SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission file
number 2-99779
National Consumer Cooperative Bank
(Exact name of registrant as specified in its charter)
United States of America
(12 U.S.C. Section 3001 et. seq.) 52-1157795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Eye Street N.W., Suite 700 Washington, D.C. 20005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202)336-7700
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements of the past 90 days. Yes X No_____.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: the registrant's voting stock
is not traded on any market. A subsidiary of the registrant
holds 2.68% of its Class B stock. All registrant's Class C and
Class D stock is held by non-affiliates.
(Cover Continued on Next Page )
( Cover Continued )
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Outstanding at December 31, 1999
Class C
(Common stock, $100.00 par value) 223,807
Class B
(Common stock, $100.00 par value) 998,795
Class D
(Common stock, $100.00 par value) 3
INDEX
PART I
Item 1 Business...................................................1
Item 2 Properties.................................................9
Item 3 Legal Proceedings..........................................9
Item 4 Submission of Matters to a Vote
of Security Holders......................................9
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters......................................10
Item 6 Selected Financial Data....................................13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations............14
Item 7A Quantitative and Qualitative Disclosures about
Market Risk..............................................33
Item 8 Financial Statements and Supplementary Data................39
Item 9 Changes in and Disagreements with Accountants,
on Accounting and Financial Disclosure...................78
PART III
Item 10 Directors and Executive Officers of the Registrant.........78
Item 11 Executive Compensation.....................................87
Item 12 Security Ownership of Certain
Beneficial Owners and Management.........................89
Item 13 Certain Relationships and Related Transactions.............90
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K..................................94
PART I
ITEM 1. BUSINESS
GENERAL
The National Consumer Cooperative Bank, which does
business as the National Cooperative Bank ("NCB"), is a
financial institution organized under the laws of the United
States. NCB provides financial and technical assistance to
eligible cooperative enterprises or enterprises controlled
by eligible cooperatives. A cooperative enterprise is an
organization which is owned by its members and which is
engaged in producing or furnishing goods, services, or
facilities for the benefit of its members or voting
stockholders who are the ultimate consumers or primary
producers of such goods, services, or facilities. NCB is
structured as a cooperative institution whose voting stock
can only be owned by its members or those eligible to become
its members.
In the legislation chartering NCB (the National
Consumer Cooperative Bank Act or the "Act"), Congress stated
its finding that cooperatives have proven to be an effective
means of minimizing the impact of inflation and economic
hardship on members/owners by narrowing producer-to-consumer
margins and price spreads, broadening ownership and control
of economic organizations to a larger base of consumers,
raising the quality of goods and services available in the
marketplace and strengthening the nation's economy as a
whole. To further the development of cooperative
businesses, Congress specifically directed NCB (1) to
encourage the development of new and existing cooperatives
eligible for its assistance by providing specialized credit
and technical assistance; (2) to maintain broad-based
control of NCB by its voting shareholders; (3) to encourage
a broad-based ownership, control and active participation by
members in eligible cooperatives; (4) to assist in improving
the quality and availability of goods and services to
consumers; and (5) to encourage ownership of its equity
securities by cooperatives and others.
NCB fulfills its statutory obligations in two fashions.
First, NCB makes loans and offers other financing
arrangements which afford cooperative businesses
substantially the same financing opportunities currently
available for traditional enterprises. Second, NCB provides
financial and other assistance to the NCB Development
Corporation ("NCB Development"), a non-profit corporation
without capital stock organized in 1982 which makes loans
and provides assistance principally to developmental
cooperatives.
The Act was passed on August 20, 1978, and NCB
commenced lending operations on March 21, 1980. In 1981,
Congress amended the Act (the "Act Amendments") to convert
the Class A Preferred stock of NCB previously held by the
United States to Class A Notes as of December 31, 1981 (the
"Final Government Equity Redemption Date"). Since the Final
Government Equity Redemption Date, NCB's capital stock,
except for three shares of non-voting Class D stock, has
been owned by borrowers or entities eligible to borrow from
NCB. NCB maintains its executive offices at 1401 Eye
Street, N.W., Washington, D.C. 20005. The telephone number
of its executive offices is (202) 336-7700. NCB also
maintains regional offices in Anchorage, Chicago, New York
City, and Oakland. NCB Financial Corporation, NCB Retail
Finance Corporation and NCB I, Inc. maintain offices in
Wilmington, Delaware while NCB Savings Bank, FSB maintains
its office in Ohio.
When used in this report, the words "believes",
"anticipates", "expects", "seeks" and similar expressions
are intended to identify forward-looking statements. Such
statements are subject to a number of risks and
uncertainties that could cause actual results to differ
materially from those projected, including: competition
within each of NCB's businesses, the effects of
international, national and regional economic conditions,
the availability of capital and other risks described from
time to time in NCB's filings with the Commission. Given
these uncertainties, investors are cautioned not to place
undue reliance on such statements. NCB also undertakes no
obligation to publicly release the result of any revisions
to these forward-looking statements that may be made to
reflect any future events or circumstances.
LOAN REQUIREMENTS, RESTRICTIONS AND POLICIES
Eligibility Requirements
Cooperatives, cooperative-like organizations, and
legally chartered entities primarily owned and controlled by
cooperatives are eligible to borrow from NCB if they are
operated on a cooperative basis and are engaged in producing
or furnishing goods, services or facilities primarily for
the benefit of their members or voting stockholders who are
the ultimate consumers of such goods, services or
facilities. In addition, to be eligible to borrow from NCB,
the borrower must, among other things, (1) be controlled by
its members or voting stockholders on a democratic basis;
(2) agree not to pay dividends on voting stock or membership
capital in excess of such percentage per annum as may be
approved by NCB; (3) provide that its net savings shall be
allocated or distributed to all members or patrons in
proportion to their patronage, or retain such savings for
the actual or potential expansion of its services or the
reduction of its charges to the patrons, and (4) make
membership available on a voluntary basis, without any
social, political, racial or religious discrimination and
without any discrimination on the basis of age, sex, or
marital status to all persons who can make use of its
services and are willing to accept the responsibilities of
membership. NCB may also purchase obligations issued by
members of eligible cooperatives. NCB maintains member
finance programs for retailer members of wholesaler
cooperatives in the food and hardware industries. In
addition, organizations applying for loans must comply with
other technical requirements imposed by NCB.
Lending Authorities
The Board of Directors establishes its policies
governing the lending operations in compliance with the Act
and the policies are carried out by management. The
management in turn adopts and implements guidelines and
procedures consistent with stated Board directives. Lending
policies and guidelines are reviewed regularly by the Board
of Directors and management to make needed changes and
amendments.
Management may approve individual credit exposures of
up to 75% of the single borrower lending limit which is
equal to 15% of NCB's capital (using the definition of
capital for national banks as set forth by the Office of the
Comptroller of the Currency) without prior approval of the
Board. The President may delegate authorities up to this
limit to such committees and individual officers as he may
deem appropriate.
All loan approvals require at least two signatures and
the Bank's senior management approves credit commitments
that exceed individual or team lending authority.
Cooperatives of Primary Producers
The total dollar value of loans to cooperatives that
produce, market and furnish goods, services and facilities
on behalf of their members as primary producers may not
exceed 10% of the gross assets of NCB. The total dollar
volume of loans outstanding to any producer cooperative may
not exceed 20% of the amount available for loans to all
producer cooperatives.
INTEREST RATES
NCB charges interest rates approximately equal to the
market rates charged by other financial institutions for
comparable types of loans. NCB seeks to price its loans to
yield a reasonable risk adjusted return on its portfolio in
order to build and maintain its financial viability and to
encourage the development of new and existing cooperatives.
In addition, to ensure that NCB will have access to
additional sources of capital in order to sustain its
growth, NCB seeks to maintain a portfolio that is
competitively priced and of sound quality.
Interest Rates for Real Estate Loans
Real estate loans are priced under rate guidelines
issued by NCB's Principal Transactions Group for specific
types of loans with specific maturities. NCB takes the
following factors into consideration in pricing its real
estate loans: prevailing market conditions, loan-to-value
ratios, lien position, borrower payment history, reserves,
occupancy level and cash flow. NCB fixes rates based on a
basis point spread over U.S.Treasury securities with yields
adjusted to constant maturity of one, three, five or 10
years. Interest rates may be fixed at the time of
commitment for a period generally not exceeding 30 days.
Interest Rates on Commercial Loans
NCB makes commercial loans at fixed and variable
interest rates. Loan pricing is based on prevailing market
conditions, income and portfolio diversification objectives
and the overall assessment of risk of the transaction.
Typically, commercial loan repayment schedules are
structured by NCB with constant monthly principal reduction
plus interest on the outstanding balance.
Fees
NCB typically assesses fees to cover the costs to NCB
of its consideration of and handling of loan transactions,
and to compensate NCB for setting aside funds for future
draws under a commitment. The fees paid to outside vendors
such as appraisers, environmental consultants and legal
counsel retained by NCB for loan transactions are charged to
the borrower.
Underwriting
When evaluating credit requests, NCB seeks to determine
whether a prospective borrower has and/or will have sound
management, sufficient cash flow to service debt, assets in
excess of liabilities and a continuing demand for its
products, services or use of its facilities, so that the
requested loan will be repaid in accordance with its terms.
NCB evaluates repayment ability based upon an analysis
of a borrower's historical cash flow and conservative
projections of future cash flows from operations. This
analysis focuses on determining the predictability of future
cash flows as a primary source of repayment.
Security
Loans made by NCB are generally secured by specific
collateral. If collateral security is required, the value
of the collateral must be reasonably sufficient to protect
NCB from loss, in the event that the primary sources of
repayment of financing from the normal operation of the
cooperative, or refinancing, prove to be inadequate for debt
repayment. Collateral security alone is not a sufficient
basis for NCB to extend credit. Unsecured loans normally
are made only to borrowers with strong financial conditions,
operating results and demonstrated repayment ability.
Loans Benefiting Low-Income Persons
Under the Act, the Board of Directors must use its best
efforts to insure that at the end of each fiscal year at
least 35% of NCB's outstanding loans are to (1) cooperatives
whose members are predominantly low-income persons, as
defined by NCB, and (2) other cooperatives that propose to
undertake to provide specialized goods, services, or
facilities to serve the needs of predominantly low-income
persons. NCB defines a "low-income person," for these
purposes, as an individual whose family's income does not
exceed 80% of the median family income, adjusted for family
size for the area where the cooperative is located, as
determined by the Department of Housing and Urban
Development. As of December 31, 1999, 20.5% of the
outstanding loans were to "low income persons".
Loans for Residential Purposes
The Act prohibits NCB from making loans for financing,
construction, ownership, acquisition or improvement of any
structure used primarily for residential purposes if, after
giving effect to such loan, the aggregate amount of all
loans outstanding for such purposes will exceed 30 percent
of the gross assets of NCB.
To date, the 30% cap on residential real estate loans
has not restricted NCB's ability to provide financial
services to residential borrowers. NCB has been able to
maintain its position in the residential real estate market
without increased real estate portfolio exposure by selling
real estate loans to secondary market purchasers of such
loans. The preponderance of NCB real estate origination
volume in recent years has been predicated upon sale to
secondary market purchasers. There can, however, be no
assurance that NCB's future lending for residential purposes
will not be impaired by the statutory limit. As of December
31, 1999, approximately 13.0% of NCB's total assets
consisted of loans which qualify under the residential cap.
OPERATIONS OF SUBSIDIARIES
NCB also attempts to fulfill its statutory mission by
providing financing opportunities to cooperatives through
several subsidiaries.
NCB Financial Corporation ("NCBFC") is a Delaware
chartered, wholly-owned, unitary thrift holding company
whose sole subsidiary is NCB Savings Bank, FSB.
NCB Savings Bank, FSB ("NCBSB") is a federally
chartered, federally insured savings bank located in
Hillsboro, Ohio.
NCB Capital Corporation ("NCBCC") is a wholly-owned
subsidiary of NCB that originates loans to cooperatives and
sells loans in the secondary market. The company's name was
changed from NCB Mortgage Corporation in November 1997.
Where incidental to NCB financing programs for cooperatives,
and to the development of cooperatives, NCBCC may make loans
to entities that are not operating on a cooperative basis.
NCB Insurance Brokers, Inc. ("NCBIB") is engaged in the
business of brokering insurance to cooperatives.
NCB I, Inc. ("NCB I") is a wholly-owned, special
purpose corporation that holds credit enhancement
certificates related to the securitization and sale of
cooperative real estate loans. NCB and NCB I are parties to
an agreement under which each agrees not to commingle the
assets of NCB I with those of NCB.
NCB Retail Finance Corporation ("NCBRFC") is a wholly-
owned special purpose corporation that participates in the
securitization and sale of loans. NCBRFC is required by its
certificate of incorporation to have at least two directors
independent of NCB and to avoid commingling its assets with
those of NCB.
COMPETITION
Congress created and capitalized NCB because it found
that existing financial institutions were not making
adequate financial services available to cooperative, not-
for-profit business enterprises. However, NCB experiences
considerable competition in lending to the most credit-
worthy cooperative enterprises.
REGULATION
NCB is organized under the laws of the United States.
NCB is examined annually by the Farm Credit Administration,
but that agency has no regulatory or enforcement powers over
NCB, and the General Accounting Office is authorized to
audit NCB. Reports of such examinations and audits are to
be forwarded to Congress, which has the sole authority to
amend or revoke NCB's charter. NCB Savings Bank, FSB is
regulated by the Office of Thrift Supervision. As a savings
and loan holding company, NCB is subject to limited
regulatory and enforcement powers of and examination by the
Office of Thrift Supervision pursuant to 12 U.S.C. 1467a.
TAXES
The Act provides that NCB shall be treated as a
cooperative within the meaning of Section 1381 (a)(2) of the
Internal Revenue Code. As such and pursuant to the
provisions of Subchapter T of the Internal Revenue Code and
the Act, NCB, in determining its taxable income for federal
income tax purposes, is allowed a deduction for an amount
equal to any patronage refunds in the form of cash, Class B
or Class C stock, or allocated surplus that are distributed
or set aside by NCB during the applicable tax period. To
date, NCB has followed the policy of distributing or setting
aside such patronage refunds during the applicable tax
period which has reduced NCB's federal income tax liability.
NCB has determined that under the Internal Revenue Code
as amended by the Act, all income generated by NCB and its
subsidiaries, with the exception of NCB Savings Bank,
qualifies as patronage income under the Internal Revenue
Code, with the consequence that NCB is able to issue tax
deductible patronage refunds with respect to all such
income.
Section 109 of the Act, as amended, provides that NCB,
including its franchise, capital, reserves, surplus,
mortgages or other security holding and income, is exempt
from taxation by any state, county, municipality or local
taxing authority, except that any real property held by NCB
is subject to any state, county, municipal or local taxation
to the same extent according to its value as other real
property is taxed.
NCB's subsidiaries are subject to state income taxes.
AGREEMENT CONCERNING CLASS A NOTES
Following passage of a technical amendment to the Act,
NCB entered into, as of December 21, 1989, a Financing
Agreement with the U.S. Treasury to govern the interest
rates payable on the Class A notes until their final
redemption on October 31, 2020. Pursuant to the Financing
Agreement, NCB has issued to the U.S Treasury four
replacement Class A notes. As of January 1, 2000, the face
amounts and current maturities of the outstanding
replacement notes were as follows:
Current
Replacement Maturity Face
Note Date Amount Maturity
1 4/1/00 $53,553,328 3 months
2 10/1/02 $36,854,000 36 months
3 10/1/00 $55,281,000 60 months
4 10/1/00 $36,854,000 120 months
When each note matures NCB has the right to borrow
again from the Treasury the maturing amount under the same
terms and conditions. At each maturity date, the interest
rate to be paid upon the note for the succeeding period will
be calculated by the U.S. Treasury based upon the prevailing
interest rates for Treasury obligations of comparable
maturities. NCB intends generally to avail itself of this
right. Thus, until the final redemption of the Class A
notes, NCB would have outstanding to the U.S. Treasury four
traunches of Class A notes in the maturities stated above.
In November 1994, however, NCB adopted a Capitalization and
Patronage Refund Policy(as amended April 1998) that
contemplates the probable retirement of $25.0 million of Class
A notes in 2010 and $25.0 million in 2015.
FURTHER INFORMATION
For further information concerning the development of
NCB's business in 1999, please see the response to Item 7.
ITEM 2. PROPERTIES
NCB leases space for its Washington, D.C. headquarters
and for four regional offices located in Anchorage, Chicago,
New York City, and Oakland. NCB Financial Corporation, NCB
Retail Finance Corporation and NCB I, Inc. maintain offices
in Wilmington, Delaware while NCB Savings Bank, FSB
maintains its office in Ohio. NCB's headquarters is 39,264
square feet in size and regional offices average 1500 square
feet. The rental expense for the fiscal year ended December
31, 1999 was $1,458,407 for NCB's headquarters and regional
offices. NCB considers the regional offices suitable for its
needs and the facilities are fully utilized in its
operations.
In December 1999, NCB signed a ten-year lease of
approximately 48,000 square feet for its headquarters. The
lease for the new space starts on April 1, 2001.
Minimum future rental payments, assuming present office
space and space leased for the headquarters are retained
without subtracting payments made to NCB under subleases of
such space, for the following fiscal years ended December 31
are as follows:
Other
Year Headquarters Offices
2000 $1,669,815 $254,146
2001 $2,725,916 $261,858
2002 $2,070,000 $267,407
2003 $2,167,000 $280,170
2004 $2,275,560 $292,863
ITEM 3. LEGAL PROCEEDINGS
NCB is not involved in any pending legal proceeding,
other than ordinary routine litigation incidental to its
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
NCB did not submit any matters to a vote of its
security holders during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
NCB currently has three classes of stock outstanding
the rights of which are summarized as follows:
Class B Stock - The Act permits Class B stock to be
held only by borrowers of NCB and requires each borrower to
hold Class B stock at the time the loan is made at a par
value equal to 1% of its loan amount. The Act prohibits NCB
from paying dividends on Class B stock. There are two
series of Class B stock. Class B-1 stock is Class B stock
purchased for cash at par value on or after June 29, 1984,
while Class B-2 stock is all other Class B stock. Class B
stock is transferable to another eligible holder only with
the approval of NCB. NCB does not permit any transfers of
Class B-2 stock and permits only such transfers, at the
stock's $100 par value, of Class B-1 stock as are required
to permit new borrowers to obtain their required holdings of
Class B stock. In each instance, NCB specifies which
holder(s) are permitted to transfer their stock to the new
borrower, based upon which Class B stockholders with
holdings of such stock beyond that required to support their
loans have held such stock for the longest time. NCB will
also repurchase, at par value, any shares of Class B stock
that it is required to repurchase from holders by the terms
of the contracts under which such stock was originally sold
by NCB. At December 31, 1999, the stock required to be
repurchased was approximately $5,000. Class B stock has
voting rights, but such voting rights are limited in
accordance with the weighted voting system described in Item
10.
Class C Stock - The Act permits Class C stock to be
held only by cooperatives eligible to borrow from NCB. The
Act allows NCB to pay dividends on Class C stock, but so
long as any Class A notes are outstanding, limits dividends
on Class C stock(or any other NCB stock) to the interest
rate payable on such notes, which was a blended rate of
6.21% during 1999. In 1994, NCB adopted a policy under
which annual cash dividends on Class C stock of up to 2
percent of NCB's net income may be declared. The policy
does not provide any specific method to determine the
amount, if any, of such dividend. Whether any such
dividends will be declared and, if so, in what amount,
accordingly rests within the discretion of NCB's Board of
Directors. On April 24, 1997, the Board declared a cash
dividend of $1.02 per share of Class C stock payable on or
before June 30, 1997 to holders of record as of March 31,
1997. On April 23, 1998, the Board declared a cash dividend
of $1.13 per share of Class C stock payable on or before
June 30, 1998 to holders of record as of March 31, 1998. On
April 22, 1999, the Board declared a cash dividend of $1.13
per share of Class C stock payable on or before June 30,
1999 to holders of record as of March 31, 1999. In November,
1996, the Board approved a dividend de minimis provision
which states that Class C stock dividends shall not be
distributed to a stockholder until such time as the
cumulative amount of the dividend payable to the stockholder
is equal to, or exceeds, twenty-five dollars ($25.00) unless
specifically requested by the stockholder. Class C stock is
transferable to another eligible holder only with the
approval of NCB. Class C stock has voting rights, but such
voting rights are limited in accordance with the weighted
voting system described in Item 10.
Class D Stock - Class D stock is non-voting stock that
may be held by any person. Only three shares are
outstanding and NCB has no present intention to issue any
additional shares of such stock. The Act permits NCB to pay
dividends on Class D stock but NCB has no present intention
to declare any such dividends. Class D stock is
transferable only with the approval of NCB. No requests for
approval of such transfers have been made to NCB.
There is no established public trading market for any
class of NCB's common equity, and it is unlikely that any
such market will develop in view of the restrictions on
transfer of NCB's stock discussed above. Holders of Class B
stock may use such stock to meet the Class B stock ownership
requirements established in the Act for borrowers from NCB
and may be permitted by NCB, within the limits set forth
above, to transfer Class B stock to another borrower from
NCB.
As of December 31, 1999 there were 1,482 holders of
Class B stock, 398 holders of Class C stock, and 3 holders
of Class D stock.
Under the Act, NCB must make annual patronage refunds
to its patrons, which are those cooperatives from whose
loans or other business NCB derived interest or other income
during the year with respect to which a patronage refund is
declared. NCB allocates its patronage refunds among its
patrons generally in proportion to the amount of income
derived during the year from each patron. NCB stockholders,
as such, are not entitled to any patronage refunds. They
are entitled to patronage refunds only in the years when
they have patronized NCB, and the amount of their patronage
does not depend on the amount of their stockholding. Under
the Act, patronage refunds may be paid only from taxable
income and only in the form of cash, Class B or Class C
stock, or allocated surplus.
Under NCB's current patronage refund policy, which
became effective in 1995, as amended, NCB makes the non-
cash portion of the refund in the form of Class B stock
until a patron has holdings of Class B or Class C stock of
16% of its loan amount and thereafter in Class C stock.
Under the current patronage refund policy, NCB generally
intends to pay a minimum 35% of the patronage refund in cash
to those patrons with stock holdings of 1.0% or more of
their loan amount and up to 55% to those patrons with stock
holdings of 12.5% or more of their loan amount. Beginning
January 1, 2001, NCB generally intends to pay a minimum 40%
of the patronage refund in cash to those patrons with stock
holdings of up to 5% or less of their loan amount and up to
60% to those patrons with stock holding of 10.0% or more of
their loan amount. NCB will also distribute the non-cash
portion of the refund in the form of Class B stock until a
patron has holdings of Class B or Class C stock of 12.5% of
its loan amount and thereafter in Class C stock There can,
however, be no assurance that a cash patronage refund of any
amount will be declared for any year.
NCB has declared a patronage refund for the year ended
December 31, 1999 of approximately $14.8 million, of which
$5.6 million will be distributed in cash and $9.2 million in
Class B or Class C stock.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
At December 31, 1999 1998 1997 1996 1995
Loans and lease financing $ 947,898 $795,174 $773,768 $750,094 $597,190
Allowance for loan losses 18,694 17,426 17,638 15,505 14,554
Total assets 1,056,510 933,415 869,304 839,336 684,532
Total capital* 329,825 322,838 314,376 307,714 300,995
Subordinated debt** 182,542 182,542 182,542 182,542 182,542
Long-term borrowings, including
subordinated debt 468,805 413,735 387,335 384,679 337,230
Members' equity 147,283 140,296 131,833 125,172 118,453
Other borrowed funds including
deposits 695,923 575,265 531,740 515,257 365,288
For the Years Ended December 31, 1999 1998 1997 1996 1995
Total interest income $ 79,917 $ 71,187 $ 68,787 $ 61,265 $ 52,770
Total interest expense 49,760 45,561 41,944 35,299 30,753
Net interest income 30,157 25,627 26,843 25,966 22,017
Net income 14,714 12,628 12,462 11,199 9,083
Ratios
Capital to assets 31.2% 34.6% 36.2% 36.7% 44.0%
Return on average assets 1.4% 1.4% 1.5% 1.5% 1.5%
Return on average members' equity 10.1% 9.3% 9.7% 9.2% 7.8%
Net yield on interest earning assets 3.0% 2.9% 3.3% 3.7% 3.7%
Average members' equity as a percent of
Average total assets 14.1% 14.8% 15.3% 16.5% 18.9%
Average total loans and lease financing 15.8% 17.5% 17.9% 19.2% 21.9%
Net average loans and lease financing
to average total assets 89.0% 84.9% 85.5% 84.3% 84.0%
Net average earning assets to
average total assets 97.4% 96.0% 95.9% 92.4% 92.7%
Allowance for loan losses
to loans outstanding 2.0% 2.2% 2.3% 2.1% 2.5%
Provision for loan losses
to average loans outstanding 0.1% 0.1% 0.5% 0.3% 0.4%
* - Capital includes members' equity and subordinated debt
** - Excludes deferred hedge gains
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999 and 1998
Financial Summary
Net income for the year ended December 31, 1999 was $14.7
million, representing an increase of $2.1 million or 16.5%
compared with $12.6 million in 1998. The variance resulted
primarily from $4.5 million and $1.6 million increases in net
interest income and non-interest income, respectively, which was
partially offset by a combined increase in non-interest expense
and provision for income taxes of $4.0 million.
NCB continued to maintain strong credit quality. Impaired
assets amounted to .3% of total assets at year end. Total loans
charged off as a percentage of total loans and leases outstanding
at December 31, 1999 was .03%. The provision for loan losses as
a percentage of average loans and leases remained at .1% in 1999
and 1998. In this same period, the allowance for loan losses as
a percentage of average loans and leases decreased to 2.0% in
1999 from 2.2% in 1998.
The return on average assets was 1.4% for both 1999 and
1998. The return on average equity increased to 10.1% in 1999
compared with 9.3% in 1998.
Total assets were $1.06 billion at December 31, 1999, up
13.2% or $123.1 million from $933.4 million as of December 31,
1998. This resulted from an increase in net loans and lease
financing, loans held for sale and other assets of $161.1 million
partially offset by a decrease in cash and cash equivalents,
restricted cash and investment securities of $38.0 million.
Net interest income
Net interest income for 1999 was $30.2 million, which was an
increase of $4.5 million or 17.7% over $25.6 million in the
prior year. Table 1 contains more detailed information about the
$4.5 million increase.
As shown on Table 2, while average interest earning assets
at December 31, 1999 increased 15.0%, the average yield dropped
20 basis points to 7.89% in 1999 from 8.09% in 1998. The net
interest spread increased slightly by 1 basis point to 2.07% from
2.06% while net interest yield on interest earning assets was
2.98% and 2.91% for the twelve months ended December 31, 1999 and
1998, respectively.
For the year ended December 31, 1999, interest income
increased 12.3% to $79.9 million compared with $71.2 million from
the prior year. The increase in interest income was due to a
higher average balance of real estate loans and commercial loans
and leases. Average loans and leases outstanding at year end
1999 increased 18.8% to $924.7 million compared with $778.2
million at December 31, 1998.
Total interest expense increased $4.2 million or 9.2% to
$49.8 million for the year ended December 31, 1999 from $45.6
million in 1998. As shown on Table 2, the average rate on
interest bearing liabilities at December 31, 1999 declined 21
basis points to 5.82% from 6.03% at December 31, 1998.
See Table 1 & Table 2
Credit quality
Credit quality improved and continued to remain strong in
1999. NCB maintains loan loss reserves that, in management's
judgement based on current expectations relative to portfolio
characteristics, are adequate to absorb future losses inherent in
the loan portfolio.
An inevitable aspect of the lending or risk assumption
process is the fact that losses will be incurred. The extent to
which losses occur depends on the risk characteristics of the
loan portfolio. NCB emphasizes continuous credit risk
management. Specific procedures have been established that seek
to eliminate undue credit risk on the balance sheet. They
include a multilevel approval process and an ongoing assessment
of the credit condition of the portfolio. In addition, a risk
rating system is designed to classify each loan according to the
risks unique to each credit facility.
To manage credit risk over a wide geographic area and
lending in multiple industries, NCB uses a team-based approval
process which relies upon the expertise of lending teams familiar
with particular segments of our industry. Those credit
facilities exceeding delegated lending authority for each team
are approved by senior management in an attempt to ensure the
quality of lending decisions. Financial analysis of the
industries and regions serviced is regularly performed by the
various lending teams that keep abreast of economic events and
market conditions throughout the United States.
Loans with developed risk characteristics that make their
full and timely payment uncertain are assigned to the Special
Assets Department. The Department determines, on a case-by-case
basis, the best course of action to restore a credit to an
acceptable risk rating or to minimize potential losses to NCB.
By maintaining an adequate allowance for loan losses,
management seeks to protect NCB's capital against the risk of
losses inherent in the credit extension process. The allowance
is increased by the provision for possible credit losses and
decreased by the amount of charge-offs, net of recoveries. The
adequacy of the allowance for loan losses is determined based on
risk ratings, current and future economic conditions,
concentrations, diversification, portfolio size, collateral and
guarantee support and level of nonperforming and delinquent
credits, among other relevant factors.
The provision for loan losses increased to $908.9 thousand
in 1999 from $842.9 thousand in 1998 due to loan growth. The
provision as a percentage of average loans and leases outstanding
was .1% in both 1999 and 1998.
The allowance for loan losses increased 7.3% to $18.7
million as of December 31, 1999 from $17.4 million a year
earlier. The allowance as a percentage of loans and leases
outstanding decreased to 2.0% at December 31, 1999 from 2.2% at
December 31, 1998. The allowance as a percentage of impaired
assets increased to 572% in 1999 compared with 259% in the prior
year.
<TABLE>
Table 1
CHANGES IN NET INTEREST INCOME
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Compared to 1998 1998 Compared to 1997
Increase (decrease) due to Increase (decrease) due to
change in: change in:
Average Average Average Average
For the years ended December 31, Volume* Rate Net** Volume* Rate Net**
Interest Income
Cash equivalents and investment
securities $ (846) $ 346 $ (500) $ 959 $(1,453) $ (494)
Commercial loans and leases 8,039 (1,181) 6,858 (215) 567 352
Real estate loans 4,065 (1,693) 2,372 4,984 (2,443) 2,541
Total interest income 11,258 (2,528) 8,730 5,728 (3,329) 2,399
Interest Expense
Deposits 830 (128) 702 1,046 (77) 969
Notes payable 5,008 (1,144) 3,864 10,933 (8,660) 2,273
Subordinated debt 0 (367) (367) 0 374 374
Total interest expense 5,838 (1,639) 4,199 11,979 (8,363) 3,616
Net interest income $ 5,420 $ (889) $4,531 $(6,251) $ 5,034 $(1,217)
*Average monthly balances
**Changes in interest income and interest expense due to changes in rate and
volume have been "allocated to change in average volume" and "change in
average rate" in proportion to the absolute dollar amounts in each.
</TABLE>
<TABLE>
Table 2
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the years ended December 31, 1999 1998 1997
Ave. Ave. Ave.
Assets Average Income/ Rate/ Average Income/ Rate/ Average Income/ Rate/
Balance* Expense Yield Balance* Expense Yield Balance* Expense Yield
Interest earning assets
Real estate loans $ 467,766 $35,865 7.67% $415,493 $33,493 8.06% $355,160 $ 30,951 8.71%
Commercial loans and
leases 456,885 38,808 8.49% 362,670 31,950 8.81% 365,143 31,599 8.65%
Total loans and leases 924,651 74,673 8.08% 778,163 65,443 8.41% 720,303 62,550 8.68%
Investment securities
and cash equivalents 87,787 5,244 5.97% 102,218 5,744 5.62% 87,386 6,237 7.14%
Total interest earning
assets 1,012,438 79,917 7.89% 880,381 71,187 8.09% 807,689 68,787 8.52%
Allowance for loan losses (18,330) (17,722) (16,747)
Non-interest earning assets
Cash 6,039 1,327 5,028
Other 39,259 52,837 46,176
Total non-interest earning
assets 45,298 54,164 51,204
Total assets $1,039,406 $916,823 $842,146
Liabilities and members' equity
Interest bearing liabilities
Subordinated debt $ 182,542 $10,463 5.73% $182,542 $10,830 5.93% $182,542 $ 10,455 5.73%
Note payable 547,143 33,655 6.15% 466,288 29,791 6.39% 409,767 27,518 6.72%
Deposits 125,058 5,642 4.51% 106,720 4,940 4.63% 84,147 3,971 4.72%
Total interest bearing
liabilities 854,743 49,760 5.82% 755,550 45,561 6.03% 676,456 41,944 6.20%
Other liabilities 38,470 25,461 36,754
Members' equity 146,193 135,812 128,936
Total liabilities and
members' equity $1,039,406 $916,823 $842,146
Net interest earning
assets $ 157,695 $124,831 $131,233
Net interest revenues and
spread $30,157 2.07% $25,626 2.06% $26,843 2.32%
Net yield on interest
earning assets 2.98% 2.91% 3.32%
*Based on monthly balances. Average loan balance includes nonaccrual loans.
</TABLE>
Total impaired assets (non-accruing and restructured
loan and real estate owned(REO)) decreased to $3.3 million
at December 31, 1999 from $6.7 million at December 31, 1998.
At December 31, 1999 and 1998, impaired assets as a
percentage of total capital were 2.2% and 4.8%,
respectively.
See Table 3 & Table 4
Non-accruing loans, as a percentage of loans and
leases, were .06% and .3% at year end 1999 and 1998,
respectively. The decrease of $1.7 million in REO was due to
the sale of various parcels and the write down of foreclosed
real estate properties.
The majority of NCB's loans are to cooperatives in
industries such as owner-occupied multi-family residential
housing, food distribution, health care, and financial
services. NCB bases credit decisions on the cash flows of
its customers and views collateral as a secondary source of
repayment.
The real estate portfolio contains a concentration of
loans in the New York City area; however, the majority of
loans are to seasoned housing cooperatives with low loan-to-
value ratios. NCB also has minimal credit exposure to
highly leveraged transactions, commercial real estate and
construction loans. NCB has no foreign loan exposure.
See Table 5
Non-interest income
Non-interest income increased 11.4% to $15.7 million at
year end 1999 from $14.1 million in 1998. Non-interest
income is composed of gains from sales of blanket mortgages
and share loans to secondary market investors, servicing
fees, net origination fees on sold loans, management fees,
advisory and debt placement fees and other income. Gain on
sale of loans of $8.4 million in 1999, which represented
53.7% of non-interest income, increased 44.8% from $5.8
million for year ended December 31, 1998. Loan sales in
1999 and 1998 were $408.1 million and $578.8 million,
respectively. NCB maintains a conservative interest rate
risk policy; accordingly, warehoused loans were fully hedged
in 1999 and 1998.
Servicing income remained a stable source of non-
interest income for NCB in 1999. NCB earned servicing fee
income of $2.8 million and $2.6 million in 1999 and 1998,
respectively. As of December 31, 1999, NCB serviced $2.1
billion in single and multi-family real estate and
commercial loans for investors compared with $1.8 billion at
year end 1998.
Other income decreased 22.3% to $4.4 million for the
year ended December 31, 1999 compared with $5.7 million for
the prior year. The majority of the decrease in other
income was related to a write down of a real estate owned
property and reduced amortization of interest-only receivables.
<TABLE>
Table 3
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
For the years ended December 31, 1999 1998 1997 1996 1995
Balance at beginning of year $17,426 $17,638 $15,504 $14,554 $13,031
Charge-offs
Commercial 244 1,161 597 1,106 131
Real estate - residential 20 70 958 31 568
Total charge-offs 264 1,231 1,555 1,137 699
Recoveries
Commerical 437 101 133 137 125
Real estate - residential 186 75 52 0 192
Total recoveries 623 176 185 137 317
Net charge-offs (recoveries) (359) 1,055 1,370 1,000 382
Provision for loan losses 909 843 3,504 1,950 1,905
Balance at end of year $18,694 $17,426 $17,638 $15,504 $14,554
</TABLE>
<TABLE>
Table 4
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1999 1998 1997 1996 1995
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
Loans and lease financing
Commercial * $470,913 49.7% $353,768 44.5% $347,658 44.9% $342,211 45.6% $327,215 54.8%
Real estate - residential* 408,204 43.1 386,565 48.6 389,153 50.3 384,035 51.2 247,524 41.5
Real estate - commercial 8,677 .9 7,350 .9 7,025 1.0 8,742 1.2 9,361 1.6
Lease financing 60,104 6.3 47,491 6.0 29,932 3.8 15,106 2.0 13,090 2.1
Total loans and lease
financing $947,898 100.0% $795,174 100.0% $773,768 100.0% $750,094 100.0% $597,190 100.0%
Allocation of allowance for loan
losses
Commercial $ 10,659 57.0% $ 9,240 53.1% $ 10,348 58.7% $ 7,826 50.5% $ 7,158 49.2%
Real estate - residential 4,484 24.0 6,097 35.0 6,971 39.5 6,963 44.9 5,820 40.0
Lease financing 301 1.6 671 3.8 319 1.8 151 1.0 250 1.7
Unallocated 3,250 17.4 1,418 8.1 0 0.0 564 3.6 1,326 9.1
Total allowance for loan
losses $ 18,694 100.0% $ 17,426 100.0% $ 17,638 100.0% $ 15,504 100.0% $ 14,554 100.0%
*Includes loans held for sale
</TABLE>
Table 5
IMPAIRED ASSETS
(dollars in thousands)
At December 31, 1999 1998 1997 1966 1995
Real estate owned $2,687 $4,343 $5,115 $ 377 $1,397
Non-accruing 580 2,385 3,030 2,829 1,741
Restructured - - - 1,049 709
$3,267 $6,728 $8,145 $4,255 $3,847
Non-interest expense
Non-interest expense for the year ended December 31,
1999 increased 15.3% to $28.6 million compared with $24.8
million for the prior year. Non-interest expense as a
percentage of average assets was 2.7% for 1999 and 1998.
Salaries and benefits, remaining by far the single largest
component of non-interest expense, increased 13.1% or $1.7
million from last year due to a higher employee count and
bonus accruals than the prior year. Salaries and employee
benefits accounted for 50.4% of non-interest expense in 1999
compared with 51.4% in 1998. As of December 31, 1999, NCB
and its consolidated subsidiaries employed 187 employees
compared with 172 employees one year earlier. For the year
ended December 31, 1999, contractual services increased
$214.6 thousand or 4.4% to $5.1 million from $4.9 million in
1998. The increase in contractual services was related to e-
commerce and corporate development and marketing expenses.
Occupancy and equipment and other expenses increased by $664
thousand due to additional rental space and increases in
maintenance contracts for various software packages and
computer/internet related supplies and services. Under the
provisions of the Act, NCB makes tax deductible, voluntary
contributions to NCB Development Corporation(NCBDC). These
contributions are discretionary and are based upon the
approval of NCB's Board of Directors. There was no
contribution to NCBDC in 1998 while in 1999 $1.0 million was
contributed to fund certain business activities. Other
expenses went up $250.2 thousand due mainly to increased
travel expenses associated with loan growth. Non-interest
expense, adjusted for the contribution to NCBDC, as a
percentage of average assets was 2.7% in both 1999 and 1998.
Income taxes
Under the terms of the Act, NCB is exempt from most
state and local taxes. In addition, under provisions of the
Act and Subchapter T of the Internal Revenue Code, NCB
substantially reduces its Federal tax liability through the
issuance of annual patronage dividends. The federal income
tax provision is determined on the basis of non-member
income generated by NCB Savings Bank, FSB, and reserves set
aside for the retirement of Class A notes and dividends on
Class C stock. NCB's subsidiaries are also subject to
varying levels of state taxation.
Note 19 to the consolidated financial statements
contains additional discussions of NCB's tax status.
1998 and 1997
Net income for year ended December 31, 1998 of $12.6
million showed a slight increase of $165 thousand or 1.3%
compared with $12.5 million in 1997. The positive effects of
the increase in interest income of $2.4 million and the
decrease in the provision for possible credit losses of $2.7
million were offset by increased interest expense and non-
interest expenses of $3.6 million and $.7 million,
respectively.
NCB continued to maintain strong credit quality.
Impaired assets amounted to .7% of total assets at year end.
Net chargeoffs as a percentage of total loans and leases
outstanding at December 31, 1998 were .13%. The provision
for loan losses as a percentage of average loans and leases
decreased to .1% in 1998 from .5% in 1997. In this same
period, the allowance for loan losses as a percentage of
loans and leases decreased to 2.2% in 1998 from 2.3% in
1997.
Non-interest income decreased 3.4% from $14.6 million
at year end 1997 to $14.1 million in 1998. Non-interest
income is composed of gains from sales of blanket mortgages
and share loans to secondary market investors, servicing
fees, origination fees and advisory fees. Gain on loan sales
of $5.8 million in 1998, which represented 41.3% of non-
interest income, decreased 19.7% from $7.2 million for year
ended December 31, 1997. The decrease was attributable to
lower gains on large loan sales in the fourth quarter due to
market conditions. Real estate loan sales in 1998 of $569.3
million reflected an increase of 77.7% or $248.9 million
compared with $320.4 million in 1997. NCB maintains a
conservative interest rate risk policy; accordingly,
warehoused loans were fully hedged in 1998 and 1997.
Non-interest expense for the year ended December 31,
1998 increased 2.9% to $24.8 million compared with $24.1
million for the prior year. Non-interest expense as a
percentage of average assets was 2.7% and 2.9% for 1998 and
1997, respectively. Salaries and benefits, remaining by far
the single largest component of non-interest expense, had a
minimal increase of .6% or $78 thousand from 1997. Salaries
and employee benefits accounted for 51.4% of non-interest
expense in 1998 compared with 52.6% in 1997. As of December
31, 1998, NCB and its consolidated subsidiaries employed 172
employees compared with 159 employees one year earlier. For
the year ended December 31, 1998, contractual services
increased $1.1 million or 27.7% to $4.9 million from $3.8
million in 1997. The increase in contractual services was
mainly due to higher audit fees and corporate development
and marketing expenses. Occupancy and equipment and other
expenses went up by $572 thousand due to increases in
depreciation associated with new technology and
computer/internet related supplies and services. Under the
provisions of the Act, NCB makes tax deductible, voluntary
contributions to NCBDC. These contributions are
discretionary and are based upon the approval of NCB's Board
of Directors. In 1998, there was no contribution to NCBDC
while in 1997 $1.0 million was made to fund certain business
activities. Non-interest expense, adjusted for the
contribution to NCBDC, as a percentage of average assets
remained the same at 2.7% in 1998 and 1997.
1999 and 1998 Fourth quarter results
Net income for the fourth quarter of 1999 decreased
82.0% or $4.1 million compared with $5.0 million for the
prior year's quarter. The negative variance resulted
primarily from a decrease of $1.9 million in non-interest
income due to timing of loan sales and increases of $3.4
million in non-interest expense and $121 thousand in
provision for income taxes. The majority of the increase in
non-interest expense was due to higher year-end bonus accruals
and e-commerce and marketing expenses. This decrease was
partially offset by an increase in net interest income of
$1.4 million.
See Table 6
Sources of funds
Capital Markets Access
NCB maintains line of credit facilities provided by a
consortium of banks. At year end 1999 and 1998, total
borrowing capacity under these facilities was $452.5 million
and $402.5 million, respectively. The outstanding balance
at December 31, 1999 was $79.5 million compared with an
outstanding balance of $156.0 million at December 31, 1998.
NCBSB is a member of the Federal Home Loan Bank of
Cincinnati, Ohio (FHLB) where it has a blanket pledge
agreement requiring advances to be secured by eligible
mortgages with a principal balance of 150% of such advances.
There were outstanding advances of $15.0 million at December
31, 1999. There were no outstanding advances at December
31, 1998.
NCB developed a program under which it borrows, on a
short-term basis, from certain of its customers. At
December 31, 1999 and 1998, the short-term borrowings
outstanding were $17.2 million and $34.7 million,
respectively.
Usage on all short term borrowings, as measured by
average outstanding balances during the year, increased from
$251.1 million in 1998 to $282.3 million in 1999 due to
growth in real estate and commercial loans and leases and
additional activity to fund warehoused real estate loans.
In 1998, steps were taken to move into the medium term
note market. In 1999, NCB received Board approval to issue
up to $400.0 million under the medium term note program. As
of December 31, 1999 and 1998, NCB had $100.0 million and
$55.0 million outstanding under this program. In addition,
during 1997, NCB implemented a commercial paper program. In
1999, NCB received Board approval to issue up to $250.0
million in commercial paper. At year-end 1999 and 1998,
face values of $172.4 million and $30.0 million,
respectively, were outstanding.
In August 1999, NCB also received Board approval to
issue up to $50.0 million in trust preferred securities,
preferred stock or subordinated debt. There was no
outstanding issuance at December 31, 1999.
Unused capacity under the short-term and long-term
facilities of approximately $183.3 million and $350.0
million, respectively, is sufficient to meet anticipated
disbursements in 2000.
NCB's loan sale activity is another source of funding.
NCB originates most of its real estate loans, including
share loans originated by NCB Savings Bank, FSB, for sale
into the secondary market. In 1999, NCB sold $408.1 million
of cooperative real estate, commercial and share loans
compared with $578.8 million in the prior year.
In 2000, NCB expects to sell $464.0 million of
cooperative real estate and share loans in the secondary
market, some of which will be originated subsequent to December
31, 1999.
<TABLE>
Table 6
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998
For the three months ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
Interest income $21,091 $20,690 $19,634 $18,502 $17,561 $18,354 $17,895 $17,377
Interest expense 13,611 12,810 12,475 10,864 11,457 12,121 11,459 10,524
Net interest income 7,480 7,880 7,159 7,638 6,104 6,233 6,436 6,853
Provision for loan losses 32 42 418 417 30 30 430 353
Income after provision for
loan losses 7,448 7,838 6,741 7,221 6,074 6,203 6,006 6,500
Non-interest income 2,689 5,324 6,013 1,641 4,587 1,903 2,054 5,524
Net revenue 10,137 13,162 12,754 8,862 10,661 8,106 8,060 12,024
Non-interest expense 8,739 6,360 7,079 6,387 5,298 6,246 7,004 6,222
Income before income taxes 1,398 6,802 5,675 2,475 5,363 1,860 1,056 5,802
Provision for income taxes 500 409 403 324 379 404 377 293
Net income $ 898 $ 6,393 $ 5,272 $ 2,151 $ 4,984 $ 1,456 $ 679 $ 5,509
</TABLE>
Deposits
At NCB's wholly-owned subsidiary, NCB Savings Bank, FSB,
deposits increased 2.1% to $126.1 million in 1999 from $123.4
million a year earlier. The average deposit growth of 17.2% was
attributable to an aggressive campaign to attract local and
national deposit accounts and cooperative customers. The weighted
average rates on deposits at December 31, 1999 and 1998 were 4.5%
and 4.7%, respectively. The average maturity of the certificates
of deposit at December 31, 1999 was 14.7 months compared with
15.4 months at same period in the prior year. Although NCB
relies heavily on funds raised through the capital markets,
deposits are a major portion of interest bearing liabilities --
14.3% in 1999 compared with 16.3% in 1998. Management
anticipates that deposits will represent an increasing portion of
its funding structure.
Uses of funds
Loans and Leases
Loans and leases outstanding increased 19.2% to $947.9
million at year-end 1999 from $795.2 million in 1998.
NCB's commercial loan portfolio expanded with new business
opportunities. The commercial loan and lease portfolio increased
32.3% to $531.0 million at December 31, 1999 compared with
$401.3 million a year earlier. The commercial loan portfolio
reflects an increase in the areas of food processing and
distribution, financial services, native Alaskan and hardware
wholesale cooperatives due to loan growth. Loans to medical service
and supplies borrowers decreased due to scheduled loan repayments
and maturities.
NCB's real estate portfolio increased 5.8% to $416.9 million
at the end of 1999 from $393.9 million at same period last year.
The real estate portfolio was substantially composed of
multifamily blanket mortgages and single family share loans. NCB
does not invest in speculative commercial real estate
transactions.
For 2000, NCB expects continued growth in its origination
and secondary marketing activities. For both commercial and real
estate lines of business, new disbursements and loan sales are
expected to be approximately $301.8 million and $582.7 million,
respectively.
Cash, Cash Equivalents, and Investment Securities
Cash, cash equivalents, and investments decreased 31.2% or
$38.0 million to $83.8 million at December 31,1999, compared with
$121.8 million in 1998. Cash, cash equivalents, and investment
securities represent 8.1% of interest earning assets in 1999
compared with 13.5% in 1998.
Asset and liability management
Asset and liability management is the structuring of
interest rate sensitivities of the balance sheet to maximize net
interest income under the constraints of liquidity and interest-
rate risk ("IRR"). NCB's liquidity and IRR are managed by the
Risk Management Committee which meets quarterly. The purpose of
the committee is to develop and implement strategies, including
the buying and selling of off-balance sheet instruments such as
interest rate swaps and financial futures contracts, and to
ensure sufficient reward for known and controlled risk.
Overall, NCB's Risk Management Committee adheres to the
philosophy that a consistently balanced position results in the
safest and most predictable net interest earnings stream over
various interest rate cycles.
Liquidity
Liquidity is the ability to meet financial obligations
either through the sale or maturity of existing assets or through
the raising of additional funds. Maintaining adequate liquidity
therefore requires careful coordination of the maturity of assets
and liabilities.
NCB's asset liquidity is generally provided by maintaining
near-cash and short-term investments which can be converted to
cash at little or no cost. These investments include: fed
funds, eurodollar investments, commercial paper, certificates of
deposit, and other short term obligations. These securities
normally have a maturity of less than ninety days and are not
subject to price variations. At December 31, 1999, NCB held
$29.9 million in cash and cash equivalents compared with $66.6
million in cash and cash equivalents at year end 1998. These
funds are normally used to fund business operations.
At December 31, 1999 and 1998, NCB had $25.8 million and
$13.7 million, respectively, of investment portfolio which is a
second source of asset liquidity. The portfolio consists of high-
grade corporate and government obligations. The weighted average
period to maturity remained at approximately 3 years and 5 years
for 1999 and 1998, respectively.
Aside from its principal amortization (scheduled and non-
scheduled) and maturities, the loan portfolio is an excellent
source of liquidity as demonstrated by NCB's success in asset
securitization. In fact, NCB has been instrumental in developing
the secondary market for loans made to cooperatives.
NCB also has $452.5 million of revolving lines of credit.
At December 31, 1999, the following commitments were outstanding:
$210.0 million is committed until May 24, 2000
$140.0 million is committed until May 24, 2002
$50.0 million is committed until April 14, 2000
The remaining balance of $52.5 million is uncommitted at December
31, 1999. Average outstanding balances were $118.0 million in
1999 compared with $165.8 million in 1998.
NCB maintains available committed capacity, under its short
term facilities, in an amount not less than the outstanding
commercial paper balance.
Additionally, NCB has authority to issue up to $400.0
million under the medium term program. As of December 31, 1999,
$100.0 million is outstanding under this program.
Finally, NCB's wholly-owned subsidiary, NCB Savings Bank,
FSB raises both local and national deposits from NCB members,
which also serve as a source of liquidity. NCB Savings Bank,
FSB, uses cooperative deposits to co-originate loans with NCB.
See Table 7
Year 2000
Many activities relating to NCB's corporate-wide year 2000 program
took place during the months before January 1, 2000 and the weeks immediately
thereafter. To manage these efforts, NCB employed a coordinated management
strategy to facilitate detection and resolution of potential Year 2000
disruptions, and to ensure efficient communications with NCB's management,
staff, customers, and third parties.
As a result of diligent monitoring, NCB's systems were available
earlier than predicted. As testing proceeded over the transition, very
few system problems were reported, and all of these problems were resolved
with little or no impact to NCB and its customers.
The relatively smooth transition into the Year 2000 indicates that
remediation efforts were largely successful. NCB has nonetheless planned for
the possibility that Year 2000 failures may yet be discovered. Monitoring and
reporting will continue throughout 2000 in compliance with FFIEC guidelines.
Direct costs incurred by NCB have totaled approximately $55,000. NCB does
not expect to incur any Year 2000 expenses in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NCB's principal market risk exposure is to interest rates.
NCB's asset and liability management process is utilized to
manage NCB's interest rate risk through the structuring of the
balance sheet and off-balance sheet portfolios to maximize net
interest income while maintaining an acceptable level of risk to
changes in market interest rates. The achievement of this goal
requires a balance between profitability, liquidity, and interest
rate risk.
Interest rate risk is managed by the Risk Management
Committee (RMC), which is composed of senior officers of NCB, in
accordance with policies approved by NCB's Board of Directors.
The RMC formulates strategies based on appropriate levels of
interest rate risk. In determining the appropriate level of
interest rate risk, the RMC considers the impact on earnings and
capital of the current outlook on interest rates, potential
changes in interest rates, regional and national economies,
liquidity, business strategies, and other factors. The RMC meets
regularly to review, among other things, the sensitivity of
assets and liabilities to interest rate changes, the book and
market values of assets and liabilities, unrealized gains and
losses, purchase and sale activity, warehouse loans and
commitments to originate loans ("mortgage pipeline"),and the
maturities of investments and borrowings. Additionally, the RMC
reviews liquidity, cash flow flexibility, maturities of deposits,
and consumer and commercial deposit activity.
To effectively measure and manage interest rate risk, NCB
uses simulation analysis to determine the impact on net interest
income under various interest rate scenarios, balance sheet
trends, and strategies. From these simulations, interest rate
risk is quantified and appropriate strategies are developed and
implemented. Additionally, duration and market value
sensitivity measures are utilized when they provide added value
to the overall interest rate risk management process. The
overall interest rate risk position and strategies are reviewed
by executive management and NCB's Board of Directors on an
ongoing basis. NCB has traditionally managed its business to
reduce its overall exposure to changes in interest rates.
However, under current policies of NCB's Board of Directors,
management has been given some latitude to increase NCB's
interest rate sensitivity position within certain limits if, in
management's judgement, it will enhance profitability. As a
result, changes in market interest rates may have a greater
impact on NCB's financial performance in the future than they
have had historically.
NCB manages its exposure to interest rates by entering into
certain financial instruments with off-balance sheet risk in the
ordinary course of business. The financial instruments used for
hedging interest rate risk include interest rate swaps, caps,
floors, financial options, financial futures contracts, and
forward delivery contracts. A hedge is an attempt to reduce risk
by creating a relationship whereby any losses on the hedged asset
or liability are expected to be offset in whole or in part by
gains on the financial instrument used for hedging. Thus, market
risk resulting from a particular instrument is normally offset by
other on or off-balance-sheet instruments. See Note 21 to the
Consolidated Financial Statements.
The following tables present an analysis of the sensitivity
inherent in NCB's net interest income and market value of
portfolio equity (market value of assets, less liabilities,
adjusted for the market value of mortgage servicing rights and
off-balance-sheet instruments). The interest rate scenarios
presented in the table include interest rates at December 31,
1999 and December 31, 1998 as adjusted for each year-end by
instantaneous parallel rate changes upward and downward of up to
200 basis points. Each rate scenario reflects unique prepayment
and repricing assumptions. The negative change in the table for
Net Interest Income and Market Value Portfolio Equity for 1999
versus 1998 (up 100 and 200 shock scenarios) relates to the
combination of several factors which include: the higher
proportion of short-term debt financings, maturities, repricings,
and the reduction in cash and cash equivalents at December 31, 1999.
Since there are limitations inherent in any methodology used
to estimate the exposure to changes in market interest rates,
this analysis is not intended to be a forecast of the actual
effect of a change in market interest rates. The net interest
income variability reflects NCB's interest sensitivity gap
(defined below).
1999
CHANGE IN CHANGE IN
CHANGE IN NET INTEREST MARKET VALUE OF
INTEREST RATES INCOME PORTFOLIO EQUITY
+200 (6.3)% (11.3)%
+100 (3.0) (6.1)
0 0.0 0.0
-100 2.8 4.3
-200 5.1 9.2
1998
CHANGE IN CHANGE IN
CHANGE IN NET INTEREST MARKET VALUE OF
INTEREST RATES INCOME PORTFOLIO EQUITY
+200 1.2% (5.4)%
+100 .6 (2.6)
0 0.0 0.0
-100 (1.0) 3.0
-200 (2.4) 6.1
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 business
units.
2. Spread relationships between various interest rate indices,
which are generated by the analysis of historical relationships
and RMC consensus.
3. Assumptions about the effect of embedded options and
prepayment speeds:
NCB is subject to limited prepayment risk given the
structure of the loans; therefore limited prepayments
are factored into the assumptions.
The interest rate sensitivity gap ("gap") is defined as the
difference between interest-earning assets and interest-bearing
liabilities maturing or repricing within a given time period.
During a period of rising interest rates, a positive gap (where
the amount of assets maturing and repricing within one year
exceed liabilities maturing or repricing within one year) would
tend to have a positive impact on net interest income while a
negative gap would tend to have a detrimental impact. During a
period of declining interest rates, a negative gap would tend to
have a positive impact on net interest income while a positive
gap would tend to have a detrimental impact. NCB's one-year
cumulative gap positions at December 31, 1999 and 1998 were
negative $95.9 million or (9.07%) of assets and positive $26.0
million or 2.78% of assets, respectively.
While the gap position is a useful tool in measuring
interest rate risk, it is difficult to predict the effect of
changing interest rates solely on that measure, without
accounting for alterations in the maturity or repricing
characteristics of the balance sheet that occur during changes in
market interest rates. For example, the gap position reflects
only the prepayment assumptions pertaining to the current rate
environment. Assets tend to prepay more rapidly during periods
of declining interest rates than during periods of rising
interest rates. Because of this and other risk factors not
contemplated by the gap position, an institution could have a
matched gap position in the current rate environment and still
have its net interest income exposed to interest rate risk.
The following tables set forth the expected maturity and
repricing characteristics of NCB's consolidated assets,
liabilities and off-balance sheet contracts at December 31, 1999
and 1998.
See Table 8 and 9
It is clear from Table 8 that on December 31, 1999 NCB had a
negative gap (as a percentage of total assets) of 9.07% and
10.91% at the one year and 180 day time horizons, respectively.
Table 9 indicated that on December 31, 1998, NCB had a positive
gap (as a percentage of total assets) of 2.78% and 2.35% at the
one year and 180 day time horizons, respectively. At December 31,
1999 and 1998, NCB's static gap positions were in compliance with
existing Board policies.
Table 7
MATURITY SCHEDULE OF LOANS
(dollar in thousands)
One Year
One Year Through Over
At December 31, 1999 or Less Five Years Five Years Total
Commercial $39,774 $205,028 $226,111 $470,913
Real estate-residential 6,484 79,280 322,440 408,204
Real estate-commercial 3,324 3,125 2,228 8,677
Leases 47 49,215 10,842 60,104
Total loans and leases $49,629 $336,648 $561,621 $947,898
Fixed interest rate loana $180,132 $322,890
Variable interest rate
loans 156,516 238,731
$336,648 $561,621
<TABLE>
Table 8
Interest Rate Sensitivity
(dollar in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over 12
At December 31, 1999 Interest Interest Interest Interest Interest Months and
-sensitive -sensitive -sensitive -sensitive -sensitive Non-Interest
30 day 3 month 6 month 12 month Total Sensitive Total
Interest earning assets
Cash and cash
equivalents $ 41,901 $ 0 $ 0 $ 0 $ 41,901 $ 0 $ 41,901
Investment securities 2,284 3,962 3,023 2,491 11,760 39,432 51,192
Loans and leases 76,486 353,712 40,607 80,875 551,680 418,361 970,041
Total interest earning
assets $120,671 $357,674 $ 43,630 $ 83,366 $605,341 $457,793 $1,063,134
Interest bearing
liabilities
Deposits $ 53,484 $ 4,747 $ 10,490 $ 31,877 $100,598 $ 25,473 $ 126,071
Short-terms borrowings 265,309 18,280 0 0 283,589 0 283,589
Long-term debt* 44,263 32,000 0 0 76,263 210,000 286,263
Subordinated debt* 53,631 0 0 92,135 145,766 36,854 182,620
Total interest bearing
liabilities 416,687 55,027 10,490 124,012 606,216 272,327 878,543
Other
Other non-interest
bearing, net 0 0 0 0 0 184,591 184,591
Effect of interest
rate swaps and
financial futures 0 40,000 115,000 (60,000) 95,000 (95,000) 0
Total $ 416,687 $ 95,027 $ 125,490 $ 64,012 $701,216 $361,918 $1,063,134
Repricing difference $(296,016) $262,647 $ (81,860) $ 19,354 $(95,875) $ 95,875
Cumulative gap $(296,016) $(33,369) $(115,229) $(95,875)
Cumulative gap as %
total assets -28.02% -3.16% -10.91% -9.07%
* Net of premiums/discounts.
</TABLE>
<TABLE>
Table 9
Interest Rate Sensitivity
(dollar in thousands)
Over 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1998 Interest Interest Interest Interest Interest Months and
-sensitive -sensitive -sensitive -sensitive -sensitive Non-Interest
30 day 3 month 6 month 12 month Total Sensitive Total
Interest earning assets
Cash and cash
equivalents $ 57,483 $ 0 $ 0 $ 0 $ 57,483 $ 0 $ 57,483
Investment securities 28,548 1,192 3,199 3,247 36,186 31,122 67,308
Loans and leases 183,155 194,839 31,097 62,457 471,548 323,439 794,987
Total interest
earning assets $269,186 $196,031 $ 34,296 $65,704 $565,217 $354,561 $919,778
Interest bearing
liabilities
Deposits $ 6,823 $ 10,870 $ 28,872 $24,806 $ 71,371 $ 52,049 $123,420
Short-terms borrowings 240,653 0 0 0 240,653 0 240,653
Long-term debt* 19,193 0 0 0 19,193 192,000 211,193
Subordinated debt* 53,717 0 0 36,854 90,571 92,135 182,706
Total interest bearing
liabilities 320,386 10,870 28,872 61,660 421,788 336,184 757,972
Other
Other non-interest
bearing, net 0 0 0 0 0 161,806 161,806
Effect of interest rate
swaps and financial
futures 0 72,450 45,000 0 117,450 (117,450) 0
Total $320,386 $ 83,320 $ 73,872 $61,660 $539,238 $380,540 $919,778
Repricing difference $(51,200) $ 112,711 $(39,576) $ 4,044 $ 25,979 $(25,979)
Cumulative gap $(51,200) $ 61,511 $ 21,935 $25,979
Cumulative gap as %
total assets -5.45% 6.55% 2.35% 2.78%
Net of premiums/discounts.
</TABLE>
Capital
NCB's strong capital position should support growth, continuing access
to financial markets, and allow for greater flexibility during difficult
economic periods.
Historically, NCB has maintained a strong capital structure. NCB's
average equity to average assets was 14.1% in 1999 compared with 14.8% in
1998. When including NCB's subordinated debt, NCB's average total capital
to average assets was 31.6% and 34.7% in 1999 and 1998, respectively. The
Act limits NCB's outstanding debt to ten times its capital and surplus
(including the subordinated debt). As of December 31, 1999, NCB Savings
Bank, FSB, maintained capital levels well in excess of regulatory
requirements.
Patronage policy
Each year, NCB declares patronage refunds approximately equal to its
taxable net income thereby substantially reducing its Federal income tax.
In June 1999, NCB distributed $12.9 million related to 1998 patronage
refund to its active member-borrowers. Of this total, approximately $4.9
million was distributed in cash.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NCB's financial statements and notes thereto are set forth beginning
at page 40 below. NCB is not subject to any of the requirements for
supplementary financial information contained in Item 302 of Regulation S-K.
Report of Independent Public Accountants
To the Board of Directors and
Members of National Cooperative Bank:
We have audited the accompanying consolidated balance sheets of National
Cooperative Bank and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, comprehensive income,
changes in members' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
National Cooperative Bank and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 conformity with
accepted accounting principles generally accepted in the United States.
Vienna, Virginia
January 26, 2000
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
December 31,
Assets 1999 1998
Cash and cash equivalents $ 29,910,037 $ 66,563,160
Restricted cash 4,887,213 13,202,725
Investment securities
Available-for-sale (amortized cost
of $47,146,086 and $38,732,390) 46,283,045 39,127,948
Held-to-maturity (fair value of
$2,719,878 and $2,861,605) 2,710,191 2,892,312
Loans held for sale 132,057,978 184,000,331
Loans and lease financing 815,840,439 611,174,140
Less: Allowance for loan losses (18,693,670) (17,426,450)
Net loans held for sale and
loans and lease financing 929,204,747 777,748,021
Other assets 43,514,663 33,881,044
Total assets $1,056,509,896 $933,415,210
Liabilities and Members' Equity
Liabilities
Deposits $ 126,071,259 $123,419,544
Patronage dividends payable in cash 5,642,040 5,275,326
Other liabilities 25,041,359 29,872,654
Borrowings
Short-term 283,589,354 220,652,186
Long-term 286,262,870 231,193,174
569,852,224 451,845,360
Subordinated debt 182,620,212 182,706,417
Total borrowings 752,472,436 634,551,777
Total liabilities 909,227,094 793,119,301
Members' equity
Common stock
Class B 99,879,531 92,209,648
Class C 22,380,663 22,199,604
Class D 300 300
Retained earnings
Allocated 9,203,865 7,245,656
Unallocated 16,682,644 17,097,102
Accumulated other comprehensive
(loss) income (864,201) 1,543,599
Total members' equity 147,282,802 140,295,909
Total liabilities and members'
equity $1,056,509,896 $933,415,210
The accompanying notes are an integral part of these financial statements.
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999 1998 1997
Interest income
Loans and lease financing $74,673,172 $65,443,587 $62,549,700
Investment securities 5,243,761 5,743,674 6,237,441
Total interest income 79,916,933 71,187,261 68,787,141
Interest expense
Deposits 5,642,331 4,939,806 3,970,498
Short-term borrowings 15,690,813 14,614,417 11,229,046
Long-term debt, other borrowings
and subordinated debt 28,426,982 26,006,479 26,744,347
Total interest expense 49,760,126 45,560,702 41,943,891
Net interest income 30,156,807 25,626,559 26,843,250
Provision for loan losses 908,868 842,881 3,504,000
Net interest income after
provision for loan losses 29,247,939 24,783,678 23,339,250
Non-interest income
Gain on sale of loans 8,413,595 5,808,568 7,229,368
Loan and deposit servicing
fees 2,831,495 2,569,098 2,237,082
Other 4,422,192 5,689,462 5,097,382
Total non-interest income 15,667,282 14,067,128 14,563,832
Non-interest expense
Compensation and
employee benefits 14,402,289 12,736,507 12,658,409
Contractual services 5,077,112 4,862,537 3,808,267
Occupancy and equipment 5,059,604 4,395,558 4,016,118
Contribution to NCB
Development Corporation 1,000,000 - 1,000,000
Other 3,025,600 2,775,414 2,582,435
Total non-interest
expense 28,564,605 24,770,016 24,065,229
Net income before taxes 16,350,616 14,080,790 13,837,853
Provision for income taxes 1,636,509 1,453,165 1,375,498
Net income $14,714,107 $12,627,625 $12,462,355
Distribution of net income
Patronage dividends $14,845,905 $12,520,982 $13,982,639
Retained earings (131,798) 106,643 (1,520,284)
$14,714,107 $12,627,625 $12,462,355
The accompanying notes are an integral part of these financial statements.
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1999 1998 1997
Net income $14,714,107 $12,627,625 $12,462,355
Other comprehensive income,
net of tax:
Net unrealized holding
(losses) gains before tax (2,409,600) 1,201,899 405,577
Tax benefit (expense) 1,800 1,539 (642)
Comprehensive income $12,306,307 $13,831,063 $12,867,290
The accompanying notes are an integral part of these financial statements.
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retained Retained Accumulated Other Total
Common Earnings Earnings Comprehensive Members'
Stock Allocated Unallocated (Loss) Income Equity
Balance, December 31, 1996 $100,352,300 $ 5,770,844 $19,113,185 $ (64,774) $125,171,555
Net income - - 12,462,355 - 12,462,355
Proceeds from issuance of
stock 500 - - - 500
Cancellation and
redemption of stock (1,133,918) - 247,597 - (886,321)
1996 patronage dividends
distributed in stock
and cash 6,690,367 (5,770,844) (144,882) - 774,641
Other dividends paid - - (221,484) - (221,484)
1997 patronage dividends
To be distributed
cash - - (5,872,708) - (5,872,708)
Retained in form of
equity - 8,109,931 (8,109,931) - -
Unrealized gain on
investment securities
available-for-sale - - - 404,935 404,935
Balance, December 31, 1997 105,909,249 8,109,931 17,474,132 340,161 131,833,473
Net income - - 12,627,625 - 12,627,625
Adjustment to 1996 patronage
dividends paid in 1997 (40,338) - - - (40,338)
Proceeds from issuance
of stock 300 - - - 300
Cancellation and
redemption of stock (403,294) - 23,112 - (380,182)
1997 patronage dividends
distributed in stock
and cash 8,943,635 (8,109,931) (249,824) - 583,880
Other dividends paid - - (256,961) - (256,961)
1998 patronage dividends
To be distributed cash - - (5,275,326) - (5,275,326)
Retained in form of
equity - 7,245,656 (7,245,656) - -
Unrealized gain on
investment securities
available-for-sale - - - 1,203,438 1,203,438
Balance, December 31, 1998 114,409,552 7,245,656 17,097,102 1,543,599 140,295,909
Net income - - 14,714,107 - 14,714,107
Adjustment to 1997 patronage
dividends paid in 1998 (121,586) - - - (121,586)
1998 patronage dividends
distributed in stock
and cash 7,972,528 (7,245,656) (31,775) - 695,097
Other dividends paid - - (250,885) - (250,885)
1999 patronage dividends
To be distributed cash - - (5,642,040) - (5,642,040)
Retained in form of equity - 9,203,865 (9,203,865) - -
Unrealized loss on
investment securities
available-for-sale - - - (2,407,800) (2,407,800)
Balance, December 31, 1999 $122,260,494 $ 9,203,865 $16,682,644 $ (864,201) $147,282,802)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the years ended December 31 1999 1998 1997
Cash flows from operating
activities
Net income $ 14,714,107 $ 12,627,625 $ 12,462,355
Adjustments to reconcile net
income to net cash provided
by operating activities
Provision for loan losses 908,868 842,881 3,504,000
Depreciation and amortization 6,744,113 5,357,156 5,212,091
Gain on sale of loans (8,413,595) (5,808,568) (7,229,368)
Loans originated for sale (337,493,655) (586,305,753) (365,279,273)
Proceeds from sale of loans held
for sale 397,849,598 585,050,379 362,446,396
(Increase) decrease in other
assets (13,139,842) (853,805) 3,441,735
(Decrease) increase in other
liabilities (4,831,295) 12,800,384 5,740,238
Net cash provided by operating
activities 56,338,299 23,710,299 20,298,174
Cash flows from investing
activities
Decrease (increase) in restricted
cash 8,315,512 (6,318,153) -
(Purchase) sale of investment
securities
Available-for-sale (20,001,505) (350,000) (7,046,767)
Held-to-maturity - (950,000) 1,464,131
Proceeds from maturities of
investments
Available-for-sale 1,505,990 15,677,261 5,009,306
Held-to-maturity 182,121 - 154,113
Proceeds from sales of investments
Available-for-sale 6,182,453 3,460,000 -
Net increases in loans and lease
financing (213,704,720) (35,401,178) (44,351,586)
Proceeds from sale of portfolio
loans 10,483,124 8,156,399 17,276,924
Purchases of premises and
equipment (1,286,360) (953,488) (712,729)
Net cash used in investing
activities (208,323,385) (16,679,159) (28,206,608)
Cash flows from financing activities
Net increase (decrease) in
deposits 2,651,715 39,593,565 (4,794,023)
Net increase (decrease) in short-
term borrowings 62,937,168 (22,468,421) 18,620,607
Proceeds from issuance of long-
term debt 75,000,000 74,303,558 30,916,680
Repayment on long-term debt (20,113,749) (48,000,000) (28,000,000)
Redemption of common stock - - (15,000)
Dividends paid (5,143,171) (5,585,927) (4,281,119)
Net cash provided by financing
activities 115,331,963 37,842,775 12,447,145
(Decrease) increase in cash and
cash equivalents (36,653,123) 44,873,915 4,538,711
Cash and cash equivalents,
beginning of year 66,563,160 21,689,245 17,150,534
Cash and cash equivalents,
end of year $ 29,910,037 $ 66,563,160 $ 21,689,245
The accompanying notes are an integral part of these financial statements.
</TABLE>
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of investing and financing activities:
1999 1998 1997
Unrealized (loss) gain on investment
available-for-sale $(2,407,800) $ 1,203,438 $ 404,935
Common stock cancelled against
allowance for loan losses $ 0 $ 403,294 $ 9,114
Interest paid $49,512,131 $45,195,243 $40,722,565
Income taxes paid $ 1,528,668 $ 1,263,362 $ 1,223,695
The accompanying notes are an integral part of these financial statements.
NATIONAL COOPERATIVE BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization
National Consumer Cooperative Bank, doing business as
National Cooperative Bank (NCB), is a U.S. Government-chartered
corporation organized under the National Consumer Cooperative
Bank Act (the Act). NCB provides loans and financial services to
cooperatives. NCB Capital Corporation (NCBCC), previously named
NCB Mortgage Corporation, a wholly-owned subsidiary, originates,
sells and services real estate and commercial loans for
cooperatives. Cooperative Funding Corporation (CFC), a wholly-
owned subsidiary, was a registered broker-dealer and provided
corporate financial services. NCB Investment Advisers, Inc.
(NCBIA), a wholly-owned subsidiary, provided investment advisory
services to cooperatives. CFC and NCBIA were both dissolved
effective December 31, 1998 with NCB assuming all their assets
and liabilities. NCB Financial Corporation (NCBFC), a wholly-
owned subsidiary, is the holding company of NCB Savings Bank, FSB
(NCBSB), a federally-chartered thrift institution. NCB I, Inc.
(NCB 1), a wholly-owned subsidiary, is a special purpose
corporation that holds credit enhancement certificates related to
the securitization and sale of cooperative real estate loans. NCB
Retail Finance Corporation (NCBRFC), a wholly-owned subsidiary,
purchases and sells commercial loans which are then securitized
into commercial paper.
The Act also provided for the formation of NCB Development
Corporation (NCBDC), a related entity, which is a non-profit
organization without capital stock organized under the laws of
the District of Columbia. NCBDC provides loans and technical
support to cooperative enterprises. NCBDC's bylaws provide for
six directors from the NCB board to serve on the NCBDC board,
along with three outside directors elected by NCB directors.
Consistent with the Act, NCB makes deductible, voluntary contribu
tions to NCBDC.
Borrowers from NCB are required to own Class B stock in NCB.
Stock owned by a borrower may be cancelled by NCB, at NCB's sole
discretion, in case of certain events, including default.
Principles of Consolidation
The consolidated financial statements include the accounts
of NCB and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. The financial
statements of NCB do not include the assets, liabilities or
results of operations of NCBDC.
Comprehensive Income
In June 1997, Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income, " was issued. In 1998,
NCB adopted this standard which requires the display of
comprehensive income and its components in the financial
statements. In NCB's case, comprehensive income includes net
income and unrealized gains and losses on securities available-
for-sale.
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Investments
Securities are accounted for under Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115
requires, among other things, for NCB to classify and account for
debt and equity securities as follows:
Available-for-sale- Securities that will be held for
indefinite periods of time, including those that may be sold in
response to changes in market interest rates and related changes
in the security's prepayment risk, needs for liquidity and
changes in the availability of and the yield of alternative
investments are classified as available-for-sale. These assets
are carried at fair value. Unrealized gains and losses are
determined on an aggregate basis, excluded from earnings and
reported as other comprehensive income. Gains and losses on the
sale of investment securities are determined using the adjusted
cost of the specific security sold and are included in earnings.
Held-to-maturity- Securities that management has the
positive intent and ability to hold until maturity are classified
as held-to-maturity. They are reported at amortized cost.
Interest Rate Futures, Forward Contracts and Interest Rate Swaps
Gains and losses on futures and forward contracts to hedge
certain interest-sensitive assets and liabilities are deferred
and amortized over the life of the hedged asset or liability as
an adjustment to interest income or interest expense. Unamortized
hedging gains or losses are recognized at the time of disposition
of the assets or liabilities being hedged.
Interest rate swap agreements are used to shorten the
functional repricing period of fixed rate debt. The interest
income and expense is earned or charged based on the outstanding
balances of the receivable and payable positions, respectively,
applying the related market rates at which the agreements were
purchased and the term outstanding during the period. The
interest income and expense are treated as an adjustment to
interest expense on the hedged liability.
Loans and Lease Financing
Loans are carried at their principal amounts outstanding,
except for loans held for sale which are carried at the lower of
cost or market as determined on an aggregate basis. NCB
discontinues the accrual of interest on loans when principal or
interest payments are ninety days or more in arrears or sooner
when there is reasonable doubt as to collectibility. Loans may be
reinstated to accrual status when all payments are brought
current and, in the opinion of management, collection of the
remaining balance can reasonably be expected.
Leasing operations consist principally of leasing equipment
under direct financing leases expiring in various years through
2006. All lease financing transactions are full payout direct
financing leases. Lease income is recorded over the term of the
lease contract which provides a constant rate of return on the
unrecovered investment. Lease financing is carried net of
unearned income.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance which
management believes to be adequate to cover estimated loan and
lease financing losses in the existing portfolio. A provision for
loan losses is added to the allowance and charged to expense.
Loan and lease charge-offs, net of recoveries, are deducted from
the allowance. When a portion of a loan is deemed uncollectible,
a full or partial charge-off against the allowance for loan
losses is made. The factors utilized by management in determining
the adequacy of the allowance include, but are not limited to,
the following: the present and prospective financial condition of
the borrowers and the values of any underlying collateral;
evaluation of the loan and lease financing portfolio in
conjunction with historical loss experience; portfolio
composition; and current and projected economic conditions. The
allowance for loan losses is maintained at a level believed by
management to be adequate to absorb expected losses inherent in
the loan portfolio at the balance sheet date. Changes in economic
conditions and economic prospects of borrowers can occur quickly;
consequently losses that NCB ultimately realizes could differ
from the estimates made by management.
A loan is considered impaired when, based on current
information, it is probable NCB will be unable to collect all
amounts due under the contractual terms of the loan. When a loan
is impaired, NCB measures impairment based on the present value
of the expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral, less
estimated selling costs, if the loan is collateral-dependent and
foreclosure is probable. NCB recognizes an impairment by creating
a valuation allowance.
Loan-Origination Fees, Commitment Fees, and Related Costs
Loan fees received and direct origination costs are
accounted for in accordance with SFAS No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Loan fees
and certain direct loan origination costs are deferred, and the
net fee or cost is recognized as an adjustment to interest income
over the contractual life of the loans. Fees relating to expired
commitments are recognized as non-interest income. If a
commitment is exercised during the commitment period, the fee at
the time of exercise is recognized over the life of the loan as
an adjustment of yield.
Servicing Assets and Interest-Only Receivables
Effective January 1, 1997, NCB adopted Statement of
Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which supersedes, but generally retains, the
requirements of SFAS No. 122, "Accounting for Mortgage Servicing
Rights". Both statements require that entities that acquire
servicing assets through either purchase or origination of loans
and sell or securitize those loans with servicing assets
retained must allocate the total cost of the loans to the
servicing assets and the loans (without the servicing assets)
based on their relative fair value.
Servicing assets, stated net of accumulated amortization,
are amortized in proportion to the remaining net servicing
revenues estimated to be generated by the underlying loans.
Under SFAS No. 125, servicing assets are assessed for
impairment based on fair value. In addition, mortgage servicing
assets must be stratified based on one or more predominant risk
characteristics of the underlying loans and impairment is
recognized through a valuation allowance for each impaired
stratum.
Upon NCB's adoption of SFAS No. 125, previously recognized
excess spread assets were reclassified as interest-only
receivables. Interest-only receivables represent rights to
certain future net cash flows from securitized assets that are
available after all expenses of the transaction have been paid
("residual cash flow"). Interest-only receivables are amortized
using the effective yield method over the estimated lives of the
underlying loans.
SFAS No. 125 requires a periodic assessment of the carrying
value of interest-only receivables. Because these assets can be
contractually prepaid or otherwise settled such that NCB would
not recover substantially all of its recorded investment, the
assets are being measured like available-for-sale securities
under SFAS No. 115.
Substantially all interest-only receivables pertain to
blanket loans made to cooperative housing corporations as first
mortgages. These mortgages are typically structured with
prepayment lockouts followed by prepayment penalties or yield
maintenance provisions through maturity. In calculating interest-
only receivables, NCB discounts the cash flows through the
lockout period. Cash flows beyond the lockout period are
discounted only to the extent that NCB is entitled to receive the
prepayment or yield maintenance penalty.
Interest-only receivables that are certificated have been
included as investment securities consistent with SFAS No. 115.
Interest-only receivables that are not certificated are included
as other assets.
Other Assets
Foreclosed property pending disposition is carried at fair
value less estimated costs to sell. Goodwill relating to the
acquisition of NCBSB by NCBFC is being amortized over the
estimated remaining lives of the long-term interest-bearing
assets acquired. Interest-only receivables are carried at fair
value with unrealized gains and losses recorded as other
comprehensive income.
Premises and equipment are carried at cost less accumulated
depreciation and include equipment owned under lease financing
arrangements. Depreciation is computed using an accelerated
method. Leasehold improvements are amortized on a straight-line
basis over the terms of the leases.
Income Taxes
The Act Amendments of 1981 (P.L. 97-35) provide that,
effective January 1, 1982, NCB shall be treated as a cooperative
and subject to the provisions of Subchapter T of the Internal
Revenue Code, as amended by the Act with respect solely to NCB.
Under Subchapter T and the Act, NCB issues its member-borrowers
patronage refunds, which are tax deductible to NCB thereby
reducing its taxable income. NCB has determined that all income
generated by NCB and its subsidiaries, with the exception of
NCBSB, qualifies as patronage income under the Internal Revenue
Code, with the consequence that NCB is able to issue tax
deductible patronage refunds with respect to all such income.
Section 109 of the Act, as amended, provides that NCB is exempt
from state and local taxes with the exception of real estate
taxes. Certain NCB subsidiaries, however, are subject to federal
and state income taxes.
NCB provides for income taxes under SFAS No. 109,
"Accounting for Income Taxes." The asset and liability approach
of SFAS No. 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences
of temporary differences between the financial statement carrying
amounts of the existing assets and liabilities and their
respective tax bases.
Reclassifications
Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investment
securities with original maturities of less than ninety days. The
balances at December 31 are as follows:
1999 1998
Cash in bank $ 9,298,908 $ 9,416,039
Federal funds 10,598,862 33,570,870
Overnight investments 10,012,267 23,576,251
$29,910,037 $66,563,160
3. Investment Securities
The composition of investment securities available-for-sale
at December 31 is as follows:
1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury and
agency obligations $18,641,632 $ - $ 194,287 $18,447,345
Corporate bonds 4,728,080 3,890 10,932 4,721,038
Mutual funds 1,231,191 - 9,472 1,221,719
Money market 1,177,781 - 138,463 1,039,318
Interest-only
receivables 21,367,402 404,327 918,104 20,853,625
$47,146,086 $408,217 $1,271,258 $46,283,045
1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury and
agency obligations $ 4,142,322 $ 37,702 $ 7,373 $ 4,172,651
Corporate bonds 7,224,045 113,553 4,857 7,332,741
Mutual funds 1,198,418 - 5,484 1,192,934
Money market 1,125,615 - 108,777 1,016,838
Interest-only
receivables 25,041,990 370,794 - 25,412,784
$38,732,390 $522,049 $126,491 $39,127,948
Interest-only receivables substantially pertain to blanket
loans to cooperative housing corporations.
The maturities of investment securities available-for-sale
at December 31, are as follows:
1999
Weighted
Amortized Average
Cost Yield Fair Value
Within 1 year $ 5,933,576 6.26% $ 5,784,522
After 1 year through
5 years 21,581,877 6.23% 21,771,504
After 5 years through
10 years 19,630,633 6.96% 18,727,019
$47,146,086 6.54% $46,283,045
1998
Weighted
Amortized Average
Cost Yield Fair Value
Within 1 year $ 3,824,033 6.65% $ 3,720,232
After 1 year
through 5 years 11,071,021 6.90% 11,142,166
After 5 years
through 10 years 22,487,295 7.11% 22,909,234
After 10 years 1,350,041 6.72% 1,356,316
$38,732,390 6.99% $39,127,948
The composition of investment securities held-to-maturity
at December 31 is as follows:
1999
Gross
Amortized Unrealized Fair
Cost Gains Value
Mortgage-backed securities $1,942,313 $9,687 $1,952,000
Private debt security 767,878 - 767,878
$2,710,191 $9,687 $2,719,878
1998
Gross
Amortized Unrealized Fair
Cost Losses Value
Mortgage-backed securities $1,942,312 $(30,707) $1,911,605
Private debt security 950,000 - 950,000
$2,892,312 $(30,707) $2,861,605
In both 1999 and 1998, mortgage-backed securities held-to-
maturity have a weighted average yield of 9.4% and mature after
ten years.
In 1999 and 1998, securities available-for-sale totaling
$6,182,453 and $3,460,000, respectively, were sold resulting
in a loss of $9,273 and a gain of $10,150, respectively.
There were no sales of securities classified as held-to-maturity
during 1999 and 1998. NCB held callable investment securities
with amortized costs of $331,680 and $1,992,553 at December 31,
1999 and 1998, respectively. The fair values of the callable securities
are $326,808 and $2,016,170 in the same respective periods.
4. Loan Servicing
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of these loans at December 31, 1999 and 1998 are
$2,071,849,000 and $1,763,050,000, respectively.
5. Loans and Lease Financing
Loans and leases outstanding, including loans held for
sale, by category at December 31 are as follows:
1999 1998
Commercial loans
Portfolio $467,689,219 $346,570,990
Loans held for sale 3,223,991 7,197,347
Real estate loans
Residential 279,370,068 209,762,519
Loans held for sale 128,833,987 176,802,984
Commercial 8,676,896 7,349,882
Lease financing 60,104,256 47,490,749
$947,898,417 $795,174,471
NCB's commercial and real estate loan portfolio is diversified
both in terms of industry and geography. The following is the
distribution of the loans outstanding at December 31:
Commercial Loans Real Estate
Loans
1999 1998 1999 1998
By Region
Northeast 18.5% 20.5% 66.2% 72.6%
South Atlantic 8.2 4.5 5.3 7.5
Central 22.3 25.6 19.8 10.8
West 51.0 49.4 8.7 9.1
100.0% 100.0% 100.0% 100.0%
Percentage of Total
Loan Portfolio
1999 1998
By Borrower Type
Real estate
Residential 40.3% 48.6%
Commercial 3.7 .9
Commercial
Food processing and distribution 19.3 17.1
Financial services 4.8 3.9
Medical service and supplies 2.0 2.3
Hardware 7.1 5.9
Alaskan native corporations 4.2 4.3
Other 12.3 11.0
Lease financing 6.3 6.0
100.0% 100.0%
NCB originates multi-family blanket mortgages to
predominantly owner-occupied housing cooperatives. A significant
portion of NCB's mortgage loans is secured by real estate in New
York City due to that city's extensive cooperative market. At
December 31, 1999 and 1998, $186.0 million and $226.0 million,
respectively, of real estate loans are secured by real estate in
New York City. The collateral for all of the real estate loans
consists of first mortgage liens on the land and improvements of
cooperatively owned, multi-family residential properties and
property leases. The real estate portfolio also includes loans
secured by second mortgage liens and, in several rare
circumstances, unsecured loans to residential cooperative
corporations. The loans are repaid from operations of the real
estate cooperative. NCB's exposure to credit loss in the event of
nonperformance by other parties to the loans is the carrying
amounts of the loans.
NCB's commercial portfolio has a concentration in the food
processing and distribution industry. The loan types include
lines of credit, revolving credits, and term loans. These loans
are typically collateralized with general business assets (e.g.,
inventory, receivables, fixed assets, and leasehold interests).
The loans are expected to be repaid from cash flows generated by
the borrower's operating activities. NCB's exposure to credit
loss in the event of nonperformance by the other parties to the
loan is the carrying amounts of the loans.
The carrying amounts and respective estimated fair values of
loans and leases outstanding at December 31 are as follows
(dollars in thousands):
Carrying Amount Estimated Fair Value
1999 1998 1999 1998
Commercial
Fixed rate loans $257,433 $144,445 $262,590 $154,706
Adjustable rate loans 210,256 202,126 212,551 206,671
Loans held for sale 3,224 7,197 3,240 7,004
Real Estate
Loans held for sale 128,834 176,803 129,650 191,425
Portfolio-fixed rate 83,169 91,313 84,638 93,716
Portfolio-adjustable 204,878 125,799 205,409 127,509
Lease financing 60,104 47,491 64,017 51,265
$947,898 $795,174 $962,095 $832,296
6. Receivables Sold with Recourse
At December 31, 1999 and 1998, restricted cash of $4,887,213
and $5,690,095, respectively, is held by a trustee for the
benefit of certificate holders in the event of a loss on certain
loans sold with balances totaling $81,879,000 and $92,623,000 in
1993 and 1992, respectively. At December 31, 1999 and 1998, the
outstanding balances of the 1993 and 1992 recourse loan sales
combined totaled $56,967,101 and $104,954,000, respectively.
These loans are primarily concentrated in New York City. NCB's
exposure to credit loss in the event of nonperformance by the
other parties to the loan is limited to the required restricted
cash balance. To date NCB has not incurred any losses on these
loan sales.
In an unrelated 1993 transaction, NCB sold loans totaling
$25,924,380 of which any losses on the subordinate traunche are
repaid from a security held by NCB totaling $1,942,312 at
December 31, 1999 and 1998, respectively. At December 31, 1999
and 1998, the outstanding balances of the 1993 recourse loan sale
totaled $7,878,973 and $9,681,480, respectively. These loans are
primarily concentrated in New York City. NCB's exposure to credit
loss in the event of nonperformance by the other parties to the
loan is limited to the required balance of the security held. NCB
is prohibited from disposing of this security until all senior
holders of the security have been repaid. To date NCB has not
incurred any losses on this loan sale.
7. Impaired Assets
Impaired loans, representing the nonaccrual loans at
December 31, 1999 and 1998, totaled $580,311 and $2,384,691,
respectively, and averaged $1,084,000 and $3,097,000 during the
same respective periods. Specific allowances of $239,911 and
$557,267 were established at December 31, 1999 and 1998,
respectively. During 1999 and 1998, the interest collected on the
nonaccrual loans was applied to reduce the outstanding principal.
At December 31, 1999 and 1998, there were no commitments to
lend additional funds to borrowers whose loans are impaired.
At December 31, 1999 and 1998, NCB had real estate owned of
$2,687,347 and $4,342,739 respectively, which is classified as
other assets.
8. Allowance for Loan Losses
The following is a summary of the activity in the allowance
for loan losses:
1999 1998 1997
Balance at beginning of year $17,426,450 $17,638,136 $15,504,510
Provision for loan losses 908,868 842,881 3,504,000
Charge-offs (264,256) (1,230,892) (1,555,226)
Recoveries of loans previously
charged-off 622,608 176,325 184,852
Balance at end of year $18,693,670 $17,426,450 $17,638,136
The allowance for loan losses was 2.0%, 2.2% and 2.3% of
loans and lease financing and loans held for sale at December 31,
1999, 1998, and 1997, respectively.
9. Transactions with Related Parties
Section 103 of the Act, as amended, requires that twelve of
the fifteen members of NCB's Board of Directors be elected by
holders of Classes B and C stock and that they have actual
cooperative experience. NCB stock is, by law, owned only by
borrowers and entities eligible to borrow. The election rules
require that candidates for the Board of Directors have
experience as a director or senior officer of a cooperative
organization that currently holds Class B or Class C stock. NCB
has conflict of interest policies which require, among other
things, that a Board member be disassociated from decisions which
pose a conflict of interest or the appearance of a conflict of
interest. Loan requests from cooperatives with which members of
the board may be affiliated are subject to the same eligibility
and credit criteria, as well as the same loan terms and
conditions, as all other loan requests.
In addition, NCB through its subsidiary, NCBSB, enters into
transactions in the normal course of business with its directors,
officers, and their family members.
For the year ended December 31, 1999, loans to affiliated
cooperatives, directors, officers, and their family members have
the following outstanding balances:
January 1, December 31,
1999 Additions Deductions 1999
Loans to affiliated
cooperatives $55,524,500 $53,183,598 $28,627,759 $80,080,339
Percent of loans
outstanding 7.0% 8.4%
During 1999, 1998, and 1997 NCB recorded interest income of
$7,347,774, $5,352,355, and $6,412,886, respectively, on loans
to related parties.
10. Premises and Equipment
Premises and equipment are included in other assets and
consist of the following as of December 31:
1999 1998
Furniture and equipment $ 2,988,558 $ 2,461,610
Leasehold improvements 1,358,487 1,321,816
Other 1,563,315 1,548,155
5,910,360 5,331,581
Less: Accumulated depreciation
and amortization (4,005,992) (3,262,369)
$ 1,904,368 $ 2,069,212
11. Leases
NCB leases its current headquarters in Washington, D.C.
through March 31, 2002. The NCB headquarters will relocate within
Washington, D.C. effective April 2001. The new lease, which is for
10 years, will expire in April 2011. NCB also leases premises for
its regional offices with expiration dates from June 30, 1999 to
January 30, 2008. These leases are all non-cancelable operating
leases.
Minimum future rental payments on premises and office
equipment under non-cancelable operating leases having remaining
terms in excess of one year as of December 31, 1999 are as
follows:
2000 $ 1,934,452
2001 2,990,905
2002 2,338,836
2003 2,447,170
2004 2,568,423
Thereafter 21,954,945
$34,234,731
Rental expense on premises and office equipment in 1999,
1998, and 1997 is $1,708,647, $1,687,183, and $1,689,415,
respectively.
During 1992, NCB deferred incentives received in connection
with a new lease for office space. These incentives are being
amortized over the ten year life of the lease. At December 31,
1999 and 1998, the unamortized lease incentive is $571,835 and
$750,891, respectively.
12. Deposits
Deposits as of December 31 are summarized as follows:
1999 1998
Weighted Weighted
Average Average
Balance Rate Balance Rate
Passbook accounts $ 4,103,441 2.67% $ 4,695,457 2.65%
Money market demand
and NOW accounts 46,316,432 3.09% 22,949,597 1.21%
Fixed-rate certificates
Less than $100,000 50,147,789 5.52% 63,775,057 5.69%
$100,000 or greater 25,503,596 5.51% 31,999,433 5.56%
$126,071,259 4.53% $123,419,544 4.72%
The remaining contractual maturities of certificate accounts at
December 31 are as follows:
1999
Less than $100,000
$100,000 or greater Total
Three months or less $ 5,887,274 $ 1,923,751 $ 7,811,025
Three to six months 6,544,114 3,946,799 10,490,913
Six to twelve months 21,480,156 8,912,709 30,392,865
Twelve months or longer 16,236,245 10,720,337 26,956,582
$50,147,789 $25,503,596 $75,651,385
1998
Less than $100,000
$100,000 or greater Total
Three months or less $10,640,921 $ 5,287,036 $15,927,957
Three to six months 12,725,177 5,236,449 17,961,626
Six to twelve months 18,186,403 6,120,010 24,306,413
Twelve months or longer 22,222,556 15,355,938 37,578,494
$63,775,057 $31,999,433 $95,774,490
The estimated fair value of deposits is $123,558,000 and
$121,313,000, at December 31, 1999 and 1998, respectively.
13. Short-Term Borrowings
Revolving credit facilities
At December 31, 1999, NCB has $452.5 million of revolving lines of
credit with other financial institutions. $260.0 million in committed
line of credit facilities expire between April and July 2000. $140.0
million expires in May 2002, while the remaining $52.5 million is
uncommitted at December 31, 1999.
At December 31, 1998, NCB has 402.5 million of revolving lines of
credit, $130.5 million of which is committed until May 26, 2001, $159.5
million of which is committed until May 26, 1999, and $50.0 million of
which is committed until May 28, 1999. The remaining balance of $62.5
million is uncommitted at December 31, 1998.
Interest expense from borrowings under the revolving line of
credit facilities was $6,624,901, $9,689,345, and $8,732,851, in
1999, 1998, and 1997, respectively. The following is a summary of
the borrowings under the facilities for the years ended December
31:
1999 1998
Borrowings outstanding
at December 31 $ 79,500,000 $156,000,000
Unused capacity
at December 31 183,300,000 181,800,000
Average line of credit
borrowings outstanding
during the year 117,970,000 165,813,699
Maximum borrowings
during the year 257,000,000 256,500,000
Weighted average borrowing
rate
During the year 5.5% 5.8%
At December 31 6.2% 6.7%
Borrowing rates under the revolving credit facility are
based on the prime rate, federal funds rate or the London
Interbank Offered Rate (LIBOR) and vary with the amount of
borrowings outstanding. As of December 31, 1999 and 1998,
respectively, commitment fees for the line of credit ranged between
.125% and .200% and between .125% and .150%, respectively of the
commitment balance. Total commitment fees paid for revolving
credit facilities were $860,000, $524,000, and $479,000 in 1999,
1998 and 1997, respectively. All borrowings under the facility
which are outstanding at expiration of the facility are due at
that time.
NCB is required under these revolving lines of credit
agreements to maintain $25.0 million of cash, cash equivalents,
and investments and have, among other items, an effective net
worth of not less than $296.0 million (defined as total members'
equity plus subordinated debt).
Other Short-term Borrowings
In an effort to reduce NCB's cost of funds, NCB developed a
program under which it borrows, on a short-term basis, from
certain customers. At December 31, 1999 and 1998, the short-term
borrowings outstanding totaled $17.2 million and $34.7 million,
respectively. NCB also has a commercial paper program in place to
further reduce NCB's cost of funds. At December 31, 1999 and
1998, commercial paper totaled $171.8 millions and $29.9 million,
respectively.
NCB, through its subsidiary NCBSB, has a blanket pledge
agreement with FHLB requiring advances to be secured by eligible
mortgages with a principal balance of 150% of such advances.
These eligible mortgages had outstanding principal balances
totaling $117,771,000 and $88,471,000 at December 31, 1999 and
1998. Outstanding advances at December 31, 1999 were
$15,000,000. There were no outstanding advances at December 31,
1998. Interest expense on the advances for the years ended
December 31, 1999 and 1998 were $1,062,577 and $1,130,
respectively.
During 1999, NCB did not enter into any reverse repurchase
agreement. In 1998, NCB entered into a series of reverse
repurchase agreements wherein the average balance of reverse
repurchase agreements outstanding was $5,385,833 and the maximum
borrowings were $16,509,000. The weighted average rate on the
reverse repurchase agreements was 5.62% during the same period.
There were no reverse repurchase agreements outstanding at
December 31, 1999 and 1998.
The carrying amounts of short-term borrowings at December 31
are as follows (dollars in thousands):
Carrying Amount
1999 1998
Line of credit $ 79,500 $156,000
Commercial paper 171,845 29,939
Other 17,244 34,713
FHLB advances 15,000 -
$283,589 $220,652
14. Long-term Debt
NCB has entered into various agreements for extension of
credit with third parties. At December 31, 1999 and 1998, under
the medium term note program, NCB had approval to issue up to
$400.0 million and $200.0 million, respectively. As of December
31, 1999 and 1998, NCB had $100.0 million and $55.0 million,
respectively, outstanding under this program. In addition, as of
December 31, 1999 and 1998, NCB had outstanding $187.0 and $177.0
million, respectively, of private placements issued to various
institutional investors. The majority of the long-term debt has
semi-annual interest with principal payments due on a 30/360
basis.
NCB is required under these lending agreements to, among
other things, maintain $25.0 million of cash, cash equivalents
and investments and have an effective net worth of not less than
$296.0 million (defined as total members' equity plus
subordinated debt).
The following is a schedule of outstanding long-term debt,
net of deferred hedges, at December 31, 1999:
Amount Rate Maturity
$ 44,385,706 7.71% 2000
82,288,107 6.52% 2001
69,820,213 6.37% 2002
24,935,790 6.50% 2003
64,833,054 7.07% 2004 and thereafter
$286,262,870
NCB has entered into a series of interest rate swap
agreements which have a combined notional amount of $65.0
million. The effect of the agreements is to convert $65.0 million
of the long-term debt from a weighted average fixed rate of 6.97%
to a floating rate based on LIBOR.
The interest rate swap agreements are tied to the three and
six month LIBOR rates plus a spread and reprice at different
times throughout the year. At December 31, 1999 the three and six
month LIBOR were 6.00% and 6.13%, respectively. These agreements
expire as follows:
Maturity LIBOR
Amount Date Index
$ 15,000,000 2001 Three month
20,000,000 2002 Three month
30,000,000 2001 Six month
$ 65,000,000
15. Subordinated Debt
On December 31, 1981, NCB issued unsecured subordinated debt
to the U.S. Treasury in the amount of $184,270,000 as provided in
the Act, as amended, in full redemption of the Class A Preferred
stock previously owned by the Government. At December 31, 1999
and 1998, the current balance of the subordinated debt was
$182,542,000. The notes and all related payments are subordinated
to any secured and unsecured notes and debentures thereafter
issued by NCB, but the notes have first preference with respect
to NCB's assets over all classes of stock issued by NCB. NCB
currently cannot pay any dividend on any class of stock at a rate
greater than the statutory interest rate payable on subordinated
debt. NCB is currently seeking an amendment to the Act that
would eliminate this limitation on dividends. There is no
assurance that the Act will be amended.
The notes require that proceeds from the sale of Classes B
and C stock be applied annually toward the repayment of the
notes. In 1999 and 1998, no payments were made. In February 1993
and November 1994, NCB adopted plans to maintain a schedule to
ensure accumulation of the funds needed to repay these notes
which mature on October 31, 2020. This involves the creation of
a reserve fund and the issuance of preferred stock or subordinated
debt. Total contributions to the fund, including interest
thereon, would approximate $100.0 million. The remaining $80.0
million would be obtained through the issuance of preferred
stock or subordinated debt. In accordance with these plans, NCB
had designated investments totaling $7.9 million and $5.0
million, respectively, plus accrued interest at December 31, 1999
and 1998.
The Act states that the amount of NCB borrowings which may
be outstanding at any time shall not exceed 10 times the paid-in
capital and surplus which, as defined by the Act, includes the
subordinated debt.
The annual interest payments for each traunche are determined
in accordance with the following schedule which also includes the
carrying amounts, excluding hedge gains, and respective estimated
fair values of the subordinated debt at December 31, 1999
(dollars in thousands):
Next Carrying Estimated
Index Rate Repricing Date Amount Fair Value
91-day Treasury rate 4.88% January 1, 2000 $ 53,553 $ 53,383
3-year Treasury rate 5.70% October 1, 2002 36,854 38,942
5-year Treasury rate 6.01% October 1, 2000 55,281 54,624
10-year Treasury rate 8.82% October 1, 2000 36,854 36,461
182,542 183,410
Premium on hedging 78 -
$182,620 $183,410
NCB has entered into a series of interest rate swaps agreements
totaling $90.0 million which have the effect of converting a portion
of the subordinated debt from a fixed rate of 6.20% to a floating rate
based on LIBOR.
The interest rate swap agreements are tied to the one,
three and six month LIBOR rates and reprice at different times
throughout the year. At December 31, 1999, the one, three and
six month LIBOR rates were 5.82%, 6.0% and 6.13%, respectively.
The interest rate swap agreements, are described below:
Debt LIBOR
Swapped Amount Index
Three year $30,000,000 Three month
Five year 30,000,000 Six month
Ten year 10,000,000 Six month
Ten year 10,000,000 Three month
Ten year 10,000,000 One month
$90,000,000
The three year interest rate swap agreements expire
in 2002. The remaining agreements expire in 2000.
16. Common Stock and Members' Equity
NCB's common stock consists of Class B stock owned by its
borrowers, Class C stock owned by entities eligible to borrow
from NCB, and Class D non-voting stock owned by others.
1999 1998
Class B Class C Class D Class B Class C Class D
Par value per share $ 100 $ 100 $ 100 $ 100 $ 100 $ 100
Shares authorized 1,100,000 300,000 100,000 1,000,000 300,000 100,000
Shares issued and
outstanding 998,795 223,807 3 922,096 221,996 3
<TABLE>
The changes in each class of common stock are described below:
<S> <C> <C> <S> <C>
Class B Class C Class D Total
Balance, December 31, 1996 $78,600,416 $21,751,584 $300 $100,352,300
Proceeds from issuance of stock - 500 - 500
Cancellation and redemption
of common stock (1,088,713) (45,205) - (1,133,918)
1996 patronage dividend
distributed in common stock 6,492,799 197,568 - 6,690,367
Balance, December 31, 1997 84,004,502 21,904,447 300 105,909,249
Adjustment to 1996 patronage
dividends paid in 1997 (35,087) (5,251) - (40,338)
Proceeds from issuance of stock - 300 - 300
Cancellation and redemption
of common stock (400,980) (2,314) - (403,294)
1997 patronage dividend
distributed in common stock 8,641,213 302,422 - 8,943,635
Balance, December 31, 1998 92,209,648 22,199,604 300 114,409,552
Adjustment to 1997 patronage
dividends paid in 1998 (121,586) - - (121,586)
1998 patronage dividend
distributed in common stock 7,791,469 181,059 - 7,972,528
Balance, December 31, 1999 $99,879,531 $22,380,663 $300 $122,260,494
</TABLE>
Members' equity includes the three classes of common stock,
and allocated and unallocated retained earnings. Allocated
retained earnings have been designated for patronage dividend
distribution, whereas unallocated retained earnings have not
been designated for patronage dividend distribution.
17. Regulatory Capital and Retained Earnings of NCBSB
In connection with the insurance of savings accounts, NCBSB
is required to maintain minimum amounts of regulatory capital.
If NCBSB fails to meet its minimum required capital, the
appropriate regulatory authorities may take such actions, as
they deem appropriate, to protect the Savings Association
Insurance Fund (SAIF), NCBSB, and its depositors and investors.
Such actions may include various operating restrictions,
limitations on liability growth, limitations on deposit account
interest rates, and investment restrictions.
NCBSB's capital exceeds the minimum capital requirements at
December 31, 1999. The following table summarizes NCBSB's
capital at December 31, 1999 and 1998:
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1999:
Tangible Capital
(to tangible assets) $12,198,000 7.9% $2,310,257 1.5% N/A N/A
Total Risk-Based Capital
(to risk-weighted assets) $11,979,000 16.6% $5,759,956 8.0% $7,199,944 10.0%
Tier I Risk-Based Capital
(to risk-weighted assets) $12,198,000 16.9% N/A N/A $4,319,966 6.0%
Core Capital (to adjusted
tangible assets) $12,198,000 7.9% $4,620,515 3.0% $7,700,857 5.0%
As of December 31, 1998:
Tangible Capital
(to tangible assets) $10,812,000 8.0% $2,031,984 1.5% N/A N/A
Total Risk-Based Capital
(to risk-weighted assets) $11,612,000 20.8% $4,467,223 8.0% $5,584,029 10.0%
Tier I Risk-Based Capital
(to risk-weighted assets) $10,812,000 19.4% N/A N/A $3,350,418 6.0%
Core Capital (to adjusted
tangible assets) $10,812,000 8.0% $4,063,969 3.0% $6,773,281 5.0%
</TABLE>
The Office of Thrift Supervision regulations impose certain
restrictions on NCBSB's payment of dividends. At December 31,
1999, substantially all retained earnings were available for
dividend declaration without prior regulatory approval.
18. Employee Benefits
Substantially all employees are covered by a non-
contributory, defined contribution retirement plan. Total
expense for the retirement plan for 1999, 1998, and 1997 is
$307,386, $425,103 and $428,676, respectively.
NCB maintains an employee thrift plan organized under
Internal Revenue Code Section 401(k) and contributes up to 6% of
each participant's salary. Contributions and expense for 1999,
1998, and 1997 are $392,100, $365,942, and $359,401,
respectively.
Effective January 1, 1997, the Board of Directors approved
the Executive Long-Term Incentive Plan (the Plan) to provide
incentive compensation to certain key executives of NCB. The
Plan's terms were revised by the Board of Directors effective
January 1, 1999. NCB expensed $240,000, $388,000 and $210,000
for the Plan in 1999, 1998, and 1997, respectively.
19. Income Taxes
Each year under the Act, NCB must declare tax deductible
patronage refunds in the form of cash, stock, or allocated
surplus which effectively reduce NCB's federal income tax
liability. In 2000, NCB anticipates that it will declare a
patronage dividend for 1999 of approximately $14,846,000. The
anticipated cash portion of the 1999 patronage dividend is
included in patronage dividends payable at December 31, 1999.
The anticipated stock portion of the patronage dividend of 1999
earnings to be distributed has been added to allocated retained
earnings at December 31, 1999. Patrons of NCB receiving such
patronage dividends consent to include them in their taxable
income.
The provision for income taxes consists of the following:
Years Ended December 31,
1999 1998 1997
Current tax expense
Federal $1,433,913 $1,189,112 $1,270,100
State and local 153,572 186,911 143,504
Total current 1,587,485 1,376,023 1,413,604
Deferred tax expense
(benefit)
Federal 49,024 (42,262) (38,106)
State and local - 119,404 -
Total deferred 49,024 77,142 (38,106)
Total provision $1,636,509 $1,453,165 $1,375,498
The provision for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory
federal income tax rate to pretax income as a result of the
following differences:
Years Ended December 31,
1999 1998 1997
Statutory U.S. tax rate $ 6,427,760 $5,286,768 $ 5,884,348
Patronage dividends (5,047,608) (4,257,134) (4,754,097)
State and local taxes 153,572 186,911 143,504
Other 102,785 236,620 101,743
Income tax provision $ 1,636,509 $1,453,165 $ 1,375,498
Deferred tax assets net of liabilities, included in other
assets, are comprised of the following at December 31, 1999 and
1998:
1999 1998
Deferred commitment fees $ 117,297 $120,691
Allowance for loan losses 351,793 295,321
Other 24,323 30,875
Gross deferred tax assets 493,413 446,887
Mortgage servicing rights (133,406) (58,674)
Federal Home Loan Bank stock dividends (123,941) (85,698)
Depreciation (67,280) (54,780)
Gross deferred tax liabilities (324,627) (199,152)
Net deferred tax asset $ 168,786 $247,735
20. Income Available for Dividends on Stock
Under existing long-term debt agreements, the aggregate
amount of cash dividends on Class C or Class D stock, together
with patronage dividends payable in cash, is limited to the sum
of $15,000,000 plus 50% of NCB's consolidated adjusted net
income accumulation (or minus 100% of NCB's consolidated
adjusted net income in case of a deficit) from January 1, 1992
through the end of the most current fiscal year ended. If the
aggregate amount of cash dividends and patronage dividends
payable in cash exceeds the limitation previously described,
total patronage dividends payable in cash and cash dividends
payable on any calendar year may not exceed 20% of NCB's taxable
income for such calendar year.
Notwithstanding the above restriction, NCB is prohibited by
law from paying dividends on its Class C stock at a rate greater
than the statutory interest rate payable on the subordinated
debt. Those rates for 1999, 1998, and 1997 are 6.21%, 6.33% and
6.39%, respectively. Consequently, the amounts available for
payment on the Class C stock for 1999, 1998, and 1997 are
$1,389,839, $1,405,235, and $1,399,694 respectively. In
addition, under the Act and its bylaws, NCB may not pay
dividends on its Class B stock.
21. Financial Instruments with Off-Balance Sheet Risk
NCB is a party to financial instruments with off-balance
sheet risk. These financial instruments may include commitments
to extend credit, standby letters of credit, interest rate
swaps, forward commitments to sell loans and financial futures
contracts. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amount recognized in the balance sheets. The contract or
notional amounts of those instruments reflect the extent of
involvement, but not exposure, that NCB has in particular
classes of financial instruments.
NCB's exposure to credit loss in the event of
nonperformance by the other parties to the commitments to extend
credit and standby letters of credit written is represented by
the contract or notional amounts of those instruments. NCB uses
the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. For
interest rate swap transactions, forward commitments, and
financial futures contracts, the contract or notional amounts do
not represent exposure to credit loss. Unless noted otherwise,
NCB does not require collateral or other security to support off-
balance sheet financial instruments.
In the normal course of business, NCB makes loan
commitments which are not reflected in the accompanying
financial statements. The commitments to extend credit are
agreements to lend to a customer as long as there is no
violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being
completely drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. NCB evaluates
each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by NCB upon
extension of credit, is based on management's credit evaluation
of the counterparty. Collateral varies but may include accounts
receivable; inventory; property, plant and equipment; and
residential and income-producing commercial properties.
Standby letters of credit are conditional commitments by
NCB to guarantee the payment performance of a customer to a
third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending
loan facilities to customers.
The contract or notional amounts and the respective
estimated fair value of NCB's commitments to extend credit and
standby letters of credit at December 31, are as follows
(dollars in thousands):
Contract or Estimated
Notional Amounts Fair Value
1999 1998 1999 1998
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $203,191 $178,621 $1,016 $ 961
Standby letters of credit $110,052 $126,814 $1,853 $1,567
Derivative Financial Instruments Held or Issued for Purposes Other
Than Trading
NCB uses derivative financial instruments in the normal
course of business for the purpose of reducing its exposure to
fluctuations in interest rates. These instruments include
interest rate swaps, financial future contracts, and forward
commitments. Existing NCB policies prohibit the use of
derivative financial instruments for any purpose other than
managing interest rate risk.
Interest rate swaps are executed to manage the interest
rate risk associated with specific assets or liabilities. An
interest rate swap agreement commits each party to make periodic
interest payments to the other based on an agreed-upon fixed
rate or floating rate index. There are no exchanges of principal
amounts. Entering into an interest rate swap agreement involves
the risk of default by counterparties and interest rate risk
resulting from unmatched positions. The amounts potentially
subject to credit risk are significantly smaller than the
notional amounts of the agreements. NCB is not exposed to credit
loss in the event of nonperformance by its counterparties
because at December 31, 1999 the estimated cost of replacing, at
current market rates, all outstanding swap agreements is at a
loss of $267.0 thousand. NCB does not anticipate nonperformance
by any of its counterparties. Income or expense from interest
rate swaps is treated as an adjustment to interest
expense/income on the hedged asset or liability.
Financial futures are contracts for delayed delivery of
specific securities at a specified future date and at a
specified price or yield. NCB purchases/sells these contracts to
hedge the interest rate risk associated with originating
mortgage loans that will be held for sale. NCB has minimal
credit risk exposure on these financial instruments since
changes in market value of financial futures are settled in cash
on the following business day, and payment is guaranteed by the
clearinghouse. Gains and losses from these contracts are
deferred until the time of disposition of the loans held
for sale.
NCBSB and NCB enter into forward commitments to sell a
portion of their production of loans to Federal National
Mortgage Association (Fannie Mae) and Residential Funding
Corporation. The market value of forward commitments is
considered in the lower of cost or market valuation of the loan
portfolio held for sale.
The contract or notional amounts and the respective
estimated fair value of NCB's financial future contracts and
interest rate swaps at December 31, are as follows (dollars in
thousands):
Contract or
Notional Amounts Estimated Fair Value
1999 1998 1999 1998
Financial instruments whose
notional or contract amounts
exceed the amount of
credit risk:
Financial futures
contracts $143,400 $180,700 $2,725 $ (512)
Interest rate swap
agreements $155,000 $125,000 $ (267) $4,257
At December 31, 1999 and 1998, NCB had deferred gains of
$6,920,705 and deferred losses of $3,361,937, respectively,
outstanding on financial futures contracts, which are included
in loans held for sale.
22. Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available
for identical or comparable instruments, fair values are based
on estimates using the present value of estimated cash flows
using a discount rate commensurate with the risks involved or
other valuation techniques. The resultant fair values are
affected by the assumptions used, including the discount rate
and estimates as to the amounts and timing of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and,
accordingly, the fair values may not represent actual values of
the financial instruments that could have been realized as of
year end or that will be realized in the future.
The following methods and assumptions were used to
estimate the fair value of each class of financial instrument
for which it is practicable to estimate that value:
Cash and cash equivalents - The carrying amount approximates
fair value.
Investments - Fair values are based on quoted market prices
for identical or comparable securities.
Loans and lease financing - For adjustable rate commercial
loans that reprice frequently and with no significant changes in
credit risk, fair values are based on carrying values. The fair
market value of other adjustable rate loans is estimated by
discounting the future cash flows assuming that the loans mature
on the next repricing date using the rates at which similar
loans would be made to borrowers with similar credit quality and
the same stated maturities. The fair value of fixed rate
commercial and other loans and leases, excluding loans held for
sale, is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to
borrowers with similar credit quality and for the same remaining
maturities. The fair value of loans held for sale is based on
market prices for similar loans sold in the secondary market
adjusted for differences in loan characteristics.
Interest-only receivables - The fair value of interest-only
receivables is estimated by discounting the future cash flows
using current market investor pass-through rates for similar
securities.
Deposit liabilities - The fair value of demand deposits,
savings accounts, and certain money market deposits is the
amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates of deposits of similar
remaining maturities.
Short-term and other borrowings - The carrying amounts
approximate fair value.
Long-term debt - The fair value of long-term debt is
estimated by discounting the future cash flows using the current
borrowing rates at which similar types of borrowing arrangements
with the same remaining maturities could be obtained by NCB.
Subordinated debt - The fair value of subordinated debt is
estimated by discounting the future cash flows using the current
borrowing rates at which similar types of borrowing arrangements
with the same remaining maturities could be obtained by NCB.
Interest rate swap agreements - The fair value of interest
rate swaps is the estimated amount that NCB would receive or
pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current
creditworthiness of the swap counterparties.
Financial futures and forward contracts - The fair value of
interest rate futures is based on the closing price of the
Chicago Board of Trade at December 31, 1999 and 1998. The fair
value of forward commitments is based on current market prices
for similar contracts.
Commitments to extend credit, standby letters of credit,
and financial guarantees written - The fair value of commitments
is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest
rates and committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the
reporting date.
The estimated fair values of the Bank's financial instruments
as of December 31, 1999 and 1998 are as follows (dollars in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
Carrying Amount Fair Value Carrying Amount Fair Value
Financial Assets:
Cash and cash equivalents $ 29,910 $ 29,910 $ 66,563 $ 66,563
Restricted cash 4,887 4,887 13,203 13,203
Investment securities
Available-for-sale 46,283 46,283 39,128 39,128
Held-to-maturity 2,710 2,720 2,892 2,862
Interest-only receivables 18,882 18,882 16,041 16,041
Loans and lease financing 947,898 962,095 795,174 832,296
Financial Liabilities:
Deposits 126,071 123,558 123,420 121,313
Short-term and other
borrowings 283,589 283,589 220,652 220,652
Long-term debt 286,263 284,603 231,193 238,274
Subordinated debt 182,542 183,410 182,542 188,228
Off-Balance Sheet Financial
Instruments:
Interest rate swap agreements - (267) - 4,257
Financial futures and
forward commitments - 2,725 - (512)
Commitments to extend credit - 1,016 - 961
Standby letters of credit - 1,853 - 1,567
</TABLE>
23. SEGMENT REPORTING
NCB's reportable segments are strategic business units that
provide diverse products and services within the financial
services industry. NCB has four reportable segments: commercial
lending, real estate, NCB Savings Bank and other. The commercial
lending segment provides financial services to cooperative and
member-owned businesses. The real estate lending segment
originates, sells and services real estate loans nationally,
with a concentration in New York City. NCB Savings Bank segment
provides traditional banking services such as lending and
deposit gathering to retail, corporate and commercial customers.
"Other" consists of NCB's unallocated parent company income and
expense, and net interest income from investments and corporate
debt after allocations to segments.
NCB evaluates segment performance based on net income before
taxes. The accounting policies of the segments are substantially
the same as those described in the summary of significant
accounting policies. Overhead and support expenses are allocated
to each operating segment based on number of employees, and
other factors relevant to expenses incurred. Also included in
overhead and support is depreciation allocated based on
equipment usage.
The following is the segment reporting for the years ended
December 31, 1999, 1998 and 1997 (dollars in thousand):
1999 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 39,756 $ 23,111 $ 11,591 $ 5,459
Allocated interest
expense 29,081 16,154 - (45,235)
Interest expense - - 6,705 43,055
Net interest income 10,675 6,957 4,886 7,639 $ 30,157
Provision (credit)
for loan losses (3,254) 356 159 3,648 909
Non-interest
income-external 3,182 11,616 748 121 15,667
Non-interest expense
Direct expense 5,551 4,727 2,776 15,510 28,564
Overhead and support 807 342 300 (1,449) -
Total non-interest
expense 6,358 5,069 3,076 14,061 28,564
Income (loss) before
taxes $ 10,753 $ 13,148 $ 2,399 $ (9,949) $ 16,351
Total average assets $450,937 $329,423 $152,377 $106,669 $1,039,406
1998 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 29,769 $ 27,676 $ 8,814 $ 4,928
Allocated interest
expense 21,942 18,883 - (40,825)
Interest expense - - 4,941 40,620
Net interest income 7,827 8,793 3,873 5,133 $ 25,626
Provision (credit)
for loan losses 49 (141) 125 810 843
Non-interest
income-external 3,912 9,480 781 (106) 14,067
Non-interest expense
Direct expense 4,622 5,314 2,632 12,202 24,770
Overhead and support 509 342 200 (1,051) -
Total non-interest
expense 5,131 5,656 2,832 11,151 24,770
Income (loss)
before taxes $ 6,559 $ 12,758 $ 1,697 $ (6,934) $ 14,080
Total average assets $356,320 $330,512 $124,533 $105,458 $916,823
1997
Net interest income
Interest income $ 27,989 $ 23,042 $ 7,664 $ 10,092
Allocated interest
expense 20,494 15,833 - (36,327)
Interest expense - - 3,966 37,978
Net interest income 7,495 7,209 3,698 8,441 $ 26,843
Provision for loan
losses 1,525 43 154 1,782 3,504
Non-interest
income-external 3,169 9,805 1,016 574 14,564
Non-interest expense
Direct expense 3,268 2,876 2,439 15,482 24,065
Overhead and support 509 452 450 (1,411) -
Total non-interest
expense 3,777 3,328 2,889 14,071 24,065
Income (loss) before
taxes $ 5,362 $ 13,643 $ 1,671 $ (6,838) $ 13,838
Total average assets $348,984 $283,590 $ 97,729 $111,843 $842,146
24. New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS
No. 137 was issued in 1999 and effectively delayed the
implementation of SFAS No. 133 to fiscal years beginning after
June 15, 2000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS,
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of NCB and the
positions held by each are as follows:
Year First End of
Position Appointed Term Age
James L. Burns, Jr. Chairman of the Board
Of Directors and Director 1996 2002 61
Charles E. Snyder President and Chief
Executive Officer 1983 - 46
Harry J. Bowie Director 1999 - 64
Joseph Cabral Director 1995 2001 51
Kirby J. Erickson Vice Chairman of the Board 1997 2000 59
of Directors and Director
Eben Hopson, Jr. Director 1998 2002 53
Jackie Jenkins-Scott Director 1997 2000 50
Marilyn J. McQuaide Director 1996 2002 50
Michael J. Mercer Director 1998 2001 46
Alex N. Miller Director 1998 2001 57
Alfred A. Plamann Director 1995 2001 57
Stuart M. Saft Director 1999 2002 52
Sheila A. Smith Director 1995 - 54
Peter C. Young Director 1997 2000 54
Thomas K. Zaucha Director 1997 2000 55
Year First End of
Position Appointed Term Age
Caroline Blakely Managing Director, Chief
Marketing Officer
President, NCB Capital
Corporation
President and Director,
NCB 1, Inc.
President and Director,
NCB Insurance Brokers, Inc. 1992 3/99 45
Steven A. Brookner Managing Director
President and Director,
NCB I, Inc.
Director, NCB Insurance
Brokers, Inc. 1997 - 37
Charles H. Hackman Managing Director, Chief
Credit Officer
President,
NCB Financial Corporation
Vice President and Director,
NCB Savings Bank, FSB
President and Director,
NCB Insurance Brokers, Inc. 1984 - 55
Mark W. Hiltz Managing Director, Chief
Risk Officer 1982 - 52
Richard L. Reed Managing Director, Chief
Financial Officer
Treasurer, NCB Capital
Corporation
Vice President and Director,
NCB Savings Bank, FSB
Treasurer, NCB Retail
Finance Corporation 1985 - 41
Thomas C. Schoettle President, NCB Savings
Bank,FSB 1997 - 44
James L. Burns, Jr. has been the President and Chief
Executive Officer of The Co-operative Central Bank since 1972.
He also has been the President and Chief Executive Officer of
Co-operative Investment Fund since 1984. In addition, he has
served as a consultant to the Australian government and the
Australian and New Zealand banking industry.
Charles E. Snyder was named President and Chief
Executive Officer of NCB in January 1992. He had been
Corporate Vice President and Chief Financial Officer of NCB
from 1983 to December 1991.
Harry J. Bowie has been the President and Chief Executive
Office of Delta Foundation, Inc., a community development
corporation located in Greenville, Mississippi, since 1986.
He has also served as a Director of the Southern Regional
Council located in Atlanta and the Housing Assistance Council
located in Washington, D.C.
Joseph Cabral has been the President and Chairman of the
Board of Chatsworth Products, Inc. since its inception in June
1991. He is past President of the California chapter of the
ESOP Association. He is also Secretary/Treasurer and member
of the ESOP Association and a member of the Executive Board of
the ESOP Association State/Regional Council. Prior to June,
1991, he was associated with Arthur Andersen & Co.
Kirby J. Erickson has been the Executive Vice
President of Group Health Inc. (GHI)/HealthPartners, Inc.
since 1992. He also had served in various capacities since
1965 at Aetna Health Plans, United Health Care, Inc., Fairview
Community Hospitals and Fairview Southdale Hospital.
Eben Hopson, Jr. has been Treasurer and Board Member of
Arctic Slope Regional Corporation, Executive Director of
Arctic Slope Native Association and Executive Director of
Bristol Bay Borough. He was also a former Financial Director
of the City of Barrow.
Jackie Jenkins-Scott is the President and Chief Executive
Officer of the New England Hospital d/b/a Dimock Community
Health Center for the past 14 years. Prior to her position
with Dimock, she served as Director of the Roxbury Court
Clinic and held several positions with the Commonwealth of
Massachusetts, Department of Public Health from 1973 to 1977.
She has been a Board Member of the Massachusetts League of
Commmunity Health Centers and a member of the National
Association of Community Health Centers, Inc.
Marilyn J. McQuaide was a Senior Vice President and Senior
Operations Officer of Vermont National Bank from 1989 to 1999.
She also served on the Board of Northeast Cooperatives
Association for seven years and as Vice President for five
years.
Michael J. Mercer has been the President of Georgia Credit
Union Affiliates since 1985 and Vice Chairman of the
Association of Credit Union League Executives since 1997. He
was also one of the founders of the Credit Union Service
Corporation and was its former Chairman.
Alex N. Miller has been the President of Cornerstone
Cooperatives, formerly known as G & M Management Corporation
since 1974 and President and Chief Executive Officer of CAM
Systems, Inc. since 1986. In 1996, he founded and now serves
as the President of Share Credit Corporation which provides
low cost share financing to limited equity housing
cooperatives. He founded the Registered Cooperative Manager
Program and serves on its Board of Governors. He also served
as a member of the Board of Directors of the National
Association of Housing Cooperatives for four consecutive
years.
Alfred A. Plamann has been the President and Chief
Executive Officer of Unified Western Grocers, formerly known
as Certified Grocers of California, Ltd. He was the Senior
Vice President and Chief Financial Officer of Certified
Grocers from 1989 to 1993. He has served in an executive
capacity with Atlantic Richfield Co. (ARCO) and has served on
the Board of Directors of several of the cooperative's
subsidiaries. Additionally, he has served on the Board of
Directors of the National American Wholesale Grocers
Association (NAWGA) and the California Grocer's Association
(CGA), and has been a member of the Industry Relations
Committee of the Food Marketing Institute (FMI).
Stuart M. Saft has been Chairman, Council of New York
Cooperatives and New York City Workforce Development Board
Task Force. He is also currently a Vice Chair of the Board
of Directors of Private Industry Council of New York City,
Advisory Board Member of First American Title Insurance
Company, Board Member and General Counsel of American Women's
Economic Development Corporation, Member of the Board of
Advisors for the Real Estate Investments and Asset Management
Newsletter and Member of the New York State Attorney General's
task force on the Martin Act and the Condominium Act.
Sheila A. Smith has been President of ARC Global
Technologies, Inc. since 1979 and also a Director of ARC
Europe, Ltd. in Scotland.
Peter C. Young has been the Executive Director of Area
Cooperative Educational Services for more than 25 years.
Currently, he is a member of the Board of Trustees and the
Finance Committee of CT Hospital Association/Workers
Compensation Trust. He is also the Fiscal Agent (Treasurer)
and was a member of the Governing Board of the American
Association of Educational Service Agencies.
Thomas K. Zaucha has been the President and Chief Executive
Oficer of the National Grocers Association (NGA) since 1982.
He served as President and Chief Executive Officer of the
Grocers Fixtures & Equipment Company from 1978 to 1982 prior
to its merger with NGA. He is also currently serving as a
Board Member of NCB Retail Finance Corporation and Cooperative
Development Foundation.
Caroline E. Blakely, who resigned in March 1999, was a
Managing Director and Chief Marketing Officer of NCB. She was
formerly a Corporate Vice President, Real Estate Division in
1994, a Senior Vice President from 1993 to 1994 and a Vice
President from 1992 to 1993. Previously, she was a
shareholder and attorney in Fields and Director, PC with a
practice in corporate and real estate law from 1991 to 1992.
She was also a shareholder and attorney with Golden Freda &
Schraub, PC with a practice in corporate and real estate law
from 1985 to 1991.
Steven A. Brookner is a Managing Director responsible
for overseeing the real estate originations, capital markets,
servicing and investor reporting functions of NCB. From 1997
through September 1998 he was a Managing Director responsible
for strategic initiatives and new product development.
Previously, he was a shareholder and officer of Hamilton
Securities Group for one year and Co-Founder and Principal of
BNC & Associates, a financial and management cosulting firm,
for five years.
Charles H. Hackman is a Managing Director and Chief Credit
Officer of NCB. He was formerly Corporate Vice President and
Chief Financial Officer from 1992 to 1994. He was Corporate
Vice President, Credit Policy, of NCB from 1984 to 1992,
President of NCB Financial Corporation since its inception in
1988 and President of NCB Insurance Brokers, Inc. starting in
1999.
Mark W. Hiltz is a Managing Director and Chief Risk Officer
of NCB. He was a Corporate Vice President and Manager of
Special Assets from 1994 to 1998 and a Senior Vice President
of the Special Assets Department from 1986 to 1994.
Previously he was Vice President of Loan Administration from
1983 to 1986 and General Auditor from 1982 to 1983.
Richard L. Reed is a Managing Director and Chief Financial
Officer of NCB. He was named Senior Vice President and Chief
Financial Officer in 1994. Prior to that, he was Vice
President and Treasurer from 1992 to 1994. He was Vice
President, Treasury from 1989 to 1992.
Thomas C. Shoettle was named President and Chief
Executive Officer of NCB Savings Bank, FSB in 1997. He was
the Executive Vice President of the Savings Bank from 1995 to
1996. Previously, he served for eight years as Vice
President, Commercial and Residential Lending and Regional
Manager with Merchants National Bank and for three years as
Manager, Special Assets with Farm Credit System.
Non-Incumbent Nominees for Directorships
Lynn M. Hoopingarner
David H. Roberts
Lynn M. Hoopingarner is the President of Profitable
Solutions TM Institute, Inc. She has been the President of
White House Owners Association since 1992 to present. She
also previously worked as a banker at Chase Manhattan Bank and
Wells Fargo Bank.
David H. Roberts is the Treasurer since 1995 to present and
Vice President since 1998 to present of 230 Tenants
Corporation. He was formerly a Vice President of
Citibank/Citigroup.
COMPOSITION OF BOARD OF DIRECTORS
The Act provides that the Board of Directors of NCB shall
consist of 15 persons serving three-year terms. An officer of
NCB may not also serve as a director. The President of the
United States is authorized to appoint three directors with
the advice and consent of the Senate. Of the Presidential
appointees, one must be selected from among proprietors of
small business concerns which are manufacturers or retailers;
one must be selected from among the officers of the agencies
and departments of the United States; and one must be selected
from among persons having extensive experience representing
low-income cooperatives eligible to borrow from NCB. Sheila
A. Smith is the Presidential appointee from among proprietors
of small business concerns. There is a vacancy for the
Presidential appointee from among the officers of U.S.
agencies and departments. Harry J. Bowie is the Presidential
appointee from among persons representing low-income
cooperatives.
The remaining 12 directors are elected by the
holders of Class B and Class C stock. Under the bylaws of NCB,
each stockholder-elected director must have at least three
years experience as a director or senior officer of the class
of cooperatives which he or she represents. The five classes
of cooperatives are: (a) housing, (b) consumer goods, (c)
low-income cooperatives, (d) consumer services, and (e) all
other eligible cooperatives. At all times each class must
have at least one, but not more than three, directors
representing it on the Board.
Only holders of NCB's Class B and Class C stock have voting
rights, and they vote as one class under the terms of the
weighted voting system adopted by NCB to comply with the Act.
The NCB by-laws and voting policy provide that (1) each
stockholder of record who is also a borrower from NCB (a
"borrower-stockholder") is entitled to five votes, (2) each
borrower-stockholder is entitled to additional votes, up to a
total of 120, based on a formula measuring the proportion that
such borrower-stockholder's patronage with NCB bears to the
total patronage during a period of time fixed by the election
rules, and (3) each stockholder who is not a borrower from NCB
shall receive one vote, and non-borrower stockholders as a
class shall receive at least 10% of the votes allocated.
The by-laws and voting policy further provide that,
notwithstanding any allocations of votes which would otherwise
result from the foregoing rules (1) no stockholder shall be
entitled to more than 5% of the total voting control held by
all stockholders, (2) the total votes allocated to any class
of cooperatives shall not exceed 45% of the total, and (3) no
stockholder which is a "developing cooperative" shall be
entitled to more than five votes. A developing cooperative is
defined as a cooperative that is in a developmental or
fledgling state of operation and that does not have members
who are ultimate consumers or primary consumers.
NCB has reserved the right to alter its voting policy at
any time to comply with the requirement of the Act that its
voting system should not result in: (1) voting control of NCB
becoming concentrated with larger, more affluent or smaller,
less affluent organizations, (2) a disproportionate
concentration of votes in any housing cooperatives or low-
income cooperatives or consumer goods and services
cooperatives, or (3) the concentration of more than 5% of the
voting control in any one Class B or Class C stockholder.
NCB may refuse to honor any stockholder's voting rights,
except to the extent of one vote, if the stockholder is more
than 90 days late on any payment to NCB at the time such
rights would otherwise be exercised.
Committees of the Board
The Board of Directors directs the management of NCB and
establishes the policies of NCB governing its funding,
lending, and other business operations. In this regard, the
Board has established a number of committees, such as
Executive, Loan and Business Development, Finance, Audit, Low
Income Policy, and Strategic Planning and Nominating
Committees, including an Ad Hoc Committee on Patronage and
Capitalization.
The Executive Committee is responsible for exercising all
powers of the Board of Directors when waiting for the next
regular meeting will adversely affect the best interest of
NCB. It also reviews and recommends CEO's annual compensation
and benefit plans, authorizes contracts in excess of $250,000,
recommends to the board rules and procedures governing the
board, reviews and recommends policies or actions not within
the authority of any other committee, serves as the appeal
authority for loan turn-down, recommends to the board
appointment of representatives to other boards where NCB is
entitled to such representation and approves exceptions to
policies not within the authority of another committee. The
members of the committee are James L. Burns, Jr.(Chair),
Joseph Cabral, Kirby J. Erickson, Jackie Jenkins-Scott,
Marilyn J. McQuaide, Michael J. Mercer, Alfred A. Plamann
and Sheila A. Smith.
The Loan and Business Development Committee is responsible
for providing policy to management and for monitoring the
lending, fee for service and business development efforts of
NCB and its subsidiaries, consistent with the board's approved
strategic plan. The members of the committee are Joseph
Cabral, Eben Hopson, Jr., Jackie Jenkins-Scott, Alex N.
Miller, Sheila A. Smith(Chair), Peter C. Young and Thomas K.
Zaucha.
The Finance Committee is responsible for monitoring NCB's
financial planning, budgeting process, asset liability
management and funding strategies. The members of the
committee are Harry J. Bowie, James L. Burns, Jr., Kirby J.
Erickson, Marilyn J. McQuaide, Michael J. Mercer(Chair),
Alfred A. Plamann and Stuart M. Saft.
The Audit Committee is responsible for assisting the Board
of Directors in fulfilling its statutory and fiduciary
responsibilities for NCB and its subsidiaries and related entity
by overseeing all examinations and audits, monitoring all
accounting and financial reporting practices, determining that
there are adequate administrative and internal accounting
controls and assuring that NCB and its subsidiaries and
related entity are operating within prescribed policies and
procedures and in conformance with the applicable conflict of
interest policies. The members of the Committee are Harry J.
Bowie, James L. Burns, Jr., Kirby J. Erickson, Marilyn J.
McQuiade(Chair), Michael J. Mercer, Alfred A. Plamann and
Stuart M. Saft.
The Low Income Policy Committee is responsible for
evaluating NCB's best efforts to achieve 35% of loans
outstanding to low income cooperatives in accordance with
established policies and for recommending to management ways
NCB can increase low income lending. The members of the
committee are Joseph Cabral, Eben Hopson, Jr., Jackie Jenkins-
Scott(Chair), Alex N. Miller, Sheila A. Smith, Peter C. Young
and Thomas K. Zaucha.
The Strategic Planning Committee monitors and reviews all
NCB related entities' planning activities delegated to them by
the board. The members of the committee are the full Board of
Directors.
The Nominating Committee annually oversees the election for
NCB directors. The committee also periodically drafts
election rules on behalf of the Board of Directors. The
committee consists of those members of the Board whose terms
are not expiring during the current year.
The Ad Hoc Committee on Patronage and Capitalization is
responsible for the consideration of the following: 1)
education and the dynamics of NCB as a cooperative, 2)
exploring necessary modifications and policy refinements, and
3) describing what the capital structure of NCB should be in
the future. The members of the committee are James L. Burns,
Jr., Joseph Cabral, Jackie Jenkins-Scott, Michael J. Mercer,
Alfred A. Plamann(Chair), Stuart M. Saft and Sheila A. Smith.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF THE OFFICERS
The following table sets forth the compensation during the
last three fiscal years of NCB's Chief Executive Officer and
its four other most highly compensated executive officers.
All Other
Annual Compensation Compensation
(a) (b) (c) (d) (e)
Name and
Principal Position Year Salary Bonus
Charles E. Snyder 1999 $336,000 $121,600 $20,760
President & CEO 1998 320,000 155,000 20,800
1997 310,013 103,250 20,440
Charles H. Hackman 1999 204,300 58,935 20,760
Managing Director, 1998 196,450 66,115 20,800
Chief Credit Officer 1997 189,387 63,591 20,440
Richard L. Reed 1999 175,000 52,250 20,679
Managing Director, 1998 157,500 52,500 20,340
Chief Financial
Officer 1997 150,005 52,500 19,037
Mark Hiltz 1999 156,000 45,240 20,169
Managing Director, 1998 150,800 50,750 19,488
Chief Risk Officer 1997 145,005 48,125 18,592
Caroline Blakely 1999 135,792 74,850 15,756
Managing Director, 1998 199,500 66,500 20,487
Chief Marketing
Officer 1997 203,678 59,500 20,440
Steven Brookner 1999 160,400 33,000 12,034
Managing Director
* The "All Other Compensation" reported for 1999 consists of
NCB's contributions to the defined contribution retirement
plan accounts of the named officers, NCB's matching
contributions to the 401 (k) plan accounts of the named
officers, and NCB's payments of term insurance premiums for
the named officers as follows:
Retirement Plan Matching 401(k) Term Insurance
Contribution Contribution Premiums
Mr. Snyder $9,600 $9,600 $1,560
Mr. Hackman 9,600 9,600 1,560
Mr. Reed 9,600 9,600 1,479
Mr. Hiltz 9,378 9,378 1,413
Ms. Blakely 8,147 6,699 910
Mr. Brookner 9,272 1,545 1,217
COMPENSATION OF THE BOARD
Under the Act, directors appointed by the President from
among proprietors of small businesses and from persons with
experience in low-income cooperatives, are entitled to (1)
compensation at the daily equivalent of the compensation of a
GS18 civil servant (now "Senior Executive Service") which
amounted in 1999 to $484.23 a day, and (2) travel expenses.
Typically, they receive compensation for no more than nine
days a year. Directors elected by shareholders are entitled to
(1) annual compensation of $7,000, (2) $1,000 for the chairman
of each committee, (3) $1,000 for each board meeting attended,
(4) $250 for each committee meeting attended up to two
meetings only, and (5) travel expenses. The Chairman of the
Board is entitled to $8,000 in compensation in addition to the
above amounts. Directors of subsidiary corporations are
entitled to (1) $500 for each board meeting attended when not
held in conjunction with NCB board meetings and (2) travel
expenses.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Stock Ownership of Certain Stockholders and Management
Several of NCB's stockholders own in excess of 5 percent
of the outstanding shares of NCB's Class B or Class C stock.
The shareholders purchased a portion of this stock in
connection with sizable loans made by NCB to them and received
a portion of the stock as patronage dividends from NCB. NCB's
voting policy, however, does not allocate voting rights solely
based on the number of shares of Class B or Class C stock held
and prohibits any one stockholder from being allocated more
than five percent of the votes allocated in connection with
any stockholder action.
The following table shows those cooperatives which owned
more than 5 percent of NCB's Class B or Class C stock as of
December 31, 1999.
Class B Stock Class C Stock
Name and Addresses No. of Percent No. of Percent
of Shareholders Shares of Class Shares of Class
The Co-operative 30,500.00 3.05% 28,566.22 12.76%
Central Bank
75 Park Plaza
Boston, MA 02116
Greenbelt Homes, Inc. 14,424.28 1.44% 29,505.23 13.18%
Hamilton Place
Greenbelt, MD 20770
Group Health, Inc (1) 12,718.23 1.27% 14,249.60 6.37%
2829 Univ. Ave., S.E.
Minneapolis, MN 55414
(1) Included in the above are 3,960.26 shares and 2,769.48
shares of Class B and C stock, respectively, held of record by
Central Minnesota Group Health Plan which is affiliated with
GHI.
Because the Act restricts ownership of NCB's Class B and
Class C stock to eligible cooperatives, NCB's officers and
directors do not own any Class B or Class C stock, although
cooperatives with which they are affiliated may own such
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Certain Transactions
The following table sets forth information concerning
certain transactions by which NCB and its subsidiaries have made
loans or leases to organizations with which NCB directors or
executive officers are affiliated. The first column lists the
name of the director or executive officer who is related with
the loan or lease recipient. The second column sets forth the
name of the organization to which the loan or lease was made.
The last three columns list loan balances and interest
rates as of the specified dates. The text following the table
further describes the nature of the transactions set forth in
the table.
The following loans and leases were made in the ordinary
course of NCB's business on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did
not involve more than the normal risk of uncollectability or
present other unfavorable features.
National Cooperative Bank Largest Interest
Balance Balance as Rate as
in of of
1999 12/31/99 12/31/99
James L. Burns, Jr. Co-op Central Bank $ 0 $ 0
Joseph Cabral Chatsworth Products 349,089 209,454 8.82%
Chatsworth Products 2,710,270 1,922,498 8.82%
Kirby J. Erickson Central Minnesota
Group Health 3,008,280 3,008,280 8.00%
Central Minnesota
Group Health 2,852,678 2,474,532 8.10%
Alex N. Miller The Columns at
East Hill 202,515 200,010 9.24%
1261 La Vista 2,158,140 2,141,399 8.37%
Belvedere Point,
Inc. 311,848 307,204 9.81%
Tanglewood Garden
Coop. 854,488 844,552 9.69%
Alfred A. Plamann Park/Shop-
Andronico's 8,700,000 6,290,404 various
K. V. Mart 5,183,841 4,058,964 8.50%
Mollie Stone Market 7,500,000 7,050,000 8.62%
Certified Revolver 5,000,000 0 various
Certified Lease 39,443 0 lease
Green Frog Market 749,702 609,598 various
Jensen's Complete
Shop 1,400,000 1,345,238 9.25%
M&M Highland 309,366 316,500 9.26%
Major Market 306,881 106,138 9.00%
Northwest Supermkt 3,917,600 3,357,943 various
Superior Warehouse 4,250,000 0
Yucaipa Trading 315,133 258,561 9.50%
Grocers Cap Revolver 2,000,000 1,200,000 8.50%
Grocers Cap Program 17,638,600 14,421,904 various
Peter O'Neal 1,075,341 1,045,154 various
IFOR 163,229 142,364 6.88%
United Resources
Program 11,823,934 9,552,867 various
Peter C. Young Area Coop Education
Services 1,300,000 1,300,000 9.00%
Thomas K. Zaucha Hilltop Properties 3,462,563 3,067,993 various
Greenwich Assoc. 12,000,000 12,000,000 8.60%
Charles E. Snyder National Cooperative
Business Assoc. 68,512 27,405 lease
National Cooperative
Business Assoc. 330,000 205,000 8.63%
Nominees for Directorship Largest Interest
Balance Balance as Rate as
in of of
1999 12/31/99 12/31/99
Lynn M. Hoopingarner The White House
Owners Association $ 177,082 $ 161,959 9.38%
David H. Roberts 230 Tenants
Corporation 900,000 900,000 7.95%
230 Tenants
Corporation 288,425 288,100 7.73%
NCB has a $30.0 million committed line of credit facility
with The Co-operative Central Bank of which Mr. Burns is the
President and Chief Executive Officer.
NCB has two term loans outstanding to Chatsworth Products,
Inc. of which Mr. Cabral is the President. The term loans were
used for the purchase of machinery and equipment and were termed
out after the initial draw periods.
NCB has two outstanding commercial loans with Central
Minnesota Group Health Plan, Inc. (CMGHP). Mr. Erickson is the
Executive Vice President of Group Health, Inc.
(GHI)/HealthPartners, Inc. HealthPartners, Inc. is GHI's parent
company and GHI is the sole corporate member of CMGHP. These
loans were used to fund a new healthcare center and refinance an
existing term loan.
NCB has outstanding loans to Belvedere Point, Inc., 1261 La
Vista, The Columns at East Hill and Tanglewood Garden Coop. G & M
Management Company, of which Mr. Miller is the President,
provides management services for these cooperatives. The
purposes of these loans were to refinance acquisition, for
construction loan and for capital improvements. These loans,
with the exception of 1261 La Vista, have been sold and are not
reflected on NCB's books.
NCB has enterd into agreements with Grocers Capital Company
(GCC) and United Resources, Inc (URI), finance and subsidiaries
of Unified Western Grocers (UWG) of which Mr. Plamann is its
President and Chief Executive officer, to purchase member loans
originated by GCC and URI. NCB also provides a line of credit to
GCC. In December 1999, NCB agreed to modify its financing
arrangements with GCC and URI, the documentation of which was in
process at year end. Finally, GCC and UWG provide guarantees on
several loans to members of UWG, some of which have been sold and
are not reflected on NCB's books.
NCB has a $1.5 million line of credit with Area Cooperative
Educational Services of which Mr. Young is the Executive
Director. The line of credit is for working capital needs.
NCB has two loans outstanding with Hilltop Properties.
Hilltop Properties is a member of the National Grocers
Association of which Mr. Zaucha is its President. The loans were
used for a real estate refinancing, to purchase furniture,
fixtures, equipment and inventory and to remodel a store. Also
available is a $.3 million line of credit for working capital
needs. Additionally, NCB originated four loans with Greenwich
Associates, a real estate company which leases property to
D'Agostinos Markets, a chain grocery operation and member of the
National Grocers Association. The loans were made to refinance
the real estate whose primary tenants are the D'Agostinos
markets. NCB fully intends to sell these commercial real estate
loans in the secondary market.
NCB has lease financing to National Cooperative Business
Association of which Mr. Snyder, President and CEO of NCB, is a
Board Member. The lease financing is for computer hardware and
software purchased. Also available is a $.5 million working
capital line of credit.
Board nominee Lynn M. Hoopingarner is the President of White
House Owners Association. NCB has an outstanding real estate
loan to the White House Owners which was used to finance capital
improvements.
Board nominee David H. Roberts is Vice President of 230
Tenants Corporation. NCB has two outstanding real estate loans
to 230 Tenant Corporation. They were used to refinance an
existing loan and for capital improvements.
NCB believes that the foregoing transactions contain terms
comparable to those obtainable in an arm's length transaction.
NCB had determined that these loans are in accordance with its
lending policies, were properly approved and were within the
applicable regulatory limitations and any or all were evaluated
for disclosure in the financial statements.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are filed as a part
of this report.
Financial Statements as of December 31, 1997, 1998, and 1999.
Page #
40 Report of Independent Public Accountants
41 Consolidated Balance Sheets
42 Consolidated Statements of Income
43 Consolidated Statements of Comprehensive Income
44 Consolidated Statements of Changes in Members' Equity
45-46 Consolidated Statements of Cash Flows
47-77 Notes to the Consolidated Financial Statements
(a)(2) Not applicable
All other schedules are omitted because they are not
applicable or the required information is shown in the financial
statements, or the notes thereto.
(a)(3) The following exhibits are filed as a part of this report.
Exhibit No.
(a) 3.1 National Consumer Cooperative Bank Act, as amended through 1981
(c) 3.2 1989 Amendment to National Consumer Cooperative Bank Act
(d) 3.3 Bylaws of NCB
(f) 4.1 Election Rules of the NCB. For other instruments defining the
rights of security holders, see Exhibits 3.1 and 3.2
(g) 4.2 Form of Assumption Agreements and Amended and Restated
Senior Note Agreements
(g) 4.3 Schedule Concerning Senior Note Agreements
(k) 4.4 Financing Agreement with U.S. Treasury
(l) 4.5 Note Purchase Agreement with Lutheran Brotherhood et al.
(m) 4.6 Master Shelf Agreement with Prudential Insurance Co. of
America et al.
(n) 4.7 Senior Note Agreement (Dec. 1995)
(r) 4.8 First Amendment Agreement to Master Shelf Agreement
with Prudential Insurance Co. of America
(r) 4.9 First Amendment Agreements to the Assumption Agreement
and Amended and Restated Note Purchase Agreements
(r) 4.10 First Amendment Agreements to the Note Purchase
Agreements with Lutheran Brotherhood et al.
(o) 4.11 Form of Indenture for Debt Securities
(p) 4.12 Form of Fixed Rate Medium Term Note
(q) 4.13 Form of Floating Rate Medium Term Note
*(t) 10.1 Chief Executive Officer Incentive Plan
(u) 10.2 Term Loan Agreement with Credit Suisse First Boston
*(h) 10.3 Deferred Compensation Agreement with Charles E. Snyder
*(e) 10.4 Severance Agreement with Charles E. Snyder
(s) 10.5 Third Amended and Restated Loan Agreement with Fleet
Bank as Agent
*(a) 10.6 Insurance Plan for NCB Executive Officers
(b) 10.7 Subordination Agreement with Consumer Cooperative Development
Corporation (now NCB Development Corporation)
(s) 10.8 Master Shelf Agreement with Prudential Insurance Co.
of America et al. (June 1997)
(u) 10.11 Fleet Loan Agreement
(d) 10.12 Lease on Headquarters of NCB
*(t) 10.13 NCB Executive Long-Term Incentive Plan
*(f) 10.14 Employment Agreement with Marlon W. Pickles
(v) 10.15 First Amendment to Third Amended and Restated Loan
Agreement with Fleet Bank as Agent
(aa) 10.16 Amendment to Fleet Loan Agreement
(z) 10.17 Second Amendment Agreement to Note Purchase
Agreement with Lutheran Brotherhood et. al (June 1999)
(h) 10.18 Term Loan Agreement with Credit Suisse ( Feb. 1997)
(x) 10.19 Term Loan Agreement with Funding Corporation
and Credit Suisse First Boston (November 1998)
(i) 10.20 Term Loan Agreement with Credit Suisse (Sept. 1995)
(y) 10.21 Amendment No. 2 to Third Amended and Restated
Loan Agreement with Fleet Bank as Agent
(y) 10.22 First Amendment to Term Loan Agreement with Greenwich
Funding Corporation and Credit Suisse First Boston
(aa) 10.23 Note Purchase Agreement with Prudential Insurance Company of
America (Dec. 1999)
(z) 10.24 First Amendment Agreement to Note Purchase Agreement
with First AUSA Life Insurance et. al (June 1999)
(j) 10.25 Term Loan Agreement with PNC Bank (Aug 1996)
*(aa) 10.26 Incentive Plan for NCB Executive Officers
(y) 10.27 Executive Long-Term Incentive Plan
(r) 10.28 Amendment No. 1 to Term Loan Agreement with Credit Suisse
(Feb. 1995)
(r) 10.29 Amendment No. 1 to Term Loan Agreement with Credit Suisse
(Sept. 1995)
( ) 10.30 (No Exhibit)
(i) 22.1 List of Subsidiaries and Affiliates of the NCB
(aa) 23.1 Consent of Arthur Andersen LLP
(i) 25.1 Power of Attorney by Joseph Cabral
(x) 25.2 Power of Attorney by Alex N. Miller
(t) 25.3 Power of Attorney by Kirby J. Erickson
25.4 (No Exhibit)
(t) 25.5 Power of Attorney by Jackie Jenkins-Scott
(r) 25.6 Power of Attorney by James L. Burns, Jr.
(aa) 25.7 Power of Attorney by Harry J. Bowie
(t) 25.8 Power of Attorney by Michael J. Mercer
(t) 25.9 Power of Attorney by Peter C. Young
(t) 25.10 Power of Attorney by Thomas K.Zaucha
(i) 25.11 Power of Attorney by Alfred A. Plamann
(aa) 25.12 Power of Attorney by Stuart M. Saft
(i) 25.13 Power of Attorney by Sheila A. Smith
(x) 25.14 Power of Attorney by Eben Hopson, Jr.
(r) 25.15 Power of Attorney by Marilyn J. McQuaide
(x) 27 Financial Data Schedule
* Exhibits marked with an asterisk are management contracts or
compensatory plans.
(a) Incorporated by reference to the exhibit of the same
number filed as part of Registration Statement No. 2-99779
(Filed August 20, 1985).
(b) Incorporated by reference to the exhibit of the same
number filed as part of Amendment No. 1 to Registration
Statement No. 2-99779 (Filed May 7, 1986).
(c) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1989
(File No. 2-99779).
(d) Incorporated by reference to the exhibit of the same
number filed as part of Registration Statement No. 33-
42403 (filed September 6, 1991).
(e) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report on
Form 10-Q for the three months ended June 30, 1992 (File No.
2-99779).
(f) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1992
(File No. 2-99779).
(g) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1993
(File No. 2-99779).
(h) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1994
(File No. 2-99779).
(i) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1995
(File No. 2-99779).
(j) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the three months ended September 30, 1996
(File No. 2-99779).
(k) Incorporated by reference to Exhibit 10.16 filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1989 (File No. 2-99779).
(l) Incorporated by reference to Exhibit 10.13 filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1994 (File No. 2-99779).
(m) Incorporated by reference to Exhibit 10.15 filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1994 (File No. 2-99779).
(n) Incorporated by reference to Exhibit 10.22 filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1995 (File No. 2-99779).
(o) Incorporated by reference to Exhibit 4.1 filed as part of
Amendment No. 1 to Registration Statement No. 333-17003 (Filed January
21, 1997).
(p) Incorporated by reference to Exhibit 4.2 filed as part of
Amendment No. 1 to Registration Statement No. 333-17003( Filed January
21, 1997).
(q) Incorporated by reference to Exhibit 4 to the registrant's report
on Form 8-K filed February 11, 1997 (File No. 2-99779).
(r) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1996
(File No. 2-99779).
(s) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended June 30, 1997
(File No. 2-99779).
(t) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's annual report
on Form 10-K for the year ended December 31, 1997
(File No. 2-99779).
(u) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended March 31, 1998
(File No. 2-99779).
(v) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended June 30, 1998
(File No. 2-99779).
(w) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended September 30,1998
(File No. 2-99779).
(x) Incorporated by referance to the exhibit of the same
number filed as part of the registrant's annual report on
Form 10K for the year ended December 31,1998 (File No. 2-
99779).
(y) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended June 30, 1999 (File No.
2-99779).
(z) Incorporated by reference to the exhibit of the same
number filed as part of the registrant's quarterly report
on Form 10-Q for the quarter ended September 30, 1999 (File
No. 2-99779).
(aa) Filed herewith
(b) The Registrant did not file any report on Form 8-K
during the last quarter of 1999.
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf of the undersigned,
thereunto duly authorized.
NATIONAL CONSUMER COOPERATIVE BANK
DATE: March 30, 2000 BY/s/Charles E. Snyder
Charles E. Snyder
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates noted:
Signature Title Date
*/s/James L Burns, Jr. Chairman of the Board and 3/30/00
James L. Burns, Jr Director
/s/Richard L. Reed Managing Director, 3/30/00
Richard L. Reed (Principal Financial Officer)
/s/Marietta J. Orcino Vice President, Tax & 3/30/00
Marietta J. Orcino Regulatory Compliance
*/s/Harry J. Bowie Director 3/30/00
Harry J. Bowie
*/s/Joseph Cabral Director 3/30/00
Joseph Cabral
*/s/Kirby J. Erickson Director 3/30/00
Kirby J. Erickson
*/s/Eben Hopson, Jr. Director 3/30/00
Eben Hopson, Jr.
*/s/Jackie Jenkins-Scott Director 3/30/00
Jackie Jenkins-Scott
Signature Title Date
*/s/Marilyn J. McQuiade Director 3/30/00
Marilyn J. McQuiade
*/s/Michael J. Mercer Director 3/30/00
Michael J. Mercer
*/s/Alex N. Miller Director 3/30/00
Alex N. Miller
*/s/Alfred A. Plamann Director 3/30/00
Alfred A. Plamann
*/s/Stuart M. Saft Director 3/30/00
Stuart M. Saft
*/s/Sheila A. Smith Director 3/30/00
Sheila A. Smith
*/s/Peter C. Young Director 3/30/00
Peter C. Young
*/s/Thomas K. Zaucha Director 3/30/00
Thomas K. Zaucha
* By /s/Richard L. Reed
Richard L. Reed
(Attorney-in-Fact)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
With this report, the registrant is furnishing to the
Commission for its information the registrant's election
materials for its 2000 annual meeting. The registrant has
not yet distributed the 1999 annual report to security
holders and will furnish such report to the Commission when
it is sent to security holders.
INDEX TO EXHIBITS
Exhibit No. Description
10.16 Amendment to Fleet Loan Agreement
10.23 Note Purchase Agreement with Prudential
Insurance Company of America (Dec. 1999)
10.26 Incentive Plan for NCB Executive Officers
23.1 Consent of Arthur Andersen LLP
25.7 Power of Attorney by Harry J. Bowie
25.12 Power of Attorney by Stuart M. Saft
27 Financial Data Schedule
Supplemental Information
Registrant's 2000 Election Materials
FLEET LOAN AGREEMENT
AGREEMENT, made as of the 15th day of December, 1999,
by and between:
NATIONAL CONSUMER COOPERATIVE BANK, a corporation
chartered by Act of Congress of the United States which
conducts business under the trade name National Cooperative
Bank (the "Borrower"); and
FLEET BANK, NA, a national banking association,
("Fleet");
W I T N E S S E T H :
WHEREAS:
(A)The Borrower, the banks signatory thereto (the
"Banks") and Fleet Bank, N.A., as Agent for itself and the
Banks entered into a certain Third Amended and Restated Loan
Agreement dated as of May 28, 1997, which was amended
pursuant to (i) Amendment No. 1 to Third Amended and
Restated Loan Agreement dated as of May 27, 1998, and (ii)
Amendment No. 2 to Third Amended and Restated Loan Agreement
dated as of May 26, 1999 (as so amended, and as it may from
time to time hereafter be further amended, restated,
modified or supplemented, hereinafter referred to as the
"Banks' Loan Agreement") pursuant to which the Banks made
available to the Borrower a revolving credit facility in the
aggregate principal amount set forth therein;
(B)The Borrower wishes to have available to it a line
of credit from Fleet in the principal amount of up to Fifty
Million ($50,000,000) Dollars and Fleet is willing to make
available to the Borrower such a line of credit on the terms
and conditions hereinafter set forth; and
(C)Unless the context otherwise requires, all
capitalized terms used in this Agreement without definition
that are defined in the Banks' Loan Agreement shall have the
meanings provided therefor in the Banks' Loan Agreement.
Certain terms used herein are defined for the purposes of
this Agreement in Article 1 below.
NOW, THEREFORE, the parties hereto agree as follows:
1 Definitions
As used in this Agreement, the following terms shall
have the following meanings:
Banks' Loan Agreement: as defined in Recital (A)
hereof.
Borrowing Notice: as defined in subsection 2.2(a)
hereof.
Fleet Commitment Fee: as defined in subsection 2.7(b)
hereof.
Fleet Credit Period: the period commencing on the date
of this Agreement and ending on the Fleet Credit Termination
Date.
Fleet Credit Termination Date: April 14, 2000.
Fleet Fee: as defined in subsection 2.7(a) hereof.
Fleet Loans: as defined in Section 2.1 hereof.
Fleet Loan Documents: collectively, this Agreement,
the Fleet Note, and all other documents executed and
delivered in connection herewith or therewith, including all
amendments, modifications and supplements of or to all such
documents.
Fleet Note: as defined in Section 2.4 hereof.
Line of Credit: as defined in Section 2.1 hereof.
Line of Credit Availability: $50,000,000 as such
amount may be reduced from time to time pursuant to the
terms of this Agreement.
Obligations: all of the indebtedness, liabilities and
obligations of the Borrower to Fleet, whether now existing
or hereafter arising, under the Fleet Loan Documents.
2 Fleet Loans
_1 Fleet Loans.
Subject to the terms and conditions of this Agreement,
Fleet hereby agrees to hold available for the use of the
Borrower during the Fleet Credit Period (to and including
the Fleet Credit Termination Date), a line of credit (the
"Line of Credit") in an aggregate principal amount at any
one time outstanding up to, but not exceeding, the Line of
Credit Availability as then in effect. The Line of Credit
shall consist of short-term loans (individually, a "Fleet
Loan" and, collectively, the "Fleet Loans"). Subject to the
terms of this Agreement and the Banks' Loan Agreement,
during the Fleet Credit Period the Borrower may borrow,
repay and reborrow up to the amount of the Line of Credit
Availability as then in effect by means of Prime Rate Loans
or LIBOR Loans (provided that repayment of LIBOR Loans shall
be subject to the provisions of Section 2.24 of the Banks'
Loan Agreement) and during such period the Borrower may
convert Fleet Loans of one type into Fleet Loans of another
type (as provided in Section 2.8 of the Banks' Loan
Agreement).
_2 Notices Relating to Fleet Loans.
(a)The Borrower shall give Fleet written notice of
each borrowing, reborrowing, conversion and repayment of
each Fleet Loan and of the duration of each Interest Period
applicable to each LIBOR Loan (subject to subsection 2.2(b)
below) and the termination or reduction of the Line of
Credit Availability (in each case, a "Borrowing Notice"),
all as provided in Section 2.3 of the Banks' Loan Agreement
(provided that each reference in such Section 2.3 to the
"Agent" shall be deemed herein to be a reference to Fleet).
(b)Notwithstanding anything to the contrary
contained in the Banks' Loan Agreement, the Interest
Period(s) applicable to the Fleet Loans hereunder shall, at
the Borrower's election (subject to availability to Fleet),
be seven (7) days (i.e. the One-Week Rate) or a one-month
Interest Period.
_3 Disbursement of Loan Proceeds.
The Borrower shall give Fleet notice of each borrowing
hereunder as provided in Section 2.2 hereof. Fleet shall
disburse such sums to the Borrower by depositing in
immediately available funds the amount thereof in an account
of the Borrower designated by the Borrower maintained with
Fleet.
_4 Fleet Note.
The Fleet Loans shall be evidenced by a single
promissory note of the Borrower payable to the order of
Fleet and dated the date of this Agreement. The promissory
note shall be in the principal amount of Fifty Million
($50,000,000) Dollars and shall be in the form of Exhibit A
annexed hereto (the "Fleet Note").
_5 Repayment of Principal of Fleet Loans.
The aggregate outstanding principal amount of the Fleet
Loans shall be payable, together with all accrued interest
thereon, in a single installment on the Fleet Credit
Termination Date.
_6 Interest.
(a)The Borrower shall pay to Fleet interest on the
unpaid principal amount of the Fleet Loans for the period
commencing on the date that each Fleet Loan is made until
such Fleet Loan is paid in full, at the following rates per
annum:
(i)During the periods that such Fleet Loan is
a Prime Rate Loan, the Alternate Base Rate; provided,
however, during the period from the date hereof to
January 31, 2000, in the event the Federal Funds Rate
does not reasonably reflect Fleet's cost of funds, then
the Federal Funds Rate will be adjusted upwards in an
amount not to exceed 1.50% which is necessary to
compensate Fleet for its actual cost of funds. If
Fleet becomes entitled to claim any such additional
amounts, it shall promptly notify the Borrower of the
event by reason of which it has become so entitled by
providing a certificate (which shall be conclusive
absent manifest error) setting forth in reasonable
detail the basis for the claim for additional amounts,
the amounts required to be paid by the Borrower and the
computations made by Fleet to determine the amounts;
provided that Fleet shall not be required to disclose
any confidential information. Failure or delay on the
part of Fleet to demand compensation pursuant hereto
shall not constitute a waiver of Fleet's right to
demand such compensation; provided Fleet must have made
its demand for such compensation on or before June 30,
2000; and
(ii)During the periods that such Fleet Loan
is a LIBOR Loan, for each Interest Period relating
thereto, the LIBOR Rate for such Loan for such Interest
Period plus .50%.
Notwithstanding the foregoing, the Borrower shall pay
interest on any Fleet Loan or any installment thereof, and
on any other amount payable by the Borrower hereunder which
shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise) for the period
commencing on the due date thereof until the same is paid in
full at 4% above the otherwise applicable rate. Accrued
interest on the Fleet Loans shall be payable on the dates
set forth in the Banks' Loan Agreement.
(b) Anything in this Agreement or the Fleet Note
to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to
the limitation that payments of interest shall not be
required to be made to Fleet to the extent that Fleet's
receipt thereof would not be permissible under the law or
laws applicable to Fleet limiting rates of interest which
may be charged or collected by Fleet. Any such payments of
interest which are not made as a result of the limitation
referred to in the preceding sentence shall be made by the
Borrower to Fleet on the earliest interest payment date or
dates on which the receipt thereof would be permissible
under the laws applicable to Fleet limiting rates of
interest which may be charged or collected by Fleet. Such
deferred interest shall not bear interest.
_7 Fleet Fees.
(a) Simultaneously with the execution and
delivery of this Agreement, the Borrower shall pay to Fleet
a facility fee (the "Fleet Fee") as set forth in a separate
written agreement between the Borrower and the Bank.
(b) The Borrower shall pay to Fleet a commitment
fee (the "Fleet Commitment Fee") on the amount of the Line
of Credit Availability from the date hereof to and including
the earlier of the date the Line of Credit Availability is
terminated or the Fleet Credit Termination Date, at the rate
of .175% per annum on the Line of Credit Availability. The
accrued Fleet Commitment Fee shall be payable quarterly
commencing on January 31, 2000 and on the Fleet Credit
Termination Date.
_8 Use of Proceeds of Fleet Loans.
The proceeds of the Fleet Loans shall be used by the
Borrower for general corporate and working capital purposes.
_9 Computations.
Interest on the Fleet Loans and the Fleet Commitment
Fee shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding
the last) occurring in the period for which payable.
_10 Minimum Amounts of Borrowings, Conversions and Repayments.
Except for borrowings, conversions and repayments which
exhaust the full remaining amount of the Line of Credit
availability (in the case of borrowings) or result in the
conversion or repayment of all Fleet Loans of a particular
type (in the case of conversions or repayments) or
conversions made pursuant to Section 2.23 of the Banks' Loan
Agreement, each borrowing, each conversion of Fleet Loans of
one type into Fleet Loans of another type and each repayment
of principal of Fleet Loans hereunder shall be in an amount
at least equal to One Million ($1,000,000) Dollars or a
multiple of $1,000,000 (borrowings, conversions and
repayments of different types of Fleet Loans at the same
time hereunder to be deemed separate borrowings, conversions
and repayments for purposes of the foregoing, one for each
type).
_11 Time and Method of Payments.
All payments of principal, interest, fees and other
charges (including indemnities) payable by the Borrower
hereunder shall be made in Dollars, in immediately available
funds, to Fleet as set forth in the Banks' Loan Agreement
(and Fleet may, but shall not be obligated to, debit the
amount of any such payment that is not made as provided in
the Banks' Loan Agreement to any ordinary deposit account of
the Borrower with Fleet). Additional provisions relating to
payments are set forth in Section 10.3 of the Banks' Loan
Agreement and are incorporated by reference herein.
_12 Reductions in Line of Credit Availability.
The Borrower shall be entitled to reduce or terminate
the Line of Credit Availability provided that the Borrower
shall give notice of such reduction or termination to the
Bank as provided in Section 2.3 of the Banks' Loan Agreement
and any partial reduction of the Line of Credit Availability
shall be in an aggregate amount equal to Ten Million
($10,000,000) Dollars or an integral multiple thereof. Any
such reduction shall be permanent and irrevocable.
_13 Incorporatin of Certain Provisions.
The provisions of Sections 2.19 through 2.24 inclusive
of the Banks' Loan Agreement and all other sections of the
Banks' Loan Agreement to which such Sections 2.19 through
2.24 refer are hereby incorporated by reference as if the
provisions thereof were set forth in full herein.
________3 Representations and Warranties
The Borrower hereby represents and warrants to Fleet
that:
_1 Article 3 of Banks' Loan Agreement; No
Defaults.
(a) Each and every one of the representations and
warranties set forth in Article 3 of the Banks' Loan
Agreement is true in all respects as of the date hereof,
except for changes in the ordinary course of business,
which, either singly or in the aggregate, are not materially
adverse to the business or financial condition of the
Borrower.
(b) As of the date hereof, there exists no Event
of Default under the Banks' Loan Agreement, and no event
which, with the giving of notice or lapse of time or both,
would constitute such an Event of Default.
_2 Power, Authority, Consents.
The Borrower has the power to execute, deliver and
perform the Fleet Loan Documents to be executed by it. The
Borrower has the power to borrow hereunder and has taken all
necessary action to authorize the borrowing hereunder on the
terms and conditions of this Agreement. The Borrower has
taken all necessary action, corporate or otherwise, to
authorize the execution, delivery and performance of the
Fleet Loan Documents to be executed by it. No consent or
approval of any Person (including, without limitation, any
stockholder of the Borrower), no consent or approval of any
landlord or mortgagee, no waiver of any Lien or right of
distraint or other similar right and no consent, license,
approval, authorization or declaration of any governmental
authority, bureau or agency, is or will be required in
connection with the execution, delivery or performance by
the Borrower, or the validity or enforcement of the Fleet
Loan Documents.
_3 No Violation of Law or Agreements.
The execution and delivery by the Borrower of each
Fleet Loan Document and performance by it hereunder and
thereunder will not violate any provision of law and will
not conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, or any
certificate of incorporation or by-laws of the Borrower or
create (with or without the giving of notice or lapse of
time, or both) a default under or breach of any agreement,
bond, note or indenture to which the Borrower is a party, or
by which the Borrower is bound or any of its properties or
assets is affected, or result in the imposition of any Lien
of any nature whatsoever upon any of the properties or
assets owned by or used in connection with the business of
the Borrower.
_4 Due Execution, Validity, Enforceability.
This Agreement and each other Fleet Loan Document has
been duly executed and delivered by the Borrower and each
constitutes the valid and legally binding obligation of the
Borrower, enforceable in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar
laws, now or hereafter in effect, relating to or affecting
the enforcement of creditors' rights generally and except
that the remedy of specific performance and other equitable
remedies are subject to judicial discretion.
________4 Conditions Precedent to the Fleet Loans
The obligation of Fleet to make the Fleet Loans
hereunder shall be subject to the fulfillment (to the
satisfaction of Fleet) of the following conditions
precedent:
(a) The Borrower shall have executed and
delivered to Fleet this Agreement and the
Fleet Note.
(b) Fleet shall have received the Fleet Fee.
(c) Fleet shall have received a Compliance
Certificate from the Borrower dated the date
hereof and the matters certified therein,
including, without limitation, that after
giving effect to the terms and conditions of
this Agreement, no Default or Event of
Default shall exist, shall be true.
(d) Shea & Gardner, counsel to the Borrower,
shall have delivered its legal opinion to
Fleet, in form and substance satisfactory to
Fleet and its counsel.
(e) Fleet shall have received copies of the
following:
(i) All corporate action taken by the
Borrower to authorize the execution,
delivery and performance of this
Agreement, the Fleet Note and the
transactions contemplated hereby,
certified by its secretary;
(ii) A certificate from the secretary of the
Borrower to the effect that the By-laws
of the Borrower delivered to Fleet Bank,
N.A., as Agent pursuant to the Banks'
Loan Agreement have not been amended
since the date of such delivery and that
such document is in full force and
effect and is true and correct as of the
date hereof; and
(iii) An incumbency certificate (with
specimen signatures) with respect to the
Borrower.
(f) All legal matters incident hereto shall be
satisfactory to Fleet and its counsel.
________5 Covenants
From the date hereof and so long as this Agreement
shall be outstanding and until payment in full of all of the
Obligations, the Borrower agrees to comply with and perform
each and every covenant and condition set forth in Articles
5, 6 and 7 of the Banks' Loan Agreement, which Articles 5, 6
and 7 are hereby incorporated herein by reference.
________6 Events of Default
If any one or more of the following events ("Events of
Default") shall occur and be continuing, the entire unpaid
balance of the principal of and interest on the Fleet Note
and all other Obligations and indebtedness of the Borrower
to Fleet arising hereunder and under the other Fleet Loan
Documents shall immediately become due and payable upon
written notice to that effect given to the Borrower by Fleet
(except that in the case of the occurrence of any Event of
Default described in Section 8.7 of the Banks' Loan
Agreement, as such Section 8.7 is hereinafter incorporated
herein by reference, no such notice shall be required),
without presentment or demand for payment, notice of non-
payment, protest or further notice or demand of any kind,
all of which are expressly waived by the Borrower; provided,
however, that in the case of the occurrence of an Event of
Default described in Section 6.1 below, no such notice shall
be required after the passage of ten (10) days after the
Grace Period provided for therein:
_1 Payments.
Failure to make any payment of principal or interest
upon the Fleet Note or any fee pursuant to this Agreement
within three (3) Business Days after the due date thereof
(the "Grace Period"); or
_2 Other Covenants.
Failure by the Borrower to perform or observe any other
term, condition or covenant of this Agreement or of any of
the other Fleet Loan Documents to which it is a party, which
shall remain unremedied for a period of fifteen (15) days
after notice thereof shall have been given to the Borrower
by Fleet; or
_3 Other Events of Default.
An Event of Default (as defined in the Banks' Loan
Agreement) shall occur and be continuing under the Banks'
Loan Agreement, (provided in the event the Banks' Loan
Agreement is terminated for any reason whatsoever or the
indebtedness thereunder is paid in full, the covenants
contained in Articles 5, 6 and 7 of the Banks' Loan
Agreement and the Events of Default defined in Article 8 of
the Banks' Loan Agreement, together with the definitions of
all of the defined terms used therein and all other portions
of the Banks' Loan Agreement to which reference is made in
such Articles, will be incorporated by reference and the
same shall be applicable herein, mutatis mutandis, and will
be deemed to continue in effect until this Agreement is
terminated and all of the Obligations under this Agreement
are fully paid and performed).
________7 Miscellaneous Provisions
_1 Miscellaneous Provisions Incorporated by
Reference.
The miscellaneous provisions under Article 10 of the
Banks' Loan Agreement and all other sections of the Banks'
Loan Agreement to which Article 10 refers are hereby
incorporated by reference as if the provisions thereof were
set forth in full herein.
_2 References in the Banks' Loan Agreement.
All references in the Banks' Loan Agreement to the
"Agent" or the "Banks", to the extent that such references
are incorporated herein, shall be deemed references
hereunder to Fleet.
_3 Incorporation of Banks" Loan Agreement.
Any term or provision of the Banks" Loan Agreement, as
in effect on the date of this Agreement, which has been
incorporated herein by reference and which is hereafter
amended or modified, shall unless the parties hereto
otherwise agree in writing, automatically be incorporated
herein as so amended, from and after the effective date of
any such amendment, without the necessity of the execution
and delivery of any instrument or document or the taking of
any action.
_4 Counterparts.
This Agreement may be signed in any number of
counterparts with the same effect as if the signatures
thereto and hereto were upon the same instrument.
_5 Binding Effect; No Assignment or Delegation.
This Agreement shall be binding upon and inure to the
benefit of the Borrower and its successors and to the
benefit of Fleet and its successors and assigns. The rights
and obligations of the Borrower under this Agreement shall
not be assigned or delegated without the prior written
consent of Fleet, and any purported assignment or delegation
without such consent shall be void.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above
written.
NATIONAL CONSUMER COOPERATIVE BANK,
D/B/A NATIONAL COOPERATIVE BANK
By:
Title
FLEET BANK, N.A.
By:
Title
EXHIBIT A
TO FLEET LOAN AGREEMENT
BY AND BETWEEN
NATIONAL CONSUMER COOPERATIVE BANK
AND
FLEET BANK, N.A.
FORM OF FLEET NOTE
$50,000,000 Due April 14, 2000
New York, New York
FOR VALUE RECEIVED, NATIONAL CONSUMER COOPERATIVE BANK
D/B/A NATIONAL COOPERATIVE BANK (the "Borrower"), hereby
promises to pay to the order of FLEET BANK, N.A. (the
"Bank") the principal sum of FIFTY MILLION ($50,000,000)
DOLLARS (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Fleet Loans made by the Bank
under the Loan Agreement hereinafter defined, shown on the
schedule annexed hereto and any continuation thereof), in
lawful money of the United States of America and in
immediately available funds on the date or dates determined
as provided in the Loan Agreement but in no event later than
April 14, 2000.
The Borrower further promises to pay to the order of
the Bank interest on the unpaid principal amount of each
Fleet Loan from the date such Fleet Loan is made until paid
in full, payable at such rates and at such times as provided
for in the Loan Agreement.
The Bank has been authorized by the Borrower to record
on the schedule annexed to this Note (or on any continuation
thereof) the amount, type, due date and interest rate of
each Fleet Loan made by the Bank under the Loan Agreement
and the amount of each payment or repayment of principal and
the amount of each payment of interest of each such Fleet
Loan received by the Bank, it being understood, however,
that failure to make any such notation shall not affect the
rights of the Bank or the obligations of the Borrower
hereunder or under the Loan Agreement in respect of such
Fleet Loans. Such notations shall be deemed correct, absent
manifest error.
This Note is the Fleet Note referred to in the Fleet
Loan Agreement dated as of the date hereof (the "Loan
Agreement") between the Borrower and the Bank and evidences
the Fleet Loans made by the Bank thereunder. Capitalized
terms used in this Note have the respective meanings
assigned to them in the Loan Agreement.
Upon the occurrence of an Event of Default under the
Loan Agreement, the principal hereof and accrued interest
hereon shall become, or may be declared to be, forthwith due
and payable in the manner, upon the conditions and with the
effect provided in the Loan Agreement.
The Borrower may at its option repay all or any part of
the principal of this Note before maturity upon and subject
to the terms provided in the Loan Agreement.
The Borrower agrees to pay costs of collection and
reasonable attorneys' fees in case default occurs in the
payment of this Note.
Presentment for payment, notice of dishonor, protest
and notice of protest are hereby waived.
This Note has been executed and delivered this 15th day
of December, 1999 in New York, New York, and shall be
construed in accordance with and governed by the internal
laws of the State of New York.
NATIONAL CONSUMER COOPERATIVE BANK
D/B/A NATIONAL COOPERATIVE BANK
By:
Title
SCHEDULE TO FLEET NOTE
MADE BY NATIONAL CONSUMER COOPERATIVE BANK
IN FAVOR OF FLEET BANK, N.A.
This Note evidences the Fleet Loans made under the
within described Agreement, in the principal amounts, of the
types (Prime Rate Loans or LIBOR Loans) and on the dates set
forth below, subject to the payments or repayments set forth
below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Date Made Type Due Date Interest Amount of
or Prin. Amt. of of Rate on Payment or Balance Notation
Converted of Loan Loan Loan Loan Repayment Outstanding made by
</TABLE>
NATIONAL CONSUMER COOPERATIVE BANK
NOTE PURCHASE AGREEMENT
$30,000,000
7.68% Senior Notes
due December 28, 2005
Dated as of December 28, 1999
Table of Contents
(not part of agreement)
Page
1 AUTHORIZATION OF ISSUE OF NOTES. 1
2 PURCHASE AND SALE OF NOTES. 1
3 CONDITIONS OF CLOSING. 6
3A. Certain Documents. 6
3B. Opinion of Purchaser's Special Counsel. 7
3C. Representations and Warranties; No Default. 7
3D. Purchase Permitted by Applicable Laws. 7
3E. Private Placement Number. 7
3F. Proceedings Satisfactory. 7
3G. Payment of Fees. 7
4 PREPAYMENTS. 7
4A. Optional Prepayment With Yield-Maintenance Amount. 8
4B. Notice of Optional Prepayment. 8
4C. Retirement of Notes. 8
5 AFFIRMATIVE COVENANTS. 9
5A. Payment of Taxes and Claims. 9
5B. Maintenance of Properties and Corporate Existence. 9
5C. Payment of Notes and Maintenance of Office. 10
5D. Maintenance of Consolidated Adjusted Net Worth
and Consolidated Effective Net Worth. 10
5E. Line of Business. 10
5F. ERISA Compliance. 10
5G. Incorporation of Affirmative and Negative Covenants. 11
5H. Financial and Business Information. 11
5I. Officers' Certificates. 14
5J. Accountants' Certificates 14
5K. Inspection 14
6 NEGATIVE COVENANTS. 15
6A. Disposal of Shares of a Restricted Subsidiary. 15
6B. Merger or Sale of Assets. 16
6C. Liens. 18
6D. Permitted Debt. 20
6E. Limitations on Debt. 21
6F. Long-Term Leases. 21
6G. Guarantees. 21
6H. Consolidated Earnings Available for Fixed Charges. 21
6I. Restricted Payments. 22
6J. Limitation on Investments. 23
6K. Transactions with Affiliates. 23
6L. Repurchase of Notes. 24
6M. Issuance of Subordinated Debt. 24
6N. Voluntary Retirement of Subordinated Debt. 24
6O. Subordination Provisions. 24
6P. Class A Notes. 25
7 EVENTS OF DEFAULT. 25
7A. Nature of Events. 25
7B. Default Remedies. 27
7C. Annulment of Acceleration of Notes. 28
8 REPRESENTATIONS, COVENANTS AND WARRANTIES. 29
8A. Subsidiaries and Affiliates. 29
8B. Corporate Organization and Authority. 29
8C. Financial Statements; Material Adverse Change;
Description of Business. 29
8D. Full Disclosure. 30
8E. Pending Litigation and Judgments. 30
8F. Title to Properties. 30
8G. Patents and Trademarks. 31
8H. Issuance is Legal and Authorized; Conflicting
Agreements and Other Matters. 31
8I. No Defaults. 31
8J. Governmental Consent. 31
8K. Taxes. 32
8L. Margin Securities, etc. 32
8M. Private Offering. 32
8N. Compliance with Law. 32
8O. Indebtedness. 33
8P. Restrictions on Company. 33
8Q. Employee Retirement Income Security Act of 1974. 33
8R. Investment Company Act. 33
9 REPRESENTATIONS OF THE PURCHASERS. 34
9A. Nature of Purchase. 34
9B. Source of Funds. 34
10 DEFINITIONS. 34
10A. Yield-Maintenance Terms. 34
10B. Other Terms. 35
10C. Accounting Principles, Terms and Determinations. 54
11 MISCELLANEOUS. 54
11A. Note Payments. 54
11B. Expenses. 55
11C. Consent to Amendments. 55
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes. 56
11E. Persons Deemed Owners; Participations. 56
11F. Survival of Representations and Warranties;
Entire Agreement. 56
11G. Successors and Assigns. 57
11H. Disclosure to Other Persons. 57
11I. Notices. 57
11J. Payments Due on Non-Business Days. 58
11K. Severability. 58
11L. Descriptive Headings. 58
11M. Satisfaction Requirement. 58
11N. Governing Law. 58
11O. Counterparts. 58
11P. Binding Agreement. 58
EXHIBITS AND SCHEDULES
Annex 1 -- Information Schedule
Annex 2 -- Schedule 6C: Liens
Schedule 8A: Subsidiaries and Affiliates
Schedule 8C: Description of Business
Schedule 8O: Outstanding Indebtedness
Schedule 8P: Restrictive Agreements
Exhibit A -- Form of Note
Exhibit B -- Form of Opinion of Company Counsel
Exhibit C -- Form of Certificate of Officers
Exhibit D -- Form of Certificate of Secretary
NATIONAL CONSUMER COOPERATIVE BANK
1401 Eye Street N.W., Suite 700
Washington, D.C. 20005
As of December 28, 1999
To: The Prudential Insurance Company
of America (herein called "Prudential")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, the
"Purchasers")
c/o Prudential Capital Group
1114 Avenue of the Americas, 30th Floor
New York, NY 10036
Ladies and Gentlemen:
The undersigned, National Consumer Cooperative Bank (herein
called the "Company"), hereby agrees with you as follows:
1 AUTHORIZATION OF ISSUE OF NOTES.
1A. Authorization of Issue of Notes. The Company will
authorize the issue of its senior promissory notes (the "Notes")
in the aggregate principal amount of $30,000,000, to be dated the
date of issue thereof, to mature December 28, 2005, to bear
interest on the unpaid balance thereof from the date thereof
until the principal thereof shall have become due and payable at
the rate of 7.68% per annum and on overdue principal, Yield-
Maintenance Amount and interest at the rate specified therein,
and to be substantially in the form of Exhibit A attached hereto.
The terms "Note" and "Notes" as used herein shall include each
Note delivered pursuant to any provision of this Agreement and
each Note delivered in substitution or exchange for any such
Series A Note pursuant to any such provision.
2 PURCHASE AND SALE OF NOTES.
The Company hereby agrees to sell to Purchasers
and, subject to the terms and conditions herein set forth,
Purchasers agree to purchase from the Company the aggregate
principal amount of Notes set forth opposite its name on the
Information Schedule, attached hereto as Annex 1, at 100% of such
aggregate principal amount. On December 28, 1999 or any other
date prior to December 28, 1999 upon which the Company and
Purchasers may agree (herein called the "Closing Day"), the
Company will deliver to Purchasers at the offices of Prudential
Capital Group, 1114 Avenue of the Americas, 30th Floor, New York,
NY 10036, one or more Notes registered in its name, evidencing
the aggregate principal amount of Series A Notes to be purchased
by each Purchaser and in the denomination or denominations
specified with respect to each Purchaser in the Information
Schedule, attached hereto as Annex 1, against payment of the
purchase price thereof by transfer of immediately available funds
for credit to the Company's account #2065202934399 at First Union
National Bank, Richmond, Virginia (ABA No. 051400549), for credit
to National Cooperative Bank Operating Account.
3 CONDITIONS OF CLOSING.
The obligation of any Purchaser to purchase and
pay for any Notes is subject to the satisfaction, on or before
the Closing Day for such Notes, of the following conditions:
3A. Certain Documents. Such Purchaser shall have
received the following, each dated the Closing Day (except with
respect to the certified copies referred to in paragraph 3A(v)
below, which shall be dated as of a date as close as practicable
to such Closing Date):
(i) The Note(s) to be purchased by such Purchaser.
(ii) Favorable opinion of Shea & Gardner, counsel to the
Company satisfactory to such Purchaser and substantially in the
form of Exhibit D attached hereto and as to such other matters as
such Purchaser may reasonably request. The Company hereby
directs such counsel to deliver such opinion, agrees that the
issuance and sale of any Notes will constitute a reconfirmation
of such direction, and understands and agrees that each Purchaser
receiving such an opinion will and is hereby authorized to rely
on such opinion.
(iii) An Officer's Certificate, substantially
in the form of Exhibit E to this Agreement, signed by the
President or a Vice President and the Treasurer or an
Assistant Treasurer of the Company, certifying that the
conditions specified in paragraph 3C of this Agreement have
been fulfilled, and certifying to the other matters set
forth therein.
(iv) A certificate signed by the Secretary or an
Assistant Secretary of the Company, substantially in the
form of Exhibit F to this Agreement, with respect to the
matters therein set forth.
(v) Certified copies of Requests for Information
or Copies (Form UCC-11) or equivalent reports listing all
effective financing statements which name the Company or any
Subsidiary (under its present name and previous names) as
debtor, together with copies of such financing statements.
(vi) A copy of Schedule 8O setting forth the Debt
for borrowed money of the Company updated to reflect all
such Debt outstanding as of the close of business on such
Closing Day.
(vii) Additional documents or certificates
with respect to legal matters or corporate or other
proceedings related to the transactions contemplated hereby
as may be reasonably requested by such Purchaser.
3B. Opinion of Purchaser's Counsel. Such Purchaser
shall have received from Robert S. M. Lawrence, Assistant General
Counsel of Prudential, or such other counsel, who is acting as
counsel for it in connection with this transaction, a favorable
opinion satisfactory to such Purchaser as to such matters
incident to the matters herein contemplated as it may reasonably
request.
3C. Representations and Warranties; No Default. The
representations and warranties contained in paragraph 8 shall be
true on and as of the Closing Day, except to the extent of
changes caused by the transactions herein contemplated; there
shall exist on the Closing Day no Event of Default or Default;
and the Company shall have delivered to such Purchaser an
Officer's Certificate, dated the Closing Day, to both such
effects.
3D. Purchase Permitted by Applicable Laws. The
purchase of and payment for the Notes to be purchased by such
Purchaser on the terms and conditions herein provided (including
the use of the proceeds of such Notes by the Company) shall not
violate any applicable law or governmental regulation (including,
without limitation, Section 5 of the Securities Act or Regulation
T, U or X of the Board of Governors of the Federal Reserve
System) and shall not subject such Purchaser to any tax, penalty,
liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and such Purchaser
shall have received such certificates or other evidence as it may
request to establish compliance with this condition.
3E. Private Placement Number. The Company shall have
obtained a private placement number for the Notes from the CUSIP
Service Bureau of Standard & Poor's, a division of McGraw-Hill,
Inc.
3F. Proceedings Satisfactory. All proceedings taken
in connection with the issuance of the Notes and all documents
and papers relating thereto shall be satisfactory to you and your
counsel. You and your counsel shall have received copies of such
documents and papers as you or they may reasonably request in
connection therewith or as a basis for your counsel's closing
opinion, all in form and substance satisfactory to you and your
counsel.
3G. Payment of Fee. The Company shall have paid to
Prudential a fee in the amount of $45,000.
3H. Year 2000 Questionnaire. The Company shall have
delivered to Prudential a copy of its response to the Year 2000
Due Diligence Questionnaire supplied by The Securities Valuation
Office of The National Association of Insurance Commissioners.
4 PREPAYMENTS. The Notes shall be subject to prepayment
only with respect to the optional prepayments permitted by
paragraph 4A.
4A. Optional Prepayment With Yield-Maintenance Amount.
The Notes shall be subject to prepayment, in whole at any time or
from time to time in part (in amounts of at least $1,000,000 and
integral multiples of $100,000), at the option of the Company, at
100% of the principal amount so prepaid plus interest thereon to
the prepayment date and the Yield-Maintenance Amount, if any,
with respect to each such Note. Any partial prepayment of a
Series of Notes pursuant to this paragraph 4A shall be applied in
satisfaction of required payments of principal in inverse order
of their scheduled due dates.
4B. Notice of Optional Prepayment. The Company shall
give the holder of each Note to be prepaid pursuant to paragraph
4A irrevocable written notice of such prepayment not less than 10
Business Days prior to the prepayment date, specifying such
prepayment date, specifying the aggregate principal amount of the
Notes, identifying each Note held by such holder, and the
principal amount of each such Note, to be prepaid on such date
and stating that such prepayment is to be made pursuant to
paragraph 4A. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such
notice, together with interest thereon to the prepayment date and
together with the Yield-Maintenance Amount, if any, herein
provided, shall become due and payable on such prepayment date.
The Company shall, on or before the day on which it gives written
notice of any prepayment pursuant to paragraph 4A, give
telephonic notice of the principal amount of the Notes to be
prepaid and the prepayment date to each Significant Holder which
shall have designated a recipient for such notices in the
Information Schedule attached hereto or by notice in writing to
the Company.
4C. Retirement of Notes. The Company shall not, and
shall not permit any of its Subsidiaries or Affiliates to, prepay
or otherwise retire in whole or in part prior to their stated
final maturity (other than by prepayment pursuant to paragraph 4A
or upon acceleration of such final maturity pursuant to paragraph
7A), or purchase or otherwise acquire, directly or indirectly,
Notes held by any holder unless the Company or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise acquire, as the case may be, the same
proportion of the aggregate principal amount of Notes held by
each other holder of Notes at the time outstanding upon the same
terms and conditions. Any Notes so prepaid or otherwise retired
or purchased or otherwise acquired by the Company or any of its
Subsidiaries or Affiliates shall not be deemed to be outstanding
for any purpose under this Agreement, except as provided in
paragraph 4A.
5 AFFIRMATIVE COVENANTS. So long as any Note is
outstanding and unpaid, the Company covenants as follows:
5A. Payment of Taxes and Claims. The Company and each
Subsidiary will pay, before they become delinquent,
(i) all taxes, assessments and governmental
charges or levies imposed upon it or its Property, and
(ii) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like
Persons which, if unpaid, might result in the creation of a
Lien upon its Property,
provided that items of the foregoing description need not be paid
while being contested in good faith and by appropriate
proceedings and, provided further, that adequate book reserves
have been established with respect thereto and, provided further,
that the owning company's title to, and its right to use, its
Property is not in the aggregate materially adversely affected
thereby. In the case of any item of the type described in this
paragraph 5A involving an amount in excess of Five Hundred
Thousand Dollars ($500,000), the appropriateness of the
proceeding will be supported by an opinion of the independent
counsel responsible for such proceeding and the adequacy of such
reserves shall be supported by the opinion of the independent
public accountant of the Company.
5B. Maintenance of Properties and Corporate Existence.
The Company and each Subsidiary will:
(i) Property - maintain, or cause to be
maintained, its Property in good condition and will make, or
cause to be made, all necessary renewals, replacements,
additions, betterments and improvements thereto;
(ii) Insurance - maintain, with financially sound
and reputable insurers rated "A" or better by A.M. Best
Company (or accorded a similar rating by another nationally
recognized insurance rating agency of similar standing if
A.M. Best Company is not then in the business of rating
insurers), insurance with respect to its Properties and
business against such casualties and contingencies, of such
types (including, without limitation, public liability,
embezzlement or other criminal misappropriation insurance)
and in such amounts as is customary in the case of
corporations of established reputations engaged in the same
or a similar business and similarly situated;
(iii) Financial Records - keep true books of
records and accounts in which full and correct entries will
be made of all its business transactions, and will reflect
in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally
accepted accounting principles;
(iv) Corporate Existence and Rights - do or cause
to be done all things necessary to preserve and keep in full
force and effect its existence, rights and franchises,
except as otherwise permitted by paragraph 6B of this
Agreement; and
(v) Compliance with Law - not be in violation of
any laws, ordinances, governmental rules and regulations to
which it is subject and will not fail to obtain any
licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its Properties
or to the conduct of its business, which violations or
failures to obtain might in the aggregate materially
adversely affect the business, profits, Properties or
condition (financial or otherwise) of the Company or any
Subsidiary.
5C. Payment of Notes and Maintenance of Office. The
Company will punctually pay or cause to be paid the principal,
Yield-Maintenance Amount, if any, and interest to become due in
respect of the Notes according to the terms thereof and will
maintain an office in the District of Columbia where notices,
presentations and demands in respect of this Agreement or the
Notes may be made upon it. Such office shall be maintained at
1401 Eye Street, Suite 700, Washington, D.C. 20005 (Telecopier
No. 202-336-7803) until such time as the Company shall notify the
holders of the Notes in writing of any change of location of such
office within the District of Columbia.
5D. Maintenance of Consolidated Adjusted Net Worth and
Consolidated Effective Net Worth.
(i) The Company shall at all times keep and
maintain Consolidated Adjusted Net Worth in an amount not
less than the sum of (a) One Hundred Million Dollars
($100,000,000) plus (b) the sum, for all fiscal quarters of
the Company ended subsequent to January 1, 1993 and at or
prior to such time, of the greater, for each fiscal quarter,
of (1) Zero Dollars ($0) and (2) fifty percent (50%) of
Consolidated Net Earnings for each such fiscal quarter.
(ii) The Company shall at all times keep and
maintain Consolidated Effective Net Worth in an amount not
less than the sum of (a) Two Hundred Sixty-Five Million
Dollars ($265,000,000) plus (b) the sum, for all fiscal
quarters of the Company ended subsequent to January 1, 1993
and at or prior to such time, of the greater, for each
fiscal quarter, of (1) Zero Dollars ($0) and (2) fifty
percent (50%) of Consolidated Net Earnings for each such
fiscal quarter.
5E. Line of Business. The Company shall, and shall
cause each of the Restricted Subsidiaries to, remain primarily in
the business conducted by the Company and the Restricted
Subsidiaries on the date hereof.
5F. ERISA Compliance. The Company and each Subsidiary
shall promptly comply with all provisions of ERISA applicable to
any of them which, if not complied with, might result in a Lien
or charge upon any Property of the Company or any Subsidiary or
might in the aggregate otherwise materially adversely affect the
business, profits, prospects, Properties or condition (financial
or otherwise) of the Company or any Subsidiary. Without limiting
the generality of the foregoing, neither the Company nor any
Subsidiary will cause any Pension Plan maintained or participated
in by it to:
(i) engage in any "prohibited transaction," as
such term is defined in Section 4975 of the Internal Revenue
Code of 1986, as amended; or
(ii) incur any material "accumulated funding
deficiency," as such term is defined in Section 302 of
ERISA, whether or not waived.
5G. Incorporation of Affirmative and Negative
Covenants.
(i) During all such times as the Bank Loan
Agreement shall remain in force, (i) the Company and the
Restricted Subsidiaries shall comply and remain at all times
in compliance with the provisions of Article 6 and Article 7
thereof and any Financial Covenant set forth in any other
provision thereof and (ii) all of the provisions of
Article 6 and Article 7 of the Bank Loan Agreement and any
other Financial Covenants set forth therein, together with
all relevant definitions pertaining thereto, shall hereby be
incorporated herein by reference, mutatis mutandis. The
Company shall give all holders of Notes written notice of
any amendment modification or waiver of Article 6, Article 7
or any Financial Covenant of the Bank Loan Agreement,
attaching an executed copy of the amendment, modification or
waiver to such written notice, within 2 Business Days of
such amendment, modification or waiver.
(ii) No Financial Covenant incorporated herein by
virtue of paragraph 5G(i) hereof shall supersede, replace,
amend, supplement or modify any other provision of this
Agreement, including any covenant contained herein which
addresses a subject matter similar to that of such
incorporated Financial Covenant.
5H. Financial and Business Information. The Company
shall deliver to you, if at the time you or your nominee holds
any Note, and to each other institutional holder of the then
outstanding Notes:
(i) Quarterly Statements -- as soon as
practicable after the end of the first, second and third
quarterly fiscal periods in each fiscal year of the Company,
and in any event within sixty (60) days thereafter, two (2)
copies of:
(a) consolidated balance sheets of the
Company and its consolidated Subsidiaries, and the
Company and the Restricted Subsidiaries, as at the end
of such quarter, and
(b) consolidated statements of income
and cash flows of the Company and its consolidated
Subsidiaries, and the Company and the Restricted
Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the previous fiscal year,
all in reasonable detail and certified as complete and
correct, subject to changes resulting from year-end
adjustments, by a principal financial officer of the
Company;
(ii) Annual Statements -- as soon as practicable
after the end of each fiscal year of the Company, and in any
event within ninety (90) days thereafter, duplicate copies
of:
(a) consolidating and consolidated
balance sheets of the Company and its consolidated
Subsidiaries, and the Company and the Restricted
Subsidiaries, as at the end of such year, and
(b) consolidating and consolidated
statements of income, changes in members' equity and
cash flows of the Company and its consolidated
Subsidiaries, and the Company and the Restricted
Subsidiaries, for such year,
setting forth in comparative form the figures for the
previous fiscal year, all in reasonable detail, satisfactory
in scope to the Required Holders and
(A) except in the case of the
consolidating statements which may be certified as
complete and correct by a principal financial
officer of the Company, accompanied by an opinion
thereon, satisfactory in scope and substance to
the Required Holders, of independent certified
public accountants of recognized national standing
selected by the Company, which opinion shall state
that such financial statements have been prepared
in accordance with generally accepted accounting
principles consistently applied (except for
changes in application in which such accountants
concur and which are noted in the financial
statements) and that the examination of such
accountants in connection with such financial
statements has been made in accordance with
generally accepted auditing standards, and
accordingly included such tests of the accounting
records and such other auditing procedures as were
considered necessary in the circumstances,
(B) a statement from such
independent certified public accountants that such
consolidating statements were prepared using the
same work papers as were used in the preparation
of such consolidated statements, and
(C) a certification by a
principal financial officer of the Company (in
scope and substance satisfactory to the Required
Holders) that such consolidating and consolidated
statements are true and correct;
(iii) Opinions Pursuant to Paragraph 5A -- as
soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days
thereafter, duplicate copies of any opinions required
pursuant to paragraph 5A of this Agreement;
(iv) Audit Reports -- promptly upon receipt
thereof, one (1) copy of each interim or special audit made
by independent accountants of the books of the Company or
any Subsidiary;
(v) SEC Reports -- promptly upon their becoming
available (but in no event later than the date of filing),
one (1) copy of each regular or periodic report and any
registration statement or prospectus filed by the Company or
any Subsidiary with any securities exchange or with the
Securities and Exchange Commission or any successor agency;
(vi) Materials Sent to Stockholders -- promptly
upon their becoming available (but in no event later than
the date provided in clause (I) of this paragraph 5H), one
(1) copy of each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to
stockholders (other than, in the case of any Subsidiary, the
Company) generally;
(vii) Notice of Event of Default -- promptly
upon becoming aware of the existence of any condition or
event which constitutes a Default or an Event of Default, a
written notice specifying the nature and period of existence
thereof and what action the Company is taking and proposes
to take with respect thereto;
(viii) Notice of Claimed Default -- promptly upon becoming
aware that the holder of any Note or of any evidence of
indebtedness or other Security of the Company or any Subsidiary
has given notice or taken any other action with respect to a
claimed default or Event of Default, a written notice specifying
the notice given or action taken by such holder and the nature of
the claimed default or Event of Default and what action the
Company or such Subsidiary is taking or proposes to take with
respect thereto;
(ix) Loan Portfolio Reports -- together with each
quarterly financial statement required to be delivered
pursuant to clause (a) of this paragraph 5H, one (1) copy of
(a) a monthly Loan Portfolio Report of
the Company setting forth, with respect to loans held
in its portfolio, classifications relating to
delinquency, non-performance, risk rating, loss
allowances and other related matters as of the end of
the last month of the fiscal quarters covered by such
financial statements, to be prepared on substantially
the same basis and to contain substantially the same
information as the Loan Portfolio Report, dated
September 30, 1999, in respect of the month of
September, 1999, a copy of which was delivered to you
prior to the date hereof, and
(b) a quarterly Report on Allowances
for Loan Losses and Reserves of the Company, to be
prepared on substantially the same basis and to contain
substantially the same information as the Report on
Allowances for Loan Losses and Reserves, dated
September 30, 1999, a copy of which was delivered to
you prior to the date hereof,
provided that such monthly and quarterly reports need not,
unless you or any other holder of Notes shall reasonably so
request, disclose the names of the obligors on such loans;
and
(x) Requested Information -- with reasonable
promptness, such other data and information with respect to
the Company and the Restricted Subsidiaries as from time to
time may be reasonably requested, including, without
limitation, information required by 17 C.F.R. 230.144A.
5I. Officers' Certificates. Each set of financial
statements delivered to you or any other institutional holder of
the Notes pursuant to paragraph 5H(i) or paragraph 5H(ii) of this
Agreement will be accompanied by a certificate of the President
or a Vice President and the Treasurer or an Assistant Treasurer
of the Company setting forth:
(i) Covenant Compliance -- the information
(including, where applicable, detailed calculations)
required in order to establish whether the Company was in
compliance with the requirements of paragraph 6 of this
Agreement during the period covered by the financial
statements then being furnished;
(ii) Event of Default -- that the signers have
reviewed the relevant terms of this Agreement and the
Financing Agreement and have made, or caused to be made,
under their supervision, a review of the transactions and
conditions of the Company and the Subsidiaries from the
beginning of the accounting period covered by the financial
statements being delivered therewith to the date of the
certificate and that such review has not disclosed the
existence, during such period, of any condition or event
which constitutes a Default or an Event of Default or, if
any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action
the Company has taken or proposes to take with respect
thereto; and
(iii) Loan Portfolio Changes -- an
explanation, in reasonable detail, of the differences
disclosed in the Loan Portfolio Reports accompanying such
financial statements from the information set forth in the
Loan Portfolio Reports delivered after the end of the
immediately preceding fiscal quarter of the Company.
5J. Accountants' Certificates. Each set of annual
financial statements delivered pursuant to paragraph 5H(ii) of
this Agreement will be accompanied by a certificate of the
accountants who certify such financial statements, stating that
they have reviewed this Agreement insofar as it relates to
accounting matters and stating further, whether, in making their
audit, such accountants have become aware of any condition or
event which then constitutes a Default or an Event of Default,
and, if any such condition or event then exists, specifying the
nature and period of existence thereof.
5K. Inspection. The Company will permit any of your
representatives, while you or your nominee holds any Note, or the
representatives of any other institutional holder of the Notes,
at your or such holder's expense so long as no Default or Event
of Default is then continuing and otherwise at the sole expense
of the Company, to visit and inspect any of the Properties of the
Company or any Subsidiary (and to take extracts from, and make
copies of, their respective books and records) and to discuss
their respective affairs, finances and accounts with their
respective officers, employees and independent public accountants
(and by this provision the Company authorizes said accountants to
discuss with your representatives the finances and affairs of the
Company and the Subsidiaries) all at such reasonable times and as
often as may be reasonably requested.
6 NEGATIVE COVENANTS. So long THEREAFTER as any Note is
outstanding and unpaid, the Company covenants as follows:
6A. Disposal of Shares of a Restricted Subsidiary.
The Company shall not at any time sell or otherwise dispose of
any shares of the stock (or any options or warrants to purchase
stock or other Securities exchangeable for or convertible into
stock) of any Restricted Subsidiary (said stock, options,
warrants and other Securities herein called "Subsidiary Stock"),
nor shall the Company permit any Restricted Subsidiary to issue
its own Subsidiary Stock, or to sell or otherwise dispose of any
shares of Subsidiary Stock issued by any other Restricted
Subsidiary, if the effect of the transaction would be to reduce
the proportionate interest of the Company and the other
Restricted Subsidiaries in the outstanding Subsidiary Stock (the
"Disposition Stock") of the Restricted Subsidiary (the
"Disposition Subsidiary") whose shares are the subject of the
transaction, provided that the foregoing restrictions do not
apply to:
(i) the issue of directors' qualifying shares; and
(ii) the sale for a cash consideration at one time
(the "Stock Disposition Date") to a Person (other than
directly or indirectly to an Affiliate) of the entire
investment (whether represented by stock, debt, claims or
otherwise) of the Company and the other Restricted
Subsidiaries in such Disposition Subsidiary, if all of the
following conditions shall have been satisfied:
(a) the sum of
(1) the Disposition Value of
the assets of the Disposition Subsidiary, plus
(2) the Disposition Value of
the assets of all Restricted Subsidiaries whose
Subsidiary Stock was subject to a disposition
pursuant to this paragraph 6A during the period
ending on the Stock Disposition Date and
commencing three hundred sixty-five (365) days
prior to the Stock Disposition Date, plus
(3) the aggregate Disposition
Value of assets owned by the Company or any
Restricted Subsidiaries the disposition of which
was made other than pursuant to this paragraph 6A
and consummated during the period ending on the
Stock Disposition Date and commencing three
hundred sixty-five (365) days prior to the Stock
Disposition Date,
does not exceed ten percent (10%) of Consolidated
Assets on the first day of such period;
(b) in each of the three (3) fiscal
years of the Company most recently ended, the
contribution (expressed as a percentage and exclusive
of losses) to Consolidated Adjusted Net Income for each
of such fiscal years of
(1) the Disposition
Subsidiary, plus
(2) the Restricted
Subsidiaries whose Subsidiary Stock was subject to
a disposition subsequent to the commencement of
the first of such fiscal years, plus
(3) assets owned by the
Company or any Restricted Subsidiaries sold or
otherwise disposed of subsequent to the
commencement of the first of such fiscal years,
does not exceed ten percent (10%) of Consolidated
Adjusted Net Income for such fiscal year;
(c) in the opinion of the Board of
Directors, the sale is for Fair Market Value and is in
the best interests of the Company;
(d) the Disposition Subsidiary shall
have no continuing investment in the Company or any
other Restricted Subsidiary not being simultaneously
disposed of; and
(e) immediately after the consummation
of the transaction and after giving effect thereto, no
Default or Event of Default would exist.
For purposes of this paragraph 6A(ii), the assets of any
Restricted Subsidiary that ceases to be a Restricted
Subsidiary in a manner other than by the disposition of
Subsidiary Stock shall be deemed disposed of at the time of
such cessation, provided that the requirements of this
paragraph 6A(ii) with regard to the receipt of cash
consideration equal to Fair Market Value shall not apply to
such deemed disposition.
Notwithstanding the foregoing, any disposition of
Subsidiary Stock shall be deemed to be in compliance with
the provisions of the foregoing clause (1) and clause (2) if
the entire proceeds of such sale, net of reasonable and
ordinary transaction costs and expenses incurred in
connection with such sale, are applied by the Company or
such Restricted Subsidiary to a Permitted Proceeds
Application.
6B. Merger or Sale of Assets.
(i) Sale of Assets. Except as specifically
permitted under paragraph 6B(ii) and paragraph 6B(iii) of
this Agreement, the Company shall not, and shall not permit
any Restricted Subsidiary to, sell, lease, transfer or
otherwise dispose of assets; provided that, the foregoing
restriction shall not apply to the sale of such assets (the
"Disposition Assets") for cash consideration at one time
(the "Asset Disposition Date") to a Person other than
directly or indirectly to an Affiliate, if all of the
following conditions are met:
(a) the sum of
(1) the Disposition Value of
the Disposition Assets, plus
(2) the Disposition Value of
the assets of all Subsidiaries that have ceased to
be Restricted Subsidiaries during the period
ending on the Asset Disposition Date and
commencing three hundred sixty-five (365) days
prior to the Asset Disposition Date, plus
(3) the Disposition Value of
the assets of the Company and all other Restricted
Subsidiaries disposed of during the period ending
on the Asset Disposition Date and commencing three
hundred sixty-five (365) days prior to the Asset
Disposition Date,
does not exceed ten percent (10%) of Consolidated
Assets at such time;
(b) in each of the three (3) fiscal
years of the Company most recently ended, the
contribution (expressed as a percentage and exclusive
of losses) to Consolidated Adjusted Net Income for each
of such fiscal years of
(1) the Disposition Assets,
plus
(2) the Restricted
Subsidiaries whose Subsidiary Stock was subject
to a disposition subsequent to the commencement of
the first of such fiscal years, plus
(3) all other assets of the
Company and the Restricted Subsidiaries disposed
of subsequent to the commencement of the first of
such fiscal years,
does not exceed ten percent (10%) of Consolidated
Adjusted Net Income for such fiscal year;
(c) in the opinion of the Board of
Directors, the sale is for Fair Market Value and is in
the best interests of the Company;
(d) immediately after the consummation
of the transaction and after giving effect thereto, no
Default or Event of Default would exist; and
(e) in the case of any such transaction
relating to receivables, such transaction is
consummated in the ordinary course of the business of
the Company or such Restricted Subsidiary.
For purposes of this paragraph 6B(i), the assets of any
Restricted Subsidiary that ceases to be a Restricted
Subsidiary in a manner other than by the disposition of
Subsidiary Stock shall be deemed to have been sold at the
time of such cessation, provided that the requirements of
this paragraph 6B(i) with regard to the receipt of cash
consideration equal to Fair Market Value shall not apply to
any such deemed disposition.
Notwithstanding the foregoing, any sale of assets shall
be deemed to be in compliance with the provisions of the
foregoing clause (1) and clause (2) if the entire proceeds
of such sale, net of reasonable and ordinary transaction
costs and expenses incurred in connection with such sale,
are applied by the Company or such Restricted Subsidiary to
a Permitted Proceeds Application.
(ii) Merger, Consolidation and Sale of All or
Substantially All Assets by the Company and Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, (x) consolidate with, or merge into, any
other Person or permit any other Person to consolidate with,
or merge into, it (except that a Restricted Subsidiary may
consolidate with, or merge into, the Company or another
Restricted Subsidiary) or (y) except as specifically
permitted under paragraph 6B(iii) of this Agreement, sell
all or substantially all of its assets to any other Person.
(iii) Asset Securitizations. Notwithstanding
the provisions of paragraph 6B(i) and paragraph 6B(ii) of
this Agreement, the Company and the Restricted Subsidiaries
may, at any time and from time to time, sell receivables in
connection with an Asset Securitization if:
(a) such receivables are sold for a
cash consideration equal to the Fair Market Value
thereof; provided, however, that the Company may
(1) establish and maintain a
reserve account containing cash or Securities as a
credit enhancement in respect of any such sale or
(2) purchase or retain a
subordinated interest in such receivables being
sold;
(b) the entire proceeds of such sale,
net of reasonable and ordinary transaction costs and
expenses incurred in connection with such sale, are
applied by the Company or such Restricted Subsidiary to
a Permitted Proceeds Application; and
(c) such sale is consummated in the
ordinary course of business of the Company or such
Restricted Subsidiary.
6C. Liens.
(i) Negative Pledge. The Company shall not, and
shall not permit any Restricted Subsidiary to, (x) cause or
permit or (y) agree or consent to cause or permit in the
future (upon the happening of a contingency or otherwise),
any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien, except that the Company
and any of the Restricted Subsidiaries may
(a) suffer to exist Liens outstanding
on the date of this Agreement and described in Annex 2
to this Agreement;
(b) create, incur or suffer to exist
Liens arising in the ordinary course of business that
secure taxes, assessments or governmental charges or
levies or the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other
like Persons, provided the payment thereof is not at
the time required by paragraph 5A of this Agreement and
that appropriate reserves have been established
therefor on the books of the Company or such Restricted
Subsidiary in accordance with generally accepted
accounting principles;
(c) create, incur or suffer to exist
Liens incurred or deposits made in the ordinary course
of business
(1) in connection with
worker's compensation, unemployment insurance and
other like laws, or
(2) to secure the performance
of letters of credit, bids, tenders, sales
contracts, leases, Eligible Derivatives, statutory
obligations, surety, appeal and performance bonds
and other similar obligations not incurred in
connection with the borrowing of money, the
obtaining of advances or the payment of the
deferred purchase price of Property;
(d) create, incur or suffer to exist
attachment, judgment and other similar Liens arising in
connection with court proceedings not in excess of One
Million Dollars ($1,000,000) in the aggregate for all
such Liens, provided the execution or other enforcement
of such Liens is effectively stayed and the claims
secured thereby are being actively contested in good
faith and by appropriate proceedings and that
appropriate reserves have been established therefor on
the books of the Company or such Restricted Subsidiary
in accordance with generally accepted accounting
principles;
(e) create, incur or suffer to exist
Liens on Property of a Restricted Subsidiary, provided
such Liens secure only obligations owing to the Company
or a Restricted Subsidiary;
(f) create, incur or suffer to exist
reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions,
leases and other similar title exceptions or
encumbrances affecting real Property, provided such
exemptions or encumbrances do not in the aggregate
materially detract from the value of said Properties or
materially interfere with their use in the ordinary
conduct of the owning company's business;
(g) create, incur or suffer to exist
Liens existing at the date of acquisition on Property
acquired in bona fide liquidation, collection or other
realization upon, or settlement of, collateral held to
secure receivable obligations; provided that any such
Lien will not extend to any Property other than the
Property so acquired;
(h) create, incur or suffer to exist
Liens to secure Debt incurred to finance the cost of
acquisition of any computer or other office equipment
useful and intended to be used in carrying out the
business of the Company or a Restricted Subsidiary;
provided that
(1) any such Lien shall
attach solely to the Property acquired;
(2) the aggregate amount
remaining unpaid on the purchase price shall not
be in excess of one hundred percent (100%) of
(A) the total purchase price or
(B) the Fair Market Value at
the time of acquisition, whichever is lower; and
(3) such Lien is created or assumed
with respect to such Property, at the time of,
or within twelve (12) months after, such
acquisition;
and
(i) modify, extend, renew or replace
any Lien permitted by this paragraph 6C(i) upon the
same Property theretofore subject thereto, or modify,
extend, renew or replace the Debt secured thereby;
provided, that in any such case the principal amount
(outstanding at the time of such modification,
extension, renewal or replacement) of such Debt so
modified, replaced, extended or renewed shall not be
increased.
(ii) Equal and Ratable Lien; Equitable Lien. In
case any Property is subjected to a Lien in violation of
this paragraph 6C, the Company shall make or cause to be
made provision (the documents, agreements and instruments by
which such provision is effected being subject to the
approval of the Required Holders) whereby the Notes will be
secured equally and ratably with all other obligations
secured thereby, and in any case the Notes shall have the
benefit, to the full extent that the holders may be entitled
thereto under applicable law, of an equitable Lien so
equally and ratably securing the Notes. Such violation of
this paragraph 6C shall constitute an Event of Default
whether or not any such provision is made pursuant to this
paragraph 6C.
6D. Permitted Debt. Subject to paragraph 6E of this
Agreement, the Company shall not, and shall not permit any
Restricted Subsidiary to, incur, create, issue, assume or permit
to exist any Debt other than
(i) Senior Debt of the Company;
(ii) Subordinated Debt of the Company;
(iii) liabilities (other than for borrowed
money) incurred in the regular operation of the business of
the Company or a Restricted Subsidiary and not more than
three (3) months overdue, unless contested in good faith by
appropriate proceedings and adequate reserves have been set
aside with respect thereto;
(iv) Debt of a Restricted Subsidiary to the
Company or to a Restricted Subsidiary;
(v) Debt of the Company secured by Liens
permitted under the provisions of paragraph 6C(i)(h) of this
Agreement; and
(vi) Restricted Guarantees of the Company.
6E. Limitations on Debt. The Company shall not at any
time permit
(i) The ratio of Consolidated Debt to
Consolidated Adjusted Net Worth to exceed (a) 9.0 to 1.0
during the period from December 28, 1999 to May 26, 2000 and
(b) 9.5 to 1.0 from May 27, 2000 and all the times
thereafter; or
(ii) Qualified Assets to be less than one hundred
percent (100%) of the sum (at such time) of
(a) Company Senior Obligations, plus
(b) the aggregate unpaid principal
amount of Subordinated Debt, less
(c) the aggregate unpaid principal
amount of Class A Notes.
6F. Long-Term Leases.
(i) The Company shall not, and shall not permit
any Restricted Subsidiary to, become obligated, as lessee,
under any Long-Term Lease if, at the time of entering into
any such Long-Term Lease and after giving effect thereto,
the aggregate Rentals payable by the Company and the
Restricted Subsidiaries, on a consolidated basis, in any one
fiscal year thereafter under all Long-Term Leases would
exceed five percent (5%) of Consolidated Adjusted Net Worth
determined as at the end of the most recently ended fiscal
year of the Company, at such time.
(ii) Any Person that becomes a Restricted
Subsidiary after the date hereof shall be deemed to have
entered into, at the time that it becomes a Restricted
Subsidiary, all Long-Term Leases on which such Person is
lessee existing immediately after it becomes a Restricted
Subsidiary.
6G. Guarantees. The Company shall not, and shall not
permit any Restricted Subsidiary to, become or be liable in
respect of any Guarantee other than a Restricted Guarantee.
6H. Consolidated Earnings Available for Fixed Charges.
The Company shall not permit Consolidated Earnings Available for
Fixed Charges for any period of four (4) consecutive fiscal
quarters of the Company to be less than one hundred ten percent
(110%) of Consolidated Fixed Charges for such period.
6I. Restricted Payments.
(i) The Company shall not:
(a) declare or pay any dividends,
either in cash or Property, on any class of its capital
stock, or otherwise, except
(1) Patronage Dividends
payable in cash and cash dividends payable on
Class B Stock and Class C Stock in any calendar
year in an aggregate amount for all such Patronage
Dividends and other dividends up to (but not
exceeding) twenty percent (20%) of the sum of
Consolidated Taxable Income plus, to the extent
deducted in the determination of Consolidated
Taxable Income, Patronage Dividends, for such
calendar year; and
(2) Patronage Dividends and
other dividends, in each case payable by the
Company solely in common stock or allocated
surplus of the Company;
or
(b) directly, or indirectly or through
any Subsidiary, purchase, redeem or retire any of its
capital stock or any warrants, rights or options to
purchase or otherwise acquire any shares of its capital
stock except
(1) in exchange for or out of
the substantially concurrent issue and sale of
shares of its capital stock, or warrants, rights
or options to purchase or otherwise acquire any
shares of its capital stock, so long as the
proceeds of such concurrent issue and sale are not
required by agreement, statute or regulation to be
otherwise applied by the Company,
(2) out of a substantially
concurrent contribution to capital,
(3) repurchases of Class B1
Common Stock which the Company is required to make
from the holders thereof who no longer have loans
from the Company outstanding, or
(4) redemptions or
cancellations of Class B Stock or Class C Stock
pursuant to Section 6.2(i) of the Company's by-
laws as in effect on the date hereof, so long as
no cash or other Property is paid to the holders
thereof; or
(c) directly, or indirectly or through
any Subsidiary, make any other payment or distribution
in respect of its capital stock
(such declarations and payments of dividends, purchases,
redemptions or retirements of stock, warrants, rights or
options and all such other distributions, together with all
payments in respect of Subordinated Debt pursuant to
paragraph 6N(iii) of this Agreement being herein
collectively called "Restricted Payments"), if after giving
effect thereto the aggregate amount of Restricted Payments,
together with all Patronage Dividends payable in cash and
all cash dividends on Class B Stock and Class C Stock,
declared or made during the period from and after December
31, 1991 to and including the date of the declaration or
making of the Restricted Payment in question, would exceed
the sum of
(1) Fifteen Million Dollars
($15,000,000), plus
(2) fifty percent (50%) of
Consolidated Adjusted Net Income (or minus one
hundred percent (100%) of Consolidated Adjusted
Net Income in the case of a deficit) for the
period commencing on January 1, 1992 and ending on
the last day of the fiscal year of the Company
most recently ended on such date, all computed on
a cumulative basis for said entire period.
(ii) The Company shall not declare any
dividend payable more than sixty (60) days after the
date of the declaration thereof.
(iii) For the purposes of this paragraph 6I,
the amount of any Restricted Payment declared or paid or
distributed in Property of the Company or any Restricted
Subsidiary shall be deemed to be the greater of book value
or Fair Market Value, as determined in good faith by the
Board of Directors (in each case after deducting any
liabilities relating thereto which are, concurrently with
the receipt of such Restricted Payment, assumed by the
recipient thereof), of such Property at the time of the
making of the Restricted Payment in question.
(iv) The Company shall not declare or make any
Restricted Payment if, after giving effect thereto, a
Default or an Event of Default would exist.
6J. Limitation on Investments.
(i) The Company shall not, and shall not permit
any Restricted Subsidiary to, make any Restricted
Investments.
(ii) Any corporation which becomes a Restricted
Subsidiary subsequent to the date of this Agreement shall be
deemed to have made, immediately after becoming a Restricted
Subsidiary, any Restricted Investment that it shall have
outstanding at the time it shall become a Restricted
Subsidiary.
6K. Transactions with Affiliates.
(i) The Company shall not, and shall not permit
any Restricted Subsidiary to, enter into any transaction,
including, without limitation, the purchase, sale or
exchange of Property or the rendering of any service, with
any Affiliate except (i) for the NCB Development Corporation
Contribution and (ii) in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and
reasonable terms no less favorable to the Company or such
Restricted Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
(ii) Any corporation that becomes a Restricted
Subsidiary subsequent to the date of this Agreement shall be
deemed to have entered into, at the date it becomes a
Restricted Subsidiary, all transactions with Affiliates with
respect to which such corporation will be obligated
immediately after it becomes a Restricted Subsidiary.
6L. Repurchase of Notes. The Company shall not, and
shall not permit any Restricted Subsidiary or any Affiliate,
directly or indirectly, to, purchase or make any offer to
purchase any Notes, unless the Company or such Restricted
Subsidiary or Affiliate has offered to purchase Notes, pro rata
from all holders of the Notes and upon the same terms. In case
the Company purchases any Notes, such Notes shall thereafter be
canceled and no Notes shall be issued in substitution therefor.
6M. Issuance of Subordinated Debt. The Company shall
not create, issue, assume, guarantee or in any manner become
liable after the date of this Agreement in respect of any
Subordinated Debt having a maturity earlier than January 1, 2006,
or the benefit of any mandatory sinking fund or similar provision
for the prepayment thereof prior to January 1, 2006.
6N. Voluntary Retirement of Subordinated Debt. The
Company shall not, directly or indirectly or through any
Subsidiary, purchase, redeem or otherwise retire or acquire prior
to the respective stated maturities thereof, the whole or any
part of any issue of Subordinated Debt except
(i) subject to paragraph 6M of this Agreement, in
accordance with the applicable provisions thereof or of any
indenture, agreement or similar instrument under or pursuant
to which such Debt has been issued, unconditionally
requiring payments into a sinking fund, periodic
prepayments, or other analogous payments for the
amortization of such Debt, or
(ii) out of the proceeds of a substantially
concurrent issue or sale of capital stock or Debt ranking on
a parity with, or junior to, the Debt proposed to be
purchased, redeemed or otherwise retired or acquired, or
(iii) out of funds that at the time are
available for Restricted Payments pursuant to, and within
the limitations of, paragraph 6I of this Agreement, it being
understood that the amounts so used pursuant to this clause
(iii) shall reduce pro tanto the amount otherwise available
for Restricted Payments under paragraph 6I of this
Agreement.
6O. Subordination Provisions. The Company shall not,
at any time, be a party to any amendment, waiver or modification
of any subordination provisions or payment provisions applicable
to any Subordinated Debt.
6P. Class A Notes.
(i) No Voluntary Prepayment. The Company shall
not, directly or indirectly or through any Subsidiary,
purchase, redeem or otherwise retire or acquire, prior to
the respective stated maturities thereof, the whole or any
part of any Class A Notes except out of the net cash
proceeds of a substantially concurrent issue or sale of
Class B Stock or Class C Stock.
(ii) No Amendments. The Company shall not amend,
modify, terminate, or waive any of its rights under the
Financing Agreement or any of the Class A Notes (or any
other agreement or similar instrument under or pursuant to
which such Class A Notes have been issued) without the prior
written consent of the Required Holders, except that the
Company may enter into an amendment of the Financing
Agreement providing for a prepayment of the Class A Notes in
2010 and 2015 with the proceeds of a substantially
simultaneous issue of equity or Subordinated Debt.
7 EVENTS OF DEFAULT.
7A. Nature of Events. An "Event of Default" shall
exist if any of the following occurs and is continuing:
(i) Principal or Yield-Maintenance Amount
Payments -- the Company fails to make any payment of
principal or Yield-Maintenance Amount on any Note on or
before the date such payment is due;
(ii) Interest Payments -- the Company fails to
make any payment of interest on any Note on or before the
date such payment is due and such failure shall continue for
a period of three (3) Business Days;
(iii) Particular Defaults -- the Company or
any Subsidiary fails to perform or observe any covenant
contained in paragraphs 5D and 5F and paragraph 6A through
paragraph 6P (other than paragraph 6J and paragraph 6K) of
this Agreement, inclusive; or the Company shall terminate or
modify any provision of the Financing Agreement or shall
fail to perform or observe any covenant contained in the
Financing Agreement;
(iv) Other Defaults -- the Company or any
Subsidiary fails to comply with any other provision of this
Agreement, and such failure continues for more than thirty
(30) days after any officer of the Company has knowledge
thereof;
(v) Warranties or Representations -- any
warranty, representation or other statement by or on behalf
of the Company contained in this Agreement or in any
instrument furnished by or on behalf of the Company in
compliance with or in reference to this Agreement was or
shall have been false or misleading in any material respect
at the time made;
(vi) Default on Indebtedness or Other Security --
the Company or any Restricted Subsidiary fails to make any
payment due on any one or more Material Obligations or any
event shall occur or any condition shall exist in respect of
any one or more Material Obligations of the Company or any
Restricted Subsidiary, or under any agreement securing or
relating to any such Material Obligations (and any such
failure, event or condition shall not have been cured,
waived or consented to by the holder or holders of such
Material Obligations or a trustee therefor), the effect of
which is
(a) to cause (or permit any holder of
such Material Obligation or a trustee of such holder to
cause) such Material Obligation or Material
Obligations, or a portion thereof, to become due prior
to its or their stated maturity or prior to its or
their regularly scheduled dates of payment (regardless
of any limitations, such as those applicable to
Subordinated Debt, on the amount of such Material
Obligations which may be paid upon such acceleration),
(b) to permit a trustee or the holder
of any Security (other than common stock of the Company
or any Restricted Subsidiary) to elect a majority of
the directors on the board of directors of the Company
or such Restricted Subsidiary, or
(c) to permit the holder of any such
Material Obligation to require the Company or any
Restricted Subsidiary to repurchase such Material
Obligation or a portion thereof from such holder;
(vii) Involuntary Bankruptcy Proceeding -- a
receiver, liquidator, custodian or trustee of the Company or
any Restricted Subsidiary, or of any of the Property of any
of such Persons, is appointed by court order and such order
remains in effect for more than ninety (90) days; or the
Company or any Restricted Subsidiary is adjudicated bankrupt
or insolvent; or any of the Property of any of such Persons
is sequestered by court order and such order remains in
effect for more than ninety (90) days; or a petition is
filed against the Company or any Restricted Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not
dismissed within thirty (30) days after such filing;
(viii) Voluntary Petitions -- the Company or
any Restricted Subsidiary files a petition in voluntary
bankruptcy or seeking relief under any provisions of any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under such
law;
(ix) Assignments for Benefit of Creditors, etc. --
the Company or a Restricted Subsidiary makes an assignment
for the benefit of its creditors, is not paying its debts
generally as they become due, admits in writing its
inability to pay its debts generally as they become due or
consents to the appointment of a receiver, trustee,
custodian or liquidator of the Company or such Restricted
Subsidiary or of all or any part of the Property of any of
such Persons; or
(x) Undischarged Final Judgments -- final
judgment or judgments for the payment of money, aggregating
in excess of Five Hundred Thousand Dollars ($500,000) for
all such judgments, is or are outstanding against the
Company or any of the Restricted Subsidiaries and any one of
such judgments has been outstanding for more than thirty
(30) days from the date of its entry and has not been
discharged in full or stayed.
7B. Default Remedies.
(i) Acceleration on Event of Default. If an
Event of Default exists, then
(a) if such Event of Default is an
Event of Default specified in clause (vii), clause
(viii) or clause (ix) of paragraph 7A of this Agreement
with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately
due and payable at par together with interest accrued
thereon, without presentment, demand, protest or notice
of any kind, all of which are hereby waived by the
Company, and
(b) if such Event of Default is any
other Event of Default, the Required Holders may
exercise any right, power or remedy permitted to such
holder or holders by law, and may, in particular, at
its or their option, by notice in writing to the
Company, declare all of the Notes to be, and all of the
Notes shall thereupon be and become, immediately due
and payable, together with interest accrued thereon and
together with the Yield-Maintenance Amount, if any,
with respect to each Note, without presentment, demand,
protest or other notice of any kind, all of which are
hereby waived by the Company, provided that the Yield-
Maintenance Amount, if any, with respect to each Note
shall be due and payable upon such declaration only if
(1) such event is an Event of
Default specified in any of clause (i) to clause
(vi), inclusive, or clause (x) of paragraph 7A of
this Agreement,
(2) the holders making such
declaration shall have given to the Company, at
least ten (10) Business Days before such
declaration, written notice stating its or their
intention so to declare the Notes to be
immediately due and payable and identifying one or
more such Events of Default whose occurrence on or
before the date of such notice permits such
declaration and
(3) one or more of the Events
of Default so identified shall be continuing at
the time of such declaration.
(ii) Acceleration on Payment Default. During the
existence of an Event of Default described in paragraph
7A(i) or paragraph 7A(ii) hereof, and irrespective of
whether the Notes then outstanding shall have been declared
to be due and payable pursuant to paragraph 7B(i)(b) hereof,
any holder of Notes who or which shall have not consented to
any waiver with respect to such Event of Default may, at his
or its option, by notice in writing to the Company, declare
the Notes then held by such holder to be, and such Notes
shall thereupon become, forthwith due and payable together
with all interest accrued thereon, without any presentment,
demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Company shall forthwith
pay to such holder the entire principal of and interest
accrued on such Notes and, to the extent permitted by law,
the Yield-Maintenance Amount at such time with respect to
such principal amount of such Notes.
(iii) Valuable Rights. The Company
acknowledges, and the parties hereto agree, that the right
of each holder to maintain its investment in the Notes free
from repayment by the Company (except as herein specifically
provided for) is a valuable right and that the provision for
payment of a Yield-Maintenance Amount by the Company in the
event that the Notes are prepaid or are accelerated as a
result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such
circumstances.
(iv) Other Remedies. If any Event of Default or
Default shall occur and be continuing, the holder of any
Note may proceed to protect and enforce its rights under
this Agreement and such Note by exercising such remedies as
are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at
law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or
in aid of the exercise of any power granted in this
Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative
and shall be in addition to every other remedy conferred
herein or now or hereafter existing at law or in equity or
by statute or otherwise.
(v) Nonwaiver and Expenses. No course of dealing
on the part of any holder of Notes nor any delay or failure
on the part of any holder of Notes to exercise any right
shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. If the
Company shall fail to pay when due any principal of, or
Yield-Maintenance Amount or interest on, any Note, or shall
fail to comply with any other provision hereof, the Company
shall pay to each holder of Notes, to the extent permitted
by law, such further amounts as shall be sufficient to cover
the costs and expenses, including but not limited to
reasonable attorneys' fees, incurred by such holder in
collecting any sums due on such Notes or in otherwise
assessing, analyzing or enforcing any rights or remedies
that are or may be available to it.
7C. Annulment of Acceleration of Notes. If a
declaration is made pursuant to paragraph 7B(i)(b) of this
Agreement in respect of any Notes by any holder or holders
thereof then, and in every such case, the Required Holders may,
by written instrument filed with the Company, rescind and annul
such declaration, and the consequences thereof, provided that at
the time such declaration is annulled and rescinded:
(i) no judgment or decree has been entered for
the payment of any monies due pursuant to the Notes or this
Agreement;
(ii) all arrears of interest upon all of the Notes
and all other sums payable under the Notes and under this
Agreement (except any principal of or interest on the Notes
which has become due and payable by reason of such
declaration under paragraph 7B(i)(b) of this Agreement)
shall have been duly paid; and
(iii) each and every other Default and Event
of Default shall have been waived pursuant to paragraph 11C
of this Agreement or otherwise made good or cured,
and provided further that no such rescission and annulment shall
extend to or affect any subsequent Default or Event of Default or
impair any right consequent thereon.
8 REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants as follows:
8A. Subsidiaries and Affiliates. Annex 2 to this
Agreement states the name of each of
(i) the Subsidiaries (specifying which thereof
are Restricted Subsidiaries), its jurisdiction of
incorporation, the jurisdiction in which it does business,
the percentage of its Voting Stock owned by the Company and
each other Subsidiary and, to the best of the Company's
knowledge, the identity and ownership of any other holders
of its Voting Stock, and
(ii) the Company's corporate or joint venture
Affiliates and the nature of the affiliation.
8B. Corporate Organization and Authority. Each of the
Company and the Subsidiaries
(i) is a corporation duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation,
(ii) has all requisite power and authority and all
necessary licenses and permits to own and operate its
Properties and to carry on its business as now conducted and
as presently proposed to be conducted, and
(iii) is duly authorized and has duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the character of its Properties or the nature
of its activities makes such qualification necessary.
8C. Financial Statements; Material Adverse Change;
Description of Business.
(i) Financial Statements. The consolidated
statements of financial condition of the Company and the
Subsidiaries as of December 31 in the years 1994, 1995,
1996, 1997 and 1998 inclusive, and the related consolidated
statements of income and cash flows and changes in members'
equity for the fiscal years ended on such dates, in each
case accompanied by reports thereon containing opinions
without qualification, except as therein noted, by its
independent certified public accountants, and the
consolidated balance sheet of the Company and the
Subsidiaries as of September 30, 1999 and the related
consolidated statements of income and cash flows and
reconciliation of net income to net cash provided by
operating activities for the nine (9) month period ended on
such date, copies of which have been delivered to you, have
been prepared in accordance with generally accepted
accounting principles consistently applied, and present
fairly the financial position of the Company and the
Subsidiaries as of such dates and the results of their
operations for such periods. All of the above-described
consolidated financial statements include the accounts of
all Subsidiaries for the respective periods during which a
subsidiary relationship has existed.
(ii) Material Adverse Change. Since December 31,
1998, there has been no material adverse change in the
condition, financial or otherwise, of the Company and the
Subsidiaries, taken as a whole.
(iii) Description of Business. The
description of the business conducted and proposed to be
conducted by the Company and the Subsidiaries set forth in
Annex 2 is correct in all material respects.
8D. Full Disclosure. Neither the financial statements
referred to in paragraph 8C of this Agreement, nor any other
written statement furnished by, or on behalf of, the Company to
you in connection with the negotiation hereof, contains any
untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein or herein not
misleading. There are no facts which the Company has not
disclosed to you in writing that in the aggregate materially
affect adversely or, so far as the Company can now foresee, will
in the future in the aggregate materially affect adversely the
Properties, business, prospects, profits or condition (financial
or otherwise) of the Company and the Subsidiaries, taken as a
whole, or the ability of the Company to perform its obligations
under this Agreement or the Notes.
8E. Pending Litigation and Judgments. There are no
proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or the Subsidiaries
in any court or before any governmental authority or arbitration
board or tribunal that in the aggregate involve more than a
remote possibility of materially and adversely affecting the
Properties, business, prospects, profits or condition (financial
or otherwise) of the Company or the Subsidiaries, taken as a
whole, or the ability of the Company to perform its obligations
under this Agreement or the Notes. Neither the Company nor the
Subsidiaries is in default with respect to any order of any
court, governmental authority or arbitration board or tribunal.
No unsatisfied judgment against the Company or any of the
Subsidiaries is outstanding.
8F. Title to Properties. Each of the Company and the
Subsidiaries has good and marketable title in fee simple (or its
equivalent under applicable law) to all the real Property, and
has good title to all the other Property, it purports to own,
including that reflected in the most recent balance sheet
referred to in paragraph 8C of this Agreement (except as sold or
otherwise disposed of in the ordinary course of business). All
such Property owned by the Company is free from Liens not
permitted by paragraph 6C of this Agreement. All leases
necessary in any material respect for the conduct of the business
of the Company and each of the Subsidiaries are valid and
subsisting and are in full force and effect.
8G. Patents and Trademarks. Each of the Company and
the Subsidiaries owns or possesses all the patents, trademarks,
service marks, trade names, copyrights, licenses and rights with
respect to the foregoing which are necessary for the present and
planned future conduct of its and their business, without any
known conflict with the rights of others, which, if adversely
determined, would have a materially adverse effect on the
Properties, business, prospects, profits or condition (financial
or otherwise) of the Company and the Subsidiaries, taken as a
whole, or the ability of the Company to perform its obligations
under this Agreement or the Notes.
8H. Issuance is Legal and Authorized; Conflicting
Agreements and Other Matters.
(i) Issuance is Legal and Authorized. The
issuance, execution and delivery of the Notes by the Company
and compliance by the Company with all of the provisions of
this Agreement and of the Notes are within the corporate
powers of the Company.
(ii) Conflicting Agreements and Other Matters.
Neither the Company nor any Subsidiary is a party to one or
more contracts or agreements or subject to one or more
charter or other corporate restrictions which in the
aggregate materially and adversely affects the Properties,
business, prospects, profits or condition (financial or
otherwise) of the Company or the Subsidiaries, taken as a
whole, or the ability of the Company to perform its
obligations under this Agreement or the Notes. The
execution and delivery of this Agreement and the Notes, the
offering, issuance, execution and delivery of the Notes and
the fulfillment of and compliance with the terms and
provisions of this Agreement and of the Notes, will not
conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of
any Lien upon any of the Property of the Company or any of
the Subsidiaries pursuant to, the charter or by-laws of the
Company or any of the Subsidiaries, any award of any
arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company or any of the
Subsidiaries is subject.
8I. No Defaults. No event has occurred and no
condition exists that, upon the issuance of the Notes in
substitution therefor, would constitute a Default or an Event of
Default. The Company is not in violation in any respect of any
term of its charter or bylaws. The Company is not in violation
in any material respect of any term in any agreement or other
instrument to which it is a party or by which it or any of its
Property may be bound.
8J. Governmental Consent. Neither the nature of the
Company or any of the Subsidiaries, or of any of their respective
businesses or Properties, nor any relationship between the
Company or any of the Subsidiaries and any other Person, nor any
circumstance in connection with the offer and issuance of the
Notes is such as to require a consent, approval or authorization
of, or filing, registration or qualification with, any
governmental authority on the part of the Company as a condition
to the execution, delivery and performance of this Agreement or
the offer, issue, execution, delivery and performance of the
Notes.
8K. Taxes. All tax returns required to be filed by
the Company or any of the Subsidiaries in any jurisdiction have
in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Company or any of the Subsidiaries,
or upon any of their respective Properties, income or franchises,
shown to be due and payable on said returns have been paid to the
extent such taxes, assessments, fees and charges have become due
and payable. Neither the Company nor any of the Subsidiaries
knows of any proposed additional tax assessments against it. The
Federal income tax liability of the Company and the Subsidiaries
has been finally determined by the Internal Revenue Service and
satisfied for all taxable years up to and including the taxable
year ended December 31, 1995, and no material controversy in
respect of additional income taxes due is pending or, to the
knowledge of the Company, threatened. The provisions for taxes
on the books of the Company and the Subsidiaries are adequate for
all open years, and for its current fiscal period.
8L. Margin Securities, etc. The proceeds realized
upon the issuance of the Notes will not be used, directly or
indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" as defined
in Regulation U and X (12 CFR Parts 221 and 224) of the Board of
Governors of the Federal Reserve System (herein called "margin
stock") or for the purpose of maintaining, reducing or retiring
any indebtedness that was originally incurred to purchase or
carry any stock that is a margin stock or for any other purpose
that might constitute such transaction a "purpose credit" within
the meaning of such Regulations. None of the transactions
contemplated in this Agreement will violate or result in a
violation of Section 7 of the Exchange Act or any regulations
issued pursuant thereto, including, without limitation,
Regulations T, U, X or any other regulation of the Board of
Governors of the Federal Reserve System. The Company does not
own or intend to carry or purchase any margin stock. None of the
proceeds from the sale of the Notes will be used to purchase, or
refinance any borrowing the proceeds of which were or will be
used to purchase, any "security" within the meaning of the
Exchange Act.
8M. Private Offering. Neither the Company or any of
the Subsidiaries, nor any agent acting on their behalf, has,
directly or indirectly, offered the Notes or any similar Security
of the Company for sale or exchange to, or solicited any offers
to buy the Notes or any similar Security of the Company from, or
otherwise approached or negotiated with respect to this Agreement
with, any Person other than you, and neither the Company or any
of the Subsidiaries, nor any agent acting on their behalf, has
taken or will take any action that would subject the issuance of
the Notes to the provisions of Section 5 of the Securities Act or
to the provisions of any Securities or Blue Sky law of any
applicable jurisdiction.
8N. Compliance with Law. Neither the Company nor any
of the Subsidiaries:
(i) is in violation of any laws, ordinances, or
governmental rules or regulations to which it is subject; or
(ii) has failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to
the ownership of its Property or to the conduct of its
business,
which violations or failures to obtain might in the aggregate
materially adversely affect the business, prospects, profits,
Properties or condition (financial or otherwise) of the Company
or the Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations under this Agreement or the
Notes.
8O. Indebtedness. Annex 2 to this Agreement correctly
describes all Debt for borrowed money of the Company outstanding
as of the close of business on the date of execution and delivery
of this Agreement, and indicates which of such indebtedness (if
any, and the amount thereof) is secured by a Lien. There is no
Subordinated Debt outstanding other than the Class A Notes. The
aggregate amount of indebtedness for borrowed money of the
Company outstanding as of the date of execution and delivery of
this Agreement does not exceed one thousand percent (1000%) of
the sum of the paid-in capital and surplus of the Company at such
date.
8P. Restrictions on Company. Neither the Company nor
any of the Subsidiaries is a party to any contracts or
agreements, or subject to any charter or other corporate
restrictions, that in the aggregate materially and adversely
affect its business. The Company is not a party to any contract
or agreement that restricts its right or ability to incur
additional Debt, other than this Agreement and the agreements
relating to the Debt described in Annex 2 to this Agreement. The
Company has not agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of
its Property, whether now owned or hereafter acquired, to be
subject to a Lien not permitted by paragraph 6C(i) of this
Agreement.
8Q. Employee Retirement Income Security Act of 1974.
The present value of all benefits vested under all Pension Plans
did not, as of December 31, 1998, the last annual valuation date
for which a report is available, exceed the value of the assets
of the Pension Plans allocable to such vested benefits. The
consummation of the transactions herein provided for and
compliance by the Company with the provisions of this Agreement
and the Notes will not involve any "prohibited transaction"
within the meaning of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended. The representation by the
Company in the second sentence of this paragraph 8Q is made in
reliance upon and subject to (i) the accuracy of your
representation in paragraph 9B as to the sources of the funds
used to pay the purchase price of the Notes to be purchased by
you and (ii) the assumption, made solely for the purpose of
making such representation, that Department of Labor Interpretive
Bulletin 75-2 with respect to prohibited transactions remains
valid in the circumstances of the transactions contemplated
herein. The Company, the Subsidiaries, their respective employee
benefit plans and any trusts thereunder are in substantial
compliance with ERISA. Neither any of the employee benefit plans
maintained by the Company or the Subsidiaries, or to which the
Company or the Subsidiaries makes any contribution, nor any
trusts thereunder have been terminated or have incurred any
"accumulated funding deficiency," as such term is defined in
Section 302 of ERISA (whether or not waived), since the effective
date of ERISA, nor have there been any "reportable events," as
that term is defined in Section 4043 of ERISA, since the
effective date of ERISA.
8R. Investment Company Act. The Company is not
directly or indirectly controlled by, or acting on behalf of any
Person which is, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
9 REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. Nature of Purchase. Such Purchaser is not
acquiring the Notes purchased by it hereunder with a view to or
for sale in connection with any distribution thereof within the
meaning of the Securities Act, provided that the disposition of
such Purchaser's property shall at all times be and remain within
its control.
9B. Source of Funds. The source of funds being used
by such Purchaser to pay the purchase price of the Notes
purchased by such Purchaser hereunder constitutes assets
allocated to: (a) the "insurance company general account" of
such Purchaser (as such term is defined under Section V of the
United States Department of Labor's Prohibited Transaction Class
Exemption ("PTCE") 95-60), and as of the date of the purchase of
the Notes such Purchaser satisfies all of the applicable
requirements for relief under Sections I and IV of PTCE 95-60, or
(b) a separate account maintained by such Purchaser in which no
employee benefit plan, other than employee benefit plans
identified on a list which has been furnished by such Purchaser
to the Company, participates to the extent of 10% or more. For
the purpose of this paragraph 9B, the terms "separate account"
and "employee benefit plan" shall have the respective meanings
specified in section 3 of ERISA.
10 DEFINITIONS. For the purpose of this Agreement, the
terms defined in paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have
the meanings specified with respect thereto below:
10A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid pursuant
to paragraph 4 or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by discounting
all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which
interest on such Note is payable) equal to the Reinvestment Yield
with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to the
Called Principal of any Note, the yield to maturity implied by
(i) the yields reported, as of 10:00 A.M. (New York City local
time) on the Business Day next preceding the Settlement Date with
respect to such Called Principal, on the display designated as
"Page 678" on the Bridge/Telerate Service (or such other display
as may replace page 678 on the Bridge/Telerate Service) for
actively traded U.S. Treasury securities having a maturity equal
to the Remaining Average Life of such Called Principal as of such
Settlement Date, or if such yields shall not be reported as of
such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have
been so reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and
(b) interpolating linearly between yields reported for various
maturities.
"Remaining Average Life" shall mean, with respect to
the Called Principal of any Note, the number of years (calculated
to the nearest one-twelfth year) obtained by dividing (i) such
Called Principal into (ii) the sum of the products obtained by
multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will
elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" shall mean, with respect
to the Called Principal of any Note, all payments of such Called
Principal and interest thereon that would be due on or after the
Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled
due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid pursuant to paragraph 4 or is declared
to be immediately due and payable pursuant to paragraph 7A, as
the context requires.
"Yield-Maintenance Amount" shall mean, with respect to
any Note, an amount equal to the excess, if any, of the
Discounted Value of the Called Principal of such Note over the
sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance
Amount shall in no event be less than zero.
10B. Other Terms.
"Adjusted Tangible Assets" at any time means all assets
(including, without duplication, the capitalized value of any
leasehold interest under any Capitalized Lease) except:
(a) deferred assets and intangible assets,
(b) patents, copyrights, trademarks, trade names,
franchises, goodwill, organizational expense, experimental
expense and other similar intangible assets,
(c) unamortized debt discount and expense, and
(d) assets located, and notes and receivables due
from obligors domiciled, outside the United States of
America, Puerto Rico or Canada.
"Affiliate" shall mean any Person directly or
indirectly controlling, controlled by, or under direct or
indirect common control with, the Company, except a Subsidiary.
A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" shall have the meaning specified in
paragraph 11C.
"Asset Disposition Date" shall have the meaning
specified in paragraph 6B(i).
"Asset Securitization" means, with respect to any
Person, a transaction involving the sale or transfer of
receivables by such Person (an "Originator") to a special purpose
corporation or grantor trust (an "SPV") established solely for
the purpose of purchasing such receivables from the Company for
cash in an amount equal to the Fair Market Value thereof;
provided, however, that the Company may (A) establish and
maintain a reserve account containing cash or Securities as a
credit enhancement in respect of any such sale or (B) purchase or
retain a subordinated interest in such receivables being sold.
"Asset Securitization Recourse Liability" means, at any
time, with respect to any Person, the maximum amount of such
Person's liability (whether matured or contingent) under any
agreement, note or other instrument in connection with any one or
more Asset Securitizations in which such Person has agreed to
repurchase receivables or other assets, to provide direct or
indirect credit support (whether through cash payments, the
establishment of reserve accounts containing cash or Securities,
an agreement to reimburse a provider of a letter of credit for
any draws thereunder, the purchase or retention of a subordinated
interest in such receivables or other assets, or other similar
arrangements), or in which such Person may be otherwise liable
for all or a portion of any SPV's obligations under Securities
issued in connection with such Asset Securitizations.
"Authorized Officer" shall mean (i) in the case of the
Company, its chief executive officer, its chief financial
officer, any vice president of the Company designated as an
"Authorized Officer" of the Company in the Information Schedule
attached hereto as Annex 1 or any vice president of the Company
designated as an "Authorized Officer" of the Company for the
purpose of this Agreement in an Officer's Certificate executed by
the Company's chief executive officer or chief financial officer
and delivered to Prudential, and (ii) in the case of Prudential,
any officer of Prudential designated as its "Authorized Officer"
in the Information Schedule or any officer of Prudential
designated as its "Authorized Officer" for the purpose of this
Agreement in a certificate executed by one of its Authorized
Officers. Any action taken under this Agreement on behalf of the
Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company
and whom Prudential in good faith believes to be an Authorized
Officer of the Company at the time of such action shall be
binding on the Company even though such individual shall have
ceased to be an Authorized Officer of the Company, and any action
taken under this Agreement on behalf of Prudential by any
individual who on or after the date of this Agreement shall have
been an Authorized Officer of Prudential and whom the Company in
good faith believes to be an Authorized Officer of Prudential at
the time of such action shall be binding on Prudential even
though such individual shall have ceased to be an Authorized
Officer of Prudential.
"Bank Loan Agreement" means the Third Amended and
Restated Loan Agreement, dated as of May 28, 1997, by and among
the Company, the banks signatory thereto and Fleet Bank, N.A.
(formerly known as Natwest, N.A), as amended from time to time.
"Board of Directors" at any time means the board of
directors of the Company or any committee thereof which, in the
instance, shall have the lawful power to exercise the power and
authority of such board of directors.
"Business Day" shall mean any day other than (i) a
Saturday or a Sunday, and (ii) a day on which commercial banks in
New York City are required or authorized to be closed.
"Capitalized Lease" means any lease the obligation for
Rentals with respect to which is required to be capitalized on a
balance sheet of the lessee in accordance with generally accepted
accounting principles.
"Class A Notes" means "class A notes" the terms of
which are defined in 12 U.S.C. 3014 as in effect on the Date of
Assumption and Restatement.
"Class B Stock" means "class B stock" the terms of
which are defined in 12 U.S.C. 3014 as in effect on the Date of
Assumption and Restatement.
"Class B1 Common Stock" means the series of Class B
stock comprising Class B stock purchased for cash after June 28,
1984.
"Class C Stock" means "class C stock" the terms of
which are defined in 12 U.S.C. 3014 as in effect on the Date of
Assumption and Restatement.
"Closing Day" shall have the meaning specified in
paragraph 2.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" shall have the meaning specified in the
introductory sentence to this Agreement.
"Company Senior Obligations" at any time means, with
respect to the Company, the sum of
(a) the aggregate unpaid principal amount of
Senior Debt of the Company, plus
(b) the aggregate amount of all Capitalized
Leases of the Company plus
(c) Restricted Guarantees of the Company computed
on the basis of total outstanding contingent liability, plus
(d) Asset Securitization Recourse Liabilities of
the Company (meeting the conditions set forth in either
clause (i) or clause (ii) below):
(1) to the extent, but only to the
extent, that such obligations arise from the Company's
obligation to repurchase receivables or other assets as
a result of a default in payment by the obligor
thereunder or any other default in performance by such
obligor under any agreement related to such
receivables; or
(2) if the Company shall maintain a
reserve account containing cash or Securities in
respect of any such obligations or shall retain or
purchase a subordinated interest therein, to the
extent, but only to the extent, of the amount of such
reserve account or subordinated interest.
"Consolidated Adjusted Net Income" for any fiscal
period of the Company means net earnings or net loss (determined
on a consolidated basis) of the Company and the Restricted
Subsidiaries after income taxes for such period, but excluding
from the determination of such earnings the following items
(together with the income tax effect, if any, applicable
thereto):
(a) the proceeds of any life insurance
policy;
(b) any gain or loss arising from the sale
of capital assets;
(c) any gain arising from any reappraisal,
revaluation or write-up of assets;
(d) any gain arising from transactions of a non-
recurring or nonoperating and material nature or arising
from sales or other dispositions relating to the
discontinuance of operations;
(e) earnings of any Restricted Subsidiary accrued
prior to the date it became a Restricted Subsidiary;
(f) earnings of any corporation, substantially
all the assets of which have been acquired in any manner,
realized by such other corporation prior to the date of such
acquisition;
(g) net earnings of any business entity (other
than a Restricted Subsidiary) in which the Company or any
Restricted Subsidiary has an ownership interest, unless such
net earnings shall have actually been received by the
Company or such Restricted Subsidiary in the form of cash
distributions;
(h) any portion of the net earnings of any
Restricted Subsidiary which for any reason is unavailable
for payment of dividends to the Company or any other
Restricted Subsidiary;
(i) the earnings of any Person to which assets of
the Company shall have been sold, transferred or disposed
of, or into which the Company shall have merged, prior to
the date of such transaction;
(j) any gain arising from the acquisition of any
Securities of the Company or any Subsidiary; and
(k) any amortization of deferred or other credit
representing the excess of the equity in any Subsidiary at
the date of acquisition thereof over the amount invested in
such Subsidiary.
"Consolidated Adjusted Net Worth" at any time means,
with respect to the Company and the Restricted Subsidiaries
(determined on a consolidated basis):
(a) the amount of capital stock liability plus
(or minus in the case of a deficit) the capital surplus and
earned surplus of the Company and the Restricted
Subsidiaries, less (without duplication) the sum of
(b) the net book value, after deducting any
reserves applicable thereto, of all items of the following
character which are included in the assets of the Company
and the Restricted Subsidiaries:
(1) all deferred charges and prepaid
expenses other than prepaid taxes and prepaid insurance
premiums;
(2) treasury stock;
(3) unamortized debt discount and
expense and unamortized stock discount and expense;
(4) goodwill, the excess of the cost of
assets acquired over the book value of such assets on
the books of the transferor, the excess of the cost of
investments in any Person (including any Subsidiary)
over the value of such investments on the books of such
Person at the time of making such investments,
organizational or experimental expense, patents,
trademarks, copyrights, trade names and other
intangibles;
(5) all receivables (other than
Eurodollar deposits) owing by Persons whose principal
place of business or principal assets are located in
any jurisdiction other than the United States of
America or Canada; and
(6) any increment resulting from any
reappraisal, revaluation or write-up of capital assets
subsequent to December 31, 1991.
If, notwithstanding paragraph 6J, the Company shall have any
Restricted Investments outstanding at any time, such Restricted
Investments shall be excluded from Consolidated Adjusted Net
Worth.
"Consolidated Assets" at any time means the assets of
the Company and the Restricted Subsidiaries that would be
reflected on a consolidated balance sheet for the Company and the
Restricted Subsidiaries at such time.
"Consolidated Debt" at any time means all Debt of the
Company and the Restricted Subsidiaries (including, without
limitation, advances under the Blanket Agreement for Advances and
Security Agreement, dated as of March 23, 1990, with the Federal
Home Loan Bank of Cincinnati, as referenced in Annex 2 to this
Agreement), plus, without duplication, the aggregate amount of
the face amount of all letters of credit issued by the Company or
any Restricted Subsidiary and all bankers' acceptances accepted
by the Company or any Restricted Subsidiary at such time.
"Consolidated Earnings Available for Fixed Charges"
for any fiscal period of the Company means the sum of
(a) Consolidated Adjusted Net Income for such
period; plus
(b) to the extent deducted in determining
Consolidated Adjusted Net Income for such period,
(1) all provisions for any Federal,
state or other income taxes made by the Company and the
Restricted Subsidiaries during such period, and
(2) Consolidated Fixed Charges during
such period;
plus
(c) the NCB Development Corporation Contribution.
"Consolidated Effective Net Worth" at any time means
the sum of
(a) Consolidated Adjusted Net Worth at such time;
plus
(b) the aggregate outstanding principal amount of
Class A Notes at such time.
"Consolidated Fixed Charges" for any fiscal period of
the Company means, on a consolidated basis for the Company and
the Restricted Subsidiaries, the sum of:
(a) all interest and all amortization of Debt
discount and expense on all Debt for borrowed money of the
Company and the Restricted Subsidiaries; plus
(b) all Rentals payable during such period by the
Company and the Restricted Subsidiaries.
"Consolidated Net Earnings" means, for any period, the
net income or loss of the Company and the Restricted
Subsidiaries, as applicable (determined on a consolidated basis
for such Persons at such time), for such period, as determined in
accordance with generally accepted accounting principles in
effect at such time.
"Consolidated Senior Debt" at any time means the
aggregate amount of the obligations of the Company and the
Restricted Subsidiaries set forth below that would be reflected
on a consolidated balance sheet for the Company and the
Restricted Subsidiaries at such time:
(a) the Notes;
(b) all other Debt of the Company or a Restricted
Subsidiary for borrowed money that is not expressed to be
subordinate or junior to any other Debt;
(c) all Guarantees of the Company or a Restricted
Subsidiary;
(d) all obligations in respect of Capitalized
Leases;
(e) in respect of the Company or any Restricted
Subsidiary, the aggregate amount of all demand and term
deposits made by any Person with the Company or such
Restricted Subsidiary (including, without limitation,
certificates of deposit issued by the Company or such
Restricted Subsidiary); and
(f) Asset Securitization Recourse Liabilities to
the extent, but only to the extent, that such obligations
have matured.
"Consolidated Taxable Income" means, in respect of the
Company for any calendar year, the taxable income for such
calendar year reported by the Company on its tax return filed
with the Internal Revenue Service (or other successor federal
agency) for such calendar year.
"Date of Assumption and Restatement" means December 15,
1993.
"Debt" at any time with respect to any Person means all
obligations of such Person that in accordance with generally
accepted accounting principles would be classified on a balance
sheet of such Person as liabilities of such Person (except as
specified in clause (d) below), including (without limitation)
all
(a) direct debt and other similar recourse and
non-recourse monetary obligations of such Person,
(b) obligations secured by any Lien upon Property
owned by such Person, even though such Person has not
assumed or become liable for the payment of such
obligations,
(c) obligations created or arising under any
conditional sale, financing lease, or other title retention
agreement with respect to Property acquired by such Person,
notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under such agreement in the event
of default are limited to repossession or sale of such
Property,
(d) Guarantees of such Person (whether or not
such Guarantees are classified as liabilities on the balance
sheet of such Person at such time),
(e) obligations in respect of Capitalized Leases,
and
(f) in respect of the Company or any Restricted
Subsidiary, the aggregate amount of all demand and term
deposits made by any Person with the Company or such
Restricted Subsidiary (including, without limitation,
certificates of deposit issued by the Company or such
Restricted Subsidiary).
"Default" means an event or condition the occurrence of
which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"Disposition Assets" shall have the meaning specified
in paragraph 6B(i).
"Disposition Stock" shall have the meaning specified in
paragraph 6A.
"Disposition Subsidiary" shall have the meaning
specified in paragraph 6A.
"Disposition Value" with respect to any Property means
the greater of
(a) the book value of such Property as reflected
on the balance sheet of the owner of such Property and
(b) the Fair Market Value of such Property,
in each case as of the time of the disposition of such
Property.
"Eligible Derivatives" means derivative Securities
which are sold in the ordinary course of the business of the
Company and the Restricted Subsidiaries for the purpose of
hedging or otherwise managing portfolio risk.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Event of Default" shall mean any of the events
specified in paragraph 7, provided that there has been satisfied
any requirement in connection with such event for the giving of
notice, or the lapse of time, or the happening of any further
condition, event or act.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Fair Market Value" at any time with respect to any
Property, means the sale value of such Property that would be
realized in an arm's-length sale at such time between an informed
and willing buyer and an informed and willing seller, under no
compulsion to buy or sell, respectively.
"Financial Covenant" shall mean any covenant, agreement
or provision (including, without limitation, the definitions
applicable thereto) of or applicable to the Company or any
Restricted Subsidiary contained in any agreement governing, or
instrument evidencing, any Debt (or commitment to lend), other
than Debt or a commitment to lend among the Company and one or
more Restricted Subsidiaries, of the Company or any Restricted
Subsidiary in an aggregate principal amount greater than Five
Million Dollars ($5,000,000), which covenant, agreement or
provision:
(a) requires the Company or any Restricted
Subsidiary to maintain specified financial amounts or ratios
or to meet other financial tests;
(b) restricts the ability of the Company or any
Restricted Subsidiary to:
(1) make distributions, investments,
capital expenditures or operating expenditures of any
kind;
(2) incur, create or maintain any Debt
(or other obligations) or Liens;
(3) merge, consolidate or acquire or be
acquired by any Person;
(4) sell, lease, transfer or dispose of
any Property (other than restrictions imposed solely
upon collateral, and not upon Property of the Company
or any Restricted Subsidiary generally, by holders of
Liens thereon which are permitted by this Agreement);
or
(5) issue or sell any capital stock of
any kind;
(c) is similar to any provision in paragraphs 5
or 6 of this Agreement; or
(d) provides that a default or event of default
shall occur, or that the Company or any Restricted
Subsidiary shall be required to prepay, redeem or otherwise
acquire for value any Debt or security as a result of its
failure to comply with any provision similar to any of those
set forth in any of the foregoing clauses (a), (b) or (c).
"Financing Agreement" means the Financing Agreement,
made as of December 21, 1989, by and between the Department of
the Treasury, an executive department of the United States
government, and the Company, as in effect on the Date of
Assumption and Restatement.
"Guarantees" at any time means, subject to the last
sentence of this definition, all obligations of any Person
guaranteeing or in effect guaranteeing any indebtedness or
obligation or dividend of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person
(a) to purchase any indebtedness or obligation or
any Property constituting security therefor,
(b) to advance or supply funds
(1) for the purchase or payment of any
indebtedness or obligation or
(2) to maintain working capital, equity
capital or other balance sheet condition or otherwise
to advance or make available funds for the purchase or
payment of any indebtedness or obligation,
(c) to purchase Property, Securities or services
primarily for the purpose of assuring the owner of any
indebtedness or obligation of the ability of the primary
obligor to make payment of the indebtedness or obligation or
(d) otherwise to assure the owner of the
indebtedness or obligation of the primary obligor against
loss in respect thereof (including, without limitation,
contingent reimbursement obligations under letters of
credit).
For purposes of this definition, (i) liabilities or endorsements
in the ordinary course of business of checks and other negotiable
instruments for deposit or collection, (ii) obligations of the
Restricted Subsidiaries to acquire assets from the Company in the
ordinary course of business, and (iii) Asset Securitization
Recourse Liabilities shall be deemed not to be "Guarantees."
"Hedge Treasury Note(s)" shall mean, with respect to
any Accepted Note, the United States Treasury Note or Notes whose
duration (as determined by Prudential) most closely matches the
duration of such Accepted Note.
"Hostile Tender Offer" shall mean, with respect to the
use of proceeds of any Note, any offer to purchase, or any
purchase of, shares of capital stock of any corporation or equity
interests in any other entity, or securities convertible into or
representing the beneficial ownership of, or rights to acquire,
any such shares or equity interests, if such shares, equity
interests, securities or rights are of a class which is publicly
traded on any securities exchange or in any over-the-counter
market, other than purchases of such shares, equity interests,
securities or rights representing less than 5% of the equity
interests or beneficial ownership of such corporation or other
entity for portfolio investment purposes, and such offer or
purchase has not been duly approved by the board of directors of
such corporation or the equivalent governing body of such other
entity prior to the date on which the Company makes the Request
for Purchase of such Note.
"Investments" shall have the meaning specified in the
definition of "Restricted Investments".
"Lien" means any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner
of the Property, whether such interest is based on the common
law, statute or contract, and including but not limited to the
security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-
way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purposes
of this Agreement, the Company or a Restricted Subsidiary shall
be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement, financing lease
or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security
purposes.
"Long-Term Lease" means any lease (other than a
Capitalized Lease) having an original term, including any period
for which the lease may be renewed or extended at the option of
the lessor, of more than one (1) year at the time the lessee
shall have entered into such lease.
"Material Obligation(s)" means any one or more Debts or
other Securities having an aggregate outstanding principal or
stated amount for all such Debts or other Securities of One
Million Dollars ($1,000,000) or more.
"NCB Development Corporation Contribution" means the
contribution made by the Company to NCB Development Corporation
in any fiscal period of the Company pursuant to 12 U.S.C.
3051(d), as in effect on the Date of Assumption and Restatement.
"Notes" shall have the meaning specified in paragraph
1.
"Officer's Certificate" shall mean a certificate signed
in the name of the Company by an Authorized Officer of the
Company.
"Patronage Dividends" means "patronage dividend", as
such term is defined in 12 U.S.C. 3019(b)(2) as in effect on
the Date of Assumption and Restatement.
"Pension Plans" means all "employee pension benefit
plans", as such term is defined in Section 3 of ERISA, maintained
or participated in by the Company or any of the Subsidiaries, as
from time to time in effect.
"Permitted Proceeds Application" means, in connection
with a sale of assets in accordance with paragraph 6B hereof or a
sale of Subsidiary Stock in accordance with paragraph 6A hereof,
the application by the Company or a Restricted Subsidiary of the
amount of proceeds specified in such paragraph to any of the
following:
(a) the acquisition by the Company or such
Restricted Subsidiary of Adjusted Tangible Assets to be used
in the ordinary course of business of the Company or such
Restricted Subsidiary within ninety (90) days of such sale,
so long as any proceeds to be applied pursuant to this
clause (a) are invested in accordance with clause (c) hereof
until such time as such proceeds are so applied,
(b) the prepayment, allocated in proportion to
the respective outstanding principal amounts thereof, of
each of the Notes in accordance with paragraph 4 of this
Agreement and Section 5.2 of each of the Other Restated
Agreements, as the case may be, within ten (10) Business
Days following the consummation of such sale, so long as any
proceeds to be applied pursuant to this clause (b) are
invested in accordance with clause (c) hereof until such
time as such proceeds are so applied,
(c) the investment of such proceeds in any
Investment specified in clauses (d) to (k), inclusive, of
the definition of "Restricted Investment" no later than the
next Business Day following the consummation of such sale;
provided that such proceeds are applied as provided in
either of the foregoing clauses (a) or (b) of this
definition within the period therein specified, or
(d) the repayment of Debt outstanding under any
revolving credit or similar agreement which provides for
successive reborrowings and repayments thereunder at the
Company's option; provided that (i) the aggregate amount of
such proceeds so applied shall not exceed the lesser of
Fifty Million Dollars ($50,000,000) and ten percent (10%) of
Consolidated Total Assets and (ii) the amount of Debt so
repaid shall be reborrowed and applied as provided in either
of the foregoing clauses (a) or (b) within the period
therein specified.
"Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability
company, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Property" means any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or
intangible.
"Prudential" shall mean The Prudential Insurance
Company of America.
"Prudential Affiliate" shall mean any corporation or
other entity all of the Voting Stock (or equivalent voting
securities or interests) of which is owned by Prudential either
directly or through Prudential Affiliates.
"Qualified Assets" at any time means the sum of
(a) the principal amount of all promissory notes
and other interest bearing obligations of the Company owned
in the ordinary course of the Company's business less (i)
reserves for credit losses applicable thereto, and (ii)
unearned income,
(b) the Company's cash on hand and in banks, and
(c) the Company's Investments other than
Restricted Investments.
"Rentals" at any time means all fixed rentals
(including as such all payments which the lessee is obligated to
make to the lessor on termination of a lease or surrender of
leased Property) payable by the Company or a Restricted
Subsidiary, as lessee or sublessee under a lease of Property,
exclusive of any amounts required to be paid by the Company or a
Restricted Subsidiary (whether or not designated as rents or
additional rents) on account of maintenance, repairs, insurance,
taxes and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee
regardless of sales volume or gross revenues.
"Required Holder(s)" shall mean at any time, the holder
or holders of at least sixty-six and two thirds percent (66 2/3%)
of the aggregate principal amount of the Notes outstanding at
such time.
"Restricted Guarantees" at any time means all
Guarantees by the Company of obligations of others that
constitute sum certain obligations at the time such Guarantees
are incurred.
"Restricted Investments" at any time means all
investments, made in cash or by delivery of Property, by the
Company and the Restricted Subsidiaries (x) in any Person,
whether by acquisition of stock, indebtedness or other
obligations or Securities, or by loan, advance or capital
contribution, or otherwise, or (y) in any Property (items (x) and
(y) herein called "Investments"), except the following:
(a) Investments in and to Restricted
Subsidiaries, including any Investment in a corporation
which, after giving effect to such Investment, will become a
Restricted Subsidiary and including Investments in a
Restricted Subsidiary that is designated as a Subsidiary in
compliance with the proviso to the definition of "Restricted
Subsidiary" so long as such Investments were made prior to
the date of such designation;
(b) Investments in Property to be used by the
Company and the Restricted Subsidiaries in the ordinary
course of their respective businesses;
(c) Investments in promissory notes and other
interest bearing obligations acquired in the ordinary course
of business of the Company or the Restricted Subsidiaries;
(d) Investments in commercial paper of any
corporation which, at the time of acquisition by the Company
or a Restricted Subsidiary, is accorded the highest rating
by Standard & Poor's Rating Service, a division of McGraw-
Hill, Inc., Duff & Phelps, Inc. or Moody's Investors
Service, Inc. (or any other nationally recognized credit
rating agency of similar standing if none of such
corporations is then in the business of rating commercial
paper);
(e) Investments in direct obligations of the
United States of America;
(f) Investments in marketable obligations fully
guaranteed or insured by the United States of America or
marketable obligations for which the full faith and credit
of the United States of America is pledged for the repayment
in full of all principal and interest thereon;
(g) Investments in marketable obligations issued
or fully guaranteed or insured by any agency,
instrumentality or corporation of the United States of
America established by the United States Congress or
marketable obligations for which the credit of any such
agency, instrumentality or corporation is pledged for the
repayment in full of all principal and interest thereon;
(h) Investments in marketable general obligations
of any state, territory or possession of the United States
of America, or any political subdivision of any of the
foregoing, or the District of Columbia, given one of the
three (3) highest credit ratings in respect of the type of
such obligations by Standard & Poor's Rating Service, a
division of McGraw Hill, Inc. or Moody's Investors Service,
Inc., and the obligor of which
(1) has general taxing authority and
the power to levy such taxes as may be required for the
payment of principal and interest thereon, and
(2) has unconditionally fully secured
the payment of principal and interest on such
obligations with its full faith and credit;
(i) Investments in domestic and Eurodollar
negotiable time and variable rate certificates of deposit
issued by Selected Commercial Banks;
(j) Investments in marketable bankers'
acceptances and finance bills accepted by Selected
Commercial Banks;
(k) Investments in repurchase, reverse repurchase
and security lending agreements fully collateralized by
marketable obligations issued by the United States of
America or by any agency or instrumentality thereof;
(l) Investments in federal funds or similar
unsecured loans to Selected Commercial Banks having a
maturity of not more than four (4) days from the date of
acquisition thereof;
(m) Investments in marketable corporate debt
securities given a credit rating of "A" or better by each of
Standard & Poor's Rating Service, a division of McGraw Hill,
Inc. and Moody's Investors Service, Inc.;
(n) Investments in asset-backed securities issued
against a pool of receivables which (i) have an average life
or final maturity of not more than five (5) years and (ii)
have been given a long-term rating of "AAA" or better by
Standard & Poor's Rating Service, a division of McGraw Hill,
Inc. or Moody's Investors Service, Inc.;
(o) Investments in mortgage-backed securities issued
against an underlying pool of mortgages which (i) have an average
life, as determined by the dealer's prepayment assumptions at the
time of purchase, of not more than five (5) years and (ii) have
been given a long-term rating of "AAA" or better by Standard & Poor's
Corporation or Moody's Investors Service, Inc.; and
(p) "Equity Investments" provided that (i) the aggregate
amount of such Equity Investments (on a cumulative basis) does not
exceed an amount equal to ten (10%) percent of Consolidated
Adjusted Net Worth as at any date of determination thereof, after
giving effect to any such Equity Investment, and (ii) no single
Equity Investment in any Person may be greater than $2,000,000.
For purposes hereof, Equity Investment(s) shall mean the amount
paid or committed to be paid in connection with the acquisition
of any stock (common or preferred) or other equity securities of
any Person or any obligation convertible into or exchangeable for
a right, option or warrant to acquire such equity securities;
provided, that notwithstanding the foregoing clauses (a) through
(p), inclusive, the term Restricted Investments shall for all
purposes include all Investments described in the foregoing
clauses (d) through (k), inclusive, to the extent that they
mature more than one (1) year from the date of acquisition
thereof by the Company or a Restricted Subsidiary.
"Restricted Payments" shall have the meaning specified
in paragraph 6I(i).
"Restricted Subsidiary" means a Subsidiary engaged in
one or more of the businesses referred to in paragraph 8C(iii) of
this Agreement:
(a) organized under the laws of the United States
of America or a jurisdiction thereof;
(b) that conducts substantially all of its
business and has substantially all of its Property within
the United States of America and/or Canada;
(c) one hundred percent (100%) of all stock and
equity Securities (except directors' qualifying shares) of
which are legally and beneficially owned, directly or
indirectly, by the Company; and
(d) that is designated by the Board of Directors
to be included in the definition of Restricted Subsidiary
for all purposes of this Agreement;
provided, that any Subsidiary having been designated a Restricted
Subsidiary may thereafter become a Subsidiary (other than a
Restricted Subsidiary) by designation of the Board of Directors
if at the time of such change in characterization and after
giving effect thereto
(1) no Default or Event of Default
shall exist, and
(2) after the elimination of the net
earnings of any such Subsidiary from Consolidated
Adjusted Net Income for the period subsequent to
December 31, 1991, the Company would have been
entitled, pursuant to the provisions of paragraph 6I,
to declare or make all Restricted Payments declared or
made during such period.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Security" shall have the same meaning as in Section
2(1) of the Securities Act; provided, however, that Asset
Securitization Recourse Liabilities shall not constitute
"Securities" except (i) to the extent that such obligations arise
from the Company's obligation to repurchase receivables or other
assets as a result of a default in payment by the obligor
thereunder or any other default in performance by such obligor
under any agreement related to such receivables or (ii) if the
Company shall maintain a reserve account containing cash or
Securities in respect of any such obligations or shall retain or
purchase a subordinated interest therein, to the extent of the
amount of such reserve account or subordinated interest.
"Selected Commercial Bank" means
(a) one of the one hundred (100) largest
commercial banks organized under the laws of the United
States of America or any state thereof and accorded a rating
of "B" or better by Thomson BankWatch, Inc. (or accorded a
comparable rating by another nationally recognized rating
agency of similar standing if Thomson BankWatch, Inc. is not
then in the business of rating commercial banks); or
(b) one of the fifty (50) largest commercial
banks organized under the laws of the United States of
America or any state thereof and accorded a rating of "B/C"
or better by Thomson BankWatch, Inc. (or accorded a
comparable rating by another nationally recognized rating
agency of similar standing if Thomson BankWatch, Inc. is not
then in the business of rating commercial banks).
"Senior Debt" means the Notes, all other Debt of the
Company for borrowed money that is not expressed to be
subordinate or junior to any other Debt, and Asset Securitization
Recourse Liabilities to the extent, but only to the extent, that
such obligations have matured.
"Significant Holder" shall mean (i) Prudential, so long
as Prudential or any Prudential Affiliate shall hold (or be
committed under this Agreement to purchase) any Note, or (ii) any
other holder of at least 5% of the aggregate principal amount of
the Notes from time to time outstanding.
"SPV" has the meaning assigned to such term in the
definition of "Asset Securitization" in this paragraph 10B.
"Stock Disposition Date" shall have the meaning
specified in paragraph 6A.
"Subordinated Debt" means (a) the Class A Notes and (b)
all notes, debentures or other evidences of indebtedness of the
Company for borrowed money of the Company which shall contain or
have applicable thereto subordination provisions providing for
the subordination of such indebtedness to the Notes and all other
Senior Debt (but not to any other Debt) of the Company
substantially in the following form:
"Anything in this subordinated note to the contrary
notwithstanding, the indebtedness evidenced by this
subordinated note shall be subordinate and junior in right
of payment, to the extent and in the manner hereinafter set
forth, to all indebtedness of the Company for money
borrowed, whether outstanding at the date of this
subordinated note or incurred after the date of this
subordinated note, which is not by its terms subordinate or
junior to any other indebtedness of the Company (such
indebtedness of the Company, together with (i) all premiums
(if any) due on such indebtedness, (ii) all interest accrued
on such indebtedness (including, without limitation, any
interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company, whether or not
such interest is allowed under applicable law), and (iii)
all other amounts payable from time to time to the holders
of, or in respect of, such indebtedness (including, without
limitation, all costs and expenses relating thereto) to
which this subordinated note is subordinate and junior being
herein called "Superior Indebtedness"):
(a) in the event of any sale under or in
accordance with any judgment or decree rendered in any
proceeding by or on behalf of the holder or holders of this
subordinated note or in the event of any distribution,
division or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any
part of the assets of the Company, or the proceeds thereof,
to creditors of the Company occurring by reason of any
liquidation, dissolution or winding up of the Company or in
the event of any execution sale, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or
other similar proceeding relative to the Company or its
debts or properties, then in any such event the holders of
any and all Superior Indebtedness shall be preferred in the
payment of their claims over the holder or holders of this
subordinated note, and such Superior Indebtedness shall be
first paid and satisfied in full before any payment or
distribution of any kind or character, whether in cash,
property or securities (other than securities which are
subordinate and junior in right of payment to the payment of
all Superior Indebtedness which may at the time be
outstanding pursuant to terms substantially identical to the
terms of this subordinated note), shall be made upon this
subordinated note; and in any such event any dividend or
distribution of any kind or character, whether in cash,
property or securities (other than in securities which are
subordinate and junior in right of payment to the payment of
all Superior Indebtedness which may at the time be
outstanding pursuant to terms substantially identical to the
terms of this subordinated note) which shall be made upon or
in respect of the indebtedness evidenced by this
subordinated note, or any renewals or extensions hereof,
shall be paid over to the holders of such Superior
Indebtedness, pro rata, for application in payment thereof
unless and until such Superior Indebtedness shall have been
paid and satisfied in full;
(b) in the event that pursuant to the provisions
hereof this subordinated note is declared or becomes due and
payable before its expressed maturity because of an
occurrence of an event of default described herein (under
circumstances when the foregoing clause (a) shall not be
applicable) or otherwise, no amount shall be paid by the
Company in respect of the principal, interest or premium on
this subordinated note (or any other amounts due in respect
thereof), except at the stated maturity hereof (all subject
to the foregoing clause (a) above), unless and until all
Superior Indebtedness outstanding at the time this
subordinated note so becomes due and payable because of any
such event shall have been paid in full in cash or payment
thereof shall have been provided for in a manner
satisfactory to the holders of such outstanding Superior
Indebtedness;
(c) without limiting the effect of any of the
other provisions hereof, during the continuance of any
default with respect to any Superior Indebtedness or any
agreement relating thereto, or any default in the payment of
any Superior Indebtedness, no payment of principal, sinking
fund, interest or premium (or any other amount) shall be
made on or with respect to the indebtedness evidenced by
this subordinated note or any renewals or extensions hereof;
and
(d) during any period of time when, pursuant to
the foregoing paragraphs (b) or (c), payment may not be made
on the indebtedness evidenced by this subordinated note,
then the holder of this subordinated note shall take no
action against or with respect to the Company to seek or to
enforce collection of the Notes or to exercise any of such
holder's rights with respect to this subordinated note,
which prohibition shall include, without limitation, a
prohibition against any acceleration of this subordinated
note, the filing of a collection action, or the initiation
of a bankruptcy petition against the Company.
The Company covenants and agrees, for the benefit of
each and every present and future holder of Superior
Indebtedness, that in the event that pursuant to the
provisions hereof this subordinated note is declared or
becomes due and payable because of an occurrence of an event
of default described herein or otherwise, then each holder
of any Superior Indebtedness then outstanding shall have the
right to declare immediately due and payable on demand all
or any part of such Superior Indebtedness owing and payable
to such holder, regardless of any other maturity or terms of
said Superior Indebtedness; and if and when any such default
has occurred, or any notice of default under the terms
hereof may be served upon the Company, then in each such
event the Company shall and hereby agrees that it will
immediately notify the holders of the Superior Indebtedness
of such default or notice thereof, as the case may be.
No right of any present or future holder of any
Superior Indebtedness of the Company to enforce
subordination as herein provided shall at any time or in any
way be prejudiced or impaired by any failure to act on the
part of the Company, or by any noncompliance by the Company
with the terms, provisions and covenants of this
subordinated note, regardless of any knowledge thereof that
any such holder of Superior Indebtedness may have or be
otherwise charged with. The provisions hereof are solely
for the purpose of defining the relative rights of the
holders of Superior Indebtedness on the one hand, and the
holder or holders of this subordinated note on the other
hand, and nothing herein shall impair, as between the
Company and the holder of this subordinated note, the
obligation of the Company to pay to the holder hereof the
principal, premium, if any, and interest hereon in
accordance with its terms, nor shall anything herein prevent
the holder of this subordinated note from exercising all
remedies otherwise permitted by applicable law or hereunder
upon default hereunder, subject to the rights, if any, of
holders of Superior Indebtedness as herein provided. Each
and every holder of this subordinated note by acceptance
hereof shall undertake and agree for the benefit of each
holder of Superior Indebtedness to execute, verify, deliver
and file any proofs of claim, consents, assignments or other
instruments which any holder of Superior Indebtedness may at
any time require in order to prove and realize upon any
rights or claims pertaining to this subordinated note and to
effectuate the full benefit of the subordination contained
herein and, upon failure of any such holder of this
subordinated note so to do, any such holder of Superior
Indebtedness shall be deemed to be irrevocably appointed the
agent and attorney-in-fact of such holder of this
subordinated note to execute, verify, deliver and file any
such proofs of claim, consents, assignments or other
instruments."
"Subsidiary" means a corporation organized under the
laws of the United States or Canada, or any province of Canada,
which conducts the major portion of its business in and makes the
major portion of its sales to Persons located in the United
States of America or Canada, and at least fifty percent (50%) of
the Voting Stock of which shall, at the time as of which any
determination is being made, be owned by the Company either
directly or through Subsidiaries.
"Subsidiary Stock" shall have the meaning specified in
paragraph 6A.
"Transferee" shall mean any direct or indirect
transferee of all or any part of any Note purchased by any
Purchaser under this Agreement.
"Voting Stock" means Securities of any class or classes
of a corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to vote in the election of the
corporate directors (or persons performing similar functions).
10C. Accounting Principles, Terms and Determinations.
All references in this Agreement to "general accepted accounting
principles" shall be deemed to refer to generally accepted
accounting principles in effect in the United States at the time
of application thereof. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall
be made, and all unaudited financial statements and certificates
and reports as to financial matters required to be furnished
hereunder shall be prepared, in accordance with generally
accepted accounting principles applied on a basis consistent with
the most recent audited consolidated financial statements of the
Company and its Subsidiaries delivered pursuant to clause (b) of
paragraph 5H or, if no such statements have been so delivered,
the most recent audited financial statements referred to in
clause (a) of paragraph 8C.
11 MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long
as any Purchaser shall hold any Note, it will make payments of
principal of, interest on, and any Yield-Maintenance Amount
payable with respect to, such Note, which comply with the terms
of this Agreement, by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City local
time, on the date due) to the account or accounts of such
Purchaser, if any, as are specified in the Information Schedule,
attached hereto, or, in the case of any Purchaser not named in
the Information Schedule or any Purchaser wishing to change the
account specified for it in the Information Schedule, such
account or accounts in the United States as such Purchaser may
from time to time designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the
place of payment. Each Purchaser agrees that, before disposing
of any Note, it will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made
thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this paragraph 11A
to any Transferee which shall have made the same agreement as the
Purchasers have made in this paragraph 11A.
11B. Expenses. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay,
and save Prudential, each Purchaser and any Transferee harmless
against liability for the payment of, all out-of-pocket expenses
arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and
expenses of any special counsel engaged by the Purchasers or any
Transferee in connection with this Agreement, the transactions
contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such
proposed modification shall be effected or proposed consent
granted, and (ii) the costs and expenses, including attorneys'
fees, incurred by any Purchaser or any Transferee in enforcing
(or determining whether or how to enforce) any rights under this
Agreement or the Notes or in responding to any subpoena or other
legal process or informal investigative demand issued in
connection with this Agreement or the transactions contemplated
hereby or by reason of any Purchaser's or any Transferee's having
acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case. The obligations of the
Company under this paragraph 11B shall survive the transfer of
any Note or portion thereof or interest therein by any Purchaser
or any Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be
amended, and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it,
if the Company shall obtain the written consent to such
amendment, action or omission to act, of the Required Holder(s)
of the Notes except that, (i) with the written consent of the
holders of all Notes at the time outstanding (and not without
such written consents), the Notes may be amended or the
provisions thereof waived to change the maturity thereof, to
change or affect the principal thereof, or to change or affect
the rate or time of payment of interest on or any Yield-
Maintenance Amount payable with respect to the Notes and (ii)
without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to or waiver of the
provisions of this Agreement shall change or affect the
provisions of paragraph 7A or this paragraph 11C insofar as such
provisions relate to proportions of the principal amount of the
Notes, or the rights of any individual holder of Notes, required
with respect to any declaration of Notes to be due and payable or
with respect to any consent, amendment, waiver or declaration.
Each holder of any Note at the time or thereafter outstanding
shall be bound by any consent authorized by this paragraph 11C,
whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation
referring to any such consent. No course of dealing between the
Company and the holder of any Note nor any delay in exercising
any rights hereunder or under any Note shall operate as a waiver
of any rights of any holder of such Note. As used herein and in
the Notes, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or
supplemented.
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes. The Notes are issuable as registered notes
without coupons in denominations of at least $1,000,000, except
as may be necessary to reflect any principal amount not evenly
divisible by $1,000,000. The Company shall keep at its principal
office a register in which the Company shall provide for the
registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the principal office
of the Company, the Company shall, at its expense, execute and
deliver one or more new Notes of like tenor and of a like
aggregate principal amount, registered in the name of such
transferee or transferees. At the option of the holder of any
Note, such Note may be exchanged for other Notes of like tenor
and of any authorized denominations, of a like aggregate
principal amount, upon surrender of the Note to be exchanged at
the principal office of the Company. Whenever any Notes are so
surrendered for exchange, the Company shall, at its expense,
execute and deliver the Notes which the holder making the
exchange is entitled to receive. Each installment of principal
payable on each installment date upon each new Note issued upon
any such transfer or exchange shall be in the same proportion to
the unpaid principal amount of such new Note as the installment
of principal payable on such date on the Note surrendered for
registration of transfer or exchange bore to the unpaid principal
amount of such Note. No reference need be made in any such new
Note to any installment or installments of principal previously
due and paid upon the Note surrendered for registration of
transfer or exchange. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by
a written instrument of transfer duly executed, by the holder of
such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon
transfer thereof shall carry the rights to unpaid interest and
interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of
written notice from the holder of any Note of the loss, theft,
destruction or mutilation of such Note and, in the case of any
such loss, theft or destruction, upon receipt of such holder's
unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the
Company will make and deliver a new Note, of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to
due presentment for registration of transfer, the Company may
treat the Person in whose name any Note is registered as the
owner and holder of such Note for the purpose of receiving
payment of principal of and interest on, and any Yield-
Maintenance Amount payable with respect to, such Note and for all
other purposes whatsoever, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the
contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in all or any
part of such Note to any Person on such terms and conditions as
may be determined by such holder in its sole and absolute
discretion.
11F. Survival of Representations and Warranties; Entire
Agreement. All representations and warranties contained herein
or made in writing by or on behalf of the Company in connection
herewith shall survive the execution and delivery of this
Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any Transferee, regardless of
any investigation made at any time by or on behalf of any
Purchaser or any Transferee. Subject to the preceding sentence,
this Agreement and the Notes embody the entire agreement and
understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
11G. Successors and Assigns. All covenants and other
agreements in this Agreement contained by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto
(including, without limitation, any Transferee) whether so
expressed or not.
11H. Disclosure to Other Persons. The Company
acknowledges that Prudential, each Purchaser and each holder of
any Note may deliver copies of any financial statements and other
documents delivered to it, and disclose any other information
disclosed to it, by or on behalf of the Company or any Subsidiary
in connection with or pursuant to this Agreement to (i) its
directors, officers, employees, agents and professional
consultants, (ii) any Purchaser or holder of any Note, (iii) any
Person to which it offers to sell any Note or any part thereof,
(iv) any Person to which it sells or offers to sell a
participation in all or any part of any Note, (v) any Person from
which it offers to purchase any security of the Company, (vi) any
federal or state regulatory authority having jurisdiction over
it, (vii) the National Association of Insurance Commissioners or
any rating agency or similar organization, or (viii) any other
Person to which such delivery or disclosure may be necessary or
appropriate (a) in compliance with any law, rule, regulation or
order applicable to it, (b) in response to any subpoena or other
legal process or informal investigative demand, (c) in connection
with any litigation to which it is a party or (d) in order to
protect the investment of any holder in any Note.
11I. Notices. All written communications provided for
hereunder (other than communications provided for under paragraph
2) shall be sent by first class mail or nationwide overnight
delivery service (with charges prepaid) and (i) if to any Person
listed in the Information Schedule attached hereto, addressed to
it at the address specified for such communications in such
Information Schedule, or at such other address as it shall have
specified in writing to the Person sending such communication,
and (ii) if to any Purchaser or holder of any Note which is not a
Person listed in such Information Schedule, addressed to it at
such address as it shall have specified in writing to the Person
sending such communication or, if any such holder shall not have
so specified an address, then addressed to such holder in care of
the last holder of such Note which shall have so specified an
address to the Person sending such communication, provided,
however, that any such communication to the Company may also, at
the option of the Person sending such communication, be delivered
by any other means either to the Company at its address specified
in the Information Schedule or to any Authorized Officer of the
Company. Any communication pursuant to paragraph 2 shall be made
by the method specified for such communication in paragraph 2,
and shall be effective to create any rights or obligations under
this Agreement only if, in the case of a telephone communication,
an Authorized Officer of the party conveying the information and
of the party receiving the information are parties to the
telephone call, and in the case of a telecopier communication,
the communication is signed by an Authorized Officer of the party
conveying the information, addressed to the attention of an
Authorized Officer of the party receiving the information, and in
fact received at the telecopier terminal the number of which is
listed for the party receiving the communication in the
Information Schedule or at such other telecopier terminal as the
party receiving the information shall have specified in writing
to the party sending such information.
11J. Payments Due on Non-Business Days. Anything in
this Agreement or the Notes to the contrary notwithstanding, any
payment of principal of or interest on, or Yield-Maintenance
Amount payable with respect to, any Note that is due on a date
other than a Business day shall be made on the next succeeding
Business Day. If the date for any payment is extended to the
next succeeding Business Day by reason of the preceding sentence,
the period of such extension shall not be included in the
computation of the interest payable on such Business Day.
11K. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11L. Descriptive Headings. The descriptive headings of
the several paragraphs of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
11M. Satisfaction Requirement. If any agreement,
certificate or other writing, or any action taken or to be taken,
is by the terms of this Agreement required to be satisfactory to
any Purchaser, to any holder of Notes or to the Required
Holder(s), the determination of such satisfaction shall be made
by such Purchaser, such holder or the Required Holder(s), as the
case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
11N. Governing Law. IN ACCORDANCE WITH THE PROVISIONS
OF 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THIS
AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE
STATE OF NEW YORK.
11O. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
11P. Binding Agreement. When this Agreement is
executed and delivered by the Company and Prudential, it shall
become a binding agreement between the Company and Prudential.
This Agreement shall also inure to the benefit of each Purchaser
which shall have executed and delivered a Confirmation of
Acceptance, and each such Purchaser shall be bound by this
Agreement to the extent provided in such Confirmation of
Acceptance.
[Remainder of this page is intentionally left blank.
Next page is signature page.]
If you are in agreement with the foregoing, please sign
below on the several counterparts of this letter and returning at
least one fully executed copy of this letter to the Company,
whereupon this letter shall become a binding agreement between
the Company and Prudential.
Very truly yours,
NATIONAL CONSUMER
COOPERATIVE BANK
By
Name: Richard L. Reed
Title: Chief Financial Officer
By
Name: William E. Seas
Title: Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By
Name: Yvonne M. Guajardo
Title: Vice President
ANNEX 1
INFORMATION SCHEDULE
Prudential/Purchaser(s)
The Prudential Insurance and notices:
Company of America
The Prudential Insurance
Company of America
(1) All payments on account c/o Prudential Capital Group
of Notes held by such 1114 Avenue of the Americas,
purchaser shall be made by 30th Floor
wire transfer of immediately New York, NY 11036
available funds for credit to: Attention: Managing Director
Telephone: (212) 626-2070
Account No. 890-0304-391, Fax: (212) 626-2079
Prudential Managed Account
Bank Of New York (4) Recipient notices of
New York, New York telephonic or facsimile
(ABA No.: 021-000-018) prepayment:
Each such wire transfer shall Manager, Trade Management
set forth
the name of the Company, a Telephone: (201) 802-7398
reference to Fax: (201) 802-9425
the due date and application
(as among principal, interest (5) Tax Identification No.:
and Yield-Maintenance Amount) 22-1211670
of the payment being made and
the Security Number identified (6) Authorized Officers:
in the Confirmation of Charles Y. King
Acceptance. Yvonne M. Guajardo
Kevin J. Kraska
(2) Address for all notices Thomas Cecka
relating to payments:
The Prudential Insurance
Company of America
Three Gateway Center, 12th Floor
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Billings
and Collections
Telephone: (201) 802-5260
Fax: (201) 802-8055
With a copy to:
Prudential Capital Group
1114 Avenue of the Americas,
30th Floor
New York, NY 11036
Attention: Managing Director
(3) Address for all other
communications
and notices:
The Company
National Consumer Cooperative
Bank
(1) Address for Notices:
National Consumer Cooperative Bank
Suite 700
1401 Eye Street N.W.
Washington, D.C. 20005
Attention: President
(2) Receipt of telephonic or
facsimile notices:
Richard L. Reed
(202) 336-7660
(202) 336-7803 (facsimile)
(3) Authorized Officers:
Charles E. Snyder
President
Richard L. Reed
Chief Financial Officer
William E. Seas
Treasurer
ANNEX 2
Disclosures of the Company
LIENS (PARAGRAPH 6C)
Section 10.5 of the Bank Loan Agreement provides for a Lien
and right of setoff in favor of the Agent and the banks party
thereto with respect to deposits or other sums due to the Company
from the Agent or such banks.
Each of the Company and NCB Capital Corporation sells
mortgage loans, ESOP loans and other loans from its portfolio in
the ordinary course of business, structured either as an Asset
Securitization or a sale of whole loans. The purchaser typically
provides for an alternative security interest and files a
financing statement covering the loans sold to it in order to
protect itself against a subsequent determination that such sale
was not a sale but rather a loan.
In order to provide a liquidity facility, NCB Savings Bank,
FSB ("NCBSB") is party to a Blanket Agreement for Advances and
Security Agreement, dated as of October 19, 1993, with the
Federal Home Loan Bank of Cincinnati (the "FHLB") pursuant to
which it grants a security interest to the FHLB in its FHLB stock
and in its mortgage portfolio as security for advances that the
FHLB agrees to make to NCBSB.
SUBSIDIARIES AND AFFILIATES (PARAGRAPH 8A)
Name of Jurisdiction Nature and Extent of
Subsidiary/Affiliate of Affiliation
Incorporation
NCB Capital Delaware The Company is the
Corporation** owner of all
outstanding voting
stock of NCB Capital
Corporation
NCB Financial Delaware Wholly owned subsidiary
Corporation** of the Company
NCB Savings Bank, Federal Charter Wholly owned subsidiary
FSB** of NCB Financial Corporation
NCB Development District of The Company was
Corporation Columbia non- directed by 12.U.S.C.
profit 3051(b) to organize
corporation NCBDC, which has no
capital stock. Six of
its nine directors are
directors of the Company.
The Company makes annual
contributions to NCBDC
and provides office
space and services for
which the Company is
reimbursed at its cost.
NCB Insurance Brokers, New York Wholly owned subsidiary
Inc.** of NCB Capital
Corporation
NCB Retail Finance Delaware Special purpose
Corporation corporation and wholly
owned subsidiary of the
Company
NCB I, Inc.** Delaware Special purpose
corporation and wholly
owned subsidiary of the
Company
** Restricted Subsidiary
DESCRIPTION OF BUSINESS (PARAGRAPH 8C(c))
The Company and the Subsidiaries provide a broad array of
financial services and products to the Nation's cooperative-
related business sector, including but not limited to commercial
and real estate lending, mortgage banking, capital markets and
advisory services, leasing and lease financing, depository
services, asset securitization, derivatives, and insurance
brokerage.
INDEBTEDNESS (PARAGRAPH 8O)
As of the date hereof, the Company had outstanding Debt for
borrowed money as follows:
Investor Amount Maturity
Lutheran Brotherhood $7,000,000 March 31, 2000
AUSA Life Insurance Company $3,000,000 March 31, 2000
International Life Investors $6,100,000 March 31, 2000
Insurance Company
The Canada Life Assurance $3,900,000 March 31, 2000
Company
National Westminster Bank, et al. $170,000,000 December 31,1996
($70,000,000
outstanding)
Signet Bank/Maryland $11,000,000 Upon demand
($11,000,000
outstanding)
PNC Bank $10,000,000 Upon demand
($10,000,000
outstanding)
Credit Suisse $10,000,000 November 10, 1997
Massachusetts Mutual Life $25,000,000 October 15, 1995
Insurance Company
Equitable Variable Life $7,000,000 June 24, 1997
Insurance Company
$2,000,000 December 24, 1997
The Equitable Life Assurance $3,000,000 December 24, 1997
Society of the United States
Mellon Bank, N.A., as Trustee $3,000,000 December 24, 1997
for First Plaza Group Trust (as
directed by Equitable Capital
Management Corporation)
Principal Mutual Life Insurance $10,000,000 December 24, 1997
Company
IDS Certificate Company $8,000,000 June 24, 1997
Safeco Life Insurance Company $4,000,000 June 24, 1997
Phoenix Home Life Mutual $5,000,000 June 24, 1998
Insurance Company
Provident Mutual Life Insurance $2,500,000 June 24, 1998
Company of Philadelphia
Provident Mutual Life and $1,000,000 June 24, 1998
Annuity Company of America
Mutual Service Life Insurance $500,000 June 24, 1998
Company
All such indebtedness is unsecured.
RESTRICTIONS ON DEBT (PARAGRAPH 8P)
The National Westminster Bank indebtedness and all of the
other indebtedness, referred to in the above table, each restrict
the Company's right to incur Debt, but none of such restrictions
is violated by the sale of the Notes.
EXHIBIT A
[FORM OF NOTE]
NATIONAL CONSUMER COOPERATIVE BANK
7.68% SENIOR NOTE DUE DECEMBER 28, 2005
No. R- 1
$30,000,000
FOR VALUE RECEIVED, NATIONAL CONSUMER COOPERATIVE BANK
(the "Company"), a corporation organized and existing under the
laws of the United States of America, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, or registered
assigns, the principal sum of THIRTY MILLION DOLLARS
($30,000,000) with interest (computed on the basis of a three
hundred sixty (360) day year of twelve (12) thirty (30) day
months) (a) on the unpaid balance thereof at the rate of 7.68%
per annum from the date hereof, payable semi-annually on the 28th
day of June and December in each year commencing with the June or
December next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) on any overdue
payment (including any overdue prepayment) of principal, any
overdue payment of interest, and any overdue payment of any Yield-
Maintenance Amount (as defined in the Agreement referred to
below), payable semi-annually as aforesaid (or, at the option of
the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) two percent (2%) in
excess of the interest rate referenced in the preceding clause
(a) or (ii) the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York from time to time in New York
City as its Prime Rate.
Payments of principal of, and interest on, and any
Yield-Maintenance Amount payable with respect to, this Note are
to be made at the main office of Bank of New York in New York
City or at such other place as the holder hereof shall designate
to the Company in writing, in lawful money of the United States
of America.
This Note is one of a series of Notes (herein called
the "Notes") issued pursuant to a Note Purchase Agreement, dated
as of December 28, 1999 (herein called the "Agreement"), between
the Company and The Prudential Insurance Company of America and
is entitled to the benefits thereof. As provided in the
Agreement, this Note is subject to optional prepayment, in whole
or from time to time in part on the terms specified in the
Agreement.
This Note is a registered Note and, as provided in the
Agreement, upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or
such holder's attorney duly authorized in writing, a new Note for
a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registra
tion of transfer, the Company may treat the person in whose name
this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Agree
ment, shall occur and be continuing, the principal of this Note
may be declared or otherwise become due and payable in the
manner and with the effect provided in the Agreement.
This Note is intended to be performed in the State of
New York and shall be construed and enforced in accordance with
the law of such State.
NATIONAL CONSUMER COOPERATIVE BANK
By
Vice President
By
Treasurer
EXHIBIT B
FORM OF COMPANY COUNSEL'S CLOSING OPINION
[Letterhead of Shea & Gardner]
December 28, 1999
To the Persons Listed on
Annex 1 hereto
Ladies and Gentlemen:
We have acted as counsel for the National Consumer
Cooperative Bank (the "Company"), a corporation organized under
the laws of the United States and which does business as the
National Consumer Cooperative Bank, in connection with the
execution and delivery by the Company of the Note Purchase
Agreement, dated as of December 28, 1999, between the Company and
The Prudential Insurance Company of America (the "Agreement"),
pursuant to which the Company has issued to you today 7.68% Notes
Due December 28, 1999 of the Company in the aggregate principal
amount of $30,000,000 (the "Notes"). All capitalized terms used
but not specifically defined in this opinion letter have the
respective meanings assigned to them in the Agreement. This
letter is being delivered to you in satisfaction of the condition
set forth in paragraph 3A(ii) of the Agreement and with the
understanding that you are purchasing the Notes in reliance on
the opinions expressed herein.
As such counsel, we have examined such certificates of
public officials, certificates of officers of the Company, and
copies certified to our satisfaction of trust documents and
records of the Company and of other papers, and have made such
other investigations, as we have deemed relevant and necessary as
a basis for our opinion hereinafter set forth. In our
examination of all such documents, we have
(i) assumed the genuineness of all signatures (other
than signatures of officers of the Company), the conformity
to original documents of documents submitted to us as
certified or photostatic copies, and the authenticity of the
originals of such documents, and
(ii) relied upon such certificates of public officials
and of officers of the Company with respect to the accuracy
of material factual matters contained therein which were not
independently established.
With respect to the opinion expressed in paragraph 5 hereof, we
have also relied upon the representation made by you in paragraph
9A of the Agreement.
Based on the foregoing, it is our opinion that:
1. At the time of the execution of the Financing Agreement
the Company was a corporation duly organized, validly existing
and in good standing under the laws of the United States and had
the necessary corporate power and authority to carry on its
businesses as then being conducted and to enter into and perform
its obligations under the Financing Agreement.
2. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the United States
and has the necessary corporate power and authority to carry on
its businesses as now being conducted and to enter into and
perform its obligations under the Agreement and the Notes.
3. The Company is duly qualified as a foreign entity and
in good standing in each jurisdiction where the nature of the
business transacted or Properties owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing would not, in the aggregate, have a
materially adverse effect on the operations or financial
condition of the Company.
4. The Agreement, the Notes and the Financing Agreement:
(a) have been duly authorized by all requisite
corporate action on the part of the Company (no action by
any holder of any beneficial interest of the Company being
required by law, by the Charter of the Company or the Bylaws
of the Company (as each is in effect on the date hereof), or
otherwise);
(b) have been duly executed and delivered by duly
authorized officers of the Company; and
(c) are the valid obligations of the Company, legally
binding upon and enforceable against the Company in
accordance with their respective terms.
The Notes are entitled to the benefits of the terms of the
Agreement.
5. It is not necessary, under the circumstances
contemplated by the Agreement, to register the Notes under the
Securities Act, or to qualify an indenture in respect of the
Notes under the Trust Indenture Act of 1939, as amended.
6. None of the transactions contemplated by the Agreement
will result in any violation of Regulation, T, U or X of the
Board of Governors of the Federal Reserve System.
7. The execution and delivery of the Agreement and the
Notes and the fulfillment of and compliance with the respective
provisions of the Agreement, the Notes, and the Financing
Agreement do not and will not conflict with, or result in a
breach of the terms, conditions, or provisions of, or constitute
a default under, or result in any violation of, or result in the
creation of any Lien upon any of the Properties or assets of the
Company pursuant to, or require, except as has been obtained or
performed, any authorization, consent, approval, exemption, or
other action by or notice to or filing with any state or Federal
court, administrative or governmental body, or other Person
pursuant to
(a) the Charter, as in effect on the date hereof, or
the Bylaws, as in effect on the date hereof, of the Company,
(b) any applicable law (including any securities or
"Blue Sky" law), statute, rule, or regulation, or
(c) insofar as is known to us, any agreement,
instrument, order, judgment, or decree to which the Company
is a party or otherwise subject as of the date hereof.
All opinions herein contained with respect to the
enforceability of documents and instruments are qualified to the
extent that:
(a) the availability of equitable remedies, including
without limitation, specific enforcement and injunctive
relief, is subject to the discretion of the court before
which any proceedings therefor may be brought; and
(b) the enforceability of certain terms provided in
the Agreement and the Notes may be limited by
(i) applicable bankruptcy, reorganization,
arrangement, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights
generally as at the time in effect, and
(ii) general principles of equity and the
discretion of a court in granting equitable remedies
(whether enforceability is considered in a proceeding
at law or in equity).
This opinion may be relied upon subsequent holders, if any,
of the Notes.
Very truly yours,
ANNEX 1
ADDRESSEES
The Prudential Insurance Company of America
c/o Prudential Capital Group
1114 Avenue of the Americas, 30th Floor
New York, NY 11036
EXHIBIT C
FORM OF CERTIFICATE OF OFFICERS
NATIONAL CONSUMER COOPERATIVE BANK
OFFICERS' CERTIFICATE
We, ______ and ______ each hereby certify that we are,
respectively, the ______ and the ______ of NATIONAL CONSUMER
COOPERATIVE BANK (the "Company"), a corporation organized under
the laws of the United States, and that, as such, we are
authorized to execute and deliver this Certificate in the name
and on behalf of the Company, and that:
1. This Certificate is being delivered pursuant to
paragraph 3A(iii) of the Note Purchase Agreement, dated as of
December 28, 1999, between the Company and The Prudential
Insurance Company of America (the "Agreement"), pursuant to which
the Company has issued to you today 7.68% Notes of the Company
due December28, 2005, in the aggregate principal amount of
$30,000,000 (the "Notes"). All capitalized terms used, and not
defined in this Certificate have the respective meanings assigned
to them in the Agreement.
2. The warranties and representations contained in
paragraph 8 of the Agreement are true in all material respects on
the date hereof with the same effect as though made on and as of
the date hereof.
3. The Company has not taken any action or permitted any
condition to exist which would have been prohibited by paragraph
6 of the Agreement had such paragraph been binding and effective
at all times during the period from December 28, 1999 to and
including the date hereof.
4. The Company has performed and complied with all
agreements and conditions contained in the Agreement that are
required to be performed or complied with by the Company before
or at the date hereof.
5. True and correct copies of each of
(a) the Bank Loan Agreement,
(b) the Financing Agreement,
(c) each of the outstanding Class A Notes, and
(d) Federal Home Loan Bank of Cincinnati Blanket
Agreement for Advances and Security Agreement, as
referenced in Annex 2 to the Agreement;
in each case, as in effect on December 28, 1999, are attached to
this Certificate as Attachment A, Attachment B, Attachment C, and
Attachment D, respectively, together with any amendments
subsequent to such date. Any amendment to the Financing
Agreement and the Class A Notes has been effected in compliance
with paragraph 6P of the Agreement.
6. ___________ is on and as of the date hereof, and at all
times subsequent to __________ has been, the duly elected,
qualified and acting [Assistant] Secretary of the Company, and
the signature appearing on the Certificate of [Assistant]
Secretary dated the date hereof and delivered to the Purchasers
contemporaneously herewith is his or her genuine signature.
IN WITNESS WHEREOF, we have executed this Certificate in the
name and on behalf of the Company on December 28, 1999.
NATIONAL CONSUMER COOPERATIVE
BANK
By
_______________________________
Name:
Title:
ATTACHMENT A
[THE BANK LOAN AGREEMENT]
ATTACHMENT B
[THE FINANCING AGREEMENT]
ATTACHMENT C
[OUTSTANDING CLASS A NOTES]
ATTACHMENT D
[FEDERAL HOME LOAN BANK OF CINCINNATI BLANKET AGREEMENT
FOR ADVANCES AND SECURITY AGREEMENT]
EXHIBIT D
FORM OF CERTIFICATE OF SECRETARY
NATIONAL CONSUMER COOPERATIVE BANK
CERTIFICATE OF [ASSISTANT] SECRETARY
I, ______, hereby certify that I am the duly elected,
qualified and acting [Assistant] Secretary of the NATIONAL
CONSUMER COOPERATIVE BANK (the "Company"), a corporation
organized under the laws of the United States, and that, as such,
I have access to its corporate records and am familiar with the
matters herein certified, I am authorized to execute and deliver
this Certificate in the name and on behalf of the Company, and
that:
1. This Certificate is being delivered pursuant to
paragraph 3A(iv) of the Note Purchase Agreement, dated as of
December 28, 1999, between the Company and The Prudential
Insurance Company of America (the "Agreement"), pursuant to which
the Company has issued to you today 7.68% Notes of the Company
due December 28, 2005, in the aggregate principal amount of
$30,000,000 (the "Notes"). All capitalized terms used and not
defined in this Certificate have the respective meanings assigned
to them in the Agreement.
2. Attached hereto as Attachment A1 is a true and correct
copy of resolutions, and the preamble thereto, adopted by the
Board of Directors of the Company on _________ __, 1999 and such
resolutions and preamble set forth in Attachment A hereto were
duly adopted by said Board of Directors and are in full force and
effect on and as of the date hereof, not having been amended,
altered or repealed, and such resolutions are filed with the
records of said Board of Directors.
3. The documents listed below were executed and delivered
by the Company pursuant to and in accordance with the resolutions
set forth in Attachment A hereto and said documents as executed
are substantially in the form submitted to and approved by the
Board of Directors of the Company as aforementioned:
(a) the Agreement; and
(b) the Notes in the respective principal amounts,
bearing the registration numbers and payable as set forth in
the Agreement;
4. Attached hereto as Attachment B is a true, correct and
complete copy of the Bylaws of the Company as in full force
and effect on and as of the date hereof, which Bylaws were
last amended by the Board of Directors of the Company on,
and have been in full effect in said form at all times from
and after ________ __, 199_ to and including the date
hereof, without modification or amendment in any respect.
5. Each of the following named persons is on and as of the
date hereof, and at all times subsequent to _____ has been a duly
elected, qualified and acting officer of the Company holding the
office or offices set forth below opposite his or her name:
Officers Executing Documents
Name Office Signature
[President] /s/________________________
[Assistant Secretary /s/_______________________
[Treasurer] /s/________________________
6. The signature appearing opposite the name of each such
person set forth above is his or her, as the case may be, genuine
signature.
7. There have been no amendments or supplements to
restatements of the Charter of the Company since ____________ __,
19___.
IN WITNESS WHEREOF, I have hereunto set my hand on December
__, 1999.
[Assistant] Secretary
ATTACHMENT A
BOARD OF DIRECTORS
NATIONAL CONSUMER COOPERATIVE BANK
RESOLUTIONS ADOPTED
WHEREAS, this Board has previously enacted Resolution No.
______; and
WHEREAS, pursuant to Resolution No. ______, the Company and
The Prudential Insurance Company of America entered into the Note
Purchase Agreement (together with all exhibits and schedules
thereto, the "Agreement"), dated as of December 28, 1999,
pursuant to which the Company may issue Notes of the Company in
the aggregate principal amount of up to Thirty Million Dollars
($30,000,000) (the "Notes"); and
WHEREAS, this Board has reviewed in detail and discussed the
terms and provisions of the Agreement, including the forms of the
Notes specified therein; and
WHEREAS, this Board deems it advisable to ratify the
Company's execution and delivery of the Agreement and to adopt
certain other resolutions; and
WHEREAS, capitalized terms used in these preambles and
resolutions and not herein defined shall have the respective
meanings ascribed to them in the Agreement;
NOW THEREFORE, BE IT RESOLVED, that the execution and
delivery of the Agreement by Authorized Officers of the Company
(as defined below) is hereby approved and ratified in every
respect; and each and every transaction effected or to be
effected pursuant to and substantially in accordance with the
terms of the Agreement, including, but not limited to, each
specific transaction that is described, authorized and approved
in these resolutions, is hereby authorized and approved in each
and every respect; and
RESOLVED, that the Company borrow from the Purchasers an
aggregate amount of up to Thirty Million Dollars ($30,000,000),
as provided in the Agreement, such indebtedness to be evidenced
by the Notes, in the amounts and upon the terms and conditions
provided for in the Agreement; and that each of the President,
any Vice President, the Treasurer and each other officer of the
Company (each, an "Authorized Officer") is hereby severally
authorized to execute and deliver, in the name and on behalf of
the Company, the Notes, substantially in the form thereof
presented to this Board and heretofore approved, with such
changes therein as shall be approved by the officer executing and
delivering the same, such approval to be evidenced conclusively
by such execution and delivery; and
RESOLVED, that this Board hereby authorizes each of the
Authorized Officers, severally, to execute and deliver for and on
behalf of the Company the certificates required by the Agreement;
and
RESOLVED, that the Authorized Officers and any person or
persons designated and authorized so to act by any Authorized
Officer are hereby each severally authorized to do and perform or
cause to be done and performed, in the name and on behalf of the
Company, all other acts, to pay or cause to be paid, on behalf of
the Company, all related costs and expenses and to execute and
deliver or cause to be executed and delivered such other notices,
requests, demands, directions, consents, approvals, orders,
applications, agreements, instruments, certificates,
undertakings, supplements, amendments, further assurances or
other communications of any kind, under the corporate seal of the
Company or otherwise and in the name of and on behalf of the
Company or otherwise, as he, she or they may deem necessary,
advisable or appropriate to effect the intent of the foregoing
Resolutions or to comply with the requirements of the instruments
approved and authorized by the foregoing Resolutions, including
but not limited to the Agreement and the Notes; and
RESOLVED, that any acts of any Authorized Officer of the
Company and of any person or persons designated and authorized to
act by any Authorized Officer of the Company, which acts would
have been authorized by the foregoing Resolutions except that
such acts were taken prior to the adoption of such Resolutions,
are hereby severally ratified, confirmed, approved and adopted as
the acts of the Company; and
RESOLVED, that the Secretary of the Company is hereby
authorized and empowered to certify to the passage of the
foregoing Resolutions under the seal of this Company or
otherwise.
ATTACHMENT B
Bylaws of the Company
[To be supplied by Company.]
EXECUTIVE MANAGEMENT INCENTIVE PLAN FOR 1999
1. BUSINESS DEVELOPMENT (20 Points) The following
objectives are weighted 50%.
A. Gross disbursements (except multiple advances
under lines of credit), originations, and off
balance sheet fundings of $900 million.
B. $40 million of combined net interest income and
non-interest income with a minimum of $12 million
of non-interest income. For each 2% of non-
interest income in excess of 30% of the total one
point will be added to this goal up to a maximum
of 5 points.
2. CREDIT QUALITY (25 Points) The following objectives are
weighted 35%, 35% and 30% respectively:
A. As of year end the percentage of the total loan
and LC portfolio that is non-performing (non-
accruing and OREO) will not exceed 1.5% of total
loans and LC's. If non-performing assets are 1%
or less of total loans at year-end then the credit
quality component of the Incentive Plan is
weighted 30 points.
B. As of year-end the dollar percentage of classified
(substandard and doubtful) assets will not exceed
6% of total loans and LC's. If classified assets
are 5% or less of total loans and LC's this
objective is weighted 50%.
C. Overall loan administration objectives shall be
achieved as reported by Credit Review and measured
by the outside auditors, FCA and OTS.
3. NET INCOME (25 Points) The following objectives are
weighted 75% and 25% respectively:
A. Meet net income budget.
B. Efficiency ratio of 60% or less (excluding NCBDC
contribution)
In addition, an "Add-on" award may be earned by
exceeding the net income goal. The maximum additional
award is 7.5% of salary. For each 1% that net income
exceeds goal, 1% of salary is added to the award earned
for achievement of the other goals, up to a maximum
total award of 42.5% of salary.
Executive Management Incentive Plan for 1999
Page 2
4. LOW INCOME/ AFFORDABLE HOUSING (15 Points) The
following objectives are weighted 65% and 35%
respectively and include NCBDC activity:
Each $2 million in excess of the total of goal A
increases the weight of the low-income goal by one
point to a maximum of 20 points.
A. Originations and arranged transactions
(Loans, Leases, Letters of Credit, and
Investments) $150,000,000
B. "Best efforts" evaluation of progress promoting,
developing, and conducting low-income business
activities that impact business results
5. TRAINING AND PEOPLE DEVELOPMENT (5 points) The
following objectives are weighted equally.
A. Meet work and family objectives in the strategic plan
for employee retention, diversity, and internal promotions.
B. Implement of HR redesign objectives for selection,
training, and people development to have skilled
human resources that can create new business
solutions for our business and our customers.
6. INNOVATION & CUSTOMER FOCUS (10 Points) The following
objectives are weighted equally.
A. Develop new ideas, new markets, strategic
alliances, new products, and new cooperative
development and review at least two annually with
board.
B. Meet customer member positioning and business
focus objectives in strategic plan.
7. AWARD LEVELS
Points Incentive Award as
Percent of Base Salary
50 - 64.9 Up to 15%
65 - 79.9 Up to 25%
80 - 89.9 Up to 30%
90 and over Up to 35%
The maximum award may reach 42.5 % if the "Add-on"
objective in the budget is met. The CEO determines
incentive awards for each participant based upon the
results of this plan and the achievement of individual
performance objectives.
8. PARTICIPANTS
C. Blakely
C. H. Hackman
M. Hiltz
R. L. Reed
T. W. Simonette
Independent Public Accountants' Consent
As independent public accountants, we have hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 333-17003.
Vienna, Virginia
March 30,2000
POWER OF ATTORNEY
Know all men by these presents:
That I Harry J. Bowie,
of 819 Main Street, Greenville, MS 38701, as a member of the
Board of Directors of THE NATIONAL CONSUMER COOPERATIVE BANK, do
hereby make, constitute and appoint as my true lawful attorney in
fact Richard L. Reed or Louise M. Grant for me and in my name,
place and stead to sign any and all of the following and
amendments thereto executed on behalf of THE NATIONAL CONSUMER
COOPERATIVE BANK and filed with the Securities and Exchange
Commission, as follows:
Annual Reports on Form 10-K for the NATIONAL CONSUMER COOPERATIVE
BANK.
IN WITNESS WHEREOF, I have hereunto set my hand this
day
of , .
Signature
State of )
) SS:
County of )
On this day of , , before
me personally appeared the above, to me known and known to me to
be the person mentioned and described in and who executed the
foregoing instrument and he duly acknowledged to me that he
executed the same.
Notary Public
POWER OF ATTORNEY
Know all men by these presents:
That I Stuart M. Saft,
of 270 Madison Avenue, 9th Floor, New York, NY, 10016, as a
member of the Board of Directors of THE NATIONAL CONSUMER
COOPERATIVE BANK, do hereby make, constitute and appoint as my
true lawful attorney in fact Richard L. Reed or Louise M. Grant
for me and in my name, place and stead to sign any and all of the
following and amendments thereto executed on behalf of THE
NATIONAL CONSUMER COOPERATIVE BANK and filed with the Securities
and Exchange Commission, as follows:
Annual Reports on Form 10-K for the NATIONAL CONSUMER COOPERATIVE
BANK.
IN WITNESS WHEREOF, I have hereunto set my hand this
day
of , .
Signature
State of )
) SS:
County of )
On this day of , , before
me personally appeared the above, to me known and known to me to
be the person mentioned and described in and who executed the
foregoing instrument and he duly acknowledged to me that he
executed the same.
Notary Public
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