SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 22, 1996
HSBC AMERICAS, INC.
(Exact name of registrant as specified in charter)
DELAWARE I-2940 22-1093160
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
ONE MARINE MIDLAND CENTER, BUFFALO, NEW YORK 14203
(Address of principal executive offices)
Registrant's telephone number, including area code: (716) 841-2424
Not Applicable
(Former name or former address,
if changed since report)
2.
Item 2. Acquisition or Disposition of Assets
On August 29, 1996, HSBC Americas, Inc. (the "Company") filed a Form 8-K
reporting that on August 21, 1996, the Company and CT Financial Services
Inc., a federal corporation organized under the laws of Canada (the
"Seller"), had entered into a Stock Purchase Agreement pursuant to which
the Company agreed to purchase from the Seller all of the issued and
outstanding common shares of CTUS Inc. ("CTUS"), a unitary thrift holding
company. CTUS owns approximately 99% of the issued and outstanding shares
of First Federal Savings and Loan Association of Rochester ("First Federal"),
a thrift institution which, at June 30, 1996 had approximately $7.2 billion
in assets and operated 80 branches across New York State, including 31
branches in Monroe and Erie counties. The purchase price to be paid by
the Company to the Seller is $620 million in cash, subject to upwards or
downwards adjustment to the extent that at the time of closing of the
acquisition the book value of First Federal is greater than or less than
an amount equal to $400 million plus or minus certain adjustments. It is
contemplated that simultaneously with the purchase of the common shares
of CTUS by the Company, First Federal will be merged with and into Marine
Midland Bank ("Marine"), the Company's principal subsidiary. The Stock
Purchase Agreement provides that prior to the closing of the purchase of
the CTUS common shares by the Company, CTUS will issue to the Seller and
the Seller will continue to hold following the purchase, a class of
preferred shares of CTUS which will provide for a contingent dividend
or redemption equal to the amount of the recovery, net of taxes and costs,
if any, by First Federal (or Marine as its successor) resulting from the
pending action in the United States Court of Claims by First Federal
against the United States government alleging breaches by the government
of contractual obligations to First Federal following passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989. The
Company will sell a portion of its portfolio of investment securities to
fund the purchase price of the CTUS common shares under the Stock
Purchase Agreement.
Completion of the acquisition is subject to certain conditions, including
receipt of necessary regulatory approvals including approval of the Board
of Governors of the Federal Reserve System and the New York State Banking
Department as well as notification of the Office of Thrift Supervision. The
transaction when completed will be accounted for as a purchase and the
results of CTUS's operations will be included in the Company's financial
statements from the date of acquisition.
On August 30, 1996 the Company filed a Form 8-K stating that it had reached
an agreement to acquire the institutional United States dollar clearing
activity of Morgan Guaranty Trust Company of New York. This transaction is
also subject to regulatory approval. Additionally, prior to June 30, 1996
the Company acquired two New York City branches of the Hang Seng Bank, an
affiliate of the Company, and selected assets and liabilities of East River
Savings Bank. None of these acquisitions is individually significant to
the Company for purposes of Rule 1-02 of Regulation S-X.
Item 7. Financial Statements and Exhibits
a. Financial statements of CTUS Inc. are being provided in connection
with the contemplated acquisition described in Item 2 above. Audited
financial statements of CTUS Inc. are included as an Exhibit to this
Report and unaudited interim financial information of CTUS Inc. is
included herein as follows:
3.
- Consolidated Condensed Balance Sheet of CTUS Inc. as of June 30,
1996 (unaudited).
- Consolidated Condensed Income Statement of CTUS Inc. for the six
month periods ended June 30, 1996 and June 30, 1995 (unaudited).
- Consolidated Condensed Statement of Cash Flows of CTUS Inc. for the
six month periods ended June 30, 1996 and June 30, 1995 (unaudited).
- Notes to Consolidated Condensed Financial Statements of CTUS Inc.
b. The following pro forma financial statements are provided:
- Pro Forma Combined Condensed Balance Sheet of HSBC Americas, Inc.
as of June 30, 1996.
- Pro Forma Combined Condensed Income Statement of HSBC Americas, Inc.
for the year ended December 31, 1995.
- Pro Forma Combined Condensed Income Statement of HSBC Americas, Inc.
for the six months ended June 30, 1996.
- Notes to Pro Forma Combined Condensed Financial Information of HSBC
Americas, Inc.
4.
<TABLE>
<CAPTION>
CTUS Inc.
Consolidated Condensed Balance Sheet
June 30, 1996
(Unaudited)
(in millions)
<S> <C>
Assets
Cash and cash equivalents $ 197
Securities available for sale 614
Securities held to maturity 253
Federal Home Loan Bank stock 91
Loans 5,889
Allowance for loan losses (43)
--------
Net loans 5,846
Other assets 220
--------
Total assets $ 7,221
========
Liabilities and Stockholder's Equity
Liabilities
Deposits $ 4,390
Securities sold under agreements to repurchase 489
Advances from Federal Home Loan Bank 1,780
Senior and subordinated notes 82
Other borrowed funds 8
Other liabilities 109
--------
Total liabilities 6,858
--------
Stockholder's Equity
Common stock -
Additional paid in capital 163
Retained earnings 205
Unrealized loss on securities available
for sale, net of taxes (5)
--------
Total stockholder's equity 363
--------
Total liabilities and stockholder's equity $ 7,221
========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
5.
<TABLE>
<CAPTION>
CTUS Inc.
Consolidated Condensed Income Statement
(Unaudited)
Six months ended
June 30,
1996 1995
(in millions)
<S> <C> <C>
Interest income $ 252 $ 232
Interest expense 165 150
---- ----
Net interest income before
provision for loan losses 87 82
Provision for loan loss 9 8
---- ----
Net interest income after provision 78 74
---- ----
Other operating income
Loan fees 3 2
Loan servicing income, net 6 5
Customer service fees 5 4
Net gain on sale of
mortgage loans and securities 4 -
Other 6 8
---- ----
24 19
---- ----
102 93
---- ----
Operating expenses
Employee compensation and benefits 29 29
Office, occupancy and equipment 10 10
General and administrative 19 16
Deposit insurance premiums 5 5
---- ----
63 60
---- ----
Income before taxes 39 33
Income tax expense (benefit) (19) 14
---- ----
Net income $ 58 $ 19
==== ====
See accompanying notes to consolidated condensed financial statements.
</TABLE>
6.
<TABLE>
<CAPTION>
CTUS Inc.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Six months ended
June 30,
--------------------
1996 1995
----- -----
(in millions)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 58 $ 19
Adjustments to reconcile net income
to net cash provided (used) by
operating activities
Non-cash income/expenses (6) 13
Net change in:
Other assets (4) (5)
Other liabilities (49) (17)
----- -----
Net cash provided (used) by
operating activities (1) 10
----- -----
Cash flows from investing activities:
Net change in investments 58 94
Net change in loans (112) (378)
Other, net (15) (10)
----- -----
Net cash used by investing activities (69) (294)
----- -----
Cash flows from financing activities:
Net change in deposits 54 153
Net change in advances
from Federal Home Loan Bank 68 (8)
Net change in borrowed funds (82) 97
----- -----
Net cash provided by financing activities 40 242
----- -----
Net decrease in cash and cash equivalents (30) (42)
Cash and cash equivalents at beginning
of period 227 216
----- -----
Cash and cash equivalents at end of period $ 197 $ 174
===== =====
See accompanying notes to consolidated condensed financial statements.
</TABLE>
7.
CTUS Inc.
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation
The accounting and reporting policies of CTUS Inc. (the Company) conform
to generally accepted accounting principles. Such policies, except as
noted below, are consistent with those applied in the presentation of the
Company's annual financial statements which are contained in the exhibits.
The interim financial information in this report has not been audited. In
the opinion of the Company's management, all adjustments necessary for a
fair presentation of financial position, results of operations and cash
flows for the interim periods have been made. The interim financial
information should be read in conjunction with the Consolidated Financial
Statements for the years ended December 31, 1995 and 1994.
2. New Accounting Standards
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights (FAS 122) prospectively. FAS 122 requires that a
mortgage banking enterprise recognize as separate assets, the right to
service mortgage loans for others, whether acquired directly or in
conjunction with the acquisition of mortgage loan assets.
As originated or purchased mortgage loans are sold, securitized or where a
definitive plan exists to sell or securitize such loans, their total cost
is allocated between servicing rights and the loans, based on relative
fair values.
FAS 122 specifies that servicing rights be evaluated for impairment based
on the difference between the carrying value of such rights and their
current fair value. For purposes of measuring impairment, which is to be
recorded through use of a valuation reserve, servicing rights will be
stratified based upon interest rates and whether or not such rates are
fixed or variable.
The adoption of FAS 122 did not have a material effect on the financial
position or results of operations of the Company.
The Company is required to adopt Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (FAS 125), effective January 1,
1997. The Company does not expect that the adoption of FAS 125 will have
a material effect on its financial position or results of operation.
8.
HSBC Americas, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On August 21, 1996 the Company entered into an agreement to purchase CTUS
Inc., a unitary thrift holding company. CTUS Inc. owns approximately 99% of
the issued and outstanding shares of First Federal Savings and Loan
Association of Rochester. The acquisition will be accounted for under the
purchase method of accounting. The transaction is subject to regulatory
approval and is expected to close no later than the first quarter of 1997.
In addition to the proposed acquisition of CTUS Inc.: (i) on May 20, 1996 the
Company consummated the acquisition of two New York City branches of Hang Seng
Bank, an affiliate of the Company, (ii) on June 28, 1996 the Company
consummated the acquisition of selected assets and liabilities of East River
Savings Bank (the "Consummated Transactions") and (iii) on August 13, 1996 the
Company agreed to acquire the United States dollar clearing activities of
Morgan Guaranty Trust Company of New York (the "Dollar Clearing Activities
Transaction"). The Dollar Clearing Activities Transaction is subject to
regulatory approval and is expected to close in the fourth quarter of 1996.
Neither the Consummated Transactions nor the Dollar Clearing Activities
Transactions are considered to be acquisitions of businesses. Reliable
historical financial information concerning results of operations for these
nonbusiness transactions are not available and therefore are not included
in the pro forma combined condensed income statements. However, results of
the Consummated Transactions are included in the Company's historical income
statement for the six months ended June 30, 1996 from their respective dates
of acquisition. Apart from the CTUS Inc. acquisition, none of these
acquisitions is individually significant to the Company for purposes of Rule
1-02 of Regulation S-X. The following provides the basis of presentation of
all of the acquisitions in the Company's pro forma combined condensed
financial information.
The pro forma combined condensed balance sheet as of June 30, 1996 includes
the CTUS Inc. transaction and the Dollar Clearing Activities Transaction
because the consummation of such transactions is considered to be probable.
Information with respect to the Dollar Clearing Activities Transaction is as
of December 31, 1995 as more recent information is not available. The
Consummated Transactions are included in the historical balance sheet of the
Company as of June 30, 1996. The assets and liabilities relating to such
acquisitions were recorded at their respective fair values at the dates such
acquisitions were consummated.
The accompanying pro forma combined condensed income statement for the year
ended December 31, 1995 and for the six months ended June 30, 1996 present
the pro forma impact of the acquisition of CTUS Inc. assuming that the
acquisition had been completed as of the beginning of each period presented.
The pro forma information is based on the historical financial statements
after giving effect to the impact of the purchase accounting adjustments
relating to the acquisitions. Assumptions and adjustments are set forth in
the accompanying notes made in connection with the preparation of the pro
forma combined condensed financial information. Purchase accounting
adjustments to reflect estimated fair values have been made with respect to
the assets and liabilities acquired based upon preliminary estimates and
evaluations as of June 30, 1996. The allocations of the purchase prices are
subject to final determination, based upon estimates and other evaluations
of fair value, as of the date the acquisitions are consummated. Therefore,
the allocations reflected in the following pro forma combined condensed
financial information may differ from the amounts ultimately determined.
9.
The pro forma information with respect to CTUS Inc. has been prepared by
the Company's management based upon the financial statements of CTUS Inc.
included elsewhere herein and information obtained by the Company during
its investigation of the activities acquired. The pro forma financial
information should be read in conjunction with the notes thereto. This
pro forma information may not be indicative of the results that actually
would have occurred if the purchase had been consummated on the dates
indicated or which may be obtained in the future. While the Company expects
to achieve certain operating cost savings as a result of the combination,
no adjustment has been included in the pro forma amounts for anticipated
operating cost savings.
10.
<TABLE>
<CAPTION>
HSBC Americas, Inc.
Pro Forma Combined Condensed Balance Sheet
June 30, 1996
(Unaudited)
(in millions)
Historical
----------------------
HSBC
Americas, CTUS Other Pro Forma Pro Forma
Inc. Inc. Acquisition Adjustments Combined
--------- ------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 2,316 $ 197 $ 220 $ (45)(2) $ 2,688
Federal funds sold and
securities purchased under
agreements to resell 977 1,130 2,107
Trading assets 871 871
(4)(6)
(660)(4)
Securities 3,341 958 (227)(5) 3,408
Loans 14,760 5,889 450 40 (6) 21,139
Less: allowance for loan loss 458 43 501
--------- ------- --------- ------- -------
Loans, net 14,302 5,846 450 40 20,638
--------- ------- --------- ------- -------
Other assets 794 220 (4)(6) 1,010
276 (4)
Goodwill 126 12 (6) 414
--------- ------- --------- ------- -------
Total assets $ 22,727 $ 7,221 $ 1,800 $ (612) $ 31,136
========= ======== ========= ======= =======
Liabilities and Shareholders' Equity
Liabilities
Deposits - domestic offices $ 14,864 $ 4,390 $ 1,800 $ 6 (6) $ 21,060
- foreign offices 2,400 2,400
Federal funds purchased and
securities sold under
repurchase agreements 1,184 489 1,673
(82)(1)
2 (6)
Other borrowed funds 2,121 1,870 (227)(5) 3,684
Interest, taxes and 16 (3)
other liabilities 319 109 36 (6) 480
--------- ------- --------- ------ --------
Total liabilities 20,888 6,858 1,800 (249) 29,297
--------- ------- --------- ------ --------
(384)(4)
82 (1)
(45)(2)
Shareholders' Equity 1,839 363 (16)(3) 1,839
--------- ------- --------- ------ --------
Total liabilities and
shareholders' equity $ 22,727 $ 7,221 $ 1,800 $ (612) $ 31,136
========= ======== ========= ======= =========
See Notes to Pro Forma Combined Condensed Financial Information.
(1) Conversion to equity of CTUS Inc. debt of $82 million payable to former
parent.
(2) Payment of dividend of $45 million by CTUS Inc. to former parent.
(3) As discussed in footnote 17 to the 1995 consolidated financial
statements of CTUS Inc. attached as an Exhibit to this Report, CTUS Inc.
is subject to the one-time assessment to recapitalize the SAIF Insurance
Fund. Legislation signed into law on September 30, 1996 resulted in an
after tax expense of $16 million being accrued by CTUS Inc. at
September 30, 1996 which is one of the downward adjustments to the net
book value of CTUS Inc. at the time of closing.
(4) Assuming liquidation of investment portfolio to fund acquisitions,
including the related goodwill.
(5) Immediate liquidation of $227 million of CTUS Inc. securities portfolio
upon acquisition and repayment of same amount of advances from the Federal
Home Loan Bank of New York.
(6) Estimated purchase accounting adjustments to reflect fair value and
related acquisition liabilities.
</TABLE>
11.
<TABLE>
<CAPTION>
HSBC Americas, Inc.
Pro Forma Combined Condensed Income Statement
Year ended December 31, 1995
(Unaudited)
(in millions)
Historical
---------------
HSBC
HSBC Americas,
Americas, CTUS Pro Forma Inc. and
Inc. Inc. Adjust. CTUS Inc.
--------- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
$ $ $ (38) (2) $
(2) (1)
Interest income 1,488 481 (13) (3) 1,916
(7) (1)
Interest expense 596 315 3 (3) 907
----- --- ---- -----
Net interest income 892 166 (49) 1,009
Provision for loan loss 175 15 - 190
----- --- ---- -----
Net interest income
after provision for
loan loss 717 151 (49) 819
Other Operating income 315 43 (6) (3) 352
----- --- ---- -----
1,032 194 (55) 1,171
Operating expenses 696 123 17 (3) 836
----- --- ---- -----
Income before taxes 336 71 (72) 335
Income taxes 52 29 (24) (4) 57
----- --- ---- -----
Net income $ 284 $ 42 $ (48) $ 278
===== === ==== =====
See Notes to Pro Forma Combined Condensed Financial Information.
(1) Reduction of interest expense associated with $82 million debt conversion
to equity and interest income associated with $45 million dividend.
(2) Reduction of interest income on securities liquidated.
(3) Impact of pro forma purchase accounting adjustments.
(4) Income taxes related to applicable adjustments at 43%.
</TABLE>
12.
<TABLE>
<CAPTION>
HSBC Americas, Inc.
Pro Forma Combined Condensed Income Statement
Six months ended June 30, 1996
(Unaudited)
(in millions)
Historical
-------------------
HSBC
HSBC Americas,
Americas, CTUS Pro Forma Inc. and
Inc. Inc. Adjust. CTUS Inc.
--------- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
$ $ $(19) (2) $
(1) (1)
Interest income 777 252 (6) (3) 1,003
(3) (1)
Interest expense 320 165 1 (3) 483
--- --- --- -----
Net interest income 457 87 (24) 520
Provision for loan loss 35 9 - 44
--- --- --- -----
Net interest income after
provision for loan loss 422 78 (24) 476
Other operating income 154 24 (3) (3) 175
--- --- --- -----
576 102 (27) 651
Operating expenses 313 63 9 (3) 385
--- --- --- -----
Income before taxes 263 39 (36) 266
Income taxes 88 16 (5) (12) (4) 92
--- --- --- -----
Net income $175 $ 23 $(24) $ 174
=== === === =====
See Notes to Pro Forma Combined Condensed Financial Information.
(1) Reduction of interest expense associated with $82 million debt conversion
to equity and interest income associated with $45 million dividend.
(2) Reduction of interest income on securities liquidated.
(3) Impact of pro forma purchase accounting adjustments.
(4) Income taxes related to applicable adjustments at 43%.
(5) Excludes $35 million tax recovery relating to settlement of a net
operating loss issue.
</TABLE>
13.
HSBC Americas, Inc.
Notes to Pro Forma Combined Condensed Financial Information
(Unaudited)
NOTE 1. Under the purchase agreement relating to the CTUS Inc. acquisition,
immediately prior to consummation of the acquisition of all of the common
stock of CTUS Inc. by the Company CTUS Inc. will convert senior debt owed to
its parent to equity and declare and pay a dividend to its parent, in an
amount to reduce shareholder's equity immediately prior to the acquisition
to $400 million plus or minus certain adjustments. The Company will sell a
portion of its portfolio of investment securities to fund the purchase price
of the CTUS Inc. common shares.
The purchase agreement also provides that prior to the closing of the
purchase of the CTUS Inc. common shares by the Company, CTUS Inc. will issue
to its former parent and the former parent will continue to hold following
the purchase, a class of preferred shares of CTUS Inc. which will provide
for a contingent dividend or redemption equal to the amount of recovery,
net of taxes and costs if any, by First Federal (or Marine as its successor)
resulting from the pending action against the United States government
alleging breaches by the government of contractual obligations to First
Federal following the passage of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989.
NOTE 2. The assumptions underlying the pro forma purchase accounting
adjustments are summarized as follows:
(a) The estimated fair value adjustments have been determined by the Company
based upon information provided by CTUS Inc. and (in the case of the
balance sheet adjustments) Morgan Guaranty Trust Company of New York,
additional information obtained in the preliminary review of the
operations of the sellers and various assumptions deemed appropriate
by the Company. The fair values ultimately determined may be different
from those values used in the pro forma adjustments included herein.
(i) Securities were valued at their estimated fair market value as
of June 30, 1996 less those anticipated to be immediately sold.
(ii) Loans were valued based upon interest rates as of June 30, 1996.
The resulting net premium is being amortized against income over
the remaining estimated life of the portfolio utilizing certain
prepayment assumptions so as to produce a constant yield to
maturity.
(iii) Premises and equipment included in other assets were recorded at
their estimated fair value.
(iv) Mortgage servicing rights, included in other assets, represent
acquired servicing rights and were valued at fair value. The
resulting premium is being amortized against income over the
remaining life of the servicing portfolio utilizing certain
prepayment assumptions.
(v) Deposits were valued based upon interest rates for comparable
deposit liabilities as of June 30, 1996. The resulting premiums
are being amortized into interest expense over the remaining
contractual term so as to produce a constant return to maturity.
14.
(vi) Other borrowed funds were valued based upon interest rates for
comparable borrowed funds as of June 30, 1996. Outstandings
were reduced by amounts received in liquidation of securities.
(vii) Upon acquisition it is more likely than not that all tax
benefits of CTUS Inc. will be realized in some future period by
the combined entity. Therefore, the valuation adjustment of
CTUS Inc. will be brought to zero.
(viii) Employee benefit liabilities related to employee contracts and
severance costs related to the elimination of redundant
personnel costs were recorded.
(ix) Liabilities for lease buyouts of facilities to be vacated were
provided.
(x) Excess of the cost of net assets acquired over their fair
value is being amortized into expense on a straight line basis
over periods of 10 to 15 years.
<TABLE>
<CAPTION>
(b) The purchase price is estimated to be allocated as described in the
table below:
(in millions)
<S> <C>
Cost of acquisitions $ 660
----
Net assets acquired 384
Fair value adjustments:
Securities (4)
Loans 40
Other assets
Mortgage servicing rights 20
Premises and equipment (16)
Write off of
intangible assets (8)
Deposits (6)
Borrowed funds (2)
Reduction in deferred tax
valuation allowance 10
Other liabilities
Lease termination costs (4)
Employee benefits (25)
Acquisition costs (6)
Other costs (3)
Deferred tax liability (8)
---
372
---
Excess of cost of net assets
acquired over fair value
(goodwill) $288
===
</TABLE>
NOTE 3. The Pro Forma Combined Condensed Income Statements for the year
ended December 31, 1995 and the six months ended June 30, 1996 reflect the
combination of historical operating results of the Company and CTUS Inc. and
include the necessary purchase accounting adjustments as if the combination
had taken place at the beginning of each of the periods presented. Historical
results of operations relating to the Consummated Transactions and the Dollar
Clearing Activities Transaction are not included as reliable historical
results of operations are not available. However, results of the Consummated
Transactions are included in the Company's historical income statement for
the six months ended June 30, 1996 from their respective dates of acquisition.
15.
The purchase accounting adjustments used in the preparation of the Pro Forma
Combined Condensed Income Statements are summarized below:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1995 June 30, 1996
(in millions)
<S> <C> <C>
Net income of the Company $284 $175
Net income of CTUS Inc. 42 23
Pro forma adjustments
Amortization/accretion of
purchase accounting adjustments:
Loans (13) (6)
Mortgage servicing rights (6) (3)
Deposits (3) (1)
Excess of cost of net assets
acquired over fair value (17) (9)
Loss of interest income on
investments due to assumed use
of such investments to fund
the purchase price (38) (19)
Reduction in interest expense
associated with debt conversion
net of dividend 5 2
Net tax effect associated
with above adjustments excluding
amortization of excess of cost
of net assets acquired over
fair value 24 12
Pro forma net income $278 $174
</TABLE>
<TABLE>
<CAPTION>
NOTE 4. The following table sets forth the projected effect of purchase
accounting adjustments relating to the CTUS Inc. acquisition, the Consummated
Transactions and the Dollar Clearing Activities Transaction, on the
operating results of future periods. The annual amortization of the excess
cost of net assets acquired over fair value of $17 million relating to CTUS
Inc. is not subject to deduction for Federal and state taxes. The projected
amortization and accretion is subject to change in the event of changes in
fair value on consummation date, if such assets are subsequently sold and to
variations between future prepayments assumed in the preparation of the table
and those which may actually occur.
1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Amortization of:
Premium on loans $13 $11 $ 8 $ 5 $ 3
Purchased mortgage
servicing rights 6 5 4 3 2
Discount on deposits 3 3 - - -
Excess cost of net
assets acquired
over fair value 28 28 28 28 28
Charge to operations $50 $47 $40 $36 $33
16.
NOTE 5. The Consummated Transactions and Dollar Clearing Activities
Transaction are anticipated to provide $100 million in operating revenues,
offset in part by approximately $60 million in operating expenses excluding
income taxes during the first full year of combined operations.
17.
(c) Exhibits
2. Stock Purchase Agreement between CT Financial Services Inc. and
HSBC Americas, Inc. dated as of August 21, 1996.
13. Audited consolidated financial statements for CTUS Inc. -
December 31, 1995 and 1994, including independent auditors' report
thereon.
23. Independent Auditors' Consent
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC AMERICAS, INC.
(REGISTRANT)
/s/ Gerald A. Ronning
NAME: GERALD A. RONNING
TITLE: EXECUTIVE VICE PRESIDENT &
CONTROLLER
Date: October 22, 1996
Exhibit 2
ATTORNEY WORK PRODUCT
PRIVILEGED AND CONFIDENTIAL
STOCK PURCHASE AGREEMENT
between
CT FINANCIAL SERVICES INC.
("Seller")
and
HSBC AMERICAS, INC.
("Purchaser")
dated as of August 21, 1996
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . 1
SECTION 1.02. Additional Defined Terms . . . . . . . . . . . . . . 6
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. . . . . . . . . . . . . . . . . . 8
SECTION 2.02. Purchase Price . . . . . . . . . . . . . . . . . . . 8
SECTION 2.03. Closing. . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.04. Purchase Price Adjustment. . . . . . . . . . . . . . 8
SECTION 2.05. Certain Accounting Matters . . . . . . . . . . . . . 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 3.01. Organization and Authority of the Seller . . . . . . 12
SECTION 3.02. CTUS Representation. . . . . . . . . . . . . . . . . 12
SECTION 3.03. Organization and Qualification of CTUS, the Company
and the Subsidiaries . . . . . . . . . . . 12
SECTION 3.04. Capital Stock of CTUS. . . . . . . . . . . . . . . . 13
SECTION 3.05. Capital Stock of the Company and the Subsidiaries. . 13
SECTION 3.06. Consents and Approvals . . . . . . . . . . . . . . . 14
SECTION 3.07. No Conflict. . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.08. CTUS Financial Statements. . . . . . . . . . . . . . 15
SECTION 3.09. Company Financial Statements . . . . . . . . . . . . 16
SECTION 3.10. Absence of Certain Changes or Events . . . . . . . . 16
SECTION 3.11. Absence of Litigation. . . . . . . . . . . . . . . . 18
SECTION 3.12. Compliance with Laws . . . . . . . . . . . . . . . . 18
SECTION 3.13. Contracts. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.14. Reports. . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.15. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.16. Real Property. . . . . . . . . . . . . . . . . . . . 20
SECTION 3.17. Environmental Matters. . . . . . . . . . . . . . . . 21
SECTION 3.18. Employee Benefit Matters . . . . . . . . . . . . . . 21
SECTION 3.19. Labor Matters. . . . . . . . . . . . . . . . . . . . 25
SECTION 3.20. Insurance. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.21. Minority Shares. . . . . . . . . . . . . . . . . . . 25
SECTION 3.22. Intercompany Obligations . . . . . . . . . . . . . . 25
SECTION 3.23. Community Reinvestment Act . . . . . . . . . . . . . 26
SECTION 3.24. Brokers. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Organization and Authority of the Purchaser. . . . . 26
SECTION 4.02. Organization of Marine Midland Bank. . . . . . . . . 26
SECTION 4.03. Consents and Approvals . . . . . . . . . . . . . . . 27
SECTION 4.04. No Conflict. . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.05. Compliance with Laws . . . . . . . . . . . . . . . . 27
SECTION 4.06. Absence of Litigation. . . . . . . . . . . . . . . . 28
SECTION 4.07. Securities Law . . . . . . . . . . . . . . . . . . . 28
SECTION 4.08. Financing. . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.09. Community Reinvestment Act . . . . . . . . . . . . . 28
SECTION 4.10. Brokers. . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing . . . . . . 29
SECTION 5.02. Investigation. . . . . . . . . . . . . . . . . . . . 30
SECTION 5.03. Access to Information. . . . . . . . . . . . . . . . 31
SECTION 5.04. Books and Records. . . . . . . . . . . . . . . . . . 32
SECTION 5.05. Confidentiality. . . . . . . . . . . . . . . . . . . 32
SECTION 5.06. Authorizations; Consents and Notices . . . . . . . . 33
SECTION 5.07. Pre-Closing Payments . . . . . . . . . . . . . . . . 33
SECTION 5.08. Notice of Events . . . . . . . . . . . . . . . . . . 34
SECTION 5.09. FIRREA Claim . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.10. No Solicitation. . . . . . . . . . . . . . . . . . . 36
SECTION 5.11. Covenant Not to Compete. . . . . . . . . . . . . . . 37
SECTION 5.12. Environmental Audit. . . . . . . . . . . . . . . . . 38
SECTION 5.13. Minority Shares. . . . . . . . . . . . . . . . . . . 38
SECTION 5.14. Merger Structure . . . . . . . . . . . . . . . . . . 38
SECTION 5.15. FIRTPA Certificate . . . . . . . . . . . . . . . . . 39
SECTION 5.16. Further Assurances . . . . . . . . . . . . . . . . . 39
SECTION 5.17. Transition . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Provision of Comparable Benefits . . . . . . . . . . 40
SECTION 6.02. Succession . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.03. Survival . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities. . . . . . . . . . . . . . . . . . . 41
SECTION 7.02. Refunds and Tax Benefits . . . . . . . . . . . . . . 43
SECTION 7.03. Contests . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.04. Preparation of Tax Returns . . . . . . . . . . . . . 47
SECTION 7.05. Cooperation and Exchange of Information. . . . . . . 47
SECTION 7.06. Conveyance Taxes . . . . . . . . . . . . . . . . . . 48
SECTION 7.07. Miscellaneous. . . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller. . . . . . . 48
SECTION 8.02. Conditions to Obligations of the Purchaser . . . . . 49
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.02. Effect of Termination. . . . . . . . . . . . . . . . 50
SECTION 9.03. Waiver . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.04. Termination Fee. . . . . . . . . . . . . . . . . . . 51
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Non-Survival of Representations, Warranties, Covenants
and Agreements . . . . . . . . . . . . . . 51
SECTION 10.02. Release and Indemnification. . . . . . . . . . . . . 52
SECTION 10.03. Indemnification by the Seller. . . . . . . . . . . . 52
SECTION 10.04. Prior Tax Sharing Agreements . . . . . . . . . . . . 56
SECTION 10.05. Expenses . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.06. Federal Home Loan Bank of New York Advances. . . . . 57
SECTION 10.07. Notices. . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.08. Public Announcements . . . . . . . . . . . . . . . . 58
SECTION 10.09. Headings . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.10. Severability . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.11. Disclosure Schedule. . . . . . . . . . . . . . . . . 58
SECTION 10.12. Entire Agreement . . . . . . . . . . . . . . . . . . 59
SECTION 10.13. Assignment . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.14. No Third-Party Beneficiaries . . . . . . . . . . . . 59
SECTION 10.15. Amendment; Waiver. . . . . . . . . . . . . . . . . . 59
SECTION 10.16. Governing Law. . . . . . . . . . . . . . . . . . . . 59
SECTION 10.17. Counterparts . . . . . . . . . . . . . . . . . . . . 59
EXHIBITS
Exhibit 2.05(b) Sample Calculation of the Audited Book Value
of the Company
Exhibit 3.08 CTUS Financial Statements
Exhibit 3.09 Company Financial Statements
Exhibit 5.09(b) Term Sheet for Preferred Stock
Exhibit 5.09(e) Standard of Conduct for FIRREA Plaintiff
Exhibit 5.14(c) Proposed Form of Bank Plan of Merger
STOCK PURCHASE AGREEMENT dated as of August 21, 1996 between
CT FINANCIAL SERVICES INC., a federal corporation organized under the Laws of
Canada (the "Seller"), and HSBC AMERICAS, INC., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H :
WHEREAS, the Seller owns, directly or indirectly, all of the issued
and outstanding common shares (the "CTUS Shares") of CTUS Inc., a Delaware
corporation ("CTUS");
WHEREAS, on the date hereof, CTUS owns approximately 99% of the
issued and outstanding shares (the "Company Shares") of First Federal Savings
and Loan Association of Rochester (the "Company"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, the CTUS Shares on the terms and
conditions set forth herein and wishes to obtain the indirect ownership of all
of the issued and outstanding shares of the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Seller and the Purchaser
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" of a specified person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified person.
"Agreed Minimum Audit Date Book Value" means an amount equal to
(a) the sum of (i) U.S.$400,000,000 and (ii) an amount equal to the excess, if
any, of the Covered Period Net Earnings over the Earnings Amount less (b) the
sum of (i) the Employee Amount and (ii) the BIF/SAIF Amount plus (c) the
amount, if any, by which the Employee Amount exceeds U.S. $16,000,000.
"Agreement" means this Stock Purchase Agreement dated as of August 21,
1996 (including the exhibits and schedules hereto) and all amendments hereto
made in accordance with the provisions of Section 10.15.
"BIF/SAIF Amount" means an amount equal to any special one-time
assessment or charge (net of any Tax benefit) paid or accrued by the Company
prior to the Closing arising out of or related to any Law with respect to
insurance of deposits (as defined in the FDIA) of the Company by or through
the Savings Association Insurance Fund (SAIF), but not any regular premium
paid or accrued prior to the Closing Date, less the present value at the
Closing Date of the difference between (a) the premiums paid or accrued in
respect of the Company's deposits from the date such one-time assessment or
charge was paid or accrued through the Closing Date and (b) the premiums
that would have been paid or accrued had no such assessment or charge been
paid or accrued.
"Book Value" means the amount by which total consolidated assets
exceeds total consolidated liabilities of an entity as shown on any specified
consolidated balance sheet prepared in accordance with GAAP.
"Business" means the business of providing financial services and
related financial products and all other business which is currently being
conducted by the indicated person or entity.
"Business Day" means a day of the year on which banks are not
required or authorized to be closed in New York or Toronto.
"Chemical Substance" means any pollutant, chemical, mixture,
petroleum or any fraction thereof, asbestos or asbestos-containing material,
polychlorinated biphenyls, or any substances, materials or wastes which are
regulated under any Environmental Law.
"Code" means the Internal Revenue Code of 1986, as amended through
the date hereof.
"Covered Period Net Earnings" means the net earnings of the
Company excluding the BIF/SAIF Amount and the Employee Amount from July 1,
1996 through the Audit Date as determined by the Company's Accountants in
accordance with Section 2.04.
"Deferred Tax Valuation Amount" means a maximum amount equal to
U.S.$5,000,000 representing a portion of the aggregate valuation allowances
provided against deferred tax assets of the Company.
"Earnings Amount" means the sum of (i) U.S.$5,300,000 multiplied
by the number of months between July 1, 1996 and the Audit Date and
(ii) U.S.$5,000,000.
"Employee Amount" means an amount (net of Tax benefit) equal to
the aggregate amount of all severance payments, benefits, bonus amounts
relating to all options, completion or stay bonuses, special and long-term
incentives paid or payable to employees or former employees of the Company
or other employment-related consideration but only to the extent the same
arises out of or results from the transactions contemplated by this
Agreement and any amounts in respect of the foregoing whether or not paid
or accrued by the Company before the Audit Date.
"Encumbrance" means a pledge, lien, security interest, mortgage,
charge, adverse claim of ownership or use, or other encumbrance of any kind.
"Environment" means any soil, surface waters, groundwaters, stream
sediments, surface or subsurface strata, and ambient air, and any other
environmental medium.
"Environmental Laws" means all applicable federal, state, county
and local Laws or regulations relating to human health and safety,
protection of the environment or natural resources in existence on the
date hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Final Determination" means, as applied to federal income taxes
in respect of any item for a Period, (i) a final, unappealable decision by
a court of competent jurisdiction with respect to such taxes, (ii) the
expiration of the time for filing a claim for refund with respect to such
taxes or, if a refund claim with respect to such taxes has been timely
filed, the expiration of the time for instituting suit in respect of such
refund claim, if no further adjustment to the items of income, gain,
deduction, loss or credit for such Period may thereafter be made, (iii)
the execution by or on behalf of the taxpayer and the IRS of a closing
agreement under Section 7121 of the Code with respect to such taxes,
(iv) the acceptance by the IRS of a tender pursuant to an offer in
compromise with respect to such taxes pursuant to Section 7122 of the
Code, (v) the execution of a Form 870AD with respect to such taxes or
(vi) any other final and irrevocable determination of the tax liability
with respect to such taxes of a party to this Agreement (or an Affiliate
of a party) for the Period. In the context of state or local income taxes
in respect of any item for a Period, "Final Determination" means any final,
unappealable and irrevocable determination of the tax liability of a party
to this Agreement (or an Affiliate of a party) with respect to such taxes
for the Period.
"GAAP" means generally accepted accounting principles in the
United States in effect from time to time applied consistently throughout
the period involved.
"Governmental Authority" means any Canadian or United States
federal, state, provincial or local government or any other foreign
government, or any governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.
"Knowledge of the Seller" or "to the Seller's knowledge" means,
with respect to matters relating to the Seller, the actual knowledge of
the senior executive officers of the Seller with respect to such matters
and, in the case of any matters relating to the Company or any of the
Subsidiaries, such knowledge as is obtainable after the Seller's due
inquiry of the senior executive officers of the Company set forth in
Section 1.01 of the Seller Disclosure Schedule.
"Law" means any U.S. or Canadian federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, rule of any U.S. or
Canadian administrative body, other requirement or rule of law.
"Leased Property" means any real property listed in Section
3.16(b) of the Seller Disclosure Schedule.
"Loan Property" means any property, other than single-family
residences and Real Estate Owned, securing a loan held by the Company or
any Subsidiary, or, where required by the context, the Company or any
Subsidiary is deemed by a court of competent jurisdiction to be the owner
or operator of such property.
"Loss" or "Losses" means any and all losses, liabilities,
obligations, damages, claims, awards or judgments actually suffered or
incurred by a party including legal costs and expenses to the extent
provided in Section 10.03(d), but excluding incidental, special, indirect
or consequential damages, loss of profits or similar damages.
"Material Adverse Effect" means any change in, or effect on,
CTUS, the Company or the Subsidiaries, as the case may be, that is
materially adverse to the results of operations, financial condition or
properties and assets of CTUS, the Company and the Subsidiaries, taken as
a whole; provided, however, that changes or effects resulting directly or
indirectly from (i) changes in Laws or GAAP (or interpretations thereof),
(ii) changes in the general level of market interest rates, (iii) changes
in the economic, financial or market conditions affecting the banking or
thrift industry generally in the regions in which CTUS, the Company or
the Subsidiaries operate, (iv) the effect of any sale or other disposition
of loans or any other transaction affecting CTUS, the Company or the
Subsidiaries to the extent the same is made pursuant to, or as permitted or
contemplated by, this Agreement or with the Purchaser's prior written consent
or at its written direction, or (v) the announcement of this Agreement or
the transactions contemplated hereby, shall not constitute or contribute to a
Material Adverse Effect.
"Minority Shares" means any shares of the Company not owned by CTUS
on the date hereof.
"Non-Compete Area" means New York State.
"Period" means, in respect of a particular Tax, the taxable year or
any other period for which such Tax is imposed.
"Person" means any individual, partnership, firm, corporation,
limited liability company, association, trust, unincorporated organization
or other entity, as well as any syndicate or group that would be deemed to be
a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"Post-Closing Period" means any Period that begins after the Closing
Date, and, with respect to any Period beginning before and ending after the
Closing Date, shall mean the portion of such Period commencing on the day
following the Closing Date.
"Pre-Closing Period" means any Period that ends on or before the
Closing Date, and, with respect to any Period beginning before and ending after
the Closing Date, shall mean the portion of such Period ending on the Closing
Date.
"Purchaser Disclosure Schedule" means the Disclosure Schedule of the
Purchaser dated as of the date hereof, delivered by the Purchaser to the Seller
upon the execution and delivery of this Agreement.
"Real Estate Owned" means real estate acquired through foreclosure
or through a deed in lieu of foreclosure.
"Real Property" means any real property currently or formerly owned
(but, in the case of formerly owned property only with respect to the period of
time owned by CTUS, the Company or any Subsidiary) by CTUS, the Company or any
Subsidiary and all improvements related thereto, including but not limited to
owned branch offices, but not including Real Estate Owned or Leased Property.
"Release" shall have the meaning as defined in or pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act.
"Returns" means any report, information statement, return,
declaration or other filing required to be supplied to any taxing authority or
jurisdiction with respect to Taxes including any amendments thereto.
"Seller Disclosure Schedule" means the Disclosure Schedule of the
Seller, dated as of the date hereof, delivered by the Seller to the Purchaser
upon the execution and delivery of this Agreement.
"Subsidiary" means each corporation, bank, savings bank, association,
partnership or other entity in which the Company owns or controls 25% or more
of the voting power of all outstanding voting securities or interests either
directly or through an unbroken chain of entities as to each of which 25% or
more of the voting power of all outstanding voting securities or interests is
owned directly or indirectly by its parent; provided, however, that as used
in Article III, other than in the first sentence of Section 3.05(b),
"Subsidiary" shall not include any entity identified in Section 3.05(b) of
the Seller Disclosure Schedule as being an entity the equity securities or
interests of which (i) have been acquired through foreclosure or (ii) are
owned or controlled in a fiduciary capacity.
"Tax" or "Taxes" means all taxes, however denominated, including
any interest or penalties that may become payable in respect thereof, imposed
by any federal, state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all net income, alternative or
add-on minimum, gross income, gross receipts, sales, use, goods and services,
ad valorem, earnings, franchise, profits, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, excess or windfall
profit or value added tax.
"U.S.$" means United States dollars.
SECTION 1.02. Additional Defined Terms. The following additional
defined terms shall have the meanings set forth in the sections of this
Agreement listed below:
Defined Term Section Where Defined
Audit Date 2.04(a)
Audit Date Balance Sheet 2.04(a)
Audited Book Value 2.04(b)
Audited Financial Statements 3.09
Bank Merger 5.14(a)
Claim Deductible 10.03(b)(ii)
Closing 2.03(a)
Closing Date 2.03(a)
Company Recitals
Company Financial Statements 3.09
Company Shares Recitals
Company's Accountants 2.04(b)
Confidentiality Agreement 5.05(a)
Contest 7.03(b)
CRA 3.23
CTUS Recitals
CTUS Financial Statements 3.08
CTUS Shares Recitals
Differential Amount 2.04(b)
Electronic Networks 5.11
FDIA 3.03(b)
FDIC 3.03(b)
FIRREA Claim 5.09(a)
FIRREA Plaintiff 5.09(a)
FIRREA Recovery 5.09(a)
HOLA 3.03(b)
Indemnifiable Amount 10.03(b)(ii)
Indemnification Event 7.03(a)
Intercompany Obligations 3.22
IRS 3.18(b)
Maximum Aggregate Indemnity Payment Amount 10.03(b)(iii)
Merger 5.14(a)
Merger Subsidiary 5.14(a)
Merrill Lynch 3.24
OTS 3.03(a)
PBGC 3.18(e)
Plans 3.18(a)
Post-Closing Date Tax benefit 7.02(c)
Preferred Stock 5.09(b)
Preferred Stock Dividend Amount 5.09(b)
Preferred Stock Redemption Amount 5.09(b)
Public Voting Requirement 5.11
Purchase Price 2.02
Purchaser Preamble
Purchaser Operating Approvals 4.05(a)
Purchaser's Accountants 2.04(c)
Purchaser's Required Approvals 4.03(a)
Reports 3.14
Seller Preamble
Seller Operating Approvals 3.12(a)
Seller's Accountants 2.04(c)
Seller's Required Approvals 3.06(a)
SLHC Act 3.03(a)
Straddle Period 7.01(c)
Subsidiary Shares 3.05(b)
Surviving Corporation 5.14(b)
Tax Liability Threshold Amount 7.01(d)
Unaudited Financial Statements 3.09
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, on the Closing
Date, the CTUS Shares.
SECTION 2.02. Purchase Price. The purchase price (the "Purchase
Price") for the CTUS Shares shall be payable in New York in cash in the net
amount of U.S.$620,000,000, free of any withholding, deduction or adjustment of
any nature whatsoever, except as expressly provided for in Sections 2.04 and
5.15 of this Agreement or as required by Law. The Purchase Price shall be
payable as provided in Section 2.03(c).
SECTION 2.03. Closing. (a) Subject to the terms and conditions of
this Agreement, the sale and purchase of the CTUS Shares contemplated hereby
shall take place at a closing at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York (the "Closing") at 10:00 a.m., local
time, on the first Business Day of the month following the month in which the
conditions to Closing set forth in Article VIII are first satisfied or waived
(on the understanding that such conditions shall continue to have been
satisfied or waived immediately prior to the Closing) or at such other time
or on such other date or at such other place as the Seller and the Purchaser
may mutually agree upon in writing (the day on which the Closing takes place
being the "Closing Date"); provided, however, that, at any time and from
time to time, the Seller may, at its option, and without consequences of any
kind or nature, delay the Closing, until a date no later than the first
Business Day of March 1997.
(b) At the Closing, the Seller shall deliver or cause to be
delivered to the Purchaser (i) certificates evidencing the CTUS Shares duly
endorsed in blank, in proper form for transfer or accompanied by stock powers
duly executed in blank and (ii) the certificates and other documents required
to be delivered pursuant to Section 8.02(a).
(c) At the Closing, the Purchaser shall deliver to the Seller (i) the
Purchase Price by wire transfer in immediately available funds to no more than
ten (10) accounts designated by the Seller in writing at least two Business
Days prior to the Closing Date and (ii) the certificates and other documents
required to be delivered by the Purchaser pursuant to Section 8.01(a).
SECTION 2.04. Purchase Price Adjustment. The parties hereto
acknowledge that the Purchase Price is to be adjusted as specified in this
Section 2.04 for the purposes described in Section 2.05:
(a) As promptly as practicable, but not later than 60 days after the
Closing Date, the Seller and the Purchaser shall cause CTUS to prepare and
deliver to the Seller and the Purchaser an interim consolidated balance sheet
for CTUS as of the end of the month immediately preceding the Closing Date
in a manner consistent with past practice (for ease of reference being referred
to herein as the "Audit Date Balance Sheet" and the date thereof being referred
to herein as the "Audit Date").
(b) Following preparation of the Audit Date Balance Sheet by CTUS,
The Purchaser shall cause CTUS to request the Company's independent
accountants, Deloitte & Touche LLP (the "Company's Accountants"), (i) to
audit the Audit Date Balance Sheet in accordance with generally accepted
auditing standards, (ii) to prepare a schedule to the Audit Date Balance
Sheet showing (x) the Book Value of CTUS as of the Audit Date on the basis
of the Audit Date Balance Sheet (the "Audited Book Value"), (y) the
calculation of the Agreed Minimum Audit Date Book Value on the basis of the
Audit Date Balance Sheet (including the Covered Period Net Earnings, the
Earnings Amount, the Employee Amount and the BIF/SAIF Amount) and (z) the
amount, if any, by which the Audited Book Value exceeds or is less than the
Agreed Minimum Audit Date Book Value (the "Differential Amount") and (iii)
to deliver a copy of the items noted in (ii) above and an unqualified
report stating that the Audit Date Balance Sheet fairly presents, in all
material respects, the financial condition of CTUS as of the Audit Date and
the schedule thereto fairly presents, in all material respects, the
information contained therein, in each case in accordance with GAAP and on
a basis consistent with prior audited balance sheets of CTUS. The Seller
shall pay the fees and expenses of the Company's Accountants incurred by
them in preparing the Audit Date Balance Sheet and responding to any
questions or disputes arising in connection therewith.
(c) Within 20 Business Days following the receipt by the Purchaser
and the Seller of the Audit Date Balance Sheet, each of the Seller's
Accountants and the Purchaser's independent accountants KPMG Peat Marwick
LLP (the "Purchaser's Accountants") shall have an opportunity to make such
investigation of the accounting records of CTUS (and the pertinent portions
of the relevant work papers of the Company's Accountants) as any of the
Purchaser, the Seller, the Seller's independent accountants Price Waterhouse
LLP (the "Seller's Accountants") and the Purchaser's Accountants shall deem
necessary and, if the Seller's Accountants or the Purchaser's Accountants
desire, to meet with the Company's Accountants to discuss the determination
of the Audited Book Value, the Agreed Minimum Audit Date Book Value and the
Differential Amount. If, within such 20 Business Day period, the Seller's
Accountants and/or the Purchaser's Accountants disagree with the amount or
calculation of any of the foregoing and/or believe that the Audited Balance
Sheet does not fairly present the financial condition of CTUS, as of the
Audit Date, in all material respects in accordance with GAAP, then, in
either such event, either of the Seller's Accountants and/or the Purchaser's
Accountants may provide the Company with written notice of any such
disagreement or belief (together with relevant supporting details) and
thereafter the Seller's Accountants, the Purchaser's Accountants and the
Company's Accountants shall promptly attempt to resolve any differences or
concerns that may exist, it being agreed that if such accountants shall be
unable within a period of 10 Business Days to resolve the differences and
reach agreement, then, in such event, the Purchaser and the Seller will
endeavor in good faith to resolve the differences amongst themselves during
an additional period of 10 Business Days. If, after this additional 10
Business Day period, the Purchaser and the Seller have failed to so agree,
the disputed items shall be submitted for final resolution to an independent
accounting firm selected and agreed to by the Seller's Accountants and the
Purchaser's Accountants or, if such accountant is unavailable, to such
other independent accountant as to which the Seller and the Purchaser shall
agree, which accountant shall be instructed to apply GAAP (and no other
standards unless agreed to by both parties hereto), to attempt to resolve
any such dispute and, following any such resolution, determine whether and
to what extent, if any, the Audited Book Value or the Agreed Minimum Audit
Date Book Value should be modified or changes should be made to the Audit
Date Balance Sheet, which determination shall be required to be completed
within 15 Business Days and shall be final and binding on the parties
hereto absent manifest error. The Seller and the Purchaser shall each
bear one-half of the fees and expenses of such other independent accounting
firm as is appointed, if any, by the Purchaser and the Seller as
contemplated herein.
(d) Subject to paragraph (c) above and the proviso set forth
below (and notwithstanding anything to the contrary in Section 2.02), if
there is a Differential Amount the Purchase Price shall be adjusted from the
amount actually paid by the Purchaser in accordance with Section 2.03(c),
and the Purchaser and the Seller agree to make payments to each other
following the Closing as follows:
(i) if there is a Differential Amount as a result of the
Audited Book Value being greater than the Agreed Minimum Audit
Date Book Value, then, in any such case, the Purchaser shall make
an additional payment to the Seller in respect of the Purchase
Price in an amount equal to the sum of the Differential Amount
and interest at the rate of 6% per annum payable in respect of
the period commencing on the Closing Date and continuing through
and including the date on which payment in respect of the
Differential Amount is made; or
(ii) if there is a Differential Amount as a result of the
Audited Book Value being less than the Agreed Minimum Audit Date
Book Value, then, in any such case, the Seller shall refund to
the Purchaser an amount in respect of the Purchase Price in an
amount equal to the sum of the Differential Amount and interest
at the rate of 6% per annum payable in respect of the period
commencing on the Closing Date and continuing through and
including the date on which payment in respect of the
Differential Amount is made;
provided, however, that in giving effect to any such increase or
decrease in the Purchase Price, the U.S. dollar amounts shall be
rounded up or down to the nearest full U.S. dollar. Any payments
required to be made pursuant to this paragraph (d) shall be made by
wire transfer of immediately available funds to the account of the
Purchaser or the Seller, as the case may be, designated in writing
not later than 15 Business Days after the date on which the Audit
Date Balance Sheet is finally determined in accordance with Section
2.04(c).
(e) For purposes of this Section 2.04, the Purchaser and the Seller
have agreed that each of the accountants referred to in this Section
2.04 is to find any adjustments necessary to cause the Audit Date
Balance Sheet, to be in accordance with GAAP, and the schedule
referred to in Section 2.04(b) to be in accordance with this Agreement.
Such adjustments shall be (i) individual items in excess of $1,000,000
and (ii) other items in excess of $250,000 but less than $1,000,000
that aggregate to $5,000,000 or more.
SECTION 2.05. Certain Accounting Matters. (a) In addition to
the obligation of the Purchaser to pay the Purchase Price, (i) the Seller shall
be entitled to the economic benefit of net earnings of the Company in an
average amount of up to U.S.$5,300,000 for each month between July 1, 1996
through and including the Closing Date plus the Deferred Tax Valuation
Amount, (ii) the Company shall be obligated following the Audit Date to
pay the Employee Amount to the extent not paid by the Company prior to the
Audit Date and the Seller shall be entitled in the computation of the
Agreed Minimum Audit Date Book Value to reverse the after-tax effect of any
actual accrual on or prior to the Audit Date by the Company with respect
to the Employee Amount but not in excess of U.S.$16,000,000 on or prior to
the Audit Date, (iii) the Company shall be obligated following the Closing
to accrue or pay the BIF/SAIF Amount and, to the extent that the Company
has been required on or prior to the Audit Date, to fully expense or pay
for such BIF/SAIF Amount, the Seller shall be entitled in the computation
of Audited Book Value to reverse the after-tax effect of any payment or
required accrual by the Company and (iv) the Seller shall be entitled to
the benefit of the Deferred Tax Valuation Amount which, if not taken into
income by the Company prior to the Audit Date, the Seller shall be entitled
in the computation of Audited Book Value to increase such Book Value by the
amount of the Deferred Tax Valuation Amount.
(b) For the avoidance of doubt, it is agreed that as a result of
Section 2.05(a), there will be an increase in the retained earnings of the
Company between the date hereof and the Closing Date which will enable the
Seller to cause the Company to pay a larger extraordinary dividend as
contemplated by and subject to the limitations contained in Section 5.07.
For illustrative purposes, Exhibit 2.05(b) provides a sample calculation
of the Audited Book Value of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
SECTION 3.01. Organization and Authority of the Seller. The Seller
is a corporation duly organized and validly existing under the laws of Canada
and has all necessary power (corporate or otherwise) and authority to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Seller, the performance by the Seller of its obligations
hereunder and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all requisite corporate
action on the part of the Seller. This Agreement has been duly executed
and delivered by the Seller, and (assuming due authorization, execution and
delivery by the Purchaser) constitutes a legal, valid and binding
obligation of the Seller enforceable against the Seller in accordance with
its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar Laws affecting creditors'
rights generally and by general principles of equity (whether considered
in a proceeding at law or in equity).
SECTION 3.02. CTUS Representation. CTUS has no direct or indirect
subsidiaries, equity investments or joint ventures except for the Company and
the Subsidiaries. CTUS is not a party to any mortgage, lease or other
agreement except as set forth in Section 3.02 of the Seller Disclosure
Schedule. As of the Closing, CTUS shall have no assets other than the Company
Shares and certain Minority Shares and shall have no liabilities, except as
set forth on its unaudited balance sheet as of June 30, 1996 (parent only),
a copy of which has heretofore been furnished to the Purchaser and receipt
of which is hereby acknowledged. Except as disclosed in Section 3.02 of the
Seller Disclosure Schedule, since the date of its organization CTUS has not
engaged in any business or operations, except the ownership of the Company
Shares and certain Minority Shares and has never had any employees or Plans.
SECTION 3.03. Organization and Qualification of CTUS, the
Company and the Subsidiaries. (a) CTUS is (i) a corporation duly organized
and validly existing under the laws of the State of Delaware and (ii)
registered as a savings and loan holding company with the Office of Thrift
Supervision ("OTS") under the Savings and Loan Holding Company Act, as
amended (the "SLHC Act"). True and complete copies of the certificate of
incorporation and bylaws (or equivalent organizational documents) of CTUS,
as amended to the date of this Agreement, have been made available for review
by the Purchaser.
(b) The Company is a federally chartered stock savings and loan
association duly organized, validly existing and in good standing under the
laws of the United States of America and engages only in activities (and
holds properties only of the types) authorized by the Home Owners' Loan Act
of 1933, as amended ("HOLA") and the OTS rules and regulations thereunder
and not prohibited by HOLA or the Federal Deposit Insurance Act (the "FDIA")
and the rules and regulations promulgated by the Federal Deposit Insurance
Corporation (the "FDIC") thereunder for federal savings associations. The
Company's deposit accounts are insured to the fullest extent permitted
under applicable Law by the Savings Association Insurance Fund as
administered by the FDIC. The Company is a qualified thrift lender under
section 10(m) of HOLA and is a member of the Federal Home Loan Bank of
New York. True and complete copies of the certificate of incorporation
and bylaws (or equivalent organizational documents) of the Company, as
amended to the date of this Agreement, have been made available for review
by the Purchaser.
(c) Each Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. True and complete copies of the certificate of incorporation
and bylaws (or equivalent organization documents) of each Subsidiary, each
of the foregoing as amended to the date of this Agreement, have been made
available for review by the Purchaser. Each Subsidiary engages only in
activities permitted for subsidiaries or service corporations, as the case
may be, of federal savings associations.
(d) Each of CTUS, the Company and each of the Subsidiaries has
the requisite power and authority to own, operate or lease the properties
and assets now owned, operated or leased by it and to carry on, in all
material respects, that portion of the Business of CTUS, the Company and
the Subsidiaries as is currently conducted by CTUS, the Company or such
Subsidiary, as the case may be. Each of CTUS, the Company and each
Subsidiary is duly qualified to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except for such failures to be qualified and in good standing which,
individually or, to the Seller's knowledge, in the aggregate, would not
have a Material Adverse Effect.
SECTION 3.04. Capital Stock of CTUS. The Seller owns, directly
or indirectly, all of the CTUS Shares, and as of the date hereof the CTUS
Shares constitute all the issued and outstanding shares of capital stock
of CTUS. The CTUS Shares have been duly authorized and validly issued and
are fully paid and nonassessable and were not issued in violation of any
pre-emptive rights. Other than the provisions hereof relating to the
Preferred Stock, there are no outstanding options, warrants or rights of
conversion or other rights, agreements, arrangements or commitments
relating to the capital stock of CTUS obligating CTUS to issue or sell any
of its shares of capital stock. The Seller is the record and beneficial
owner of the CTUS Shares, free and clear of all Encumbrances except as a
result of the Seller's obligation to transfer the CTUS Shares to the
Purchaser pursuant to this Agreement. On the Closing Date, the Seller will
cause to be transferred and delivered to the Purchaser valid title to all
the CTUS Shares, free and clear of all Encumbrances.
SECTION 3.05. Capital Stock of the Company and the Subsidiaries.
(a) The Company Shares have been duly authorized and validly issued
and are fully paid and nonassessable and were not issued in violation of any
pre-emptive rights. The Company's issued and outstanding capital stock
consists of 23,082,429 shares of common stock, 22,925,671 of which
constitute the Company Shares. CTUS is the record and beneficial owner
of all of the Company Shares and at the Closing, assuming payment by the
Purchaser of the Purchase Price as contemplated herein, will be the record and
beneficial owner of the Minority Shares (other than those Minority Shares
disclosed in Section 3.21 of the Seller Disclosure Schedule as to which the
Seller is unable to acquire as contemplated in Section 5.13), in each case
free and clear of all Encumbrances, except as a result of the Seller's
obligation to transfer the CTUS Shares to the Purchaser pursuant to this
Agreement. Except as disclosed in Section 3.05(a) of the Seller Disclosure
Schedule, as of the date hereof, there are, and Seller has made or will make
arrangements so that at the Closing, assuming payment by the Purchaser of the
Purchase Price as contemplated herein, there will be, no outstanding options,
warrants or rights of conversion or other rights, agreements, arrangements or
commitments relating to the capital stock of the Company obligating the
Company to issue or sell any of its shares of capital stock, except as a
result of the Seller's obligation to transfer the CTUS Shares to the
Purchaser pursuant to this Agreement.
(b) Section 3.05(b) of the Seller Disclosure Schedule sets forth,
with respect to each Subsidiary, the authorized capital stock and the
number and type of its issued and outstanding shares of capital stock
(collectively, the "Subsidiary Shares"). The Subsidiary Shares constitute
all the issued and outstanding shares of capital stock of the respective
Subsidiaries. The Subsidiary Shares have been duly authorized and validly
issued and are fully paid and nonassessable and were not issued in
violation of any pre-emptive rights. There are no outstanding options,
warrants or rights of conversion or other rights, agreements, arrangements
or commitments relating to the Subsidiary Shares obligating any Subsidiary
to issue or sell any of its Subsidiary Shares. The Company owns the
Subsidiary Shares issued by the respective Subsidiaries, free and clear
of all Encumbrances, except as set forth on Section 3.05(b) of the Seller
Disclosure Schedule, and except for any restrictions on transfer to others
arising out of this Agreement.
(c) Except as set forth in Section 3.05(c) of the Seller
Disclosure Schedule, there are no stockholder agreements, voting trusts,
proxies or other similar agreements or understandings in effect with
respect to the voting or transfer of any of the CTUS Shares, the Company
Shares or the Subsidiary Shares.
(d) Except as set forth in Section 3.05(d) of the Seller
Disclosure Schedule, the Company does not own more than 5% of the voting
power of all outstanding voting securities or interests of any corporation,
limited liability company, business trust, limited partnership or other
entity.
SECTION 3.06. Consents and Approvals. (a) The execution and
delivery of this Agreement by the Seller does not, and the performance of
this Agreement by the Seller will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
Governmental Authority, or any other Person, except (i) for the consents,
approvals, authorizations, actions, filings or notifications described in
Section 3.06 of the Seller Disclosure Schedule or as otherwise necessary
in order to permit the transfer of CTUS Shares by the Seller to an
Affiliate as contemplated in Section 10.13 (the "Seller's Required
Approvals"), (ii) for such consents, approvals, authorizations, actions,
filings, or notifications, the failure to make or obtain which would not,
individually or, to the Seller's knowledge, in the aggregate either
(x) prevent or delay the Seller from performing any of its material
obligations under this Agreement or (y) in the case of Seller's Required
Approvals from persons other than any Governmental Authority, have a
Material Adverse Effect, and (iii) as may be necessary as a result of
any facts or circumstances relating solely to the Purchaser.
(b) The Seller has no reason to believe that it will not be able
to make or, on a timely basis, obtain all Seller's Required Approvals.
SECTION 3.07. No Conflict. Assuming all consents, approvals,
authorizations and other actions contemplated in Section 3.06 have been
obtained and all filings and notifications listed in Section 3.06 of the
Seller Disclosure Schedule have been made, and except as may result from
any facts or circumstances relating solely to the Purchaser, and except
as disclosed in Section 3.07 of the Seller Disclosure Schedule, the
execution, delivery and performance of this Agreement by the Seller does
not and will not (a) violate or conflict with the charter or by-laws or
other organizational documents of the Seller, CTUS, the Company or the
Subsidiaries, (b) except as would not (i) prevent the Seller from
performing its material obligations under this Agreement or (ii)
individually or, to the Seller's knowledge, in the aggregate, have a
Material Adverse Effect, conflict with or violate any Law, rule,
regulation, order, writ, judgment, injunction, decree, determination
or award applicable to the Seller, CTUS, the Company or the Subsidiaries
or (c) except as would not (i) prevent the Seller from performing any
of its material obligations under this Agreement or (ii) individually or,
to the Seller's knowledge, in the aggregate, have a Material Adverse
Effect, result in any breach of, or constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of the Seller, CTUS, the
Company or any of the Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which the Seller, CTUS,
the Company or any of the Subsidiaries is a party or by which any of such
assets or properties is bound or affected.
SECTION 3.08. CTUS Financial Statements. The audited
consolidated financial statements of CTUS as of December 31, 1995 and the
unaudited consolidated financial statements of CTUS as of June 30, 1996,
each attached hereto as Exhibit 3.08 (the "CTUS Financial Statements"),
have been prepared in accordance with GAAP and fairly present in all
material respects the financial position and results of operations of
CTUS as of the respective dates thereof and for the periods covered thereby
(subject, in the case of the unaudited financial statements, to normal
year-end adjustments) in conformity with GAAP.
SECTION 3.09. Company Financial Statements. The audited
consolidated financial statements of the Company and the Subsidiaries as
of December 31, 1995 (the "Audited Financial Statements"), and the
unaudited consolidated financial statements of the Company and the
Subsidiaries as of June 30, 1996 (the "Unaudited Financial Statements";
together with the Audited Financial Statements, the "Company Financial
Statements"), each attached hereto as Exhibit 3.09, have been prepared
in accordance with GAAP and fairly present in all material respects the
financial position and results of operations of the Company and the
Subsidiaries as of the respective dates thereof and for the periods
covered thereby (subject, in the case of the Unaudited Financial
Statements, to normal year-end adjustments) in conformity with GAAP.
SECTION 3.10. Absence of Certain Changes or Events. (a) Except
as disclosed in Section 3.10 of the Seller Disclosure Schedule, from June 30,
1996 to the date of this Agreement, the Business of CTUS, the Company and
the Subsidiaries has been conducted in the ordinary course and consistent
with past practice.
(b) From June 30, 1996 to the date of this Agreement, except as
set forth in Section 3.10 of the Seller Disclosure Schedule or as
contemplated by this Agreement, there has not been:
(i) any instances of damage, destruction or loss to any of the
assets or properties of CTUS, the Company or any Subsidiary which,
either individually or in the aggregate, have had a Material Adverse
Effect;
(ii) except in the ordinary course of business in connection with
advances from the Federal Home Loan Bank of New York, any material
Encumbrance of any kind created by CTUS, the Company or any
Subsidiaries or, to the knowledge of the Seller, created by any third
party or by operation of Law on any property or asset (whether
tangible or intangible) of CTUS, the Company or any Subsidiary;
(iii) any establishment, amendment to or increase in any bonus,
insurance, severance, compensation, fringe benefit, welfare, deferred
compensation, pension, retirement, profit sharing, stock option
(including, without limitation, any grant of any stock options, stock
appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plans applicable to current
or former employees, directors or consultants of CTUS, the Company or
any Subsidiary (or with respect to which CTUS, the Company or any
Subsidiary may have any liability), or other increase in the
compensation payable or to become payable to any officer, director,
employee or consultant of CTUS, the Company or any Subsidiary, except,
in any case described above, (x) in the ordinary course of business
consistent with past practice or (y) as may be required by applicable
Law;
(iv) any employment, consulting, stay bonus, severance or similar
agreement entered into, amended, renewed or terminated with any officer,
employee, director or consultant of CTUS, the Company or any Subsidiary
(or with respect to which CTUS, the Company or any Subsidiary may have
any liability);
(v) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any
of the fixed assets of CTUS, the Company or any Subsidiary having an
aggregate value exceeding U.S.$1,000,000;
(vi) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by CTUS, the Company or any Subsidiary of any
corporation, partnership or other business organization or division
thereof;
(vii) except in the ordinary course of business in respect of
deposits taken, advances from the Federal Home Loan Bank of New York,
sales of securities with agreements to repurchase and endorsement of
instruments in the course of collection, (x) any incurrence by the
Company or any Subsidiary of any indebtedness for borrowed money, (y)
any issuance by the Company or any Subsidiary of any debt securities
or (z) any assumption, granting, guarantee or endorsement of, or other
accommodation arrangement making the Company or any Subsidiary
responsible for, the obligations of any individual or legal entity
(other than the Company or another Subsidiary), in the case of (x),
(y) and (z) above, having an aggregate value exceeding U.S.$1,000,000;
(viii) any change in any method of accounting or accounting
practice used by the Company or any Subsidiary, other than changes
required by GAAP or regulatory accounting requirements;
(ix) any reclassification, combination, split, subdivision or any
redemption, repurchase or other acquisition of the capital stock of,
or other equity interests in, CTUS, the Company or any Subsidiary, any
declaration or payment of any dividends or distributions (whether in
cash, securities or other property) with respect to the shares of the
Company, any issuance or sale of additional shares of the capital
stock of, or other equity interests in, CTUS, the Company or any
Subsidiary or securities convertible into or exchangeable for such
shares or equity interests, or issuance or granting of any options,
warrants, calls, subscription rights or other rights of any kind to
acquire additional shares of such capital stock, such other equity
interests, or such securities;
(x) any amendment of organizational or governing documents of CTUS
(except as provided in Section 5.09 with respect to the Preferred Stock),
the Company or any Subsidiary or any alteration or restructuring of the
capitalization of CTUS, the Company or any Subsidiary;
(xi) any Material Adverse Effect; or
(xii) except for this Agreement, any agreement to take any actions
specified in this Section 3.10.
SECTION 3.11. Absence of Litigation. Except as disclosed in Section
3.11 of the Seller Disclosure Schedule, there are no claims, actions,
proceedings or investigations pending or, to the Seller's knowledge, threatened
against the Seller, CTUS, the Company or any Subsidiary, or any of their
respective assets or properties, before any court, arbitrator or administrative,
governmental or regulatory authority that, individually or, to the Seller's
knowledge, in the aggregate, would have a Material Adverse Effect or which seek
to delay, prevent or restrict the consummation of the transactions contemplated
hereby. None of CTUS, the Company or any Subsidiary or any of their respective
assets or properties is subject to any order, writ, judgment, injunction,
decree, determination or award that would have a Material Adverse Effect.
SECTION 3.12. Compliance with Laws. (a) Except as disclosed in
Section 3.12 of the Seller Disclosure Schedule, and except as would not have a
Material Adverse Effect or a material adverse effect on the Seller's ability
to perform its obligations under this Agreement, (i) each of CTUS, the Company
and the Subsidiaries has obtained or made all permits, licenses, approvals,
authorizations, registrations, qualifications and filings with and under all
U.S. and foreign laws, authorities and agencies that are required to enable
it to carry on its Business as currently conducted (the "Seller Operating
Approvals"), (ii) all Seller Operating Approvals are in full force and effect
and no suspension of such Seller Operating Approvals has been threatened in
writing and (iii) none of CTUS, the Company or any Subsidiary is in violation
of any applicable Law.
(b) None of the Seller, CTUS, the Company or any of the Subsidiaries
is subject to any cease and desist order, written agreement or memorandum of
understanding with, is a party to any commitment letter or similar undertaking
to, is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any extraordinary board
resolution at the request of, any Governmental Authority charged with the
supervision or regulation of thrifts or thrift holding companies or engaged
in the insurance of thrift deposits.
SECTION 3.13. Contracts. Except as disclosed in Section 3.13 of the
Seller Disclosure Schedule, none of CTUS, the Company or any of the Subsidiaries
is, or has received written notice that any other party thereto is, in default
of any contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which CTUS, the Company or any Subsidiary is a party or
by which CTUS, the Company or any of the Subsidiaries, or any of their assets,
business or operations, may be bound or affected except for such defaults
which individually or, to the Seller's knowledge, in the aggregate would not
have a Material Adverse Effect.
SECTION 3.14. Reports. Except as disclosed in Section 3.14 of the
Seller Disclosure Schedule, the Seller, CTUS, the Company and each Subsidiary
have filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with the OTS, the
FDIC and any other applicable banking authorities (the "Reports"). As of
their respective dates, the Reports complied in all material respects with
all the rules and regulations promulgated by the OTS, the FDIC or other
applicable banking authorities, as the case may be. Copies of all the Reports
have been made available for review by the Purchaser.
SECTION 3.15. Taxes. Except as set forth in Section 3.15 of the
Seller Disclosure Schedule or except as would not have a Material Adverse
Effect:
(a) Each of CTUS, the Company and each Subsidiary has filed, or has
had filed on its behalf, in a timely manner (within any applicable
extension periods) with the appropriate taxing authority, all Returns with
respect to Taxes of CTUS, the Company and each of the Subsidiaries other
than those Returns on which an immaterial amount of Taxes would properly
be shown;
(b) All such Returns are true, complete and accurate in all material
respects;
(c) All material Taxes due and payable by or with respect to CTUS,
the Company and the Subsidiaries have been paid in full or have been
provided for in the books and records of CTUS, the Company or the
Subsidiaries, as the case may be, in accordance with GAAP;
(d) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local
or foreign income or other material Returns required to be filed by or
with respect to CTUS, the Company or any of the Subsidiaries;
(e) None of the Returns of or with respect to CTUS, the Company or
any of the Subsidiaries is currently being audited or examined by any
taxing authority;
(f) No deficiency for any income Taxes has been assessed with respect
to CTUS, the Company or any of the Subsidiaries that has not been abated or
paid in full;
(g) The federal income tax returns of CTUS, the Company and each of
the Subsidiaries have been audited and settled, or are closed to
assessment, for all years through 1991;
(h) There is no claim or assessment outstanding, or, to the Seller's
knowledge, threatened against CTUS, the Company or any of the Subsidiaries
for any alleged deficiency in Taxes, and to the Seller's knowledge there
are no audits or investigations with respect to any liability of CTUS,
the Company or any of the Subsidiaries for Taxes;
(i) Each of CTUS, the Company and each of the Subsidiaries has to
the extent material withheld from its employees (and timely paid to the
appropriate taxing authority) the required amounts for all periods since
1991 in compliance with all tax withholding provisions of applicable
federal, state, local and foreign Laws (including, without limitation,
income, social security and employment tax withholding);
(j) Each of CTUS, the Company and each of the Subsidiaries has to
the extent material withheld (and timely paid to the appropriate taxing
authority) the required amounts for all periods since 1991 in compliance
with all tax withholding provisions of applicable federal, state, local
and foreign Laws other than provisions relating to employee withholding
(including, without limitation, withholding) of tax on dividends,
interest and royalties and similar income earned by nonresident aliens
and foreign corporations and withholding of tax on dispositions of
United States real property interest);
(k) The Seller has furnished or made available to the Purchaser
complete and accurate copies of all federal, state and local income and
franchise tax returns, and any amendments thereto, filed by CTUS, the
Company and the Subsidiaries for taxable years ending 1993 and 1994;
(l) There is no contract or agreement in existence under which CTUS,
the Company or the Subsidiaries have, or may at any time in the future
have, an obligation to contribute to the payment of any portion of a
Tax (or pay any amount calculated with reference to any portion of a Tax)
determined on a consolidated, combined or unitary basis with respect to
a group of corporations of which CTUS was not the common parent
corporation; and
(m) No consent has been filed relating to CTUS or the Company
pursuant to Section 341(f) of the Code.
SECTION 3.16. Real Property. Each parcel of real property, including
without limitation those properties set forth on Section 3.16(a) of the Seller
Disclosure Schedule (which lists owned properties) and Section 3.16(b) of the
Seller Disclosure Schedule (which lists leased properties), owned or leased by
the Company or any Subsidiary is owned or leased, free and clear of all
Encumbrances, except (a) as disclosed in Section 3.16(a) or Section 3.16(b)
of the Seller Disclosure Schedule, (b) with respect to liens for Taxes and
assessments not yet payable, (c) with respect to liens for Taxes, assessments
and charges and other claims, the validity of which is being contested in good
faith by appropriate proceedings and which are also identified in Section
3.16(c) of the Seller Disclosure Schedule, and (d) with respect to imperfections
of title and other Encumbrances, the existence of which, individually and in
the aggregate, would not have a Material Adverse Effect.
SECTION 3.17. Environmental Matters. Except as set forth in Section
3.17 of the Seller Disclosure Schedule or except as would not have a Material
Adverse Effect:
(a) CTUS, the Company and each Subsidiary are and have been in
compliance with all applicable Environmental Laws;
(b) There is no suit, claim, action or proceeding pending or, to the
knowledge of the Seller, threatened, before any Governmental Authority or
other forum in which CTUS, the Company or any Subsidiary has been or, with
respect to threatened proceedings, is reasonably likely to be named as a
defendant (i) for alleged noncompliance (including by any predecessor)
with an Environmental Law or (ii) relating to the Release into or
presence in the Environment of any Chemical Substance;
(c) To the knowledge of the Seller, there are no facts or
circumstances which would provide a reasonable basis for any suit, claim,
action or proceeding as described in Section 3.17(b);
(d) To the knowledge of the Seller, there has been no release of a
Chemical Substance in, on, under or affecting any Real Property, Leased
Property, Real Estate Owned or Loan Property;
(e) None of the Real Properties or, to the knowledge of the Seller,
none of the Leased Properties, Real Estate Owned or Loan Properties, is
on the National Priority List (NPL) or the Comprehensive Environmental
Response Compensation and Liability Information System (CERCLIS), or is
the subject of any investigation, remediation or cleanup of any
contamination or potential contamination;
(f) None of the Real Properties is subject to, or as a result of this
transaction would be subject to, the requirements of the New Jersey
Industrial Site Recovery Act or the New Jersey Environmental Cleanup
Responsibility Act or, to the knowledge of the Seller, to any other state
or local Environmental Laws which require notice, disclosure, cleanup or
approval prior to transfer of such assets, properties, businesses or
operations or which would impose liens on such assets, properties,
businesses or operations; and
(g) Seller does not participate in the management of any Loan
Property within the meaning of 40 C.F.R. Section 300.1100(c).
SECTION 3.18. Employee Benefit Matters. (a) Section 3.18(a) of the
Seller Disclosure Schedule contains a true and complete list as of the date of
this Agreement of all employee benefit plans and all bonus, stock option, stock
purchase, incentive, deferred compensation, retiree medical or other welfare
plans or life insurance, supplemental retirement, severance or other employee
benefit plans, programs, arrangements, agreements, commitments or payroll
practices, in each case that are maintained by the Company and/or the
Subsidiaries or to which the Company and/or the Subsidiaries contribute, that
benefit or relate to current or former employees of CTUS, the Company and/or
the Subsidiaries, or with respect to which CTUS, the Company and/or the
Subsidiaries may incur any liability (including, without limitation,
"employee benefit plans" within the meaning of Section 3(3) of ERISA, salary
continuation for disability, sick leave, employment agreements, consulting
agreements, incentive compensation plans, company awards and executive
compensation plans) (collectively, the "Plans").
(b) With respect to each Plan, the Seller has delivered or made
available to the Purchaser a true and correct copy of the following documents
relating to the Plans, as applicable; (i) the most recent annual report (Form
5500) filed or required to be filed with the Internal Revenue Service (the
"IRS"); (ii) the Plan document and all amendments thereto; (iii) the trust
agreement or funding vehicle and all amendments thereto; (iv) the Summary
Plan Description and any Summary of Material Modification required under
ERISA; (v) the most recent actuarial report or valuation relating to any
Plan subject to Title IV of ERISA or any other defined benefit Plan; (vi)
the most recent determination letter, if any, issued by the IRS with respect
to any Plan intended to be qualified under Section 401(a) of the Code; (vii)
all material, written communications to employees or former employees within
the past three years relating to any Plan or any other written communication
in the past five years that was materially inconsistent with any Plan document
or that could cause the Company to incur significant liability; and (viii)
written descriptions of all non-written plans.
(c) Except as set forth in Section 3.18(c) of the Seller Disclosure
Schedule, the Plans that are intended to qualify under Section 401(a) of the
Code are so qualified, the trusts maintained pursuant thereto are exempt from
federal taxation under Section 501 of the Code and have received a determination
letter from the IRS to that effect and, to the Seller's knowledge, no event
has occurred with respect to the operation of the Plans which could cause the
loss of such qualification or exemption or the imposition of any material
liability, penalty or tax under ERISA or the Code.
(d) Neither the Company nor any of the Subsidiaries nor any of its or
their ERISA Affiliates (meaning any trade or business, whether or not
incorporated, under common control with the Seller, CTUS, the Company or the
Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code)
has contributed or been obligated to contribute within the six-year period
ending on the Closing Date to any multiemployer plan which is described in
Section 4001(a)(3) of ERISA. None of the Plans are or have been subject to
Section 4063 or 4064 of ERISA.
(e) Except as set forth in Section 3.18(e) of the Seller Disclosure
Schedule, there has been no "reportable event" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to any Plans
subject to Title IV of ERISA (nor will the transactions contemplated by this
Agreement result in the occurrence of a reportable event described in Section
4043(c)(9), (10), (11), (12) or (13) of ERISA), nor has there been any event
requiring disclosure under Sections 4041(c)(3)(C) and 4063(a) of ERISA,
excluding reportable events for which notice has been waived by the Pension
Benefit Guaranty Corporation (the "PBGC").
(f) Except as set forth in Section 3.18(f) of the Seller Disclosure
Schedule, neither CTUS, the Company, the Subsidiaries, the Seller nor any
"party in interest" or "disqualified person" with respect to any Plan, nor any
Plan has engaged in a "prohibited transaction" within the meaning of Section
4975 of the Code or Section 406 of ERISA which would result in a material
liability to it.
(g) Neither CTUS, the Company nor any of the Subsidiaries nor any of
the ERISA Affiliates has any outstanding liability or is expected to incur any
liability under or arising out of Title IV of ERISA to the PBGC, to a trust
established under Section 4041 or 4042 of ERISA or to a trustee appointed under
Section 4042 of ERISA, to any Plan or to any other Person (other than premiums
due the PBGC, which premiums have been paid when due).
(h) With respect to each Plan, all contributions and premiums
required by Law or by the terms of any Plan or any agreement related thereto
have been timely made (without regard to any waivers granted with respect
thereto), no accumulated funding deficiency (whether or not waived) or liquidity
shortfall exists with respect to any Plan subject to Section 412 of the Code or
Section 302 of ERISA, all amounts properly accrued to date or as of the Closing
Date as liabilities of CTUS, the Company or any Subsidiary that have not been
paid have been properly recorded on the books of CTUS, the Company or the
Subsidiary, as the case may be, and each payment required to be made by any
Plan has been made when due and none of the assets of CTUS, the Company nor
any of the Subsidiaries are the subject of any lien arising under Section
302(f) of ERISA or Section 412(n) of the Code, and neither CTUS, the Company
nor any of the Subsidiaries have been required to post security pursuant to
Section 307 of ERISA or Section 401(a)(29) of the Code and, to the Seller's
knowledge, facts do not exist which could be expected to give rise to such a
lien or such posting of security.
(i) Each of the Plans has been maintained, in form and operation, in
all material respects, in accordance with its terms and all provisions of
applicable Law, including, without limitation, ERISA and the Code. CTUS, the
Company and each Subsidiary have complied in all material respects with the
notice and continuation requirements of Section 4980B of the Code.
(j) Except as set forth in Section 3.18(j) of the Seller Disclosure
Schedule, there are no material pending or, to the Seller's knowledge,
threatened claims, or lawsuits which have been asserted or instituted (and, to
the Seller's knowledge, there are no facts or circumstances on which any such
claims or lawsuits could be based) with regard to any of the Plans (other than
claims for benefits made in the ordinary course of administration of the Plans).
(k) Except as disclosed in Section 3.18(k) of the Seller Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not: (i) entitle any employee, former employee or any other person to any
payment or (ii) accelerate the time of payment or vesting or increase the
amount of compensation payable to any person or (iii) otherwise result in any
"parachute payment" within the meaning of Section 280G of the Code.
(l) No event has occurred, or is expected to occur, as a result of
or in connection with the transactions contemplated by this Agreement, in
connection with which CTUS, the Company, any Subsidiary or any ERISA Affiliate,
directly or indirectly, could be subject to any material liability under ERISA,
the Code or any other Law applicable to any Plan, including, without
limitation, Section 4971, 4975 or 4976 of the Code or Section 406, 502(i),
502(l) or 4069 of ERISA, or under any agreement or Law pursuant to or under
which CTUS, the Company, the Subsidiaries or any ERISA Affiliate has agreed
to indemnify or is required to indemnify any person against liability incurred
under, or for a violation of or failure to satisfy the requirements of, any
such agreement, instrument or Law.
(m) Except as set forth in Section 3.18(m) of the Seller Disclosure
Schedule, no Plan provides benefits, including death or medical benefits
(whether or not insured) with respect to any current or former employee of
CTUS, the Company or any Subsidiary beyond his or her retirement or other
termination of service (other than (i) coverage mandated by applicable Law,
(ii) retirement or death benefits under any employee pension plan, (iii)
disability benefits under any welfare plan that have been fully provided for
by insurance or otherwise, (iv) deferred compensation benefits accrued as
liabilities on the books of CTUS, the Company or the Subsidiaries or (v)
benefits in the nature of severance pay).
(n) Except as disclosed in writing by the Company to the OTS with no
objection from the OTS, each employment agreement entered into by CTUS, the
Company or the Subsidiaries complies with OTS Regulation Section 563.39, the
compensation of officers, directors and employees of CTUS, the Company and
the Subsidiaries complies with OTS Regulation Section 563.161(b), and the
compensation arrangements of CTUS, the Company and the Subsidiaries are
consistent with OTS Regulatory Bulletin RB27a.
(o) Except as described in Section 3.18(o) of the Seller Disclosure
Schedule, there is no announced plan, promise or legally binding commitment to
create any additional Plans or to amend or modify any existing Plan.
(p) There has been no material adverse change in the funding status
of the First Federal Savings and Loan Association of Rochester Pension Plan
from the status reflected in such plan's actuarial report dated as of January 1,
1995.
SECTION 3.19. Labor Matters. None of CTUS, the Company nor any of
the Subsidiaries is party to any labor agreements with respect to its
employees with any labor organization, group or association and no labor
organization or group of employees has made a pending demand for recognition,
and there is no organizing activity involving the employees of CTUS, the
Company or the Subsidiaries pending, or, to the Seller's knowledge, threatened,
by any labor organization or group of employees. Except as disclosed in
Section 3.19 of the Seller Disclosure Schedule, or as would not have a
Material Adverse Effect as of the date of this Agreement, (a) there is no
unfair labor practice charge or complaint against the Company or any of the
Subsidiaries pending, or to the Seller's knowledge threatened, before the
National Labor Relations Board, any comparable state agency or any other
Governmental Authority, (b) there is no labor strike, labor disturbance, work
stoppage or other material labor dispute pending or to the Seller's knowledge
threatened against the Company or any of the Subsidiaries and (c) there are
no complaints, charges or claims pending with the courts or with a Governmental
Authority or, to the Seller's knowledge, threatened for which the Seller,
CTUS or the Company has received notice, or based on, arising out of, in
connection with or otherwise related to the employment by CTUS, the Company
or the Subsidiaries of any of their employees, including any claim relating to
employment discrimination, equal pay, employee safety and health, wages and
hours or workers' compensation. Except as disclosed in Section 3.19 of the
Seller Disclosure Schedule, each of the Company and each Subsidiary is in
material compliance with all applicable Laws respecting employment practices,
terms and conditions of employment and wages and hours.
SECTION 3.20. Insurance. Except as set forth in Section 3.20 of the
Seller Disclosure Schedule, all material properties and risks of CTUS, the
Company and the Subsidiaries are covered by valid and currently effective
insurance policies or binders of insurance or programs of self-insurance in
such types and amounts as are consistent with customary practices and standards
of companies engaged in businesses and operations similar to those of CTUS,
the Company and the Subsidiaries.
SECTION 3.21. Minority Shares. The Seller has entered into such
arrangements and/or agreements as shall be necessary to cause CTUS to be the
record and beneficial owner of all of the outstanding Minority Shares as of the
Closing Date, except as disclosed in Section 3.21 of the Seller Disclosure
Schedule. Certificates evidencing all of the Minority Shares, other than those
disclosed in Section 3.21 of the Seller Disclosure Schedule, are being held in
escrow by the Company pending delivery of the same to CTUS on the Closing Date.
SECTION 3.22. Intercompany Obligations. Except as disclosed in
Section 3.22 of the Seller Disclosure Schedule, as of the date hereof, there
are no intercompany agreements or arrangements between CTUS, the Company and
the Subsidiaries, on the one hand, and the Seller or any of its Affiliates,
on the other hand (the "Intercompany Obligations").
SECTION 3.23. Community Reinvestment Act. The Company (a)
received a rating of "outstanding" in its most recent examination with
respect to the Community Reinvestment Act (the "CRA") and (b) has not been
notified in writing with respect to supervisory concerns regarding its
compliance with the CRA or, to the extent applicable, the New York Community
Reinvestment Act.
SECTION 3.24. Brokers. Except for Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller. The Seller is solely
responsible for the fees and expenses of Merrill Lynch.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
SECTION 4.01. Organization and Authority of the Purchaser. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power
(corporate or otherwise) and authority to enter into this Agreement, to carry
out its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Purchaser, the
performance by the Purchaser of its obligations hereunder and the consummation
by the Purchaser of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser, and
(assuming due authorization, execution and delivery by the Seller) constitutes
a legal, valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with its terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding at law or in equity). The Purchaser
directly owns all of the issued and outstanding shares of capital stock of
Marine Midland Bank, a New York State chartered commercial bank.
SECTION 4.02. Organization of Marine Midland Bank. Marine Midland
Bank is a New York State chartered commercial bank, duly organized, validly
existing, and in good standing under the laws of the State of New York, and
has the requisite corporate power and authority to own its assets and carry
on its business as currently conducted. The deposits of Marine Midland Bank
are insured to the fullest extent permitted under applicable law by the Bank
Insurance Fund of the FDIC.
SECTION 4.03. Consents and Approvals. (a) The execution and
delivery of this Agreement by the Purchaser do not, and the performance of
this Agreement by the Purchaser will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
Governmental Authority, or any other Person, except (i) for the consents,
approvals, authorizations, actions or filings described in Section 4.03 of
the Purchaser Disclosure Schedule (the "Purchaser's Required Approvals"),
(ii) for such consents, approvals, authorizations, actions, filings or
notifications the failure to make or obtain which would not, individually or
in the aggregate either, prevent or delay the Purchaser from performing any
of its material obligations under this Agreement and (iii) as may be
necessary as a result of any facts or circumstances relating solely to the
Seller.
(b) The Purchaser has no reason to believe that it will not be able
to make or, on a timely basis, obtain all the Purchaser's Required Approvals.
SECTION 4.04. No Conflict. Assuming all consents, approvals,
authorizations and other actions contemplated in Section 4.03 have been
obtained and all filings and notifications listed in Section 4.03 of the
Purchaser Disclosure Schedule have been made and, except as may result from
any facts or circumstances relating solely to the Seller, the execution,
delivery and performance of this Agreement by the Purchaser do not and will
not (a) violate or conflict with the charter or by-laws or other
organizational documents of the Purchaser, (b) except as would not prevent the
Purchaser from performing its material obligations under this Agreement,
conflict with or violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Purchaser, or
(c) except as would not prevent the Purchaser from performing any of its
material obligations under this Agreement, result in any breach of, or
constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on any of the assets or properties of the
Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument relating to
such assets or properties to which the Purchaser or any of its respective
subsidiaries is a party or by which any of such assets or properties is bound
or affected.
SECTION 4.05. Compliance with Laws. (a) (i) Each of the Purchaser,
Marine Midland Bank and each subsidiary of Marine Midland Bank has or has
obtained or made all permits, licenses, approvals, authorizations,
registrations, qualifications and filings with and under all U.S. and foreign
laws, authorities and agencies that are required to enable it to carry on its
Business as currently conducted (the "Purchaser Operating Approvals"), (ii)
all the Purchaser Operating Approvals are in full force and effect, and no
suspension of such Purchaser Operating Approvals has been threatened in
writing and (iii) none of the Purchaser, Marine Midland Bank or any
subsidiary of Marine Midland Bank is in violation of any applicable Law,
except for such failures to obtain or have in full force and effect such
Purchaser Operating Approvals, such suspensions of Purchaser Operating
Approvals and such violations of Law as would not individually or, to the
best of the Purchaser's knowledge, in the aggregate prevent the Purchaser
from performing its material obligations under this Agreement.
(b) None of the Purchaser, Marine Midland Bank or any subsidiary of
Marine Midland Bank is subject to any cease and desist order, written agreement
or memorandum of understanding with, is a party to any commitment letter or
similar undertaking to, is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
extraordinary board resolution at the request of, any Governmental Authority
charged with the supervision or regulation of banks or bank holding companies
or engaged in the insurance of thrift deposits which would have a material
adverse effect on the Purchaser's ability to perform its obligations under
this Agreement.
SECTION 4.06. Absence of Litigation. There are no claims, actions,
proceedings or investigations pending or, to the Purchaser's knowledge,
threatened against the Purchaser, Marine Midland Bank or any subsidiary of
Marine Midland Bank, or any of its or their assets or properties, before any
court, arbitrator or administrative, governmental or regulatory authority
which seek to delay, prevent or restrict the consummation of the transactions
contemplated hereby.
SECTION 4.07. Securities Law. The Purchaser understands and agrees
that it may not sell or dispose of any of the CTUS Shares or the Company Shares
other than pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or pursuant to an available exemption
therefrom.
SECTION 4.08. Financing. The Purchaser currently has, and at the
Closing will continue to have, all funds necessary to satisfy all of its
obligations hereunder and to consummate the transactions contemplated by
this Agreement on the terms set forth herein, and its ability to consummate
such transactions is not dependent or conditional upon receipt of financing
from any third party.
SECTION 4.09. Community Reinvestment Act. Marine Midland Bank
received a rating of "satisfactory" in its most recent examination with
respect to the CRA. Marine Midland Bank has not been notified in writing
with respect to supervisory concerns regarding its compliance with the CRA
or, to the extent applicable, the New York Community Reinvestment Act.
SECTION 4.10. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser or any of its affiliates.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (a) Except
as otherwise provided or contemplated herein or in Section 5.01(a) of the
Seller Disclosure Schedule, the Seller agrees that, between the date hereof and
the Closing Date and without the prior written consent of the Purchaser:
(i) it will not permit CTUS, the Company or the Subsidiaries to
conduct their Businesses other than in all material respects in the
ordinary course and consistent with prior practice;
(ii) it will cause CTUS, the Company and each Subsidiary to use
reasonable efforts to preserve substantially intact the business
organization of their respective Businesses, to keep available to the
Purchaser the services of the employees of the Company and each
Subsidiary (but the Seller shall have no liability to the Purchaser for
the failure to keep the services of any employees who voluntarily
resign from employment by the Company or the Subsidiaries) and to
use reasonable efforts to preserve the current relationships with their
respective customers, suppliers and other persons with which they have
significant business relationships;
(iii) it will not permit CTUS, the Company or any Subsidiary to amend
their respective charters, by-laws or similar organizational documents or
merge or consolidate, or obligate themselves to do so, with or into any
other entity;
(iv) it will not permit either CTUS, the Company or a Subsidiary:
(x) to change its accounting methods, principles or practices (other than
such changes required by GAAP or by applicable Law), (y) to establish or
increase any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without limitation,
the granting of stock options, stock appreciation rights, performance
awards, or restricted stock awards), stock purchase or other employee
benefit plan, or otherwise increase the compensation payable or to become
payable to any officers or employees of either CTUS, the Company or a
Subsidiary, except in the ordinary course of business consistent with
past practice or as may be required by applicable Law or applicable
collective bargaining agreements or (z) enter into any employment or
severance agreement with any of its employees or establish, adopt, enter
into or amend any collective bargaining agreement; and
(v) it will not permit CTUS, the Company or a Subsidiary to adopt any
new Plan or to amend, modify or terminate any Plan (or commit, promise or
communicate any intention to adopt any new Plan or amend, modify or
terminate any Plan), except as may be required by Law.
(b) Notwithstanding anything to the contrary in this Agreement and
for the purpose of facilitating the establishment or maintenance of an insured
depository institution and operation of a thrift or banking business in the
United States, at any time on or prior to the Closing, CTUS may, with the
consent of the Purchaser (which consent shall not be unreasonably withheld),
but subject to compliance with all applicable Law, cause the Company to either
(i) sell, transfer, assign or otherwise dispose of, to the Seller, or such of
the Seller's Affiliates as the Seller shall have the right to determine up
to U.S.$5,000,000 in fair market value of mortgage and other residential
real estate or similar assets of the Company identified by the Seller together
with the assumption by any such transferee of an equivalent amount of
non-deposit liabilities of the Company so long as, after giving effect to
the foregoing, the Book Value of the Company shall not be diminished by an
amount greater than U.S.$5,000,000 from the amount thereof immediately prior
to any such action or (ii) sell, transfer, assign or otherwise dispose of
all of the Company's assets and liabilities to a newly-established insured
depository institution to be owned by CTUS (other than the limited amount of
assets and liabilities contemplated in the preceding clause (i) and the FIRREA
Claim) and thereafter transfer ownership of all of the Company Shares to the
Seller and/or such of the Seller's Affiliates as the Seller may designate,
in which event the purchase and sale contemplated hereunder shall, without
any further action on the part of the parties hereto, be deemed to be amended
to relate solely to the CTUS Shares and, indirectly, the shares of the
newly-established insured depository institution contemplated herein.
SECTION 5.02. Investigation. (a) The Purchaser acknowledges and
agrees that it (i) has made its own inquiry and investigation into, and, based
thereon, has formed an independent judgment concerning, CTUS, the Company and
the Subsidiaries, (ii) has been furnished with or given adequate access to
such information about CTUS, the Company and the Subsidiaries and the
respective Businesses of CTUS, the Company and the Subsidiaries as it has
requested, and (iii) will not assert any claim against the Seller, CTUS or
the Company (except as contemplated or otherwise permitted by this Agreement)
or any of their directors, officers, employees, agents, stockholders,
affiliates, consultants, investment bankers, attorneys or representatives,
or hold the Seller, CTUS or the Company or any such persons liable, for any
inaccuracies, misstatements or omissions with respect to information (other
than, in the case of the Seller, with respect to the representations, warranties
and information contained in this Agreement, including the Seller Disclosure
Schedule or in any certificate or other document delivered to the Purchaser
which certificate or other document was prepared in connection with the sale
of the CTUS Shares) furnished by the Seller or such persons concerning the
Seller, CTUS, the Company and the Subsidiaries or the Businesses of CTUS, the
Company and the Subsidiaries.
(b) In connection with the Purchaser's investigation of CTUS, the
Company and the Subsidiaries and the Businesses of CTUS, the Company and the
Subsidiaries, the Purchaser received from the Seller certain estimates,
projections and other forecasts for CTUS, the Company and the Subsidiaries,
and certain plan and budget information. The Purchaser acknowledges that
there are uncertainties inherent in attempting to make such estimates,
projections, forecasts, plans and budgets, that the Purchaser is familiar
with such uncertainties, that the Purchaser is taking full responsibility
for making its own evaluation of the adequacy and accuracy of all estimates,
projections, forecasts, plans and budgets so furnished to it, and that the
Purchaser will not assert any claim against the Seller or any of its
affiliates or any of their directors, officers, employees, agents,
stockholders, affiliates, consultants, investment bankers, attorneys or
representatives, or hold the Seller or any such persons liable with respect
thereto except as otherwise permitted under Section 10.03. Accordingly, the
Seller makes no representation or warranty with respect to any estimates,
projections, forecasts, plans or budgets referred to in this section other
than as contemplated in Sections 3.08 and 3.09.
SECTION 5.03. Access to Information. (a) From the date hereof until
the Closing Date, upon reasonable notice, the Seller shall, and shall cause
CTUS and each of CTUS', the Company's and the Subsidiaries' officers,
directors, employees, auditors and agents to, (i) afford the officers,
employees and authorized agents and representatives of the Purchaser reasonable
access, during normal business hours, to the offices, properties, books and
records of CTUS, the Company and the Subsidiaries and (ii) furnish to the
officers, employees and authorized agents and representatives of the Purchaser
such additional financial and operating data and other information regarding
the assets, properties, goodwill and Business of CTUS, the Company and the
Subsidiaries as the Purchaser may from time to time reasonably request;
provided, however, that such investigation shall not unreasonably interfere
with any of the Business or operations of the Seller, CTUS, the Company, the
Subsidiaries or any Affiliate of the Seller; and provided further that the
Seller, CTUS, the Company and any Subsidiary shall not be required to breach
or violate any confidentiality obligation contained in a written agreement,
binding on any of the Seller, CTUS, the Company and any Subsidiary.
(b) In order to facilitate the resolution after the Closing of any
claims made by or against or incurred by the Seller prior to the Closing
arising out of or relating to its ownership of CTUS, the Company or any of
the Subsidiaries, the Purchaser shall (i) afford the officers, employees and
authorized agents and representatives of the Seller reasonable access, during
normal business hours, to the offices, properties, books and records of the
Purchaser, CTUS, the Company and the Subsidiaries, (ii) furnish to the officers,
employees and authorized agents and representatives of the Seller such
additional financial and other information regarding CTUS, the Company and the
Subsidiaries and the Businesses of CTUS, the Company and the Subsidiaries as
the Seller may from time to time reasonably request and (iii) to the extent
it does not unreasonably interfere with the discharge of their regular duties
make available to the Seller, the employees of CTUS, the Company and the
Subsidiaries whose assistance, testimony or presence is necessary to assist
the Seller in evaluating any such claims and in defending such claims,
including the presence of such persons as witnesses in hearings or trials
for such purposes; provided, however, that such investigation shall not
unreasonably interfere with the business or operations of the Purchaser,
CTUS, the Company, the Subsidiaries or any Affiliate of the Purchaser or in
the case of CTUS, the Company and the Subsidiaries, their respective successors;
provided further that the Seller shall pay all out-of-pocket costs of the
Purchaser, CTUS, the Company, the Subsidiaries or in the case of CTUS, the
Company and the Subsidiaries, their respective successors and such employees
incurred in connection with any such investigation and shall reimburse the
Purchaser, CTUS, the Company, the Subsidiary or in the case of CTUS, the
Company and the Subsidiaries, their respective successors by which each such
employee is employed on a per diem basis based on the annual salary and
benefits, fully costed, of all employees if, in the aggregate, such employees
are required to devote more than fifty hours to responding to requests from
the Seller pursuant to this Section 5.03(b).
SECTION 5.04. Books and Records. (a) From the Closing Date until
six years from the Closing Date or such longer period, if any, as is required
by applicable Law relating to the Businesses and activities of CTUS, the
Company and the Subsidiaries, the Purchaser agrees that it shall preserve and
keep all books and records of CTUS, the Company and the Subsidiaries relating
to the Pre-Closing Period. Prior to expiration of six years from the Closing
Date, before disposing of any of such books and records, the Purchaser shall
give the Seller at least 90 calendar days' prior written notice of the
proposed destruction specifying in reasonable detail in the manner currently
employed by the Company to catalog their books and records the books and
records to be disposed of, and the Seller shall be given an opportunity, at
its cost and expense, to remove and retain all or any part of such books and
records as the Seller may select. During such 90-day period, duly authorized
representatives of the Seller shall, upon reasonable notice, have access
thereto during normal business hours to examine, inspect and copy such books
and records.
(b) If, in order properly to prepare documents required to be filed
with Governmental Authorities or its financial statements, it may be necessary
that either of the parties hereto or any successors be furnished with additional
information relating to CTUS, the Company and the Subsidiaries or their
respective Businesses, and such information is in the possession of the other
party hereto, such party agrees to use its best efforts to furnish such
information to such other party, at the cost and expense of the party being
furnished such information.
SECTION 5.05. Confidentiality. (a) The terms of the letter
agreement dated as of June 17, 1996 (the "Confidentiality Agreement") between
Merrill Lynch, on behalf of the Seller, and the Purchaser are hereby
incorporated by reference and shall continue in full force and effect, except
as inconsistent with the terms of this Agreement and provided that, if this
Agreement shall terminate, as provided herein, the Confidentiality Agreement
shall remain in full force and effect.
(b) Except to the extent disclosure is required by Law, or in
response to any governmental or regulatory authority, or in connection with
any litigation relating to an alleged breach of this Agreement, each party
shall maintain the confidentiality of all information obtained from the other
party hereto other than information that is otherwise publicly available and
shall use such information only for purposes reasonably related to this
Agreement and the transactions contemplated hereby. If this Agreement is
terminated, each of the parties hereto agrees to return promptly upon request
all documents received from the other party that contain or embody information
subject to this paragraph.
(c) The Seller acknowledges that, from and after the Closing, all
proprietary and confidential information of CTUS, the Company and the
Subsidiaries shall be and become the property of the Purchaser, and the Seller
agrees that it will not, and it will not permit any of its Affiliates to, use
or disseminate such information for any purpose whatsoever.
SECTION 5.06. Authorizations; Consents and Notices. (a) Each party
hereto shall use reasonable efforts to obtain all authorizations, consents,
orders and approvals of, and to give all notices to and make all filings with,
all Governmental Authorities and other third parties that may be or become
necessary for such party's execution and delivery of, and the performance of
such party's obligations pursuant to, this Agreement and will cooperate fully
with the other party in promptly seeking to obtain all such authorizations,
consents, orders and approvals, giving such notices, and making such filings.
The Purchaser acknowledges that it shall be solely responsible for obtaining
the Purchaser's Required Approvals, and the Seller agrees to use reasonable
efforts to assist the Purchaser in obtaining the Purchaser's Required
Approvals on or prior to the Closing Date. The Seller acknowledges that it
will be solely responsible for obtaining the Seller's Required Approvals and
the Purchaser agrees to use reasonable efforts to assist the Seller in
obtaining the Seller's Required Approvals on or prior to the Closing Date.
The parties hereto acknowledge that time shall be of the essence in this
Agreement and agree not to take any action that will have the effect of
unreasonably delaying, impairing or impeding the receipt of any required
authorizations, consents, orders or approvals.
(b) The Purchaser and its subsidiaries will use reasonable efforts to
assist the Seller in obtaining at or prior to the Closing any consents of third
parties (other than Governmental Authorities) under any lease or contract to
which the Company or any Subsidiary is a party, which consent is in the
reasonable judgment of the Seller necessary or advisable in connection with
the transactions contemplated by this Agreement, including, without limitation,
(i) providing to such third parties (A) guarantees by the Purchaser of the
obligations of CTUS, the Company or any Subsidiary under the subject lease or
contract and (B) such financial statements and other financial information
with respect to the Purchaser as such third parties may reasonably request
and (ii) agreeing to such adjustments to the terms of the subject lease or
contract as would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 5.07. Pre-Closing Payments. At or prior to the Closing Date,
the Seller shall have the right, and shall have the right to cause CTUS, the
Company and the Subsidiaries, to terminate all of the Intercompany Obligations,
it being understood that (a) at the Seller's discretion the Seller shall (to
the extent permitted by applicable Law and regulation) cause the Company to
pay an extraordinary dividend to CTUS at least sufficient to allow CTUS to
satisfy or repay any Intercompany Obligations and, subject to regulatory
approval, to pay a dividend such that, after giving effect thereto, the
Book Value as of the date which is expected to be the Audit Date is not less
than the Agreed Minimum Audit Date Book Value on such date and (b) to
facilitate the transactions contemplated herein, the Seller may, but shall
not be obligated to, cause CT North America L.L.C. to forgive, convert or
otherwise restructure in accordance with applicable Law the intercompany debt
in an amount of approximately U.S.$82,200,000 owed to it by CTUS so long as
the foregoing shall result in an increase to the Book Value of CTUS in an
amount not less than the aggregate outstanding principal amount of such debt
and any accrued interest thereon; provided, however, that (i) the Seller shall
give the Purchaser five Business Days' prior written notice of any transaction
described in this Section 5.07 specifying in reasonable detail the actions to
be taken, (ii) after giving effect to the transactions described in such
notice, the Book Value of CTUS shall be the Agreed Minimum Audit Date Book
Value on such date and (iii) any Taxes arising from the payment of any dividend
or the forgiveness, conversion or restructuring of any debt as contemplated
in this Section 5.07 shall be expressly deemed to accrue, arise and be payable
during a Pre-Closing Period.
SECTION 5.08. Notice of Events. The Seller and the Purchaser shall
promptly notify each other of any event or circumstance which shall occur prior
to the Closing which shall constitute a breach of a representation or warranty
or a covenant or agreement of either the Seller or the Purchaser, such that it
is reasonably likely that the conditions set forth in Section 8.01(a) or
Section 8.02(a), as the case may be, will be incapable of being satisfied by
the Closing Date.
SECTION 5.09. FIRREA Claim. (a) Assuming that the action
contemplated in Section 5.01(b)(ii) shall not have been taken and
notwithstanding anything herein to the contrary, the parties hereto agree (i)
that any recovery (the "FIRREA Recovery") on the litigation filed by the
Company in the United States Court of Claims styled First Federal Savings
and Loan Association of Rochester v. United States, No. 95-517C (Ct. Cl.
filed August 7, 1995), and any claim, right or administrative or judicial
proceeding comprising, arising out of, or resulting from, that litigation (any
such claim, right or proceeding is referred to herein as the "FIRREA Claim")
shall be for the account of the Seller, (ii) that the Seller shall have the
sole and exclusive right to direct the prosecution of the FIRREA Claim as
hereinafter provided, (iii) that the Purchaser, the Company and/or any
successor-in-interest thereto which holds the FIRREA Claim (the "FIRREA
Plaintiff") shall take all action reasonably requested by the Seller from
time to time with respect to the FIRREA Claim, it being understood and
agreed that, in furtherance thereof, the FIRREA Plaintiff's actions shall be
subject to the conditions set forth in Exhibit 5.09(e), (iv) that the FIRREA
Plaintiff shall be under no obligation whatsoever to take any action in
respect of the FIRREA Claim in the absence of direction from the Seller,
(v) that the FIRREA Plaintiff shall take no action subsequent to the Closing
with respect to the FIRREA Claim that reasonably can be expected to adversely
affect the likelihood, timing, nature, or amount of any such recovery and
(vi) that the Seller shall pay all costs and expenses of prosecution of the
FIRREA Claim at the direction of the Seller, including, without limitation,
all costs and expenses of the FIRREA Plaintiff, the Purchaser or any
subsidiary of the Purchaser incurred in connection therewith, including,
without limitation, all fees and disbursements of counsel to the FIRREA
Plaintiff chosen by Seller as provided in Section 5.09(d).
(b) In furtherance of the foregoing (and without in any way
intending to limit the right and ability of the Seller and the Purchaser to
consider and agree on other appropriate courses of action, including any
action or arrangement that is intended to maximize or preserve the value of
the FIRREA Claim to the Seller, by, among other things, requiring that the
FIRREA Plaintiff hold the FIRREA Recovery in trust for the benefit of the
holder of the Preferred Stock), the Purchaser understands and agrees that,
prior to consummation of the transactions contemplated hereby, the Seller
may cause CTUS to amend its organizational documents to provide for the
issuance of, and to cause CTUS to issue by way of dividend or otherwise,
shares of a new class of non-voting preferred stock (the "Preferred Stock")
having terms and conditions as set forth in Exhibit 5.09(b), including,
without limitation, terms that require CTUS (or any successor-in-interest):
(i) (A) to pay a dividend on the Preferred Stock in an amount equal to the
aggregate amount of any cash received by the FIRREA Plaintiff as part of
the FIRREA Recovery, (B) to make a distribution in kind on the Preferred
Stock of any non-cash property, right or benefit received by the FIRREA
Plaintiff as part of the FIRREA Recovery which can be transferred to the
Seller without impairment in value and (C) to pay a dividend on the
Preferred Stock, but only at the time actually realized by the FIRREA
Plaintiff and only in the aggregate amount of the actual proceeds (net of
any costs of sale incurred with the consent of the Seller) or benefit of
any non-cash property, right or benefit received by the FIRREA Plaintiff as
part of the FIRREA Recovery which cannot be transferred to Seller, without
impairment in value, as determined by an independent internationally
recognized investment bank mutually chosen by the Seller and the FIRREA
Plaintiff, in each case net of any applicable Taxes, the amount of
which shall be computed at the maximum applicable marginal statutory tax
rate in effect at the time of the FIRREA Recovery (the "Preferred Stock
Dividend Amount") (which amount or in-kind distribution shall be subject to
any applicable withholding taxes); and (ii) to redeem the Preferred Stock
at par value plus the amount by which the Preferred Stock Dividend Amount
exceeds any dividends paid or in kind distributions made on the Preferred
Stock prior to redemption (the "Preferred Stock Redemption Amount");
provided that the terms and conditions of the Preferred Stock shall be
substantially in conformity with the terms and conditions set forth in
Exhibit 5.09(b) or otherwise reasonably acceptable to the Purchaser.
Notwithstanding the foregoing, (x) at any time prior to the Closing, the
Company shall have the right, without the consent of the Purchaser, to
transfer the FIRREA Claim to the Seller, any of its Affiliates or a newly-
created or existing Subsidiary of the Company and the right to transfer the
shares of any such Subsidiary to the Seller, or any of its Affiliates and
(y) at any time following the Closing, at the request of the Seller, the
Purchaser shall transfer or cause the FIRREA Plaintiff to transfer the
FIRREA Claim to the Seller or such Affiliate of the Seller as the Seller
shall designate and, in either case, the Purchaser agrees that subject to
clauses (iii), (iv) and (vi) of paragraph (a) above, following the Closing
and for so long as the FIRREA Plaintiff is a subsidiary of the Purchaser it
shall and shall cause the FIRREA Plaintiff, CTUS and/or the appropriate
Subsidiaries to cooperate fully (including joining as a party) in the
prosecution of the FIRREA Claim.
(c) Pursuant to the terms and conditions of the Preferred Stock,
on the first Business Day following the later of (i) 30 days after the receipt
of the FIRREA Recovery by the FIRREA Plaintiff and (ii) 90 days after the
commencement of the taxation year of the FIRREA Plaintiff in which the FIRREA
Recovery is received, CTUS shall declare and pay a cash dividend or make a
distribution in-kind on the Preferred Stock as provided above and shall pay
any cash by wire transfer in immediately available funds to one or more
accounts designated by the holder(s) of the Preferred Stock and make any
in-kind distribution in a commercially reasonable manner. If the amount of
any FIRREA Recovery is reduced due to any set off, counterclaim, or other
reduction successfully asserted by the U.S. Government against the FIRREA
Plaintiff arising out of a claim (i) against the FIRREA Plaintiff or any of
its Affiliates unrelated to the FIRREA Claim and (ii) in the case of a claim
against the Company, relating to a period or events following the Closing
Date, in addition to the payments and distributions otherwise contemplated to
be paid or made by the issuer of the Preferred Stock pursuant to this
paragraph (c), the amount includable in the Preferred Stock Dividend Amount
shall, notwithstanding anything hereto to the contrary, be increased by
an amount equal to the amount of such set off, counterclaim or other
reduction at the time and in the manner of such other payments made by CTUS
pursuant to this paragraph (c).
(d) So long as, following the Closing, the FIRREA Claim shall be held
in the name of the FIRREA Plaintiff, (i) the Seller shall have the right to
direct the FIRREA Plaintiff with respect to the prosecution of the FIRREA
Claim, through counsel of the Seller's own choosing, at the Seller's own
expense, and (ii) the FIRREA Claim shall not be collected, settled, compromised,
abandoned or otherwise resolved by the FIRREA Plaintiff except on terms and
conditions to which the Seller shall have provided its express written consent.
Subject to clauses (iii), (iv) and (vi) of paragraph (a) above, the Purchaser
shall cooperate fully and, following the Closing, for so long as the FIRREA
Plaintiff is a subsidiary of the Purchaser, shall cause the FIRREA Plaintiff,
CTUS and/or the appropriate Subsidiaries to cooperate fully (including joining
as a party) in the prosecution of such FIRREA Claim with the Seller. For so
long as the FIRREA Plaintiff is a subsidiary of the Purchaser, the Purchaser
shall promptly empower, and shall cause the FIRREA Plaintiff promptly to empower
(by power of attorney and such other documentation as may be necessary and
appropriate), such representatives of the Seller as the Seller may designate to
represent the FIRREA Plaintiff in the FIRREA Claim, including the power to
enter into any settlement or compromise concerning such claim.
SECTION 5.10. No Solicitation. Except for the individuals listed on
Section 5.10 of the Seller's Disclosure Schedule, the Seller agrees that, from
the date hereof until the expiration of the two-year period following the
Closing (a) the Seller shall not, directly or indirectly, solicit or induce
any employee of CTUS, the Company or the Subsidiaries to leave such employment
and become an employee of the Seller or any of its Affiliates and (b) the
Purchaser, CTUS, the Company and the Subsidiaries shall not, directly or
indirectly, solicit or induce any employee of the Seller or any Affiliate of
the Seller to leave such employment and become an employee of the Purchaser,
CTUS, the Company or the Subsidiaries or any of their Affiliates; provided,
however, that nothing in this Section 5.10 shall prohibit the Seller or any
of its Affiliates or the Purchaser, CTUS, the Company or the Subsidiaries or
any of their Affiliates from employing any person (i) who contacts them on
his or her initiative and without any direct or indirect solicitation by the
Seller or any of their Affiliates or the Purchaser, CTUS, the Company or the
Subsidiaries or any of their Affiliates, as the case may be, or (ii) after
expiration of the two-year period following the Closing Date.
SECTION 5.11. Covenant Not to Compete. The Seller and its
subsidiaries shall not (a) for a three-year period following the date hereof,
establish a savings and loan association operating in the Non-Compete Area,
(b) utilize the name or current logos of the Company or use in any way any
proprietary customer list or other similar record of the Company as of the
Closing Date or (c) for a three-year period commencing on the date hereof,
open or establish any new permanent offices or branches of a physical nature
or any physical proprietary ATM system (which for greater certainty excludes
any shared electronic, telephonic or computer-related networks, ATM system,
Interac or internet systems ("Electronic Networks")) for deposit-gathering
activities within the Non-Compete Area; provided, however, that nothing
herein shall in any way limit the ability of the Seller or any of any such
subsidiaries, including, without limitation, any new savings and loan
association, savings bank, commercial bank or commercial or consumer lending
company hereafter established by or for the benefit of the Seller or any of its
Affiliates, to (w) establish a permanent head office or other place of business
within the Non-Compete Area, but only if required for the Seller to obtain a
license or charter to establish and/or operate an insured depository
institution (as defined in the FDIA) to enable the Seller, in its discretion,
to continue to operate a banking or thrift business in the United States, or
(x) subject to compliance with clause (b) above, solicit deposits
from any location outside the Non-Compete Area by any means or from within the
Non-Compete Area by electronic means, computer-related or telephonic activity,
whether or not through Electronic Networks, or (y) subject to compliance with
clause (b) above, offer or solicit loans or other financial products or other
services whether or not within the Non-Compete Area or (z) acquire any Person
that has an existing permanent office, branch or branches of a physical nature
or physical proprietary ATM system (excluding any Electronic Networks) for
deposit-gathering, lending or other financial services activities within the
Non-Compete Area which competes with the Company within the Non-Compete Area.
Notwithstanding the foregoing, (A) in the event of an assignment contemplated
in Section 10.13, the restriction imposed by this Section 5.11 shall not bind
the assignee but shall continue solely to bind CT Financial Services, Inc.
and its subsidiaries and (B) the restriction imposed on the Seller and its
subsidiaries under this Section 5.11 shall automatically cease to be of any
further force and effect and the Seller and its subsidiaries shall have no
further obligation hereunder to the Purchaser or any of its subsidiaries in
the event that at any time during such three-year period from the date
hereof:
(i) there is a "change in control" of the Seller, Canada Trustco
Mortgage Company or The Canada Trust Company (whether directly or
indirectly through a change in control of the direct or indirect
controlling shareholder of the Seller, Canada Trustco Mortgage Company
or the Canada Trust Company) which shall be deemed to have occurred if
any Person or combination of Persons other than a Person currently
controlling any of the foregoing through any transaction or series of
transactions (whether by purchase, merger, consolidation, amalgamation
or otherwise) beneficially acquiring, directly or indirectly, (x) 75%
or more of the issued and outstanding voting securities or shares of
the Seller or The Canada Trust Company, or (y) 75% or more of the issued
and outstanding voting securities or shares of Canada Trustco Mortgage
Company until such date (currently June 1, 1997) as the Canada Trustco
Mortgage Company is required to satisfy the 35% or other specified
public voting requirement (the "Public Voting Requirement") under the
Loan and Trust Companies Act (Canada) or (z) after the satisfaction of
the Public Voting Requirement, 65% (or such other percentage of voting
shares remaining after the Public Voting Requirement has been met) of
the issued and outstanding voting securities or shares of Canada Trustco
Mortgage Company; or
(ii) there is a sale, transfer, assignment or other disposition of
all or substantially all of the assets of the Seller, Canada Trustco
Mortgage Company or The Canada Trust Company through any transaction or
a series of transactions to a Person or combination of Persons other
than a Person currently controlling any of the foregoing.
SECTION 5.12. Environmental Audit. Between the date hereof and the
Closing Date, in the event that, at the time of foreclosure on any real property
securing any loan, the Seller has actual knowledge that any Chemical Substance
was or is present, manufactured, generated, used, recycled, reclaimed, released,
stored, treated or disposed of at, in or from such property, the Seller shall
(a) provide notice thereof to the Purchaser, (b) at the written request and
expense of the Purchaser, conduct an environmental audit prior to foreclosure
to the extent that doing so will not adversely affect such foreclosure and
(c) provide the results of such audit to, and consult with, the Purchaser
regarding the significance of such audit prior to foreclosure on any such
property.
SECTION 5.13. Minority Shares. Between the date hereof and the
Closing Date, the Seller shall attempt to enter into such arrangements and/or
agreements with the holders of the Minority Shares listed in Section 3.21 of
the Seller Disclosure Schedule, on terms disclosed or made available to the
Purchaser, as shall be necessary for CTUS to acquire at its sole cost and
expense all of the outstanding Minority Shares as of the Closing Date.
SECTION 5.14. Merger Structure. The Seller and the Purchaser agree
within 30 days following the date hereof to attempt to restructure the
transaction as a merger of CTUS with a wholly-owned subsidiary of the Purchaser
and a merger of the Company with and into Marine Midland Bank, it being
understood that (a) the Seller shall have no obligation to do so unless it
shall, in its sole discretion, have determined that any such restructuring
will not materially increase its Tax liabilities resulting from the
consummation of the stock purchase transaction (including the issuance of the
Preferred Stock) provided for in this Agreement and (b) subject to the
foregoing, both mergers shall be subject to approval by the respective boards
and will only be effective contemporaneously with the Closing, but shall be
on the following basis:
(i) The acquisition of CTUS by the Purchaser shall be effected
through the following transactions: (A) on the Closing Date a wholly-owned
subsidiary of the Purchaser (the "Merger Subsidiary") shall merge with and
into CTUS (the "Merger"); and (B) the Company shall, simultaneously with
the Merger or thereafter, merge with and into Marine Midland Bank, a
wholly-owned subsidiary of the Purchaser (the "Bank Merger");
(ii) On the Closing Date, the Merger shall be effected by the Merger
Subsidiary merging with and into CTUS, with CTUS being the surviving
corporation (the "Surviving Corporation"). The separate corporate
existence of the Merger Subsidiary shall thereupon cease, and the Surviving
Corporation shall thereupon become a wholly-owned subsidiary of the
Purchaser. The Surviving Corporation shall continue to be governed by
the laws of Delaware, and its separate corporate existence with all of
its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. At the Closing Date, the certificate of
incorporation and by-laws of CTUS in effect immediately prior to the
Closing Date shall continue to be the certificate of incorporation and
by-laws of the Surviving Corporation. At the Closing Date, the
directors and officers of the Merger Subsidiary shall become the sole
directors and officers of the Surviving Corporation; and
(iii) The Bank Merger shall be effected pursuant to the terms of an
agreement and plan of merger substantially on terms attached hereto as
Exhibit 5.14(c), as agreed to by the parties within 30 days of the date
hereof.
SECTION 5.15. FIRTPA Certificate. The Seller shall provide the
Purchaser with a certificate that, as of the Closing Date, the CTUS Shares
do not constitute a U.S. real property interest within the meaning of Section
1445 of the Code, such certification to satisfy the requirements of Treasury
regulation Sections 1.897-2(h) and 1.1445-2(c)(3). If such certificate is
not received, the Purchaser shall be entitled to withhold 10 percent of the
purchase price as required by Section 1445 of the Code.
SECTION 5.16. Further Assurances. Each party shall cooperate with
the other, and execute and deliver, or use its best efforts to cause to be
executed and delivered, all such other instruments, including instruments of
conveyance, assignment and transfer, and take all such other actions
consistent with the terms of this Agreement, as such party may reasonably be
requested to take by the other party hereto from time to time, in order to
effectuate the provisions and purposes of this Agreement and the transactions
contemplated hereby.
SECTION 5.17. Transition. Each party shall cooperate with the other
during the period from the date hereof to the Closing Date to effectuate the
purposes of this Agreement and the transactions contemplated hereby and shall
negotiate in good faith and in a commercially reasonable manner to resolve any
issues which may arise during such period in order to enable the transactions
contemplated hereby to be consummated.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Provision of Comparable Benefits. (a) The Purchaser
agrees that, for a period of one year after the Closing Date, the Purchaser
shall (or shall cause any other appropriate subsidiary of the Purchaser to)
provide each employee and each former employee of the Company and the
Subsidiaries who was an employee of the Company or the Subsidiaries on the
Closing Date with benefits (including, without limitation, welfare benefits)
that are comparable in the aggregate, in the good faith determination of the
Purchaser, to the benefits generally provided by the Purchaser to its own
similarly situated employees. Consistent with providing comparable benefits
for one year as is set forth above, nothing in this Section shall affect the
Purchaser's ability to determine the benefits to provide to any employee or
former employee, or restrict the Purchaser's ability to terminate, modify or
amend any Plan, program, arrangement or fringe benefit or to terminate,
modify or amend the terms and conditions of employment of any individual.
In no event shall the arrangements set forth herein in any way remove or
diminish the Purchaser's obligation to comply with, and to provide benefits to
the extent required by, Section 4980B of the Code with respect to any former
employee of the Company or its Subsidiaries.
(b) With regard to those former employees of the Company or the
Subsidiaries who are receiving retiree health benefits as of the Closing Date,
for a period of one year following the Closing Date, the Purchaser agrees to
elect either to continue the retiree health benefits such former employees
were receiving immediately prior to the Closing Date or to provide such former
employees with the retiree health benefits provided from time to time to
similarly situated retirees of the Purchaser.
(c) To the extent service is relevant for vesting or benefit
calculations or allowances (including, without limitation, entitlement to
vacation and sick days) under any plan or arrangement maintained by the
Purchaser in which employees or former employees of the Company or
Subsidiaries who were employed by the Company or the Subsidiaries on the
Closing Date participate, and to the extent permitted by applicable Law, in
order to provide the benefits described in paragraph (a) above, such plan or
arrangement shall credit employees with service on or prior to the Closing
Date with the Company or any of the Subsidiaries, if and to the same extent
such service was credited under comparable plans of the Company or the
Subsidiaries prior to the Closing Date in which such employees participated;
provided, however, that the Purchaser shall have the right to offset the
amount of any accrued benefit under any of the Purchaser's defined benefit
pension plans in which an employee participates, by the accrued benefit under
any defined benefit pension plan sponsored by the Company or its Subsidiaries
as of the Closing Date. Nothing herein shall require any such service to be
credited to the extent it would result in an employee receiving duplicate
benefits.
SECTION 6.02. Succession. In the event the Purchaser, CTUS, the
Company or any of the Subsidiaries or any of their respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made
so that the successors and assigns of the Purchaser, CTUS, the Company or
the Subsidiaries, as the case may be, shall assume the obligations set forth
in this Article VI.
SECTION 6.03. Survival. This Article VI shall survive the Closing as
provided in Section 10.01.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities. (a) Subject to Section 7.01(d), the
Seller shall indemnify the Purchaser and its Affiliates and hold them
harmless from and against any liability for Taxes (other than conveyance taxes,
which are allocated pursuant to Section 7.06) (i) imposed on CTUS, the Company
and the Subsidiaries in respect of their income, business, property or
operations for any Pre-Closing Period, (ii) attributable to any change in
accounting method employed by CTUS, the Company or any Subsidiary prior to
the Closing Date, (iii) attributable to discharge of indebtedness, if any,
that may result from any capital contributions by the Seller (or any Affiliate
of the Seller) to CTUS, the Company or any Subsidiary of any intercompany
indebtedness owed by CTUS, the Company or any Subsidiary to the Seller (or any
Affiliate of the Seller) or (iv) attributable to the issuance or redemption
of the Preferred Stock and the receipt of the FIRREA Recovery (to the extent
not taken into account in determining the Preferred Stock Dividend Amount)
(but only to the extent that the amount of such Taxes is in excess of the
amount accrued for Taxes (including for greater certainty any reserve for bad
debts) in the books and records of CTUS, the Company and the Subsidiaries as
of the Closing Date); provided, however, that no indemnity shall be provided
under this Agreement for any Taxes resulting from (x) a breach by the Purchaser
of its obligations under this Agreement, (y) a reduction in any net operating
loss, capital loss or tax credit carryover allocable to CTUS, the Company, or
any Subsidiary or (z) any transaction of CTUS, the Company or any Subsidiary
occurring after the Closing on the Closing Date.
(b) From and after the Closing Date, the Purchaser, its Affiliates,
CTUS and the Company shall indemnify the Seller and its Affiliates and hold
them harmless from and against all Taxes imposed on or with respect to CTUS,
the Company or its Subsidiaries that are not subject to indemnification pursuant
to paragraph (a) of this Section 7.01.
(c) Any Taxes for a Period beginning before the Closing Date and
ending after the Closing Date (a "Straddle Period") shall be apportioned between
the Seller and the Purchaser, in the case of real and personal property taxes,
and franchise taxes not based on gross or net income, capital (including net
worth or long-term debt) or gross or net assets, on a per diem basis and, in
the case of other Taxes (including sale and transfer Taxes not described in
Section 7.06), shall be determined based on the actual operation of CTUS, the
Company and the Subsidiaries, as the case may be, during the portion of such
period that is a Pre-Closing Period and the portion of such period that is a
Post-Closing Period. Each such Pre-Closing Period and Post-Closing Period
shall be deemed to be a Period subject to the provisions of Sections 7.01(a)
and 7.01(b) above. Notwithstanding the foregoing, in the case of any Tax based
upon or measured by capital (including net worth or long-term debt), gross or
net assets or intangibles, the amount of such Tax allocated to the Pre-Closing
Period shall be computed by reference to the average level of such items during
the Pre-Closing Period; provided, however, that such method shall apply only
where the relevant Law requires the use of average amounts and, in such a
case, the frequency and method of averaging shall be as required by such Law.
In any other event, the amount of such Tax shall be computed by reference to
the level of such items on the Audit Date.
(d) The respective indemnification obligations of the Purchaser and
the Seller pursuant to this Section 7.01 shall not be effective until the
aggregate dollar amount of all Taxes which would otherwise be payable pursuant
to this Article VII by such party exceeds U.S.$250,000 (the "Tax Liability
Threshold Amount") and then only to the extent such aggregate amount exceeds
the Tax Liability Threshold Amount.
(e) Payment by an indemnitor of any amount due under this Section
7.01 shall be made within 30 days following written notice by the indemnitee
that payment of such amounts to the appropriate tax authority is due, provided
that the indemnitor shall not be required to make any payment earlier than two
days before it is due to the appropriate tax authority. If the Seller receives
an assessment or other notice of Taxes due with respect to CTUS, the Company
or any of its Subsidiaries for any Pre-Closing Period for which the Seller
is not responsible, in whole or in part, pursuant to paragraph (a) of this
Section 7.01 because all or a part of such Tax does not exceed the amount
accrued for Taxes in the books and records of CTUS, the Company and its
Subsidiaries as of the Closing Date, and the Seller pays such Tax, then the
Purchaser, CTUS or the Company shall pay to the Seller, in accordance with the
first sentence of this Section 7.01(e), the amount of such Tax for which the
Seller is not responsible under Section 7.01(a). In the case of a Tax that is
contested in accordance with the provisions of Section 7.03, payment of such
Tax to the appropriate tax authority will not be considered to be due earlier
than the date of a Final Determination with respect to such Tax.
SECTION 7.02. Refunds and Tax Benefits. (a) The Purchaser shall
promptly pay to the Seller any refund or credit (including any interest paid or
credited with respect thereto) received by the Purchaser, CTUS, the Company or
any Subsidiary of Taxes relating to Pre-Closing Periods or attributable to an
amount paid by or on behalf of the Seller under Section 7.01 or 5.09 but only
if and to the extent that the aggregate amount of refunds and credits exceeds
the aggregate amount that is included as an asset in respect of Taxes on the
Audit Date Balance Sheet (not taking account of any aggregate valuation
allowances against deferred tax assets remaining after giving effect to the
Deferred Tax Valuation Amount (reduced by any Taxes thereon); provided,
however, that payments with respect to credits shall be made no earlier than
the time at which such credit reduces or could reduce the Tax liability of the
Purchaser and its Affiliates, including CTUS, the Company or any Subsidiary.
In the event that any refund or credit of Taxes for which a payment has been
made pursuant to this Section 7.02 is subsequently reduced or disallowed, the
Seller shall indemnify and hold harmless the payor for any Tax liability,
including interest, assessed against such payor by reason of the reduction or
disallowance. The Purchaser shall, if the Seller so requests and at the
Seller's expense, cause the relevant entity to file for and obtain any refund
to which the Seller is entitled under this Section 7.02. Subject to Section
7.03, the Purchaser shall permit the Seller to control (at the Seller's expense)
the prosecution of any such refund claim, and shall cause the relevant entity
to authorize by appropriate power of attorney such persons as the Seller shall
designate to represent such entity with respect to such refund claim. The
obligations of the Purchaser pursuant to this Section 7.02(a) shall not be
effective until the aggregate dollar amount of all amounts refunded and credited
exceeds $250,000, and then only to the extent that such aggregate amount exceeds
$250,000.
(b) In the event and to the extent that the Seller receives a refund
or credit of federal, state or local taxes for any Pre-Closing Period
attributable solely to the carryback of losses, credits or similar items
arising in any Post-Closing Period and attributable to CTUS, the Company or
any Subsidiary, the Seller shall promptly pay to the Purchaser the amount of
such refund or credit, together with any interest paid or credited with
respect thereto. In the event that any refund or credit of Taxes for which a
payment has been made pursuant to this Section 7.02(b) is subsequently
reduced or disallowed, the Purchaser shall indemnify and hold harmless the payor
for any Tax liability, including interest, assessed by reason of the reduction
or disallowance.
(c) Any amount otherwise payable by the Seller under Section 7.01
shall be reduced by any Tax benefit realized by the Purchaser, CTUS, the
Company, any Subsidiary or any of their Affiliates in a Post-Closing Period (a
"Post-Closing Date Tax Benefit") as a result of either an adjustment to Taxes
for which the Seller is responsible under Section 7.01 (such as a timing
adjustment resulting in a Tax deduction for CTUS, the Company or any
Subsidiary for a Post-Closing Period) or a Tax deduction resulting from an
indemnifiable payment of Taxes. The amount of any Post-Closing Date Tax
Benefit shall be computed at the minimum applicable marginal statutory tax
rate in effect at the time of computation. Post-Closing Date Tax Benefits
determined to be substantially likely to be realized not later than the taxable
year during which an indemnity payment is determined to be due shall be
considered to be realized currently for purposes of netting against such
indemnity payment hereunder. If a payment is made by the Seller in accordance
with Section 7.01, and if in a subsequent taxable year an actual Post-Closing
Date Tax Benefit is realized by the Purchaser, CTUS, the Company, any
Subsidiary or any of their Affiliates (that was not previously taken into
account pursuant to the preceding sentence to reduce an amount otherwise
payable by the Seller under Section 7.01), the Purchaser, CTUS, the Company,
any such Subsidiary or any such Affiliate shall pay to the Seller at the time
of such realization the amount of such Post-Closing Date Tax Benefit to the
extent that the Post-Closing Date Tax Benefit would have resulted in a
reduction in the amount paid by the Seller under Section 7.01 if the
Post-Closing Date Tax Benefit had been obtained in the year of such payment.
Subject to the foregoing a Post-Closing Date Tax Benefit will be considered
to be realized for purposes of this Section 7.02 at the time that it is
reflected on a Tax return of the Purchaser, CTUS, the Company, any Subsidiary
or any of their Affiliates.
SECTION 7.03. Contests. (a) After the Closing Date, the Purchaser
shall notify the Seller in writing promptly and in any event within 30 days of
the commencement of any Tax audit or administrative or judicial proceeding or
of any demand or claim on the Purchaser, CTUS, the Company or a Subsidiary (an
"Indemnification Event"), which could give rise to a claim for indemnification
under Section 7.01. Such notice shall contain factual information (to the
extent known to the Purchaser, CTUS, the Company or a Subsidiary) with respect
to the Indemnification Event in reasonable detail and shall include copies of
any notice or other document received from any taxing authority in respect
thereof. If the Purchaser fails to give the Seller notice within a reasonable
period of time or in sufficient detail to apprise the Seller of the nature of
the claim (in each instance taking into account the facts and circumstances
with respect to such claim), the Seller shall not be liable under this
Agreement for such claim to the extent, if any, that the rights of the Seller
with respect to such claim are actually prejudiced.
(b) Subject to Section 7.03(d) below, the Seller may elect to direct,
through counsel of its own choosing and at its own expense, any audit, claim
for refund and administrative or judicial proceeding involving any Tax Periods
with respect to which indemnity may be sought from the Seller under Sections
7.01 or 5.09 (any such audit, claim for refund or proceeding is referred to
herein as a "Contest"). If the Seller elects to direct a Contest, it shall
within 30 calendar days of receipt of the notice of the Indemnification Event
relating to such Contest notify the Purchaser of its intent to do so and, if
requested by the Purchaser, the Seller shall furnish to the Purchaser in due
course, as a condition to further pursuing such Contest, an opinion of the
Seller's independent tax counsel to the effect that the Seller has a reasonable
basis to pursue such Contest. If the Purchaser or an Affiliate is requested
(or, if an election by the Seller is not timely made, shall determine) to pay
the Tax claimed and sue for a refund, the Seller shall make a tentative
indemnity payment to the party making such payment. In the case of any
Contest, the Purchaser or its Affiliate, as the case may be, shall not make
payment of the Tax in question for at least 30 days (or such shorter period
as may be required by applicable law) after the giving of notice to the Seller
of its intention to do so (and if the Seller has elected to direct the Contest
shall not make payment unless requested by the Seller), shall give to the
Seller any information reasonably requested by the Seller relating to such
Contest and otherwise shall cooperate with the Seller in good faith in order
to contest effectively any such Contest, and to the extent not inconsistent
with the Purchaser's or its Affiliates' control over the portion of proceedings
that relate to issues other than those subject to this indemnity (as described
below), shall permit the Seller to control such proceedings relating to any
Contest. The Seller shall, on demand, reimburse all "out of pocket" costs
and expenses which the Purchaser or its Affiliate may incur in connection
with such Contest (but not in connection with exercising the right of
attendance described below), including, without limitation, reasonable
attorneys' and accountants' fees and disbursements. The Purchaser or its duly
appointed representatives shall be allowed to attend all meetings between the
Seller and the taxing authority in question and shall be provided with copies
of all correspondence and documents relating to such Contest. If the Seller
fails to notify the Purchaser of its election as herein provided, then until
receiving notification as to the Seller's intentions, the Purchaser, CTUS,
the Company and/or the appropriate Subsidiary shall take such reasonable steps
as may be prudent and within its capacity (with due allowance being given to
the circumstances) to preserve the right of the relevant entity to contest the
asserted Tax liability, may pay, compromise or contest, such asserted Tax
liability and shall be reimbursed by the Seller for the reasonable cost of
outside professionals and outside disbursements incurred pursuant to this
sentence to the extent attributable to a Tax liability indemnifiable by the
Seller hereunder. However, in each such case, neither the Purchaser nor CTUS
nor the Company nor the Subsidiary may settle or compromise any asserted Tax
liability over the objection of the Seller; provided, however, that consent
to settlement or compromise shall not be unreasonably withheld. If the
Purchaser, CTUS, the Company or any Subsidiary assumes control of a Contest with
respect to Taxes pursuant to the foregoing, provided that the Seller has acted
in good faith, the Seller shall retain the right, at any time thereafter and
immediately upon notice to the entity that shall have assumed control of such
Contest, to assume itself, at the Seller's expense, sole direction and control
of such Contest, as set forth above. If the Seller chooses to direct the
Contest, the Purchaser shall promptly empower and shall cause CTUS, the
Company and/or the appropriate Subsidiaries promptly to empower (by power of
attorney and such other documentation as may be necessary and appropriate)
such representatives of the Seller as it may designate to represent the
Purchaser, CTUS, the Company and/or the Subsidiaries in the Contest insofar as
the Contest involves an asserted Tax liability for which the Seller could be
liable under Section 7.01.
(c) The Seller may cause such a Contest to be prosecuted to a
determination in a court of initial jurisdiction and, if the Seller shall have
furnished the Purchaser with an opinion of independent tax counsel to the
effect that there is a reasonable basis to appeal the determination of any
court, the Seller may cause such Contest to be prosecuted to a determination
in an appellate court. Notwithstanding any other provision of this Section
7.03 the Seller shall not settle, compromise or abandon without the Purchaser's
prior written consent any Contest which would materially and adversely affect
the Tax liability of the Purchaser or its Affiliates in any Post-Closing
Period (including material adverse changes resulting from the imposition of
income Tax deficiencies, the reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods or the denial of
amortization or depreciation deductions) determined taking into account the
then present value of any Tax benefits available to the Purchaser, CTUS, the
Company or any Subsidiary by reason of any such settlement (taken into account
as and when the Purchaser reasonably believes such Tax benefits could be
utilized to reduce the Tax liability of the Purchaser, CTUS, the Company or
any Subsidiary). Such consent shall not be unreasonably withheld.
(d) With respect to Contests relating to any Post-Closing Period
(including any Contest relating to, or arising out of, any FIRREA Recovery
described in Section 5.09) the Purchaser shall control all proceedings taken in
connection with such Contests except that the Seller shall control such
proceedings to the extent that they relate to a matter in respect of which
the Seller has indemnified the Purchaser under Section 7.01 or 5.09 (including,
for greater certainty, any Tax proceedings with respect to a matter that could
affect the amount of the Preferred Stock Dividend Amount); provided, however,
that if the Seller shall request in writing in a timely manner and furnish the
Purchaser an opinion of independent tax counsel to the effect that the Seller
has a reasonable basis to pursue such Contest, the Seller may cause such
Contest to be prosecuted to a determination in a court of initial jurisdiction;
and, provided further that if the Seller shall request in writing in a timely
manner and furnish the Purchaser an opinion of independent tax counsel to the
effect that the Seller has a reasonable basis to appeal the determination of
any court, the Seller may cause such Contest to be prosecuted to a
determination in an appellate court.
(e) If, after actual receipt by the Purchaser or its Affiliates of an
amount paid by the Seller as a tentative indemnity pursuant to paragraph (b),
the extent of the liability of the Purchaser or its Affiliates with respect to
the indemnified matter shall be established by a Final Determination, the
Purchaser or its Affiliates, as the case may be, shall promptly pay to the
Seller all or the portion of any refund received by or credited to the
Purchaser or its Affiliates with respect to the indemnified matter (together
with any interest paid or credit thereon by the taxing authority) plus (i) the
amount of the Tax savings, if any, realized by the Purchaser or its
Affiliates as a result of such payment, and (ii) interest at the rate which
shall be applicable under section 6621(a)(1) of the Code in respect of federal
income taxes and at the rate provided by applicable law in respect of other
Taxes from time to time from the date of actual collection by the Purchaser
or its Affiliates of such refund (and any such interest thereon) to the date
of payment to the Seller hereunder.
(f) Nothing contained herein shall require the Purchaser or its
Affiliates, as the case may be, (i) to pursue a Contest which it would not
otherwise be required to pursue pursuant to this Agreement or (ii) to permit
the Seller to control any such Contest, if the Purchaser shall waive the
payment by the Seller of any amount that might otherwise be payable by the
Seller hereunder by way of indemnity in respect of such Contest. Upon any
such waiver, the Purchaser or its Affiliates, as the case may be, shall
repay to the Seller any payments made with respect to such Contest pursuant
to Section 7.03(b) above together with interest at the rate which shall be
applicable under section 6621(a)(1) of the Code from time to time from the
date the payment was paid by the Seller to the date of repayment by the
Purchaser or its Affiliate.
SECTION 7.04. Preparation of Tax Returns. The Seller shall prepare
and timely file, or cause to be prepared and timely filed, all Returns relating
to CTUS, the Company and the Subsidiaries that are due (taking into account any
applicable extension periods) no more than 30 days after the Closing Date. The
Purchaser shall prepare and timely file or cause CTUS and the Company and the
Subsidiaries to prepare and timely file all Returns relating to CTUS and the
Company or any of the Subsidiaries that are due (taking into account any
applicable extension period) more than 30 days after the Closing Date. Returns
required to be filed by the Purchaser in respect of a Pre-Closing Period shall
be prepared on a basis consistent with those prepared for prior tax years
unless a different treatment of any item is required by an intervening change
in Law. The Purchaser shall furnish the Seller with a copy of any Return
prepared by it for a Pre-Closing Period at least 20 days before the anticipated
filing date thereof and, in preparing such Returns, shall accept any comments
made by the Seller with respect to any issue or item which could give rise to
a claim for indemnification; provided, however, that this sentence shall not
apply in respect of any comments for which the Seller does not provide the
Purchaser, if so requested in writing to do so, with an opinion of counsel
to the effect that there is a reasonable basis for Seller's comment.
SECTION 7.05. Cooperation and Exchange of Information. Following the
Closing, the Seller and the Purchaser shall provide each other, and the
Purchaser shall cause CTUS and the Company to provide the Seller, with such
cooperation and information as reasonably may be requested in filing any Tax
Return, amended return or claim for refund, determining a liability for Taxes
or a right to a refund of Taxes or participating in or conducting any audit
or other proceeding in respect of Taxes. Such cooperation and information
shall include providing copies of relevant Tax Returns or portions thereof,
together with accompanying schedules and related work papers and documents
relating to rulings or other determinations by taxing authorities. Each of the
Seller, the Purchaser and the Company shall make its employees available on a
mutually convenient basis to provide explanations of any documents or
information provided hereunder. The Seller, on the one hand, and the Purchaser,
CTUS and the Company, on the other, shall each retain all Returns, schedules and
work papers and all material records or other documents that are in its
possession immediately following the Closing, or created by or on behalf of it
thereafter, relating to Tax matters of CTUS, the Company and the Subsidiaries
for the taxable period of each relevant jurisdiction first ending after the
Closing Date and for all prior taxable periods until the later of (i) the
expiration of the statute of limitations of the taxable periods to which such
returns and other documents relate, without regard to extensions except to the
extent notified by the other party in writing of such extensions for the
respective Tax periods, or (ii) eight years following the due date (without
extension) for such returns. Any information obtained under this Section 7.05
shall be kept confidential, except as may be otherwise necessary in connection
with the filing of Returns or claims for refund or in conducting an audit or
other proceeding.
SECTION 7.06. Conveyance Taxes. Notwithstanding any provision herein
to the contrary, the Seller agrees to assume liability for and to pay a maximum
of U.S.$500,000 of all sales, use, transfer, stamp, stock transfer, withholding,
real property transfer or gains, registration, recording taxes or fees, or any
similar Taxes or fees incurred as a result of the sale of the transactions
contemplated hereby, and the Purchaser agrees to assume liability for and to
pay any such Taxes in excess of such amount.
SECTION 7.07. Miscellaneous. (a) The parties agree that all
payments made under this Article VII, under any other indemnity provision
contained in this Agreement, and for any misrepresentations or breach of
warranties or covenants shall constitute adjustments to the Purchase Price
and that they shall report all such payments on that basis in all Returns
filed with any taxation authority for purposes hereof. If, contrary to the
intent of the parties as expressed in the preceding sentence, any indemnity
payment made pursuant to this Agreement is treated as taxable income of the
recipient, then the payor shall indemnify and hold harmless the recipient
from any liability for Taxes attributable to the receipt of such payment.
(b) Except as expressly provided otherwise and except for the
representations contained in Sections 3.15 and 3.18 of this Agreement, this
Article VII shall be the sole provision governing Tax matters and indemnities
therefor under this Agreement.
(c) For purposes of this Article VII, all references to the
Purchaser, the Seller, CTUS, the Company or the Subsidiaries include successors
in interest, whether by operation of Law or otherwise.
(d) The covenants and agreements of the parties hereto contained in
this Article VII shall survive the Closing and shall remain in full force and
effect until the expiration of all statutes of limitations with respect to any
Taxes that would be indemnifiable by the Seller under Section 7.01(a) of this
Agreement or by the Purchaser under Section 7.01(b) of this Agreement.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller. The
obligations of the Seller to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Purchaser contained in this Agreement shall be true
and correct in all material respects as of the Closing with the same force
and effect as if made as of the Closing, other than such representations
and warranties as are made as of another date, and all the covenants
contained in this Agreement to be complied with by the Purchaser on or
before the Closing shall have been complied with in all material respects,
and the Seller shall have received a certificate of the Purchaser to
such effect signed by a duly authorized officer of the Purchaser;
(b) No Orders or Litigation. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent), which is in effect preventing or
prohibiting consummation of any of the transactions contemplated by this
Agreement (nor shall any proceeding for any such statute, rule,
regulation, order, decree or injunction be pending), nor shall there be
any proceeding initiated or pending by any Governmental Authority or any
other Person seeking the prevention or prohibition of the consummation of
any of the transactions contemplated by this Agreement or money damages
as a result thereof, including any actions to be taken by either party
pursuant hereto, except for any such proceeding pending or threatened by
a Person (other than a Governmental Authority) seeking only money damages;
provided, however, that the provisions of this Section 8.01(b) shall not
apply if the Seller has directly or indirectly solicited or encouraged
any such action; and provided further that the Seller may invoke this
condition, only if it shall have used its reasonable efforts to have any
such order vacated; and
(c) Approvals and Consents. The Seller's Required Approvals shall
have been made or obtained and any waiting period (and any extension
thereof) with respect thereto shall have expired or terminated (except
where the failure to obtain any such Seller's Required Approval from a
Person other than a Governmental Authority would not result in a Material
Adverse Effect) and all such Seller's Required Approvals shall still be
in effect.
SECTION 8.02. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Seller contained in this Agreement shall be true and
correct as of the Closing (without regard to any Material Adverse Change/
Effect exceptions, thresholds or knowledge qualifiers contained therein)
with the same force and effect as if made as of the Closing, other than
such representations and warranties as are made as of another date
(including Section 3.10(b)) and except for such inaccuracies as,
individually or in the aggregate, do not have a Material Adverse Effect,
and all material covenants contained in this Agreement to be complied with
by the Seller on or before the Closing shall have been complied with in
all material respects, and the Purchaser shall have received a certificate
of the Seller to such effect signed by a duly authorized officer of the
Seller;
(b) No Orders or Litigation. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent), which is in effect preventing or
prohibiting consummation of any of the transactions contemplated by this
Agreement (nor shall any proceeding for any such statute, rule, regulation,
order, decree or injunction be pending), nor shall there be any proceeding
initiated or pending by any Governmental Authority or any other Person
seeking the prevention or prohibition of the consummation of any of the
transactions contemplated by this Agreement or money damages as a result
thereof, including any actions to be taken by either party pursuant hereto,
except for any such proceeding pending by a Person (other than a
Governmental Authority) seeking only money damages; provided, however,
that the provisions of this Section 8.02(b) shall not apply if the
Purchaser has directly or indirectly solicited or encouraged any such
action; and provided further that the Purchaser may invoke this condition
only if it shall have used its reasonable efforts to have any such order
vacated; and
(c) Approvals and Consents. The Purchaser's Required Approvals shall
have been made or obtained and any waiting period (and any extension
thereof) with respect thereto shall have expired or terminated (except
where the failure to obtain any such Purchaser's Required Approval from a
Person other than a Governmental Authority would not result in a Material
Adverse Effect) and all such Purchaser's Required Approvals shall still
be in effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by the mutual written consent of the Seller and the Purchaser; or
(b) by either the Seller or the Purchaser, if the Closing shall not
have occurred prior to the date one year after the date of this Agreement;
provided, however, that the right to terminate this Agreement under this
Section 9.01(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior
to such date.
Time shall be of the essence in this Agreement.
SECTION 9.02. Effect of Termination. In the event of termination of
this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto (i)
except as set forth in Section 5.05 and Section 10.05 and (ii) nothing herein
shall relieve either party from liability for any willful breach hereof.
SECTION 9.03. Waiver. At any time prior to the Closing, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or
conditions contained herein.
SECTION 9.04. Termination Fee. In the event that the Seller
unilaterally terminates this Agreement by repudiating its obligations in
writing following the acceptance of an unsolicited offer for the purchase of
CTUS, the Company and the Subsidiaries, the Seller shall promptly pay to or
on behalf of the Purchaser $35,000,000, payable in immediately available
funds to an account designated by the Purchaser. The Purchaser acknowledges
that, upon receipt of such payment, the Purchaser shall be deemed to have
waived all claims, demands, damages and causes of action, and shall have no
further recourse, against the Seller pursuant to this Agreement, and the Seller
shall have no further obligation to the Purchaser or any other Person pursuant
to this Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Non-Survival of Representations, Warranties, Covenants
and Agreements. The representations, warranties, covenants and agreements
contained herein shall be deemed to be conditions to the purchase and sale of
the CTUS Shares as contemplated in Sections 8.01(a) and 8.02(a) and, following
the Closing and/or the termination of this Agreement pursuant to Section 9.01,
shall not survive, shall expire, be terminated and extinguished and the
Purchaser's sole and exclusive remedy for breach of any representation or
warranty by the Seller hereunder or failure by the Seller to comply with its
covenants shall be (a) to exercise its rights under the indemnity provided
pursuant to Section 7.01 in the case of any matter relating to Taxes and (b)
in the case of any other matter, including any matters covered by any
representations and warranties of the Seller contained herein (other than
relating to Taxes, which shall be subject only to indemnification as
contemplated in clause (a) above), solely to exercise its rights to
indemnification under Section 10.03; provided, however, that (i) consistent
with the foregoing, following the Closing the representations and warranties
contained in Sections 3.02, 3.03, 3.04, 3.05, 3.10, 3.11 and 3.17 (but only to
the extent set forth in Section 10.03 hereof) shall remain in full force and
effect for eighteen months solely for purposes of providing the basis for
the indemnity contemplated in Section 10.03, (ii) the covenants and agreements
set forth in Sections 4.08, 5.02, 5.03(b), 5.04, 5.05, 5.09, 5.10 and 5.11
and Articles VI, VII and X, shall remain in full force and effect for the
applicable periods specified in such Sections or Articles or, if in any such
case no such period is specified, until the applicable period under the
statute of limitations therefor has expired and (iii) following termination
of the Agreement, the covenants and agreements set forth in Sections 9.02
and 10.05 shall survive until the applicable statute of limitations thereof
has expired.
SECTION 10.02. Release and Indemnification. (a) The Purchaser
agrees to use its reasonable efforts (not including prepayment or renegotiation
of the terms of any indebtedness) to cause the Seller or any Affiliate of the
Seller (other than CTUS, the Company or the Subsidiaries) to be absolutely
and unconditionally released on or effective as of the Closing Date from each
liability and other obligation, direct or indirect, primary or secondary, for
the payment of money or otherwise, including purchase or indemnification,
guarantees or performance bonds, in respect of any outstanding indebtedness
or contingent liabilities of CTUS, the Company, or the Subsidiaries, or issued
for the account of or on behalf of a customer of CTUS, the Company of the
Subsidiaries. The Purchaser agrees to continue to use its reasonable efforts
after the Closing Date to relieve the Seller and its Affiliates of any such
liabilities or obligations that are not released or otherwise discharged on or
effective as of the Closing Date. The Seller agrees promptly upon demand to
reimburse the Purchaser, CTUS, the Company or a Subsidiary, as the case may
be, for all out-of-pocket costs and expenses incurred by it in securing any
such release or discharge.
(b) The Purchaser shall indemnify and hold harmless the Seller and
each of its Affiliates, officers, directors, employees, successors and assigns
(each, a "Seller Indemnified Party") for any and all liabilities, obligations,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' and consultants'
fees and expenses) suffered or incurred by them (including, without limitation,
any claim, action, proceeding or investigation brought or otherwise initiated
by any of them) to the extent arising solely out of, or resulting from, the
conduct of the Businesses by CTUS, the Company or the Subsidiaries or the
Purchaser following the Closing or the operations of CTUS, the Company or the
Subsidiaries or the Purchaser subsequent to the Closing; provided, however,
that the foregoing shall not apply to any transaction entered into between any
Seller Indemnified Party and the Purchaser, CTUS, the Company or any subsidiary
of the Purchaser subsequent to the Closing.
SECTION 10.03. Indemnification by the Seller. (a) Subject to the
procedures set forth in this Section 10.03, the Seller shall indemnify the
Purchaser, its Affiliates, officers, directors, employees, successors and
assigns and hold the Purchaser harmless for Losses (other than with respect
to Taxes the indemnity for which is solely and exclusively as provided in
Article VII) which relate to a matter or circumstance arising prior to the
Closing Date and which are discovered and communicated in writing to the Seller
within eighteen months from the Closing Date (or, in the case of any matter
covered by clauses (i) and (ii) below, the end of the applicable statute of
limitations period) solely with respect to Losses arising out of:
(i) any transaction contemplated by this Agreement relating to the
Minority Shares, including, but not limited to, any liability with respect
to any payment required by law to be made by the Purchaser and/or its
Affiliates subsequent to the Closing to those holders of Minority Shares
that shall not have sold their shares, options and/or other similar
interests in the Company to the Seller prior to the Closing as
contemplated in Section 5.13;
(ii) the prosecution of the FIRREA Claim in accordance with the
directions of the Seller on the condition that the Purchaser strictly
complies with the Seller's instructions in accordance with the standards
contained in Section 5.09;
(iii) any fraudulent activity of employees of the Seller not
disclosed to the Purchaser in the Seller Disclosure Schedule (or otherwise
in writing) that is not otherwise covered by insurance (but subject to any
deductibles applicable thereto); and
(iv) any breach of the representations and warranties contained in
Sections 3.02, 3.03, 3.04, 3.05, 3.11 and 3.17 (subject, in the case of
Section 3.17 only, to the knowledge qualifiers set forth therein but,
excluding, for purposes of this Section 10.03, any Material Adverse
Effect qualifier contained in Section 3.17, and in the case of Section
3.10 certain clauses thereof, consisting solely of (A) clause (b)(i) to
the extent relating to fixed assets, (B) clause (b)(ii) to the extent
relating to Encumbrances on Real Property but, for the avoidance of doubt,
excluding any other properties or assets and (C) clauses (b)(iii),
(b)(iv), (b)(v), (b)(vi), (b)(ix) and (b)(x).
(b) Notwithstanding anything in the Agreement to the contrary, the
obligation of the Seller to indemnify the Purchaser shall be subject to the
following limitations:
(i) for purposes of calculating the amount of any Loss (A) in the
case of a Loss arising out of or in connection with a claim asserted by
a third party against the Purchaser, a Loss shall not be required to be
indemnified hereunder until the earlier of (x) such time as the Purchaser
is required by judicial action or otherwise to pay the Loss (or any
portion thereof) to such third party or (y) a liability is conclusively
established rather than when payment is claimed by such third party, (B)
in the case of any other Loss, such Loss shall not be required to be
indemnified hereunder until such time as liability is reasonably
demonstrated by the Purchaser to the Seller rather than when payment is
claimed by the Purchaser except as otherwise provided for in paragraph
(e) of this Section 10.03, and (C) the amount of a Loss shall be reduced
by:
(1) the amount of the reserve (if any) of such Loss or category
of Loss in the Company's financial statements, as the case may be,
but any such reserved Losses shall not be included in the Claim
Deductible (as defined below);
(2) the financial effect of any Tax benefit obtainable as a
result of the recognition of such Loss as contemplated in paragraph
(c) below;
(3) the amount of any insurance proceeds and any indemnity,
contribution or other similar payment in fact recoverable by the
Purchaser or any Affiliate from any third party with respect thereto;
and
(4) the amount of any Loss that results from or arises out of
actions taken by the Purchaser, the Company or their respective
Affiliates after the Closing Date (other than with respect to the
defense or settlement of claims relating to periods prior to the
Closing Date);
it being understood and agreed that the Purchaser shall take, and following
the Closing shall cause the Company to take, all reasonable steps to
mitigate their Losses upon and after becoming aware of any event which
could reasonably be expected to give rise to any Losses;
(ii) the indemnification obligations of the Seller pursuant to this
Section 10.03 shall not be effective with respect to any Loss, as the case
may be, unless (x) in the case of any Loss associated with any matter
described in clause (a)(i) or (a)(ii) above, the amount of each such Loss
exceeds U.S.$1,000, (y) in the case of any Loss arising out of a breach
of the representation and warranty in Section 3.02, the amount of each
such Loss exceeds U.S.$10,000 and (z) in the case of any Loss arising
out of clause (a)(iii) above or a breach of the representations and
warranties listed in clause (a)(iv) above (other than as relates to a
breach of Section 3.02 but subject, in the case of other referenced
sections, to the limitations contained herein), the amount of each such
Loss exceeds U.S.$2,500,000 (each, a "Claim Deductible"), it being
understood and agreed that only the amount of any such Loss that exceeds
the Claim Deductible shall be covered by the indemnity covered in this
Section 10.03 and shall be referred to herein as the "Indemnifiable
Amount" with respect to such Loss; and
(iii) the maximum aggregate payment that the Seller shall be
liable to pay out under this Section 10.03 in respect of any Loss or all
Losses (other than in respect of any Loss arising out of the matters set
forth in clauses (a)(i) and (a)(ii) above) in the aggregate whether in
respect of the Indemnified Amounts or otherwise shall be U.S.$60,000,000
(the "Maximum Aggregate Indemnity Payment Amount").
(c) The amount of any Tax benefit shall be computed at the maximum
applicable marginal statutory tax rate in effect at the time of computation.
Tax benefits determined to be substantially likely to be realized not later
than the taxable year during which an indemnity payment is determined to be
due shall be considered to be realized currently for purposes of netting
against such indemnity payment hereunder. If a payment is made by the Seller
in accordance with this Section 10.03, and if in a subsequent taxable year
an actual Tax benefit is realized by the Purchaser, CTUS, the Company, any
Subsidiary or any of their Affiliates (that was not previously taken into
account to reduce an amount otherwise payable by the Seller under Section
10.03), the Purchaser, CTUS, the Company, any such Subsidiary or any such
Affiliate shall pay to the Seller at the time of such realization the amount
of such Tax benefit to the extent that the Tax benefit would have resulted in
a reduction in the amount paid by the Seller under this Section 10.03 if the
Tax benefit had been obtained in the year of such payment. Subject to the
foregoing, a Tax benefit will be considered to be realized for purposes of
this Section 10.03 at the time that it is reflected in a Tax Return of the
Purchaser, CTUS, the Company, any Subsidiary or any of their Affiliates.
(d) For purposes of determining the Seller's liability under this
Section 10.03, the Purchaser shall have the right initially to undertake the
defense, appeal or settlement of any claim, assertion, event or proceeding for
which indemnity is provided for hereunder; provided, however, that (i) prior to
the Purchaser undertaking the defense, appeal or settlement of any claim,
assertion, event or proceeding for which indemnity may be available pursuant
hereto the Seller shall have the right to undertake such defense, appeal or
settlement at its own cost and expense and, if the Seller shall not have
undertaken any such defense, appeal or settlement, Seller shall have the right
to consult, through counsel of its own choosing, on such defense, appeal or
settlement negotiations at its own expense and (ii) in the event that, prior
to or following the undertaking by the Purchaser of the defense, appeal or
settlement of any claim, assertion, event or proceeding for which indemnity
may be available pursuant hereto, the Seller determines that the defense,
appeal or settlement of a third party claim by the Purchaser is likely to
result in an increase in the Seller's liability under the indemnity provided
for herein, then the Seller shall be entitled to undertake the defense, appeal,
prosecution or settlement negotiations at its own cost and expense. All legal
fees and expenses regarding the defense of any claim, assertion, event or
proceeding by or in respect of a third party as to which the Purchaser may
request indemnification shall be includable in the definition of "Loss"
contained herein subject to the limitation on the Maximum Aggregate Indemnity
Payment Amount set forth herein, it being understood and agreed, however,
that (i) the Seller shall fully reimburse the Purchaser and/or its
subsidiaries for legal fees and expenses incurred in retaining counsel to
provide assistance in connection with the prosecution by Marine Midland Bank
of the FIRREA Claim, in accordance with the requirements of Section 5.09, so
long as the Seller shall have approved in advance the selection and retention
of such counsel and (ii) the Seller shall fully reimburse the Purchaser and/or
its subsidiaries for reasonable legal fees and expenses incurred in connection
with any litigation relating to the Minority Shares not acquired by the Seller
prior to the Closing.
(e) In no event shall the Purchaser settle any claim or demand (or
part thereof) for which indemnification may be sought hereunder without the
prior written consent of the Seller (which consent shall not be unreasonably
withheld and which shall be deemed to have been given absent a response
within 10 Business Days from the date of receipt by the Seller of the relevant
notice), and the Seller shall not, without the prior written consent of the
Purchaser (which shall not be unreasonably withheld and which shall be deemed
to have been given absent a response within 10 Business Days from the date of
receipt by the Purchaser of the relevant notice), effect any settlement of any
pending or threatened proceeding in respect of which the Purchaser is or could
have been a party and indemnity could have been sought hereunder by the
Purchaser unless (i) such proceeding involves only monetary claims and (ii) the
settlement includes an unconditional release of the Purchaser from all liability
in respect of such claims.
(f) In the event the Seller shall make a payment hereunder, the
Seller shall be deemed to be subrogated fully to the rights of the Purchaser
against any and all third parties.
(g) Except as set forth in this Agreement, the Seller is not making
any representation, warranty, covenant or agreement with respect to the matters
contained herein. Anything herein to the contrary notwithstanding, no breach
of any representation, warranty, covenant or agreement contained herein shall
give rise to any right on the part of the Purchaser, after the consummation
of the purchase and sale of the CTUS Shares and the Minority Shares
contemplated hereby, to rescind this Agreement or any of the transactions
contemplated hereby and the Purchaser hereby acknowledges and agrees that,
as contemplated in Section 10.01, from and after the Closing, its sole and
exclusive remedy with respect to any and all claims relating to or arising
out of this Agreement shall be pursuant to the indemnification provisions set
forth in this Section 10.03. In furtherance of the foregoing, the Purchaser
hereby waives, from and after the Closing, to the fullest extent permitted
under applicable Law, any and all other rights, claims and causes of action
it (or, after the Closing, any Company) may have against the Seller or its
officers, directors, employees, agents, representatives and Affiliates
relating to the subject matter of this Agreement; provided, however, that,
except as otherwise contemplated in Section 9.04, the foregoing waiver shall
not preclude legal action by the Purchaser for knowing misrepresentation by
the Seller or willful noncompliance by the Seller with the terms of this
Agreement.
SECTION 10.04. Prior Tax Sharing Agreements. This Agreement
terminates and supersedes any and all other tax sharing or allocation agreements
in effect on the date hereof as between the Seller or any predecessor or
Affiliate (other than an identified Affiliate for which CTUS is a common parent
corporation) thereof on the one hand, and CTUS, the Company and any of the
Subsidiaries on the other hand, for all taxes imposed by any federal, state,
foreign or local government or taxing authority, regardless of the Period
for which such taxes are imposed.
SECTION 10.05. Expenses. Except as otherwise provided in Sections
2.04, 5.03(b), 5.09, 5.12, 5.13, 7.03(b) and 7.06, all costs and expenses,
including, without limitation, fees and disbursements of counsel, financial
advisors and accountants, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
costs and expenses, whether or not the Closing shall have occurred.
SECTION 10.06. Federal Home Loan Bank of New York Advances.
Notwithstanding anything herein to the contrary, it is understood and agreed
by the Seller and Purchaser that solely with respect to any of the advances
to, or maintained by, the Company on the Closing Date from the Federal Home
Loan Bank of New York, the Purchaser shall pay and be responsible for any
fees and expenses of any kind or nature, arising out of or resulting from the
consummation of the transactions contemplated by this Agreement or any
repayment or prepayment or change in any of the terms of any such advances
and such fees and expenses shall not be used in any adjustment pursuant to
Section 2.04, Section 2.05 or otherwise or in any way become payable or
suffered in any way by the Seller or the Company.
SECTION 10.07. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to the Seller:
CT Financial Services Inc.
Canada Trust Tower
161 Bay Street, 35th Floor
Toronto, Ontario M5J 2T2
Attention: Diane E. Walker, Esq.
Senior Vice President,
Law & Governmental Relations
Telecopy: (416) 361-5465
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Stuart K. Fleischmann, Esq.
Telecopy: (212) 848-7179
(b) if to the Purchaser:
One Marine Midland Center
24th Floor
Buffalo, New York 14203
Attention: Philip S. Toohey, Esq.
General Counsel and Secretary
Telecopy: (716) 841-5391
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: James F. Munsell, Esq.
Telecopy: (212) 225-3999
SECTION 10.08. Public Announcements. Unless otherwise required by
stock exchanges, regulatory agencies or under any Law, no party to this
Agreement shall make any public announcements in respect of this Agreement or
the transactions contemplated herein or otherwise communicate with any news
media without prior notification to the other party, and the parties shall
cooperate as to the timing and contents of any such announcement.
SECTION 10.09. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.10. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the greatest extent possible.
SECTION 10.11. Disclosure Schedule. Disclosure of information by the
Seller in any portion of the Seller Disclosure Schedule, and disclosure of
information by the Purchaser in any portion of the Purchaser Disclosure
Schedule, shall be deemed disclosure in any other portion of the Seller
Disclosure Schedule or the Purchaser Disclosure Schedule, as the case may be.
SECTION 10.12. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, other than the Confidentiality Agreement between the Seller and the
Purchaser with respect to the subject matter hereof and except as otherwise
expressly provided herein.
SECTION 10.13. Assignment. This Agreement may not be assigned by
either party hereto without the consent of the other party hereto (whether by
operation of law or otherwise unless specifically provided herein); provided,
however, that the Seller may transfer or assign any or all of its CTUS Shares
and/or any or all of its rights and obligations under this Agreement, in whole
or in part, to Imasco Limited or any direct or indirect subsidiary of Imasco
Limited or the Seller so long as (i) CT Financial Services Inc., shall remain
liable for all of such assignee's obligations under this Agreement and (ii)
the representations and warranties made at Closing shall be deemed to have
been made by CT Financial Services Inc. except that, to the extent the CTUS
Shares are assigned to any assignee, the first sentence of Section 3.04 shall
be revised to reflect the transfer of record and beneficial ownership to such
assignee, and Section 5.11 which, for the avoidance of doubt, shall only be
a covenant of CT Financial Services, Inc. and by no other Person, including
any permitted assignee as contemplated herein.
SECTION 10.14. No Third-Party Beneficiaries. Except as provided in
Article VII and Sections 5.02(a) and 10.02, this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
SECTION 10.15. Amendment; Waiver. This Agreement may not be
amended or modified except by an instrument in writing signed by the Seller
and the Purchaser. Waiver of any term or condition of this Agreement shall
only be effective if in writing and shall not be construed as a waiver of any
subsequent breach or a waiver of any other term or condition of this Agreement.
SECTION 10.16. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the Laws of New York applicable to contracts
executed in and to be performed in that State. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
a New York state or federal court sitting in the Southern District of New York,
and the parties hereto hereby irrevocably submit to the exclusive jurisdiction
of such courts in any such action or proceeding and irrevocably waive the
defense of an inconvenient forum to the maintenance of any such action or
proceeding.
SECTION 10.17. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, including via telecopier, each of which when executed shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CT FINANCIAL SERVICES INC.
By: /s/ Edmund Clark
By: /s/ Paul Derksen
HSBC AMERICAS, INC.
By: /s/ James H. Cleave
By: /s/ Philip S. Toohey
</TABLE>
<TABLE>
<CAPTION>
Exhibit 2.05(b)
Forecast of book value (of the Company) pursuant to stock purchase agreement
($ in millions)
Projected Accrual Accrual Recapture
core for for to Estimated
net estimated estimated def'd book
Actual income stock severance tax Accrual of value
book value (5 option & val SAIF at
6/30/96 months) payout incentives allow assessment closing
<S> <C> <C> <C> <C> <C> <C> <C>
Total expected benefit
(obligation) $ 43.9 $(15.0) $(18.0) $5.0 -
Less: current amounts
accrued 10.0
Less: amounts covered by
Marine 16.0
Pre tax income (expense) 43.9 (5.0) (2.0) 5.0 -
Taxes (18.9) 2.2 0.9 - -
Net Income 25.0 (2.9) (1.1) 5.0 -
Div to CT per sec 2.05
(<= $5.3 @ month) (25.0)
Book value $448.0 0.0 (2.9) (1.1) 5.0 - $449.0
Adjustments to audited
book value per sec 2.05 2.9 1.1 - -
Pre closing payments/div
per sec 5.07 (53.0)
"Audited" book value $448.0 (53.0) - - 5.0 - $400.0
Total dividends paid to CT Differential amount
$ 78.0 Audited book value $400.0
Targeted book value 400.0
Add: excess interim
earnings > $5.3 mm - 400.0
Differential:
adjustment to
purchase price $ 0.0
</TABLE>
Exhibit 5.09(b)
Term Sheet for the Preferred Stock
Issuer: CTUS
Issue: 100 shares of Series A Preferred Stock, par value $.01
per share (the "Preferred Stock").
Ranking: Will rank senior to the common stock of CTUS and any
preferred stock of CTUS or any successor-in-interest thereto
issued after the issuance of the Preferred Stock.
Annual Dividends: None.
Special Dividends: Payment made in an amount equal to the Preferred Stock
Dividend Amount on first Business Day following the later
of (i) 90 days after the commencement of the FIRREA
Plaintiff's taxation year in which the FIRREA Plaintiff
receives the FIRREA Recovery and (ii) 30 days after
receipt of the FIRREA Recovery by the FIRREA Plaintiff.
Redemption/
Cancellation: Redemption at the option of the holder, following the
later of (i) the final determination, settlement or
compromise of the FIRREA Claim and (ii) the receipt
by the FIRREA Plaintiff of the FIRREA Recovery, if
any. Redeemable at the option of the issuer 280 days
following the distribution of the Preferred Stock
Dividend Amount.
Redemption Amount/
Liquidation Preference: Preferred Stock Redemption Amount.
Voting Rights: No voting rights, except as provided by law. CTUS or any
successor-in-interest thereto shall not, without the vote
of two-thirds of the outstanding shares of the Preferred
Stock, (a) amend, alter, repeal or waive compliance with
any provision of the Certificate of Incorporation of CTUS
or any successor-in-interest thereto so as to affect
adversely the specified rights, preferences, privileges
or voting rights of the Preferred Stock, (b) authorize
the issuance of any additional shares of Preferred Stock
or any securities senior to the Preferred Stock or
(c) effect any reclassification of the Preferred Stock.
Other Rights: The holder(s) of the Preferred Stock shall have the right
to direct the FIRREA Claim and shall have sufficient
protection to maintain their rights in the FIRREA Claim
in the event that the Company (or any successor-in-
interest) is not a wholly-owned subsidiary or CTUS (or
any successor-in-interest).
Transferability: Within Imasco/BAT family and otherwise with the
Purchaser's consent.
Exhibit 5.09(e)
STANDARDS OF CONDUCT
FOR FIRREA PLAINTIFF
(a) the FIRREA Plaintiff may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or
other paper or document believed by it to be genuine and to have been signed
or presented by the Seller;
(b) any request or direction of the Seller pursuant to Section 5.09
of the Agreement shall be sufficiently evidenced by a Seller request or order
which appears on its face to have been signed by an executive officer of the
Seller and any resolution of the Board of Directors of the Seller may be
sufficiently evidenced by a board resolution of the Seller certified by its
secretary or an assistant secretary;
(c) whenever the FIRREA Plaintiff shall deem it desirable that a
matter be proved or established prior to taking, suffering or omitting any
action hereunder, the FIRREA Plaintiff (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely
upon a board resolution, an opinion of counsel or an officers' certificate
of the Seller;
(d) the FIRREA Plaintiff shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order or other paper or document, but the FIRREA
Plaintiff, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
(e) the FIRREA Plaintiff may execute any of the powers provided
for in Section 5.09(c) of the Agreement or perform any duties thereunder
either directly or by or through agents, attorneys, custodians or nominees
and the FIRREA Plaintiff shall not be responsible for the supervision of or
any misconduct or negligence on the part of any such agent, attorney,
custodian or nominee appointed with due care by it hereunder;
(f) the FIRREA Plaintiff shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by Section
5.09(c) of the Agreement;
(g) The FIRREA Plaintiff shall not be required to expend or risk
its own funds or otherwise incur any financial liability in the performance
of any of it duties set forth in Section 5.09(c) of the Agreement, or in
the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it;
(h) The FIRREA Plaintiff shall not be required to expose itself to
criminal liability or punitive damages in the performance of any of its
obligations under Section 5.09 of the Agreement.
Exhibit 5.14(c)
PROPOSED FORM OF BANK PLAN OF MERGER
BETWEEN
MARINE MIDLAND BANK
AND
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROCHESTER
DATED , 1996
BANK PLAN OF MERGER dated ______________________, 1996 (the
"Agreement"), between MARINE MIDLAND BANK ("Marine"), a New York banking
corporation and a subsidiary of HSBC AMERICAS, INC. ("HZ"), and FIRST
FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROCHESTER ("First
Federal"), a federal savings and loan association and a subsidiary of CTUS,
Inc. ("CTUS").
Recitals
A. The Boards of Directors of HZ and CTUS have approved, and
deem it advisable and in the best interests of their shareholders to
consummate, the business combination transaction set forth in the Stock
Purchase Agreement and Plan of Merger, dated as of August 21, 1996, between
HZ, MM Merger Corporation, a wholly owned subsidiary of HZ (the "Merger
Subsidiary"), and CT Financial Services, Inc. (the "Parent Merger Agreement")
pursuant to which the Merger Subsidiary would merge with and into CTUS (the
"Parent Merger").
B. The Boards of Directors of Marine and First Federal, and HZ
and CTUS as the sole shareholders of Marine and First Federal, have approved
and deem it advisable to consummate the business combination transaction
provided for in this Agreement, pursuant to which First Federal would merge
with and into Marine (the "Bank Merger"), subject to and as soon as
practicable after consummation of the Parent Merger.
Agreement
ARTICLE I
The Merger
1.1 Effective Time of Bank Merger. The Bank Merger shall become
effective on the filing of this Agreement (the "Plan of Merger") in the
office of the Superintendent of Banks of the State of New York as provided
in Section 601-b of the New York Banking Law and upon the filing of Articles
of Combination with the Office of Thrift Supervision ("OTS") and the
endorsement of the Articles of Combination by the OTS in accordance with
12 C.F.R. Section 552.13(j) (the "Effective Time"). After the filing of the
Plan of Merger in the Superintendent's office and the filing of the Articles
of Combination with the OTS, the Surviving Bank (as defined in Section 1.2)
shall cause the Plan of Merger to be filed in the office of the Clerk of
Erie County.
1.2 Effects of Merger.
(a) At the Effective Time (i) the separate existence of First
Federal shall cease, and First Federal shall be merged with and into Marine
(Marine and First Federal being sometimes referred to as the "Constituent
Banks" and Marine being sometimes referred to as the "Surviving Bank"); and
(ii) the Organization Certificate of Marine as in effect immediately prior
to the Effective Time shall be the Organization Certificate of the Surviving
Bank, and the name of the Surviving Bank shall be "Marine Midland Bank";
and (iii) the By-Laws of Marine in effect immediately prior to the Effective
Time shall be the By-Laws of the Surviving Bank.
(b) At and after the Effective Time, the Bank Merger shall have
all the effects set forth in Section 602 of the New York Banking Law; the
separate existence of First Federal shall cease; and all of the property,
rights, powers, duties and obligations of First Federal and Marine shall
be taken by and deemed to be transferred to and vested in the Surviving
Bank without further act or deed.
1.3 Headquarters; Offices. The headquarters and principal office
of the Surviving Bank shall be at One Marine Midland Center, Buffalo,
New York. The branch offices of Marine shall remain the branch offices of
the Surviving Bank, and First Federal's principal office at One First
Federal Plaza, Rochester, New York, and its branch offices shall become
branch offices of the Surviving Bank.
1.4 Directors and Officers. From and after the Effective Time,
the directors of the Surviving Bank shall be the directors of Marine in
office immediately before the Effective Time. The officers of the Surviving
Bank shall be the officers of Marine in office immediately before the
Effective Time.
ARTICLE II
Effect on Capital Stock of Constituent Banks
2.1 Effect on First Federal Stock. At the Effective Time, by
virtue of the Bank Merger and without any action on the part of the holder
of the shares of the common stock, par value $ per share, of
First Federal ("First Federal Common Stock"):
(a) Cancellation of Treasury Stock. All shares of First Federal
Common Stock owned by First Federal as treasury stock shall be cancelled and
retired and shall cease to exist, and all rights in respect of such shares
shall cease.
(b) Cancellation of Issued and Outstanding Common Stock. All
shares of First Federal Common Stock issued and outstanding immediately prior
to the Effective Time shall be deemed cancelled and retired and shall cease to
exist, and all rights in respect of such shares shall cease.
2.2 Effect on Marine Stock. At the Effective Time, by virtue of
the Bank Merger and without any action on the part of the holder of the shares
of common stock, par value $100.00 per share, of Marine (the "Marine Common
Stock"), each share of the Marine Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into one issued
and outstanding share of the Surviving Bank, and the holder of the Marine
Common Stock shall automatically become the holder of the issued and
outstanding shares of the Surviving Bank.
ARTICLE III
Conditions Precedent
3.1 Conditions to Each Party's Obligations. The obligations of each
party to effect the Bank Merger shall be subject to the satisfaction of the
following conditions before the Closing Date (as defined in the Parent Merger
Agreement):
(a) Parent Merger. The Parent Merger shall have occurred.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or any other legal restraint or
prohibition ("Injunction") preventing the consummation of the Bank Merger
shall be in effect. There shall not have been any action taken or any
statute, rule or other regulation enacted, entered, enforced or deemed
applicable to the Bank Merger that makes the consummation of the Bank Merger
illegal.
(c) Other Approvals. All regulatory and stockholder approvals
required in the Parent Merger Agreement shall have been obtained and continue
to be in full force and effect, and CTUS, as the sole stockholder of First
Federal, shall have approved the Bank Merger.
ARTICLE IV
Miscellaneous
4.1 Termination. This Agreement shall be deemed terminated if the
Parent Merger Agreement is terminated pursuant to Section 9.01 thereof, and
termination of this Agreement shall have the same effects as those set forth
in Section 9.02 of the Parent Merger Agreement with respect to the termination
of the Parent Merger Agreement.
4.2 Amendment. This Agreement may be amended only by a written
agreement signed by the parties, and any amendment shall be subject to any
required regulatory agency approval. An extension of time to perform any
obligation under this Agreement or a waiver of any breach or requirement
of this Agreement shall be effective only if it is set forth in a writing
signed by the party against whom it is sought to be enforced.
4.3 Captions. The subject headings of this Agreement are included
for convenience only and shall not affect the construction or interpretation
of this Agreement.
4.4 Definitions. Capitalized terms not otherwise defined in this
Agreement shall have the meanings for such terms that are set forth in the
Parent Merger Agreement.
4.5 Survival. Each representation, warranty and covenant set forth
in this Agreement shall terminate as of the Closing Date.
4.6 Counterparts. This Agreement may be executed in any number of
counterparts. Each counterpart shall constitute an original instrument, but all
counterparts shall constitute one and the same instrument.
4.7 Governing Law. Except to the extent governed by federal law, the
validity, construction and enforceability of this Agreement shall be governed
by the internal laws of the State of New York without reference to conflicts
of law principles.
Marine and First Federal have caused this Agreement to be executed
by their duly authorized officers and their corporate seals to be affixed as
of the date first written above.
MARINE MIDLAND BANK
[SEAL]
By
FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF
ROCHESTER
[SEAL]
By
Exhibit 13
CTUS AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Peat Marwick LLP
600 Clinton Square
Telephone 716 454 1644 Telefax 716 454 1469
Rochester, NY 14604
Independent Auditors' Report
The Shareholder and Board of Directors of CTUS:
We have audited the accompanying consolidated statements of
financial condition of CTUS and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income,
changes in stockholder's equity, and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 CTUS and subsidiaries as of December 31, 1995 and
1994, and results of their operations and their cash flows for
the years then ended in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements,
the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting for Impairment of
a Loan, as amended by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures, on
January 1, 1995, and SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, on January 1, 1994.
/s/ KPMG Peat Marwick LLP
January 12, 1996
<TABLE>
<CAPTION>
CTUS AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1995 and 1994
(amounts in thousands except share amounts)
1995 1994
Assets
<S> <C> <C>
Cash and cash equivalents $ 227,185 $ 215,363
Securities available for sale,
at fair value 629,395 65,763
Securities held to maturity 300,460 1,159,538
Loans 5,777,051 4,955,678
Allowance for loan losses 38,842 35,373
Net loans 5,738,209 4,920,305
Federal Home Loan Bank stock, at cost 85,838 75,625
Accrued interest receivable 44,291 37,783
Premises and equipment, net 56,785 56,213
Cost of loan servicing rights acquired 59,018 29,062
Excess loan servicing fees capitalized 15,095 17,231
Other assets 40,444 38,780
Total assets $7,196,720 $6,615,663
Liabilities and Stockholder's Equity
Liabilities:
Deposits $4,210,502 $4,031,197
Advances from Federal Home Loan Bank 1,710,955 1,504,874
Securities sold under agreements to
repurchase 570,648 498,077
Collateralized mortgage obligations 8,531 9,918
Senior and subordinated debt 82,000 53,000
Advances from borrowers for taxes and
insurance 125,799 111,411
Accrued interest payable 47,566 25,746
Other liabilities 126,861 112,495
Minority interest in subsidiary 2,710 2,469
Total liabilities 6,885,572 6,349,187
Stockholder's Equity
Common stock, $.01 par value, 10,000
shares authorized, 100 shares issued
and outstanding - -
Additional paid in capital 163,000 163,000
Retained earnings 146,714 104,506
Unrealized gain (loss) on securities
available for sale, net of taxes 1,434 (1,030)
Total stockholder's equity 311,148 266,476
Total liabilities and
stockholder's equity $7,196,720 $6,615,663
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CTUS AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
Years Ended December 31, 1995 and 1994
(amounts in thousands)
Common Stock Net unrealized
and Gain(Loss) on
Additional Securities
Paid Retained Available
in Capital Earnings for Sale Total
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $163,000 $72,418 $ - $235,418
Net income, 1994 - 32,088 - 32,088
Net unrealized loss
on securities available
for sale, net of tax
effect of $776 - - (1,030) (1,030)
Balance, December 31, 1994 163,000 104,506 (1,030) 266,476
Net income, 1995 - 42,208 - 42,208
Net change in unrealized
gain (loss) on securities
available for sale, net of
tax effect of $1,858 - - 2,464 2,464
Balance, December 31, 1995 $163,000 $146,714 $ 1,434 $311,148
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CTUS AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1995 and 1994
(amounts in thousands)
1995 1994
<S> <C> <C>
Interest income:
Loans - interest and fees $396,178 $306,177
Securities 67,492 70,462
Cash equivalents 7,569 7,715
Other 9,964 9,848
Total interest income 481,203 394,202
Interest expense:
Deposits 172,177 132,521
Federal Home Loan Bank advances 100,183 76,793
Securities sold under agreements
to repurchase 33,181 16,747
Other borrowings 9,330 7,052
Total interest expense 314,871 233,113
Net interest income before provision 166,332 161,089
Provision for loan and mortgage-backed
security losses 15,756 18,054
Net interest income after provision 150,576 143,035
Other operating income:
Loan fees 5,166 4,246
Loan servicing income, net 11,376 9,741
Customer service fees 14,685 13,439
Net gain (loss) on sale of mortgage loans
and securities 6,194 (433)
Other 5,939 5,196
Total other operating income 43,360 32,189
Other operating expenses:
Employee compensation and benefits 59,206 55,687
Office occupancy and equipment 23,048 20,256
General and administrative 25,520 27,763
Marketing 3,800 4,033
Deposit insurance premiums 10,831 10,734
Total other operating expenses 122,405 118,473
Minority interest in net income of
subsidiary 280 252
Income before taxes 71,251 56,499
Income taxes 29,043 24,411
Net income $ 42,208 $ 32,088
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CTUS AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1995 and 1994
(amounts in thousands)
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,208 $ 32,088
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
accretion 22,325 20,491
Provision for loan and mortgage-
backed security losses 15,756 18,054
Deferred income taxes (4,991) 11,076
Net (gain) loss on sale of mortgage
loans and securities (6,194) 433
Loan fees and discounts deferred - net (13,710) (8,295)
Decrease(Increase) in mortgage loans
held for sale - net (77,920) 105,865
Net change in:
Other assets and accrued interest
receivable (8,172) 2,884
Other liabilities and accrued
interest payable 41,178 (65,614)
Other items 788 (3,420)
Net Cash provided by operating
activities 11,268 113,562
Cash flows from investing activities:
Proceeds from sales of portfolio loans 84,665 59,348
Proceeds from sales of securities
available for sale 143,028 160,634
Principal payments of loans for
portfolio 835,279 803,849
Investments in loans (1,659,142) (1,676,813)
Purchases of securities available
for sale (49,000) (13,688)
Purchases of securities held to
maturity (20,000) (168,145)
Increase in servicing rights (36,132) (16,594)
Purchase of FHLB stock, net (10,213) (3,635)
Purchases of premises and
equipment, net (10,311) (10,744)
Proceeds from maturities of and
principal collected on securities 224,250 332,408
Net cash used by investing
activities (497,576) (533,380)
Cash flows from financing activities:
Deposit acquisitions - 25,065
Increase in deposits 179,305 77,490
Proceeds from FHLB advances 2,242,489 1,985,180
Payments on FHLB advances (2,038,236) (1,882,000)
Increase in securities sold under
agreement to repurchase 72,571 199,391
Increase in subordinated debt 29,000 -
Net increase (decrease) in advances
from borrowers for taxes and insurance 14,388 (56)
Decrease in collateralized mortgage
obligations (1,387) (2,634)
Net cash provided by financing
activities 498,130 402,436
Net increase(decrease) in cash and
cash equivalents 11,822 (17,382)
Cash and cash equivalents at
beginning of year 215,363 232,745
Cash and cash equivalents at
end of year $ 227,185 $ 215,363
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 293,023 $ 246,577
Income taxes 22,595 9,795
Non cash investing activities:
Change in net unrealized gain (loss)
on securities available for sale $ 2,464 $ 1,030
Transfer of foreclosed real estate 19,547 32,600
See accompanying notes to consolidated financial statements.
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
CTUS, a unitary thrift holding company (the "Company"), is the
parent of First Federal Savings and Loan Association of Rochester
and subsidiaries (the "Subsidiary") and is owned by CT Financial
Services, Inc. (the "Parent") through a subsidiary of the parent,
CT North America Financial Holdings.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its Subsidiary. All significant intercompany accounts
and transactions have been eliminated.
(c) Cash Equivalents
Cash equivalents consist of federal funds sold, certificates of
deposits and funds due from banks. For purposes of the statements
of cash flows, all highly liquid debt instruments with original
maturities of three months or less are considered cash
equivalents.
(d) Securities
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities. The
Statement requires classification of securities into three
categories: trading, available for sale, or held to maturity. The
Company classifies its debt securities as either available for
sale or held to maturity, as the Company does not hold any
securities considered to be trading.
Held to maturity securities are those that the Company has
the positive intent and ability to hold to maturity. All
other securities not classified as held to maturity are
classified as available for sale.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on
available for sale securities are excluded from earnings and are
reported as a separate component of stockholder's equity until
realized.
A decline in the fair value of any available for sale or held to
maturity security below cost that is deemed other than temporary
is charged to earnings resulting in the establishment of a new
cost basis for the security.
Interest income includes interest earned on the securities and the
amortization of premiums and accretion of discounts of the related
held to maturity securities as an adjustment to yield using the
effective interest method. Realized gains or losses on securities
sold are recognized on the trade date using the specific
identification method.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(e) Loans
Loans are stated at the principal amount outstanding adjusted for
unearned discounts, unamortized premiums and net deferred fees.
Loan origination fees and certain direct origination costs are
deferred and amortized over the contractual life of the related
loans using the interest method.
(f) Mortgage Banking Activities
Mortgage loans held for sale are recorded at the lower of
aggregate cost or estimated market value. Net unrealized losses
are recognized through a valuation allowance by charges to
earnings.
Gains and losses on loan sales are recognized on trade date and
are determined by the difference between net sales proceeds and
the carrying value of the mortgage loans sold. When servicing is
retained, an additional gain or loss may be recognized based upon
the net present value of expected amounts to be received or paid
resulting from the difference between the contractual interest
rates received from the borrowers and the rates paid to the buyers
excluding a normal loan servicing fee, securitization fees and
costs, and considering estimated prepayments on such loans. The
resulting excess loan interest income (excess loan servicing fees
capitalized) is amortized over the estimated remaining life of the
loans using the interest method.
The cost of acquiring the right to service mortgage loans is
capitalized and amortized in proportion to and over the period of
estimated net servicing income based on the interest method.
Fees related to the servicing of mortgage loans for the benefit of
others are determined on the basis of loans serviced and are
recorded as income when payments are received.
Statement of Financial Accounting Standards No. 122, Accounting
for Mortgage Servicing Rights, an amendment of FASB Statement No.
65, was issued in May 1995. The Statement requires mortgage
banking enterprises to recognize as separate assets the rights to
service mortgage loans for others, however those rights are
acquired, eliminating the previously existing accounting
distinction between servicing rights acquired through purchase
transactions and those acquired through loan originations. The
provisions of the Statement will be applied prospectively
beginning in fiscal 1996. The expected impact to the financial
statements in 1996 is not material.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(g) Allowance for Loan Losses
The Company's provision for loan losses charged to operations is
based upon management's evaluation of the loan portfolio. The
allowance for loan losses is maintained at an amount management
deems adequate to provide for potential loan losses considering
the character of the loan portfolio, economic conditions, analysis
of specific loans and historical loss experience. While
management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowances for loan losses.
Such agencies may require the Company to recognize additions to
the allowance based on their judgements about information
available to them at the time of their examination.
The accrual of interest on impaired loans is discontinued when
loans are contractually ninety days past due or in management's
opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Income is subsequently recognized
only to the extent cash payments are received and the principal
balance is expected to be recovered. Such loans are restored to
an accrual status only if the loan is brought contractually
current and the borrower has demonstrated the ability to make
future payments of principal and interest.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 114, Accounting for Creditors for
Impairment of a Loan as amended by FASB Statement No. 118,
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures in 1995. The Statement provides
guidance in defining and measuring loan impairment. A loan is
considered impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all
amounts of principal and interest under the original terms of the
agreement. Accordingly, the Company measures certain impaired
commercial mortgage loans based on the present value of expected
future cash flows, discounted at the loan's effective interest
rate or, at the loan's observable market price or fair value of
collateral. The Statement does not apply to large groups of small
balance, homogeneous loans that are collectively evaluated for
impairment. The Statement did not have a material impact on the
Company's 1995 consolidated financial statements.
(h) Premises and Equipment
Premises and equipment are recorded at acquired cost less
accumulated depreciation. Depreciation and amortization are
calculated primarily using the straight-line method over the
estimated useful lives of the depreciable asset. The lives used
to compute depreciation and amortization are 30 to 50 years for
buildings, the lesser of the lease term or estimated useful life
for leasehold improvements, and 5 to 10 years for equipment.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(i) Foreclosed Real Estate
Foreclosed real estate represents property acquired through, or in
lieu of, foreclosure. At acquisition, foreclosed real estate is
valued at the lower of fair value or the carrying amount,
including related costs incurred to acquire the property at
acquisition. Subsequent to acquisition, foreclosed real estate is
carried at the lower of the carrying amount or fair value less
estimated costs to sell. Foreclosed real estate is included in
other assets.
(j) Financial Instruments
The Company holds various derivative financial instruments to
hedge exposure to fluctuating interest rates. The Company is not
an issuer of any financial instrument derivatives.
Interest-Rate Exchange Agreements. Interest-rate
exchange agreements (swaps) used in asset/liability
management activities are accounted for using the
accrual method. Net interest income (expense)
resulting from the differential between exchanging
floating and fixed-rate interest payments is recorded
on a current basis. Gains or losses, if any, on
terminated swaps used in asset/liability management
activities are deferred and amortized into interest
income or expense over the original maturity period of
the swap.
Interest Rate Caps. Premiums paid for interest rate caps are
capitalized and amortized into interest expense over the
contractual terms of the cap. Interest received under the
terms of the caps is accrued and recorded as a reduction of
interest expense.
Options. Option premiums paid are capitalized and amortized to
income over the exercise period of the option, while realized
gains on exercised options are deferred and amortized over the
term of the expected benefit.
Other Off-Balance-Sheet Instruments. In the ordinary course of
business the Company has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit and forward
commitments to sell securitized loans. Such financial instruments
are recorded in the financial statements when they are funded or
related fees are incurred or received.
Although off-balance sheet derivative financial instruments do not
expose the Company to credit risk equal to the notional amount,
the Company is exposed to credit risk to the extent of the fair
value gain of an off-balance sheet derivative financial instrument
if the counterparty fails to perform. The Company minimizes the
credit risk in these instruments by dealing only with highly rated
counterparties who have credit ratings of investment grade as
rated by the major rating agencies. Each transaction is
specifically approved for applicable credit exposure.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(k) Securities Sold under Agreements to Repurchase
The Company enters into sales of mortgage-backed securities under
agreements to repurchase. These agreements are financing
transactions, and as a result, sales proceeds are treated as
borrowings and reflected as liabilities in the consolidated
statements of financial condition. The amount of the securities
underlying the agreements remains in the asset account. The
securities underlying the agreements were delivered to dealers who
arranged the transactions. The dealers may have sold, loaned or
otherwise disposed of the securities to other parties in the
normal course of their operations, and have agreed to return
substantially identical securities to the Company at the maturity
of these agreements.
(l) Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities
are reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
(m) Other Standards
The Company maintains compensation plans which provide for grants
of stock options and restricted stock to officers. As described
in Note 16, the Company currently follows Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees in
accounting for its plans. In October 1995, the FASB issued
Statement No. 123 entitled Accounting for Stock-Based Compensation
which encourages, but does not require, companies to use a fair
value based method of accounting for stock-based employee
compensation plans. Under this method, compensation cost is
measured as of the date stock awards are granted based on the fair
value rather than the intrinsic value of the award, and such cost
is recognized over the service period, which is usually the
vesting period. If a company elects to continue using the
intrinsic value based method under Opinion 25, pro forma
disclosures of net income and net income per share are required,
as if the fair value based method had been applied. The Company's
current policy substantially complies with the requirements of
Statement 123.
(n) Reclassifications
Reclassifications are made to prior year financial statements
whenever necessary to conform with the current year presentation.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Cash and cash equivalents
<TABLE>
<CAPTION>
Cash and cash equivalents as of December 31, 1995 and 1994 follows
(amounts in thousands):
1995 1994
<S> <C> <C>
Federal funds sold-overnight $ 77,025 $ 20,679
Federal funds sold-term 65,800 22,000
Time deposits - 85,000
Other interest bearing accounts 26,813 24,726
169,638 152,405
Cash 57,547 62,958
$227,185 $215,363
</TABLE>
(3) Securities
<TABLE>
<CAPTION>
The amortized costs and estimated fair values of securities as of
December 31, 1995 and 1994 follows (amounts in thousands):
Gross Gross
Amortized Unrealized Unrealized Estimated
1995 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities held to maturity:
Mortgage-backed
securities:
FHLMC $128,064 $ 797 $ 249 $128,612
FNMA 54,685 141 152 54,674
GNMA 207 17 - 224
Conventional 67,478 8 1,448 66,038
U.S. Treasury bills 4,964 12 - 4,976
U.S. Treasury notes 45,038 199 10 45,227
U.S. Government
and agency bonds 24 - - 24
Total securities held
to maturity $300,460 $1,174 $1,859 $299,775
Securities available for sale:
Debt securities:
Mortgage-backed
securities:
Conventional $ 94,145 $1,255 $ - $ 95,400
FHLMC 285,877 2,047 728 287,196
FNMA 201,919 870 1,362 201,427
GNMA 15,705 210 - 15,915
U.S. Treasury notes 29,018 224 - 29,242
Total debt securities 626,664 4,606 2,090 629,180
Equity securities:
Other securities 215 - - 215
Total securities
available for sale $626,879 $4,606 $2,090 $629,395
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(3) Securities, Continued
Gross Gross
Amortized Unrealized Unrealized Estimated
1994 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities held to maturity:
Mortgage-backed
securities:
FHLMC $ 542,148 $116 $21,550 $ 520,714
FNMA 312,260 76 21,097 291,239
GNMA 15,722 33 605 15,150
Conventional 211,274 251 3,270 208,255
U.S. Treasury bills 18,147 - 97 18,050
U.S. Treasury notes 59,963 - 1,184 58,779
U.S. Government
and agency bonds 24 - - 24
Total securities
held to maturity $1,159,538 $476 $47,803 $1,112,211
Securities available for sale:
Debt securities:
Mortgage-backed
securities:
FHLMC $ 8,687 $ - $ 422 $ 8,265
FNMA 13,326 40 255 13,111
GNMA 45,346 61 1,230 44,177
Total debt securities 67,359 101 1,907 65,553
Equity securities:
Other securities 210 - - 210
Total securities
available for sale $ 67,569 $101 $ 1,907 $ 65,763
</TABLE>
Under the one-time opportunity allowed by the Financial Accounting
Standards Board ("FASB") to reassess the designation of securities,
the Company transferred securities with an amortized cost of
$684,823,465 and a fair value of $690,293,630 from held to maturity
to available for sale in November 1995. As provided in the FASB
guidance, the one-time transfer does not call into question
management's ability and intent to hold securities to maturity.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Securities, Continued
Proceeds from the sale of securities available for sale for the years
ended December 31, 1995 and 1994 were $143,028,000 and $160,634,000,
respectively. Gross gains and (gross losses) realized on these sales
of securities available for sale were $3,974,000 and $(0), respectively,
for the year ended December 31, 1995 and $216,000 and $(77,000),
respectively, for the year ended December 31, 1994.
GNMA, FHLMC and FNMA mortgage-backed certificates with a carrying value
of $545,910,000 and $490,780,000 at December 31, 1995 and 1994 were sold
under agreements to repurchase (See Note 10).
FHLMC mortgage-backed certificates with a carrying value of $9,230,000
and $11,054,000 at December 31, 1995 and 1994 were pledged as collateral
for the collateralized mortgage obligations issued by the Company (See
Note 11).
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of debt securities at
December 31, 1995 by contractual maturity follows (amounts in
thousands):
Held to Maturity Available for Sale
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
One year or less $ 34,903 $ 35,086 $ 4,635 $ 4,883
After one year
through five years 134,951 135,191 151,782 153,283
After five years
through ten years 44,223 44,043 189,945 188,207
After ten years 86,383 85,454 280,302 282,807
$300,460 $299,775 $626,664 $629,180
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans
<TABLE>
<CAPTION>
A summary of loans as of December 31, 1995 and 1994 follows (amounts in
thousands):
1995 1994
<S> <C> <C>
Mortgage loans:
Conventional:
one to four family residential-fixed $ 199,878 $ 151,647
one to four family residential-variable 4,697,820 3,980,857
commercial and construction 401,125 357,777
FHA insured and VA guaranteed 106,015 106,609
Total mortgage loans 5,404,838 4,596,890
Other loans:
Second mortgage 220,952 232,892
Home improvement 7,557 9,773
Student 82,629 72,281
Other consumer 23,117 19,594
Total other loans 334,255 334,540
Total loans 5,739,093 4,931,430
Allowance for loan losses (38,842) (35,373)
Unearned net loan premiums and fees 37,958 24,248
Loans, net $5,738,209 $4,920,305
</TABLE>
The interest rates on adjustable-rate residential mortgage loans held in
the Company's portfolio generally float at designated spreads above
indices based on U.S. Treasury securities. The loans are generally
subject to caps on increases in the rate of interest. Adjustable-rate
loans may provide for initial rates of interest below the rates that
would prevail if the market rate indices used for repricing were applied
initially. Adjustable-rate mortgages pose potential additional risks,
primarily because as interest rates rise, the mortgage payments by the
borrowers rise as a result of periodic repricing, increasing the
potential for default.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans, Continued
<TABLE>
<CAPTION>
The following summarizes activity in the allowance for loan losses for
the years ended December 31, 1995 and 1994 (amounts in thousands):
1995 1994
<S> <C> <C>
Balance, beginning of year $ 35,373 $ 48,461
Provision for loan losses 15,336 16,211
Loans charged-off (14,020) (21,482)
Reduction for non-performing
loan sale - (9,919)
Recoveries 2,153 2,102
Balance, end of year $38,842 $35,373
</TABLE>
In 1994, the Company sold $40,862,800 of non-performing loans and
foreclosed real estate. Cash proceeds of the sale were $27,929,400 and
related valuation allowances at sale date were $9,919,000. The
remaining $3,014,400 loss was charged to earnings.
The principal balance of residential mortgage loans not accruing
interest as of December 31, 1995 and 1994 amounted to $32,857,000 and
$19,761,000. The effect on interest income for non-accrual residential
loans was $2,942,000 and $2,267,000 for the years ended December 31,
1995 and 1994.
Impaired commercial mortgage loans were $4,536,000 at December 31, 1995
and the total allowance for loan losses related to these loans was
$2,797,000. Commercial mortgage loans with modified payment terms were
immaterial at December 31, 1995 and 1994. The effect on interest income
of impaired loans was not material to the consolidated financial
statements in 1995 and 1994. The Company is not committed to lend
additional funds to these borrowers.
As of December 31, 1995, approximately 28.6% of the outstanding
principal balance of the Company's residential mortgage loan portfolio
was located in New York State, 10.2% in New Jersey, and 9.4% in
Maryland. The balance was secured by properties located in 45 states,
with no other state or territory accounting for 8.5% or more of the
portfolio. As of December 31, 1995, approximately 83.5% of the
outstanding principal balance of the Company's portfolio of multi-
family, commercial and construction mortgage loans was secured by
properties located in New York State, and 10.2% in New Jersey. The
balance was secured by properties located in 18 states, with no other
state accounting for 2% or more of the portfolio.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans, Continued
<TABLE>
<CAPTION>
Total non-performing mortgage loans (including residential, commercial,
and construction real estate loans) by geographic region as of December
31, 1995 and 1994 follows (amounts in thousands):
1995 1994
Amount % Amount %
<S> <C> <C> <C> <C>
New York $20,678 55.3% $14,243 62.4%
New Jersey 5,011 13.4 4,040 17.7
Connecticut 4,151 11.1 3,515 15.4
All other states 7,553 20.2 1,028 4.5
Total $37,393 100.0% $22,826 100.0%
</TABLE>
(5) Mortgage Banking Activities
Mortgage loans includes loans held for sale (which are principally
residential loans) of $95,974,000 and $18,054,000 as of December 31,
1995 and 1994. Proceeds from the sale of loans held for sale were
$439,714,000 and $508,516,000 for the years ended December 31, 1995 and
1994. Net gain(loss) on sales of loans was $2,220,000 and $(572,000)
for the years ended December 31, 1995 and 1994. No significant income
statement impact is anticipated from the disposition of the loans held
for sale.
Loans serviced for others, amounting to $6.1 billion and $3.8 billion at
December 31, 1995 and 1994 are not included in the consolidated
financial statements. Custodial escrow balances maintained in
connection with the foregoing loan servicing were $87,143,932 and
$67,162,515 at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
The following analysis reflects the changes in loan servicing rights
acquired (purchased) and excess loan servicing fees capitalized
(retained) balances for the years ended December 31, 1995 and 1994
(amounts in thousands):
Purchased Retained
<S> <C> <C>
Balance December 31, 1993 $ 19,242 $18,250
Additions 14,187 2,407
Amortization (4,367) (3,426)
Balance December 31,1994 29,062 17,231
Additions 35,444 688
Amortization (5,488) (2,824)
Balance December 31, 1995 $59,018 $15,095
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Mortgage Banking Activities, Continued
In June 1995, the Company, through the Subsidiary, acquired the
outstanding common stock of Sibley Mortgage Corporation (Sibley) for $20
million in cash. Sibley's primary business was the origination,
purchase, sale and servicing of residential and multi-family loans. The
acquisition was recorded using the purchase method of accounting.
Accordingly, purchased mortgage servicing rights of $14.3 million and
goodwill of $4.2 million were recorded. Goodwill is being amortized on
a straight-line method over 10 years.
(6) Accrued Interest Receivable
<TABLE>
<CAPTION>
Accrued interest receivable as of December 31, 1995 and 1994 follows
(amounts in thousands):
1995 1994
<S> <C> <C>
Loans $37,003 $29,657
Securities 6,171 7,066
Other assets 1,117 1,060
$44,291 $37,783
</TABLE>
(7) Premises and Equipment
<TABLE>
<CAPTION>
A summary of premises and equipment as of December 31, 1995 and
1994 follows (amounts in thousands):
1995 1994
<S> <C> <C>
Land $ 3,369 $ 3,408
Office buildings 30,117 27,933
Furniture and equipment 41,575 35,365
Leasehold improvements 15,272 13,227
90,333 79,933
Less accumulated depreciation
and amortization (33,548) (23,720)
$ 56,785 $ 56,213
Depreciation and amortization expense was $9,361,000 and $7,675,000 for
the years ended December 31, 1995 and 1994.
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Deposits
<TABLE>
<CAPTION>
A summary of deposits and interest rates as of December 31, 1995 and
1994 follows (amounts in thousands):
1995 1994
Year End Year End
Interest Interest
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Demand deposits
and NOW accounts $ 389,423 .78% $ 386,995 .95%
Passbook, statement
and club accounts 1,048,225 2.95 1,222,444 2.85
Insured money market
funds 509,021 3.71 502,697 3.04
1,557,246 3.20 1,725,141 2.91
Certificates of
deposit maturing:
12 months or less 1,842,879 5.89 1,477,253 4.67
13-24 months 201,238 5.97 200,834 5.48
25 months or longer 219,716 6.21 240,974 5.86
2,263,833 5.93 1,919,061 4.90
$4,210,502 4.44% $4,031,197 3.67%
Jumbo certificates of deposit were $210,961,000 and $156,883,000 at
December 31, 1995 and 1994.
</TABLE>
<TABLE>
<CAPTION>
Interest expense on deposits for the years ended December 31, 1995 and
1994 follows (amounts in thousands):
1995 1994
<S> <C> <C>
Demand deposits and NOW accounts $ 3,444 $ 3,904
Passbook statement and club accounts 33,286 40,198
Insured money market funds 17,793 15,995
Certificates of deposit 119,488 71,474
Interest on Swaps, net (1,834) 950
$172,177 $132,521
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(9) Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank of New York as of December 31,
1995 and 1994 consisted of the following (amounts in thousands):
1995 1994
Weighted Average Weighted Average
Due Date Amount Interest Rate Amount Interest Rate
<C> <C> <C> <C> <C>
1995 $ - -% $ 516,043 5.43%
1996 889,742 5.97 573,784 5.98
1997 378,161 6.25 354,669 5.82
1998 352,174 6.68 25,000 5.51
1999 8,500 7.94 8,500 7.94
2000 50,000 6.07 - -
2001 25,518 6.95 25,518 6.95
2002 702 2.67 702 2.67
2005 5,500 6.35 - -
2006 256 6.02 256 6.02
2007 402 6.45 402 6.45
$1,710,955 $1,504,874
</TABLE>
The Company has pledged qualifying collateral, primarily mortgage loans,
with a market value of at least 110% of the amount of the advances. The
Company has an available line of credit with Federal Home Loan Bank of
New York equal to 30% of total assets exclusive of withdrawal advances.
The Company is required to hold stock in the Federal Home Loan Bank of
New York in an amount equal to the greater of 5% of the outstanding
advance balance or 1% of eligible mortgage loans.
(10) Securities Sold Under Agreement to Repurchase
Securities sold under agreements to repurchase as of December 31, 1995
and 1994 were $570,648,000 and $498,077,000, respectively. These
securities are collateralized by mortgage-backed securities with a fair
value of $545,227,000 and $465,985,000 at December 31, 1995 and 1994.
The securities sold under agreements to repurchase had a weighted
average borrowing rate of 6.04% and 4.15% for the years ended Decem-
ber 31, 1995 and 1994. Such borrowings had an average outstanding
balance of approximately $545,928,000 and $403,766,000 for the years
ended December 31, 1995 and 1994 with the maximum amounts outstanding at
any month end during these periods of approximately $611,883,000 and
$524,641,000. All such borrowings mature within one year.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(11) Collateralized Mortgage Obligations
In April and August 1986, First Federal Capital Corporation, a wholly
owned subsidiary of the Subsidiary issued collateralized mortgage bonds
("Bonds") of $12,496,000 and $19,542,000. The Bonds are general
obligations of the corporation and are collateralized by a pledge of
FHLMC mortgage-backed certificates with a carrying value of $9,230,000
and $11,054,000 at December 31, 1995 and 1994. All payments received on
the pledged mortgage-backed securities, net of certain costs, must be
applied to repay the Bonds. It is expected that the actual life of the
Bonds will be less than their stated maturity. A schedule of the Bonds
outstanding as of December 31, 1995 and 1994 follows (amounts in
thousands):
1995 1994
Stated Stated
Maturity Amount Rate Amount Rate
<S> <C> <C> <C> <C>
January, 2000 $ 2,864 7.33% $3,780 7.33%
September, 2002 3,231 7.89 3,959 7.89
October, 2006 2,436 7.27 2,179 7.27
$ 8,531 $9,918
</TABLE>
(12) Senior and Subordinated Debt
<TABLE>
<CAPTION>
Senior and subordinated debt is comprised of three notes payable to CT
North America L.L.C., amounts outstanding as of December 31, 1995 and
1994 follow (amounts in thousands):
1995 1994
<S> <C> <C>
Floating Rate Unsecured Senior Capital
Note due April 25, 1997. Interest only
payable semi-annually, based on the
current six month LIBOR rate plus 4.5% $25,000 $25,000
Fixed Rate Unsecured Subordinated Capital
Note due March 25, 2003. Interest only
payable semi-annually. Interest fixed at
8.25%. Obligation is subordinate to obligation
under Floating Rate Unsecured Senior
Capital Note 28,000 28,000
Floating Rate Unsecured Subordinated
Capital Note due March 10, 2005.
Interest only payable semi-annually, based
on the current six month Libor rate plus 1.0%. 29,000 -
$82,000 $53,000
</TABLE>
<TABLE>
<CAPTION>
The Company may redeem all or part of the outstanding principal amount
of the notes at specific redemption prices, plus accrued interest as
follows:
Redemption Price as of % of Principal
$25,000 $29,000 Fixed
Year of Redemption Floating Rate Note Floating Rate Note Rate Note
<C> <C> <C> <C>
1995 100.5% 102.0% 100.0%
1996 100.0 101.0 100.0
1997 and thereafter 100.0 100.0 100.0
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Income Taxes
<TABLE>
<CAPTION>
Tax Provision
Income taxes for the years ended December 31, 1995 and 1994 were
allocated as follows (amounts in thousands):
1995 1994
<S> <C> <C>
Taxes charged to operations $29,043 $24,411
Taxes charged to stockholder's
equity, for net unrealized gain
(loss) on certain securities 1,858 (776)
$30,901 $23,635
</TABLE>
<TABLE>
<CAPTION>
The components of the provision for income tax expense (benefit) charged
to operations for the years ended December 31, 1995 and 1994 are as
follows (amounts in thousands):
1995 1994
<S> <C> <C>
Current:
Federal $25,196 $ 9,531
State and local 8,838 3,804
34,034 13,335
Deferred:
Federal (4,290) 7,918
State and local (701) 3,158
(4,991) 11,076
$29,043 $24,411
</TABLE>
Reconciliation of Expected Federal Statutory Rate to Actual Rate
<TABLE>
<CAPTION>
The provision for federal income taxes from continuing operations is
based on income before taxes at the statutory rate of 35% for the years
ended December 31, 1995 and 1994 adjusted for the following differences
(amounts in thousands):
1995 1994
<S> <C> <C>
Income tax at statutory rate $24,938 $19,774
Increase (Reduction) in income
taxes resulting from:
State and local income taxes,
net of Federal benefit 5,289 4,525
Change in valuation allowance
for deferred tax assets (1,164) (291)
Other differences (20) 403
Provision for income taxes $29,043 $24,411
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Income Taxes, Continued
<TABLE>
<CAPTION>
Deferred Taxes
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995
and 1994 are presented below.
1995 1994
<S> <C> <C>
Deferred tax assets:
Loan valuation allowance $ 18,743 $ 16,913
Intangible asset amortization 3,092 5,770
Compensation and benefits 5,001 3,990
Purchase accounting - discounts 4,116 2,933
Net unrealized loss on securities
available for sale - 776
Fixed assets 1,331 1,900
Total gross deferred assets 32,283 32,282
Less valuation allowance (16,747) (17,911)
Net deferred tax assets 15,536 14,371
Deferred tax liabilities:
Tax bad debt reserve 10,844 9,784
Deferred origination income 544 994
Loan servicing rights 2,849 2,217
Purchase accounting - premiums 9,477 12,375
Net unrealized gain on securities
available for sale 1,082 -
Other 2,222 3,613
Total gross deferred tax liabilities 27,018 28,983
Net deferred tax liability, included in
other liabilities $11,482 $14,612
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decline of $1,164,000 and $291,000 for the years ended December 31, 1995
and 1994, respectively.
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the carryback period. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax assets
will not be realized. In assessing the continuing need for a valuation
allowance, management considers the scheduled reversal of the deferred
tax liabilities, the level of historical taxable income and projected
future taxable income over the periods in which the temporary
differences comprising the deferred tax assets will be deductible.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Financial Instruments
a) Interest Rate Swaps
<TABLE>
<CAPTION>
Interest rate swaps entitle the Company to receive variable interest
payments based on specified spreads over various London Interbank Bid
and Offer Rates (LIBOR), in exchange for fixed interest payments.
The following summarizes the terms and characteristics of interest
rate swaps as of December 31, 1995 and 1994 (dollar amounts in
thousands):
1995 1994
<S> <C> <C>
Carrying amount (including
accrued interest) $(822) $(1,142)
Fair value 242 2,514
Hedged item 3 Month CD's 3 Month CD's
Notional amount $85,000 $200,000
Original term to maturity 3 yrs. 2 to 3 yrs.
Weighted average maturity 3 months 1 yr.
Weighted average interest
rate receivable 5.81% 5.69%
Weighted average interest
rate payable 4.69% 4.42%
</TABLE>
Net interest (income) expense from interest rate swaps for the years
ended December 31, 1995 and 1994 was $(1,834,478) and $949,792 which
is included in interest expense on deposits.
b) Interest Rate Caps
<TABLE>
<CAPTION>
Interest Rate Caps entitle the Company to receive interest payments
in exchange for payment of a premium, provided the 3 month LIBOR rate
exceeds the cap rate. The following summarizes the terms and
characteristics of the cap agreements as of December 31, 1995 and
1994 (dollar amounts in thousands):
1995 1994
<S> <C> <C>
Carrying amount
(including accrued interest) $ 5,329 $ 5,782
Fair value 2,663 15,756
Notional amount 550,000 312,500
Weighted cap rate 5.56% 4.81%
Weighted term to maturity 1 yr. 2 yr.
</TABLE>
The Company recognized interest income of $4,408,000 for the year
ended December 31, 1995 and $2,375,000 in 1994. Amortized premiums
for the years ended December 31, 1995 and 1994 were $4,333,000 and
$2,957,000. The income received and amortized premium expense were
included in interest expense on FHLB advances.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Financial Instruments, Continued
<TABLE>
<CAPTION>
c) Put Options
The Company purchases put options on Eurodollar futures contracts, in
order to offset for the potential effect of rising rates on interest
margin. Eurodollar futures are indexed to LIBOR. The following
summarizes the terms and characteristics of the put options as of
December 31, 1995 and 1994 (dollar amounts in thousands):
1995 1994
<S> <C> <C>
Carrying amount $917 $ 985
Fair value 148 13,808
Instrument underlying
put option Eurodollar futures Eurodollar futures
Contract amount $1,875,000 $4,700,000
Option expiration dates March 17, 1997 December 18, 1995
Strike price 92.25 to 95.75 92.50 to 94.50
</TABLE>
The amount of option premiums amortized and charged to income for the
years ended December 31, 1995 and 1994 was $6,512,000 and $8,586,000.
Amortized gains from sold option contracts were $3,685,000 in 1995
and $5,400,000 in 1994 and were offset against interest expense on
FHLB advances. Unamortized premiums at December 31, 1995 and 1994
were $928,000 and $3,678,000. Unamortized gains at December 31, 1995
and 1994 were $11,000 and $2,693,000.
<TABLE>
<CAPTION>
d) Call Options
The Company purchases call options on Eurodollar futures contracts
and Treasury Notes, in order to offset for the potential effect of
falling rates on interest margin. Eurodollar futures are indexed to
LIBOR. The following summarizes the terms and characteristics of the
call options as of December 31, 1995 (dollar amounts in thousands):
1995 1994
<S> <C> <C>
Carrying amount (including
net deferred gains) $ (812) $489
Fair value 3,364 183
Instrument underlying Eurodollar futures Eurodollar futures
call option and Treasury Notes
Contract amount $1,432,000 $5,850,000
Option expiration dates June 17, 1996 March 18, 1995
Strike price 93.25 to 95.50 93.75 to 94.75
</TABLE>
The amount of option premiums amortized and charged to income for the
years ended December 31, 1995 and 1994 was $992,000 and $244,000.
Amortized gains from sold option contracts in 1995 and 1994 were
$1,211,000 and $0. Unamortized premiums at December 31, 1995 and 1994
were $728,000 and $489,000. Unamortized gains at December 31, 1995
and 1994 were $1,540,000 and $0.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Employee Benefits
a) Retirement Plans
The Company has a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides pension
benefits that are based on each employee's years of service and
average compensation prior to retirement. The Company's funding
policy is to contribute annually at least the minimum required by
law. Plan assets are invested in the general account and certain
separate accounts of The New England Company and Morgan Stanley.
<TABLE>
<CAPTION>
For the years ended December 31, 1995 and 1994, the net
pension cost is summarized as follows (amounts in thousands):
1995 1994
<S> <C> <C>
Service cost $ 1,042 $1,357
Interest cost 2,498 2,301
Return on plan assets (2,415) (2,156)
Net amortization and
deferral (115) (174)
Net periodic pension cost $ 1,010 $ 1,328
</TABLE>
<TABLE>
<CAPTION>
The following schedule reconciles the funded status of the plan as of
December 31, 1995 and 1994 (amounts in thousands):
1995 1994
<S> <C> <C> <C> <C>
Estimated fair value of plan
assets $ 32,296 $ 31,748
Benefit obligations:
Vested benefit obligation (25,215) (24,337)
Accumulated benefit
obligation (25,827) (24,830)
Projected benefit obligation (32,068) (32,318)
Unrecognized net loss 4,434 3,906
Unrecorded prior service cost (705) (833)
Remaining unrecognized net
transition asset (111) (238)
Net pension asset
recognized in the
consolidated statement
of financial condition
as of December 31, 1995
and 1994 $ 3,846 $ 2,265
</TABLE>
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Employee Benefits, Continued
a) Retirement Plans, Continued
<TABLE>
<CAPTION>
Certain assumptions utilized in the calculation summarized on the
previous page are as follows:
1995 1994
<S> <C> <C>
Assumed discount rate 8.25% 7.50%
Assumed rate of compensation increase 6.00 6.00
Expected long term rate of return on
plan assets 8.25 7.50
</TABLE>
The Company also has a 401(K) Salary Reduction Profit Sharing Plan in
which substantially all employees are eligible to participate. Total
expense for this plan was $746,734 and $722,844 for the years ended
December 31, 1995 and 1994.
The Company maintains certain non qualified retirement plans (i.e.,
Supplemental Employee Retirement Plan and Directors Retirement Plan)
for key officers and directors. Certain of these plans are funded
annually, and the net periodic pension cost recorded for these plans
was $304,672 and $242,808 for the years ended December 31, 1995 and
1994.
b) Post Retirement Benefits
The Company sponsors a defined benefit post retirement medical plan
that covers all of its full time employees. All employees who retire
from the Company's defined benefit pension plan who have attained age
55 with 5 years of service are eligible. Employees are required to
contribute a portion of the premium based on their age and service at
retirement. Spouses pay the full premium. The plan is not funded.
Upon adoption of SFAS No. 106, the Company recorded the entire
accumulated post retirement benefit obligation on May 1, 1991.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Employee Benefits, Continued
b) Post Retirement Benefits, Continued
<TABLE>
<CAPTION>
Net periodic postretirement benefit cost for the years ended December
31, 1995 and 1994 included the following components (amounts in
thousands):
1995 1994
<S> <C> <C>
Service cost - benefits
attributed to service
during the period $ 472 $ 498
Interest cost 519 527
Net amortization and
deferral (95) (36)
Net periodic postretirement
benefit cost $ 896 $ 989
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the plan's funded status reconciled
with the amount shown in the Company's financial statements at
December 31, 1995 and 1994 (amounts in thousands):
1995 1994
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retired employees $(5,123) $(2,067)
Active employees (1,544) (5,329)
Total (6,667) (7,396)
Plan assets at fair value - -
Unfunded accumulated benefit obligation
in excess of plan assets (6,667) (7,396)
Unrecognized net gain (1,464) (80)
Unrecognized prior service cost (473) (509)
Accrued postretirement medical
benefit cost $(8,604) $(7,985)
</TABLE>
For measurement purposes, a 12.75% annual rate of increase in the per
capita cost of health care benefits for retirees was assumed for
1995. The rate was assumed to decrease gradually to 6.00% by 2006
and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by 1%
in each year would increase the accumulated postretirement benefit
obligation at December 31, 1995 by $780,000, and the net periodic
postretirement benefit cost by $126,000 for the year then ended.
The weighted average discount rate used in determining the
accumulated postretirement obligation was 8.25% for 1995 and 7.50%
for 1994.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Stock Option Plans and Stock Grant
<TABLE>
<CAPTION>
On May 8, 1991, the Subsidiary adopted a Non-qualified Stock Option Plan
(the "Plan") for its officers. On that date, options were granted to
purchase 1,004,900 shares of common stock at an exercise price equal to
the net book value per share at date of grant. The plan provides for
subsequent additional awards of stock options based on a formula linked
to compensation increases. The basis of subsequent options purchased is
based on the net book value per share at date of grant. Subsequent to
exercise, the optionee may sell the shares back to the Subsidiary at a
price equal to the current net book value per share. The right to
exercise options granted is phased in over a seven year vesting
schedule. As of December 31, 1995, 979,590 share options were
outstanding and become exercisable according to the following schedule:
Date of Exercisability Aggregate Number Exercisable
<S> <C>
May 8, 1995 602,100
May 8, 1996 749,610
May 8, 1997 895,245
May 8, 1998 927,900
May 8, 1999 951,735
May 8, 2000 969,255
May 8, 2001 979,590
</TABLE>
<TABLE>
<CAPTION>
The following is a summary of the changes in options outstanding during
1995 and 1994:
Weighted
Average Redemption
Number Option Price Price
of Shares per share per share
<S> <C> <C> <C>
Outstanding at
December 31, 1993 1,050,000 $ 10.41 $13.54
Granted 82,200 13.92 -
Exercised (49,495) 10.52 16.02
Terminated (80,550) 11.95 -
Outstanding at
December 31, 1994 1,002,155 10.57 14.93
Granted 73,700 5.49 -
Exercised (43,295) 11.68 15.57
Terminated (52,970) 12.31 -
Outstanding at
December 31, 1995 979,590 10.79 16.84
</TABLE>
On May 8, 1991 the Subsidiary also issued 199,487 shares of common stock
to senior officers, at the book value per share at date of grant. The
grantee may sell the stock back to the Subsidiary at a price equal to
current net book value per share. The initial cost of the stock grant
was included as a merger cost and represents the initial minority
interest. Shares issued and outstanding at December 31, 1995 and 1994
were 156,758 and 156,558 respectively.
The cost of both plans is recognized based on the increased value of all
shares granted. The increased value of both plans, which has been
recorded as compensation expense, was $1,917,594 for the year ended
December 31, 1995 and $1,333,696 for 1994.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Commitments and Contingencies
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, the Company had commitments outstanding
generally for up to 90 days, to originate and purchase loans and
commitments to sell loans as follows (amounts in thousands):
1995 1994
<S> <C> <C>
Commitments outstanding to
originate and purchase loans $330,030 $200,695
Commitments to sell loans 164,319 36,025
Commitments to purchase
mortgage-backed securities 25,000 -
Commitment to purchase
interest rate caps - 4,946
</TABLE>
Substantially all commitments to originate and purchase loans (net of
commitments to sell loans) are for adjustable rate loans with the
initial interest rate fixed at the commitment date.
Under pending federal legislation, is the proposed one-time special
assessment to recapitalize the SAIF insurance fund. If enacted in its
current form, the assessment is estimated to be between 75 to 80 basis
points of SAIF insured deposits held as of March 31, 1995. Based upon
these rates the Company's pre-tax expense would be approximately $31.4
million to $33.5 million. There is no assurance that this pending
legislation will be enacted into law, therefore, the FASB has stated
that the charge to earnings must be recorded in the period it is
enacted. Accordingly, the Company has made no accrual for this
potential obligation.
On February 6, 1995, the Superintendent of Banks for the State of New
York seized Nationar, a check-clearing and trust company, freezing all
of Nationar's assets. On that date, the Company had items in process of
approximately $2,900,000 with Nationar. Based on information set forth
in certain publicly available documents, which by their terms are
preliminary, management believes that there is a reasonable likelihood
that the Company will not recover all of its items in process owed by
Nationar. In accordance with the Company's normal procedures for
monitoring asset quality, the Company has established a valuation
allowance of approximately $200,000 against the items in process with
Nationar at December 31, 1995. The foregoing event has not had any
material effect on the Company's ability to meet their liquidity needs.
Management has taken all steps necessary to recover the amounts owed the
Company by Nationar.
<TABLE>
<CAPTION>
The Company leases certain premises and equipment under various non-
cancelable operating lease agreements. At December 31, 1995, the total
future minimum rental commitments, exclusive of amortization of premiums
arising from recapitalization, are as follows (amounts in thousands):
<C> <C>
1996 $ 3,933
1997 3,687
1998 3,216
1999 2,889
2000 2,511
Later Years 12,109
</TABLE>
The total rental expense was $7,187,442 for the year ended December 31,
1995 and $6,902,963 for 1994.
In the conduct of business, the Company is involved in various
litigation matters. Management of the Company, based on its review
with counsel of the development of these matters, is of the opinion that
the ultimate disposition of these litigation matters should not have a
materially adverse effect on the financial position of the Company.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Securities
Fair values for securities are based on quoted market prices or dealer
quotes, where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans
The fair values of adjustable rate residential real estate loans are
determined using an option based pricing model. The cash flows are
discounted using a rate comprised of an option adjusted spread and the
appropriate term rate. The option adjusted spread includes an
additional spread over that of ARM securities to compensate for the
added risk associated with whole loans.
The fair values of fixed rate residential, second mortgage loans,
consumer loans and commercial mortgages are estimated using a discounted
cash flow approach, using the appropriate index plus a spread.
Delinquent loans (not in foreclosure) are valued using the method noted
above and loans delinquent more than 30 days but less than 91 days
delinquent, are reduced by an allocated amount of required general
valuation allowances. The fair value of loans currently in foreclosure
is estimated to approximate carrying value, as such loans are generally
carried at net realizable value.
Excess Servicing Rights
Fair value is estimated by discounting the excess net servicing income
to be received over the estimated servicing term using a current market
rate.
Deposits
The fair value of demand deposits, passbook savings accounts, and
certain money market accounts 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 approach that applies
current market rates (prevailing CD rates) to a schedule of aggregated
expected monthly maturities on time deposits.
Advances from Federal Home Loan Bank
The carrying value of variable rate advances approximates fair value.
The fair value of fixed rate advances is estimated using a discounted
cash flow approach, that applies the current incremental advance
borrowing rate.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Fair Values of Financial Instruments, Continued
Collateralized Mortgage Obligations
The fair value of these instruments is estimated using a discounted cash
flow approach that applies current market rates for similarly traded
instruments.
Senior and Subordinated Debt
The carrying value of the variable rate instrument, which reprices every
six months, approximates fair value. The fair value of the fixed rate
instrument is estimated using a discounted cash flow approach that
applies a current market rate for similar securities.
Interest rate swaps, caps and options
The fair value of interest rate swaps and interest rate caps are
obtained from dealer quotes. These values represent current settlement
prices. The fair value of options is also obtained from dealer quotes.
Other Financial Instruments
Based on the characteristics of cash and cash equivalents, FHLB stock,
accrued interest receivable and payable, securities sold under
agreements to repurchase, advances from borrowers for taxes and
insurance and the commitments to purchase or sell loans and securities,
the carrying value approximates fair value.
CTUS AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Fair Values of Financial Instruments, Continued
<TABLE>
<CAPTION>
The following table presents the carrying value and the estimated fair
values of the forementioned Company's financial instruments as of
December 31, 1995 and 1994 are as follows (amounts in thousands):
1995 1994
(2) (2)
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets:
Securities $ 929,855 $ 929,170 $1,225,301 $1,177,974
Loans, net of
loss allowances 5,738,209 5,908,304 4,920,305 4,965,878
Excess loan servicing
fees capitalized 15,095 18,745 17,231 21,600
Financial Liabilities:
Deposits 4,210,502 4,221,482 4,031,197 3,983,676
Advances from Federal
Home Loan Bank 1,710,955 1,723,322 1,504,874 1,476,262
Collateralized mortgage
obligations 8,531 10,467 9,918 10,368
Off-balance sheet financial
instruments: (1)
Interest rate swaps:
Net receivable 277 272 979 979
Net payable (1,099) (30) (2,121) 1,535
Interest rate caps 5,329 2,663 5,782 15,756
Option premiums 105 3,512 1,474 13,991
(1) Amounts reflected under "carrying amount" represent accruals or
deferred income (expense) arising from those unrecognized financial
instruments.
(2) Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
</TABLE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors
CTUS:
We consent to the inclusion of our report dated January 12, 1996, with respect
to the consolidated statements of financial condition of CTUS and subsidiaries
as of December 31, 1995 and 1994, and the related consolidated statements of
income, stockholder's equity, and cash flows for the years then ended, which
report appears in the Form 8-K of HSBC Americas, Inc. dated October 22, 1996.
Our report refers to the adoption of Statements of Financial Accounting
Standards (SFAS) Nos. 114 and 118 on January 1, 1995 and SFAS No. 115 on
January 1, 1994.
/s/ KPMG Peat Marwick LLP
Rochester, New York
October 22, 1996
