.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
"New Alden Park Building Loan Agreement" shall mean
Building Loan Agreement between Eastview and River Bank of even
date herewith.
"Notes" shall mean the Notes of Borrowers, executed and
delivered as provided in Section 2.03, as amended, modified or supplemented from
time to time.
"Obligations" shall mean all obligations, liabilities and
Indebtedness of Borrowers to Lender, whether now existing or hereafter created,
direct or indirect, due or not, whether created directly or acquired by
assignment, participation or otherwise, including, without limitation, all
obligations, liabilities and Indebtedness of the Loan Parties with respect to
the Security Documents and other Loan Documents, the principal of and interest
on the Loans and the payment or performance of all other obligations,
liabilities, and Indebtedness of Borrowers to Lender hereunder or under any one
or more of the other Loan Documents, including, without limitation, all fees,
costs, expenses and indemnity obligations hereunder and thereunder.
"Offering Plans" shall mean the offering plans for the
Condominiums and the Co-operative Corporations, as amended.
"Other Taxes" shall have the meaning assigned to such term in
Section 2.12(b) hereof.
"Owned Properties" shall mean, collectively, the properties
listed as "owned" on Schedule 1.1 hereto.
"Owner Borrowers" shall mean, collectively, the Borrowers
other than River Bank.
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"Partnership Pledge" shall mean a partnership pledge and
security agreement, dated as of the date hereof, and granted to Lender by RB
Alden Corp. with respect to its general partnership interest in Eastview, as
amended, modified or supplemented from time to time. The Partnership Pledge
secures Borrowers' obligations under this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Pension Plan" shall mean any Plan which is subject to the
provisions of Title IV of ERISA.
"Permits" shall have the meaning assigned to such term in
Section 4.18 hereof.
"person" shall mean any natural person, corporation, business
trust, association, company, joint venture, partnership, limited liability
company or government or any agency or political subdivision thereof.
"Plan" shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA and which is maintained (in whole or in part) for
employees of Borrowers or any ERISA Affiliate.
"Pledged Loans" shall mean, collectively, the loans secured by
the Collateral Properties, which Pledged Loans are pledged to Lender pursuant to
the Collateral Assignments of Loan and are more particularly described in
Schedule 1.1 hereto.
"Pledged Loan Documents" shall mean, collectively, the Pledged
Notes and the other documents evidencing or securing the Pledged Loans, which
Pledged Loan Documents are pledged to Lender pursuant to the Collateral
Assignments of Loan and are listed on Schedule 4.03(b) annexed hereto.
"Prime Rate" shall mean the rate of interest publicly
announced by Lender from time to time as its prime rate and being a base rate
for calculating interest on certain loans. The Prime Rate shall mean such rate
as Lender announces periodically as its
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prime rate and may not necessarily be the lowest rate charged by
Lender.
"Purchase Agreement" shall mean that certain Purchase
of Assets and Liability Assumption Agreement between River Bank and Lender,
dated as of December 17, 1995.
"Regulations D, G, T, U and X" shall mean Regulations D, G, T,
U and X, respectively, of the Board, as the same are from time to time in
effect, and all official rulings and interpretations thereunder or thereof.
"Release" shall mean any releasing, spilling, leaking,
seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping, in each case as defined in any Environmental
Laws, and shall include any "Threatened Release," as defined in any
Environmental Laws.
"Release Price Schedule" shall have the meaning assigned to
such term in Section 7.03 hereof.
"Remedial Work" shall mean any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature with respect to any Controlled Property, including, without limitation,
with respect to Hazardous Materials and the Release thereof.
"Rent Rolls" shall have the meaning assigned to such term in
Section 4.02(f) hereof.
"Reportable Event" shall mean a Reportable Event as defined in
Section 4043(c) of ERISA.
"River Bank" shall mean River Bank America, a banking
corporation organized and existing under the laws of the State of New York,
together with its successors and assigns.
"Routine Use" shall mean the use of Hazardous Materials at a
Collateral Property in connection with the routine operation thereof, including
cleaning and maintenance fluids, office supplies and other similar items, in
each case used in accordance with, and so as not to cause a violation of,
Environmental Laws,
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and in quantities and in a manner which are consistent with such routine use and
do not violate Environmental Laws.
"Royal York Loan" shall mean the Loan to River Bank in the
maximum principal amount of $11,400,000 secured by, among other things, the
Pledged Loan relating to the York Condo.
"RYP" shall mean Royal York Properties, Inc.
"Scenic View Property" shall mean the real property
owned by Kirkham Stowe, Inc. at the corner of Stowe & Kirkham in
Poway, California.
"Second Extension Period" shall have the meaning assigned to
such term in Section 2.09 hereof.
"Second Mortgage" shall mean a second mortgage and/or deed of
trust, dated as of the date hereof, and granted to or for the benefit of Lender
by an Owner Borrower, as amended, modified or supplemented from time to time.
Each Second Mortgage granted by an Owner Borrower secures such Owner Borrower's
obligations under this Agreement (other than its obligations under its Note).
"Secondary Collateral" shall mean the Collateral covered by
the General Security Agreement including, without limitation, the Collateral
described in Schedule 1.2 annexed hereto.
"Security Documents" shall mean the Mortgages, the Collateral
Assignments of Loan, the Collateral Property Lockbox Agreements, the General
Security Agreement, the Partnership Pledge, the Stock Pledge, the Master Account
Agreement and each other agreement now existing or hereafter created providing
security for the payment or performance of any Obligations.
"Senior Executive" shall mean any vice president or president,
chief financial officer, controller or other senior executive of River Bank or
RB Management Company, in their capacity as an officer and not as an individual.
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"Similarly Situated Borrowers" shall mean other borrowers of
Lender with loans from Lender having LIBOR-based pricing options.
"Stock Pledge" shall mean a stock pledge and security
agreement, dated as of the date hereof, and granted to Lender by Rivercity
Realty Corp. with respect to its stock in Royal York Properties, Inc., as
amended, modified or supplemented from time to time. The Stock Pledge secures
Borrowers' obligations under this Agreement.
"Subsidiaries" shall mean, collectively, the direct and
indirect subsidiaries of River Bank that own any material assets, which
subsidiaries are listed in Schedule 4.01(o) annexed hereto.
"Sunrise Property" shall mean the ground leasehold
owned by 260 West Sunrise Corp. and commonly known as 260 West
Sunrise Highway, Valley Stream, New York.
"Taxes" shall have the meaning assigned to such term in
Section 2.13(a) hereof.
"Transactions" shall mean, collectively (a) the transactions
contemplated by this Agreement, and (b) the transactions contemplated by the
Purchase Agreement.
"Ultimate Borrower" shall mean a borrower under a
Pledged Loan.
"Unsold Spaces" shall mean the unsold parking spaces in the
Co-operative Corporations or the Condominiums owned by an Owner Borrower or
pledged to a Borrower in connection with a Pledge Loan.
"Work" shall have the meaning assigned to such term in Section
5.03 hereof.
"Unsold Units" shall mean the unsold units and unsold
apartments in the Co-operative Corporations or Condominiums listed on Schedule
4.04(c) owned by an Owner Borrower or pledged to a Borrower in connection with a
Pledged Loan.
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"York Associates" shall mean Royal York Associates,
L.P.
"York Condo" shall mean The Royal York Condominium, a
condominium located at 420 East 64th Street and 425 East 63rd Street, New York,
New York.
"York Co-op" shall mean the residential unit (consisting of
86,865 shares allocated to 496 apartments) of the York Condo.
SECTION 1.02. Accounting Terms. Unless otherwise expressly
provided herein, each accounting term used herein shall have the meaning given
it under generally accepted accounting principles in effect from time to time in
the United States applied on a basis consistent with those used in preparing the
financial statements referred to in Section 6.05 hereof ("GAAP"); provided,
however, that each reference in Article VII hereof, or in the definition of any
term used in Article VII hereof, to GAAP shall mean GAAP as in effect on the
date hereof.
II. THE LOANS
SECTION 2.01. Commitment. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, Lender
agrees to make a Loan to each Borrower in the maximum principal amount for each
Borrower set forth on Schedule 2.01 annexed hereto.
SECTION 2.02. Loans. The Loans shall be made by Lender on the
Closing Date against delivery of Notes, payable to the order of Lender, as
referred to in Section 2.03. The principal amount of each Loan to be advanced on
the Closing Date is set forth on Schedule 2.02 annexed hereto. The portion of
the Alden Park Loan not advanced on the Closing Date shall be disbursed subject
to and in accordance with Section 5.03. The portion of the Alta Murrieta Loan
not advanced on the Closing Date shall be disbursed subject to and in accordance
with Section 5.03.
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SECTION 2.03. Notes; Repayment of Loans. (a) Each
Loan shall be evidenced by a single Note in a principal amount
equal to the Commitment for such Loan, duly executed on behalf of
the applicable Borrower, dated the Closing Date.
(b) To the extent not previously paid, the principal balance
of, and all accrued and unpaid interest on, the Loans, and all other sums
payable under the Loan Documents, shall become due and payable on the Maturity
Date. Each Note shall bear interest from its date on the outstanding principal
balance thereof, as provided in Section 2.04.
SECTION 2.04. Interest on Loans. (a) Borrowers may
from time to time elect to have either of the following pricing
options apply to the outstanding principal balance of the Loans: (i) Adjusted
LIBOR (if available to Lender) or (ii) the Adjusted Prime Rate; provided,
however, that during the continuance of an Event of Default, Borrowers shall not
have the right to select the Adjusted LIBOR pricing option. If at any time more
than one pricing option is in effect, then, notwithstanding any contrary request
or direction by Borrower, each pricing option shall be allocated among all Loans
on a pro rata basis, so that the principal balance of any particular Loan to
which such pricing option applies shall bear the same proportion to the entire
outstanding principal balance of that Loan as the principal balance of the Loans
(in the aggregate) to which such pricing option applies bears to the outstanding
principal balance of the Loans (in the aggregate). An example of such
application of pricing options to the Loans is set forth in Schedule 2.04
annexed hereto.
(b) Borrowers shall elect to have one of the foregoing pricing
options apply to the outstanding principal balance of the Loans by providing
written notice of such election to Lender. In the case of an election to have
all or any portion of the Loans bear interest at Adjusted LIBOR, Borrowers shall
notify Lender (by telephone followed by prompt written confirmation of such
election), such notice to be received by Lender by 11:00 a.m. (Eastern time) not
less than two (2) Business Days prior to the effective date of such rate in the
principal amount of the Loan.
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(c) If Borrowers elect to have all or any portion of the Loans
bear interest at Adjusted LIBOR, Borrowers shall also select an interest period
(an "Interest Period") of 30, 60, 90, 120 (to the extent available), 180 or 360
(to the extent available) days and, during that period, any prepayment of the
affected portion of the Loans shall be made subject to the provisions of Section
2.11. At the expiration of such Interest Period, Borrowers may, by notice to
Lender (by telephone followed by prompt written confirmation), such notice to be
received by Lender by 11:00 a.m. (Eastern time) not less than two (2) Business
Days prior to the expiration of such Interest Period, select either Adjusted
LIBOR for an additional time period or a rate equal to the Adjusted Prime Rate
from time to time. In no event shall any Interest Period selected for the
application of Adjusted LIBOR extend beyond the Maturity Date. If Borrowers fail
to make timely selection (or continuation) of a pricing option or Interest
Period with respect to all or any portion of the Loans, then, subject to Section
2.05 and the other provisions of this Section 2.04, Borrower shall be deemed to
have selected that such portion bear interest at Adjusted LIBOR for a 30-day
Interest Period.
(d) No more than three pricing options for the Loans
(in the aggregate) shall be available at any one time.
(e) Whenever the Adjusted Prime Rate option is in effect, the
Interest Rate payable by the undersigned shall change simultaneously with each
change in the Prime Rate.
(f) Following an Event of Default, the outstanding principal
balance of each Loan shall bear interest at the Default Rate.
SECTION 2.05. Alternate Rate of Interest. If any change in any
law or regulation or in the interpretation thereof by any governmental authority
charged with the administration or interpretation thereof shall make it unlawful
for Lender to make or maintain any Loan at Adjusted LIBOR, or if Adjusted LIBOR
is not available to Lender when selected by Borrowers, then, by written notice
to Borrowers, Lender may require that all outstanding Loans bear interest at the
Adjusted Prime Rate, in which event all Loans shall bear interest at the
Adjusted Prime
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Rate until further notice to Borrowers; provided, however, that such requirement
may not be imposed against Borrowers by Lender in a discriminatory manner
vis-a-vis other Similarly Situated Borrowers. Each determination by Lender made
hereunder shall be conclusive absent manifest error.
SECTION 2.06. Payments and Computations. Interest on each Loan
shall be payable in arrears on the first Business Day of each calendar month and
on the Maturity Date. Each payment hereunder and under any instrument delivered
hereunder (other then payments made by application of amounts on deposit in the
Master Account or any Collateral Property Lockbox Account) shall be made not
later than 2:00 p.m. (New York City time) for credit on the day when due in
lawful money of the United States to Lender at its offices at One MMB Plaza,
Buffalo, New York 14203 in immediately available funds. All rates of interest
shall be computed on the basis of a 360-day year, applied to the actual number
of days elapsed.
SECTION 2.07. Overdue Amounts. (a) If Borrowers shall default
in the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder or under any other Loan Document, by acceleration or
otherwise, Borrowers shall on demand from time to time pay interest, to the
extent permitted by law, on all Obligations outstanding up to the date of actual
payment of such defaulted amount (after as well as before judgment) at the
Default Rate.
(b) If any payment to be made by Borrowers under the Notes or
any other Loan Document is not made within ten (10) days after written notice
from Lender, Borrowers shall pay to Lender a late charge equal to four percent
(4%) of such late payment; provided, however, that such late payment charge
shall not apply to (i) payments of interest where there are sufficient funds
available to Lender pursuant to Section 4(b) of the Master Account Agreement to
pay same when due or (ii) the principal repayment required on the Maturity Date.
SECTION 2.08. Prepayment of Loans. (a) The Loans may
be prepaid in full or part at any time without advance written
notice, penalty or premium except as otherwise provided in
Section 2.11.
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(b) Subject to the proviso set forth in Section 2.08(d), on
the first Business Day of each calendar month (or earlier if Borrowers so
elect), Borrowers shall make a mandatory prepayment of the Loans in an amount
equal to 100% of the Cash Available for Principal Reduction in the Master
Account.
(c) In instances of insured casualty or condemnation,
Borrowers shall make a mandatory prepayment of the Loans to the extent required
by the Security Documents.
(d) Notwithstanding any contrary direction or request by
Borrowers, prepayments shall be applied to all of the Loans on a pro rata basis
and otherwise in such order and manner as Lender may determine in its sole
discretion and, in determining such order and manner of application, Lender
shall have no obligation to minimize Borrowers' liability under Section 2.11;
provided, however, that so long as no Default or Event of Default is continuing,
(i) prepayments shall first be applied to portions of the Loans to which the
Adjusted Prime pricing option applies, and then to portions for which the
Interest Period is expiring, and (ii) to the extent Lender would apply any such
prepayment to Loans bearing interest at Adjusted LIBOR with respect to which the
relevant Interest Periods have not expired, Lender shall, at Borrower's request,
defer such prepayment until the expiration of such Interest Period(s) (or until
the occurrence of a Default or Event of Default, whichever first occurs) and,
pending such prepayment, the amounts to be prepaid shall be held in the Master
Account.
(e) Amounts prepaid may not be reborrowed.
SECTION 2.09. Extension of the Maturity Date. (a) Not later
than April 30, 1999, Borrowers may notify Lender in writing that Borrowers
desire to extend the Maturity Date for a one year period (the "First Extension
Period") to June 30, 2000. In such event the Maturity Date will be extended to
June 30, 2000 upon the satisfaction of the following conditions:
(i) the aggregate outstanding principal balance of the
Loans shall have been reduced to no more than $60,000,000 by June 30, 1999;
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(ii) no Event of Default or Default is continuing
at the time such request is made and on June 30, 1999; and
(iii) Lender shall have received a certificate signed by a
Senior Executive, confirming compliance with the conditions precedent set forth
in clause (ii) above.
(b) If, and only if, Borrowers shall have validly extended the
Maturity Date for the First Extension Period in accordance with Section 2.09(a),
then, not later than April 30, 2000, Borrowers may notify Lender in writing that
Borrowers again desire to extend the Maturity Date for a one year period (the
"Second Extension Period") to June 30, 2001. In such event the Maturity Date
will be extended to June 30, 2001 upon the satisfaction of the following
conditions:
(i) the aggregate outstanding principal balance of the
Loans shall have been reduced to $30,000,000 by June 30, 2000;
(ii) no Event of Default or Default is continuing at the
time such request is made and on June 30, 2000; and
(iii) Lender shall have received a certificate signed by a
Senior Executive confirming compliance with the conditions precedent set forth
in clause (ii) above.
(c) The Maturity Date may not be extended by Borrowers except
as provided in this Section 2.09.
SECTION 2.10. Change in Circumstances. (a) Notwithstanding any
other provision herein, if after the date of this Agreement any change in
applicable law or regulation or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law), or any change in GAAP or
regulatory accounting principles applicable to Lender, shall: (i) subject Lender
(which shall for the purpose of this Section 2.10 include any lending office of
Lender) to any charge, fee, deduction or withholding of any kind or to any tax
with respect to any amount paid or to be paid by Lender with respect to any
Loans (other than (x) taxes imposed on the overall net
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income of Lender and (y) franchise taxes imposed on Lender, in either case by
the jurisdiction in which Lender has its principal office or its lending office
with respect to the Loans or any political subdivision or taxing authority of
either thereof); (ii) change the basis of taxation of payments to Lender of the
principal of or interest on any Loan or otherwise hereunder (other than taxes
imposed on the overall net income of Lender by the jurisdiction in which Lender
has its principal office or by any political subdivision or taxing authority
therein); (iii) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account of,
or loans or loan commitments extended by, Lender; or (iv) impose on Lender or
the London interbank market any other condition affecting this Agreement or the
Loans made by Lender; and the result of any of the foregoing shall be to
increase the cost to Lender of making or maintaining any Loan, or to reduce the
amount of any payment (whether of principal, interest, fee, compensation or
otherwise) receivable by Lender or to require Lender to make any payment in
respect of any Loan, then Borrowers shall pay to Lender, upon Lender's demand,
such additional amount or amounts as will compensate Lender for such additional
costs or reduction; provided, however, that such requirement may not imposed
against Borrowers by Lender in a discriminatory manner vis-a-vis other Similarly
Situated Borrowers.
(b) A statement of Lender setting forth such amount or
amounts, supported by calculations in reasonable detail, as shall be necessary
to compensate Lender as specified in paragraph (a) shall be delivered to
Borrowers and shall be conclusive absent manifest error. Borrowers shall pay
Lender the amount shown as due on any such statement within ten (10) days after
its receipt of the same.
(c) Failure on the part of Lender to demand compensation for
any increased costs, reduction in amounts received or receivable for any period
or reduction in the rate of return earned on Lender's capital, shall not
constitute a waiver of Lender's rights to demand compensation for any increased
costs or reduction in amounts received or receivable or reduction in rate of
return in such period. The protection under this Section 2.10 shall be available
to Lender regardless of any possible contention of the invalidity or
inapplicability of any law,
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regulation or other condition which shall give rise to any demand by Lender for
compensation. Borrowers' obligations under this Section 2.10 shall survive the
repayment of the Loans and the expiration or termination of this Agreement;
provided that any claims based thereon shall be made on or prior to (x) the
second anniversary of the repayment in full of the Loans or (y) the later to
occur of (i) dissolution and final distribution of assets of River Bank and (ii)
repayment of the Loans in full, whichever of (x) or (y) is earlier.
SECTION 2.11. Indemnity. Borrowers shall indemnify Lender
against any loss or reasonable expense which Lender may sustain or incur as a
consequence of any one or more of the following events (regardless of whether
such events occur as a result of the occurrence of an Event of Default or the
exercise of any right or remedy of Lender under this Agreement or any other
agreement, or at law): any failure of Borrowers to fulfill on the date of any
borrowing the applicable conditions set forth in Article V hereof applicable to
it; any failure of Borrowers to borrow hereunder after notice of borrowing
pursuant to Section 2.04(b) has been given; any payment or prepayment of Loan on
a date other than the last day of the relevant Interest Period; any failure of
Borrower to convert to an Adjusted Libor pricing option after notice has been
given or after an election is deemed to have been made. Lender shall provide to
Borrowers a statement explaining any loss or expense, and such statement shall
be conclusive absent manifest error. Borrowers shall pay Lender the amount shown
as due on any such statement within ten (10) days after the receipt of the same.
The indemnities contained herein shall survive the repayment of the Loans and
the expiration or termination of this Agreement; provided that any claims based
thereon shall be made on or prior to (x) the second anniversary of the repayment
in full of the Loans or (y) the later to occur of (i) dissolution and final
distribution of assets of River Bank and (ii) repayment of the Loans in full,
whichever of (x) or (y) is earlier.
SECTION 2.12. Taxes. (a) Any and all payments by the
Borrowers hereunder shall be made, in accordance with Sec
tion 2.06 hereof, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions,
charges or withholdings in any such case imposed by the United
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States or any political subdivision thereof, excluding taxes imposed or based on
its net income, and franchise or capital taxes imposed on it under the laws of
the United States or any political subdivision thereof (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If Borrowers shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to Lender, (x)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including without limitation deductions applicable to
additional sums payable under this Section 2.12) Lender receives an amount equal
to the sum it would have received had no such deductions been made, (y)
Borrowers shall make such deductions and (z) Borrowers shall pay the full amount
deducted to the relevant tax authority or other authority in accordance with
applicable law; provided, however, that such requirement may not imposed against
Borrowers by Lender in a discriminatory manner vis-a-vis other Similarly
Situated Borrowers.
(b) In addition, Borrowers agree to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Notes or the Obligations (hereinafter referred to as "Other
Taxes").
(c) Borrowers will indemnify Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.12) paid by
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by Borrowers in respect of any payment to Lender, Borrowers
will furnish to Lender such certifi cates, receipts and other documents as may
be reasonably required to evidence payment thereof.
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(e) The agreements and obligations contained in this Section
2.12 shall survive the repayment of the Loans and the expiration or termination
of this Agreement; provided that any claims based thereon shall be made on or
prior to (x) the second anniversary of the repayment in full of the Loans or (y)
the later to occur of (i) dissolution and final distribution of assets of River
Bank and (ii) repayment of the Loans in full, whichever of (x) or (y) is
earlier.
III. COLLATERAL SECURITY
SECTION 3.01. In General. The Obligations shall be secured by
the Owned Properties and the Pledged Loans as described in the Security
Documents and are entitled to the benefits thereof. Borrowers shall duly execute
and deliver the Security Documents, financing statements pursuant to the Uniform
Commercial Code and other documents, all in form and substance satisfactory to
Lender, as may be reasonably required by Lender to grant to Lender a valid,
perfected and enforceable first priority Lien on and security interest in
(subject only to the Liens permitted under Section 7.01 hereof) the Owned
Properties and the Pledged Loans.
SECTION 3.02. Filing and Recording. Borrowers shall, at their
sole cost and expense, cause all instruments and documents given as evidence of
security pursuant to this Agree ment to be duly recorded and/or filed or
otherwise perfected in all places necessary, in the opinion of Lender, and take
such other actions as Lender may reasonably request, in order to perfect and
protect the Liens of Lender in the Collateral. Borrowers, to the extent
permitted by law, hereby authorize Lender to file any financing statement in
respect of any Lien created pursuant to the Security Documents which may at any
time be required or which, in the opinion of Lender, may at any time be
desirable although the same may have been executed only by Lender or, at the
option of Lender, to sign such financing statement on behalf of Borrowers and
file the same, and Borrowers hereby irrevocably designate Lender, its agents,
representatives and designees as its agent and attorney-in-fact, coupled with an
interest, for this purpose. In the event that any re-recording or refiling
thereof (or the filing of any statements of continuation or assignment of any
financing statement) is
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required to protect and preserve such Lien, Borrowers shall, at Borrowers' cost
and expense, cause the same to be recorded and/or refiled at the time and in the
manner requested by Lender.
IV. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to Lender (which
representations and warranties shall survive execution and delivery of this
Agreement and the making of all Loans) that, as of the date hereof, both before
and after giving effect to the consummation of the Transactions on the Closing
Date:
SECTION 4.01. General.
(a) Organization and Legal Existence. Each Borrower and each
of the Loan Parties is a legal entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, has the
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as currently proposed to be conducted and is
qualified to do business in every jurisdiction where such qualification is
required. Each Borrower has the corporate power to execute, deliver and perform
its obligations under this Agreement and the other Loan Documents to which it is
a party, and to borrow hereunder and to execute and deliver the Notes.
(b) Authorization. The execution, delivery and performance by
each of Borrower of this Agreement and each of the other Loan Documents to which
it is a party, the borrowings hereunder by Borrowers, the execution and delivery
by Borrowers of the Notes, the grant of security interests in the Collateral
created by the Security Documents (i) have been duly authorized by all requisite
corporate action and (ii) will not violate (A) any provision of law, statute,
rule or regulation or the certificate or articles of incorporation or other
applicable constitutive documents or the by-laws of Borrowers or the Loan
Parties, as the case may be, (B) any order of any court, or any rule, regulation
or order of any other agency of government binding upon Borrowers, or the Loan
Parties, or (C) any provisions of any material indenture, agreement or other
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instrument to which Borrowers, the Loan Parties, or any of their respective
properties or assets are or may be bound, (iii) will not be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under any material indenture, agreement or other instrument
referred to in (ii)(C) above, or (iv) result in the creation or imposition of
any Lien of any nature whatsoever (other than in favor of Lender as contemplated
by this Agreement and the Security Documents) upon any property or assets of
Borrowers or the Loan Parties.
(c) Governmental Approvals. Except for any amendments required
to the Offering Plans, No registration or filing (other than the filings
necessary to perfect the Liens created by the Security Documents) with consent
or approval of, or other action by, any Federal, state or other governmental
agency, authority or regulatory body is or will be required in connection with
the Loans, other than any which have been made or obtained.
(d) Binding Effect. This Agreement and each of the other Loan
Documents to which it is a party constitutes, and each of the Notes when duly
executed and delivered will constitute, a legal, valid and binding obligation of
Borrowers enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, or similar debtor/creditor laws and general principals
of equity and public policy.
(e) Material Adverse Change. There has been no
material adverse change in the business, assets, operations or
financial condition of River Bank since September 30, 1995.
(f) Litigation; Compliance with Laws; etc. (i) Except for
claims fully covered by insurance and as set forth in Schedule 4.01(f) annexed
hereto, there are no actions, suits or proceedings at law or in equity or by or
before any governmental instrumentality or other agency or regulatory authority
now pending or, to the knowledge of any Senior Executive, threatened against or
affecting any Borrower or the Loan Parties or the businesses, assets or rights
of any Borrower or any Loan Parties (A) which involve any of the Transactions,
(B) which relate, directly or indirectly, to any Collateral Property or (C) as
to which it is probable (within the meaning of Statement of Financial Accounting
Standards No. 5) that there will be an
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adverse determination and which, if adversely determined, would, individually or
in the aggregate, materially impair the ability of any Borrower to conduct
business substantially as now conducted, or have a Material Adverse Effect.
(ii) No Loan Party is in violation of any law, or
in default with respect to any judgment, writ, injunction, decree, rule or
regulation of any court or governmental agency or instrumentality which has a
Material Adverse Effect.
(g) Financial Statements. (i) Borrowers have heretofore
furnished to Lender balance sheets and statements of income and cash flows of
Borrowers dated as of September 30, 1995. Such balance sheets and statements of
income and cash flows present fairly the financial condition and results of
operations of Borrowers and the Loan Parties as of the dates and for the periods
indicated, and such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of Borrowers and the Loan Parties, as of the
dates thereof in accordance with the reporting requirements of GAAP.
(ii) Borrowers have heretofore furnished to
Lender quarterly projected income statements, balance sheets and cash flows of
Borrowers on a consolidated basis through the Maturity Date. The projections are
based upon reasonable estimates and assumptions, all of which are reasonable in
light of the conditions which existed at the time the projections were made,
have been prepared on the basis of the assumptions stated therein, and reflect
as of the Closing Date the reasonable estimate of Borrowers of the results of
operations and other information projected therein.
(iii) Borrowers have heretofore furnished to
Lender a consolidated pro forma balance sheet of Borrowers which sets forth
information before and after giving effect to the Transactions on the Closing
Date.
(iv) The financial statements referred to in this
Section 4.01(g) have been prepared in accordance with GAAP.
(h) Federal Reserve Regulations. (i) No Loan Party
is engaged principally, or as one of its important activities, in
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the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(ii) No part of the proceeds of the Loans will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, (A) to purchase or carry Margin Stock or to extend credit to others
for the purpose of purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose, or (B) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of the Regulations
of the Board, including, without limitation, Regulation G, T, U or X thereof. If
requested by Lender, Borrowers or any Loan Party shall furnish to Lender a
statement on Federal Reserve Form U-1 referred to in said Regulation U.
(i) Taxes. Borrowers and each of the Loan Parties has filed or
caused to be filed (or requested an extension for filing of) all Federal, state,
local and foreign tax returns which are required to be filed by it, on or prior
to the date hereof. Each Borrower and each of the Loan Parties has paid or
caused to be paid all taxes shown to be due and payable on such filed returns or
on any assessments received by it.
(j) Employee Benefit Plans. With respect to the
provisions of ERISA:
(i) No Reportable Event has occurred or is
continuing with respect to any Pension Plan.
(ii) No prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) has occurred with
respect to any Plan subject to Part 4 of Subtitle B of Title I of ERISA.
(iii) None of Borrowers or any ERISA Affiliate is
now, or has been during the preceding five years, obligated to contribute to a
Multiemployer Plan. None of Borrowers or any ERISA Affiliate has (A) ceased
operations at a facility so as to become subject to the provisions of Section
4062(e) of ERISA, (B) withdrawn as a substantial employer so as to become
subject to the provisions of Section 4063 of ERISA, (C) ceased making
contributions to any Pension Plan subject to the provisions of
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Section 4064(a) of ERISA to which Borrowers or any ERISA Affiliate made
contributions, (D) incurred or caused to occur a "complete withdrawal" (within
the meaning of Section 4203 of ERISA) or a "partial withdrawal" (within the
meaning of Section 4205 of ERISA) from a Multiemployer Plan that is a Pension
Plan so as to incur withdrawal liability under Section 4201 of ERISA (without
regard to subsequent reduction or waiver of such liability under Section 4207 or
4208 of ERISA), or (E) been a party to any transaction or agreement under which
the provisions of Section 4204 of ERISA were applicable.
(iv) No notice of intent to terminate a Pension
Plan has been filed, nor has any Plan been terminated pursuant to the provisions
of Section 4041(e) of ERISA.
(v) The PBGC has not instituted proceedings to
terminate (or appoint a trustee to administer) a Pension Plan and no event has
occurred or condition exists which might constitute grounds under the provisions
of Section 4042 of ERISA for the termination of (or the appointment of a trustee
to administer) any such Plan.
(vi) With respect to each Pension Plan that is
subject to the provisions of Title I, Subtitle B, Part 3 of ERISA, the funding
method used in connection with such Plan is acceptable under ERISA, and the
actuarial assumptions and methods used in connection with funding such Pension
Plan satisfy the requirements of Section 302 of ERISA. The present value of
neither (A) accrued benefits (both vested and non-vested) under each such
Pension Plan (other than the Multiemployer Plans), nor (B) the "benefit
liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under such
Plan, in each case as of the latest actuarial valuation date for such Plan
(determined in accordance with the same actuarial assumptions and methods as
those used by the Plan's actuary in its valuation of such Plan as of such
valuation date), exceeds the assets of such Pension Plan by more than
$1,200,000. No such Pension Plan has incurred any "accumulated funding
deficiency" (as defined in Section 412 of the Code), whether or not waived.
(vii) There are no actions, suits or claims
pending (other than routine claims for benefits) or, to the
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knowledge of Borrowers or any ERISA Affiliate, which are likely to be asserted,
against any Plan or the assets of any such Plan. No civil or criminal action
brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is
pending or threatened against any fiduciary or any Plan. None of the Plans or
any fiduciary thereof (in its capacity as such) has been the direct or indirect
subject of any audit, investigation or examination by any governmental or
quasi-governmental agency.
(viii) All of the Plans in all material respects
comply currently, and have complied in the past, both as to form and operation,
with their terms and with the provisions of ERISA and the Code, and all other
applicable laws, rules and regulations; all necessary governmental approvals for
the Plans have been obtained and a favorable determination as to the
qualification under Section 401(a) of the Code of each of the Plans which is an
employee pension benefit plan (within the meaning of Section 3(2) of ERISA) has
been made by the Internal Revenue Service and a recognition of exemption from
federal income taxation under Section 501(c) of the Code of each of the funded
employee welfare benefit plans (within the meaning of Section 3(1) of ERISA) has
been made by the Internal Revenue Service, and nothing has occurred since the
date of each such determination or recognition letter that would adversely
affect such qualification.
(k) No Material Misstatements. No information, report,
financial statement, exhibit or schedule prepared or furnished by or on behalf
of Borrowers to Lender in connection with this Agreement, the Security
Documents, the Notes or any other Loan Documents or included therein contained
or contains any material misstatement of fact or omitted or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(l) Investment Company Act; Public Utility Holding Company
Act. No Loan Party is an "investment company" as defined in, or is otherwise
subject to regulation under, the Investment Company Act of 1940. No Loan Party
is a "holding company" as that term is defined in or is otherwise subject to
regulation under, the Public Utility Holding Company Act of 1935.
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(m) Security Interest. To the best knowledge of Borrowers,
each of the Security Documents creates and grants to Lender a legal, valid and
perfected first (except as permitted pursuant to Section 7.01 hereof) priority
security interest in the collateral identified therein. Such collateral or
property is not subject to any other Liens whatsoever, except Liens permitted by
Section 7.01 hereof.
(n) Use of Proceeds. All proceeds of the Loans shall be used
to (i) refinance Federal Home Loan Bank debt owing by River Bank's predecessor,
and (ii) develop the Alden Park Property and the Alta Murrieta Property.
(o) Subsidiaries. As of the Closing Date, Schedule 4.01(o)
annexed hereto sets forth each Subsidiary, its jurisdiction of incorporation and
ownership of capital stock of each such Subsidiary.
SECTION 4.02. Controlled Properties.
(a) Title. The Controlled Owners hold the fee simple or
leasehold estate in and to the Controlled Properties, for their own account, not
as an agent or trustee for another party, and the Owned Properties are free and
clear of all agreements, liens and encumbrances except those specifically set
forth in Schedule B of the Lender's title insurance policies. No notice of any
mechanic's or materialmen's Lien or similar Lien, or of any claim or right to
any such lien has been received, asserted and/or, to the best knowledge of
Borrowers, threatened in writing in connection with the Controlled Properties.
No material default, breach or violation exists under any covenants, conditions,
restrictions, rights of way, easements or encumbrances affecting the Controlled
Properties.
(b) Compliance with Law. Except as disclosed in the violation
searches and municipal letters delivered to Lender and/or Lender's counsel and
those additional items set forth on Schedule 4.02(b), the Controlled Properties
are in compliance in all material respects with all applicable building codes,
zoning regulations, subdivision requirements and other applicable laws,
ordinances, directions, rules, regulations and orders (collectively, "Applicable
Laws") and such compliance is not
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dependent upon any land and/or improvements not a part of the Controlled
Properties, and the requirements of the local, state and federal governmental
authorities having jurisdiction over the Controlled Properties have been met and
Borrowers have received no written notice of any violation of any Applicable
Laws which has not been cured. Without limitation of the foregoing, neither the
Controlled Properties nor any part thereof constitute a nonconforming use under
any Applicable Laws. Except as previously disclosed to Lender with respect to
the Fulton Property, the Crow Canyon Property, the Alden Park Property and the
York Condo, permanent certificates of occupancy (the "Certificates of
Occupancy"), permitting the full and complete use and occupancy of the
Controlled Properties as required by Applicable Laws have been issued and are in
full force and effect. Each Controlled Owner possesses all other licenses,
permits, approvals and consents, including, without limitation, all
environmental, health and safety licenses, permits, approvals and consents
(collectively, "Permits") of all Federal, state and local governmental
authorities as required to conduct properly its business, each such Permit is in
full force and effect, each Controlled Owner is in compliance in all material
respects with all such Permits, and no event (including, without limitation, any
violation of any law, rule or regulation) has occurred which allows the
revocation or termination of any such Permit or any restriction thereon.
(c) Compliance with Environmental Laws. Except as disclosed in
the environmental reports listed in Schedule 4.02(c) hereto: (i) the operations
of the Controlled Owners comply in all material respects with all applicable
Environmental Laws; (ii) the Controlled Owners and the Loan Parties and all of
their present facilities or operations and, to the best knowledge of Borrowers,
their past facilities or operations, are not subject to any judicial proceeding
or administrative proceeding or any outstanding written order or agreement with
any governmental authority or private party respecting (A) any Environmental
Law, (B) any Remedial Work, or (C) any Environmental Claims arising from the
Release of a Hazardous Material into the environment; (iii) to the best of the
knowledge of Borrowers, none of the Controlled Owners' operations is the subject
of any Federal or state investigation evaluating whether any Remedial Work is
needed to respond to a Release of any Contaminant into the
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environment; (iv) none of the Controlled Owners has filed any notice under any
Environmental Law indicating past or present treatment, storage, or disposal of
a Hazardous Material or reporting a spill or Release of a Hazardous Material
into the environment; (v) to the best of the knowledge of Borrowers, none of the
Controlled Owners has any contingent liability in connection with any Release of
any Hazardous Material into the environment; (vi) none of the operations of the
Controlled Owners involve the generation, transportation, treatment or disposal
of Hazardous Materials; (vii) none of the Controlled Owners has disposed of any
Hazardous Material by placing it in or on the ground or waters of any premises
owned, leased or used by any of them and, to the best knowledge of Borrowers,
neither has any lessee, prior owner, or other person; (viii) no underground
storage tanks or surface impoundments are on any property of the Controlled
Owners; and (ix) no Lien in favor of any governmental authority for (A) any
liability under any Environmental Law or regulations, or (B) damages arising
from or costs incurred by such governmental authority in response to a Release
of a Hazardous Material into the environment, has been filed or attached to the
property of the Controlled Owners.
(d) Eminent Domain. There are no pending or concluded
condemnation or similar proceedings affecting the Controlled Properties, and
Borrowers have received no written notice and have no knowledge of any such
proceedings that are threatened.
(e) Casualty Damage; Insurance. No unrestored fire or other
casualty damage affects the Controlled Properties, and all insurance policies
required by Section 6.03(a) are in full force and effect.
(f) Leases. Attached hereto as Schedule 4.02(f) are rent rolls
(the "Rent Rolls") for each of the Controlled Properties (other than the Hartz
Irvington Property and the Alta Murrieta Property). The Rent Rolls are true,
correct and complete with respect to the subject matter thereof. The only
leases, subleases, licenses or other occupancy agreements affecting the
Controlled Properties are those leases (the "Leases") reflected in the Rent
Rolls. As to the commercial leases, except as set forth in Schedule 4.02(f): (i)
all improvements in the spaces demised pursuant to the Leases which
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are required to be performed by the landlord have been completed in accordance
with the terms of such Leases, (ii) the terms of the Leases have commenced and
each Lease is in full force and effect; (iii) the tenants under the Leases have
accepted possession of and are in occupancy of all of their respective demised
premises and have commenced the conduct of their business therein; (iv) the
tenants under the Leases have commenced the payment of rent under such Leases
and there are no offsets, claims or defenses to the enforcement thereof; (v) all
rents due and payable under the Leases have been paid and no portion thereof has
been paid for any period more than thirty (30) days in advance; (vi) the rent
payable under each Lease is the amount of fixed rent provided for in such Lease
and there is no claim or basis for a claim by the tenant thereunder for an
adjustment to the rent; (vii) no tenant has made any claim against the landlord
under the Leases which remains outstanding and there are no defaults on the part
of the landlord under any Lease and no event has occurred which, with the giving
of notice or passage of time, or both, would constitute such default; (viii) to
the best knowledge of Borrowers, there is no present material default by any
tenant under any Lease, nor do any facts exist which with the giving of notice
and/or the passage of time, would constitute a default; (ix) the Controlled
Owners do not hold (and no person holds on behalf of any Controlled Owner) any
security deposits under the Leases; and (x) the Controlled Owners have not
assumed or agreed to assume the obligations of any tenant of the Controlled
Properties (or any affiliate of such tenant) under any lease, sublease or
occupancy agreement for space in the Controlled Properties or elsewhere. True
and complete copies of the Leases have been delivered to Lender. The Leases for
the Sunrise Property and the Scenic View Property have not been modified,
extended or renewed except as set forth on Schedule 4.02(f) and are in full
force and effect in accordance with their terms. The Leases are the only
agreements between the Controlled Owners and the tenants thereunder affecting
the Controlled Properties and all material agreements and understandings between
the tenants and the landlord under the Leases with respect to the Controlled
Properties and the use and occupancy thereof are set forth therein. None of the
Leases contains any option to purchase or right of first refusal to purchase the
Controlled Properties or any part thereof. The Leases have not been assigned or
pledged except to Lender or River Bank, and no other
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person whatsoever has any interest therein except the tenants
thereunder.
(g) Property Management and Leasing. Except as set forth in
Schedule 4.02(g), there are no outstanding contracts or agreements with respect
to the management, operation or leasing of the Controlled Properties. A true,
correct and complete copy of each agreement set forth on Schedule 4.02(g),
including all amendments thereto, if any, have been delivered to Lender.
(h) Access; Utilities. The Controlled Properties are directly
served by public streets. The sewer, water and utility services of the
Controlled Properties are directly connected with sources or systems serving the
general public, without traversing property owned by others, or, if not directly
connected, valid perpetual recorded easements have been established for rights
of way over intervening property.
(i) No Claims. No claim exists against the Controlled Owners
for brokerage or leasing commissions, or for any participation in the income
from, or ownership of, the Controlled Properties, and, except for real estate
taxes which are not yet due and payable, and to the best knowledge of Borrowers,
no liens or claims for money exist which are or may be superior to the lien and
charge of the Security Documents and Borrowers have received no notice of any
such claim or lien.
(j) Taxes and Assessments. The Controlled Properties are taxed
separately from all property which is not subject to the Security Documents. All
taxes relating to the Controlled Properties, to the extent due, have been paid
in full. Borrowers have received no written notice and have no knowledge of any
pending or proposed special or other assessments for public improvements
affecting the Controlled Properties or any contemplated improvements to the
Controlled Properties that may result in such special or other assessments,
except for any increase in the assessed valuation of the Controlled Properties
resulting from improvements to be made in the premises demised to tenants under
Leases.
(k) Flood Hazard Area. The Controlled Properties are not
located in an area identified by the Secretary of Housing and
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Urban Development as an area having special flood hazards pursuant to the terms
of the National Flood Insurance Act of 1968, or the Flood Disaster Protection
Act of 1973, as amended. If after the date hereof the area in which the
Controlled Properties are located is identified or designated as such an area,
Borrowers will obtain and maintain insurance against damage or loss by flood on
such basis and in such amounts as shall be required from time to time by Lender.
SECTION 4.03. Pledged Loans.
(a) Title. River Bank is and will be the legal and beneficial
owner of, and has good and indefeasible title to, the Pledged Loans, subject to
no pledge, lien, mortgage, hypothecation, security interest, charge, option or
other encumbrance whatsoever, except the lien and security interest created by
the Security Documents. Except as expressly set forth in the Pledged Loan
Documents securing the Royal York Loan, none of the Pledged Loans are subject to
any options to purchase or similar rights of any person.
(b) Pledged Loan Documents. Schedule 4.03(b) is true, correct
and complete list of the Pledged Loan Documents. Except as set forth on Schedule
4.03(b), all of the Pledged Loan Documents (1) to the best knowledge of River
Bank, have been duly executed and delivered by the parties thereto, (2) to the
best knowledge of River Bank, have been made in compliance with all requirements
of applicable laws and regulations, (3) to the best knowledge of River Bank, are
and will continue to be valid, binding and enforceable in accordance with their
terms, without offset or defense of any kind against River Bank, and (4) have
not been modified, amended or supplemented, except in writing, which writing is
part of the instruments constituting the Pledged Loan Documents. Each of the
Pledged Notes is due and payable in accordance with its terms.
(c) No Default. To the best knowledge of River Bank, except as
disclosed in Schedule 4.03(c), no default, nor any event which, with notice or
lapse of time or both, would become a default, has occurred and is continuing
under any of the instruments constituting the Pledged Loan Documents on the part
of any party to any of such instruments.
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(d) Leases. Attached hereto as Schedule 4.03(d) is a rent roll
for the Fulton Property which, to the best knowledge of Borrowers, is true,
correct and complete with respect to the subject matter thereof.
SECTION 4.04. Visutton Co-operatives.
(a) To the knowledge of River Bank, without independent inquiry: (i) Schedule
4.04(a) attached hereto sets forth a complete and accurate list of the Offering
Plans with respect to the Visutton Co-operatives; and (ii) no amendments to any
of such Offering Plans have been made except as set forth on Schedule 4.04(a).
To the knowledge of River Bank, without independent inquiry, such Offering Plans
contain no material misrepresentations.
(b) To the knowledge of River Bank, without independent
inquiry, all filings required to be made and all approvals required to be
obtained with regard to the sale of Unsold Units or Unsold Spaces in the
Visutton Co-operatives under all Co-op and Condo Laws have been made or
obtained.
(c) To the knowledge of River Bank, without independent
inquiry, Schedule 4.04.(c) attached hereto is a true, complete and accurate list
of all of the Unsold Units and Unsold Spaces.
(d) To the knowledge of River Bank, without independent
inquiry, (i) the remaining amount of the Reserve Fund contributions required to
be funded by Visutton Associates, and (ii) the date (5 years from the date of
the first sale) that such remaining required contributions, not previously made,
must be funded, is as set forth in the Estoppel Letter of Visutton Associates
delivered to Lender in connection with the closing of the Loans.
(e) To the knowledge of River Bank, without independent
inquiry, Visutton Associates controls the Board of Directors for each of the
Visutton Co-operatives.
(f) River Bank has not received any notice that any
governmental instrumentality or other agency or regulatory
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authority is claiming that any action or failure to act by River Bank or by
Visutton Associates, the sponsor, with respect to the Visutton Co-operatives or
any of the Offering Plans therefor, including, without limitation, with respect
to the restructuring of the mortgages and/or the loan secured by the Unsold
Units and the Unsold Spaces, is or may be a violation of any law, rule or
regulation and, to the knowledge of River Bank, there is no active ongoing
investigation respecting such possible violation.
(g) River Bank has not received any notice of any action, suit
or proceeding, actual or threatened, by Anita Terrace Owners, Inc., James Monroe
Owners, Inc. or Van Buren Owners, Inc., any Board of Directors thereof or any
organization, person, individual or governmental agency (i) against Visutton
Associates which would affect in any material respect the use, sale, or value of
the Unsold Units or (ii) which would seek to disaffirm, revoke or revise any
mortgage, lease, contract or other agreement with Visutton Associates or River
Bank.
(h) The "Proceeds" as defined in the Consolidated, Amended and
Restated Collateral Pledge and Security Agreement between Visutton Associates
and River Bank paid to River Bank by Visutton Associates for the Loan Years 1
and 2 were $2,758,900, representing 79% of the $3,500,000 Target Proceeds for
such
period.
(i) The calculation of Proceeds and Target Proceeds has not
included funds deposited in the Operating Reserve Account, Renovation Reserve
Account and the Additional Cash Pledge Account and the Cash Pledge, as such
terms are defined in the loan documents delivered in connection with the loans
made by River Bank to Visutton Associates, unless and until the excess amounts
in such accounts have been delivered to River Bank.
(j) The Commercial Space was sold by Visutton Associates in
April 1998 and thereafter the mortgage to River Bank encumbering such Commercial
Space was released in connection with the payment to River Bank of the sum of
$1,000,000. The amount of the Proceeds paid to River Bank does not include the
net proceeds paid by reason of the sale of the Commercial Space. No rents,
income, costs or expenses arising out of or incurred in connection with the
Commercial Space from and after the sale of
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the Commercial Space have been included in the determination of Proceeds and/or
Target Proceeds.
SECTION 4.05. Co-operatives and Condominiums
Generally.
(a) To the best knowledge of River Bank, Schedule 4.05(a)
attached hereto sets forth a complete and accurate list of the Offering Plans
with respect to the York Co-op, York Condo and Elizabeth Condo. To the best
knowledge of River Bank, no amendments to any of such Offering Plans has been
made, except as set forth on Schedule 4.05(a). The amendments to such Offering
Plans filed by an Owner Borrower or Controlled Owner contain no material
misrepresentations.
(b) All filings required to be made and all approvals required
to be obtained under all Co-op and Condo Laws with regard to the sale by an
Owner Borrower or a Controlled Owner of Unsold Units or Unsold Space in the York
Co-op, York Condo and Elizabeth Condo have been made or obtained.
(c) Schedule 4.05(c) attached hereto is a true, complete and
accurate list of all of the Unsold Units and Unsold Spaces in the York Co-op and
Elizabeth Condo.
(d) HPC, as the sponsor under its Offering Plan for the
Elizabeth Condo, has the full right, power and authority to designate Lender and
its designees as a Holder of Unsold Units, as such term is defined in its
Offering Plan. RYP as the general partner of York Associates has the full right,
power and authority under the Royal York Associates Limited Partnership
Agreement to cause York Associates to designate Lender and its designees as a
Holder of Unsold Shares as such phrase is defined in its Offering Plan.
(e) All of the obligations of HPC as sponsor with respect to
Elizabeth Condo have been fulfilled except the payment of regular common
charges.
(f) The remaining balance of the additional $2,500,000
contribution to the Reserve Fund for York Co-op required to be funded by Royal
York Associates, L.P. is $2,140,349.50 as of 6/25/96, and such amount is
required to be funded only if, as and
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when the Unsold Units are sold. The $250,000 advance contribution to the Reserve
Fund of the York Co-op has been fully credited to prior sales.
(g) The sponsor is not obligated to cause any work or
improvements to be completed pursuant to the Offering Plans for the York Co-op,
York Condo or Elizabeth the aggregate cost of which would exceed $100,000.
(h) Schedule 4.05(h) attached hereto lists all bonds, security
deposits, letters of credit or other undertakings furnished by or on behalf of
any Owner Borrower, Controlled Borrower or River Bank in connection with the
sale of the Unsold Units and/or the Unsold Spaces pursuant the Offering Plans.
(i) The sponsors have relinquished control of the Board of
Directors of the York Co-op and the Board of Managers of the York Condo and the
Elizabeth Condo.
(j) No alterations have been performed with respect to any
Unsold Units in the Elizabeth Condo or the York Co-op that would require an
amendment to the respective certificates of occupancy therefor that has not been
obtained, except alterations affecting not more than 11 units in the aggregate.
(k) All sums due to any Condominium or Co-operative
Corporation by HPC or York Associates are now, and at the time of Closing will
be, fully paid to the end of the payment period in effect at such time.
(l) The remaining amount of the $2,000,000 "Sales Reserve" as
such term is defined in the Agreement of Limited Partnership of Royal York
Associates, L.P. is approximately $2,000,000.
(m) The Maintenance Reimbursement Program, as defined in the
Offering Plan for York Co-op, has been fully funded and the "Escrow Fund"
described in the Ninth Amendment to such Plan has been fully disbursed except
for not more than $15,000. There is no new maintenance rebate or other rebate
program in effect for the York Co-op or the Elizabeth Condo, except such rebate,
if
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any, which may be negotiated specifically for an individual
contract of sale.
(n) As of June 30, 1996, the principal balance of the
outstanding loans made by RYP to York Associates is zero.
SECTION 4.06. Secondary Collateral. The Grantors are and will
be the legal and beneficial owner of, and have good and indefeasible title to,
the Secondary Collateral, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
lien and security interest created by the Security Documents. None of the
Secondary Collateral is subject to any options to purchase or similar rights of
any person.
V. CONDITIONS OF BORROWING
SECTION 5.01. Contemporaneous Transactions. It is the
intention of the parties hereto that all of the Transactions shall be
consummated contemporaneously. Accordingly, none of the transactions
contemplated by this Agreement shall be consummated unless the transactions
contemplated by the Purchase Agreement are consummated contemporaneously
therewith.
SECTION 5.02. Initial Borrowing. The obligation of
Lender in respect of the initial borrowing hereunder is subject
to the following conditions precedent:
(a) The representations and warranties set forth in Article IV
hereof and in any documents delivered herewith, including, without limitation,
the Loan Documents, shall be true and correct in all material respects.
(b) Each Borrower shall be in compliance with all the terms
and provisions contained herein on its part to be observed or performed, and at
the time of and immediately after consummation of the Transactions on the
Closing Date.
(c) Lender shall have received a certificate, dated the
Closing Date and signed by a Senior Executive, confirming
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compliance with the conditions precedent set forth in this
Section 5.02.
(d) Lender shall have received the favorable written opinion
of counsel for the Loan Parties, dated the Closing Date, addressed to Lender.
(e) Lender shall have received (i) a copy of the certificate
or articles of incorporation or constitutive documents, in each case as amended
to date, of each Loan Party, certified as of a recent date by the Secretary of
State or other appropriate official of the state of its organization, and a
certificate as to the good standing of each from such Secretary of State or
other official, in each case dated as of a recent date; (ii) a certificate of
the Secretary of each Loan Party, dated the Closing Date and certifying (A) that
attached thereto is a true and complete copy of such person's By-laws as in
effect on the date of such certificate and at all times since a date prior to
the date of the resolution described in item (B) below, (B) that attached
thereto is a true and complete copy of a resolution adopted by such person's
Board of Directors authorizing the execution, delivery and performance of this
Agreement, the Security Documents, the Notes, the other Loan Documents and the
borrowing hereunder, as applicable, and that such resolution has not been
modified, rescinded or amended and is in full force and effect, (C) that such
person's certificate or articles of incorporation or constitutive documents has
not been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to (i) above, and (D) as to the
incumbency and specimen signature of each of such person's officers executing
this Agreement, the Notes, each Security Document or any other Loan Document
delivered in connection herewith or therewith, as applicable; (iii) a
certificate of another of such person's officers as to incumbency and signature
of its Secretary; and (iv) such other documents as Lender may reasonably
request.
(f) Lender shall have received the Notes duly executed by
Borrowers, payable to its order and otherwise complying with the provisions of
Section 2.03 hereof.
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(g) Lender shall have received the Security Documents, each
duly executed by the applicable Loan Parties, and the Pledged Notes.
(h) Lender shall have received certified copies of requests
for copies or information on Form UCC-11 or certificates satisfactory to Lender
of a UCC Reporter Service, listing all effective financing statements which name
as debtor any Loan Party and which are filed in the appropriate offices in the
states in which are located the chief executive office and other operating
offices of such person, together with copies of such financing statements. With
respect to any Liens not permitted pursuant to Section 7.01 hereof, Lender shall
have received termination statements in form and substance satisfactory to it.
(i) Each document (including, without limitation, each
Mortgage and Uniform Commercial Code financing statement) required by law or
requested by Lender to be filed, registered or recorded in order to create in
favor of Lender a first priority perfected security interest in the Collateral
shall have been properly filed, registered or recorded in each jurisdiction in
which the filing, registration or recordation thereof is so required or
requested.
(j) Lender shall have received the results of a search of tax
and other Liens, and judgments and of the Uniform Commercial Code filings made
with respect to each Loan Party (excluding Grantors) in the jurisdictions in
which it is doing business and/or in which any Collateral is located, and in
which Uniform Commercial Code filings have been made against each Loan Party
pursuant to paragraph (i) above.
(k) Lender shall have received and determined to be in form
and substance satisfactory in all respects:
(i) evidence of the compliance by Borrowers with Section
6.03 hereof;
(ii) the financial statements described in Section
4.01(g) hereof;
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(iii) environmental audits with respect to the
Collateral Properties, conducted by a firm satisfactory to Lender, and the
scope, methodology and results of which are satisfactory to Lender in all
respects;
(iv) evidence that all requisite third party consents to
the Transactions have been received; and
(v) one of the following for each Collateral
Property: (A) a letter or other evidence from the appropriate municipal
authorities (or other persons) concerning applicable zoning and building laws,
(ii) an ALTA 3.1 zoning endorsement for the applicable title insurance policy,
or (iii) a zoning opinion letter.
(l) Lender shall have received title insurance policies with
respect to the Collateral Properties issued by Lawyers Title Insurance Company,
Commonwealth Title Insurance Company or another title company acceptable to
Lender, which title insurance policy shall (i) provide coverage in amounts
satisfactory to Lender, (ii) insure Lender free and clear of all exceptions from
coverage other than Liens permitted under Section 7.01 and standard exceptions
and exclusions from coverage (as modified by the terms of any endorsements), and
(C) contain such endorsements and affirmative coverages as Lender may require.
(m) Lender shall have received a current title survey for each
Collateral Property, certified to the title company, Lender and their successors
and assigns, that (A) is in form and content reasonably satisfactory to Lender,
(B) is prepared by a professional and properly licensed land surveyor
satisfactory to Lender, and (C) contains a certification in form and substance
acceptable to Lender.
(n) Lender shall have received and approved a three-year Asset
Management Plan for Borrowers and all of their assets, which shall demonstrate
to Lender's reasonable satisfaction, that Borrowers shall have adequate
resources, including the proceeds of the Loans, to perform in accordance with
their general corporate obligations, and perform financially within requirements
of the Loan Documents.
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(o) Lender shall have received and had the opportunity to
review and determine to be in form and substance satisfactory to it, copies of
all Leases, Permits, and all loan agreements, notes and other documentation
evidencing Indebtedness for borrowed money of any Loan Party.
(p) Counsel to Lender, shall have received payment in full for
all legal fees charged, and all costs and expenses incurred, by such counsel
through the Closing Date in connection with the transactions contemplated under
this Agreement, the Security Documents and the other Loan Documents and
instruments in connection herewith and therewith.
(q) All legal matters in connection with the Transactions
shall be satisfactory to Lender and its counsel in their sole discretion.
(r) Borrowers shall have executed and delivered to Lender a
disbursement authorization letter with respect to the disbursement of the
proceeds of the Loans on the Closing Date, in form and substance satisfactory to
Lender.
(s) Lender shall have received such other documents as Lender or
its counsel shall reasonably deem necessary.
SECTION 5.03. Alden Park and Alta Murrieta Loan Disbursements.
Subject to the terms and conditions of this Section 5.03, Lender shall disburse
the remaining proceeds of the Alden Park Loan to enable River Bank to fund
advances to the Eastview under the New Alden Park Building Loan Agreement, and
shall disburse the remaining proceeds of the Alta Murrieta Loan. Such
disbursements shall pay or reimburse the cost of work (hereinafter, the "Work")
in connection with the development of the Alden Park Property and the Alta
Murrieta Property. Lender shall have no obligation to make disbursements in
respect of the Alden Park Loan after June 30, 1997. Disbursements shall be made
in accordance with approved requests for disbursements in the form of Exhibit A
hereto. The obligation of Lender to make each such disbursement is subject to
the following conditions precedent:
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(a) No Default or Event of Default shall be continuing.
(b) Lender shall have received a certificate, dated the
Closing Date and signed by a Senior Executive, confirming compliance with the
conditions precedent set forth in this Section 5.03.
(c) Lender shall have received and had the opportunity to
review and determine to be in form and substance satisfactory to it:
(i) the plans and specifications for the Work prepared by
a licensed architect, and any changes thereto; and
(ii) hard and soft cost budgets for the Work, and any
changes thereto.
(d) Lender shall have approved of all contractors, architects
and engineers retained for the Work.
(e) Lender shall have received satisfactory evidence that all
permits, licenses and approvals required for the Work have been obtained and are
in full force and effect.
(f) Lender shall have received such affidavits and
certificates as to such matters as Lender may request, including, without
limitation, certificates of the approved architect or engineer, or of a
construction consultant retained by Lender at Borrowers' expense, that (i) all
of the Work completed has been done in compliance with the approved plans and
specifications, (ii) such disbursement is justly required to reimburse payments
to, or are justly due to, contractors, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials for the
Work, (iii) the amount of the subject disbursement, when added to all sums
previously disbursed by Lender, does not exceed the value of the Work done to
the date of such certificate, (iv) the amount of the Commitment remaining
unfunded after such disbursement will be sufficient on completion of the Work to
pay for the same in full.
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(g) Lender shall have received waivers or releases of lien for
work completed in form and substance reasonably satisfactory to it and title
searches confirming that there has not been filed with respect to the Collateral
Property any mechanics' or other lien or instrument for the retention of title
in respect of any part of the Work not discharged of record.
(h) Delivery when the Work has been completed of a copy of any
certificate or certificates required by law to render occupancy of the
improvements legal.
(i) Disbursements in respect of Work at the Alta Murrieta
Property shall be limited to Work on no more than 18 homesites which are not
under contract to be sold for a purchase price in excess of the minimum sales
price set forth on the applicable Release Price Schedule.
(j) Lender shall have received in form and substance
reasonably satisfactory to Lender a written instrument, from each party other
than an Owner Borrower to any contract deemed material by Lender, consenting to
the collateral assignment to Lender of the Owner Borrower's rights and interests
in such contract and certifying and agreeing to such matters as Lender may
determine.
(k) Lender shall not have received a bonded or unbonded stop
notice, unless Borrower files a release bond satisfactory to Lender in its
reasonable judgment.
(l) Lender shall have approved all material contracts, utility
agreements or "will serve" letters with respect to all utilities, access rights,
easements and other arrangements necessary, in the reasonable judgment of
Lender, for the uninterrupted and orderly operation of the project.
VI. AFFIRMATIVE COVENANTS
Each of the Borrowers covenants and agrees with Lender that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Note, or any fee, expense or
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other Obligation payable hereunder or in connection with any of
the Transactions shall be unpaid:
SECTION 6.01. Legal Existence. Each Borrower shall do
or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence.
SECTION 6.02. Businesses and Properties. Each Borrower shall
do or cause to be done all things necessary to preserve, renew and keep in full
force and effect the rights, licenses and Permits material to the conduct of its
businesses; comply with all laws, rules, regulations and governmental orders
(whether Federal, state or local) applicable to the operation of such businesses
whether now in effect or hereafter enacted (including, without limitation, all
applicable laws, rules, regulations and governmental orders relating to public
and employee health and safety and all Environmental Laws) and with any and all
other applicable laws, rules, regulations and governmental orders, the lack of
compliance with which would have a Material Adverse Effect; take all actions
which may be required to obtain, preserve, renew and extend all Permits and
other authorizations which are material to the operation of such businesses; and
at all times maintain, preserve and protect all property material to the conduct
of such businesses and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 6.03. Insurance. (a) Borrowers shall
provide, maintain and keep in force (or shall cause the
Controlled Owners to be provide, maintain and keep in force) the
following policies of insurance:
(i) Property insurance against loss or damage to the
Improvements by fire and all other risks of physical loss or damage with
coverage known as "all risk" in an amount not less than the full replacement
cost of the Controlled Properties (other than the York Co-op and the
Condominiums), without deduction for depreciation and including, without
limitation, sprinkler leakage, demolition cost, cost of debris removal,
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increased cost of construction arising from operation or enforcement of building
laws and ordinances, and such additional endorsements as Lender may reasonably
require, with not more than $10,000 deductible from the loss payable for any
casualty, and total coverage of not less than $20,000,000 per occurrence, and
containing an "agreed amount endorsement" or other endorsement to eliminate
application of the coinsurance clause;
(ii) If any of the Controlled Properties is located in an
area designated as a Federal "flood zone", flood insurance in an amount not less
than the full replacement cost of the Improvements (without deduction for
depreciation) or such lesser amounts, and with such deductibles, as are required
by Lender;
(iii) If Lender determines that any of the Controlled
Properties is in an earthquake zone, insurance against loss or damage to the
Improvements from earthquake and/or earth movement, in such amounts and with
such deductibles as are required by Lender;
(iv) Insurance against loss of rental income caused by the
perils required to be insured against in (i), (ii), (iii), and (v) of this
Section, on an "actual loss sustained" basis, in an amount not less than one (1)
year's gross rental income, excluding only non-continuing expenses;
(v) Boiler and machinery insurance covering damage to
pressure vessels, air tanks, boilers, machinery, pressure piping, electrical,
heating, ventilation and air conditioning equipment, and elevator and escalator
equipment, provided the Controlled Properties contain equipment of such nature,
in such amounts as are required by Lender;
(vi) Commercial public liability insurance, on an
"occurrence" basis, without deductible, against claims for bodily injury
including death, property damage and "Personal Injury" occurring in, on or about
the Controlled Properties and the adjoining streets, sidewalks and passageways,
such insurance to name Lender as an additional insured and to be in such amounts
as are required by Lender;
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(vii) Workers' compensation insurance (including
Employers' Liability) in accordance with the laws of the state in which the
Controlled Properties is situated for all employees of the Controlled Owners
engaged on or with respect to the Controlled Properties;
(viii) During the course of any construction, alteration
or repair of the Controlled Properties or any portion thereof:
(A) Workers' compensation insurance
(including Employers' Liability) in accordance with the laws of the state in
which the Land is situated on all employees of contractors, sub-contractors,
consultants and vendors engaged on or with respect to the Controlled Properties;
(B) Commercial general liability insurance
naming Lender as additional insured covering operations of all contractors and
sub-contracts, including completed operations coverage for two (2) years after
construction of such Improvements, with such other endorsements and in such
amounts as Lender may require; and
(C) Builders' risk completed value insurance
against "all risks of physical loss," including collapse, transit and, if
required by Lender, "soft costs" coverage, with deductibles not to exceed
$10,000, in nonreporting form, covering the total value of work performed and
equipment, supplies and materials furnished, and containing the "permission to
occupy before completion of work" endorsement;
(ix) Such other insurance and any replacements or
substitutions therefor or additions thereto as may at any time and from time to
time be required by Lender against other insurable hazards or casualties,
including, but not limited to, war, nuclear reaction or radioactive
contamination, each in such amount as Lender shall determine.
Borrowers shall not carry separate or additional insurance concurrent in form or
contributing, in the event of loss, with that required hereunder unless endorsed
in favor of Lender as loss payee or additional insured, as applicable,
designating that
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such insurance shall contain endorsements providing coverage secondary to the
insurance required to be carried hereunder and otherwise acceptable to Lender in
all respects.
(b) All policies of insurance shall be issued by companies
satisfactory to Lender which are authorized to do business in the states in
which the Controlled Properties are situated and shall have a Best's rating of
not less than A/XIII (or are otherwise reasonably acceptable to Lender). All
policies of insurance shall show Lender as mortgagee and shall have attached
thereto a lender's loss payable endorsement for the benefit of Lender in form
satisfactory to Lender. Borrowers shall furnish Lender with originals of all
policies of insurance. If Lender consents to Borrowers providing any of the
required insurance through blanket policies carried by Mortgagor and covering
more than one location, then Borrowers shall furnish Lender with a certified
copy of each such policy and a certificate of insurance for each such policy
setting forth the coverage as to each Controlled Property, including the
exclusive allocation of the insured amount, the limits of liability, the name of
the carrier, the policy number, the expiration date and such additional
information as Lender may require.
(c) Every policy of insurance required by this Agreement shall
contain (i) the endorsement or agreement of the insurer thereunder to waive all
rights of setoff, counterclaims or deductions against Lender and to pay all
losses payable in accordance with the terms of such policy notwithstanding any
act, omission or negligence of Lender which might otherwise result in forfeiture
of such insurance, and (ii) a provision that such policies will not be canceled
or materially amended, which term shall include any reduction in the scope or
limits of coverage, without at least thirty (30) days' prior written notice to
Lender.
(d) At least thirty (30) days prior to the expiration of each
insurance policy, Borrowers shall furnish Lender with evidence satisfactory to
Lender of the payment of the premium and arrangements for the reissuance of a
policy continuing insurance in force as required by this Agreement.
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SECTION 6.04. Taxes. Borrowers will pay all Impositions and
other prior charges and liens now or hereafter assessed or liened on or levied
against the Controlled Properties or any part thereof or interest therein when
and as the same become due and payable. Upon request of Lender, Borrowers will
exhibit to Lender receipts for the payment of Impositions and all other prior
charges and liens before the date when the same shall become delinquent.
Borrowers shall have the right to contest or object to the amount or validity of
any Impositions imposed against the Controlled Properties by appropriate legal
proceedings, but no such contest shall be deemed or construed in any way to
relieve, modify or extend Borrowers' covenant to pay such Impositions unless (x)
Borrowers have given written notice to Lender of Borrowers' intent to so contest
or object to the imposition of such Impositions not less than thirty (30) days
prior to the date on which such Impositions are due and payable and (y)
Borrowers have demonstrated to Lender's satisfaction in its sole and absolute
discretion that (a) payment of the Impositions Borrowers intend to contest or
object to would by operation of law constitute a waiver of Borrowers' right to
contest the same and (b) the conduct of legal proceedings to contest or object
to such Impositions will conclusively operate to prevent the sale of the
Controlled Properties or any part thereof or interest therein in payment of such
Impositions prior to final determination of such proceedings. In no event shall
Borrowers' decision to contest the imposition of any Impositions affect
Borrowers' obligation to continue to make payments on account of Impositions
into escrow with Lender or its designee as elsewhere provided herein. If the
conditions set forth in the foregoing clauses (x) and (y) are satisfied, neither
Lender nor its designee shall pay any Impositions being contested out of such
escrow as long as (1) Borrowers promptly commence and thereafter continue to
conduct such contest with due diligence and in good faith, (2) Borrowers provide
evidence of the same satisfactory to Lender, in its sole and absolute
discretion, from time to time within ten (10) days after written request
therefor, (3) Borrowers deposit into escrow with Lender or its designee, in
addition to all Impositions which would, absent such contest, be due and
payable, such additional sums as Lender or its designee shall determine from
time to time in its sole and absolute discretion as sufficient to pay all
interest, late payment fees, penalties and other charges which may be imposed
for nonpayment
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of such Impositions as if the same were not being contested, and (4) Lender is
satisfied in its sole and absolute discretion that neither the Controlled
Properties nor any part thereof is in danger of sale, foreclosure or forfeiture
by reason of the nonpayment of such Impositions or any interest, late payment
fees, penalties and other charges imposed in connection therewith.
SECTION 6.05. Financial Statements, Reports, etc. In addition
to all other deliveries which Borrowers are required to make to Lender elsewhere
in this Agreement and without limiting Borrowers' obligations with respect
thereto, Borrowers shall deliver the following to Lender, all of which shall be
prepared at Borrowers' sole cost and expense and shall be in such form and
contain such detail as Lender may at any time and from time to time require in
its sole and absolute discretion:
(a) No later than February 1st of each calendar year, a
current rent roll for each of the Controlled Properties, certified as true,
complete and correct by a Senior Executive. The rent roll shall include, without
limitation, the name of every tenant, the space demised thereby, the expiration
date of such tenant's Lease (taking into account all periods, if any, covered by
extension or renewal options granted to such tenant which have been theretofore
exercised), any extension and/or renewal periods covered by options granted such
tenant which have not yet been exercised, the amounts of all current rents and
arrearages, and such other information as Lender may reasonably request at any
time and from time to time.
(b) Promptly upon filing thereof, copies of any public filings
required by law with respect to any of the Loan Parties.
(c) No later than forty-five (45) days after the end of each
calendar quarter, "Quarterly Asset Reports", in the same form and containing the
same substance as the "March 31, 1996 Targeted Asset Book" previously supplied
to Lender for the Collateral properties and Pledged Loans. Such reports shall
include, without limitation, operating budgets, valuation information, actual
operating and sales information and rent rolls (or summaries thereof).
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(d) No later than forty-five days after the end of each
calendar month, a detailed presentation of "sources" and "uses" of cash, with a
variance analysis, in form and substance in conformity with the financial
information described in Section 4.01(g).
(e) No later than ten (10) Business Days following Lender's
request therefor, a current rent roll for the Controlled Properties and a status
report on the leasing program, in each case certified as true, complete and
correct by a Senior Executive.
(f) No later than thirty (30) days following Lender's demand
therefor, copies of all Leases and other agreements relating to or affecting
Borrowers or the Controlled Properties, certified as true and complete by a
Senior Executive.
(g) No later than May 1 of each calendar year, an updated
Asset Management Plan for the succeeding three-year period, and within 60 days
of the end of each calendar quarter, status updates for individual Collateral
Properties and a variance analysis indicating actual performance of Borrowers
relative to the Asset Management Plan.
(h) No later than ten (10) Business Days following Lender's
demand therefor, a certificate of Borrowers in form satisfactory to Lender
stating the amount of the then unpaid principal balance of each Loan, the amount
of any unpaid interest accrued thereon, the interest rate then being earned on
the outstanding principal balance of each Loan, the date to which the last
installment of interest or principal and interest has been paid, whether or not,
to the best of Borrowers' knowledge, any Event of Default then exists or any
event has occurred which, with the giving of notice or passage of time or both,
would constitute an Event of Default and that no offsets, counterclaims or
defenses exist with respect to the Obligations.
(i) No later than ten (10) Business Days after Borrowers'
receipt thereof, true and complete copies of (1) all notices of default given to
Borrowers by any tenant under a Lease (other than a Lease for a residential
apartment), by any Ultimate Borrower under a Pledged Loan or other agreement
with respect to
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or affecting Borrowers or the Controlled Properties, (2) all notices issued by
any governmental or quasi governmental authority or corporation having
jurisdiction over Borrowers or the Controlled Properties of any violation of law
at the Controlled Properties and (3) all notices, correspondence, legal papers
or other documents relating to any suits, proceedings or other actions
threatened, being commenced or pending against Borrowers or the Controlled
Properties before any court of law, administrative agency, arbitration panel or
other adjudicating body.
(j) notice of any Default of Event of Default, specifying the
nature and extent thereof and the action (if any) which is proposed to be taken
with respect thereto.
(k) notice of any development in the business or affairs of
any Borrower or any of the Loan Parties which has had or which is likely, in the
reasonable judgment of any Senior Executive, to have, a Material Adverse Effect.
(l) such other information as Lender may reasonably request.
SECTION 6.06. Refinancings. Borrowers will use their best
efforts subsequent to the Closing Date to refinance with other lenders the Loans
so as to reduce the aggregate amount advanced by Lender, provided that any such
refinancing shall be subject to Lender's approval and the entire net proceeds
thereof, even if greater than the Loan being refinanced, shall be applied to
prepayment of the Loans.
SECTION 6.07. ERISA. Borrowers shall, and shall cause
their ERISA Affiliates to:
(a) Pay and discharge promptly any liability imposed upon it
pursuant to the provisions of Title IV of ERISA; provided, however, that neither
Borrowers nor any ERISA Affiliate shall be required to pay any such liability if
(1) the amount, applicability or validity thereof shall be diligently contested
in good faith by appropriate proceedings, and (2) such person shall have set
aside on its books reserves which, in the opinion
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of the independent certified public accountants of such person, are adequate
with respect thereto.
(b) Deliver to the Lender, promptly, and in any event within
30 days, after (i) the occurrence of any Reportable Event, a copy of the
materials that are filed with the PBGC, or the materials that would have been
required to be filed if the 30-day notice requirement to the PBGC was not
waived, (ii) any Borrower or any ERISA Affiliate or an administrator of any
Pension Plan files with participants, beneficiaries or the PBGC a notice of
intent to terminate any such Plan, a copy of any such notice, (iii) the receipt
of notice by any Borrower or any ERISA Affiliate or an administrator of any
Pension Plan from the PBGC of the PBGC's intention to terminate any Pension Plan
or to appoint a trustee to administer any such Plan, a copy of such notice, (iv)
the filing thereof with the Internal Revenue Service, copies of each annual
report that is filed on Treasury Form 5500 with respect to any Plan, together
with certified financial statements (if any) for the Plan and any actuarial
statements on Schedule B to such Form 5500, (v) any Borrower or any ERISA
Affiliate knows or has reason to know of any event or condition which might
constitute grounds under the provisions of Section 4042 of ERISA for the
termination of (or the appointment of a trustee to administer) any Pension Plan,
an explanation of such event or condition, (vi) the receipt by any Borrower or
any ERISA Affiliate of an assessment of withdrawal liability under Section 4201
of ERISA from a Multiemployer Plan, a copy of such assessment, (vii) any
Borrower or any ERISA Affiliate knows or has reason to know of any event or
condition which might cause any one of them to incur a liability under Section
4062, 4063, 4064 or 4069 of ERISA or Section 412(n) or 4971 of the Code, an
explanation of such event or condition, and (viii) any Borrower or any ERISA
Affiliate knows or has reason to know that an application is to be, or has been,
made to the Secretary of the Treasury for a waiver of the minimum funding
standard under the provisions of Section 412 of the Code, a copy of such
application, and in each case described in clauses (i) through (iii) and (v)
through (vii) together with a statement signed by a Senior Executive setting
forth details as to such Reportable Event, notice, event or condition and the
action which such Borrower or such ERISA Affiliate proposes to take with respect
thereto.
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SECTION 6.08. Maintaining Records; Access to Properties and
Inspections; Right to Audit. Borrowers shall keep or cause to be kept full, true
and complete records and books of account in accordance with income tax
accounting principles. Borrowers' fiscal year shall be the calendar year (or a
fiscal year ending June 30), and its accounts shall be kept on such basis.
Borrowers' accounts shall be kept current at all times, and all transactions
shall be promptly and accurately entered therein. All Borrowers' records and
books of account, originals of all documents with respect to its organization,
all minute books and other records relating to its continued existence, complete
and accurate records of all persons, directly or indirectly through one or more
intermediary persons, owning a legal or beneficial interest in a Borrower as
shareholders, partners or otherwise, originals of all Leases, contracts,
insurance policies and any and all other agreements relating to or affecting the
Controlled Properties and the Pledged Loans, all correspondence and other files
relating thereto, originals of all licenses and Permits, all plans and
specifications with respect to the Controlled Properties, all environmental
reports, financial analyses, engineering reports, appraisals and other studies
undertaken by, for or at the direction of Borrowers with respect to the
Collateral Properties and all other documents and materials of any kind
whatsoever relating to Borrowers, the Controlled Properties and/or the business
of Borrowers conducted thereat normally and usually maintained by owners of
similar properties shall be kept and maintained by Borrowers at the Controlled
Properties or at Borrowers' principal office.
SECTION 6.09. Use of Proceeds. Borrowers shall use
the proceeds of the Loans only for the purposes set forth in
Section 4.01(n) hereof.
SECTION 6.10. Environmental Laws. (a) Borrowers shall comply,
and cause each of the Controlled Owners to comply, in all material respects with
the provisions of all Environmental Laws, and shall keep the Controlled
Properties free of any Lien imposed pursuant to any Environmental Law. Borrowers
shall not cause or suffer or permit the Controlled Properties to be used for the
generation, production, processing, handling, storage, transporting or disposal
of any Hazardous Material, except for
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Hazardous Materials used in the ordinary course of business of the Controlled
Owners, in which case such Hazardous Materials shall be used, stored, generated,
treated and disposed of only in compliance with Environmental Law.
(b) Borrowers shall supply to Lender copies of all submissions
by Borrowers or the Controlled Owners to any governmental body pursuant to the
Environmental Laws and of the reports of all environmental audits and of all
other environmental tests, studies or assessments (including the data derived
from any sampling or survey of asbestos, soil, or subsurface or other materials
or conditions) that may be conducted or performed (by or on behalf of Borrowers
or the Controlled Owners) on or regarding the Controlled Properties or regarding
any conditions that might have been affected by Hazardous Materials on or
Released or removed from the Controlled Properties. Borrowers shall also permit
and authorize the consultants, attorneys or other persons that prepare such
submissions or reports or perform such audits, tests, studies or assessments to
discuss such submissions, reports or audits with Lender.
(c) Promptly (and in no event more than two Business Days
after Borrowers become aware or are otherwise informed of such event) provide
oral and written notice to Lender upon the happening of any of the following:
(i) any Borrower, any Controlled Owner, or any tenant or
other occupant of any property of such Borrower or Controlled Owner receives
written notice of any claim, complaint, charge or notice of a violation or
potential violation of any Environmental Law;
(ii) there has been a spill or other Release of
Hazardous Materials upon, under or about or affecting any of the Controlled
Properties in amounts that may have to be reported under Environmental Law, or
Hazardous Materials at levels or in amounts that may have to be reported,
remedied or responded to under Environmental Law are detected on or in the soil
or groundwater;
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(iii) any Borrower or Controlled Owner is or may be liable
for any costs of cleaning up or otherwise responding to a Release of Hazardous
Materials;
(iv) any part of the Controlled Properties is or may be
subject to a Lien under any Environmental Law; or
(v) any Borrower or Controlled Owner undertakes any
Remedial Work with respect to any Hazardous Materials.
(d) Without in any way limiting the scope of Section 9.04(c)
and in addition to any obligations thereunder, each Borrower hereby indemnifies
and agrees to hold Lender harmless from and against any liability, loss, damage,
suit, action or proceeding arising out of its business or the business of the
Subsidiaries pertaining to Hazardous Materials, including, but not limited to,
claims of any governmental body or any third person arising under any
Environmental Law or under tort, contract or common law. To the extent laws of
the United States or any applicable state or local law in which a Controlled
Property is located provide that a Lien upon such Controlled Property may be
obtained for the removal of Hazardous Materials which have been or may be
Released, no later than sixty days after notice that a Release has occurred is
given by Lender to such Borrower, such Borrower shall deliver to Lender a report
issued by a qualified third party engineer assessing the existence and extent of
any Hazardous Materials located upon or beneath the specified property. To the
extent any Hazardous Materials located therein or thereunder either subject the
Controlled Property to Lien or require removal to safeguard the health of any
persons, the removal thereof shall be an affirmative covenant of Borrowers
hereunder.
(e) In the event that any Remedial Work is required to be
performed by any Borrower or any Controlled Owner under any applicable
Environmental Law, any judicial order, or by any governmental entity, such
Borrower or Controlled Owner shall commence all such Remedial Work at or prior
to the time required therefor under such Environmental Law or applicable
judicial orders and thereafter diligently prosecute to completion all such
Remedial Work in accordance with and within the time allowed under such
applicable Environmental Laws or judicial orders.
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SECTION 6.11. Pay Obligations to Lender and Perform Other
Covenants. Borrowers shall (a) make full and timely payment of their respective
Obligations, whether now existing or hereafter arising, (b) duly comply with all
the terms and covenants contained in this Agreement (including, without
limitation, the borrowing limitations and mandatory prepayments in accordance
with Article II hereof) in each of the other Loan Documents, all at the times
and places and in the manner set forth therein, and (c) except for the filing of
continuation statements and the making of other filings by Lender as secured
party or assignee, at all times take all actions necessary to maintain the Liens
and security interests provided for under or pursuant to this Agreement and the
Security Documents as valid and perfected first Liens on the property intended
to be covered thereby (subject only to Liens expressly permitted hereunder) and
supply all information to Lender necessary for such maintenance.
SECTION 6.12. Termination of Property Managers. During the
continuance of an Event of Default, Lender may instruct Borrowers to remove the
property manager with respect to any or all of the Controlled Properties and to
designate a replacement property manager acceptable to Lender and Borrowers
shall so remove the property manager(s) and so designate replacement(s).
SECTION 6.13. Co-operatives and Condominiums. At Lender's
request, Borrowers shall designate, or shall cause the designation of, Lender or
Lender's designee as a holder of Unsold Shares or holder of Unsold Units.
Promptly after the appointment of any officer or member of the boards of
directors or boards of managers of any of the Co-operatives or Condominiums
which had been appointed by River Bank, any Owner Borrower or any Controlled
Owner, River Bank shall deliver to Lender an original undated executed
resignation from such director, manager or officer. In addition, at Lender's
request after the occurrence and during the continuance of an Event of Default,
River Bank shall direct the resignation of any director, manager or officer
appointed by River Bank, any Owner Borrower or any Controlled Owner. If River
Bank receives any undated executed resignations of officers or members of the
boards of directors or boards of managers with respect to any of the
Co-operatives or
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Condominiums, River Bank shall deliver same to Lender promptly upon receipt
thereof.
SECTION 6.14. Further Assurances. Borrowers shall execute any
and all further documents and take all further actions which may be required
under applicable law, or which Lender may reasonably request, to grant,
preserve, protect and perfect the first priority security interest created by
the Security Documents in the Collateral.
VII. NEGATIVE COVENANTS
Each of the Borrowers covenants and agrees with Lender that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Note, or any fee, expense or other Obligation payable hereunder or in
connection with any of the Transactions shall be unpaid:
SECTION 7.01. Liens. Borrowers shall not, and
shall not cause or permit any of the Controlled Owners to,
incur, create, assume or permit to exist any Lien on any of its property or
assets (including the stock of any direct or indirect subsidiary), whether owned
at the date hereof or hereafter acquired, or assign or convey any rights to or
security interests in any future revenues, except for the following:
(a) Liens incurred and pledges and deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance, old-age pensions and other social security benefits (not
including any lien described in Section 412(m) of the Code);
(b) Liens imposed by law, such as carriers', ware housemen's,
mechanics', materialmen's and vendors' liens and other similar liens, incurred
in good faith in the ordinary course of business and securing obligations which
are not overdue for a period of more than 15 days or which are being contested
in good faith by appropriate proceedings as to which any Borrower or any of the
Controlled Owners, as the case may be, shall, to the extent required by GAAP,
have set aside on its books adequate reserves;
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(c) Liens securing the payment of taxes, assessments and
governmental charges or levies, that are not delinquent or are being diligently
contested in good faith by appropriate proceedings and as to which adequate
reserves have been established in accordance with GAAP; provided, however, that
in no event shall the aggregate amount of such reserves be less than the
aggregate amount secured by such Liens;
(d) zoning restrictions, easements, licenses, reser vations,
provisions, covenants, conditions, waivers, restrictions on the use of property
which are excepted in Lender's title insurance policies or do not in the
aggregate materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business; or
(e) Liens created in favor of Lender.
Borrowers shall also not permit any stop notice or claim to be asserted against
Lender by any person or entity furnishing labor, services, equipment or
materials to the Collateral Properties. In the event that any such claim is
asserted against Lender, without limiting any other rights or remedies Lender
may have at law or in equity, Borrowers shall take such action as Lender may
reasonably require to release Lender from any obligation or liability with
respect to such stop notice or claim, including (i) if the claim is being
contested in good faith by appropriate proceedings, obtaining a bond or other
security in form, substance and amount satisfactory to Lender, or (ii) payment
of such claim. If Borrowers fail to take such action, Lender may, in its sole
discretion, file an interpleader action requiring all claimants to interplead
and litigate their respective claims, and in any such action Lender shall be
released and discharged from all obligations with respect to any funds deposited
in court.
SECTION 7.02. Indebtedness. Borrowers shall not, and shall not
cause or permit any of the Controlled Owners to, incur, create, assume or permit
to exist any Indebtedness other than (i) Indebtedness secured by Liens permitted
under Section 7.01, (ii) Indebtedness existing on the date hereof, but not the
extension, renewal or refunding thereof, (iii) Indebtedness incurred hereunder,
(iv) Indebtedness to trade creditors incurred
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in the ordinary course of business, and (v) Guarantees of the Obligations,
without the prior written consent of Lender in each instance. Lender will
consider a proposal by a Borrower to refinance a Loan (and to release its Liens
on the Collateral Property) to the extent that Borrower is in full compliance
with the Loan Documents, such refinancing is for an amount exceeding the balance
of such Loan and such refinancing will not, in Lender's judgement, adversely
affect the aggregate loan to value or debt service coverage ratios for the
Loans, and provided that the Capital Proceeds in respect of such refinancing
shall be applied first to repay such Loan in full, and any balance shall be
applied to prepay the other Loans. Lender shall reasonably consider any
additional Indebtedness proposed to be incurred by Borrower or its subsidiaries;
provided, that (a) the Capital Proceeds in respect thereof are utilized in a
manner approved by Lender (including, if required by Lender, the application of
a percentage of such proceeds, which percentage shall be determined by Lender at
the time it approves the additional Indebtedness, to prepay the Loans in such
manner as Lender may elect), (b) such additional Indebtedness is not secured by
Liens on the Collateral Properties, (c) an adequate period of review is provided
for Lender to review the loan documents for the additional Indebtedness, and (d)
intercreditor agreements satisfactory in all respects to Lender are entered into
by Lender and the holder of such additional Indebtedness.
SECTION 7.03. Sales of Assets. (a) Except as set forth in
Section 7.03(b) and 7.03(c), Borrowers shall not, and shall not cause or permit
any of the Controlled Owners, RB Alden Corp., Rivercity Realty Corp. or Grantors
to, sell, lease, transfer or assign to any persons or otherwise dispose of
(whether in one transaction or a series of transactions) any portion of its
assets (whether now owned or hereafter acquired), or sell any of its inventory
other than in the normal course of business, without the prior written consent
of Lender in each instance. Lender shall reasonably consider any proposed sale
of Secondary Collateral by a Grantor; provided, that the Capital Proceeds in
respect thereof are utilized in a manner approved by Lender (including, if
required by Lender, the application of a percentage of such proceeds, which
percentage shall be determined by Lender at the time it approves the sale, to
prepay the Loans in such manner as Lender may elect).
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(b) Annexed hereto as Schedule 7.03 are the initial approved
schedules of minimum sales prices and closing expenses for the homesites at the
Alta Murrieta Property, Unsold Units and Unsold Spaces (such schedules, together
with any revisions thereto proposed by Borrowers and approved by Lender, are
referred to herein as the "Release Price Schedules"). Borrowers may, without the
prior consent of Lender, enter into agreements to sell individual homesites at
the Alta Murrieta Property, individual Unsold Units and individual Unsold
Spaces; provided, that (i) the sales price thereof is at least equal to the
minimum sales price therefor as set forth on the applicable Release Price
Schedule, and (ii) the purchaser under such agreement is an unrelated third
party. Provided that Lender is paid 100% of the Capital Proceeds in respect of
any such sale, Lender agrees to release the Lien of the Security Documents from
the property sold at the time of closing thereof.
(c) Borrowers may, without the prior consent of Lender, enter
into an agreement to sell a Collateral Property; provided, that (i) the sales
price thereof is at least equal to the net sales price therefor as set forth in
the then current Asset Management Plan approved in writing by Lender, (ii) the
terms of the sale are no less favorable to the seller than the terms of sale, if
any, set forth in the then current Asset Management Plan approved in writing by
Lender, and (iii) the purchaser under such agreement is an unrelated third
party. Provided that Lender is paid 100% of the Capital Proceeds in respect of
any such sale, Lender agrees to release the Lien of the Security Documents from
the Collateral Property sold at the time of closing thereof.
SECTION 7.04. Consolidations and Mergers. Borrowers shall not,
and shall not cause or permit any of the Controlled Owners to, consolidate with
or merge into any other person, or permit another person to merge into it, or
acquire all or substantially all the capital stock or assets of any other
person.
SECTION 7.05. Investments. Borrowers shall not, and
shall not cause or permit any of the Controlled Owners to, own,
purchase or acquire any stock, obligations, assets (not in the
ordinary course of business) or securities of, or any interest
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in, or make any capital contribution or loan or advance to, any
other person.
SECTION 7.06. Sales of Receivables. Except as expressly
permitted by the Loan Documents, Borrowers shall not, and shall not cause or
permit any of the Controlled Owners to, sell, assign, discount, transfer, or
otherwise dispose of any accounts receivable, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or without
recourse, except for the purpose of collection or settlement in the ordinary
course of business.
SECTION 7.07. Use of Proceeds. Borrowers shall not permit the
proceeds of the Loans to be used for any purpose which entails a violation of,
or is inconsistent with, Regulation G, T, U or X of the Board, or for any
purpose other than those set forth in Section 4.01(n) hereof.
SECTION 7.08. ERISA. Borrowers shall not, and shall
not cause or permit any of their ERISA Affiliates to:
(a) Engage in any transaction in connection with which any
Borrowers or any ERISA Affiliate could be subject to either a material civil
penalty assessed pursuant to the provisions of Section 502 of ERISA or a
material tax imposed under the provisions of Section 4975 of the Code.
(b) Terminate any Pension Plan in a "distress termination"
under Section 4041 of ERISA, or take any other action which could result in a
material liability of any Borrower or any ERISA Affiliate to the PBGC.
(c) Fail to make payment when due of all amounts which, under
the provisions of any Plan, Borrowers or any ERISA Affiliate is required to pay
as contributions thereto, or, with respect to any Pension Plan, permit to exist
any material "accumulated funding deficiency" (within the meaning of Section 302
of ERISA and Section 412 of the Code), whether or not waived, with respect
thereto.
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(d) Adopt an amendment to any Pension Plan requiring the
provision of security under Section 307 of ERISA or Section 401(a)(29) of the
Code.
SECTION 7.09. Accounting Changes. Borrowers shall not, and
shall not cause or permit any of the Controlled Owners to, make any change in
their accounting treatment or financial reporting practices except as required
or permitted by GAAP.
SECTION 7.10. Prepayment of Indebtedness; Dividends. Borrowers
shall not, without the prior written consent of Lender in each instance,
directly or indirectly (a) prepay, redeem, purchase or retire any Indebtedness
(other than Indebtedness incurred hereunder) other than in the ordinary course
of such Borrower's business or (b) make any distributions, dividends or
repurchases or redemptions of capital stock.
SECTION 7.11. Transactions with Affiliates. Borrowers shall
not directly or indirectly purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or enter into any other transaction
with, any stockholder, Affiliate or agent of any Borrower, except at prices and
on terms not less favorable to it than that which would have been obtained in an
arm's-length transaction with a non-affiliated third party.
SECTION 7.12. Modification of Documents. Borrowers shall not,
and shall not cause or permit any Loan Party to, modify, amend or alter (a)
their certificates or articles of incorporation in any material respect, (b) the
Pledged Loan Documents except as permitted by the Collateral Assignments of
Loan, (c) all loan agreements, notes and other documentation evidencing
Indebtedness for borrowed money of any Loan Party or (d) River Bank's Plan of
Dissolution in any material respect.
SECTION 7.13. Property Management. Except as provided in
Section 6.12, Borrowers shall not, and shall not cause or permit any Loan Party
to (a) surrender, terminate or cancel the property management agreement for any
of the Collateral Properties, or (b) otherwise modify, change, supplement, alter
or amend, or waive or release any of its rights and remedies under any such
property management agreement, without the prior written
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consent of Lender in each instance, which consent shall not be unreasonably
withheld, delayed or conditioned.
VIII. EVENTS OF DEFAULT
In case of the happening of any of the following events
(herein called "Events of Default"):
(a) any representation or warranty made or deemed made in or
in connection with this Agreement, any of the Security Documents, the Notes or
other Loan Documents or any borrowing hereunder, shall prove to have been
incorrect in any material respect when made and results in a material adverse
effect on (i) the ability of Borrowers, in the aggregate, to perform or pay the
Obligations in accordance with the terms hereof or of any other Loan Document,
or (ii) Lender's Lien on any material portion of the Collateral or the priority
of such Lien;
(b) default shall be made in the payment of any principal of
any Note when and as such principal shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Note, or any fee or any other amount payable hereunder, or under the Notes,
or any other Loan Document when and as the same shall become due and payable,
and such default shall continue for 10 days after notice from Lender or for 20
days, whichever is later (provided that no Event of Default shall exist under
this clause (c) to the extent that there are sufficient funds available to
Lender pursuant to Section 4(b) of the Master Account Agreement to pay same when
due);
(d) default (other than a default enumerated in any other
paragraph of this Article VIII) shall be made in the due observance or
performance of any covenant, condition or agreement to be observed or performed
on the part of any Loan Party pursuant to the terms of this Agreement, any of
the Notes, any of the Security Documents or any other Loan Document and such
default continues for twenty (20) days after notice from Lender; provided, that,
if such default cannot with the exercise of
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reasonable diligence by cured within such twenty (20) day period, then such
period shall be extended for so long as is reasonably necessary with the
exercise of reasonable diligence to cure such default provided that Borrower
commences such cure within such twenty day period and thereafter diligently
prosecutes such cure to completion, and provided, further, that in no event
shall such cure period exceed a total of ninety (90) days from the date notice
of such default is first given by Lender to Borrower;
(e) any Loan Party shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code or any other Federal, state or foreign bankruptcy, insolvency,
liquidation or similar law, (ii) consent to the institution of, or fail to
contravene in a timely and appropriate manner, any such proceeding or the filing
of any such petition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official for any Loan
Party or for a substantial part of its property or assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors, (vi)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (vii) take corporate action for the purpose of effecting
any of the foregoing;
(f) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of any Loan Party, or of a substantial part of the
property or assets of any Loan Party, under Title 11 of the United States Code
or any other Federal state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for any Loan Party or for a substantial part of
the property of any Loan Party, or (iii) the winding-up or liquidation of any
Loan Party; and such proceeding or petition shall continue undismissed for 120
days or an order or decree approving or ordering any of the foregoing shall
continue unstayed and in effect for 120 days;
(g) default shall be made with respect to Indebtedness of the
Loan Parties in excess of $10,000,000 in the aggregate (excluding Indebtedness
outstanding hereunder) if the effect of
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any such default shall be to accelerate, or to permit the holder or obligee of
any such Indebtedness (or any trustee on behalf of such holder or obligee) at
its option to accelerate, the maturity of such Indebtedness;
(h) (i) a Reportable Event shall have occurred with respect to
a Pension Plan, (ii) the filing by any Loan Party, any ERISA Affiliate, or an
administrator of any Plan of a notice of intent to terminate such a Plan in a
"distress termination" under the provisions of Section 4041 of ERISA, (iii) the
receipt of notice by any Loan Party, any ERISA Affiliate, or an administrator of
a Plan that the PBGC has instituted proceedings to terminate (or appoint a
trustee to administer) such a Pension Plan, (iv) any other event or condition
exists which might, in the opinion of Lender, constitute grounds under the
provisions of Section 4042 of ERISA for the termination of (or the appointment
of a trustee to administer) any Pension Plan by the PBGC, (v) a Pension Plan
shall fail to maintain the minimum funding standard required by Section 412 of
the Code for any plan year or a waiver of such standard is sought or granted
under the provisions of Section 412(d) of the Code, (vi) any Loan Party or any
ERISA Affiliate has incurred, or is likely to incur, a liability under the
provisions of Section 4062, 4063, 4064 or 4201 of ERISA, (vii) any Loan Party or
any ERISA Affiliate fails to pay the full amount of an installment required
under Section 412(m) of the Code, (viii) the occurrence of any other event or
condition with respect to any Plan which would constitute an event of default
under any other agreement entered into by any Loan Party or any ERISA Affiliate,
and in each case in clauses (i) through (viii) of this subsection (h), such
event or condition, together with all other such events or conditions, if any,
could subject any Loan Party or any ERISA Affiliate to any taxes, penalties or
other liabilities which, in the opinion of Lender, could have a Material Adverse
Effect;
(i) an Event of Default (as defined in any of the Loan
Documents) shall occur;
(j) any Loan Party or any ERISA Affiliate (i) shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred any
material withdrawal liability to such Multiemployer Plan, and (ii) does not have
reasonable grounds for
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contesting such withdrawal liability and is not in fact
contesting such withdrawal liability in a timely and appropriate
manner;
(k) a judgment (not reimbursed by insurance policies of any
Loan Party) or decree for the payment of money, a fine or penalty shall be
rendered by a court or other tribunal against any Borrower or Controlled Owner
which, when taken together with all other such judgments, decrees, fines and
penalties, exceeds $100,000 ($250,000 for River Bank, Eastview and Royal York
Associates, L.P.), or and (i) shall remain undischarged or unbonded for a period
of 30 consecutive days during which the execution of such judgment, decree, fine
or penalty shall not have been stayed effectively or (ii) any judgment creditor
or other person shall legally commence actions to collect on or enforce such
judgment, decree, fine or penalty;
(l) this Agreement, any Note, any of the Security Documents,
any Guarantee or other Loan Documents shall for any reason cease to be, or shall
be asserted by any Loan Party not to be, a legal, valid and binding obligation
of any Loan Party, en forceable in accordance with its terms, or the security
interest or Lien purported to be created by any of the Security Documents shall
for any reason cease to be, or be asserted by any Loan Party not to be, a valid,
first priority perfected security interest in any Collateral (except to the
extent otherwise permitted under this Agreement or any of the Security
Documents);
(m) an event or series of events shall occur after which Alvin
Dworman ceases to (i) own at least 39% of the common stock of River Bank or (ii)
be actively involved in the oversight and general management of Borrowers'
affairs and assets, and, in case of Mr. Dworman's death or disability, Borrowers
shall have failed to appoint a substitute chief executive officer reasonable
acceptable to lender within six months after the occurrence thereof; or
(n) any representation or warranty in Article IX-A shall prove
to have been incorrect in any material respect when made, or default shall be
made in the payment or performance of any obligation of River Bank set forth in
Article IX-A, or the FHLB Stock Redemption Price (as defined in Section 9A.02)
is less
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than $8,900,000, or if the FHLB Stock Redemption Price is not paid in full
(i.e., $8,900,000) by FHLB on or before the FHLB Maturity Date, then, and in any
such event (other than an event described in paragraph (e) or (f) above), and at
any time thereafter during the continuance of such event, Lender may, by written
notice (or facsimile notice promptly confirmed in writing) to Borrowers, take
any or all of the following actions at the same or different times: (i)
terminate forthwith all or any portion of the Commitment; and (ii) declare the
Notes to be forthwith due and payable, whereupon the principal of such Notes,
together with accrued interest and fees thereon and other liabilities of
Borrowers accrued hereunder, shall become forthwith due and payable both as to
principal and interest, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived by Borrowers, anything
contained herein or in the Notes to the contrary notwithstanding; provided,
however, that with respect to a default described in paragraph (e) or (f) above,
the Commitment shall automatically terminate and the principal of the Notes,
together with accrued interest and fees thereon and any other liabilities of
Borrowers accrued hereunder shall automatically become due and payable, both as
to principal and interest, without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by Borrowers, anything
contained herein or in the Notes to the contrary notwithstanding.
IX-A FHLB LOAN
SECTION 9A.01. Conflicts. In the event of any conflict between
the provisions of this Article IX-A and any other provision of this Credit
Agreement, or between the provisions of this Article IX-A and any other Loan
Document, the provisions of this Article IX-A shall control.
SECTION 9A.02. FHLB Representations. River Bank
represents and warrants to Lender as follows:
(a) On the date hereof River Bank has submitted to FHLB a
request to redeem the FHLB Stock.
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(b) On the date hereof River Bank has submitted to FHLB a
letter in form of Schedule 9A.02 hereof.
(c) The FHLB Stock Certificate is in the possession of FHLB.
(d) The redemption price for the FHLB Stock is $8,900,000 (the
"FHLB Stock Redemption Price").
(e) River Bank reasonably expects that the FHLB Stock
Redemption Price will (and River Bank knows of no reason why the FHLB Stock
Redemption Price would not) be paid in full by FHLB within 60 days after the
date hereof, and that such payment will be made by FHLB directly to Lender.
SECTION 9A.03. FHLB Covenants. River Bank hereby
covenants and agrees as follows:
(a) River Bank shall not take possession of the FHLB Stock
Certificate or request that FHLB deliver such certificate to any other person
other than Lender.
(b) River Bank shall not assign, pledge, grant a security
interest in or otherwise transfer or encumber in any manner the FHLB Stock or
the proceeds thereof or any interest therein. River Bank shall not make any
request or give any direction to FHLB that is contrary to the request set forth
in the letter referred to in Section 9A.02(b) above.
(c) River Bank shall, within two (2) business days after
Lender's request, give any further direction or request to FHLB regarding
payment of the FHLB Stock Redemption Price as Lender may reasonably require.
SECTION 9A.04. Mandatory Prepayment.
(a) Upon the payment by FHLB of any portion of the FHLB Stock
Redemption Price, River Bank shall immediately make a payment to Lender in the
full amount of such payment from FHLB (which payment shall be deemed to have
been made by River Bank to to the extent FHLB made such payment directly to
Lender). Such
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payment to Lender, whether made by River Bank or made directly from FHLB, shall
be applied as follows:
(i) First, to pay any accrued and unpaid interest and
other sums of any kind (other than principal) outstanding with respect to the
FHLB Loan;
(ii) Second, subject to the proviso contained in Section
2.08(d), to payment of the outstanding principal balance of the FHLB Loan; and
(iii) Third, into the Master Account for application in
the same manner as any other amounts deposited into the Master Account under
Section 4(a) of the Master Account Agreement.
(b) (i) The entire outstanding balance of the FHLB Note shall
become due and payable on the FHLB Maturity Date or the date on which FHLB pays
the FHLB Stock Redemption Price, whichever is earlier.
(ii) "FHLB Maturity Date" means August 31, 1996, provided
that if (x) for reasons beyond River Bank's reasonable control the FHLB has not
paid FHLB Stock Redemption Price by August 31, 1996, (y) River Bank has made
diligent efforts to obtain such payment and has, upon Lender's request,
delivered to Lender reasonable evidence of such efforts, and (z) no Event of
Default exists as of such maturity date, then the FHLB Maturity Date shall be
extended to September 30, 1996. River Bank may further extend the FHLB Maturity
Date, provided River Bank satisfies the same conditions as are applicable with
respect to the first extension under the preceding sentence, for successive one
month periods, provided that in no event shall the FHLB Maturity Date be
extended beyond December 31, 1996.
IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices, consents and other
communications provided for herein shall be in writing and shall
be delivered or mailed (or in the case of telex or facsimile
communication, delivered by telex, graphic scanning, telecopier
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or other telecommunications equipment, with receipt confirmed)
addressed,
(a) if to all or any Loan Parties, c/o RB Management Company,
8th Floor, 645 Fifth Avenue, New York, New York 10022, Attention: Mr.
Alvin Dworman, with a copy to Battle Fowler LLP, 75 East 55th Street,
New York, New York 10022, Attention: Thomas E. Kruger, Esq.;
(b) if to Lender, at Marine Midland Bank, One MMB Center, 26th
Floor, Buffalo, New York 14203, Attention: Leif B. Karlsson, Senior
Vice President, with a copy to Kaye, Scholer, Fierman, Hays & Handler,
LLP, 425 Park Avenue, New York, New York 10022, Attention: Robert
Finley, Esq.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if hand delivered or three days after being sent by registered
or certified mail, postage prepaid, return receipt requested, if by mail, or
upon receipt if by any telex, facsimile or other telecommunications equipment,
in each case addressed to such party as provided in this Section 9.01 or in
accordance with the latest unrevoked direction from such party.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by any Borrower or Loan Party
herein and in the certificates or other instruments prepared or delivered in
connection with this Agreement, any of the Security Documents, any Guarantee or
any other Loan Document, shall be considered to have been relied upon by Lender
and shall survive the making by Lender of the Loans and the execution and
delivery to Lender of the Notes and shall continue in full force and effect as
long as the principal of or any accrued interest on the Notes or any other fee
or amount payable under the Notes or this Agreement or any other Loan Document
is outstanding and unpaid and so long as the Commitment has not been terminated.
SECTION 9.03. Successors and Assigns; Participations. Whenever
in this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party; and all
covenants, promises and agreements
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by or on behalf of any Loan Party or any ERISA Affiliate, or Lender, that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns. No Borrower may assign or transfer any of its
rights or obligations hereunder without the written consent of Lender. Lender
may not assign or transfer any of its rights or obligations hereunder or under
the Loans to an unaffiliated third party without the written consent of
Borrowers; provided, however, that Lender may, without the consent of Borrowers,
assign or transfer any of its rights or obligations hereunder to a successor by
virtue of the merger or consolidation of Lender with or into an unaffiliated
third party.
SECTION 9.04. Expenses; Indemnity. (a) Each Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by Lender in connection with
the preparation of this Agreement and the other Loan Documents or with any
amendments, modifications, waivers, extensions, renewals, renegotiations or
"workouts" of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by Lender in connection
with the enforcement or protection of its rights in connection with this
Agreement or any of the other Loan Documents or with the Loans made or the
Notes, or in connection with any pending or threatened action, proceeding, or
investigation relating to the foregoing, including but not limited to the
reasonable fees and disbursements of counsel for Lender and ongoing field
examination expenses and charges, and, in connection with such enforcement or
protection, the reasonable fees and disbursements of counsel for Lender. Each
Borrower further indemnifies Lender from and agrees to hold Lender harmless
against any documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the
Notes.
(b) Each Borrower indemnifies Lender and its directors,
officers, employees and agents (collectively, the "Indemnitees") against, and
agrees to hold the Indemnitees harmless from, any and all losses, claims,
damages, liabilities and related expenses, including reasonable counsel fees and
expenses, incurred by or asserted against the Indemnitees arising out of, in any
way connected with, or as a result of (i) the use of any of the proceeds of the
Loans, (ii) this Agreement, the
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Guarantees, any of the Security Documents or the other documents contemplated
hereby or thereby, (iii) the performance by the parties hereto and thereto of
their respective obligations hereunder and thereunder (including but not limited
to the making of the Commitment) and consummation of the Transactions, (iv)
breach of any representation or warranty, or (v) any claim, litigation,
investigation or proceedings relating to any of the foregoing, whether or not
Lender or any such person is a party thereto; provided, however, that such
indemnity shall not, as to Lender, apply to any such losses, claims, damages,
liabilities or related expenses to the extent that they result from the gross
negligence or willful misconduct of Lender.
(c) Each Borrower indemnifies, and agrees to defend and hold
harmless the Indemnitees from and against any loss, cost, damage, liability,
lien, deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees and reasonable expenses for investigation, removal,
cleanup and remedial costs and modification costs incurred to permit, continue
or resume normal operations of any property or assets or business of Borrowers
or any Subsidiary) arising from a violation of, or failure to comply with any
Environmental Law and to remove any Lien arising therefrom except to the extent
caused by the gross negligence or willful misconduct of any Indemnitee, which
any of the Indemnitees may incur or which may be claimed or recorded against any
of the Indemnitees by any person.
(d) The provisions of this Section 9.04 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the Transactions, the repayment of any of the
Loans, the invalidity or unenforceability of any term or provision of this
Agreement or the Notes, or any investigation made by or on behalf of Lender. The
indemnities contained herein shall survive the repayment of the Loans and the
expiration or termination of this Agreement; provided that any claims based
thereon shall be made on or prior to (x) the second anniversary of the repayment
in full of the Loans or (y) the later to occur of (i) dissolution and final
distribution of assets of River Bank and (ii) repayment of the Loans in full,
whichever of (x) or (y) is earlier. All amounts due under this Section 9.04
shall be payable on written demand therefor.
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SECTION 9.05. Applicable Law. THIS AGREEMENT AND THE
NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS EXECUTED
AND TO BE PERFORMED IN NEW YORK.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, Lender shall and is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by Lender to
or for the credit or the account of any Borrower against any and all of the
obligations of Borrowers now or hereafter existing under this Agreement and the
Notes, irrespective of whether or not Lender shall have made any demand under
this Agreement or the Notes and although such obligations may be unmatured. The
rights of Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which may be available
to Lender.
SECTION 9.07. Payments on Business Days. Should the principal
of or interest on the Notes or any fee or other amount payable hereunder become
due and payable on other than a Business Day, payment in respect thereof may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in computing interest, if any, in connection with such
payment.
SECTION 9.08. Waivers; Amendments. (a) No failure or delay of
Lender in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of Lender hereunder are cumulative and
not exclusive of any rights or reme dies which they may otherwise have. No
waiver of any provision of this Agreement or the Notes nor consent to any
departure by any Borrower therefrom shall in any event be effective unless the
same shall be authorized as provided in paragraph (b) below, and then such
waiver or consent shall be effective only in the spe-
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cific instance and for the purpose for which given. No notice to or demand on
any Borrower in any case shall entitle it to any other or further notice or
demand in similar or other circum stances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agree ment or agreements in
writing entered into by Borrowers and Lender.
SECTION 9.09. Severability. In the event any one or more of
the provisions contained in this Agreement or in the Notes should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall not
in any way be affected or impaired thereby.
SECTION 9.10. Entire Agreement; Waiver of Jury Trial, etc. (a)
This Agreement, the Notes and the other Loan Documents constitute the entire
contract between the parties hereto relative to the subject matter hereof. Any
previous agreement among the parties hereto with respect to the Transactions is
superseded by this Agreement, the Notes and the other Loan Documents. Nothing in
this Agreement, the Notes or in the other Loan Documents, expressed or implied,
is intended to confer upon any party, other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement, the
Notes or the other Loan Documents.
(b) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, THE NOTES, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS.
(c) Except as prohibited by law, each party hereto hereby
waives any right it may have to claim or recover in any litigation referred to
in paragraph (b) of this Section 9.10 any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages.
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(d) Each party hereto (i) certifies that no representative,
agent or attorney of Lender has represented, expressly or otherwise, that Lender
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii) acknowledges that it has been induced to enter into this Agreement, the
Notes or the other Loan Documents, as applicable, by, among other things, the
mutual waivers and certifications herein.
SECTION 9.11. Submission to Jurisdiction. (a) Any legal action
or proceeding with respect to this Agreement or the Notes or any other Loan
Document may be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York, and, by execution and
delivery of this Agreement, each Borrower hereby accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.
(b) Each Borrower hereby irrevocably waives, in connection
with any such action or proceeding, any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
(c) Each Borrower hereby irrevocably consents to the service
of process of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to each such person, as the case may be, at its address set forth in
Section 9.01 hereof.
(d) Nothing herein shall affect the right of Lender to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Borrower in any other jurisdiction.
SECTION 9.12. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective
when copies hereof
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which, when taken together, bear the signatures of each of the parties hereto
shall be delivered to Lender.
SECTION 9.13. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 9.14. Exercise of Cure Rights. Wherever in any
provision of any Loan Document Lender is granted the right to advance money for
the account of any Loan Party and such provision makes reference to this Section
9.14, Lender shall, before expending such sum, give River Bank 10 days prior
notice (unless an Event of Default is then continuing, in which case lender
shall have no obligation to give such notice); provided, however, that if Lender
in good faith believes that it may be materially prejudiced (e.g., without
limitation, lapse of insurance, emergencies, impairment of any lien or the
priority thereof, etc.) if it does not act prior to the expiration of such ten
day period, then Lender need only give River Bank such prior notice, if any, as
Lender in good faith determines to be feasible under the circumstances and
notice thereof shall be delivered to Borrowers thereafter.
X. CROSS-GUARANTEES
Each Borrower absolutely, irrevocably and unconditionally
guarantees the due and punctual payment of the principal of and interest on each
of the Notes (other than the Note or Notes that it is the maker of), when and as
due, whether at maturity, by acceleration, by notice of prepayment or otherwise,
and the due and punctual performance of all other Obligations of the other
Borrowers. Each Borrower further agrees that the Obligations, or any of them,
may be extended and renewed, in whole or in part, without notice to or further
assent from it, and that it will remain bound upon its guarantee notwithstanding
any extension or renewal of any Obligations.
Each Borrower waives presentment to, demand of payment from
and protest to Borrowers of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of
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protest for nonpayment. The obligations of a Borrower hereunder shall not be
affected by (a) the failure of Lender to assert any claim or demand or to
enforce any right or remedy against any other Borrower under the provisions of
this Agreement, the Notes or any of the other Loan Documents or otherwise; (b)
any rescission, waiver, amendment or modification of any of the terms or
provisions of this Agreement, the Notes, any of the other Loan Documents, any
guarantee or any other agreement; (c) the release of any security held by Lender
for the Obligations or any of them; or (d) the failure of Lender to exercise any
right or remedy against any other Borrower in respect of the Obligations. Each
Borrower waives any rights or defenses it may have based upon the taking or
failure to take of any of the actions described in the preceding sentence, or
based upon the taking or failure to take by Lender of any other actions with
respect to any other obligor, the obligations guaranteed, or any security
therefor, including without limitation, any rights or defenses pursuant to
Sections 2787 to 2855, inclusive, of the California Civil Code or similar laws
of any other jurisdiction.
Each Borrower further agrees that its guarantee constitutes a
guarantee of payment when due and not of collec tion, and waives any right to
require that any resort be had by Lender to any security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
Lender in favor of any Borrower or any other person.
The obligations of each Borrower hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of each Borrower hereunder
shall not be discharged or impaired or otherwise affected by the failure of
Lender to assert any claim or demand or to enforce any remedy under this
Agreement, the Notes or under any other Loan Document, any guarantee or any
other agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or
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omission which may or might in any manner or to any extent vary the risk of such
Borrower or otherwise operate as a discharge of such Borrower as a matter of law
or equity.
Each Borrower further agrees that its guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Obligation is rescinded or
must otherwise be returned by Lender upon the bankruptcy or reorganization of
any other Borrower or otherwise.
Until the Obligations have been paid and satisfied in full,
each Borrower hereby waives and releases all rights of subrogation,
indemnification, contribution and/or reimbursement from or against any of the
other Borrowers or their respective properties in connection with this guarantee
and any payments made hereunder, and regardless of whether such rights arise by
operation of law, pursuant to contract or otherwise.
Each Borrower hereby waives any rights and defenses it might
have as guarantor by reason of protection afforded to any other Borrower with
respect to the obligations guaranteed pursuant to the antideficiency or other
laws of the State of California or any other state limiting or discharging the
obligation guaranteed, including, without limitation, Sections 580a, 580b, 580d
or 726 of the California Code of Civil
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Procedure. Each Borrower hereby waives all rights and defenses arising out of an
election of remedies by Lender, even if that election of remedies, such as
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the guarantor's right of subrogation and reimbursement against the
principal by the operation of Section 580d of the California Code of Civil
Procedure or otherwise. Nothing herein, including without limitation citation of
California statutes, shall be construed as indicating that California law is or
should be applicable to this guaranty or any of the other provisions of, or
transactions contemplated by, the Loan Documents, it being the parties' express
intent and agreement, as set forth in Section 9.05 hereof, that New York law
shall apply.
IN WITNESS WHEREOF, Borrowers and Lender have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
RIVER BANK AMERICA
By:/s/ John P. Sullivan
John P. Sullivan
President
260 WEST SUNRISE CORP.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
KIRKHAM STOWE, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
HESTER PROPERTY CORP.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
ACACIAS-MURRIETA, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
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OLD CROW CANYON OFFICE, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
RR IRVINGTON ASSOCIATES, L.P.
By: RR Irvington Development
Corp., general partner
By:/s/ Stuart Sugarman
Stuart Sugarman
Vice President
MARINE MIDLAND BANK
By:/s/ Lief B. Karlsson
Lief B. Karlsson
Senior Vice President
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<PAGE>
MASTER CASH COLLATERAL AGREEMENT
THIS MASTER CASH COLLATERAL AGREEMENT (this "Agreement"),
dated as of June 28, 1996, between MARINE MIDLAND BANK ("Lender"), a New York
banking corporation having an office at One MMB Center, Buffalo, New York 14203,
and RIVER BANK AMERICA, a New York banking corporation, 260 WEST SUNRISE CORP.,
a New York corporation, KIRKHAM STOWE, INC., a California corporation, HESTER
PROPERTY CORP., a New York corporation, ACACIAS-MURRIETA, INC., a California
corporation, OLD CROW CANYON OFFICE, INC., a California corporation, and RR
IRVINGTON ASSOCIATES, L.P., a New York limited partnership, each having an
office c/o RB Management Company, 645 Fifth Avenue, New York, New York 10022
(each individually, a "Borrower" and, collectively, "Borrowers").
W I T N E S S E T H
A. Borrowers are the owners of the property (the "Collateral
Property") described on Exhibit A hereto, which Collateral Property consists of
(i) fee and leasehold interests in real properties and all improvements thereon
and (ii) promissory notes or bonds, the loans evidenced thereby and the
collateral therefor.
B. Borrowers and Lender have entered into a Credit Agreement
(as amended, modified or supplemented from time to time, the "Credit Agreement")
of even date herewith pursuant to which Lender agreed to make loans to
Borrowers.
C. The loans to Borrowers under the Credit Agreement are
evidenced by notes (as amended, modified or supplemented from time to time, the
"Notes") of even date herewith, and are secured by, among other things, the
Collateral Property.
D. Each Borrower has entered into one or more Cash Collateral
Agreements (as amended, modified or supplemented from time to time, the "Cash
Collateral Agreements" and, each individually, a "Cash Collateral Agreement")
with Lender of even date herewith, pursuant to which Borrowers agreed to deposit
certain proceeds in respect of the Collateral Property into
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Collateral Accounts (as defined in the Cash Collateral
Agreements).
E. Pursuant to the Credit Agreement, Borrower agreed to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the sum
of Ten Dollars ($10.00) in hand paid by Borrowers to Lender and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions.
(a) As used herein, the following terms shall have the
meanings set forth below:
"Alden Park Construction Expenses" shall mean
expenses in respect of the redevelopment of the Alden Park Property, which
expenses are not funded by Lender as advances under Section 5.03 of the Credit
Agreement, but are funded by River Bank to Eastview pursuant to, and in
accordance with, the New Alden Park Building Loan Agreement.
"General Reserve Amount" shall mean the dollar
amount designated by Borrowers, in their sole discretion, from time to time as
the General Reserve Amount by written notice thereof to Lender.
"Payment Amount" shall have the meaning assigned
to such term in the WTC Agreement.
"Payment Date" shall have the meaning assigned to
such term in the WTC Agreement.
"Permitted Expenses" shall mean (i) general and
administrative expenses of River Bank, RB Management Company and their
respective subsidiaries, (ii) working capital needs of River Bank, RB Management
Company and their respective subsidiaries, (iii) operating shortfalls for the
Collateral Property (to the extent there are insufficient funds available in the
applicable Operating Shortfall Reserve Subaccount under the
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applicable Cash Collateral Agreement), (iv) operating shortfalls for the
Secondary Collateral and (v) up to $2,000,000 of Alden Park Construction
Expenses.
"Secondary Collateral Net Cash Flow" shall mean,
as of any date of determination, the positive balance in the
Secondary Collateral Operating Account.
"Secondary Collateral Operating Account" shall
mean an account in the name of, and controlled by, River Bank at Lender
established for purposes of collecting and distributing income and expenses in
respect of the Secondary Collateral.
"WTC Agreement" shall mean the World Trade Center
Branch Deposit Protection Agreement, of even date herewith, between River Bank
and Lender.
(b) The following terms shall have the meanings assigned to
them in the Cash Collateral Agreements: Available Cash, Collateral Account,
Reserve Subaccount.
(c) Any capitalized term used herein but not otherwise defined
herein shall have the same meaning as it has in the Credit Agreement.
2. Master Account.
(a) Borrowers have established a restricted, interest-bearing
money market account in the name of River Bank at Lender (the "Master Account").
Subject to the provisions of this Agreement and the Credit Agreement, Lender
shall have the sole right to make withdrawals from the Master Account and to
exercise all rights with respect to the cash from time to time therein. The
Master Account may contain one or more subaccounts (each, a "Master Reserve
Subaccount") maintained by Lender on a ledger basis for purposes of holding the
reserves to be funded under Section 4.
(b) On the first Business Day of each calendar month, Lender
shall transfer to the Master Account 100% of the Available Cash in each of the
Collateral Accounts pursuant to Section 4(a)(3) of the Cash Collateral
Agreements (after funding of
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expenses and reserves under Sections 4(a)(1) and (2) of the Cash
Collateral Agreements).
(c) On the first Business Day of each calendar month, and at
such other times as River Bank may elect, River Bank shall deposit, or shall
cause to be deposited, into the Master Account all Secondary Collateral Net Cash
Flow.
3. Pledge of Collateral. As collateral security for the prompt
payment by Borrowers, as and when due and payable, of all of the Obligations,
Borrowers hereby pledge, transfer and assign to Lender, and grant to Lender, as
additional security for (y) the payment and performance of the Notes and the
obligations of Borrowers under the other Loan Documents, and (z) the obligations
of River Bank under Section 3 of the WTC Agreement, a continuing perfected
security interest in and to, and a general first lien upon, the following
(collectively, the "Collateral"): (a) the Master Account and all of Borrowers'
right, title and interest in and to all cash, property or rights transferred to
or deposited in the Master Account from time to time by Borrowers or on behalf
of Borrowers in accordance with the provisions of this Agreement, (b) all
earnings, investments and securities held in the Master Account in accordance
with this Agreement and the Credit Agreement and (c) any and all proceeds of the
foregoing.
4. Application of Cash in Master Account.
(a) On the first Business Day of each calendar month, the sums
in the Master Account, including the interest thereon but excluding sums held in
any Master Reserve Subaccounts, shall be paid and applied by Lender as follows
and in the following order of priority:
(1) FIRST, to pay accrued and unpaid interest due in respect of
the Notes;
(2) SECOND, the balance, if any, to the WTC Reserve Subaccount until there
is on deposit therein (exclusive of funds constituting interest accrued
on the WTC Reserve Subaccount) an amount equal to $500,000 multiplied
by the number of complete calendar months that have elapsed since the
date hereof, up to a maximum of $5,000,000.
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(3) THIRD, the balance, if any, to the General Reserve
Subaccount until an amount equal to the General Reserve
Amount is on deposit therein; and
(4) FOURTH, the balance, if any ("Cash Available for Principal Reduction"),
shall be paid to Lender for application to the Obligations as provided
in the Credit Agreement, subject to the proviso set forth in Section
2.08(d) of the Credit Agreement.
Except as provided in Section 4(b) below, Lender shall have no liability to
Borrower for Lender's failure to make any payments from the Master Account.
Notwithstanding anything to the contrary in this Section 4, upon the occurrence
and during the continuance of an Event of Default, Lender may apply all or part
of the monies in the Master Account to the payment of all or any part of the
Obligations, in such manner as Lender may elect in its sole discretion.
(b) To the extent there are insufficient sums in the Master
Account, including the interest thereon but excluding sums held in any Master
Reserve Subaccounts, to make the payments of interest required under Section
4(a)(1), then Lender shall apply any sums on deposit in the General Reserve
Subaccount to make the required interest payments. To the extent there are still
insufficient sums to make the payments of interest required under Section
4(a)(1), then Lender shall apply any sums on deposit in any of the Reserve
Subaccounts (other than any Tax Reserve Subaccounts) under the Cash Collateral
Agreements to make the required interest payments.
(c) Lender shall release funds from the General Reserve
Subaccount for payment of Permitted Expenses to operating accounts of River Bank
or its designee on the first Business Day of each calendar month, provided (1)
no Event of Default shall have occurred and be continuing, (2) River Bank shall
have delivered to Lender a Request for Disbursement in the form of Exhibit B
annexed hereto on or before the twentieth day of the preceding calendar month,
which Request for Disbursement sets forth in detail reasonably satisfactory to
Lender the unpaid Permitted Expenses for the next following calendar month
and/or for a previous calendar month which are proposed to be paid from
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the requested disbursement, (3) such costs and expenses are in conformance with
the then current operating budget for River Bank and its subsidiaries prepared
by River Bank or RB Management Company LLC and approved by Lender (or are
otherwise reasonably approved by Lender), (4) Lender has received evidence
satisfactory to Lender of the application of the funds released during the
previous month to the costs and expenses for which such funds were released, and
(5) in the case of any Alden Park Construction Expenses, each of the conditions
set forth in Section 5.03 of the Credit Agreement shall have been satisfied
(notwithstanding that the disbursement does not constitute an advance
thereunder). Disbursements for operating shortfalls in respect of the Secondary
Collateral shall be transferred to the Secondary Collateral Operating Account.
(d) Lender shall pay and apply the funds from the WTC Reserve
Subaccount to payment of the Payment Amount on the Payment Date. Upon payment of
the Payment Amount, or the determination by Lender under Section 3(b)(i) of the
WTC Agreement that River Bank has no further obligation to keep any funds in the
WTC Reserve Subaccount, any funds remaining in the WTC Reserve Subaccount shall
be treated in the same manner as any other amounts deposited in the Master
Account under Section 4(a). Upon such payment and/or application, Borrower's
obligations to fund the WTC Reserve Subaccount pursuant to Section 4(a)(2) shall
cease.
5. Reallocation of Reserve Subaccounts. Except with
respect to the Tax Reserve Subaccounts, Lender shall not withhold
its consent to a proposed change by Borrowers to the required
level of any Reserve Subaccount or to any reallocation among the
Reserve Subaccounts of balances therein.
6. Secondary Collateral Operating Account. Borrowers shall
deposit, or cause to be deposited, into the Secondary Collateral Operating
Account any and all rents, issues, profits, dividends, and income of every kind
(whether in the form of cash or any kind of cash equivalent described in Section
363(a) of the Bankruptcy Code) actually received by the Loan Parties which arise
from or are generated by the Secondary Collateral and any and all rentals,
operations or sales thereof. Borrowers shall pay, or cause to be paid, any and
all costs and expenses of every
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kind which arise from or are generated by the Secondary Collateral and any and
all rentals, operations or sales thereof. Borrowers shall not commingle funds on
deposit in the Secondary Collateral Operating Account with any other funds of
Borrowers. Pursuant to Section 6.05(d) of the Credit Agreement, Borrowers shall
prepare and deliver to Lender a statement of "sources" and "uses" of cash from
the Secondary Collateral Operating Account.
7. Further Assurances. Borrowers agree that at any time and
from time to time, at Borrowers' expense, they will promptly execute and deliver
all further instruments and documents and take all further action that may be
necessary or that Lender may reasonably request in order to perfect and protect
the security interest created hereby or to enable Lender to exercise and enforce
its rights and remedies hereunder in respect of the Collateral. If Borrowers
fail to perform any agreement or obligation contained herein, Lender itself may
perform or cause performance of such agreement or obligation, and the reasonable
out-of-pocket expenses of Lender incurred in connection therewith shall be
payable to Lender by Borrowers pursuant to Section 8 hereof.
8. Reasonable Care. Other than the exercise of reasonable care
to assure the safe custody of the Collateral while held hereunder, Lender shall
have no duty or liability to preserve rights pertaining thereto and shall be
relieved of all responsibility for the Collateral upon releasing it or tendering
release of it to Borrowers. For purposes of this Section 8, Lender shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Lender accords its own property, it being
understood that Lender shall not have any responsibility for ascertaining or
taking action with respect to any matters relative to any Collateral, whether or
not Lender has or is deemed to have knowledge of such matters. Nothing contained
herein shall be deemed to create any fiduciary obligation on the part of Lender
to Borrowers hereunder.
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9. Remedies Upon Event of Default. Borrowers acknowledge that:
(a) Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or in any other Loan
Document (including, without limitation, Section 9.06 of the Credit Agreement)
or otherwise available to it, all of the rights and remedies of a secured party
on default under the Uniform Commercial Code then in effect in the State of New
York (whether or not the Uniform Commercial Code applies to all or any portion
of the Collateral), and Lender may also, without notice except as specified
below, sell the Collateral or any part thereof in one or more parcel at public
or private sale, at any exchange, broker's board or at any of Lender's offices
or elsewhere, for cash, on credit, or for future delivery, and at such price or
prices and upon such other terms as Lender may deem commercially reasonable.
Borrowers agree that, to the extent notice of sale shall be required by law, at
least twenty days' notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Lender may adjourn
any public or private sale from time to time (by announcement, in the case of
any public sale, at the time and place fixed therefor), and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) Any cash held by Lender as Collateral and all cash
proceeds received by Lender in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied (after
payment of any amounts payable to Lender hereunder) by Lender against all or any
part of the Obligations in such order as Lender may elect or held for future
application against such Obligations. Each Borrower for itself and its
successors and assigns, hereby irrevocably waives and releases, to the extent
permitted by law, and whether now or hereafter in force, (i) the benefit of any
and all valuation and appraisement laws, (ii) any right or redemption whether
statutory or otherwise, in respect of the Collateral Property, (iii) any
applicable homestead or dower laws, and (iv) all exemption laws
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<PAGE>
whatsoever and all moratoriums, extensions or stay laws or rules, or orders of
court in the nature of any one or more of them.
10. No Liability; Expenses.
(a) Borrowers hereby agree that Lender and its officers,
directors, employees, agents and representatives shall not have any liability
whatsoever for any damages (whether consequential, compensatory, punitive,
special or any other type of damage) to Borrowers or any third party for any
error, act, delay or omission by Lender or such officers, directors, employees,
agents and representatives, except as result of their gross negligence or wilful
misconduct. Under no circumstances whatsoever shall Lender be or be deemed to be
a fiduciary of a Borrower and Lender shall have no duty to account to any party
whatsoever for sums received by or disbursed from the Master Account or
otherwise (except for delivery of bank statements in the ordinary course of
business). Lender shall in no event be liable to any party whatsoever for any
failure to pay expenses or for insufficiency of funds with which to pay same.
(b) Lender may deduct from the Collateral and pay to itself
all actual, out-of-pocket expenses incurred by Lender in connection with this
Agreement.
(c) Nothing in this Agreement is intended in any way to limit
any indemnifications set forth in the Loan Documents.
(d) The provisions of this Section 10 shall survive the
expiration or earlier termination of this Agreement.
11. Notices. All notices and other communications provided for
hereunder shall be in writing and shall be given in accordance with Section 9.01
of the Credit Agreement.
12. Continuing Security Interest; Termination.
(a) This Agreement shall create a continuing security interest
in and lien on the Collateral and shall (i) remain in full force and effect
until all of the Obligations shall have been paid in full or the Collateral
Property shall have ben
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released from the Lien of the Security Documents, (ii) be binding on Borrower
and its successors and assigns and (iii) inure, together with all rights and
remedies of Lender hereunder, to the benefit of Lender and its successors,
transferees and assigns in respect of the Loan Documents.
(b) None of the rights or obligations of Borrowers hereunder
may be assigned or otherwise transferred without the prior written consent of
Lender, which consent may be granted or withheld by Lender in its sole and
absolute discretion.
13. No Waiver or Modification.
(a) No failure or delay of Lender in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of Lender hereunder are cumulative and not exclusive of any rights
or remedies which it may otherwise have. No waiver of any provision of this
Agreement nor consent to any departure by Borrowers therefrom shall in any event
be effective unless the same shall be authorized as provided in paragraph (b)
below, and then such waiver or consent shall be effective only in the spe cific
instance and for the purpose for which given. No notice to or demand on
Borrowers in any case shall entitle it to any other or further notice or demand
in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agree ment or agreements in
writing entered into by Borrower and Lender.
14. Miscellaneous.
(a) In the event any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein or therein shall not in any way be affected or impaired
thereby.
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(b) This Agreement shall be construed in accordance with and
governed by the laws of the state of New York applicable to agreements executed
and to be performed in New York.
(c) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
MARINE MIDLAND BANK
By:/s/ Lief B. Karlsson
Leif B. Karlsson
Senior Vice President
RIVER BANK AMERICA
By:/s/ John P. Sullivan
John P. Sullivan
President
260 WEST SUNRISE CORP.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
KIRKHAM STOWE, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
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HESTER PROPERTY CORP.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
ACACIAS-MURRIETA, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
OLD CROW CANYON OFFICE, INC.
By:/s/ Edward L. Shugrue, III
Edward L. Shugrue, III
Vice President
RR IRVINGTON ASSOCIATES, L.P.
By: RR Irvington Development
Corp., general partner
By:/s/ Stuart M. Sugarman
Stuart M. Sugarman
Vice President
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MARINE MIDLAND BANK
One MMB Center
Buffalo, New York 14203
July 15, 1996
River Bank America
c/o RB Management Company
645 Fifth Ave. - 8th Floor
New York, NY 10022
Gentlemen:
We refer to the Credit Agreement dated as of June 28, 1996
among River Bank America ("RBA"), Marine Midland Bank ("Marine") and certain
affiliates of RBA (the "Credit Agreement") pursuant to which Marine agreed to
lend the Borrowers (as defined in the Credit Agreement) up to $99,060,000.
This will confirm that the closing of the facility
contemplated by the Credit Agreement (the "Facility") occurred on June 28, 1996
and that, as an accommodation to Borrowers, on such date Marine funded the
portion of the Facility that was required to be funded at the closing,
notwithstanding that, due to time constraints, the documentation for the
Facility was not then fully complete and that certain last minute changes agreed
to by the parties prior to funding (including, without limitation, the increase
in the size of the Facility from $91,860,000 to $99,060,000 and the agreement of
the parties set forth in Article IX-A of the Credit Agreement) were, because of
time constraints, incorporated into the closing documents by counsel for the
parties only following such funding.
This will evidence our agreement that (i) the final documents,
as agreed to by Marine's counsel, Kaye, Scholer, Fierman, Hays & Handler, LLP,
and Borrowers' counsel, Battle Fowler LLP, after full disclosure to and
consultation with their respective clients, and delivered on the date hereof,
constitute the final
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and complete agreement of the parties with respect to the Facility and, as such,
are fully binding on the parties and (ii) all such documents, whether executed
and/or finalized before or after the funding, shall be deemed to have been
executed and delivered immediately prior to the funding.
Sincerely,
MARINE MIDLAND BANK
By: /s/ Ronald F. Jones
Ronald F. Jones
Vice President
AGREED TO:
RIVER BANK AMERICA
By: /s/ Jerome R. McDougal
Jerome R. McDougal
Chief Executive Officer
260 WEST SUNRISE CORP.
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
KIRKHAM STOWE, INC.
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
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HESTER PROPERTY CORP.
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
ACACIAS-MURRIETA, INC.
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
OLD CROW CANYON OFFICE, INC.
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
RR IRVINGTON ASSOCIATES, L.P.
By: RR Irvington Development Corp.,
general partner
By: /s/ Kathy Kowler
Kathy Kowler
Assistant Secretary
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EXHIBIT 10.2
Management Agreement
This Management Agreement ("Agreement") dated as of the 28th day of
June, 1996 by and between River Bank America, a New York chartered savings bank
("Bank") and RB Management Company LLC, a New York limited liability company
("RB Management").
WITNESSETH:
WHEREAS, on or about June 28, 1996 the Bank will consummate the
Branch Sale (as defined in a Proxy Statement ("Proxy Statement") dated May 13,
1996 issued by the Bank); and
WHEREAS, pursuant to the Proxy Statement the Bank wishes to engage RB
Management to provide general and bank management services ("Bank Services") and
asset management services ("Asset Services") (collectively "Management
Services") as more fully detailed herein and in accordance with applicable law
and regulations; and
WHEREAS, pursuant to a commitment letter from Marine Midland Bank
("Marine Commitment") to provide a loan ("Marine Loan") to the Bank to
facilitate the Branch Sale, RB Management (a company controlled by the current
owner of 39% of the common stock of the Bank) must remain actively involved in
the day-to-day management of the affairs of the Bank while the Marine Loan is
outstanding; and
WHEREAS, since the Bank and RB Management may be deemed to be
affiliates, the Management Services have been reviewed by the Kenneth Leventhal
Real Estate Group of Ernst & Young LLP ("EY") as to form and amount of fees
payable to assure that they are and will be comparable to similar arrangements
negotiated on an arms length basis, all as more fully described herein.
NOW THEREFORE, in consideration of the covenants contained herein,
the parties agree as follows:
1. Engagement. Effective July 1, 1996 ("Effective Date"), the Bank
through its Board of Directors (the "Bank Board") hereby exclusively engages RB
Management, as an independent contractor, to provide the Bank with the
Management Services (as hereinafter defined and described) in accordance with
the provisions hereof, and RB Management accepts such engagement. RB Management
will report directly to the Bank Board and/or its duly authorized committees.
2. Term.
(a) The initial term of this Agreement shall be three
years commencing on the Effective Date (the "Initial Term") unless extended or
terminated pursuant to the terms hereof.
632568.1
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This Agreement shall automatically extend for a one year term upon the
termination of the Initial Term if the Marine Loan remains outstanding and shall
automatically further extend for an additional one year term upon the
termination of the first extension term if the Marine Loan remains outstanding.
(b) This Agreement may be terminated by the Bank and RB
Management as follows:
(i) Subject to the consent of Marine Midland (or such
other senior lender as may be applicable), either the Bank or RB
Management may terminate this Agreement for any reason by giving 180
days prior written to the other of such termination.
(ii) Subject to the consent of Marine Midland (or such
other senior lender as may be applicable), RB Management may
terminate this Agreement in the event of the failure of the Bank to
make any payment due RB Management pursuant to Section 4 of this
Agreement when due and the continued failure to make such payment for
a period of 45 days after written demand for such payment has been
made.
(iii) Subject to the consent of Marine Midland (or such
other senior lender as may be applicable), the Bank terminate this
Agreement for "Cause". For purposes hereof, "Cause" shall be defined
as a material breach of this Agreement and/or willful act or omission
by RB Management that is materially detrimental to the best interests
of the Bank and which breach, act or omission is not cured within a
reasonable time after notice of such breach, act or omission.
(iv) Subject to the consent of Marine Midland (or such
other senior lender as may be applicable), both the Bank and RB
Management may terminate this Agreement by their mutual written
consent.
(v) The Bank may terminate this Agreement during the
last years of the Initial Term or during either extension term upon
60 days notice from RB Management that all assets of the Bank have
been sold.
(c) Any termination under this Section 2(b) shall be
approved by action of the Bank Board and/or the Board of Directors of RB
Management ("Board"), as the case may be. Written notice of termination shall be
given by the terminating party in accordance with Section 10 of Agreement, as
well as this Section 2(b). In connection with any termination, each of the
parties hereto shall timely return to the other any property, assets, records or
documents of the other and shall cooperate with the other in order to assure the
orderliness of the termination. Terminations shall be without prejudice to the
rights of either party.
(d) Upon any termination of this Agreement, the fees
payable to RB Management will be pro rated for such year to the date of
termination. If the Agreement is terminated prior to
632568.1
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the expiration of any term, the Bank will also reimburse RB Management for the
reasonable costs incurred by RB Management as a result of the termination of the
Management Services, including, but not limited to, reasonable termination or
severance payments made to service providers or employees terminated by RB
Management as a result of such termination. Furthermore, on termination RB
Management shall provide the Bank with a list of all asset dispositions which it
is in the process of working on and if any such disposition is successfully
completed within six (6) months from said termination then RB Management shall
be entitled to the Asset Disposition Fee as defined in Paragraph 4(b)(ii)
hereinafter.
3. Services. Pursuant to the provisions of this Agreement, RB
Management shall exclusively (I) during the first ninety days of the term
hereof, coordinate with the Bank to effectuate and (II) thereafter provide the
Bank the Management Services as follows:
(a) Bank Management Services: RB Management will manage the
general business affairs and corporate activities of the Bank and oversee third
party providers, including and not by way of limitation:
(i) Development and implementation of policies and
procedures for the ordinary day to day general management of the Bank
and disposition of its assets and as approved by the Bank Board;
(ii) Manage corporate activities, including:
[a] Prepare and maintain business plans;
[b] Provide treasury and tax services,
e.g. cash management, Marine Loan
monitoring and tax return preparation;
[c] Provide financial and accounting
services, e.g. corporate operating
budgets, accounts payable, general
ledger financial reporting, Bank Board
reporting packages, financial
statements, regulating reporting;
[d] Monitor Bank's progress e.g. internal
controls, internal audits, operational
audits, processing of systems and
controls and operations;
[e] Monitor portfolio progress, e.g.
performance of asset management and
workout groups, review restructuring
plans, review loan status, review
asset business plans, coordinate with
asset management;
(iii) Provide, obtain and oversee third party services
when required such as loan servicing, general ledger, reporting IT
support, legal, accounting, audit, human resources.
632568.1
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<PAGE>
(iv) Notwithstanding the foregoing, RB Management, nor
any of its employees, members or directors, shall be deemed to be or
will act as officers of the Bank and any action which requires
signatures by Bank officers shall be presented to the Bank Board for
direction by it to be executed by Bank officers.
(b) Asset Management Services: Commencing with the
Effective Date, RB Management will manage assets, properties, loans and oversee
third party providers, including and not by way of limitation:
(i) Manage assets properties and loans, including:
[a] Troubleshoot loan portfolio, e.g.
borrower delinquencies and loan
status;
[b] Review loans to determine development
and recommendation of loan plans,
restructures or litigation strategies;
[c] Restructure loans, including planning,
implementing and monitoring;
[d] Foreclose assets, including hiring
attorneys, obtaining title and
commencing management;
[e] Prepare Asset Business Plans including
enhancement strategies;
[f] Manage and monitor REO assets,
including site visits, liaison with
brokers and property RB Managements,
review property reports, leasing;
[g] Dispose of REO assets, including
solicitation and review of offers,
recommendation of "best offer",
negotiation and closing of sale;
[h] Providing financial and operating
reports, including monthly reports,
quarterly analyses, financial
statements, reports for Bank Board and
regulatory agencies;
(ii) Provide, obtain and oversee third party services
when required such as property RB Managements, third party loan
marketing, brokerage, leasing, legal accounting and audit.
4. Compensation To Company. RB Management shall be compensated for
Management Services and expenses as follows:
(a) For Bank Management Services: RB Management shall be
paid an annual fee ("Base Fee"), payable monthly, not to exceed $1,250,000 based
on the costs expected to be
632568.1
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<PAGE>
incurred by RB Management to provide the Bank Management Services. The Base Fee
will be reviewed no less frequently than annually by the Audit Committee of the
Bank Board and adjusted based upon the costs expected to be incurred as
aforesaid. To the extent that RB Management determines it feasible to engage or
cause Bank to engage third party service providers (with the approval of the
Bank Board), which services would be considered part of RB Management's
functions (as opposed to expenses which would ordinarily require third party
services and out of pocket expenses), the Base Fee shall be adjusted
accordingly.
(b) For Asset Management Services:
(i) An annual fee ("Asset Services Fee"), payable
monthly equal to 0.75% of the average month-end book value of the
Bank's assets; and
(ii) An asset Disposition success fee ("Asset
Disposition Fee") equal to 0.75% of the proceeds from the sale or
collection or refinancing of any Bank asset.
(c) RB Management shall be reimbursed by Bank for any third
party service bills arising out of approved third party service agreements as
set forth in Paragraph 6 below which RB Management may (but shall not be
obligated to) pay. Further RB Management shall be reimbursed by the Bank for
reasonable out-of-pocket expenses incurred by RB Management in connection with
the rendering of Management Services. Approved third party bills and
out-of-pocket expenses arising out of services incurred prior to the date hereof
but which were in connection with consummation of the Branch Sale shall be
reimbursed hereunder.
5. Billing; Extensions of Credit. RB Management shall bill the Bank
for the Base Fee and the Asset Fee and out of pocket expenses no more frequently
than every two weeks in arrears. To the extent that payroll requires current
payments, the Base Fee and Asset Fee shall be paid currently and adjusted. The
Asset Disposition Fee shall be billed the month following the sale, collection
or refinancing. All bills shall be documented and itemized. Such bills will be
due upon receipt by the Bank and, after review of documentation, will be
promptly settled by the Bank. A final bill will be tendered within 30 days
following the effective date of any termination pursuant to Section 1 of this
Agreement and promptly settled by the Bank. It is not the intention of the
parties to extend credit one to the other in connection with this Agreement. Any
amounts not paid to RB Management within thirty (30) days of the date billed
shall bear interest at the rate of the Citibank "Prime" rate per annum.
6. Outsourced Services. As set forth in Paragraph 3 above, RB
Management will obtain and oversee the provision, on an outsourced, third party
basis of those services not provided directly by RB Management. All outsourcing
arrangements will be subject to prior review and recommendation as to
compensation terms by the Audit Committee and as to
632568.1
-5-
<PAGE>
other terms subject to prior approval by the Asset Management Committee of the
Bank Board. The cost of approved outsourced arrangements will be borne by the
Bank. Each person or entity providing such approved outsourced services will
sign a service contract with the Bank. Notwithstanding the foregoing, to the
extent that RB Management uses Fintek, Inc., an affiliate of RB Management, to
provide certain approved outsourced services, RB Management shall retain be
responsible to pay Fintek for such services.
7. Records. RB Management shall maintain detailed written records
with regard to matters failing within the ambit of this Agreement. Each shall
make available, for review, the records of the other upon request. Such records
shall be made available to banking or tax examiners, as required by law.
8. Related Party Transaction; Adjustment. This agreement has been
negotiated and executed in accordance with the terms set forth in the Proxy
Statement. The Bank and RB Management acknowledge and understand that payment of
monies by the Bank to RB Management for Services must be made only in accordance
with applicable laws and regulations. In this regard, RB Management understands
that the Bank Board will, from time to time review this Agreement, the Base Fee
and the outsourcing agreements for comparability of fees and terms to similar
arrangements negotiated on an arm's length basis. The Bank Board, at its
expense, has engaged and may continue to engage the EY to aid it in its
independent review process. Further, The New York State Banking Department has
advised that it will monitor and periodically review this agreement and the
terms of all outsourced agreements. The terms of this agreement are subject to
applicable law.
9. Assignments. Subject to the rights of Marine Midland (or such
other senior lender) as is applicable RB Management may assign its rights and
obligations hereunder to a successor prepared to assume and with the resources
to assume RB Management's obligations hereunder.
10. Notices, Requests and Other Communications. All requests and
other communications required or permitted to be given under this Agreement
shall be in writing and sent by mail, telegram, facsimile or telex, or overnight
courier to the address and to the attention of the persons specified below. All
notices, requests and other communications required or permitted under this
Agreement:
(a) If directed to the Bank, shall be addressed as follows:
River Bank America
145 Huguenot Street - 8th floor
New Rochelle, NY 10801
Attention: Board of Directors;
(b) If directed to RB Management, shall be addressed as
follows:
632568.1
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<PAGE>
RB Management Company, LLC
645 Fifth Avenue
8th Floor
New York, New York 10022
Attn: Mr. Alvin Dworman
11. Amendments, Waivers and Consents. No amendment, waiver or consent
with respect to this Agreement shall be effective unless set forth in an
instrument or instruments in writing, signed by the party to be bound thereby.
No waiver of any provisions of this Agreement shall constitute a waiver of any
other provision and any waiver so given shall be given only in the particular
instance and shall be considered to be a continuing waiver.
12. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties with respect to the transactions contemplated
hereby, and supersedes any and all prior agreements and understandings with
respect to such transactions.
13. Severability. If any provisions shall be held to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the remaining provisions of this Agreement.
14. Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the substantive laws of the State of New
York.
15. Confidentiality. Each of the Bank and RB Management will take all
reasonable steps to maintain the confidentiality of records and documents of the
other in the custody of the other.
IN WITNESS WHEREOF, the Bank and RB Management have caused this
Agreement to be executed effective as of the date first above written.
RIVER BANK AMERICA
BY /s/ Jerome R. McDougal
----------------------
RB MANAGEMENT COMPANY, LLC
BY /s/ Alvin Dworman
------------------------
632568.1
-7-
EXHIBIT 23.1
Consent of Independent Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of River Asset Sub, Inc. ("RAS") and River
Distribution Sub, Inc. ("RDS") for the registration of (i) 7,100,000 shares of
common stock of RDS and 1,400,000 shares of 15% non-cumulative perpetual
preferred stock of RDS and (ii) 7,100,000 shares of common stock of RAS and
1,400,000 shares of 15% non-cumulative perpetual preferred stock of RAS and to
the inclusion of our report dated July 18, 1997 (and financial statements) in
Annex B to the proxy statement/prospectus filed as part of the Registration
Statement, with respect to the consolidated statements of financial condition of
River Bank America as of June 30, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997.
New York, New York Ernst & Young LLP
October 17, 1997
633222.1
Exhibit 99.1
Common Stock Proxy
Preliminary Proxy Materials - October 23, 1997
RIVER BANK AMERICA
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
RIVER BANK AMERICA FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER ___, 1997.
The undersigned, as a holder of common stock, $1.00 par value (the
"Common Stock"), of River Bank America (the "Bank"), hereby appoints Leora Joy
and Ilyne Mendelson, and each of them, with full power of substitution, to vote
all shares of Common Stock for which the undersigned is entitled to vote through
the execution of a proxy with respect to the Special Meeting of Stockholders of
the Bank to be held at the Grand Hyatt of New York Hotel, Park Avenue at Grand
Central Station, New York, New York, 10017 on October ___, 1997 at 10:00 a.m.,
local time, or any adjournment or adjournments thereof, and authorizes and
instructs said proxies to vote in the manner directed below.
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING:
1. On the proposal to direct that the Bank be closed and its business
wound up substantially in accordance with the terms and conditions set
forth in the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
2. On the proposal to approve an amendment, necessary to implement the
Reorganization (as defined in the accompanying proxy statement), to the
certificate of designations for the 15% non-cumulative perpetual
preferred stock, series A, $1.00 par value, of River Bank in the form
attached to the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting, or any adjournment
thereof, or upon matters incident to the conduct of the meeting.
You may revoke this proxy at any time by forwarding to the Bank a subsequently
dated proxy received by the Bank prior to the Special Meeting.
(Continued and to be signed on the reverse side)
645777.1
<PAGE>
Returned proxy cards will be voted (1) as specified on the matters listed above;
(2) in accordance with the Board of Directors' recommendations where no
specification is made; and (3) in accordance with the judgment of the proxies on
any other matters that may properly come before the meeting. Please mark your
choice like this: /x/
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of the proposals set forth in the Notice of the Special Meeting of Stockholders.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the proxy statement furnished therewith.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title, as such. Joint owners should each sign. If a corporation,
please sign as full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: ____________________________, 1997
-----------------------------------------------------
Signature (title, if any)
-----------------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TAKING OF A
VOTE ON THE MATTERS HEREIN.
645777.1
<PAGE>
Preferred Stock Proxy
RIVER BANK AMERICA
THISPROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
RIVER BANK AMERICA FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER ___, 1997.
The undersigned, as a holder of 15% non-cumulative perpetual preferred stock,
Series A, $1.00 par value (the "Preferred Stock"), of River Bank America, (the
"Bank"), hereby appoints Leora Joy and Ilyne Mendelson, and each of them, with
full power of substitution, to vote all shares of Preferred Stock for which the
undersigned is entitled to vote through the execution of a proxy with respect to
the Special Meeting of Stockholders of the Bank to be held at the Grant Hyatt of
New York Hotel, Park Avenue at Grand Central Station, New York, New York, 10017
on October ___, 1997 at 10:00 a.m., local time, or any adjournment or
adjournments thereof, and authorizes and instructs said proxies to vote in the
manner directed below.
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS VOTES "FOR" EACH OF THE FOLLOWING
1. On the proposal to direct that the Bank be closed and its business
wound up substantially in accordance with the terms and conditions set
forth in the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
2. In their discretion, the proxies are authorized to vote upon such other
matters which holders of Preferred Stock are entitled to vote as may
properly come before the meeting, or any adjournment thereof, or upon
matters incident to the conduct of the meeting.
You may revoke this proxy at any time by forwarding to the Bank a subsequently
dated proxy received by the Bank prior to the Special Meeting.
(Continued and to be signed on the reverse side)
645777.1
<PAGE>
Returned proxy cards will be voted (1) as specified on the matters listed above;
(2) in accordance with the Board of Directors' recommendations where no
specification is made; and (3) in accordance with the judgment of the proxies on
any other matters that may properly come before the meeting. Please mark your
choice like this: /x/
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of the proposals set forth in the Notice of the Special Meeting of Stockholders.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the proxy statement furnished therewith.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title, as such. Joint owners should each sign. If a corporation,
please sign as full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: ____________________________, 1997
-----------------------------------------------------
Signature (title, if any)
-----------------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TAKING OF A
VOTE ON THE MATTERS HEREIN.
645777.1
