UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1217953
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 887-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $2.50 par value 28,312,197
----------------------------- ------------------------
(Title of Class) (Outstanding at November 9, 1999)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three and nine months ended September 30, 1999 and 1998 3
Consolidated Statements of Condition
September 30, 1999 and 1998, and December 31, 1998 4
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21-23
PART II.OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Change in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 24
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------
1999 1998 1999 1998
==================================================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $57,699 $64,312 $171,977 $176,708
Interest and Dividends on Securities Available for Sale 19,031 16,960 50,369 55,771
Interest on Time Deposits with Other Banks 4,954 10,305 18,347 24,921
Interest on Federal Funds Sold and Reverse Repurchase Agreements 2,965 2,195 6,292 10,372
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 84,649 93,772 246,985 267,772
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 631 1,340 1,944 4,075
Money Market Deposit Accounts 8,206 10,297 25,153 32,387
Time Deposits in Domestic Offices 10,876 13,961 30,837 33,172
Time Deposits in Foreign Offices 8,172 9,312 24,091 25,294
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 27,885 34,910 82,025 94,928
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Repurchase Agreements and Other Short-Term Borrowings 7,165 5,742 14,961 15,941
Long-Term Debt 2,238 4,368 10,974 13,104
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 9,403 10,110 25,935 29,045
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 37,288 45,020 107,960 123,973
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 47,361 48,752 139,025 143,799
Less: Provision for Loan Losses - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 47,361 48,752 139,025 143,799
NONINTEREST INCOME
Trust and Investment Advisory Income 13,093 11,280 38,383 34,304
Service Charges and Fees 10,289 9,682 29,619 28,439
Gain on Sale of Fixed Assets 3,805 126 3,805 133
Other Noninterest Income 2,382 3,580 6,339 8,375
Securities Gains, Net 47 8,222 1,151 15,003
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 29,616 32,890 79,297 86,254
NONINTEREST EXPENSE
Salaries and Employee Benefits 23,318 22,313 67,387 64,028
Occupancy, Net 4,625 4,889 13,846 13,767
Data Processing Services 4,594 4,118 13,877 13,275
Furniture and Equipment 2,575 2,494 7,798 7,518
Other Real Estate Owned Expense (Income), Net (116) 338 (78) 300
Other Noninterest Expense 16,638 15,982 49,168 45,724
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 51,634 50,134 151,998 144,612
- ----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes, Minority Interest, and Extraordinary Loss 25,343 31,508 66,324 85,441
Applicable Income Tax Expense 8,089 9,206 21,807 22,985
Minority Interest in Income of Subsidiaries, Net of Taxes 4,987 4,987 14,960 14,960
- ----------------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Loss 12,267 17,315 29,557 47,496
Extraordinary Loss, Net of Taxes (5,061) - (5,061) -
==================================================================================================================================
Net Income $ 7,206 $17,315 $ 24,496 $ 47,496
Dividends on Preferred Stock - (2,688) - (8,063)
==================================================================================================================================
Net Income Available for Common Stockholders $ 7,206 $14,627 $ 24,496 $ 39,433
EARNINGS PER COMMON SHARE- Basic before Extraordinary Loss $ .43 $ .48 $ 1.04 $ 1.29
Diluted before Extraordinary .42 .46 1.01 1.24
Loss
EARNINGS PER COMMON SHARE- Basic $ .25 $ .48 $ .86 $ 1.29
Diluted .25 .46 .84 1.24
DIVIDENDS DECLARED AND PAID PER COMMON SHARE $ .05 $ .05 $ .15 $ .15
</TABLE>
-3-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited) SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1999 1998 1998
==================================================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 145,518 $ 143,124 $ 155,003
Federal Funds Sold and Reverse Repurchase Agreements 253,000 165,000 75,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 398,518 308,124 230,003
Time Deposits with Other Banks 376,554 754,680 696,181
Securities Available for Sale (at Market Value) 1,298,251 1,003,549 970,728
Loans 3,250,797 3,354,811 3,258,135
Reserve for Loan Losses (51,379) (54,699) (54,455)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 3,199,418 3,300,112 3,203,680
Premises and Equipment, Net 201,841 184,362 203,071
Other Real Estate Owned, Net 908 2,070 1,680
Other Assets 234,365 181,823 196,988
==================================================================================================================================
Total $5,709,855 $5,734,720 $5,502,331
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 641,209 $ 609,275 $ 732,099
Interest-Bearing Deposits:
Savings and NOW Accounts 344,315 359,746 434,649
Money Market Deposit Accounts 1,503,612 1,419,580 1,414,278
Time Deposits in Domestic Offices 956,514 1,106,577 917,442
Time Deposits in Foreign Offices 643,352 667,933 646,380
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,447,793 3,553,836 3,412,749
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 4,089,002 4,163,111 4,144,848
Repurchase Agreements and Other Short-Term Borrowings 786,170 456,340 374,380
Other Liabilities 75,036 74,557 48,850
Long-Term Debt 66,525 191,525 191,525
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,016,733 4,885,533 4,759,603
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES 350,000 350,000 350,000
==================================================================================================================================
STOCKHOLDERS' EQUITY
Preferred Stock-$1.00 Par Value
Shares Authorized - None at September 30, 1999 and December 31, 1998, and
25,000,000 at September 30, 1998
Liquidation Preference - $25 per share
Shares Issued - Noncumulative Perpetual Series B - None at
September 30,1999 and December 31, 1998, and 4,000,000 at -- 4,000 --
September 30, 1998
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at September 30, 1999 and 1998,
and December 31, 1998
Shares Issued - 31,612,995 at September 30, 1999, 31,554,345 at
September 30, 1998 and 31,555,345 at December 31, 1998 79,032 78,886 78,888
Surplus - Preferred Stock -- 91,192 --
Surplus - Common Stock 161,418 160,352 160,760
Undivided Profits 205,001 187,577 184,794
Accumulated Other Comprehensive Income (30,972) 903 (2,548)
Treasury Stock - 3,300,798 shares at September 30, 1999, 900,798
shares at September 30, 1998, and 1,175,798 at December 1, 1998 (71,357) (23,723) (29,166)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 343,122 499,187 392,728
==================================================================================================================================
Total Liabilities and Stockholders' Equity $5,709,855 $5,734,720 $5,502,331
</TABLE>
-4-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED COMMON ACCUMULATED
STOCK STOCK OTHER TOTAL
$1.00 $2.50 UNDIVIDED COMPREHENSIVE TREASURY STOCKHOLDERS'
PAR PAR SURPLUS PROFITS INCOME (LOSS) STOCK EQUITY
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 4,000 $ 78,654 $250,352 $152,732 $ 1,167 $(23,723) $463,182
Comprehensive Income:
Net Income 47,496 $ 47,496
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net
of Reclassification (710) (710)
Adjustments
Foreign Exchange
Translation Adjustments 446 446
----------------
Total Other Comprehensive
Income (Loss) (264)
----------------
Total Comprehensive Income (Loss) $ 47,232
Issuance of Common Stock for
Stock Option Plans, 92,559 Shares 232 1,192 1,424
Cash Dividends -
Series B Preferred Stock,
$2.015625 per Share (8,063) (8,063)
Common Stock, $.15 per Share (4,588) (4,588)
====================================================================================================================================
Balance, September 30, 1998 $ 4,000 $ 78,886 $251,544 $187,577 $ 903 $(23,723) $499,187
Balance, December 31, 1998 $ -- $ 78,888 $160,760 $184,794 $ (2,548) $(29,166) $392,728
Comprehensive Income:
Net Income 24,496 $ 24,496
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net
of Reclassification (27,890) (27,890)
Adjustments
Foreign Exchange
Translation Adjustments (534) (534)
----------------
Total Other Comprehensive
Income (Loss) (28,424)
----------------
Total Comprehensive Income (Loss) $(3,928)
Issuance of Common Stock for
Stock Option Plans, 57,650 Shares 144 658 802
Cash Dividends -
Common Stock, $.15 per Share (4,289) (4,289)
Common Stock Repurchase -
2,125,000 shares (42,191) (42,191)
====================================================================================================================================
Balance, September 30, 1999 $ -- $ 79,032 $161,418 $205,001 $(30,972) $(71,357) $343,122
</TABLE>
(1) - See Notes to the Financial Statements for gross unrealized gains or
losses arising during each period and the tax effect on each item of
comprehensive income.
-5-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(in thousands) NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
==============================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 24,496 $ 47,496
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Other Real Estate Owned Writedowns 16 850
Depreciation Expense and Amortization of Leasehold Improvements 8,716 8,522
Gains on Sale of Securities Available for Sale (1,151) (15,003)
Gains on Sale of Other Real Estate Owned (61) (493)
(Increase) Decrease in Other Assets (22,359) 13,086
Increase (Decrease) in Other Liabilities 26,186 (116,736)
- ------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 11,347 (109,774)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating Activities 35,843 (62,278)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease (Increase) In Time Deposits with Other Banks 319,627 (512,867)
Principal Collections and Maturities of Securities Available for Sale 2,898,637 3,814,924
Proceeds from Sales of Securities Available for Sale 81,337 1,486,053
Purchases of Securities Available for Sale (3,349,254) (4,618,065)
Net Decrease (Increase) in Loans 4,356 (468,454)
Proceeds from Sale and Other Payments of Other Real Estate Owned 816 2,651
Net Increase in Premises and Equipment (7,486) (27,507)
Other, Net (93) 332
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (52,060) (322,933)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in:
Demand, NOW, Savings and Money Market Deposit Accounts (91,890) (523,443)
Time Deposits 36,044 388,636
Repurchase Agreements and Other Short-Term Borrowings 411,790 103,832
Repayment of Long-Term Debt (125,000) --
Proceeds from the Issuance of Common Stock 802 1,424
Dividend Payments - Preferred -- (8,063)
- Common (4,289) (4,588)
Repurchase of Common Shares (42,191) --
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Financing Activities 185,266 (42,202)
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (534) 446
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 168,515 (426,967)
Cash and Cash Equivalents at Beginning of Period 230,003 735,091
==============================================================================================================================
Cash and Cash Equivalents at End of Period $ 398,518 $ 308,124
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ -- $ --
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 109,700 $ 120,906
Income Tax Payments 128 8,067
</TABLE>
-6-
<PAGE>
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
In our opinion, the accompanying unaudited financial statements contain all
normal recurring adjustments necessary for a fair presentation of the interim
period results, in conformity with generally accepted accounting principles
applied on a consistent basis and which require the use of our estimates. These
statements should be read in conjunction with the financial statements and
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 1998. Certain reclassifications have been made to prior-period
amounts to conform with the current period's presentation. The results of
operations for the first nine months of 1999 are not necessarily indicative of
the results to be expected for the full 1999 year.
NOTE 2. EARNINGS PER COMMON SHARE
Earnings per share computations are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
================================== ===================================
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income before Extraordinary Loss $29,557 $29,557 $47,496 $47,496
Extraordinary Loss, Net of Tax (5,061) (5,061) -- --
----------------- ---------------- ----------------- -----------------
Net Income 24,496 24,496 47,496 47,496
Dividends on Preferred Stock -- -- (8,063) (8,063)
----------------- ---------------- ----------------- -----------------
Income Available to Common Shareholders $24,496 $24,496 $39,433 $39,433
Weighted-Average Shares Outstanding 28,514,728 28,514,728 30,602,344 30,602,344
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 607,025 n/a 1,093,063
----------------- ---------------- ----------------- -----------------
Adjusted Weighted-Average Shares Outstanding 28,514,728 29,121,753 30,602,344 31,695,407
Basic EPS before Extraordinary Loss $ 1.04 $ 1.29
Diluted EPS before Extraordinary Loss $ 1.01 $ 1.24
Basic EPS $ .86 $ 1.29
Diluted EPS $ .84 $ 1.24
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
================================== ===================================
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income before Extraordinary Loss $12,267 $12,267 $17,315 $17,315
Extraordinary Loss, Net of Tax (5,061) (5,061) -- --
----------------- ---------------- ----------------- -----------------
Net Income 7,206 7,206 17,315 17,315
Dividends on Preferred Stock -- -- (2,688) (2,688)
----------------- ---------------- ----------------- -----------------
Income Available to Common Shareholders $ 7,206 $ 7,206 $14,627 $14,627
Weighted-Average Shares Outstanding 28,300,240 28,300,240 30,644,298 30,644,298
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 632,275 n/a 1,043,950
----------------- ---------------- ----------------- -----------------
Adjusted Weighted-Average Shares Outstanding 28,300,240 28,932,515 30,644,298 31,688,248
Basic EPS before Extraordinary Loss $ .43 $ .48
Diluted EPS before Extraordinary Loss $ .42 $ .46
Basic EPS $ .25 $ .48
Diluted EPS $ .25 $ .46
</TABLE>
-7-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Before- Tax
Tax (Expense) Net-of-Tax
Amount Benefit Amount
=============================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999:
<S> <C> <C> <C>
Foreign Currency Translation Adjustments (1) $ (189) $ (345) $ (534)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period (41,757) 14,615 (27,142)
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (1,151) 403 (748)
- ---------------------------------------------------------------------------------- ------------- ------------- --------------
Net Unrealized Gains (Losses) (42,908) 15,018 (27,890)
==============================================================================================================================
Other Comprehensive Income (Loss) $(43,097) $14,673 $(28,424)
NINE MONTHS ENDED SEPTEMBER 30, 1998:
Foreign Currency Translation Adjustments (1) $ (902) $ 1,348 $ 446
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 13,911 (4,869) 9,042
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (15,003) 5,251 (9,752)
- ---------------------------------------------------------------------------------- ------------- ------------- --------------
Net Unrealized Gains (Losses) (1,092) 382 (710)
=============================================================================================================================
Other Comprehensive Income (Loss) $ (1,994) $ 1,730 $ (264)
</TABLE>
(1) Tax (expense) benefit on foreign currency translation adjustments is
calculated on the hedge contracts only. Before-tax amounts include activity on
hedge contracts and the foreign currency translation adjustment.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
<TABLE>
<CAPTION>
Foreign Unrealized Accumulated
Currency Gain (Loss) Other
Translation on Securities Comprehensive
Adjustments Income (Loss)
=============================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999:
<S> <C> <C> <C>
Balance, December 31, 1998 $(1,349) $ (1,199) $ (2,548)
Current-Period Change (534) (27,890) (28,424)
- ------------------------------------------------------------------------- ---------------- -------------- ------------------
Balance, September 30, 1999 $(1,883) $(29,089) $(30,972)
NINE MONTHS ENDED SEPTEMBER 30, 1998:
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
Current-Period Change 446 (710) (264)
- ------------------------------------------------------------------------- ---------------- -------------- ------------------
Balance, September 30, 1998 $ (426) $ 1,329 $ 903
</TABLE>
NOTE 4. FIXED ASSETS
In the third quarter of 1999, we recorded a gain on sale of the corporate
aircraft of $3.8 million. The aircraft was sold to entities directly or
indirectly owned by Mr. Allbritton (Chairman of the Board and Chief Executive
Officer of the Corporation). The increase in premises and equipment of $18.7
million from September 30, 1998 to December 31, 1998 reflects payments toward a
replacement aircraft, which we acquired during the third quarter of 1999. The
decrease in premises and equipment from year end 1998 to September 30, 1999
included a reduction for the sale of the older aircraft, which had a book value
of $6.5 million. This decrease was partially offset by the addition of an
International Financial Center in Washington, D.C., and by final payment on the
new aircraft.
-8-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. SEGMENT PROFITABILITY
<TABLE>
<CAPTION>
===================================================================================================================================
INTERN- RIGGS
NINE MONTHS ENDED ATIONAL RIGGS & RECON- NATIONAL
SEPTEMBER 30, 1999 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ----------- ------------ ------------- ------------- -------------- ----------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 140,260 $ 40,378 $ 8,245 $ 75,801 $ 38,543
Interest Expense 43,670 46,797 11,797 22,157 37,405
Funds Transfer Income (1,898) 28,258 12,967 (45,123) 5,796
(Expense)
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss), 94,692 21,839 9,415 8,521 6,934
Tax-Equivalent
Tax Equivalent Adjustment (1,948) -- -- (428) --
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss) $ 92,744 $ 21,839 $ 9,415 $ 8,093 $ 6,934 $ -- $ 139,025
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
NONINTEREST INCOME
Noninterest Income-External $ 29,790 $ 2,130 $ 40,218 $ 1,843 $ 5,316
Customers
Intersegment Noninterest 1,674 3,150 411 1 2,360
Income
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Noninterest Income $ 31,464 $ 5,280 $ 40,629 $ 1,844 $ 7,676 $ (7,596) $ 79,297
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 5,572 $ 495 $ 683 $ 10 $ 5,402
Direct Expense 43,835 15,539 25,924 2,292 59,842
Overhead and Support 43,724 8,209 9,569 1,271 (62,773)
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Noninterest Expense $ 93,131 $ 24,243 $ 36,176 $ 3,573 $ 2,471 $ (7,596) $ 151,998
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Income (Loss) Before Taxes and $ 31,077 $ 2,876 $ 13,868 $ 6,364 $ 12,139 $ -- $ 66,324
Minority Interest
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Average Assets $2,748,603 $829,817 $204,836 $1,840,020 $1,091,927 $(1,185,333) $5,529,870
===================================================================================================================================
</TABLE>
Our reportable segments are strategic business units that provide diverse
products and services within the financial services industry. We have five
reportable segments: Banking, International Banking, Riggs & Company, Treasury
and Other. The Banking segment provides traditional banking services such as
lending and deposit taking to retail, corporate and commercial customers. The
International Banking segment includes the Corporation's Washington, D.C. based
embassy-banking business and the London-based banking subsidiary, Riggs Bank
Europe Limited. The Riggs & Company segment is a division that provides trust
and investment management services to a broad customer base. The Treasury
segment is responsible for asset and liability management throughout our
company. "Other" consists of our unallocated parent company income and expense,
net interest income from unallocated equity and foreclosed real estate
activities.
We evaluate segment performance based on net income before taxes and minority
interest. The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies. We account
for intercompany transactions as if the transactions were to third parties under
market conditions. Overhead and support expenses are allocated to each operating
segment based on number of employees, service usage and other factors relevant
to the expense incurred.
Reconciliations are provided from the segment totals to our consolidated
financial statements. The reconciliations of noninterest income and noninterest
expense offset as these items result from intercompany transactions. For years
in which we have either no provision for loan losses or a reduction to the
reserve for loan losses, an allocation of loan loss is not provided to the
segments. The reconciliation of total average assets represents the elimination
of intercompany transactions.
-9-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS
NINE MONTHS ENDED NATIONAL RIGGS & RECON- NATIONAL
SEPTEMBER 30, 1998 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ------------ ------------ ------------- ------------- -------------- ----------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 142,996 $ 38,529 $ 9,460 $ 84,876 $ 47,497
Interest Expense 56,028 48,262 10,763 25,358 36,854
Funds Transfer Income 13,194 31,300 10,090 (59,686) 5,102
(Expense)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss), 100,162 21,567 8,787 (168) 15,745
Tax-Equivalent
Tax Equivalent Adjustment (786) -- -- (1,508) --
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss) $ 99,376 $ 21,567 $ 8,787 $ (1,676) $ 15,745 $ -- $ 143,799
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST INCOME
Noninterest Income-External $ 29,606 $ 2,667 $ 36,042 $ 16,353 $ 1,586
Customers
Intersegment Noninterest -- 2,840 332 1 1,268
Income
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Income $ 29,606 $ 5,507 $ 36,374 $ 16,354 $ 2,854 $ (4,441) $ 86,254
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 5,242 $ 464 $ 1,207 $ 10 $ 5,137
Direct Expense 41,253 14,780 21,564 1,131 58,265
Overhead and Support 48,434 7,040 7,788 1,118 (64,380)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Expense $ 94,929 $ 22,284 $ 30,559 $ 2,259 $ (978) $ (4,441) $ 144,612
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Income (Loss) Before Taxes $ 34,053 $ 4,790 $ 14,602 $ 12,419 $ 19,577 $ -- $ 85,441
and Minority Interest
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Average Assets $2,607,006 $686,072 $201,486 $1,946,827 $1,191,931 $(1,059,943) $5,573,379
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS
THREE MONTHS ENDED NATIONAL RIGGS & RECON- NATIONAL
SEPTEMBER 30, 1999 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ------------ ------------ ------------- ------------- -------------- ----------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 47,616 $ 13,577 $ 2,737 $ 28,506 $ 11,957
Interest Expense 13,501 15,259 4,006 10,260 13,205
Funds Transfer Income (3,268) 9,042 4,348 (13,760) 3,638
(Expense)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss), 30,847 7,360 3,079 4,486 2,390
Tax-Equivalent
Tax Equivalent Adjustment (801) -- -- -- --
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss) $ 30,046 $ 7,360 $ 3,079 $ 4,486 $ 2,390 $ -- $ 47,361
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST INCOME
Noninterest Income-External $ 10,307 $ 730 $ 13,697 $ 958 $ 3,924
Customers
Intersegment Noninterest 1,415 1,182 69 -- 561
Income
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Income $ 11,722 $ 1,912 $ 13,766 $ 958 $ 4,485 $ (3,227) $ 29,616
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,847 $ 171 $ 228 $ 4 $ 1,775
Direct Expense 15,099 5,610 8,521 1,533 20,073
Overhead and Support 15,005 2,916 3,353 494 (21,768)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Expense $ 31,951 $ 8,697 $ 12,102 $ 2,031 $ 80 $ (3,227) $ 51,634
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Income (Loss) Before Taxes $ 9,817 $ 575 $ 4,743 $ 3,413 $ 6,795 $ -- $ 25,343
and Minority Interest
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Average Assets $2,792,640 $832,585 $202,657 $2,001,130 $1,018,206 $(1,235,959) $5,611,259
===================================================================================================================================
</TABLE>
-10-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS
THREE MONTHS ENDED NATIONAL RIGGS & RECON- NATIONAL
SEPTEMBER 30, 1998 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ------------ ------------ ------------- ------------- -------------- ----------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 51,998 $ 14,404 $ 3,164 $ 26,587 $ 15,580
Interest Expense 19,311 17,259 4,434 8,943 12,285
Funds Transfer Income 2,003 10,128 4,166 (17,844) 1,547
(Expense)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss), 34,690 7,273 2,896 (200) 4,842
Tax-Equivalent
Tax Equivalent Adjustment (267) -- -- (482) --
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss) $ 34,423 $ 7,273 $ 2,896 $ (682) $ 4,842 $ -- $ 48,752
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST INCOME
Noninterest $ 9,957 $ 835 $ 11,903 $ 8,844 $ 1,351
Income-External
Customers
Intersegment Noninterest -- 939 111 -- 423
Income
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Income $ 9,957 $ 1,774 $ 12,014 $ 8,844 $ 1,774 $ (1,473) $ 32,890
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,732 $ 155 $ 403 $ 3 $ 1,726
Direct Expense 14,253 4,876 7,250 374 20,835
Overhead and Support 17,044 2,471 2,669 464 (22,648)
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Noninterest Expense $ 33,029 $ 7,502 $ 10,322 $ 841 $ (87) $ (1,473) $ 50,134
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Income (Loss) Before Taxes $ 11,351 $ 1,545 $ 4,588 $ 7,321 $ 6,703 $ -- $ 31,508
and Minority Interest
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
-------------- ------------ ------------ ------------- ------------- -------------- ----------------
Total Average Assets $2,764,563 $761,922 $197,865 $1,815,424 $1,198,431 $(1,014,172) $5,724,033
===================================================================================================================================
</TABLE>
NOTE 6. NEW FINANCIAL ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. SFAS No. 133 will require us to record derivative
instruments, such as interest-rate swap agreements on the Consolidated Statement
of Condition as assets or liabilities, measured at fair value. Currently we
treat such instruments as off-balance-sheet items. Gains or losses resulting
from changes in the values of those derivatives would be accounted for depending
on the specific use of each derivative instrument and whether it qualifies for
hedge accounting treatment as stated in the standard. SFAS No. 137, issued in
June 1999, deferred the effective date for implementation of SFAS No. 133 to
January 1, 2001. We do not anticipate any material impact from the
implementation of SFAS No. 133.
NOTE 7. OTHER EVENTS
On June 16, 1999, we filed a registration statement with the Securities and
Exchange Commission to issue $200 million of variable rate Trust Preferred
Securities. On July 22, 1999, because of market volatility, we announced our
decision to postpone the issuance. On that same date, we completed our
redemption of $125 million of 8.5% subordinated notes due in 2006, at the price
of 104.25%, using general corporate funds to retire the debt. As a result of the
redemption, we recorded an extraordinary expense of $5.1 million, after tax.
-11-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
We earned $7.2 million of net income for the third quarter of 1999 compared to
$17.3 million for the same period a year ago. Earnings per share were $.25
compared to $.46 for the same period in the prior year. For the first nine
months of 1999, we had net income of $24.5 million, or $.84 per diluted share,
compared with $47.5 million, or $1.24 a share, for the first nine months of
1998.
Non-recurring items contributed significantly to the quarterly and year-to-date
reductions in net income. During the current quarter we recorded an after tax
extraordinary expense of $5.1 million from the redemption of $125 million of
8.5% subordinated notes. Our results in 1998 were improved by $8.2 million of
non-recurring securities gains in the third quarter and $15.0 million in
securities gains for the first nine months of 1998. The extraordinary expense in
1999 was partially offset by a $3.8 million gain from the sale of the corporate
aircraft as the aircraft was replaced in the current quarter of 1999. In
addition, a reduction in net interest income due to our redemption of preferred
stock and repurchase of common stock, and a higher income tax rate in 1999,
reduced net income in the current period.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis (net interest income plus an
amount equal to the tax savings on tax-exempt interest) totaled $48.2 million in
the third quarter of 1999, decreasing $1.3 million from the third quarter of
1998. Net interest income on a tax-equivalent basis was $141.4 million for the
first nine months of 1999, compared with $146.1 million for the same period in
1998. The decreases from the prior year's quarter and year-to-date periods were
primarily due to funds expended in redeeming Preferred Stock in the fourth
quarter of 1998 and Common Stock in both the fourth quarter of 1998 and the
first quarter of 1999, partially offset by a reduction in interest expense due
to the redemption of the $125 million in subordinated notes.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
SEPTEMBER 30, 1999 VS 1998 SEPTEMBER 30, 1999 VS 1998
---------------------------------- ----------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans, Including Fees $(6,250) $171 $ (6,079) $(14,184) $10,615 $(3,569)
Securities Available for Sale 216 1,373 1,589 (1,845) (4,637) (6,482)
Time Deposits with Other Banks (830) (4,520) (5,350) (2,734) (3,840) (6,574)
Federal Funds Sold and Reverse
Repurchase Agreements (149) 918 769 (974) (3,106) (4,080)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income (7,013) (2,058) (9,071) (19,737) (968) (20,705)
Interest Expense:
Interest-Bearing Deposits (6,471) (553) (7,024) (19,165) 6,263 (12,902)
Repurchase Agreements and Other
Short-Term Borrowings (407) 1,829 1,422 (1,854) 873 (981)
Long-Term Debt 197 (2,327) (2,130) 147 (2,277) (2,130)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense (6,681) (1,051) (7,732) (20,872) 4,859 (16,013)
=====================================================================================================================
Net Interest Income $ (332) $(1,007) $(1,339) $ 1,135 $(5,827) $(4,692)
</TABLE>
(1) - The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change in
volume) has been allocated between rate and volume variances based on the
percentage relationship of such variances to each other. Income and rates are
computed on a tax-equivalent basis using a Federal income tax rate of 35% and
local tax rates as applicable.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------- ----------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, Including Fees (2) $3,213,650 $58,500 7.22 % $3,217,128 $64,579 7.96 %
Securities Available for Sale (3) 1,255,783 19,031 6.01 1,165,177 17,442 5.94
Time Deposits with Other Banks 387,892 4,954 5.07 736,915 10,304 5.55
Federal Funds Sold and Reverse Repurchase Agreements 224,509 2,965 5.24 155,553 2,196 5.60
- ---------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,081,834 85,450 6.67 5,274,773 94,521 7.11
Reserve for Loan Losses (52,224) (54,692)
Cash and Due from Banks 151,931 137,172
Other Assets 429,718 366,780
=================================================================================================================================
Total Assets $5,611,259 $5,724,033
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits $3,564,923 $27,885 3.10 % $3,570,113 $34,909 3.88 %
Repurchase Agreements and Other Short-Term Borrowings 624,094 7,165 4.55 455,047 5,743 5.01
Long-Term Debt 93,699 2,238 9.48 191,525 4,368 9.05
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,282,716 37,288 3.45 4,216,685 45,020 4.24
Demand Deposits 579,101 613,268
Other Liabilities 65,965 55,516
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Stockholders' Equity 333,477 488,564
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest and
Stockholders' Equity $5,611,259 $5,724,033
==============================================================================================================================
NET INTEREST INCOME AND SPREAD $48,162 3.22 % $49,501 2.87 %
==============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.76 % 3.72 %
</TABLE>
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 1999, excluding
securities gains, totaled $29.6 million, an increase of $4.9 million from the
same period a year ago. This increase was mostly due to a $3.8 million gain from
the sale of the corporate aircraft, which was replaced during the quarter, and
increases in trust and investment advisory income of $1.8 at Riggs & Company.
Riggs & Company is our private client services division. This increase was
partially offset by a decrease in other noninterest income.
For the first nine months of 1999, noninterest income excluding securities gains
totaled $78.1 million, an increase of $6.9 million from the first nine months of
1998. The increase in noninterest income for the nine month period was partially
due to the $3.8 million gain discussed above and a 12% increase in trust and
investment advisory income of Riggs & Company, partially offset by a decrease of
$2.0 million in other noninterest income. This decrease was partly the result of
lower deposit account and ATM fees, as consumers move towards the use of debit
cards and the use of ATMs by non-Riggs customers declined.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------- ----------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, Including Fees (2) $3,195,091 $173,925 7.28 % $3,010,016 $177,494 7.88 %
Securities Available for Sale (3) 1,151,402 50,797 5.90 1,255,696 57,279 6.10
Time Deposits with Other Banks 506,533 18,347 4.84 607,038 24,921 5.49
Federal Funds Sold and Reverse Repurchase Agreements 167,519 6,292 5.02 247,887 10,372 5.59
- ---------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,020,545 249,361 6.64 5,120,637 270,066 7.05
Reserve for Loan Losses (53,055) (53,152)
Cash and Due from Banks 148,358 146,882
Other Assets 414,022 359,012
=================================================================================================================================
Total Assets $5,529,870 $5,573,379
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits $3,545,657 $ 82,025 3.09 % $3,300,508 $ 94,927 3.85 %
Repurchase Agreements and Other Short-Term Borrowings 470,094 14,961 4.26 424,931 15,942 5.02
Long-Term Debt 158,558 10,974 9.25 191,525 13,104 9.15
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,174,309 107,960 3.46 3,916,964 123,973 4.23
Demand Deposits 595,877 765,750
Other Liabilities 62,401 63,369
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Stockholders' Equity 347,283 477,296
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest and
Stockholders' Equity $5,529,870 $5,573,379
==============================================================================================================================
NET INTEREST INCOME AND SPREAD $141,401 3.18 % $146,093 2.82 %
==============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.77 % 3.81 %
</TABLE>
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
NONINTEREST EXPENSE
Noninterest expense for the three months ended September 30, 1999 was $51.6
million, up 3% from the $50.1 million reported for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, noninterest
expense was $152.0 million, an increase of $7.4 million from the same period a
year ago. The increases were due to added personnel costs during the year,
partially related to new business initiatives, and increases in other
noninterest expense, such as increased data processing and advertising costs in
1999, and the addition of the International Financial Center in Washington, D.C.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Financial Condition
SECURITIES
Securities available for sale totaled $1.30 billion at September 30, 1999,
compared to $970.7 million at year-end 1998, and $1.00 billion at September 30,
1998. The activity for the first nine months included purchases of securities
available for sale totaling $3.35 billion, which were partially offset by
maturities and sales of securities available for sale totaling $2.97 billion.
The weighted-average durations and yields for the portfolio, adjusted for
anticipated prepayments, were approximately 4.1 years and 5.97%, respectively,
at September 30, 1999.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 DECEMBER 31, 1998
------------------------------- ------------------------------ -------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE COST BOOK VALUE
================================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 314,267 $ 298,605 $ - $ - $ 113,677 $ 111,750
Government Agencies Securities 438,809 435,975 808,845 809,428 391,165 391,344
Mortgage-Backed Securities 526,640 500,384 124,383 125,229 424,152 423,503
Other Securities 63,287 63,287 68,277 68,892 43,577 44,131
=================================================================================================================================
Total $1,343,003 $1,298,251 $1,001,505 $1,003,549 $ 972,571 $ 970,728
</TABLE>
LOANS
At September 30, 1999, total loans outstanding amounted to $3.25 billion,
decreasing slightly from the December 31, 1998 total of $3.26 billion. The
decrease in loans from December 31, 1998, was primarily attributed to decreases
in residential mortgage loans of $38.7 million and real estate/commercial
construction loans of $10.1 million, partially offset by an increase of $44.3
million in commercial and financial loans.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
================================================================================================================
<S> <C> <C> <C>
Commercial and Financial $ 713,081 $ 696,045 $ 668,778
Real Estate - Commercial/Construction 399,440 418,928 409,586
Residential Mortgage 1,237,522 1,333,954 1,276,257
Home Equity 311,958 329,275 314,347
Consumer 72,090 69,860 69,419
Foreign 522,291 508,033 522,032
- ----------------------------------------------------------------------------------------------------------------
Total Loans 3,256,382 3,356,095 3,260,419
Net Deferred Loan Fees,
Premiums and Discounts (5,585) (1,284) (2,284)
================================================================================================================
Loans $3,250,797 $3,354,811 $3,258,135
</TABLE>
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1999 1998
================================================================================================================================
<S> <C> <C>
Balance, January 1 $ 54,455 $ 52,381
Provision for loan losses -- --
Loans charged-off 4,337 2,548
Less: Recoveries on charged-off loans 1,355 4,532
- --------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs (recoveries) 2,982 (1,984)
Foreign exchange translation adjustments (94) 334
=================================================================================================================================
Balance, September 30 $ 51,379 $ 54,699
</TABLE>
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $53.5 million at September
30, 1999, a $22.1 million increase from the year-end 1998 total of $31.4 million
and a $49.8 million increase from the September 30, 1998 total. The increase in
nonperforming assets from both periods was mainly due to nonperforming loans in
which we have participated with other major banks. These credits include a $25.0
million loan to a commercial real estate financing company that was placed on
nonaccrual in the fourth quarter of 1998. In addition, a $13.7 million loan to a
health care entity and a $12.0 million loan to a computer equipment
manufacturing and service company were placed on nonaccrual in the third quarter
of 1999. These three credits are considered impaired. Impaired loans including
the three credits totaled $52.0 million at September 30, 1999. The assigned
reserve for loan losses for impaired loans was $11.4 million at September 30,
1999.
PAST-DUE AND POTENTIAL PROBLEM LOANS
Past-due loans consist of residential real estate loans, commercial and
industrial loans, and consumer loans that are in the process of collection and
that are accruing interest. Past-due loans decreased $16.6 million during the
first nine months of 1999 to $8.6 million, mostly due to repayment of a foreign
government overdraft of $15.8 million. There were no potential problem loans at
September 30, 1999 and December 31, 1998. The $25.0 potential problem loan at
September 30, 1998 was reclassified as nonaccrual during the fourth quarter of
1998.
NONPERFORMING ASSETS AND PAST-DUE LOANS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
=======================================================================================================================
NONPERFORMING ASSETS:
<S> <C> <C> <C>
Nonaccrual Loans (1) $51,203 $ 1,519 $26,831
Renegotiated Loans 1,409 84 2,920
Other Real Estate Owned, Net 908 2,070 1,680
========================================================================================================================
Total Nonperforming Assets $53,520 $ 3,673 $31,431
PAST-DUE LOANS (2) $ 8,647 $10,527 $25,269
POTENTIAL PROBLEM LOANS $ -- $25,000 $ --
</TABLE>
(1) - Loans (other than consumer) that are in default in either principal or
interest for 90 days or more that are not well-secured and in the process of
collection, or that are, in management's opinion, doubtful as to the
collectibility of either interest or principal.
(2) - Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
-16-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
DEPOSITS
Deposits are our primary and most stable source of funds. Deposits totaled $4.09
billion at September 30, 1999, decreasing $55.8 million from the December 31,
1998 deposit total, and $74.1 million from September 30, 1998. The decrease from
the year-end balance was due primarily to decreases in demand, savings and NOW
deposit accounts. Demand deposits decreased by $90.9 million, and savings and
NOW accounts by $90.3 million from the December 31, 1998 balances. These
decreases from year-end were partially due to increases in sweep activity from
demand to money market accounts. Money market account balances increased by
$89.3 million in total from year-end. The decrease from the September 30, 1998
balance was due primarily to decreases in time deposits in both domestic and
foreign offices of $174.6 million, partially offset by increases in money market
accounts of $84.0 million. The decrease in time deposits was primarily caused by
a decrease in large dollar certificates of deposits.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings increased by $411.8 million from the year-end 1998
balance, and $329.8 million from the September 30, 1998 balance. The increase in
short-term borrowings from both periods was primarily because we borrowed $400
million from the Federal Home Loan Bank of Atlanta (FHLB), at an average rate of
4.99%. $300 million, callable by the FHLB in the year 2000, has a final maturity
of ten years. Another $100 million, also callable next year, has a final
maturity of five years. Short-term borrowings are an additional source of funds
that we have utilized to meet certain asset/liability and daily cash management
objectives, and are used to generate cash and maintain adequate levels of
liquidity.
The decrease in long-term debt was due to our redemption of $125 million of 8.5%
subordinated notes due in 2006, at the price of 104.25%. General corporate funds
were used to retire the debt. We recorded an extraordinary expense of $5.1
million, after tax, as a result of the redemption.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
======================================================================================================================
<S> <C> <C> <C>
Repurchase Agreements and Other Short-Term Borrowings $786,170 $456,340 $374,380
Subordinated Debentures due 2009 66,525 66,525 66,525
Subordinated Notes due 2006 -- 125,000 125,000
- ----------------------------------------------------------- ---------------- -- ---------------- --- -----------------
Total Long-Term Debt 66,525 191,525 191,525
======================================================================================================================
Total Short-Term Borrowings and Long-Term Debt $852,695 $647,865 $565,905
</TABLE>
LIQUIDITY
We seek to maintain sufficient liquidity to meet the needs of depositors,
borrowers and creditors at a reasonable cost and without undue stress on our
operations and those of our banking subsidiaries. Our Asset/Liability Committee
actively analyzes and manages liquidity in coordination with other areas of the
organization (see "Sensitivity to Market Risk"). At September 30, 1999, our
liquid assets, on a consolidated basis, which include cash and due from banks,
Government obligations and other securities, federal funds sold, reverse
repurchase agreements and time deposits at other banks, totaled $2.07 billion
(36% of total assets). This compares with $1.90 billion (34%) at December 31,
1998, and $2.07 billion (36%) at September 30, 1998. At September 30, 1999,
$887.4 million of our assets were pledged to secure deposits and other
borrowings. This compares with pledged assets of $727.4 million at December 31,
1998, and $865.0 million at September 30, 1998.
Our liquidity position is maintained by a stable source of funds from our core
deposit relationships. We have other sources of funds, such as short-term credit
lines available from several Federal Home Loan Banks and other financial
institutions. In addition, we have a line of credit available through our
membership in the Federal Home Loan Bank of Atlanta (FHLB Atlanta). At September
30, 1999, December 31, 1998, and September 30, 1998, short-term credit lines and
the FHLB Atlanta line of credit available totaled approximately $1.40 billion,
$1.50 billion, and $1.09 billion, respectively. Of this availability, $431.9
million, $31.7 million, and $122.4 million were outstanding at September 30,
1999, December 31, 1998, and September 30, 1998.
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Total stockholders' equity at September 30, 1999 was $343.1 million, a decrease
of $49.6 million from year-end 1998. The decrease from year-end was primarily
the result of repurchases of Common Stock in the first quarter of 1999, totaling
2,125,000 shares at a cost of $42.2 million, and an unrealized loss in our
securities portfolio of $29.1 million, after tax. For more information on our
securities portfolio, see the discussion under "Securities" in the Management's
Discussion and Analysis of this Form 10-Q.
Total stockholders' equity decreased $156.1 million from September 30, 1998. The
decrease year to year was primarily the result of the redemption of Riggs' $100
million 10.75% Noncumulative Perpetual Preferred Stock on October 1, 1998,
repurchases of Common Stock, and unrealized losses in our securities portfolio.
The repurchases of Common Stock totaled 275,000 shares in the fourth quarter of
1998 and 2,125,000 shares in the first quarter of 1999, at a cost of $5.4 and
$42.2 million, respectively. The unrealized losses in the securities portfolio
totaled $27.9 million, after tax, at September 30, 1999.
Book value per common share was $12.12 as of September 30, 1999 compared to
$12.93 at year-end 1998 and $13.18 at September 30, 1998. Following are our
capital ratios and those of our banking subsidiary, Riggs Bank National
Association (Riggs Bank N.A.) at September 30, 1999 and 1998, and December 31,
1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, REQUIRED
1999 1998 1998 MINIMUMS
================================================================================================================
<S> <C> <C> <C> <C>
RIGGS NATIONAL CORPORATION:
Tier I 13.76% 17.15% 14.63% 4.00%
Combined Tier I and Tier II 23.25 28.23 27.51 8.00
Leverage 8.67 11.46 9.33 4.00
RIGGS BANK N.A.:
Tier I 13.36 12.23 12.17 4.00
Combined Tier I and Tier II 14.61 13.48 13.43 8.00
Leverage 8.69 8.78 8.26 4.00
</TABLE>
-18-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
YEAR 2000 READINESS DISCLOSURE
GENERAL
Advances and changes in technology can have a significant impact on our
business. Financial institutions are dependent on information systems and also
have many external interdependencies with other companies. Many computer
programs were designed to recognize calendar years by their last two digits.
Calculations performed using these digits may not work properly with dates
beginning in the Year 2000 and beyond. The Year 2000 issue creates risk for us
from unforeseen problems in our computer systems and from Year 2000 issues with
our vendors, service providers and customers.
APPROACH AND RISKS
We began to identify the risks associated with the Year 2000 in 1995. We
established a corporate oversight structure to ensure timely risk assessments,
remediation plans, systems testing, conversions, and centralized management of
the project. The structure of the effort entails a number of groups, each
addressing a different aspect of the project, and reporting to the Year 2000
Program Manager. Oversight of the entire project is performed by the Year 2000
Advisory Group. This is a management committee appointed by the Board of
Directors that reports to the Board on a quarterly basis.
We determined that an enterprise-wide business risk-assessment approach is most
appropriate for addressing and remediating Year 2000 problems. This included an
assessment of the information technology resources of each of our functional
areas, as well as separate assessments of information technology vendors and
suppliers, mainframe applications, third party suppliers, alternative platforms,
and non-information technology and facilities risks.
In addition to systems-related risks, we undertook a review of risks created by
potential business interruptions suffered by our major business counterparties,
both domestic and foreign. We divided our business counterparties into three
broad categories: Funds Takers (primarily borrowers), Funds Providers
(depositors and other funding sources) and Capital Markets partners (trading
counterparties and fiduciary relationships). For those business partners that
would have a significant impact on our liquidity, income, or capital markets
activities, should they encounter significant business interruption due to the
Year 2000, we have worked with them to assess their readiness and contingency
plans for recovering from an abrupt interruption.
After the assessment phase, Year 2000 efforts focused on remediation and
verification. We developed detailed action plans to address mainframe systems,
third party servicers, embedded technology and facilities and non-information
technology issues. For purchased systems and software and third party servicers,
the Year 2000 efforts involved contacting the vendors or suppliers and
determining the Year 2000 status of the various systems and of the plans to
bring the systems into compliance. For in-house systems, the Year 2000 efforts
included correction of the programs to ensure proper data processing. Our action
plans also included testing mission-critical systems to verify the remediation
efforts. We record and track information to keep ourselves aware of the status
of our company's information technology systems. The Program Manager worked with
our functional areas to develop contingency plans for a variety of situations,
such as the failure of a vendor to remediate Year 2000 issues by a particular
date or a system not being available for processing.
Inherent in the Year 2000, the failure to correct a material problem could
result in an interruption in or failure of certain business operations. Year
2000 risks and uncertainties include increased credit losses, service delays,
funding delays, counterparty failures, inaccurate information processing, ATM
failures, and problems with international accounts. There can be no assurance
that the Year 2000 issue will not have a material adverse impact on our
financial position, results of operations, or relationships with customers,
vendors, or others.
STATE OF READINESS
While there is general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the readiness of third party vendors and
customers, our progress toward completing the enterprise-wide risk assessment
and remediating Year 2000 problems is on target. We completed remediation and
verification of all mission critical internal systems by December 31, 1998.
Mission-critical third party service providers completed their remediations by
December 31, 1998, and we substantially completed our verification of these
systems at March 31, 1999. As of September 30, 1999, all mission-critical
systems have been assessed, remediated, and tested, and are now in use serving
our clients. This is in accordance with guidelines established by Bank
regulatory authorities. Verification of non-mission critical system changes,
including non-information technology issues, will be performed throughout 1999.
We presently believe that the Year 2000 issue will not cause significant
operational problems.
-19-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
COSTS
We estimate the total cost of the Year 2000 project will be approximately $7.0
million, with $5.9 million expended to date as of September 30, 1999. The future
cost of completing the Year 2000 project is estimated to be $1.1 million. The
total amount expended for the first nine months of 1999 was $2.2 million. The
most significant components of the $7.0 million total estimated cost consist of
65% for personnel costs, including consultants and special Year 2000 incentives,
and 24% for data processing services. We do not separately track all internal
costs incurred for the Year 2000 project. Internal costs are principally the
payroll-related costs for the information systems group.
The Year 2000 expense represents approximately 10% of our total actual
information technology expenditures for the first nine months of 1999. Other
significant or critical non-Year 2000 information technology efforts have not
been materially delayed or impacted by Year 2000 initiatives.
CONTINGENCY PLANS
To prepare for the possibility that certain information systems or third party
vendors and servicers will not be Year 2000 compliant, we developed detailed
contingency plans. We have two types of contingency plans, remediation plans and
business resumption plans.
The remediation plans addressed those information systems we have determined
were not Year 2000 compliant through our testing. These plans described and
scheduled alternative provisions, including, if necessary, the replacement of
vendors or third party servicers to ensure compliance. The remediation plans are
complete; however, implementation of these plans is not expected to be necessary
because of our state of readiness.
The business resumption plans address how we will continue operations in the
event a Year 2000 related interruption occurs. The business resumption plans for
our mission-critical systems and third-party servicers were substantially
completed as of June 30, 1999. These plans in some cases provide for the manual
processing of certain normal bank functions. Manual processing would cause
delays, which could disrupt the normal business activities of our company and
our customers. While implementation of the business resumption plans is not
expected to be necessary, it will ensure we have the ability to process
transactions and serve our customers under circumstances where a Year 2000
problem actually occurs.
The discussion of our efforts and expectations related to Year 2000 compliance
are forward-looking statements which should be read in conjunction with our
disclosures under the "Safe Harbor" provisions as discussed in this Form 10-Q
following Item 3. Our ability to achieve Year 2000 compliance and the associated
costs could be adversely impacted by, among other things, the Year 2000
readiness of third party service providers, the availability of programming and
verification resources, vendors' ability to modify proprietary software, and
problems identified in the ongoing project plan.
-20-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SENSITIVITY TO MARKET RISK
We are exposed to various market risks. We have determined that interest-rate
risk has a material impact on our financial performance, and as such we have
established the Asset/Liability Committee ("ALCO") to manage interest-rate risk.
The role of this committee is to prudently manage the asset/liability mix of our
company to provide a stable net interest margin while maintaining liquidity and
capital. This entails the management of the overall risk of the company in
conjunction with the acquisition and deployment of funds based upon ALCO's view
of both current and prospective market and economic conditions.
We manage our interest-rate risk through the use of an income simulation model,
which forecasts the impact on net interest income of a variety of different
interest rate scenarios. A "most likely" interest rate scenario is forecasted
based upon an analysis of current market conditions and expectations. The model
then evaluates the impact on net interest income of rates moving significantly
higher or lower than the "most likely" scenario. The results are compared to
risk tolerance limits set by corporate policy. The model's results as of
September 30, 1999 and 1998 are shown in the following tables. Current policy
establishes limits for possible changes in net interest income for 12 and 36
month horizons. The interest rate scenarios monitored by ALCO are based upon a
100 basis point (1%) gradual increase or decrease in rates over a 12-month time
period and a 300 basis point (3%) gradual increase or decrease in rates over a
36-month time period.
<TABLE>
<CAPTION>
INTEREST-RATE SENSITIVITY ANALYSIS (1)
MOVEMENTS IN INTEREST RATES FROM SEPTEMBER 30, 1999
============================================================================================================================
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ----------------------------------------------------- ---------------------------------- -----------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (1.1)% 2.2 % (3.5)% .9 %
Net Interest Income Increase/(Decrease) $(2,180) $ 4,294 $(21,642) $5,586
</TABLE>
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM SEPTEMBER 30, 1998
============================================================================================================================
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ----------------------------------------------------- ---------------------------------- -----------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) .1 % (0.1)% 1.8 % (4.6)%
Net Interest Income Increase/(Decrease) $ 137 $ (103) $ 10,476 $(26,853)
</TABLE>
(1)-Key Assumptions:
Assumptions with respect to the model's projections of the effect of changes in
interest rates on Net Interest Income include:
1. Target balances for various asset and liability classes, which are
solicited from the management of the various units of the Corporation.
2. Interest rate scenarios which are generated by ALCO for the "most likely"
scenario and are dictated by policy for the alternative scenarios.
3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and ALCO consensus.
4. Assumptions about the effect of embedded options and prepayment speeds:
instruments that are callable are assumed to be called at the first opportunity
if an interest rate scenario makes it advantageous for the owner of the call
to do so. Prepayment assumptions for mortgage products are derived from
accepted industry sources.
5. Reinvestment rates for funds replacing assets or liabilities that are
assumed (through early withdrawal, prepayment, calls, etc.) to run off the
balance sheet, which are generated by the spread relationships.
6. Maturity strategies with respect to assets and liabilities, which are
solicited from the management of the various units of the Corporation.
-21-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
At September 30, 1999, the forecasted impact of rates rising or falling 100
basis points versus the "most likely" scenario over a 12-month time period was a
change in net interest income not exceeding 3%. For a 300 basis point movement
in rates versus the "most likely" scenario over a 36-month period, the impact on
net interest income did not exceed 4%. The results of the simulation for
September 30, 1999 indicated that we were liability sensitive over the 12 and
36-month time horizons. We were within guidelines for interest rates moving
significantly in either direction.
In managing our interest-rate risk, ALCO uses financial derivative instruments,
such as interest-rate swaps. Financial derivatives are employed to assist in the
management and/or reduction of our interest-rate risk, and can effectively alter
the sensitivity of segments of the statement of condition for specified periods
of time. All of these derivative instruments are considered off-balance-sheet,
as they do not materially affect the level of our assets or liabilities. Along
with financial derivative instruments, the income simulation model includes
short-term financial instruments, investment securities, loans, deposits, and
other borrowings. Interest-rate risk management strategies are discussed and
approved by ALCO prior to implementation.
We find that the methodologies previously discussed provide a meaningful
representation of our interest-rate and market risk sensitivity, though factors
other than changes in the interest rate environment, such as levels of
non-earning assets, and changes in the composition of earning assets, may affect
net interest income. We believe our current interest-rate sensitivity level is
appropriate, considering our economic outlook and conservative approach taken in
the review and monitoring of our sensitivity position.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at September 30, 1999 and 1998, and December
31, 1998 are detailed in the table below. At December 31, 1998, our financial
derivative instruments included a $25 million (notional amount) interest rate
swap, which converted a portion of the fixed rate real estate mortgage loan
portfolio into a floating rate asset. This swap matured in January 1999.
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL VALUE
-----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1999 1998 1998
===========================================================================================================
<S> <C> <C> <C>
Commitments to Extend Credit $981,818 $1,188,909 $1,169,670
Letters of Credit 155,207 135,933 116,734
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase 109,944 $ 140,135 $ 138,727
Commitments to Sell 192,454 223,212 225,846
Futures 2,621 -- --
Interest Rate Agreements 104,689 114,573 115,343
</TABLE>
-22-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
Our interest rate agreement activity for the nine months ended September 30,
1999, is as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, SEPTEMBER 30,
1998 ADDITIONS MATURITIES TERMINATIONS 1999
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest Rate Agreements:
Receive fixed/pay variable $ -- $ -- $ -- $ -- $ --
Receive variable/pay fixed 25,000 -- 25,000 -- --
Riggs Bank Europe Limited 90,343 14,346 -- -- 104,689
============================================================================================================================
Total $115,343 $14,346 $25,000 $ -- $104,689
</TABLE>
---------------------------------------------------------------------------
This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the Quantitative
and Qualitative Disclosures About Market Risk, contains forward-looking
statements, as defined in section 21E of the Securities Exchange Act of 1934,
that involve risk and uncertainty. In order to comply with the terms of the safe
harbor, we note that a variety of factors could cause our actual results and
experiences to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements. These factors include,
but are not limited to, certain risks and uncertainties that may affect the
operations, performance, development, growth projections and results of our
business such as, the growth of the economy, interest rate movements, timely
development by the company of technology enhancements for its products and
operating systems, the impact of competitive products, services and pricing,
customer business requirements, Congressional legislation and similar matters.
Readers of this report are cautioned not to place undue reliance on
forward-looking statements which are subject to influence by the named risk
factors and unanticipated future events. Actual results, accordingly, may differ
materially from management expectations.
-23-
<PAGE>
RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on pages 25 through 26 are incorporated by
reference or filed herewith in response to this item.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
RIGGS NATIONAL CORPORATION
Date: November 12, 1999 /s/ TIMOTHY C. COUGHLIN
--------------------------- --------------------------------
Timothy C. Coughlin
President
Date: November 12, 1999 /s/ JOHN L. DAVIS
--------------------------- --------------------------------
John L. Davis
Chief Financial Officer
(Principal Financial Officer)
Date: November 12, 1999 /s/ ELEANOR L. RUTLAND
--------------------------- --------------------------------
Eleanor L. Rutland
Comptroller
(Principal Accounting Officer)
-24-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGES
==================================================================================================
<S> <C> <C>
(3.1) Restated Certificate of Incorporation of Riggs National
Corporation, dated April 19, 1999 (Incorporated by reference to
the Registrant's Form 10-Q for the quarter ended June 30, 1999,
SEC File No. 09756).
(3.2) By-laws of the Registrant with amendments through April 10,
1996 (Incorporated by reference to the Registrant's Form 10-K
for the year ended December 31, 1998, SEC File No. 09756.)
(4.1) Indenture dated June 1, 1989, with respect to $100 million
9.65% Subordinated Debentures due 2009 (Incorporated by
reference to the Registrant's Form 8-K dated June 20, 1989, SEC
File No. 09756.)
(4.2) Indenture dated January 1, 1994, with respect to $125 million,
8.5% Subordinated Debentures due 2006 (Incorporated by
reference to the Registrant's Form 10-Q for the quarter ended
March 31, 1994, SEC File No.
09756.)
(4.3) Indenture dated December 13, 1996, with respect to $150
million, 8.625% Trust Preferred Securities, Series A due 2026
(Incorporated by reference to the Registrant's S-3 dated
February 6, 1997, SEC File No. 333-21297.)
(4.4) Indenture dated March 12, 1997, with respect to $200 million,
8.875% Trust Preferred Securities, Series C due 2027
(Incorporated by reference to the Registrant's S-3 dated May 2,
1997, SEC File No. 333-26447.)
(10.1) Aircraft Purchase Agreement for the Sale of Riggs Bank's
Gulfstream III. Exhibit 10.1
(10.2) Outfitted Gulfstream V Sales Agreement, Addendum I, and
Amendment for Riggs Bank's Purchase of a new Gulfstream V. Exhibit 10.2
(10.3) Joe L. Allbritton Employment Agreement, dated July 15, 1999. Exhibit 10.3
(10.4) Riggs National Corporation's Executive Incentive Plan. Exhibit 10.4
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS, CONTINUED
EXHIBIT NO. DESCRIPTION PAGES
==============================================================================================================
<S> <C> <C>
(10.5) Split Dollar Life Insurance Plan Agreements (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.6) The 1993 Stock Option Plan and the 1994 Stock Option Plan, as
amended April 15, 1998 (Incorporated by reference to the
Registrant's Annual Meeting Proxy Statement filed March 18,
1998), and the 1996 Stock Option Plan and the 1997 Non-Employee
Directors Stock Option Plan, as amended April 14, 1999
(Incorporated by reference to the Registrant's Annual Meeting
Proxy Statement filed March 17, 1999.)
(10.7) Deferred Compensation Plan for Directors (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.8) Description of the 1998 General Incentive Plan (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.9) Description of the 1999 General Incentive Plan (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.10) Supplemental Executive Retirement Plan, as amended and restated
July 12, 1995 (Incorporated by reference to the Registrant's
Form 10-K for the year ended December 31, 1998, SEC File No.
09756.)
(10.11) Trust Agreement, dated July 12, 1995, for the Supplemental
Executive Retirement Plan and the Split Dollar Life Insurance
and Supplemental Death Benefit Plans (Incorporated by reference
to the Registrant's Form 10-K for the year ended December 31,
1998, SEC File No. 09756.)
(27) Financial Data Schedule Exhibit 27
</TABLE>
(Exhibits omitted are not required or not applicable.)
-26-
Exhibit 10.1
AIRCRAFT PURCHASE AGREEMENT
THIS AIRCRAFT PURCHASE AGREEMENT (this "Agreement") is entered into as
of the 10th day of September, 1999, by and between Perpetual Corporation and
Lazy Lane Farms, Inc., or their respective assigns ("Buyer"), and Riggs Bank
N.A. ("Seller").
RECITALS
WHEREAS, the Seller desires to sell the Aircraft (as defined in Section
1.1 (a)) to the Buyer and the Buyer desires to purchase the Aircraft from the
Seller on the terms and conditions contained herein; and
WHEREAS, the Seller has sought three market appraisals of the Aircraft,
and Buyer has agreed to pay to Seller the highest appraised value of such three
appraisals; and
WHEREAS, it is the intention of Buyer that the acquisition by Buyer of
title in the Aircraft qualify as an exchange within the meaning of Section 1031
of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations
promulgated thereunder ("IRC"); and
WHEREAS, it is the intention of the Seller that the sale by Seller of
title in the Aircraft qualify as an exchange within the meaning of Section 1031
of the IRC.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE 1. SUBJECT MATTER OF SALE
1.1 (a) Subject to the provisions of this Agreement, the Seller agrees to
sell and to deliver to the Buyer and the Buyer agrees to buy and take
delivery from the Seller all of the Seller's right, title and interest
in and to that certain 1982 Gulfstream III (G-1159A) model aircraft
bearing manufacturer's serial number 362 and FAA Registration Number
N800AR, together with two Rolls Royce Spey MK-511-8 model engines
bearing manufacturer's serial numbers 11140 and 11141, and all
equipment, features, accessories, instruments, and components, and
other parts installed thereon or appurtenant thereto, all loose
equipment and spare parts, and all Aircraft Documents as defined in
Section 1.1(b), and as additionally described on Attachment A hereto
(all of the foregoing items collectively referred to as the
"Aircraft").
(b) For purposes hereof, the term "Aircraft Documents" shall mean and
include records, overhaul records, maintenance manuals, repair
manuals, flight manuals, crew manuals, warranty documents, logbooks,
authorizations, wiring diagrams, drawings and data required or
recommended by the manufacturer of the airframe, engines or any
component or part of the Aircraft, or required with respect to the
Aircraft, and all issued FAA Form 337's.
<PAGE>
1.2 (a) With respect to Buyer, this Agreement, and Buyer's agreement to
sell a certain Hawker 700 (the "Hawker Sale Agreement"), are mutually
interdependent.
(b) With respect to Seller, this Agreement, and Seller's agreement to
purchase a certain replacement aircraft are mutually interdependent.
1.3 Each Buyer hereunder shall acquire a 50% undivided ownership
interest in the Aircraft.
ARTICLE 2. PURCHASE PRICE
2.1 All prices, amounts and payments referred to herein shall be in United
States Dollars. The total purchase price for the Aircraft shall be Ten
Million Three Hundred Fifty-Seven Thousand Four Hundred Thirty Dollars
($10,357,430) (the "Purchase Price") payable at the Closing pursuant to
Article 3 of this Agreement.
ARTICLE 3. INSPECTION; CLOSING; DELIVERY OF AIRCRAFT, ETC.
3.1 Inspection.
(a) Prior to closing, Seller shall provide the Buyer full access to
the Aircraft and the records (including without limitation the
Aircraft Documents) relating thereto for the purpose of
inspection (the "Inspection") by Buyer and/or the Buyer's duly
authorized technical representatives; in order to determine that
each item of the Aircraft is acceptable to Buyer and in
accordance with the provisions of this Agreement. Buyer may have
its authorized representatives on the Aircraft for its flight to
the Inspection Facility. The Inspection shall be conducted at
Buyer's expense, and may include such tests and investigations as
Buyer may consider under the circumstances to be necessary to
satisfy itself that the general condition of the Aircraft and
Aircraft Documents is satisfactory and complies with the
provisions of this Agreement. The foregoing shall not affect any
warranty claim of Buyer under the terms of this Agreement. Prior
to and as part of the Inspection, Buyer may conduct test and
acceptance flights and shall bear the cost of any fuel utilized
in connection therewith.
(b) Within two (2) Business Days (defined as any weekday which is not
a bank holiday in Buyer's principal place of business) after
conclusion of the Inspection or, Buyer's determination that the
Aircraft is satisfactory, whichever first occurs, Buyer shall
execute and deliver to Seller Exhibit A (the "Aircraft Inspection
Report") reporting in detail any airworthy items, or deficiencies
which do not meet the delivery requirement of Article 5 herein,
whereupon the Seller shall, promptly and expeditiously following
receipt of such report from Buyer, remedy such deficiencies. Time
is of the essence in the commencement and completion of repair
work to resolve any deficiencies. Buyer may conduct such tests
and investigations as it deems reasonably necessary, to confirm
that Seller has remedied all such deficiencies.
<PAGE>
(c) Notwithstanding the foregoing, if at any time prior to the
Closing Time (as defined in Section 3.2(c)), the Aircraft is
destroyed or suffers substantial damage which, in Buyer's
reasonable opinion, renders it of lower economic value than the
Purchase Price, Buyer shall have the right to terminate this
Agreement upon written notice from Buyer to Seller and the
parties shall have no further obligation to each other with
respect to the transaction contemplated hereunder.
3.2 Closing.
(a) Within one (1) Business Day after completion of the Inspection
and confirmation by Buyer of remediation of deficiencies by
Seller with respect thereto:
(i) Seller shall deposit with the Insured Aircraft Title
Services, P.O. Box 19527, Oklahoma City, OK 73144
("Escrow Agent") a Federal Aviation Administration
Aeronautical Center Form 8050-2 Bill of Sale
(hereinafter "FAA Bill of Sale") acceptable for
filing with the Federal Aviation Administration,
undated but otherwise fully completed, and executed
on behalf of Seller, together with a Warranty Bill of
Sale in the form attached hereto as Exhibit B, either
of which shall be in a form sufficient to effect
vesting of title in Buyer; and
(ii) Buyer shall deposit with the Escrow Agent an
Application for Registration for the Aircraft fully
completed (except for date) and executed on behalf of
Buyer.
(b) Within one (1) Business Day of receipt by the parties of
confirmation from Escrow Agent that all of the actions and
deliveries required in subparagraph (a) have been completed,
Seller shall position the Aircraft at Washington Reagan
National Airport (the "Delivery Location") for transfer of
title and consummation of the transaction (the "Closing").
Delivery of the Aircraft shall occur simultaneously with the
Closing. Buyer may have its authorized representatives on the
Aircraft for its flight to the Delivery Location.
(c) Upon the proper and timely positioning of the Aircraft at the
Delivery Location and upon fulfillment of all of Seller's
obligations and agreements contained herein, (i) Buyer shall
deposit the Purchase Price with the Qualified Intermediary
appointed by Seller (as referenced in Section 9.11 hereof) by
wire transfer, and then (ii) Seller and Buyer shall immediately
instruct the Escrow Agent to: (a) date and file the FAA Bill of
Sale in the Civil Aircraft Registry, (b) date and file the
Application for Registration with respect to the Aircraft, and
(c) release the Warranty Bill of Sale to Buyer. Contemporaneously
therewith, Buyer shall execute and deliver (via facsimile and
mail) to Seller an Aircraft Delivery Receipt in the form attached
hereto as Exhibit C. Risk of loss, casualty, liability or damage
with respect to the Aircraft shall be deemed to pass to Buyer
upon Buyer's delivery to Seller of the Aircraft Delivery Receipt
(such time being the "Closing Time" and the date of the Closing
Time being the "Closing Date").
<PAGE>
ARTICLE 4. CONDITION OF AIRCRAFT
4.1 Seller covenants and agrees:
(a) that the Aircraft shall be delivered with any and all
manufacturer's recommended inspections (calendar, hourly, or
otherwise) and inspection items up to date and current;
(b) that the Aircraft shall be delivered with any and all
manufacturer's recommended maintenance programs current and
fully paid up to the Closing Time by Seller, with account in
good standing and transferable to Buyer without cost to the
Buyer;
(c) that the Aircraft shall be delivered in an airworthy and fully
operational condition, fit for operations under Parts 91 and
135 of the Federal Aviation Regulations, with all systems,
components, engines, and installed equipment airworthy, fully
functional and operative, with no leaky fluids, meeting
manufacturer's recommended specifications, and with no damage
or corrosion, or history thereof;
(d) that the Aircraft shall be delivered with a current and valid
United States Standard Airworthiness Certificate, and all FAA
Airworthiness Directives and all mandatory and recommended
Service Bulletins with effective dates on or prior to the
Closing Date complied with, including those Service Bulletins
that are mandatory for enrollment on the Closing Date in any
and all maintenance or parts programs for the Aircraft;
(e) that the Aircraft shall be delivered with APU in a service
program, fully paid up to the Closing Time by Seller, with
account in good standing and transferable to Buyer without
cost to the Buyer;
(f) that the Aircraft shall be delivered with all Aircraft
Documents printed or published in English, original and
complete, continuous and up-to-date, and maintained in
accordance with industry standards and the Federal Aviation
Regulations.
<PAGE>
ARTICLE 5. THIRD PARTY WARRANTIES
5.1 To the extent that any warranties from manufacturers, service providers
or suppliers are still in effect with respect to the Aircraft, such
warranties and all rights thereunder are hereby irrevocably assigned to
the Buyer and all documents evidencing same are included within the
Aircraft Documents; and Seller will assist Buyer in maintaining
continuity of the warranties and shall take all reasonable steps to
assist Buyer in asserting and processing warranty claims directly with
the manufacturers, service providers or suppliers.
ARTICLE 6. REPRESENTATIONS, WARRANTES AND LIMITATIONS
6.1 Representations and Warranties of the Seller. The Seller hereby represents
and warrants as of the date hereof and the
Closing Date as follows:
(a) Seller is a national bank chartered under the laws of the
United States of America, possessing perpetual existence as a
legal entity, having the capacity to sue and be sued in its
own name, having full power, legal right and authority to
carry on its business as currently conducted, and to execute,
deliver and perform the provisions of this Agreement.
(b) The execution, delivery, and performance by Seller of this
Agreement have been duly authorized by all necessary action on
behalf of Seller and do not conflict with or result in any
breach of any of the terms or constitute a default under any
document, instrument, or agreement to which Seller is a party.
(c) This Agreement constitutes the legal, valid and binding
obligations of Seller enforceable against Seller in accordance
with its terms.
(d) Seller has (and on the Closing Date shall have) exclusive,
marketable, legal and equitable title to the Aircraft and all
equipment, components and parts thereof, free and clear of any
and all claims, liens, mortgages or other encumbrances of any
kind.
(e) Seller is the owner of the Aircraft and is authorized to
convey title to the Aircraft; and execution and delivery of
the FAA Bill of Sale and Warranty Bill of Sale shall convey to
Buyer exclusive, marketable, legal and equitable title to the
Aircraft, free of any and all liens, claims and encumbrances
of any kind.
(f) There are no parts, systems or components on the Aircraft
which are on temporary loan or exchange.
(g) Seller agrees to indemnify and hold Buyer harmless from and
against any claims made by any broker or other party claiming
an interest in the Aircraft or the purchase price arising from
an actual or alleged relationship or agreement with Seller.
<PAGE>
(h) Seller has paid all taxes, duties, penalties, charges,
invoices, and statements with respect to the Aircraft incurred
on or before the Closing Date, or if not paid, Seller hereby
indemnifies Buyer from any such expenses.
(i) All representations and warranties hereunder shall run to
Buyer, its successors, and to all persons to whom title to the
Aircraft may be transferred.
6.2 Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants as of the date hereof and the Closing
Date as follows:
(a) Buyer, Perpetual Corporation, is a corporation duly formed,
validly existing, and in good standing under the laws of the
State of Delaware, possessing perpetual existence as a legal
entity, having the capacity to sue and be sued in its own
name, having full power, legal right and authority to carry on
its business as currently conducted, and to execute, deliver
and perform the provisions of this Agreement.
(b) Buyer, Lazy Lane Farms, Inc., is a corporation duly formed,
validly existing, and in good standing under the laws of the
State of Delaware, possessing perpetual existence as a legal
entity, having the capacity to sue and be sued in its own
name, having full power, legal right and authority to carry on
its business as currently conducted, and to execute, deliver
and perform the provisions of this Agreement.
(c) The execution, delivery, and performance by Buyer of this
Agreement have been duly authorized by all necessary action on
behalf of Buyer and do not conflict with or result in any
breach of any of the terms or constitute a default under any
document, instrument, or agreement to which Buyer is a party.
(d) This Agreement constitutes the legal, valid and binding
obligations of Buyer enforceable against Buyer in accordance
with its terms.
6.3 EXCEPT AS OTHERWISE PROVIDED IN SECTION 6.1, THE AIRCRAFT IS HEREBY
SOLD "AS IS" AND "WHERE IS." ALL OTHER WARRANTIES AND AGREEMENTS,
EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT
LIMITED TO, ANY OBLIGATION OR LIABILITY OF SELLER, WITH RESPECT TO THE
IMPLIED WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY ARISING FROM
COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, AND ANY
IMPLIED WARRANTY OF FITNESS, ACTUAL OR IMPUTED, OR OTHER LIABILITY OF
SELLER FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE OPERATION
OF THE AIRCRAFT AND THE WORK THEREON, ARE HEREBY EXCLUDED AND
DISCLAIMED. NO AGREEMENT EXTENDING THIS WARRANTY SHALL BE BINDING UPON
SELLER UNLESS IN WRITING AND SIGNED BY ITS DULY AUTHORIZED OFFICER OR
REPRESENTATIVE.
<PAGE>
ARTICLE 7. COSTS AND SALES TAXES
7.1 Aircraft Costs and Expenses. Buyer shall bear all operating costs
and expenses of the Aircraft for flights to or from the
Inspection Facility, and to the Delivery Location.
7.2 Transaction Costs and Expenses. Except as expressly provided for
herein, each of the parties hereto shall be responsible for its own
transaction costs and expenses, including brokerage fees and legal
fees. Buyer shall pay Escrow Agent's escrow fees and expenses.
7.3 Sales Taxes. Any sales, use, or similar taxes, and any interest or
penalties on such taxes (unless such interest or penalty is a result of
any act or omission by or on behalf of Seller, not otherwise authorized
or directed by Buyer) arising from the sale of the Aircraft to Buyer,
excluding income, capital gain or similar taxes imposed on Seller,
shall be borne by Buyer. In the event Seller receives notice of any
proposed sales, use or similar tax, audit, claim, assessment or
proposed liability for which Buyer may be liable under this section,
Seller shall promptly notify Buyer of such potential tax liability.
Buyer shall have the right to control, manage or defend any audit,
claim, assessment, proposed liability or litigation with respect to any
sales use or similar tax for which Buyer bears responsibility under
this section.
ARTICLE 8. MISCELLANEOUS
8.1 Notices. All communications and notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been duly
given or made when delivered by hand, or five Business Days after being
sent by registered mail, return receipt requested, postage prepaid, or
on the next Business Day when sent by overnight courier or when
transmitted by means of telecopy or other wire transmission (with
request for assurance of receipt in a manner typical with respect to
communications of that type and followed promptly with the original
thereof) in each case at the address set forth below:
If to Buyer: Perpetual Corporation Tel:(202) 789-2130
808 17th Street, N.W., Suite 300 Fax:(202) 789-0546
Washington, D.C. 20006
Attn: Vicki H. Sapp, Vice President
Lazy Lane Farms, Inc. Tel:(202) 789-2130
808 17th Street, N.W., Suite 300 Fax:(202) 789-0546
Washington, D.C. 20006
Attn: Vicki H. Sapp
If to Seller: Riggs Bank N.A. Tel:(202) 835-6330
808 17th Street, N.W., 9th floor Fax:(202) 835-5906
Washington, D.C. 20006
Attn: David Isner
Group Vice President
<PAGE>
8.2 Amendments. The provisions of this Agreement may not be waived,
altered, modified, amended, supplemented or terminated in any manner
whatsoever except by written instrument signed by an authorized
signatory of each party hereto.
8.3 Entire Agreement. Buyer and Seller agree that the terms and conditions
of this Agreement, including all exhibits hereto, constitute the entire
agreement between the parties.
8.4 Assignment. Seller may assign its rights, but not its obligations
hereunder as provided in Section 8.11. Buyer may assign its rights, but
not its obligations, as provided in Section 8.12 hereunder. This
Agreement shall inure to the benefit of and be binding upon each of the
parties hereto and their respective successors and assigns.
8.5 Headings and References. The division of this Agreement into Sections,
and the insertion of headings, are for convenience of reference only
and shall not affect the construction or interpretation of this
Agreement.
8.6 Counterparts. This Agreement may be fully executed in any number of
separate counterparts by each of the parties hereto, all such
counterparts together constituting but one and the same instrument.
8.7 Governing Law. This Agreement shall be governed, interpreted, and
construed in accordance with the laws of the District of Washington,
without regard for its conflict of laws provisions.
8.8 Non-Waiver. Any failure at any time of either party to enforce any
provision of this Agreement shall not constitute a waiver of such
provision or prejudice the right of such party to enforce such
provision at any subsequent time.
8.9 Time is of the Essence. Unless specifically stated to the contrary
herein, time shall be of the essence for all events
contemplated hereunder.
8.10 Survival. The representations, warranties, covenants and
agreements of Buyer and Seller shall survive the Closing in
perpetuity.
8.11 Seller's Tax-Free Exchange. Seller hereunder desires to exchange all of
Seller's right, title, and interest in the Aircraft for other property
of like kind and qualifying use within the meaning of Section 1031 of
the IRC. In furtherance thereof, Seller expressly reserves the right to
assign its rights, but not its obligations, hereunder to a Qualified
Intermediary as provided in IRC Reg. 1.103l(k)-l(g)(4) on or before the
Closing Date.
<PAGE>
8.12 Buyer's Tax-Free Exchange. Buyer hereunder desires to exchange other
property of like kind and qualifying use within the meaning of Section
1031 of the IRC, for all of Seller's right, title and interest in the
Aircraft. In furtherance thereof, Buyer expressly reserves the right to
assign its rights, but not its obligations, hereunder to a Qualified
Intermediary as provided in IRC Reg. 1.10310(k)-1(g)(4) on or before
the Closing Date.
8.13 Confidentiality. Subject to any federal or state regulatory provisions
applicable to Seller, the terms and conditions of this Agreement and
all writings, discussions, and negotiations in connection with the
transaction contemplated by this Agreement shall remain strictly
confidential and shall not be discussed by either party without the
prior written consent of the other party.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of the date first indicated above.
SELLER:
RIGGS BANK N.A.
By:/s/ JOHN L. DAVIS
-------------------------------------
Print: John L. Davis
Title: Executive Vice President and
Chief Financial Officer
BUYER: BUYER:
PERPETUAL CORPORATION LAZY LANE FARMS, INC.
By: /s/ LAWRENCE I. HEBERT By: /s/ LAWRENCE I. HEBERT
- --------------------------- ---------------------------
Print: Lawrence I. Hebert Print: Lawrence I. Hebert
Title: President Title: Vice President
<PAGE>
ATTACHMENT A
Attach a specification sheet for the Aircraft.
<PAGE>
EXHIBIT A
AIRCRAFT INSPECTION REPORT
DATE:15 September, 1999
------------------
TO: Riggs Bank N.A.
808 17th Street, N.W., 9th Floor
Washington, D.C. 20006
Attn: David E. Isner,
Group Vice President
Re: 1982 Gulfstream III (G-1159A) aircraft bearing
manufacturer's serial number 362 and United
States registration number N800AR
Dear Mr. Isner:
Pursuant to that certain Aircraft Purchase Agreement (the
"Agreement") dated as of the 10th day of September, 1999, by and between
Perpetual Corporation and Lazy Lane Farms, Inc. (collectively "Buyer") and Riggs
Bank N.A. ("Seller"), with regard to the above-referenced aircraft (the
"Aircraft"), this letter confirms that Buyer has completed its inspection of
the Aircraft on this date.
CHECK ONE:
|x| The inspection of the Aircraft revealed no airworthiness items, or
discrepancies which do not meet manufacturer's tolerances. The Aircraft
is satisfactory and in the inspection condition required for delivery
on the Closing Date, and is hereby accepted in accordance with the
terms thereof.
|_| Subject to Seller's timely remediation, at Seller's sole cost and
expense, of the airworthiness items, or discrepancies which do not meet
manufacturer's tolerances listed in the attachment
*****
<PAGE>
hereto, the Aircraft is satisfactory and in the inspection condition
required for delivery on the Closing Date and is hereby accepted in
accordance with the terms thereof.
SINCERELY, AGREED AND ACCEPTED
BUYER: SELLER:
PERPETUAL CORPORATION RIGGS BANK N.A.
By:/s/ LAWRENCE I. HEBERT By:/s/ JOHN L. DAVIS
- --------------------------- ----------------------
Print: Lawrence I. Hebert Print: John L. Davis
Title: President Title: Executive Vice President and
Chief Financial Officer
Date: 9/15/99
-------
LAZY LANE FARMS, INC.
By: /S/ LAWRENCE I. HEBERT
-----------------------
Print: Lawrence I. Hebert
Title: Vice President
<PAGE>
EXHIBIT B
WARRANTY BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
THAT, Riggs Bank N.A. ("Seller"), is the lawful owner of the full legal
and beneficial title to:
That certain 1982 Gulfstream III (G-1159A) model aircraft bearing
United States Registration Number N800AR and manufacturer's serial
number 362, together with two Rolls Royce Spey MK-511-8 model engines,
bearing manufacturer's serial numbers 11140 and 11141, and all other
appliances, data, parts, instruments, appurtenances, accessories,
furnishings, or other equipment or property installed on or attached to
said aircraft and engines as well as loose equipment and the Aircraft
Documents associated with the above, as defined in that certain
Aircraft Purchase Agreement (the "Agreement") between Seller and
Perpetual Corporation/Lazy Lane Farms, Inc. (collectively "Buyer"),
dated the 10TH day of September, 1999, all of which shall be
hereinafter referred to collectively as the "Aircraft".
THAT, for good and valuable consideration as provided in this Agreement, receipt
and adequacy of which is hereby acknowledged, Seller does as of the date
provided below, grant, convey, transfer, deliver and set over all of Seller's
right, title and interest in and to the Aircraft unto Buyer and unto its
successors and assigns forever, as follows:
1. Perpetual Corporation - 50% undivided ownership interest
2. Lazy Lane Farms, Inc. - 50% undivided ownership interest
THAT, Seller hereby warrants to Buyer, its successors and assigns, that there is
hereby conveyed to Buyer on the date hereof, exclusive, marketable, legal and
equitable title to the Aircraft free and clear of any and all liens,
encumbrances and rights of others, and that it will warrant and defend such
title forever against all claims and demands whatsoever.
THAT, this Bill of Sale is to be read together with, and does not supersede a
bill of sale delivered with respect to the Aircraft on a form suitable for
recordation with the Federal Aviation Administration.
IN WITNESS WHEREOF, Seller has caused this instrument to be executed and
delivered by its duly authorized signatory as of this 15TH day of September,
1999.
SELLER:
RIGGS BANK N.A.
By: /s/ JOHN L. DAVIS
-----------------
Print: John L. Davis
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT C
AIRCRAFT DELIVERY RECEIPT
As of this 15th day of September,1999, Perpetual Corporation/
Lazy Lane Farms, Inc. (collectively "Buyer") accepts delivery at
Washington Reagan National Airport, of the aircraft described below:
That certain 1982 Gulfstream III (G-1159A) model aircraft bearing
United States Registration Number NS800AR and manufacturer's serial number 362,
together with two Rolls Royce Spey MK-511-8 model engines, bearing
manufacturer's serial numbers 11140 and 11141, and all other appliances, data,
parts, instruments, appurtenances, accessories, furnishings, or other equipment
or property installed on or attached to said aircraft and engines as well as
loose equipment and the aircraft documents associated with the above, as defined
in that certain Aircraft Purchase Agreement (the "Agreement") by and between
Buyer and Riggs Bank N.A. ("Seller"), dated the 10th day of September, 1999,
all of which shall be hereinafter referred to collectively as the "Aircraft".
Buyer has inspected the Aircraft and all Aircraft Documents, as defined
in the Agreement.
The Aircraft is accepted as meeting the terms and conditions of the
Agreement this 15th day of September, 1999.
BUYER:
PERPETUAL CORPORATION LAZY LANE FARMS, INC.
By: /s/ LAWRENCE I. HEBERT By: /S/ LAWRENCE I. HEBERT
---------------------- -----------------------
Print: Lawrence I. Hebert Print: Lawrence I. Hebert
Title: President Title: Vice President
ACKNOWLEDGED AND AGREED:
SELLER:
RIGGS BANK N.A.
By: /S/ JOHN L. DAVIS
-----------------
Print: John L. Davis
Title: Executive Vice President and
Chief Financial Officer
Date: 9/15/99
-------
Exhibit 10.2
Gulfstream(R)
OUTFITTED GULFSTREAM V SALES AGREEMENT
CONDITIONS
Subject to the Terms of Gulfstream V Sales Agreement contained in Addendum I,
which is incorporated herein and made a part hereof by reference, the BUYER and
GULFSTREAM AEROSPACE CORPORATION ("GULFSTREAM") agree as follows:
ARTICLE 1 DEFINITIONS
The following definitions shall apply to the following terms used in the Terms
and Conditions of the Gulfstream V Sales Agreement:
"Agreement" shall mean the Terms of the Gulfstream V Sales Agreement and the
Conditions of the Gulfstream V Sales Agreement.
"Aircraft" shall mean the Gulfstream V aircraft, more fully described in
Addendum I.
"Aircraft Service Changes" are GULFSTREAM published documents under the same
name which provide detailed instructions for modifications to the Aircraft.
"Authorized Warranty Repair Facility" shall mean an independently owned aircraft
repair facility which has entered into a Gulfstream Authorized Warranty Repair
Agreement with GULFSTREAM to provide certain warranty services at specific terms
and conditions. The identity and location of the current Gulfstream Authorized
Warranty Repair Facilities are available upon request from GULFSTREAM.
GULFSTREAM reserves the right to add and delete facilities from its Gulfstream
Authorized Warranty Repair Facility list at its sole discretion.
"Certificate of Airworthiness" shall mean the FAA document confirming the
Aircraft has been inspected and found to conform to the Type Certificate, is
safe for operation, and has been shown to meet the requirements of the
applicable comprehensive and detailed airworthiness code as provided by Annex 8
to the Convention on International Civil Aviation.
"Components" shall mean components, systems, accessories, equipment, or parts of
the Aircraft not otherwise included in the definition of Primary and Secondary
Structure.
"Delivery Time" is the date the BUYER and GULFSTREAM execute the Memorandum of
Delivery pursuant to the terms of Article 2.
"Discrepancy" shall mean a condition in the Aircraft which does not conform to
the Product Specification or warranted condition of the Aircraft.
"FAA" shall mean the United States of America. Department of Transportation,
Federal Aviation Administration.
"Operational Delivery" shall mean the first flight of the Aircraft following the
Aircraft's Outfitting.
"Outfitting" or "Outfitted" shall refer to the initial addition of interior
furnishings and equipment and external paint to the Aircraft.
"Preliminary Acceptance Time" is the date the BUYER executes the Memorandum of
Preliminary Acceptance pursuant to the terms of Article 2.
"Primary and Secondary Structure" shall mean the aluminum, steel, and/or
graphite or fiberglass composite materials, including the fasteners attached
thereto, which form the fuselage, wings, vertical and horizontal stabilizers,
flight control surfaces, fairings, doors, and engine mounts including attachment
and support structures found within these areas.
"Service Bulletins" shall mean GULFSTREAM published documents under the same
name which give general advice to operators of the Aircraft.
<PAGE>
ARTICLE 2 DELIVERY
Section 2.1 Preliminary Delivery and Acceptance
A. GULFSTREAM shall tender the Green Aircraft to BUYER for Preliminary
Acceptance at GULFSTREAM's plant in Savannah, Georgia on or about the Scheduled
Preliminary Acceptance Date. GULFSTREAM shall give BUYER not less than five (5)
days advance written notice of the actual tender date at which time the Aircraft
shall have a valid Certificate of Airworthiness and be available for immediate
flight testing. Within fifteen (15) days of receipt of GULFSTREAM's notice,
BUYER, at its sole discretion, shall elect either to inspect the Green Aircraft
per the procedures set forth below or accept the Aircraft for purposes of
identifying it as the Aircraft to be Outfitted under this Agreement without
inspection at this time by executing a Memorandum of Preliminary Acceptance,
reserving all BUYER's rights to further inspections.
B. If BUYER elects to inspect the Aircraft under Section 2.1A, the Green
Aircraft shall be made available for inspection and initial flight test of not
more than two (2) hours duration participated in by not more than two (2) of the
BUYER's representatives to confirm that the Green Aircraft meets its
requirements as identified in this Agreement and is acceptable to BUYER for
further Outfitting. Following the completion of this initial flight test and
correction of Discrepancies, if any, BUYER shall execute a Memorandum of
Preliminary Acceptance which may list deferred Discrepancies, but otherwise
reserves BUYER's rights to require that the identified Aircraft meet the terms
of this Agreement at the Delivery Time.
C. The BUYER, at its sole election, may require GULFSTREAM to deliver to BUYER
an FAA Bill of Sale or a Warranty Bill of Sale at the Preliminary Acceptance
Time if all current payment obligations under Addendum I have been met.
Section 2.2 Final Delivery and Acceptance
A. Following the completion of the Outfitting, GULFSTREAM shall tender the
Aircraft to BUYER for final inspection and flight testing at the Completion
Facility and delivery at the Completion Facility on or about the Scheduled
Delivery Date. GULFSTREAM shall give BUYER not less than five (5) days advance
written notice of the actual tender date at which time the Aircraft will have
been reissued a Certificate of Airworthiness and be in the condition warranted
by GULFSTREAM under Article 6 hereof. Within fifteen (15) days of receipt of
GULFSTREAM's notice, BUYER shall commence inspection of the Aircraft and flight
testing of the Aircraft of not more than two (2) hours duration by not more than
two (2) of BUYER's representatives to confirm that the Aircraft meets the terms
of this Agreement. Any Discrepancies discovered during this flight test or
inspection shall be promptly corrected by GULFSTREAM at no cost to BUYER.
Following the correction of a Discrepancy, the Aircraft shall be reinspected or
flight tested as appropriate.
B. Upon the completion of the inspection and flight tests reasonably required by
BUYER to confirm that the Aircraft meets the terms and conditions of this
Agreement and is free of Discrepancies, the BUYER shall execute a Memorandum of
Delivery. Upon BUYER's execution of the Memorandum of Delivery, BUYER shall
remit the balance of the Total Purchase Price as determined under Addendum I,
and GULFSTREAM shall deliver possession of the Aircraft to BUYER together with
the Bills of Sale required under this Agreement to the extent not previously
delivered.
<PAGE>
Section 2.3 Upon delivery by GULFSTREAM to BUYER of a Bill of Sale under either
Section 2.1 or 2.2, all risks of loss or damage to the Aircraft shall be borne
by BUYER, and further, title to the Aircraft shall pass from GULFSTREAM to
BUYER. Upon BUYER's execution of the Memorandum of Delivery and final payment
under Addendum I, title to all Outfitting shall pass to BUYER free and clear of
any security interest or other lien or encumbrance liens. GULFSTREAM warrants
that the transfer of title in the Aircraft to BUYER under this Section shall
vest full title in BUYER free and clear of any security interest or other lien
or encumbrance against the Aircraft.
Section 2.4 If BUYER does not meet its obligations to execute a Memorandum of
Preliminary Acceptance, inspect or flight test the Aircraft, or execute a
Memorandum of Delivery, then (1) any unpaid balance of the Total Purchase Price
as determined under Addendum I shall become due and payable, (2) all risk of
loss or damage to the Aircraft shall thereafter be borne by BUYER, and (3)
GULFSTREAM shall provide the Aircraft with suitable outside storage and routine
maintenance at the expense of BUYER. Further, upon ten (10) days prior written
notice to BUYER, GULFSTREAM may terminate this Agreement no sooner than
twenty-five (25) days after the unpaid balance of the Total Purchase Price has
become due, and payable under this Section 2.4 and pursue its remedies under
Section 9.2.
Section 2.5 All fuel costs and pilot expenses associated with flight tests
conducted under this Article 2 shall be at the expense of GULFSTREAM. All fuel
costs and pilot expenses associated with ferry flights conducted after the
Preliminary Acceptance Time shall be at the expense of BUYER.
Section 2.6 If after the Delivery Time, the Aircraft remains in or is returned
to GULFSTREAM's care, custody, or control for any purpose, BUYER shall retain
risk of loss and hereby agrees to waive on behalf of itself and its insurance
carrier(s) any aircraft hull or property claim, by way of subrogation or
otherwise, against GULFSTREAM for damages to or loss of the Aircraft while in
flight arising out of or by reason of such care, custody, or control, including
claims that such damages or loss are the result of GULFSTREAM's own negligence.
Nothing in this Section 2.6 shall be deemed to release GULFSTREAM of its
obligations for third parties claims for personal injuries or deaths alleged to
be caused by GULFSTREAM's negligence.
ARTICLE 3 TAXES AND PAYMENT OBLIGATIONS
Section 3.1 Time is of the essence in the payment of all obligations under this
Agreement. All payments not received when due shall bear interest at two (2)
percentage points above the prime rate charged by The Chase Manhattan Bank, New
York, New York or its successor on the date due, provided such interest rate
shall not exceed the maximum rate permitted by law
Section 3.2
A. The Total Purchase Price does not include any sales, use, personal property,
excise or other similar taxes or assessments which may be imposed by any
governmental authority upon this sales transaction, the Aircraft itself, or the
use thereof by BUYER. BUYER agrees to pay any and all such taxes or assessments
which GULFSTREAM will be obligated to collect. At its sole expense, BUYER may
defend against the imposition of any such taxes which it is or may be held
obligated by law to pay. GULFSTREAM shall notify BUYER of any such tax that any
governmental authority is seeking to collect from GULFSTREAM and BUYER may
assume the defense thereof at its sole expense. If BUYER does not defend,
GULFSTREAM may pay the asserted tax and BUYER shall thereupon be obligated to
reimburse GULFSTREAM for said tax and all reasonable expenses related thereto.
With respect to sales and use tax, BUYER agrees to either provide GULFSTREAM
with a sales and use tax certificate of exemption in the form attached hereto as
Appendix A at the Delivery Time or if no sales and use tax certificate of
exemption is provided to GULFSTREAM to pay GULFSTREAM the appropriate sales and
use taxes or assessments prior to the Delivery Time.
<PAGE>
B. The Total Purchase Price includes all sales, excise, or similar taxes
assessed on the sale of materials or equipment to GULFSTREAM for incorporation
into the Aircraft and any personal property taxes assessed against the Aircraft
or any part thereof prior to the Delivery Time, and the BUYER is not
responsible for any additional payment in respect thereto. GULFSTREAM shall also
pay any taxes imposed by the United States government, or any political
subdivision thereof, on the income resulting from the sale of the Aircraft.
ARTICLE 4 TECHNICAL DATA
Section 4.1 At the Delivery Time, GULFSTREAM shall deliver to BUYER one (1)
copy (together with all amendments to date, where applicable) of each of the
following:
A. FAA Bill of Sale,
B. Warranty Bill of Sale in the form attached hereto as Appendix B,
C. Flight Manual approved by the FAA (including a Cruise Control Manual),
D. Maintenance Manual (including Chapter 5 "Time Limits/
Maintenance Checks"),
E. Wiring Diagrams,
F. Parts Catalog,
G. Service Bulletins and Aircraft Service Changes currently applicable to
the Aircraft,
H. Airframe, Engines and Auxiliary Power Unit Logbook,
I. FAA Certificate of Airworthiness,
J. Weight and Balance Manual,
K. Structural Repair Manual,
L. Operating Manual,
M. Quick Reference Handbook.
Section 4.2 Commencing on the date of execution of this Agreement, GULFSTREAM
will deliver to BUYER, from time to time, printed copies of Service Bulletins
and Aircraft Service Changes applicable to the Aircraft. GULFSTREAM, from and
after the Delivery Time, will also furnish to BUYER, at no additional charge,
any amendments to the manuals and catalog described in Section 4.1 applicable to
the Aircraft for a period of ten (10) years after the Delivery Time.
Section 4.3 It is understood that all of the publications, data, drawings, or
other information described in this Article 4 or in the Product Specification
are proprietary to GULFSTREAM and that all intellectual property rights belong
to GULFSTREAM, shall be kept confidential by BUYER, and shall not be disclosed,
used, or transmitted to others except for the purpose of permitting BUYER or any
subsequent owner to maintain, operate or repair the Aircraft, or make any
permitted installation or alteration thereto.
ARTICLE 5 SPARE PARTS
Section 5.1 GULFSTREAM shall maintain a reasonable stock of suitable and
interchangeable spare parts for the Aircraft for routine repairs and
replacements for a period of twenty (20) years after the date GULFSTREAM
delivers its last production model of the Gulfstream V Aircraft.
<PAGE>
ARTICLE 6 WARRANTY
Section 6.1 General
A. Subject to the limitations and conditions hereinafter set forth,
GULFSTREAM warrants that the Primary and Secondary Structure and the
Components of the Aircraft supplied hereunder shall
(1) at the Delivery Time be free from:
(a) defects in material or workmanship,
(b) defects arising from the selection of material or process of
manufacture,
(c) defects inherent in the design thereof in view of the state of the
art at the time of design thereof,
(2) at the Delivery Time and throughout the periods identified in Section
6.2 be free from:
(a) defects arising from the failure to conform to the Product
Specification as it may be changed pursuant to this Agreement,
except failure to conform to such portions of the Product
Specification stated to be estimates, approximations, design
objectives or design criteria, or described as not guarantees,
and
(b) defects arising from the failure to conform to the FAA Type
Certificate, as the Type Certificate existed at the Delivery
Time; and
(3) at the Delivery Time and throughout the periods identified in the BMW
Rolls-Royce GmbH warranty provided under Section 6.7
be free from:
(a) defects in workmanship furnished by GULFSTREAM in the process
of installation of the engines and nacelles, and
(b) defects inherent in the design of the installation of the
engines and nacelles in view of the state of the art at the
time of the design thereof.
B. Subject to the limitations and conditions hereinafter set forth, GULFSTREAM
warrants that the Outfitting of the Aircraft supplied hereunder shall, at the
Delivery Time, be free from:
(1) defects arising from the failure to conform to the Completion
Specification,
(2) defects in materials or workmanship of Primary or
Secondary Structure or Components manufactured by GULFSTREAM,
(3) defects in workmanship furnished by GULFSTREAM in the process
of installation of Components, and
(4) defects inherent in the design of the installation of
Components, in view of the state of the art at the time of
the design thereof.
Section 6.2 Duration
A. The extent of GULFSTREAM's liability under Section 6.1A Warranty as to
defects in the Primary and Secondary Structure is limited to the repair under
Section 6.3 of all such defects in the Aircraft which are discovered within a
period from the Delivery Time of twenty (20) years or twenty thousand (20,000)
hours of flight operation of the Aircraft, whichever is shorter.
B. The extent of GULFSTREAM's liability under Section 6.1A Warranty as to
defects in all Components other than the Components listed in Section 6.7 is
limited to the repair under Section 6.3 of all such defects which become
apparent in the Aircraft through seventy-two (72) months from the Aircraft
initial Certificate of Airworthiness.
<PAGE>
C. Notwithstanding the foregoing Section 6.2A and B, the extent of GULFSTREAM's
liability under Section 6.1B Warranty for the Outfitting is limited to
correction at its expense of all such defects which become apparent in the
Aircraft within a period from the Delivery Time of twelve (12) months.
Section 6.3 Repairs
A. GULFSTREAM's obligation for a breach of a warranty provided under Section 6.1
during the periods described in Section 6.2 shall be to repair, replace, or
correct, at GULFSTREAM's sole election, the defective part or condition with
reasonable care and dispatch. All parts and labor required to support the
disassembly and/or removal of the defective Primary or Secondary Structure or
Component and installation and reassembly of the corrected Primary or Secondary
Structure or Component shall be at GULFSTREAM's expense, provided such work is
performed at GULFSTREAM's facilities or an Authorized Warranty Repair Facility.
B. The cost of a temporary or interim repair, replacement, or correction of a
defect covered under this Article 6 Warranty and authorized by GULFSTREAM by
facsimile, telex, or otherwise in writing shall be at GULFSTREAM's expense.
C. GULFSTREAM's obligation under this Section 6.3 shall include correction or
repair for defects to the Primary and Secondary Structure or Components
documented by Service Bulletins or Aircraft Service Changes to the extent such
defects would otherwise be covered under this Article 6 Warranty.
D. All transportation costs, including the costs associated with ferrying the
Aircraft to and from GULFSTREAM's facilities or an Authorized Warranty Repair
Facility or the shipment of defective or repaired, replaced, or corrected parts
or Components under this Article 6 Warranty, shall be at BUYER's expense.
Section 6.4 Exclusions
GULFSTREAM's obligations under Section 6.3 above exclude the following:
A. Routine inspections other than those specifically required by GULFSTREAM or
a governmental authority to inspect for known design or manufacturing
defects;
B. Routine maintenance as specified in the Aircraft's Maintenance Manuals or
GULFSTREAM's Computerized Maintenance Program, including scheduled
replacement of life limited components;
C. Repair or replacement due to normal wear and tear;
D. Repair or replacement of consumable parts and materials;
E. Repair or replacement of defective Components covered by the BMW
Rolls-Royce GmbH warranty identified in Section 6.7; or
F. After expiration of the twelve (12) month warranty in Section 6.2C above
repair or replacement of defective Components incorporated into the
Aircraft as part of the Outfitting that were not manufactured by
GULFSTREAM.
Section 6.5 Exclusion for Misuse
The-warranties set forth in this Section 6.1 shall not apply to any defect in
the Aircraft or parts thereof (1) which is the proximate result of an accident,
misuse, neglect, improper installation, improper repair, or improper
modification by persons other than GULFSTREAM, its agents or employees, or an
Authorized Warranty Repair Facility: (2) if the Aircraft parts were not obtained
by BUYER from GULFSTREAM, its agents or employees, or an Authorized Warranty
Repair Facility or a source authorized by GULFSTREAM; or (3) if the Aircraft or
parts thereof have not been operated or maintained in accordance with
GULFSTREAM's approved operating and maintenance manuals, instructions, or
bulletins issued in respect of the Aircraft.
<PAGE>
Section 6.6 BUYER's Obligations
To be entitled to the benefits of the warranty set forth in this Article 6,
A. BUYER shall report all failures or defects in writing, by telegram, or by
facsimile to GULFSTREAM prior to the alleged defect being corrected and within
sixty (60) days following such failure or defect becoming apparent, and
B. BUYER shall maintain complete records of operations and maintenance of the
Aircraft and engines and make those records available to GULFSTREAM for
GULFSTREAM's inspection. Failure to maintain such records shall relieve
GULFSTREAM of its warranty obligation hereunder.
Section 6.7 BMW Rolls-Royce GmbH Warranty
Except to the extent identified in Section 6.1A(31. GULFSTREAM's liability under
Section 6,1 and obligations under Sections 6.2 and 6.3 do not apply to the BMW
Rolls-Royce BR 710 Engines, nacelles, and spare parts. However, GULFSTREAM
represents that the separate warranty from BMW Rolls-Royce GmbH is attached
hereto and will be extended by BMW Rolls-Royce GmbH for these items to BUYER.
Section 6.8 Disclaimer and Release of Other Obligations
A. THE WARRANTIES SET FORTH IN THIS ARTICLE 6 ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES (EXCEPT FOR THE WARRANTY OF TITLE) AND REPRESENTATIONS EXPRESS,
IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS (INCLUDING FITNESS FOR A PARTICULAR PURPOSE). These
warranties are also in lieu of all other obligations and warranties (including
without limitation, the implied warranties of merchantability and fitness for a
particular purpose) related to any modifications, repairs, replacement parts, or
service change kits which may hereafter be furnished by GULFSTREAM to BUYER for
use on the Aircraft either pursuant to this Article 6 or otherwise.
B Except for the obligations expressly undertaken by GULFSTREAM herein, BUYER
hereby waives and releases all rights, claims, and remedies with respect to any
and all warranties express, implied or statutory (including without limitation,
the implied warranties of merchantability and fitness), duties, obligations, and
liabilities in tort or contract arising by law or otherwise including (1)
liability for GULFSTREAM's own negligence, (2) strict liability or product
liability, and (3) any obligations of GULFSTREAM with respect to incidental or
consequential damages, damages for loss of use, or change in market value of the
Aircraft.
C. If an alleged defect which would be covered by this Article 6 Warranty causes
the destruction of the Aircraft beyond economical repair, then and only then,
BUYER hereby waives and releases for itself and its insurers all rights, claims,
and remedies with respect to any claims for the recovery of the value of the
Aircraft or for loss of use of the Aircraft with respect to any and all
warranties expressed (including those provided in this Article 6), implied or
statutory (including without limitation, the implied warranties of
merchantability and fitness), duties, obligations, and liabilities in tort or
contract arising by law or otherwise including (1) liability for GULFSTREAM's
own negligence or (2) strict liability or product liability. This Section 6.8C
shall not be interpreted to affect in any way GULFSTREAM's obligations, if any,
for third party claims for property damage, personal injury, or wrongful death.
<PAGE>
Section 6.9 150 Hour Inspection
GULFSTREAM shall perform GULFSTREAM's recommended 150 hour post production
warranty inspection on the Aircraft at no charge to BUYER. Such inspection shall
be performed at GULFSTREAM's facility or an Authorized Warranty Repair Facility.
Transportation costs shall be at BUYER's expense.
Section 6.10 Assignment
The warranties set forth in this Article 6 shall run to BUYER, its
successors, assigns, and to all persons whom title to the Aircraft may be
transferred during the warranty period set forth in this Article 6, provided
that the subsequent purchaser agrees in writing to all terms and conditions
contained within this Article 6 and performs all obligations of BUYER hereunder.
Section 6.11 Modification
No agreement or understanding varying or extending these warranties will be
binding upon GULFSTREAM unless in writing, signed by a duly authorized
representative of GULFSTREAM.
ARTICLE 7 CHANGES
Section 7.1 Prior to the Delivery Time, GULFSTREAM shall have the right, without
the prior written consent of BUYER, to make changes in the Aircraft or Product
Specification and to substitute equivalent equipment, accessories or materials
in the Aircraft where such changes or substitutions are deemed necessary by
GULFSTREAM to prevent delays in manufacture or delivery or to improve the
performance, producibility, stability, control, utility, safety, pilot workload,
maintenance, or appearance of the Aircraft provided that such changes or
substitutions shall not adversely affect the Delivery Time or the performance of
the Aircraft. All costs of any such changes shall be borne by GULFSTREAM.
Section 7.2 GULFSTREAM will make any changes in the Aircraft which are required
by applicable law or interpretation thereof by the FAA established after the
execution date of this Agreement and before the Delivery time to permit
GULFSTREAM to obtain the appropriate Certificate of Airworthiness as referred to
in Section 2.1. GULFSTREAM will give notice to BUYER upon obtaining knowledge of
such requirement. BUYER shall remit to GULFSTREAM at the Delivery Time one-half
of the amount of the reasonable costs incurred by GULFSTREAM to effect the
change, or give GULFSTREAM notice prior to the Delivery Time of its intention
not to remit its portion of such costs. Upon receiving such notice GULFSTREAM
may elect to either bear all costs arising under this Section and complete
performance under this Agreement or terminate this Agreement by giving BUYER
prompt notice of such termination. If GULFSTREAM terminates this Agreement under
this Section, GULFSTREAM shall return to BUYER all payments (without interest)
previously made by BUYER which are applicable to the Total Purchase Price of the
Aircraft and neither party shall have any further liability to the other
resulting from this Agreement.
ARTICLE 8 EXCUSABLE DELAYS
Section 8.1 GULFSTREAM shall not be charged with any liability for failure or
delay in the performance of this Agreement when the failure or delay is due to
causes beyond the reasonable control of GULFSTREAM or without its fault or
negligence. Such causes include but are not limited to: Acts of God; force
majeure; any act of government, including FAA certification delays or delays in
relevant non-U.S., government aviation certification; delay in transportation;
strikes or labor trouble causing cessation, slow-down or interruption of work;
or the inability after due and timely diligence of GULFSTREAM to procure
materials, accessories, equipment, or parts. The occurrence of such a cause of
GULFSTREAM's failure or delay shall extend the Scheduled Delivery Date by the
period of time required for GULFSTREAM to correct the cause of the failure or
delay by using its best efforts to eliminate such cause or to overcome the
effect thereof. However, if the period of time required for correction shall be
more than six (6) months, either party may terminate this Agreement by giving
written notice to the other party within a fifteen (15) day period immediately
following such six (6) month period. In the event of a termination under this
Section 8.1, or if the cause of the failure or delay is such as to render
performance impossible, GULFSTREAM shall return to BUYER all payments previously
made by BUYER (without interest) which are applicable to the Total Purchase
Price of the Aircraft and neither party shall have any further liability to the
other, resulting from this Agreement.
<PAGE>
ARTICLE 9 TERMINATION
Section 9.1 This Agreement may be terminated by GULFSTREAM prior to the Delivery
Time:
A. under Section 2.4;
B. under Section 7.2;
C. under Section 8.1;
D. upon the failure of the BUYER to make payments as specified in Addendum
I.
E. upon breach or default by BUYER of any other Terms or Conditions of
this Agreement and the failure of BUYER to cure or remedy such breach
or default promptly after receipt of notice thereof from GULFSTREAM, or
F. without prior notice to BUYER, upon the occurrence of any of the
following events:
(1) the insolvency of BUYER;
(2) the institution by or against BUYER of any involuntary
proceedings not dismissed within sixty (60) days or any
voluntary proceeding under any insolvency or bankruptcy law;
(3) the adjudication of BUYER as a bankrupt or an insolvent;
(4) the appointment of a receiver of BUYER's property; or
(5) an assignment by BUYER for the benefit of its creditors.
Section 9.2 Upon the termination of this Agreement due to any of the events set
forth in Section 9.1A, D, E or F. GULFSTREAM may elect, in GULFSTREAM's sole
discretion:
A. To resell the Aircraft to a third party in a commercially reasonable
transaction. Upon such a sale, GULFSTREAM will first apply the amount received
from the resale to satisfy GULFSTREAM's reasonable expenses, including the
expense of the sale of the Aircraft (including sales commissions), storage
charges, ordinary maintenance expenses, and other costs which resulted from
BUYER's failure to commence flight testing and inspection or to accept the
Aircraft. GULFSTREAM shall refund to BUYER the amount received through the
resale up to the amount of payments made by BUYER under Addendum I less
reasonable expenses incurred in resale as defined above and less the difference
between the Total Purchase Price and the resale price, if and only if, the
latter price is less than the former price;
B. To retain, as liquidated damages and not as a penalty, the nonrefundable
deposit of TWO MILLION U.S. DOLLARS ($2,000,000.00) provided under Section 2 of
Addendum 1, and return the remaining balance of any payments received from BUYER
to BUYER, and GULFSTREAM shall have the right to resell the Aircraft, free and
clear of any and all other obligations to BUYER, or
C. Such other legal remedies as may be available to GULFSTREAM.
Section 9.3This Agreement may be terminated by BUYER prior to the Delivery Time:
A. under Section 8.1
B. upon the default or breach by GULFSTREAM of any of the Terms and
Conditions hereof and the failure of GULFSTREAM to cure or remedy such
default or breach promptly after receipt of notice thereof from BUYER
provided, however, that a delay of less than three (3) months beyond
the Scheduled Delivery Date shall not be deemed to be a default or
breach within the meaning of this paragraph B unless GULFSTREAM fails
to use reasonable efforts to remove the causes of the delay and to
resume performance of this Agreement with dispatch when such cases are
removed; and provided, further, that BUYER at all times shall have the
right to refrain from exercising its right to termination under this
paragraph B, and, except as provided in Section 9.5, to require
specific performance by GULFSTREAM of this Agreement; and
<PAGE>
C. immediately, and without prior notice to GULFSTREAM, upon the
occurrence of any of the following events:
1. the insolvency of GULFSTREAM,
2. the institution by or against GULFSTREAM of any involuntary
proceedings not dismissed within sixty (60) days or any
voluntary proceeings under any insolvency or bankruptcy law,
3. the adjudication of GULFSTREAM as a bankrupt or an insolvent,
4. the appointment of a receiver of GULFSTREAM's property, or,
5. an assignment by GULFSTREAM for the benefit of creditors.
Section 9.4 In the event BUYER elects to terminate this Agreement pursuant to
Section 9.3B and C, GULFSTREAM shall promptly return to BUYER all payments made
by BUYER which are applicable to the Total Purchase Price plus interest at the
prime rate charged by Chase Manhattan Bank, New York, New York or its successor
from the time of receipt of the funds by GULFSTREAM to the time of refund to
BUYER and neither party shall have any further liability to the other resulting
from this Agreement.
Section 9.5 This Agreement shall terminate upon the destruction or damage beyond
economic repair (as GULFSTREAM may determine) of the Aircraft. In the event this
Agreement is terminated pursuant to this Section 9.5, GULFSTREAM shall promptly
return to BUYER all payments (without interest) therefore made by BUYER which
are applicable to the Total Purchase Price and neither party shall thereafter
have any further liability to the other resulting from this Agreement.
ARTICLE 10 MISCELLANEOUS
Section 10.1 Any notice given under this Agreement shall be sent by registered
or certified mail, air courier delivery service, or telegraph to the recipient
party at the address shown on Addendum 1 or by facsimile to a telephone number
provided by the recipient party. A notice shall be deemed given when received.
Section 10.2 The Terms and conditions of this Agreement constitute the entire
agreement between the parties hereto with respect to the purchase and sale of
the Aircraft and shall supersede all communications, representations or
agreements, either oral or written, between the parties hereto with respect to
the subject matter hereof. No agreement or understanding varying the terms and
conditions hereof shall be binding upon either party hereto unless in writing
attached hereto and signed by duly authorized representatives of both parties.
Notwithstanding all Terms and Conditions of this Agreement, this Agreement shall
become effective between the parties upon receipt by GULFSTREAM in the State of
Georgia of this Agreement executed by both parties.
Section 10.3 This Agreement shall be construed and interpreted in
accordance with the laws of the State of Georgia.
Section 10.4 This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns, but this
Agreement may not be voluntary assigned in whole or in part by BUYER without
prior written consent of GULFSTREAM.
Section 10.5 Any controversy or claim between the parties arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in Savannah, Georgia by three (3) arbitrators under the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") and
administered by the AAA. Each party shall appoint one (1) arbitrator. The two
(2) arbitrators thus appointed shall choose the third arbitrator, who shall act
as chairman. If within thirty (30) days after the receipt of a party's
notification of the appointment of its arbitrator the other party has not
notified the first party of the arbitrator he has appointed, the first party may
request the AAA to appoint the second arbitrator. If within thirty (30) days
after the appointment of the second arbitrator the two arbitrators have not
agreed on the choice of the third arbitrator, either party may request the AAA
to appoint the third arbitrator from the panel of the AAA pursuant to Rule 15 of
the Commercial Arbitration Rules of the AAA.
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
- --------------------------------
/s/ SHAWN VICK
- --------------------------------
SIGNATURE OF GULFSTREAM'S AUTHORIZED REPRESENTATIVE
RIGGS BANK N.A.
- ---------------
(BUYER)
/s/ JOHN L. DAVIS
- -----------------
SIGNATURE OF BUYER'S AUTHORIZED REPRESENTATIVE
<PAGE>
ADDENDUM I
TERMS OF
OUTFITTED GULFSTREAM V SALES AGREEMENT
Firm Fixed Price
THIS GULFSTREAM V SALES AGREEMENT is made and entered into this ____ day of June
1998,
BETWEEN: RIGGS BANK N.A.
808 17TH STREET NORTHWEST
WASHINGTON, DC 20006
("BUYER")
AND: GULFSTREAM AEROSPACE CORPORATION, a Georgia corporation, located
at Savannah International Airport, Savannah, Georgia, and its
mailing address at 500 Gulfstream Road, P. O. Box 2206,
Savannah, Georgia 31402 - 2206 ("GULFSTREAM").
Subject to GULFSTREAM's Conditions of Contract, which are incorporated herein
and made a part hereof by reference, BUYER hereby agrees to purchase the
following described Outfitted Aircraft from GULFSTREAM pursuant to the following
terms.
Terms defined in this Addendum I will have the same definition for purposes of
the Conditions of Outfitted Gulfstream V Sales Agreement. If there is any
inconsistency between the Terms of Outfitted Gulfstream V Sales Agreement and
the Conditions of Outfitted Gulfstream V Sales Agreement, these Terms of the
Outfitted Gulfstream V Sales Agreement shall control.
Section 1 SUBJECT MATTER OF SALE
Aircraft: One Gulfstream V manufactured by GULFSTREAM
in accordance with the Product Specification, which
specification is incorporated herein and made a part hereof as
Appendix A.
Product Specification: Gulfstream V Product Specification
Revision C dated December 19, 1996.
Serial Number: GULFSTREAM shall provide the Serial Number
of the Aircraft to BUYER ninety (90) days prior to the
Scheduled Preliminary Acceptance Date.
Completion Specification: Number 804163A to include the
addition of SATCOM MCS 6000. The Completion Specification
number will be changed by GULFSTREAM, without amendment to
this Agreement, to specifically identify BUYER's individual
specification. Any modification to the Completion
Specification will be treated as a Work Change Request (WCR)
with pricing and delivery date adjusted accordingly.
Completion Facility: The completion facility may be any
GULFSTREAM completion facility designated by GULFSTREAM.
GULFSTREAM will provide BUYER with at least ninety (90) days
prior written notice of the location of the GULFSTREAM
Completion Facility.
Scheduled Preliminary Acceptance Date: Fourth Quarter 1998.
The Scheduled Preliminary Acceptance Date may be any date
designated by GULFSTREAM during the Fourth Quarter 1998.
GULFSTREAM shall provide BUYER with at least one hundred
twenty (120) days prior written notice of the Scheduled
Preliminary Acceptance Date.
Scheduled Delivery Date: Third Quarter 1999. The Scheduled
Delivery Date may be any date during the Third Quarter
1999. GULFSTREAM shall provide BUYER with at least ninety
(90) days prior written notice of the Scheduled Delivery
Date.
The Scheduled Delivery Date identified herein is contingent
upon BUYER's documented approval of the following documents by
the date identified:
<PAGE>
A. Completion Specification: 804163A (includes Floor Plan). No
later than execution of this Agreement and attached as Exhibit
A. Any modification to the Completion Specification will be
treated as a Work Change Request (WCR) with pricing and
delivery date adjusted accordingly.
B. Design Package: No later than July 10, 1998.
C. Material and Color Board: No later than July 10, 1998.
D. External Paint Scheme: No later than July 10,1998.
When the Aircraft completes its initial production schedule it
is commonly referred to as the "Green Aircraft." Upon
conclusion of the work defined in the Completion
Specification, the Aircraft is referred to as the "Outfitted
Aircraft." When necessary in the Agreement to differentiate
between the "Green Aircraft" and the "Outfitted Aircraft,"
these terms will be used. Upon definition of the work
requirements specified in the Completion Specification, such
work may be changed by mutual agreement of BUYER and
GULFSTREAM. Such an agreement shall be embodied in a Work
Change Request on a form to be provided by GULFSTREAM. In the
event of a conflict between the above-listed documents, the
more specific shall control the more general one, provided
that in all cases this Agreement shall ultimately control
unless otherwise expressly provided herein.
Section 2 PURCHASE PRICE AND PAYMENT TERMS
Section 2.1 Total Purchase Price: THIRTY-NINE
MILLION TWO HUNDRED TWENTY-TWO THOUSAND U.S. DOLLARS
($39,222,000.00).
Section 2.2 The Total Purchase Price shall be paid in United States
Dollars by wire transfer to a bank specified by GULFSTREAM.
Section 2.3 The Total Purchase Price shall be paid in accordance with the
following schedule:
A. a down payment of EIGHTEEN MILLION THREE HUNDRED
SIXTY-ONE THOUSAND U.S. DOLLARS ($18,361,000.00),
less deposits previously received of TWO MILLION U.S.
DOLLARS ($2,000,000.00) of which TWO MILLION U.S.
DOLLARS ($2,000,000.00) is nonrefundable, shall be
paid on execution of this Agreement.
B. a second payment of EIGHTEEN MILLION THREE HUNDRED
SIXTY-ONE THOUSAND U.S. DOLLARS ($18,361,000.00),
shall be due and payable at the Scheduled Preliminary
Acceptance Date. TEN MILLION U.S. DOLLARS
($10,000,000.00) of this payment will be a refundable
deposit (the "Refundable Deposit"), will remain
fully refundable until BUYER receives proceeds in
accordance with Section 8, or until the date BUYER
executes the Memorandum of Delivery for the Aircraft,
whichever occurs first. At that time, GULFSTREAM will
refund all or a portion of the Refundable Deposit
to BUYER equal to the value or cash received by
GULFSTREAM from BUYER's qualified intermediary or
trustee, and GULFSTREAM will retain such proceeds
as a progress payment on account of the purchase of
the Aircraft. Any balance of the Refundable Deposit
remaining will become nonrefundable at that time and
shall be considered a progress payment on account of
the purchase of the Aircraft. If BUYER fails to
complete the transaction as contemplated by
Section 8, then the Refundable Deposit will be
deemed a payment on account of the Aircraft upon
the execution by BUYER of the Memorandum of
Delivery for the Aircraft. Any portion of the
payment under this section not otherwise denominated
as a Refundable Deposit will be deemed a progress
payment on account of the Aircraft and become a final
payment upon the execution by BUYER of the Memorandum
of Delivery for the Aircraft.
C. at the Delivery Time the following shall be due and payable:
<PAGE>
(1) a final payment of TWO MILLION FIVE HUNDRED
THOUSAND U.S. DOLLARS ($2,500,000.00),
(2) the balance of any Work Change Requests.
Section 3 COMPUTERIZED MAINTENANCE PROGRAM ("CMP")
Section 3.1 GULFSTREAM shall provide BUYER, at no additional charge,
participation in the Gulfstream V Computerized Maintenance
Program commencing at the Delivery Time and terminating
twenty-four (24) months after the Operational Delivery.
Thereafter, BUYER may elect to continue such participation by
the payment of GULFSTREAM's customary charges in effect from
time to time.
Section 4 TRAINING
Section 4.1 GULFSTREAM shall provide at Savannah, Georgia, to trainees
as designated by BUYER, at no additional charge to BUYER, the
following training for the Aircraft:
A. an initial ground school course in the operation and maintenance of the
Aircraft for up to three (3) pilots, including simulator training, provided
by a qualified training organization designated by GULFSTREAM; and
B. an initial ground school course in the operation and maintenance of the
Aircraft for up to three (3) mechanics, including three (3) hours simulator
training for each mechanic, provided by a qualified training organization
designated by GULFSTREAM.
Section 4.2 After the Delivery Time, GULFSTREAM shall provide through
a qualified training organization designated by GULFSTREAM
initial instruction to proficiency in BUYER's aircraft for
three (3) pilots designated by BUYER; such instruction shall
be conducted in Savannah, Georgia. Such instruction shall be
without charge to BUYER except that BUYER shall reimburse
GULFSTREAM for cost of any fuel, oil or maintenance furnished
for the Aircraft during the training period.
Section 4.3 GULFSTREAM's obligation to provide the training described
in Sections 4.1 and 4.2 above shall expire twelve (12) months
after the Operational Delivery. No credit or other financial
adjustment shall be made for any unused training as specified
in this Section 4.
Section 5 IN SERVICE PILOT ASSISTANCE
Section 5.1 GULFSTREAM shall provide the pilots to assist with respect
to Outfitting check flights of the Aircraft free of any
further charge for all aircraft outfitted at GULFSTREAM's
facilities in Savannah, Georgia, Long Beach, California, or
Brunswick, Georgia.
Section 5.2 Immediately following the Delivery Time, GULFSTREAM, shall
provide five (5) days, excluding pilot positioning travel
days, of pilot services for initial in-service assistance. The
reasonable expenses of GULFSTREAM's provided pilots for
travel, meals, lodging, and related expenses shall be
reimbursed to GULFSTREAM by BUYER.
Section 6 MEDAIRE, INC.
GULFSTREAM shall provide to BUYER, starting upon delivery of
the Outfitted Aircraft, the following services package from
MedAire, Inc., to the extent then currently available.
A. 24 Hour Worldwide MedLink Medical Hotline - five (5)
year subscription. Provides flight crew with direct
and immediate communication access to emergency
physicians in the event of a medical emergency
involving flight crew or passengers while they are in
flight or on the ground at an international
destination. Also manages coordination of ground
based medical care, if needed.
B. Medical and Immunization History Retention - five
(5) year subscription. Histories can be maintained
for flight crew and select passengers.
<PAGE>
C. Worldwide Travel Medicine Advisory Services - five
(5) year subscription. Medical related advisories and
immunization recommendations for any international
destinations.
D. Management of In-Flight Illness and Injury training -
up to five (5) crew members. Basic life support
training for the aircraft environment with
instruction by aero-medical professionals. Available
for up to eight (8) crew members when training is
held at the customer's site. BUYER shall be
responsible for payment directly to MedAire for all
of MedAire's travel expenses for onsite training.
E. MedAire Emergency First Aid Kit - one (1).
Designed for aviation and exceeds FAA requirements.
F. MedTrack - five (5) years. Automatically tracks and
replaces Emergency First Aid Kit supplies prior to
any expiration dates, plus replenishes used items
with new supplies, after notification of use.
Section 7 INSURANCE
GULFSTREAM shall continue to insure the Aircraft hull while
the Aircraft is in GULFSTREAM's Completion Center through the
Delivery Time of the Aircraft.
Section 8 LIKE-KIND EXCHANGE
BUYER hereunder desires to exchange other property of
like-kind and qualifying use within the meaning of Section
1031 of the Internal Revenue code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, for all of
GULFSTREAM's right, title, and interest in the Aircraft. BUYER
expressly reserves the right to assign its rights, but not its
obligations, hereunder to a Qualified Intermediary as provided
in IRC Reg. 1.1031(k)-1(g)(4) on or before the Closing Date.
GULFSTREAM agrees to cooperate with BUYER if requested by
BUYER to structure the transaction in such manner, including,
without limitation, the execution of any documents, including
an amendment to this Sales Agreement, provided GULFSTREAM
incurs no additional cost or expense and is held harmless
against any liability arising because of the intended
like-kind exchange, or any challenge to or failure of this
transaction to qualify for such treatment. The conclusion of
such like-kind exchange shall not be a condition precedent to
the conclusion of this Sales Agreement, the acceptance of the
Aircraft, or payment for the Aircraft.
Section 9 CONFIDENTIALITY
The terms set out in this Agreement are strictly confidential
between GULFSTREAM and BUYER and shall not without the prior
written consent of the other party be disclosed by either
party, in whole or in part, to any third party except to such
party's accountants, lawyers, bankers, investors, and
shareholders insofar as may be necessary for either Party to
carry out its obligations or enforce its rights pursuant to
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives on the date first above written.
GULFSTREAM AEROSPACE CORPORATION RIGGS BANK N.A.
(BUYER)
BY: /s/ SHAWN VICK BY: /S/ JOHN L. DAVIS
- -------------------- --------------------------
TITLE: SENIOR VICE PRESIDENT, SALES TITLE: CHIEF FINANCIAL OFFICER
- ----------------------------------- ------------------------------
<PAGE>
Gulfstream(R)
AMENDMENT
The following will constitute an amendment (the "Amendment") to that certain
Outfitted Gulfstream V Sales Agreement dated June 23, 1998, by and between
GULFSTREAM AEROSPACE CORPORATION ("GULFSTREAM") and RIGGS BANK N.A. ("BUYER")
(the "Agreement") for the sale of one Gulfstream V aircraft (the "Aircraft").
WHEREAS, BUYER has approved the Completion Package in accordance with the
timeframe identified in the Agreement; and
WHEREAS, this Agreement is hereby amended by both GULFSTREAM and BUYER to
reflect revisions to Addendum I Terms of the Agreement as follows:
Section 1 - SUBJECT MATTER OF SALE
1. Delete the reference to Serial Number, in its entirety and replace with the
following:
The Serial Number of the Aircraft shall be 556.
2. Delete the reference to Completion Specification, in its entirety and replace
with the following:
Completion Specification: Number 804163B specifically
identifies BUYER's individual specification and reflects the
approved Completion Package. Any future modifications to the
Completion Package will be treated as a Work Change Request
(WCR) per the terms of the Agreement.
3. Delete the reference to Completion Facility, in its entirety and replace with
the following:
The Completion Facility shall be Gulfstream Aerospace
Corporation, Long Beach, California. The Delivery of this
Aircraft will be at a mutually agreed upon location.
Section 2 - PURCHASE PRICE AND PAYMENT TERMS:
This Section shall be revised to reflect a pricing adjustment in the amount of
FORTY EIGHT THOUSAND TWO HUNDRED THIRTEEN U.S. DOLLARS ($48,213.00) based upon
the approved Completion Package.
<PAGE>
1. Delete Section 2.1 in its entirety and replace with the following:
Section 2.1 Total Purchase Price: THIRTY NINE MILLION TWO
HUNDREDSEVENTY THOUSAND TWO HUNDRED THIRTEEN U.S.
DOLLARS ($39,270,213.00).
2. Delete Section 2.3C in its entirety and replace with the following:
C. at the Delivery Time, the following shall be due and payable:
(1) a payment of TWO MILLION FIVE HUNDRED FORTY EIGHT THOUSAND TWO HUNDRED
THIRTEEN U.S. DOLLARS ($2,548,213.00).
(2) the balance of any Work Change Requests.
All other Terms and Conditions of the Agreement shall remain the same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives.
GULFSTREAM AEROSPACE CORPORATION RIGGS BANK N.A.
- -------------------------------- ---------------
(GULFSTREAM) (BUYER)
BY: /s/ ROBB K. SALLEE BY: /s/ JOHN L. DAVIS
- ----------------------- -----------------------
ITS: Vice President, Contract Management ITS: EVP and CFO
- ---------------------------------------- ----------------
DATE: 9/10/99 DATE: 9/9/99
- ------------- ------------
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") effective as of the 15th day of
July, 1999, by and between RIGGS NATIONAL CORPORATION(the "Company") and JOE L.
ALLBRITTON (the "Executive").
WHEREAS, the Executive has been the Chief Executive Officer of the
Company since 1982;
WHEREAS, the Board of Directors of the Company has determined that it
is important to the continued success of the Company to insure that the
Executive continue as the Chief Executive Office of the Company for at least the
next five (5) years;
WHEREAS, the Executive voluntarily reduced his compensation in 1992 in
order to improve the profitability of the Company and to assist it in returning
to a healthy and profitable company with the reasonable expectation that once
the Company returned to historic profitability levels, his compensation would be
increased to historic levels and some recognition would be given to the fact of
his voluntary reduction ; and
WHEREAS, the Board of Directors has determined that now that the
Company has earned record profits that it is appropriate to increase the
Executive's compensation to levels consistent with his historic compensation and
for the Company to recognize the personal sacrifice of the Executive in reducing
his compensation in order to benefit the Company and its shareholders;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties agree as follows:
1. Employment, Term and Duties.
1.1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment by the Company on the terms and
conditions set forth in this Agreement.
<PAGE>
1.2. Term. The Executive's employment under this Agreement shall commence on the
date hereof (the "Effective Date") and shall terminate on July 15, 2004, unless
earlier terminated as provided in Section 3 below (the "Term")
1.3. Duties.
During the Term, the Executive shall serve as the Chief Executive Officer of the
Company, with such customary duties and responsibilities as are incident to said
positions, including such authority, duties, and responsibilities as set forth
with respect to such office in the Company's articles and bylaws. The Executive
agrees to devote at least the same amount of attention and time to the business
and affairs of the Company and to the duties and responsibilities assigned to
the Executive as he has in the past and will use his reasonable best efforts to
perform faithfully and effectively such duties and responsibilities.
2. Compensation and Other Benefits
2.1. Base Compensation. As compensation for services rendered during the
Term, the Company shall pay to the Executive an annual salary of $800,000
(the "Base Salary"). The Compensation Committee of the Board of Directors of
the Company (the "Committee") shall conduct an annual review of the Base
Salary at such time or times as the Committee reviews the annual compensation
of its executives in general, and, if approved by the Board of Directors, the
Executive shall be entitled to an increase in the Base Salary as is in
accordance with the then prevailing policy of the Company with respect to
executive compensation in general; provided, that such salary may not be
reduced at any time. The Base Salary shall be payable in accordance with the
payroll policies of the Company as from time to time in effect.
2.2. Annual Performance Bonus.
<PAGE>
(a) In addition to the Base salary, the Executive shall be eligible to
receive, for each calendar year or portion thereof occurring during the
Term, an annual performance bonus (the "Annual Bonus") in an amount equal to
one hundred fifty percent (150%) of the Executive's Base Salary for such
calendar year or portion thereof; provided that the bonus for the year ending
December 31, 1999 shall be equal to 150% of the Executive's Base Salary for
an entire year. The amount of any such Annual Bonus shall be based upon the
performance of the Company and determined in accordance with the
procedures set forth on Exhibit A hereto. The Annual Bonus shall be paid to
the Executive at such time or times as is in accordance with the then
prevailing policy of the Company relating to incentive compensation payments.
(b) No later than the next annual meeting of shareholders of the Company,
the Company shall submit to its shareholders (the "Shareholders") for
approval, with a recommendation of the Board of Directors of the Company of
such approval, an executive incentive plan which, among other things, covers
the Annual Bonus provided for in this Agreement. If the Company submits such an
executive incentive plan to the Shareholders in accordance herewith and it
is not so approved by the Shareholders, the Company shall not be obligated to
pay the Annual Bonus for any year after calender year 1999 but shall be
obligated to pay the Annual Bonus, if earned, for calender year 1999. If the
Company fails to submit such executive incentive plan to the Shareholders with
such a recommendation by the Board of Directors by the next annual
meeting of shareholders of the Company, the Company shall remain
obligated to pay the Annual Bonuses as and when they become due under the
terms of subsection (a) of this Section 2.2. If the Company is not obligated
to pay the Annual Bonus as a result of the failure of the Shareholders to
approve such executive incentive plan, the Company and the Executive shall
attempt for a period of 30 days to agree upon another form or method of
compensation to the Executive to adjust for the loss of the opportunity to earn
the Annual Bonuses. If the Company and the Executive, each in their sole and
absolute discretion, can not agree on such another form or method of
compensation, the Executive, upon 30 days written notice to the Company,
may terminate this Agreement. In the event of such termination, the
Executive shall be entitled to a lump sum payment of one year's Base
Salary and continuation of all employee benefits for a period of one year.
<PAGE>
2.3. Participation in Employee Benefit Plans. The Company agrees to permit the
Executive during the Term to participate in any group life, hospitalization
and/or disability insurance plan, health program, supplemental executive
retirement plan, nonqualified compensation plan, pension and/or savings plans,
long-term incentive plan, receive "fringe benefits," club memberships and
automobile allowance, and participate in such other benefit plans or programs of
the Company (collectively "Benefits") subject to the generally applicable
eligibility requirements relating to such Benefits. The Company also agrees to
continue to provide to the Executive substantially the same benefits, programs
and privileges which it currently provides to the Executive and to implement
such other benefit plans (the "Other Benefit Plans") for the benefit of the
Executive to the extent the Company offers its comparable senior executives
benefits that are not currently offered by the Company. The Company also agrees
to provide life insurance to the Executive during the Term at least equivalent
to the life insurance coverage provided to the Executive under the existing
split dollar insurance maintained by the Company.
<PAGE>
2.4. General Business Expenses. The Company shall pay or reimburse the Executive
for all expenses that are incurred by the Executive in the performance of the
Executive's duties under this Agreement in accordance with its regular expense
reimbursement policies and procedures upon presentation of such documentation as
the Company customarily requires of its executive employees prior to making such
payments or reimbursements.
2.5. Vacation. During the Term, the Executive shall be entitled to six (6) weeks
of vacation per year. The Executive shall not be permitted to accumulate and
carryover unused vacation time or pay from year to year except to the extent
permitted in accordance with the Company's vacation policy for senior
executives.
2.6. Tax Withholding. All payments required to be made to the Executive shall
be reduced by any amount required to be deducted or withheld therefrom by
applicable law or regulation.
3. Termination.
3.1.Termination upon Death or Disability. If the Executive either dies or
becomes entitled to benefits under a Company long-term disability plan or
program during the Term (whether before or after a Change of Control),
the Term shall automatically terminate thereupon, and the Executive or the
Executive's estate, as the case may be, shall be entitled to receive, in
addition to any life insurance or disability benefits which are payable,
as soon as reasonably practicable after the separate determinations thereof,
(i) a lump sum payment equal to the Base Salary for the remaining Term (as
otherwise determined before such termination), (ii) any unpaid vested
Benefits accrued up to such date of termination, (iii) an amount equal to the
product of (a) the Annual Bonus, if any, otherwise payable with respect to the
year in which the Term is terminated, multiplied by (b) a fraction, the
numerator of which is the number of days elapsed in such year as of the
termination date and the denominator of which is 365. These items are in
addition to and shall not reduce any other benefits to which the Executive or
his estate may be entitled.
<PAGE>
3.2. Other Termination.
(1) Termination By the Company. Notwithstanding any provision of the
Agreement to the contrary, the Company, with the approval of a majority
of the Board of Directors, has the right, at any time during the Term,
exercisable by serving written notice, effective on or after the date
of service of such notice as specified therein, to terminate the
Executive's employment under this Agreement and to discharge the
Executive with or without Cause.
(2) Termination With Cause. Any termination of employment of the Executive
by the Company with Cause shall terminate the Term and thereafter no
amounts shall be payable to Executive under this Agreement except (i)
his Base Salary through the date of termination, and (ii) any unpaid
vested Benefits, and (iii) the Annual Bonuses, if any, payable with
respect to the prior calendar year if it has not yet been paid. All of
the foregoing amounts shall be payable in a lump sum, less such amounts
as shall be required to be deducted or withheld therefrom by applicable
law and regulations, within fifteen (15) days after the termination
date.
For purposes of this Agreement, "Cause" shall mean (i) the
conviction of the Executive of a felony specifically involving his
actions with respect to the Company, (ii) the Executive's willful
refusal without legal cause to perform his duties as Chief Executive
Officer of the Company which refusal continues for more than thirty
(30) days after written notice to the Executive from the Board of
Directors of the Company directing the Executive to discontinue same,
or (iii) a material breach of his fiduciary duty to the Company through
the misappropriation of funds or property of the Company.
<PAGE>
Nothing in this Agreement shall prevent the Executive's right to
terminate his employment with the Company.
(3) Termination Without Cause; Termination by the Employee for Good Reason
or Termination Following Change of Control. Notwithstanding any
provision of this Agreement to the contrary, in the event that the
Executive's employment is terminated following a Change of Control of
the Company, by the Company without Cause or by the Employee for Good
Reason, the following amounts shall be payable or provided by the
Company: (i) the Base Salary then earned, but unpaid, plus an amount
equal to the Base Salary which would have been earned up to and
including the end of the Term (as otherwise determined before such
termination), (ii) any unpaid vested Benefits accrued to such date of
termination, (iii) an amount equal to the aggregate Annual Bonuses
which would have been payable on account of any periods ending on or
before the end of the Term (as otherwise determined before such
termination) which bonuses shall, for each such period be equal to one
hundred fifty percent (150%) of the then current Base Salary. All of
the foregoing amounts shall be payable in a lump sum, less such amounts
as shall be required to be deducted or withheld therefrom by applicable
law and regulations, within fifteen (15) days after the termination
date. To the extent the Executive is eligible thereunder, for a period
through the end of the Term (as otherwise determined before such
termination), the Executive shall continue to be provided life
insurance, disability, long-term disability policies and any other
Benefits provided to the Executive on the date hereof, or such
successor policies in effect at the time of the Executive's
termination, and shall also continue to be covered for the applicable
period by such other insurance, disability, health or other Benefit
program, plan or policy by which he was covered at the time of the
Executive's termination. In the event the Executive is ineligible to
continue to be so covered under the terms of any such life insurance,
disability, long-term disability, insurance, health or other Benefit
program, plan or policy, the Company shall provide to the Executive
through other sources such benefits, including such additional
benefits, as may be necessary to make the benefits applicable to the
Executive substantially equivalent to those in effect immediately prior
to such termination.
For purposes of this Agreement, a "Change of Control" of the
Company shall be deemed to occur upon the happening of any of the
following:
<PAGE>
(I) individuals who, on the date hereof, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof, whose
election or nomination for election was approved by a vote of
at least two-thirds of the Incumbent Directors then on the
Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a
nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided however,
that no individual initially elected or nominated as a
director of the Company as a result of an actual or threatened
election contest (as described in Rule 14a-11 under the
Securities Exchange Act of 1934 (the "Act") ("Election
Contest") or other actual or threatened solicitation of
proxies or consent by or on behalf of any "person" (as such
term is defined in Section 3(a)(9) of the Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Act) other than the
Board ("Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy
Contest, shall be deemed an Incumbent Director;
(II) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of
the Board (the "Company Voting Securities"); provided,
however, that the event described in this paragraph (ii)
shall not be deemed to be a Change in Control of the Company
by virtue of any of the following acquisitions: (A) by the
Company or any subsidiary, (B) by any employee benefit
plan (or related trust) sponsored or maintained by the Company
or any subsidiary, (C) by any underwriter temporarily
holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction
(as defined in paragraph (iii)), (E) pursuant to any
acquisition by the Executive or any group of persons
including the Executive (or any entity controlled by the
Executive or any group of persons including the Executive);
or (F) a transaction (other than one described in (iii)
below) in which Company Voting Securities are acquired from
the Company, if a majority of the Incumbent Directors
(including the Executive if he is then an Incumbent
Director) approve a resolution providing expressly that
the acquisition pursuant to this clause (F) does not
constitute a Change in Control of the Company under this
paragraph (ii).
<PAGE>
(III) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving
the Company or any of its subsidiaries that requires the
approval of the Company's stockholders, whether for such
transaction or the issuance of securities in the transaction
(a "Reorganization"), or sale or other disposition of
all or substantially all of the Company's assets to an
entity that is not an affiliate of the Company (a "Sale"),
unless immediately following such Reorganization or Sale:
(A) more than 60% of the total voting power of (x) the
corporation resulting from such Reorganization or the
corporation which has acquired all or substantially all of the
assets of the Company (in either case, the "Surviving
Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial
ownership of at least a majority of the voting securities
eligible to elect directors of the Surviving Corporation
(the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior
to such Reorganization or Sale (or, if applicable, is
represented by shares into which such Company Voting
Securities were converted pursuant to such Reorganization
or Sale), and such voting power among the holders thereof is
in substantially the same proportion as the voting power
of such Company Voting Securities among the holders thereof
immediately prior to the Reorganization or Sale, (B) no
person (other than the Executive and affiliates of the
Executive or any employee benefit plan (or related trust)
sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of 25% or more of the total voting
power of the outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) and (C)
at least a majority of the members of the board of directors
of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) following the
consummation of the Reorganization of the Reorganization or
Sale were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement
providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria
specified in (A), (B) and (C) above shall be deemed to be a
"Non-Qualifying Transaction"); or
<PAGE>
(IV) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to occur solely because any person
acquires beneficial ownership of more than 25% of the Company
Voting Securities as a result of the acquisition of Company
Voting Securities by the Company which reduces the number of
Company Voting Securities outstanding; provided, that if after
such acquisition by the Company such person becomes the
beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in
Control of the Company shall then occur.
For purposes hereof, "Good Reason" shall mean
<PAGE>
(a) Removal without the consent of the Executive in
writing, from any of the offices now held by the
Executive in the Company or any subsidiary of the
Company, or any material reduction in Executive's
authority or responsibility, other than or a result
of a termination for Cause or on account of
disability.
(b) The Company otherwise commits a material breach of his Agreement.
3.3. Certain Additional Payments by the Company. Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Subject to the
provisions of this Section 3.3, all determinations required to be made
hereunder, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by Ernst & Young or such other accounting
firm selected by the Executive (the "Accounting Firm") at the sole expense of
the Company, which shall provide detailed supporting calculations both to the
Company and the Executive within fifteen (15) business days of the date of
termination of the Executive's employment under this Agreement, if applicable,
or such earlier time as is requested by the Company. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, the Accounting Firm
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments, which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. If the Company exhausts its remedies pursuant
hereto and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
<PAGE>
The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably requested by the Company
relating to such claim,
<PAGE>
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including (without limitation) accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(c) cooperate with the Company in good faith to contest effectively such claim,
and
(d) permit the Company to participate in any proceedings relating to such
claim; provided that the Company shall bear and pay directly all ,costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a
result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions hereof the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine, provided that if the
Company directs the Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with
respect to such advance, and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
<PAGE>
If, after the receipt by the Executive of an amount advanced
by the Company pursuant hereto, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements hereof)
promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by the
Company pursuant hereto, a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
4. Other Provisions.
<PAGE>
4.1. Nondisclosure. During the term of this Agreement and thereafter, the
Executive shall not, without the prior written consent of the Board of
Directors, disclose or use for any purpose (except in the course of his
employment under this Agreement and in furtherance of the business of the
Company confidential information or proprietary data of the Company (or any of
its subsidiaries), except as required by applicable law or legal process;
provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries.
4.2. Noncompetition. The Company and the Executive agree that the services
rendered by Employee hereunder are unique and irreplaceable. The Executive
hereby agrees that, during the term of this Agreement and for a period of
six months thereafter, if the Executive's employment is terminated by the
Company for Cause or by the Executive without Good Reason, he shall not
(except in the course of his employment under this Agreement and in
furtherance of the business of the Company (or any of its subsidiaries) (i)
engage in as principal, consultant or employee in any segment of a business of
a company, partnership or firm ("Business Segment") that is directly
competitive with any significant business of the Company in one of its major
commercial or geographic markets or (ii) hold an interest (except as a
holder of a less than 5% interest in a publicly traded firm or mutual fund, or
as a minority stockholder or unitholder in a firm not publicly traded) in a
company, partnership, or firm with a Business Segment that is directly
competitive with the Company, without prior written consent of the Company.
<PAGE>
4.3. Remedies. The Executive acknowledges that irreparable damage would result
to the Company if the provisions of paragraph 4.1 or 4.2 above are not
specifically enforced and agrees that the Company shall be entitled to any
appropriate legal, equitable or other remedy, including injunctive relief, in
respect of any failure to comply with such provisions.
4.4. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, on the date of actual receipt thereof, as follows:
(i) If to the Company, to:
Riggs National Corporation
800 17th Street, N.W.
Washington, D.C. 20006
Attention:Patti Yoder, Senior Vice President
Human Resources
(ii) If to the Executive, to:
Joe L. Allbritton
800 17th Street, N.W.
Washington, D.C. 20006
Any party may change its address for notice hereunder by notice to the
other party hereto.
4.5. Entire Agreement. This Agreement, including the attached Exhibit A which is
a part hereof for all purposes, contains the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
<PAGE>
4.6. Governing Law; Validity. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
4.7. Assignment. The obligations of the Executive hereunder are personal and
may not be assigned or delegated by him or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder,
either in whole or in part, to any parent, affiliate, successor or
subsidiary organization or company of the Company, so long as the
obligations of the Company under this Agreement remain the obligations of the
Company and of the Company, that the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise), to all or
substantially all of the business and/or assets of the Company, by agreement
in form and substance reasonably acceptable to the Executive, to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
4.8. Termination. Except as otherwise provided expressly herein, this
Agreement shall terminate on July 15, 2004.
5. Resolution of Disputes.
<PAGE>
5.1. Negotiation. The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations between
the Executive and a representative of the Compensation Committee of the Company
who has authority to settle the controversy. Any party may give the other party
written notice of any dispute not resolved in the normal course of business.
Within ten (10) days after the effective date of such notice, the Executive and
a representative of the Compensation Committee of the Company shall meet as
often as they reasonably deem necessary, to exchange relevant information and to
attempt to resolve the dispute. If the matter has not been resolved within
thirty (30) days of the disputing party's notice, or if the parties fail to meet
within ten (10) days, either party may initiate arbitration of the controversy
or claim as provided hereinafter. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator shall be given at least three
business days' notice of such intention and may also be accompanied by an
attorney. All negotiations pursuant to this Section 5.1 shall be treated as
compromise and settlement negotiations for the purposes of the federal and state
rules of evidence and procedure.
5.2. Arbitration. Any dispute arising out of or relating to this Agreement or
the breach, termination or validity thereof, which has not been resolved by
non-binding means as provided in Section 5.1 within sixty (60) days of the
initiation of such procedure, shall be finally settled by arbitration conducted
expeditiously in accordance with the Center for Public Resources, Inc.
("CPR") Rules for Non-Administered Arbitration of Business Disputes by three
independent and impartial arbitrators, of whom each party shall appoint
one, provided that if one party has requested the other to participate in
a non-binding procedure and the other has failed to participate, the
requesting party may initiate arbitration before the expiration of such
period. Any such party shall be appointed from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act and any
judgment upon the award decided upon the arbitrators may be entered by any court
having jurisdiction thereof. The arbitrators are not empowered to award damages
in excess of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages. Each party hereby acknowledges that
compensatory damages include (without limitation) any benefit or right of
indemnification given by another party to the other under this Agreement.
<PAGE>
5.3. Expenses. The Company shall promptly pay or reimburse the Executive for all
costs and expenses, including, without limitation, court costs and attorneys'
fees, reasonably incurred by the Executive as a result of any claim, action or
proceeding (including, without limitation a claim, action or proceeding by the
Executive against the Company) arising out of, or challenging the validity or
enforceability of, this Agreement or any provision hereof.
6. Successors. This Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns.
7. No Mitigation or Set-Off. The provisions of this Agreement are not intended
to, nor shall they be construed to, require that the Executive mitigate the
amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by the Executive as a
result of his employment by another employer or otherwise. The Company's
obligations to make the payments to the Executive required under this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
set off, counterclaim, recoupment, defense or other claim, right or action that
`the Company may have against the Executive.
<PAGE>
8. Amendment. No provision of this Agreement may be modified or waived unless
such modification or waiver is agreed to in writing and signed by the Executive
and by a duly authorized officer of the Company who has been authorized to sign
by the Compensation Committee of the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Failure by the Executive or the
Company to insist upon strict compliance with any provision of this Agreement or
to assert any right the Executive or the Company may have hereunder, including
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement. Except as otherwise specifically
provided herein, the rights of, and benefits payable to, the Executive, his
estate or his beneficiaries pursuant to this Agreement are in addition to any
rights of, or benefits payable to, the Executive, his estate or his
beneficiaries under any other employee benefit plan or compensation program of
the Company.
9. Full Settlement. The Company's obligation to make any payments provided for
in this Agreement in respect of the Executive's termination of employment
and otherwise to perform its obligations hereunder shall be in lieu and in
full settlement of all other severance payments to the Executive under
any severance plan of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
for all purposes as of the date first above written.
RIGGS NATIONAL CORPORATION
By:/s/ TIMOTHY C. COUGHLIN
--------------------------
Name: Timothy C. Coughlin
--------------------------
Title: President
--------------------------
/s/ JOE L. ALLBRITTON
--------------------------
Joe L. Allbritton
<PAGE>
EXHIBIT A
Any capitalized term used herein which is not otherwise defined shall
have the meaning attributed to it in the Executive's Employment Agreement (the
"Employment Agreement").
The Employment Agreement provides that the Executive shall be paid an
Annual Bonus as determined by the Compensation Committee (or a subcommittee
thereof comprised solely of "outside directors," within the meaning of Section
162(m) of the Internal Revenue Code of 1986, if the Committee is not so
comprised, and references herein to the Compensation Committee shall be deemed
references to such subcommittee). The purpose of this Exhibit is to set forth
the procedure for (i) setting the annual objectives (the "Objective") for each
year, (ii) determining whether the Objective has been obtained, and (iii)
setting the magnitude of the Annual Bonus based upon the Company's performance
vis-a-vis the Objective.
On or prior to February 28 of each calendar year, the Executive shall
submit a proposed business plan to the Compensation Committee. The business plan
shall set forth a forecast of the net income after tax for the Company for the
then current year. The proposed business plan shall be subject to review and
approval by the Compensation Committee. The Executive and the Compensation
Committee shall discuss in good faith any revisions to the proposed plan
required by the Compensation Committee, but notwithstanding such discussions,
the business plan shall be subject to the approval of the Compensation Committee
in the exercise of its discretion. On or prior to the 90th day of each calendar
year, the Compensation Committee shall determine, based on the business plan,
specific objective performance criteria which must be met for the Executive to
receive the Annual Bonus; provided however, the Executive shall be entitled to
receive an Annual Bonus with respect to calendar year 1999 if the Company's net
income available for Common Stock for the five months ended December 31, 1999
equals or exceeds an amount determined by the Compensation Committee on or prior
to August 27, 1999.
Within ten (10) days after the year end financial results of the
Company are made available to the Compensation Committee, it shall determine
whether, in its good faith judgment, the Objective has been met or exceeded.
Based upon the Compensation Committee's conclusions with respect to the
Company's performance vis-a-vis the Objective, the Executive shall be entitled
to the Annual Bonus.
Exhibit 10.4
Riggs National Corporation
Executive Incentive Plan
1. Purpose. The purpose of the Executive Incentive Plan (the "Plan") is
to advance the interests of Riggs National Corporation (the "Company") and its
stockholders by providing incentives in the form of bonus awards to certain
executives of the Company and any of its subsidiaries or other related business
units or entities ("Affiliates") who contribute significantly to the strategic
and long-term performance objectives and growth of the Company and its
Affiliates.
2. Administration. The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the Company (the
"Board"), as such committee is from time to time constituted. The Committee may
delegate its duties and powers in whole or in part (i) to any subcommittee
thereof consisting solely of at least two "outside directors," as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) to the extent consistent with Section 162(m) of the Code, to any other
individual or individuals.
The Committee has all the powers vested in it by the terms of
the Plan set forth herein, such powers to include the exclusive authority to
select the executives to be granted bonus awards (the "Bonuses") under the Plan,
to determine the size and terms of the Bonus made to each individual selected
(subject to the limitation imposed below), to modify the terms of any Bonus that
has been granted (except with respect to any modification which would increase
the amount of compensation payable to a "Covered Employee," as such term is
defined in Section 162(m) of the Code), to determine the time when Bonuses will
be awarded, to establish performance objectives in respect of Bonuses and to
certify that such performance objectives were attained. The Committee is
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations that it
deems necessary or desirable for the administration of the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No member of the Committee and no officer of
the Company shall be liable for anything done or omitted to be done by him or
her, by any other member of the Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his or her
own willful misconduct or as expressly provided by statute. If the Committee
determines that a Bonus to be granted to a Covered Employee (or a person likely
to be a Covered Employee) should qualify as "performance-based compensation" for
purposes of Section 162(m) of the Code, all of the foregoing determinations
shall be made by the Committee, if the Committee is comprised solely of "outside
directors" and, if it is not, then by a subcommittee of the Committee so
comprised.
<PAGE>
3. Participation. The Committee shall have exclusive power (except as
may be delegated as permitted herein) to select the executives of the Company
and its Affiliates who may participate in the Plan and be granted Bonuses under
the Plan ("Participants").
4. Bonuses under the Plan.
(a) In General. The Committee shall determine the amount of a
Bonus to be granted to each Participant in accordance with subsection (b) below.
(b) Bonuses. (i) The Committee may in its discretion award a
Bonus to a Participant who it reasonably believes may be a Covered Employee for
the taxable year of the Company in which such Bonus would be deductible, under
the terms and conditions of this subsection (b). Subject to clause (iii) of this
Section 4(b), the amount of a Participant's Bonus shall be an amount
determinable from written performance goals approved by the Committee while the
outcome is substantially uncertain and no more than 90 days after the
commencement of the period to which the performance goal relates or, if less,
the number of days that is equal to 25 percent of the relevant performance
period. The maximum aggregate limit on Bonuses that may be awarded under this
Plan to any Participant with respect to any calendar year is $2 million.
(ii) The amount of any Bonus will be based on objective
performance goals and a targeted level or levels of performance with respect to
each goal as specified by the Committee. One or more of the following business
criteria for the Company on a consolidated basis, and/or for specified
subsidiaries or business units of the Company shall be used by the Committee in
establishing performance goals for Bonuses: (A) before or after tax net income;
(B) net income available for common stock; (C) earnings per share; (D) book
value per share; (E) stock price; (F) return on stockholders' equity; (G) the
relative performance of peer group companies; (H) expense management; (I) return
on investment; (J) improvements in capital structure; (K) return on assets; (L)
profit margins; (M) budget comparisons; and (N) total return to stockholders.
(iii) The Committee shall determine (in writing with respect
to any Covered Employee) whether the performance goals have been met with
respect to any affected Participant and, if they have, so certify and ascertain
the amount of the applicable Bonus. No Bonuses will be paid until such
certification is made by the Committee.
<PAGE>
(iv) The provisions of this Section 4(b) shall be administered
and interpreted in accordance with Section 162(m) of the Code to ensure the
deductibility by the Company or its Affiliates of the payment of Bonuses.
5. Designation of Beneficiary by Participant. The Committee or its
delegate shall create a procedure whereby a Participant may file, on a form to
be provided by the Committee, a written election designating one or more
beneficiaries with respect to the amount, if any, payable in the event of the
Participant's death. The Participant may amend such beneficiary designation in
writing at any time prior to the Participant's death, without the consent of any
previously designated beneficiary. Such designation or amended designation, as
the case may be, shall not be effective unless and until received by the duly
authorized representatives of the Committee or its delegate prior to the
Participant's death. In the absence of any such designation, the amount payable,
if any, shall be delivered to the legal representative of such Participant's
estate.
6. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right
to be paid a Bonus under the Plan. Determinations made by the Committee under
the Plan need not be uniform and may be made selectively among eligible
individuals under the Plan, whether or not such eligible individuals are
similarly situated. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company or any Affiliate, and the right
to terminate the employment of or performance of services by any Participant at
any time and for any reason is specifically reserved to the Company and its
Affiliates.
(b) Except as may be approved by the Committee, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a Participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that,
subject to applicable law, any amounts payable to any Participant hereunder are
subject to reduction to satisfy any liabilities owed to the Company or any of
its Affiliates by the Participant.
(c) The Committee shall have the authority to determine in its
sole discretion the applicable performance period relating to any Bonus and to
include with respect to any award any change in control provision.
<PAGE>
(d) The Company and its Affiliates shall have the right to
deduct from any payment made under the Plan any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment.
(e) The Company is the sponsor and legal obligor under the
Plan, and shall make all payments hereunder, other than any payments to be made
by any of the Affiliates, which shall be made by such Affiliate, as appropriate.
Nothing herein is intended to restrict the Company from charging an Affiliate
that employs a Participant for all or a portion of the payments made by the
Company hereunder. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment
of any amounts under the Plan, and rights to payment hereunder shall be no
greater than the rights of the Company's unsecured, subordinated creditors, and
shall be subordinated to the claims of the customers and clients of the Company.
All expenses involved in administering the Plan shall be borne by the Company.
(f) The validity, construction, interpretation, administration
and effect of the Plan and rights relating to the Plan and to Bonuses granted
under the Plan, shall be governed by the substantive laws, but not the choice of
law rules, of the State of Delaware.
(g) The Plan shall be effective as of August 23, 1999 (the
"Effective Date"), subject to the affirmative vote of the holders of a majority
of all shares of Common Stock of the Company present in person or by proxy at
the Annual Meeting of the Company to be held on April 12, 2000.
7. Plan Amendment or Suspension. The Plan may be amended, suspended or
terminated in whole or in part at any time and from time to time by the
Committee or the Board without the consent of the Company's stockholders or any
Participant; provided, however, that any amendment to the Plan shall be
submitted to the stockholders if stockholder approval is required by any
applicable law, rule or regulation.
8. Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission of any terms of the Plan to the stockholders of the
Company for approval shall be construed as creating any limitations on the power
of the Board or the Committee to adopt such other incentive arrangements, apart
from the Plan, as it may deem desirable, including incentive arrangements and
awards that do not qualify under Code Section 162(m), and such other
arrangements may be either applicable generally or only in specific cases.
<PAGE>
9. Actions and Decisions Regarding the Business or Operations of the
Company and/or its Affiliates. Notwithstanding anything in the Plan to the
contrary, neither the Company nor any of its Affiliates nor their respective
officers, directors, employees or agents shall have any liability to any
Participant (or his or her beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company or
any Affiliates.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000350847
<NAME> RIGGS NATIONAL CORPORATION
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
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<TOTAL-ASSETS> 5,709,855
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