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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended 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
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Commission file number 333 - 38673
RB ASSET, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-5041680
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eight Floor, New York, New York 10022
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(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
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RB ASSET, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
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Page
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.................... 53
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 53
PART III
Item 10. Directors and Principal Officers of the Registrant.......................... 54
Item 11. Management Compensation and Transactions.................................... 60
Item 12 Security Ownership of Certain Beneficial Owners and Management.............. 63
Item 13 Certain Relationships and Related Transactions.............................. 66
PART IV
Item 14. Financial Statements and Schedules, Exhibits and Reports on Form 8-K........ 69
SIGNATURES............................................................................................. 71
CONSOLIDATED FINANCIAL STATEMENTS...................................................................... 73
FINANCIAL STATEMENT SCHEDULES.......................................................................... 109
EXHIBIT INDEX.......................................................................................... 110
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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
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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 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. 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
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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 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").
759883.4
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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 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.
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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.
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,
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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 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
759883.4
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<PAGE>
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.
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,
759883.4
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<PAGE>
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
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.
759883.4
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<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 Project- Project-
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 95 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.
759883.4
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<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.
759883.4
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<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.
759883.4
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<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
759883.4
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<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.
759883.4
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<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 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.
759883.4
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<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."
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
759883.4
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<PAGE>
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.
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.
759883.4
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<PAGE>
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.
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
759883.4
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<PAGE>
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 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
759883.4
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<PAGE>
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 Offering, the Company believes that it is not "closely held"
for purposes of the passive activity loss rules following consummation of the
Offering notwithstanding the absence of the occurrence of an "ownership change"
for purposes of Section 382 of the Code. The passive activity loss limitation
rules will continue to apply to losses and credits from any preceding period
during which the 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 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
759883.4
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<PAGE>
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.
At this time, the Company remains subject to the information and reporting
requirements of the Exchange Act, as amended, administered by the SEC.
759883.4
-22-
<PAGE>
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.
759883.4
-23-
<PAGE>
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 practice to take title to a property only if a Phase I environmental
audit (which involves only limited procedures) does
759883.4
-24-
<PAGE>
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.
759883.4
-25-
<PAGE>
ITEM 4
SUBMISSIONS 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:
Abstentions
Proposal Votes in Favor Votes Opposed (Withheld)
- --------------------------------------------------------------------------------
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 -- --
759883.4
-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 was
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.
759883.4
-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>
759883.4
-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>
759883.4
-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.
759883.4
-30-
<PAGE>
The following table set 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.
759883.4
-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.
June 30,
---------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
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
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.
759883.4
-32-
<PAGE>
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 write-down of
$16.6 million and the sale/satisfaction of $3.1 million in investments in 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 write-downs in investments in real estate of $16.3 million,
recorded during the year ended June 30, 1997, included a write-down of $11.3
million for an office building complex in Atlanta, GA, categorized as real
estate held for investment. This charge followed a change in operating plans for
the property and a resultant reevaluation of projected operating cash flows
related to this property. 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
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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.
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.
Year ended June 30,
1998 1997 1996
---- ----- ----
(Dollars in thousands)
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
========== ========== ==========
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.
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<PAGE>
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.
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<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.
759883.4
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<PAGE>
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 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.
759883.4
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<PAGE>
Fiscal Year ended June 30,
1998 1997
---- ----
(Dollars in Thousands)
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
============== ==============
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
759883.4
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<PAGE>
a review of available evidence. Realization of tax benefits for deductible
temporary differences and unused NOL and tax credit carryforwards may be based
upon the future reversals of existing taxable temporary differences, future
taxable income exclusive of reversing temporary differences and carryforwards,
taxable income in prior carryback years and, if appropriate, from tax planning
strategies.
The high levels of loan charge-offs and other losses, which were largely
responsible for losses during the periods, effectively eliminated federal income
tax liability for fiscal 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,
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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 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.
759883.4
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<PAGE>
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.
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
759883.4
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<PAGE>
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.
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.
759883.4
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<PAGE>
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.
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.
The following table summarizes the gross and net carrying values of the
Company's non-performing loan assets at June 30, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Write-downs 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
</TABLE>
759883.4
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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 set 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 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
759883.4
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<PAGE>
for 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 write-downs of equity investments and
investments in real estate are needed to reduce the carrying values of such
assets in accordance with the requirements of generally accepted accounting
principles.
The 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 write-downs of investments in
real estate have been significant in recent years. Such provisions and
write-downs 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.
759883.4
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<PAGE>
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, write-downs of investments in real
estate and increased operating expenses as a result of the allocation of
resources to the collection and work-out of non-performing assets, will continue
to adversely affect the 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.
759883.4
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<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.
759883.4
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<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
========== ==========
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<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, write-downs 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
759883.4
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<PAGE>
pursues foreclosures or negotiates with borrowers to acquire properties which
secure problem loans by deed-in-lieu of foreclosure.
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.
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<PAGE>
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. 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.
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<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 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.
759883.4
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<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 73 to
114. See accompanying Index to the Consolidated Financial Statements on page 72.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
759883.4
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<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>
Name Age Position Class Director
---- --- -------- ----- --------
Term Since(1)
Expires
<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.
759883.4
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<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 state
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.
759883.4
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<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 Bylaws.
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
759883.4
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<PAGE>
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.
"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.
759883.4
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<PAGE>
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 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
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<PAGE>
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.
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<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
Chairman of the June 30, 1998 $300,000 -- $63,214 (1) $123,110 (2)
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, Jr., 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
759883.4
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<PAGE>
compensation in the form of a housing allowance, 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
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<PAGE>
directors and executive officers and all other loans to the Company's employees
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than the normal risk of collection or
present other unfavorable features. All such loans were transferred to Marine as
Transferred Assets in connection with the Branch Sale.
Transactions With Affiliates: The 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 set 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>
Amount and Nature
Title of of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Ariel Management Corp.(1)
450 Park Avenue Common Stock 371,689 5.2%
New York, New York 10022
East River Partnership B(3)
Madison Plaza
200 West Madison Street
Suite 3800 Common Stock 415,800 5.9%
Chicago, Illinois 60606
Mr. J. Ezra Merkin(1)
450 Park Avenue Common Stock 623,666 8.8%
New York, New York 10022
Odyssey Partners, L.P.(4)
31 West 52nd Street Common Stock 415,800 5.9%
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>
759883.4
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Title of of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Mr. Nelson L. Stephenson
President Common Stock - *
Mr. Jeffrey E. Susskind
Director Common Stock - *
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>
Amount and Nature
Title of of Percent of
Name and Address of Beneficial Owner Class Beneficial Ownership Class
------------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Cargill Financial Services
Corporation(2) Preferred Stock 145,000 10.4%
6000 Clearwater Drive
Minnetonka, Minnesota 55343
Corbyn Asset Management, Inc.(2)
2330 West Joppa Road, Suite 108 Preferred Stock 322,700 23.1%
Lutherville, Maryland 21093
Lutheran Brotherhood Research
Corp.(3) Preferred Stock 270,000 19.3%
625 Fourth Avenue South
Indianapolis, Minnesota 55415
State Street Research & Management
Company(2) Preferred Stock 200,000 14.3%
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>
759883.4
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Title of 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)
Preferred Stock 242,950 17.4%
All directors and executive officers
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 Funds are managed investment vehicles and neither is
the beneficial over 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.
759883.4
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<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.
759883.4
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<PAGE>
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 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.
759883.4
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<PAGE>
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.
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>
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 73
Consolidated Statements of Financial Condition
June 30, 1998 and 1997 74
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996 75
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996 76
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996 77
Notes to Consolidated Financial Statements 79
(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
by 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.
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<PAGE>
3.3-- Certificate of Designation of the 15% Noncumulative Perpetual
Preferred Stock, Series A, $1.00 par value, of the Company.
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.
- -------------------
* 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.
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 has not mailed its 1998 annual report to stockholder which it
intends to prepare and mail as soon as practicable following the filing of this
Report on Form 10-K.
759883.4
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<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: September 28, 1998 /s/ Nelson L. Stephenson
------------------------
Nelson L. Stephenson
President and Chief Executive Officer
(principal executive and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: September 28, 1998 /s/ Robin Chandler Duke
-----------------------
Robin Chandler Duke
Director
/s/ Alvin Dworman
Date: September 28, 1998 Alvin Dworman
Director
Date: September 28, 1998 /s/ William D. Hassett
----------------------
William D. Hassett
Director
Date: September 28, 1998 /s/ Jerome R. McDougal
----------------------
Jerome R. McDougal
Director
Date: September 28, 1998 /s/ Edward V. Regan
-------------------
Edward V. Regan
Director
759883.4
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<PAGE>
FINANCIAL STATEMENTS
RB ASSET, INC.
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors 73
Consolidated Statements of Financial Condition
June 30, 1998 and 1997 74
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996 75
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996 76
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996 77
Notes to Consolidated Financial Statements 79
Schedule III - Real Estate and Accumulated Depreciation 110
Schedule IV - Mortgage Loans on Real Estate 112
759883.4
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<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."
New York, New York
July 21, 1998
759883.4
-73-
<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.
759883.4
-74-
<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.
759883.4
-75-
<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.
759883.4
-76-
<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 $ 1,139,032
------------- --------------- -----------
Net cash provided by investing activities
</TABLE>
See Notes to Consolidated Financial Statements.
759883.4
-77-
<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.
759883.4
-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)
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
759883.4
-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)
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The cost of debt securities classified as available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security using a method approximating the level yield method. Such
amortization is included in interest income from these investments. Interest and
dividends are included in interest income from the respective investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary, are included in net securities gains and losses. The cost
of securities sold is based on the specific identification method.
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
759883.4
-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)
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. 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.
759883.4
-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)
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., 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 Sub, Inc. 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 Agreement") by and between the Predecessor
759883.4
-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)
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.
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.
759883.4
-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)
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
759883.4
-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)
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, 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.
759883.4
-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)
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 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
759883.4
-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)
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.
759883.4
-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)
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.
759883.4
-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)
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 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.
759883.4
-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)
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
it 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.
759883.4
-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)
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 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, 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.
759883.4
-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)
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 Number
of Amount 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.
759883.4
-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)
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 $ 1,849 $ 1,701
1996 -- 8,445
Provisions charged to operations (486) (8,297)
------------ -----------
Charge-offs $ 1,363 $ 1,849
============ ===========
Ending balance - June 30
</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 (6) (1,817)
expenses -- (1,300)
------------- -----------
Writedowns of asset value $ 77 $ (1,461)
============= ===========
Net income
</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.
759883.4
-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)
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.
759883.4
-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)
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.
759883.4
-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)
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.
759883.4
-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 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
759883.4
-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)
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.
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:
July 1, 2004 to June 30, 2005 $27.50
July 1, 2005 to June 30, 2006 27.25
July 1, 2006 to June 30, 2007 27.00
July 1, 2007 to June 30, 2008 26.75
July 1, 2008 to June 30, 2009 26.50
July 1, 2009 to June 30, 2010 26.25
July 1, 2010 to June 30, 2011 26.00
July 1, 2011 to June 30, 2012 25.75
July 1, 2012 to June 30, 2013 25.50
July 1, 2013 to June 30, 2014 25.25
July 1, 2014 and thereafter 25.00
If fewer than all the outstanding shares of 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.
759883.4
-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)
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 Reotrganization 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
759883.4
-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)
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 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.
759883.4
-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)
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
759883.4
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<PAGE>
RB ASSET, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS Years ended June 30, 1998,
1997, and 1996
(Dollars in thousands, except per share data)
30, 1997. During the year ended June 30, 1997, the Company completed a review of
its potential current and deferred federal and state tax liability in light of
the Branch Sale and its related tax effects. As a result of the review of its
potential current and deferred tax liabilities and the results of operations for
the year ended June 30, 1997, the 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.
759883.4
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<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 (107) 33 (61)
---------- ----------- -----------
deferral $ 11 $ (22) $ (17)
========== =========== ===========
Net periodic pension
benefit
</TABLE>
Assumptions used in accounting were:
<TABLE>
<CAPTION>
June June June
30, 30, 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,
759883.4
-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)
respectively. The related expense for the years ended June 30, 1998, 1997, and
1996 was $192, $58 and $58, respectively.
Retirement benefits are also provided through a 401(k) plan which, through
December 1993, allowed participants to contribute up to 6% of their compensation
to the plan. The 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>
759883.4
-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 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.
759883.4
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<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".
759883.4
-106-
<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>
June 30, 1996
Carrying Estimated
Amount Fair Value
------ ----------
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 -- --
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
759883.4
-107-
<PAGE>
incurring excessive costs. Therefore, the Company concludes that it is not
practicable to estimate the fair value of its commercial loan portfolio.
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.
759883.4
-108-
<PAGE>
FINANCIAL SCHEDULES
RB ASSET, INC.
Index to Consolidated Financial Schedules
Page
Real Estate and Accumulated Depreciation (Schedule III) 110
Year ended June 30, 1998
Mortgage Loans on Real Estate (Schedule IV) 112
Year ended June 30, 1998
759883.4
-109-
<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 Write down
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>
Life on which
Gross amount at which carried depreciation in
at close of period, June 30,1998 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/Write downs (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.
759883.4
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<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 write down 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.
759883.4
-111-
<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)
759883.4
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<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>
<S> <C> <C> <C>
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
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 (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.
759883.4
-113-
<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.
759883.4
-114-
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1, dated as of May 15, 1998, to AGREEMENT AND
PLAN OF MERGER, dated as of the 9th day of October, 1997 (the "Agreement and
Plan Of Merger"), by and between River Asset Sub, Inc., a Delaware corporation
("River Asset Sub"), and River Distribution Sub, Inc., a Delaware corporation
("River Distribution Sub").
Preliminary Statement
River Asset Sub and River Distribution Sub have entered into
the Agreement and Plan of Merger which provides, among other things, that River
Distribution Sub will merge with and into River Asset Sub with River Asset Sub
as the surviving corporation of the merger and that the directors of River
Distribution Sub immediately prior to the effective time of the merger shall be
the directors of the surviving corporation, and that each of such directors will
hold office, subject to the applicable provisions of the certificate of
incorporation and bylaws of surviving corporation, until their respective
successors shall be duly elected or appointed and qualified. The parties hereto
desire to amend certain provisions of the Agreement and Plan of Merger.
Accordingly, the parties hereto agree as follows:
1. Definitions.
Capitalized terms used herein, but not otherwise defined
herein, shall have the meanings ascribed to them in the Agreement and Plan of
Merger.
2. Amendment to Agreement and Plan of Merger.
Effective as of the date hereof, the Agreement and Plan of
Merger is hereby amended pursuant to Section 3.3 thereof by substituting the
following Section 2.3(c) for Section 2.3(c) contained in the Agreement and Plan
of Merger at the time of the execution and delivery thereof:
"(c) Directors and Officers of Surviving Corporation.
The directors of River Distribution Sub immediately prior to
the Effective Time shall be the directors of Surviving
Corporation and shall be classified as follows:
Name of Director Class Term Expires
Robin Chandler Duke III 1999
712742.2
<PAGE>
Robert N. Flint III 1999
William D. Hassett II 2000
Jerome R. McDougal II 2000
Edward V. Regan I 1998
and the officers of River Distribution Sub immediately prior
to the Effective Time shall be the officers of Surviving
Corporation, each of such directors and officers to hold
office, subject to the applicable provisions of the
certificate of incorporation and bylaws of Surviving
Corporation, until their respective successors shall be duly
elected or appointed and qualified."
3. Reference to and Effect on the Agreement and Plan of Merger.
(a) On and after the date hereof each reference in the
Agreement and Plan of Merger to "this Agreement", "hereunder", "hereof",
"herein", "thereof" or words of like import shall mean and be a reference to the
Agreement and Plan of Merger as amended hereby.
(b) Except as expressly amended by this Amendment No. 1, the
Agreement and Plan of Merger shall remain in full force and effect and is hereby
ratified and confirmed.
4. Governing Law.
This Amendment No. 1 and the legal relations between the
parties hereto shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware.
5. Counterparts.
This Amendment No. 1 may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which together shall
be deemed to be one and the same instrument.
[End of Text]
712742.2
<PAGE>
IN WITNESS WHEREOF, each of River Distribution Sub and River
Asset Sub has caused this Amendment No. 1 to be executed by its respective
officers thereunto duly authorized, all as of the date first above written.
River Distribution Sub, Inc.
By: /s/ Jerome R. McDougal
----------------------------------
Name: Jerome R. McDougal
Title: Chairman, Pres. & CEO
River Asset Sub, Inc.
By: /s/ Jerome R. McDougal
----------------------------------
Name: Jerome R. McDougal
Title: Chairman, Pres. & CEO
712742.2
<PAGE>
Exhibit 3.1
CERTIFICATE OF MERGER
OF
RIVER ASSET SUB, INC.
AND
RIVER DISTRIBUTION SUB, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) River Asset Sub, Inc., which is incorporated in
the State of Delaware ("River Asset Sub"); and
(ii) River Distribution Sub, Inc., which is
incorporated in the State of Delaware ("River Distribution Sub").
2. An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 251
of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is River Asset Sub, which will continue its existence as said
surviving corporation under the name "RB Asset, Inc." upon the effective date of
said merger pursuant to the provisions of the General Corporation Law of the
State of Delaware.
4. The certificate of incorporation, including, without
limitation, the certificate of designation, preferences and rights of the 15%
noncumulative perpetual preferred stock, series A, attached hereto as Exhibit A
shall be the Certificate of Incorporation of said surviving corporation until
further amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed agreement and plan of merger between the
constituent corporations is on file at an office of the aforesaid surviving
corporation, the address of which is as follows:
645 Fifth Avenue
New York, New York 10022
622147.4
<PAGE>
6. A copy of the aforesaid agreement and plan of merger will
be furnished by the aforesaid surviving corporation, on request, and without
cost, to any stockholder of each of the aforesaid constituent corporations.
7. The agreement and plan of merger between the aforesaid
constituent corporations provides that the merger herein certified shall be
effective upon the filing of this certificate.
Dated: May 18, 1998
RIVER ASSET SUB, INC.
By: /s/ Jerome R. McDougal
-------------------------
Its President
Dated: May 18, 1998
RIVER DISTRIBUTION SUB, INC.
By: /s/ Jerome R. McDougal
-------------------------
Its President
622147.4
-2-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
RB ASSET, INC.
FIRST: The name of the corporation is RB Asset, Inc. (hereinafter called
the "Corporation").
SECOND: The registered office of the Corporation is to be located at 1013
Centre Road, in the City of Wilmington, in the County of New Castle, in the
State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity, without limitation, for which a corporation may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is forty million (40,000,000)
shares, of which ten million (10,000,000) shares shall be preferred stock, $1.00
par value per share (the "Preferred Stock"), and thirty million (30,000,000)
shares shall be common stock, $1.00 par value per share (the "Common Stock").
The Preferred Stock and the Common Stock are sometimes hereinafter collectively
referred to as "Capital Stock."
718554.1
<PAGE>
B. The following is a statement of the designations, powers, preferences
and rights in respect of the classes of the Capital Stock, and the
qualifications, limitations or restrictions thereof, and of the authority with
respect thereto expressly vested in the Board of Directors of the Corporation:
(1) Preferred Stock. The Preferred Stock may be issued from time to time in
one or more series, the number of shares and any designation of each series and
the powers, preferences and rights of the shares of each series, and the
qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
The Board of Directors in any such resolution or resolutions is expressly
authorized to state for each such series:
(a) the voting powers, if any, of the holders of shares of such
series in addition to any voting rights affirmatively required by law;
(b) the rate or rates per annum and the time or times at and
conditions upon which the holders of shares of such series shall be
entitled to receive dividends and other distributions, and whether any
such dividends shall be cumulative or non-cumulative and, if cumulative,
the terms upon which such dividends shall be cumulative;
(c) the terms and conditions upon which the shares of such series
shall be redeemable;
718554.1
-2-
<PAGE>
(d) the amount payable and the rights to which the holders of the
shares of such series shall be entitled upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(e) the terms, if any, upon which shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(f) any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, so far as they are not inconsistent
with the provisions of this certificate of incorporation or the laws of
the State of Delaware.
All shares of the Preferred Stock of any one series shall be identical to
each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon, if
cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting a series, the Board of Directors may be resolution or resolutions
likewise adopted increase or decrease (but not below the number of shares of the
series then outstanding) the number of shares of the series subsequent to the
issue of shares of
718554.1
-3-
<PAGE>
that series; and in case the number of shares of any series shall be so
decreased, the shares constituting the decrease shall resume that status which
they had prior to the adoption of the resolution originally fixing the number of
shares constituting such series.
The certificate of designation, preferences and rights of the Corporation's
15% noncumulative perpetual preferred stock, Series A (par value $1.00 per
share) is attached hereto as Exhibit A-1.
(2) Common Stock. Subject to the preferences, privileges and voting
powers, and the restrictions and qualifications thereof, with respect to each
class of Capital Stock of the Corporation having any priority over the Common
Stock, the holders of the Common Stock shall have and possess all rights
appertaining to Capital Stock of the Corporation. All shares of Common Stock
shall be identical with each other in every respect. The shares of Common Stock
shall entitle the holders thereof to one vote for each share upon all matters
upon which stockholders have the right to vote. The holders of Common Stock
shall not be permitted to cumulate their votes for the election of directors.
C. No holder of shares of Capital Stock shall be entitled as such, as a
matter of right, to subscribe for or purchase any part of any new or additional
issue of stock of any class whatsoever of the Capital Stock or of securities
convertible into stock of any class whatsoever, whether now or hereafter
authorized or whether issued for cash or other consideration or by way of
dividend.
FIFTH: The name and mailing address of the incorporator is:
NAME ADDRESS
- ---- -------
Gloria M. Skigen c/o Battle Fowler LLP
75 East 55th Street
New York, New York 10022
718554.1
-4-
<PAGE>
SIXTH: Except as may be otherwise provided for or fixed pursuant to the
provisions of Article FOURTH with respect to any rights of holders of Preferred
Stock to elect directors, the number of directors of the Corporation shall be
not less than seven nor more than twenty. The directors shall be divided into
three classes, as nearly equal in number as possible. The members of each class
shall be elected for the term of three years and until their successors are
elected and qualified. One class shall be elected by ballot annually.
SEVENTH: The Board of Directors shall have the power to adopt, amend and
repeal the By-laws of the Corporation. The holders of shares of capital stock of
the Corporation entitled to vote in an election of directors ("Voting Shares")
also shall have the power to amend or repeal the By-laws, including By-laws made
by the Board of Directors, and to enact By-laws which if so expressed may be
amended or repealed only by the holders of the Voting Shares.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may
718554.1
-5-
<PAGE>
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of the Corporation, as the case may be,
and also on the Corporation.
NINTH: The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7)) of subsection (b)
of Section 102 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented. Any repeal or modification of this Article
NINTH shall not increase the personal liability of any director of the
Corporation for any act or occurrence taking place prior to such repeal or
modification, or otherwise adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
TENTH: The Corporation shall indemnify, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, past and present directors and officers, and
may indemnify any and all other persons whom it shall have power to indemnify
under said section from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section and shall advance
expenses incurred
718554.1
-6-
<PAGE>
by any and all of such persons in relation to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-laws, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in any
other capacity while holding such office, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. Any repeal
or modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect the right to indemnification
or advancement of expenses hereunder existing at the time of such repeal or
modification.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ELEVENTH: A two-thirds vote of the entire Board of Directors shall be
required to renew or amend any employment contract between the Corporation and
any officer of the Corporation.
718554.1
-7-
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE
15% NONCUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A
(Par Value $1.00 Per Share)
of
RB ASSET, INC.
------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
RESOLVED that, pursuant to the authority vested in the Board of Directors
of RB Asset, Inc. (hereinafter called the "Corporation") in accordance with the
provisions of its Certificate of Incorporation, a series of preferred stock of
the Corporation be, and it hereby is, created, and that the designation and
amount thereof and the powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
(A) The shares of this series of preferred stock shall be designated as 15%
Noncumulative Perpetual Preferred Stock, Series A ("Series A Preferred Stock")
and the number of shares constituting such series shall be one million four
hundred thousand (1,400,000) shares. Shares of Series A Preferred Stock shall
have a $1.00 par value per share.
(B) The number of authorized shares of Series A Preferred Stock may be
reduced from time to time, but not below the number of shares of Series A
Preferred Stock then outstanding, by further resolution duly adopted by the
Board of Directors. The number of authorized shares of Series A Preferred Stock
shall not be increased.
718596.1
<PAGE>
Section 2. Ranking; Attributable Capital and Adequacy of Surplus.
(A) With respect to dividend rights, the Series A Preferred Stock shall
rank prior to common stock of all classes of the Corporation (collectively, the
"Common Stock") and to all other classes and series of equity securities of the
Corporation now or hereafter authorized, issued or outstanding other than Parity
Dividend Stock and Senior Dividend Stock. Parity Dividend Stock shall mean any
class or series of equity securities of the Corporation expressly designated as
ranking, with respect to dividend rights, on a parity with Series A Preferred
Stock, and Senior Dividend Stock shall mean any class or series of equity
securities of the Corporation expressly designated as ranking, with respect to
dividend rights, as senior to the Series A Preferred Stock.
(B) With respect to rights upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Series A Preferred Stock shall
rank prior to the Common Stock and to all other classes and series of equity
securities of the Corporation now or hereafter authorized, issued or outstanding
other than Parity Liquidation Stock and Senior Liquidation Stock. Parity
Liquidation Stock shall mean any class or series of equity securities of the
Corporation expressly designated as ranking, with respect to rights upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, on a parity with the Series A Preferred Stock, and Senior
Liquidation Stock shall mean any class or series of equity securities of the
Corporation expressly designated as ranking, with respect to rights upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, as senior to the Series A Preferred Stock.
(C) To the extent not expressly prohibited by the Certificate of
Incorporation, the Series A Preferred Stock shall be subject to the creation of
Parity Dividend Stock and Parity Liquidation Stock (collectively, "Parity
Stock") and of Common Stock and all other classes and series of equity
securities of the Corporation ranking junior to the Series A Preferred Stock
with respect to dividend rights ("Junior Dividend Stock") or rights upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation ("Junior Liquidation Stock" and, collectively with Junior Dividend
Stock, "Junior Stock"). Shares of the Corporation's Junior Participating
Preferred Stock are hereby designated as Junior Dividend Stock and as Junior
Liquidation Stock. No shares of Senior Dividend Stock or Senior Liquidation
Stock shall be created without the consent of the holders of Series A Preferred
Stock as provided in Section 7(C) hereof.
(D) The capital of the Corporation allocable to the Series A Preferred
Stock for purposes of Section 154 of the General Corporation Law of the State of
Delaware shall be $1,400,000.00. In addition to any vote of stockholders
required by law, the vote of the holders of a majority of the outstanding shares
of Series A Preferred Stock shall be required to increase the par value of the
Common Stock or otherwise increase the capital of the Corporation allocable to
the Common Stock for the purpose of Section 154 of the General Corporation Law
of the State of Delaware if, as a result thereof, the surplus of the Corporation
for purposes of the General Corporation Law would be less than the amount
718596.1
-2-
<PAGE>
of dividends that would accrue on the then-outstanding shares of Series A
Preferred Stock during the following three years.
Section 3. Noncumulative Dividends; Priority.
(A) (i) Subject to the restrictions and limitations on declaration and
payment of dividends specified in Section 12, the holders of record of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor,
noncumulative cash dividends at an annual rate of 15% of the $25.00 liquidation
preference per share ($3.75 per share per annum), and no more. Dividends on the
Series A Preferred Stock shall be declared and paid in cash only. Such
noncumulative cash dividends shall be declared and payable quarterly in arrears
in the amount set forth in Section 3(A)(iii) on January 15, April 15, July 15
and October 15 of each year or, if such day is not a Business Day (as defined in
Section 10), on the next Business Day (each such date, a "Dividend Payment
Date"). The first Dividend Payment Date shall be the first to occur of January
15, April 15, July 15 and October 15 after the Initial Dividend Period (as
defined below). Each declared dividend shall be payable to holders of record of
the Series A Preferred Stock as they appear on the stock books of the
Corporation (or of any transfer agent for the Series A Preferred Stock) at the
close of business on such record dates, not more than fifty (50) calendar days
nor less than ten (10) calendar days preceding the Dividend Payment Date
therefor, as determined by the Board of Directors (each such date, a "Record
Date"). The initial period for which dividends shall be paid (the "Initial
Dividend Period") shall commence on the effective time of the merger of River
Distribution Sub, Inc., a Delaware corporation, and River Asset Sub, Inc., a
Delaware corporation (the "Merger"), and shall end on the first to occur of
November 30, February 28, May 31 and August 31 after the Merger. Thereafter,
quarterly dividend periods (each, a "Dividend Period") shall commence on and
include September 1, December 1, March 1 and June 1 of each year (each such
date, a "Dividend Period Commencement Date") and shall end on and include the
date next preceding the Dividend Period Commencement Date of the following
Dividend Period.
(ii) Dividends on the Series A Preferred Stock shall be noncumulative.
If a dividend on the Series A Preferred Stock with respect to any Dividend
Period (including the Initial Dividend Period) is not declared by the Board of
Directors, the Corporation shall have no obligation at any time to pay a
dividend on the Series A Preferred Stock with respect to such Dividend Period,
whether or not dividends are declared payable with respect to any future
Dividend Period. The holders of the Series A Preferred Stock shall not be
entitled to any dividends in excess of the noncumulative dividends declared by
the Board of Directors, as set forth in this paragraph (A).
(iii) The amount of dividends payable on each share of Series A
Preferred Stock for each full Dividend Period during which such share is
outstanding shall be $0.94. The amount of dividends payable for the Initial
Dividend Period and for any Dividend Period which is less than a full three (3)
months shall be computed on the basis of a 360-
718596.1
-3-
<PAGE>
day year composed of twelve (12) 30-day months and the actual number of days
elapsed in the Initial Dividend Period or such Dividend Period.
(iv) The Series A Preferred Stock shall not participate in dividends
with the Common Stock.
(v) The holders of the Series A Preferred Stock shall not be entitled
to any interest, or any sum of money in lieu of interest, in respect of any
dividend payment or payments on the Series A Preferred Stock declared by the
Board of Directors which may be unpaid.
(B) (i) No full dividends shall be declared or paid or set apart for
payment on any Parity Dividend Stock for any Dividend Period unless full
dividends have been or contemporaneously are declared and paid (or declared and
a sum sufficient for the payment thereof set apart for such payment) on the
Series A Preferred Stock for such Dividend Period. When dividends are not paid
in full (or declared and a sum sufficient for such full payment is not so set
apart) for any Dividend Period on the Series A Preferred Stock and any other
Parity Dividend Stock, dividends declared on the Series A Preferred Stock and
other Parity Dividend Stock shall only be declared pro rata, such that the
amount of dividends declared per share on the Series A Preferred Stock and other
Parity Dividend Stock shall bear to each other the same ratio that, at the time
of such declaration, all accrued and payable but unpaid dividends for such
Dividend Period per share on shares of the Series A Preferred Stock (which shall
not include any accumulation in respect of unpaid dividends for prior Dividend
Periods) and other Parity Dividend Stock bear to each other.
(ii) The Corporation shall not (a) declare or (b) pay or set apart
funds for any dividends or other distributions (other than in Common Stock or
other Junior Stock) with respect to any Common Stock or other Junior Dividend
Stock of the Corporation, or (c) (except by conversion into or exchange for
Junior Stock) repurchase, redeem or otherwise acquire, or set apart funds for
the repurchase, redemption or other acquisition of, any Common Stock or other
Junior Stock through a sinking fund or otherwise, unless the Corporation shall
have, in the case of clause (a) declared, or in the case of clauses (b) or (c)
paid or set apart funds for the payment of, full dividends on the Series A
Preferred Stock with respect to the same calendar quarter for which (x) the
dividend or other distribution is being declared or paid, as the case may be, on
the Common Stock or other Junior Stock or (y) the Common Stock or other Junior
Stock is being repurchased, redeemed or otherwise acquired.
(C) Any reference to "dividends" or "distributions" in this Section 3 shall
not be deemed to include any distribution made in connection with any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation.
718596.1
-4-
<PAGE>
Section 4. Redemption at the Option of the Corporation.
(A) (i) The shares of Series A Preferred Stock shall not be subject to
mandatory redemption, and shall not be redeemable by the Corporation prior to
July 1, 2004. On or after July 1, 2004, shares of Series A Preferred Stock may
be redeemed by the Corporation, at its option, in whole or in part, at any time
or from time to time, upon notice as provided in paragraph (B) of this Section
4, by resolution of the Board of Directors, at the redemption prices set forth
below in cash, plus, in each case, an amount in cash equal to all accrued and
unpaid dividends thereon (whether or not declared) from the Dividend Period
Commencement Date next preceding the date fixed for redemption (the "Redemption
Date") to, but excluding, the Redemption Date (without accumulation of unpaid
dividends for prior Dividend Periods):
<TABLE>
<CAPTION>
During the
Twelve-month Period Redemption Price
Beginning July 1, Per Share
- -------------------------------------------- --------------------------------
<S> <C> <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>
(ii) The aggregate redemption price payable to each holder of record of
Series A Preferred Stock to be redeemed shall be rounded to the nearest cent
($0.01).
(B) (i) Notice of any redemption shall be given by first-class mail,
postage prepaid, mailed at least twenty (20) days but not more than sixty (60)
days prior to the Redemption Date to each holder of record of Series A Preferred
Stock to be redeemed at such holder's address as the same shall appear on the
stock books of the Corporation (or of any transfer agent for the Series A
Preferred Stock). Each such notice shall set forth: (a) the Redemption Date; (b)
the redemption price; (c) the number of shares of Series A Preferred
718596.1
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Stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (d)
the place or places where certificates for such shares are to be surrendered for
payment of the redemption price; and (e) a statement that dividends on the
shares of Series A Preferred Stock to be redeemed shall cease to accrue on the
Redemption Date. Neither failure to mail such notice, nor any defect therein or
in the mailing thereof, to any particular holder shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect to the
other holders. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives such notice.
(ii) On or after the Redemption Date, each holder of shares of Series A
Preferred Stock to be redeemed shall present and surrender the certificate or
certificates for such shares to the Corporation at the place designated in the
notice given to such holder, and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled. If fewer than all the shares represented by any
such certificate are redeemed, a new certificate representing the unredeemed
shares shall be issued to the holder of such shares.
(iii) If such notice of redemption shall have been so mailed, and if,
on or before the Redemption Date specified in such notice, all funds necessary
for such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the account of the holders of shares of
Series A Preferred Stock to be redeemed (so as to be and continue to be
available therefor), then, on and after the Redemption Date, notwithstanding
that any certificates for shares of Series A Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares of
Series A Preferred Stock so called for redemption shall be deemed to be no
longer outstanding and the holders of such shares shall cease to be stockholders
of the Corporation and shall have no voting or other rights with respect to such
shares, except for the right to receive out of the funds so set aside in trust
the amount payable on redemption thereof, without interest, upon surrender (and
endorsement or assignment for transfer, if required by the Corporation) of their
certificates.
(iv) In the event that holders of shares of Series A Preferred Stock
that have been redeemed shall not within two (2) years (or any longer period
required by law) after the Redemption Date, claim any amount deposited in trust
with a bank or trust company for the redemption of such shares, such bank or
trust company shall, upon demand by the Corporation and if permitted by
applicable law, pay over to the Corporation any such unclaimed amount so
deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable escheat laws, look only to the Corporation for payment of the
redemption price thereof, but without interest from the Redemption Date. Any
interest accrued on funds deposited in trust as aforesaid shall be paid to the
Corporation from time to time.
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(C) If fewer than all the outstanding shares of Series A Preferred Stock
are to be redeemed, the shares to be redeemed shall be selected pro rata or by
lot or by such other method as the Board of Directors, in its sole discretion,
determines to be equitable.
(D) Shares of Series A Preferred Stock redeemed, purchased or otherwise
acquired for value by the Corporation shall, after such redemption, purchase or
acquisition, be retired and canceled in accordance with the General Corporation
Law of the State of Delaware. And such shares shall upon their cancellation
become authorized but unissued shares of preferred stock and may be reissued as
part of a new series of preferred stock to be created by resolution or
resolutions of the Board of Directors as permitted by law (other than as shares
of Series A Preferred Stock).
(E) The Series A Preferred Stock shall not be subject to the operation of
any mandatory purchase, retirement or sinking fund.
Section 5. Note Exchange.
(A)(i) Subject to the terms and conditions set forth herein, following a
Change of Control (as defined below) the Note Issuer (as defined below) may, at
the option of the Note Issuer, exchange all or part of the outstanding Series A
Preferred Stock for subordinated notes (the "Subordinated Notes") of the Note
Issuer (the "Note Exchange"). Pursuant to a Note Exchange, each $1,000 in
liquidation value of the shares of Series A Preferred Stock covered thereby will
be exchangeable for $1,000 principal amount of Subordinated Notes. Such
Subordinated Notes shall have the terms, covenants and conditions substantially
as provided in the form of Indenture attached hereto (the "Indenture"). The rate
of interest on the Subordinated Notes shall be 15%, the maximum principal amount
of the Subordinated Notes shall be 100% of the aggregate liquidation preference
of the Series A Preferred Stock to be exchanged, as set forth in Section 6
hereof, and the principal of such Subordinated Notes shall not be payable by the
Note Issuer prior to July 1, 2004 and shall be payable thereafter only in
accordance with the redemption provisions set forth in the Indenture. Interest
shall be payable at the times and in the manner set forth in the form of
Subordinated Note included as Exhibit A to the Indenture.
(ii) The Note Issuer may elect to consummate the Note Exchange at any
time following a Change of Control and prior to July 1, 2014. The Note Issuer
shall elect to consummate the Note Exchange by mailing to each holder of record
of the Series A Preferred Stock (a "Holder") a notice of exchange (the "Note
Exchange Notice") at such Holder's address as it appears on the books of the
Corporation. The Note Exchange Notice shall specify (a) a date not less than 30
days nor more than 60 days following the date of the Note Exchange Notice on
which the Note Exchange is to be consummated (the "Note Exchange Date"), (b) the
procedures for exchanging certificates representing Series A Preferred Stock for
certificates representing Subordinated Notes and (c) the number of shares of
Series A Preferred Stock to be exchanged and, if applicable, each Holder's pro
rata portion of shares to be exchanged.
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<PAGE>
(iii) In the event that the Note Exchange shall be for less than all of
the outstanding shares of Series A Preferred Stock, the Note Exchange shall be
effected pro rata among all Holders, unless the Holders otherwise agree, and, in
addition to certificates evidencing the Subordinated Notes, all Holders shall
receive a certificate evidencing the shares of Series A Preferred Stock not so
exchanged.
(iv) As of 5:00 p.m., New York City time, on the Note Exchange Date,
the shares to be exchanged pursuant to the Note Exchange Notice shall no longer
be deemed to be outstanding and shall be retired and all rights with respect to
such shares, including, without limitation, the rights, if any, to receive
dividends and to receive notices and to vote or consent (except for the right of
the Holders to receive the Subordinated Notes to which such Holder is entitled
pursuant to the Note Exchange) shall forthwith cease.
(v) Upon any exchange of shares of Series A Preferred Stock into
Subordinated Notes, as provided herein, the Note Issuer will pay any
documentary, stamp or similar issue or transfer taxes which may be due with
respect to the transfer and exchange of such exchanged shares, if any; provided,
however, that if the Subordinated Notes into which the shares of Series A
Preferred Stock are exchangeable are to be issued in the name of any person
other than the Holder of the shares of Series A Preferred Stock to be so
exchanged, the amount of any transfer taxes (whether imposed on the Note Issuer,
the holder or such other person) payable on account of the transfer to such
person will be payable by the Holder.
(B) (i) "Change of Control" means the occurrence of any of the following
events:
(a) Any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than 50% of
the stock of any class or classes, however designated, of capital stock of
the Corporation having ordinary voting power for the election of a majority
of the Board of Directors of the Corporation, other than any stock having
such power only by reason of the occurrence of a contingency, on a fully
diluted basis (the "Voting Stock"); or
(b) other than the Merger, the Corporation (x) shall consolidate
with or merge into any person, other than a wholly-owned subsidiary of the
Corporation, and shall not be the continuing or surviving corporation of
such consolidation or merger, or (y) shall permit any person, other than a
wholly-owned subsidiary of the Corporation, to consolidate with or merge
into the Corporation and the Corporation shall be the continuing or
surviving corporation, but, in connection with such merger, 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;
718596.1
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<PAGE>
provided that in the case of each of clause (a) and (b) above a Change of
Control shall not be deemed to occur in the event (i) that Alvin Dworman, two
partnerships, the partners of which are trusts for the benefit of certain
descendants of Nicholas J. Pritzker, deceased or Odyssey Partners, L.P., a
Delaware limited partnership, or their respective affiliates, acquire,
individually or in the aggregate, more than 50% of the Voting Stock of the
Corporation or (ii) the Corporation reorganizes into the holding company form of
organization in a transaction which does not result in a material change in the
holders of the Voting Stock, other than by means of dissenting shares.
(ii) "Note Issuer" shall mean:
(a) in the case of Section 5(B)(i)(a), the Corporation and
(b) in the case of Section 5(B)(i)(b), (1) the continuing or
surviving corporation of a consolidation or merger with the Corporation (if
other than the Corporation) and (2) the corporation consolidating or
merging into the Corporation in a consolidation or merger in which the
Corporation is the continuing or surviving person and in connection with
which the shares of Voting Stock outstanding immediately prior to the
consolidation or merger are changed into or exchanged for stock or other
securities of any other person or cash or any other property or shall
represent less than 50% of the shares of Voting Stock immediately after
giving effect to the consolidation or merger.
(C) It will be a condition to the Note Exchange that: (i) the Subordinated
Notes have been registered under the Securities Act of 1933, unless an exemption
from registration is available, (ii) the Indenture pursuant to which the
Subordinated Notes are to be issued has been executed and delivered by the Note
Issuer, (iii) the Trustee appointed pursuant to the Indenture shall have
received an opinion (in the form specified in the Indenture) to the effect that
the Subordinated Notes will, when issued in accordance with the terms of the
Indenture, be legal, valid, binding and enforceable obligations of the Note
Issuer and (iv) immediately after the Note Exchange, no default or event of
default will exist under the Indenture.
(D) A Note Exchange shall comply with all applicable federal and state
securities and blue sky laws and the provisions of this Section 5 may be
modified by the Note Issuer without the approval of the holders of the Series A
Preferred Stock in order to effect such compliance.
Section 6. Liquidation Preference.
(A) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock shall be entitled to receive for each share thereof, out of the assets of
the Corporation which are legally available for distribution to stockholders
under applicable law, or the proceeds thereof, before any payment or
distribution of such assets or proceeds shall be made to holders of shares of
Common Stock or any other Junior Liquidation Stock, liquidating
718596.1
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distributions in the amount of $25.00 per share, plus an amount per share equal
to all accrued, undeclared and unpaid dividends thereon from the Dividend Period
Commencement Date next preceding the date fixed for such liquidation,
dissolution or winding up (the "Liquidation Date") to, but excluding, the
Liquidation Date (without accumulation of unpaid dividends for prior Dividend
Periods), and no more; provided, however, that the holders of shares of Series A
Preferred Stock and any Parity Liquidation Stock shall be entitled to such
liquidating distributions only after payment in full of liquidating
distributions to holders of shares of any Senior Liquidation Stock. If the
amounts available for distribution in respect of shares of Series A Preferred
Stock and any Parity Liquidation Stock are not sufficient to satisfy the full
liquidation rights of all the outstanding shares thereof, the holders of such
outstanding shares of Series A Preferred Stock and such Parity Liquidation Stock
shall share ratably in any such distribution of assets in proportion to the full
respective preferential amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Series A Preferred Stock as such shall not be entitled to
any further participation in any distribution of assets by the Corporation. All
distributions made in respect of the Series A Preferred Stock in connection with
such a liquidation, dissolution or winding up of the Corporation shall be made
pro rata to the holders of the Series A Preferred Stock entitled thereto.
(B) Neither the merger or consolidation of the Corporation with or into any
other entity, nor the merger or consolidation of any other entity with or into
the Corporation, nor the sale, transfer or lease of all or any portion of the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the affairs of the Corporation for purposes of this Section 6.
(C) Written notice of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Series A
Preferred Stock in such circumstances shall be payable, shall be given by
first-class mail, postage prepaid, mailed not less than twenty (20) days prior
to any payment date stated therein, to each holder of record of Series A
Preferred Stock, at such holder's address as the same shall appear on the stock
books of the Corporation (or of any transfer agent for the Series A Preferred
Stock).
Section 7. Voting Rights.
(A) Except as expressly provided in this Section 7, or as otherwise
required by applicable law or regulation, the holders of shares of Series A
Preferred Stock shall have no voting rights.
(B)(i) The holders of shares of Series A Preferred Stock shall be entitled
to exercise the voting rights provided for in this paragraph (B) of Section 7
(the "Election Right") upon the occurrence of a "Voting Event." It shall be a
Voting Event if the Corporation or River Bank America, a New York chartered
savings bank ("River Bank"),
718596.1
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<PAGE>
shall have failed to make the payment of full dividends on the Series A
Preferred Stock or the 15% noncumulative perpetual preferred stock, series A, of
River Bank (or the declaration of such full dividends and the setting apart of a
sum sufficient for payment thereof) with respect to each of any six (6) Dividend
Periods, whether consecutive or not. A Voting Event shall be deemed to have
occurred as of the Dividend Payment Date of the Dividend Period that is the
sixth (6th) Dividend Period for which the payment of full dividends on the
Series A Preferred Stock has not been made (or declared and set apart for
payment).
(ii) Upon the occurrence of a Voting Event, the maximum authorized
number of directors of the Corporation, without further action, shall be
increased by two (2). The holders of shares of Series A Preferred Stock and the
holders of any other class or series of Parity Stock as to which the payment of
dividends is in arrears and unpaid in an aggregate amount equal to or exceeding
the amount of dividends payable for six (6) quarterly Dividend Periods (or if
dividends are payable other than on quarterly basis the number of dividend
periods, whether or not consecutive, containing in the aggregate not less than
five hundred forty (540) calendar days) and upon which by its terms the same
right to elect two (2) directors has been conferred and is exercisable ("Voting
Parity Stock"), shall have the exclusive right, voting together as a single
class, to elect the two (2) additional directors at the Corporation's next
annual meeting of stockholders or at a special meeting of stockholders as
provided below and to reelect two (2) directors at each subsequent annual
meeting of stockholders at which the terms of such directors expire until the
Election Right terminates as provided in subsection (iv) of this paragraph (B).
At any time when the Election Right shall have so vested, the Corporation may,
and upon the written request of the holders of record of not less than 20% of
the total number of shares of the Series A Preferred Stock and such Voting
Parity Stock then outstanding shall, call a special meeting of the holders of
such shares to fill such newly-created directorships for the election of
directors. In the case of such a written request, such special meeting shall be
held within ninety (90) days after the delivery of such request and, in either
case, at the place and upon the notice provided by law and in the by-laws of the
Corporation, provided that the Corporation shall not be required to call such a
special meeting if such request is received less than one hundred twenty (120)
days before the date fixed for the next succeeding annual meeting of
stockholders of the Corporation, at which meeting such newly-created
directorships shall be filled by the holders of such shares. If, prior to the
end of the term of any director elected as aforesaid, a vacancy in the office of
such director shall occur by reason of death, resignation, disability or
disqualification, the remaining director elected as aforesaid shall appoint a
successor to hold office for the unexpired term of such former director, and if
both directors elected as aforesaid shall cease to serve as directors before
their terms shall expire, the holders of Series A Preferred Stock and any Voting
Parity Stock then outstanding may, at a meeting of such holders duly held, elect
successors to hold office for the unexpired terms of such directors whose places
shall be vacant.
(iii) The majority of the holders of the Series A Preferred Stock and
any Voting Parity Stock then outstanding, voting together as a single class,
shall have the right at any
718596.1
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time to remove without cause and replace any directors which such holders have
elected or who have been appointed pursuant to this Section 7.
(iv) The Election Right of the holders of the Series A Preferred Stock
and the term of the directors elected to the Board of Directors pursuant to a
particular exercise of such Election Right shall continue until full dividends
have been declared and paid for four (4) consecutive Dividend Periods following
the vesting of such Election Right, at which time such Election Right and the
term of such directors shall, without further action, terminate, subject to
revesting of the Election Right upon the occurrence of a subsequent Voting
Event; provided, however, that if, at the time of termination of the Election
Right of the holders of the Series A Preferred Stock, there shall be outstanding
any Voting Parity Stock having similar voting rights which remain in effect, the
term of any directors elected by the holders of the Series A Preferred Stock and
such Voting Parity Stock shall continue until such time as the voting right of
the holders of such Voting Parity Stock shall terminate by its terms. Upon such
termination the number of directors constituting the Board of Directors of the
Corporation shall, without further action, be reduced by two (2), subject always
to increase of the number of directors pursuant to the foregoing provisions in
case of the revesting of the Election Right upon the occurrence of a subsequent
Voting Event.
If for any reason the holders of the shares of Series A Preferred Stock
and any Voting Parity Stock then outstanding are not able to elect the specified
number of directors at the next annual meeting of stockholders in the manner
described above, the Corporation shall use its best efforts to take all actions
necessary to permit the full exercise of such voting rights (including, if
necessary, taking action to increase the authorized number of directors standing
for election at such next annual meeting of stockholders or seeking to amend,
alter or change the Certificate of Incorporation or by-laws of the Corporation).
(C)(i) So long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without the consent of the holders of at least
66-2/3% of the outstanding shares of Series A Preferred Stock, voting together
as a single class, (a) amend, alter or repeal or otherwise change any provision
of the Certificate of Incorporation or this Certificate of Designation
(including any such amendment, alteration, repeal or change effected by any
merger or consolidation in which the Corporation is the surviving or resulting
corporation) if such amendment, alteration, repeal or change would materially
and adversely affect the rights, preferences, powers or privileges of the Series
A Preferred Stock or (b) authorize, create or issue or increase the authorized
or issued amount of any class or series of Senior Dividend Stock or Senior
Liquidation Stock or any warrants, options or other rights convertible into or
exchangeable for any class or series of Senior Dividend Stock or Senior
Liquidation Stock.
(ii) No vote of the holders of the Series A Preferred Stock shall be
required pursuant to this paragraph (C) in the case of any of the following,
which are not deemed to be a material adverse change to the rights, preferences,
powers or privileges of the Series A Preferred Stock:
718596.1
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(a) an amendment of the Certificate of Incorporation which
increases the number of shares of preferred stock which the Corporation
is authorized to issue;
(b) the creation or issuance of Parity Stock or Junior Stock;
(c) the distribution of assets upon a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(d) in connection with a merger, consolidation, reorganization or
other business combination involving the Corporation (any such
transaction being hereinafter referred to as a "Reorganization") if:
(1) the resulting, surviving or acquiring corporation, or, if
the direct owner of all the equity securities of such resulting,
surviving or acquiring corporation is a corporation and such
corporation will be the issuer of the shares of stock issued as set
forth in clause (d)(2) below, such corporation (the "parent
corporation"), will have after such Reorganization no stock
outstanding ranking prior to the Series A Preferred Stock or the
stock of the resulting, surviving or acquiring corporation or the
parent corporation, as the case may be, issued in exchange therefor
(except such stock of the resulting, surviving, acquiring or parent
corporation (the "Mirror Stock") which is issued in exchange for
other series of preferred stock of the Corporation which are
outstanding immediately preceding such Reorganization and which were
not issued in violation of the terms of this Certificate of
Designation (the "Exchanged Stock"), which Mirror Stock contains the
same relative powers, preferences, privileges or rights, including,
without limitation, substantially equivalent voting and conversion
rights, as the Exchanged Stock); and
(2) either (A) each holder of shares of Series A Preferred
Stock immediately preceding such Reorganization will receive in
exchange therefor the same number of shares of stock, with
substantially the same powers, preferences, privileges and rights,
including, without limitation, substantially equivalent voting and
conversion rights, of the resulting, surviving, or acquiring
corporation, or such corporation's parent corporation, or (B) the
Corporation is the surviving corporation and the Series A Preferred
Stock remains outstanding without any change to its powers,
preferences, privileges or rights, including, without limitation,
voting and conversion rights.
The Corporation may distribute to the holders of (a) the Series A Preferred
Stock in exchange therefor the same number of shares of the resulting, surviving
or acquiring corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights, including,
without limitation, substantially equivalent voting and conversion rights, of
the resulting, surviving, or acquiring corporation, or such corporation's parent
corporation, and (b)
718596.1
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the Common Stock in exchange therefor the same number of common shares of the
resulting, surviving or acquiring corporation or the parent corporation, as the
case may be, with substantially the same powers, preferences, privileges and
rights, including, without limitation, substantially equivalent voting and
conversion rights, of the resulting, surviving, or acquiring corporation, or
such corporation's parent corporation as contemplated by this Section
7(C)(ii)(d) notwithstanding anything to the contrary in Section 3 hereof.
(iii) No vote of the Series A Preferred Stock shall be required if the
Series A Preferred Stock is to be redeemed in whole on a Redemption Date
occurring on or prior to the date of occurrence of any event otherwise requiring
a class vote by the Series A Preferred Stock.
(D) Except as provided by law or the provisions of the Certificate of
Incorporation, the presence at a meeting, in person or by proxy, of stockholders
entitled to a majority of the shares of Series A Preferred Stock outstanding and
entitled to vote on any matter shall constitute a quorum of such stockholders;
provided, however, if any matter shall require a vote of holders of shares of
Series A Preferred Stock and any Voting Parity Stock, voting together as a
single class, the presence at a meeting, in person or proxy, of stockholders
entitled to cast a majority of the shares of Series A Preferred Stock and such
Voting Parity Stock which is outstanding and entitled to vote on any matter
shall constitute a quorum of such stockholders. In connection with any matter on
which holders of the Series A Preferred Stock are entitled to vote as one class
or otherwise pursuant to law or regulation or the provisions of the Certificate
of Incorporation, each holder of Series A Preferred Stock shall be entitled to
one vote for each share of Series A Preferred Stock held by such holder.
Section 8. No Conversion, Preemptive or Subscription Rights.
The holders of shares of Series A Preferred Stock shall not have any
rights to convert such shares into shares of any other class or series of
capital stock or into any other securities of, or any interest in, the
Corporation. The Series A Preferred Stock is not entitled to any preemptive or
subscription rights with respect to any securities of the Corporation.
Section 9. No Other Rights.
The shares of Series A Preferred Stock shall not have any powers,
designations, preferences and relative, participating, optional and other
special rights except as set forth herein or in any other provision of the
Certificate of Incorporation or as otherwise required by applicable law or
regulation.
Section 10. Business Day.
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For purposes hereof, the term "Business Day" shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in New York,
New York are obligated or authorized by law or executive order to be closed.
Section 11. Action by Committee of Board of Directors.
To the extent permitted by applicable law, any action specified herein
as being authorized or required to be taken by the Board of Directors may be
taken by a duly authorized committee thereof.
Section 12. Compliance with Applicable Law.
Declaration by the Board of Directors and payment by the Corporation of
dividends to the holders of the Series A Preferred Stock, the repurchase,
redemption or other acqui sition by the Corporation of shares of Series A
Preferred Stock and any Note Exchange shall be subject in all respects to any
restrictions and limitations placed on dividends, repurchases, redemptions or
other distributions by the Corporation or otherwise under applicable law.
Section 13. Miscellaneous.
(A) All notices referred to herein shall be in writing, and except as
otherwise provided all notices hereunder shall be deemed to have been given upon
the earlier of receipt thereof or three (3) Business Days after the mailing
thereof if sent by registered mail, (unless first-class mail shall be
specifically permitted for such notice under the terms of this Certificate of
Designation) with postage prepaid, addressed: (i) if to the Corporation, to its
office at 645 Fifth Avenue, New York, New York 10022 (Attention: Secretary) or
to the transfer agent for the Series A Preferred Stock, if any, or other agent
of the Corporation designated as permitted by this Certificate of Designation;
or (ii) if to any holder of the Series A Preferred Stock, to such holder at the
address of such holder as listed in the stock books of the Corporation (which
may include the records of any transfer agent for the Series A Preferred Stock);
or (iii) to such other address as the Corporation or any such holder, as the
case may be, shall have designated by notice similarly given.
(B) In the event that a holder of shares of Series A Preferred Stock shall
not by written notice designate to whom payment upon redemption of shares of
Series A Preferred Stock should be made or the address to which such payment
should be sent, the Corporation shall be entitled to make such payment in the
name of the holder of such Series A Preferred Stock as shown on the records of
the Corporation and to send such payment to the address of such holder shown on
the records of the Corporation.
(C) Unless otherwise provided herein or in the Certificate of
Incorporation, all payments in the form of dividends, distributions on the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, or otherwise made upon the shares of Series
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A Preferred Stock and any Parity Stock shall be made pro rata, so that amounts
paid per share on the Series A Preferred Stock and such Parity Stock shall in
all cases bear to each other the same ratio that the required dividends,
distributions or payments, as the case may be, then payable per share on the
shares of the Series A Preferred Stock and such Parity Stock bear to each other.
(D) The Corporation may appoint, and from time to time discharge and
change, a transfer agent and registrar for the Series A Preferred Stock. Upon
any such appointment, discharge or change of a transfer agent and registrar, the
Corporation shall send notice thereof by first-class mail, postage prepaid, to
each holder of record of Series A Preferred Stock.
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FORM OF INDENTURE1
===============================================================================
[RB ASSET, INC.2]
15% Subordinated Capital Debentures
due 2014
---------------
INDENTURE
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Dated as of [ ]
[ ]
Trustee
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1 Form of Indenture for Subordinated Notes to be issued in the event of an
exchange of the 15% Noncumulative Perpetual Preferred Stock, Series A, of
RB Asset, Inc. The Form of Indenture is subject to necessary and
appropriate changes prior to the exchange of the Series A Preferred Stock,
provided that, without the consent of the holders of 66 2/3% of the
outstanding shares of Series A Preferred Stock, such changes do not
materially adversely affect the rights and interests of holders of Series A
Preferred Stock.
2. Or the successor upon a Change of Control, the "Note Issuer" as defined in
the Certificate of Designation of the Series A Preferred Stock.
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE....................................1
Section 1.01 Definitions.....................................................1
Section 1.02 Other Definitions...............................................5
Section 1.03 Incorporation by Reference of Trust Indenture Act...............5
Section 1.04 Rules of Construction...........................................5
ARTICLE II
THE SECURITIES..................................6
Section 2.01 Form and Dating.................................................6
Section 2.02 Execution and Authentication....................................6
Section 2.03 Registrar and Paying Agent......................................7
Section 2.04 Payment by the Corporation to the Trustee;
Paying Agent to Hold Money in Trust.............................7
Section 2.05 Securityholder Lists............................................7
Section 2.06 Transfer and Exchange...........................................8
Section 2.07 Replacement Securities..........................................9
Section 2.08 Outstanding Securities..........................................9
Section 2.09 Treasury Securities............................................10
Section 2.10 Temporary Securities...........................................10
Section 2.11 Cancellation...................................................10
Section 2.12 Defaulted Interest.............................................10
Section 2.13 Certain Limitations on Securities..............................10
ARTICLE III
COVENANTS...................................11
Section 3.01 Payment of Securities..........................................11
Section 3.02 Dividends and Certain Other Elements...........................11
Section 3.03 Transactions with Affiliates...................................11
Section 3.04 Reports by Corporation.........................................12
Section 3.05 Maintenance of Properties; Insurance...........................12
Section 3.06 Maintenance of Books and Records...............................13
Section 3.07 Conduct of Business............................................13
Section 3.08 Taxes and Claims...............................................13
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Section 3.09 Money for Security Payments to Be Held in Trust................13
Section 3.10 Compliance Certificate.........................................14
Section 3.11 Continued Existence............................................14
Section 3.12 Limitation on Subordinated Indebtedness........................14
ARTICLE IV
SUCCESSORS................................15
Section 4.01 When Corporation May Merge, etc................................15
Section 4.02 Successor Substituted..........................................15
ARTICLE V
DEFAULTS AND REMEDIES..........................16
Section 5.01 Events of Default..............................................16
Section 5.02 Acceleration; Limitations on Acceleration......................17
Section 5.03 Other Remedies.................................................18
Section 5.04 Waiver of Default..............................................18
Section 5.05 Control by Majority............................................18
Section 5.06 Limitation on Suits............................................18
Section 5.07 Rights of Holders to Receive Payment...........................19
Section 5.08 Collection Suit by Trustee.....................................19
Section 5.09 Trustee May File Proofs of Claim...............................19
Section 5.10 Priorities.....................................................19
Section 5.11 Undertaking for Costs..........................................20
ARTICLE VI
TRUSTEE.................................20
Section 6.01 Duties of Trustee..............................................20
Section 6.02 Rights of Trustee..............................................21
Section 6.03 Individual Rights of Trustee...................................22
Section 6.04 Disclaimer.....................................................22
Section 6.05 Notice of Defaults.............................................22
Section 6.06 Reports by Trustee to Holders..................................22
Section 6.07 Compensation and Indemnity.....................................22
Section 6.08 Replacement of Trustee.........................................23
Section 6.09 Successor Trustee by Merger....................................24
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Section 6.10 Eligibility; Disqualification................................ 24
Section 6.11 Preferential Collection of Claims Against Corporation..........24
ARTICLE VII
SATISFACTION AND DISCHARGE...................... 24
Section 7.01 Satisfaction and Discharge of Indenture........................24
Section 7.02 Application of Trust Money.....................................25
Section 7.03 Repayment to Corporation.......................................25
ARTICLE VIII
AMENDMENTS...............................26
Section 8.01 Without Consent of Holders.....................................26
Section 8.02 With Consent of Holders........................................26
Section 8.03 Reserved.......................................................27
Section 8.04 Revocation and Effect of Consents..............................27
Section 8.05 Notation on or Exchange of Securities..........................27
Section 8.06 Trustee Protected..............................................27
Section 8.07 Rights of Holders to Receive Payment...........................27
Section 8.08 Collection Suit by Trustee.....................................27
Section 8.09 Trustee May File Proofs of Claim...............................28
Section 8.10 Priorities.....................................................28
Section 8.11 Undertaking for Costs..........................................28
ARTICLE IX
SUBORDINATION............................. 29
Section 9.01 Agreement to Subordinate.......................................29
Section 9.02 Subordination..................................................29
Section 9.03 Notice to Trustee of Specified Events;
Reliance on Certificate of Custodian...........................30
Section 9.04 Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice...........................................31
Section 9.05 Absolute Obligation to Pay.....................................31
Section 9.06 Trustee's Rights as Holder of Senior Debt......................31
Section 9.07 No Implied Obligations to Holders of Senior Debt...............32
Section 9.08 Enforceability of Subordination................................32
Section 9.09 Trustee Authorized to Effectuate Subordination.................32
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ARTICLE X
REDEMPTION...............................32
Section 10.01 Optional Redemption; Notice to Trustee........................32
Section 10.02 Selection of the Securities to Be Redeemed....................33
Section 10.03 Notice of Redemption..........................................33
Section 10.04 Effect of Notice of Redemption................................33
Section 10.05 Deposit of the Redemption Price on Optional Redemption........33
Section 10.06 Securities Redeemed in Part...................................34
ARTICLE XI
MISCELLANEOUS..............................34
Section 11.01 Trust Indenture Act Controls..................................34
Section 11.02 Notices.......................................................34
Section 11.03 Communication by Holders with Other Holders...................35
Section 11.04 Certificate and Opinion as to Conditions Present..............35
Section 11.05 Statements Required in Certificate or Opinion.................35
Section 11.06 Rules by Trustee and Agents...................................36
Section 11.07 Legal Holidays................................................36
Section 11.08 No Recourse Against Others....................................36
Section 11.09 Duplicate Originals...........................................36
Section 11.10 Governing Law.................................................36
Section 11.11 No Adverse Interpretation of Other Agreements.................36
Section 11.12 Successors....................................................36
Section 11.13 Severability..................................................36
Section 11.14 Table of Contents, Headings, etc..............................36
Exhibit A Form of Security
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INDENTURE dated as of [_________________] between [RB Asset, Inc., a
Delaware corporation,] and [______________________], a [_______________]
corporation, as trustee.
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the 15% Subordinated Capital
Debentures due 2014.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purpose of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Board of Directors" means the Board of Directors of the Corporation or any
authorized committee of such Board.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the city in which the
Corporate Trust Office is located are authorized or obligated by law or
executive order to close.
"Commission" means the Securities and Exchange Commission, and its
successors.
"Consolidated Tangible Capital" of any Person means, at any date, the total
amount of non-redeemable preferred stock and common shareholders' equity
(excluding amounts attributable to securities which are exchangeable for or
convertible into securities other than non-redeemable preferred stock or common
stock and any amounts attributable to shares issued pursuant to an acquisition
by such Person) which would appear on a consolidated statement of financial
condition of such Person as at such date prepared in accordance with generally
accepted accounting principles, less all intangible assets appearing thereon.
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"Corporate Trust Office" means the corporate trust office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which on the date hereof is [______________________].
"Corporation" means RB Asset, Inc. or its successor "Note Issuer" upon a
"Change of Control" as defined in the Certificate of Designation of Series A
Preferred Stock, provided that any such successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter,
"Corporation" shall mean each successor Person, and any other obligor upon the
Securities.
"Default" means an event or condition the occurrence of which would, with
the lapse of time or the giving of notice or both, become an Event of Default.
"Depository" means [The Depository Trust Company] and includes any
successor thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
as in effect from time to time.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered in the register of the Securities kept by the Registrar.
"Indebtedness" means, with respect to any Person, at any date, (i) all
indebtedness, obligations or other liabilities for borrowed money, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, and whether now existing or hereafter created; (ii) all indebtedness
secured by any mortgage, lien, pledge, charge or encumbrance upon Property owned
by such Person; (iii) all indebtedness, obligations or liabilities of others of
the type described in the preceding clauses (i) and (ii) which the Corporation
has guaranteed or is in any other way liable for; and (iv) all amendments,
renewals, extensions or refundings of any such indebtedness, obligation or
liability.
"Indenture" means this instrument as amended from time to time by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereto.
"Interest Payment Due" means the date specified in the Securities as the
fixed date on which interest is due and payable.
"Officer" means the Chairman of the Board of Directors, the President, any
Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by (i) the Chairman or
Vice Chairman of the Board of Directors, President or any Vice President and
(ii) the Treasurer, Secretary or
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any Assistant Treasurer or any Assistant Secretary of the Corporation and
delivered to the Trustee by the terms of this Indenture; provided that, in the
event an Officer of the Corporation holds a position set forth in (i) or (ii)
above, such Officer may sign an Officer's Certificate only in his capacity as an
Officer under either clause (i) or (ii), but not both.
"Opinion of Counsel" means a written opinion from legal counsel, which
opinion and legal counsel are acceptable to the Trustee. The counsel may be an
employee of or counsel to the Corporation.
"Order of the Corporation" means a written order signed in the name of the
Corporation by its President or any Vice President and by its Treasurer,
Secretary or any Assistant Treasurer or Assistant Secretary of the Corporation
and delivered to the Trustee.
"Person" means an individual, partnership, corporation or unincorporated
organization, and a government or agency or political subdivision thereof.
"Principal" means principal amount of a debt security plus the premium, if
any, on the security.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Ranking Junior to the Securities" means, as respects any obligation of the
Corporation, an obligation that by express provisions in the instrument
creating, evidencing or governing such obligation (i) is specifically designated
as ranking junior to the Securities, (ii) ranks junior to and not equally with
or prior to the Securities (or to the Securities and any other obligations of
the Corporation ranking on a parity with the Securities) in right of payment
upon the happening of a Specified Event and (iii) is also made junior and
subordinate in right of payment to other obligations of the Corporation to at
least the same extent as the Securities are made junior and subordinate thereto
by the provisions of Section 9.02.
"Ranking on a Parity with the Securities" means, with respect to any
obligation of the Corporation, an obligation that by express provisions in the
instrument creating, evidencing or governing such obligation (i) is specifically
designated as ranking on a parity with the Securities, (ii) ranks equally with
and not prior to the Securities in right of payment upon the happening of a
Specified Event and (iii) is also made junior and subordinate in right of
payment to other obligations of the Corporation to the same extent as the
Securities are made junior and subordinate thereto by the provisions of Section
9.02.
"Redemption Date" means, when used with respect to any Security to be
redeemed, the date fixed for such redemption pursuant to this Indenture and the
Security.
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"Redemption Price" means, when used with respect to any Security to be
redeemed, the price fixed for such redemption pursuant to this Indenture and the
Security as set forth in Section 10.01.
"Regular Record Date" means the 15th day (whether or not a Business Day) of
the month preceding the month in which an Interest Payment Date occurs.
"Securities" means the "15% Subordinated Capital Debentures due 2014"
described above and issued under this Indenture.
"Senior Debt" means principal of and premium, if any, and interest on all
claims against the Corporation, including, without limitation, commercial paper,
repurchase agreements, secured Indebtedness and the Corporation's other
obligations to its general and secured creditors, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed by the
Corporation (and all renewals, extensions or refundings thereof); provided,
however, that "Senior Debt" shall not include the Securities, any Indebtedness
Ranking on a Parity with the Securities, any Indebtedness Ranking Junior to the
Securities or any Indebtedness for money borrowed by the Corporation from any
Subsidiary or Affiliate.
"Series A Preferred Stock" means the 15% Noncumulative Perpetual Preferred
Stock, Series A of the Corporation.
"Subsidiary" means any corporation of which the Corporation owns, directly
or indirectly, more than 50% of the Voting Stock.
"TIA" means the Trust Indenture Act of 1939, as amended, and as in effect
from time to time.
"Trustee" means the party named as such in this indenture until a successor
replaces it and thereafter means such successor.
"Trust Officer" means any officer within the Corporate Trust Office (or any
successor group) of the Trustee, including any Vice President, any Assistant
Vice President, any Assistant Secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of or familiarity with the particular subject.
"Voting Stock" means securities of any class or classes of a corporation
the holders of which are ordinarily, in the absence of contingencies, entitled
to vote for corporate directors (or Persons performing similar functions).
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Section 1.02 Other Definitions.
Term Defined in
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"Blockage Period"...............................................Section 9.02(b)
"Custodian".....................................................Section 5.01
"Default Notice"................................................Section 9.02(b)
"Event of Default"..............................................Section 5.01
"Legal Holiday".................................................Section 11.07
"Paying Agent"..................................................Section 2.03
"Registrar".....................................................Section 2.03
"Special Record Date"...........................................Section 2.12
"Specified Event"...............................................Section 9.02(a)
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture, notwithstanding the fact that
the Indenture is not qualified under the TIA.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the securities means the Corporation.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by rule of the Commission under
the TIA have the meanings assigned to them thereby.
Section 1.04 Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it; (ii) an accounting term not otherwise
defined has the meaning assigned to it in accordance with generally accepted
accounting principles in effect in the United States at the date of such
computation; (iii) "or" is always used inclusively (for example, the phrase "A"
or "B" means "A or B or both," not "either A or B, but not both"); (iv) words in
the singular include the plural, and in the plural include the singular; (v)
provisions apply to successive events and transactions; and unless specifically
stated, the
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words "herein," "hereof," "hereto" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE II
THE SECURITIES
Section 2.01 Form and Dating. The Securities and Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is part of
this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Security shall be dated the
date of its authentication.
Section 2.02 Execution and Authentication. The Securities shall be executed
on behalf of the Corporation by its Chairman of the Board, its President or one
of its Vice Presidents under its corporate seal and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on the
Securities may be actual or facsimile.
If an officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee. Such manual signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture.
Except as otherwise provided in Section 2.06, the Securities will be issued
in global form only registered in the name of the Depository or its nominee. The
Securities will not be issued in definitive form, except as otherwise provided
in Section 2.06, and ownership of the Securities shall be maintained in book
entry form by the Depository for the accounts of participating organizations of
the Depository.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 5 of the Securities upon an Order
of the Corporation. The aggregate principal amount of Securities outstanding at
any time may not exceed the amount as stated in paragraph 5 of the Securities
except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Corporation to authenticate Securities, which authenticating agent shall be
compensated by the Corporation. An authenticating agent may authenticate
Securities whenever the Trustee may do so, other than the authentication of
Securities issued upon original issue or pursuant to Section 2.07. Except as
provided in the previous sentence, each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the
Corporation or an Affiliate.
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Section 2.03 Registrar and Paying Agent. The Corporation shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange ("Registrar") and an office or agency where Securities may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Securities and of their transfer and exchange. The Corporation may appoint
one or more additional Paying Agents. The term "Paying Agent" includes any
additional Paying Agent. The Corporation or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Corporation shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Corporation shall
give prompt written notice to the Trustee of the name and address of any such
Agent and any change in the address of such Agent. If the Corporation fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such.
The Corporation initially appoints the Trustee as Registrar and Paying
Agent.
Section 2.04 Payment by the Corporation to the Trustee; Paying Agent to
Hold Money in Trust. On each due date for the payment of principal of, or
interest on, any of the Securities, the Corporation shall deposit with the
Trustee or Paying Agent, as the case may be, in immediately available funds a
sum sufficient to pay the principal or interest so becoming due.
The Corporation will require each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of or
interest on the Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(2) give the Trustee notice of any default by the Corporation (or any
other obligor upon the Securities) in the making of any payment of
principal or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
Section 2.05 Securityholder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Securityholders. If the Trustee is not the Registrar, the
Corporation shall furnish to the Trustee at least 10 days before each Interest
Payment Date and at such other times as the Trustee may request in writing all
information in the possession or control of the Corporation
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or any Paying Agent as to the names and addresses of the Securityholders in such
form and as of such date as the Trustee may reasonably require.
Section 2.06 Transfer and Exchange. When Securities are presented to the
Registrar or a co-Registrar with a request to register the transfer of such
Securities or to exchange them for an equal principal amount of Securities of
authorized denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Corporation shall execute and the
Trustee shall authenticate Securities at the Registrar's request. The Trustee,
the Registrar and the Paying Agent shall be entitled to rely on such
representation in authenticating, registering the transfer or exchange of, or
making of payments on, the Securities.
The Registrar shall not be required (i) to issue, register the transfer of
or exchange Securities during a period beginning at the opening of 15 Business
Days before the day of any selection of Securities for redemption under Section
10.02 and ending at that close of business on the day of such selection, or (ii)
to register the transfer of or exchange any Security so selected for redemption
in whole or in part, except for the unredeemed portion of any Security being
redeemed in part.
Notwithstanding anything to the contrary contained herein, any global
Security shall be exchangeable for definitive securities only if (i) the
Depository is at any time unwilling, unable or ineligible to continue as
Depository and a successor depository is not appointed by the Corporation within
90 days of the date the Corporation is so informed in writing, (ii) the
Corporation executes and delivers to the Trustee an Order of the Corporation to
the effect that such global Security shall be so exchangeable, or (iii) an Event
of Default has occurred and is continuing with respect to the Securities. If the
beneficial owners of interests in a global Security are entitled to exchange
such interest for definitive Securities, then without unnecessary delay but in
any event not later than the earliest date on which such interests may be so
exchanged, the Corporation shall deliver to the Trustee definitive Securities in
such form and denominations as are required by or pursuant to this Indenture,
containing identical terms and in aggregate principal amount equal to the
principal amount of, such global Security, executed by the Corporation. On or
after the earliest date on which such interests may be so exchanged, such global
Security shall be surrendered by the Depository, and in accordance with
instructions given to the Trustee and the Depository (which instructions shall
be in writing but need not be contained in or accompanied by an Officer's
Certificate or be accompanied by an Opinion of Counsel), as the Corporation's
agent for such purpose, to be exchanged, in whole or in part, for definitive
Securities as described above without charge. The Trustee shall authenticate and
make available for delivery, in exchange for each portion of such surrendered
global Security, a like aggregate principal amount of definitive Securities of
authorized denominations and of like tenor as the portion of such global
Security to be exchanged, which shall be in the form of fully registered
Securities; provided, however, that no such exchanges may occur during a period
beginning at the opening of 15 Business Days before the day of any selection of
Securities for redemption under Section 10.02 and ending on the relevant
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Redemption Date. Promptly following any such exchange in part, such global
Security shall be returned by the Trustee to such Depository, or such other
Depository referred to above in accordance with the instructions of the
Corporation referred to above. If a definitive Security is issued in exchange
for any portion of a global Security after the close of business at the
Corporate Trust Office on or after (i) any Regular Record Date for such Security
and before the opening of business at such Corporate Trust Office on the next
Interest Payment Date, or (ii) any Special Record Date for such Security and
before the opening of business at such Corporate Trust Office on the related
proposed date for payment of interest or defaulted interest, as the case may be,
interest shall not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of such Security, but shall be payable
on such Interest Payment Date or proposed date for payment, as the case may be,
only to the Person to whom interest in respect of such portion of such global
Security shall be payable in accordance with the provisions of this Indenture.
Section 2.07 Replacement Securities. If the Holder of a mutilated Security
surrenders such Security to the Trustee, the Corporation shall execute and the
Trustee shall authenticate and deliver in exchange therefor a new Security of
like tenor and principal amount and bearing a number not contemporaneously
outstanding.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Corporation shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Corporation, such Holder shall provide an
indemnity bond sufficient in the judgment of both the Corporation and the
Trustee to protect the Corporation, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Corporation may charge for its expenses in replacing a Security.
Every replacement Security issued under this Section shall constitute an
obligation of the Corporation, entitled to all the benefits of this Indenture
equally and proportionately with any and all other Securities.
Section 2.08 Outstanding Securities. The Securities outstanding at any time
are all the Securities authenticated by the Trustee except for those canceled by
it, those delivered to it for cancellation, and those described in this Section
as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced security is held by a bona fide purchaser.
If Securities are considered paid under Section 3.01, they cease to be
outstanding and interest on them ceases to accrue.
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A Security does not cease to be outstanding because the Corporation or an
Affiliate of the Corporation holds the Security.
Section 2.09 Treasury Securities. In determining whether the Holders of the
required principal amount of Securities have concurred in any direction, waiver
or consent, Securities owned by the Corporation or an Affiliate of the
Corporation shall be considered as though they are not outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee actually knows are so owned shall be so disregarded.
Section 2.10 Temporary Securities. Until definitive Securities are ready
for delivery, the Corporation may prepare and the Trustee shall, upon Order of
the Corporation, authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Corporation considers appropriate for temporary Securities including,
without limitation, a legend stating that such temporary Security is a temporary
Security. Without unreasonable delay, the Corporation shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, such temporary Securities shall be entitled to
the same rights, benefits and privileges as the definitive Securities.
Section 2.11 Cancellation. The Corporation at any time may deliver
Securities to the Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy canceled Securities and deliver a certificate of
such destruction to the Corporation, unless the Corporation directs the Trustee
to deliver canceled Securities to the Corporation. The Corporation may not issue
new Securities to replace securities that it has paid or that have been
delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest. If the Corporation fails to make a payment
of interest on the Securities on the due date therefor or within the grace
period set forth in Section 5.01(1), it shall pay such interest thereafter in
any lawful manner. It may pay such interest, plus any interest lawfully payable
on it, to the Persons who are Securityholders on a subsequent special record
date (a "Special Record Date"). The Corporation shall fix the Special Record
Date and related payment date. At least 10 days before the Special Record Date,
the Corporation shall mail to Securityholders a notice that states the Special
Record Date, related payment date, and amount of such interest to be paid.
Section 2.13 Certain Limitations on Securities. Notwithstanding anything to
the contrary in this Indenture (or in any related document):
(a) In the event that the obligations represented by the Securities are
assumed in full by another corporation, which shall succeed by merger or
otherwise to substantially
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all of the assets and the business of the Corporation, and payment or
provision for payment shall have been made in respect of all matured
installments of interest upon the Securities together with all matured
installments of principal on such Securities which shall have become due
otherwise than by acceleration, then any default caused by the appointment
of a receiver for the Corporation shall be deemed to have been cured, and
any declaration consequent upon such default declaring the principal and
interest on the Securities to be immediately due and payable shall be
deemed to have been rescinded.
(b) The Securities are unsecured by the assets of the Corporation, or
any of its affiliates.
(c) The Securities are subordinated and junior in right of payment to
the Corporation's obligations to its depositors and to the Corporation's
other obligations to its general and secured creditors.
(d) The Securities are ineligible as collateral for a loan by the
Corporation.
ARTICLE III
COVENANTS
Section 3.01 Payment of Securities. The Corporation shall punctually pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities. Principal and interest shall be considered paid on
the date due if the Trustee or all Paying Agents hold on that date money
designated for and sufficient to pay all principal and interest then due.
The Corporation shall pay interest on overdue principal at the rate borne
by the Securities; it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
Section 3.02 Dividends and Certain Other Elements. The Corporation shall
not (i) declare or pay or set apart any funds for the payment of dividends on,
or make any other distribution in respect of, any shares of its capital stock
(other than dividends or distributions payable solely in shares of its capital
stock) or (ii) make, or permit any Subsidiary or Affiliate to make, any payment
on account of the purchase, redemption or other acquisition or retirement of any
such shares or obligations, if at the time of such action and after giving
effect thereto a Default or an Event of Default shall have occurred and be
continuing.
Section 3.03 Transactions with Affiliates. Neither the Corporation nor any
Subsidiary will pay, directly or indirectly, any funds to or for the account of,
make any investment in, enter into any transaction including, without
limitation, the purchase, sale or exchange of
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Property or the rendering of any service, or effect any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate, except that the Corporation or any Subsidiary may (i) make such
payments and investments or enter into such transactions on terms and conditions
at least as favorable to the Corporation or such Subsidiary, as the case may be,
as those that could be obtained in a comparable arm's-length transaction with a
Person not an Affiliate (as determined in good faith by the Board of Directors,
whose determination shall be conclusive) and (ii) make payments or provide
compensation (including the extension of credit upon such favorable terms as are
permitted by applicable laws and regulation) for services rendered by any
Affiliate who is an officer, director or employee of the Corporation or any
Subsidiary; and provided, further, that for purposes of this Section, the term
"Affiliate" shall not include, in the case of the Corporation, any Subsidiary,
or, in the case of any Subsidiary, the Corporation.
Section 3.04 Reports by Corporation.
(a) The Corporation shall file with the Trustee within 5 days after it
files them with the Commission copies of the annual and quarterly reports
and of the information, documents and other reports which the Corporation
files, or which are filed in respect of the Corporation, with the
Commission pursuant to Section 13 of the Exchange Act and the regulations
of the Commission thereunder, or any other rules and regulations of the
Commission under the Exchange Act as may from time to time be in effect. If
the Corporation is not subject to the requirements of Section 13 of the
Exchange Act, the Corporation shall file with the Trustee, within 15 days
after it would have otherwise been required to file pursuant to the
Exchange Act, financial statements including any notes thereto, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," both comparable to that which the Corporation would have been
required to include in the annual and quarterly reports, information
documents or other reports (under rules currently in effect on the date
hereof) which the Corporation would have been required to file pursuant to
Section 13 of the Exchange Act.
(b) While any of the Securities are outstanding, the Corporation shall
mail to each Holder copies of the annual and quarterly reports of the
Corporation that it is required to file with the Trustee pursuant to
Section 3.04(a) (or summaries thereof) within 30 days after such filing is
required to be made.
Section 3.05 Maintenance of Properties; Insurance. The Corporation will
keep, and will cause each Subsidiary to keep, all Property useful and necessary
in its business in good working order and condition. The Corporation will
maintain and will cause each Subsidiary to maintain (either in the name of the
Corporation or in such Subsidiary's own name) with financially sound and
reputable insurance companies, insurance on all its Property in at least such
amounts as are usually insured against in the same general area by companies of
established repute engaged in a similar business.
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Section 3.06 Maintenance of Books and Records. The Corporation will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves. The Corporation shall cause its books of record and
account and those of each of its Subsidiaries to be examined on a consolidated
basis by a nationally recognized firm of independent public accountants not less
frequently than annually for purposes of preparing audited consolidated
financial statements and shall not make any change in the accounting principles
applied to its financial statements not concurred in by such firm or firms. The
Corporation shall prepare its financial statements in accordance with generally
accepted accounting principles consistently applied, except as otherwise stated
therein.
Section 3.07 Conduct of Business. The Corporation shall, and shall cause
each of its Subsidiaries to, comply with all statutes, laws, ordinances or
government rules and regulations to which it is subject and to obtain, preserve
and renew any licenses, permits, franchisees or other governmental
authorizations necessary to the ownership or operation of its Properties or to
the conduct of its business, if failure to so comply, obtain, preserve and renew
adversely affects, or so far as the Corporation can at the time foresee is
reasonably likely to adversely affect, in any material respect the business,
prospects, earnings, Properties or condition, financial or otherwise, of the
Corporation and its Subsidiaries taken as a whole.
Section 3.08 Taxes and Claims. The Corporation shall, and shall cause each
of its Subsidiaries to, pay prior to delinquency:
(i) all taxes, assessments and governmental charges or levies imposed
upon it or its Property, and
(ii) all claims or demands of material men, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might
result in the creation of a lien upon its Property;
Provided that items in clauses (i) and (ii) need not be paid while being
contested in good faith by appropriate proceedings, and provided, further, that
adequate book reserves (in the opinion of the Corporation's independent
accountants) have been established with respect thereto; and provided, further,
that the owning company's title to, and its right to use, its Property is not
materially adversely affected thereby.
Section 3.09 Money for Security Payments to Be Held in Trust. If the
Corporation shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on the Securities, segregate and
hold in trust in a trust or special deposit account for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal; or interest so
becoming due until such sum shall be paid to such Person or otherwise disposed
of as herein provided, and will promptly notify the Trustee of its action or
failure so to act.
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Whenever the Corporation shall have one or more Paying Agents, it will, on
or prior to each date for the payment of the principal of or interest on the
Securities, deposit with the Paying Agents sums sufficient to pay the principal
or interest so becoming due, such sums to be held in trust for the benefit of
the Persons entitled to such payments pursuant to the agreement referred to in
Section 2.04; and, unless such Paying Agent is the Trustee, the Corporation will
promptly notify the Trustee of its action or failure so to act.
For the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, the Corporation may at any time pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Corporation or such Paying Agent, such sums to be held by the Trustee, the
Corporation or such Paying Agent, as the case may be, shall be released from all
further liability with respect to such money.
Section 3.10 Compliance Certificate. The Corporation shall deliver to the
Trustee, within 120 days after the end of each fiscal year of the Corporation,
an Officers' Certificate stating that a review of the activities of the
Corporation and its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Corporation has kept, observed, performed and fulfilled its obligations
under this Indenture, and further stating, as to each such officer signing such
Certificate, that to the best of his knowledge the Corporation has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
he may have knowledge and specifying what action the Corporation is taking or
proposes to take with respect thereto) and that to the best of his knowledge no
event has occurred and remains in existence by reason of which payments on
account of the principal of or interest on the Securities are prohibited.
The Corporation will, so long as any of the Securities are outstanding,
deliver to the Trustee at its Corporate Trust Office, forthwith upon becoming
aware of any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in this Indenture, an Officers'
Certificate describing such Default, Event of Default or default and specifying
what action the Corporation is taking or proposes to take with respect thereto.
Any such Certificate delivered under this Section 3.10 shall comply with Section
314 of the TIA.
Section 3.11 Continued Existence. Subject to Article IV, the Corporation
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence.
Section 3.12 Limitation on Subordinated Indebtedness. The Corporation shall
not incur or suffer or permit to exist any Indebtedness that is by its terms
subordinated in right of payment to Senior Debt except for Indebtedness Ranking
on a Parity with the Securities or Ranking Junior to the Securities.
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ARTICLE IV
SUCCESSORS
Section 4.01 When Corporation May Merge, etc. Subject to Section 2.13, the
Corporation shall not consolidate or merge with or into, or transfer, sell,
lease or convey all or substantially all of its Property to, any Person unless:
(i) the corporation formed by or surviving any such consolidation or
merger, or the Person to which such transfer, sale, lease or conveyance
shall have been made, unconditionally assumes by supplemental indenture all
the obligations of the Corporation under the Securities and this Indenture
including but not limited to the due and punctual payment of the principal
of and interest on all the Securities;
(ii) immediately after the transaction, the Consolidated Tangible
Capital of the corporation formed by or surviving such consolidation or
merger, or the Person to which such transfer, sale, lease or conveyance has
been made, shall not be a negative amount; and
(iii) immediately after the transaction no Default or Event of Default
exists.
The Corporation shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with this Indenture and that all conditions precedent to the consummation
of the transaction under this Indenture have been met.
The surviving corporation shall be the successor Corporation, but the
predecessor Corporation in the case of a transfer, sale, lease or conveyance
shall not be released from the obligation to pay the principal of and interest
on the Securities.
The parties hereto recognize that the remedies otherwise provided in this
Indenture may not provide an adequate remedy in the case of noncompliance by the
Corporation under this Section. The parties hereto therefore agree that, in any
such case of noncompliance, the Trustee shall be entitled to seek an injunction
or specific performance of the Corporation's obligations under this Section, or
any other equitable remedies, in addition to other remedies provided in this
Indenture.
Section 4.02 Successor Substituted. Upon any consolidation or merger, or
any transfer, sale, lease or conveyance of all or substantially all of the
assets of the Corporation in accordance with Section 4.01, the successor Person
formed by such consolidation or into which the Corporation is merged or to which
such transfer, sale, lease or conveyance is made
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shall succeed to, and be substituted for, and may exercise every right and power
of, the Corporation under this Indenture with the same effect as if such
successor had been named as the Corporation herein.
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.01 Events of Default. An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any Security
when the same becomes due and payable and the Default continues for a
period of 30 days;
(2) the Corporation defaults in the payment of the principal of or
premium on any Security (including any sinking fund payment) when the same
becomes due and payable at maturity or upon redemption, acceleration or
otherwise;
(3) the Corporation fails to comply with any of its other agreements or
covenants in or provisions of the Securities or this Indenture, and such
default continues for a period of 30 days after the Trustee notifies the
Corporation, or the Holders of at least 25% in principal amount of the
then-outstanding Securities notify the Corporation and the Trustee, of such
Default;
(4) a default (other than default under any mortgage indenture or
instrument securing or evidencing any indebtedness secured by an interest
in a particular real estate development project, or under any guarantee of
payment of indebtedness which guarantee is secured by an interest in a
particular real estate development project, in either case which is
expressly stated to be without recourse to the Corporation or any of its
Subsidiaries or which is a purchase money or similar mortgage indebtedness
that is without recourse to the Corporation or any of its Subsidiaries
under applicable state law from the date of its execution) occurs under any
instrument or any other obligation representing Indebtedness of the
Corporation or any Subsidiary if (i) the effect of such default is to
permit the acceleration of such Indebtedness and (ii) the aggregate
principal amount of such indebtedness as to which any such default or
defaults shall have occurred exceeds $10 million;
(5) a court or governmental agency or authority having jurisdiction in
the premises enters a decree or order (i) declaring the Corporation or any
Subsidiary to be bankrupt or insolvent, (ii) approving as properly filed a
petition seeking reorganization, arrangement, adjustment, composition of or
in respect of the Corporation or any Subsidiary in an involuntary case
under any bankruptcy or similar law for the benefit of creditors, (iii)
appointing a receiver, conservator, liquidator, custodian, trustee,
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sequestrator, assignee in bankruptcy or insolvency or any similar
official (collectively, a "Custodian") of the Corporation or any subsidiary
or of its Property or (iv) for the winding up or liquidation of the affairs
of the Corporation or any Subsidiary, and such decree or order shall have
continued undischarged and unstayed for a period of 30 days;
(6) the Corporation or any Subsidiary commences a voluntary case,
consents to the entry of any order of relief in an involuntary case under
any bankruptcy or similar law for the benefit of creditors, seeks or
consents to the appointment of a Custodian or to the taking possession by a
Custodian of it or of any substantial part of its Property, makes an
assignment for the benefit of creditors, fails generally to pay its debts
as they become due, or takes corporate action in furtherance of any of such
purposes;
(7) a Custodian shall be appointed for the Corporation; or
(8) one or more judgments have been rendered against the Corporation or
any Subsidiary in an aggregate amount exceeding $10 million which judgments
remain undischarged for a period of 60 days after all rights to directly
review such judgment, whether by appeal or writ, have been exhausted or
have expired.
Section 5.02 Acceleration; Limitations on Acceleration. Subject to Section
2.13, if an Event of Default (other than an Event of Default specified in clause
(5) or (6) as such clauses relate to the Corporation or clause (7) of Section
5.01) occurs and is continuing, the Trustee by notice to the Corporation, or the
Holders of at least 25% in principal amount of the then-outstanding Securities
by notice to the Corporation and the Trustee, may declare the principal of an
accrued interest on all the securities to be due and payable. Upon such
declaration the principal and interest shall be due and payable immediately
without any presentment, demand, protest or notice to the Corporation, all of
which the Corporation expressly waives. Subject to Section 2.13, if an Event of
Default specified in clause (5) or (6) as such clauses relate to the Corporation
or clause (7) of Section 5.01 occurs, such an amount shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Holders of a majority in principal amount of the then-outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if:
(1) the rescission would not conflict with any judgment or decree;
(2) all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
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(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid; and
(4) all payments then due the Trustee and any predecessor Trustee under
Section 6.07 have been made.
Section 5.03 Other Remedies. Subject to Section 2.13, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy by
an action at law, suit in equity or other appropriate proceeding to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon a Default or Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in such Default or Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 5.04 Waiver of Default. The Holders of at least a majority in
principal amount of the then-outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except a
continuing default or Event of Default in the payment of the principal of or
interest on any Security. No such waiver shall extend to any subsequent or other
Default or Event of Default.
Section 5.05 Control by Majority. The Holders of a majority in principal
amount of the then-outstanding Securities may direct the time, method and place
of conducting any pro ceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law, regulation or this Indenture,
is unduly prejudicial to the rights of other Securityholders or would subject
the Trustee to personal liability.
Section 5.06 Limitation on Suits. A Securityholder may pursue a remedy with
respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holders of at least 25% in principal amount of the
then-outstanding Securities make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer(s) to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60 days after
the receipt of the notice, the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the then-outstanding Securities do not give the Trustee a
direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
Section 5.07 Rights of Holders to Receive Payment. Subject only to Article
IX, Section 2.13 and the provisions of Section 5.02 regarding rescission of
acceleration, notwith standing any other provision of this Indenture, the right
of any holder of a Security to receive payment of principal of and interest on
the Security on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
Section 5.08 Collection Suit by Trustee. If an Event of Default specified
in clause (1) or (2) of Section 5.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Corporation for the whole amount of principal and interest remaining unpaid on
the Securities and any compensation due the Trustee under Section 6.07.
Section 5.09 Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to the Corporation, its creditors or its
Property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 5.10 Priorities. If the Trustee collects any money pursuant to this
Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.07;
Second: to holders of Senior Debt to the extent required by Article
IX;
Third: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any
kind, according to
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the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth: to the Corporation, its successors or assigns, or to whomever
may be legally entitled to receive the remainder, or as a court of
competent jurisdiction may determine.
The Trustee may fix a record date and a payment date for any payment to the
Securityholders pursuant to this Article.
Section 5.11 Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder for the enforcement of rights set forth in Section
5.07, or a suit by Holders of at least 15% in principal amount of the
then-outstanding Securities.
ARTICLE VI
TRUSTEE
Section 6.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture but shall not be required to verify the accuracy of the
contents of such certificates or opinions. However,
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the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action or failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgement made
in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives an indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with the Corporation. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 6.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights
or powers.
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Section 6.03 Individual Rights of Trustee. The Trustee in its individual or
any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Corporation or an Affiliate with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 6.10 and 6.11.
Section 6.04 Disclaimer. The Trustee makes no representation as to the
validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Corporation's use of the proceeds from the Securities, and
it shall not be responsible for any statement in the Securities other than its
authentication.
Section 6.05 Notice of Defaults. If a Default or Event of Default has
occurred and is continuing of which a Trust Officer of the Trustee has actual
knowledge, the Trustee shall mail to Securityholders a notice of the Default or
Event of Default within 90 days after it becomes known to the Trustee. Except in
the case of a Default or Event of Default in payment of principal of or interest
on any Security, the Trustee may withhold notice if and so long as a committee
of its Trust Officers in good faith determines that withholding the notice is in
the interest of Securityholders.
Section 6.06 Reports by Trustee to Holders.
(a) Within 60 days after each April 15, the Trustee shall mail to each
Securityholder and the Corporation a brief report dated as of such April 15
that complies with TIA Section 313(a). The Trustee shall also comply with
TIA Section 313(b)(2).
(b) In lieu of the foregoing reports, so long as this Indenture is not
qualified under the TIA, the Trustee may transmit by mail to the
Corporation a statement as to its qualifications and eligibility hereunder,
and shall transmit by mail a copy of such statement to such Holders who
have previously furnished a written request therefor to the Trustee.
Section 6.07 Compensation and Indemnity. The Corporation shall pay to the
Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Corporation shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it. Such expenses
shall include the reasonable compensation and out-of-pocket expenses of the
Trustee's agents and counsel.
The Corporation shall indemnify the Trustee against any loss or liability
incurred by it in connection with its services hereunder except as set forth in
the next paragraph. The Trustee shall notify the Corporation promptly of any
claim for which it may seek indemnity.
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The Corporation shall settle or defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel, at the expense of the
Corporation.
The Corporation need not reimburse any expense or indemnity against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or Property held
or collected by the Trustee, except that held in trust to pay principal of and
interest on particular securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clauses (5), (6) and (7) of Section 5.01 occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy or similar law for the benefit
of creditors.
Section 6.08 Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the then-outstanding Securities may remove the
Trustee by so notifying the Trustee and the Corporation. The Corporation may
remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any bankruptcy
or similar law for the benefit of creditors;
(3) a custodian or public officer takes charge of the Trustee or its
Property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then-outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the
Corporation.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of at least 10% in principal amount of the then-outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
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If the Trustee fails to comply with Section 6.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Corporation. Thereupon the resignation or
removal of the retiring Trustee shall become effective and the successor Trustee
shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all Property held
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 6.07.
Section 6.09 Successor Trustee by Merger. If the Trustee consolidates,
merges or converts into, or transfers all or substantially all of its corporate
trust business to, another corporation, the successor corporation without any
further act shall be the successor Trustee.
Section 6.10 Eligibility; Disqualification. This Indenture shall always
have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The
Trustee shall always have a combined capital and surplus of at least $10 million
as set forth in its most recent published annual report of condition. The
Trustee is subject to TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9).
Section 6.11 Preferential Collection of Claims Against Corporation. The
Trustee shall comply with TIA Section 311 (a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall comply with TIA Section 311(a) to the extent indicated therein.
ARTICLE VII
SATISFACTION AND DISCHARGE
Section 7.01 Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect (except as to (i) any rights of substitution,
registration of transfer and exchange of Securities herein expressly provided
for, (ii) rights hereunder of Holders to receive payments of principal of, or
interest on, the Securities and (iii) the rights, obligations and immunities of
the Trustee hereunder, including without limitation, its rights under Section
6.07), and the Trustee, on the demand and at the expense of the Corporation,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture when:
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been
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replaced or paid as provided in Article II, and (ii) Securities
for the payment of which money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Corporation and thereafter repaid to the Corporation or
discharged from such trust, as provided in Section 7.03) have been
delivered to the Trustee for cancellation; or
(B) the principal of all such Securities not theretofore
delivered to the Trustee for cancellation has become due and payable
and the Corporation has deposited or caused to be deposited in trust
with the Trustee, solely for the benefit of the Holders, funds in an
amount sufficient to pay and discharge the entire Indebtedness on
such Securities not theretofore delivered to the Trustee for
cancellation;
(2) the Corporation has irrevocably paid or caused to be irrevocably
paid all other sums payable hereunder by the Corporation; and
(3) the Corporation has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for herein to be complied with by the Corporation
relating to the satisfaction and discharge of this Indenture have been
complied with.
Section 7.02 Application of Trust Money. The Trustee shall hold in trust
money deposited with it pursuant to Section 7.01. It shall apply the deposited
money through the Paying Agents and in accordance with the Indenture to the
payment of principal and Interest, on the Securities. Money so held in trust
shall not be subject to Article IX.
Section 7.03 Repayment to Corporation. Any money deposited with the Trustee
or any Paying Agent, or then held by the Corporation in trust for the payment of
principal or interest that remains unclaimed for two years after such principal
or interest has become due and payable shall be paid to the Corporation upon
request, or, if then held by the Corporation, shall be released from such trust;
provided, however, that the Trustee or such Paying Agent, may, at the expense of
the Corporation, cause to be published once in a newspaper of general
circulation in the City of New York or mail to each such Holder, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication or mailing, any
unclaimed balance of such money then re maining will be repaid to the
Corporation. After such money has been paid to the Corporation or released from
trust, Securityholders entitled to the money must look to the Corporation for
payment as general creditors unless an applicable abandoned property law
designates another person.
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ARTICLE VIII
AMENDMENTS
Section 8.01 Without Consent of Holders. The Corporation and the Trustee
may amend this Indenture or the Securities without the consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 4.01;
(3) to provide for definitive Securities in exchange for global
Securities;
(4) to make any change that does not adversely affect the legal
rights hereunder of any Securityholder; or
(5) to take any action necessary to qualify this Indenture under the
TIA.
Section 8.02 With Consent of Holders. The Corporation and the Trustee may
amend this Indenture or the Securities with the written consent of the holders
of at least a majority in principal amount of the then-outstanding Securities.
However, without the consent of each Securityholder affected, an amendment under
this Section may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or change the time for or in any way affect
the terms of payment of interest, including default interest, on any
Security;
(3) reduce the principal of or change the fixed maturity of any
Security, or change the date on which any Security may be subject to
redemption, or reduce the Redemption Price therefor;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Section 5.04 or 5.07 or the second sentence
of this Section 8.02; or
(6) make any change in Article IX that adversely affects the rights
of any Securityholder.
After an amendment under this Section becomes effective, the Corporation
shall mail to Securityholders a notice briefly describing the amendment.
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Section 8.03 Reserved.
Section 8.04 Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Security or portion of a Security
that evidences the same date as the consenting Holder's Security, even if
notation of the consent is not made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to his security or portion of a
Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. An amendment or waiver becomes effective
in accordance with its terms and thereafter binds every Securityholder.
Section 8.05 Notation on or Exchange of Securities. If an amendment,
supplement or waiver changes the terms of the Securities, the Trustee may
require the Holders of such Securities to deliver them to the Trustee. The
Trustee may place an appropriate notation on such Securities about the changed
terms and return them to such Holders. Alternatively, the Corporation in
exchange for all securities may issue and the Trustee shall authenticate new
Securities that reflect the changed terms.
Section 8.06 Trustee Protected. The Trustee shall sign any amendment,
supplement or waiver if requested by the Corporation, so long as the same
complies with the requirements of this indenture and in doing so shall be
entitled to receive, and shall be fully protected in relying upon an opinion of
counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article is authorized or permitted by this
Indenture, is not inconsistent herewith and is valid and binding on the
Corporation in accordance with its terms. However, the Trustee need not sign any
amendment, supplement or waiver that adversely affects its rights, duties,
liabilities or immunities. The Corporation may not sign an amendment or
supplement until its Board of Directors approves it (a certified copy of the
resolutions in which such approval is given shall be delivered to the Trustee
prior to its signing any amendment, supplement or waiver).
Section 8.07 Rights of Holders to Receive Payment. Subject only to Article
IX, Section 2.13 and the provisions of Section 8.02 regarding rescission of
acceleration, notwith standing any other provision of this Indenture, the right
of any holder of a Security to receive payment of principal of and interest on
the Security on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates shall not be impaired or affected without the consent of the
Holder.
Section 8.08 Collection Suit by Trustee. If an Event of Default specified
in clause (1) or (2) of Section 8.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Corporation for the whole amount of principal and interest remaining unpaid on
the Securities and any compensation due the Trustee under Section 6.07.
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Section 8.09 Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to the Corporation, its creditors or its
Property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 8.10 Priorities. If the Trustee collects any money pursuant to this
Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.07;
Second: to holders of Senior Debt to the extent required by Article IX;
Third: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Corporation, its successors or assigns, or to whoever
may be legally entitled to receive the remainder, or as a court of a
competent jurisdiction may determine.
The Trustee may fix a record date and a payment date for any payment to the
Securityholders pursuant to this Article.
Section 8.11 Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder for the enforcement of rights set forth in Section
8.07, or a suit by Holders of more than 15% in principal amount of the
then-outstanding Securities.
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ARTICLE IX
SUBORDINATION
Section 9.01 Agreement to Subordinate. The Corporation, and each
Securityholder by accepting a Security, agrees that the Indebtedness evidenced
by the Security is subordinated and junior in right of payment to the prior
payment in full of all Senior Debt (which, defined below, includes among other
things the Corporation's obligations to its general and secured creditors) to
the extent and in the manner provided in this Article.
Each Holder, by his acceptance of a Security, acknowledges that the
provisions of this Article are for the benefit of all holders of Senior Debt
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt.
Section 9.02 Subordination.
(a) The Indebtedness evidenced by the Securities shall be subordinate
and junior in right of payment to all Senior Debt to the extent and in the
manner set forth in this Section. During the continuance of (i) any default
in the payment on any principal of or premium or interest on any Senior
Debt, (ii) any event of default in respect of any Senior Debt or (iii) any
Insolvency, receivership, conservatorship, reorganization, readjustment of
debt, marshaling of assets and liabilities or similar proceedings or any
liquidation relating to or winding up of the Corporation as a whole,
whether voluntary or involuntary (each, a "Specified Event" and
collectively, the "Specified Events"), the holders of Senior Debt shall be
entitled to payment in full of all principal of and interest on Senior Debt
before the Holders are entitled to any payment on account of the principal
of or interest on the Securities. Subject to Section 2.13, in the event of
any Specified Event, after payment in full of all sums owing on the Senior
Debt, the Holders, together with the holders of any Indebtedness of the
Corporation Ranking on a Parity with the Securities, shall be entitled to
be paid from the remaining assets of the Corporation. In addition, during
the continuance of any Specified Event, all principal of and interest on
the Securities which shall have become due and payable shall be in full to
the Securityholders entitled thereto before any payment or other
distribution shall be made on account of any Indebtedness or other
obligation of the Corporation Ranking Junior to the Securities.
(b) If any event of default occurs and is continuing (or if such an
event of default would occur upon any payment with respect to the
Securities), as such event of default is defined in any Senior Debt or in
the instrument under which such Senior Debt is outstanding, permitting the
holders thereof to accelerate the maturity thereof and if the holder or
holders or a representative thereof gives written notice of such event of
default (which notice makes specific reference to this subparagraph) to the
Corporation and the Trustee (a "Default Notice"), then, unless and until
such event of default has
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been cured or waived or has ceased to exist, then, during the 180 days
after the delivery of such Default Notice (the "Blockage Period") (i) no
payment of or with respect to the principal of or interest on the
Securities (including any payment or distribution that may be payable or
deliverable to holders of Securities by reason of the payment of any other
debt of the Corporation subordinated to the payment of the Securities)
shall be made directly or indirectly by or on behalf of the Corporation and
(ii) no direct or indirect payment shall be made by or on behalf of the
Corporation with respect to any repurchase, redemption or other retirement
of any of the Securities for cash or property or otherwise. For all
purposes of this Section 9.02(b), an event of default which existed or was
continuing with respect to the Senior Debt, the holders of which initiated
the Blockage Period, on the date such Blockage Period commenced may be or
be made the basis for the commencement of any subsequent Blockage Period by
the holder or holders of such Senior Debt (or a representative of such
holder or holders) unless such event of default is cured or waived or has
ceased to exist for a period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment shall
be received directly or indirectly by the Trustee or any Holder when such
payment is prohibited by Section 9.02(a) or 9.02(b), such payment shall be
held in trust for the benefit of, and shall forthwith be paid over or
delivered to, the holders of Senior Debt, of their respective
representatives, or to the trustee or trustees under any indenture pursuant
to which any of such Senior Debt may have been issued, as their respective
interests may appear, but only to the extent that, upon notice from the
Trustee to the holders of Senior Debt, as the case may be, that such
prohibited payment has been made, the holders of the Senior Debt notify the
Trustee of the amounts then due and owing on the Senior Debt, if any, and
only the amounts specified in such notice to the Trustee shall be paid to
the holders of Senior Debt.
The foregoing subordination provisions shall in no way be affected,
modified, waived or revoked by the occurrence of any Event of Default hereunder
or any acceleration of the maturity of the Securities in consequence thereof.
Section 9.03 Notice to Trustee of Specified Events; Reliance on Certificate
of Custodian. The Corporation shall give prompt written notice to the Trustee
and the Paying Agent of any Specified Event affecting the Corporation. The
Trustee and the Paying Agent shall be entitled to assume that no Specified Event
has occurred unless the Corporation has given such notice.
Upon any distribution of assets of the Corporation or payment by or on
behalf of the Corporation referred to in Section 9.02, the Trustee and the
Securityholders shall be entitled to rely upon any order or decree of a court or
governmental body of competent jurisdiction in which any proceedings relating to
a Specified Event are pending, and the Trustee and the Securityholders shall be
entitled to rely upon a certificate of the custodian or agent or other
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Person making any distribution to the Trustee or to the Securityholders for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt and other Indebtedness of the
Corporation, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article.
Section 9.04 Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice.
(a) Subject to Section 2.13, nothing contained in this Article or
elsewhere in this Indenture, or in any of the Securities, shall prevent the
Corporation from making payment of or on account of the principal of or
interest on the Securities, or from depositing with the Trustee moneys for
such payments, or prevent the Trustee from making payments from moneys
deposited with it hereunder for the payment of or on account of the
principal of or interest on the Securities if such payment or deposit is
not contrary to the conditions described in Section 9.02 on the date of
such payment or deposit.
(b) The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or
by the Trustee, unless and until the Trustee shall have received written
notice thereof at its Corporate Trust Office from the Corporation at least
three business days prior to any payment date. Thereafter, the Trustee
shall use its best efforts to prevent any prohibited payment under Section
9.02. Prior to the receipt of any such written notice the Trustee shall be
entitled to assume conclusively that no such facts exist, and shall be
fully protected in making any such payment in any such event.
Section 9.05 Absolute Obligation to Pay. Subject to Section 2.13, nothing
contained in this Indenture or in the Securities shall:
(1) impair, as between the Corporation and the Securityholders, the
obligation of the Corporation, which is absolute and unconditional, to
pay the principal of and interest on the Securities in accordance with
their terms;
(2) affect the relative rights of the Securityholders and creditors
of the Corporation other than holders of Senior Debt;
(3) prevent the Trustee or any Securityholder from exercising all or
any of its available remedies upon a Default or an Event of Default.
Section 9.06 Trustee's Rights as Holder of Senior Debt. The Trustee in its
individual or any other capacity may hold Senior Debt with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights.
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Section 9.07 No Implied Obligations to Holders of Senior Debt. No implied
covenants or obligations with respect to the holders of Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Debt and shall not be liable to
any such holder if it shall pay over or distribute to or on behalf of
Securityholders or the Corporation moneys or assets to which any holder of
Senior Debt shall be entitled.
Section 9.08 Enforceability of Subordination. The rights of any holder of
Senior Debt to enforce the subordination of the Indebtedness evidenced by the
Securities shall not be prejudiced or impaired by any act or failure to act by
the Corporation or by its failure to comply with the Indenture.
Section 9.09 Trustee Authorized to Effectuate Subordination. Each
Securityholder, by accepting a Security, authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
ARTICLE X
REDEMPTION
Section 10.01 Optional Redemption; Notice to Trustee. The Corporation may
redeem all of the Securities at any time or some of them from time to time at
the Redemption Prices (expressed in $1,000 of principal amount) set forth below
plus accrued and unpaid interest to the Redemption Date, if redeemed during the
12-month period beginning July 1, 2004 of the years indicated below:
Redemption Price
Per $1,000
Year Principal Amount
---- ----------------
2004.............................. $1,100
2005.............................. 1,090
2006.............................. 1,080
2007.............................. 1,070
2008.............................. 1,060
2009.............................. 1,050
2010.............................. 1,040
2011.............................. 1,030
2012.............................. 1,020
2013.............................. 1,010
2014.............................. 1,000
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If the Corporation elects to redeem Securities pursuant to this
subparagraph, it shall furnish to the Trustee an Officer's Certificate notifying
the Trustee of the Redemption Date and the principal amount of Securities to be
redeemed at least 50 days but not more than 90 days before such Redemption Date.
Section 10.02 Selection of the Securities to Be Redeemed. If less than all
the Securities are to be redeemed, the Trustee shall select, subject to the
remainder of this Section, the Securities to be redeemed by lot. The Trustee
shall make the selection not more than 75 days and not less than 45 days before
each Redemption Date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal
amount of Securities in denominations of $1,000 and integral multiples of $1,000
provided that the remaining principal amount of any Security redeemed in part
shall not be less than $1,000 (such allocations for this purpose to be made by
the Trustee in its discretion). Provisions of this Indenture that apply to
Securities called for redemption shall also apply to portions of the Securities
called for redemption. The Trustee shall notify the Corporation promptly of the
Securities or portions of Securities to be called for redemption.
Section 10.03 Notice of Redemption. At least 30 days but not more than 60
days before a Redemption Date, the Trustee shall mail a notice of redemption by
first-class mail to each Holder whose Securities are to be redeemed in the
Corporation's name and at its expense.
The notice shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued and unpaid
interest to be paid;
(3) the name and address of the Paying Agent or Agents; and
(4) that the Securities called for redemption on the Redemption Date
must be surrendered to a Paying Agent to collect the Redemption Price.
Section 10.04 Effect of Notice of Redemption. Once notice of redemption is
mailed, the Securities called for redemption become due and payable on the
specified Redemption Date at the Redemption Price plus accrued and unpaid
interest to the Redemption Date.
Section 10.05 Deposit of the Redemption Price on Optional Redemption. On or
before each Redemption Date, the Corporation shall deposit with the Paying Agent
money in immediately available funds sufficient to pay the Redemption Price and
accrued and unpaid interest to the Redemption Date on all Securities to be
redeemed on that date.
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Section 10.06 Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Corporation shall issue and the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls. Any provision of this Indenture
which would be required to be contained herein if the Indenture were qualified
under the TIA shall be construed and interpreted in accordance with
interpretations of the TIA by courts and the Commission.
Section 11.02 Notices. Any notice or communication to the Corporation or
the Trustee is duly given if in writing and delivered in person or mailed by
first-class mail to the following address:
The Corporation's address is:
[RB Asset, Inc.
645 Fifth Avenue, 8th Floor
New York, New York 10022]
Attention: Chief Executive Officer
The Trustee's address is:
[ ]
[ ]
[ ]
Attention: [ ]
Telephone: [ ]
Telecopy: [ ]
With respect to notices between the Trustee and the Corporation only,
notices may also be given by facsimile transmission with receipt confirmed by
telephone and followed by an original sent by guaranteed overnight courier.
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
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Any notice or communication to a Securityholder shall be in writing and
mailed by first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or a communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
If a notice or communication is delivered or mailed, as the case may be, in
the manner provided above within the time prescribed, it is duly given, whether
or not the addressee receives it.
If the Corporation mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03 Communication by Holders with Other Holders. Securityholders
may communicate pursuant to TIA Section 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. The Trustee
shall comply with the provisions of TIA Section 312(b). The Corporation, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
Section 11.04 Certificate and Opinion as to Conditions Present. Upon any
request or application by the Corporation to the Trustee to take any action
under this Indenture, the Corporation shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Section 11.05 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
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(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 11.06 Rules by Trustee and Agents. The Trustee may make reasonable
rules for action by or a meeting of Securityholders. The Registrar or Paying
Agents may make reasonable rules and set reasonable requirements for their
functions.
Section 11.07 Legal Holidays. A "Legal Holiday" with respect to any place
is a Saturday, a Sunday or a day on which banking institutions are not required
to be open in such place. If a payment date is a Legal Holiday at a place of
payment, payment may be made at the place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the intervening period.
Section 11.08 No Recourse Against Others. The Securities and the
obligations of the Corporation under this Indenture are solely obligations of
the Corporation and no officer, director, employee or stockholder shall as such
be liable for any failure by the Corporation to pay amounts on the Securities
when due or perform any such obligation.
Section 11.09 Duplicate Originals. The parties may sign any number of
copies of this Indenture. One signed copy is enough to prove this Indenture.
Section 11.10 Governing Law. The internal laws of the State of New York
shall govern this Indenture and the Securities.
Section 11.11 No Adverse Interpretation of Other Agreements. This Indenture
may not be used to interpret another indenture, loan or debt agreement of the
Corporation or a Sub sidiary. Any such indenture, loan or debt agreement may not
be used to interpret this Indenture.
Section 11.12 Successors. All agreements of the Corporation in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
Section 11.13 Severability. In case any provision in this Indenture or in
the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.14 Table of Contents, Headings, etc. The Table of Contents and
headings of the Articles and Sections of this Indenture have been inserted for
the convenience of reference only, are not to be considered a part thereof, and
shall in no way modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused their names to be signed
hereto by their respective officers thereunto duly authorized as of the day and
year first above written.
[RB ASSET, INC.]
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Attest:
- -----------------------------
[ ]
as Trustee
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Attest:
- ----------------------------
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Exhibit A
[Form of Face of Security4]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
[DEPOSITORY TRUST COMPANY], A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF [CEDE & CO.] OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, [CEDE & CO., HAS AN INTEREST HEREIN.]
THE DEBENTURES EVIDENCED BY THIS CERTIFICATE MAY BE ISSUED AND TRANSFERRED ONLY
IN DENOMINATIONS OF $1,000 AND INTEGRAL MULTIPLES THEREOF (OR SUCH GREATER
AMOUNT AS MAY BE REQUIRED BY APPLICABLE STATE OR FEDERAL LAW).
No. __________ $__________
[RB ASSET, INC.]
15% Subordinated Capital Debentures due 2014
[RB Asset, Inc.], a [Delaware corporation], promises to pay [CEDE & CO.] or
registered assigns, the principal sum of ____________ Dollars on July 1, 2014,
unless earlier redeemed or accelerated after an Event of Default on the terms
and in the manner described in the Indenture, as hereinafter defined, and to pay
interest thereon quarterly in arrears at the rate of 15% per annum on each
Interest Payment Date, as hereinafter defined, until the principal hereof is
paid or duly provided for. Payment of principal and interest shall be made in
the method and subject to the terms set forth in provisions appearing on the
reverse hereof, which provisions, in their entirety, shall for all purposes have
the same effect as if set forth at this place.
- --------
4 Both the face and reverse of this form of Security are subject to change
to reflect any changes made in the Form of Indenture to which this Form of
Security is attached. Any such change in the Form of Security shall not be
deemed to materially adversely affect the rights and interests of holders
of Series A Preferred Stock without the consent of the holders so affected,
as provided in the Indenture.
718629.1
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<PAGE>
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: ________________________________________
718629.1
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<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 15% Subordinated Capital Debentures due 2014 referred to
in the within-mentioned Indenture.
Dated: [________________]
as Trustee
By: _________________________________
Authorized Signatory
718629.1
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<PAGE>
[Form of Reverse of Security]
[RB ASSET, INC.]
1. The Securities. This Security is one of a duly authorized Issue of
subordinated capital debentures issued by [RB Asset, Inc.], a [Delaware
corporation] the "Corporation"), designated as its 15% Subordinated Capital
Debentures due July 1, 2014 and referred to hereinafter as the "Securities".
2. Interest. The Corporation promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Corporation will
pay interest quarterly in arrears on January 15, April 15, July 15 and October
15 of each year (each an "Interest Payment Date"), commencing on the first
Interest Payment Date following the date of issuance hereof. Interest on the
Securities will accrue from the most recent Interest Payment Date to which
interest has been paid or, if no interest has been paid, from the date hereof.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
3. Method of Payment; Form. The Corporation will pay interest on the
Securities (except defaulted interest) to the persons who are registered Holders
of Securities at the close of business on the last day (whether or not such day
is a Business Day) of the month preceding the month in which an Interest Payment
Date (a "Regular Record Date") even though Securities are canceled after the
Regular Record Date and on or before the Interest Payment Date. Any such
interest not so punctually paid or duly provided for within the grace period set
forth in Section 5.01(1) and any interest lawfully payable on such defaulted
interest, will forthwith cease to be payable to the Holder on such Regular
Record Date and shall be payable to the person in whose name this Security is
registered at the close of business on a special Record Date for the payment of
such defaulted interest to be fixed by the Corporation, notice of which shall be
given to Holders not less than 10 days prior to such Special Record Date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Corporation will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Corporation or the Paying Agent may, at its
election, pay principal and interest by check payable in such money. It may mail
an interest check to a Holder's registered address.
Except as otherwise provided in the Indenture, the Securities will be
issued in global form only registered in the name of [CEDE & Co.]. The
Securities will not be issued in definitive form except as otherwise provided in
the Indenture, and ownership of the Securities shall be maintained in book entry
form by [DTC] for the account of participating organizations of [DTC].
4. Paying Agents and Registrar. [The Trustee (as defined herein) will act
as a Paying Agent and Registrar.] The Corporation may change any Paying Agent or
Registrar without notice to any Securityholder. The Corporation may act in any
such capacity.
718629.1
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<PAGE>
5. Indenture. The Corporation issued the Securities under an Indenture
dated as of [ ] (the "Indenture"), between the Corporation and [ ], as trustee
(the "Trustee"). The Securities were issued pursuant to the exchange of the 15%
Noncumulative Perpetual Preferred Stock, Series A, of the Corporation (the
"Series A Preferred Stock") pursuant to the terms thereof. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 as amended, and as in
effect from time to time (the "Trust Indenture Act"). The Securities are subject
to all such terms and Securityholders are referred to the Indenture and such Act
for a statement of such terms. The Securities are unsecured general obligations
of the Corporation limited in amount to the aggregate liquidation preference of
the Series A Preferred Stock exchanged therefor (a maximum of approximately $35
million). The indebtedness evidenced by this Security is unsecured by the assets
of the Corporation or any of its affiliates. This Security is not eligible as
collateral for any loan by the Corporation.
6. Subordination. The Securities are subordinated to Senior Debt on
liquidation of the Corporation, any event of default in respect of Senior Debt
and certain other events specified in the Indenture. "Senior Debt" means all
principal and interest on all claims against the Corporation, including, without
limitation, commercial paper, repurchase agreements, secured Indebtedness and
the Corporation's other obligations to its general and secured creditors,
whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed by the Corporation (and all renewals, extensions or refundings of
the liabilities arising out of such claims), provided, however, that "Senior
Debt" does not include the Securities, any Indebtedness (as defined in the
Indenture) Ranking on a Parity with the Securities (as defined in the
Indenture), any Indebtedness Ranking Junior to the Securities (as defined in the
Indenture) or any Indebtedness for money borrowed by the Corporation from any
Subsidiary or Affiliate of the Corporation. "Indebtedness" means, as to any
Person at any date (i) all indebtedness, obligations or other liabilities for
borrowed money, whether matured or unmatured, liquidated or unliquidated, direct
or contingent, joint or several, and whether now existing or hereafter created;
(ii) all indebtedness secured by any mortgage, lien, pledge, charge or
encumbrance upon Property owned by such Person; (iii) all indebtedness,
obligations or liabilities of others of the type described in the preceding
clauses (i) and (ii) which the Corporation has guaranteed or is in any other way
liable for; and (iv) all amendments, renewals, extensions or refundings of any
such indebtedness, obligation or liability. "Ranking on a Parity with the
Securities" means, with respect to any obligation of the Corporation, an
obligation that by express provisions in the instrument creating, evidencing or
governing such obligation (i) is specifically designated as Ranking on a Parity
with the Securities, (ii) ranks equally with and not prior to the Securities in
right of payment upon the happening of certain events specified in the Indenture
and (iii) is also made junior and subordinate in right of payment to other
obligations of the Corporation to the same extent as the Securities are made
junior and subordinate thereto by the provisions of the Indenture.
7. Denominations, Transfer, Exchange. The Securities are in registered form
without coupons in denominations of $1,000 (or such greater amount as may be
required by applicable
718629.1
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<PAGE>
State or Federal law) and integral multiples of $1,000 in excess thereof. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes or other governmental charges and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
8. Redemption. The Corporation may redeem all of the Securities at any time
or some of them from time to time at the Redemption Prices (expressed in $1000
of principal amount) set forth below plus accrued interest to the Redemption
Date, if redeemed during the 12-month period beginning July 1 of the years
indicated below:
<TABLE>
<CAPTION>
Redemption Price
Per $1000 of Principal
Year Amount
---- ----------------------
<S> <C> <C>
2004.................. $1,100
2005.................. 1,090
2006.................. 1,080
2007.................. 1,070
2008.................. 1,060
2009.................. 1,050
2010.................. 1,040
2011.................. 1,030
2012.................. 1,020
2013.................. 1,010
2014.................. 1,000
</TABLE>
Notice of redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder of Securities to be redeemed at
his registered address. Securities may be redeemed in part but only in multiples
of $1,000 and only if the remaining principal amount of any Security redeemed in
part will not be less than $1,000. On and after the Redemption Date interest
ceases to accrue on Securities or portions of them called for redemption.
718629.1
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<PAGE>
The securities are not subject to any sinking fund.
9. Persons Deemed Owners. The registered Holder of a Security may be
treated as its owner for all purposes.
10. Amendments and Waivers. The Indenture or the Securities may be amended
with the consent of the Holders of at least a majority in principal amount of
the then-outstanding Securities, and may be amended without the consent of any
Securityholder, to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Corporation's obligations to Securityholder, to make any
change that does not adversely affect the rights of any Securityholder or to
take any action necessary to qualify the Indenture under the Trust Indenture
Act, provided that the approval of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock shall be required in the event
that such change shall have a material adverse effect on the interests of such
holders.
11. Defaults and Remedies. An Event of Default is: default for 30 days in
payment of interest on the Securities; default in payment of principal or
premium on the Securities (including any sinking fund payments) when it becomes
due and payable at maturity or upon redemption, acceleration or otherwise;
failure by the Corporation for 30 days after notice to it to comply with any of
its other agreements or covenants in the Indenture or the Securities; default
under any instrument or obligations representing Indebtedness of the Corporation
or any Subsidiary (other than certain nonrecourse Indebtedness) if (i) the
effect of such default is to permit the acceleration of such Indebtedness, and
(ii) the aggregate principal amount of such indebtedness as to which any such
default or defaults shall have occurred exceeds $10 million; appointment of a
Custodian of the Corporation; certain events of bankruptcy or insolvency; or the
rendering of one or more judgments against the Corporation or any Subsidiary in
an aggregate amount exceeding $10 million, which judgments remain undischarged
for a period of 60 days after the right to appeal them has expired. Subject to
paragraph 17 of this Security, if an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
then-outstanding Securities may declare all the Securities to be due and payable
immediately. Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations described in the Indenture, Holders of a majority in
principal amount of the then-outstanding Securities may direct the Trustee in
its exercise of any trust or power.
12. Trustee Dealings with Corporation. The Trustee in its individual or any
other capacity, may make loans to, and perform services for the Corporation or
its Affiliates, and may otherwise deal with the Corporation or its Affiliates,
as if it were not Trustee.
13. No Recourse Against Others. The Securities and the obligations of the
Corporation under the Indenture are solely obligations of the Corporation and no
officer, director, employee or stockholder of the Corporation shall as such be
liable for any failure of the Corporation to pay amounts on the Securities when
due or perform any such obligation.
718629.1
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<PAGE>
14. Unclaimed Money. If money for the payment of principal of or interest
on any Security remains unclaimed for two years, the Trustee or its Agents will
pay the money back to the Corporation at the Corporation's request. After that,
Holders entitled to this money must look to the Corporation for payment, unless
a law governing abandoned property designates another person.
15. Discharge Upon Redemption or Maturity. Subject to the terms of the
Indenture, the Indenture will be discharged and canceled upon the payment of all
the Securities.
16. Authentication. This Security shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
17. Certain Limitations on Securities. This Security is not secured by the
assets of the Corporation, or any of its Affiliates or Subsidiaries, and is not
eligible as collateral for any loan by the Corporation.
18. Definitions. Terms defined in the Indenture and not otherwise defined
in this Security are used in this Security with the meanings so defined.
19. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT
MIN ACT (= Uniform Gifts to Minors Act).
The Corporation will furnish to any Securityholder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Requests may be made to: [RB Asset, Inc., 645 Fifth
Avenue, 8th Floor, New York, New York 10022], Attention: Chief Executive
Officer.
718629.1
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: For valuable
consideration, the undersigned registered Holder or Holders of this Security
assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably constitute and appoint _________________ agent transfer this
Security on the books of the Corporation. The agent may substitute another act
for him.
- --------------------------------------------------------------------------------
Date: Your signature
--------------------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guaranteed
By
------------------------------------------------------
718629.1
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<PAGE>
EXHIBIT 3.4
B Y - L A W S
OF
RB ASSET, INC.
(a Delaware corporation)
--------------------------
ARTICLE I
OFFICES
SECTION 1. Offices. The Corporation shall maintain its registered
office in the State of Delaware at 1013 Centre Road, in the City of Wilmington,
in the County of New Castle, and its resident agent at such address is The
Prentice-Hall Corporation System, Inc. The Corporation may also have offices in
such other places in the United States or elsewhere as the Board of Directors
may, from time to time, appoint or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. Unless directors are elected by written
consent in lieu of an annual meeting as permitted by law, an annual meeting of
stockholders for the election of directors and for such other business as may
properly be conducted at such meeting shall be held at such place, either within
or without the State of Delaware, and at such time and date as the Board of
Directors shall determine
721162.1
<PAGE>
by resolution and set forth in the notice of the meeting. Stockholders may act
by written consent to elect directors; provided, however, that if such consent
is less than unanimous, such action by written consent may be in lieu of holding
an annual meeting only if all of the directorships to which directors could have
been elected at an annual meeting held at the effective time of such action are
vacant and are filled by such action. At the annual meeting any business may be
transacted and any corporate action may be taken, whether stated in the notice
of meeting or not, except as otherwise expressly provided by statute or the
Certificate of Incorporation. Notice of each annual meeting shall be given in
accordance with Section 3 of this Article II.
SECTION 2. Special Meetings. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called by the Board of
Directors, the President or the Chairman of the Board of Directors and shall be
called by the President or the Secretary at the written request of the holders
of record of not less than a majority of the outstanding shares of capital stock
of the Corporation entitled to vote in an election of directors. Special
meetings shall be held at such place or places within or without the State of
Delaware as shall be stated in the notice of such meeting or may otherwise be
designated by the Board of Directors. At a special meeting no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting. Notice of each special meeting shall be given in
accordance with Section 3 of this Article II.
SECTION 3. Notice of Meetings. Written notice of the date, time and
place of any stockholders' meeting, whether annual or special, shall be mailed
or delivered to each stockholder of record entitled to vote thereat at his
address as the
721162.1
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<PAGE>
same appears upon the records of the Corporation not less than ten (10) days nor
more than sixty (60) days before the date of any such meeting. Notice of any
special meeting shall state the purposes for which such meeting is called.
Notice of a meeting need not be given to any stockholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any stockholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
SECTION 4. Quorum. Unless otherwise required by law or the Certificate
of Incorporation, the holders of at least a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote thereat, who shall be
present in person or by proxy at any meeting duly called, shall constitute a
quorum for the transaction of business at all meetings of stockholders. When a
quorum is once present to organize a meeting, the quorum is not broken by the
subsequent withdrawal of any stockholders.
SECTION 5. Adjournment. If less than a quorum be present at any
meeting of the stockholders, the meeting may be adjourned from time to time by a
majority vote of the stockholders present or by proxy and entitled to vote
thereat, without notice, other than by announcement at the meeting so adjourned,
until a quorum shall attend. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of
721162.1
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<PAGE>
the stockholders present in person or by proxy and entitled to vote thereat. At
any adjourned meeting at which a quorum shall be present, any business may be
transacted and any corporate action may be taken which might have been
transacted at the meeting as originally called.
SECTION 6. Voting and Action Without a Meeting. Each stockholder
entitled to vote at any meeting, or to express consent or dissent without a
meeting, may vote or express consent or dissent either in person or by proxy,
duly appointed by an instrument in writing subscribed by such stockholder or his
attorney-in-fact and bearing a date not more than eleven months prior to said
meeting or expression of consent or dissent, unless said proxy provides for a
longer period. Each stockholder entitled to vote or express consent or dissent
shall be entitled to one vote for each share of voting stock registered in his
name on the books of the Corporation on the date fixed as a record date for the
determination of its stockholders entitled to vote or express consent or
dissent, as hereinafter provided. Except for the election of directors or as
otherwise provided by law, by the Certificate of Incorporation or by these
By-laws, at all meetings of stockholders all matters shall be determined by a
majority of the votes cast at such meeting by the holders of shares entitled to
vote thereon. Directors shall, except as otherwise required by this article or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
by each class of shares entitled to vote at a meeting of stockholders present in
person or by proxy and entitled to vote in the election. All elections of
directors shall be by written ballot. Any stockholder executing a proxy in
connection with an annual or special meeting of stockholders of the Corporation
may revoke such proxy at any time before it is voted by (i) giving the
721162.1
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<PAGE>
President or the Secretary of the Corporation, at the address of the Corporation
set forth in the notice of meeting, written notice of such revocation; (ii)
executing a later-dated proxy; or (iii) attending the meeting and giving notice
of such revocation in person. Mere attendance at a meeting will not, in and of
itself, constitute revocation of a proxy. No director or officer of the
Corporation may act as proxy at any meeting of the stockholders.
Unless otherwise provided by the Certificate of Incorporation, any
action required by law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at such meetings, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote were present and voted. Every written consent shall
bear the date of signature of each stockholder who signs the consent. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date of such meeting
had been the date that written consents signed by a sufficient number of holders
or members to take the action were delivered to the Corporation as provided by
law.
SECTION 7. Lists of Stockholders. The officer who has charge of the
stock ledger of the Corporation or the Corporation's transfer agent shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the
721162.1
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<PAGE>
stockholders entitled to vote at the meeting, arranged in alphabetical order,
showing the address of each stockholder and the number and class of shares held
by each. Such a list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be provided and kept at the meeting and may be
inspected by any stockholder who is present. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat may vote at such meeting.
SECTION 8. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
721162.1
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation shall
be managed by or under the direction of its Board of Directors. The Board shall
exercise all of the powers and duties conferred by law except as provided by the
Certificate of Incorporation or these By-laws.
SECTION 2. Number, Election and Term. The number of directors of the
Corporation shall be no less than seven and no more than twenty. Within the
limits specified above, the number of directors constituting the Board of
Directors of the Corporation shall be fixed from time to time by or pursuant to
a resolution passed by the Board of Directors. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. The terms of directors
shall be staggered so that the term of the initial Class I directors shall
terminate on the date of the 1998 annual meeting of stockholders; the term of
the initial Class II directors shall terminate on the date of the 1999 annual
meeting of stockholders; and the term of the initial Class III directors shall
terminate on the date of the 2000 annual meeting of stockholders. At each annual
meeting of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term, with each director to hold office until his or her successor shall have
been duly elected and qualified.
The directors of one class shall be elected by stockholders at each
annual meeting of stockholders or as otherwise provided in Article II, Section
1. The directors
721162.1
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<PAGE>
chosen at any annual meeting shall hold office, except as hereinafter provided,
until the third annual meeting of stockholders following their election and
until the election and qualification of their successors.
SECTION 3. Resignations. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the Chairman of the Board of Directors, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
so specified therein.
SECTION 4. Removal. Any director may be removed from the Board of
Directors either with or without cause at any time by the affirmative vote of
the holders of a majority of the shares then entitled to vote for the election
of directors at any special meeting of stockholders called for that purpose or
by written consent as permitted by law. Vacancies thus created may be filled at
such meeting by the affirmative vote of the holders of a majority of the shares
then entitled to vote for the election of directors, by written consent as
permitted by law, or, if the vacancies are not so filled, by the directors as
provided in Section 5 of this Article III.
SECTION 5. Vacancies and Newly Created Directorships. Except as
otherwise provided in Section 4 of this Article III, vacancies in the office of
director, including newly created directorships resulting from an increase in
the number of directors may be filled by the affirmative vote of a majority of
the directors then holding office at any regular or special meeting of the Board
of Directors called for that purpose. Any director so elected by the Board of
Directors shall serve until the next election of
721162.1
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<PAGE>
the class for which such director shall have been chosen and until his or her
successor shall be elected and qualified.
SECTION 6. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. The Board of Directors shall hold an annual meeting for the purpose of
the election of officers and the transaction of any business within twenty-five
(25) days after the annual meeting of stockholders.
The Board of Directors shall hold a regular monthly meeting in
addition to the annual meeting at least ten (10) times a year; provided,
however, that during any three consecutive calendar months, the Board of
Directors shall meet at least twice.
Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, by the President or by written request of
two directors.
Regular monthly meetings of the Board of Directors may be held without
notice at such time and place as shall be designated by resolution of the Board
of Directors. Notice shall be required, however, for special meetings. Notice of
any special meeting shall be sufficiently given if (a) mailed to each director
at his residence or usual place of business at least five (5) days before the
day on which the meeting is to be held, or (b) delivered personally or by
telephone not later than 72 hours prior to the time at which the meeting is to
be held. No notice of the annual meeting shall be required if held immediately
after the annual meeting of the stockholders and if a quorum is present. Notice
of a meeting need not be given to any director who submits a signed waiver of
notice before or after the meeting, nor to any director who attends the meeting
without protesting prior thereto or at its commencement the lack of notice.
721162.1
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<PAGE>
Any business may be transacted and any corporate action may be taken
at any regular or special meeting of the Board of Directors at which a quorum
shall be present, whether such business or proposed action be stated in the
notice of such meeting or not, unless special notice of such business or
proposed action shall be required by law.
SECTION 7. Quorum, Voting and Adjournment. A majority of the entire
Board of Directors shall be necessary to constitute a quorum for the transaction
of business unless otherwise required by law, and the acts of a majority of the
Directors present at a meeting at which a quorum is present shall be the acts of
the Board of Directors, unless otherwise provided by law, the Certificate of
Incorporation or these ByLaws. In the absence of a quorum, a majority of the
directors present may adjourn the meeting to such time and place as they may
determine without notice other than announcement at the meeting so adjourned
until enough directors to constitute a quorum shall attend.
SECTION 8. Action Without a Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or any committee thereof consent thereto in writing, and the writing
or writings are filed with the minutes of the proceedings of the Board of
Directors or such committee, as the case may be.
SECTION 9. Compensation. The Board of Directors may establish by
resolution reasonable compensation of all directors for services to the
Corporation as directors, including an annual retainer and a fixed fee, for
attending each meeting.
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Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 10. Participation By Telephone. Any one or more members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board or such committee by means of conference
telephone or similar communications equipment in which all persons participating
in the meeting can hear each other. Participation by such means shall constitute
the presence in person at such meeting.
SECTION 11. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if: (a) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors (even though the
disinterested directors be less than a quorum); (b) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and
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the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (c) the contract or transaction is fair to the Corporation
as of the time that it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee thereof that authorizes the contract or
transaction.
SECTION 12. Retirement of Directors. The office of a director shall
become vacant on the last day of the calendar year in which his seventy-eighth
birthday occurs.
SECTION 13. Director Emeritus. The Board of Directors may elect as a
director emeritus any director whose term of office shall have terminated
pursuant to Section 12 of this Article III. A director emeritus so elected shall
serve until the regular meeting of the Board of Directors in the next succeeding
month of December and may be re-elected annually thereafter in each succeeding
year at the regular meeting of the Board of Directors in such month for a
maximum of two additional terms. A director emeritus may attend the regular
meetings of the Board of Directors and shall have no vote at such meetings,
shall receive a fee for attendance at each such meeting equal to one-half of the
fee paid to a director who is not a director emeritus and shall not serve on any
committee.
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ARTICLE IV
COMMITTEES
SECTION 1. Committees of the Board of Directors. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more committees, including but not limited to an Executive Committee and
an Audit Committee, each such committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board establishing such committee, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any Bylaw of the Corporation. All committees of the Board
shall keep minutes of their
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meetings and shall report their proceedings to the Board when requested or
required by the Board.
SECTION 2. Resignation. Any member of a Committee may resign at any
time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or, if no time be specified, at the time of its receipt
by the Chairman of the Board, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective unless so specified
therein.
SECTION 3. Quorum. A majority of the members of a Committee shall
constitute a quorum. The act of a majority of the members of a Committee present
at any meeting at which a quorum is present shall be the act of such Committee.
The members of a Committee shall act only as a Committee, and the individual
members thereof shall have no powers as such.
SECTION 4. Record of Proceedings. Each Committee shall keep a record
of its acts and proceedings, and shall report the same to the Board of Directors
when and as required by the Board of Directors.
SECTION 5. Meetings. A Committee may hold its meetings at the
principal office of the Corporation, or at any other place upon which a majority
of the Committee may at any time agree. Each Committee may make such rules as it
may deem expedient for the regulation and carrying on of its meetings and
proceedings.
SECTION 6. Compensation. The members of any Committee shall be
entitled to such compensation as may be allowed them by resolution of the Board
of Directors.
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ARTICLE V
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
President and one or more Vice-Presidents, and other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V.
SECTION 2. Election, Term of Office and Qualifications. The officers,
except as provided in Section 3 of this Article V, shall be chosen annually by
the Board of Directors. Each such officer shall, except as herein otherwise
provided, hold office until the selection and qualification of his successor.
Any two or more offices may be held by the same person, except the offices of
President and Secretary.
SECTION 3. Other Officers. Other officers, including, without
limitation, a Secretary and a Treasurer or Chief Financial Officer, may from
time to time be appointed by the Board of Directors, which other officers shall
have such powers and perform such duties as may be assigned to them by the Board
of Directors.
SECTION 4. Removal of Officers. Any officer of the Corporation may be
removed from office, with or without cause, by a vote of a majority of the Board
of Directors.
SECTION 5. Resignation. Any officer of the Corporation may resign at
any time. Such resignation shall be in writing and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman of the Board, the President or the Secretary. The acceptance of a
resignation shall not be necessary in order to make it effective, unless so
specified therein.
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SECTION 6. Filling of Vacancies. A vacancy in any office shall be
filled by the Board of Directors unless a resolution waiving such requirement
has been approved by the Board of Directors.
SECTION 7. Compensation. The compensation of the officers shall be
fixed by the Board of Directors, or by any Committee upon whom power in that
regard may be conferred by the Board of Directors.
SECTION 8. President. The President, who may be the Chief Executive
Officer, shall see that all orders and resolutions of the Board of Directors are
carried into effect and shall perform such other duties as may be delegated to
him by the Board of Directors. He shall also preside at all meetings of the
Stockholders and, if the Board of Directors has not selected a Chairman of the
Board, he shall perform all of the duties and responsibilities of the Chairman
of the Board.
SECTION 9. Vice Presidents. In the absence or disability of the
President or if the office of President be vacant, the Vice Presidents in the
order determined by the Board of Directors, or if no such determination has been
made in the order of their seniority, shall perform the duties and exercise the
powers of the President, subject to the right of the Board of Directors at any
time to extend or confine such powers and duties. Each Vice President shall have
such other powers and perform such other duties as may be assigned to him from
time to time by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the Stockholders and record all votes and the minutes
of all proceedings in a book to be kept for that purpose, and shall, upon
request, perform
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like duties for any Committee appointed by the Board. He shall give or cause to
be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the
Corporation and affix it to any instrument as deemed appropriate.
SECTION 11. Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall oversee the custody of corporate funds and
financial assets, management of receipts and disbursements and utilization of
such depositories as may be designated by the Board of Directors. Further, he
shall oversee the maintenance of accurate financial and accounting records
belonging to the Corporation including the timely reporting of all financial
transactions, periodic assessment of the Corporation's financial condition and
sensitivity to changes in the level of interest rates. He shall report all
transactions and the financial condition of the Corporation to the Directors at
the regular meetings of the Board, or whenever they, the President or the
Chairman of the Board may require it.
SECTION 12. Corporate Funds and Checks. The funds of the Corporation
shall be kept in such depositories as shall from time to time be prescribed by
the Board of Directors. All checks or other orders for the payment of money
shall be signed by the Chairman of the Board of Directors, the President or the
Treasurer or such other person or agent as may from time to time be authorized
and with such countersignature, if any, as may be required by the Board of
Directors.
SECTION 13. Contracts and Other Documents. The Chairman of the Board
of Directors, the Vice Chairman of the Board of Directors, the President, any
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Vice President, the Treasurer, and such other officers and agents as may from
time to time be authorized by these By-laws, by the Board of Directors, by the
Chairman of the Board of Directors or by the President, shall have the power to
sign and execute on behalf of the Corporation deeds, conveyances and contracts,
and any and all other documents requiring execution by the Corporation.
SECTION 14. Ownership of Securities of Another Corporation or Entity.
Except as otherwise ordered by the Board of Directors, the President shall have
full power and authority on behalf of the Corporation to attend and to act and
to vote at any meeting of the stockholders of any corporation of which the
Corporation is a stockholder and to execute a proxy to any other person to
represent the Corporation at any such meeting, and at any such meeting the
President or the holder of any such proxy, as the case may be, shall possess and
may exercise any and all rights and powers incident to ownership of such stock
and which, as owner thereof, the Corporation might have possessed and exercised
if present. The Board of Directors may from time to time confer like powers upon
any other person or persons.
ARTICLE VI
STOCK
SECTION 1. Certificates of Stock. Certificates of capital stock shall
be in such form as shall be approved by the Board of Directors, provided that
each certificate shall when issued state upon the face thereof (1) that the
Corporation is a corporation organized under the laws of the State of Delaware;
(2) the name of the person or persons to whom the certificate is issued; (3) the
number, class and series, if
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any, which the certificate represents; and (4) the par value of each share
represented by the certificate; and further provided, that each certificate will
indicate any restrictions on transferability and will state that the Corporation
will furnish to any stockholder upon request and without charge a full statement
of the designation, relative rights, preferences and limitations of the shares
of each class or series of stock authorized to be issued, or shall set forth
such statement on the certificate itself. The certificates shall be numbered in
the order of their issue. Every holder of stock in the Corporation shall be
entitled to have such certificate signed by, or in the name of the Corporation
by, the Chairman of the Board of Directors or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any or all of the signatures on the certificate may be a facsimile.
The Board of Directors shall have the power to appoint one or more transfer
agents and/or registrars for the transfer or registration of certificates of
stock of any class, and may require stock certificates to be countersigned or
registered by one or more of such transfer agents and/or registrars. The seal of
the Corporation or a facsimile thereof shall be impressed, affixed or reproduced
thereon. In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been issued by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates had not ceased to be such officer or officers of the
Corporation.
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SECTION 2. Registration and Transfer of Shares. The name of each
person owning a share of the capital stock of the Corporation shall be entered
on the books of the Corporation, together with the number of shares held by him,
the numbers of certificates covering such shares and the dates of issue of such
certificates. Subject to the conditions set forth in Section 3 of Article VI of
these By-laws, shares of stock of the Corporation shall be transferable upon its
books by the holders thereof, in person or by their duly authorized attorneys or
legal representatives, upon surrender to the Corporation by delivery thereof to
the person in charge of the stock and transfer books and ledgers. Such
certificates shall be canceled and new certificates shall thereupon be issued. A
record shall be made of each transfer. Whenever any transfer of shares shall be
made for collateral securities, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented, both the
transferor and transferee request the Corporation to do so. The Board of
Directors shall have power and authority to make such rules and regulations as
it may deem necessary or proper concerning the issue, transfer and registration
of certificates for shares of stock of the Corporation.
SECTION 3. Lost Certificates. A new certificate of stock may be issued
in the place of any certificate previously issued by the Corporation, alleged to
have been lost, stolen, destroyed or mutilated, and the Board of Directors may,
in their discretion, require the owner of such lost, stolen, destroyed or
mutilated certificate, or his legal representative, to give the Corporation a
bond, in such sum as the Board of Directors may direct, not exceeding double the
value of the stock, in order to indemnify the Corporation against any claims
that may be made against it in connection therewith.
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SECTION 4. Stockholders of Record. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
thereof in fact, and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 5. Stockholder Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
(a) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the next
day preceding the day on which notice is given, or if no notice is given, the
day on which the meeting is held; and (b) the record date for determining
stockholders for any purpose other than that specified in clause (a) above shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided that the Board of Directors may fix a new
record date for the adjourned meeting.
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SECTION 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may at any regular or special meeting, out
of funds legally available therefor, declare dividends upon the stock of the
Corporation. Before the declaration of any dividend, the Board of Directors may
set apart, out of any funds of the Corporation available for dividends, such sum
or sums as from time to time in their discretion may be deemed proper for
working capital or as a reserve fund to meet contingencies or for such other
purposes as shall be deemed conducive to the interests of the Corporation.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments. These By-laws may be amended or repealed or new
By-laws may be adopted by the affirmative vote of a majority of the entire Board
of Directors at any regular or special meeting of the Board of Directors. If any
By-law regulating an impending election of directors is adopted, amended or
repealed, notice of such adoption, amendment or repeal shall be provided to the
stockholders promptly (and in any event within ten days after the adoption of
any such amendment or repeal). Stockholders entitled to vote in an election of
Directors also shall have the power to amend or repeal these By-laws, including
By-laws made by the Board of Directors, and to adopt By-laws which, if so
expressed, may be amended or repealed only by stockholders entitled to vote in
an election of Directors.
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ARTICLE VIII
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including all appeals (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director or officer of
the Corporation, or is or was a director or officer of the Corporation serving
at the request of the Corporation as a director or officer or partner of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
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SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer or partner of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Authorization of Indemnification. Any indemnification under
this Article IX (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article IX, as the case
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may be. Such determination shall be made (i) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer,
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employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Section 1 or
2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article IX. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 1 or 2 of this Article IX, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article IX nor the absence of any determination thereunder shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. Expenses Payable in Advance. Expenses (including attorneys'
fees) incurred by an officer or director in defending or investigating any
civil,
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criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IX.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
SECTION 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article IX shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any law, By-law, agreement, vote of stockholders or disinterested
directors, direction (however embodied) of any court of competent jurisdiction
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article IX shall be made to the fullest extent permitted by law. The
provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
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Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, or partner of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Certain Definitions. For purposes of this Article IX,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, or partner of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article IX with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
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SECTION 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article IX to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 5 hereof), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article IX to directors and officers of the Corporation.
ARTICLE IX
MISCELLANEOUS
SECTION 1. Corporate Seal. The seal of the Corporation shall be
circular in form and shall have the name of the Corporation on the circumference
and the jurisdiction and year of incorporation in the center. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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SECTION 2. Fiscal Year. The fiscal year of the Corporation shall end
June 30 of each year, or such other twelve consecutive months as the Board of
Directors may designate.
SECTION 3. Execution of Documents. Only persons designated by
resolution of the Board of Directors adopted from time to time are authorized to
execute contracts and transfers of property of the Corporation, and to execute
such other documents as the business of the Corporation may require. The
Corporation shall not be bound by any agreement which is not in conformity with
these By-laws.
Date of Adoption: May 22, 1998
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Exhibit 21.1
RB Asset, Inc.
Subsidiary List
June 30, 1998
260 West Sunrise Corp.
26970 Hayward, Inc.
46 West Corp.
5327 Jacuzzi Street, Inc.
66 East Corp.
81 Jackson Corp.
86 West Corp.
Acacias-Murrieta Inc.
Bay Landing Corp.
Berry Boulevard, Inc.
Castle Hill Realty Holdings, Inc.
Citispire Apartments, Inc.
Cora Apple Inc.
Cupertino Property Inc.
Del Rio Escondido, Inc.
Drake Brick Kiln, Inc.
East River Financial Group Inc.
Hampton Ponds Realty Corp.
Harbor Lights Property Corp.
Hester Property Corp.
Kew Gardens Properties Inc.
Kirkham Stowe, Inc.
Laguna Canyon, Inc.
Middletown Property Corp.
Nostrand Properties I, Inc.
Nostrand Properties II, Inc.
Nostrand Properties Inc.
Old Crow Canyon Offices, Inc.
Orange White Acres, Inc.
Parc Vendome Realty Holding Corp.
Pershing Acquisition Corp.
Pershing Properties, Inc.
Pinnacle Properties Corp.
Princeton Park Office Realty Corp.
Quest Equities Corp.
Quest Holding Company
Quest Realty Corp.
RB Alden Corp.
761245.1
<PAGE>
RB Bowie Corp.
RB Camarillo, Inc.
RB Cicero Corp.
RB Columbus Corp.
RB Lockbourne Corp.
Richmond Hill Properties Inc.
Riverbank Antelope, Inc.
Riverbank Financial Group
Riverbank Properties, Inc. (NY)
Riverbank Raley Inc.
Riverbank Realty Enterprises, Inc.
Riverbridge Realty Corp.
Rivercity Realty Corp.
Rivercity Realty Management Corp.
Rochelle Park One Nine Four, Inc.
Royal York Properties, Inc.
RR Hicksville Corp.
RR Irvington Co., Limited
RR Irvington Development Corp.
Saxon Glen Corp.
Shorehaven Property Inc.
Southhampton Land & Realty Corp.
Watervliet Properties Corp.
Wayne Properties Inc.
Willow Lake, Inc.
761245.1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL EXTRACTED FROM THE FINANCIAL STATEMENTS
OF RB ASSET, INC. FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 32,087
<SECURITIES> 1,373
<RECEIVABLES> 82,878
<ALLOWANCES> 20,037
<INVENTORY> 0
<CURRENT-ASSETS> 37,110
<PP&E> 86,485
<DEPRECIATION> 0
<TOTAL-ASSETS> 190,910
<CURRENT-LIABILITIES> 0
<BONDS> 68,760
0
1,400
<COMMON> 7,100
<OTHER-SE> 98,683
<TOTAL-LIABILITY-AND-EQUITY> 190,910
<SALES> 0
<TOTAL-REVENUES> 23,921
<CGS> 0
<TOTAL-COSTS> 11,267
<OTHER-EXPENSES> 6,117
<LOSS-PROVISION> 1,500
<INTEREST-EXPENSE> 6,109
<INCOME-PRETAX> (1,072)
<INCOME-TAX> 434
<INCOME-CONTINUING> (1,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,506)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
