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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e) (1) OF THE SECURITIES EXCHANGE
ACT OF 1934)
(Amendment No. __________)
RB Asset, Inc.
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(Name of Issuer)
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RB Asset, Inc.
(Name of Person(s) Filing Statement)
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15% Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00
(Title of Class of Securities)
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749254 207
(CUSIP Number of Class of Securities)
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Nelson L. Stephenson
RB Asset, Inc.
645 Fifth Avenue
New York, NY 10022
(212) 848-0201
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
November 25, 1998
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(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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Transaction
Valuation(1) Amount Of Filing Fee
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Pursuant to Rule 0-11(b)(2) promulgated under the $7,263.20
Securities Exchange Act of 1934, as amended, the filing
fee relating to $36,316,000 principal amount of
Increasing Rate Junior Subordinated Notes due 2006, the
maximum amount of notes to be issued pursuant to the
offering described herein, is based upon the book value
of 1,400,000 shares of the 15% Non-Cumulative Perpetual
Preferred Stock, Series A, of $36,316,000.
</TABLE>
/ / Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
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Amount previously paid: Filing party:
---------------- ----------------
Form or registration no.: Date filed:
---------------- ----------------
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1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
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Item 1. Security and Issuer.
(a) The name of the issuer is RB Asset, Inc. (the "Issuer") and its principal
executive office is located at 645 Fifth Avenue, New York, New York 10022.
(b) The Issuer is seeking tender of any and all issued and outstanding shares of
the Issuer's 15% Non-Cumulative Perpetual Preferred Stock, Series A, par value
$1.00 (the "Series A Preferred Stock"). As of November 1, 1998, 1,400,000 shares
of Series A Preferred Stock were issued and outstanding. The Issuer is offering
to exchange (the "Exchange Offer") $25.94 principal amount of its newly-issued
Increasing Rate Junior Subordinated Notes due 2006 (the "Subordinated Notes")
for each share of Series A Preferred Stock tendered by holders thereof.
As of September 21, 1998: (i) Jerome McDougal, a director, owned 2,950
shares of Series A Preferred Stock; (ii) David Liptak, a director, as president
of West Broadway Partners, Inc., has voting and dispositive power over the
110,000 shares of Series A Preferred Stock held by such firm; accordingly, Mr.
Liptak may be deemed to be the beneficial owner of 110,000 shares of Series A
Preferred Stock; and (iii) Jeffrey Suskind, a director, as principal of Strome,
Suskind Investment Management, Inc., has voting and dispositive power over
130,000 shares of Series A Preferred Stock held by such firm; accordingly, Mr.
Suskind may be deemed to be the beneficial owner of 130,000 shares of Series A
Preferred Stock. Apart from the foregoing, the Issuer has no knowledge of
ownership of shares of Series A Preferred Stock by any officer, director or
affiliate of the Issuer. The Issuer has no knowledge as to whether any of the
foregoing persons intends to tender shares of Series A Preferred Stock pursuant
to the Exchange offer.
(c) The Series A Preferred Stock is not traded in any public market.
Accordingly, there are no published quotations for the price of the Series A
Preferred Stock.
(d) Not applicable
Item 2. Source and Amount of Funds or Other Consideration.
(a) The consideration for the purchase of Series A Preferred Stock is a
newly-issued series of Subordinated Notes of the Issuer.
(b) Not applicable.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the section titled "Purposes and Effects of
the Exchange Offer; Release of Claims" of the Offering Circular dated November
25, 1998 and attached hereto as Exhibit (a)(1) to Item 9 (the "Offering
Circular") is hereby incorporated by reference herein.
All shares of Series A Preferred Stock tendered by holders and accepted by
the Issuer will be retired.
In the event that all shares of Series A Preferred Stock were tendered, the
Board of Directors of the Issuer would be decreased in size by two and the two
directors elected by holders of the Series A Preferred Stock would cease to be
directors of the Issuer. The Information set forth in the section titled
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"Description of Capital Stock--Series A Preferred Stock--Voting Rights" of the
Offering Circular is hereby incorporated by reference herein.
Except as set forth above in this Item 3, the Issuer has no plans or
proposals which relate to or would result in any of the matters set forth in
subparagraphs (a) through (j) of Item 3 of Schedule 13E-4.
Item 4. Interest in Securities of the Issuer.
Neither the Issuer nor, to the knowledge of the Issuer, any executive
officer or director or any person controlling the Issuer or any associate or
subsidiary of any such person, including any executive officer or director of
any such subsidiary, has effected any transactions in the Series A Preferred
Stock during the period of 40 days preceding the date of this Schedule.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Promptly following the acceptance of shares of Series A Preferred Stock
exchanged by the holders thereof for Subordinated Notes, the Issuer will enter
into an indenture substantially in the form of Exhibit (b)(1) hereto with the
trustee pursuant to which the Subordinated Notes will be issued. Apart from the
foregoing and the information set forth in Item 6, there are no contracts,
arrangements, understandings or relationships relative to the Exchange Offer
between the Issuer and any person with respect to any securities of the Issuer.
Item 6. Persons Retired, Employed or to be Compensated.
The Issuer has retained MacKenzie Partners, Inc. as the Information Agent
and American Stock Transfer & Trust Company as the Exchange Agent in connection
with the Exchange Offer. The Information Agent and Exchange Agent will provide
to holders of the Series A Preferred Stock only information otherwise contained
in the Offering Circular and general information regarding the mechanics of the
exchange process. The Exchange Agent will provide the actual acceptance and
exchange services with respect to the exchange of shares of Series A Preferred
Stock for Subordinated Notes. Neither the Information Agent nor the Exchange
Agent will solicit exchanges in connection with the Exchange Offer and will not
make recommendations as to the acceptance or rejection of the Exchange Offer.
Both the Information Agent and Exchange Agent will be paid reasonable fees
directly by the Issuer for their services.
Item 7. Financial Information.
The financial data set forth in the section entitled "Selected Financial
Data and Pro Forma Financial Information" of the Offering Circular, the audited
financial statements of the Issuer set forth in the Issuer's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998 attached as Annex A to the
Offering Circular and the unaudited financial statements set forth in the
Issuer's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
attached as Annex B to the Offering Circular, are hereby incorporated by
reference herein.
Item 8. Additional Information.
(d) The information set forth in the section titled "Purposes and Effects
of the Exchange Offer; Release of Claims" of the Offering Circular regarding
litigation commenced by certain holders of Series A Preferred Stock is hereby
incorporated by reference herein.
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Item 9. Material to be filed as Exhibits.
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Exhibit (a)(1) Offering Circular of the Issuer dated November 25, 1998
Exhibit (a)(2) Letter of Transmittal of the Company dated November 25, 1998.
Exhibit (a)(3) Notice of Guaranteed Delivery of the Company dated November 25, 1998.
Exhibit (a)(4) Letter to Holders of the 15% Non-Cumulative Perpetual
Preferred Stock, Series A, par value $1.00, of the Company
dated November 25, 1998.
Exhibit (a)(5) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees of the Company dated November
25, 1998.
Exhibit (a)(6) Letter to Clients of the Company dated November 25, 1998.
Exhibit (a)(7) IRS Guidelines
Exhibit (b)(1) Form of Indenture by and between the Issuer and LaSalle
National Bank, as Trustee
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true complete and correct
November 25, 1998
By: /s/ Nelson L. Stephenson
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Nelson L. Stephenson, President
and Chief Executive Officer
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Exhibit (a)(1)
OFFERING CIRCULAR
RB ASSET, INC.
Offer to Exchange
Increasing Rate Junior Subordinated Notes Due 2006
for any and all of its
15% Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON THURSDAY,
DECEMBER 24, 1998, UNLESS EXTENDED
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RB Asset, Inc., a Delaware corporation (the "Company"), hereby offers
upon the terms and conditions set forth in this Offering Circular and the
related Letter of Transmittal (which together constitute the "Exchange Offer"),
to exchange $25.94 principal amount of its Increasing Rate Junior Subordinated
Notes due 2006 (the "Subordinated Notes"), for each outstanding share of its 15%
Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00 (the "Series
A Preferred Stock"), of which 1,400,000 shares are currently outstanding.
The Exchange Offer is not conditioned upon any minimum number of shares
of Series A Preferred Stock being tendered.
Certain of the holders of the Series A Preferred Stock are plaintiffs
in a lawsuit against the Company, certain of its predecessors and certain of its
directors alleging violations of rights of the holders of the Series A Preferred
Stock. Holders of shares of Series A Preferred Stock tendered and accepted by
the Company for exchange pursuant to the Exchange Offer will be deemed to have
released the Company, its predecessors and successors, and their respective
parents, subsidiaries, affiliates and assigns, and each of their respective
officers, directors, employees, partners, advisors, agents and representatives
from all claims they may have with respect to shares of Series A Preferred
Stock, including, but not limited to, claims asserted in such lawsuit. Such
holders will also be deemed to have waived all rights with respect to each share
of Series A Preferred Stock exchanged to receive the quarterly dividend of $.94
per share that was declared on the Series A Preferred Stock for the quarter
ended June 30, 1996 but which remains unpaid. Accordingly, all holders are urged
to consult with their legal counsel prior to tendering their shares in the
Exchange Offer. See "Purposes and Effects of the Exchange Offer; Release of
Claims."
The Exchange Offer will expire at 5:00 P.M., New York City time, on
December 24, 1998, unless extended (the "Expiration Date"). Subject to the terms
and conditions of the Exchange Offer, the Company will accept for exchange any
and all shares of Series A Preferred Stock which are properly tendered in the
Exchange Offer and not withdrawn prior to the Expiration Date. Tenders of shares
of Series A Preferred Stock may be withdrawn at any time prior to the Expiration
Date or, unless previously accepted for exchange, on or after January 25, 1999.
Certificates for
<PAGE>
Subordinated Notes to be issued in exchange for properly tendered shares of
Series A Preferred Stock will be mailed by the Exchange Agent (as defined)
promptly after the Expiration Date.
The Series A Preferred Stock of the Company is not traded on any public
market. Accordingly, there are no published quotations for the market price of
the Series A Preferred Stock.
The Exchange Offer is subject to certain customary conditions described
under "The Exchange Offer--Conditions of the Exchange Offer." The Company
reserves the right to terminate the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such conditions. In addition, subject
to compliance with the applicable rules of the Securities and Exchange
Commission (the "Commission"), the Company may amend the terms of the Exchange
Offer at any time prior to the Expiration Date.
The date of this Offering Circular is November 25, 1998.
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION...............................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.....................................2
SUMMARY.............................................................................3
RB Asset, Inc....................................................................3
Purposes of the Exchange Offer...................................................3
The Exchange Offer...............................................................5
The Subordinated Notes...........................................................5
The Series A Preferred Stock.....................................................8
Other Terms of Exchange Offer...................................................11
RB ASSET, INC......................................................................14
SELECTED FINANCIAL DATA AND PRO FORMA FINANCIAL INFORMATION........................21
CAPITALIZATION.....................................................................23
MARKET PRICE OF PREFERRED STOCK....................................................24
DESCRIPTION OF SUBORDINATED NOTES..................................................24
General.........................................................................24
Subordination...................................................................25
Redemption......................................................................26
Mandatory...............................................................26
Optional................................................................26
Premium.................................................................27
Limitations on Dividends........................................................27
Certain Covenants...............................................................27
Mergers, Consolidations, Etc....................................................29
Modification of the Indenture; Waiver of Covenants..............................29
Events of Default...............................................................29
Certain Definitions.............................................................30
PURPOSES AND EFFECTS OF THE EXCHANGE, OFFER; RELEASE OF CLAIMS.....................32
Purposes........................................................................32
Release of Claims...............................................................33
Certain Effects.................................................................34
THE EXCHANGE OFFER.................................................................34
Terms of the Exchange Offer.....................................................34
Expiration Date; Extensions; Termination; Amendments............................35
Acceptance for Exchange and Exchange for Shares of Series A Preferred Stock.....35
Procedures for Tendering Shares.................................................37
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Valid Tender............................................................37
Book-Entry Transfer.....................................................37
Signature Guarantees....................................................38
Guaranteed Delivery.....................................................38
Determination of Validity...............................................39
Backup Withholding......................................................40
Withdrawal Rights...............................................................40
Conditions of the Exchange Offer................................................41
Exchange Agent..................................................................42
Information Agent...............................................................43
Payment of Expenses.............................................................43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................44
Exchange of Series A Preferred Stock for Subordinated Notes.....................44
Taxation of the Subordinated Notes..............................................45
Interest and Original Issue Discount....................................45
Disposition of Subordinated Notes.......................................47
General.................................................................47
Backup Withholding..............................................................47
DESCRIPTION OF CAPITAL STOCK.......................................................48
General.........................................................................48
Common Stock....................................................................48
Dividends...............................................................48
Voting Rights...........................................................48
Liquidation.............................................................48
Preemptive Rights.......................................................48
Special Stockholders' Meetings..........................................48
Series A Preferred Stock........................................................49
General.................................................................49
Ranking.................................................................49
Dividend Rights.........................................................49
Liquidation.............................................................51
Voting Rights...........................................................51
No Other Rights.........................................................55
Redemption..............................................................55
Note Exchange...................................................................56
Restrictions on Dividends and Redemptions...............................58
Transfer Agent and Registrar....................................................58
</TABLE>
ANNEX A -- Annual Report on Form 10-K/A for fiscal year ended June 30, 1998.
ANNEX B -- Quarterly Report on Form 10-Q, as amended, for fiscal quarter ended
September 30, 1998.
ii
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The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a) (9) thereof. The
Company, therefore, will not pay any commission or other remuneration to any
broker, dealer, salesman or other person for soliciting tenders of the Series A
Preferred Stock. Directors, officers and employees of the Company, who will not
receive additional compensation therefor, may solicit exchanges from holders of
the Series A Preferred Stock
The Company has no arrangement or understanding with any broker,
salesman or other person to solicit tenders of Series A Preferred Stock. No
person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
or incorporated by reference in this Offering Circular and, if given or made,
such other information or representations should not be relied upon as having
been authorized by the Company. This Offering Circular does not constitute an
offer to any person in any jurisdiction in which that offer would be unlawful,
and the Company will not accept tenders from holders of Series A Preferred Stock
in any jurisdiction in which such acceptance would not be in compliance with the
securities or Blue Sky laws of such jurisdiction. Neither the delivery of this
Offering Circular nor the exchange of Subordinated Notes for Series A Preferred
Stock pursuant to the Exchange Offer shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof.
AVAILABLE INFORMATION
The Company is required to file periodic reports pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files reports and other information with the
Commission. The Company has also filed a Schedule 13E-4 (the "Schedule") with
the Commission, which Schedule also contains information with respect to the
Exchange Offer and the Company. This filed material can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
in Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and in
New York, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may also be obtained by mail from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web Site address which contains reports, proxy
and information statements and other information regarding the registrants that
file electronically with the Commission. The address of such site is
http://www.sec.gov.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Offering Circular incorporates by reference certain documents
which are not presented herein or delivered herewith. Copies of any such
documents filed by the Company, other than exhibits to such documents, are
available upon request, without charge, from RB Asset, Inc., 645 Fifth Avenue,
New York, New York 10022 (telephone (212) 848-0201).
The Company's Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1998 (the "1998 Form 10-K") and the Company's Quarterly Report on Form
10-Q, as amended, for the quarter ended September 30, 1998 (the "September 1998
Form 10-Q"), which have been filed with the Commission pursuant to the Exchange
Act, are attached to, and are incorporated in their entirety in, this Offering
Circular as Annex A and Annex B, respectively.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Offering Circular
and prior to the expiration of the Exchange Offer shall be deemed to be
incorporated by reference into this Offering Circular and to be a part hereof
from the respective dates of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Offering
Circular to the extent that a statement contained herein, or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded
to constitute a part of this Offering Circular.
2
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SUMMARY
This summary is qualified in its entirety by the detailed information
appearing elsewhere in this Offering Circular or incorporated by reference
herein.
RB Asset, Inc.
The Company is a Delaware corporation that, as a result of the
completion of reorganization steps on May 22, 1998 (the "Reorganization"),
succeeded to the assets, liabilities and business of River Bank America ("River
Bank" or the "Predecessor Bank"). Prior to the Reorganization, River Bank was a
New York State chartered stock savings bank which operated under the name East
River Savings Bank and was regulated by the New York State Banking Department
(the "Banking Department" or the "NYSBD") and, until December 31, 1997, by the
Federal Deposit Insurance Corporation (the "FDIC"). The Company's principal
business continues to be the management of its real estate assets, mortgage
loans and investment securities, under a business plan intended to maximize
shareholder value. Since the Reorganization, the Company has continued to manage
its business and assets, but is not engaged in the banking business and is not
subject to the regulatory constraints previously imposed on the Predecessor Bank
by the Banking Department.
The Company's executive offices are located at 645 Fifth Avenue, New
York, New York 10022, telephone (212) 848-0201.
Purposes of the Exchange Offer
In view of the changes in the nature of the Company and its business as
a result of the Reorganization, the Board of Directors has determined to effect
the Exchange Offer for the purpose of affording all holders of the Series A
Preferred Stock an opportunity to exchange their shares of Series A Preferred
Stock for the Subordinated Notes which may be, for them, a more attractive
investment. As more fully described herein, the Exchange Offer provides holders
of the Series A Preferred Stock with an opportunity to exchange perpetual
preferred stock having a $25.00 per share liquidation value with non-cumulative
dividend rights and no mandatory redemption provisions for $25.94 principal
amount of a debt instrument maturing in seven years which requires (i)
semi-annual payments of interest, payable in kind or in cash, at the Company's
option, for the first three years and thereafter in cash, at rates increasing
from an initial 8% per annum rate and (ii) the repayment of principal in
mandatory semi-annual installments commencing after three years with increasing
premiums on installments paid after four years.
By letter, dated May 22, 1998, counsel for certain holders of shares of
Series A Preferred Stock advised the Company that such holders objected to the
Reorganization. Specifically, such counsel alleged that the Reorganization (i)
constituted a "liquidation" of River Bank in violation of the terms of the
Certificate of Designations of the Series A Preferred Stock by failing to
provide for the payment to the holders of the Series A Preferred Stock of the
liquidating distribution required by the Certificate of Designations of $25.00
per share, plus all accrued, undeclared and unpaid dividends thereon, (ii) was
illegal under the New York Banking Law (the "NYBL") which provides, in the case
of a voluntary liquidation, that the liquidating corporation shall distribute
its remaining assets among its shareholders according to their respective rights
and interests, (iii) violated a commitment made in River Bank's proxy statement,
dated May 13, 1996, to retire the Series A Preferred Stock following approval
and finalization of the sale of
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certain of its branches and assets to Marine Midland Bank ("Marine Midland") and
(iv) constituted a breach of duty owed by River Bank's Board of Directors to the
holders of the Series A Preferred Stock.
The Company believes such allegations are without merit. However, in an
effort to resolve these claims on an amicable basis representatives of the
Company and such holders have discussed, from time to time since the date of
such letter, certain proposals under which the Company would offer to exchange a
new security for the Series A Preferred Stock. In October, 1998, the Company
proposed to representatives of such holders to effect an exchange offer upon
substantially the terms and conditions of the Exchange Offer made hereby. On
October 27, 1998, 11 holders of Series A Preferred Stock who claim to
beneficially own, in the aggregate, 849,000 shares (approximately 60.6% of the
outstanding shares) of Series A Preferred Stock (the "Organized Group")
commenced a lawsuit entitled Strome Global Income Fund et al. v. River Bank
America et. al. (the "Complaint") in Supreme Court of the State of New York,
County of New York, Index No. 605226198 (the "Action"), against the Company,
certain of its predecessors and certain of its directors (collectively, the
"Defendants"). The complaint in the Action alleged (the "Allegations"), among
other things, that (i) the Defendants breached the Certificate of Designations
relating to the Series A Preferred Stock by fraudulently transferring assets of
River Bank and by illegally amending the Certificate of Designations, (ii) the
Defendants fraudulently conveyed the assets of River Bank, thereby depriving the
holders of a liquidating distribution, (iii) the Defendants violated the NYBL by
liquidating River Bank without making the liquidating distribution required by
the NYBL and by denying holders appraisal rights to which they were entitled by
the NYBL, (iv) the Defendants breached their fiduciary duty to holders by
depriving them of their liquidating distribution, (v) the Defendants breached
their duty of disclosure by omitting from the Proxy Statement dated March 27,
1998 material facts relating to the holders' right to receive a liquidating
distribution, their appraisal rights for their shares and the requirement that
holders vote as a class with respect to the amendment of the Certificate of
Designations, (vi) the Defendants' implementation of the liquidation of River
Bank and the amendment of the Certificate of Designations were ultra vires and
should be declared void and (vii) the intentionally tortious nature of the
Defendants' conduct bars them from seeking indemnification for their actions
and, therefore, the Defendants should be enjoined from seeking indemnification
for damages or attorneys' fees relating to the action. The Company believes that
the Allegations are without merit and intends vigorously to oppose the Action.
Holders of Series A Preferred Stock, including any of the plaintiffs in
the Action, whose shares are tendered and accepted by the Company for exchange
pursuant to the Exchange Offer will have released the Company, its predecessors
and successors, and their respective parents, subsidiaries, affiliates and
assigns, and each of their respective officers, directors, employees, partners,
advisors, agents and representatives from all actions, causes of action, claims,
judgments, contracts, agreements or understandings, whether individual or
derivative in nature, which such holders now have, ever had or hereafter shall
or may have with respect to the shares of Series A Preferred Stock exchanged
pursuant hereto or any disclosures, rights or agreements relating thereto,
including, but not limited to, any claims made in the Action and any claims with
respect to the Reorganization and the transfer of assets from River Bank.
Accordingly, the
4
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Company urges all holders to consult with their legal counsel prior to tendering
their shares in the Exchange Offer. See "Purposes and Effects of the Exchange
Offer; Release of Claims."
The Exchange Offer
Exchange Ratio $25.94 principal amount of its Subordinated
Notes for each outstanding share of Series A
Preferred Stock. Although the Company has no
current intention of increasing the
principal amount of Subordinated Notes
exchanged for each share of Series A
Preferred Stock, any such increase will be
provided with respect to all previously
tendered shares of Series A Preferred Stock.
Expiration Date 5:00 P.M., New York City time, on
December 24, 1998, unless extended by the
Company.
Acceptance of Series A Preferred Subject to the terms and conditions of the
Stock and Delivery of Exchange Offer, the Company will accept for
Subordinated Notes exchange any and all shares of Series A
Preferred Stock which are properly tendered
in the Exchange Offer and not withdrawn
prior to the Expiration Date. The
certificates representing Subordinated Notes
issued pursuant to the Exchange Offer will
be delivered as soon as practicable
following the Expiration Date. See "The
Exchange Offer--Acceptance for Exchange and
Exchange for Shares of Series A Preferred
Stock."
The Subordinated Notes
Issue Increasing Rate Junior Subordinated Notes
due 2006 to be issued under an indenture
(the "Indenture") between the Company and La
Salle National Bank, as trustee (the
"Trustee").
Issuer The Company.
Principal Amount Up to $36,316,000, plus such additional
principal amount of Subordinated Notes as
may be issued in payment of interest on
the Subordinated Notes from the date of
their initial issuance until the semi-
annual interest period beginning on
January 16, 2002.
Denominations $100 and integral multiples thereof.
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Interest Payment Dates January 15 and July 15 of each year,
commencing July 15, 1999.
Maturity January 15, 2006
Interest Rate Interest will accrue from the Expiration
Date of the Exchange Offer at the initial
rate of 8.0% per annum (the "Initial Rate")
until the interest period beginning January
16, 2002 (the "Interest Increase Date") and
will be payable, at the option of the
Company, either in cash or by issuance of
additional Subordinated Notes. Thereafter,
interest will be payable semi-annually in
cash at an annual rate increasing from the
Initial Rate by 0.50% per annum each
semi-annual interest payment period
commencing with the interest payment period
beginning on the Interest Increase Date up
to a maximum rate of 12.0% per annum. The
Company's ability to pay in cash any
installment of interest on, or principal or
premium (if any) of, the Subordinated Notes
is currently subject to the approval of
Marine Midland under the terms of the
Company's Credit Agreement, dated June 28,
1996, with Marine Midland (the "Credit
Agreement"). However, borrowings under the
Credit Agreement mature on June 30, 1999,
subject to the right of the Company to
extend the maturity for two successive
one-year periods to June 30, 2001, which
date is prior to the dates on which cash
payments of interest and principal are
required to be made on the Subordinated
Notes. There can be no assurance that Marine
Midland will provide any such approval that
may be requested by the Company in the
future for the payment in cash of any
installment of interest or any prepayment of
principal and premium, if any, prior to the
dates such cash payments are required to be
made under the terms of the Subordinated
Notes.
Ranking The Notes will constitute unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Indebtedness (as
defined) of the Company. As of September 30,
1998, the Company had approximately
$68,760,000 of Senior Indebtedness
outstanding. The Indenture will not limit
the amount of additional indebtedness which
the Company can create, incur, assume or
guarantee, nor will the Indenture limit the
amount of indebtedness which any subsidiary
can create, incur, assume or guarantee. See
"Description of
6
<PAGE>
Subordinated Notes--Subordination."
Mandatory Redemption The Company will be required to redeem
1/14th (7.14285%) of the aggregate principal
amount of the Subordinated Notes issued by
the Company (including any issued in payment
of interest) semi-annually commencing on
July 15, 2002 and on each January 15 and
July 15 thereafter to and including July 15,
2005 at a price of 100% of principal amount
plus accrued and unpaid interest plus, for
redemptions effected after January 15, 2003,
a premium as noted below. The balance of the
outstanding Subordinated Notes will mature
on January 15, 2006. All mandatory
redemptions will be made on a pro rata
basis.
Optional Redemption The Subordinated Notes will be redeemable at
the option of the Company at any time in
whole or in part, by lot or pro rata as
determined by the Company's Board of
Directors (the "Board"), at the redemption
price of 100% of principal amount plus
accrued and unpaid interest plus, for
redemptions effected after January 15, 2003,
a premium as noted below.
Premium The redemption price for each redemption
(mandatory or optional) effected after
January 15, 2003 and the payment at maturity
will include a premium based on the amount
redeemed or paid. Such premium will consist
of (i) 0.5% of the principal amount redeemed
during the period from January 16, 2003
through and including July 15, 2003, (ii)
0.75% of the principal amount redeemed
during the period from July 16, 2003 through
and including January 15, 2004 and (iii) 1%
of the principal amount redeemed during the
period from January 16, 2004 through July
15, 2004, which premium will increase by 1%
for redemptions during each subsequent six
month period beginning each July 16 and
January 16 thereafter until it reaches 4% of
the principal amount for the period from
July 16, 2005 to January 15, 2006. Payments
of premium at maturity will also be at the
rate of 4% of the principal amount paid. The
following chart illustrates the amount of
premium payable on each $1,000 principal
amount of Subordinated Notes during the
periods indicated:
7
<PAGE>
<TABLE>
<CAPTION>
If redeemed during the 6-month
period beginning Premium
------------------------------ -------
<S> <C>
January 16, 2003 ............... $ 5.00
July 16, 2003 .................. $ 7.50
January 16, 2004 ............... $10.00
July 16, 2004 .................. $20.00
January 16, 2005 ............... $30.00
July 16, 2005 .................. $40.00
</TABLE>
The Series A Preferred Stock
The Series A Preferred Stock There are currently outstanding 1,400,000
shares of Series A Preferred Stock.
Dividends Dividends are payable on the Series A
Preferred Stock in cash at the rate of 15%
per share per annum (equivalent to $3.75 per
share per annum) if, when and as declared by
the Board. Dividends are not cumulative and
are payable quarterly in equal amounts in
arrears 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. Because dividends are
noncumulative, if no dividend is declared on
the Series A Preferred Stock by the Board
for a quarterly dividend period, holders of
the Series A Preferred Stock have no right
to receive, and the Company has no
obligation to pay, a dividend for that
period, whether or not dividends on the
Series A Preferred Stock are declared by the
Board for any future period. The Company's
ability to pay dividends is subject to the
approval of Marine Midland. The Company has
received notice from Marine Midland that the
approval necessary to declare or pay
dividends on the Company's Series A
Preferred Stock will not be provided at this
time. There can be no assurance that the
Company will deem it appropriate to pay
dividends on the Series A Preferred Stock,
even if permitted to do so by Marine
Midland.
Redemption The Series A Preferred Stock is perpetual in
duration and is not redeemable by the
Company prior to July 1, 2004. The Series A
Preferred Stock is redeemable by the Company
at its option at any time on or after July
1, 2004, in whole or in part, at the
redemption prices set forth herein, plus
unpaid dividends (whether or not declared)
for the then-current quarterly dividend
period up to, but excluding, the date fixed
for redemption without interest and without
the
8
<PAGE>
accumulation of unpaid dividends for prior
quarterly dividend periods. See "Description
of Capital Stock--Series A Preferred
Stock--Redemption."
Redemption of the Series A Preferred Stock
is subject to compliance with applicable
legal restrictions and restrictions
contained in the Company's Credit Agreement.
See "Description of Capital Stock--Note
Exchange--Restrictions on Dividends and
Redemptions."
Voting Except as required by law and in the limited
circumstances described herein, holders of
the Series A Preferred Stock are not
entitled to vote upon the election of
members of the Board or other matters in
general. Holders of the Series A Preferred
Stock, however, are entitled to elect two
members of the Board to fill two
newly-created directorships if, with respect
to each of any six quarterly dividend
periods, whether consecutive or not, the
Company shall have failed to pay (or set
aside an amount for payment of) full
dividends on the Series A Preferred Stock.
If, at any time such voting right vests,
there is outstanding any other class or
series of capital stock ranking on a parity
with the Series A Preferred Stock that has
been granted the same voting right, holders
of the Series A Preferred Stock and holders
of such other stock shall vote together as a
single class for the election of the two new
directors.
The holders of Series A Preferred Stock are
currently entitled to elect two directors
because dividends on the Series A Preferred
Stock are in arrears and unpaid for six
quarterly dividend periods. Accordingly, at
the Company's Annual Meeting of Stockholders
held on September 16, 1998, holders of the
Series A Preferred Stock elected two
directors.
In addition, so long as any shares of Series
A Preferred Stock are outstanding, the
approval of the holders of at least
66 2/3% of the outstanding Series A
Preferred Stock, voting together as a class,
is required for any amendment to the
Company's Certificate of Incorporation or
the Certificate of Designations relating to
the Series A Preferred Stock which would (i)
materially and adversely affect the rights,
preferences, powers or privileges of the
Series A Preferred Stock or (ii) create or
enlarge any class or series of equity
securities of the Company ranking prior to
the Series A Preferred Stock either as to
dividend rights or rights upon the voluntary
or
9
<PAGE>
involuntary dissolution, liquidation or
winding up of the Company.
Liquidation Preference The Series A Preferred Stock has
a liquidation preference over shares of
Common Stock of $25.00 per share, plus
unpaid dividends for the then-current
quarterly dividend period up to, but
excluding, the date fixed for liquidation.
Ranking The Series A Preferred Stock ranks, in
priority of payment of dividends and rights
upon the voluntary or involuntary
dissolution, liquidation or winding up of
the Company, junior to all claims of the
Company's creditors, including the claims of
the holders of any Subordinated Notes issued
pursuant hereto in exchange for shares of
Series A Preferred Stock. With respect to
payment of any dividends and of any
distribution upon any such dissolution,
liquidation or winding up, the Series A
Preferred Stock will be superior and prior
in rank to the Common Stock and to all other
classes and series of equity securities of
the Company now or hereafter authorized,
issued or outstanding, other than any class
or series of equity securities of the
Company expressly designated as being on a
parity with or senior to the Series A
Preferred Stock.
Payment Restriction on Junior
Stock The Company may not (i) declare or (ii) pay
any dividend or other distribution with
respect to the Common Stock or any class of
equity securities not expressly designated
as being on par with, or senior to, the
Series A Preferred Stock (collectively with
the Common Stock, the "Junior Stock"), other
than dividends in Common Stock or other
Junior Stock, or (iii) (except by conversion
into or exchange for Junior Stock)
repurchase, redeem or otherwise acquire any
Common Stock or other Junior Stock unless
the Company 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 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 Common
Stock or Junior Stock or (b) the Common
Stock or Junior Stock is being repurchased,
redeemed or otherwise acquired.
10
<PAGE>
Note Exchange In the event of a Change of Control (as
defined herein), all or part of the
outstanding shares of Series A Preferred
Stock shall be exchangeable at the option of
the Company or its successor (the "Note
Issuer") into subordinated notes (the "15%
Notes") of the Note Issuer, which will bear
interest at the rate of 15% per annum,
mature on July 1, 2014 and have payment and
redemption terms as described herein. There
can be no assurance that a Change of Control
will occur, that an exchange of 15% Notes
for outstanding shares of Series A Preferred
Stock (a "Note Exchange") will be effected
or that the other conditions to issuance of
the 15% Notes will be met. See "Description
of Capital Stock -- Note Exchange."
Other Terms of Exchange Offer
Release of Claims Each Holder accepting the Exchange Offer
will have released the Company, its
predecessors and successors, and their
respective parents, subsidiaries, affiliates
and assigns, and each of their respective
officers, directors, employees, partners,
advisors, agents and representatives from
all actions, causes of action, claims,
judgments, contracts, agreements or
understandings, whether individual or
derivative in nature, which such Holder now
has, ever had or hereafter shall or may have
with respect to the shares of Series A
Preferred Stock exchanged pursuant hereto or
any disclosures, rights or agreements
relating thereto, including, but not limited
to, any claims made in the Action and any
claims with respect to the Reorganization
and the transfer of assets from River Bank.
Holders who accept the Exchange Offer will
be barred from participating in any
litigation with respect to any released
claims, including but not limited to the
lawsuit described above, or from
participating in any other lawsuit or as a
member of any class of claimants in any
other litigation with respect to the
released claims.
Waiver of Dividend Each Holder (as defined herein) accepting
the Exchange Offer will be deemed to have
waived all rights, with respect to each
share of Series A Preferred Stock exchanged,
to receive the $.94 per share quarterly
dividend that was declared on shares of
Series A Preferred Stock for the quarter
ended June 30, 1996 but which remains
unpaid.
11
<PAGE>
Proposed Equity Rights Offering If within one year after expiration of the
Exchange Offer, the Company effects an
equity enhancement plan through either a
rights offering to the holders of its Common
Stock or the distribution to such holders of
Warrants to purchase additional shares of
Common Stock, each holder of Series A
Preferred Stock whose shares are accepted by
the Company for exchange pursuant to the
Exchange Offer will be entitled to
participate in such rights offering or
distribution of Warrants on the basis of one
subscription right or Warrant for each share
of Series A Preferred Stock so exchanged for
Subordinated Notes. The Company's Board of
Directors has authorized management to
develop a proposal for such a rights
offering or distribution of Warrants,
provided that, under the terms thereof,
Alvin Dworman, Odyssey Partners, L.P. and
East River Partnership B, who currently own
an aggregate of 50.8% of the outstanding
shares of Common Stock, will have the
ability to avoid dilution of their aggregate
percentage ownership of the Common Stock
outstanding upon consummation thereof. While
the Company presently intends to effect such
a plan, there can be no assurance that such
rights offering or distribution of Warrants
plan will be effected or as to the terms and
conditions thereof.
Conditions of the Exchange Offer The Exchange Offer is subject to certain
conditions, all of which may be waived by
the Company. The Company has obtained the
consent of Marine Midland to effect the
Exchange Offer. However, there can be no
assurance that Marine Midland will provide
any approval that may be requested by the
Company in the future for the payment in
cash of any installment of interest or any
prepayment of principal and premium, if any,
prior to the dates such cash payments are
required to be made under the terms of the
Subordinated Notes. See "The Exchange
Offer--Conditions of the Exchange Offer."
Procedures for Tendering Series A
Preferred Stock Holders of Series A Preferred Stock wishing
to accept the Exchange Offer must complete
and sign the Letter of Transmittal in
accordance with the instructions contained
therein and forward or hand deliver the
Letter of Transmittal to the Exchange Agent
at one of the addresses set forth herein.
See "The Exchange Offer--Procedures for
Tendering Shares."
12
<PAGE>
Withdrawal of Tenders Tenders may be withdrawn at any time prior
to 5:00 P.M., New York City time, on the
Expiration Date or, unless previously
accepted for exchange, on or after January
25, 1999. See "The Exchange
Offer--Withdrawal Rights."
Certain Federal Income Tax
Consequences For a discussion of certain Federal income
tax consequences of the exchange of the
Series A Preferred Stock, see "Certain
Federal Income Tax Consequences."
Exchange Agent American Stock Transfer & Trust Company. See
"The Exchange Offer--Exchange Agent."
Information Agent MacKenzie Partners, Inc. See "The Exchange
Offer--Information Agent."
Further Information For further information, contact Nelson L.
Stephenson, President of the Company at
(212) 848-0206.
13
<PAGE>
RB ASSET, INC.
The Company is a Delaware corporation that, as a result of the
completion of reorganization steps on May 22, 1998 (the "Reorganization"),
succeeded to the assets, liabilities and business of River Bank America ("River
Bank" or "Predecessor Bank"). Prior to the Reorganization, River Bank was a New
York State chartered stock savings bank and was regulated by the New York State
Banking Department (the "Banking Department" or the NYSBD") and, until December
31, 1997, the Federal Deposit Insurance Corporation (the "FDIC"). The Company's
principal business continues to be the management of its real estate assets,
mortgage loans and investment securities, under a business plan intended to
maximize shareholder value. Subsequent to the Reorganization, the Company has
managed its business and assets without the regulatory constraints previously
imposed on the Predecessor Bank by the Banking Department. Unless the context
otherwise requires, references to the business, assets and liabilities of the
Company prior to May 22, 1998 include the business, assets and liabilities of
the Predecessor Bank.
The Predecessor Bank was founded in 1848. In 1925, the Predecessor Bank
adopted the name "East River Savings Bank" which it continued to use in its
retail business through June 28, 1996. The Predecessor Bank converted to a
stock-form savings bank through a plan of conversion in 1985. Effective October
1, 1988, East River Savings Bank formally changed its corporate name to "River
Bank America." On June 28, 1996, the Predecessor Bank sold its remaining eleven
branches (the "Branch Sale") to Marine Midland, inclusive of the name East River
Savings Bank. Following consummation of the Branch Sale, all retail banking
operations of the Predecessor Bank ceased.
On May 22, 1998, River Bank completed its Reorganization into a
Delaware corporation named RB Asset, Inc., under a plan that was approved at the
Predecessor Bank's special meeting of stockholders on May 1, 1998. RB Asset,
Inc., as the successor in the Reorganization, succeeded to the assets,
liabilities and business of River Bank. As a result of the Reorganization and
related dissolution discussed below, the capital stock of River Bank was
canceled and, as of the close of business on May 22, 1998, River Bank's stock
transfer records were closed.
Following stockholder approval of the Reorganization, all of the
Predecessor Bank's assets, liabilities and business were transferred to, or
assumed by, the Predecessor Bank's wholly-owned subsidiary, River Asset Sub,
Inc. on May 11, 1998, pursuant to the terms of an assignment and assumption
agreement and related transfer documents. Thereafter, on May 18, 1998, the Board
of Directors declared distribution of the capital stock of its wholly-owned
subsidiary, River Distribution Sub, Inc. ("River Distribution"), payable on a
book-entry basis to the Predecessor Bank's stockholders of record on May 22,
1998. At the time of such distribution the capital stock of River Distribution
had no value.
In the distribution, all of the issued and outstanding shares of common
stock ("River Distribution Common Stock") and 15% Noncumulative Perpetual
Preferred Stock, Series A of River Distribution ("River Distribution Series A
Preferred") held by the Predecessor Bank were distributed to the Predecessor
Bank's stockholders on a share-for-share basis such that each holder of the
common stock of River Bank ("River Bank Common Stock") received one share of
River Distribution Common Stock for each share of River Bank Common Stock held
by such stockholder and each holder of 15% Noncumulative Perpetual Preferred
Stock, Series A, of River
14
<PAGE>
Bank ("River Bank Series A Preferred") received on share of River Distribution
Series A Preferred Stock for each share of River Bank Series A Preferred Stock
held by such stockholder.
Finally, upon book-entry payment of the distribution, on May 22, 1998,
River Distribution merged with and into River Asset whereupon the stockholders
of River Distribution became stockholders of the surviving corporation which
changed its name to RB Asset, Inc. In the merger, the shares of capital stock of
River Distribution were converted into shares of identical capital stock of RB
Asset, Inc., the renamed surviving corporation in the merger. Accordingly,
subsequent to the merger, the capital stock of River Bank had no value. Stock
certificates representing shares of capital stock of RB Asset, Inc. were then
distributed to holders of record as of May 22, 1998.
In connection with the Reorganization steps, on May 19, 1998, a
petition for an order of dissolution declaring River Bank dissolved and its
legal existence terminated was filed in the Supreme Court of the State of New
York. The Supreme Court issued the order on June 18, 1998 and, upon the filing
of the order of dissolution with the Banking Department on June 23, 1998, the
Predecessor Bank was dissolved and its legal existence terminated. Upon such
dissolution, the capital stock of River Bank was canceled and the stock transfer
records of River Bank were closed.
On June 28, 1996, the Predecessor Bank consummated the Branch Sale
contemplated by the Purchase of Assets and Liability Assumption Agreement (the
"Branch Agreement") by and between the Predecessor Bank and Marine Midland.
Pursuant to the terms of the Branch Agreement, Marine Midland assumed $1,159.6
million of deposit liabilities (the "Assumed Deposits") and acquired assets with
an aggregate carrying value of $1,066.6 million (the "Transferred Assets"). The
Transferred Assets consisted primarily of loans secured by real estate,
mortgage-backed and investment securities, and 11 bank branch offices, inclusive
of the name East River Savings Bank. Included in the Transferred Assets was
approximately $32.4 million of loans in which the Predecessor Bank was granted
subordinated participation interests. Also included in the Transferred Assets
were the proceeds of disposition 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 Predecessor 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 Note 11 to the Consolidated Financial Statements contained in
the 1998 Form 10-K attached hereto as Annex A.
The Assumed Deposits exceeded the Transferred Assets by approximately
$93.0 million, which represented the premium received by the Predecessor Bank in
the Branch Sale Marine Midland also purchased the Predecessor Bank's branch
office realty at 96th Street in Manhattan for $1.3 million. The Predecessor Bank
recorded a net pretax gain on the sale of offices and branches of $77.6 million
reflecting 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
15
<PAGE>
other net costs of $700,000. During the year ended June 30, 1997, the
Predecessor Bank's indemnification agreements with Marine Midland were amended
and $3.3 million contingency reserve was recorded.
At June 30, 1996, the Predecessor 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"). Subsequent to the Branch Sale, the
Predecessor Bank continued substantially the same asset management strategy for
Retained Assets as had been previously employed by the Predecessor Bank, in the
years immediately prior to the Branch Sale.
Following the Branch Sale, the Company engaged RB Management Company,
LLC (the "Management Company") to manage its operations on a day-to-day basis,
including developing and recommending strategies to the Company's Board of
Directors regarding the ongoing management of assets. The Management Company is
a privately-owned entity that was newly formed in June 1996 and is controlled by
Alvin Dworman, who owns 39.0% of the outstanding Common Stock of the Company.
The closing of the Branch Sale was conditioned upon the Predecessor
Bank's obtaining financing with terms and in an amount reasonably acceptable to
the Predecessor Bank and determined to be reasonably adequate to permit
consummation of the Branch Sale. The Predecessor Bank obtained from Marine
Midland a loan facility (the "Facility") under the Credit Agreement 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 Midland had
extended $89.8 million under the Facility to the Predecessor Bank, which has
been reduced by repayment activity to $60.6 million at June 30, 1998, with an
additional $19.6 million in proceeds maintained in a restricted cash account
pending negotiation with Marine Midland as to the application of such proceeds
to reduce the outstanding balances of the Facility. Proceeds of the Facility
were utilized by River Bank to (i) refinance all or part of the certain
indebtedness secured by assets to be transferred to Marine Midland, 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 Predecessor
Bank's operations subsequent to the Branch Sale.
Marine Midland assumed substantially all of the Predecessor Bank's
retail deposits in connection with the Branch Sale. In addition, the Predecessor
Bank ceased accepting retail deposits on the date of the Branch Sale. At June
30, 1996, the Predecessor Bank held certain non-retail deposits, which
aggregated approximately $3.0 million. During the quarter following the Branch
Sale, the Predecessor Bank arranged for the assumption by other insured
depository institutions of its remaining non-retail deposits. Accordingly, the
Predecessor Bank held no deposit liabilities at June 30, 1997. However, at June
30, 1997, the Predecessor Bank continued to be regulated by the FDIC and the
NYSBD. On October 31, 1996 the Predecessor Bank
16
<PAGE>
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 Predecessor Bank received notice that the FDIC, as requested by the
Predecessor Bank, intended to terminate the Predecessor Bank's status as an
insured state nonmember Bank on December 31, 1997. Upon the issuance of this
order by the FDIC, the Predecessor Bank was no longer subject to banking
regulation by the FDIC. In connection therewith, the Predecessor Bank also
received from the Banking Department a waiver of any applicable New York State
deposit insurance requirements.
Conditions imposed in connection with the NYSBD's approval of the
Branch Sale included: (i) the Predecessor 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 ("Condition No. 1"); (ii) the
Predecessor 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 ("Condition
No. 2"); (iii) increased levels of minimum regulatory capital requirements; (iv)
the Predecessor Bank's agreement to continue to submit its proposed capital
transactions to the NYSBD for prior approval; (v) the continuation of the
Predecessor Bank's then-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 have deemed appropriate.
In June 1997, the Predecessor Bank submitted an alternate proposal (the
"Alternate Proposal") to the NYSBD pursuant to which the Predecessor Bank would
implement Conditions No. 1 and No. 2 of the approval of the Branch Sale. The
Predecessor 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 Corporation Law.
Successor would acquire all of the assets of the Predecessor Bank and continue
all of the business of the Predecessor Bank under the same business plan as
adopted by the Predecessor Bank. Following the transfer of its assets and
liabilities to Successor, the Predecessor 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 Corporation Law, which would not be subject to the
jurisdiction of the Banking Department. The proposed transfer was expected to
qualify as a tax-free reorganization under the Internal Revenue Code and, as
such, the Company expected (and continues to expect) that certain of the
Predecessor Bank's tax attributes would be preserved. In connection with the
Alternate Proposal, common and preferred shareholders of River Bank would
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 owned the
Predecessor Bank on the record date.
Prior to June 30, 1997, the Predecessor Bank received the NYSBD'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 Predecessor Bank on a timely
17
<PAGE>
basis. The NYSBD'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 was filed by the Bank by October 15,
1997. The Predecessor Bank met Condition No. 1 and Condition No. 2 on a timely
basis. A copy of the Alternate Proposal and the NYSBD's letter indicating their
conditional approval of the Alternate Proposal were included as Exhibits 14 and
15 to FDIC Form F-2, dated June 30, 1997.
The Banking Department had also advised the Predecessor Bank that the
Predecessor Bank's minimum capital requirement, set at $115 million in the
NYSBD's approval of the Branch Sale and subsequently amended to $106 million in
May 1997, was to remain at $106 million until the Predecessor Bank's final
dissolution. Further, the Banking Department's conditional approval of the
Alternate Proposal required that the Predecessor Bank seek prior approval from
the NYSBD for any material sale or transfer of assets, or expenditures for
development or renovation of any properties held by the Predecessor Bank prior
to the completion of the dissolution of the Predecessor Bank.
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 Predecessor Bank was engaged in lending activities,
particularly California, the Company'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 Predecessor Bank's
lending strategy of the 1980s, required significant time and attention by the
Predecessor Bank's management. Over the five year period preceding the Branch
Sale, 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. Primarily as
a result of conditions imposed by the NYSBD, subsequent to June 28, 1996, the
Predecessor Bank has not originated a material amount of loans.
The Predecessor Bank had previously received notice that the approvals
necessary to declare or pay dividends on the Predecessor Bank's outstanding
shares of River Bank Series A Preferred Stock would not be provided. In June
1996, the Predecessor Bank's Board of Directors declared a River Bank Series A
Preferred Stock dividend for the quarter ending June 30, 1996, payment of which
was subject to the receipt of required approvals from the FDIC and the NYSBD
(the Predecessor Bank's regulators at the time), as well as Marine Midland (the
Predecessor Bank's and the Company's principal lender). Primarily as a result of
the above, neither the Company's or the Predecessor Bank's Board of Directors
has taken any action regarding a quarterly dividend on the Company's Series A
Preferred Stock for any of the quarterly periods ended from September 30, 1996
through September 30, 1998. Although the Company is no longer subject to the
jurisdiction of either the FDIC or the NYSBD, declaration or payment of future
dividends on the Company's Series A Preferred Stock will continue to be subject
to the approval of Marine Midland for so long as the Facility remains
outstanding. The
18
<PAGE>
Company has received notice from Marine Midland that the approval necessary to
declare or pay dividends on the Company's Series A Preferred Stock will not be
provided at this time. There can be no assurance that the Board of Directors of
the Company will deem it appropriate to pay dividends on the Series A Preferred
Stock, even if permitted to do so by Marine Midland.
Marine Midland has given its consent for the Company to make the
Exchange Offer and issue Subordinated Notes pursuant thereto, provided, however,
that without the prior written approval of Marine Midland, the Company may not
make cash payments of interest on, or principal or premium (if any) on, the
Subordinated Notes while any senior indebtedness under the Credit Agreement
remains outstanding. However, borrowings under the Credit Agreement mature on
June 30, 1999, subject to the right of the Company to extend the maturity for
two successive one-year periods to June 30, 2001, which date is prior to the
dates on which cash payments of interest and principal are required to be made
on the Subordinated Notes. There can be no assurance that Marine Midland will
provide any such approval that may be requested by the Company in the future for
the payment in cash of any installment of interest or any prepayment of
principal and premium, if any, prior to the dates such cash payments are
required to be made under the terms of the Subordinated Notes.
During the fiscal year ended June 30, 1998, the Company reported a net
loss applicable to common shares of $1.5 million, or $0.21 per share.
Significant factors contributing to the Company's fiscal 1998 results include a
net interest loss (interest expense on borrowed funds in excess of interest
income from loan assets), after provision for possible credit losses, of $3.4
million, real estate property and maintenance expenses of $10.9 million, other
operating expenses of $6.1 million, writedowns of investment in real estate of
$1.1 million, depreciation expenses of $383,000 and provisions for income taxes
of $434,000, partially offset by rental income from real estate operations of
$13.8 million, realization of contingent participation interest and gains on the
sale of real estate of $3.4 million and $2.0 million, respectively, and net
gains on the sale of investment securities, available for sale, of $1.7 million.
The Company reported net income attributable to common shares of
$450,000, or $0.06 per share, for the three months ended September 30, 1998, an
increase of $839,000 as compared with a net loss attributable to common shares
of $389,000, or ($0.05) per share, for the three month period ended September
30, 1997. The primary reason for the increase in the Company's net operating
results for the quarter ended September 30, 1998, as compared to the same
quarter in the previous year, was the recording of other property income of
$488,000 in the quarter ended September 30, 1998, an increase of $1.8 million as
compared with a net loss from other property operations of $1.3 million in the
same quarter of the previous year. In addition, contingent participation
revenues increased $231,000 to $1.0 million in the quarter ended September 30,
1998 as compared to $769,000 in same quarter of the previous year. Interest
expense and other expenses also declined $227,000 and $788,000, respectively, in
the quarter ended September 30, 1998 as compared with the same period in the
previous year. Interest expense declined from $1.6 million in the quarter ended
September 30, 1997 to $1.4 million during the same quarter of the current year.
Other expenses declined from $1.7 million in the quarter ended September 30,
1997 to $934,000 during the quarter ended September 30, 1998.
19
<PAGE>
On October 27, 1998, 11 holders of Series A Preferred Stock who claim
to beneficially own, in the aggregate, 849,000 shares (approximately 60.6% of
the outstanding shares) of Series A Preferred Stock (the "Organized Group")
commenced a lawsuit entitled Strome Global Income Fund et. al. v. River Bank
America et al. (the "Complaint") in Supreme Court of the State of New York,
County of New York, Index No. 605226198 (the "Action"), against the Company,
certain of its predecessors and certain of its directors (collectively, the
"Defendants"). The complaint in the Action alleged (the "Allegations"), among
other things, that (i) the Defendants breached the Certificate of Designations
relating to the Series A Preferred Stock by fraudulently transferring assets of
River Bank and by illegally amending the Certificate of Designations, (ii) the
Defendants fraudulently conveyed the assets of River Bank, thereby depriving the
holders of a liquidating distribution, (iii) the Defendants violated the New
York Banking Law (the "NYBL") by liquidating River Bank without making the
required liquidating distribution required by the NYBL and by denying holders
appraisal rights to which they were entitled by the NYBL, (iv) the Defendants
breached their fiduciary duty to holders by depriving them of their liquidating
distribution, (v) the Defendants breached their duty of disclosure by omitting
from the Proxy Statement dated March 27, 1998 material facts relating to the
holders' right to receive a liquidating distribution, their appraisal rights for
their shares and the requirement that holders vote as a class with respect to
the amendment of the Certificate of Designations, (vi) the Defendants'
implementation of the liquidation of River Bank and the amendment of the
Certificate of Designations were ultra vires and should be declared void and
(vii) the intentionally tortious nature of the Defendants' conduct bars them
from seeking indemnification for their actions and, therefore, the Defendants
should be enjoined from seeking indemnification for damages or attorneys' fees
relating to the action. The Company believes that the Allegations are without
merit and intends vigorously to oppose the Action. See "Purposes and Effects of
the Exchange Offer; Release of Claims."
The Company's executive offices are located at 645 Fifth Avenue, New
York, New York 10022, telephone (212) 848-0201.
For additional information about the Company's assets and business,
including its real estate assets, lending activities and real estate loan
portfolio and other assets, see the 1998 Form 10-K and the September 1998 Form
10-Q attached as Annex A and Annex B, respectively, to this Offering Circular.
20
<PAGE>
RB ASSET, INC.
SELECTED FINANCIAL DATA AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected financial information of the Company and
consolidated subsidiaries at the dates and for the years ended as indicated
which should be read in conjunction with the Company's Consolidated Financial
Statements, for the three years ended June 30, 1998, included in the 1998 Form
10-K attached as Annex A to this Offering Circular. The table also sets forth
selected pro forma financial information, for the three months ended September
30, 1998, to reflect the Exchange Offer for the Series A Preferred Stock being
accepted on a 100% basis and 50% basis. The pro forma financial information has
been presented as if the transaction had been effective on July 1, 1998, the
first day of the three month period ended September 30, 1998.
<TABLE>
<CAPTION>
September 30, 1998
Three Months -----------------------
Year Ended June 30, Ended Assumes Exchange
------------------------------------- September 30 Acceptance Rate of
1996 1997 1998 1998 100% 50%
--------- --------- --------- --------- --------- ---------
(Dollar in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Financial Position (at end of period):
Total assets ..................................... $ 285,478 $ 211,659 $ 190,910 $ 191,744 $ 191,744 $ 191,744
Borrowed funds ................................... 115,786 84,272 68,760 68,760 68,760 68,760
Increasing Rate Junior Subordinated Notes due
2006.............................................. -- -- -- -- 36,316 18,157
Accrued interest payable -- Increasing Rate
Junior Subordinated Notes Due 2006 (1) ...... -- -- -- -- 726 363
Other liabilities (2) ............................ 31,172 18,877 14,967 15,463 14,150 14,807
Total liabilities ................................ 146,958 103,149 83,727 84,223 119,952 102,088
Stockholders' equity (3) ......................... 138,520 108,510 107,183 107,521 71,795 89,658
Operations Data:
Net rental operations ....................... 588 $ 3,131 $ 2,512 $ 629 $ 629 $ 629
Net gain (loss) on sale of real estate ...... (3,499) (1,754) 1,998 488 488 488
Writedowns of investments in real estate .... (1,889) (19,745) (1,106) -- -- --
Interest income ............................ 89,159 4,469 2,697 867 867 867
Realization of contingent participation
revenues .................................. -- -- 3,356 1,000 1,000 1,000
--------- --------- --------- --------- --------- ---------
Total revenues ................................ 84,359 (13,899) 9,457 2,984 2,984 2,984
Interest expense ............................ 61,794 7,360 6,109 1,431 1,431 1,431
Interest expense - Increasing Rate Junior
Subordinated Notes due 2006 (4) ......... -- -- -- -- 726 363
Other expenses .............................. 36,754 7,369 6,117 934 934 934
--------- --------- --------- --------- --------- ---------
Total expenses ................................ 98,548 14,729 12,226 2,365 3,091 2,728
Net income (loss) before other income
(expense) and before provision for income taxes .. (14,189) (28,628) (2,769) 619 (107) 256
Gain on Branch Sale ........................ 77,560
Other income (expense) ...................... 3,391 (4,795) 1,697 -- -- --
--------- --------- --------- --------- --------- ---------
80,951 (4,795) 1,697 -- -- --
Income (loss) income before income tax
expense (benefit)................................. 66,762 (33,423) (1,072) 619 (107) 256
Income tax expense (benefit) ..................... 11,749 (3,300) 434 169 169 169
--------- --------- --------- --------- --------- ---------
Income (loss) income after income tax
expense (benefit)................................. 55,013 (30,123) (1,506) 450 (276) 87
Dividends declared on preferred stock ............ 5,250 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to Common Shares .... $ 49,763 $ (30,123) $ (1,506) $ 450 $ (276) $ 87
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per share applicable to
Common Shares (basic and diluted) .............. $ 7.01 $ (4.24) $ (0.21) $ 0.06 $ (0.04) $ 0.01
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Book value per share applicable to Common
Shares at end of period ........................ $ 14.58 $ 10.35 $ 10.17 $ 10.21 $ 10.11 $ 10.16
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Ratio of interest expense to total expenses ...... 0.63x 0.50x 0.50x 0.60x 0.70x 0.66x
Ratio of interest expense to revenues ............ 0.71x 1.26x 0.58x 0.48x 0.72x 0.60x
Ratio of total expenses to revenues .............. 1.14x 2.52x 1.16x 0.79x 1.03x 0.91x
Ratio of earnings to fixed charges(5) ............ (6) (6) (6) 1.43x (6) 1.4x
</TABLE>
- ------------
(1) Accrued interest payable in the pro forma presentation assumes that the
exchange took place on July 1, 1998, the start of the Company's fiscal
year. The accrued interest payable represents accrued interest
expenses, calculated at 8.0% per annum, accrued on the Subordinated
Notes for the quarter ended September 30, 1998.
(2) Other liabilities have been reduced in the pro forma presentation by
the amount of Series A. Preferred Stock dividend payable that would be
capitalized as a component of the Subordinated Notes exchanged under
the different exchange
21
<PAGE>
rate assumptions presented. The Series A Preferred Stock dividend
payable on the Company's books is the result of the dividend declared
but not paid for the quarter ended June 30, 1996.
(3) Total stockholder's equity in the pro forma presentation has been
reduced by the amount of Series A Preferred Stock assumed to be
exchanged for Subordinated Notes under the different exchange rate
assumptions presented. In addition, stockholder's equity in the pro
forma presentation has been reduced by the amount of interest expense
(as described in Note 1) that would be required for the quarter ended
September 30, 1998 under the assumption that the exchange tool place on
July 1, 1998.
(4) The accrued interest payable represents accrued interest expense,
calculated at 8.0% per annum, accrued on the Subordinated Notes for the
quarter ended September 30, 1998, under the assumption that the
exchange took place on July 1, 1998.
(5) For the purpose of calculating the ratio of earnings to fixed
charges, (i) earnings consist of income from continuing operations
before income taxes, plus fixed charges and (ii) fixed charges
consist of interest expense incurred and 15% of rental payments
under operating leases (an amount estimated by management to be the
interest component of such rentals). Fixed charges for fiscal 1996
include interest expense on deposits and borrowed funds of the
Company's Predecessor, River Bank America. If the gain on Branch
Sale were included in the ratio determination for fiscal 1996, the
actual ratio would be 2.07x.
(6) Earnings were not adequate to cover fixed charges by $10,798,
$33,423, and $1,072 during the fiscal years ended June 30, 1996,
June 30, 1997 and June 30, 1998, and by $107 for the three months
ended September 30, 1998 as presented on an adjusted basis assuming
100% acceptance of the Exchange Offer.
22
<PAGE>
RB ASSET, INC.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
which should be read in conjunction with the Company's Consolidated Financial
Statements for the fiscal year ended June 30, 1998 and the fiscal quarter ended
September 30, 1998, included in the 1998 Form 10-K and the September 1998 Form
10-Q attached as Annex A and Annex B, respectively, to this Offering Circular.
The capitalization of the Company has been adjusted on a pro forma basis to
reflect the Exchange Offer for Series A Preferred Stock being accepted on a 100%
basis and a 50% basis on September 30, 1998.
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------
Assumes Exchange
Acceptance Rate of
Historical 100% 50%
---------- --------- ---------
<S> <C> <C> <C>
Borrowed Funds ...................................................... $ 68,760 $ 68,760 $ 68,760
Increasing Rate Junior Subordinated Notes due 2006 .................. -- 36,316 18,158
Other liabilities (1) ............................................... 15,463 14,147 14,805
--------- --------- ---------
Total liabilities ............................................. $ 84,223 $ 119,223 $ 101,723
--------- --------- ---------
Stockholders' equity
15% non-cumulative perpetual preferred stock, Series A, par value $1,
liquidation value $25 (1,400,000 shares authorized issued
and outstanding) (2) .............................................. 1,400 -- 700
Common stock, par value $1 (30,000,000 shares
authorized, 7,100,000 shares issued and outstanding) .............. 7,100 7,100 7,100
Additional paid-in-capital (3) ...................................... 111,170 77,570 94,370
Accumulated deficit ................................................. (11,111) (11,111) (11,111)
Securities valuation account ........................................ (1,038) (1,038) (1,038)
--------- --------- ---------
Total stockholders' equity ..................................... 107,521 72,521 90,021
--------- --------- ---------
Total liabilities and stockholders equity ........................... $ 191,744 $ 191,744 $ 191,744
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(1) Other liabilities have been reduced in the pro forma presentation by
the amount of Series A Preferred Stock dividend payable that would be
capitalized as a component of the Subordinated Notes exchanged under
the different exchange rate assumptions presented. The Series A
Preferred Stock dividend payable on the Company's books is the result
of the stock dividend declared but not paid for the quarter ended June
30, 1996.
(2) The par value of the Series A Preferred Stock has been reduced in the
pro forma statements by the amount of Series A Preferred Stock par
value that would be capitalized as a component of the Subordinated
Notes exchanged under the different exchange rate assumptions
presented.
(3) Additional paid in capital has been reduced in the pro forma statements
by the amount of Series A Preferred Stock that would be capitalized as
a component of the Subordinated Notes, less the par value affect
described in Note 2, exchanged under the different exchange rate
assumptions presented.
23
<PAGE>
MARKET PRICE OF PREFERRED STOCK
The Series A Preferred Stock is not traded in any public market.
Accordingly, there are no published quotations for the price of the Series A
Preferred Stock.
On October 28, 1998, there were four holders of record of the Series A
Preferred Stock.
DESCRIPTION OF SUBORDINATED NOTES
The Subordinated Notes will be issued under an Indenture (the
"Indenture") between the Company and La Salle National Bank (the "Trustee"). The
following summary of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the full text of the Indenture, including the definition of certain terms in
the Indenture. 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.
General
The Subordinated Notes will be limited in aggregate principal amount to
$36,316,000 plus such additional principal amount of Subordinated Notes as may
be issued in payment of interest on the Subordinated Notes from the date of
their initial issuance until the semi-annual interest period beginning on
January 16, 2002. The Subordinated Notes will mature on January 15, 2006. The
Subordinated Notes will be unsecured subordinated obligations of the Company and
will be issued in fully registered form, in denominations of $100 and integral
multiples thereof. If a fraction of a Subordinated Note would otherwise be
issuable to a holder of Series A Preferred Stock, the principal amount of the
Subordinated Note issued to such holder shall be rounded down to the next lower
multiple of $100 and cash in an amount equal to the fraction of a Subordinated
Note which would otherwise be so issuable shall be paid to the holder of such
Series A Preferred Stock. Interest on the Subordinated Notes that is payable in
kind shall be paid by issuance of additional Subordinated Notes in multiples of
$100, with any interest amount under $100 payable in cash.
Interest on the Subordinated Notes will accrue from the date of their
initial issuance until the interest period beginning on January 16, 2002 (the
"Interest Increase Date"), at the rate of 8% per annum (the "Initial Rate"), and
shall be payable, at the option of the Company, either in cash or by the
issuance of additional Subordinated Notes. Interest shall be payable
semi-annually in arrears on January 15 and July 15 of each year, commencing on
July 15, 1999, that Subordinated Notes are outstanding, or if such day is not a
Business Day (as defined below), on the next Business Day (an "Interest Payment
Date"), to the holders of record at the close of business on the last day
(whether or not a Business Day) of the month prior to the month in which an
Interest Payment Date occurs (other than interest not duly paid or provided for
within the grace period provided in the Indenture, which interest will be paid
to holders on a special record date instead).
24
<PAGE>
Commencing with the Interest Increase Date, interest will be payable only in
cash and the interest rate will increase from the Initial Rate by 0.50% per
annum each semi-annual interest payment period up to a maximum rate of 12.0% per
annum. Interest will be computed on the basis of a 360-day year of 12 30-day
months. A "Business Day" is any day other than a day when banks are required or
permitted to be closed in the State of New York.
Subordination
The Subordinated Notes will be general unsecured obligations of the
Company, will be subordinated in right of payment to the prior payment in full
of all existing and future Senior Indebtedness (as defined below) of the
Company. At September 30, 1998, Senior Indebtedness of the Company was
approximately $68,760,000.
Upon any bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its properties, or any assignment
for the benefit of creditors or marshaling of the assets and liabilities of the
Company or any distribution to creditors or a liquidation or dissolution of the
Company, the holders of Senior Indebtedness will be entitled to receive payment
in full in cash or, at the option of such holders, cash equivalents of all
obligations with respect to Senior Indebtedness, before the holders receive any
payment of principal, premium (if any) or interest on the Subordinated Notes or
receive any distributions to which the holders would otherwise be entitled.
Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration (unless waived, rescinded or annulled) or otherwise, all principal
thereof and interest thereon shall first be paid in full in cash, or such
payment duly provided for in cash or in a manner satisfactory to the holders of
such Senior Indebtedness, before any payment is made on account of principal,
premium (if any) interest, fees or expenses on the Subordinated Notes.
The Company may not, directly or indirectly, pay principal, premium (if
any), or interest on the Subordinated Notes and may not redeem or acquire any
Subordinated Notes for cash or property or make any other distribution with
respect to the Subordinated Notes if (i) a default in the payment of principal
or interest on any Senior Indebtedness occurs and is continuing (a "Payment
Default") unless and until such default has been cured or waived; or (ii) a
default, other than a Payment Default, on any Senior Indebtedness occurs and is
continuing that permits the holders (or the agent) of such Senior Indebtedness
to accelerate its maturity (a "Non-Payment Default"), and such default is either
the subject of judicial proceedings or the Trustee or the Paying Agent, if any,
receives a notice of the default from a person who may give it pursuant to the
terms of the Indenture at least two business days prior to the relevant payment
date; provided, however, that only one such notice relating to the same event of
default or any other default existing at the time of such notice under the
Senior Indebtedness may be given during any 365-consecutive-day period.
The Company shall resume payments on the Subordinated Notes and may
acquire them upon the earlier of (a) when the default is cured or waived, or (b)
in the case of a default referred
25
<PAGE>
to in clause (ii) in the immediately preceding paragraph, the 179th day after
receipt of the notice referred to therein if the default is not the subject of
judicial proceedings.
A Payment Default or Non-Payment Default with respect to the Senior
Indebtedness does not suspend the rights of the Trustee or the holders to take
any action to accelerate the maturity of the Subordinated Notes; provided,
however, that all Senior Indebtedness then or thereafter due shall be paid
first. In addition, any acceleration of the maturity of the Subordinated Notes
as a result of the failure by the Company to make any payment of principal,
premium (if any) or interest on the Subordinated Notes as a result of the
foregoing subordination provisions shall be automatically rescinded if (i) all
defaults on Senior Indebtedness are permanently cured or waived and (ii) the
payment or payments, the omission of which gave rise to the Event of Default (as
defined), is or are made within 179 days after the Trustee received notice of
the default or defaults on Senior Indebtedness and at the time of such recision
no other Default or Event of Default shall have occurred and be continuing. See
"Description of Subordinated Notes--Events of Default."
As a result of the subordination provisions described above, in the
event of insolvency of the Company, funds that would otherwise be payable to
holders will be paid or turned over to the holders of Senior Indebtedness to the
extent necessary to pay the Senior Indebtedness in full, and the Company may be
unable to make all payments due under the Subordinated Notes. Additionally, in
such event, holders may recover less ratably than general creditors of the
Company or the general creditors of the Company's subsidiaries to whom the
Subordinated Notes are structurally subordinated.
Redemption
Mandatory. Commencing on July 15, 2002 and on each January 15th and
July 15th thereafter to and including July 15, 2005, or if such day is not a
Business Day, on the next Business Day (a "Mandatory Redemption Date"), the
Company will redeem 1/14th (7.14285%) of the aggregate principal amount of the
Subordinated Notes issued by the Company (including any Subordinated Notes
issued in payment of interest) at a price of 100% of the principal amount of the
Subordinated Notes redeemed plus accrued and unpaid interest thereon, plus a
premium as described below if redeemed after January 15, 2003. The Company will
redeem Subordinated Notes held by holders of record, with certain exceptions, at
the close of business on the last day (whether or not a Business Day) of the
month prior to the month in which a Mandatory Redemption Date occurs. Any
outstanding Subordinated Notes will mature on January 15, 2006. All mandatory
redemptions will be made on a pro rata basis.
Optional. The Subordinated Notes will also be redeemable at the option
of the Company at any time and from time to time, in whole or in part, by lot or
pro rata, upon record and redemption dates, all as determined by the Board of
Directors, at the redemption price of 100% of the principal amount of the
Subordinated Notes redeemed plus accrued and unpaid interest thereon, plus a
premium as described below if redeemed after January 15, 2003.
26
<PAGE>
Premium. The redemption price for each redemption (mandatory or
optional) effected after January 15, 2003 and the payment at maturity will
include a premium based on the amount redeemed or paid. Such premium will
consist of (i) 0.5% of the principal amount redeemed during the period from
January 16, 2003 through and including July 15, 2003, (ii) 0.75% of the
principal amount redeemed during the period from July 16, 2003 through and
including January 15, 2004 and (iii) 1% of the principal amount redeemed during
the period from January 16, 2004 through July 15, 2004, which premium will
increase by 1% for redemptions during each subsequent six month period beginning
each July 16 and January 16 thereafter until it reaches 4% of the principal
amount for the period from July 16, 2005 to January 15, 2006. Payments of
premium at maturity will also be at the rate of 4% of the principal amount paid.
The following chart illustrates the amount of premium payable on each $1,000
principal amount of Subordinated Notes during the periods indicated:
<TABLE>
<CAPTION>
If redeemed during the 6-month
period beginning Premium
------------------------------ -------
<S> <C>
January 16, 2003 ............................... $ 5.00
July 16, 2003 .................................. $ 7.50
January 16, 2004 ............................... $10.00
July 16, 2004 .................................. $20.00
January 16, 2005 ............................... $30.00
July 16, 2005 .................................. $40.00
</TABLE>
Limitations on Dividends
The Company has agreed in the Indenture that so long as any of the
Subordinated 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 Company'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.
Certain Covenants
In addition to the limitations on dividends described above, the
Indenture contains certain other covenants of the Company. Among other things,
the Company covenants (i) to punctually pay the principal of and interest on the
Subordinated Notes on the dates and in the manner provided in the Subordinated
Notes; (ii) that neither the Company nor any Subsidiary will engage in
transactions with any affiliate (which term shall not include, for purposes of
this covenant, in the case of the Company, any Subsidiary, and in the case of a
Subsidiary, the Company or another Subsidiary), except that the Company or
Subsidiary may (x) make such payments and investments and enter into such
transactions on terms and conditions at least as favorable to the
27
<PAGE>
Company 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 Company, 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 Company or any Subsidiary; and (z) make
payments to the Management Company for management services pursuant to the
Management Agreement dated as of June 28, 1996 by and between River Bank America
and the Management Company, as said Agreement may be modified, amended or
extended from time to time; (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 Company with the Commission pursuant to Section 13 of
the Exchange Act or, if the Company is not subject to the requirements of such
section, certain other information based on certain of such requirements and (y)
as long as any Subordinated Notes are outstanding, mail to each Subordinated
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 (as defined) 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 annual 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 be the conduct of their businesses, if the
failure to so comply, obtain, preserve and renew adversely affects in any
material respect the Company's consolidated business, 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 Company 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 Subordinated 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.
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Mergers, Consolidations, Etc.
The Indenture provides that the Company 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 Company under the Subordinated Notes and the Indenture, including but not
limited to the due and punctual payment of the principal of and interest on all
the Subordinated Notes; (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.
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 Subordinated Notes, the Company 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 Subordinated Note so affected, no such supplemental indenture
shall (i) reduce the amount of Subordinated 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 on any Subordinated Note; (iii) reduce
the principal or change the fixed maturity of any Subordinated Note, or change
the date on which any Subordinated Note may be subject to redemption, or reduce
the redemption price therefor; (iv) make any Subordinated 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 Subordinated
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 Subordinated Notes. Certain
modifications to the Indenture may be made without notice to, or consent of, the
holders of the Subordinated Notes.
Events of Default
An Event of Default is defined in the Indenture to include: (i) failure
by the Company to pay interest on any Subordinated Note when due and payable, if
such failure continues for a period of 30 days; (ii) failure by the Company to
pay the principal or premium, if any, of any Subordinated Note when due and
payable at maturity or upon redemption, acceleration or otherwise; (iii) failure
by the Company 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
Company by the Trustee or the Company and the Trustee by the holders of any
least 25% in principal amount of the Subordinated 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
Company or any of its subsidiaries if as a result of such default
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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 Company; and (vi)
existence of judgments against the Company 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.
The Company will covenant in the Indenture to file annually with the
Trustee a statement regarding compliance by the Company with the terms of the
Indenture and specifying any defaults of which the signers may have knowledge.
If an Event of Default occurs and is continuing, the Trustee or the
holders of not less than 25% in principal amount of the Subordinated Notes then
outstanding may declare all the Subordinated Notes to be immediately due and
payable by notice to the Company (and to the Trustee if given by the holders).
Under certain circumstances, the holders of a majority in principal amount of
the Subordinated Notes then outstanding may rescind such a declaration.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease which
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"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, at the option of the
holder thereof, exchangeable for or convertible into securities other than
non-redeemable preferred stock or common stock) 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.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time.
"Indebtedness" of any person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
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representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to Capital Lease Obligations), if and to the extent
any of the foregoing indebtedness would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP (except that any such
balance that constitutes a trade payable and/or an accrued liability arising in
the ordinary course of business shall not be considered Indebtedness), and shall
also include, to the extent not otherwise included, any Capital Lease
Obligations, the maximum fixed repurchase price of any Redeemable Stock,
indebtedness secured by a Lien to which the property or assets owned or held by
such Person is subject, whether or not the obligations secured thereby shall
have been assumed, guarantees of items that would be included within this
definition to the extent of such guarantees (exclusive of whether such items
would appear upon such balance sheet), and net liabilities in respect of
Interest Rate Protection Obligations. For purposes of the preceding sentence,
the maximum fixed repurchase price of any Redeemable Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
provided that if such Redeemable Stock is not then permitted to be repurchased,
the repurchase price shall be the book value of such Redeemable Stock. The
amount of Indebtedness of any person at any date shall be, without duplication,
(i) the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability of any such contingent obligations at
such date and (ii) in the case of Indebtedness of others secured by a Lien to
which the property or assets owned or held by such Person is subject, the lesser
of the fair market value at such date of any asset subject to a Lien securing
the Indebtedness of others and the amount of the Indebtedness secured.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include without limitation, interest rate swaps, caps,
floors, collars and similar agreements.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
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"Redeemable Stock" means any capital stock or other equity interest
which, by its terms (or by the term of any security into which it is convertible
or for which it is exchangeable before the stated maturity of the Subordinated
Notes), or upon the happening of any event, matures or is mandatorily
redeemable, in whole or in part, prior to the stated maturity of the
Subordinated Notes.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or guaranteed, unless, in
the case of any particular Indebtedness, the instrument under which such
Indebtedness is created, incurred, assumed or guaranteed expressly provides that
such Indebtedness shall not be senior or superior in right of payment to the
Subordinated Notes. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include the principal of, premium, if any, and interest on
all obligations of every nature of the Company from time to time owed to Marine
Midland under the Facility, including, without limitation, principal of and
interest on, and all fees and expenses payable under the Facility.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER; RELEASE OF CLAIMS
Purposes
In view of the changes in the nature of the Company and its business as
a result of the Reorganization, the Board of Directors has determined to effect
the Exchange Offer for the purpose of affording all holders of the Series A
Preferred Stock an opportunity to exchange their shares of Series A Preferred
Stock for the Subordinated Notes which may be, for them, a more attractive
investment. As more fully described herein, the Exchange Offer provides holders
of the Series A Preferred Stock with an opportunity to exchange perpetual
preferred stock having a $25.00 per share liquidation value with non-cumulative
dividend rights and no mandatory redemption provisions for $25.94 principal
amount of a debt instrument maturing in seven years which requires (i)
semi-annual payments of interest, payable in kind or in cash, at the Company's
option, for the first three years and thereafter in cash, at rates increasing
from an initial 8% per annum rate and (ii) the repayment of principal in
mandatory semi-annual installments commencing after three years with increasing
premiums on installments paid after four years.
By letter, dated May 22, 1998, counsel for certain holders of shares of
Series A Preferred Stock advised the Company that such holders objected to the
Reorganization. Specifically, such counsel alleged that the Reorganization (i)
constituted a "liquidation" of River Bank in violation of the terms of the
Certificate of Designations of the Series A Preferred Stock by failing to
provide for the payment to the holders of the Series A Preferred Stock of the
liquidating distribution required by the Certificate of Designations of $25.00
per share, plus all accrued, undeclared and unpaid dividends thereon, (ii) was
illegal under the New York Banking Law which provides, in the case of a
voluntary liquidation, that the liquidating corporation shall distribute its
remaining assets among its shareholders according to their respective rights and
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interests, (iii) violated a commitment made in River Bank's proxy statement,
dated May 13, 1996, to retire the Series A Preferred Stock following approval
and finalization of the sale of certain of its branches and assets to Marine
Midland and (iv) constituted a breach of duty owed by River Bank's Board of
Directors to the holders of the Series A Preferred Stock.
The Company believes such allegations are without merit. However, in an
effort to resolve these claims on an amicable basis representatives of the
Company and such holders have discussed, from time to time since the date of
such letter, certain proposals under which the Company would offer to exchange a
new security for the Series A Preferred Stock. In October, 1998, the Company
proposed to representatives of such holders to effect an exchange offer upon
substantially the terms and conditions of the Exchange Offer made hereby. On
October 27, 1998, the Organized Group commenced the Action by filing the
Complaint in the Supreme Court of the State of New York, County of New York,
against the Defendants. The Complaint alleged (the "Allegations"), among other
things, that (i) the Defendants breached the Certificate of Designations
relating to the Series A Preferred Stock by fraudulently transferring assets of
River Bank and by illegally amending the Certificate of Designations, (ii) the
Defendants fraudulently conveyed the assets of River Bank, thereby depriving the
holders of a liquidating distribution, (iii) the Defendants violated the NYBL by
liquidating River Bank without making the required liquidating distribution
required by the NYBL and by denying holders appraisal rights to which they were
entitled by the NYBL, (iv) the Defendants breached their fiduciary duty to
holders by depriving them of their liquidating distribution, (v) the Defendants
breached their duty of disclosure by omitting from the Proxy Statement dated
March 27, 1998 material facts relating to the holders' right to receive a
liquidating distribution, their appraisal rights for their shares and the
requirement that holders vote as a class with respect to the amendment of the
Certificate of Designation, (vi) the Defendants' implementation of the
liquidation of River Bank and the amendment of the Certificate of Designations
were ultra vires and should be declared void and (vii) the intentionally
tortious nature of the Defendants' conduct bars them from seeking
indemnification for their actions and, therefore, the Defendants should be
enjoined from seeking indemnification for damages or attorney's fees relating to
the action. The complaint seeks judgment (i) of compensatory and punitive
damages, and costs and disbursements, against Defendants, (ii) avoiding the
transfer of assets from River Bank to River Asset Sub, Inc. and the Company,
(iii) directing Defendants to pay the liquidating distribution to plaintiffs and
(iv) enjoining Defendants from seeking indemnification for damages or attorneys'
fees relating to the action. The Company believes that the Allegations are
without merit and intends vigorously to oppose the Action.
Release of Claims
Notwithstanding the commencement of the Action, the Company has
determined to formally extend the Exchange Offer to all holders of Series A
Preferred Stock, including the plaintiffs in the Action, in an effort to afford
all holders an opportunity to exchange their shares of Series A Preferred Stock
for the Subordinated Notes. Holders of shares of Series A Preferred Stock
tendered and accepted by the Company for exchange pursuant to the Exchange Offer
will have released the Company, its predecessors and successors, and their
respective parents,
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subsidiaries, affiliates and assigns, and each of their respective officers,
directors, employees, partners, advisors, agents and representatives from all
actions, causes of action, claims, judgments, contracts, agreements or
understandings, whether individual or derivative in nature, which the
undersigned now has, ever had or hereafter shall or may have with respect to the
shares of Series A Preferred Stock exchanged pursuant hereto or any disclosures,
rights or agreements relating thereto, including, but not limited to, any claims
with respect to the transfer of assets from River Bank. Holders who accept the
Exchange Offer will be barred from participating in any litigation with respect
to any released claims, including but not limited to the Action described above,
or from participating in any other lawsuit or as a member of any class of
claimants in any other litigation with respect to the released claims. Such
holders will also be deemed to have waived all rights with respect to each share
of Series A Preferred Stock exchanged to receive the quarterly dividend of $.94
per share that was declared on the Series A Preferred Stock for the quarter
ended June 30, 1996 but which remains unpaid. Accordingly, the Company urges all
holders to consult with their legal counsel prior to tendering their shares in
the Exchange Offer. Copies of this Offering Circular and other documentation
relating to the Exchange Offer have been sent to counsel of record for the
Organized Group.
Certain Effects
The exchange of shares of Series A Preferred Stock for Subordinated
Notes pursuant to the Exchange Offer will reduce the number of outstanding
shares of Series A Preferred Stock and the number of holders of the Series A
Preferred Stock. As a result, it will be less likely that a market for the
Series A Preferred Stock will develop and holders of shares of Series A
Preferred Stock may find it more difficult to dispose of their shares.
THE EXCHANGE OFFER
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $25.94
principal amount of its Subordinated Notes for each share of Series A Preferred
Stock. Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all shares of Series A Preferred Stock properly tendered and
not withdrawn prior to the Expiration Date (as defined).
Although the Company has no current intention of increasing the
consideration offered for the Series A Preferred Stock in the Exchange Offer,
any increased consideration would be paid with regard to all Series A Preferred
Stock accepted in the Exchange Offer, including those shares tendered before the
announcement of such increase. If the consideration is increased, the Exchange
Offer will remain open at least ten business days from the date that the Company
first gives notice, by public announcement or otherwise, of such increase.
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As of the date of this Offering Circular, 1,400,000 shares of Series A
Preferred Stock were outstanding and there were four holders of record of such
shares. This Offering Circular, together with the Letter of Transmittal, is
being sent to all holders of record.
Shares of Series A Preferred Stock accepted in the Exchange Offer will be
retired and will constitute authorized but unissued shares of Series A Preferred
Stock which may not be reissued or sold.
Expiration Date; Extensions; Termination; Amendments
The Exchange Offer will expire at 5:00 P.M., New York City time, on
Thursday, December 24, 1998, subject to extension by the Company by notice to
the Exchange Agent as herein provided. The Company reserves the right to so
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean 5:00 P.M., New York City time, on the date on which the
Exchange Offer as so extended shall expire. The Company shall notify the
Exchange Agent of any extension by oral or written notice and shall make a
public announcement thereof prior to 9:00 A.M., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right (i) to extend or to terminate the Exchange
Offer and not accept for exchange any Series A Preferred Stock not previously
accepted for exchange if any of the events set forth herein under "Conditions of
the Exchange Offer" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such extension or termination to
the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any
manner. Any such extension, termination or amendment, including any change in
the consideration offered for the Series A Preferred Stock, will be followed
promptly by public announcement thereof. If the Exchange Offer is amended in a
manner determined by the Company to constitute a material change, the Company
will promptly disclose such amendment in a manner reasonably calculated to
inform holders of such amendment and the Company will extend the Exchange Offer
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure to holders of Series A Preferred
Stock, if the Exchange Offer would otherwise expire during such five to ten
business day period.
Acceptance for Exchange and Exchange for Shares of Series A Preferred Stock
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Company will exchange
Subordinated Notes for all shares of Series A Preferred Stock validly tendered
prior to the Expiration Date (and not properly withdrawn in accordance with the
terms hereof) promptly after the Expiration Date. Any determination concerning
the satisfaction of such terms and conditions shall be within the sole
discretion of the Company and such determination shall be final and binding on
all tendering stockholders.
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In all cases, payment for shares of Series A Preferred Stock tendered
and accepted for payment pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for (or a timely
Book-Entry Confirmation (as defined) with respect to) such shares of Series A
Preferred Stock, (ii) a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, together with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined), and
(iii) any other documents required by the Letter of Transmittal.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and thereby exchanged, shares of Series A Preferred Stock
properly tendered to the Company and not withdrawn if, as and when the Company
gives oral or written notice to the Exchange Agent of the Company's acceptance
of such shares of Series A Preferred Stock for exchange. Exchange of
Subordinated Notes for shares of Series A Preferred Stock accepted pursuant to
the Exchange Offer will be made by deposit of Subordinated Notes therefor with
the Exchange Agent, which will act as agent for tending stockholders for the
purpose of receiving Subordinated Notes from the Company and transmitting
Subordinated Notes to such tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE SUBORDINATED NOTES TO BE ISSUED FOR THE TENDERED SHARES
OF SERIES A PREFERRED STOCK PRIOR TO THEIR DATE OF ISSUANCE, REGARDLESS OF ANY
EXTENSION OF THE EXCHANGE OFFER OR ANY DELAY IN SUCH ISSUANCE.
If, for any reason whatsoever, the Company is delayed in its acceptance
for exchange of or exchange for any shares of Series A Preferred Stock tendered
pursuant to the Exchange Offer, or the Company is unable to accept for exchange,
or exchange Subordinated Notes for, shares of Series A Preferred Stock tendered
pursuant to the Exchange Offer, then, without prejudice to the Company's rights
under the Exchange Offer (but subject to compliance with Rule 14e-1(c) under the
Exchange Act, which requires that a tender offeror pay the consideration offered
or return the tendered securities promptly after termination or withdrawal of
the tender offer), the Exchange Agent may, nevertheless, on behalf of the
Company, retain tendered shares of Series A Preferred Stock and such shares may
not be withdrawn except to the extent that under the Exchange Offer tendering
stockholders are entitled to exercise and duly exercise withdrawal rights as
described below.
If any tendered shares of Series A Preferred Stock are not exchanged
pursuant to the Exchange Offer, certificates for any such shares will be
returned, without expense to the tendering stockholder (or, in the case of
shares tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility as defined below) pursuant to the procedure set
forth below, such shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly practicable as after the expiration
or termination of the Exchange Offer.
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Procedures for Tendering Shares
Valid Tender. For a stockholder validly to tender shares of Series A
Preferred Stock pursuant to the Exchange Offer, either (i) a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message (as defined), and any other required documents,
must be received by the Exchange Agent at one of its addresses set forth on the
back cover of this Offering Circular prior to the Expiration Date and either the
certificates for tendered shares must be received by the Exchange Agent at one
of its addresses or such shares must be delivered pursuant to the procedure for
book-entry transfer described below (and a Book-Entry Confirmation must be
received by the Exchange Agent), in each case, prior to the Expiration Date, or
(ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the shares of Series A Preferred Stock at The Depository Trust
Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer
within two business days after the date of this Offering Circular. Any financial
institution that is a participant in the Book-Entry Transfer Facility system may
make book-entry transfer of shares of Series A Preferred Stock by causing the
Book-Entry Transfer Facility to transfer such shares into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
shares of Series A Preferred Stock may be effected through book-entry transfer
at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and any other required documents, must, in any case, be transmitted to
and received by the Exchange Agent at one of its addresses set forth on the back
cover of this Offering Circular prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedures described below.
The confirmation of a book-entry transfer of shares of Series A Preferred Stock
into the Exchange Agent's account at the Book-Entry Transfer Facility as
described above is referred to herein as a "Book-Entry Confirmation." Delivery
of documents to the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures does not constitute delivery to the
Exchange Agent.
The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming
a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the shares of Series A Preferred Stock
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
the participant.
The method of delivery of shares of Series A Preferred Stock, the
Letter of Transmittal and all other required documents, including delivery
through the Book-Entry
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Transfer Facility, is at the option and risk of the tendering stockholder.
Shares of Series A Preferred Stock will be deemed delivered only when actually
received by the Exchange Agent (including, in the case of a book-entry transfer,
by Book-Entry Confirmation). If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. In all cases, sufficient
time should be allowed to ensure timely delivery.
Signature Guarantees. No signature guarantee is required on the Letter
of Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
the Book Entry Transfer Facility's system whose name appears on a security
position listing as the owner of the shares of Series A Preferred Stock) of
shares of Series A Preferred Stock tendered therewith and such registered holder
has not completed either the box entitled "Special Delivery Instructions" or the
box entitled "Special Issuance and Delivery Instructions" on the Letter of
Transmittal or (ii) if such shares of Series A Preferred Stock are tendered for
the account of a financial institution (including most commercial banks, savings
and loan associations and brokerage houses) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instruction 1 to the Letter of Transmittal.
If the certificates for shares of Series A Preferred Stock are
registered in the name of a person other than the signer of the Letter of
Transmittal or if payment is to be made, or certificates for shares of Series A
Preferred Stock not accepted for payment or not tendered are to be returned, to
a person other than the registered holder of the certificates surrendered, then
the tendered certificates must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the names of the registered holders
appear on the certificates, with the signatures on the certificates or stock
powers guaranteed as described above. See Instruction 1 of the Letter of
Transmittal.
If the certificates for shares of Series A Preferred Stock are
forwarded separately to the Exchange Agent, a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, must accompany each
such delivery.
Guaranteed Delivery. If a stockholder desires to tender shares of
Series A Preferred Stock pursuant to the Exchange Offer and such stockholder's
certificates for shares of Series A Preferred Stock are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Exchange Agent prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
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(ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by the Company
herewith, is received by the Exchange Agent, as provided below, prior
to the Expiration Date; and
(iii) the certificates for (or a Book-Entry Confirmation with
respect to) all tendered shares of Series A Preferred Stock, in proper
form for transfer together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, together with any
required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and any other required documents are
received by the Exchange Agent within three trading days after the date
of execution of such Notice of Guaranteed Delivery. A "trading day" is
any day on which the Nasdaq National Market (the "Nasdaq National
Market") operated by the National Association of Securities Dealers,
Inc. (the "NASD") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by telegram, facsimile transmission or mail, to the Exchange Agent
and must include a guarantee by an Eligible Institution in the form set forth in
the Notice of Guaranteed Delivery.
Notwithstanding any other provisions hereof, exchange of Subordinated
Notes for shares of Series A Preferred Stock accepted for exchange pursuant to
the Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of (a) certificates for (or a timely Book-Entry Confirmation with
respect to) such shares of Series A Preferred Stock, (b) a Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, together with any
required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message, and (c) any other documents required by the Letter of
Transmittal. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE SUBORDINATED
NOTES TO BE EXCHANGED BY THE COMPANY FOR THE TENDERED SHARES OF SERIES A
PREFERRED STOCK PRIOR TO THEIR DATE OF ISSUANCE, REGARDLESS OF ANY EXTENSION OF
THE EXCHANGE OFFER OR ANY DELAY IN MAKING SUCH EXCHANGE.
The valid tender of shares of Series A Preferred Stock pursuant to one
of the procedures described above will constitute a binding agreement between
the tendering stockholder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of shares
of Series A Preferred Stock will be determined by the Company, in its sole
discretion, and its determination will be final and binding on all parties. The
Company reserves the absolute right to reject any or all tenders of shares of
Series A Preferred Stock determined by it not to be in proper form or if the
acceptance for exchange of, or exchange for, such shares of Series A Preferred
Stock may, in the opinion of the Company's counsel, be unlawful. The Company
also reserves the absolute right, in its sole discretion, to waive any of the
conditions of the Exchange Offer or any defect or irregularity in any tender
with respect to shares of Series A Preferred Stock of any particular
stockholder,
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whether or not similar defects or irregularities are waived in the case of other
stockholders. No tender of shares of Series A Preferred Stock will be deemed to
have been validly made until all defects and irregularities have been cured or
waived. None of the Company, the Exchange Agent, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Backup Withholding. In order to avoid "backup withholding" of Federal
income tax on payments pursuant to the Exchange Offer, a stockholder
surrendering shares of Series A Preferred Stock in the Exchange Offer must,
unless an exemption applies, provide the Exchange Agent with such stockholder's
correct taxpayer identification number ("TIN") on a Substitute Form W-9 and
certify under penalty of perjury that such number is correct and that such
stockholder is not subject to backup withholding. If a stockholder does not
provide such stockholder's correct TIN or fails to provide the certifications
described above, the Internal Revenue Service (the "IRS") may impose a penalty
on such stockholder and payment of Subordinated Notes to such stockholder
pursuant to the Exchange Offer may be subject to backup withholding of 31%. All
stockholders surrendering shares of Series A Preferred Stock pursuant to the
Exchange Offer should complete and sign the Substitute Form W-9 included as part
of the Letter of Transmittal to provide the information and certification
necessary to avoid backup withholding (unless an applicable exemption exists and
is proved in a manner satisfactory to the Company and the Exchange Agent).
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign the main signature
form and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Exchange Agent, in order to avoid backup withholding. See the
Letter of Transmittal.
Withdrawal Rights
Except as otherwise provided in this section, tenders of shares of
Series A Preferred Stock made pursuant to the Exchange Offer are irrevocable.
Shares of Series A Preferred Stock tendered pursuant to the Exchange Offer may
be withdrawn pursuant to the procedures set forth below at any time prior to the
Expiration Date and, unless theretofore accepted for exchange and exchanged by
the Company for Subordinated Notes pursuant to the Exchange Offer, may also be
withdrawn at any time on or after January 25, 1999.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent
at one of its addresses set forth on the back cover of this Offering Circular
and must specify the name of the person having tendered the shares of Series A
Preferred Stock to be withdrawn, the number of shares of Series A Preferred
Stock to be withdrawn and the name of the registered holder, if different from
that of the person who tendered such shares of Series A Preferred Stock. If
certificates for shares of Series A Preferred Stock to be withdrawn have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such certificates, the serial numbers shown
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on such certificates must also be submitted to the Exchange Agent, and, unless
such shares of Series A Preferred Stock have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If shares of Series A Preferred Stock have been tendered
pursuant to the procedure for book-entry transfer as set forth above, any notice
of withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with such withdrawn shares of Series
A Preferred Stock and otherwise comply with the Book-Entry Transfer Facility
procedures. Withdrawals of tenders of shares of Series A Preferred Stock may not
be rescinded, and any shares of Series A Preferred Stock properly withdrawn will
thereafter be deemed not to be validly tendered for purposes of the Exchange
Offer. However, withdrawn shares of Series A Preferred Stock may be rendered by
following one of the procedures described above at any time prior to the
Expiration Date.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Company, in its sole
discretion, and its determination will be final and binding. None of the
Company, the Exchange Agent, the Information Agent or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Conditions of the Exchange Offer
In addition, and notwithstanding any other term of the Exchange Offer,
the Company will not be required to accept for exchange, or exchange
Subordinated Notes for, any Series A Preferred Stock not theretofore accepted
for exchange or exchanged, and may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Series A Preferred Stock, if any
of the following conditions exist:
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency which challenges the
Exchange Offer or otherwise directly or indirectly relates to the
Exchange Offer or otherwise affects the Company; or
(b) there shall have occurred (i) the declaration of any
banking moratorium or suspension of payments in respect of banks in the
United States; (ii) any general suspension of trading in, or limitation
on prices for, securities on any United States national securities
exchange or in the over-the-counter market; or (iii) the commencement
of a war, armed hostilities or any other national or international
crisis directly or indirectly involving the United States; or
(c) any change or development shall occur or be threatened in
the business, condition (financial or other), income, operations,
ownership of the Company's capital stock or prospects of the Company
and its subsidiaries, taken as a whole, which, in the Company's sole
judgment, is or may be material to the Company or the Exchange Offer;
or
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(d) a tender or exchange offer for more than 20% of the
outstanding shares of any class of the Company's capital stock (other
than the Exchange Offer), or any merger, business combination or other
similar transaction with or involving the Company or any subsidiary,
shall have been proposed, announced or made by any person; or
(e) there exists, in the sole judgment of the Company, any
actual or threatened legal impediment (including a default or breach or
prospective default or breach under an agreement, indenture or other
instrument or obligation to which the Company is a party or by which it
is bound) to the consummation of the transactions contemplated by the
Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such conditions or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. If the Company waives or amends
the foregoing conditions, the Company will, if required by applicable law,
extend the Exchange Offer for a minimum of five business days from the date that
the Company first gives notice, by public announcement or otherwise, of such
waiver or amendment. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
Exchange Agent
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Completed Letters of Transmittal together with
certificates evidencing Series A Preferred Stock and other necessary material,
as well as all correspondence in connection with the Exchange Offer and the
Letter of Transmittal should be addressed to the Exchange Agent, as follows:
American Stock Transfer & Trust Company
<TABLE>
<CAPTION>
By Mail or
Overnight Courier: By Facsimile: By Hand:
<S> <C> <C>
40 Wall Street (718) 234-5001 40 Wall Street
46th Floor Confirm facsimile by telephone 46th Floor
New York, NY 10005 (718) 921-8200 New York, NY 10005
Attention: Exchange Department Attention: Exchange Department
</TABLE>
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Information Agent
MacKenzie Partners, Inc. has been appointed Information Agent for the
Exchange Offer. All questions in connection with the Exchange Offer and the
Letter of Transmittal, as well as requests for information or additional copies
of the Offering Circular or Letter of Transmittal, should be directed to the
Information Agent as follows:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: (212) 929-5500 (call collect)
Call Toll-Free: (800) 322-2885
Questions regarding the Exchange Offer, generally, as well as requests
for information, may also be directed to Nelson L. Stephenson, President of the
Company at (212) 848-0206.
Payment of Expenses
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent and Information Agent reasonable and
customary fees for its services, and will reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company will also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Offering Circular and related documents to the beneficial owners of the Series A
Preferred Stock, and in handling or forwarding tenders for their customers.
The aggregate cash expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent and
Information Agent, printing, accounting and legal fees, will be paid by the
Company and are estimated at $250,000.
The Company will pay all transfer taxes, if any, applicable to the
transfer and sale of Series A Preferred Stock to it or its order pursuant to the
Exchange Offer. If, however, certificates for Subordinated Notes or certificates
for unexchanged shares of Series A Preferred Stock are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Series A Preferred Stock tendered, or if tendered
certificates are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer and sale of Series A Preferred Stock to the
Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder of Series A Preferred Stock. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder of Series A Preferred Stock.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
consequences of the exchange of Series A Preferred Stock for Subordinated Notes
pursuant to the Exchange Offer and of the ownership and disposition of
Subordinated Notes received pursuant to the Exchange Offer. It is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change (possibly on a retroactive
basis). It does not purport to address (i) all aspects of federal income
taxation that may be relevant to particular holders in light of their personal
circumstances; (ii) the federal income tax consequences to certain types of
holders subject to special treatment under the Code (for example, life insurance
companies, tax-exempt organizations, banks, dealers in securities, foreign
persons and persons who hold the Series A Preferred Stock and/or Subordinated
Notes as part of a synthetic security, conversion transaction, or certain
"straddle" or hedging transactions); or (iii) the effect of any applicable
state, local or foreign tax laws. This discussion assumes that all Series A
Preferred Stock and Subordinated Notes are held as capital assets (as defined in
the Code) by the holder thereof, that the Subordinated Notes are properly
treated as "debt" for tax purposes, that the fair market value of the
Subordinated Notes equals their principal amount, and that the Subordinated
Notes are issued solely in exchange for the Series A Preferred Stock and the
declared, but unpaid, dividend thereon.
Exchange of Series A Preferred Stock for Subordinated Notes
The exchange of Series A Preferred Stock for Subordinated Notes will be
treated as a redemption of a holder's Series A Preferred Stock subject to the
provisions of Section 302 of the Code. Accordingly, unless the redemption (i)
results in a "complete termination" of the holder's stock interest in the
Company 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, the exchange will be treated under
Sections 302 and 301 of the Code as a distribution that is taxable as a dividend
to the extent of the Company's current or accumulated earnings and profits. In
such case, distributions in excess of the Company's current or accumulated
earnings and profits will first reduce the amount of the exchanging
stockholder's basis in the Series A Preferred Stock (but not below zero) and the
remainder, if any, will be treated as taxable capital gain. Even if any of the
above three tests (the "Section 302(b) tests") are met, any Subordinated Notes
received in the exchange that are attributable to the declared, but unpaid,
dividends likely will be treated as ordinary dividend income to the extent of
the Company's current or accumulated earnings and profits, with the balance
treated as a return of basis or taxable capital gain in the manner just
described. A United States corporate stockholder generally will be entitled to
the 70% dividends received deduction with respect to any portion of the exchange
treated as a taxable dividend, subject to the satisfaction of a minimum holding
period and other applicable requirements. Under certain circumstances, a
corporate exchanging stockholder may
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be subject to the alternative minimum tax with respect to the amount of its
dividends received deduction. In addition, exchanging corporate stockholders
should consider the application of Section 1059 of the Code to them.
In determining whether any of the Section 302(b) 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. All persons exchanging
Series A Preferred Stock for Subordinated Notes should consult their own tax
advisors as to the application of Section 302(b) to their own particular
situations.
If any of the Section 302(b) tests is met, the exchange of the Series A
Preferred Stock for Subordinated Notes will result in capital gain or loss equal
to the difference between the amount of the Subordinated Notes received in the
exchange (other than any Subordinated Notes that are treated as a taxable
dividend as described above) and the exchanging stockholder's adjusted tax basis
in the exchanged shares. Any such capital gain or loss generally will be
long-term capital gain or loss if the holding period for the exchanged shares
was more than one year.
The Company expects, and this discussion assumes, that neither the
Series A Preferred Stock nor the Subordinated Notes will be treated as traded or
readily tradable on an established securities market. Accordingly, unless an
exchanging stockholder elects otherwise, the amount of any gain realized on the
exchange of Series A Preferred Stock for Subordinated Notes generally will be
deferred using the installment method under Section 453 of the Code. Under the
installment method, an exchanging stockholder is permitted to treat a portion of
each payment on the Subordinated Notes as a recovery of its adjusted tax basis
in the exchanged Series A Preferred Stock and recognize the excess of each such
payment as gain. Certain limitations may apply to the application of the
installment method, including the possible imposition of an interest charge with
respect to the amount of tax liability deferred as a result of installment
method reporting and the acceleration of gain recognition upon the disposition
of the Subordinated Notes. All exchanging stockholders should consult their tax
advisors regarding the application of the installment method to their particular
circumstances.
This discussion assumes that the right to participate in a potential
rights offering or in the distribution of Warrants has no value. If value were
ascribed to such right, the amount of taxable dividends or gain (loss) may be
increased (decreased) by the ascribed value.
Taxation of the Subordinated Notes
Interest and Original Issue Discount. Interest on a Subordinated Note
(other than original issue discount as described below) generally will be
taxable to a holder at the time such interest is accrued or received in
accordance with such holder's method of accounting.
The Subordinated Notes will be treated as issued with original issue
discount ("OID"). For tax purposes, OID with respect to a Subordinated Note is
the excess of the "stated
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redemption price at maturity" of a Subordinated Note over its "issue price". The
"stated redemption price at maturity" of a Subordinated Note is the sum of all
payments required to be made on the Subordinated Note other than payments of
"qualified stated interest" (that is, stated interest that is payable in cash or
property (other than debt instruments of the Company) at least annually at a
single fixed rate). Because interest through January 15, 2002 may be payable in
either cash or additional Subordinated Notes, no part of the interest payable on
the Subordinated Notes will be treated as qualified stated interest and the
stated redemption price at maturity of the Subordinated Notes will include all
payments to be made on the Subordinated Notes. Since, as mentioned above, it has
been assumed that neither the Subordinated Notes nor the Series A Preferred
Stock are or will be traded on an established securities market, the "issue
price" of the Subordinated Notes equals their stated principal amount.
Accordingly, because the stated redemption price at maturity (which includes all
payments of principal, interest and premium on the Subordinated Notes) exceeds
their issue price (which equals the stated principal amount), the Subordinated
Notes will be treated as issued with OID.
OID is includible in income by a holder of a Subordinated Note as it
accrues, on a daily basis, under a constant yield method. A holder may therefore
be required to report OID prior to the receipt of cash attributable to such OID.
For purposes of computing the accrual of OID, the yield and maturity on
the Subordinated Notes, must first be determined. In making this determination,
the Company will be treated as exercising any option relating to the
Subordinated Notes if the exercise of the option reduces the yield on the
Subordinated Notes. Accordingly, assuming the Subordinated Notes were not issued
at a discount to the face amount of such notes, the Company will be treated as
exercising its option to redeem the Subordinated Notes in full immediately prior
to the Interest Increase Date of January 16, 2002. The effect of treating the
Subordinated Notes as being redeemed on January 16, 2002 is that holders would
accrue OID at the Initial Rate through that date.
In the event the Company does not exercise its option to redeem the
Subordinated Notes on January 16, 2002, the Subordinated Notes will be treated,
for purposes of calculating OID, as retired and reissued for their adjusted
issue price on that date. The yield and maturity for the reissued Subordinated
Notes is redetermined, again assuming the Company will exercise any option
relating to the Subordinated Notes that reduces the yield on the Subordinated
Notes. Since the interest on the Subordinated Notes will increase for each
semi-annual interest payment period after January 16, 2002, it is likely the
Subordinated Notes, if they remain outstanding, will be treated as a series of
obligations each maturing immediately prior to the next successive interest date
and each having a yield equal to the interest rate for the semi-annual period
prior to each such maturity date. For example, if the Company does not redeem
the Subordinated Notes in full immediately prior to the Interest Increase Date
of January 16, 2002, the Subordinated Notes will be treated as reissued for an
amount equal to the adjusted issue price of the Subordinated Notes on such date,
at an interest rate of 8.5%, and the Company will be assumed to exercise its
option to redeem the Subordinated Notes immediately prior to the increase in the
interest rate on July 15, 2002. It should be noted that if the Subordinated
Notes remain outstanding and are treated as reissued or semi-annually reissued
after January 15, 2003, the
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redemption premium will be treated as additional OID and will accrue for each
semi-annual period, even if an amount equal to the accrued redemption premium is
not actually paid until a subsequent semi-annual period or some portion thereof
is not paid at all. In addition, for purposes of the yield and OID calculation,
any additional Subordinated Notes issued in lieu of cash interest payments will
be aggregated with the originally issued Subordinated Notes.
Disposition of Subordinated Notes. If a Subordinated Note is disposed
of in a taxable transaction, gain or loss generally will be recognized equal to
the difference between the amount realized upon the disposition and the holder's
adjusted tax basis in the Subordinated Note. The disposing holder's adjusted tax
basis in the Subordinated Notes will depend upon whether or not the holder is
reporting any gain from the exchange of Series A Preferred Stock for
Subordinated Notes under the installment method. The adjusted tax basis of a
holder who elected not to use the installment method generally is the principal
amount of the Subordinated Note (which it has been assumed equals its fair
market value), increased by any OID previously included in income with respect
to the Subordinated Note, and decreased by any payments made with respect to the
Subordinated Notes. The adjusted tax basis of a holder that is reporting the
exchange of Series A Preferred Stock for Subordinated Notes under the
installment method will be reduced by the remaining portion of any deferred gain
from the exchange. The gain or loss realized upon a taxable disposition
generally will be long-term capital gain or loss if the holding period for the
Subordinated Notes was more than one year.
General. The law regarding the taxation of the Subordinated Notes, as
discussed above, is highly complex and subject to differing interpretations. It
is possible that the IRS may take a different view with respect to the
calculation of interest or OID inclusions, or with respect to the tax treatment
of certain dispositions of the Subordinated Notes. The application of the
installment sales rules to the exchange of Series A Preferred Stock for
Subordinated Notes and the consequent treatment of the Subordinate Notes is also
unclear in certain respects. Accordingly, each holder is strongly urged to
consult its tax advisor with respect to the taxation of the exchange and of the
Subordinated Notes.
Backup Withholding
A holder (other than certain exempt recipients) of Series A Preferred
Stock who exchanges such stock for Subordinated Notes may be subject to backup
withholding with respect to the Subordinated Notes received in the exchange,
certain payments of principal and interest on the Subordinated Notes and
proceeds upon certain sales of the Subordinated Notes, unless such holder
supplies its TIN and certifies under penalty of perjury that such number is
correct and that such holder is not subject to backup withholding. A holder who
does not furnish its TIN may be subject to a penalty imposed by the IRS.
If backup withholding applies, the payor is required to withhold 31%
from payments. This is not an additional tax; the amount of the backup
withholding can be credited against the
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tax liability of the person subject to the backup withholding. If backup
withholding results in an overpayment of tax, a refund can be obtained upon
filing an income tax return.
DESCRIPTION OF CAPITAL STOCK
General
The Company's Certificate of Incorporation authorizes the issuance of
up to 30,000,000 shares of Common Stock and, 10,000,000 shares of Preferred
Stock. At November 1, 1998, the Company had 7,100,000 shares of Common Stock
issued and outstanding. The Board of Directors of the Company has the power from
time to time to issue additional shares of Common Stock or Preferred Stock
authorized by the Certificate of Incorporation without obtaining approval of the
Company'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 Company at the time of issuance and may include, among other
things, rights in liquidation, rights to participating dividends, voting and
convertibility to Common Stock.
Common Stock
The following summary of the terms of the Common Stock does not purport
to be complete and is subject to, and is qualified in its entirety by, the
provisions of the Certificate of Incorporation and Bylaws of the Company.
Dividends. The Company may pay dividends as declared from time to time
by the Board of Directors out of funds legally available therefor.
Voting Rights. Except as provided with respect to any series of
Preferred Stock, the holders of Common Stock possess exclusive voting rights in
the Company. 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.
Liquidation. Subject to the prior rights of the holders of any shares
of Series A Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of the Company, the holders of the Common
Stock would be entitled to receive, after payment of all debts and liabilities
of the Company, all assets of the Company available for distribution.
Preemptive Rights. Holders of Common Stock do not have any preemptive
rights with respect to any shares which may be issued by the Company in the
future; the Company, therefore, may sell shares of capital stock without first
offering them to the then stockholders of the Company.
Special Stockholders' Meetings. Special meetings of the stockholders of
the Company may be called at any time by the Board of Directors, the Chief
Executive Officer or the Chairman
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of the Board and shall be called by the Chief Executive Officer or the Secretary
upon the written request of the holders of a majority of the outstanding shares
of capital stock of the Company entitled to vote at the meeting.
Series A Preferred Stock
The following summary of the terms of the 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 Certificate of Incorporation and Bylaws of the Company
and the Certificate of Designations, as amended by Certificate of Amendment of
the Certificate of Designations filed in connection with the Reorganization.
General. The Company's Certificate of Incorporation authorizes the
Company to issue 10,000,000 shares of Preferred Stock in series, of which
1,400,000 shares of Series A Preferred Stock have been issued. The Board has the
power to fix various terms with respect to each such share, 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 the Company.
Pursuant to the Certificate of Designations, the Company has issued
1,400,000 shares of Series A Preferred Stock. The Series A Preferred Stock is
perpetual and is not subject to any sinking fund or other obligation of the
Company to redeem or retire the Series A Preferred Stock. The par value of the
Series A Preferred Stock is $1.00 per share.
Ranking. The Series A 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 Company, and to all other classes
and series of equity securities of the Company hereafter issued, other than any
class or series of equity securities of the Company expressly designated as
being on a parity with or senior to the Series A 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
Company not expressly designated as being on a parity with or senior to the
Series A Preferred Stock are referred to hereafter as "Junior Stock". The rights
of holders of shares of Series A Preferred Stock are subordinate to the rights
of the Company's creditors. The Company has the power to create and issue
additional preferred stock to other classes of stock ranking on a parity with
the Series A Preferred Stock, or that constitute Junior Stock, without any
approval or consent of the holders of Series A Preferred Stock. However, while
any shares of Series A Preferred Stock are outstanding, the Company may not
issue any capital stock that ranks senior to the Series A Preferred Stock
without the approval of holders of at least 66 2/3% of the outstanding shares
of Series A Preferred Stock, voting as a class. See "--Voting Rights" below. The
Common Stock is the only other class of capital stock of the Company which is
currently outstanding.
Dividend Rights. Holders of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor,
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noncumulative cash dividends at the rate of 15% per annum ($3.75 per share per
annum). Dividends on the Series A Preferred Stock are payable, if declared,
quarterly in as nearly as possible equal proportions in arrears as provided in
the Certificate of Designations 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"). The amount of dividends
payable for any period of less than a full three months is 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, are payable to holders of record as they
appear on the stock books of the Company (or of any transfer agent for the
Series A Preferred Stock) at the close of business on such record dates (each, a
"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 Series A 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 Series A Preferred Stock have no right to receive, and the Company has 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 Series A 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 Company or (ii) orders, judgments,
injunctions or decrees issued by, or agreements with, federal or state
authorities with respect to the Company.
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 Series A Preferred Stock for any Dividend Period unless
full dividends on the 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 Series
A Preferred Stock, dividends on the Series A Preferred Stock and any such class
or series of equity securities ranking on a parity with the Series A Preferred
Stock shall only be declared pro rata based upon the respective amounts that
would have been paid on the Series A Preferred Stock and such other equity
securities had dividends been paid in full.
The Company may not (i) declare or (ii) 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 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 Common Stock or other Junior Stock through a sinking fund or
otherwise, unless the Company 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 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 Common Stock or other Junior Stock or (b) the
Common Stock or other Junior Stock is being purchased, redeemed or otherwise
acquired.
50
<PAGE>
No dividend may be paid or set aside for holders of the 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 the
Company ranking prior to the Series A Preferred Stock as to dividends.
Therefore, the Company's ability to pay dividends on the 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 the Company.
The Company's ability to pay dividends on the Series A Preferred Stock
is subject to certain restrictions. See "--Restrictions on Dividends and
Redemptions" below.
Liquidation. Holders of shares of 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 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
Company, out of the net assets of the Company 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 Series A Preferred Stock
with respect to distributions upon liquidation and the rights of the Company's
creditors, including its depositors). After payment of the full amount of the
liquidating distribution to which they are entitled, holders of shares of Series
A Preferred Stock will not be entitled to any further participation in any
liquidating distribution of assets by the Company.
If the amounts available for distribution in respect of shares of
Series A Preferred Stock and any other outstanding equity securities ranking on
a parity with the Series A Preferred Stock are not sufficient to satisfy the
full liquidation rights of all the outstanding shares of the 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 Series A Preferred Stock in connection with
such a liquidation, dissolution or winding up of the Company will be made pro
rata to the holders of the Series A Preferred Stock entitled thereto. Neither
the consolidation or merger of the Company with or into any other entity, nor
the consolidation or merger of any other entity with or into the Company, nor a
sale, transfer or lease of all or any part of the assets of the Company will be
considered a dissolution, liquidation or winding up of the Company.
Voting Rights. Holders of shares of 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 Series A Preferred Stock are outstanding, the
Company will 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 class
(i) amend, alter or repeal or otherwise change any provision of its Certificate
of Incorporation or the Certificate of Designations if such amendment,
51
<PAGE>
alteration, repeal or change would materially and adversely affect the rights,
preferences, powers or privileges of the 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 the Company, or any warrants,
options or other rights convertible or exchangeable into any class or series of
any equity securities of the Company, ranking prior to the Series A Preferred
Stock either as to dividend rights or rights upon the voluntary or involuntary
dissolution, liquidation or winding up of the Company. No vote of the holders of
the 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 Series A Preferred Stock:
(a) an amendment of the Certificate of Incorporation which
increases the number of shares of preferred stock which the Company is
authorized to issue;
(b) the creation or issuance of Parity Stock or Junior Stock
(as defined in the Certificate of Designations);
(c) the distribution of assets upon a voluntary or involuntary
liquidation, dissolution or winding up of the Company; or
(d) in connection with a merger, consolidation, reorganization
or other business combination involving the Company (any such
transaction being hereinafter referred to as a "Company
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 Company 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 Company which are outstanding
immediately preceding such Company 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 Series A
Preferred Stock immediately preceding such Company
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
52
<PAGE>
corporation, or such corporation's parent corporation, or (B)
the Company 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 Company 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 clause (d) above notwithstanding anything to the contrary in Section 3 of the
Certificate of Designation relating to restrictions on the payment of dividends
on the Series A Preferred Stock as described above under "Dividend Rights."
Holders of the Series A Preferred Stock are not entitled to vote upon
the election of members of the Board or other matters in general. Holders of the
Series A Preferred Stock, however, are entitled to elect two members of the
Company's Board to fill two newly-created directorships upon the occurrence of a
"Voting Event." A Voting Event occurs if the Company fails to pay full dividends
on the 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.
Upon the occurrence of a Voting Event, subject to compliance with any
requirement for regulatory approval of (or non-objection to) persons serving as
directors, the holders of shares of Series A Preferred Stock voting together as
a 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 to elect two directors of the Company to fill two
newly-created directorships at the Company'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, the Company 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 the Voting Parity Stock then
outstanding will, call a special meeting of the holders of such shares to fill
such newly-created directorships.
53
<PAGE>
The right of holders of Series A Preferred Stock to elect directors
will continue until dividends on the Series A Preferred Stock have been paid for
four consecutive Dividend Periods, at which time such voting rights of the
holders of the 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 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 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 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 Series A Preferred Stock in accordance with the
foregoing provisions, the term of office of all directors elected by the holders
of the 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 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 Series A Preferred Stock and the Voting Parity Stock cease to
serve as directors before their terms expire, the holders of the 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 Certificate of Designations provides that if for any reason the
holders of the 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, the Company 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 Certificate of
Incorporation or Bylaws of the Company.
The holders of Series A Preferred Stock are currently entitled to elect
two directors because dividends on the Series A Preferred Stock are in arrears
and unpaid for six quarterly dividend periods. Accordingly, at the Company's
Annual Meeting of Stockholders held on September 16, 1998, holders of the Series
A Preferred Stock elected two directors.
54
<PAGE>
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 the provisions of the Certificate of Incorporation, including, without
limitation, the election of directors as set forth above, each holder of the
Series A Preferred Stock will be entitled to one vote for each share of the
Series A Preferred Stock held by such holder.
No Other Rights. The shares of Series A Preferred Stock do not have any
preferences, voting powers or relative, participating, optional or other special
rights except as described above and in the Certificate of Incorporation or as
otherwise required by law.
Redemption. The Series A Preferred Stock is perpetual and is not
redeemable prior to July 1, 2004. The Series A Preferred Stock is redeemable by
the Company 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:
<TABLE>
<CAPTION>
If redeemed during the 12-month
period beginning July 1, Price
-------------------------------------- -----
<S> <C>
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
</TABLE>
The aggregate redemption price payable to each holder of record of
Series A Preferred Stock to be redeemed will be rounded to the nearest cent
($0.01).
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 of the Company, in its
sole discretion, determines to be equitable.
Redemption of the Series A Preferred Stock will be subject to
compliance with applicable restrictions described below.
55
<PAGE>
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 may, at its option,
exchange (the "Note Exchange") all or part of the outstanding 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 Series A
Preferred Stock covered thereby will be exchangeable for $1,000 principal amount
of Notes. Such Notes shall have substantially the same terms, covenants and
conditions as the Subordinated Notes as set forth under "Description of
Subordinated Notes" above (including the provisions set forth under "Description
of Subordinated Notes--Limitation on Dividends--Certain Covenants--Mergers,
Consolidation, Etc.--Modification of the Indenture; Waiver of Covenants--Events
of Default--Certain Definitions") other than the rate of interest payable on the
Subordinated Notes and the redemption provisions of the Subordinated Notes as
described under "Description of Subordinated Notes--Redemption." 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 Series A Preferred
Stock to be exchanged and the principal of such Notes shall not be payable prior
to July 1, 2004.
"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 l3d-3 and l3d-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
Company having ordinary voting power for the election of a majority of
the Board of Directors of the Company 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) the Company (x) shall consolidate with or merge into any
person, other than a wholly-owsubsidiary of the Company, 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 Company, to consolidate with or merge into the
Company and the Company 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, or Odyssey Partners, L.P., or their
respective affiliates, acquire, individually or in the aggregate, more than 50%
of the Voting Stock of the Company, and (ii) the Company reorganizes into the
holding company form of
56
<PAGE>
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.
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 Company. 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 Series A Preferred Stock for
certificates representing the Notes and (iii) 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.
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 Notes, all Holders shall receive a
certificate evidencing the shares of 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 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 certificates evidencing the
Notes to which such Holder is entitled pursuant to the Note Exchange) shall
forthwith cease.
Upon any exchange of shares of 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
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.
A Note Exchange shall comply with all applicable federal and state
securities and blue sky laws and the provisions of the Certificate of
Designations dealing therewith 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.
It will be a condition to the Note Exchange that: (i) the Notes have
been registered under the Securities Act of 1933, as amended, 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 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
57
<PAGE>
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. The Company's ability to
declare and pay dividends on the Series A Preferred Stock and to redeem the
Series A Preferred Stock is subject to the approval of Marine Midland under the
terms of the Facility. There can be no assurance that any future dividend on the
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 Series A Preferred Stock will be subject to business
conditions, the earnings and financial condition of the Company and the judgment
of the Board. The Company has received notice from Marine Midland that the
approval necessary to declare or pay dividends on the Company's Series A
Preferred Stock will not be provided at this time. There can be no assurance
that the Board of Directors of the Company will deem it appropriate to pay
dividends on the Series A Preferred Stock, even if permitted to do so by Marine
Midland.
Transfer Agent and Registrar
American Stock Transfer & Trust Company is the transfer agent and
registrar for the Common Stock and the Series A Preferred Stock.
58
<PAGE>
ANNEX A
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From To
------------------ ------------------
Commission file number 333 - 38673
RB ASSET, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 13-5041680
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eight Floor, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company'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: None
Indicate by check mark whether the registrant (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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the company's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
As of September 21, 1998, the aggregate market value of the 7,100,000 shares of
Common Stock of the registrant issued and outstanding, excluding the 2,774,550
shares held by all directors and principal officers as a group, was $32,440,875.
This figure is based on the last sales price of $7.50 per share of the common
stock of the Registrant's predecessor on May 22, 1998. Of the aggregate of
2,774,550 shares held by all directors and principal officers, Mr. Alvin
Dworman, the largest single holder of the registrant's Common Stock, held
2,768,400 shares at September 21, 1998.
The number of shares outstanding of the Registrant's Common Stock as of
September 21, 1998 was 7,100,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
RB ASSET, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I
Item 1 Business ................................................................... 3
Item 2 Executive Offices and Other Properties...................................... 24
Item 3. Legal Proceedings........................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders......................... 26
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters........ 27
Item 6. Selected Consolidated Financial Data........................................ 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 32
Item 8. Consolidated Financial Statements and Supplementary Data.................... 52
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 52
PART III
Item 10. Directors and Principal Officers of the Registrant.......................... 53
Item 11. Management Compensation and Transactions.................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 61
Item 13. Certain Relationships and Related Transactions.............................. 64
PART IV
Item 14. Financial Statements and Schedules, Exhibits and Reports on Form 8-K........ 67
SIGNATURES............................................................................................. 69
CONSOLIDATED FINANCIAL STATEMENTS...................................................................... 70
FINANCIAL STATEMENT SCHEDULES INDEX.................................................................... 106
</TABLE>
-2-
<PAGE>
PART I
ITEM 1
BUSINESS
General
RB Asset, Inc. (the "Company") is a Delaware corporation that, as a result of
the completion of reorganization steps on May 22, 1998 (the "Reorganization,"
described in detail below), succeeded to the assets, liabilities and business of
River Bank America ("River Bank" or the "Predecessor Bank"). Prior to the
Reorganization, River Bank was a New York State chartered stock savings bank and
was regulated by the New York State Banking Department (the "Banking Department"
or the "NYSBD") and, until December 31, 1997, the Federal Deposit Insurance
Corporation (the "FDIC"). The Company's principal business continues to be the
management of its real estate assets, mortgage loans and investment securities,
under a business plan intended to maximize shareholder value. Following the
Reorganization, the Company intends to manage its business and assets without
the regulatory constraints previously imposed on the Predecessor Bank by the
Banking Department. This report is for the fiscal year ended June 30, 1998.
Unless the context otherwise requires, references to the business, assets and
liabilities of the Company prior to May 22, 1998 include the business, assets
and liabilities of the Predecessor Bank.
The Predecessor Bank was founded in 1848. In 1925, the Predecessor Bank adopted
the name "East River Savings Bank" which it continued to use in its retail
business through June 28, 1996. The Predecessor Bank converted to a stock-form
savings bank through a plan of conversion in 1985. Effective October 1, 1988,
East River Savings Bank formally changed its corporate name to "River Bank
America." On June 28, 1996, the Predecessor Bank sold its remaining eleven
branches ("the Branch Sale") to Marine Midland Bank ("Marine"), inclusive of the
name East River Savings Bank. Following consummation of the Branch Sale, all
retail banking operations of the Predecessor Bank ceased.
On May 22, 1998, River Bank completed its Reorganization into a Delaware
corporation named RB Asset, Inc. under a plan that was approved at the
Predecessor Bank's special meeting of stockholders on May 1, 1998. RB Asset,
Inc., as the successor in the Reorganization, succeeded to the assets,
liabilities and business of River Bank. As a result of the reorganization and
related dissolution discussed below, the capital stock of River Bank was
canceled and, as of the close of business on May 22, 1998, River Bank's stock
transfer records were closed.
Following stockholder approval of the Reorganization, all of the Predecessor
Bank's assets, liabilities and business were transferred to, or assumed by, the
Predecessor Bank's wholly-owned subsidiary, River Asset Sub, Inc. on May 11,
1998, pursuant to the terms of an assignment and assumption agreement and
related transfer documents. Thereafter, on May 18, 1998, the Board of Directors
declared distribution of the capital stock of its wholly-owned subsidiary, River
Distribution Sub, Inc. ("River Distribution"), payable on a book-entry basis to
the Predecessor Bank's stockholders of record on May 22, 1998. At the time of
such distribution the capital stock of River Distribution had no value.
In the distribution, all of the issued and outstanding shares of common stock
("River Distribution Common Stock") and 15% noncumulative perpetual preferred
stock, series A of River Distribution ("River Distribution Series A Preferred")
held by the Predecessor Bank were distributed to the Predecessor Bank's
stockholders on a share-for-share basis such that each holder of the common
stock of River Bank ("River Bank Common Stock") received one share of River
Distribution Common Stock for each share of River Bank Common Stock held by such
stockholder and each holder of 15% noncumulative perpetual preferred stock,
series A, of River Bank ("River Bank Series A Preferred") received one share of
River Distribution Series A Preferred Stock for each share of River Bank Series
A Preferred Stock held by such stockholder.
Finally, upon book-entry payment of the distribution, on May 22, 1998, River
Distribution merged with and into River Asset whereupon the stockholders of
River Distribution became stockholders of the surviving corporation which
changed its name to RB Asset, Inc. In the merger, the shares of capital stock of
River Distribution were converted into shares of identical capital stock of RB
Asset, Inc., the renamed surviving corporation in the merger. Accordingly,
subsequent to the merger, the capital stock of River Bank had no value. Stock
certificates representing shares of capital stock of RB Asset, Inc. were then
distributed to holders of record as of May 22, 1998.
In connection with the reorganization steps, on May 19, 1998, a petition for an
order of dissolution declaring River Bank dissolved and its legal existence
terminated was filed in the Supreme Court of the State of New York. The Supreme
Court issued the order on June 18, 1998 and, upon the filing of the order of
dissolution with the Banking
-3-
<PAGE>
Department on June 23, 1998, the Predecessor Bank was dissolved and its legal
existence terminated. Upon such dissolution, the capital stock of River Bank was
canceled and the stock transfer records of River Bank were closed.
On June 28, 1996, the Predecessor Bank consummated the "Branch Sale contemplated
by the Purchase of Assets and Liability Assumption Agreement (the "Branch Sale
Agreement") by and between the Predecessor Bank and Marine. Pursuant to the
terms of the Branch Agreement, Marine assumed $1,159.6 million of deposit
liabilities (the "Assumed Deposits") and acquired assets with an aggregate
carrying value of $1,066.6 million (the "Transferred Assets"). The Transferred
Assets consisted primarily of loans secured by real estate, mortgage-backed and
investment securities, and 11 bank branch offices, inclusive of the name East
River Savings Bank. Included in the Transferred Assets was approximately $32.4
million of loans in which the Predecessor 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
Predecessor 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 Note 11 to the Consolidated Financial Statements.
The Assumed Deposits exceeded the Transferred Assets by approximately $93.0
million, which represented the premium received by the Predecessor Bank in the
Branch Sale. Marine also purchased the Predecessor Bank's branch office realty
at 96th Street in Manhattan for $1.3 million. The Predecessor Bank recorded a
net pretax gain on the sale of offices and branches of $77.6 million reflecting
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 ended June 30,
1997, the Predecessor Bank's indemnification agreements with Marine were amended
and a $3.3 million contingency reserve was recorded.
At June 30, 1996, the Predecessor 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"). Subsequent to the Branch Sale, the Predecessor Bank continued
substantially the same asset management strategy for Retained Assets as had been
previously employed by the Predecessor Bank, in the years immediately prior to
the Branch Sale.
Following the Branch Sale, the Company engaged RB Management Company, LLC (the
"Management Company") to manage its operations on a day-to-day basis, including
developing and recommending strategies to the Company's Board of Directors
regarding the ongoing management of assets. The Management Company is a
privately-owned entity that was newly formed in June 1996 and is controlled by
Alvin Dworman, who owns 39.0% of the outstanding Common Stock of the Company.
See "Management."
The closing of the Branch Sale was conditioned upon the Predecessor Bank's
obtaining financing with terms and in an amount reasonably acceptable to the
Predecessor Bank and determined to be reasonably adequate to permit consummation
of the Branch Sale. The Predecessor Bank obtained from Marine a loan facility
(the "Facility" or "Initial Facilities") 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 Predecessor Bank, which has been reduced by repayment activity
to $60.6 million at June 30, 1998, with an additional $19.6 million in proceeds
maintained in a restricted cash account pending negotiation with Marine as to
the application of such proceeds to reduce the outstanding balances of the
Facility. Proceeds of the Facility 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
Predecessor Bank's operations subsequent to the Branch Sale.
Marine assumed substantially all of the Predecessor Bank's retail deposits in
connection with the Branch Sale. In addition, the Predecessor Bank ceased
accepting retail deposits on the date of the Branch Sale. At June 30, 1996, the
Predecessor Bank held certain non-retail deposits, which aggregated
approximately $3.0 million. During the quarter following the Branch Sale, the
Predecessor Bank arranged for the assumption by other insured depository
institutions of its remaining non-retail deposits. Accordingly, the Predecessor
Bank held no deposit liabilities at June 30, 1997. However, at June 30, 1997,
the Predecessor Bank continued to be regulated by the FDIC and the NYSBD. On
October
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31, 1996 the Predecessor 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 Predecessor Bank received notice that the
FDIC, as requested by the Predecessor Bank, intended to terminate the
Predecessor Bank's status as an insured state nonmember Bank on December 31,
1997. Upon the issuance of this order by the FDIC, the Predecessor Bank was no
longer subject to banking regulation by the FDIC. In connection therewith, the
Predecessor Bank also received from the Banking Department a waiver of any
applicable New York State deposit insurance requirements.
Conditions imposed in connection with the NYSBD's approval of the Branch Sale
included: (i) the Predecessor 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 Predecessor 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 Predecessor Bank's agreement to continue to
submit its proposed capital transactions to the NYSBD for prior approval; (v)
the continuation of the Predecessor Bank's then-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 have deemed
appropriate.
In June 1997, the Predecessor Bank submitted an alternate proposal (the
"Alternate Proposal") to the NYSBD pursuant to which the Predecessor Bank would
implement Conditions No. 1 and No. 2 of the approval of the Branch Sale,
described above. The Predecessor 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 Corporation Law. Successor would acquire all of the assets of
the Predecessor Bank and continue all of the business of the Predecessor Bank
under the same business plan as adopted by the Predecessor Bank. Following the
transfer of its assets and liabilities to Successor, the Predecessor 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 Corporation Law, which would
not be subject to the jurisdiction of the Banking Department. The proposed
transfer was expected to qualify as a tax-free reorganization under the Internal
Revenue Code and, as such, the Company expected (and continues to expect) that
certain of the Predecessor Bank's tax attributes would be preserved. In
connection with the Alternate Proposal, common and preferred shareholders of
River Bank would 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
owned the Predecessor Bank on the record date.
Prior to June 30, 1997, the Predecessor Bank received the NYSBD'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 Predecessor Bank on a timely basis. The NYSBD'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 was filed by the Bank by October 15, 1997. The Predecessor Bank
met Condition No. 1 and Condition No. 2 on a timely basis. A copy of the
Alternate Proposal and the NYSBD's letter indicating their conditional approval
of the Alternate Proposal were included as Exhibits 14 and 15 to FDIC Form F-2,
dated June 30, 1997.
The Banking Department had also advised the Predecessor Bank that the
Predecessor Bank's minimum capital requirement, set at $115 million in the
NYSBD's approval of the Branch Sale and subsequently amended to $106 million in
May 1997, was to remain at $106 million until the Predecessor Bank's final
dissolution. Further, the Banking Department's conditional approval of the
Alternate Proposal required that the Predecessor Bank seek prior approval from
the NYSBD for any material sale or transfer of assets, or expenditures for
development or renovation of any properties held by the Predecessor Bank prior
to the completion of the dissolution of the Predecessor Bank.
The Company will continue to be subject to the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") as amended and will be required to
file periodic reports and other information with the Securities Exchange
Commission (the "SEC").
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 Predecessor Bank was engaged in lending activities, particularly
California, the Company'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 Predecessor Bank's
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lending strategy of the 1980s, required significant time and attention by the
Predecessor Bank's management. Over the five-year period preceding the Branch
Sale, 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. Primarily as
a result of conditions imposed by the NYSBD, subsequent to June 28, 1996, the
Predecessor Bank has not originated a material amount of loans.
The Predecessor Bank has previously received notice that the approvals necessary
to declare or pay dividends on the Predecessor Bank's outstanding shares of
River Bank Series A Preferred Stock would not be provided. In June 1996, the
Predecessor Bank's Board of Directors declared a River Bank Series A Preferred
Stock dividend for the quarter ending June 30, 1996, payment of which was
subject to the receipt of required approvals from the FDIC and the NYSBD (the
Predecessor Bank's regulators at the time), as well as Marine (the Predecessor
Bank's and the Company's principal lender). Primarily as a result of the above,
neither the Company's or the Predecessor Bank's Board of Directors has taken any
action regarding a quarterly dividend on the Company's Series A Preferred Stock
for any of the quarterly periods ended from September 30, 1996 through June 30,
1998. Although the Company is no longer subject to the jurisdiction of either
the FDIC or the NYSBD, declaration or payment of future dividends on the
Company's Series A Preferred Stock will continue to be subject to the approval
of Marine for so long as the Facility remains outstanding. The Company has
received notice from Marine that the approval necessary to declare or pay
dividends on the Company's Series A Preferred Stock will not be provided at this
time. There can be no assurance that the Board of Directors of the Company will
deem it appropriate to pay dividends on the Series A Preferred Stock, even if
permitted to do so by Marine.
During the fiscal year ended June 30, 1998, the Company reported a net loss
applicable to common shares of $1.5 million, or $0.21 per share. Significant
factors contributing to the Company's fiscal 1998 results include a net interest
loss (interest expense on borrowed funds in excess of interest income from loan
assets), after provision for possible credit losses, of $3.4 million, real
estate property and maintenance expenses of $10.9 million, other operating
expenses of $6.1 million, writedowns of investment in real estate of $1.1
million, depreciation expenses of $383,000 and provisions for income taxes of
$434,000, partially offset by rental income from real estate operations of $13.8
million, realization of contingent participation interest and gains on the sale
of real estate of $3.4 million and $2.0 million, respectively, and net gains on
the sale of investment securities, available for sale, of $1.7 million.
Real Estate Assets
At June 30, 1998, the Company held total real estate assets with a book value of
$145.1 million, which represented approximately 76.0% of the Company's total
assets on that date.
Categorization of Real Estate Assets. The Company accounts for its real estate
assets in accordance with Statement of Financial Accounting Standards No. 121
(SFAS-121), "Accounting for the Impairment of Long-Lived Assets to be Disposed
of," issued by the Financial Accounting Standards Board (the "FASB"). SFAS-121
requires that long-lived assets be reviewed for impairment whenever
circumstances and situations change such that there is an indication that the
carrying amount of the asset may not be recoverable. In addition, SFAS-121
requires that long-lived assets to be disposed of be carried at the lower of
carrying value or fair value less the cost to sell. Under SFAS-121, the Company
is required to categorize its real estate assets as either real estate held for
investment or real estate held for disposal.
Real Estate Held for Investment. This category is comprised of the following
types of real estate assets:
Assets to Be Held and Used. This category is represented by
assets which the Company intends to hold until such time as
the Company determines that such assets are 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 real estate held for disposal.
Assets to Be Developed. This category is represented by assets
which the Company intends to develop over an extended period
of time. 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
normally will be expected to be recategorized as real estate
assets held for disposal, or real estate held and used.
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Real Estate Held for Disposal. This category is represented by assets for which
marketing activities are underway with a goal of consummating a sale within one
year. Real estate held for disposal may include entire real estate properties
held for disposal or separately saleable portions of properties, generally
described as Assets Held for Inventory. The Assets Held for Inventory category
primarily consists of co-operative apartment shares and condominium units. The
Company 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. The portion of such real estate asset expected to be sold
within one year have been categorized as real estate held for disposal at June
30, 1998.
These categories identify the Company'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."
Under generally accepted accounting principals ("GAAP"), the Company is required
to depreciate real estate held for investment over the estimated useful life of
the assets. The depreciable portion of assets categorized as real estate held
for investment includes the accumulated costs of acquisition and/or development
of building structures and leasehold improvements. No depreciation charges are
made for the portion of the asset's historical cost attributable to land.
Depreciation for real estate held for investment is generally calculated on a
straight-line basis over a 30-year period or over the remaining term of the
lease for leasehold improvements, whichever period is less.
During the year ended June 30, 1998, the Company recorded depreciation charges
of approximately $383,000, of which $175,000 represents depreciation of the
capitalized costs of the real estate held for investment (less land value) for
five of the Company's six real estate assets from the period May 22, 1998 to
June 30, 1998. The remaining $208,000 in depreciation charges recorded during
the year ended June 30, 1998 were for the sixth property, accounted for as a
leasehold improvement, consistent with depreciation charges taken in prior
periods for that property. On May 22, 1998, as a consequence of the
Reorganization, the Company was no longer subject to the categorization and
depreciation regulations for investments in real estate previously imposed by
the Predecessor Bank's regulators. Accordingly, on that date, the Company began
to record depreciation charges, as required by GAAP, for all real estate held
for investment, that had not been subject to depreciation charges in prior
periods.
Real Estate Assets Composition. Tables that set forth information concerning the
Company's real estate portfolio at the dates indicated are included in a
separate section of this annual report on Form 10-K. See "Financial Schedules".
Lending Activities and the Real Estate Loan Portfolio. From 1985 until 1990, the
Predecessor 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,
pursuant to a business plan adopted by the Predecessor Bank, the Predecessor
Bank during this time restructured its assets and liabilities to reduce the
vulnerability of its operations to changes in interest rates. The Predecessor
Bank effected this strategy by emphasizing multi-family residential, commercial
real estate and construction loans, including loans to joint ventures in which
the Predecessor Bank, or a subsidiary of the Predecessor Bank, 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 beginning in 1989 and the
resultant increases in non-performing assets (non-accrual loans and real estate
acquired by foreclosure) during 1989, the Predecessor 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
Predecessor Bank in April 1991 following the Predecessor Bank's entering into a
Memorandum of Understanding in December 1990. As a result of the Board's
actions, the Predecessor Bank changed its lending policies to specifically
exclude acquisition, development and construction loans and all lending
characterized as highly-leveraged transactions or joint venture activities. In
addition, the Predecessor Bank substantially curtailed its multi-family
residential and commercial real estate lending. The foregoing loans were
permitted, however, to the extent that the Predecessor 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 Predecessor 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 Company 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
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been in effect for multi-family residential and commercial real estate loans.
Following consummation of the Branch Sale, primarily as a result of conditions
imposed by the NYSBD, the Company no longer engaged in lending activities.
Loans Secured by Real Estate. At June 30, 1998, the Company's loans secured by
real estate primarily consist of performing and non-performing loans secured by
multi-family residential properties and commercial real estate. Commercial real
estate and multi-family residential loans may involve a substantial risk of loss
due to, among other things, the potentially negative effects of changes in
either property-specific or general economic conditions, which may result in
excessive vacancy rates, inadequate rental income levels and volatility in real
estate values.
The Company'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 Company'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 Company'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 Company'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.
Performing Loans Secured by Real Estate. Performing loans secured by real estate
at June 30, 1998 consist of loans secured by multi-family residential,
commercial real estate and single-family residential loans which are
wholly-owned by the Company, as well as participation interests in multi-family
residential and commercial real estate loans pursuant to the Participation
Agreements with Marine. Approximately $36.4 million or approximately 19.3% of
the Company's total assets are categorized as performing loans secured by real
estate as of June 30, 1998. Of the approximately $36.4 million of performing
loans included in this total, approximately $13.5 million or approximately 37.2%
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, 1998, the Retained Assets include 4 performing loans
(exclusive of participating loans) of approximately $22.8 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 $1 million or approximately 2.7% of the Company's performing loans
(other than the participation loans) at June 30, 1998, are currently
interest-only loans, with the payment of the entire principal amount due at
maturity.
Subordinated Participation Interests. At June 30, 1998, performing loans secured
by real estate include a subordinated participation interest in 9 performing
loans in which the Company retained an interest in approximately $13.5 million
of principal amount on such loans. All of the performing loans have been
modified since origination and are currently performing in accordance with their
modified terms.
Non-Performing Loans Secured by Real Estate. 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. The Company 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 Company may place a
loan on non-accrual status even when it is not yet delinquent 90 days or more if
the Company 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 Company and collection of principal is not in doubt. Approximately $22.6
million, or approximately 12.0%, of the Company's assets comprised of loans
categorized as non-performing as of June 30, 1998 and are all currently on
non-accrual status.
Junior Subordinated Participation Interests. The Retained Assets include a
junior subordinated participation interest in three non-performing loans in
which the Company retains an interest of approximately $2.9 million in principal
amount, which have been fully reserved (100%) for by the Company. All of such
loans have been modified since origination and are currently performing in
accordance with their terms.
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Real Estate Loan Portfolio Composition. Tables that set forth information
concerning the Company's loans secured by real estate portfolio at the dates
indicated are included in a separate section of this annual report on Form 10-K.
See "Financial Schedules".
Origination, Purchase and Sale of Loans. As of the close of business on June 28,
1996, primarily as a result of conditions imposed by the NYSBD, the Company's
lending activities were substantially curtailed. During 1998, the Company
advanced funds only to fund continuing construction involving a limited number
of loans and investments in real estate. The multi-family residential and
commercial real estate loans originated by the Company 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.
The following table sets forth the activity in the Company's loans, including
commercial business and consumer loans, originated by the Predecessor Bank
during the periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1998 1997 1996
------------------- ------------------- -------------
<S> <C> <C> <C>
Originations:
Single-family residential loans $ -- $ -- $ 105,850
Multi-family residential loans -- -- 3,701
Commercial real estate loans -- -- 11,838
Consumer loans -- -- 3,237
------------- ------------- -------------
Total loans originated -- -- 124,626
Loans to facilitate sale of investments -- -- 83,892
Repurchased from Marine -- 471 --
------------- ------------ ---------------
Total loan increases -- 471 208,518
Sales (1) -- -- (1,034,928)
Loans transferred (to)/from -- -- (7,852)
Principal repayments, net (26,333) (7,706) (65,360)
------------- -------------- --------------
Net increase (decrease) in total loans $ (26,333) $ (7,235) $ (899,622)
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
During the year ended June 30, 1997, the Company repurchased a loan from Marine
in the amount of $471,000 in accordance with the terms of the Branch Sale
Agreement.
(1) 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 Secured by Real Estate by Loan and by Borrower. At June
30, 1998, the Company's loans secured by real estate portfolio included 2 loans
aggregating $36.5 million with principal amounts greater than $10.0 million, 1
loan with a principal balance of $6.8 million and 4 loans aggregating $8.1
million with principal amounts of $1.0 million to $5.0 million. At the same
date, the Company's five largest loans secured by real estate borrowers
(including their related entities) had $21.8 million, $14.7 million, $6.8
million, $3.1 million and $1.8 million, respectively, of loans outstanding, and
the aggregate amount of loans to the Company's five, 10 and 20 largest real
estate borrowers (including related entities) amounted to $48.2 million, $54.5
million and $59.0 million, respectively. At June 30, 1998, $22.1 million of the
loans to the Company's 20 largest borrowers were non-performing loans and $7.7
million had been restructured and were performing according to their
restructured terms.
Loans Sold With Recourse. At June 30, 1998 and 1997, the Company held three loan
assets secured by multi-family residential projects currently under development.
These assets were carried at $15.8 million and $24.5 million at June 30, 1998
and 1997, respectively.
In connection with the Branch Sale, on June 28, 1996, the Company consummated
$24.0 million of Asset Sale Transactions, known as the Pool B and C
transactions. These Asset Sale Transactions represented two of five such
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transactions (totaling $60.4 million) which were structured to include ongoing
recourse to, and participation by, the Company with respect to the assets sold,
based upon the proceeds realized by the purchasers. See "Asset Sales
Transactions."
For accounting purposes the Company 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 other Pools. Pool B and C Asset Sale Transactions
have been included in the Company's consolidated financial statements as loans
sold with recourse. Related financing for such assets has been included in the
Company's consolidated financial statements as Borrowed Funds, secured by assets
sold with recourse. Financings related to loans sold with recourse were $8.2
million and $18.2 million at June 30, 1998 and 1997, respectively. The Company
believes that it has made adequate provision at June 30, 1998 for all recourse
amounts expected to result from the sale of the assets included in Pools B and
C.
At June 30, 1998, one of these loans (the Pool B transaction) was composed of a
mortgage loan secured by land and construction in process related to a single
family condominium project in Wayne, New Jersey (the "Wayne Project"). The Wayne
Project is in the final phase of a three-phase development and all remaining
units are under contract to be sold. The Company believes that the Wayne Project
will be fully completed and all individual units sold prior to June 30, 1999.
The Company's remaining investment in the Wayne Project, net of applicable
reserves, was $3.0 million at June 30, 1998. At June 30, 1998, $2.1 million of
borrowed funds remained outstanding with respect to the Pool B recourse
financing.
During the year ended June 30, 1998, the Company made deposits in the amount of
$2.1 million against recourse claims related to the Pool B asset sale
transaction completed on June 28, 1996. Such deposits were made to terminate the
recourse provisions of the Pool B asset sale transaction and interest expense to
the Company subsequent to December 1997. These deposits will be refunded to the
Company when the remaining $2.1 million in recourse debt related to Pool B is
repaid from asset sales proceeds. See "Asset Sale Transactions," and Note 15 to
the Consolidated Financial Statements.
At June 30, 1998 Pool C consisted of contracts of sale for two adjacent parcels
of land located in the Bronx, New York (the "Bronx Projects"). At June 30, 1998,
the Company's remaining investment in the Bronx Projects aggregated $12.7
million, including $9.0 million for one site ("Site One") and $3.7 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 Company's investment in construction in process. At June
30, 1998, development of the first phase of Site One, involving the construction
of 84 condominium units, was completed and all units were sold. Site Two was
vacant on June 30, 1998 with no development yet commenced. At June 30, 1998, the
Company was evaluating various development and joint venture strategies with
respect to these properties. Such strategies would include, but not be limited
to, sales of one or both of the sites and various arrangements for a joint
venture to accommodate the development and sale of subparcels of the sites.
-10-
<PAGE>
The following table details activity with respect to loans sold with recourse
for the periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
The Bronx The Bronx
The Wayne Projects- Projects-
Project Site One Site Two Total
(Pool B) (Pool C) (Pool C)
-------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Investment at June 30,1996 $ 13,137 $ 11,210 $ 5,567 $ 29,914
Project fundings 2,268 5,763 -- 8,031
Unit sales (7,693) (3,801) -- (11,494)
Writedowns -- -- (2,000) (2,000)
------------- --------------- ----------------- ---------------
Investment at June 30, 1997 7,712 13,172 3,567 24,451
Project fundings 1,647 1,538 195 3,380
Unit sales (6,310) (5,740) -- (12,050)
Writedowns -- -- -- --
------------- --------------- --------------- -------------
Investment at June 30, 1998 $ 3,049 $ 8,970 $ 3,762 $ 15,781
------------- --------------- --------------- -------------
------------- --------------- --------------- -------------
</TABLE>
Composition of Loans Sold with Recourse. Tables that set forth information
concerning the Company's loans sold with recourse portfolio at the dates
indicated are included on page 91 of this annual report on Form 10-K. See
"Financial Schedules".
Joint Ventures. During the mid- to late-1980s, the Predecessor 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
Predecessor 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
Predecessor Bank's joint venture investments generally involved the formation of
a partnership between the Company's co-venturer and a subsidiary of the
Predecessor Bank. The Predecessor 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 Predecessor 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 Predecessor Bank's equity investment
was 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.
At June 30, 1998, the Company held one investment in a joint venture project,
totaling $1.5 million. This joint venture project is a shopping center located
in Escondido, CA. Thirty-five percent of the joint venture is owned by the
Company. At June 30, 1997, the Company held three investments in joint ventures,
totaling $3.1 million. The three investments in joint venture projects at June
30, 1997 were (1) A shopping center located in Escondido, CA, 35% owned by the
Company (carrying value of $1.6 million), (2) Four industrial buildings and
adjacent land located in Sacramento, CA, 50% owned by the Company (carrying
value of $1.2 million), and (3) an industrial warehouse located in Cicero, IL,
50% owned by the Company (carrying value of $364,000).
During the year ended June 30, 1998, the Company sold a part of its investment
in the Sacramento, CA joint venture project for $423,000 and wrote off the
remainder of this investment ($756,000). In addition, during the year ended June
30, 1998, the Company also wrote off its investment in the Cicero, IL joint
venture project ($364,000).
At June 30, 1998, the Company 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 limited amounts of capital
investment. Failure by the Company or its joint venture partner to fund
operating expenses, in the event that the underlying property does not generate
sufficient cash flow to meet its operating costs, could result in the loss of
the asset.
-11-
<PAGE>
Other Assets
Cash, Due from banks and Cash Equivalents. Included in cash, due from banks and
cash equivalents at June 30, 1998, are approximately $3.0 million in funds
maintained on deposit by wholly-owned subsidiaries and required to meet ongoing
cash flow requirements of those subsidiaries. At June 30, 1998, Marine had
restricted a total of $19.6 million in funds, held on deposit with Marine, in
accordance with the terms of the Branch Sale and the Marine Facility agreements.
At June 30, 1997, Marine had restricted a total of approximately $5.1 million.
Restricted funds held by Marine are not available to the Company for the
settlement of any of the Company's current obligations. Of the $19.6 million
cash balance restricted by Marine at June 30, 1998, $5.0 million relates to
reserve amounts specified under the Branch Sale Agreement. The remaining
restricted cash reserves arose from the sale of assets which were pledged as
primary or additional collateral for the Marine Facility. The restricted cash
held by Marine is intended to serve as substitute collateral for the Marine
Facility until the Company and Marine negotiate the application or other use of
the funds in accordance with the Company's Asset Management Plan and the terms
of the Marine Facility agreements.
Investment Securities. The following table sets forth the Company's investment
securities portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Securities:
Marketable Equity Securities
Common $ 2,299 $ 2,298 $ 2,298
Preferred -- -- --
Valuation allowance (926) (1,105) (1,218)
------------ ------------ ------------
Total 1,373 1,193 1,080
Non-marketable Equity Securities, net -- 5,082 4,605
------------ ------------ ------------
Total Equity Securities, net 1,373 6,275 5,685
----------- ------------ ------------
Total Investment Securities, net (1) $ 1,373 $ 6,275 $ 5,685
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
(1) At June 30, 1998, 1997 and 1996, all of the Company's investment
securities were classified as available for sale and carried at market
value in accordance with SFAS-115. See Note 1 to the Consolidated
Financial Statements.
At June 30, 1998, the Company's investment in common stock was comprised of
investments in the common stock of one corporate issuer.
The Company's investments in equity securities prior to June 30, 1997 include a
historically required investment in the FHLB of New York, redeemed during the
Company's 1997 fiscal year, which amounted to $9.0 million at June 30, 1996. The
Company's investments in equity securities prior to June 30, 1998 also include
investments, liquidated in 1997, in two service organizations, which amounted to
$790,000 at June 30, 1996. These organizations previously provided data
processing and related services to their shareholders, which included the
Predecessor Bank, on a cooperative basis.
The Company held no debt securities as of June 30, 1998 and 1997. For additional
information relating to the Company's investment securities, see Note 7 to the
Consolidated Financial Statements.
Commercial Business and Consumer Loans. The Company has been collecting the
portfolio of commercial business and consumer loans, which consisted of $6.1
million of commercial business loans, net of provision for possible credit
losses, $2.0 million of consumer loans at June 30, 1998. Of the $6.1 million
commercial business loans in the Company's portfolio at June 30, 1998, $6.1
million, or 100%, was classified as non-performing and maintained on non-accrual
status. Of the $2.0 million consumer loans in the Company's portfolio at June
30, 1998, $2.0 million or 100% was classified as non-performing.
The Company'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. At June 30, 1998 all of the Company's
commercial business loans had fixed rates of interest and stated maturities
greater than five years.
-12-
<PAGE>
Other assets. The Company held other assets equal to $4.2 million and $2.2
million at June 30, 1998 and 1997, respectively. At June 30, 1998, other assets
were primarily composed of deposits against asset sale recourse claims, accrued
interest receivable, net of interest reserves, and other prepaid assets. At June
30, 1997, other assets were primarily composed of accrued interest receivable,
net of interest reserves, and other prepaid assets.
The increase in other assets of $2.0 million from June 30, 1997 to June 30, 1998
was primarily attributable to deposits in the amount of $2.1 million made during
1998 against recourse claims related to the Pool B asset sale transaction
completed on June 28, 1996. Such deposits were made to terminate the recourse
provisions of the Pool B asset sale transaction and interest expense to the
Company subsequent to December 1997. These deposits will be refunded to the
Company when the remaining $2.1 million in recourse debt related to Pool B is
repaid from asset sales proceeds. See "Asset Sale Transactions," and Note 15 to
the Consolidated Financial Statements.
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the
Company 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 Company 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 Sales Transactions were
entered into with five entities, each of which was independent of the Company
and Alvin Dworman, who owns 39% of the common stock of the Company and 100% of
RB Management, LLC. 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 (the
Bronx Projects), believed by the Company and the purchasers to be in the final
process of disposition by the Company. In essence the Asset Sale Transactions
resulted in the acceleration of the receipt of disposition proceeds which the
Company expected to realize on the included assets in fiscal years immediately
following the Company's 1996 fiscal year.
In each of the Asset Sale Transactions, the Company 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 Company also received
additional contingent proceeds notes for each of the five pools which provided
the Company 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 were to be retained
by the purchaser.
The Company 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 in connection with the
Branch Sale.
The Company 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 Company 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 Company 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 Company 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 Company's consolidated financial statements as loans sold
with recourse. Related financing for such assets has been included in the
Company's consolidated financial statements as Borrowed Funds, secured by assets
sold with recourse. The Company believes that it has made adequate provision at
June 30, 1998 for all recourse amounts expected to result from the sale of the
assets included in Pools B and C.
-13-
<PAGE>
For accounting purposes the Company 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
transactions 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 with the reminder being realized during the
fiscal year ended June 30, 1998. 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 Company'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.
During the year ended June 30, 1998, the Company elected to satisfy its debt to
the purchaser and reacquire, under the recourse terms of the Asset Sale
Transaction, the remaining unsold assets sold to the purchaser on June 28, 1996.
This action was undertaken to reduce the Company's ongoing interest expense and
related obligations under the debt agreement with the purchaser. As a result of
this action, and the realization of asset disposition proceeds during the 1998
fiscal year, at June 30, 1998 the purchaser had realized all anticipated
proceeds from its participation in the Asset Sale Transactions and all fundings
associated with the transaction had been retired by the Company.
At June 30, 1998, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.9 million. This balance is carried by the Company as
a component of it commercial and consumer loans. This balance represented claims
which had been filed with state processing agencies for reimbursement for which
the Company expected to receive more timely reimbursement. At June 30, 1998, the
remaining Single Family Receivables balance, net of applicable reserves, of $1.1
million were in the process of being disposed of through amortization and sales
of individual loans or, to a lesser degree, sales of real estate owned to bulk
buyers or individuals. This balance is carried by the Company as loans secured
by real estate.
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 Company's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13 million.
At June 30, 1998, the Wayne Project is in the final phase of a three-phase
development and all remaining units are under contract to be sold. The Company
believes that the Wayne Project will be fully completed and all individual units
sold prior to June 30, 1999. The Company's remaining investment in the Wayne
Project, net of applicable reserves, was $3.0 million at June 30, 1998. At June
30, 1998, all Marine debt related to this asset has been repaid and $2.1 million
of recourse debt remained payable to a third party.
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 Company'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 Company's investment at
June 28, 1996 in construction in process.
At June 30, 1998, the Company's remaining investment in the Bronx Projects
aggregated $12.7 million, including $9.0 million for Site One and $3.7 million
for Site Two. At June 30, 1998, development of the first phase of Site One,
involving the construction of 84 condominium units, was completed and all units
were sold. Site Two was vacant on
-14-
<PAGE>
June 30, 1998 with no development yet commenced. At June 30, 1998, the Company
was evaluating various agreements for a joint venture to accommodate the sale of
these properties. Such strategies would include, but not be limited to, sales of
one or both of the sites and joint venture arrangements for the development and
sales of subparcels of the sites.
Payments made to reduce the remaining recourse claims related to the Pool C sale
were made from Bronx Project condominium unit sales proceeds to Marine and to a
third party lender aggregating $2.1 million and $2.2 million, respectively, in
the year ended June 30, 1998 and $600,000 and $0, respectively, in the year
ended June 30, 1997. Such payments reduced the outstanding amount payable to
Marine and the third party lender to $6.1 million and $0, respectively, at June
30, 1998 and to $8.2 million and $2.2 million, respectively, at June 30, 1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
real estate properties, located in New York State, New Jersey and California
(collectively, the "Real Estate Properties"). The Company'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. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1998.
During the year ended June 30, 1998, the Company elected to satisfy its debt to
the purchaser and reacquire, under the recourse terms of the Asset Sale
Transaction, the remaining unsold asset sold to the purchaser on June 26, 1998.
This action was undertaken to reduce the Company's ongoing interest expense and
related obligations under the debt agreement with the purchaser. As a result of
this action, at June 30, 1998 the purchaser had realized all anticipated
proceeds from its participation in the Asset Sale Transactions and all debt
associated with the transaction had been retired by the Company.
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 Company'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 was disposed of during fiscal
1997 and consequently, the purchaser had realized all anticipated proceeds from
its participation in the Asset Sale Transactions and all debt associated with
this transaction had been retired by the Company prior to June 30, 1997.
Sources of Financing
Subsequent to the Branch Sale, the primary source of the Company's financing has
been secured financing provided by Marine.
The closing of the Branch Sale was conditioned upon the Company's obtaining
financing with terms and in an amount reasonably acceptable to the Company and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Company 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 Company 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 FHLB and (ii) provide additional funds for the development and
completion of two individual real estate assets as part of the Company'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 Company'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.
-15-
<PAGE>
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 Company 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 (as defined below) will accrue interest at a specified default rate.
The Facility was initially 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 Company), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Company
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, is required to be
applied to the prepayment of the Facility subject to the Company's right to
establish reserves for its operating needs. The Company 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 Company could 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 Company's disposition of assets so as to reduce or eliminate its
need for supplemental financing. If the Company pursued additional debt
financing, the proceeds of such financing would be required to be utilized in a
manner approved by Marine (which might include the application of a percentage
of such proceeds to the prepayment of the Senior Debt Financing), such financing
could 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 Company 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). Such proceeds, received during the
1998 Fiscal Year, are currently held by Marine as restricted cash ($19.6 million
at June 30, 1998) pending negotiations with Marine as to the application of the
proceeds.
Additionally, Marine initially indicated that it would be willing to consider a
request by the Company 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 was subject to Marine's approval and was to be secured
by additional mortgaged properties of the Company or collateral assignments of
mortgage loans of the Company 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 Company's continuing operations. The increase
in the Facility, if any, would be utilized by the Company only to facilitate the
retirement of the Series A Preferred Stock. The Company has been advised by
Marine that it has no intent to provide additional financing for this purpose at
this time.
The Loan Agreement requires that while any amounts remain outstanding under the
Senior Debt Financing, the Company must receive Marine'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.
As a former member of the FHLB, River Bank had, prior to June 28, 1996, 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. The outstanding FHLB
financing prior to June 28, 1996, was previously fully secured by individual
assets of the Company, a substantial amount of which were being sold to Marine
as part of the Branch Sale. As a result, the Company was required to repay or
refinance substantially all of its FHLB indebtedness at or prior to the closing
of the Branch Sale. At June 30, 1998 and 1997, the Company had no outstanding
advances from the FHLB of New York. As a consequence of the Branch Sale and,
further, the Reorganization, the Company is no longer a member of the FHLB or
eligible to become a member. Consequently, FHLB financing is no longer an
available source of funds for the Company.
-16-
<PAGE>
Deposits. As a Delaware corporation, the Company may no longer accept any
banking deposits and such deposits are no longer a potential source of funds
available to the Company. The Predecessor Bank had not offered any banking
deposit products subsequent to the Branch Sale. Prior to the Branch Sale,
deposits obtained through retail banking offices of the Predecessor Bank had
traditionally been the primary source of the Company's funds for use in lending
and for other general business purposes.
Borrowed Funds. The following table sets forth certain information concerning
the Company's borrowed funds at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
FHLB Advances $ -- $ -- $ 2,026
Marine Initial Facilities 60,557 66,066 89,760
Secured by loans sold
with recourse 8,203 18,206 24,000
--------------- -------------- -------------
Total $ 68,760 $ 84,272 $ 115,786
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
For additional information relating to the Company's borrowed funds, see Asset
Sale Transactions and Note 16 to the Consolidated Financial Statements.
Subsidiaries
Under the Banking Law, which had applied to the Predecessor Bank prior to the
Reorganization, the Company 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 Company's activities in subsidiaries consists of
holding investments in real estate not held directly by the Company. The Company
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 Company. RRC and RPI are New York corporations. The
Company'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 had an office in San Francisco. RPI, RRC and RFG
were originally formed to engage in real estate development and lending
activities.
A wholly-owned subsidiary of the Company, 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 by the Predecessor Bank, at June
30, 1996, the Company had 37 full-time and 13 part-time employees. At June 30,
1997 the Company 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. Due to the retirement of the Company's President
and Chief Executive Officer, at June 30, 1998 the Company had only one employee.
That employee continued to be involved in administrative functions. Subsequent
to June 30, 1998, the Company increased its staff to two with the appointment of
a new President and Chief Executive Officer. See Note 14 to the Consolidated
Financial Statements. See "Directors and Principal Officers of the Registrant."
-17-
<PAGE>
Taxation
Federal Income Tax Considerations of the Reorganization. The following
discussion summarizes the principal material federal income tax considerations
of the Reorganization. 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 the Reorganization, 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. Roberts & Holland LLP, special tax counsel to River Bank, has
provided an opinion, in the form attached as an exhibit to the Registration
Statement of River Distribution Sub, Inc and River Asset Sub, Inc., filed on
Form S-4, to the effect that the discussion set forth under the caption "Tax
Consequences of the Reorganization" below as to the characterization of the
transaction as a "reorganization" under section 368 of the Code is correct. As
with all such complex matters, there is a risk that the IRS could disagree with
the conclusions stated herein and in the opinion of counsel.
Tax Consequences of the Reorganization. The Reorganization was structured and
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 did constitute such a "reorganization," the
following consequences would pertain:
1. The transaction would be treated for Federal income tax purposes as
though River Bank had transferred substantially all of its assets to
the Company in exchange for RB Asset, Inc. capital stock followed by a
distribution of the RB Asset, Inc. capital stock by River Bank to its
stockholders in exchange for their River Bank capital stock in
constructive liquidation of River Bank.
2. No gain or loss would be recognized to a holder of River Bank Common
Stock who is deemed to exchange such stock for RB Asset, Inc. common
stock ("RB Asset Common Stock"). No gain or loss would be recognized to
a holder of River Bank Series A Preferred Stock who is deemed to
exchange such stock for RB Asset, Inc. series A preferred stock ("RB
Asset Series A Preferred Stock"). The basis of any RB Asset Common
Stock or RB Asset Series A Preferred Stock would continue to 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 Asset 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 by 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, Inc. shall be
the same as it would be in the hands of River Bank. RB Asset, Inc. will
succeed to and take into account various tax attributes of River Bank
(including net operating loss carryforwards, to the extent not used to
offset income or gain of River Bank, and accumulated earnings and
profits).
The Reorganization was reasonably characterized 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
Company has not requested a ruling from the IRS. As a result, the IRS or a court
could determine that the Reorganization did 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 Predecessor
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, Inc. 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, Inc.
capital stock. Moreover, the Predecessor 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, Inc. 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, Inc. would not succeed to them.
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See "Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred
Stock" in the Registration Statement of River Bank America, filed on Form S-4,
for a summary of the tax effects of holding the Reorganization on RB Asset
Common Stock and RB Asset Preferred Stock subsequent to the Reorganization.
Certain Tax Attributes. As of June 30, 1998, the Bank had recorded a gross
deferred tax liability of approximately $19.2 million in its consolidated
financial statements. Also, as of June 30, 1998, the Bank had recorded a gross
deferred tax asset of approximately $68.6 million, primarily attributable to net
operating loss carryforward attributes ("NOLs") of approximately $88.9 million,
reserves for loan losses and real estate valuation allowances of approximately
$12.2 million and general business and alternative minimum tax credits of
approximately $10.7 million. The Company'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, 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
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
Company'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 Company, the Company 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.
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Although it may not have caused an ownership change, the Equity Offering caused
a significant increase in the percentage ownership of stock of the Predecessor
Bank by one or more new 5-percent stockholders. Specifically, the Company
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 Company 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 Company's 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 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.
Federal Taxation. For federal income tax purposes, the Company reports its
income and expenses using the accrual method of accounting. The Company and
certain of its subsidiaries file consolidated federal income tax returns on a
fiscal 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 Company are subject to an alternative minimum
tax which is generally equal to 20% of the excess 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 Predecessor Bank maintained "qualifying assets," as defined
in the Code, 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 Predecessor Bank failed to maintain qualifying
assets in excess of 60% of total assets and, as a result, was no longer
considered a "domestic building and loan association," but was considered to be
a "bank" for federal income tax purposes. As a result, as of December 31, 1992,
the Company 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 taxable 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, 1998, the Company 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 general business and alternative minimum tax credits,
each of which is discussed below and in Note 19 to the Consolidated Financial
Statements.
At June 30, 1998, the Company had suspended passive activity losses for federal
income tax purposes of approximately $277,000 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 $8.2 million. In addition, tax credits of $1.0 million,
$784,000, and $555,000 were generated in 1998, 1997 and 1996, respectively, and
are considered non-passive. This credit is primarily attributable to the
Company's investment in the rehabilitation of an
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historic multi-family residential project located in Philadelphia, Pennsylvania.
See Note 19 to the Consolidated Financial Statements for additional information.
The primary source of the Company's "passive" losses has been from losses
incurred by subsidiaries of the Company in real estate joint ventures, and
certain losses incurred by the Company in connection with real estate acquired
through foreclosure. "Passive" losses from these sources may be deducted against
the Company's "active income" other than its "portfolio income." For tax years
in which the Company 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 Company in prior years
because the Company was considered to be "closely held" within the meaning of
the passive activity loss limitation rules set forth in the Code. The Company
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 Equity Offering, the Company believes that it is not "closely
held" for purposes of the passive activity loss rules following consummation of
the Equity 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 Company was "closely held," but current losses
and credits are not subject to treatment as passive activity losses.
At June 30, 1998, the Company had NOL carryforwards for federal income tax
purposes of approximately $88.9 million. The Company's NOLs may be carried
forward 15 years and will expire in 2006 through 2013.
The Company 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 Company 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 Company's
"adjusted ordinary gross income" for any year is "personal holding company
income" (each as defined), the Company 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
Company during the period that the Series A Preferred Stock was outstanding
(although the Company has passive activity loss carryovers and credits arising
before that period) and the personal holding company rules have not applied to
the Company 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.
At June 30, 1998, the Company 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 Company'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 Company's federal income tax returns for calendar years
1991 and 1990 in connection with the Company'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 Company. 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 19 to the
Consolidated Financial Statements.
State and Local Taxation. Prior to May 22, 1998, the Company was subject to the
New York State Franchise Tax on Banking Corporations and to the New York City
Banking Corporation Tax (collectively, the "Banking Tax" rules). The
reorganization on May 22, 1998, and the dissolution of the Predecessor Bank
under New York State Banking Law, resulted in the new organization becoming (on
that date) subject to the New York State and New York City Corporate
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tax rules, as opposed to the Banking Tax rules. The Corporate tax rules impose a
tax calculated on the greater of either tax imposed on net income or capital tax
base, as defined in the regulations.
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 Company'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 Company's tax year ending December 31, 1996.
The Company files a combined New York State franchise tax return with several of
its currently active subsidiaries that do business in New York. The Company'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 Company 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 any of those years.
Please see the Company's Report F-3 filed for the month of October 1995 which is
incorporated herein by reference. In November 1995, the Company paid New York
State $761,000 to settle all amounts, including penalties and interest for the
calendar years 1987, 1988 and 1989.
The Company 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 Company under the 1982 Assistance Agreement. The
Company'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 Company's
initial refund claim. The Company continues to review the impact of this
decision on its position.
REGULATION
The references to laws and regulations which are applicable to the Company 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 Company is a Delaware corporation that succeeded to the assets,
liabilities and business of River Bank as a result of a reorganization
consummated on May 22, 1998. Prior to the Reorganization, the Company was 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 were insured up to
applicable limits by the Bank Insurance Fund administered by the FDIC. The
Company was therefore subject to extensive regulation, examination and
supervision by the Banking Department and by the FDIC. For a summary of
regulations that were applicable to the Predecessor Bank, prior to the
Reorganization, see "Regulation" in the annual report on FDIC Form F-2, dated
June 30, 1997.
Marine assumed all the Company's remaining retail deposits in connection with
the Branch Sale, and so notified the FDIC. The Company ceased accepting deposits
on the date of the Branch Sale. At June 30, 1997, the Company continued to be
regulated by the FDIC and the NYSBD. On October 31, 1996 the Company 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
Company received notice that the FDIC, as requested by the Company, intends to
terminate the Company's status as an insured state non-member Bank on December
31, 1997. Upon the issuance of such order by the FDIC, the Company was no longer
be subject to banking regulation by the FDIC but remained a banking organization
chartered and regulated by the Banking Department. In connection therewith, the
Company received from the Banking Department a waiver of any applicable New York
State deposit insurance requirements.
On May 22, 1998, River Bank completed its reorganization into a Delaware
corporation named RB Asset, Inc., under a plan that was approved at the
Predecessor Bank's special meeting of stockholders on May 1, 1998. RB Asset,
Inc., as the successor in the Reorganization, succeeded to the assets,
liabilities and business of River Bank.
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At this time, the Company remains subject to the information and reporting
requirements of the Exchange Act, as amended, administered by the SEC.
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 Predecessor Bank were also subject to restrictions
under the Banking Law. According to the Banking Law, dividends could only be
declared and paid out of net profits of a regulated bank. The approval of the
Superintendent would have been required if the total of all dividends declared
in any calendar year exceeded 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.
The Company has previously received notice that the approvals necessary to
declare or pay dividends on the Company's outstanding shares of Series A
Preferred Stock would not be provided. In June 1996, the Predecessor Bank's
Board of Directors declared a Series A Preferred Stock dividend for the quarter
ending June 30, 1996, payment of which was subject to the receipt of required
approvals from the FDIC and the NYSBD (the Predecessor Bank's regulators at the
time), as well as Marine (the Predecessor Bank's and the Company's principal
lender). Primarily as a result of the above, neither the Company's or the
Predecessor Bank's Board of Directors has taken any action regarding a quarterly
dividend on the Company's Series A Preferred Stock for any of the quarterly
periods ended from September 30, 1996 through June 30, 1998. Although the
Company is no longer subject to the jurisdiction of either the FDIC or the
NYSBD, declaration or payment of future dividends on the Company's Series A
Preferred Stock will continue to be subject to the approval of Marine for so
long as the Facility remains outstanding. The Company has received notice from
Marine that the approval necessary to declare or pay dividends on the Company's
Series A Preferred Stock will not be provided at this time. There can be no
assurance that the Board of Directors of the Company will deem it appropriate to
pay dividends on the Series A Preferred Stock, even if permitted to do so by
Marine.
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ITEM 2
EXECUTIVE OFFICES AND OTHER PROPERTIES
During the year ended June 30, 1996 the Company terminated all remaining lease
obligations involving properties and executive offices. The Company is no longer
obligated under any material amounts of non-cancelable operating leases. During
1998, the Company paid rent in an aggregate amount that was not material to its
financial statements.
ITEM 3
LEGAL PROCEEDINGS
Litigation. The Company is involved in various legal proceedings occurring in
the ordinary course of business. Management of the Company, 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 Company. There
can be no assurance that any of the outstanding legal proceedings to which the
Company is a party will not be decided adversely to the Company's interests and
have a material adverse effect on the financial condition and operations of the
Company.
In recent periods, the Company 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 Company 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
Company and Quest believed were available. As reported in the Company'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 Company'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 Company'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 Company 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
Company has a claim for a refund. Since the Company 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 Company and its subsidiaries.
The Company 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 Company 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 Company believes that the expected costs of
remediation of such conditions are not significant and would not materially
impair the Company's ability to sell such properties. It is the Company's
general
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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 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 Company or its
subsidiaries, or that the establishment of separate subsidiaries for foreclosed
properties will insulate the Company against potential environmental liability
relating to such properties.
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ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Company held its annual meeting of shareholders on September 16, 1998. The
Company's stockholders considered proposals to:
1. elect Edward V. Regan and James J. Houlihan as directors to serve for a
term of three years or until such directors' successors are elected and
shall have qualified ("Proposal 1");
2. ratify the appointment of Ernst & Young LLP as the independent auditors
of the Bank for fiscal year 1999 ("Proposal 2"); and
3. consider and vote upon a proposal to elect David J. Liptak and Jeffrey
E. Susskind as directors nominated by holders of RB Asset 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value
(the "Series A Preferred Stock") for a term of one year or until such
directors' successors are elected and shall have qualified. ("Proposal
3").
According to the records of the Company and American Stock Transfer Company, the
Company's transfer agent ("AST"), there were a total of 7,100,000 shares of
common stock, $1.00 par value, of the Company (the "Common Shares") that could
be voted at the meeting, and 5,125,284 Common Shares were represented at such
meeting by the holders thereof or by proxy, which constitutes a quorum with
respect to Proposal 1 and Proposal 2.
According to the records of the Company and AST, there were a total of 1,400,000
shares of 15% non cumulative perpetual preferred stock, series A, $1.00 par
value, of the Company the ("Series A Preferred Shares") that could be voted on
Proposal 3 only, and that 1,201,700 Series A Preferred Shares were represented
at such meeting by the holders thereof or by proxy, which constitutes a quorum
with respect to Proposal 3.
The following table sets forth the number of votes in favor, the number of votes
opposed, and the number of abstentions (or votes withheld in the case of the
election of directors) with respect to each of the foregoing proposals:
<TABLE>
<CAPTION>
Abstentions
Proposal Votes in Favor Votes Opposed (Withheld)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Proposal 1
Edward V. Regan 5,124,284 -- 1,000
James J. Houlihan 5,124,284 -- 1,000
- --------------------------------------------------------------------------------
Proposal 2 5,125,284 -- --
Proposal 3
David J. Liptak 1,201,700 -- --
Jeffrey E. Susskind 1,201,700 -- --
</TABLE>
-26-
<PAGE>
PART II
ITEM 5
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Common Stock - The Common Stock of the Company is traded in the over-the-counter
market. As of September 21, 1998, the Company had approximately 12 holders of
record of its Common Stock. Prior to the Reorganization, River Bank Common Stock
traded in the over-the-counter market for which trading price information was
available. No trading price information for the Company's Common Stock is
available. Neither the Company nor River Bank have ever declared dividends on
their respective common stock. 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 River Bank Common
Stock during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Quarterly Stock Prices
--------------------------------------------------
High Low Quarter End
---- ------ -----------
<S> <C> <C> <C>
First Quarter ended September 30, 1997 $ 6.375 $ 5.500 $ 6.000
Second Quarter ended December 31, 1997 6.125 5.750 5.875
Third Quarter ended March 31, 1998 5.625 5.500 5.560
Fourth Quarter ended June 30, 1998 (1) (1) (1)
</TABLE>
(1) - As of May 22, 1998, market quotations for RB Asset, Inc. common stock were
deleted from published listings due to an insufficient number of market makers
for the stock. The last trade price reported for the Predecessor Bank was $7.50
per share based on the most recent transaction prior to May 22, 1998.
Please reference the information contained in Note 18 of the Notes to
Consolidated Financial Statements.
-27-
<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 Company at the dates and for the periods indicated. The data at June 30,
1998, 1997, 1996, 1995 and 1994 and for the years ended June 30, 1998, 1997,
1996, 1995 and 1994 (unaudited), have been derived from audited consolidated
financial statements of the Company, 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,
1994, the Board of Directors of the Company authorized management to change the
Company'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
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Total assets $ 190,910 $ 211,659 $ 285,478 $1,463,637 $1,541,368
Real estate held for investment 82,835 84,102 -- -- --
Real estate held for disposal, net 3,650 13,247 -- -- --
Investments in real estate, net (3) -- -- 146,440 231,302 233,286
Loans receivable:
Single-family residential 1,306 3,924 4,557 234,386 209,295
Multi-family residential 24,638 26,092 31,336 249,252 245,245
Commercial real estate 33,062 50,077 51,090 463,760 488,830
Construction -- -- -- 5,301 6,157
Commercial business -- -- 12,984 36,695 40,224
Consumer -- -- 3,038 21,274 15,421
Less:
Deferred fees and unearned discount -- -- -- (2,220) (3,880)
Allowance for credit losses (17,697) (25,787) (34,142) (33,985) (41,076)
-------- --------- --------- --------- ---------
Total loans receivable, net 41,309 54,306 68,863 974,463 960,216
Loans sold with recourse 15,781 24,451 29,914 -- --
-------- --------- --------- --------- ---------
Total loans, net and loans sold with recourse 57,090 78,757 98,777 974,463 960,216
Cash and due from banks and money 32,087 14,036 17,129 108,540 173,631
market instruments
Investment securities, net and investment
securities available for sale (2) 1,373 6,275 5,685 31,372 49,185
Commercial and consumer loans, net 8,091 9,894 -- -- --
Mortgage-backed and related securities
and mortgage-backed and related
securities available for sale (2) -- -- 187 72,643 82,074
Deposits -- -- 3,022 1,171,530 1,254,199
Borrowed funds 68,760 84,272 115,786 179,061 141,592
Stockholders' equity (6) (11) $ 107,183 $ 108,510 $ 138,520 $ 90,134 $ 117,847
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
7,100,000 7,100,000 7,100,000 7,100,000 7,100,000
Shares of Common Stock outstanding
Book value per common share (5) $ 10.17 $ 10.35 $ 14.58 $ 7.77 $ 11.67
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
(Footnotes on second following page)
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operations Data(1):
Rental revenue and operations:
Rental income and other property revenue $ 13,779 $ 16,158 $ 18,530 $ -- $ --
Property operating and maintenance expense (10,884) (12,827) (17,734) -- --
Depreciation - real estate held for investment (383) (200) (208) -- --
------- -------- -------- -------- ------
Net rental operations 2,512 3,131 588 -- --
Other property income (expense):
Net gain (loss) on sale of real estate 1,998 (1,754) (3,499) -- --
Writedowns of investment in real estate (1,106) (19,745) (1,889) (14,460) (16,050)
------- -------- -------- ------- ------
Total other property income (expense) 892 (21,499) (5,388) (14,460) (16,050)
Other income:
Interest income:
Interest and dividend income 4,197 5,469 94,409 88,878 93,478
Provision for possible credit losses (1,500) (1,000) (5,250) (5,041) (5,360)
------- -------- -------- -------- -------
Total interest income 2,697 4,469 89,159 83,837 88,118
Realization of contingent participation revenues 3,356 -- -- -- --
Income (loss) from other real estate owned, net -- -- -- 103 4,973
Other -- -- -- 1,228 1,065
------- -------- -------- -------- -------
Total other income 6,053 4,469 89,159 85,168 94,156
------- -------- -------- ------- ------
Total revenues 9,457 (13,899) 84,359 70,708 78,106
Interest expense 6,109 7,360 61,794 52,255 51,636
Other expenses:
Deposit insurance expenses -- -- 2,533 3,704 4,683
Foreclosure costs -- -- 225 1,105 2,780
Other 6,117 7,369 33,996 38,666 39,616
------- -------- -------- -------- -------
Total other expenses 6,117 7,369 36,754 43,475 47,079
------- -------- -------- ------- ------
Total expenses 12,226 14,729 98,548 95,730 98,715
------- -------- -------- ------- ------
Net loss before other income (expense) and before
Provision for income taxes (2,769) (28,628) (14,189) (25,022) (20,609)
Other income (expense):
Banking fees, service charges and other net
income -- -- 3,996 2,320 3,531
Gains on sale of offices and branches of the
Predecessor Bank (6) (11) -- -- 77,560 -- 18,045
Net gains (losses) on sale of investment securities 1,697 (1,495) (605) 441 1,179
Provision for Marine Branch Sale
contingencies (4) -- (3,300) -- -- --
------- -------- -------- -------- -------
Total other income (expense) 1,697 (4,795) 80,951 2,761 22,755
------- -------- -------- -------- -------
Income (loss) before income tax expense (benefit) (1,072) (33,423) 66,762 (22,261) 2,146
Income tax expense (benefit) 434 (3,300) 11,749 2,113 2,608
------- -------- -------- -------- -------
Income (loss after income tax expense (benefit) (1,506) (30,123) 55,013 (24,374) (462)
Dividends declared on preferred stock -- -- 5,250 5,250 --
------- -------- -------- -------- -------
Net income (loss) applicable to Common Shares $ (1,506) $(30,123) $ 49,763 $(29,624) (462)
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Primary and diluted net income (loss) per share (5) $ (0.21) $ (4.24) $ 7.01 $ (4.17) $ (0.45)
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Other Data (1) (7):
Average equity to average assets 54.37% 50.97% 5.51% 7.18% 2.69%
Equity to assets at period end (9) 56.14 51.35 48.52 6.16 7.65
Weighted average yield on interest earning assets (8) 4.21 4.90 7.42 7.11 7.13
Weighted average rate paid on interest-bearing
liabilities (8) 8.17 6.97 4.43 3.88 3.39
Interest rate spread (8) (3.96) (2.07) 2.99 3.23 3.74
Net interest margin -n/a- -n/a- -n/a- 2.93 3.19
Return on average assets (10) (0.76) (1.27) 3.64 (1.65) (0.03)
Return on stockholders' equity (10) (1.40) (24.84) 66.12 (27.04) (0.39)
</TABLE>
-29-
<PAGE>
(1) Reflects the sale, effective June 28, 1996, of the Company's
remaining eleven branch offices. As a result of such
transaction, the Company'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 Company
recorded a pre-tax net gain of $77.6 million.
(2) At June 30, 1998, 1997, 1996, and 1995, all of the Company's
investment and mortgage backed securities, were classified as
available for sale in accordance with the Company's asset
disposition plan and in 1994 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 the Predecessor Bank's asset and liability
management strategy.
(3) For years prior to June 30, 1997, investments in real estate
consist of in-substance foreclosures, real estate held for
disposal and real estate held for investment, net of related
reserves.
(4) During the year ended June 30, 1997, the Company and Marine
undertook an overall review of the closing of the Branch Sale.
As a result of such review, the Company 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 1997
Statement of Operations as provision for Marine Branch Sale
contingencies. The Company 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. The
Company had no securities outstanding that have a dilutive
effect.
(6) Consists of a $77.6 million net pre-tax gain from the sale, in
June 1996, of the Company'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) Data is as of the end of the indicated periods.
(10) Net income for fiscal 1996 includes a $67.6 million after-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.
(11) Consists of $18.1 million gain from the sale, in October 1993,
of the Company's four branch offices in Westchester County,
New York and related deposits and a $2.3 million gain from the
sale of a building, in March 1993, which formerly contained a
branch office of the Company in Manhattan, New York, the
operations of which were consolidated into another branch
office of the Company.
-30-
<PAGE>
The following table sets forth selected data related to non-performing loans for
the periods indicated: (Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-performing Loans Data (1):
Non-performing loans (2):
Single-family residential (3) $ 1,306 $ 3,924 $ 4,557 $ 7,496 $ 7,587
Multi-family residential 14,724 16,790 19,658 -- 2,900
Commercial real estate 6,611 11,557 3,113 38,685 89,569
Construction -- -- -- 4,941 5,641
Commercial business 8,458 12,806 6,817 6,263 3,938
Consumer 1,973 2,871 2,671 165 702
------- -------- -------- -------- -------
Total non-performing loans -- -- -- -- --
Other asset Quality Data $ 33,072 $ 47,948 $ 36,816 $ 57,550 $110,337
------- -------- -------- -------- -------
Delinquent loans (4) -- -- -- 9,206 1,595
Restructured loans (5) 22,999 24,454 29,842 166,291 132,944
Loans to facilitate sale of real estate assets(6) -- -- -- 215,191 149,555
Allowance for potential credit losses
20,037 31,570 34,142 33,985 41,076
Ratios: Loan Quality
Non-performing loans as a percentage
of total assets 17.52% 22.65% 12.90% 3.93% 7.16%
Non-performing loans as a percentage
of total loans 47.63 50.07 35.74 5.71 11.02
Allowance for credit losses as a percentage
of non-performing loans 60.59 65.84 92.74 59.05 37.23
Net charge-offs as a percentage of
average loans during the period ended 14.41 3.59 1.03 0.90 3.00
</TABLE>
(1) Non-performing loans consist of loans for which the Company has ceased
to accrue interest income and has fully reserved against previously
accrued interest income.
(2) The Company's total non-performing loans decreased by $14.9 million or
31.0% to $33.1 million at June 30, 1998, as compared to $47.9 million
at June 30, 1997. Such net decreases were due primarily to the
sales/satisfactions of an aggregate of $3.8 million of non-performing
loans, a return of $2.2 million to performing status, and a writeoff of
$8.9 million.
(3) Prior to fiscal 1997, these loans primarily consisted of completed
single-family residential developments and lots for the development of
single-family residences. After June 30, 1996, such loans represent
non-accrual loans on 1-4 family residential properties for which
interest income is recognized only as received.
(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.
-31-
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
General. The Company's assets and liabilities have substantially decreased
during the past two fiscal years, consistent with the Company's asset management
plan and the conditions imposed by the NYSBD. Following the Branch Sale by the
Predecessor Bank at June 28, 1996 (which resulted in the sale of all of the
Predecessor Bank's branches and a substantial portion of the Predecessor Bank's
assets) the Company undertook to manage its assets in a manner that was
consistent with the Predecessor Bank's efforts to improve its capital ratios (as
defined by the Predecessor Bank's then-current regulators, FDIC and the NYSBD)
by, among other things, reducing the total assets of the Company. Total assets
decreased from $285.5 million at June 28, 1996 to $190.9 million at June 30,
1998 and total liabilities decreased from $147.0 million to $83.7 million at the
same dates, respectively. Total assets decreased by $20.7 million, or 9.8%
during the year ended June 30,1998, following a decrease of $73.8 million or
25.9% during the year ended June 30, 1997. Total liabilities decreased by $19.4
million, or 18.8% during the year ended June 30, 1998 following a decrease of
$43.8 million or 29.8% during the year ended June 30, 1997. 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 Company's assets
and liabilities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Assets:
Investments in real estate, net $ 86,485 $ 97,349 $146,440
Real estate loans receivable, net 57,090 78,757 88,628
Cash due from banks and money market
instruments 32,087 14,036 17,129
Investment securities available for sale 1,373 6,275 5,685
Commercial and consumer loans, net 8,091 9,894 10,239
Total assets 190,910 211,659 285,478
Liabilities:
Borrowed funds 68,760 84,272 115,786
Total liabilities 83,727 103,149 146,958
Stockholders' equity $107,183 $108,510 $138,520
</TABLE>
Investments in Real Estate, Net. Investments in real estate, which are comprised
of real estate held for investment and real estate held for disposal, net of
applicable fair market value reserves, declined $10.9 million, or 11.2%, and
$49.1 million, or 33.5%, during the years ended June 30, 1998 and 1997,
respectively. The net disposals of investments in real estate, during fiscal
1998 and 1997, were made in accordance with the Company's asset disposition
strategies.
During the year ended June 30, 1998, the company disposed of two properties
totaling $5.2 million. In addition, investments in real estate decreased, during
the fiscal year ended June 30, 1998, as the result of the sale/satisfaction of
$9.1 million in investments in real estate and depreciation affecting
investments in real estate of $383,000. These decreases in investments in real
estate, totaling $14.7 million, were partially offset by additional asset
fundings in the amount of $3.8 million which were made during the year.
During the year ended June 30, 1997, the company disposed of 13 properties
totaling $32.2 million. In addition, investments in real estate decreased,
during the fiscal year ended June 30, 1997, as the result of the writedown of
$16.6 million and the sale/satisfaction of $3.1 million in investments in
-32-
<PAGE>
real estate, and depreciation affecting investments in real estate of $200,000.
These decreases in investments in real estate, totaling $52.1 million, were
partially offset by additional asset fundings in the amount of $3.0 million made
during the year. The writedowns in investments in real estate of $16.3 million,
recorded during the year ended June 30, 1997, included a writedown 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. For detailed information concerning the Company's
investments in real estate, see "Real Estate Assets" and Notes 1, 12 and 13 to
the Consolidated Financial Statements.
Loans Secured by Real Estate. Total loans secured by real estate declined $21.1
million, or 26.3%, and $6.9 million, or 7.9%, during the fiscal years ended June
30, 1998 and 1997, respectively. During the year ended June 30, 1998, 5 loans
were paid in full, totaling $6.3 million. In addition, the Company received
principal reduction payments of $15.9 million. During the year ended June 30,
1998, the Company funded $1.1 million.
The decrease during the fiscal year ended June 30, 1997 was due primarily to the
disposition of $8.8 million in loans as part of the Company's continuing efforts
to liquidate its remaining assets and the effects of normal loan amortization
and borrower prepayments activity, partially offset by the reacquisition of a
single property carried at $1.9 million. See Notes 1, 8, 10 and 11 to the
Consolidated Financial Statements.
Cash and Due from Banks and Money Market Instruments. Cash and due from banks
and money market instruments increased by $18.1 million or 128.6% during the
year ended June 30, 1998, following a decrease of $3.1 million or 18.1% during
the year ended June 30, 1997. The increase in cash for the year ended June 30,
1998 was primarily due to the sales and/or repayment of investments in real
estate and loans receivable during the year. The decrease in cash and due from
banks during the year ended June 30, 1997 was due to payment of other
liabilities related to the Branch Sale and the settlement of the Company's
remaining non-retail deposit liabilities. For additional information, see Note 5
to the Consolidated Financial Statements.
At June 30, 1998, Marine had restricted a total of $19.6 million in funds, held
on deposit with Marine, in accordance with the terms of the Branch Sale and the
Marine Facility agreements. At June 30, 1997, Marine had restricted a total of
approximately $5.1 million. Restricted funds held by Marine are not available to
the Company for the settlement of any of the Company's current obligations. Of
the $19.6 million cash balance restricted by Marine at June 30, 1998, $5.0
million relates to reserve amounts specified under the Branch Sale Agreement.
The remaining restricted cash reserves arose from the sale of assets which had
served as primary or supplemental collateral for the Marine Facility. The
restricted cash held by Marine is intended serve as substitute collateral for
the Marine Facility, until such time as the Marine Facility is reduced in
accordance with the Company's Asset Management Plan and the Marine Facility
agreements.
Investment Securities, Available for Sale. Total investment securities,
available for sale decreased $4.9 million, or 78.1%, during the year ended June
30, 1998, following an increase of $590,000, or 10.4% during the year ended June
30, 1997. During the year ended June 30, 1998, the Company liquidated its
preferred stock investment which had been carried on the books of the Company at
June 30, 1997 at $5.0 million. The disposition proceeds received by the Company
were $6.9 million, which included $54,000 in additional accrued preferred
dividends. Accordingly the Company recognized a gain in the amount of $1.8
million during the 1998 fiscal year. The increase in investment securities,
available for sale during the year ended June 30, 1997 was due to the
recognition of $590,000 in accrued preferred dividends associated with the
Company's preferred stock investment. These accrued dividends were added to the
carrying value of the asset at June 30, 1997 and were received in conjunction
with the disposition of this asset during fiscal 1998.
Commercial and Consumer Loans, Net. Total commercial and consumer loans
decreased $5.2 million, or 39.3%, and $345,000, or 3.4%, during the fiscal years
ended June 30, 1998 and 1997, respectively. During the year ended June 30, 1998,
one loan was paid in full, totaling $400,000. In addition, the Company received
principal reduction payments of $1.0 million. During the year ended June 30,
1998, the Company also wrote off $3.8 million in commercial and consumer loans.
Borrowed Funds. The Company's borrowed funds decreased by $17.6 million or 20.9%
and $31.5 million or 27.2% during the years ended June 30, 1998 and 1997,
respectively. Borrowed funds decreased during fiscal 1998 and 1997 primarily as
the result of repayment transactions utilizing funds received from the
liquidation of certain assets under the Company's plan of asset dispositions.
-33-
<PAGE>
Stockholders' Equity. Total stockholders' equity decreased by $1.3 million, or
1.2%, and $30.0 million, or 21.7%, during the fiscal years ended June 30, 1998
and 1997, respectively. The declines in total stockholders' equity in each of
the past two fiscal years was primarily a result of the Company's reported
operating losses of $1.5 million and $30.1 million in the years ended June 30,
1998 and 1997, respectively. At June 30, 1998 and 1997, an aggregate of $926,000
and $1.1 million, respectively, were deducted from the Company'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 18 to the Consolidated Financial Statements.
The following table summarizes the calculation of the Company's book value per
share at June 30, 1998, June 30, 1997, and June 30, 1996.
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
1998 1997 1996
---- ----- ----
(Dollars in thousands)
<S> <C> <C> <C>
Total stockholders' equity $ 107,183 $ 108,510 $ 138,520
Less: liquidation value of preferred stock 35,000 35,000 35,000
---------- ---------- ----------
Net stockholders' equity $ 72,183 $ 73,510 $ 103,520
---------- ---------- ----------
---------- ---------- ----------
Total shares of Common Stock issued
and outstanding (1) 7,100,000 7,100,000 7,100,000
Book value per common share $ 10.17 $ 10.35 $ 14.58
---------- ---------- ----------
---------- ---------- ----------
</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, 1998.
Results of Operations - Fiscal year ended June 30, 1998 compared to fiscal year
ended June 30, 1997
General. The Company reported a net loss attributable to common shares of $1.5
million, or ($0.21) per share, for the years ended June 30, 1998, as compared
with a net loss applicable to Common Shares of $30.1 million, or ($4.24) per
share, for the fiscal year ended June 30, 1997. The primary reason for the
decrease in the Company's net loss for the fiscal year ended June 30, 1998, as
compared to the previous year, was the reduction in writeoffs of investments in
real estate from $19.7 million in fiscal 1997 to $1.1 million in fiscal 1998, a
net pre-tax reduction in such writeoffs of $18.6 million, or 94.4%. In addition,
the Company's total revenues, excluding other income (expense), increased to
$21.8 million during the year ended June 30, 1998, as compared to $18.8 million
in the previous year. Total revenues increased during fiscal 1998, as compared
with the previous year, primarily as a result of the realization of contingent
participation revenues in the amount of $3.4 million in 1998, as compared with
zero in the previous year, and the recognition of a net gain from real estate
sales during 1998 of $2.0 million, as compared with a net loss in the previous
year of $1.8 million. Other operating expenses declined $1.3 million to $6.1
million during fiscal 1998 as compared to $7.4 million in the previous fiscal
year. In addition, other income (expense) was $1.7 million in the year ended
June 30, 1998, an increase of $6.5 million, as compared to a loss of $4.8
million recorded as other income (expense) in the previous fiscal year.
Rental Income. For the year ended June 30, 1998, rental income was $13.8
million, a decline of $2.4 million, or 14.7%, from $16.2 million for the year
ended June 30, 1997. The decline in rental income was primarily attributable to
sales of properties and reductions in the number of rental units at some of the
Company's multi-family residential properties as units were converted to
condominiums and sold.
-34-
<PAGE>
Interest Income. For the year ended June 30, 1998, total interest income, net of
provisions for possible credit losses, was $2.7 million, a decline of $1.8
million, or 39.7%, from $4.5 million for the previous fiscal year. The decline
in interest income in fiscal 1998, as compared with the previous year, was
primarily due to a decline in interest from loans and an increase in the
provision for possible credit losses in fiscal 1998 as compared with fiscal
1997.
For the year ended June 30, 1998, interest income from loans was $3.7 million, a
decline of $824,000, or 18.3%, from $4.5 million for the year ended June 30,
1997. The decline was primarily attributable to the repayment in full of a $10.2
million participation loan secured by real estate in the quarter ended September
30, 1997.
For the year ended June 30, 1998, income from investment securities was $55,000,
a decline of $519,000, or 90.4%, from $574,000 for the year ended June 30, 1997.
The decline was primarily attributable to the recovery of the Company's $5.0
million preferred stock investment during the quarter ended September 30, 1997.
Total proceeds from the recovery of this preferred stock investment were $6.8
million. Accordingly, a gain on the recovery was recognized in the amount of
$1.8 million during the year.
For the year ended June 30, 1998, the Company's provision for possible credit
losses was $1.5 million, an increase of $500,000, or 50%, from the $1.0
provision taken in the previous fiscal year. 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 Company's loan portfolio and the markets for real estate
and economic conditions in the New York metropolitan area and other areas in
which the Company had engaged in lending activities. The provision for credit
losses in the fiscal 1998 and 1997 period reflects management's internal
analysis of its loan assets. See Note 10 to the Consolidated Financial
Statements.
Depreciation - Real Estate Held for Investment. For the year ended June 30,
1998, depreciation charges associated with real estate held for investment were
$383,000 an increase of $183,000, or 91.5%, as compared with depreciation
charges associated with real estate held for investment in fiscal 1997 of
$200,000. Under SFAS-121, the Company is required to depreciate Real Estate Held
for Investment over the estimated useful life of the assets. No depreciation
charges are made for the portion of the assets attributable to land values.
During the year ended June 30, 1998, the Company recorded depreciation charges
of approximately $383,000, of which $175,000 represents depreciation of the
capitalized costs of the Real Estate Held for Investment (less land value) for
five of the Company's six real estate assets from the period May 22, 1998 to
June 30, 1998. The remaining $208,000 in depreciation charges recorded during
the year ended June 30, 1998 were for the sixth property, consistent with
depreciation charges taken in prior periods for that property. On May 22, 1998,
as a consequence of the Reorganization, the Company was no longer subject to the
categorization and depreciation regulations for investments in real estate
previously imposed by the Predecessor Bank's regulators. Accordingly, on that
date, the Company began to record depreciation charges, as required by SFAS-121,
for all Real Estate Held For Investment, that had not been subject to
depreciation charges in prior periods. See Note 1 to the Consolidated Financial
Statements.
Writedowns of Investments in Real Estate. During the year ended June 30, 1998,
the Company wrote down investments in real estate in the amount of $1.1 million.
This amount represents a decrease in writedowns for investments in real estate
of $18.6 million, or 94.4%, as compared with writedowns taken in fiscal 1997,
totaling $19.7 million. During 1998, the Company wrote down two investments in
joint ventures, totaling $1.1 million.
During the quarter ended December 31, 1996, the Predecessor Bank determined that
it would not immediately undertake the rehabilitation and leasing of an Atlanta,
GA office property that had been leased by the Federal Government under a lease
with a term which ended during 1997. The Atlanta office property was acquired by
the Predecessor Bank in foreclosure and previously had a net book value of
approximately $25.3 million. At that time, as an alternative to undertaking the
major rehabilitation project and assuming the resultant risk of leasing the
building at a rate sufficient to recover the Company's substantially increased
investment subsequent to rehabilitation, the Predecessor Bank elected to explore
the sale of the property with expected net proceeds of approximately $14.0
million. As a result, the Predecessor Bank established a real estate valuation
reserve for this property in the amount of $11.3 million. At June 30, 1998, the
Company continues to explore strategic alternatives with respect to this
property other than its immediate sale and has, therefore, categorized the
property as real estate held for investment.
The Predecessor Bank also decided during the quarter ended December 31, 1996 to
dispose of four other real estate properties and one real estate joint venture
and has established aggregate real estate valuation reserves for these
properties in the amount of $3.4 million.
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<PAGE>
During the quarter ended September 30, 1996, the Bank also established a $4.0
million real estate valuation reserve providing for the anticipated sale of four
other real estate properties at net sale proceeds which are expected to be less
than the Bank's previously recorded net book value for those assets.
Other Income. During the year ended June 30, 1998, other income was $5.4
million, an increase of $7.2 million as compared with a loss of $1.8 million in
fiscal 1997. Other income increased during fiscal 1998, as compared with the
previous year, primarily as a result of the realization of contingent
participation revenues in the amount of $3.4 million in 1998, as compared with
zero in the previous year, and the recognition of a net gain from real estate
sales during 1998 of $2.0 million as compared with a net loss in the previous
year of $1.8 million.
Contingent participation revenues were realized on two junior participation
loans, which were paid in full during fiscal 1998. Each of the loans had been
sold to Marine on June 28, 1996 and were fully reserved for on the Company's
books following the Branch Sale. The Company retained a contingent interest in
these two loans approximating $3.3 million in principal amount following the
Branch Sale. At June 30, 1998, the Company had a remaining contingent interest
in three junior participation loans in which the Company retains an interest of
approximately $2.9 million in principal amount, which are fully reserved for
(100%) by the Company. All of such loans have been modified since origination
and are currently performing in accordance with their terms.
During the year ended June 30, 1998, the Company sold two properties realizing a
net gain on sale of $2.0 million. During the previous fiscal year, the Company
sold 13 properties realizing a net loss of $1.8 million.
Property Operating and Maintenance Expenses. For the year ended June 30, 1998,
property operating and maintenance expenses ("property expenses") were $10.9
million, a decline of $1.9 million, or 15.2%, from $12.8 million for the year
ended June 30, 1997. The decline in property expenses was primarily attributable
to reductions in operating costs associated with maintaining rental units at
certain multi-family residential properties, as these units were converted to
condominiums and sold.
Interest Expense. During the year ended June 30, 1998, the Company recorded
interest expenses in the amount of $6.1 million, a decline of $1.3 million, or
17.0%, as compared with interest expenses of $7.4 million in the previous fiscal
year. Interest expenses declined in 1998 as compared with 1997 primarily as a
result of declines in the average amount borrowed by the Company in fiscal 1998
as compared with fiscal 1997. During 1997, the Company borrowed an average of
$73.3 million, a decline of $19.9 million, or 21.4%, as compared with average
borrowings of $93.2 million during the year ended June 30, 1997. The decline in
the average amount of borrowed funds was attributable to the repayment of
outstanding obligations which occurred in fiscal 1998 as a result of asset
dispositions.
Other Expenses. Other expenses consist of the Company's general and
administrative expenses. Other expenses do not include direct real estate
operations expenses, which are included in "property operating and maintenance
expense."
During the year ended June 30, 1998, the Company recorded other expenses in the
amount of $6.1 million, a decline of $1.3 million, or 17.0%, as compared with
other expenses of $7.4 million in the previous fiscal year. Other expenses
declined in 1998 as compared with 1997 primarily as a result of declines in the
average amount borrowed by the Company in fiscal 1998 as compared with fiscal
1997. The following table sets forth the components of the Company's other
expenses, excluding during the periods indicated.
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year ended June 30,
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Depreciation - other $ -- $ 15
Salaries and employee benefits 900 1,170
Legal and professional fees 2,305 1,892
Management fees 2,562 2,942
Other operating expenses 350 1,350
-------------- --------------
Total $ 6,117 $ 7,369
-------------- --------------
-------------- --------------
</TABLE>
Legal and professional fees expense increased from $1.9 million during the year
ended June 30, 1997 to $2.3 million during the same period in 1998, as a result
of expenses incurred in connection with the Bank's successful reorganization
from a New York State chartered savings bank to a Delaware corporation. The
Company initiated these corporate form conversion activities in the quarter
ended June 30, 1997. The Company accrued and paid $53,000 and $53,000,
respectively, in the year ended June 30, 1997, and the Company accrued and paid
$900,000 and $1.6 million, respectively, in the year ended June 30, 1998, for
legal and professional fees associated with this conversion.
The Company engaged RB Management Company, LLC (the "Management Company") to
manage the operations of the Company after the Branch Sale, including the
management and disposition of Company assets. The Management Company was a
newly-formed, privately-owned entity controlled by Alvin Dworman, who owns 39.0%
of the outstanding Common Stock of the Company. During the year ended June 30,
1998, the Company accrued $2.9 million in fees payable to the Management
Company, of which $360,000 related to fees incurred for the successful
disposition of assets. During the year ended June 30, 1997, the Company accrued
$3.7 million in fees payable to the Management Company, of which $774,000
related to fees incurred for the successful disposition of assets. At June 30,
1998, the Company had accrued fees payable to the Management Company and its
affiliate, Fintek, Inc., aggregating $224,000. See "Management."
All other operating expenses declined $1.0 million, or 74.1%, to $350,000 for
the year ended June 30, 1998 as compared with the year ended June 30, 1997, in
which other operating expenses were $1.35 million. These expenses declined in
1998, as compared with the previous year due to the Company's continuing efforts
to reduce the expense of managing its operations.
Other Income (Expense). Other income and expense was income of $1.7 million
during the year ended June 30, 1998, an increase of $6.5 million, as compared to
the year ended June 30, 1997 where other income (expense) was a loss of $4.8
million. Other income (expense) in the year ended June 30, 1998 was primarily
due to the $1.8 million recorded gain on sale of the Company's largest preferred
stock holding during the quarter ended September 31, 1997.
During the quarter ended December 31, 1996, the Company and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such review,
the Company 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, for
fiscal 1997, as provision for Marine Branch Sale contingencies. The Company
believes that the remaining reserve for closing settlement adjustments
adequately provides for claims which may be asserted by Marine.
Provision for Income Taxes. Statement of Financial Accounting Standards No. 109
(SFAS-109), "Accounting for Income Taxes," requires the Company 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.
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<PAGE>
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 1998, fiscal 1997, and fiscal 1996. The Company'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 19 to the Consolidated Financial Statements.
Under SFAS-109, at June 30, 1998, the Company recorded a net deferred tax asset
of approximately $19.2 million and deferred tax liabilities of $19.2 million.
The net deferred tax asset reflects gross deferred tax assets of $68.6 million
and a valuation allowance of $49.4 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 a company's net deferred tax asset may serve to
increase its net worth under generally accepted accounting principles. However,
because of the net losses incurred by the Company in recent years, the Company
established a $49.4 million valuation allowance, resulting in a net deferred tax
asset of $19.2 million. The valuation allowance decreased by approximately $12.5
million during the fiscal year ended June 30, 1998. Realization of the net
deferred tax asset is expected to occur upon reversal of existing taxable
temporary differences for which deferred tax liabilities of $19.2 million have
been recorded.
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the reported 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, 1998, the Company recorded a net provision for income
taxes of $434,000, primarily to reflect the effects of operations and asset
disposition on its current state and local income tax liability at June 30,
1998.
During the year ended June 30, 1997, the Company completed a review of its
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 Company reduced its
provision (recorded a benefit from) for state and local income taxes by $3.3
million. Additionally, the Company 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, 1997 compared to fiscal year
ended June 30, 1996
General. The Company 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
Company's net income in the fiscal year ended June 30, 1997 as compared to the
previous year was the net pre-tax gain of $77.6 million on the Branch Sale
recorded in 1996, a decrease in income (net of interest expenses) 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 writedowns of investments in real estate from $1.9 million in fiscal 1996 to
$19.7 million in fiscal 1997, partially offset by reduction in operating
expenses in 1997 as compared to the previous year of $36.7 million.
In fiscal 1996, the operations of the Company, operating as the Predecessor
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. The level
of the Company's non-performing loan assets continues to have a negative effect
on net interest income.
Rental Income. For the year ended June 30, 1997, rental income was $16.2
million, a decline of $2.4 million, or 12.8%, from $18.5 million for the year
ended June 30, 1996. The decline in rental income was due to the sale of 10 real
estate properties in 1997. In addition, the decline in rental income was also
partially attributable to reductions of
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<PAGE>
rental units at some of the Company's multi-family residential properties as
units were converted to condominiums and sold. In addition rental income
declined as a result of falling occupancy rates at certain other properties.
Interest Income. For the year ended June 30, 1997, total interest income, net of
provisions for possible credit losses, was $4.5 million, a decline of $84.7
million, or 95.0%, from $89.2 million for the previous fiscal year. The decline
in interest income in fiscal 1997, as compared with the previous year, was
primarily due to a decline in interest and other interest-bearing assets as a
result of the Branch Sale.
For the year ended June 30, 1997, the Company's provision for possible credit
losses was $1.0 million, a decrease of $4.3 million, or 80.9%, from the $5.3
million provision taken in the previous fiscal year. 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 Company's loan portfolio and the markets for real estate
and economic conditions in the New York metropolitan area and other areas in
which the Company had engaged in lending activities. The provision for credit
losses in the fiscal 1997 and 1996 period reflects management's internal
analysis of its loan assets. See Note 10 to the Consolidated Financial
Statements.
Writedowns of Investments in Real Estate. During the year ended June 30, 1997,
the Company wrote down investments in real estate in the amount of $19.7
million. This amount represents an increase in writedowns for investments in
real estate of $18.6 million, or 94.4%, as compared with writedowns taken in
fiscal 1997, totaling $19.7 million. During 1998, the Company wrote down two
investments in joint ventures, totaling $1.1 million.
During the quarter ended December 31, 1996, the Predecessor Bank determined that
it would not undertake the rehabilitation and leasing of an Atlanta, GA office
property leased by the Federal Government under a lease with a term which ended
during 1997. The Atlanta office property was acquired by the Predecessor Bank in
foreclosure and previously had a net book value of approximately $25.3 million.
As an alternative to undertaking the major rehabilitation project and the risk
of leasing the building to recover the Predecessor Bank's substantially
increased investment subsequent to rehabilitation, the Predecessor Bank elected
to list the property for sale at that time with expected net proceeds of
approximately $14.0 million. As a result, the Predecessor Bank established a
real estate valuation reserve for this property in the amount of $11.3 million.
At June 30, 1998, the Company continues to explore strategic alternatives with
respect to this property in addition to its immediate sale. The Predecessor Bank
also decided during the quarter ended December 31, 1996 to dispose of four other
real estate properties and one real estate joint venture and has established
aggregate real estate valuation reserves for these properties in the amount of
$3.4 million.
During the quarter ended September 30, 1996, the Predecessor Bank also
established a $4.0 million real estate valuation reserve providing for the
anticipated sale of four other real estate properties at net sale proceeds which
are expected to be less than the Predecessor Bank's previously recorded net book
value for those assets.
Other Income. During the year ended June 30, 1997, other income was a reported
loss of $1.8 million, an increase of $1.7 million as compared with a loss of
$3.5 million in fiscal 1996. The loss reported in other income decreased during
fiscal 1997, as compared with the previous year as a result of the reduced
losses realized on the sale of investments in real estate during 1997 as
compared with the previous year.
Property Operating and Maintenance Expenses. For the year ended June 30, 1997,
property operating and maintenance expenses ("property expenses") were $12.8
million, a decline of $4.9 million, or 27.7%, from $17.7 million for the year
ended June 30, 1996. The decline in property expenses was primarily attributable
to the sale of real estate assets as a result of the Branch Sale and additional
real estate asset dispositions which took place in fiscal 1997.
Interest Expense. The Company'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 primarily attributable to the decrease in the Company's average
balances of interest-bearing liabilities in 1997 as compared with 1996 following
the Branch Sale.
Other Expenses. During the year ended June 30, 1997, the Company recorded other
expenses in the amount of $7.4 million, a decline of $29.4 million, or 80.0%, as
compared with other expenses of $36.8 million in the previous fiscal year. Other
expenses declined in 1997, as compared with 1997, primarily as a result of the
substantial reduction in the Company's operating activities and associated
expenses following the Branch Sale. The following table sets forth the
components of the Company's other expenses, excluding during the periods
indicated.
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<PAGE>
Fiscal Year ended June 30,
1997 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Depreciation - other $ 15 $ 951
Salaries and employee benefits 1,170 14,163
Legal and professional fees 1,892 4,521
Management fees 2,942 --
Other operating expenses 1,350 17,119
-------- ---------
Total $ 7,369 $ 36,754
-------- ---------
-------- ---------
The Company engaged RB Management Company, LLC (the "Management Company") to
manage the operations of the Company after the Branch Sale, including the
management and disposition of Company assets. The Management Company was a
newly-formed, privately-owned entity controlled by Alvin Dworman, who owns 39.0%
of the outstanding Common Stock of the Company. During the year ended June 30,
1997, the Company accrued $3.7 million in fees payable to the Management
Company, of which $774,000 related to fees incurred for the successful
disposition of assets. See "Management."
Other Income (Expense). Other income and expense was a loss of $4.8 million
during the year ended June 30, 1997, a decrease of $85.7 million, as compared to
the year ended June 30, 1997 where other income (expense) was $81.0 million.
During the quarter ended December 31, 1996, the Company and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such review,
the Company 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, for
fiscal 1997, as provision for Marine Branch Sale contingencies. The Company
believes that the remaining reserve for closing settlement adjustments
adequately provides for claims which may be asserted by Marine.
Other income (expense) in fiscal 1997, includes a recorded gain of $77.6 million
related to the premium paid by Marine for the branches and purchased assets of
the Predecessor Bank as a result of the Branch Sale.
Income Tax Expense. 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
Company'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 19 to the Consolidated Financial
Statements.
Under SFAS No. 109, at June 30, 1997, the Company 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 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. However,
because of the net losses incurred by the Company in recent years, the Company
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.
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<PAGE>
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the reported 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 Company completed a review of its 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 Company reduced its provision
(recorded a benefit from) for state and local income taxes by $3.3 million.
Additionally, the Company 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.
Income tax expense in 1996 was $11.7 million, which was largely attributable to
provisions made for taxes associated with the Predecessor Bank's $77.6 million
gain on the Branch Sale. During 1996, the provision for income taxes differs
from the amount computed by applying the statutory Federal income tax rate of
35% to the reported income 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.
Asset Quality
Loan Asset Portfolio Composition The high levels of the Company's non-performing
loan assets in recent years was primarily attributable to the Company's emphasis
during the mid- to late-1980s on loans to joint ventures for the acquisition,
development and construction of real estate in which the Company or a subsidiary
had an equity interest, commercial business loans, commercial real estate loans
and multi-family residential loans. Primarily as a result of the restrictions
imposed by the NYSBD, the Company did not originate any such loans during the
years ended June 30, 1998 and 1997.
Among various types of loans secured by real estate, 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, 1998, the Company's total loans secured by real estate portfolio of $59.0
million included $24.6 million or 41.8% of multi-family residential loans and
$33.1 million or 56.0% of commercial real estate loans. Since the early 1990s,
the Company continued to originate such loans, on a limited basis, in connection
with the sale of investments in real estate and other resolutions of
non-performing assets.
The Company discontinued construction lending and loans to joint ventures in
1991. 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 Company 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 Company 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 Company's status in some ventures as an equity
participant.
The Company'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 Company's largest concentration remains in New York, in
which the Company had $53.2 million of multi-family residential and commercial
real estate at June 30, 1998, primarily located in the New York metropolitan
area, at such date the Company also had $1.4 million, $1.8 million and $1.3
million of such loans in California, Kentucky 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 Company's primary market area may involve a
higher degree of risk because the Company 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.
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<PAGE>
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 Company
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 Company may place a loan on non-accrual status
even when it is not yet delinquent 90 days or more if the Company 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 Company
and collection of principal is not in doubt.
The commercial business lending activities emphasized by the Company 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 Company
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 Company discontinued its new
commercial business lending activities in 1991 and, as a result, the Company's
gross commercial business loans decreased to $8.5 million at June 30, 1998, as
compared to $12.8 million at June 30, 1997. At June 30, 1998, the remaining
investments made through Quest consisted of $1.3 million of equity securities,
net.
-42-
<PAGE>
The following table summarizes the gross and net carrying values of the
Company's non-performing loan assets at June 30, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Writedowns Net Book Value
Gross Specific as a percentage of
Balance Reserves (1) Net Value Gross Balance
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $ 1,306 $ 194 $ 1,112 85.2%
Multi-family residential 14,724 6,485 8,239 56.0
Commercial real estate 6,611 3,900 2,711 41.0
--------- ----- ----- -----
Total non-performing real
estate loans 22,641 10,579 12,062 53.3
Commercial business 8,458 2,290 6,168 72.9
Consumer 1,973 50 1,923 97.5
Total non-performing
commercial business and
consumer loans 10,431 2,340 8,091 77.7
--------- ----- ----- -----
Total non-performing loans
$ 33,072 $ 12,919 $ 20,153 60.9%
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>
Non-performing Loan Activity. The following tables sets forth the activity in
the Company's non-performing loan assets during the periods indicated.
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Beginning balance $ 47,948 $ 36,816 $ 57,550
Additions 3,266 16,033 27,662
Transfers to REO -- (34) (7,852)
Write-offs (8,917) -- (7,825)
Moved to performing loans (2,165) -- (14,738)
Satisfaction/sales (7,060) (4,867) (17,981)
-------------- --------------- ---------------
Ending balance $ 33,072 $ 47,948 $ 36,816
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
Non-performing loans decreased by $14.9 million or 31.0% during the year ended
June 30, 1998 following an increase of $11.1 million or 30.2% during the fiscal
year ended June 30, 1997. The decrease in non-performing loans in fiscal 1998
reflects continued efforts to liquidate assets. The increase in non-performing
loans in 1997 was the result of the continued deterioration in certain loans
placed in non-performing status.
Loans to Finance the Sale of Real Estate. The Company had previously financed
the sale of investments in real estate under appropriate circumstances. Such
financing was provided by the Company on what management of the Company
considered to be market terms, which generally were more flexible than the
Company's standard underwriting guidelines for multi-family residential and
commercial real estate loans. All loans to finance the sale of investments
-43-
<PAGE>
in real estate were approved in advance by the Board of Directors of the Company
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, 1998 and 1997, the Company 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 8, 9 and 11 to the Consolidated Financial Statements).
Restructured Loans. The Company'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 Company encourages restructure
agreements only when it is in the best interest of the Company 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 borrower's inability to meet contractual
terms may be remedied through a modification which both protects the financial
interests of the Company and is economically feasible for the borrower.
At June 30, 1998, the Company had restructured loans which aggregated $23.0
million and were performing in accordance with their restructured terms. At the
same date, the Company's restructured loans had been outstanding or periods
which range from 17 months to approximately five years. The Company's
restructured loans generally have performed in accordance with their
restructured terms. At June 30, 1998, the Company had 3 restructured loans with
an aggregate balance of $15.8 million which were included in the Company'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 Company's restructured loans had a weighted average rate of 7.08% at
June 30, 1998, as compared to an original weighted average rate of 10.16%. The
Company'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 Company'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 Company's loan portfolio.
The following table sets forth information regarding the Company's restructured
loans at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Multi-family residential $ 22,499 $ 23,954 $ 27,167
Commercial real estate 500 500 2,675
Commercial business -- -- --
------------- ----------- ------------
Total $ 22,999 $ 24,454 $ 29,842
------------- ----------- ------------
------------- ----------- ------------
Total restructured loans as a
percentage of total loans 33.12% 25.53% 34.65%
Total restructured loans as a
percentage of total assets 12.18% 11.55% 10.45%
</TABLE>
Allowance for Credit Losses. Although the process of evaluating the adequacy of
the Company'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 Company's reserves. The Company's reserve analysis is
prepared quarterly in conjunction with the Company'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 writedowns 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.
-44
<PAGE>
The Company'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 Company's provisions for credit losses and writedowns of investments in real
estate have been significant in recent years. Such provisions and writedowns
aggregated $2.6 million, $20.7 million and $7.1 million during the years ended
June 30, 1998, 1997 and 1996 and contributed significantly to the Company's
recorded net losses (excluding the effects of the Branch Sale in 1996) during
those years.
At June 30, 1998, the Company's allowance for credit losses amounted to $20.0
million or 28.9% of total loans and 60.6% of non-performing loans, as compared
to $31.6 million or 33.0% of total loans and 65.9% of non-performing loans at
June 30, 1997. The decrease in the Company's allowance for credit losses in 1998
reflects the continued decrease in the size of the Company's loan portfolio and
management's internal analysis of the composition of its non-performing assets.
Of the $20.0 million allowance for credit losses at June 30, 1998, $12.9 million
or 64.5% were specific reserves relating to particular loans and $7.1 million or
35.5 were general reserves. See Note 10 to the Consolidated Financial
Statements.
Management of the Company, based on facts available to it, believes that the
Company's allowance for credit losses at June 30, 1998 was adequate and that the
net carrying value of the Company'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 Company's non-performing
assets, consisting of provisions for credit losses, net loan charge-offs, loss
of interest income on non-performing loans, writedowns 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 Company's operations. Because the nature and extent of
these adverse effects will be dependent on many factors outside the control of
the Company, including conditions in the relevant real estate markets and
prevailing interest rates, these adverse effects are not presently determinable
by the Company.
In establishing an appropriate level of loan loss reserves, the Company 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 Company
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.
-45-
<PAGE>
The following table sets forth information concerning the activity in the
Company's allowance for credit losses during the periods indicated.
<TABLE>
<CAPTION>
Fiscal
Six months Year ended
Fiscal Year Ended June 30, ended June 30, December 31,
------------------------ --------------------------- -------------- -------------
(Dollars in Thousands)
1998 1997 1996 1995 1994 1993
---------- --------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average loans outstanding $ 86,139 $99,403 $1,018,477 $1,007,333 $1,080,317 $1,311,904
---------- --------- ----------- ----------- -------------- -------------
---------- --------- ----------- ----------- -------------- -------------
Allowance at the beginning of the period $ 31,570 $34,142 $33,985 $41,076 $55,258 $92,589
Charge-offs:
Single-family residential loans (2,026) (3,523) (1,089) (1,302) (39) (2,046)
Multi-family residential loans (1,147) (1,287) (2,665) (850) (13,336) (11,060)
Commercial real estate loans (3,801) -- (6,795) (11,160) (1,518) (23,249)
Commercial business loans (3,773) (23) -- (1,380) (1,500) (442)
Consumer loans and other (2,827) -- (21) (9) (36) (13,917)
----------- ------- ------- ------- ------- -------
Total loans charged off (13,574) (4,833) (10,570) (14,701) (16,429) (50,714)
---------- --------- ----------- ----------- -------------- -------------
---------- --------- ----------- ----------- -------------- -------------
Recoveries:
Single-family residential loans 204 98 40 10 -- --
Multi-family residential loans 3 704 -- 1,424 -- --
Commercial real estate loans 146 437 -- 1,135 347 555
Consumer loans and other 188 22 1 -- -- --
----------- ------- ------- ------- ------- -------
Total loans recovered 541 1,261 41 2,569 347 555
Net charge-offs (13,033) (3,572) (10,529) (12,132) (6,082) (50,159)
Additions charged to operating expenses 1,500 1,000 5,250 5,041 1,900 12,828
Additions charged to non-operating expenses -- -- 5,436 -- -- --
----------- ------- ------- ------- ------- -------
Allowance at end of period (1) $ 20,037 $31,570 $34,142 $33,985 $41,076 $55,258
----------- ------- ------- ------- ------- -------
----------- ------- ------- ------- ------- -------
Ratio of net charge-offs to average
loans outstanding 15.13% 3.59% 1.03% 1.20% 4.05% 3.82%
Ratio of allowance to total loans at
end of period (1) 28.86 32.96 33.15 3.36 4.06 5.36
Ratio of allowance to non-performing
loans at end of period (1) 60.59 65.84 92.74 59.05 37.23 34.25
</TABLE>
(1) As noted above, the decrease in the Company'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 Company's
loan restructuring activities, the continued decrease in the size of
the Company's loan portfolio and management's internal analysis of the
composition of its non-performing assets.
(2) Percentages for the six month period are computed on an annualized
basis.
-46-
<PAGE>
The following table sets forth information concerning the allocation of the
Company's allowance for credit losses by loan categories at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997 June 30, 1996
------------------------------------------------------------------------------------------------
Percent Percent Percent
Of Total Of Total Of Total
Loans by Loans by Loans by
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Single-family
residential $ 328 0.47% $ 1,294 1.86% $ 1,410 2.03%
Multi-family
residential 9,011 12.98 8,553 12.32 12,359 17.80
Commercial real
estate 7,290 10.50 16,543 23.82 10,822 15.59
Construction -- 0.00 -- 0.00 -- 0.00
Commercial
business 3,157 4.55 4,357 6.27 6,956 10.02
Consumer 251 0.36 823 1.19 2,595 3.74
---------- ---------- ---------
$ 20,037 $ 31,570 $ 34,142
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
June 30, 1995 June 30, 1994
----------------------------------------------------------
Percent Percent
Of Total Of Total
Loans by Loans by
Amount Category Amount Category
------ -------- ------ --------
Single-family
residential $ 986 0.42% $ 1,488 0.71%
Multi-family
residential 2,969 1.19 3,008 1.23
Commercial real
estate 21,302 4.59 30,248 6.19
Construction 2,746 51.80 717 11.65
Commercial
business 5,982 16.30 5,533 13.76
Consumer -- 0.00 82 0.53
--------- ---------
$ 33,985 $ 41,076
--------- ---------
--------- ---------
-47-
<PAGE>
Asset Carrying Values. Investments in real estate are recorded on the books of
the Company at the lower of the Company's historical cost, less applicable
depreciation for real estate held for investment, or the 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, 12 and
13 to the Consolidated Financial Statements.
The Company 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 Company 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 GAAP. Under GAAP, among other
things, the DCF method allows for adjustments when local markets are dominated
by forced or liquidation sales, or when properties have unusual characteristics,
so that value estimates can be based on rent levels and occupancy that are
reasonably estimated to be achieved over time. The Company utilizes management
judgement and does not generally make 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, for purposes of the DCF
analysis, property cash flows will be extended until stabilization, as it is the
Company's intent is 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 Company's asset disposition plan.
The Company'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 Company.
The Company 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, writedowns are recorded as appropriate.
Strategy. Following the Branch Sale, the Management Company assumed the duties
of the Predecessor Bank's former "Work-Out Group" which monitored the
Predecessor Bank's problem assets. The Management Company continues to monitor
the Company's problem assets and develop 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 approval of the Board of Directors of the Company. 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
Company to work with borrowers who are cooperative with the Company to effect a
restructuring that is economically feasible for both parties. When the Company
concludes that a restructuring is not economically feasible or where the
borrower does not demonstrate a willingness to cooperate, the Company pursues
available legal remedies. In most cases, the Company'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 Company. This strategy has been pursued
so that the Company can acquire control of the security property as soon as
possible, and thereby implement a strategy designed by the Company for
disposition and ultimate resolution.
Loans that go through the foreclosure process, particularly in New York, are
subject to extensive delays before the Company 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
Company aggressively pursues foreclosures or negotiates with borrowers to
acquire properties which secure problem loans by deed-in-lieu of foreclosure.
-48-
<PAGE>
The Company's general approach once it has acquired an investment in real estate
has been to seek to minimize further losses to the Company through active
management of the properties while they are held by the Company 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 Company 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 Company 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 Company 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 Company and that the Company 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 Company will be successful in its
disposition strategies.
The Company'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 Company 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
Company's Board of Directors.
In most cases, the Company's strategy consists of an attempt to sell the
property as soon as practicable. The Company generally works closely with a real
estate brokerage firm in this regard, and frequently will specifically target
known investors which it believes may be interested in a particular property
which is owned by the Company. In addition, in a few cases during the year ended
December 31, 1993, the Company 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.
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 Company 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 Company 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 Company 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 Company's cost of funds,
thus effectively making it an earning asset. Although such assets continue to be
classified by the Company as investments in real estate and, thus,
non-performing assets, the yield provided by the properties increases the
Company's flexibility to maximize their value in connection with a sale.
In a number of cases, the Company'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 Company, it also may
involve more risk and, as a result, the Company generally does not pursue this
alternative unless other alternatives are clearly not preferable under the
circumstances. In most cases in which this alternative is pursued, development
previously has been initiated by the defaulted borrower prior to the Company's
acquisition of the property upon foreclosure or by deed-in-lieu thereof. On
occasion, however, the Company has commenced development of an investment in
real estate as a disposition strategy.
Liquidity
The Company 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, 1998, the Company had $68.8 million in borrowed funds. In connection
with the Branch Sale, the Company obtained financing with Marine (Initial
Facilities) which amounted to $60.6 million as of June 30, 1998.
-49-
<PAGE>
Borrowed Funds related to Asset Sale Transactions amounted to $8.2 million at
June 30, 1998. The Company 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 Company seeks to maintain liquidity within a range of 5% to 10% of total
assets. Liquidity for this purpose is defined as unrestricted cash. At June 30,
1998, the Company's liquidity ratio, as so defined, amounted to 6.6% which was
within the maintenance range.
Recent Accounting Developments
From time to time the Financial Accounting Standards Board ("FASB") adopts
accounting standards (generally referred to as Statements of Financial
Accounting Standards, or "SFASs") 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 Company.
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
Company's other real estate owned and real estate held assets. There was no
material effect on the reported operations of the Company resulting from the
implementation of SFAS No. 121, which was adopted by the Company 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
Company 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 Company's primary earnings per share for the years ended June 30,
1997, 1996 and 1995.
-50-
<PAGE>
SFAS No. 130. During June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which is required to be adopted for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all components
of comprehensive income be reported in a financial statement. The adoption of
this standard will not have a material impact on the Company's financial
position or results of operations.
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 Company 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.
Impact of Year 2000.
The Company has completed an assessment to modify or replace portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. Since the Company's accounting software
is maintained and supported by a third party, the total year 2000 cost is
estimated to be minimal.
The Company believes that modifications to existing software and conversions to
new software, the year 2000 issue will not pose significant operational problems
for its computer systems. Further, due to the limited number of assets managed
by the Company and the limited scope of the Company's continuing operations,
which could be managed and accounted for by methods not relying on the computer
systems currently employed by the Company, if such modifications are not made,
or if such modifications and conversions are not completed in a timely manner,
the year 2000 issue is unlikely to have a material impact on the operations of
the Company.
Risks Associated with Forward-Looking Statements.
This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risk, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following,
which are discussed in greater detail in the "Risk Factors" section of the
Company's Registration Statement on Form S-4 (File No. 333-386730 and File No.
333-386730-01) filed with the SEC: general economic conditions, which will among
other things, affect demand for commercial and residential properties,
availability and credit worthiness of prospective tenants, lease rents and the
availability of financing: difficulty of locating suitable investments;
competition; risks of real estate acquisition, development, construction and
renovation; vacancies at existing commercial properties; dependence on rental
income from real property; adverse consequences of debt financing; risks of
investments in debt instruments, including possible payment defaults and
reductions in the value of collateral; illiquidity of real estate investments;
lack of prior operating history; and other risks listed from time to time in the
Company's reports filed with the SEC. Therefore, actual results could differ
materially from those projected in such statements.
-51-
<PAGE>
ITEM 8
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item and the reports of the
independent accountants thereon required by Item 14(a)(2) appear on pages 71 to
111. See accompanying Index to the Consolidated Financial Statements on page 70.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-52-
<PAGE>
PART III
ITEM 10
DIRECTORS AND PRINCIPAL OFFICERS OF THE REGISTRANT
Subsequent to the closing of the Branch Sale, although the Company has executive
officers under SEC requirements and New York Banking Law, which was formerly
applicable to the Predecessor Bank, the Company no longer maintains any
significant staff of employees to manage the Company's affairs. Rather, the
day-to-day management responsibilities of the Company are vested with the
Management Company, a newly-formed management company affiliated with Mr.
Dworman. A significant amount of services, necessary to manage and dispose of
the Company's assets, have been and will be provided by the Management Company
or third-party subcontractors who will not have any continuing fiduciary
obligations to the Company or the stockholders. The selection of third-party
subcontractors to provide various services to the Company will be made by the
Management Company, subject to the ratification by committees of the Board of
Directors but without stockholder approval. The Company's success in maximizing
returns from the disposition of its assets will depend on the efforts of the
Management Company and third-party contractors retained to provide services to
the Company.
Directors of the Company
The Company's Board of Directors is divided into three classes of directors,
serving staggered three-year terms. At the 1998 annual meeting of stockholders
of the Company, the holders of the Preferred Stock elected two directors to
serve for a term of one year. The right of holders of Preferred Stock to elect
such two directors continues until dividends on the Preferred Stock have been
paid for four consecutive quarterly dividend periods at which time such voting
rights will terminate.
The name, age as of September 21, 1998, position with the Company, if any, term
of office following the Annual Meeting, and period of service as a director, of
each of the Company's directors, nominees for election director and proposed
nominees for appointment as director are as follows:
<TABLE>
<CAPTION>
Class
Term Director
Name Age Position Expires Since(1)
---- --- -------- ----- --------
<S> <C> <C> <C> <C>
Robin Chandler Duke......... 74 Director, Vice President and 1999 1977
Secretary (2)
Alvin Dworman............... 72 Director (3) 2001 1998
William D. Hassett.......... 62 Director (3) (4) 2000 1976
James J. Houlihan........... 46 Director (4) 2001 1998
David J. Liptak............. 40 Director (5) --- 1998
Jerome R. McDougal.......... 70 Director and Chairman of the 2000 1991
Board (3)
Edward V. Regan............. 68 Director (2) 2001 1995
David A. Shapiro............ 47 Director (2)(4) 1999 1998
Jeffrey E. Susskind......... 45 Director (5) --- 1998
(1) Includes tenure with the Predecessor Bank.
(2) Member of the audit committee.
(3) Member of the executive committee.
(4) Member of the asset management committee.
(5) Elected by holders of Preferred Stock for a term of one year.
</TABLE>
The principal occupation for the last five years and selected biographical
information of each of the directors, nominees for director and executive
officers is set forth below.
-53-
<PAGE>
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. Ms. Duke has served in an
unsalaried capacity as Vice President and Secretary of the Company and the
Predecessor Bank since July 1996.
Alvin Dworman. Mr. Dworman is the founder and chairman of The ADCO Group, a
financial services, merchant banking and real estate company established in
1981. Mr. Dworman also has been a director of the Sequa Corporation since 1987
and has been serving as a member of the New York State Real Estate Advisory
Committee since 1985.
William D. Hassett. 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.
James J. Houlihan. Mr. Houlihan has been a partner of Houlihan-Parnes Realtors,
LLC, a commercial real estate firm for more than the past five years. Mr.
Houlihan is president of JHP Realty Advisors, Inc., a real estate advisory firm
and a partner in each of Kislev Management Corp., a commercial real estate
management firm, and Real Estate Servicing, Inc. and C.C. Capital Servicing,
Inc., both mortgage servicing firms.
David J. Liptak. Mr. Liptak has been the President of West Broadway Partners,
Inc., which is the General Partner of West Broadway Partners, L.P. and the
investment manager of AIG International West Broadway Fund, Ltd for more than
the past five years. Mr. Liptak was previously a Senior Vice President at
Oppenheimer & Co., Inc.
Jerome R. McDougal. Mr. McDougal served as Chief Executive Officer of the
Company and the Predecessor Bank from April 1995 and as President from July 1997
until he retired from such positions in June 1998. Mr. McDougal served as
President and Chief Executive Officer of the Predecessor Bank from March 1991 to
April 1995, at which time he became Chairman of the Board and Chief Executive
Officer. Prior to joining the Company, Mr. McDougal was Chairman and Chief
Executive Officer of the Apple Company for Savings for four years. Prior to
joining Apple Company, 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.
David A. Shapiro. Mr. Shapiro has been a portfolio manager for Seneca Capital
Management LLC, an investment management firm since May 1995. Mr. Shapiro
founded Asset Holdings Group, a privately held originator of senior and
mezzanine commercial real estate loans formed in 1993. From 1991 to 1993, Mr.
Shapiro also served as an advisor to the Predecessor Bank in connection with the
restructuring and disposition of a portion of its commercial real estate
portfolio.
Jeffrey E. Susskind. Mr. Susskind has been a principal of Strome, Susskind
Investment Management, L.P., an investment management company located in Santa
Monica, California for more than the past five years. Mr. Susskind was
previously an investment manager with Kayne, Anderson & Co. Mr. Susskind is also
the Chairman of the Board of Sheridan Energy, Inc., a publicly traded domestic
independent energy company engaged in the production of oil and gas.
-54-
<PAGE>
Board of Directors and Committees
The Company is managed by a nine-member Board of Directors. The Board of
Directors has three standing committees, an executive committee, an asset
management committee and an audit committee.
Executive Committee. The executive committee is comprised of Messrs. Dworman,
Hassett and McDougal. The executive committee oversees the management of the
day-to-day business and affairs of the Company and the implementation of the
management of the Company's assets.
Audit Committee. The audit committee is comprised of Messrs. Regan and Shapiro
and Ms. Duke. The audit committee reviews and provides recommendations to the
Board of Directors with respect to the engagement of the Company's independent
auditors, financial reporting practices and internal accounting and financial
controls and procedures of the Company and monitors the Company'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.
Asset Management Committee. The asset management committee is comprised of
Messrs. Hassett, Houlihan and Shapiro. The asset management committee oversees
the performance of the asset portfolio of the Company.
During fiscal year 1998, the Board of Directors (including meetings held by the
Board of Directors of the Predecessor Bank) held 17 meetings, including
telephonic meetings. The audit committee held 3 meetings during the fiscal year.
The asset management committee held 11 meetings. During fiscal year 1998, each
director attended 94% of the total number of meetings of the Board of Directors
and 100% percent of the total number of meetings of committees on which he or
she served.
The Company's Board of Directors may, from time to time, establish certain other
committees of the Board to facilitate the management of the Company.
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 Company in
the previous year through June 28, 1996. During 1998, the Board of Directors
dissolved the Advisory Board and all members submitted their resignations.
Directors will be elected in a manner consistent with, and shall serve for a
term, as provided in the Company's Restated Organization Certificate as Amended
and By-Llaws.
The Management Company; The Management Agreement: The Company has engaged the
Management Company under a management agreement (the "Management Agreement") to
provide Company 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 Company'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 Company's Board of Directors or its Asset Management Committee.
The Management Company was newly formed in 1996 and is controlled by Alvin
Dworman, who serves as its Managing Member. Mr. Dworman also owns 39.0% of the
outstanding Common Stock of the Company.
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.
-55-
<PAGE>
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 Company 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 Company and remain actively involved in the
day-to-day management of the affairs of the Company and its assets.
The Management Company also employs certain individuals previously employed by
River Bank who were directly involved in managing the Company's real estate
portfolio.
"Company Management Services" includes the management of the general business
affairs of the Company, including:
1. Developing and recommending policies and procedures appropriate for
continuing the orderly disposition of the Company's assets and
implementation of all policies and procedures approved by the Company'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 Company's Board of Directors and the
Asset Management Committee and Audit Committee as may be necessary
and reasonably requested by the Company's Board of Directors or such
committee.
3. Analyzing the Company's performance, including progress in
continuing the orderly disposition of the Company'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.
6. Overseeing legal and accounting services required by the Company.
7. Using best efforts to ensure compliance with any conditions imposed
by the Banking Department on the Company 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 Company's assets on
a day-to-day basis and include the following:
8. Maintaining and implementing individual business plans for each
asset of the Company, 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 Company'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 in connection with the Branch Sale.
15. Administration of joint ventures and oversight of the business
activities 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
-56-
<PAGE>
by the Asset Management Committee of the Company's Board of Directors. The cost
of approved outsourced arrangements is borne by the Company.
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 Company 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 Company
and adjusted based upon the costs expected to be incurred by the Management
Company to provide the Company 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 Company'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 Company.
During the year ended June 30, 1998, the Company accrued expenses for services
provided by the Management Company in the amount of $1,250,000 for the Base Fee
payable to the Management Company, $1,331,000 for the Asset Service Fee, and
$360,000 for Asset Disposition Fees in accordance with the fee schedule outlined
above. During 1998, the Company paid RB Management, LLC an aggregate amount of
$5,108,000. At June 30, 1998, the Company had a remaining payable to the
Management Company amount of approximately $42,000.
The Kenneth Leventhal Real Estate Group of Ernst & Young LLP, which was engaged
for this purpose by the Special Transactions Committee of the Predecessor Bank's
Board of Directors, reviewed the form and amount of the fees payable to the
Management Company and advised 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 or other senior lenders, as
applicable. In addition, the Company's Board of Directors, subject to the
consent of Marine, 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 Company. In addition, the Management
Agreement may be terminated by the Company's Board of Directors during the last
year of any term 60 days after the sale of the last asset of the Company.
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 Company also reimburses the Management Company for the reasonable costs
incurred by the Management Company in terminating its services to the Company
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 Company with the services described above, the Company,
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 Company'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 Company, to continue to provide such services to the Company.
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 Company. On June 28, 1996 Fintek and the Company mutually
agreed to the termination of the previous contract between Fintek and the
Company.
Persons or entities engaged by the Board of Directors, the Asset Management
Committee or by the Management Company on behalf of the Company entered into a
service contract with the Company 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.
-57-
<PAGE>
ITEM 11
MANAGEMENT COMPENSATION AND TRANSACTIONS
Executive Officers: Inasmuch as the Predecessor Bank had disposed of its
depository banking operations in connection with the sale of its branches and
transfer of its deposits to Marine Midland Bank in June 1996 (the "Branch
Sale"), the Company as successor does not require a large staff of officers or
employees to manage the business and affairs of the Company. Certain day-to-day
management functions are performed by RB Management Company LLC pursuant to the
terms of a management agreement. See "--Certain Relationships and Related
Transactions".
The Company's officers are Nelson L. Stephenson, who serves as president and
chief executive officer of the Company and Robin Chandler Duke, who serves
without compensation as the vice president and secretary of the Company. Set
forth below is certain biographical information for Mr. Stephenson.
Nelson L. Stephenson. Mr. Stephenson was elected to the offices of president and
chief executive officer of the Company in July 1998. For more than the past five
years, Mr. Stephenson has been President of Fintek Inc., a privately-held
financial advisory firm that provides services to the Company and the
Predecessor Bank. Mr. Stephenson is also President and a Director of
Coast-To-Coast Financial Corporation, a unitary savings and loan holding company
which owns Fintek, Inc. and Superior Bank FSB as well as other subsidiaries
engaged in consumer finance.
Remuneration of Executive Officers - Summary Compensation Table: The following
table discloses compensation received by the Company's chief executive officer
for the years indicated. The cash compensation amounts below reflect
compensation received from the Company and its subsidiaries. There were no other
executive officers who received compensation in 1998 from the Company (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 $300,000 -- $63,214 (1) $123,110 (2)
Chairman of the June 30, 1998
Board and Chief
Executive Officer (3) Year ended 300,000 -- 66,990 (1) 117,296 (2)
June 30, 1997
Year ended 300,000 -- 84,988 (1) 112,431 (2)
June 30, 1996
</TABLE>
(1) Consists of a housing allowance, club dues, automobile and driver
expenses (aggregating $21,548, $25,324 and $42,760 for the 1998, 1997
and 1996 periods presented, respectively), certain tax expense
reimbursements and health insurance premiums.
(2) Consists of contributions of $9,000, $9,500 and $9,370 made by the
Company to its 401(k) Tax Deferred Savings Plan, accruals of and
earnings on deferred compensation in the amounts of $110,053, $103,739
and $100,551 and payments of $4,057, approximately $4,057 and $2,400
for life and personal liability insurance premiums for the 1998, 1997
and 1996 periods presented, respectively.
(3) Mr. McDougal retired as the company's Chief Executive Officer effective
June 30, 1998.
Employment Arrangement: Jerome R. McDougal was compensated pursuant to an
arrangement with the Predecessor Bank reached in 1991. The terms of Mr.
McDougal's employment were memorialized in the minutes of the Predecessor
Bank's January 22, 1991 Board of Directors meeting, which provided for an
annual salary of $375,000 and customary employee benefits commensurate with
Mr. McDougal's position at the Company. $75,000 of Mr. McDougal's annual
salary was 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
predecessor's customer deposits each quarter and was thereafter compounded at
the prime rate. Mr. McDougal received additional compensation in the form of
a housing allowance,
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<PAGE>
an automobile and payment of club membership dues. The Company also
reimbursed Mr. McDougal for the amount of personal income taxes incurred as a
result of the additional benefits. Mr. McDougal retired from his offices of
president and chief executive officer in June 1998 at which time he was
granted severance equal to two years of his $375,000 annual salary. As part
of his severance package, the Company will continue to fund his health
insurance premiums for the two year severance period and his automobile
allowance until the lease term for his current vehicle expires in November
1998. Mr. McDougal also elected to withdraw his deferred compensation in the
amount of $689,728 during the quarter ended June 30, 1998.
Mr. Stephenson is compensated pursuant to an arrangement with the Company that
provides for a salary of $2,000 per month.
Board of Directors Compensation: Effective July 1, 1998, directors of the
Company will receive an annual retainer of $20,000, plus $1,000 for each Board
meeting attended and $750 for each committee meeting attended.
Compensation Committee Interlocks and Insider Participation: Determinations
regarding compensation of the Company'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 Company determined to suspend the
Company'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, 1998, 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. In
connection with the Branch Sale, the Phantom Stock Plan was terminated and
participants, all of whom were officers and/or employees of the Company 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 and 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 the Company's Predecessor'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 Company 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 Company'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 Company's employees were made
on substantially the same terms, including
-59-
<PAGE>
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 Company previously obtained certain
services from Fintek. Effective October 31, 1991, substantially all of the
employees of the Company'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 Company at the time,
resigned as an officer of the Company 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 Company 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
Company's Board of Directors, provided certain financial consulting,
strategic planning and advisory services to the Company, including providing
advice and consulting services with regard to the Company's treasury
functions. The Company had the right to terminate the agreement (which was
for a term of one year with automatic annual renewals) by giving Fintek 180
days' notice of such termination. In addition, the Company had the right to
terminate the agreement by giving Fintek thirty days' notice prior to any
renewal.
At June 30, 1996, the Company 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 Company prior to June 30, 1996 were
primarily in connection with the Branch Sale. During 1998 the Company made
aggregate cash payments to Fintek in the amount of $706,000. At June 30, 1998,
the Company had a remaining aggregate liability to Fintek in the amount of
$223,000.
The Fintek Agreement was terminated by mutual consent of the Company and Fintek
on June 28, 1996. Fintek has been engaged by the Management Company to provide
similar services to RB Management and the Company subsequent to the Branch Sale.
See "Management."
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<PAGE>
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to beneficial
ownership of the Company's Common Stock and Preferred Stock by (i) each person
known by the Company to own beneficially or of record more than 5% of Common
Stock or Preferred Stock, (ii) each director, nominee for director and executive
officer of the Company, and (iii) all directors and executive officers as a
group. Unless otherwise indicated, each stockholder listed in the table has sole
voting and investment powers as of September 21, 1998 with respect to the shares
owned beneficially or of record by such person.
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Ariel Management Corp.(1) Common Stock 371,689 5.2%
450 Park Avenue
New York, New York 10022
East River Partnership B(3) Common Stock 415,800 5.9%
Madison Plaza
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Mr. J. Ezra Merkin(1) Common Stock 623,666 8.8%
450 Park Avenue
New York, New York 10022
Odyssey Partners, L.P.(4) Common Stock 415,800 5.9%
31 West 52nd Street
New York, New York 10019
Ms. Robin Chandler Duke Common Stock - *
Director
Mr. Alvin Dworman Common Stock 2,778,550 39.0%
Director
Mr. William D. Hassett Common Stock 2,150 *
Director
Mr. James J. Houlihan Common Stock - *
Director
Mr. David J. Liptak Common Stock - *
Director
Mr. Jerome R. McDougal Common Stock 4,000 *
Director**
Mr. Edward V. Regan Common Stock - *
Director
Mr. David A. Shapiro Common Stock - *
Director
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Mr. Nelson L. Stephenson Common Stock - *
President
Mr. Jeffrey E. Susskind Common Stock - *
Director
All directors and executive officers Common Stock
as a group (10 persons) 2,784,700 39.1%
</TABLE>
* Amount represents less than 1% of the Common Stock outstanding as of
June 30, 1998.
** Effective July 2, 1997 Mr. McDougal took on the additional title of
President with duties as described in the Company's By-Laws. Mr.
McDougal retired as Chief Executive Officer on June 30, 1998.
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Cargill Financial Services Preferred Stock 145,000 10.4%
Corporation(2)
6000 Clearwater Drive
Minnetonka, Minnesota 55343
Corbyn Asset Management, Inc.(2) Preferred Stock 322,700 23.1%
2330 West Joppa Road, Suite 108
Lutherville, Maryland 21093
Lutheran Brotherhood Research Preferred Stock 270,000 19.3%
Corp.(3)
625 Fourth Avenue South
Indianapolis, Minnesota 55415
State Street Research & Management Preferred Stock 200,000 14.3%
Company(2)
One Financial Center
Boston, Massachusetts 02111
Ms. Robin Chandler Duke Preferred Stock - *
Director
Mr. Alvin Dworman Preferred Stock - *
Director
Mr. William D. Hassett Preferred Stock - *
Director
Mr. James J. Houlihan Preferred Stock - *
Director
Mr. David J. Liptak Preferred Stock 110,000 7.9%
Director(5)
Mr. Jerome R. McDougal Preferred Stock 2,950 *
Director**
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Mr. Edward V. Regan Preferred Stock - *
Director
Mr. David A. Shapiro Preferred Stock - *
Director
Mr. Nelson L. Stephenson Preferred Stock - *
President
Mr. Jeffrey E. Susskind Preferred Stock 130,000 9.3%
Director(6)
All directors and executive officers Preferred Stock 242,950 17.4%
as a group (10 persons)
</TABLE>
* Amount represents less than 1% of the Preferred Stock outstanding as
of July 1, 1997.
** Effective July 2, 1997 Mr. McDougal took on the additional title of
President with duties as described in the Company's By-Laws. Mr.
McDougal retired as Chief Executive Officer on June 30, 1998.
---------------------
(1) Ariel Fund Limited, a Cayman Islands corporation ("Ariel Fund"), is the
holder of 371,689 shares of Common Stock. Gabriel Capital , L.P., a Delaware
limited partnership ("Gabriel"), is the holder of 251,977 shares of Common
Stock. Gabriel and Ariel Fund are managed investment vehicles and neither is the
beneficial owner of such shares. Ariel Management Corp., a Delaware corporation
("Ariel"), as investment advisor to Ariel Fund, has voting and dispositive power
over the 371,689 shares of Common Stock held by Ariel Fund and therefore, may be
deemed to be the beneficial owner of 371,689 shares of Common Stock. As the
general partner of Gabriel, J. Ezra Merkin has voting and dispositive power over
the 251,977 shares of Common Stock held by Gabriel. In addition, as the sole
shareholder and president of Ariel, Mr. Merkin may be deemed to have voting and
dispositive power over the 371,689 shares of Common Stock owned by Ariel Fund.
Accordingly, Mr. Merkin may be deemed to be the beneficial owner of 623,666
shares of Common Stock.
(2) Based solely on legal proxies received by the Company at the 1998 annual
meeting of stockholders.
(3) 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.
(4) 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.
(5) As the President of West Broadway Partners, Inc., Mr. Liptak has voting and
dispositive power over the 110,000 shares of Preferred Stock held by West
Broadway Partners, Inc. See Note 1 above. Accordingly, Mr. Liptak may be deemed
to be the beneficial owner of 110,000 shares of Preferred Stock.
(6) As a principal of Strome, Susskind Investment Management, Inc., Mr. Susskind
has voting and dispositive power over the 130,000 shares of Preferred Stock held
by Strome, Susskind Investment Management, Inc. See Note 1 above. Accordingly,
Mr. Susskind may be deemed to be the beneficial owner of 130,000 shares of
Preferred Stock.
-63-
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Management Company; The Management Agreement: The Company has engaged the
Management Company under a management agreement (the "Management Agreement") to
provide Company 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 Company'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 Company's Board of Directors or its Asset Management Committee.
The Management Company was newly formed in 1996 and is controlled by Alvin
Dworman, who serves as its Managing Member. Mr. Dworman also owns 39.0% of the
outstanding Common Stock of the Company.
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 Company 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 Company and remain actively involved in the
day-to-day management of the affairs of the Company and its assets.
The Management Company also employs certain individuals previously employed by
River Bank who were directly involved in managing the Company's real estate
portfolio.
"Company Management Services" includes the management of the general business
affairs of the Company, including:
1. Developing and recommending policies and procedures appropriate for
continuing the orderly disposition of the Company's assets and
implementation of all policies and procedures approved by the Company'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 Company's Board of Directors and the Asset
Management Committee and Audit Committee as may be necessary and
reasonably requested by the Company's Board of Directors or such
committee.
3. Analyzing the Company's performance, including progress in continuing
the orderly disposition of the Company'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.
6. Overseeing legal and accounting services required by the Company.
7. Using best efforts to ensure compliance with any conditions imposed by
the Banking Department on the Company 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.
-64-
<PAGE>
"Asset Management Services" entails management of all of the Company's assets on
a day-to-day basis and include the following:
8. Maintaining and implementing individual business plans for each asset of
the Company, 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 Company'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 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 the
Company's Board of Directors. The cost of approved outsourced arrangements is
borne by the Company.
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 Company 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 Company
and adjusted based upon the costs expected to be incurred by the Management
Company to provide the Company 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 Company'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 Company.
During the year ended June 30, 1998, the Company accrued expenses for services
provided by the Management Company in the amount of $1,250,000 for the Base Fee
payable to the Management Company, $1,331,000 for the Asset Service Fee, and
$360,000 for Asset Disposition Fees in accordance with the fee schedule outlined
above. During 1998, the Company paid RB Management, LLC an aggregate amount of
$5,108,000. At June 30, 1998, the Company had a remaining payable to the
Management Company amount of approximately $42,000.
The Kenneth Leventhal Real Estate Group of Ernst & Young LLP, which was engaged
for this purpose by the Special Transactions Committee of the Predecessor Bank's
Board of Directors, reviewed the form and amount of the fees payable to the
Management Company and advised 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 or other senior lenders, as
applicable. In addition, the Company's Board of Directors, subject to the
consent of Marine, 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 Company. In addition, the Management
Agreement may be terminated by the Company's Board of Directors during the last
year of any term 60 days after the sale of the last asset of the Company.
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 Company also reimburses the Management Company for the reasonable costs
incurred by the Management Company in terminating its services to the Company
including, but not limited to, reasonable termination or severance
-65-
<PAGE>
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 Company with the services described above, the Company,
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 Company'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 Company, to continue to provide such services to the Company.
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 Company. On June 28, 1996 Fintek and the Company mutually
agreed to the termination of the previous contract between Fintek and the
Company.
Persons or entities engaged by the Board of Directors, the Asset Management
Committee or by the Management Company on behalf of the Company entered into a
service contract with the Company 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.
Transactions With Affiliates: The Company previously obtained certain services
from Fintek. Effective October 31, 1991, substantially all of the employees of
the Company'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 Company at the time, resigned as an officer of
the Company 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 Company 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 Company's Board of Directors, provided certain
financial consulting, strategic planning and advisory services to the Company,
including providing advice and consulting services with regard to the Company's
treasury functions. The Company had the right to terminate the agreement (which
was for a term of one year with automatic annual renewals) by giving Fintek 180
days' notice of such termination. In addition, the Company had the right to
terminate the agreement by giving Fintek thirty days' notice prior to any
renewal.
At June 30, 1996, the Company 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 Company prior to June 30, 1996 were
primarily in connection with the Branch Sale. During 1998 the Company made
aggregate cash payments to Fintek in the amount of $706,000. At June 30, 1998,
the Company had a remaining aggregate liability to Fintek in the amount of
$223,000.
The Fintek Agreement was terminated by mutual consent of the Company and Fintek
on June 28, 1996. Fintek has been engaged by the Management Company to provide
similar services to RB Management and the Company subsequent to the Branch Sale.
See "Management."
-66-
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company are included elsewhere
in this Form 10-K at the pages indicated and are incorporated by
reference:
Page
----
Report of Independent Auditors 71
Consolidated Statements of Financial Condition
June 30, 1998 and 1997 72
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996 73
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996 74
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996 75
Notes to Consolidated Financial Statements 77
(a)(2) Certain 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 8-K filed during the last quarter of the period covered
this report:
(i) Form 8-K, dated May 21, 1998, to report in Item 5 the consummation of
the Reorganization, as filed on May 29, 1998.
(c) Exhibits:
*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.
**2.1b -- Amendment No. 1, dated as of May 15, 1998, to Agreement and Plan of
Merger, 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.
*2.2b -- Notice of Settlement of Closing Order, made by River Bank America to
the New York State Supreme Court, dated December 8, 1997.
**2.2c -- Closing Order, signed by the New York State Supreme Court on
January 9, 1998 and entered on January 14, 1998.
*2.3 -- Assignment and Assumption Agreement, dated as of May 11, 1998, by and
between River Bank America and River Asset Sub, Inc.
***3.1 -- Certificate of Merger, dated May 18, 1998, of River Asset Sub, Inc.
and River Distribution Sub, Inc.
***3.2 -- Certificate of Incorporation of the Company.
***3.3 -- Certificate of Designation of the 15% Noncumulative Perpetual
Preferred Stock, Series A, $1.00 par value, of the Company.
-67-
<PAGE>
***3.4 -- By-Laws of the Company.
*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.
**10.1b -- Consent of Marine Midland Bank to River Bank America's
Reorganization dated October 30, 1997.
*10.2 -- Management Agreement dated as of June 28, 1996, by and between River
Bank America and RB Management Company LLC.
***21.1 -- Subsidiaries of the Company.
***27.1 -- Financial data schedule.
****99.1 --Proxy and Information Statement with respect to 1998 Annual Meeting
of Stockholders.
****99.2 --Proxy Card with respect to 1998 Annual Meeting of Stockholders.
- -------------------
* Incorporated by reference to the Registration Statement Form S-4 filed on
March 26, 1998.
** Incorporated by reference to the Registration Statement on Form S-4 filed on
February 24, 1998.
*** Previously filed with original Annual Report on Form 10-K amended hereby, as
filed with the the SEC on September 28, 1998.
**** These exhibits are not deemed "filed" with the Commission or otherwise
subject to the liabilities of Section 18 of the Act, and are not
incorporated by reference in any filing of the Company under the Securities
Act of 1993 or the Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any filing.
Supplemental Information to Be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
The Company previously mailed a proxy and information statement and related
proxy card with respect to its 1998 Annual Meeting of Stockholders (copies of
which are filed hereto as Exhibits 99.1 and 99.2, respectively). The Company has
not mailed its 1998 annual report to stockholders which it intends to prepare
and mail as soon as practicable following the filing of this Report on Form
10-K.
-68-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: October 9, 1998 /s/ Nelson L. Stephenson
------------------------
Nelson L. Stephenson
President and Chief Executive Officer
(principal executive and accounting
officer)
-69-
<PAGE>
FINANCIAL STATEMENTS
RB ASSET, INC.
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors 71
Consolidated Statements of Financial Condition
June 30, 1998 and 1997 72
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996 73
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996 74
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996 75
Notes to Consolidated Financial Statements 77
Schedule III - Real Estate and Accumulated Depreciation 107
Schedule IV - Mortgage Loans on Real Estate 109
-70-
<PAGE>
Report of Independent Auditors
The Board of Directors
RB Asset, Inc.
We have audited the consolidated statements of financial condition of RB Asset,
Inc. (the "Company"), successor to River Bank America (see Note 1), as of June
30, 1998 and 1997 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, 1998. We have also audited the financial statement
schedules listed in the Index to Financial Statements included in the Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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 Company at
June 30, 1998 and 1997 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, the Company has adopted, as
of July 1, 1997, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets to be Disposed Of."
/s/ Ernst & Young LLP
New York, New York
July 21, 1998
-71-
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Real estate assets:
Real estate held for investment, net of accumulated
depreciation of $956 and $573, respectively (note 12) $ 82,835 $ 84,102
Real estate held for disposal 5,013 15,096
Allowance for fair market value reserve
Under SFAS-121 (note 13) (1,363) (1,849)
------------ -------------
Total real estate held for disposal, net 3,650 13,247
Loans receivable:
Secured by real estate (note 8) 59,006 80,093
Loans sold with recourse, net (note 11) 15,781 24,451
Allowance for possible credit losses (note 10) (17,697) (25,787)
------------ -------------
Total loans receivable, net 57,090 78,757
Investments in joint ventures 1,536 3,113
------------ -------------
Total real estate assets 145,111 179,219
------------ -------------
Cash, due from banks and cash equivalents (note 6) 12,532 8,940
Cash, due from banks - restricted cash (note 6) 19,555 5,096
Investment securities available for sale (note 7) 1,373 6,275
Commercial and consumer loans (note 9) 10,431 15,677
Allowance for possible credit losses (note 10) (2,340) (5,783)
------------ -------------
Commercial and consumer loans, net 8,091 9,894
Other assets (note 15) 4,248 2,235
------------ -------------
Total Assets $ 190,910 $ 211,659
------------ -------------
------------ -------------
Liabilities and Stockholders' Equity
Borrowed funds (note 16) $ 68,760 $ 84,272
Other liabilities (note 17) 14,967 18,877
------------ ------------
Total Liabilities 83,727 103,149
------------ ------------
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, 1998 and 1997) 1,400 1,400
Common stock, par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at June 30,1998 and
1997) 7,100 7,100
Additional paid-in capital 111,170 11,170
Accumulated deficit (note 18) (11,561) (10,055)
Securities valuation account (notes 1 and 7) (926) (1,105)
----------- -----------
Total stockholders' equity 107,183 108,510
----------- -----------
Total Liabilities & stockholders' Equity $ 190,910 $ 211,659
------------ -------------
------------ -------------
</TABLE>
See Notes to Consolidated Financial Statements.
-72-
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1998, 1997, and 1996
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Rental revenue and operations:
Rental income and other property revenue $ 13,779 $ 16,158 $ 18,530
Property operating and maintenance expense (10,884) (12,827) (17,734)
Depreciation - real estate held for investment (383) (200) (208)
------------------ --------------- ----------------
Net rental operations 2,512 3,131 588
Other property income (expense):
Net gain/(loss) on sale of real estate 1,998 (1,754) (3,499)
Writedown of investments in real estate (1,106) (19,745) (1,889)
------------------ --------------- ----------------
Total other property income/(expense) 892 (21,499) (5,388)
Other income:
Interest income:
Loans receivable 3,680 4,504 76,614
Investment securities 55 574 9,347
Money market investments and other 462 391 8,448
Provision for possible credit losses (1,500) (1,000) (5,250)
----------------- --------------- ---------------
Total interest income 2,697 4,469 89,159
Realization of contingent participation revenues 3,356 -- --
---------------- --------------- ---------------
Total other income 6,053 4,469 89,159
----------------- --------------- ---------------
Total revenues 9,457 (13,899) 4,359
---------------- --------------- ---------------
EXPENSES:
Interest expense:
Deposits liabilities of Predecessor Bank -- -- 47,719
Borrowed funds 6,026 7,132 14,026
Other 83 228 49
---------------- --------------- ---------------
Total interest expense 6,109 7,360 61,794
Other expenses:
Depreciation - other -- 15 951
Salaries and employee benefits 900 1,170 14,163
Legal and professional fees 2,305 1,892 4,521
Management fees 2,562 2,942 --
Other 350 1,350 17,119
----------------- ---------------- --------------
Total other expenses 6,117 7,369 36,754
----------------- ---------------- --------------
Total expenses 12,226 14,729 98,548
----------------- ---------------- --------------
Loss before other income (expense) and before
provision for income taxes (2,769) (28,628) (14,189)
Other income (expense):
Banking fees, service charges and other net income -- -- 3,996
Gains on sale of offices and branches of
Predecessor Bank -- -- 77,560
Net gains (losses) on sales of investment securities 1,697 (1,495) (605)
Provision for Marine Branch Sale contingencies -- (3,300) --
----------------- --------------- ---------------
Total other income (expense) 1,697 (4,795) 80,951
Net (loss)/income after other income (expense) and before
provision for income taxes (1,072) (33,423) 66,762
---------------- --------------- --------------
Provision for (benefit from) income taxes 434 (3,300) 11,749
Net (loss)/income (1,506) (30,123) 55,013
Dividends declared on preferred stock -- -- 5,250
----------------- -------------- --------------
Net (loss)/income applicable to common stock $ (1,506) $ ( 30,123) $ 49,763
----------------- -------------- --------------
----------------- -------------- --------------
Basic and diluted loss per common share $ (0.21) $ (4.24) $ 7.01
----------------- -------------- --------------
----------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
-73-
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Years ended June 30, 1998, 1997, and 1996
(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, 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)
Change in securities valuation
account -- -- -- -- 113 113
--------------- -------------- ------------ -------------- ----------- ------------
Balances at June 30, 1997 1,400 7,100 111,170 (10,055) (1,105) 108,510
Net loss for the year ended
June 30, 1998 -- -- -- (1,506) -- (1,506)
Change in securities valuation
account -- -- -- -- 179 179
--------------- -------------- ------------ -------------- ----------- ------------
Balances at June 30, 1998 $ 1,400 $ 7,100 $ 111,170 $ (11,561) $ (926) $ 107,183
--------------- -------------- ------------ -------------- ----------- ------------
--------------- -------------- ------------ -------------- ----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
-74-
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1998, 1997, and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
--------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Cash Flows Provided by (Used in) Operating Activities:
Net (loss)/income $ (1,506) $ (30,123) $ 55,013
Adjustments to reconcile net (loss)/income to cash
used in operating activities
Provision for possible credit losses 1,500 1,000 5,250
Writedowns of real estate assets 1,106 19,745 1,889
Depreciation and amortization 383 215 1,159
Amortization of deferred fees and premiums -- -- (2,717)
Loan fees collected net of expenses deferred -- -- (761)
Net (gain)/loss on sales of loans, other investments
and investment securities (5,241) 3,249 605
Gain recorded on Branch Sale by Predecessor Bank -- (77,560)
Change in operating assets and liabilities:
Net decrease/(increase) in accrued interest and
preferred stock dividend receivable 405 (326) 5,939
Net (decrease)/increase in accrued interest payable (486) 964 (1,341)
Net (decrease)/increase in accrued income taxes 16 (5,019) 18,018
Net (decrease)/increase in accrued expenses
and other liabilities (3,439) (4,947) 4,944
Net (increase)/decrease in prepaid expenses and other assets (1,672) 1,195 398
Cash effect of increases/(decreases) in allowance for
possible credit losses 372 (23) --
Other 172 (330) (37)
--------------- ----------------- ----------------
Net cash (used in)/provided by operating activities (8,390) (14,400) 10,799
--------------- --------------- ----------------
Investing Activities:
Cash Flows Provided by (Used in) Investing Activities
Proceeds from sales and maturities of investment
securities, available for sale 6,871 -- 285,084
Purchases of investment securities, available for sale -- -- (280,591)
Transfer of securities in Branch Sale -- -- 78,419
Proceeds from sales, collections and maturities of
mortgage-backed securities, available for sale -- 187 6,248
Transfer of loans in Branch Sale -- -- 1,067,472
Net repayment/(origination) of loans secured by real estate, net 18,812 4,252 (82,942)
Net (reacquisition)/repayment of commercial and consumer (1,579) 345 --
loans -- -- 21,188
Net originations of commercial and consumer loans 8,667 3,463 (29,914)
Net decrease/(increase) in loans sold with recourse -- 8,976 --
Redemption of FHLB Stock -- -- 6,913
Proceeds from sales of premises and other fixed assets -- -- (234)
Purchase of fixed assets 14,041 43,161 97,827
Proceeds from sales of real estate held (5,069) (14,270) (30,438)
---------------- ---------------- ---------------
Additional fundings on real estate held $ 41,743 $ 46,114 $ ,139,032
---------------- ---------------- ---------------
Net cash provided by investing activities
</TABLE>
See Notes to Consolidated Financial Statements.
-75-
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1998, 1997, and 1996
(Dollars in Thousands)
(Continued from previous page)
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Financing Activities:
Cash Flows Provided by (used in) Financing Activities:
Increase in restricted cash $ (14,459) $ (5,096) $ --
Interest credited to time deposits and savings accounts -- -- 47,719
Dividends paid on preferred stock -- -- (5,250)
Net decrease in deposit accounts -- (3,022) (56,611)
Deposits transferred in Branch Sale -- -- (1,159,616)
Proceeds from borrowed funds -- 4,459 89,760
Repayment of borrowed funds (5,509) (30,179) (177,035)
Increase/(decrease) in borrowed funds secured by loans
sold with recourse, net of construction advances (9,793) (5,794) 24,000
Net increase/(decrease) in escrow deposits -- (271) (4,209)
----------------- --------------- -------------
Net cash used in financing activities (29,761) (39,903) (1,241,242)
----------------- --------------- -------------
Net increase/(decrease) in cash and money market investments 3,592 (8,189) (91,411)
Beginning cash 8,940 17,129 108,540
----------------- --------------- -------------
Ending cash $ 12,532 $ 8,940 $ 17,129
----------------- --------------- -------------
----------------- --------------- -------------
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Net transfer of mortgage loans to real estate held for
investment and real estate held for disposal $ -- $ -- $ 7,852
Loans to facilitate real estate sales -- -- 23,436
Changes in securities valuation account 179 113 (1,377)
Cash paid for:
Interest 6,594 7,682 61,429
Federal, state and local taxes 433 1,952 3,675
</TABLE>
See Notes to Consolidated Financial Statements.
-76-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
1. Organization, summary of significant accounting policies and accounting
change
RB Asset, Inc. (the "Company") is a Delaware corporation which, on May 22, 1998,
completed a reorganization whereby the Company succeeded to the assets,
liabilities and business of River Bank ("River Bank" or the "Predecessor Bank").
The Company's principal business continues to be the management of its real
estate assets, mortgage loans and investment securities, under a business plan
intended to maximize shareholder value.
Through a series of reorganization steps, more fully described in Note 2 to the
Consolidated Financial Statements, all of the issued and outstanding shares of
common stock and 15% noncumulative perpetual preferred stock, Series A of the
Company were distributed to stockholders of the dissolved Predecessor Bank on a
share-for-share basis such that each holder of River Bank's common stock
received one share of the Company's common stock, for each share held by the
stockholder and each holder of River Bank's Series A preferred stock received
one share of the Company's Series A preferred stock, for each share held by the
stockholder.
In connection with the reorganization steps, on May 19, 1998, a petition for an
order of dissolution declaring River Bank dissolved and its legal existence
terminated was filed in the Supreme Court of the State of New York. The Supreme
Court issued the order on June 1, 1998 and, upon the filing of the order of
dissolution with the Banking Department, the Predecessor Bank was dissolved and
its legal existence terminated. Upon such dissolution, the capital stock of
Predecessor Bank was canceled and the stock transfer records of the Predecessor
Bank were closed.
Prior to its reorganization into a Delaware corporation, River Bank was a New
York State chartered stock savings bank, founded in 1848. In 1925, the
Predecessor Bank adopted the name "East River Savings Bank" which it continued
to use in its retail business through June 28, 1996. River Bank converted to a
stock-form savings bank through a plan of conversion in 1985. Effective October
1, 1988, East River Savings Bank formally changed its corporate name to "River
Bank." On June 28, 1998, the Predecessor Bank sold its remaining eleven branches
("the Branch Sale") to Marine Midland Bank ("Marine"), inclusive of the name
East River Savings Bank. See Note 3 to the Consolidated Financial Statements.
Following consummation of the Branch Sale, all retail banking operations of the
Predecessor Bank ceased.
Basis of presentation: The consolidated financial statements include the
accounts of the Company 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, which results do not differ
materially from generally accepted accounting principles, 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 and mortgage-backed securities: In accordance with Statement of
Financial Accounting Standards No. 115 (SFAS-115), "Accounting for Certain
Investments in Debt and Equity Securities," at June 30, 1998, the balance of
stockholders' equity included a $926 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
-77-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
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.
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
Company's assets, the potential for loss in light of the current composition of
the Company'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 Company'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, 1998, most of the Company's real estate held for
investment is located in New York. The Company has 61% 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.
Real estate: The Company accounts for its real estate assets in accordance with
Statement of Accounting Standard No. 121 (SFAS-121), "Accounting for the
Impairment of Long Lived Assets to be Disposed Of," issued by the Financial
Accounting Standards Board (the "FASB"). SFAS-121 requires that a loss is
recorded for assets held for investment when events and circumstances indicate
impairment and the undiscounted future cash flow generated by the investment in
real estate is less than the related carrying amount. When the carrying amount
of the asset may not be recoverable, the asset balance must be directly written
down as part of the recorded loss. In addition, SFAS- 121 requires long-lived
assets held for sale to be carried at the lower of carrying value or fair value
less the costs to sell. Fair value is defined in SFAS-121 as the amount at which
an asset could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale.
Depreciation: Under generally accepted accounting principals ("GAAP"), SFAS-121,
the Company is required to depreciate real estate held for investment over the
estimated useful life of the assets. The depreciable portion of assets
categorized as real estate held for investment includes the accumulated costs of
acquisition and/or development of building structures and leasehold
improvements. No depreciation charges are made for the portion of the asset's
-78-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
historical cost attributable to land. Depreciation for real estate held for
investment is generally calculated on a straight-line basis over a 30 year
period or over the remaining term of the lease for leasehold improvements,
whichever period is less. On May 22, 1998, as a consequence of the
Reorganization, the Company was no longer subject to the categorization and
depreciation regulations for investments in real estate previously imposed by
the Predecessor Bank's regulators. Accordingly, as of that date, the Company
began to record depreciation charges, as required by GAAP, for all real estate
held for investment, that had not been subject to depreciation charges in prior
periods.
Retirement plan: The Company has a contributory 401(k) plan and a
non-contributory pension plan (the "Plan") covering substantially all of its
employees. During 1992, the Company 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 Company files a consolidated
tax return with its subsidiaries on a calendar-year basis. The Company 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 Company and certain subsidiaries file income and franchise tax
returns in various other states.
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.
Recent Accounting Pronouncements:
SFAS No. 121. In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (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
flow 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. 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 was required to be adopted on December 31, 1997. At that time, the
Company was 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 was
excluded. The implementation of SFAS No. 128 is not expected to have any effect
on the Company's primary earnings per share for the years ended June 30, 1998,
1997 and 1996.
SFAS No. 130. During June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which is required to be adopted for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The adoption of this
standard will not have a material impact on the Company's financial position or
results of operations.
-79-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
2. Reorganization
On May 22, 1998, the Predecessor Bank, a New York State chartered stock savings
bank, completed its reorganization (the "Reorganization") into a Delaware
corporation named RB Asset, Inc. under a plan that was approved at the
Predecessor Bank's special meeting of stockholders on May 1, 1998. RB Asset,
Inc., as the successor in the Reorganization, succeeded to the assets,
liabilities and business of the Predecessor Bank. As a result of the
reorganization and related dissolution discussed below, the capital stock of
River Bank was canceled and, as of the close of business on May 22, 1998, River
Bank's stock transfer records were closed.
As a New York State chartered stock savings bank, the Predecessor Bank was
regulated by the New York State Banking Department ("the Banking Department" or
the "NYSBD") and, until December 31, 1997, the Federal Deposit Insurance
Corporation (the "FDIC"). Following the Reorganization of the Predecessor Bank
into a Delaware corporation, which was completed on May 22, 1998, the Company
intends to manage its business and assets without the regulatory constraints
previously imposed on the Predecessor Bank by the Banking Department.
Following stockholder approval of the Reorganization, all of the Predecessor
Bank's assets, liabilities and business were transferred to, or assumed by, the
Predecessor Bank's wholly-owned subsidiary, River Asset Sub, Inc., on May 11,
1998, pursuant to the terms of an assignment and assumption agreement and
related transfer documents. Thereafter, on May 18, 1998, the Board of Directors
declared distribution of the capital stock of its wholly-owned subsidiary, River
Distribution Sub, Inc. ("River Distribution"), payable on a book-entry basis to
the Predecessor Bank's stockholders of record on May 22, 1998. At the time of
such distribution the capital stock of River Distribution had no value.
In the distribution, all of the issued and outstanding shares of common stock
("River Distribution Common Stock") and 15% noncumulative perpetual preferred
stock, series A of River Distribution ("River Distribution Series A Preferred
Stock") held by the Predecessor Bank were distributed to the Predecessor Bank's
stockholders on a share-for-share basis such that each holder of the common
stock of River Bank ("River Bank Common Stock") received one share of River
Distribution Common Stock for each share of River Bank Common Stock held by such
stockholder and each holder of River Bank 15% noncumulative perpetual preferred
stock, series A ("River Bank Series A Preferred") received one share of River
Distribution Series A Preferred Stock for each share of River Bank Series A
Preferred Stock held by such stockholder.
Finally, upon book-entry payment of the distribution, on May 22, 1998, River
Distribution merged with and into River Asset whereupon the stockholders of
River Distribution became stockholders of the surviving corporation which
changed its name to RB Asset, Inc. In the merger, the shares of capital stock of
River Distribution were converted into shares of identical capital stock of RB
Asset, Inc., the renamed surviving corporation in the merger. Accordingly,
subsequent to the merger, the capital stock of River Bank had no value. Stock
certificates representing shares of capital stock of RB Asset, Inc. were then
distributed to holders of record as of May 22, 1998.
In connection with the reorganization steps, on May 19, 1998, a petition for an
order of dissolution declaring River Bank dissolved and its legal existence
terminated was filed in the Supreme Court of the State of New York. The Supreme
Court issued the order on June 18, 1998 and, upon the filing of the order of
dissolution with the Banking Department, on June 23, 1998, the Predecessor Bank
was dissolved and its legal existence terminated. Upon such dissolution, the
capital stock of River Bank was canceled on the closed transfer records of the
Predecessor Bank.
3. Purchase of Assets and Liability Assumption Agreement
On June 28, 1996, the Predecessor Bank consummated the transactions (the "Branch
Sale") contemplated by the Purchase of Assets and Liability Assumption Agreement
(the "Branch Sale Agreement") by and between the Predecessor Bank and Marine.
Pursuant to the terms of the Branch Sale Agreement, Marine assumed $1,159.6
million of deposit liabilities (the "Assumed Deposits") and acquired assets with
an aggregate carrying value of $1,066.6 million
-80-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
(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 Predecessor 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
Predecessor 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 1 and 11 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 Predecessor Bank in
the Branch Sale. Marine also purchased the Predecessor Bank's branch office
realty at 96th Street in Manhattan for $1.3 million. The Predecessor Bank
recorded a net pre-tax gain on the sale of offices and branches of $77.6 million
reflecting 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 ended June 30,
1997, the indemnification agreements with Marine were amended and a $3.3 million
contingency reserve was recorded.
At June 30, 1996, the Predecessor 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 Predecessor Bank continued substantially the same management and
disposition strategy for Retained Assets subsequent to the Branch Sale as was
previously employed by the Predecessor Bank.
The closing of the Branch Sale was conditioned upon the Predecessor Bank's
obtaining financing with terms and in an amount reasonably acceptable to the
Predecessor Bank and determined to be reasonably adequate to permit consummation
of the Branch Sale. The Predecessor 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 Predecessor
Bank, which has been reduced by repayment activity to $60.6 million at June 30,
1998. 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 Company's operations subsequent to the Branch Sale.
The Predecessor Bank held certain non-retail deposits at June 30, 1996,
following the Branch Sale described above. Marine assumed substantially all of
the Predecessor Bank's retail deposits in connection with the Branch Sale. In
addition, the Predecessor Bank ceased accepting retail deposits on the date of
the Branch Sale. During 1997, the Predecessor Bank arranged for the assumption
by other insured depository institutions of its remaining non-retail deposits.
Accordingly, the Predecessor Bank held no deposit liabilities at June 30, 1997.
However, at June 30, 1997, the Predecessor Bank continued to be regulated by the
FDIC and the NYSBD. On October 31, 1996 the Predecessor 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 Predecessor Bank
received notice that the FDIC, as requested by the Predecessor Bank, intended to
terminate the Predecessor Bank's status as an insured state nonmember Bank on
December 31, 1997. Upon the issuance of this order by the FDIC, the Predecessor
Bank was no longer subject to banking regulation by the FDIC. In connection
therewith, the Predecessor Bank also received from the Banking Department a
waiver of any applicable New York State deposit insurance requirements.
-81-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
Conditions imposed in connection with the NYSBD's approval of the Branch Sale
included: (i) the Predecessor 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 Predecessor 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 Predecessor Bank's agreement to continue to
submit its proposed capital transactions to the NYSBD for prior approval; (v)
the continuation of the Predecessor Bank's then-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 have deemed
appropriate.
In June 1997, the Predecessor Bank submitted an alternate proposal (the
"Alternate Proposal") to the NYSBD pursuant to which the Predecessor Bank would
implement Conditions No. 1 and No. 2 of the approval of the Branch Sale
described above. The Predecessor 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 Corporation Law. Successor would acquire all of the assets of
the Predecessor Bank and continue all of the business of the Predecessor Bank
under the same business plan as adopted by the Predecessor Bank. Following the
transfer of its assets and liabilities to Successor, the Predecessor 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 Corporation Law, which would
not be subject to the jurisdiction of the Banking Department. The proposed
transfer was expected to qualify as a tax-free reorganization under the Internal
Revenue Code and, as such, the Company expected (and continues to expect) that
certain of the Predecessor Bank's tax attributes would be preserved. In
connection with the Alternate Proposal, common and preferred shareholders of
River Bank would receive shares of Successor on a share-for-share basis so that
Successor would be owned by the same stockholders, in the same proportions, as
owned the Predecessor Bank on the record date.
Prior to June 30, 1997, the Predecessor Bank received the NYSBD'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 Predecessor Bank on a timely basis. The NYSBD'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 was filed by the Bank by October 15, 1997. The Predecessor Bank
met Condition No. 1 and Condition No. 2 on a timely basis. A copy of the
Alternate Proposal and the NYSBD's letter indicating their conditional approval
of the Alternate Proposal have been included as Exhibits 14 and 15 to FDIC Form
F-2, dated June 30, 1997.
The Company will continue to be subject to the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") as amended and will be required to
file periodic reports and other information with the Securities Exchange
Commission (the "SEC").
Subsequent to the closing of the Branch Sale, the Company continued to have an
executive officer, under New York Banking Law. However, the Company no longer
retained a significant number of employees to manage the Company's affairs.
Rather, the day-to-day management responsibilities of the Company have been
obtained from RB Management Company ("RB Management), a newly-formed management
company affiliated with Mr. Dworman.
After the closing of the Branch Sale, a significant amount of services necessary
to manage the Retained Assets were provided by RB Management or third-party
subcontractors who do not have any continuing fiduciary obligations to the
Company or the stockholders. It is anticipated that such services will continue
to be provided by RB Management and third-party subcontractors. The selection of
third-party subcontractors to provide various services to the Company will be
made by RB Management Company,
-82-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
subject to the ratification by committees of the
Board of Directors but without stockholder approval. The Company's success in
maximizing returns through management of the Retained Assets will depend on the
efforts of RB Management and third-party contractors retained to provide
services to the Company.
4. Regulatory capital requirements
Prior to the reorganization of the Predecessor Bank into a Delaware corporation,
which was completed on May 22, 1998, the Banking Department had advised the
Predecessor Bank that the Predecessor Bank's minimum capital requirement, set at
$115 million in the NYSBD's approval of the Branch Sale and subsequently amended
to $106 million in May 1997, was to remain at $106 million until the Predecessor
Bank's final dissolution, unless the Banking Department shall provide prior
approval of the Company's written request to amend the Company's minimum capital
requirement. So long as the Company's deposit accounts were insured by the FDIC,
as a Federally-insured state-chartered bank, the Company was required to
maintain minimum levels of regulatory capital. Under those FDIC regulations,
insured state-chartered banks were generally required to 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 (as
defined by regulation) 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 Company 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. On April 14, 1997, the Company received notice that the FDIC, as
requested by the Company, intended to terminate the Company's status as an
insured state nonmember Bank on December 31, 1997.
Subsequent to the termination of the Predecessor Bank's status as an insured
nonmember bank by the FDIC and the reorganization of the Predecessor Bank into a
Delaware corporation, the Company is no longer subject to the regulatory capital
requirements of either the FDIC or the Banking Department.
5. 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, 1998, 1997, and 1996,
respectively. The Company had no securities outstanding that were convertible to
common stock at June 30, 1998, 1997 and 1996.
In 1997, the Financial Accounting Standards Board issued Statement of Accounting
Standards No. 128, "Earnings Per Share" ("SAS-128"). SAS-128 replaced previously
promulgated GAAP regarding the calculation of, and reporting requirements for,
earnings per share information. Specifically, SAS-128 replaced primary and fully
diluted earnings per share, as previously defined under GAAP, with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any delusive effects of options, warrants and convertible
securities. Under SAS-128, diluted earnings per share is very similar to the
previously-reported fully-diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to SAS-128 requirements.
6. Cash due from banks and cash equivalents
Included in Cash, due from banks and cash equivalents at June 30, 1998, are
approximately $3.0 million in Funds maintained on deposit by wholly-owned
subsidiaries and required to meet ongoing cash flow requirements of those
subsidiaries. At June 30, 1998, Marine had restricted a total of $19.6 million
in funds, held on deposit with Marine, in accordance with the terms of the
Branch Sale and the Marine Facility agreements. At June 30, 1997, Marine had
restricted a total of approximately $5.1 million. Restricted funds held by
Marine are not available to the Company for the settlement of any of the
Company's current obligations. Of the $19.6 million cash balance restricted by
Marine at June 30, 1998, $5.0 million relates to reserve amounts specified under
the Branch Sale Agreement. The remaining
-83-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
restricted cash reserves arose from the sale of assets which had served as
primary collateral for the Marine Facility. The restricted cash held by
Marine is intended to serve as substitute collateral for the Marine Facility,
until such time the Marine Facility, until such time as the Marine Facility
is reduced in accordance with the Company's Asset Management Plan and the
Marine Facility agreements.
7. Investment securities available for sale, net
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Equity securities $ 2,299 $ -- $ (926) $ 1,373
---------------- ----------------- ---------------- --------------
---------------- ----------------- ---------------- --------------
</TABLE>
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
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C>
Equity securities $ 7,380 $ -- $ (1,105) $ 6,275
---------------- ----------------- ---------------- --------------
---------------- ----------------- ---------------- --------------
</TABLE>
8. Loans receivable, secured by real estate
Loans secured by real estate at June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
One-to-four family residential $ 1,306 $ 3,924
Multi-family residential 24,638 26,090
Commercial 33,062 50,079
------------ -----------
$ 59,006 $ 80,093
------------ -----------
------------ -----------
</TABLE>
In accordance with SFAS No. 114 (SFAS-114), "Accounting by Creditors for
Impairment of a Loan," the Company considers a loan impaired if, based on
current information and events, it is probable that all amounts due under the
loan agreement are not collectable. Impairment is measured based upon the fair
value of the underlying collateral.
At June 30, 1998 and 1997, the recorded investment in loans that are considered
to be impaired under SFAS-114 were $19,130 and $24,791, respectively (of which
$19,130 and $24,791 were on a non-accrual basis). The related allowance for
credit losses is $7,679 and $8,396. The average recorded investment in impaired
loans during the years ended June 30, 1998 and June 30, 1997, were $22,952 and
$25,024, respectively. . For the years ended June 30, 1998 and June 30, 1997,
the Company recognized interest income on those impaired loans of $41 and $161,
respectively, using the cash basis of income recognition.
-84-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
At June 30, 1998 and 1997, the Company had restructured 5 loans, secured by real
estate which aggregated $22,999 and $24,454, respectively. The gross interest
income that would have been recorded if those loans had been current in
accordance with their original terms and had been outstanding throughout the
years ended June 30, 1998 and 1997 is $2,411 and $2,559 respectively. The amount
of interest on these loans that was included in interest income for the year
ended June 30, 1998, and 1997 is $1,679 and $1,783.
9. Commercial and consumer Loans
Commercial and consumer loans at June 30, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------ -----
<S> <C> <C>
Commercial loans:
Secured $ 2,520 $ 2,520
Unsecured 5,939 10,286
-------------- ------------
8,459 12,806
Consumer loans:
Student education loans 1,972 2,504
Other -- 367
-------------- ------------
1,972 2,871
-------------- ------------
Total commercial and consumer $ 10,431 $ 15,677
-------------- ------------
-------------- ------------
loans
</TABLE>
10. Allowance for possible credit losses
The following is an analysis of the allowance for possible credit losses for the
years ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at July 1, 1997 and 1996 $ 31,570 $ 34,142
Provision charged to operations 1,500 1,000
Charge-offs, net of recoveries (13,033) (3,572)
------------ ------------
Balance at June 30, 1998 and 1997 $ 20,037 $ 31,570
------------ ------------
------------ ------------
</TABLE>
Charge-offs, net of recoveries, relate to losses incurred and recoveries
realized in the sale or liquidation of assets.
At June 30, 1998, the total provisions for possible credit losses were allocated
to real estate loans in the amount of $17,697 and to commercial and consumer
loans in the amount of $2,340. At June 30, 1997, the total provisions for
possible credit losses were allocated to real estate loans in the amount of
$25,787 and to commercial and consumer loans in the amount of $5,783.
-85-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
11. Loans sold with recourse, net.
Loans sold with recourse, were carried at $15,781 and $24,451, net of valuation
allowances of $4,901 and $4,901 at June 30, 1998 and 1997, respectively. At June
30, 1998 and 1997, loans sold with recourse consist of loans and contracts of
sale related to three multi-family residential developments, including a parcel
of undeveloped land.
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the
Company 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 Company 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 Company and Alvin Dworman, who owns 39% of the common
stock of the Company. 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 Company and the purchasers to be in the final process of
disposition by the Company. In essence the Asset Sale Transactions resulted in
disposition proceeds which the Company expected to realize on the included
assets within the fiscal year following the Company's 1996 fiscal year.
In each of the Asset Sale Transactions, the Company 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 Company also received
additional contingent proceeds notes for each of the five pools which provided
the Company 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 were to be retained
by the purchaser.
The Company 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 in connection with the
Branch Sale.
The Company 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 Company 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 Company 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 Company 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 Company's consolidated financial statements as Loans sold
with recourse. Related financing for such assets has been included in the
Company's consolidated financial statements as Borrowed Funds, secured by assets
sold with recourse. The
-86-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
Company believes that it has made adequate provision at June 30, 1998 for all
recourse amounts expected to result from the sale of the assets included in
Pools B and C.
For accounting purposes the Company 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 with the reminder being realized during the
fiscal year ended June 30, 1998.
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 Company'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.
During the year ended June 30, 1998, the Company elected to satisfy its debt to
the purchaser and reacquire, under the recourse terms of the Asset Sale
Transaction, the remaining unsold assets sold to the purchaser on June 26, 1998.
This action was undertaken to reduce the Company's ongoing interest expense and
related obligations under the debt agreement with the purchaser. As a result of
this action, and the realization of asset disposition proceeds during the 1998
fiscal year, at June 30, 1998 the purchaser had realized all anticipated
proceeds from its participation in the Asset Sale Transactions and all debt
associated with the transaction had been retired by the Company.
At June 30, 1998, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.9 million. This balance is carried by the Company as
a component of it commercial and consumer loans. This balance represented claims
which had been filed with state processing agencies for reimbursement for which
the Company expected to receive reimbursement. At June 30, 1998, the remaining
Single Family Receivables balance, net of applicable reserves was $1.3 million
and were in the process of being disposed of through amortization and sales of
individual loans or, to a lesser degree, sales of real estate owned to bulk
buyers or individuals. This balance is carried by the Company as a component of
its loans secured by real estate portfolio.
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 Company's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13 million.
At June 30, 1998, the Wayne Project is in the final phase of a three-phase
development and all remaining units are under contract to be sold. The Company
believes that the Wayne Project will be fully completed and all individual units
sold prior to June 30, 1999. The Company's remaining investment in the Wayne
Project, net of applicable reserves, was $3.0 million at June 30, 1998. At June
30, 1998, all Marine debt related to this asset has been repaid and $2.1 million
of recourse debt remained payable to a third party.
-87-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
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 Company'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 Company's investment at
June 28, 1996 in construction in process.
At June 30, 1998, the Company's remaining investment in the Bronx Projects
aggregated $12.7 million, including $9.0 million for Site One and $3.7 million
for Site Two. At June 30, 1998, development of the first phase of Site One,
involving the construction of 84 condominium units, was completed and all units
were sold. Site Two was vacant on June 30, 1998 with no development yet
commenced. At June 30, 1998, the Company was evaluating various development and
distribution strategies with respect to these properties. Such strategies would
include, but not be limited to, sales of one or both of the sites and various
arrangements for the sale and development of subparcels of the sites.
Payments made to reduce the remaining recourse claims related to the Pool C sale
were made from Bronx Projects condominium unit sales proceeds to Marine and to a
third-party lender aggregating $2.1 million and $2.2 million, respectively, in
the year ended June 30, 1998 and $600,000 and $0, respectively, in the year
ended June 30, 1997. Such payments reduced the outstanding amount payable to
Marine and the third-party lender to $6.1 million and $0, respectively, at June
30, 1998 and to $8.2 million and $2.2 million, respectively, at June 30, 1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
real estate properties, located in New York State, New Jersey and California
(collectively, the "Real Estate Properties"). The Company'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. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1998.
During the year ended June 30, 1998, the Company elected to satisfy its debt to
the purchaser and reacquire, under the recourse terms of the Asset Sale
Transaction, the remaining unsold asset sold to the purchaser on June 26, 1996.
This action was undertaken to reduce the Company's ongoing interest expense and
related obligations under the debt agreement with the purchaser. As a result of
this action, at June 30, 1998 the purchaser had realized all anticipated
proceeds from its participation in the Asset Sale Transactions and all debt
associated with the transaction had been retired by the Company.
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 Company'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 was disposed of during fiscal
1997 and consequently, the purchaser had realized all anticipated proceeds from
its participation in the Asset Sale Transactions and all debt associated with
this transaction had been retired by the Company prior to June 30, 1997.
-88-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
12. Real estate held for investment
Real estate held for investment at June 30, 1998 and 1997, respectively,
consists of the following:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Number of Amount Number of Amount
Properties Properties
<S> <C> <C> <C> <C>
Multi-family 2 $ 62,426 2 $ 63,266
Commercial real estate:
Office buildings 2 17,616 2 19,502
Shopping centers 1 1,966 1 68
Other 1 827 1 1,266
--- ----------- --- ------------
6 $ 82,835 6 $ 84,102
--- ----------- --- ------------
--- ----------- --- ------------
</TABLE>
At June 30, 1998, the Company'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 book values of the three properties are $56.0 million,
$12.4 million and $6.4 million, respectively.
The Company has used currently available information to establish valuations for
real estate held for investment at June 30, 1998. Future 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.
For the year ended June 30, 1998, the company has conformed to SFAS 121;
therefore all previously stated valuation allowances are now considered direct
writedowns of the real estate held for investment.
-89-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
13. Real estate held for disposal
Real estate held for disposal, net of $1,363 and $1,849 valuation allowance at
June 30, 1998 and 1997, respectively, consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Number of Number of
Properties Amount Properties Amount
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments -- $ -- 2 $ 596
Multi-family 1 2,000 3 12,651
Commercial real estate:
Office buildings 1 1,650 -- --
--------- ---------- ---------- ----------
2 $ 3,650 5 $ 13,247
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
Activity in the valuation allowance for real estate held for disposal for the
years ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Beginning balance - July 1, 1997 and
1996 $ 1,849 $ 1,701
Provisions charged to operations -- 8,445
------------ -----------
Charge-offs (486) (8,297)
------------ -----------
------------ -----------
Ending balance -- June 30 $ 1,363 $ 1,849
</TABLE>
At June 30, 1998, the Company's principal real estate held for disposal
properties consists of a parking garage adjacent to an office building complex
in Atlanta, GA and co-operative apartment shares in New York, NY. The related
rental income and expenses for these properties are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------- -----------
<S> <C> <C>
Rental income $ 83 $ 1,656
Less:
Rental and other property expenses (6) (1,817)
Writedowns of asset value -- (1,300)
------------- -----------
Net income $ 77 $ (1,461)
------------- -----------
------------- -----------
</TABLE>
Management believes that the allowance for possible losses is adequate and that
real estate held for disposal is properly valued. The Company has used currently
available information to establish reserves and resultant net valuations for
real estate held for disposal at June 30, 1998.
-90-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
14. Salaries and Employee Benefits
Due to the general cessation of all loan origination activities in anticipation
of and subsequent to the Branch sale, salaries and employee benefits were not
reduced by any capitalized direct loan origination costs in the years ended June
30, 1998, 1997, and 1996.
15. Other assets
Other assets at June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Accrued interest receivable $ 388 $ 792
Deposit against asset sale recourse claims 2,107 --
Prepaid pension expenses and other 1,753 1,443
---------- ----------
$ 4,248 $ 2,235
---------- ----------
---------- ----------
</TABLE>
16. Borrowed funds
Borrowed funds and weighted average year-end interest rates at June 30, 1998 and
1997 consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Weighted Weighted
Year-end Average Year-end Average
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Initial facilities (Marine) $ 60,557 8.20% $ 66,066 8.25%
Borrowed funds secured by loans
sold with recourse (note 11) 8,203 8.00 18,206 8.25
----------- -----------
$ 68,760 $ 84,272
----------- -----------
----------- -----------
Average cost of funds during the 8.17% 8.25%
year ended ------ -----
------ -----
</TABLE>
Borrowed funds secured by loans sold with recourse: In June 1996, the Company
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 "Asset
Sales," and Note 11.
Borrower funds secured by loans sold with recourse bear interest at the prime
rate (or, at the Company's option, in LIBOR based rate). See Note 11 for more
information concerning the three properties securing this information.
Initial Facility with Marine: The closing of the Branch Sale was conditioned
upon the Company's obtaining financing with terms and in an amount reasonably
acceptable to the Company and determined to be reasonably adequate to permit
consummation of the Branch Sale. The Company obtained from Marine 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, 1998, Marine had
extended $60.6 million under the Facility to the Company.
-91-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
Proceeds of the Facility were utilized by the Company 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 Company'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 Company'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 was 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 Company 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 is 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 Company), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Company
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 Company's right to establish
reserves for its operating needs. The Company 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 Company must receive Marine'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.
-92-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
17. Other liabilities
Other liabilities at June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------ -----
<S> <C> <C>
Accrued interest payable $ 479 $ 964
Accrued income taxes 5,787 5,771
Accounts payable and accrued expenses 3,036 6,101
Postretirement benefits obligation 4,352 4,728
Preferred Stock dividend, declared and unpaid 1,313 1,313
---------- ----------
$ 14,967 $ 18,877
---------- ----------
---------- ----------
</TABLE>
18. Stockholders' equity
On June 30, 1994, the Predecessor Bank consummated the placement ("Offering") of
5,500,000 shares of its common stock, par value $1.00 per share ("Predecessor
Common Stock), and 1,400,000 shares of 15% noncumulative perpetual preferred
stock, series A, par value $1.00 per share ("Predecessor Preferred Stock") which
resulted in net proceeds to the Predecessor Bank of $78,200. The issuance price
of the offered stock was $9 per share for the Predecessor Common Stock and $25
per share for the Predecessor Preferred Stock. The Predecessor 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 Predecessor Common
Stock and 10,000,000 shares of Predecessor Preferred Stock. Prior to the
Offering, the Predecessor Bank had 1,000,000 shares of Predecessor Common Stock
issued and outstanding, plus warrants to purchase an additional 690,000 shares
of Predecessor Common Stock. The Predecessor 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 Predecessor Common
Stock and outstanding warrants to purchase Predecessor Common Stock were
canceled. The Predecessor Bank had 7,100,000 shares of its Predecessor Common
Stock and 1,400,000 shares of its Predecessor Preferred Stock outstanding at
June 30, 1997 and 1996.
In connection with the Reorganization (See Note 2), the stockholders of the
Predecessor Bank received substantially identical capital stock of the Company
(with substantially identical rights and privileges) on a share-for-share basis
and as a result the Company had 7,100,000 shares of its common stock, $1.00 par
value ("Company Common Stock"), and 1,400,000 shares of its 15% non-cumulative
perpetual preferred stock, series A, $1.00 par value ("Company Preferred
Stock"), outstanding at June 30, 1998. An investor continues to be the largest
stockholder of the Company with 2,768,400 shares or 39% of the Company Common
Stock outstanding.
The Company's certificate of incorporation authorizes the issuance of up to
30,000,000 shares of Company Common Stock and 10,000,000 shares of preferred
stock, of which 1,400,000 have been designated and issued as the Company
Preferred Stock pursuant to the certificate of designation with respect thereto.
This Company Preferred Stock is perpetual and is not subject to any sinking fund
or other obligation of the Company to redeem or retire it.
The board of directors of the Company has the power from time to time to issue
additional shares of Company Common Stock or preferred stock authorized by its
certification of incorporation without obtaining approval of the Company's
stockholders. The board of directors has the power to fix various terms with
respect to additional shares of preferred stock, 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 the Company.
-93-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The Company may pay dividends as declared from time to time by the board of
directors. Except as provided with respect to any series of preferred stock, the
holders of Company Common Stock possess exclusive voting rights in the Company.
Each holder of Company 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 the Company's outstanding preferred stock, in the event
of any liquidation, dissolution or winding up of the Company, the holders of the
Company Common Stock would be entitled to receive, after payment of all debts
and liabilities of the Company, all assets of the Company available for
distribution.
The Company Preferred Stock ranks prior to the Company Common Stock with respect
to dividend rights and rights upon the voluntary or involuntary dissolution,
liquidation or winding up of the Company, and to all other classes and series of
equity securities of the Company hereafter issued, other than any class or
series of equity securities of the Company expressly designated as being on a
parity with or senior to the Company Preferred Stock with respect to dividend
rights or rights upon any such dissolution, liquidation or winding up. The
Company Common Stock and any other classes or series of equity securities of the
Company not expressly designated as being on a parity with or senior to the
Company Preferred Stock are referred to hereafter as "Junior Stock." The rights
of holders of shares of Company Preferred Stock are subordinate to the rights of
the Company's creditors, including its depositors. The Company may not issue any
capital stock that ranks senior to the Company Preferred Stock without the
approval of holders of at least 66% of the outstanding shares of Company
Preferred Stock, voting as a class.
Holders of Company Preferred Stock will be entitled to receive, when, as and if
declared by the board of directors of the Company, out of funds legally
available therefor, noncumulative cash dividends at the rate of 15% per annum.
The right of holders of Company Preferred Stock to receive dividends is
noncumulative. Accordingly, if the board of directors does not declare a
dividend payable in respect of any quarterly dividend period (a "Dividend
Period"), then holders of Company Preferred Stock will have no right to receive,
and the Company 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 Company Preferred Stock for any Dividend
Period unless full dividends on the Company Preferred Stock for such Dividend
Period shall have been paid or declared and set aside for payment.
Dividends on the Company 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 Company or (ii) orders, judgments,
injunctions or decrees issued by, or agreements with, federal or state
authorities with respect to the Company. The Company is not permitted to declare
or pay dividends (whether in cash, stock or otherwise) on its Company Common
stock without the prior written consent of Marine.
The Predecessor Bank previously received notice that the approvals necessary to
declare or pay dividends on the Predecessor Bank's outstanding shares of
Predecessor Preferred Stock would not be provided. In June 1996, the Predecessor
Bank's board of directors declared a Predecessor Preferred Stock dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from the Predecessor Bank's regulators at the time, the FDIC
and the NYSBD, as well as Marine (the Predecessor Bank's and the Company's
principal lender). Primarily as a result of the above, neither the Company's nor
the Predecessor Bank's respective boards of directors has taken any action
regarding a quarterly dividend on the Predecessor Preferred Stock or the Company
Preferred Stock, as the case may be, for any of the quarterly periods ended from
September 30, 1996 through June 30, 1998. Although the Company is no longer
subject to the jurisdiction of either the FDIC or the NYSBD, declaration or
payment of future dividends on the Company Preferred Stock will continue to be
subject to the approval of Marine for so long as the Facility remains
outstanding. The Company has received notice from Marine that the approval
necessary to declare or pay dividends on the Company Preferred Stock will not be
provided at this time. There can be no assurance that the board of directors of
the Company will deem it appropriate to pay dividends on the Company Preferred
Stock even if permitted by Marine.
-94-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
Holders of the Company Preferred Stock are not entitled to vote in the election
of directors and on matters put to a vote for stockholder action generally.
Holders of the Company Preferred Stock, however, are entitled to elect two
members of the Company's Board to fill two newly-created directorships upon the
occurrence of a "Voting Event." A Voting Event occurs if the Company or the
Predecessor Bank fails to pay full dividends on the Company Preferred Stock or
the Predecessor 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. A Voting Event has occurred and two
nominees for director will be nominated by certain holders of the Company
Preferred Stock and will be elected to the Company's board of directors upon
exercise of the foregoing voting rights at the Company's 1998 annual meeting of
stockholders to be held on September 16, 1998.
The Company Preferred Stock is perpetual and is not redeemable prior to July 1,
2004. The Company Preferred Stock is redeemable by the Company 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:
<TABLE>
<S> <C>
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
</TABLE>
If fewer than all the outstanding shares of Company 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 Company, 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 Company
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
Company 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 Company Preferred Stock to be
exchanged and the principal of such Notes shall not be payable prior to July 1,
2004.
-95-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
19. Income taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
SFAS No. 109 (SFAS-109), "Accounting for Income Taxes."
At June 30, 1998, the Company had a net operating loss ("NOL") carryforward for
federal income tax purposes of approximately $88.9 million attributable to
operating losses incurred in 1991 through 1998. The Company's NOL's may be
carried forward 15 years and will expire in years 2006 through 2013.
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. At
June 30, 1998, the Company had suspended passive activity losses for federal
income tax purposes of approximately $277,000, suspended passive activity
credits, which are subject to similar limitations, of approximately $8.2 million
and additional non-passive credits of $784, $555 and $429 which were generated
in 1997, 1996 and 1995, 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.
The Reorganization was structured and 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 did
constitute such a "reorganization," the following consequences would pertain:
1. The transaction would be treated for Federal income tax purposes as
though River Bank had transferred substantially all of its assets to the
Company in exchange for RB Asset, Inc. capital stock followed by a
distribution of the RB Asset, Inc. capital stock by River Bank to its
stockholders in exchange for their River Bank capital stock in
constructive liquidation of River Bank.
2. No gain or loss would be recognized to a holder of River Bank Common
Stock who is deemed to exchange such stock for RB Asset, Inc. common
stock ("RB Asset Common Stock"). No gain or loss would be recognized to
a holder of River Bank Series A Preferred Stock who is deemed to
exchange such stock for RB Asset, Inc. series A preferred stock ("RB
Asset Preferred Stock"). The basis of any RB Asset Common Stock or RB
Asset Preferred Stock would continue to 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 Asset 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 by 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, Inc. shall be
the same as it would be in the hands of River Bank. RB Asset, Inc. 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).
The Reorganization was reasonably characterized 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
Company has not requested a ruling from
-96-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
the IRS. As a result, the IRS or a court could determine that the
Reorganization did 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 Predecessor 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 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, Inc. capital stock.
Moreover, the Predecessor 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, Inc. 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, Inc. would not succeed to them.
Under current tax law, the Company'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 18 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 Company's ability to realize its
deferred tax assets. The Company is of the view that no ownership change of the
Company has occurred as a result of the Offering. The Company believes that the
Offering, when combined with prior changes in ownership of stock of the Company
and other transactions affecting ownership of the capital stock of the Company
which occurred in connection with the Offering, also did not result in an
ownership change of the Company. 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 Company made certain legal judgments and
certain factual assumptions. The Company 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 Company's determinations.
-97-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
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, 1998, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 31,136 $ 35,074 $ 10,375
Allowance for credit losses and valuation allowances 12,213 4,718 20,320
Suspended passive activity losses 277 277 933
Suspended passive activity credit carryforward 8,236 5,391 5,391
Non-passive activity credit carryforward -- 2,015 1,339
Interest accrued on non-performing loans 9,854 758 6,043
Alternative minimum tax credit carryforward 2,500 2,500 2,500
Non-deductible reserves and contingencies 4,129 5,197 2,387
Other 341 514 880
----------- ----------- ----------
Total gross deferred tax assets 68,686 56,444 50,168
Less: Valuation allowance 49,456 36,874 34,059
----------- ----------- ----------
Net deferred tax assets $ 19,230 $ 19,570 $ 16,109
----------- ----------- ----------
----------- ----------- ----------
Deferred tax liabilities:
Tax losses on partnership ventures $ 18,863 $ 18,184 $ 14,754
Tax over book depreciation 367 1,386 1,355
----------- ----------- ----------
Total deferred tax liabilities $ 19,230 $ 19,570 $ 16,109
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The Company'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 Company
believes will more likely than not be realized. The valuation allowance
increased during the fiscal year ended June 30, 1998 by $12.6 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, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ 1,000
State and local (benefit) 434 (3,300) 10,749
Deferred -- -- --
--------------- ---------------- -------------
$ 434 $ (3,300) $ 11,749
--------------- ---------------- -------------
--------------- ---------------- -------------
</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 Company's redetermination of its state income tax liability at June 30,
1997. During the year ended June 30, 1997, the Company completed a review of its
potential current and deferred
-98-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
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
Company reduced its provision for state and local income taxes by $3.3 million.
Additionally, the Company 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,
1998, 1997 and 1996 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,
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Federal income tax expense (benefit at statutory rates) $ (528) $ (10,543) $ 23,364
Increases/(reductions) in tax resulting from:
State and local income taxes (benefit), net of federal
income tax effect 283 (2,145) 7,939
Effect of net operating loss currently utilized -- -- (19,559)
Effect of net operating loss not currently
recognized 245 12,688 --
Other, net -- -- 5
----------- ----------- ---------
$ -- $ -- $ 11,749
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
20. Leases
The Company is no longer obligated under any material amounts of non-cancelable
operating leases.
21. Other operating expenses
During the year ended June 30, 1998, the Company accrued expenses for services
provided by RB Management, LLC in the amount of $1,250 for Bank Management
Services, $1,312 for Asset Management Services, and $397 for Asset Disposition
Fees in accordance with a fee schedule agreement between the two entities.
During 1998, the Company paid RB Management, LLC an aggregate $5,037. At June
30, 1998, the Company had a remaining payable balance due to RB Management, LLC
in the amount of $43, including interest, which is included in accrued
liabilities on the Statement of Condition.
22. Retirement and other employee benefits
The Company maintains a noncontributory defined benefit retirement plan (the
"Plan") in which substantially all employees participated.
-99-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The net periodic pension benefit of the Company's Plan for the years ended June
30, 1998, 1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Service cost $ -- $ -- $ --
Interest cost 397 381 375
Actual return on plan assets (279) (436) (331)
Net amortization and deferral (107) 33 (61)
---------- ----------- -----------
Net periodic pension benefit $ 11 $ (22) $ (17)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Assumptions used in accounting were:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average discount rates 7.25% 7.25% 7.25%
Expected weighted average long-term rate of return on assets 7.25% 7.25% 7.25%
</TABLE>
The funded status of the Company's Plan at June 30, 1998, June 30, 1997 and June
30, 1996 is as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
---------- ------------ -----------
<S> <C> <C> <C>
Actuarial value of benefit obligations
Vested benefit obligation $ (5,691) $ (5,481) $ (5,402)
Non-vested benefit obligation -- -- --
---------- ------------ -----------
Accumulated benefit obligation (5,691) (5,481) (5,402)
Effect of projected future salary increases -- -- --
---------- ------------ -----------
Projected benefit obligation (5,691) (5,481) (5,402)
Plan assets at fair value (excluding receivables) 5,800 5,872 5,749
---------- ------------ -----------
Funded status 109 391 347
Unrecognized net losses 1,180 908 931
Unrecognized prior service cost -- -- --
Unrecognized net obligation -- -- --
---------- ------------ -----------
Prepaid pension expense $ 1,289 $ 1,299 $ 1,278
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
In connection with contractual termination agreements, certain former officers
of the Company 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, 1998, 1997 and 1996 aggregated $746, $554 and $791, respectively. The
related expense for the years ended June 30, 1998, 1997, and 1996 was $192, $58
and $58, respectively.
-100-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
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 Company 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 Company
matching 100% of the contributions up to 6% of their compensation. In addition,
the Company 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 Company provides various
health care and life insurance benefits for retired employees. These benefits
are provided through insurance companies and health care organizations and are
primarily funded by contributions from the Company and its employees. Subsequent
to December 31, 1993, the Company amended its retiree health care which became
effective April 1, 1994 to require contributions from retirees including
deductibles, co-insurance and reimbursement limitations.
23. Postretirement benefits other than pensions
The Company sponsors a voluntary, unfunded defined benefit postretirement
medical and a funded postretirement life insurance plan to all full time
employees who retired from the Company 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 Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" as of July 1, 1994.
The funded status of the Company's Plan at June 30, 1998, 1997, and 1996 is as
follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retired employees $ (3,784) $ (3,968) $ (5,203)
Fully eligible plan participants -- -- (383)
Other active plan participants -- -- (545)
------------ ----------- -----------
Unfunded postretirement benefit obligation (3,784) (3,968) (6,131)
Unrecognized net (gains) / losses (568) (760) 1,047
Unrecognized transition obligation -- -- 4,273
------------ ----------- -----------
Accrued postretirement benefit liability $ (4,352) $ (4,728) $ (811)
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
-101-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The net periodic postretirement benefit cost of the Company's Plan for the years
ended June 30, 1998, 1997, and 1996 include the following components:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ -- $ -- $ 28
Interest cost 207 302 425
Amortization of transition obligation (13) (29) 277
---------- ---------- ----------
Net periodic postretirement benefit cost $ 194 $ 273 $ 730
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For measurement purposes, an 8.0% and 8.8% annual increase in the per capita
cost of covered health care benefits was assumed for fiscal 1998 and 1997,
respectively. 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 $331 and
the aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for fiscal 1997 by $24.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for the years ended June 30, 1998
and 1997. As the plan is unfunded, no assumption was needed as to the long term
rate of return of assets.
24. Former management incentive plan and bonus plan
In April 1994, the Board of Directors of the Company approved a phantom stock
plan (the "Phantom Stock Plan") for the Company. 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 Company, 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 Company 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 Company, 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 Company's
earnings or loss per share in the second and third years following the date of
grant, and disregarding the Company'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 Company, as defined, or upon death or disability, the value of the
performance units would be calculated in relation to the Company'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
Company's Common Stock at the time of a payment or (ii) the book value of a
share of common stock of the Company 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 Company 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 Company 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 Company 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.
-102-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The Board of Directors of the Company 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 Company, if earlier, to certain executive and other
senior officers of the Company 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 1998 or 1997.
25. Fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Company 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 Company's entire holdings of a particular financial
instrument. Because no ready market exists for a significant portion of the
Company'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
Company's branch network and other items generally referred to as "goodwill".
-103-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------------------ --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 32,087 $ 32,087 $ 14,036 $ 14,036
Money Market investments -- -- -- --
Investment securities available for sale, net 1,373 1,373 6,275 6,275
Mortgage backed securities available for
sale, net -- -- -- --
Accrued interest receivable 388 388 2,047 2,047
Gross loans receivable:
Secured by real estate 59,006 59,006 80,093 80,093
Consumer 1,972 1,972 2,871 2,871
Loans sold with recourse, net 15,781 15,781 24,451 24,451
Demand deposits -- -- -- --
Borrowed funds 68,760 68,760 84,272 84,272
Mortgage escrow deposits -- -- -- --
Accrued interest payable 479 479 964 964
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------------
Carrying Estimated
Amount Fair Value
------ ----------
<S> <C> <C>
Cash and due from banks $ 13,129 $ 13,129
Money Market investments 4,000 4,000
Investment securities available for sale, net 5,685 5,685
Mortgage backed securities available for
sale, net 187 187
Accrued interest receivable 943 943
Gross loans receivable:
Secured by real estate 86,983 79,154
Consumer 3,038 2,951
Loans sold with recourse, net 29,914 29,914
Demand deposits 3,022 3,022
Borrowed funds 115,786 115,786
Mortgage escrow deposits 271 271
Accrued interest payable -- --
</TABLE>
The following methods and assumptions were used by the Company 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,
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-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 $8,459, $12,806 and $12,984, of the Company's $65,181,
$95,770 and $132,919 total loans receivable relate to commercial loans
at June 30, 1998, 1997 and 1996, respectively. The Company believes that
dollar amounts relating to commercial loans are relatively small in
comparison to total loans receivable at June 30, 1998, 1997 and 1996,
and that an estimate of fair value of commercial loans cannot be made
without incurring excessive costs. Therefore, the Company concludes that
it is not practicable to estimate the fair value of its commercial loan
portfolio.
-104-
<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
The Company's estimates of impairment due to collectibility concerns
related to these loans are included in the allowance for possible credit
losses. The weighted average of the effective interest rates and the
weighted average maturity dates of commercial loans are 8.22% and 2.09
years, 9.32% and 3.09 years and 9.31% and 3.73 years at June 30, 1998,
1997 and 1996, respectively.
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.
26. Commitments and contingencies
Standby letters of credit and financial guarantees outstanding are conditional
commitments issued by the Company 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, 1998, 1997 and 1996, the Company and its wholly-owned subsidiaries
had arranged letters of credit aggregating $0, $1,197 and $3,225, respectively.
In the normal course of the Company's business, there are outstanding various
claims, commitments and contingent liabilities. The Company 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
Company 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 Company and have a material
adverse effect on the financial condition and the results of operations of the
Company.
-105-
<PAGE>
FINANCIAL SCHEDULES
RB ASSET, INC.
Index to Consolidated Financial Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Real Estate and Accumulated Depreciation (Schedule III) 107
Year ended June 30, 1998
Mortgage Loans on Real Estate (Schedule IV) 109
Year ended June 30, 1998
</TABLE>
-106-
<PAGE>
RB ASSET, INC.
FORM 10-K
REAL ESTATE AND ACCUMULATED DEPRECIATION (SCHEDULE III)
JUNE 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Initial cost to complete Cost capitalized subsequent to acquisition
------------------------ ------------------------------------------
Buildings an
Description Encumbrances Land improvements Improvements Deductions Description
----------- ------------ ---- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alden Park $ 42,339 $ 11,220 $ 39,769 $5,113 $ --
Multi-family apartment bldg.
Philadelphia, PA
Royal York 7,792 1,479 20,099 3,424 16,537 Unit sales
Multi-family apartment bldg.
New York, NY
260 W. Sunrise 2,775 370 5,616 -- --
Office complex
North Woodmere, NY
Middletown Commons -- 394 1,576 -- --
Shopping Center
New York, NY Unit sales
86 West -- 166 1,100 -- 437
Condominium Writedown
New York, NY
Kingston Atlanta -- 2,488 22,901 -- 11,300(4)
Mixed use commercial
Atlanta, GA
--------- --------- -------- --------- ------------ -------------
Totals $ 52,906 $ 16,117 $ 91,061 $ 28,274
--------- --------- -------- --------- ------------ -------------
--------- --------- -------- --------- ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
Gross amount at which carried Life on which
at close of period, June 30,1998 depreciation in
---------------------------------- latest income
Buildings statement is
and Accumulated Date of Date computed
Land improvements Total Depreciation Construction Acquired (years)
---- ------------ ----- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Alden Park $ 11,220 $ 44,882 $ 56,102 $ 125 (1) (1) 30
Multi-family apartment bldg.
Philadelphia, PA
Royal York 1,479 6,986 8,465 16 (1) (1) 30
Multi-family apartment bldg.
New York, NY
260 W. Sunrise 370 5,616 5,986 781 (1) (1) 25
Office complex
North Woodmere, NY
Middletown Commons 394 1,576 1,970 4 (1) (1) 30
Shopping Center
New York, NY
86 West 166 663 829 2 (1) (1) 30
Condominium
New York, NY
Kingston Atlanta 2,488 11,601 14,089 28 (1) (1) 30
Mixed use commercial
Atlanta, GA
-------- --------- -------- ------- -------- -------- --------
Totals $ 16,117 $ 71,324 $ 87,441 $ 956
-------- --------- -------- ------- -------- -------- --------
-------- --------- -------- ------- -------- -------- --------
</TABLE>
The aggregate cost for Federal income tax purposes was approximately $116.1
million at June 30, 1998.
<TABLE>
<CAPTION>
The changes in real estate for each of
the three years ended June 30, 1998 July 1, 1997 to July 1, 1996 to July 1, 1995 to
are as follows: June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of period $ 97,349 $ 146,440 $ 148,851
Improvements 3,366 9,838 2,832
Re-acquired assets 2,095 -- --
Sales/Writedowns (16,325) (58,929) (5,243)
Other -- -- --
--------------- --------------- -------------
Balance at end of period $ 86,485 $ 97,349 $ 146,440
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
<TABLE>
<CAPTION>
The changes in accumulated real estate
depreciation for the three years ended July 1, 1997 to July 1, 1996 to July 1, 1995 to
June 30, 1998 are as follows: June 30, 1998 June 30, 1997 June 1, 1996
------------- ------------- ------------
<S> <C> <C> <C>
Balance at beginning of period $ 573 $ 373 $ 173
Depreciation for the period 383 200 200
Disposals, including write-off
of fully depreciated building
improvements -- -- --
-------------- -------------- -------------
Balance at end of period $ 956 $ 573 $ 373
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See notes to this schedule on the following page.
-107-
<PAGE>
RB ASSET, INC.
FORM 10-K
REAL ESTATE AND ACCUMULATED DEPRECIATION (SCHEDULE III)
JUNE 30, 1998
(dollars in thousands)
Notes to Real Estate and Accumulated Depreciation Schedule (previous page)
Note 1 - Property acquired, in substantially completed form, through foreclosure
or transfer and satisfaction of obligations of borrowers prior to 1996.
Note 2 - Improvements totaling $3,424 were made to refurbish individual units in
preparation for sale during the three-year period ended June 30, 1998. Proceeds
of unit sales during the same three-year period, after selling costs other than
refurbishment costs, were $16,537. Accordingly, net proceeds of unit sales,
after selling and refurbishment costs, were $13,113 during the three-year period
ended June 30, 1998.
Note 3 - Improvements totaling $5,113 were made to complete a rehabilitation
project related to this asset, subsequent to the asset's acquisition by the
Company.
Note 4 - For additional information related to this writedown of the asset's
carrying value, see "Management Discussion and Analysis - Results of Operations"
contained within the RB Asset, Inc. annual report on Form 10-K, dated June 30,
1998.
-108-
<PAGE>
RB ASSET, INC.
FORM 10-K
MORTGAGE LOANS ON REAL ESTATE (SCHEDULE IV)
JUNE 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Final Periodic
Interest Maturity payment Prior
Description rate Date terms liens
----------- ---- ---- ----- -----
<S> <C> <C> <C> <C>
Residential 1-4 family and other
real estate loans 7%-10% 5/1/99 Amortizing over 15-30
New York, NY years
Anita Terrace 7.00% 5/1/09 Interest only, balloon
Co-op payment at maturity
Rego Park, NY
Anita Terrace 7.00% 5/1/09 Interest only, balloon Subordinated
Co-op payment at maturity participation
Rego Park, NY
7402 Bay Ridge Parkway 10.25% 6/13/01 Interest only, balloon
Multi-family apartment payment at maturity
NY
236 East 46th Street 7.75% 8/27/98 Interest only, balloon Subordinated
Multi-family apartment payment at maturity participation
New York, NY
715 Associates 9.25% 3/30/00 $200 principal annually
Condominium
New York, NY
Washington Group 7.67% 6/30/97 - Amortizing over 30
Office complex extension years, balloon payment
NY agreement under at maturity
negotiation
Lohmaier Lane 7.50% 9/1/98 Non-accrual loan,
Office complex principal and interest
NY not being received
333 West 39th Street 8.50% 1/1/00 Principal and interest Junior subordinated
Office complex contingently receivable- participation
New York, NY loan is fully reserved
589 8th Avenue 8.50% 1/1/00 Principal and interest Junior subordinated
Office complex contingently receivable- participation
New York, NY loan is fully reserved
Hawthorne 8.50% 10/15/00 Principal and interest Junior subordinated
Hotel contingently receivable- participation
SC loan is fully reserved
</TABLE>
<TABLE>
<CAPTION>
Face amount Carrying Principal amount of loans
of amount of subject to delinquent principal
Description Mortgages mortgages or interest
----------- --------- --------- --------------------------------
<S> <C> <C> <C>
Residential 1-4 family and other
real estate loans $ 1,352 $ 1,158 $ 590 (1)
New York, NY
Anita Terrace 14,724 8,239 14,724 (2)
Co-op
Rego Park, NY
Anita Terrace 6,804 6,804 --
Co-op
Rego Park, NY
7402 Bay Ridge Parkway 997 997 --
Multi-family apartment
NY
236 East 46th Street 1,501 1,501 --
Multi-family apartment
New York, NY
715 Associates 611 611 --
Condominium
New York, NY
Washington Group 21,803 21,803 --
Office complex
NY
Lohmaier Lane 3,100 2,100 3,100
Office complex
NY
333 West 39th Street 1,700 - (3) --
Office complex
New York, NY
589 8th Avenue 700 - (3) --
Office complex
New York, NY
Hawthorne 500 - (3) --
Hotel
SC
</TABLE>
(continued on next page)
-109-
<PAGE>
RB ASSET, INC.
FORM 10-K
MORTGAGE LOANS ON REAL ESTATE (SCHEDULE IV)
JUNE 30, 1998
(continued from previous page) (dollars in thousands)
<TABLE>
<CAPTION>
Final Periodic
Interest Maturity payment Prior
Description rate Date terms liens
----------- ---- ---- ----- -----
<S> <C> <C> <C> <C>
Camarillo 7.50% 3/22/05 Interest only, balloon Subordinated
Shopping Center payment at maturity participation
CA
5619 Broadway 8.50% 11/1/99 Interest only, balloon Subordinated
Shopping Center payment at maturity participation
New York, NY
Crossroads 8.50% 12/22/98 Interest only, balloon Subordinated
Shopping Center payment at maturity participation
CA
153 West 57th Street 7.00% 10/1/98 Interest only, balloon Subordinated
Mixed use commercial payment at maturity participation
New York, NY
Flotilla Street 6.89% 12/31/98 Interest only, balloon Subordinated
Industrial Complex payment at maturity participation
CA
Hawthorne 8.50% 10/15/00 Interest only, balloon Subordinated
Hotel payment at maturity participation
SC
Cromwell-Louisville 6.18% 6/30/09 Interest only, balloon Subordinated
Garage payment at maturity participation
Louisville, KY
----- -------- ---------------------- -------------
Totals
----- -------- ---------------------- -------------
----- -------- ---------------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Face amount Carrying Principal amount of loans
of amount of subject to delinquent
Description Mortgages mortgages principal or interest
----------- ----------- --------- -------------------------
<S> <C> <C> <C>
Camarillo 625 625 --
Shopping Center
CA
5619 Broadway 620 620 --
Shopping Center
New York, NY
Crossroads 399 399 --
Shopping Center
CA
153 West 57th Street 613 613 --
Mixed use commercial
New York, NY
Flotilla Street 360 360 --
Industrial Complex
CA
Hawthorne 809 809 --
Hotel
SC
Cromwell-Louisville 1,788 1,788 --
Garage
Louisville, KY
--------- ---------- ----------
Totals $ 59,006 $ 48,427 $ 18,414
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of mortgages July 1,1997 to July 1, 1996 to July 1, 1995 to
receivable at their carrying values: June 30, 1998 June 30, 1997 June 30, 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of period $ 65,499 $ 69,522 $ 76,393
Advances made 649 1,910 59,592
Capitalization of interest/expense -- -- --
Collections of properties (16,413) (4,933) (62,560)
Transfers of foreclosed properties -- -- --
Charged to provision for credit losses (1,308) (1,000) (3,903)
--------------- --------------- --------------
Balance at end of period $ 48,427 $ 65,499 $ 69,522
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
See notes to this schedule on the following page.
-110-
<PAGE>
RB ASSET, INC.
FORM 10-K
MORTGAGE LOANS ON REAL ESTATE (SCHEDULE IV)
JUNE 30, 1998
(dollars in thousands)
Notes to Investments in Real Estate Assets Schedule (previous page)
Note 1 - The Company's 1-4 family residential loans are carried as non-accrual
assets, whereby interest income is recognized only when received. At June 30,
1998 there were loans aggregating $590 in outstanding principal balance that
were delinquent 60 days or longer.
Note 2 - This loan asset has been categorized as a non-accrual loan. Accrued
interest related to this loan has been fully reserved for at June 30, 1998. Loan
principal continues to be repaid from the proceeds of apartment unit sales of
the property serving as collateral for this loan.
Note 3 - The loan is fully reserved for by the Company at June 30, 1998,
although the loan continues to perform in accordance with its contractual terms.
Principal and interest related to these loans is contingently receivable,
following the satisfaction of all other lien holder's positions.
-111-
<PAGE>
ANNEX B
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From To
---------- ------------
Commission file number 333-38673
RB ASSET, INC.
--------------
(Exact name of registrant as specified in its charter)
Delaware 13-5041680
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eight Floor, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company'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: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock as of November
15, 1998 was 7,100,000. The number of shares outstanding of the Registrant's 15%
Non-cumulative Perpetual Preferred Stock, Series A as of November 15, 1998 was
1,400,000.
<PAGE>
RB ASSET, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 (unaudited) and June 30, 1998.... 3
Consolidated Statements of Operations for the three
months ended September 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity for the three months ended September 30, 1998
and 1997 (unaudited)................................ 5
Consolidated Statements of Cash Flows for the three
months ended September 30, 1998 and 1997 (unaudited) 6
Notes to the Consolidated Financial Statements ..... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and the Results of Operations.................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 23
Item 2. Changes in Securities ................................... 23
Item 3. Defaults Upon Senior Securities ......................... 23
Item 4. Submissions of Matters to a Vote of Securities Holders .. 23
Item 5. Other Information ....................................... 23
Item 6. Exhibits and Reports .................................... 23
SIGNATURES...................................................................... 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 and June 30, 1998
(Dollars in Thousands)
Assets
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
--------- ---------
<S> <C> <C>
Real estate assets:
Real estate held for investment, net of accumulated
depreciation of $1,160 and $583, respectively $ 81,342 $ 82,835
Real estate held for disposal 5,300 5,013
Allowance for fair market value reserve under SFAS-121 (1,363) (1,363)
--------- ---------
Total real estate held for disposal, net 3,937 3,650
Real estate loans receivable:
Secured by real estate 55,842 59,006
Loans sold with recourse, net 14,939 15,781
Allowance for possible credit losses (16,752) (17,697)
--------- ---------
Total loans receivable, net 54,029 57,090
Investments in joint ventures 1,536 1,536
--------- ---------
Total real estate assets 140,844 145,111
Cash, due from banks and cash equivalents 11,295 12,532
Cash, due from banks -- restricted 26,217 19,555
Investment securities available for sale 1,260 1,373
Commercial and consumer loans 10,324 10,431
Allowance for possible credit losses (2,388) (2,340)
--------- ---------
Commercial and consumer loans, net 7,936 8,091
Other assets 4,192 4,248
--------- ---------
Total Assets $ 191,744 $ 190,910
--------- ---------
--------- ---------
Liabilities and Stockholders' Equity
Borrowed funds $ 68,760 $ 68,760
Other liabilities 15,463 14,967
--------- ---------
Total Liabilities 84,223 83,727
--------- ---------
Stockholders' equity:
15% non-cumulative preferred stock, Series A par value $1,
liquidation value $25 (1,400,000 shares authorized, issued
and outstanding at September 30, 1998 and June 30, 1998) 1,400 1,400
Common stock par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at September 30,
1998 and June 30, 1998) 7,100 7,100
Additional paid in capital 111,170 111,170
Accumulated deficit (11,111) (11,561)
Accumulated comprehensive income (1,038) (926)
--------- ---------
Total Stockholders' Equity 107,521 107,183
--------- ---------
Total Liabilities and Stockholders' Equity $ 191,744 $ 190,910
--------- ---------
--------- ---------
</TABLE>
See notes to Consolidated Financial Statements
3
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 1998 and 1997
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------------------
1998 1997
--------------- -----------------
<S> <C> <C>
Revenue:
Rental revenue and operations:
Rental income and other property revenue $ 3,770 $ 3,273
Property operating and maintenance expense (2,564) (2,264)
Depreciation -- real estate held for investment (577) (50)
--------------- -----------------
Net rental operations 629 959
Other property income (expense):
Net gain/(loss) on sale of real estate 488 (914)
Writedown of investments in real estate -- (350)
--------------- -----------------
Total other property income/ (expense) 488 (1,264)
Other income:
Interest income:
Loans receivable 640 767
Investment securities -- 55
Money market investments and other 227 59
Provision for possible credit losses -- --
--------------- -----------------
Total interest income 867 881
Realization of contingent participation revenues 1,000 769
--------------- -----------------
Total other income 1,867 1,650
Total revenues 2,984 1,345
--------------- -----------------
Expenses:
Interest expense:
Borrowed funds 1,426 1,637
Other 5 21
--------------- -----------------
Total interest expense 1,431 1,658
Other expenses:
Salaries and employee benefits 50 205
Legal and professional fees 202 745
Management fees 617 671
Other 65 101
--------------- -----------------
Total other expenses 934 1,722
Total expenses 2,365 3,380
--------------- -----------------
Loss before other income (expense) and before
provision for income taxes 619 (2,035)
--------------- -----------------
Other income (expense):
Net gains (losses) on sales of investment securities -- 1,697
--------------- -----------------
Total other income (expense) -- 1,697
Net income (loss) after other income (expense) and before
provision for income taxes 619 (338)
--------------- -----------------
Provision for (benefit from) income taxes 169 51
Net income (loss) 450 (389)
Dividends declared on preferred stock -- --
--------------- -----------------
Net income (loss) applicable to common stock $ 450 $ (389)
--------------- -----------------
--------------- -----------------
Basic and diluted income (loss) per common share $ 0.06 $ (0.05)
--------------- -----------------
--------------- -----------------
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended September 30, 1998 and 1997
(dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Series A
Non-cumulative
Perpetual Additional Retained Accumulated Total
Preferred Common Paid-in Earnings Comprehensive Stockholders'
Stock Stock Capital (Deficit) Income Equity
------------ ---------- ------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,055) $ (1,105) $ 108,510
Net loss for the three months
ended September 30, 1997 -- -- -- (389) -- (389)
Preferred stock dividends payable -- -- -- -- -- --
Change in comprehensive income
resulting from changes in unrealized
loss on securities available-for-sale -- -- -- -- -- --
------------ ---------- ------------- ------------- ---------------- ---------------
Balances at September 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,444) $ (1,105) $ 108,121
------------ ---------- ------------- ------------- ---------------- ---------------
------------ ---------- ------------- ------------- ---------------- ---------------
Balances at June 30, 1998 $ 1,400 $ 7,100 $ 111,170 $ (11,561) $ (926) $ 107,183
Net income for the three months
ended September 30, 1998 -- -- -- 450 -- 450
Preferred stock dividends payable -- -- -- -- -- --
Change in comprehensive income
resulting from changes in unrealized
loss on securities available-for-sale -- -- -- -- (112) (112)
------------ ---------- ------------- ------------- ---------------- ---------------
Balances at September 30, 1998 $ 1,400 $ 7,100 $ 111,170 $ (11,111) $ (1,038) $ 107,521
------------ ---------- ------------- ------------- ---------------- ---------------
------------ ---------- ------------- ------------- ---------------- ---------------
</TABLE>
See notes to Consolidated Financial Statements
5
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Operating Activities:
Cash Flows Provided by (Used in) Operating Activities:
Net (loss)/income $ 450 $ (389)
Adjustments to reconcile net (loss)/income to cash
used in operating activities:
Net (gain) loss on sale of real estate assets (488) 914
Write downs of real estate assets -- 350
Depreciation and amortization 577 50
Net gain on sales of loans, other investments
and investment securities -- (1,697)
Change in operating assets and liabilities:
Net decrease/(increase) in accrued interest receivable (11) 181
Net (decrease)/increase in accrued interest payable 15 (360)
Net (decrease)/increase in accrued income taxes 505 (207)
Net (decrease)/increase in accrued expenses
and other liabilities (24) (1,314)
Net (increase)/decrease in prepaid expenses and other assets 67 814
Cash effect of increases/(decreases) in allowance for
possible credit losses 86 173
Other (10) --
---------------- ---------------
Net cash (used in)/provided by operating activities 1,167 (1,485)
---------------- ---------------
Investing Activities:
Cash Flows Provided by (Used in) Investing Activities:
Proceeds from sales and maturities of investment
securities, available for sale -- 6,871
Net repayment/(origination) of loans secured by real estate, net 3,164 472
Net repayment/(reacquisition) of commercial and consumer loans 59 (2,404)
Net decrease/(increase) in loans sold with recourse 406 3,516
Proceeds from sales of real estate held 938 4,217
Additional fundings on real estate held (309) (3,067)
---------------- ---------------
Net cash provided by investing activities 4,258 9,605
---------------- ---------------
</TABLE>
(Continued on next page)
See notes to Consolidated Financial Statements
6
<PAGE>
RB ASSET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
(Continued from previous page)
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Financing Activities:
Cash Flows Provided by (used in) Financing Activities:
Increase in restricted cash (6,662) (2,935)
Proceeds from borrowed funds 116
Repayment of borrowed funds -- (5,259)
Increase/(decrease) in borrowed funds secured by loans
sold with recourse, net of construction advances -- (2,410)
---------------- ---------------
Net cash used in financing activities (6,662) (10,488)
---------------- ---------------
Net increase/(decrease) in cash and money market investments (1,237) (2,368)
Beginning cash 12,532 8,940
---------------- ---------------
Ending cash $ 11,295 $ 6,572
---------------- ---------------
---------------- ---------------
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ 1,416 $ 1,052
Federal, state and local taxes 152 258
</TABLE>
See notes to Consolidated Financial Statements
7
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
1. Organization and Formation of the Company
RB Asset, Inc. (the "Company") is a Delaware corporation that, as a result of
the completion of reorganization steps (the "Reorganization," described in
detail below), on May 22, 1998, succeeded to the assets, liabilities and
business of River Bank America ("River Bank" or the "Predecessor Bank"). Prior
to the Reorganization, River Bank was a New York State chartered stock savings
bank and was regulated by the New York State Banking Department ("the Banking
Department" or the "NYSBD") and, until December 31, 1997, the Federal Deposit
Insurance Corporation (the "FDIC"). The Company's principal business continues
to be the management of its real estate assets, mortgage loans and investment
securities, under a business plan intended to maximize stockholder value.
Following the Reorganization, the Company intends to manage its business and
assets without the regulatory constraints previously imposed on the Predecessor
Bank by the Banking Department. This report is for the three month period ended
September 30, 1998. Unless the context otherwise requires, references to the
business, assets and liabilities of the Company prior to May 22, 1998 include
the business, assets and liabilities of the Predecessor Bank
The Predecessor Bank was founded in 1848. In 1925, the Predecessor Bank adopted
the name "East River Savings Bank" which it continued to use in its retail
business through June 28, 1996. The Predecessor Bank converted to a stock-form
savings bank through a plan of conversion in 1985. Effective October 1, 1988,
East River Savings Bank formally changed its corporate name to "River Bank
America." On June 28, 1996, the Predecessor Bank sold its remaining eleven
branches ("the Branch Sale") to Marine Midland Bank ("Marine"), inclusive of the
name East River Savings Bank. Following consummation of the Branch Sale, all
retail banking operations of the Predecessor Bank ceased.
On May 22, 1998, River Bank completed its Reorganization into a Delaware
corporation named RB Asset, Inc., under a plan that was approved at the
Predecessor Bank's special meeting of stockholders reconvened on May 1, 1998. RB
Asset, Inc., as the successor in the Reorganization, succeeded to the assets,
liabilities and business of River Bank. As a result of the reorganization and
related dissolution discussed below, the capital stock of River Bank was
canceled and, as of the close of business on May 22, 1998, River Bank's stock
transfer records were closed.
Following stockholder approval of the Reorganization, on May 18, 1998, all of
the Predecessor Bank's assets, liabilities and business were transferred to, or
assumed by, the Predecessor Bank's wholly-owned subsidiary, River Asset Sub,
Inc. on May 11, 1998, pursuant to the terms of an assignment and assumption
agreement and related transfer documents. Thereafter, the Board of Directors
declared distribution of the capital stock of its wholly-owned subsidiary, River
Distribution Sub, Inc. ("River Distribution"), payable on a book-entry basis to
the Predecessor Bank's stockholders of record on May 22, 1998. At the time of
such distribution the capital stock of River Distribution had no value.
In the distribution, all of the issued and outstanding shares of common stock
and 15% noncumulative perpetual preferred stock, series A of River Distribution
("River Distribution Series A Preferred") held by the Predecessor Bank were
distributed to the Predecessor Bank's stockholders on a share-for-share basis
such that each holder of the common stock of River Bank ("River Bank Common
Stock") received one share of River Distribution Common Stock for each share of
River Bank Common Stock held by such stockholder and each holder of River Bank
15% noncumulative perpetual preferred stock, series A ("River Bank Series A
Preferred") received one share of River Distribution Series A Preferred Stock
for each share of River Bank Series A Preferred Stock held by such stockholder.
Finally, upon book-entry payment of the distribution, on May 22, 1998, River
Distribution merged with and into River Asset whereupon the stockholders of
River Distribution became stockholders of the surviving corporation which
changed its name to RB Asset, Inc. In the merger, the shares of capital stock of
River Distribution were converted into identical shares of capital stock of RB
Asset, Inc. Accordingly, subsequent to the merger, the capital stock of River
Bank had no value. Stock certificates representing shares of capital stock of RB
Asset, Inc. were then distributed to holders of record as of May 22, 1998.
8
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
In connection with the reorganization steps, on May 19, 1998, a petition for an
order of dissolution declaring River Bank dissolved and its legal existence
terminated was filed in the Supreme Court of the State of New York. The Supreme
Court issued the order on June 18, 1998 and, upon the filing of the order of
dissolution with the Banking Department, on June 23, 1998, the Predecessor Bank
was dissolved and its legal existence terminated. Prior to dissolution, the
stock transfer records of River Bank were closed and upon such dissolution, the
capital stock of River Bank was canceled.
On June 28, 1996, the Predecessor Bank consummated the transactions (the "Branch
Sale") contemplated by the Purchase of Assets and Liability Assumption Agreement
(the "Branch Agreement") by and between the Predecessor Bank and Marine.
Pursuant to the terms of the Branch Agreement, Marine assumed $1,159.6 million
of deposit liabilities (the "Assumed Deposits") and acquired assets with an
aggregate carrying value of $1,066.6 million (the "Transferred Assets"). The
Transferred Assets consisted primarily of loans secured by real estate,
mortgage-backed and investment securities, and 11 bank branch offices, inclusive
of the name East River Savings Bank. Included in the Transferred Assets was
approximately $32.4 million of loans in which the Predecessor 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 Predecessor Bank with respect to the assets sold, based upon the net
proceeds realized on disposition of assets by the purchasers.
The Assumed Deposits exceeded the Transferred Assets by approximately $93.0
million, which represented the premium received by the Predecessor Bank in the
Branch Sale. Marine also purchased the Predecessor Bank's branch office realty
at 96th Street in Manhattan for $1.3 million. The Predecessor Bank recorded a
net pretax gain on the sale of offices and branches of $77.6 million reflecting
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 ended June 30,
1997, the Predecessor Bank's indemnification agreements with Marine were amended
and a $3.3 million contingency reserve was recorded.
At June 30, 1996, the Predecessor 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"). Subsequent to the Branch Sale, the Predecessor Bank continued
substantially the same asset management strategy for Retained Assets as had been
previously employed by the Predecessor Bank, in the years immediately prior to
the Branch Sale.
Following the Branch Sale, the Company engaged RB Management Company, LLC (the
"Management Company") to manage its operations on a day-to-day basis, including
developing and recommending strategies to the Company's Board of Directors
regarding the ongoing management of assets. The Management Company is a
privately-owned entity that was newly formed in June 1996 and is controlled by
Alvin Dworman, who owns 39.0% of the outstanding Common Stock of the Company.
The closing of the Branch Sale was conditioned upon the Predecessor Bank's
obtaining financing with terms and in an amount reasonably acceptable to the
Predecessor Bank and determined to be reasonably adequate to permit consummation
of the Branch Sale. The Predecessor Bank obtained from Marine a loan facility
(the "Facility" or "Initial Facilities") 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 Predecessor Bank, which has been reduced by repayment activity
to $60.6 million at September 30, 1998, with an additional $26.2 million in
proceeds maintained in a restricted cash account pending negotiation with Marine
as to the application of such proceeds to reduce the outstanding balances of the
Facility. Proceeds of the Facility 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
Predecessor Bank's operations subsequent to the Branch Sale.
9
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
Marine assumed substantially all of the Predecessor Bank's retail deposits in
connection with the Branch Sale. In addition, the Predecessor Bank ceased
accepting retail deposits on the date of the Branch Sale. At June 30, 1996, the
Predecessor Bank held certain non-retail deposits, which aggregated
approximately $3.0 million. During the quarter following the Branch Sale, the
Predecessor Bank arranged for the assumption by other insured depository
institutions of its remaining non-retail deposits. Accordingly, the Predecessor
Bank held no deposit liabilities at June 30, 1997. However, at June 30, 1997,
the Predecessor Bank continued to be regulated by the FDIC and the NYSBD. On
October 31, 1996 the Predecessor 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 Predecessor Bank received
notice that the FDIC, as requested by the Predecessor Bank, intended to
terminate the Predecessor Bank's status as an insured state nonmember Bank on
December 31, 1997. Upon the issuance of this order by the FDIC, the Predecessor
Bank was no longer subject to banking regulation by the FDIC. In connection
therewith, the Predecessor Bank also received from the Banking Department a
waiver of any applicable New York State deposit insurance requirements.
Conditions imposed in connection with the NYSBD's approval of the Branch Sale
included: (i) the Predecessor 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 Predecessor 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 Predecessor Bank's agreement to continue to
submit its proposed capital transactions to the NYSBD for prior approval; (v)
the continuation of the Predecessor Bank's then-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 have deemed
appropriate.
In June 1997, the Predecessor Bank submitted an alternate proposal (the
"Alternate Proposal") to the NYSBD pursuant to which the Predecessor Bank would
implement Conditions No. 1 and No. 2 of the approval of the Branch Sale,
described above. The Predecessor 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 Corporation Law. Successor would acquire all of the assets of
the Predecessor Bank and continue all of the business of the Predecessor Bank
under the same business plan as adopted by the Predecessor Bank. Following the
transfer of its assets and liabilities to Successor, the Predecessor 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 Corporation Law, which would
not be subject to the jurisdiction of the Banking Department. The proposed
transfer was expected to qualify as a tax-free reorganization under the Internal
Revenue Code and, as such, the Company expected (and continues to expect) that
certain of the Predecessor Bank's tax attributes would be preserved. In
connection with the Alternate Proposal, common and preferred stockholders of
River Bank would 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
owned the Predecessor Bank on the record date.
Prior to June 30, 1997, the Predecessor Bank received the NYSBD'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 Predecessor Bank on a timely basis. The NYSBD'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 stockholders 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 was filed by the Bank by October 15, 1997. The Predecessor Bank
met Condition No. 1 and Condition No. 2 on a timely basis. A copy of the
Alternate Proposal and the NYSBD's letter indicating their conditional approval
of the Alternate Proposal were included as Exhibits 14 and 15 to FDIC Form F-2,
dated June 30, 1997.
10
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
The Banking Department had also advised the Predecessor Bank that the
Predecessor Bank's minimum capital requirement, set at $115 million in the
NYSBD's approval of the Branch Sale and subsequently amended to $106 million in
May 1997, was to remain at $106 million until the Predecessor Bank's final
dissolution. Further, the Banking Department's conditional approval of the
Alternate Proposal required that the Predecessor Bank seek prior approval from
the NYSBD for any material sale or transfer of assets, or expenditures for
development or renovation of any properties held by the Predecessor Bank prior
to the completion of the dissolution of the Predecessor Bank.
The Company will continue to be subject to the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") as amended and will be required to
file periodic reports and other information with the Securities Exchange
Commission (the "SEC").
The Company's principal business continues to be the management of its real
estate assets, mortgage loans and investment securities, under a business plan
intended to maximize stockholder 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 Predecessor Bank was
engaged in lending activities, particularly California, the Company'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 Predecessor Bank's lending strategy of the
1980s, required significant time and attention by the Predecessor Bank's
management. Over the five year period preceding the Branch Sale, 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. Primarily as a result of
conditions imposed by the NYSBD, subsequent to June 28, 1996, the Predecessor
Bank has not originated a material amount of loans.
The Predecessor Bank has previously received notice that the approvals necessary
to declare or pay dividends on the Predecessor Bank's outstanding shares of
River Bank Series A Preferred Stock would not be provided. In June 1996, the
Predecessor Bank's Board of Directors declared a Series A Preferred Stock
dividend for the quarter ending June 30, 1996, payment of which was subject to
the receipt of required approvals from the FDIC and the NYSBD (the Predecessor
Bank's regulators at the time), as well as Marine (the Predecessor Bank's and
the Company's principal lender). Primarily as a result of the above, neither the
Company's or the Predecessor Bank's Board of Directors has taken any action
regarding a quarterly dividend on the Company's Series A Preferred for any of
the quarterly periods ended from September 30, 1996 through September 30, 1998.
Although the Company is no longer subject to the jurisdiction of either the FDIC
or the NYSBD, declaration or payment of future dividends on the Company's Series
A Preferred Stock will continue to be subject to the approval of Marine for so
long as the Facility remains outstanding. The Company has received notice from
Marine that the approval necessary to declare or pay dividends on the Company's
Series A Preferred Stock will not be provided at this time. There can be no
assurance that the Board of Directors of the Company will deem it appropriate to
pay dividends on the Series A Preferred Stock, even if permitted to do so by
Marine.
2. Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements of the Company
include all adjustments which management believes necessary for a fair
presentation of the Company's financial condition at September 30, 1998, the
results of its operations for the three months ended September 30, 1998 and 1997
and the statements of changes in stockholders' equity and cash flows for the
three months ended September 30, 1998 and 1997. Adjustments are of a normal
recurring nature. These unaudited consolidated financial statements have been
prepared in conformity with the accounting principles and practices in effect as
of June 30, 1998, as set forth in the consolidated financial statements of RB
Asset, Inc., at such date. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
of RB Asset, Inc. as of June 30, 1998.
The consolidated financial statements include the accounts of RB Asset, Inc. 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
11
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
generally carried at cost, subject to periodic assessment of net realizable
value. Losses on sales or dispositions and any adjustments related to
redetermination of net realizable value are charged, as real estate charge-offs
to operations of the current period.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the Company's financial condition
as of September 30, 1998, the results of operations for the three months ended
September 30, 1998 and 1997, and changes in stockholders' equity and cash flows
for the three months ended September 30, 1998 and 1997.
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, the valuation of
investments in real estate for investment.
Management believes that the allowance for possible credit losses is adequate
and that other real estate owned and real estate held for investment are
properly valued. While management uses available information to establish
reserves, future additions to the allowance or write downs 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.
Management determines the appropriate classification of debt and equity
securities (collectively, "marketable" 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 marketable 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 investments. Interest and dividends are included in
interest income from 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. At September 30, 1998, the balance of stockholders' equity included a
$1,038,000 unrealized loss on marketable securities classified as
available-for-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. At
September 30, 1998 the Company reviewed its potential current and deferred
federal and state tax liabilities in light of the results of operations for the
Company since June 30, 1998. As a result of this analysis, the Company
recognized income tax expense in the amount of $169,000, during the quarter
ending September 30, 1998.
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.
3. Commitments, Contingencies and Other
As of September 30, 1998, the Company had deferred tax assets that were
primarily attributable to NOLs, an allowance for loan losses and suspended
passive activity losses and credits which were partially offset by a deferred
tax liability in its consolidated financial statements. However, a valuation
allowance was set up equal to the amount of the difference between the tentative
deferred tax asset and the tentative deferred tax liability due to the
uncertainty of the Company's ability to utilize the deferred tax assets in the
future. Accordingly, neither a net overall asset nor a net overall liability was
reflected in the Company's
12
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
consolidated financial statements.
Under current tax law, the Company'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 Reorganization in Note 1 is deemed to be an ownership change, or
if, transactions in the Company's capital stock subsequent to the Reorganization
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 Company's
ability to realize its deferred tax assets. The Company is of the view that no
ownership change of the Company will be deemed to have occurred as a result of
the Reorganization or otherwise. However, the application of Section 382 is in
many respects uncertain. In assessing the effects of prior transactions and of
the Reorganization under Section 382, the Company has made certain legal
judgments and certain factual assumptions. The Company has not requested or
received any rulings from the IRS with respect to the application of Section 382
to the implementation of the Reorganization and the IRS could challenge the
Company's determinations.
In the normal course of the Company's business, there are outstanding various
claims, commitments and contingent liabilities. The Company 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
Company will not be materially affected by the actions of any outstanding legal
proceedings. However, there can be no assurance that any outstanding legal
proceedings will not be decided adversely to the Company and have a material
adverse effect on the financial condition and the results of operations of the
Company.
4. Regulatory capital requirements
Prior to the reorganization of the Predecessor Bank into a Delaware corporation,
which was completed on May 22, 1998, the Banking Department had advised the
Predecessor Bank that the Predecessor Bank's minimum capital requirement, set at
$115 million in the NYSBD's approval of the Branch Sale and subsequently amended
to $106 million in May 1997, was to remain at $106 million until the Predecessor
Bank's final dissolution, unless the Banking Department shall provide prior
approval of the Company's written request to amend the Company's minimum capital
requirement. So long as the Company's deposit accounts were insured by the FDIC,
as a Federally-insured state-chartered bank, the Company was required to
maintain minimum levels of regulatory capital. Under those FDIC regulations,
insured state-chartered banks were generally required to 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 (as
defined by regulation) 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 Company 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. On April 14, 1997, the Company received notice that the FDIC, as
requested by the Company, intended to terminate the Company's status as an
insured state nonmember Bank on December 31, 1997.
Subsequent to the termination of the Predecessor Bank's status as an insured
nonmember bank by the FDIC and the reorganization of the Predecessor Bank into a
Delaware corporation, the Company is no longer subject to the regulatory capital
requirements of either the FDIC or the Banking Department.
13
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
5. Earnings per share
Earnings per share were based upon 7,100,000 weighted average shares of Common
Stock outstanding during the three months ended September 30, 1998 and 1997,
respectively. The Company had no securities outstanding that were convertible to
common stock at September 30, 1998 or 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, "Earnings Per Share" ("SFAS-128"), which was
required to be adopted on December 31, 1997. At that time, the Company was
required to change the method it previously used to compute earnings per share
and to restate all prior periods. Under the new requirements of SFAS-128, the
dilutive effect of stock options was excluded. The implementation of SFAS-128
has not had any effect upon the Company's reported primary earnings per share
for the periods ended September 30, 1998 and 1997, or for the fiscal years ended
June 30, 1998, 1997 and 1996.
6. Comprehensive Income
As of July 1, 1998, the Company adopted Statement of Accounting Standards No.
130, "Reporting Comprehensive Income " ("SFAS-130"). SFAS-130 establishes new
rules for the reporting and display of comprehensive income and its components.
However, the adoption of this Statement has had no effect on the Company's net
income or stockholders' equity. SFAS-130 requires unrealized gains or losses on
the Company's available-for-sale securities, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS-130.
During the quarters ended September 30, 1998 and 1997, total comprehensive
income (loss) was $338 and $(389), respectively. The following table describes
the components of comprehensive income and accumulated comprehensive income for
the dates indicated:
<TABLE>
<CAPTION>
Components of Comprehensive Income
(Unaudited):
Three months ended September 30,
1998 1997
---------------- -----------------
<S> <C> <C>
Net income $ 450 $ (389)
Unrealized losses on securities (112) --
---------------- -----------------
Comprehensive income $ 338 $ (389)
---------------- -----------------
---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Components of Accumulated
Comprehensive Income:
(Unaudited)
September 30, June 30,
1998 1998
<S> <C> <C>
Unrealized losses on securities $ (1,038) $ (926)
---------------- -----------------
Accumulated comprehensive income $ (1,038) $ (926)
---------------- -----------------
---------------- -----------------
</TABLE>
14
<PAGE>
RB Asset, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(dollars in thousands)
(Unaudited)
7. Legal Proceedings
An action entitled Strome Global Income Fund et al. v. River Bank America et
al., Index No. 605226198, was commenced against the Registrant, its predecessors
and certain of its current and former directors in New York State Supreme Court,
New York County on October 27, 1998. Plaintiffs are holders of the Company's 15%
non-cumulative perpetual preferred stock, Series A, and were formerly holders of
River Bank America 15% non-cumulative perpetual preferred stock, Series A. The
complaint alleges various claims for breach of contract, fraudulent conveyance,
violations of Sections 604 and 605 of the New York Banking Law, breach of
fiduciary duty and the duty of disclosure and ultra vires acts based upon the
reorganization into the Registrant, and subsequent dissolution, of the
Registrant's predecessor, River Bank America, and an amendment made to River
Bank America's certificate of designations for the preferred stock in connection
with the reorganization. Among other things, plaintiffs claim that as a result
of the reorganization and dissolution they were entitled to receive a $25 per
share liquidation payment, as well as unpaid dividends, and were also entitled
to appraisal rights as dissenting stockholders. Plaintiffs seek judgment against
the defendants for the liquidation payment, other unspecified compensatory
damages, avoidance of the transfer of assets from River Bank America to the
Registrant, punitive damages and other relief. The Registrant believes that the
reorganization and dissolution of River Bank America was in the best interests
of all of the River Bank America stockholders and did not violate plaintiffs'
rights as preferred stockholders in any respect and intends to defend the
lawsuit vigorously.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition:
At September 30, 1998 the consolidated assets of the Company totaled $191.7
million, an increase of $834,000, or 0.4% from June 30, 1998.
Real estate held for investment, net of accumulated depreciation, declined $1.5
million, or 1.8%, from $82.8 million at June 30, 1998 to $81.3 million at
September 30, 1998. The decline in real estate held for investment, net of
accumulated depreciation at September 30, 1998 was attributable to transfers of
$938,000 to real estate held for disposal and depreciation charges of $577,000.
Real estate held for disposal, net of allowance for fair market value reserve
under Statement of Accounting Standards No. 121 (SFAS-121), increased $287,000,
or 5.7%, from $3.6 million at June 30, 1998 to $3.9 million at September 30,
1998. During the quarter ended September 30, 1998, sales of real estate held for
disposal primarily consisted of apartment units sold from inventory held at June
30, 1998. Such sales totaled $938,000 during the quarter ended September 30,
1998. Offsetting the effects of the sales on the book value of real estate held
for disposal, net at September 30, 1998 were transfers of additional apartment
units from real estate held for investment, net totaling $938,000 and additional
capitalized fundings of $287,000. Apartment units transferred into real estate
held for disposal during the quarter ended September 30, 1998 are expected to be
sold within the next twelve months.
Total real estate loans receivable, net of the related allowance for possible
credit losses declined $3.1 million, or 5.5%, from $57.1 million at June 30,
1998 to $54.0 million at September 30, 1998. The $3.1 million decline in real
estate loans, net, during the quarter ended September 30, 1998, was attributable
to a decline in loans receivable, secured by real estate of $3.2 million and a
decline in loans sold with recourse, net of $842,000, partially offset by a
decline in the related allowance for possible credit losses of $897,000.
The Company's loans secured by real estate decreased by $3.2 million, or 5.4%,
from $59.0 million at June 30, 1998 to $55.8 million at September 30, 1998.
During the quarter ended September 30, 1998, the Company received payments in
satisfaction of $3.2 million in loans secured by real estate, recognizing a net
gain of $488,000. This decrease in loans secured by real estate, net was
partially offset by $80,000 in loan fundings advanced during the quarter.
The Company's loans sold with recourse, net decreased by $842,000, or 5.3%, from
$15.8 million, at June 30, 1998 to $14.9 million at September 30, 1998. During
the quarter ended September 30, 1998, the Company sold $837,000 in loans sold
with recourse, net, which was partially offset by additional asset fundings of
$430,000. In addition, $435,000 in losses related to the asset sales were
charged against the allowance for possible credit losses, thereby reducing the
remaining book value of loans sold with recourse, net and the allowance for
possible credit losses by that amount.
The Company's allowance for possible credit losses related to loans secured by
real estate decreased by $897,000, or 5.1%, from $17.8 million, at June 30, 1998
to $16.8 million at September 30, 1998. The decrease resulted from chargeoffs of
$483,000 net of recoveries of $86,000 for asset disposition transactions
previously provided for at June 30, 1998. In addition, the allowance for
possible credit losses was reduced during the quarter ended September 30, 1998
by $500,000 when a junior subordinated participation loan secured by real
estate, that had been fully reserved for at June 30, 1998, was repaid in full.
As a result of this transaction, the allowance for possible credit losses was
reduced by $500,000 and a gain of $500,000 was recognized. The Company's
allowance for possible credit losses is maintained at a level which management
considers adequate based on its periodic review of the Company's loans secured
by real estate portfolios and certain individual loans, taking into
consideration, among other things, the likelihood of repayment, the diversity of
the borrowers, the type of loan, the quality of the collateral, current market
conditions and the associated risks. At September 30, 1998, the allowance for
possible credit losses was 30.1% of real estate loans as compared to 30.0% at
June 30, 1998.
Cash and due from banks decreased by $1.2 million, or 9.9%, from $12.5 million
at June 30, 1998 to $11.3 million at September 30, 1998. Allocations to
restricted cash, scheduled asset fundings and the payment of operating expenses
exceeded the total operating revenues and asset sales proceeds, resulting in the
decrease in unrestricted cash during the quarter ended September 30, 1998.
16
<PAGE>
At September 30, 1998, Marine had restricted a total of approximately $26.2
million in funds, held on deposit at Marine, in accordance with the terms of the
Branch Sale and the Marine Facility agreements. Marine had restricted
approximately $19.6 million at June 30, 1998. Restricted funds held by Marine
are not available to the Company for settlements of any of the Company's current
obligations. The restricted cash reserves arose from the sale of assets which
had served as primary or supplemental collateral for the Marine Facility. The
restricted cash held by Marine is intended to serve as substitute collateral for
the Marine Facility, until such time as the Marine Facility is reduced in
accordance with the Company's Asset Management Plan and the Marine Facility
Agreements. See "Liquidity and Capital Resources," below.
Commercial and consumer loans, net of the related allowance for loan losses,
totaled $8.0 million at September 30, 1998, a decrease of $107,000, or 1.3%,
from the June 30, 1998 balance of $8.1 million. This decrease was primarily the
result of the effects of normal amortization and prepayment of individual loans
in the portfolio.
Other liabilities totaled $15.5 million at September 30, 1998, an increase of
$496,000, or 3.3%, from the June 30, 1998 balance of $15.0 million. The net
increase in other liabilities during the quarter ended September 30, 1998 as
compared to the same date in the previous year, was related to the relative
timing of payments for certain accrued liabilities during the current and
previous fiscal years.
During the three months ended September 30, 1998, total stockholders' equity
increased by $338,000 or 0.3% to $107.5 million, as compared with $107.2 million
at June 30, 1998. This increase was due to the net income recorded for the three
months ended September 30, 1998 in the amount of $450,000, partially offset by
an increase in the securities valuation account (allowance for unrealized losses
on marketable securities) of $112,000.
The following table summarizes the calculation of the Company's book value per
share at September 30, 1998 and June 30, 1998.
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
----------------- ----------------
<S> <C> <C>
Total stockholders' equity $ 107,521,000 $ 107,183,000
Less: liquidation value of preferred stock
($25 per share issued and outstanding) 35,000,000 35,000,000
----------------- ----------------
Net stockholders' equity $ 72,521,000 $ 72,183,000
----------------- ----------------
----------------- ----------------
Total shares of Common Stock issued and
outstanding 7,100,000 7,100,000
----------------- ----------------
----------------- ----------------
Book value per share $ 10.21 $ 10.17
----------------- ----------------
----------------- ----------------
</TABLE>
Results of Operations:
General. The Company reported net income attributable to common shares of
$450,000, or $0.06 per share, for the three months ended September 30, 1998, an
increase of $839,000 as compared with a net loss attributable to common shares
of $389,000, or ($0.05) per share, for the three month period ended September
30, 1997. The primary reason for the increase in the Company's net operating
results for the quarter ended September 30, 1998, as compared to the same
quarter in the previous year, was the recording of other property income of
$488,000 in the quarter ended September 30, 1998, an increase of $1.8 million as
compared with a net loss from other property operations of $1.3 million in the
same quarter of the previous
17
<PAGE>
year. In addition, contingent participation revenues increased $231,000 to $1.0
million in the quarter ended September 30, 1998 as compared to $769,000 in same
quarter of the previous year. Interest expense and other expenses also declined
$227,000 and $788,000, respectively, in the quarter ended September 30, 1998 as
compared with the same period in the previous year. Interest expense declined
from $1.6 million in the quarter ended September 30, 1997 to $1.4 million during
the same quarter of the current year. Other expenses declined from $1.7 million
in the quarter ended September 30, 1997 to $934,000 during the quarter ended
September 30, 1998.
Partially offsetting the effects of increased other property income, increased
contingent participation revenues and reduced interest and operating expenses on
the results of operations reported for the quarter ended September 30, 1998, as
compared to the same quarter of the previous year, were reductions in net rental
operations and net gains on sales of investment securities of $330,000 and $1.7
million, respectively. Net rental operations declined from $959,000 in the
quarter ended September 30, 1997 to $629,000 during the same quarter of the
current year. Net gains on sales of investment securities declined from $1.7
million in the quarter ended September 30, 1997 to $0 during the quarter ended
September 30, 1998.
Net Rental Operations. For the three months ended September 30, 1998, net rental
operations resulted in income of $629,000, a decrease of $330,000, or 34.4%,
from $959,000 for the same three month period in the previous year. The primary
reason for the decline in net rental operations income was the recognition of
$527,000 in depreciation expense attributable to real estate held for investment
in excess of the amount recognized in the same period of the previous year.
Excluding the $527,000 increase in depreciation charges recorded in the quarter
ended September 30, 1998, as compared with the same quarter in the previous
year, income from rental operations increased $197,000, or 20.5%, in the quarter
ended September 30, 1998 as compared to the quarter ended September 30, 1997.
This increase was due to various, individually immaterial operating factors
affecting aggregate rental income and expenses within the Company's rental
properties.
For the three months ended September 30, 1998, depreciation charges associated
with real estate held for investment were $577,000, an increase of $527,000, or
1,054.0%, as compared with depreciation charges associated with real estate held
for investment in the quarter ended September 30, 1998 of $50,000. Under
SFAS-121, the Company is required to depreciate real estate held for investment
over the estimated useful life of the assets. No depreciation charges are made
for the portion of the assets attributable to land values. During the three
months year ended September 30, 1998, the Company recorded depreciation charges
of approximately $577,000, of which $525,000 represents depreciation of the
capitalized costs of the real estate held for investment (less land value) for
five of the Company's six real estate assets from the period June 30, 1998 to
September 30, 1998. The remaining $52,000 in depreciation charges recorded
during the year ended June 30, 1998 were for the sixth property, consistent with
depreciation charges taken in prior periods for that property. On May 22, 1998,
as a consequence of the Reorganization, the Company was no longer subject to the
categorization and depreciation regulations for investments in real estate
previously imposed by the Predecessor Bank's regulators. Accordingly, on that
date, the Company began to record depreciation charges, as required by SFAS-121,
for all real estate held for investment, net that had not been subject to
depreciation charges in prior periods.
Other Property Income. Total other property income was $488,000 for the quarter
ended September 30, 1998, an increase of $1.8 million as compared with a net
loss of $1.3 million in the quarter ended September 30, 1997. For the quarter
ended September 30, 1998, the $488,000 income was primarily attributable to the
recognition of a gain of $500,000 resulting from the full satisfaction of a
junior subordinated participation loan secured by real estate which had been
fully reserved for in prior periods.
For the quarter ended September 30, 1997, the net loss of $1.3 million in other
property income was attributable to losses on the sale of real estate in the
amount of $914,000 and a write down of a real estate joint venture asset in the
amount of $350,000. The loss on the sale of real estate during the quarter ended
September 30, 1997, was primarily attributable to the sale of one real estate
property with a book value of $3.3 million, which resulted in a net loss of
$932,000.
18
<PAGE>
Interest Income. For the three months ended September 30, 1998, total interest
income, net of provisions for possible credit losses, was $867,000, a decline of
$14,000, from $881,000 for the same quarter in the previous year. Loan interest
declined $127,000 in the quarter ended September 30, 1998 as compared with the
same quarter in the previous year due to reduced average balances for loan
assets resulting from dispositions and the effects of normal amortization and
repayment activity. This decline in interest income from loan assets was
substantially offset by other interest income, which increased $113,000 in the
quarter ended September 30, 1998 as compared with the quarter ended September
30, 1997. The increase in other interest income in the quarter ended September
30, 1998, as compared with the same quarter in the previous year was primarily
due to increased average cash balances in the quarter ended September 30, 1998,
which earned interest at the prevailing money market rates.
Contingent Participation Revenues. The Company realized contingent participation
revenues of $1.0 million and $744,000 in the quarters ended September 30, 1998
and 1997, respectively. The Company may realize contingent participation income
when a loan secured by real estate's underlying collateral property achieves a
level of predetermined economic performance sufficient to activate contingency
clauses in the loan agreement that allow the Company to share, on a limited
basis, in the economic performance of the collateral property. The Company
recognizes such revenues in the period when the loan is repaid and the terms of
all additional contingent payments are finalized.
Contingent participation revenues of $1.0 million were recognized on one
subordinated participation loan and one junior subordinated participation loan
made to the same borrower with a combined principal balance of $1.3 million.
These loans were paid in full during the quarter ended September 30, 1998. A
portion of the subordinated participation loan and the junior participation loan
had been sold to Marine on June 28, 1996 and the junior subordinated
participation loan was fully reserved for on the Company's books following the
Branch Sale. The full repayment of the junior subordinated participation loan
resulted in the recognition of an additional gain in the amount of $500,000
during the quarter ended September 30, 1998. See "Other Property Income," above.
During the quarter ended September 30, 1997, contingent participation revenues
of $744,000 were realized on one junior participation loan, which was paid in
full during the period. A portion of the loan had been sold to Marine on June
28, 1996 as part of the Branch Sale. The Company had retained a contingent
interest in the underlying property's economic performance and an interest in
the loan's unpaid principal balance approximating $10.1 million following the
Branch Sale.
At September 30, 1998, the Company had a remaining contingent interest in two
junior subordinated participation loans in which the Company retains an interest
of approximately $2.4 million in principal amount, which are fully reserved for
(100%) by the Company. All of such loans have been modified since origination
and are currently performing in accordance with their terms.
Interest Expense. During the three months ended September 30, 1998, the Company
recorded interest expenses in the amount of $1.4 million, a decline of $227,000,
or 13.7%, as compared with interest expenses of $1.7 million in the same quarter
during the previous year. Interest expenses declined in the quarter ended
September 30, 1998 as compared with the quarter ended September 30, 1997,
primarily as a result of declines in the average amount borrowed by the Company.
During the quarter ended September 30, 1998, the Company borrowed an average of
$68.8 million, a decline of $11.7 million, or 14.6%, as compared with average
borrowings of $80.5 million during the quarter ended September 30, 1997. The
decline in the average amount of borrowed funds was attributable to the
repayment of outstanding obligations which occurred in fiscal 1998 primarily as
a result of asset dispositions.
Other Expenses. During the quarter ended September 30, 1998, the Company
recorded total other expenses in the amount of $934,000, a decline of $788,000,
or 45.8%, as compared with other expenses of $1.7 million in the same quarter of
the previous year. Other expenses declined in the quarter ended September 30,
1998, as compared with the quarter ended September 30, 1997, primarily as a
result of declines in salaries and employee benefits expenses and legal and
professional fees of $155,000 and $543,000, respectively.
Salaries and employee benefits expense declined in the quarter ended September
30, 1998, as compared with the same period in the previous year, as a result of
the continued reduction of staff employed by the Company. At September 30, 1998,
the Company employed one full time employee engaged in administrative duties.
19
<PAGE>
Legal and professional fees expense decreased $543,000, or 72.9%, to $202,000
during the quarter ended September 30, 1998 from $745,000 during the quarter
ended September 30, 1997, primarily as a result of the reduction of professional
fees incurred in connection with the Reorganization described in Note 1. The
Company accrued and paid $290,000 and $159,000, respectively, in the quarter
ended September 30, 1997 and $0 and $0, respectively in the quarter ended
September 30, 1998, for legal and professional fees associated with the
Reorganization. In addition to this $290,000 reduction in accrued professional
fees related to the Reorganization, the Company incurred approximately $253,000
more in other professional fees during the quarter ended September 30, 1997 than
in the same quarter of the current year. The additional fees incurred in the
quarter ended September 30, 1997 as compared with the same quarter of the
current year related to services such as actuarial evaluations and tax
preparation which were primarily related to the finalization of the Company's
employee- and tax-related affairs as a business entity that had operated as an
insured depository institution.
The Company engaged RB Management Company, LLC (the "Management Company") to
manage the operations of the Company after the Branch Sale, including the
management and disposition of Company assets. The Management Company was a newly
formed, privately-owned entity controlled by Alvin Dworman, who owns 39.0% of
the outstanding Common Stock of the Company. During the quarter ended September
30, 1998, the Company accrued $664,000 in fees payable to the Management
Company, of which $46,000 related to fees incurred for the successful
disposition of assets. During the quarter ended September 30, 1997, the Company
accrued $793,000 in fees payable to the Management Company, of which $121,000
related to fees incurred for the successful disposition of assets. At September
30, 1998 the Company had accrued fees payable to the Management Company and its
affiliate, Fintek, Inc., aggregating $846,000.
Other Income (Expense). The Company did not recognize any other income (expense)
in the quarter ended September 30, 1997, a decrease of $1.7 million as compared
with the same quarter of the previous year. Other income (expense) in the
quarter ended September 30, 1998 was primarily due to the $1.8 million recorded
gain on sale of the Company's largest preferred stock holding, with a book value
of approximately $5.0 million.
Provision for Income Taxes. Statement of Financial Accounting Standards No. 109
(SFAS-109), "Accounting for Income Taxes," requires the Company 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 the quarters ended September 30, 1998 and 1997. The Company'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.
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the reported 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 quarters ended September 30, 1998 and 1997, the Company recorded a net
provision for income taxes of $169,000 and $51,000, respectively, primarily to
reflect the effects of operations and asset disposition on its current state and
local income tax liability at September 30, 1998 and 1997, respectively.
Liquidity and Capital Resources
The Company must maintain sufficient liquidity to meet its funding requirements
for scheduled debt repayments, operating expenses (including current income
taxes payable) and for development costs related to certain real estate
projects.
20
<PAGE>
At September 30, 1998, the Company had $68.8 million in borrowed funds. In
connection with the Branch Sale, the Company obtained financing with Marine
(Initial Facilities) totaling $89.8 million. At September 30, 1998, the
remaining outstanding balance of the Initial Facilities due to Marine was $60.6
million. Borrowed Funds related to Asset Sale Transactions amounted to $8.2
million at September 30, 1998. The Company 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 Company seeks to maintain liquidity within a range of 5% to 10% of total
assets. Liquidity for this purpose is defined as unrestricted cash. At September
30, 1998, the Company's liquidity ratio, as so defined, amounted to 5.9% which
was within the maintenance range.
Recent Accounting Developments
From time to time the Financial Accounting Standards Board ("FASB") adopts
accounting standards (generally referred to as Statements of Financial
Accounting Standards, or "SFASs") 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 Company.
SFAS No. 128. In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share," which was required to be adopted on December 31, 1997. At that time, the
Company was 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 did not have any effect on
the Company's primary earnings per share for the quarters ended September 30,
1998 or 1997 or for the years ended June 30, 1998 or 1997.
SFAS No. 130. As of July 1, 1998, the Company adopted Statement of Accounting
Standards No. 130, "Reporting Comprehensive Income " ("SFAS-130"). SFAS-130
establishes new rules for the reporting and display of comprehensive income and
its components. However, the adoption of this Statement has had no effect on the
Company's net income or stockholders' equity. SFAS-130 requires unrealized gains
or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income.
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 Company is reflected in increased
operating costs and increases in interest rates paid on borrowed funds. Over any
given term, however, interest rates do not necessarily move in the same
direction or in the same magnitude as changes in prices for goods and services.
Impact of Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems. The Year 2000 issue
is the result of computer programs being written using two digits rather than
four digits to define the applicable year. Any of the Company's computer
programs or hardware that have date-sensitive software or embedded computer chip
technology may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in similar normal business activities.
The Company believes that modifications to existing software and conversions to
new software, the Year 2000 issue will not pose significant operational problems
for its computer systems. Further, due to the limited number of assets managed
by the Company and the limited scope of the Company's continuing operations,
which could be managed and accounted for by methods not relying on the computer
systems currently employed by the Company, if such modifications are not made,
or if such modifications and conversions are not completed in a timely manner,
the Year 2000 issue is unlikely to have a material impact
21
<PAGE>
on the operations, liquidity or capital resources of the Company. In addition,
the Company believes that the implementation of modifications to components of
the building systems, affecting the operations of its properties held as
investments in real estate, is unlikely to have a material affect on the
operations, liquidity or capital resources of the Company.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase. The Company's plan to resolve the Year 2000
issue involves four phases: assessment, and where necessary, remediation,
testing and implementation.
To date, the Company has completed an assessment of all systems that could be
significantly affected by the Year 2000. The Company's completed assessment
indicated the need to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. Since the Company's accounting software is maintained and
supported by a third party, the total Year 2000 cost has been, and is expected
to be, minimal.
In addition, the Company has completed the assessment of all systems related to
the operations of its properties held as investments in real estate. Such
assessments were performed to ensure that remediation of building equipment
(such as security systems and elevators) could be completed and tested prior to
the year 2000. The Company's completed assessment indicated the need to modify
or replace portions of its buildings' systems so that these systems will
function properly with respect to dates in the year 2000 and thereafter. All
necessary remediation is expected to be completed as an integral part of
regularly scheduled building maintenance and repair activities. As a result, the
cost of such remediation is expected to be immaterial to the operations,
liquidity or capital resources of the Company.
Nature and Level of Third Parties and their Exposure to the Year 2000 Issue. The
Company has queried its significant suppliers and subcontractors that provide
accounting or information processing services to the Company (external agents).
To date, the Company is not aware of any external agent with a Year 2000 issue
that would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means of absolutely ensuring that
external agents will be Year 2000 ready. Due to the limited number of assets
managed by the Company and the limited scope of the Company's continuing
operations, which could be managed and accounted for by methods not relying on
the computer systems and services currently provided by external agents employed
by the Company, if such modifications are not made, or if such modifications and
conversions are not completed in a timely manner, the Year 2000 issue is
unlikely to have a material impact on the operations, liquidity or capital
resources of the Company.
Contingency Plans. The Company has contingency plans for all critical
applications and systems. These contingency plans involve, among other planned
actions, the use of alternative manual procedures, the temporary use of
increased or alternative third party services and adjusting staffing strategies.
Risks Associated with Forward-Looking Statements
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-
looking statements involve known and unknown risk, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company or industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following, which are
discussed in greater detail in the "Risk Factors" section of the Company's
Registration Statement on Form S-4 (File No. 333-386730 and File No.
333-386730-01) filed with the Securities and Exchange Commission ("SEC"),
general economic conditions, which will among other things, affect demand for
commercial and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability of financing: difficulty
of locating suitable investments; competition; risks of real estate acquisition,
development, construction and renovation; vacancies at existing commercial
properties; dependence on rental income from real property; adverse consequences
of debt financing; risks of investments in debt instruments, including possible
payment defaults and reductions in the value of collateral; illiquidity of real
estate investments; lack of prior operating history; and other risks listed from
time to time in the Company's reports filed with the SEC. Therefore, actual
results could differ materially from those projected in such statements.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
An action entitled Strome Global Income Fund et al. v. River Bank America et
al., Index No. 605226198, was commenced against the Registrant, its predecessors
and certain of its current and former directors in New York State Supreme Court,
New York County on October 27, 1998. Plaintiffs are holders of the Company's 15%
non-cumulative perpetual preferred stock, Series A, and were formerly holders of
River Bank America 15% non-cumulative perpetual preferred stock, Series A. The
complaint alleges various claims for breach of contract, fraudulent conveyance,
violations of Sections 604 and 605 of the New York Banking Law, breach of
fiduciary duty and the duty of disclosure and ultra vires acts based upon the
reorganization into the Registrant, and subsequent dissolution, of the
Registrant's predecessor, River Bank America, and an amendment made to River
Bank America's certificate of designations for the preferred stock in connection
with the reorganization. Among other things, plaintiffs claim that as a result
of the reorganization and dissolution they were entitled to receive a $25 per
share liquidation payment, as well as unpaid dividends, and were also entitled
to appraisal rights as dissenting stockholders. Plaintiffs seek judgment against
the defendants for the liquidation payment, other unspecified compensatory
damages, avoidance of the transfer of assets from River Bank America to the
Registrant, punitive damages and other relief. The Registrant believes that the
reorganization and dissolution of River Bank America was in the best interests
of all of the River Bank America stockholders and did not violate plaintiffs'
rights as preferred stockholders in any respect and intends to defend the
lawsuit vigorously.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
The Company held its annual meeting of stockholders on September 16, 1998. The
submission of matters to a vote of the Company's stockholders which occurred at
the annual meeting, and the results of the stockholders' vote on such matters,
were previously reported in the Company's Annual Report on Form 10-K, dated June
30, 1998, and are incorporated herein by reference.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(i) Form 8-K, dated October 27, 1998, to report information disclosed in Part
II, Item 1 of this Form 10-Q, as filed on November 4, 1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RB ASSET, INC.
(Registrant)
Date: November 13, 1998 By: /s/ Nelson L. Stephenson
----------------- -------------------------
Nelson L. Stephenson
President and Chief Executive Officer(principal
executive and principal financial officer)
24
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q/A
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ___________ To _____________
Commission file number 333-38673
RB ASSET, INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 13-5041680
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eight Floor, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company'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: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock as of November
15, 1998 was 7,100,000. The number of shares outstanding of the Registrant's 15%
Non-cumulative Perpetual Preferred Stock, Series A as of November 15, 1998 was
1,400,000.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, dated October 27, 1998, to report information
disclosed in Part II, Item 1 of this Form 10-Q, as filed on
November 4, 1998.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RB ASSET, INC.
(Registrant)
Date: November 13, 1998 By: /s/ Nelson L. Stephenson
----------------- ------------------------
Nelson L. Stephenson
President and Chief Executive Officer(principal
executive and principal financial officer)
3
<PAGE>
Facsimile copies of the letter of Transmittal will be accepted. The
Letter of Transmittal, certificates for shares of Series A Preferred Stock and
any other required documents should be sent or delivered by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Exchange Agent at its address set forth below.
The Exchange Agent is:
American Stock Transfer & Trust Company
<TABLE>
<CAPTION>
By Mail or Overnight Courier: By Facsimile: By Hand:
<S> <C> <C>
40 Wall Street 40 Wall Street
46th Floor (718) 234-5001 46th Floor
New York, NY 10005 Confirm facsimile by telephone New York, NY 10005
Attention: Exchange Department (718) 921-8200 Attention: Exchange Department
</TABLE>
Any questions or requests for assistance or additional copies of the
Offering circular, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the information Agent at the telephone numbers and
locations listed below. You may also contact your local broker, dealer,
commercial bank, trust company or nominee for assistance concerning the Exchange
Offer.
The Information Agent is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: (212) 929-5500 (Call Collect)
Call Toll-Free: (800) 322-2885
<PAGE>
Exhibit (a)(2)
LETTER OF TRANSMITTAL
RB Asset, Inc.
Offer to Exchange
Increasing Rate Junior Subordinated Notes due 2006
for any and all of its
15% Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, DECEMBER 24,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE OR, UNLESS PREVIOUSLY
ACCEPTED, ON OR AFTER JANUARY 25, 1999.
- -------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
By Hand: By Mail or Overnight Courier:
<S> <C>
American Stock Transfer & Trust Company American Stock Transfer & Trust Company
46th Floor 46th Floor
New York, NY 10005 New York, NY 10005
Attn: Exchange Department Attn: Exchange Department
</TABLE>
By Facsimile:
(718) 234-5001
Confirm by Telephone:
(718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE EXCHANGE
AGENT.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
- ----------------------------------------------------------------------------
DESCRIPTION OF SHARES TO BE TENDERED
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Holder(s)
Exactly as name(s) appear(s) on stock certificates(s) Share(s) Tendered
(Please fill in, if blank) (Attach additional list if necessary)
- ----------------------------------------------------- -------------------------------------
Total
Number of Shares Number of
Certificate Represented by Shares
Number(s) (1) Certificate(s)(1) Tendered(2)
<S> <C> <C> <C>
- ----------------------------------------------------- ----------------- ------------------- ---------------
----------------- ------------------- ---------------
----------------- ------------------- ---------------
----------------- ------------------- ---------------
----------------- ------------------- ---------------
----------------- ------------------- ---------------
TOTAL SHARES
- ----------------------------------------------------- ----------------- ------------------- ---------------
</TABLE>
(1) Need not be completed by stockholders tendering by book-entry transfer.
(2) Unless otherwise indicated in this column, it will be assumed that all
shares being delivered to the Exchange Agent are being tendered. See
Instruction 4.
- --------------------------------------------------------------------------------
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
This Letter of Transmittal may be used either if certificates for Series A
Preferred Stock are to be forwarded herewith, or, unless an Agent's Message (as
defined in "The Exchange Offer--Procedures for Tendering Shares--Book Entry
Transfer" of the Offering Circular dated November 25, 1998 (the "Offering
Circular")) is utilized, if tenders are to be made by book-entry transfer to the
account maintained by American Stock Transfer & Trust Company (the "Exchange
Agent") at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer--Procedures for
Tendering Shares--Book Entry Transfer" of the Offering Circular. Stockholders
whose certificates for Series A Preferred Stock are not immediately available or
who cannot deliver confirmation of a book-entry transfer of their Series A
Preferred Stock into the Exchange Agent's account at the Book-Entry Transfer
Facility ("Book-Entry Confirmation") and all other documents required hereby to
the Exchange Agent on or prior to the Expiration Date (as defined in the
Offering Circular), must tender their Series A Preferred Stock according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering Shares--Guaranteed Delivery" of the Offering Circular. See Instruction
2. Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
/_/ CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER
SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
--------------------------------------------
Account Number:
-----------------------------------------------------------
Transaction Code Number:
-------------------------------------------------
/_/ CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY (AS DEFINED IN THE
OFFERING CIRCULAR) PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered
Owner(s):
----------------------------------------------------------------
Window Ticket Number (if available):
--------------------------------------
Date of Execution of Notice of Guaranteed
Delivery:
----------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
----------------------------
If delivered by book-entry transfer, provide the following information:
Account Number:
-----------------------------------------------------------
Transaction Code Number:
-------------------------------------------------
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
Ladies and Gentlemen:
The undersigned hereby tenders to RB Asset, Inc., a Delaware corporation
(the "Company"), the above described shares of the Company's 15% Non-Cumulative
Perpetual Preferred Stock, Series A, $1.00 par value (the "Series A Preferred
Stock") in exchange for $25.94 principal amount of the Company's Increasing Rate
Junior Subordinated Notes due 2006 (the "Subordinated Notes") for each share of
its Series A Preferred Stock, upon the terms and subject to the conditions set
forth in the Offering Circular dated November 25, 1998 (the "Offering Circular")
and this Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Exchange Offer"), receipt of
which is hereby acknowledged.
Subject to, and effective upon, the acceptance for exchange of the
Series A Preferred Stock tendered herewith in accordance with the terms and
subject to the conditions of the Exchange Offer (including if the offer is
extended or amended, the terms and conditions of such extension or amendment),
and in consideration of such exchange, the undersigned hereby releases the
Company, its predecessors and successors, and their respective parents,
subsidiaries, affiliates and assigns, and each of their respective officers,
directors, employees, partners, advisors, agents and representatives from all
actions, causes of action, claims, judgments, contracts, agreements or
understandings, whether individual or derivative in nature, which the
undersigned now has, ever had or hereafter shall or may have with respect to
such shares of Series A Preferred Stock or any disclosures, rights or agreements
relating thereto, including, but not limited to, any claims made in the action
and any claims with respect to the reorganization and transfer of assets from
River Bank America, all of which are described in the Offering Circular.
Subject to, and effective upon, the acceptance for exchange of the
Series A Preferred Stock tendered herewith in accordance with the terms and
subject to the conditions of the Exchange Offer (including if the offer is
extended or amended, the terms and conditions of such extension or amendment),
the undersigned hereby sells, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to such shares of Series A
Preferred Stock as are being tendered hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Series A Preferred
Stock, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to: (a) deliver certificates
for such Series A Preferred Stock or transfer ownership of such Series A
Preferred Stock on the account books maintained by the Book-Entry Transfer
Facility, and deliver, in either such case, all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company upon receipt by
the Exchange Agent, as the undersigned's agent, of the Subordinated Notes to
which the undersigned is entitled upon the acceptance by the Company of such
Series A Preferred Stock under the Exchange Offer, (b) present such shares of
Series A Preferred Stock for transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such shares of Series A Preferred Stock, all in accordance with the terms of
the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the shares of
Series A Preferred Stock tendered hereby and that the Company will acquire good
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and the same will be not subject to any adverse claim
when acquired by the Company. The undersigned will, upon request, execute and
deliver any signature guarantee or additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete or confirm the
sale, assignment and transfer of the Series A Preferred Stock tendered hereby.
All authority conferred or agreed to be conferred pursuant to this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
executors, administrators, successors and assigns of the undersigned. This
tender may be revoked only in accordance with the procedures set forth in the
Instructions contained in this Letter.
Unless otherwise indicated herein under "Special Issuance and Delivery
Instructions" below, please deliver the certificates representing the
Subordinated Notes (and, if applicable, substitute Series A Preferred Stock
certificates for any shares of Series A Preferred Stock not exchanged) in the
name of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below, please send the certificates representing the
Subordinated Notes (and, if applicable, substitute Series A Preferred Stock
certificates for any shares of Series A Preferred Stock not exchanged) to the
undersigned at the address shown below the signature of the undersigned. In the
event that both the Special Issuance and Delivery Instructions and the Special
Delivery Instructions are completed, please issue the certificates representing
Subordinated Notes and/or return any certificates representing shares of Series
A Preferred Stock not tendered or accepted for exchange (and accompanying
documents, as appropriate) in the name of, and deliver such certificates
representing Subordinated Notes and/or return such certificates representing
shares of Series A Preferred Stock (and accompanying documents, as appropriate)
to the person or persons so indicated. Unless otherwise indicated herein under
"Special Issuance and Delivery Instructions," please credit any shares of Series
A Preferred Stock tendered herewith by book-entry transfer that are not accepted
for exchange by crediting the account at the Book-Entry Transfer Facility
designated above. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance and Delivery Instructions" to transfer any
Series A Preferred Stock from the name of the registered holder thereof if the
Company does not accept for exchange any of the shares of Series A Preferred
Stock.
3
<PAGE>
SPECIAL ISSUANCE AND
DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if certificates for shares of unexchanged Series A
Preferred Stock and/or Subordinated Notes are to be issued in the name of and
sent to someone other than the undersigned or if shares of Series A Preferred
Stock delivered by book-entry transfer which are not exchanged are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than that designated above.
Register and mail:
(check appropriate box(es) ):
/_/ Series A Preferred Stock to:
/_/ Subordinated Notes to:
Name(s): ___________________________________
(Please Print)
___________________________________
(Please Print)
Address: ____________________________________
____________________________________________
(Include Zip Code)
____________________________________________
____________________________________________
Tax Identification or Social Security No.
/_/ Credit unexchanged shares delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
___________________________________________
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if certificates for shares of unexchanged Series A
Preferred Stock and/or certificates representing Subordinated Notes issued in
the name of the undersigned are to be sent to someone other than such person or
to such person at an address other than that shown in the box entitled
"Description of Series A Preferred Stock" on this Letter of Transmittal above.
Mail and deliver:
(check appropriate box(es) ):
/_/ Series A Preferred Stock to:
/_/ Subordinated Notes to:
Name(s): ___________________________________
(Please Print)
___________________________________
(Please Print)
Address: ____________________________________
____________________________________________
(Include Zip Code)
____________________________________________
Tax Identification or Social Security No.
4
<PAGE>
- -------------------------------------------------------------------------------
IMPORTANT
STOCKHOLDERS SIGN HERE
(Also Complete Substitute Form W-9 Below)
Sign Here:
--------------------------------------------------------------------
Sign Here:
--------------------------------------------------------------------
(Signature(s) of Shareholder(s))
Dated: , 1998
--------
(Must be signed by the registered holder(s) exactly the name(s) appear(s) on
certificate(s) for share(s) of Series A Preferred Stock or on a security
position listing or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorneys-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, please provide the
following information. See Instruction 5.)
Name(s):
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
--------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------
Tax Identification or Social Security No.:
------------------------------------
GUARANTEE OF SIGNATURE(S)
(If required -- see Instructions 1 and 5)
Authorized Signature:
----------------------------------------------------------
Name and Title:
---------------------------------------------------------------
(Please Print)
Name of Firm:
------------------------------------------------------------------
Address:
----------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------
Dated: , 1998
---------
- -------------------------------------------------------------------------------
5
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Instruction includes any
participant in the Book-Entry Transfer Facility's system whose name appears on a
security position listing as the owner of the shares of Series A Preferred
Stock) of shares of Series A Preferred Stock tendered herewith, unless each such
registered holder has completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Issuance and Delivery Instructions"
on this Letter of Transmittal or (ii) if such shares of Series A Preferred Stock
are tendered for the account of a financial institution (including most
commercial banks, savings and loan associations and brokerage houses) that is a
participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates. This Letter of
Transmittal is to be completed by stockholders either if certificates are to be
forwarded herewith or, unless an Agent's Message (as defined herein) is
utilized, if delivery of shares of Series A Preferred Stock is to be made
pursuant to the procedures for delivery by book-entry transfer set forth in the
Offering Circular. For a stockholder validly to tender shares of Series A
Preferred Stock pursuant to the Exchange Offer, either (a) a Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message, and any other required documents, must be received
by the Exchange Agent at one of its addresses set forth herein prior to the
Expiration Date and either the certificates for tendered shares of Series A
Preferred Stock must be received by the Exchange Agent at one of such addresses
or shares of Series A Preferred Stock must be delivered pursuant to the
procedures described herein (and a Book-Entry Confirmation must be received by
the Exchange Agent), in each case, prior to the Expiration Date, or (b) the
tendering stockholder must comply with the guaranteed delivery procedures
described below and in the Section entitled "The Exchange Offer--Procedures for
Tendering Shares--Guaranteed Delivery" of the Offering Circular. If a
stockholder's certificates for such shares of Series A Preferred Stock are not
immediately available or time will not permit all required documents to reach
the Exchange Agent prior to the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, such stockholder's shares of
Series A Preferred Stock may nevertheless be tendered by properly completing and
duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed
delivery procedures set forth in the Section entitled "The Exchange
Offer--Procedures for Tendering Shares--Guaranteed Delivery" of the Offering
Circular. Pursuant to such procedures, (i) such tender must be made by or
through an Eligible Institution, (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, must be received by the Exchange Agent prior to the Expiration Date and
(iii) in the case of a guarantee of shares of Series A Preferred Stock, the
certificates for (or a Book-Entry Confirmation with respect to) all tendered
shares of Series A Preferred Stock, in proper form for transfer, together with a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, together with any required signature guarantee(s) or, in the case of a
book-entry transfer, an Agent's Message, and any other required documents, must
be received by the Exchange Agent within three trading days after the date of
execution of such Notice of Guaranteed Delivery. A "trading day" is any day on
which the Nasdaq National Market operated by the National Association of
Securities Dealers, Inc. is open for business. If certificates for such shares
of Series A Preferred Stock are forwarded separately to the Exchange Agent, a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, must accompany each
such delivery. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming
a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the shares of Series A Preferred Stock
that such participant has received and agrees to be bound by the terms of this
Letter of Transmittal and that the Company may enforce such agreement against
the participant.
The method of delivery of shares of Series A Preferred Stock, this Letter
of Transmittal and all other required documents including delivery through the
Book-Entry Transfer Facility, is at the option and risk of the tendering
stockholder. Shares of Series A Preferred Stock will be deemed delivered only
when actually received by the Exchange Agent (including, in the case of a
book-entry transfer, by Book-Entry Confirmation). If delivery is by mail,
properly insured registered mail with return receipt required is recommended. In
all cases, sufficient time should be allowed to ensure timely delivery.
6
<PAGE>
No alternative, conditional or contingent tenders will be accepted and no
fractional shares of Series A Preferred Stock will be exchanged. All tendering
stockholders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
shares of Series A Preferred Stock for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of shares of Series A Preferred Stock
should be listed on a separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to stockholder who tender by book-entry
transfer.) If fewer than all the shares of Series A Preferred Stock evidenced by
any certificate submitted are to be tendered, fill in the number of shares of
Series A Preferred Stock which are to be tendered in the box entitled
"Description of Shares to be Tendered." In such case, new certificate(s) for the
remainder of the shares of Series A Preferred Stock that were evidenced by the
old certificate(s) will be sent to the registered holder, unless otherwise
provided in the appropriate box on this Letter of Transmittal, as soon as
practicable after the Expiration Date. All shares of Series A Preferred Stock
represented by certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the shares
of Series A Preferred Stock tendered hereby, the signature(s) must correspond
exactly to the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever.
If any of the shares of Series A Preferred Stock tendered hereby are owned
of record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If any tendered shares of Series A Preferred Stock are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority so to act must be
submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
shares of Series A Preferred Stock listed and transmitted hereby, no endorsement
of certificates or separate stock powers is required unless certificates for
shares of Series A Preferred Stock not tendered or exchanged and/or Subordinated
Notes are to be issued to a person other than the registered owner(s).
Signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the shares of Series A Preferred Stock listed, the
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the certificates. Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, the
Company will pay or cause to be paid any stock transfer taxes with respect to
the transfer and exchange of shares of Series A Preferred Stock to it or its
order pursuant to the Exchange Offer. If, however, certificates for shares of
unexchanged Series A Preferred Stock and/or Subordinated Notes are to be issued
in the name of any person other than the registered holder, or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, such shares or Subordinated Notes or a
portion thereof may be withheld in respect of any stock transfer taxes (whether
imposed on the registered holder or such person) payable on account of the
transfer to such person unless satisfactory evidence of the payment of such
taxes or exemption therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7
<PAGE>
7. Special Issuance and Delivery Instructions. If certificates for
unexchanged shares of Series A Preferred Stock and/or certificates representing
Subordinated Notes are to be issued in the name of a person other than the
signer of this Letter of Transmittal or if such certificates are to be delivered
to someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Stockholders tendering shares of Series A Preferred Stock
by book-entry transfer may request that shares of Series A Preferred Stock not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such stockholder may designate hereon. If no such instructions are
given, such shares of Series A Preferred Stock not exchanged will be returned by
crediting the account at the Book-Entry Transfer Facility designated above.
8. Requests for Assistance or Additional Copies. Requests for assistance
may be directed to the Information Agent (as defined in the Offering Circular)
at its address set forth below. Additional copies of the Offering Circular, this
Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
obtained from the Information Agent at the address set forth below or from your
broker, dealer, commercial bank or trust company.
9. Waiver of Conditions. The Company expressly reserves the right, in its
sole discretion, at any time and from time to time, to waive any of the
conditions to the Exchange Offer.
10. Substitute Form W-9. Subject to the availability of an exemption, each
tendering stockholder is required to provide the Exchange Agent with a correct
Taxpayer Identification Number ("TIN") on the Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify under penalties
of perjury that such number is correct and that such stockholder is not subject
to backup withholding. If a tendering stockholder has been notified by the
Internal Revenue Service that such stockholder is subject to backup withholding
such stockholder must cross out item (2) of the Certification box of the
Substitute Form W-9, unless such stockholder has since been notified by the
Internal Revenue Service that such stockholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering stockholder to 31% federal income tax withholding with
respect to any payments received pursuant to the Exchange Offer. If the
tendering stockholder has not been issued a TIN and has applied for one or
intends to apply for one in the near future, such stockholder should write
"Applied For" in the space provided for the TIN in Part 1 of the Substitute Form
W-9, check the box in Part 3 of the Substitute Form W-9 and sign and date the
Substitute Form W-9. Such a stockholder must also complete the Certificate of
Awaiting Taxpayer Identification Number, which is provided below.
Notwithstanding that "Applied For" is written in Part 1 and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% on all payments of the purchase price to such stockholder until a
TIN is provided to the Exchange Agent. However, such withheld amount will be
refunded to such stockholder if a certified TIN is provided to the Exchange
Agent within 60 days.
11. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing shares of Series A Preferred Stock has been lost, destroyed or
stolen, the stockholder should promptly notify the Exchange Agent. The
stockholder will then be instructed as to the steps that must be taken in order
to replace the certificate(s). This Letter of Transmittal and related documents
cannot be processed until the procedures for replacing lost or destroyed
certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES,
OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER
REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF ITS
ADDRESSES SET FORTH HEREIN PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES
FOR TENDERED SHARES OF SERIES A PREFERRED STOCK MUST BE RECEIVED BY THE EXCHANGE
AGENT OR SHARES OF SERIES A PREFERRED STOCK MUST BE DELIVERED PURSUANT TO THE
PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE,
OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED
DELIVERY.
8
<PAGE>
IMPORTANT TAX INFORMATION
Under United States federal income tax law, unless an exemption applies (as
described below), a stockholder whose tendered shares of Series A Preferred
Stock are accepted for payment is required by law to provide the Exchange Agent
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is generally such stockholder's social
security number. If the Exchange Agent is not provided with the correct TIN, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder with respect to
shares purchased pursuant to the Exchange Offer may be subject to backup
withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to these backup withholding
and reporting requirements. Noncorporate foreign stockholders should sign and
complete the main signature form and a Form W-8, Certificate of Foreign Status,
a copy of which may be obtained from the Exchange Agent, in order to avoid
backup withholding. Exempt stockholders, other than noncorporate foreign
stockholders, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below, and sign, date and return the Substitute Form W-9 to
the Exchange Agent. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute form W-9 for additional instructions.
If backup withholding applies with respect to a stockholder, the Exchange
Agent is required to withhold 31% of any payments made to such stockholder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to shares of Series A Preferred Stock purchased pursuant to the
Exchange Offer, the stockholder is required to notify the Exchange Agent of such
stockholder's correct TIN by completing the form below certifying (a) that the
TIN provided on the Substitute Form W-9 is correct and (b) that such stockholder
is not subject to backup withholding because (i) such stockholder is exempt from
backup withholding, (ii) such stockholder has not been notified by the Internal
Revenue Service that such stockholder is subject to backup withholding as a
result of a failure to report all interest or dividends or (iii) such
stockholder has been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding.
What Number to Give the Exchange Agent
The stockholder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the shares of Series A Preferred Stock tendered hereby. If the shares of Series
A Preferred Stock are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future, the
stockholder should write "Applied For" in the space provided for the TIN in Part
1 of the Substitute Form W-9, check the box in Part 3 of the Substitute Form W-9
and sign and date the Substitute Form W-9. Such a stockholder must also complete
the Certificate of Awaiting Taxpayer Identification Number, which is provided
below. Notwithstanding that "Applied For" is written in Part 1 and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Exchange Agent. However, such
withheld amount will be refunded to such stockholder if a certified TIN is
provided to the Exchange Agent within 60 days.
9
<PAGE>
EXCHANGE AGENT: American Stock Transfer & Trust Company
- --------------------------------------------------------------------------------
SUBSTITUTE
Form W-9
Department of the
Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN)
Part 1- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
- --------------------------------------------------------------------------------
--------------------------
Social Security number
or
------------------------------
Employer Identification number
- --------------------------------------------------------------------------------
Part 2- CERTIFICATION Under penalties of
perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.
Part 3-Awaiting TIN
CERTIFICATION INSTRUCTIONS--You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup withholding you receive
another notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
- --------------------------------------------------------------------------------
SIGNATURE DATE , 1998
---------------------------------------- -----------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
10
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver such an application in the near future. I understand
that if I do not provide a taxpayer identification number to the Exchange Agent,
31% of all reportable payments made to me will be withheld, but that such
withheld amount shall be refunded to me if I provide the Exchange Agent with my
taxpayer identification number within 60 days.
Signature Date , 1998
----------------------------------------- ----------------
- --------------------------------------------------------------------------------
Any questions or requests for assistance or additional copies of the
Offering Circular, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
locations listed below.
The Information Agent is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: (212) 929-5500 (call collect)
Call Toll Free (800) 322-2885
11
<PAGE>
Exhibit (a)(3)
NOTICE OF GUARANTEED DELIVERY
FOR
SHARES OF 15% NON-CUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A, PAR VALUE $1.00
OF
RB ASSET, INC.
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Exchange Offer of RB Asset, Inc. (the
"Company") made pursuant to the Offering Circular dated November 25, 1998 (the
"Offering Circular") and the accompanying Letter of Transmittal, if (i)
certificates for shares of the Company's 15% Non-Cumulative Perpetual Preferred
Stock, Series A, par value $1.00 (the "Series A Preferred Stock"), are not
immediately available; (ii) the procedure for delivery by book-entry transfer
cannot be completed on a timely basis; or (iii) time will not permit all
required documents to reach American Stock Transfer & Trust Company, as Exchange
Agent (the "Exchange Agent"), prior to the Expiration Date (as defined in the
Offering Circular) of the Exchange Offer. This Notice of Guaranteed Delivery may
be delivered by hand or transmitted by telegram, facsimile transmission or mail,
to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering
Shares--Guaranteed Delivery" in the Offering Circular.
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
By Mail or Overnight Courier: By Hand:
<S> <C>
American Stock Transfer & Trust Company American Stock Transfer & Trust Company
40 Wall Street 40 Wall Street
46th Floor 46th Floor
New York, NY 10005 New York, NY 10005
Attention: Exchange Department Attention: Exchange Department
</TABLE>
By Facsimile:
(718) 234-5001
Confirm facsimile by telephone
(718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to RB Asset, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Offering Circular and in the related Letter of Transmittal, receipt of which is
hereby acknowledged, the number of shares of Series A Preferred Stock indicated
below pursuant to the guaranteed delivery procedure set forth in the Offering
Circular.
Number of Shares of Series A Preferred Stock Tendered: ________________________
Name(s) of Record Holder(s):___________________________________________________
___________________________________________________
Please Type or Print
Address(es):___________________________________________________
___________________________________________________
Zip Code
Area Code and Tel. No.:________________________________________
Certificate No(s). (if available):_____________________________
Share Certificates:____________________________________________
Signature(s):__________________________________________________
Dated: _____________, 1998
Type or Print If shares of Series A Preferred Stock will be tendered by
book-entry transfer provide the appropriate account number
Account Number:________________________________________________
<PAGE>
GUARANTEE
(Not To Be Used For Signature Guarantee)
The undersigned, a firm which is a participant in the Security Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible
Institution"), hereby (a) represents that the tender of shares of Series A
Preferred Stock effected hereby complies with Rule 14e-4 under the Securities
Exchange Act of 1934, as amended, and (b) guarantees delivery to the Exchange
Agent, at one of its addresses set forth above, of certificates representing the
shares of Series A Preferred Stock tendered hereby in proper form for transfer,
or confirmation of book-entry transfer of such shares of Series A Preferred
Stock into the Exchange Agent's accounts at The Depository Trust Company, in
each case with delivery of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees, and any other required documents, within three Nasdaq National
Market trading days after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal and
the certificates for shares of Series A Preferred Stock to the Exchange Agent
within the time period shown herein. Failure to do so could result in a
financial loss to such Eligible Institution.
Name of Firm: ________________________________________________________________
Authorized Signature: ________________________________________________________
Title: _______________________________________________________________________
Address: _____________________________________________________________________
_______________________________________________________________________________
Zip Code
Area Code and Tel. No.: _______________________________________________________
Dated: _______________________________________________________________, 1998
NOTE: DO NOT SEND CERTIFICATES FOR SHARES OF SERIES A PREFERRED STOCK WITH
THIS NOTICE. CERTIFICATES FOR SHARES OF SERIES A PREFERRED STOCK SHOULD
ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
Exhibit (a)(4)
RB ASSET, INC.
645 Fifth Avenue, Eighth Floor,
New York, N.Y. 10022
November 25, 1998
To: Holders of 15% Non-Cumulative Perpetual
Preferred Stock, Series A, of RB Asset, Inc.
Dear Stockholder:
We are pleased to enclose a copy of the Company's offer to exchange
(the "Exchange Offer") $25.94 principal amount of its Increasing Rate Junior
Subordinated Notes due 2006 ("Subordinated Notes") for each outstanding share of
15% Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00 (the
"Series A Preferred Stock") of the Company.
The Company is a Delaware corporation which was formed in connection
with the reorganization in May, 1998 (the "Reorganization") of its predecessor,
River Bank America, a New York State chartered savings bank ("River Bank"),
which had been engaged in the retail banking business and was subject to
regulation by the New York State Banking Department and the Federal Deposit
Insurance Corporation. Pursuant to the Reorganization, the Company succeeded to
the assets, liabilities and business of River Bank and is engaged in the
management of its real estate assets, mortgage loans and investment securities
under a business plan intended to maximize shareholder value, but is not engaged
in the banking business and is not subject to the regulatory constraints
previously imposed on River Bank by the bank regulatory authorities.
In view of these changes in the nature of the Company and its business,
the Board of directors has determined to effect the Exchange Offer for the
purpose of affording all holders of the Series A Preferred Stock an opportunity
to exchange their shares of Series A Preferred Stock for the Subordinated Notes
which may be, for them, a more attractive investment. As more fully described in
the enclosed Offering Circular, the Exchange Offer provides holders of the
Series A Preferred Stock with an opportunity to exchange their perpetual
preferred stock having a $25.00 per share liquidation value with non-cumulative
dividend rights and no mandatory redemption provisions for $25.94 principal
amount of a freely transferable debt security maturing in seven years which
requires (i) semi-annual payments of interest (in kind or in cash, at the
Company's option, for the first three years and in cash thereafter) at rates
increasing from an initial 8% per annum rate and (ii) the repayment of principal
in mandatory semi-annual installments commencing after three years with
increasing redemption premiums on installments paid after
<PAGE>
four years. In addition, exchanging holders of Series A Preferred Stock will
have the right to participate in an offering by the Company to holders of its
Common Stock of rights or warrants to purchase shares of Common Stock that the
Company currently intends to effect within one year of the completion of the
Exchange Offer.
The principal terms of the Exchange Offer were developed in an attempt
to resolve on an amicable basis claims made by a group of holders of the Series
A Preferred Stock that the May, 1998 Reorganization and dissolution of River
Bank violated the rights of the holders of the Series A Preferred Stock.
Notwithstanding discussions with such holders, on October 27, 1998, such holders
commenced a lawsuit in the Supreme Court of the State of New York, County of New
York (the "Action"), against the Company and the members of its Board of
Directors who had authorized the Reorganization alleging, among other things,
that the Reorganization and dissolution of River Bank violated the rights of the
holders of the Series A Preferred Stock. The Company believes these allegations,
which are described in detail in the accompanying Offering Circular, are without
merit and intends vigorously to oppose the Action. Holders of Series A Preferred
Stock whose shares are tendered and accepted by the Company for exchange
pursuant to the Exchange Offer, including any of the plaintiffs in the Action,
will have released the Company, its predecessors and successors, and their
respective parents, subsidiaries, affiliates and assigns, and each of their
respective officers, directors, employees, partners, advisors, agents and
representatives from all claims relating to the Series A Preferred Stock,
including but not limited to the claims alleged in the Action. Accordingly, the
Company urges all holders to consult with their legal counsel prior to tendering
their shares in the Exchange Offer.
A complete description of the terms of the Exchange Offer, the Action
and important financial information with respect to the Company appears in the
accompanying Offering Circular and the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and its Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 attached as Annexes A and B, respectively,
thereto. You are urged to read it carefully.
Very truly yours,
/s/ Nelson Stephenson
Nelson Stephenson
President and Chief Executive Officer
2
<PAGE>
Exhibit (a)(5)
RB ASSET, INC.
Offer To Exchange
Increasing Rate Junior Subordinated Notes due 2006
for Any and All Shares of its
15% Non-Cumulative Perpetual Preferred Stock, Series A
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, DECEMBER 24,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE OR, UNLESS PREVIOUSLY
ACCEPTED, ON OR AFTER JANUARY 25, 1999.
- -------------------------------------------------------------------------------
November 25, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
RB Asset, Inc. (the "Company") is offering (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in the enclosed Offering
Circular, dated November 25, 1998 (the "Offering Circular"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal") to exchange $25.94 principal
amount of the Company's Increasing Rate Junior Subordinated Notes due 2006 (the
"Subordinated Notes") for each share of the Company's 15% Non-Cumulative
Perpetual Preferred Stock, Series A, par value $1.00 (the "Series A Preferred
Stock"). The Company will accept for exchange any and all shares of Series A
Preferred Stock properly tendered according to the terms of the Offering
Circular and the Letter of Transmittal. Consummation of the Exchange Offer is
subject to a number of conditions described in the Offering Circular.
For your information and for forwarding to your clients for whom you
hold Series A Preferred Stock registered in your name or in the name of your
nominee, or who hold such shares registered in their own names, we are enclosing
the following documents:
1. The Offering Circular;
2. The Letter of Transmittal to be used by holders of Series A
Preferred Stock, for your use in tendering Series A Preferred
Stock pursuant to the Exchange Offer and for the information
of your clients (facsimile copies of the Letter of Transmittal
may be used to tender Series A Preferred Stock);
3. A form of letter which may be sent to your clients for whose
accounts you hold Series A Preferred Stock registered in your
name or the name of your nominee, with space provided for
obtaining such clients' instructions with regard to the
Exchange Offer;
4. Guidelines of the Internal Revenue Service for Certification
of Taxpayer Identification Number on Substitute Form W-9;
5. A return envelope addressed to American Stock Transfer & Trust
Company, the ("Exchange Agent"); and
6. A Notice of Guaranteed Delivery to be used to accept the
Exchange Offer if certificates for shares of Series A
Preferred Stock are not immediately available or if time will
not permit all required documents to reach the Exchange Agent
by the Expiration Date or if the procedure for book-entry
transfer cannot be completed on a timely basis.
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Company will accept for
exchange and exchange for all shares of Series A Preferred Stock which are
validly tendered prior to the Expiration Date and not theretofore properly
withdrawn when, as and if the Company gives oral or written notice to the
Exchange Agent of the Company's acceptance of such shares of Series A Preferred
Stock for exchange pursuant to the Exchange Offer. Exchange for shares of Series
A Preferred Stock exchanged pursuant to the Exchange Offer will in all cases be
made only after timely receipt by the Exchange Agent of certificates of such
Series A Preferred Stock, or timely confirmation of a book-entry transfer of
such Series A Preferred Stock into the Exchange Agent's account at the
Depository Trust Company pursuant to the procedures described in "The Exchange
Offer--Procedures for Tendering Shares--Book Entry Transfer" of the Offering
Circular, a Letter of Transmittal (or facsimile
<PAGE>
thereof), properly completed and duly executed, together with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined in the Offering Circular), and any other required documents.
The Company will not pay any fees or commissions to any broker or
dealer or other person for soliciting tenders of shares of Series A Preferred
Stock pursuant to the Exchange Offer. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. The Company will pay or cause to be paid all stock
transfer taxes, if any, payable on the transfer and exchange of Series A
Preferred Stock to it or its order, except as otherwise provided in Instruction
6 of the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON THURSDAY, DECEMBER 24, 1998 UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). SERIES A PREFERRED
STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE AND THEREAFTER,
UNLESS THERETOFORE ACCEPTED FOR EXCHANGE, ON OR AFTER JANUARY 25, 1998.
In order to take advantage of the Exchange Offer, a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, and any other required
documents, should be sent to the Exchange Agent, and certificates representing
the tendered shares of Series A Preferred Stock should be delivered or such
shares of Series A Preferred Stock should be tendered by book-entry transfer,
all in accordance with the Instructions set forth in the Letter of Transmittal
and the Offering Circular.
If holders of shares of Series A Preferred Stock wish to tender, but it
is impracticable for them to forward their certificates or other required
documents prior to the expiration of the Exchange Offer, a tender may be
effected by following the guaranteed delivery procedures specified in the "The
Exchange Offer--Procedures for Tendering Shares--Guaranteed Delivery" of the
Offering Circular.
Any inquiries you may have with respect to the Exchange Offer should be
addressed to MacKenzie Partners, Inc. (the "Information Agent"), at their
address and telephone number set forth on the back cover page of the Offering
Circular. Additional copies of the enclosed materials may be obtained from the
Information Agent.
Very truly yours,
RB Asset, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF THE COMPANY, THE EXCHANGE AGENT, THE INFORMATION
AGENT, OR ANY AFFILIATE OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON
TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION
WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS
CONTAIN THEREIN.
<PAGE>
Exhibit (a)(6)
RB ASSET, INC.
Offer to Exchange
Increasing Rate Junior Subordinated Notes due 2006
for Any and All Shares of its
15% Non-Cumulative Perpetual Preferred Stock, Series A
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, DECEMBER 24,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE OR, UNLESS PREVIOUSLY
ACCEPTED, ON OR AFTER JANUARY 25, 1999.
- -------------------------------------------------------------------------------
November 25, 1998
To Our Clients:
Enclosed for your consideration is an Offering Circular, dated November
25, 1998 (the "Offering Circular"), and the Letter of Transmittal (the "Letter
of Transmittal") relating to the offer (the "Exchange Offer") of RB Asset, Inc.
(the "Company") to exchange $25.94 principal amount of its Increasing Rate
Junior Subordinated Notes due 2006 (the "Subordinated Notes"), for each share of
the Company's 15% Non-Cumulative Perpetual Preferred Stock, Series A, par value
$1.00 (the "Series A Preferred Stock"). The Company will accept for exchange any
and all shares of Series A Preferred Stock properly tendered and not withdrawn
according to the terms of the Offering Circular and the Letter of Transmittal.
Consummation of the Exchange Offer is subject to a number of conditions
described in the Offering Circular.
If a stockholder desires to tender Series A Preferred Stock pursuant to
the Exchange Offer and the certificate(s) for such stockholder's Series A
Preferred Stock are not immediately available or time will not permit all
required documents to reach the Exchange Agent (as defined in the offering
circular) prior to the Expiration Date or the procedure for book-entry transfer
cannot be completed on a timely basis, such Series A Preferred Stock may
nevertheless be tendered according to the guaranteed delivery procedures set
forth in the Offering Circular. See Instruction 2 of the Letter of Transmittal.
Delivery of documents to the Book-Entry Transfer Facility (as defined in the
Offering Circular) in accordance with the Book-Entry Transfer Facility's
procedures does not constitute delivery to the Exchange Agent. This material is
being forwarded to you as the beneficial owner of shares of Series A Preferred
Stock carried by us in your account but not registered in your name. A tender of
such shares of Series A Preferred Stock can be made only by us as the holder of
record and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Series A
Preferred Stock held by us for your account.
Accordingly, we request instructions as to whether you wish us to tender
any or all such shares of Series A Preferred Stock held by us for your account,
pursuant to the terms and conditions set forth in the enclosed Offering Circular
and Letter of Transmittal. However, we urge you to read the Offering Circular
carefully before instructing us as to whether or not to tender your shares of
Series A Preferred Stock.
Your attention is directed to the following:
1. The Exchange Offer is to exchange $25.94 principal amount of
Subordinated Notes for each share of Series A Preferred Stock.
2. Each holder accepting the Exchange Offer will have released the
Company, its predecessors and successors, and their respective
parents, subsidiaries, affiliates and assigns, and each of their
respective officers, directors, employees, partners, advisors,
agents and representatives from all actions, causes of action,
claims, judgments, contracts, agreements or understandings, whether
individual or derivative in nature, which the undersigned now has,
ever had or hereafter shall or may have with respect to such shares
of Series A Preferred Stock exchanged pursuant to the Exchange Offer
or any disclosures, rights or agreements relating thereto,
including, but not limited to, any claims made in the action and any
claims with respect to the reorganization and the transfer of assets
from River Bank America, all of which are described in the Offering
Circular. Holders who accept the Exchange Offer will be barred from
participating in any litigation with respect to any released claims,
including but not limited to, the lawsuit described above, or from
participating in any other lawsuit or as a member of any class of
claimants in any other litigation with respect to the released
claims.
<PAGE>
3. The Exchange Offer will expire at 5:00 p.m., New York City time, on
Thursday, December 24, 1998, unless the Exchange Offer is extended.
4. The Exchange Offer is being made for any and all shares of Series A
Preferred Stock.
5. Stockholders who tender shares of Series A Preferred Stock will not
be obligated to pay brokerage commissions, solicitation fees or,
except as set forth in Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the transfer and exchange of the Series A
Preferred Stock to the Company or its order pursuant to the Exchange
Offer.
The Exchange Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of shares of Series A Preferred Stock in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. The Company is
not aware of any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. To the extent the Company becomes aware of any state law that
would limit the class of offerees in the Exchange Offer, the Company will amend
the Exchange Offer and, depending on the timing of such amendment, if any, will
extend the Exchange Offer to provide adequate dissemination of such information
to holders of shares of Series A Preferred Stock prior to the expiration of the
Exchange Offer.
If you wish to have us tender any or all of your shares of Series A
Preferred Stock please so instruct us by completing, executing and returning to
us the instruction form set forth below. An envelope to return your instructions
to us is enclosed. Your instructions to us should be forwarded as promptly as
possible in order to permit us to tender shares of Series A Preferred Stock on
your behalf in accordance with the provisions of the Exchange Offer. If you
authorize the tender of your shares of Series A Preferred Stock, all such shares
will be tendered unless otherwise specified on the instruction form set forth
below.
If we do not receive written instructions in accordance with the
procedures presented in the Offering Circular and the Letter of Transmittal, we
will not tender any shares of the Series A Preferred Stock on your account.
-----------------------
INSTRUCTIONS WITH RESPECT TO THE OFFER TO EXCHANGE
INCREASING RATE JUNIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL SHARES OF ITS
15% NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offering Circular, dated November 25, 1998, and the Letter of Transmittal
relating to the offer (the "Exchange Offer") of RB Asset, Inc. (the "Company")
to exchange $25.94 principal amount of its Increasing Rate Junior Subordinated
Notes due 2006 (the "Subordinated Notes"), for each share of the Company's 15%
Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00 (the "Series
A Preferred Stock").
<PAGE>
This will instruct you to tender the number of shares of Series A
Preferred Stock indicated below (or if no number is indicated below, all shares
of Series A Preferred Stock) held by you for the account of the undersigned,
pursuant to the terms and conditions set forth in the Offering Circular and the
related Letter of Transmittal.
Dated: , 1998 SIGN HERE
-----------------------
- ------------------------------------------ -----------------------------------
Number of Shares to be
Tendered*:
- -----------------------------------------
-----------------------------------
Signature(s)
Account Number:
-------------------- -----------------------------------
-----------------------------------
Please Print Name(s) Here
-----------------------------------
-----------------------------------
Address(es)
-----------------------------------
-----------------------------------
Area Code and Telephone Number(s)
-----------------------------------
-----------------------------------
Tax Identification or Social
Security Number(s)
- -------------------
* Unless otherwise indicated, it will be assumed that all of your shares of
Series A Preferred Stock held by us for your account are to be tendered.
<PAGE>
Exhibit (a)(7)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine which taxpayer
identification number to give the payer.
<TABLE>
<CAPTION>
- ----------------------------------- ----------------------------------
Give the
For this type of account: SOCIAL SECURITY number of--
- ----------------------------------- ----------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the account
(joint account) or, if combined funds, any one
of the individuals(1)
3. Husband and wife (joint The actual owner of the account
account) or, if joint funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the minor is
account) the only contributor, the minor(1)
6. Account in the name of The ward, minor, or incompetent
guardian or committee for person(3)
designated ward, minor, or
incompetent person
7. a The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also trustee)
b So-called trust account The actual owner(1)
that is not a legal or
valid trust under State law
- ----------------------------------- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------- ----------------------------------
Give the EMPLOYER IDENTIFICATION
For this type of account: number of
- ----------------------------------- ----------------------------------
<S> <C>
8. Sole proprietorship account The Owner(4)
9. A valid trust, estate, or Legal entity (Do not furnish the
pension trust identifying number of the
personal representative or
trustee unless the legal entity
itself is not designated in the
account title.)(5)
10. Corporate account The corporation
11. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt organization
account
12. Partnership account held in The partnership
the name of the business
13. A broker or registered The broker or nominee
nominee
14. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or
prison) that receives
agricultural program payments
- ----------------------------------- ----------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a Social Security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your Social Security number or
Employer identification number (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FOR W-9
PAGE 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, Form
W-7, Application for IRS Individual Taxpayer Identification Number (for
individuals ineligible to obtain a U.S. Social Security number) or Form SS-4,
Application for Employer Identification Number (for business and all other
entities), at the local office of the Social Security Administration or the
Internal Revenue Service (the "IRS") and apply for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments of interest
and dividends include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), an individual retirement
plan, or a custodial account under Section 403(b)(7) of the Code, if the
account satisfies the requirements of Section 401(f)(2) of the Code.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization, or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a) of the Code.
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947 (a) (1) of the Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
- - A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
Broker Transactions: All payees listed above, other than an exempt charitable
remainder trust, a non-exempt trust described in Section 4947(a)(1) of the Code
or a middleman as described above, are exempt payees with regard to broker
transactions.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852 of the Code).
- - Payments described in section 6049 (b) (5) of the Code to nonresident
aliens.
- - Payments on tax-free covenant bonds under section 1451 of the Code.
- - Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A (a),
6045, and 6050A of the Code and Treasury regulations promulgated thereunder.
Privacy Act Notice.--Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give taxpayer identification numbers to
payers who must report the payments to IRS. IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the number whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS.
<PAGE>
Exhibit (b)(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RB ASSET, INC.
Increasing Rate Junior Subordinated Notes
due 2006
--------------------
INDENTURE
--------------------
Dated as of December __, 1998
LaSalle National Bank
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<S> <C>
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.......................................................................................6
ARTICLE II
THE SECURITIES
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 Notice of Payment; Payment by the Corporation to the Trustee; Paying Agent to Hold Money in Trust...........7
Section 2.05 Securityholder Lists........................................................................................8
Section 2.06 Transfer and Exchange.......................................................................................8
Section 2.07 Replacement Securities......................................................................................9
Section 2.08 Outstanding Securities.....................................................................................10
Section 2.09 Treasury Securities........................................................................................10
Section 2.10 Temporary Securities.......................................................................................10
Section 2.11 Cancellation...............................................................................................10
Section 2.12 Defaulted Interest.........................................................................................11
Section 2.13 Certain Limitation on Securities...........................................................................11
ARTICLE III
COVENANTS
Section 3.01 Payment of Securities......................................................................................11
Section 3.02 Dividends and Certain Other Elements.......................................................................12
Section 3.03 Transactions with Affiliates...............................................................................12
Section 3.04 Reports by Corporation.....................................................................................13
Section 3.05 Maintenance of Properties; Insurance.......................................................................13
Section 3.06 Maintenance of Books and Records...........................................................................13
Section 3.07 Conduct of Business........................................................................................14
Section 3.08 Taxes and Claims...........................................................................................14
Section 3.09 Money for Security Payments to Be Held in Trust............................................................14
Section 3.10 Compliance Certificate.....................................................................................15
Section 3.11 Continued Existence........................................................................................15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
SUCCESSORS
Section 4.01 When Corporation May Merge, etc............................................................................15
Section 4.02 Successor Substituted......................................................................................16
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.01 Events of Default..........................................................................................17
Section 5.02 Acceleration: Limitations on Acceleration..................................................................18
Section 5.03 Other Remedies.............................................................................................18
Section 5.04 Waiver of Default..........................................................................................19
Section 5.05 Control by Majority........................................................................................19
Section 5.06 Limitation on Suits........................................................................................19
Section 5.07 Rights of Holders to Receive Payment.......................................................................19
Section 5.08 Collection Suit by Trustee.................................................................................20
Section 5.09 Trustee May File Proofs of Claim...........................................................................20
Section 5.10 Priorities.................................................................................................20
Section 5.11 Undertaking for Costs......................................................................................20
ARTICLE VI
TRUSTEE
Section 6.01 Duties of Trustee..........................................................................................21
Section 6.02 Rights of Trustee..........................................................................................22
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..............................................................................23
Section 6.07 Compensation and Indemnity.................................................................................23
Section 6.08 Replacement of Trustee.....................................................................................23
Section 6.09 Successor Trustee by Merger................................................................................24
Section 6.10 Eligibility; Disqualification..............................................................................24
Section 6.11 Preferential Collection of Claims Against Corporation......................................................25
ARTICLE VII
SATISFACTION AND DISCHARGE
Section 7.01 Satisfaction and Discharge of Indenture....................................................................25
Section 7.02 Application of Trust Money.................................................................................26
Section 7.03 Repayment to Corporation...................................................................................26
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
AMENDMENTS
Section 8.01 Without Consent of Holders.................................................................................26
Section 8.02 With Consent of Holders....................................................................................26
Section 8.03 Compliance with Trust Indenture Act........................................................................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
ARTICLE IX
SUBORDINATION
Section 9.01 Agreement to Subordinate...................................................................................28
Section 9.02 Liquidation; Dissolution; Bankruptcy.......................................................................28
Section 9.03 Default on Senior Debt.....................................................................................29
Section 9.04 No Suspension of Remedies..................................................................................30
Section 9.05 When Distribution Must Be Paid Over........................................................................30
Section 9.06 Notice by the Corporation..................................................................................31
Section 9.07 Subrogation................................................................................................31
Section 9.08 Relative Rights............................................................................................31
Section 9.09 No Waiver of Subordination Provisions......................................................................32
Section 9.10 Distribution or Notice to Representative...................................................................32
Section 9.11 Rights of Trustee and Paying Agent.........................................................................32
Section 9.12 Authorization to Effect Subordination; No Fiduciary Duty to Holders of Senior Debt.........................33
Section 9.13 Miscellaneous..............................................................................................33
ARTICLE X
REDEMPTION
Section 10.01 Applicability of Article...................................................................................34
Section 10.02 Election to Redeem; Notice to Trustee......................................................................34
Section 10.03 Selection by Trustee of Securities to Be Redeemed..........................................................34
Section 10.04 Notice of Redemption.......................................................................................34
Section 10.05 Deposit of Redemption Price................................................................................35
Section 10.06 Securities Payable on Redemption Date......................................................................35
Section 10.07 Securities Redeemed in Part................................................................................35
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI
MISCELLANEOUS
Section 11.01 The Indenture Act Controls.................................................................................36
Section 11.02 Notices....................................................................................................36
Section 11.03 Communication by Holders with Other Holders................................................................37
Section 11.04 Certificate and Opinion as the Conditions Present..........................................................37
Section 11.05 Statements Required in Certificate or Opinion..............................................................37
Section 11.06 Rules by Trustee and Agents................................................................................37
Section 11.07 Legal Holidays.............................................................................................38
Section 11.08 No Recourse Against Others.................................................................................38
Section 11.09 Duplicate Originals........................................................................................38
Section 11.10 Governing laws.............................................................................................38
Section 11.11 No Adverse Interpretation of Other Agreements..............................................................38
Section 11.12 Successors.................................................................................................38
Section 11.13 Severability...............................................................................................38
Section 11.14 Table of Contents, Headings, etc...........................................................................38
</TABLE>
iv
<PAGE>
CROSS-REFERENCE TABLE
R.B. ASSET, INC.
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture
- --------------- -----------
<S> <C>
Section 310(a)(1) 6.10
(2) Not Applicable
(3) Not Applicable
(4) Not Applicable
(5) Not Applicable
(b)(1) 6.10
(2) Not Applicable
(3) Not Applicable
(4) Not Applicable
(5) Not Applicable
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) 6.10
(10) Not Applicable
(c) Not Applicable
Section 311(a) 6.11
(b) 6.11
(c) Not Applicable
Section 312(a) Not Applicable
(b) 11.03
(c) 11.03
Section 313(a) 6.06
(b) 6.06
(c) Not Applicable
(d) Not Applicable
Section 314 3.10
</TABLE>
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE>
INDENTURE dated as of December __, 1998 between RB Asset, Inc., a
Delaware corporation, and LaSalle National Bank, national banking association,
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 Increasing Rate Junior
Subordinated Notes due 2006:
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.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease which
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"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 GAAP, less
intangible assets appearing thereon.
<PAGE>
"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 135 South LaSalle Street,
Chicago, Illinois 60603.
"Corporation" means RB Asset, Inc. until a 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.
"Credit Agreement" means the Credit Agreement dated as of June 28, 1996
among the Corporation, Marine Midland Bank and certain affiliates of the
Corporation, as modified, amended or extended from time to time.
"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.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time.
"Holder" and "Securityholder" means a Person in whose name a Security
is registered in the register of the Securities kept by the Registrar.
"Indebtedness" of any person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to Capital Lease Obligations), if and to the extent
any of the foregoing indebtedness would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP (except that any such
balance that constitutes a trade payable and/or an accrued liability arising in
the ordinary course of business shall not be considered Indebtedness), and shall
also include, to the extent not otherwise included, any Capital Lease
Obligations, the maximum fixed repurchase price of any Redeemable Stock,
indebtedness secured by a Lien to which the property or assets owned or held by
such Person is subject, whether or not the obligations secured thereby shall
have been assumed, guarantees of items that would be included within this
definition to the extent of such guarantees (exclusive of whether such items
would appear upon such balance sheet), and net liabilities in respect of
Interest Rate Protection Obligations. For purposes of the preceding sentence,
the maximum fixed repurchase price of any Redeemable Stock which does
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not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock as if such Redeemable Stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, provided that if such Redeemable Stock is not then permitted to
be repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any person at any date shall be, without
duplication, (i) the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any such contingent
obligations at such date and (ii) in the case of Indebtedness of others secured
by a Lien to which the property or assets owned or held by such Person is
subject, the lesser of the fair market value at such date of any asset subject
to a Lien securing the Indebtedness of others and the amount of the Indebtedness
secured.
"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.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include without limitation, interest rate swaps, caps,
floors, collars and similar agreements.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"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 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.
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"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 any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"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.
"Redeemable Stock" means any capital stock or other equity interest
which, by its terms (or by the term of any security into which it is convertible
or for which it is exchangeable before the stated maturity of the Securities),
or upon the happening of any event, matures or is mandatorily redeemable, in
whole or in part, prior to the stated maturity of the Securities.
"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.
"Redemption Price" means, when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture,
as set forth in the form of security annexed as Exhibit A hereto.
"Regular Record Date" means the last day (whether or not a Business
Day) of the month preceding the month in which an Interest Payment Date occurs.
"Securities" means the "Increasing Rate Junior Subordinated Notes due
2006" described above and issued under this Indenture (including any Additional
Securities).
"Senior Debt" means the principal of, premium, if any, and interest on
any Indebtedness of the Corporation, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed; unless, in the
case of any particular Indebtedness, the instrument under which such
Indebtedness is created, incurred, assumed or guaranteed expressly provides that
such Indebtedness shall not be senior or superior in right of payment to the
Securities. Without limiting the generality of the foregoing, "Senior Debt"
shall include the principal of, premium, if any, and interest on all obligations
of every nature of the Corporation from time to time owed to Marine Midland Bank
under the Credit Agreement with such lender, including, without limitation,
principal of and interest on, and all fees and expenses payable under such
agreement.
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"Series A Preferred Stock" means the 15% Noncumulative Perpetual
Preferred Stock, Series A, $1.00 par value, 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 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).
Section 1.02 Other Definitions.
<TABLE>
<CAPTION>
Term Defined in
---- -----------
<S> <C>
"Additional Securities" .............................. Section 2.02
"Custodian" .......................................... Section 5.01
"Event of Default" ................................... Section 5.01
"Interest Payment Date" .............................. Section 3.01
"Legal Holiday" ...................................... Section 11.07
"Non-Payment Default" ................................ Section 9.03
"Paying Agent" ....................................... Section 2.03
"Payment Default" .................................... Section 9.03
"Payment Blockage Period" ............................ Section 9.03
"Registrar" .......................................... Section 2.03
"Special Record Date" ................................ Section 2.12
</TABLE>
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.
The following TIA terms used in this Indenture have the following
meanings:
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"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 GAAP 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 (vi) unless specifically stated, the 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 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.
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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 (i) Securities for original issue up to
the aggregate principal amount stated in paragraph 5 of the Securities; and (ii)
additional securities issued pursuant to this Indenture as interest on the
Securities (not to exceed $_______) (the "Additional Securities"), in each case
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.
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 Notice of Payment; Payment by the Corporation to the
Trustee; Paying Agent to Hold Money in Trust. On or prior to the fourth Business
Day preceding each due date for the payment of principal of, or premium (if any)
or interest on, any of the Securities, the Corporation shall deliver written
notice to the Trustee or Paying Agent, as the case may be, of the type and
amount of any payment and the date such payment is to be made on behalf of the
Corporation. On or prior to the Business Day immediately preceding each due date
for the payment of principal of, or premium (if any) or interest on, any of the
Securities, the Corporation shall
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deposit with the Trustee or Paying Agent, as the case may be, in immediately
available funds a sum sufficient to pay the principal, premium (if any) 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 premium (if any) 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, premium (if any) 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 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 10.04 and ending at the 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
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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 an interest 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 interest 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 10.04 and ending on the relevant
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 and the Trustee may charge for its expenses in replacing a Security.
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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, is 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.
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.
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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 Limitation 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 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
and of premium (if any) 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, premium (if any) 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 other obligations to its general and
secured creditors. Notwithstanding anything to the contrary herein,
amounts due to the Trustee pursuant to Section 6.07 shall not be
subordinated and junior in right of payment 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 premium (if any) and interest on the Securities on the
dates and in the manner provided in the Securities. Principal, premium (if any)
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, premium (if any) and interest then due.
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Through and including January 15, 2002, on each Interest Payment Date (as
defined below), the Corporation may, at its option and in its sole discretion,
in lieu of the payment of interest on the Securities in whole or in part in
cash, pay such interest on the Securities through the issuance of Additional
Securities in an aggregate principal amount equal to the amount of interest that
would otherwise be payable with respect to the Securities in cash; provided,
however, that the Corporation may issue Additional Securities only in
denominations of $100 and integral multiples of $100. After January 15, 2002,
the Corporation shall pay interest on the Securities in cash. The Corporation
shall notify the Trustee in writing of its election to pay interest on the
Securities through the issuance of Additional Securities and the aggregate
amount of Additional Securities to be issued not less than 10 nor more than 45
days prior to the record date for the Interest Payment Date on which Additional
Securities will be issued. On each such Interest Payment Date, the Trustee shall
authenticate Additional Securities for original issuance to each Holder on the
relevant record date in the aggregate principal amount required to pay such
interest. Each Additional Security is an additional obligation of the
Corporation and shall be governed by, and entitled to the benefits of, this
Indenture and shall be subject to the terms of this Indenture and shall be pari
passu with and subject to the same terms (including the rate of interest from
time to time payable thereon) as the Securities (except, as the case may be,
with respect to the issuance date and aggregate principal amount). The
Corporation will pay interest semi-annually in arrears on January 15 and July 15
of each year (each an "Interest Payment Date"), commencing on July 15, 1999, the
first Interest Payment Date. 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. The Corporation shall pay interest
on global Securities through the issuance of Additional Securities only in
accordance with the rules and regulations of the Depository as in effect from
time to time.
The Corporation shall pay interest on overdue principal at the rate borne
by the Securities for the last semi-annual interest period; 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 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
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determined in good faith by the Board of Directors, whose determination shall be
conclusive), (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 (iii) make payments to RB
Management Company, LLC for management services pursuant to the Management
Agreement dated as of June 28, 1996 by and between the Corporation and RB
Management Company, LLC, as said Agreement may be modified, amended or extended
from time to time; 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 or another
Subsidiary.
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.
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
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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 GAAP 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 materialmen, 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 premium (if any) and 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, premium (if any) 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.
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 premium (if any) or
interest on the Securities, deposit with the Paying Agents sums sufficient to
pay the principal, premium (if any) or interest so becoming due, such sums to be
held in trust for the benefit of the Persons entitled to such
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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 cast 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.
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:
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(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 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.
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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 mandatory redemption
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,
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
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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;
(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.
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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 proceeding 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 at expense;
(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, notwithstanding any other provision of this Indenture, the right
of any Holder of a Security to receive payment of principal of and premium (if
any) and interest on the Security on or after the respective due dates
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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, premium (if any) and
interest remaining unpaid on the Securities and any amounts 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, premium (if any) and interest, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Securities for principal, premium (if any) 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
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does not apply to a suit by the Trustee, a suit by a Holder for the enforcement
of rights set forth in Section 5.06, 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
arc 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, 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
judgment 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.
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(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives in 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.
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, the Securities or the Offering Circular
of the Corporation relating to 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 or the Offering Circular of the
Corporation relating to 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, premium
(if any) 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.
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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. 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 gross negligence or bad faith.
The Corporation's payment obligations under this Section shall not be
subordinated and junior in right of payment to the Corporation's other
obligations to its general and secured creditors.
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,
premium (if any) 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.
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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.
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).
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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 premium (if any) 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 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.
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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, premium (if any) or interest that remains unclaimed for
two years after such principal, premium (if any) 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
remaining 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.
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;
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(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 Redemption Price therefor;
(4) reduce the rate of or change the time for or in any way
affect the terms of payment of premium (if any) payable upon redemption
or maturity of any Security;
(5) make any Security payable in money other than that stated
in the Security;
(6) make any change in Section 5.04 or 5.07 or the second
sentence of this Section 8.02; or
(7) 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.
Section 8.03 Compliance with Trust Indenture Act. Every amendment to or
supplement of this Indenture or the Securities shall comply with the TIA as then
in effect.
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 outstanding 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
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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).
ARTICLE IX
SUBORDINATION
Section 9.01 Agreement to Subordinate. The Corporation, agrees, and
each Holder by accepting a Security agrees, that the indebtedness evidenced by
the Securities (including principal, premium, if any, and interest) is
subordinated in right of payment, to the extent and in the manner provided in
this Article IX to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of the Senior Debt.
Notwithstanding anything to the contrary herein, amounts due to the Trustee
pursuant to Section 6.07 shall not be subordinated and junior in right of
payment to the Corporation's other obligations to its general and secured
creditors.
Section 9.02 Liquidation; Dissolution; Bankruptcy. Upon any (i)
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Corporation or its property, (ii) assignment for the benefit of
creditors or any marshaling of the assets and liabilities of the Corporation or
(iii) distribution to creditors of the Corporation in a liquidation or
dissolution of the Corporation:
(1) holders of Senior Debt shall be entitled to receive
payment in full in cash or, at the option of the holders of the Senior
Debt, cash equivalents of Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the
applicable Senior Debt whether or not a claim therefor is allowed) to
the date of payment on the Senior Debt before Holders shall be entitled
to receive any payment of principal or interest on the Securities; and
(2) until the Senior Debt (as provided in subsection (1)
above) is paid in full in cash or, at the option of the holders of the
Senior Debt, cash equivalents, any distribution to which Holders would
be entitled but for this Article IX shall be made to holders of Senior
Debt, as their interests may appear, except that Holders may receive
securities that are subordinated to Senior Debt (and to any securities
issued in exchange for Senior Debt) to at least the same extent as the
Securities are subordinated to Senior Debt.
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For purposes of this Article IX, a distribution may consist of cash,
securities or other property, by setoff or otherwise.
The consolidation of the Corporation with, or the merger of the
Corporation into, another corporation or the liquidation or dissolution of the
Corporation following the conveyance or transfer of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article IV shall not be deemed a dissolution, winding up, liquidation
or reorganization for the purposes of this Section 9.02 if the corporation
formed by such consolidation or into which the Corporation is merged or the
Person which acquires by conveyance or transfer such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer comply with the conditions set
forth in Article IV.
Section 9.03 Default on Senior Debt. Upon the final maturity of any
Senior Debt by lapse of time, acceleration or otherwise, all such Senior Debt
shall first be paid in full in cash, or such payment duly provided for in cash
or in a manner satisfactory to the holders of such Senior Debt, before any
payment is made by the Corporation or any Person acting on behalf of the
Corporation on account of the principal, premium (if any) or interest of the
Securities.
Until all Senior Debt has been paid in full, in cash or cash
equivalents, the Corporation may not, directly or indirectly, make any payment
of principal, premium (if any) or interest on the Securities and may not acquire
any Securities for cash or property or make any other distribution with respect
to the Securities if:
(i) a default in the payment of the principal, premium (if
any) or interest or the payment of other amounts due under or in
connection with any Senior Debt occurs and is continuing (a "Payment
Default") unless and until such default has been cured or waived; or
(ii) a default, other than a Payment Default, on any Senior
Debt occurs and is continuing that then permits the holders (or the
agent) of such Senior Debt to accelerate its maturity (a "Non-Payment
Default"), and such default is either the subject of judicial
proceedings or the Trustee and such Paying Agent receive a notice of
the default from a person who may give it pursuant to Section 9.11 at
least two Business Days prior to the relevant payment date; provided,
however, that only one such notice relating to the same event of
default or any other default existing at the time of such notice under
the Senior Debt may be given during any 365 consecutive day period.
The Corporation shall resume payments on the Securities and may acquire
them upon the earlier of (a) when the default is cured or waived or (b) in the
case of a default referred to in Section 9.03(ii) above, the 179th day after the
receipt of notice by the Trustee or the Paying Agent (with respect to a
Non-Payment Default, such period of time shall be hereinafter referred to as a
"Payment Blockage Period").
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In addition, no default which existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Senior Debt
and which was known to the holders (or agent) of such Senior Debt on such date
of commencement shall be made the basis for the commencement of a second Payment
Blockage Period by the holders (or the agent) of such Senior Debt whether or not
within a period of 365 consecutive days unless and until all scheduled payments
of principal, premium (if any) or interest then due and payable have been made
on the Securities.
Section 9.04 No Suspension of Remedies. Nothing contained in this
Article IX shall limit the right of the Trustee or the Holders to take any
action to accelerate the maturity of the Securities pursuant to Section 5.02 or
to pursue any other rights or remedies hereunder or under applicable law;
provided, however, that all Senior Debt of the Corporation then due and payable,
or which thereafter is declared to be, or shall otherwise become, due and
payable, pursuant to its terms (whether by acceleration or otherwise) shall
first be paid in full in cash or, at the option of the holders of Senior Debt,
cash equivalents before the Holders or the Trustee are entitled to receive any
payment from the Corporation of principal, premium (if any) or interest on the
Securities. Notwithstanding the foregoing, any acceleration of the maturity of
the Securities due to the default by the Corporation to make a payment required
by Section 5.01(1) or (2) resulting from the operation of Section 9.03 shall be
automatically rescinded to the extent permitted by applicable law and all Events
of Default which permitted the acceleration of the Securities or under
applicable law shall be deemed to be automatically and permanently cured to the
extent permitted by applicable law if (i) all defaults on Senior Debt are
permanently cured or waive and (ii) the payment or payments the omission of
which gave rise to the Event of Default is or are made, within 179 days after
the date on which the Trustee or the Paying Agent received notice of the default
or default on the Senior Debt; and provided, further, that at the time of such
automatic rescission no other Event of Default or Defaults shall have occurred
and be continuing. Such automatic rescission shall be effective as of the date
both conditions specified in clauses (i) and (ii) above are satisfied.
Section 9.05 When Distribution Must Be Paid Over. In the event that the
Corporation shall make any payment to the Trustee on account of the principal,
premium (if any) or interest on the Securities at a time when such payment is
prohibited by Section 9.02 or 9.03, such payment shall be held by the Trustee,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Debt (pro rata as to each of
such holders on the basis of the respective amounts of Senior Debt held by them)
or their representative, as their respective interests may appear, for
application to the payment of all Senior Debt in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
If a distribution is made to Holders that because of this Article IX
should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Senior Debt (pro rata as to each of such
holders on the basis of the respective amounts of Senior Debt held by them) or
their representative, as their respective interests may appear, for application
to the payment of all Senior Debt remaining unpaid to the extent necessary to
pay all Senior Debt in
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full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt.
Section 9.06 Notice by the Corporation. The Corporation shall promptly
notify the Trustee and the Paying Agent of any facts known to the Corporation
that would cause a payment of principal of or premium (if any) or interest on
the Securities to violate this Article IX, but failure to give such notice shall
not affect the subordination of the Securities to the Senior Debt provided in
this Article IX. Nothing in this Article IX shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.07.
Section 9.07 Subrogation. After all Senior Debt is paid in full in cash
or, at the option of the holders of Senior Debt, cash equivalents and until the
Securities are paid in full, Holders shall be subrogated to the rights of
holders of Senior Debt to receive distributions applicable to Senior Debt to the
extent that distributions otherwise payable to Holders have been applied to the
payment of Senior Debt.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article IX shall have been
applied pursuant to the provisions of this Article IX to the payment of all
amounts payable in respect of the Senior Debt of the Corporation, then and in
such case, the Holders shall be entitled to receive from the holders of such
Senior Debt at the time outstanding any payments or distributions received by
such holders of Senior Debt in excess of the amount sufficient to pay all
amounts payable in respect of the Senior Debt of the Corporation in full in cash
or, at the option of the holders of Senior Debt, cash equivalents.
Section 9.08 Relative Rights. This Article IX defines the relative
rights of Holders and holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Corporation and Holders, the obligation of
the Corporation, which is absolute and unconditional, to pay principal of and
premium (if any) and interest on the Securities in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the
Corporation other than holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders of
Senior Debt under this Article IX.
If the Corporation fails because of this Article IX to pay principal of
or premium (if any) or interest on a Security on the due date, the failure is
still a Default or Event of Default.
The provisions of this Article IX shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any Senior Debt is
rescinded or must otherwise be returned by any holder of Senior Debt upon the
insolvency, bankruptcy or reorganization of the Corporation or otherwise, all as
though such payment had not been made.
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Section 9.09 No Waiver of Subordination Provisions. No right of any
holder of Senior Debt to enforce the subordination of the Indebtedness evidenced
by the Securities shall be impaired by any act or failure to act by the
Corporation or by its failure to comply with this Indenture.
The holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Securities
and without incurring responsibility to the Holders of the Securities and
without impairing or releasing the subordination provided in this Article IX or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Debt, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Debt or any instrument evidencing the same or any agreement under which Senior
Debt is outstanding; (2) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (3) release any
person liable in any manner for the collection or payment of Senior Debt; and
(4) exercise or refrain from exercising any rights against the Corporation or
any other Person.
Section 9.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their representative.
Upon any payment or distribution of assets of the Corporation referred
to in this Article IX, the Trustee and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such representative or of the liquidating trustee or agent or
other person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the 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
IX. In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any Person, as a holder of
Senior Debt, to participate in any payment or distribution pursuant to this
Section 9.10, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such Senior Debt held
by such Person, as to the extent to which such Person is entitled to
participation in such payment or distribution, and as to other facts pertinent
to the rights of such Person under this Section 9.10, and if such evidence is
not furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Section 9.11 Rights of Trustee and Paying Agent. The Trustee or Paying
Agent shall not at any time be charged with the knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee
unless and until an Officer in the Corporate Trust Office and each Paying Agent
shall have received written notice thereof from a holder (or the agent) of
Senior Debt who shall have been certified by the Corporation or otherwise
established to the satisfaction of the Trustee to be such holder or agent; and,
prior to the receipt of any such written
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notice, the Trustee and each Paying Agent shall be entitled to assume
conclusively that no such facts exist. Unless at least three Business Days prior
to the date on which by the terms of this Indenture any monies are to be
deposited by the Corporation with the Trustee or any Paying Agent (whether or
not in trust) for any purpose (including, without limitation, the payment of the
principal of or premium, if any, or interest on any Security) the Trustee and
each Paying Agent shall have received with respect to such monies the notice
provided for in the foregoing sentence, the Trustee and each Paying Agent shall
have full power and authority to receive such monies and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date. The
foregoing shall not apply to the Paying Agent if the Corporation is Paying
Agent.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee.
Section 9.12 Authorization to Effect Subordination; No Fiduciary Duty
to Holders of Senior Debt. Each Holder of a Security by his acceptance thereof
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article IX, and appoints the Trustee as attorney-in-fact for any and all
purposes. Notwithstanding anything to the contrary in this Article IX, the
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt and shall have no duties to such holders, except as expressly set forth in
this Article IX and no implied covenants or obligation shall be read into this
Indenture against the Trustee. The Trustee shall not be liable to holders of
Senior Debt if it shall mistakenly pay over or distribute to or on behalf of
Holders of Securities or the Corporation monies or assets to which any holders
of Senior Debt shall be entitled by virtue of this Article IX.
Section 9.13 Miscellaneous.
(a) All rights and interests under this Article IX of the holders of
Senior Debt, and all agreements and obligations of the Holders, the Trustee and
the Corporation under this Article IX, shall remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of the Credit Agreement, the
notes or security instruments issued pursuant thereto or any other agreement or
instrument relating thereto;
(ii) any exchange, release or non-perfection of any lien securing
Senior Debt, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Senior Debt; or
(iii) any other circumstance that might otherwise constitute a defense
available to, or a discharge of the Corporation in respect of Senior Debt.
(b) The provisions of this Article IX constitutes a continuing
agreement and shall (i) remain in full force and effect until the Senior Debt
shall have been paid in full, (ii) be binding
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upon the Holders and the Trustee, the Corporation and their successors and
assigns, and (iii) inure to the benefit of and be enforceable by each other
holder of Senior Debt and its successors, transferees and assigns.
ARTICLE X
REDEMPTION
Section 10.01 Applicability of Article. Securities which are redeemable
before their maturity shall be redeemable in accordance with their terms and in
accordance with this Article.
Section 10.02. Election to Redeem; Notice to Trustee . The election of
the Corporation to redeem any Securities shall be evidenced by a Board
Resolution. In case of any redemption at the election of the Corporation of less
than all of the Securities pursuant to Section 10.03, the Corporation shall, at
least 60 days before the Redemption Date fixed by the Corporation (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed.
Section 10.03 Selection by Trustee of Securities to Be Redeemed. A
mandatory redemption provided for in the Form of Security for less than all of
the Securities shall be done on a pro rata basis. Except in the case of a
redemption in whole of the Securities, if less than all the Securities are to be
redeemed at the election of the Corporation, the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the outstanding Securities not previously called for
redemption, by lot or pro rata, as determined by the Board of Directors and set
forth in an Officers' Certificate. The portions of the principal amount of
Securities so selected for partial redemption shall be equal to the minimum
authorized denominations for the Securities or any integral multiple thereof,
except as otherwise set forth in the applicable form of Securities. In any case
when more than one Security is registered in the same name, the Trustee in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security of such series.
The Trustee shall promptly notify the Corporation in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
Section 10.04 Notice of Redemption. Notice of redemption shall be given
by the Corporation, or at the Corporation's request, by the Trustee in the name
and at the expense of the Corporation, not less than 30 days and not more than
60 days prior to the Redemption Date to the Holders of Securities to be redeemed
in whole or in part pursuant to this Article 10, in the manner provided in
Section 11.02. Any notice so given shall be conclusively presumed to have been
duly given, whether or not the Holder receives such notice. Failure to give such
notice, or
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any defect in such notice to the Holder of any Security designated for
redemption, in whole or in part, shall not affect the sufficiency of any notice
of redemption with respect to the Holder of any other Security.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that Securities of such series are being redeemed by the Company
pursuant to provisions contained in this Indenture or the terms of the
Securities together with a brief statement of the facts permitting such
redemption,
(4) if less than all outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the principal amounts)
and the amount of any premium payable thereon of the particular Securities to be
redeemed,
(5) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed, and that interest thereon,
if any, shall cease to accrue on and after said date, and
(6) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
Section 10.05 Deposit of Redemption Price. On or prior to the Business
Day immediately preceding the Redemption Date for any Securities, the
Corporation shall deposit with the Trustee or with a Paying Agent (or, if the
Corporation is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 3.09) an amount of money sufficient to pay the Redemption
Price of such Securities or any portions thereof which are to be redeemed on
that date.
Section 10.06 Securities Payable on Redemption Date. Notice of
redemption having been given as aforesaid, any Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price,
and from and after such date (unless the Corporation shall default in the
payment of the Redemption Price) such Securities shall cease to bear interest.
Upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Corporation at the Redemption Price.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
Section 10.07 Securities Redeemed in Part. Any Security which is to be
redeemed only in part shall be surrendered at the Corporate Trust Office or such
other office or agency of the Corporation as is specified in the notice of
redemption with, if the Corporation, the Registrar or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
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the Corporation, the Registrar and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing, and the Corporation shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of like tenor and
form, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered. In the case of a Security providing
appropriate space for such notation, at the option of the Holder thereof, the
Trustee, in lieu of delivering a new Security or Securities as aforesaid, may
make a notation on such Security of the payment of the redeemed portion thereof.
ARTICLE XI
MISCELLANEOUS
Section 11.01 The Indenture Act Controls. Any provisions 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:
RB Asset, Inc.
645 Fifth Avenue, 8th Floor
New York, New York 10022
Attention: Chief Executive Officer
The Trustee's address is:
135 South La Salle Street
Chicago, Illinois 60603
Attention: Asset-Backed Securities Trust Services
RB Asset Junior Subordinated Notes due 2006
Telephone: (312) 904-7326
Telecopy: (312) 904-2084
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 guarantee overnight courier.
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
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
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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 the 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 Officer's Certificate stating that, in the opinion of
the singers, all conditions precedent, if any, provided for it 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
(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 any meeting of Securityholders. The Registrar
or Paying Agents may make reasonable rules and set reasonable requirements for
their functions.
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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 laws. 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 Subsidiary. 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 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.
RB ASSET, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
- ------------------------------------
LASALLE NATIONAL BANK
as Trustee
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
- ------------------------------------
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Exhibit A
[Form of Face of Security]
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 NOTES EVIDENCED BY THIS CERTIFICATE MAY BE ISSUED AND TRANSFERRED ONLY IN
DENOMINATIONS OF $100 AND INTEGRAL MULTIPLES THEREOF (OR SUCH GREATER AMOUNT AS
MAY BE REQUIRED BY APPLICABLE STATE OR FEDERAL LAW).
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"), AS SUCH TERM IS
DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. ASSUMING
THAT (I) NEITHER THE SUBORDINATES NOTES NOR THE SERIES A PREFERRED STOCK
EXCHANGED THEREFOR ARE OR WILL BE TRADED ON AN ESTABLISHED SECURITIES MARKET,
AND (ii) THE COMPANY WILL BE TREATED AS EXERCISING ITS OPTION TO REDEEM THE
SUBORDINATED NOTES IN FULL IMMEDIATELY PRIOR TO THE INTEREST INCREASE DATE OF
JANUARY 16, 2002 AND NOT EXERCISING ITS OPTION TO PAY INTEREST ON ANY
SUBORDINATED NOTES IN CASH, THIS NOTE WAS ISSUED ON ____________ WITH AN ISSUE
PRICE EQUAL TO 100% OF ITS ORIGINAL PRINCIPAL AMOUNT, A SEMI-ANNUAL YIELD TO
MATURITY EXPRESSED ON AN ANNUAL BASIS OF ______ % AND OID FOR FEDERAL INCOME TAX
PURPOSES IN AN AMOUNT EQUAL TO _____% OF ITS ORIGINAL PRINCIPAL AMOUNT.
No. _______ $ _______
RB ASSET, INC.
Increasing Rate Junior Subordinated Notes due 2006
RB Asset, Inc., a Delaware corporation, promises to pay CEDE & CO. or
registered assigns, the principal sum of _______ Dollars, plus a premium of 4.0%
of the principal amount, on January 15, 2006, 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
semi-annually in arrears at the rate of 8% per annum (the "Initial Interest
Rate") to and including January 15, 2002, and thereafter at a rate equal to the
Initial Interest Rate plus the applicable Interest Rate Increment as hereinafter
defined, on each Interest Payment Date, as hereinafter defined, until the
principal hereof is paid or duly provided for. Payment of principal and interest
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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.
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IN WITNESS WHEREOF, RB Asset, 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: [ ]
RB ASSET, INC.
(SEAL)
By:
-------------------------------
Attest:
By:
--------------------------------
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FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Increasing Rate Junior Subordinated Notes due 2006
referred to in the within-mentioned Indenture.
Dated:
LASALLE NATIONAL BANK
as Trustee
By:
--------------------------------
Authorized Signatory
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[Form of Reverse of Security]
RB ASSET, INC.
1. The Securities. This Security is one of duly authorized issue of
subordinated notes issued by RB Asset, Inc., a Delaware corporation (the
"Corporation"), designated as its Increasing Rate Junior Subordinated Notes due
January 15, 2006 and referred to hereinafter as the "Securities."
2. Interest. The Corporation promises to pay interest on the principal
amount of this Security in cash at the rate per annum calculated as set forth on
the face of this certification; provided, however, that through and including
January 15, 2002, on each Interest Payment Date (as defined below), the
Corporation may, at its option and in its sole discretion, in lieu of the
payment in whole or in part of interest due on this Security in cash, pay
interest on this Security through the issuance of additional Securities (the
"Additional Securities") in an aggregate principal amount equal to the amount of
interest that would be payable with respect to this Security, if such interest
were paid in cash. After January 15, 2002, the Corporation shall pay interest on
this Security in cash. The Corporation shall notify the Trustee in writing of
its election to pay interest on this Security through the issuance of additional
Securities and the aggregate amount of Additional Notes to be issued not less
than 10 nor more than 45 days prior to the record date for the Interest payment
Date on which additional Securities will be issued. On each such Interest
Payment Date, the Trustee shall authenticate Additional Notes for original
issuance to each Holder on the relevant record date in the aggregate principal
amount required to pay such interest. Additional Securities are an additional
obligation of the Corporation and shall be governed by, and entitled to the
benefits of, this Indenture and shall be subject to the terms of this Indenture
and shall be pari passu with and subject to the same terms (including the rate
of interest from time to time payable thereon) as this Security (except, as the
case may be, with respect to the issuance date and aggregate principal amount).
The Corporation shall pay interest on global Securities through the issuance of
Additional Securities only in accordance with the rules and regulations of the
Depository as in effect from time to time. The Corporation will pay interest
semi-annually in arrears on January 15 and July 15 of each year (each an
"Interest Payment Date"), commencing on July 15, 1999, the first Interest
Payment Date. 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. The "Interest Rate Increment" shall be
0.50% per annum for the semi-annual period commencing on January 16, 2002 and
ending on the next Interest Payment Date and shall increase by 0.50% per annum
for each semi-annual period beginning on the day following each successive
Interest Payment Date and ending on the Interest Payment Date immediately
thereafter until the semi-annual period ending on the Maturity Date.
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") occurs even though Securities are canceled after
the Regular Record Date and on or before the Interest Payment Date.
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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. In addition to the outstanding principal amount hereof, the
Corporation will pay at maturity a premium equal to 4% of such outstanding
principal amount. Holders must surrender Securities to a Paying Agent to collect
payments of principal and any premium. The Corporation will pay principal in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Corporation or the Paying Agent may, at
its election, pay principal and interest by check payable in such money mailed
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.
5. Indenture. The Corporation issued the Securities under an Indenture
dated as of December __, 1998 (the "Indenture"), between the Corporation and
LaSalle National Bank, as trustee (the "Trustee"). The Securities were issued
pursuant to the exchange of the 15% Noncumulative Perpetual Preferred Stock,
Series A, par value $1.00, of the Corporation (the "Series A Preferred Stock")
pursuant to the terms of the Offering Circular dated November 25, 1998 of the
Corporation relating thereto. 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
(up to $36,316,000 principal amount, plus such additional principal amount of
Securities as may be issued in payment of interest on Securities from the date
of their initial issuance until the semi-annual interest period beginning on
January 16, 2002). The indebtedness evidenced by this Security is not secured 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. To
the extent provided in the Indenture, Senior Debt must be paid before the
Securities may be paid. The Corporation agrees, and each Holder by accepting a
Security agrees, to such subordination and authorizes the Trustee to give it
effect.
7. Denominations, Transfer, Exchange. The Securities are in registered form
without coupons in denominations of $100 (or such greater amount as may be
required by applicable State or Federal law) and integral multiples of $100 in
excess thereof Securities issued in lieu of
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payment of interest in cash shall also be issued in denominations of $100 and
integral multiples thereof, with any interest amount under $100 payable in cash.
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. Mandatory Redemption. The Corporation will redeem on July 15, 2002
and each January 15 and July 15 thereafter to and including July 15, 2005,
7.14285% of the aggregate principal amount of the Securities originally issued
under the Indenture at the following redemption prices (expressed as percentages
of the principal amount), together with accrued interest to the date fixed for
redemption:
<TABLE>
<CAPTION>
Redemption Date Percentage
--------------- ----------
<S> <C>
July 15, 2002 100.00%
January 15, 2003 100.00%
July 15, 2003 100.50%
January 15, 2004 100.75%
July 15, 2004 101.00%
January 15, 2005 102.00%
July 15, 2005 103.00%
</TABLE>
The Corporation may reduce the principal amount of the Securities
required to be redeemed pursuant to this paragraph 8 by subtracting 100% of the
principal amount of any Securities acquired by the Corporation and delivered to
the Trustee for cancellation or redeemed otherwise than pursuant to this
paragraph 8. The Corporation may so subtract the same Security only once.
9. Optional Redemption. The Securities may be redeemed at the option of
the Corporation in whole or in part at any time at the following Redemption
Prices (expressed as percentages of the principal amount), together with accrued
interest to the date fixed for redemption:
<TABLE>
<CAPTION>
If Redeemed During the Following Periods Percentage
---------------------------------------- ----------
<S> <C>
On or prior to January 15, 2003 100.00%
January 16, 2003 to July 15, 2003 100.50%
July 16, 2003 to January 15, 2004 100.75%
January 16, 2004 to July 15, 2004 101.00%
July 16, 2004 to January 15, 2005 102.00%
</TABLE>
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<TABLE>
<CAPTION>
If Redeemed During the Following Periods Percentage
---------------------------------------- ----------
<S> <C>
January 16, 2005 to July 15, 2005 103.00%
July 16, 2005 and thereafter 104.00%
</TABLE>
10. Persons Deemed Owners. The registered Holder of a Security may be
treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Securities may be amended with the consent of the Holders of a
majority in principal amount of the then-outstanding Securities and any past
default or compliance with any provision may be waived in a particular instance
with the consent of the Holders of a majority in principal amount of the then
outstanding Securities. Without the consent of or notice to any Securityholder,
the Corporation and the Trustee may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for assumption of the Corporation's obligations to Securityholders, 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.
12. 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 mandatory redemption 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 by the
Trustee or by the Holders of at least 25% in principal amount of the Securities
then outstanding 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. 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.
13. 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.
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14. 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.
15. 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.
16. 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.
17. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
18. Certain Limitations on Securities. The 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.
19. Definitions. Terms defined in the Indenture and not otherwise
defined in this Security are used in this Security with the meaning so defined.
20. 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 entirety), 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
requests 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: RB Asset, Inc., 645 Fifth
Avenue, 8th Floor, New York, New York 10022, Attention: Chief Executive Officer.
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ASSIGNMENT FORM
To assign this Security, fill in the form below: for valuable
consideration, the undersigned registered Holder or Holder or Holders of this
Security assign and transfer this Security to.
-------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
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(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
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