<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to ____________
Commission File Number 1-9018
METROPOLITAN FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
45-0388518
(I.R.S. Employer Identification Number)
1000 Metropolitan Centre, 333 South Seventh Street
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 399-6000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, Par Value $.01 Per Share
Name of Each Exchange on Which Registered
New York Stock Exchange, Inc.
Securities Registered Pursuant to Section 12(g) of the Act:
$2.875 Cumulative Perpetual Preferred Stock, Series B and
Warrants to Purchase Shares of Common Stock
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 28, 1994, the Registrant had 30,927,864 shares of Common Stock
issued and outstanding. The aggregate market value of the voting stock held by
non-affiliates of the Registrant, based on the closing sale price per share of
the Registrant's Common Stock as reported on the New York Stock Exchange
composite tape on February 28, 1994, was $490,979,841. (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Shareholders for the year ended December 31, 1993
(the "1993 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its Annual Meeting
to be held May 4, 1994 (the "1994 Proxy Statement").
<PAGE> 1
PART I
Item 1.BUSINESS.
General
Metropolitan Financial Corporation (the "Company") is a regional financial
services holding company. The Company's mission is to be the premier provider
of community financial and home ownership services throughout its markets by
offering exceptional value to its customers, resulting in profitable growth,
fulfilling careers and community enhancement. The primary operations of the
Company are in North Dakota, Minnesota, Nebraska, Iowa, Kansas, South Dakota,
Wisconsin and Arizona.
The Company operates an FDIC insured consumer savings bank, Metropolitan Federal
Bank, fsb (the "Bank"), which concentrates on the traditional thrift business of
soliciting deposits and making residential mortgage and other secured consumer
loans. The Bank solicits deposits and makes residential mortgage and other
secured consumer loans through more than 190 full service branches. Through its
mortgage loan production offices in Minnesota and Arizona, as well as its branch
offices, the Bank originates and services first mortgage loans for the purchase
of one to four family residential properties. The Company's residential real
estate brokerage subsidiary, Edina Realty, Inc. ("Edina Realty"), and title
company subsidiary, Equity Title Services ("Equity Title") are among
Minnesota's largest providers of their respective services. Edina Realty and
Equity Title conduct their business in Minnesota and western Wisconsin.
Certain financial services products like annuities, uninsured investments,
such as mutual funds, and insurance are provided to customers through a
subsidiary operating as Metropolitan Financial Services ("MFS").
The Company's primary objective is to maximize shareholder value through the
traditional thrift mission of promoting savings and home ownership. To achieve
its objective, the Company has identified the goals of continuing to expand the
geographic area, presence and market share of its subsidiaries, thereby further
strengthening the Company's financial condition and enhancing its financial
performance.
The Company was organized under the laws of the State of Delaware in February
1984. All references to the Company or the Bank include its respective
consolidated subsidiaries, unless the context otherwise requires. The principal
executive office of the Company is located at 1000 Metropolitan Centre, 333
South Seventh Street, Minneapolis, Minnesota 55402. The Company's telephone
number is (612) 399-6000.
Additional discussion of the Company's business can be found in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes to Consolidated Financial Statements of the 1993 Annual Report, which is
incorporated herein by reference.
<TABLE>
<CAPTION>
Page
<S> <C>
Distribution of Assets, Liabilities, and Shareholders' Equity;
Interest Rates and Interest Differential 22, 33 & 35
Assets available for sale 41
Investment Portfolio 29, 30, 41 & 42
Loan Portfolio 26-29, 42 & 43
Summary of Loan Loss Experience 42 & 43
Deposits 31 & 44
Return on Equity and Assets 17
Short Term Borrowings 31, 44 & 45
Acquisitions 18, 19, 38 & 39
</TABLE>
<PAGE> 2
Competition
The Bank actively competes for savings deposits with thrift institutions and
banks located in its primary market areas. The deposit programs of thrift
institutions such as the Bank also compete with government securities, money
market mutual funds, and other investment alternatives. The Bank competes for
residential mortgage loans, with thrift institutions, banks, mortgage banking
companies, life insurance companies and other types of lenders. Interest
rate, loan origination fees and range of services offered are the primary
factors in competing for these loans. Access to prospective mortgage
customers is facilitated by the ownership of Edina Realty.
Edina Realty actively competes for real estate brokerage business in the
Minneapolis-St. Paul metropolitan area and other areas of Minnesota and western
Wisconsin. The primary sources of competition are other large regional and
national real estate brokerage firms. Attracting and retaining a large and
effective group of sales associates is the main factor in competing within the
real estate brokerage business. The Company seeks to accomplish these goals
through compensation and service.
Equity Title competes for mortgage title and closing business in the
Minneapolis-St. Paul metropolitan area and other areas of Minnesota and
western Wisconsin. Equity Title competes principally with local and regional
title closing companies. The main factors for competing in the industry are
price and service quality.
MFS, a registered broker-dealer, offers bank customers financial advice and an
array of investment products, including fixed and variable annuities, mutual
funds, unit investment trusts and life insurance. MFS' competition is
principally other financial institutions, brokerage houses and other
financial intermediaries. Access to prospective customers is facilitated by
the Bank.
Employees
At December 31, 1993, the Company had approximately 2,600 full time equivalent
employees. Edina Realty works with approximately 2,000 sales associates who
function as independent contractors.
The Company maintains a comprehensive employee benefit program providing, among
other benefits, a qualified pension plan, 401-K savings plan, stock purchase
plan, paid sick leave, hospitalization, dental and major medical insurance, life
insurance, short and long term disability insurance and education assistance.
Regulation
The following discussion is a summary of some of the important statutes and
regulations applicable to the Company and the Bank. It is not an exhaustive
description of applicable statutes and regulations, but rather an outline of
those which are most significant, and it is qualified in its entirety by
reference to the provisions described.
Regulatory Structure. The Company is a savings and loan holding company, and
the Bank is a federal savings association. As such, both the Company and the
Bank are subject to regulatory examination and supervision by the Office of
Thrift Supervision (the "OTS"), and in certain circumstances by the Federal
Deposit Insurance Corporation (the "FDIC") because the Bank's deposits are
insured by the FDIC. The Bank is also subject to some regulation by the
Federal Reserve Board.
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Des Moines, which
is one of 12 regional FHLB's governed by the Federal Housing Finance Board.
As a member of a FHLB, the Bank is required to purchase and maintain stock in
its FHLB. The Bank meets the applicable requirement.
Regulatory Capital. Under regulatory capital regulations issued by the OTS,
thrift institutions are required to maintain the three following capital
standards.
<PAGE> 3
First, thrift institutions must maintain a ratio of tangible capital to adjusted
total assets of at least 1.5%. Tangible capital is defined as common
shareholders' equity, noncumulative preferred stock, nonwithdrawable accounts
and pledged deposits, minority interests in fully consolidated subsidiaries,
and purchased mortgage servicing rights ("PMSRs"), (which may constitute up
to 50% of tangible capital), less total intangible assets (except for
includable PMSRs) and certain investments in subsidiaries that conduct
activities not permissible for a national bank.
Second, thrift institutions must maintain a ratio of core capital to adjusted
total assets of at least 3%. Core capital generally includes common
shareholders' equity, noncumulative preferred stock and related surplus, and
minority interests in fully consolidated subsidiaries, PMSRs and purchased
credit card relationships ("PCCRs") (which PMSRs may collectively constitute up
to 50% of core capital), less intangible assets (except for includable PMSRs
and PCCRs). Until 1995, thrift institutions which are in substantial
compliance with all applicable laws and regulations and are generally judged
to be safe and sound will also be permitted to include a percentage (.375%
at January 1, 1994, decreasing to 0% on January 1, 1995) of qualifying
supervisory goodwill (in existence on April 12, 1989) in core capital.
Third, thrift institutions must maintain a ratio of total capital to total risk
weighted assets equal to 8.0%. Total capital consists of core capital, plus
supplementary capital in an amount up to 100% of core capital. Supplementary
capital includes certain permanent capital instruments such as cumulative
perpetual preferred stock, certain subordinated debt securities and a limited
percentage of loan loss reserves. Total risk weighted assets are determined by
assigning a risk weight to each of the institution's assets depending on the
risk inherent in the type of asset. Certain off balance sheet items must be
included in the calculation of risk weighted assets by being converted into
balance sheet equivalent amounts and multiplied by the assigned risk weights.
The applicable risk weights, as defined by regulation, range from 0% for cash
and certain government obligations to 100%.
The OTS amended its risk-based capital requirements, generally effective
January 1, 1994, to require thrift institutions with more than a "normal"
level of interest rate risk to maintain additional total capital. A savings
institution's interest rate risk will be measured in terms of the sensitivity
of its "net portfolio value" to changes in interest rates. The interest rate
risk amendments have not had a material impact on the Company's regulatory
capital ratios.
As of December 31, 1993, the Bank met all three fully phased in capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Capital Adequacy" in the 1993 Annual Report on page
32.
Thrift institutions are subject to additional minimum regulatory capital
regulations that require thrift supervisory agencies to take certain prescribed
prompt corrective action in the event an institution fails to meet minimum
capital levels of its ratios of total capital to total risk-weighted assets
("risk-based"), core capital to total risk-weighted assets ("Tier 1 risk-
based"), and core capital to adjusted total assets ("leverage"). These three
ratios are used to classify thrift institutions into five separate capital
categories: well capitalized (10%, 6%, and 5%), adequately capitalized (8%,
4%, and 4% (or 3% if the institution is rated composite 1 under the OTS MACRO
rating system and is experiencing no significant growth)), and three
undercapitalized categories. Lower classification results in increasingly
severe supervisory restrictions on thrift activities, although the activities
of well and adequately capitalized thrifts are relatively unencumbered.
Under the prompt corrective action regulations, however, all institutions
are restricted from making any capital distributions or paying any management
fees that would cause the institution to fail to satisfy the minimum levels
for any of its capital requirements. Undercapitalized thrifts are required to
timely submit and adhere to a plan to restore capital to adequate levels. As
of December 31, 1993, the Bank was classified as well capitalized. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Adequacy" in the 1993 Annual Report on page 32.
Qualified Thrift Lender Status. In order to qualify as a qualified thrift
lender ("QTL"), an institution currently must maintain a minimum of 65% of
certain tangible assets in certain qualifying housing and consumer related
activities. At December 31, 1993, based on its asset composition, the Bank
was a "qualified thrift lender."
An insured institution that does not maintain its status as a QTL is subject to
the dividend, branching, and new activity restrictions applicable to banks, and
will be ineligible for new FHLB advances. An institution failing to regain QTL
status after three years will be required to divest investments in or
discontinue activities that are not permissible for banks. In addition, a
unitary savings and loan holding company, such as the Company, that owns a
thrift failing the QTL test becomes subject to activity restrictions applicable
to multiple savings and loan holding companies, unless the thrift regains its
QTL status within a one-year period.
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Restrictions on Dividends. Savings associations are limited in the amount of
"capital distributions" that they are permitted to make, including cash
dividends, payments by a savings association to repurchase or otherwise
acquire its shares, payments to shareholders of another entity in a cash out
merger and other distributions charged against capital. The regulation also
applies to capital distributions that the Bank may make to the Company,
thereby affecting the dividends that the Company may pay to its shareholders.
The regulation requires that the Bank provide the OTS with 30 days prior
written notice of any capital distribution (which period begins to run from the
date of OTS receipt of notice). A dividend declared within the notice period,
or without giving the prescribed notice, is invalid. The regulation
establishes a three tiered system of regulation, with the greatest
flexibility being afforded to well capitalized institutions such as the Bank.
An institution that has regulatory capital that is at least equal to its
fully phased in capital requirements, and has not been notified that it "is
in need of more than normal supervision," is a Tier 1 institution. Any
institution that has regulatory capital at least equal to it minimum
capital requirement, but less than its fully phased in capital requirements,
is a Tier 2 institution. An institution having regulatory capital that is
less than its minimum capital requirements is a Tier 3 institution. At
December 31, 1993, the Bank qualified as a Tier 1 institution.
A Tier 1 institution is permitted, after prior notice to the OTS, to make
capital distributions up to the higher of 100% of its net income to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the percentage by which the ratio of its regulatory
capital to assets exceeds its fully phased in capital ratio) at the beginning
of the calendar year or 75% of its net income over the most recent four-quarter
period. Any additional amount of capital distributions would require prior
regulatory approval. A Tier 2 institution is permitted, after prior notice
to the OTS, to make capital distributions in amounts up to 75% of its net
income for the most recent four quarters, if it maintains total regulatory
capital equal to at least 8% of its risk weighted assets, which the amount
of capital distributions permitted is reduced by the amount of capital
distributions that the institution previously has made during the four
quarter period. A Tier 3 institution is not authorized to make any capital
distributions except with prior OTS approval or pursuant OTS approved
capital plan.
Liquidity. Applicable regulations require member institutions to maintain an
average daily balance of liquid assets equal to 5% of the sum of their average
daily balance of net withdrawable deposit accounts and current borrowings
(borrowings payable in one year or less). At December 31, 1993, the Bank was in
compliance with this requirement, with a liquidity ratio of 6.7%.
Loans to One Borrower Restrictions. Permissible lending limits for loans to one
borrower are the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable securities, in
which case this limit is increased to 25% of unimpaired capital and surplus).
At December 31, 1993, the Bank did not have any borrowers above the lending
limits.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member of the
Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC.
The FDIC has certain regulatory and oversight authority over federal savings
associations, such as the Bank. The deposits of the Bank are insured up to
$100,000 per insured depositor (as defined by law and regulations) by the
SAIF and are backed by the full faith and credit of the United States
Government. Pursuant to FDIC regulations, well capitalized thrifts may
accept brokered deposits, adequately capitalized institutions may do so only
with FDIC approval, while under capitalized thrift institutions may not accept
such deposits. As insurer, the FDIC is authorized to conduct examinations of
and to require reporting by FDIC insured institutions. It also may prohibit any
FDIC insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious threat to the SAIF. The FDIC also has
the authority to initiate enforcement actions against savings associations,
after giving the OTS an opportunity to take such action. The FDIC has adopted
a risk-based assessment system that assesses insurance premiums
significantly higher than the premiums formerly charged and that places
higher assessments on those thrifts that pose a greater threat to the SAIF.
The system classifies SAIF insured institutions into one of three capital
categories, well capitalized, adequately capitalized or undercapitalized,
based on measurements of their risk-based, Tier 1 risk-based and leverage
ratios. These categories are very similar to those used for purposes of
prompt corrective action regulations. Within each of these three capital
groups, institutions are further classified into one of three subgroups
principally on the basis of supervisory evaluations by the institution's
primary supervisory authority. The assessment rate will vary from 0.23% of
deposits for well capitalized institutions in the highest subgroup to 0.31%
of deposits for undercapitalized institutions in the lowest subgroup. As of
January 1, 1994, the Bank was classified as well capitalized. In addition,
the FDIC has authority to increase SAIF assessment rates.
<PAGE> 5
Transactions with Affiliates. All transactions involving a savings association
and its affiliates are subject to sections 23A and 23B of the Federal Reserve
Act ("FRA"). Generally, these sections restrict certain of these
transactions to a percentage of a savings association's capital and require such
transactions to be on terms consistent with safe and sound banking practice and
as favorable to the savings association as transactions with nonaffiliates.
The affiliates of a savings association include any company (i) that controls
the savings association, (ii) with which the savings association is under
common control, (iii) controlled by controlling shareholders of the savings
association or the company controlling the savings association, (iv) with a
majority of interlocking directors with the savings association or the
company controlling the savings association and (v) sponsored and advised on
a contractual basis by the savings association or any of its subsidiaries or
affiliates. The Bank's subsidiaries are not deemed affiliates; however,
transactions between the Bank or any of its subsidiaries and any affiliates
are subject to the requirements and limits of sections 23A and 23B.
Affiliated persons include insiders, i.e. officers, directors and controlling
(10%) shareholders. Regulations of the OTS also circumscribe the activities
between the bank and its subsidiaries and insiders. Loans to insiders are
subject to Sections 22(g) and 22(h) of the FRA and the regulations
promulgated thereunder. Among other things, such loans must be made on terms
substantially the same as for loans to non-insiders and are subject to the
loans to one borrower restrictions. See "Loans to One Borrower Restrictions."
Total loans to insiders may not, in the aggregate, exceed the Bank's
unimpaired capital and unimpaired surplus.
Change in Control Regulations. Savings and loan holding companies, such as the
Company, are prohibited from directly or indirectly acquiring (i) control of
another thrift institution or thrift holding company without prior OTS approval,
(ii) another thrift institution or thrift holding company or all or
substantially all of the assets of any thrift institution or thrift holding
company without prior OTS approval, (iii) more than 5% of the voting shares
of another thrift institution or thrift holding company which is not a
subsidiary, or (iv) control of an institution not insured by the FDIC.
Savings and loan holding companies are also subject to the Federal Change in
Bank Control Act, which imposes additional notification requirements on the
Company when it acquires control of an FDIC insured institution.
Additionally, savings associations may not acquire control of banks without
the prior approval of the OTS.
Safety and Soundness. On November 18, 1993, the OTS issued proposed regulations
that establish (for savings associations but not holding companies) general
operational and managerial standards for internal controls and information
systems, an internal audit system, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation matters. Savings
associations will be required to maintain a ratio of classified assets
(generally, substandard or doubtful assets) to total capital (including any
general valuation allowance not eligible for inclusion in total capital for
risk-based capital purposes) of no more than 1.0, or such lesser ratio
required by the OTS. Additionally, a savings association must have minimum
earnings sufficient to absorb losses without impairing capital. The proposed
regulations generally require a savings association holding company to not
pose a serious risk to its savings association subsidiary. The failure of a
savings association or holding company to comply with safety and soundness
standards will result in the required filing of a compliance plan with the
OTS and, potentially, the issuance of an OTS order or other enforcement action.
Possible Restrictions on the Activities of the Corporation and its
Subsidiaries. If the OTS determines there is reasonable cause to believe
that any of the Company's activities present a risk to the soundness or
stability of the Bank, the OTS may restrict the payment of dividends by the
Bank, transactions between the Bank and any affiliate or any Bank activity.
In addition, if the Bank loses its status as a Qualified Thrift Lender, it
could become ineligible to receive FHLB advances and the Company could be
subject to significant restrictions on its activities and additional
regulation. See "Qualified Thrift Lender Status."
Enforcement Powers. The OTS and the FDIC have substantial enforcement remedies,
including civil and criminal penalties, that may be assessed against an
institution or an institution's directors, officers, employees, agents or
independent contractors for failure to comply with OTS or FDIC regulations,
policies and directives. For known violations and under certain other
aggravated circumstances, civil or criminal penalties up to $1,000,000 per
day may be assessed, as well as jail sentences of up to five years. For
lesser violations, penalties of up to $25,000 or $5,000 per day, or lesser
jail sentences, may be imposed.
Item 2.PROPERTIES.
The Company's executive offices are located at 1000 Metropolitan Centre, 333
South Seventh Street, Minneapolis, Minnesota. The Bank's executive offices
are located at 1600 Radisson Tower, Fargo, North Dakota. At December 31,
1993, the Bank had branch offices located in North Dakota (32), Minnesota (58),
Nebraska (26), Iowa (31), Kansas (31), South Dakota (10), Wisconsin (6) and
Arizona (2). The Bank has two mortgage loan production offices in Minnesota
and one in
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Arizona. In addition to its production offices, the Bank has loan officers
located in Edina Realty locations. Edina Realty which has 49 real estate sales
offices in the states of Minnesota and Wisconsin, has its headquarters
located in Edina, Minnesota. Equity Title, which has 9 closing offices in
the states of Minnesota and Wisconsin, is also headquartered in Edina,
Minnesota. The Company owns and operates 129 of the facilities listed. The
remaining 125 facilities are leased. All of these properties are well
maintained and are adequate to meet the Company's immediate needs.
The Company uses computer service bureaus to perform the primary data processing
functions on a fee for service basis. The Company owns and leases computers,
peripheral equipment and terminals which are used to interface with the service
bureau's equipment. Additional information regarding premises and equipment is
presented in Note I of Notes to Consolidated Financial Statement on page 43
of the 1993 Annual Report, which is incorporated herein by reference.
Item 3.LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than
nonmaterial proceedings which arise in the ordinary course of business.
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1993.
Item 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT
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<CAPTION>
Name and Age Position held with the Company Other Positions Held During Past Five Years*
on March 23, 1994 and Year First
Elected to Office Indicated
<S> <C> <C>
Norman M. Jones (63) Chairman of the Board and Chief
Executive Officer - 1983.
William P. Bartkowski (42) Executive Vice President and Chief Senior Vice President - 1988 and Vice
Administrative Officer - 1990 President - 1984, Director of Corporate
Communications
Jerry L. Record (53) Executive Vice President - 1993; Chairman and President of American
President and Chief Operating Officer Charter Federal Savings & Loan
of Metropolitan Federal Bank, fsb - 1993 Association, Lincoln, Nebraska
Steven B. Dewald (33) Executive Vice President - 1993, Senior Vice President, Corporate
Chief Financial Officer - 1992 Controller - 1990, and Chief Accounting
Officer - 1989
J. Michael Nilles (63) ** Executive Vice President and Partner, Nilles Law Firm, Ltd.
General Counsel - 1990
David J. Melroe (45) Senior Vice President and
Treasurer - 1986
Ronald J. Peltier (45) President and Chief Executive General Manager, Senior Vice President - 1988
Officer of Edina Realty - 1992 of Edina Realty and General Sales Manager -
1979
</TABLE>
[FN]
Executive officers of the Company are elected annually by the Board of
Directors and hold office until their successors are duly elected and qualify or
until they resign or are replaced by the Board of Directors.
*All officers and positions described are with the Company except as noted.
** J. Michael Nilles and William O. Nilles, Vice Chairman of the Company, are
siblings.
<PAGE> 7
PART II
Item 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Information under the caption "Dividends per Common Share" on page 55 and
"Common Stock Prices" on page 56 of the 1993 Annual Report are incorporated
herein by reference. As of March 9, 1994, there were approximately 3,568
common stock record holders.
MFC has paid quarterly cash dividends on its common stock since the 1985 holding
company reorganization and has periodically issued stock dividends on the common
stock.
The Board of Directors considers the advisability and amount of each proposed
dividend. Future cash dividends on the Company's common stock will be
determined on the basis of the Company's income, financial condition, capital
needs, regulatory requirements and other factors deemed relevant by the
Board. There can be no assurance that cash or stock dividends on the common
stock will continue to be declared by the Company.
As a holding company without significant assets other than its equity
interest in the Bank and Edina Realty, the Company's ability to pay cash
dividends on its common stock primarily depends upon the cash dividends it
receives from these subsidiaries. Dividend payments from the Bank are
subject to regulation by the OTS. See "Item 1 - Business - Regulation -
Restrictions on Dividends" for a discussion of regulatory restrictions on the
ability of the Bank to pay dividends. The amount available for payment of
dividends by the Bank to the Company for 1994 is $89 million plus the total
of current year earnings. Edina Realty's ability to pay dividends is limited
by Minnesota's corporate law. Dividends payable by the Bank may also be
limited by tax law considerations. In addition, the Company's ability
to pay dividends is limited by the Delaware General Corporation Law.
Item 6.
SELECTED FINANCIAL DATA.
Selected Financial Data on pages 16 and 17 of the 1993 Annual Report is
incorporated herein by reference.
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 16 through 32 of the 1993 Annual Report is incorporated
herein by reference.
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors and the Consolidated Financial Statements
included on pages 33 through 54 of the 1993 Annual Report are incorporated
herein by reference.
Quarterly Results of Operations on page 55 of the 1993 Annual Report are
incorporated herein by reference.
<PAGE> 8
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors of the Registrant.
The information under the captions "Election of Directors-Information about
Directors and Nominees" in the Company's 1994 Proxy Statement is incorporated
herein by reference.
(b) Executive Officers of the Registrant.
Information concerning Executive Officers of the Company is included in this
Report under Item 4A. "Executive Officers of the Registrant."
Item 11.
EXECUTIVE COMPENSATION.
The information under the caption "Election of Directors-Director Compensation"
and "Compensation and Other Benefits" in the Company's 1994 Proxy Statement is
incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Security Ownership of Management" in the
Company's 1994 Proxy Statement is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions" in the Company's 1994
Proxy Statement is incorporated herein by reference.
<PAGE> 9
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
The following information appearing in the Company's 1993 Annual Report is
incorporated by reference in this Form 10-K Annual Report.
<TABLE>
<CAPTION>
Pages in
Annual Report Section Annual Report
<S> <C>
Consolidated Statements of Condition 33
Consolidated Statements of Income 34
Consolidated Statements of Changes in Shareholders' Equity 35
Consolidated Statements of Cash Flows 36
Notes to Consolidated Financial Statements 37 - 53
</TABLE>
(a)(2) Financial Statement Schedules.
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Consolidated
Financial Statements.
(a)(3) Exhibits.
The exhibits to this Report are listed in the Exhibit Index on pages 13, 14, 15
and 16 herein.
A copy of any of these exhibits will be furnished at a reasonable cost to any
person who is a shareholder of the Company as of March 23, 1994, upon receipt
from any such person of a written request for any such exhibit. Such
requests should be sent to Metropolitan Financial Corporation, 1000 Metropolitan
Centre, 333 South Seventh Street, Minneapolis, Minnesota, 55402,
Attention: Patricia Henning, Vice President, Corporate Communications and
Investor Relations.
The following is a list of each management contract or compensatory plan or
arrangement required to be filed as an Exhibit to this Annual Report on Form
10-K pursuant to Item 14 (c):
<TABLE>
<S> <C> <C>
(1) 1982 Stock Option Plan and Incentive Plan..............Incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 (File No. 33-1385).
(2) 1990 Stock Option Plan.................................Incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-2 (File No. 33-37050).
(3) Amendment to 1990 Stock Option Plan....................Incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 (File No. 1-9018).
<PAGE> 10
(4) Executive Incentive Compensation Plan..................Incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 (File No. 1-9018).
(5) Supplemental Retirement Arrangement between Incorporated by reference to a written description thereof
the Company and Norman M. Jones........................on page 8 of the Company's Proxy Statement dated March 27,
1991 (File No. 1-9018).
(6) Severance Agreement, dated December 1, 1990, between Incorporated by reference to Exhibit 10.14 to the Company's
the Company and Norman M. Jones....................... Annual Report on Form 10-K for the year ended December 31,
1990 (File No. 1-9018).
(7) Severance Agreement, dated December 1, 1990 between Incorporated by reference to Exhibit 10.15 to the Company's
the Company and Charles D. Kalil...................... Annual Report on Form 10-K for the year ended December 31,
1990 (File No. 1-9018).
(8) Trust Agreement, dated October 19, 1989, between Incorporated by reference to Exhibit 10.16 to the Company's
the Company and First Trust National Association, Annual Report on Form 10-K for the year ended December 31,
as Trustee, and Norman M. Jones as Trust Beneficiary... 1990 (File No. 1-9018)
(9) First Amendment to Trust Agreement, dated October 19, Incorporated by reference to Exhibit 10.17 to the Company's
1989, between the Company, First Trust National Annual Report on Form 10-K for the year ended December 31,
Association, as Trustee, and Norman M. Jones, as 1990 (File No. 1-9018)
Trust Beneficiary
(10) Employee Stock Purchase Plan...........................Incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 (File No. 1-9018).
(11) Non-Employee Director Stock Option Plan............... Incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-9018).
(12) Directors' Retirement Plan.............................Filed herewith.
(13) 1993 Stock Option and Incentive Plan...................Filed herewith.
(14) Employment Agreement, dated May 29, 1993, between
the Company and J. Michael Nilles......................Filed herewith.
(15) Board resolution setting forth Charles D. Kalil
compensation...........................................Filed herewith.
<PAGE> 11
(16) Separation Agreement, dated June 15, 1993, between
the Company and Stan K. Dardis.........................Filed herewith.
(17) Executive Management Severance Pay Plan................Filed herewith.
(18) Executive Management Change in Control Severance Pay
Plan...................................................Filed herewith.
</TABLE>
(b) Reports on Form 8-K.
During the quarter ended December 31, 1993, the Company filed no Reports on Form
8-K.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
METROPOLITAN FINANCIAL CORPORATION
/S/ Norman M. Jones
NORMAN M. JONES
(Duly Authorized Representative)
March 23 ,1994
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Norman M. Jones Chairman, Director and Chief March 23, 1994
NORMAN M. JONES Executive Officer (Principal Executive Officer)
/s/ Steven B. Dewald Executive Vice President and Chief March 23, 1994
STEVEN B. DEWALD Financial Officer (Principal Financial Officer)
/s/ William T. Cox Senior Vice President and March 23, 1994
WILLIAM T. COX Controller (Principal Accounting Officer)
/s/ William O. Nilles Vice Chairman and Director March 23, 1994
WILLIAM O. NILLES
/s/ Charles D. Kalil Secretary and Director March 23, 1994
CHARLES D. KALIL
/s/ Lawrence E. Davis Director March 23, 1994
LAWRENCE E. DAVIS
/s/ R. Douglas Larsen Director March 23, 1994
R. DOUGLAS LARSEN
/s/ William C. Marcil Director March 23, 1994
WILLIAM C. MARCIL
/s/ Dr. Trueman E. Tryhus Director March 23, 1994
DR. TRUEMAN E. TRYHUS
/s/ Karol D. Emmerich Director March 23, 1994
KAROL D. EMMERICH
/s/ Steven G. Rothmeier Director March 23, 1994
STEVEN G. ROTHMEIER
</TABLE>
<PAGE> 13
METROPOLITAN FINANCIAL CORPORATION
Exhibit Index to Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1993
<TABLE>
<CAPTION>
Item No. Item Method of Filing
<S> <C> <C>
3.1 Restated Certificate of Incorporation Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (File No.
33-35207).
3.2 Bylaws of the Company as amended Filed herewith.
4.1 Specimen form of the Company's Common
Stock Certificate Incorporated by reference to Exhibit 7 to the
Company's Registration Statement Form 8-A (File No.
1-9018).
4.2 Specimen form of Preferred Stock Certificate for
the Company's $2.875 Cumulative Perpetual
Preferred Stock, Series B Incorporated by reference to Exhibit 1.1 to the
Company's Report on Form 8 dated November 19, 1990,
amending the Company's Registration Statement on
Form 8-A (file no. 1-9018).
4.3 Certificate of Designations of the Company's
$2.875 Cumulative Perpetual Preferred Stock,
Series B Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8 dated November 19,
1990, amending the Company's Registration
Statement on Form 8-A (file no. 1-9018).
4.4 Specimen form of Warrant Certificate Incorporated by reference to Exhibit 1.2 to the
Company's Report on Form 8 dated November 19,
1990, amending the Company's Registration
Statement on Form 8-A (File No. 1-9018).
4.5 Warrant Agreement Incorporated by reference to Exhibit 2.2 to the
Company's Report on Form 8 dated November 19,
1990, amending the Company's Registration
Statement on Form 8-A (File No. 1-9018).
4.6 Indenture, dated September 1, 1992, between the Company
and First Trust National Association, as trustee Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File
No. 33-51522).
10.1 1982 Stock Option Plan and Incentive Plan Incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-8 (File
No. 33-1385).
<PAGE> 14
10.2 Termination Agreement, dated December, 18, 1991,
among the FDIC, the RTC, the Bank and the Company Incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-9018).
10.3 1990 Stock Option Plan Incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-2
(File No. 33-37050).
10.4 Amendment to 1990 Stock Option Plan Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-9018).
10.5 The Executive Incentive Compensation Plan Incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-9018).
10.6 Supplemental Retirement Arrangement between
the Company and Norman M. Jones Incorporated by reference to a written descrip-
tion thereof on page 8 of the Company's Proxy
Statement dated March 27, 1991 (File No. 1-9018).
10.7 Severance Agreement dated December 1, 1990,
between the Company and Norman M. Jones Incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-9018).
10.8 Severance Agreement dated December 1, 1990,
between the Company and Charles D. Kalil Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-9018).
10.9 Trust Agreement dated October 19, 1989, between
the Company and First Trust National Association,
as Trustee, and Norman M. Jones as Trust Beneficiary Incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-9018).
10.10 First Amendment to Trust Agreement dated
October 19, 1989, between the Company, First
Trust National Association, as Trustee, and
Norman M. Jones, as Trust Beneficiary Incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-9018).
<PAGE> 15
10.11 The Employee Stock Purchase Plan Incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991(File No. 1-9018).
10.12 Non-Employee Director Stock Option Plan Incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (File No. 1-9018).
10.13 Agreement and Plan of Merger, dated July 21, 1992,
as amended, among the Company, Metropolitan
Federal Bank, fsb and American Charter Federal
Savings and Loan Association Incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1992
(File No. 1-9018).
10.14 Agreement and Plan of Merger, dated November 16,
1992, among the Company, Metropolitan Federal
Bank, fsb, Western Financial Corporation and Columbia
Savings Association, F.A. Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (File No. 1-9018).
10.15 Directors' Retirement Plan Filed herewith.
10.16 1993 Stock Option and Incentive Plan Filed herewith.
10.17 Employment Agreement, dated
May 29, 1993, between the Company and
J. Michael Nilles Filed herewith.
10.18 Board resolution setting forth
Charles D. Kalil compensation Filed herewith.
10.19 Separation Agreement, dated
June 15, 1993, between the Company and
Stan K. Dardis Filed herewith.
10.20 Executive Management Severance Pay Plan Filed herewith.
10.21 Executive Management Change In Control Severance Pay Plan Filed herewith.
<PAGE> 16
11.1 Computation of Per Share Earnings Filed herewith.
13.1 Annual Report to Shareholders (Pages 16 to 56) Filed herewith.
21.1 Subsidiaries of the Registrant Filed herewith.
23.1 Consent of Ernst & Young Filed herewith.
</TABLE>
Exhibit 11.1
METROPOLITAN FINANCIAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share data) Year Ended December 31
1993 1992 1991
<S> <C> <C> <C>
<CAPTION>
Primary
Average number of common shares outstanding 30,481 26,764 20,351
Net effect of dilutive stock options/warrants-
based on the treasury stock method
using average market price 1,181 1,620 1,295
31,662 28,384 21,646
Income before extraordinary item and cumulative
effect of accounting change 65,174 67,519 57,439
Extraordinary Item _ (6,329) _
Cumulative effect of accounting change _ 75,941 _
Dividends on preferred stock 1,405 1,405 5,085
Net Income 63,769 135,726 52,354
Income per share before extraordinary items and
cumulative effect of accounting change 2.01 2.34 2.42
Extraordinary Item _ (0.22) _
Cumulative effect of accounting change _ 2.66 _
Earnings Per Share $2.01 $4.78 $2.42
<CAPTION>
Fully Diluted
Average number of common shares outstanding 30,481 26,764 20,351
Net effect of dilutive stock options / warrants-
based on the treasury stock method
using closing market price if higher
than average market price 1,211 1,939 1,782
Net effect of other dilutive securities-
conversion of preferred shares to
common shares _ 1,910 6,361
31,692 30,613 28,494
Income before extraordinary item and
cumulative effect of accounting change 65,174 67,519 57,439
Extraordinary Item _ (6,329) _
Cumulative effect of accounting change _ 75,941 _
Dividends on nonconvertible preferred stock 1,405 1,405 1,405
Net Income 63,769 135,726 56,034
Income per share before extraordinary
items and cumulative effect of accounting change 2.01 2.17 1.96
Extraordinary Item _ (0.21) _
Cumulative effect of accounting change _ 2.47 _
Earnings Per Share $2.01 $4.43 $1.96
</TABLE>
<PAGE>
Exhibit 22.1
<TABLE>
<CAPTION>
State of
Percentage Incorporation
Parent of Ownership or Organization
<S> <C> <C> <C>
Metropolitan Financial 1) Metropolitan Federal Bank, fsb 100% U.S.
Corporation 2) Edina Realty, Inc. 100% Minnesota
<CAPTION>
The following are first tier subsidiaries of Metropolitan Federal Bank, fsb:
1) Equity Title Services, Inc. 100% Minnesota
2) MFC Insurance Corporation 100% South Dakota
(dba, Metropolitan Financial Services)
3) Metropolitan Service Corporation 100% North Dakota
4) Lancaster Investment Corporation 100% Nebraska
5) American Charter Credit Corporation 100% Delaware
6) Security Consumer Services, Inc. 100% Minnesota
7) First Realty Property Management, Ltd. 100% Iowa
8) Columbia Mortgage Corporation 100% Kansas
9) Western Columbia Mortgage Holding, Inc. 100% Kansas
</TABLE>
</page>
<PAGE>15
Management's Discussion & Analysis of Financial Condition & Results
of Operations
General Discussion 16
Acquisition Activity 18
Results of Operations 19
Financial Condition 26
Consolidated Financial Statements
Consolidated Statements of Condition 33
Consolidated Statements of Income 34
Consolidated Statements of Changes in Shareholders' Equity 35
Consolidated Statements of Cash Flows 36
Notes to Consolidated Financial Statements
Note A Summary of Significant Accounting Policies 37
Note B Business Combinations 38
Note C Fair Value of Financial Instruments 39
Note D Assets Available-for-Sale 41
Note E Investment Securities 42
Note F Mortgage-backed Securities 42
Note G Loans 42
Note H Real Estate 43
Note I Office Properties and Equipment 43
Note J Deposits 44
Note K FHLB Advances and Other Borrowings 44
Note L Interest Exchange and Protected Rate Agreements 45
Note M Shareholders' Equity 45
Note N Income Taxes 46
Note O Employee Benefits 48
Note P Parent Company Financial Information 50
Note Q Segment Information 53
Report of Management 54
Report of Independent Auditors 54
Other Supplementary Data 55
Directors and Board Members 57
<PAGE> 16
Management's Discussion and Analysis
General Discussion
Metropolitan Financial Corporation (the "Company") is a regional financial
services holding company. The Company's mission is to be the premier
provider of community financial and home ownership services throughout its
markets by offering exceptional value to its customers, resulting in
profitable growth, fulfilling careers and community enhancement. The primary
operations of the Company are in North Dakota, Minnesota, Nebraska, Iowa,
Kansas, South Dakota, Wisconsin and Arizona.
Table 1: Selected Financial Data
<TABLE>
<CAPTION> Year ended December 31
(Dollars in thousands, except per share data) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Operations Data
Interest income $ 472,726 $ 424,765 $ 407,020 $ 367,482 $ 371,734
Interest expense 274,612 272,208 301,908 291,790 305,898
Net interest income 198,114 152,557 105,112 75,692 65,836
Provision for loan losses 7,859 8,316 8,000 6,011 6,441
Net interest income after
provision for loan losses 190,255 144,241 97,112 69,681 59,395
Gains related to mortgage
banking activities 16,271 9,264 225 4,645 2,930
Other gains on sale of mortgage-backed
and other securities _ 44,377 33,366 8,725 13,007
Other noninterest income 73,566 60,761 55,850 50,961 51,912
Noninterest expense 193,633 148,581 124,687 108,656 113,369
Income before income taxes,
extraordinary item and cumulative
effect of accounting change 86,459 110,062 61,866 25,356 13,875
Federal and state income taxes (benefit) 21,285 42,543 4,427 (1,980) (10,203)
Income before extraordinary item and
cumulative effect of accounting change 65,174 67,519 57,439 27,336 24,078
Extraordinary item _ (6,329) _ _ _
Cumulative effect of accounting change _ 75,941 _ 995 _
Net Income $ 65,174 $ 137,131 $ 57,439 $ 28,331 $ 24,078
Earnings Per Share
Primary:
Before extraordinary item and cumulative
effect of accounting change $ 2.01 $ 2.34 $ 2.42 $ 1.25 $ 1.20
Extraordinary item _ (0.22) _ _ _
Cumulative effect of accounting change _ 2.66 _ 0.05 _
Net Primary $ 2.01 $ 4.78 $ 2.42 $ 1.30 $ 1.20
Fully Diluted:
Before extraordinary item and cumulative
effect of accounting change $ 2.01 $ 2.17 $ 1.96 $ 1.08 $ 1.12
Extraordinary item _ (0.21) _ _ _
Cumulative effect of accounting change _ 2.47 _ 0.04 _
Net Fully Diluted $ 2.01 $ 4.43 $ 1.96 $ 1.12 $ 1.12
Cash Dividends Per Share
Common $ 0.39 $ 0.27 $ 0.19 $ 0.17 $ 0.15
Preferred-Series A _ _ 2.00 2.00 0.99
Preferred-Series B $ 2.88 $ 2.88 $ 2.88 $ 0.33 $ _
<PAGE> 17
Ratios
Return on average assets before
extraordinary item and cumulative
effect of accounting change 0.98% 1.28% 1.25% 0.68% 0.60%
Return on average assets 0.98 2.61 1.25 0.70 0.60
Return on average equity before
extraordinary item and cumulative
effect of accounting change 14.00 17.03 22.78 13.84 16.03
Return on average equity 14.00 34.58 22.78 14.35 16.03
Average equity to average assets 7.02 7.54 5.47 4.88 3.72
Net interest margin 3.21 3.13 2.44 2.02 1.75
Nonperforming assets to total assets 1.65 1.60 2.32 1.62 0.91
Common dividend payout ratio 19.40 6.09 9.69 15.18 13.39
At December 31
Financial Condition
Total Assets $7,006,785 $6,146,511 $4,667,680 $4,545,741 $3,822,473
Loans 4,585,410 3,267,131 2,335,993 1,936,677 1,670,789
Mortgage-backed securities 943,193 1,612,801 936,929 1,511,456 1,057,695
Investment securities - 419,129 100,693 204,277 172,164
Assets available-for-sale 873,938 162,304 882,527 - -
FSLIC notes and covered assets - - - 487,080 527,048
Goodwill 61,517 62,715 62,720 66,993 73,802
Deposits 5,354,635 5,207,025 3,824,069 3,394,175 2,719,411
FHLB advances 921,801 252,643 462,323 574,243 539,989
Other Borrowings 133,159 166,343 55,251 296,048 331,771
Shareholders' equity $ 504,383 $ 426,644 $ 278,763 $ 225,746 $ 188,727
</TABLE>
The Company operates an FDIC insured consumer savings bank, Metropolitan Federal
Bank, fsb (the "Bank"), which concentrates on the traditional thrift business of
soliciting deposits and making residential mortgage and other secured consumer
loans. The Company's residential real estate brokerage subsidiary, Edina Realty,
Inc. ("Edina Realty"), and title company subsidiary, Equity Title Services
("Equity Title"), are among Minnesota's largest providers of their respective
services. Edina Realty and Equity Title conduct their business in Minnesota and
western Wisconsin. Certain financial services products like annuities, uninsured
investments, such as mutual funds, and insurance are provided to customers
through a subsidiary operating as Metropolitan Financial Services ("MFS").
Consolidated Highlights
The Company earned net income of $65.2 million for the year ended December 31,
1993, compared with net income of $137.1 million in 1992 and $57.4 million in
1991. Fully diluted earnings per share were $2.01 in 1993, compared with
$4.43 in 1992 and $1.96 in 1991. Earnings in 1992 included nonrecurring
gains, an extraordinary item and the cumulative effect of implementing
Statement of Financial Accounting Standards ("SFAS") No. 109, which
represented approximately $96.7 million, net of tax, or $3.16 per share.
Earnings in 1991 included nonrecurring gains related to securities sales of
$20.4 million, net of tax, or $.71 per share.
Income before income taxes, extraordinary item and cumulative effect of
accounting change totaled $86.5 million for 1993, compared with $110.1 million
in 1992 and $61.9 million in 1991. Amounts in 1992 and 1991 include
nonrecurring gains associated with mortgage-backed and other securities sales.
These gains which resulted from balance sheet restructurings were $44.4 million
or 40 percent of pre-tax earnings in 1992 and $33.4 million or 54 percent of
pre-tax earnings in 1991. Net gains on asset sales of $16.3 million in 1993
were in conjunction with ongoing mortgage banking activities. This compares
with net gains of $9.3 million in 1992 and $225,000 in 1991 associated with
ongoing mortgage banking activities.
<PAGE> 18
Growth in the Company's balance sheet during 1993 resulted primarily from
acquisitions. During 1993 the Company acquired two institutions with assets
totaling approximately $813 million. Total assets at December 31, 1993 were $7.0
billion, an increase of $860 million or 14 percent from December 31, 1992.
Shareholders' equity totaled $504.4 million at December 31, 1993, an increase of
18 percent over the previous year-end balance.
At year end, the Bank's regulatory tangible capital ratio was 7.0 percent, which
is well above the minimum requirement. The Bank is considered "well capitalized"
as defined by the Federal Deposit Insurance Corporation ("FDIC"), placing the
Bank in the lowest deposit insurance premium range established by the FDIC.
Acquisition Activity
The Company continued its acquisition strategy in 1993 and 1992. On September
26, 1993, the Company signed a definitive agreement to acquire Rocky Mountain
Financial Corporation and its bank subsidiary, Rocky Mountain Bank, fsb
("Rocky Mountain"). Rocky Mountain had assets and deposits of approximately
$537 million and $428 million at December 31, 1993, respectively. The Bank
will pay Rocky Mountain shareholders approximately $64.2 million in cash as
consideration after payment of approximately $3.0 million of transaction
expenses. The transaction, which received regulatory approval in February
1994, will be accounted for as a purchase and is expected to close in
March 1994.
On August 6, 1993, the Bank completed its acquisition of Eureka Savings Bank,
fsb, Eureka, Kansas ("Eureka"). The acquisition consideration of approximately
$20.8 million was paid in cash and the transaction was accounted for as a
purchase. The acquisition expanded the Company's presence in Kansas which
began with the acquisition of Western Financial Corporation ("Western") in
June 1993. The transaction added assets of $233 million, deposits of $176
million and 10 retail branches.
On June 11, 1993, the acquisition of Western and its federally chartered savings
and loan association subsidiary Columbia Savings Association F.A.
("Columbia") was completed. Pursuant to the agreement and plan of merger,
Western was merged into the Company and Columbia was merged with the Bank.
Total merger consideration of approximately $21.9 million the form of cash
and the Company's common stock. The transaction was accounted for
as a purchase. The acquisition of Western gave the Company a presence in Kansas
with $580 million in assets, $497 million in deposits and 24 retail branches.
On December 16, 1992, the Company completed a merger with American Charter
Federal Savings and Loan Association of Lincoln, Nebraska ("American
Charter"). The transaction, a voluntary supervisory conversion merger,
converted American Charter from a mutual to a stock company which was then
merged with the Bank. The Bank assumed all assets and liabilities of American
Charter at no cost other than transaction costs. Total assets and deposits
added to the Bank's balance sheet were $945 million and $848 million,
respectively. The acquisition represented the Company's first expansion
into Nebraska. On December 1, 1992, the Company completed the purchase of
Home Owners Savings Bank of Fergus Falls, Minnesota ("Home Owners") from
the Resolution Trust Corporation ("RTC"). The purchase included all assets
and liabilities of Home Owners including five branch offices. Four of the
branches are located in northwestern Minnesota, providing the Bank its first
significant entry into this area. The transaction added approximately $127
million in assets and $113 million in deposits.
On September 30, 1992, the Company completed a merger with Security Financial
Group, Inc., St. Cloud, Minnesota ("Security Financial"). The transaction was
completed through the exchange of common stock, with shareholders of Security
Financial receiving $12.8 million of the Company's common stock. The
transaction was accounted for as a pooling of interests, however, due to the
relatively small size of Security Financial in relation to the Company, prior
year amounts were not restated. Therefore, 1992 amounts were adjusted to
reflect the combination of Security Financial as if it had occurred
January 1, 1992. The transaction added $220 million in assets, $200
million in deposits and provided the Bank with a presence in St. Cloud and
other central Minnesota communities.
<PAGE> 19
On April 24, 1992, the Company purchased from the RTC twelve branch offices and
$160 million in deposits of First Federal Savings Bank of South Dakota, Rapid
City, South Dakota, ("First Federal"). The acquisition included the purchase of
deposits, selected consumer loans, and sundry assets. The Company paid $2.9
million for the First Federal deposits. The acquisition of First Federal
gave the Company a presence in western South Dakota.
On March 13, 1992, the Company purchased from the RTC five branch offices and
$73 million in deposits of Monycor Federal Savings Bank, Barron, Wisconsin
("Monycor"). The acquisition included the purchase of deposits and various
assets. The Company paid $2.9 million for the Monycor deposits. The
acquisition of Monycor provided the Company with an enhanced presence in the
western Wisconsin market.
Results of Operations
The primary source of the Company's recurring net income is net interest income.
Also affecting the Company's net income are realty commissions, gains related to
mortgage banking activities, title closing and other fee income, noninterest
expense and income taxes.
Organizational Highlights
The Company's earnings are provided by its four primary operating entities
offset somewhat by parent company expense which reflects, among other things,
interest expense on the Company's subordinated debt.
The following table reflects net income before extraordinary items and the
cumulative effect of accounting changes by organizational unit.
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
The Bank $64,715 $66,143 $55,293
Edina Realty 1,601 1,538 979
Equity Title 1,675 1,375 941
MFS 1,406 418 13
Parent Company
and Other (4,223) (1,955) 213
$65,174 $67,519 $57,439
</TABLE>
The Bank recorded net income before extraordinary items and the cumulative
effect of accounting changes of $64.7 million in 1993, compared with $66.1
million in 1992 and $55.3 million in 1991. Excluding nonrecurring gains,
earnings before extraordinary items and the effect of changes in accounting
totaled $64.7 million in 1993, compared with $40.0 million in 1992 and $34.9
million in 1991. Bank results for 1993 and 1992 reflect 33 percent and 47
percent increases in net interest income over 1992 and 1991, respectively,
attributable to acquisitions and improved net interest margin. The net interest
margin was 3.32 percent for the Bank in 1993, compared with 3.17 percent in 1992
and 2.45 percent in 1991. Noninterest income decreased to $34.5 million in 1993
from $68.4 million in 1992 and $53.2 million in 1991. Noninterest income in
1992 and 1991 included nonrecurring gains related to asset sales of $44.4
million and $33.4 million, respectively. Noninterest expense increased 35
percent to $136.9 million from $101.1 million in 1992 and $84.1 million in
1991. The increases are due principally to acquisitions. As a result of
acquisitions, the number of retail branch offices increased to 196 branches at
December 31, 1993, compared with 185 at the end of 1992 and 125 in 1991.
The Company announced in January 1994 that Edina Realty and Equity Title
would not be spun-off. As a result, the activities of these organizations
are no longer reflected as discontinued operations. The Company originally
announced the spin-off of Edina Realty and Equity Title in April 1993 as a
means of allowing the companies to meet new, more challenging growth
objectives. These objectives included the Company's intent to have the
flexibility to obtain multiple thrift holding company status and Edina Realty
and Equity Title's intent to grow through the use of a separate, publicly
traded stock. However, the decision was made to retain Edina Realty and
Equity Title, as the larger transactions that would require the flexibility to
become a multiple thrift holding company became too costly. Management
believes that the most effective means of achieving further balance sheet
earnings and growth is to retain Edina Realty and Equity Title and their
access to asset generating opportunities and fee generating capabilities.
Total loans originated by the Bank's loan officers located in Edina Realty
offices in 1993 was $570 million, approximately 35 percent of the Company's
total mortgage loan production. In addition, the Company is looking to expand
its real estate brokerage presence through acquisition in markets the
Company serves outside Minnesota.
<PAGE> 20
Edina Realty recorded net income of $1.6 million in 1993, compared with $2.0
million in 1992 and $1.0 million in 1991. Net income in 1992 included
$346,000 from the cumulative effect of adopting SFAS No. 109. Revenues
increased 7 percent to $36.3 million in 1993 from $33.9 million in 1992 and
$28.1 million in 1991. Increases in revenues resulted from record sales
volume in 1993 totaling $3.5 billion, compared with $3.0 billion in 1992 and
$2.4 billion in 1991. Increases in revenues were offset by increases in
expenses in 1993 and 1992 of 8 percent and 23 percent from 1992 and 1991.
Edina Realty had approximately 2,000 sales associates and 49 offices as of
December 31, 1993.
Equity Title recorded net income of $1.7 million in 1993, compared with $1.4
million in 1992 and $1.0 million in 1991. Revenues increased 19 percent to $13.7
million in 1993 and 44 percent to $11.5 million in 1992. Revenues were $8.0
million in 1991. Increases in revenues resulted from record closings in 1993
totaling 12,782 compared with 10,757 in 1992 and 7,198 in 1991. Increases in
revenues were offset by increases in expenses in 1993 of 18 percent and 56
percent from 1992 and 1991.
Metropolitan Financial Services recorded net income of $1.4 million in 1993,
compared with $418,000 in 1992 and $13,000 in 1991. Revenues in 1993
increased to $4.6 million from $852,000 in 1992. At the end of 1992,
management identified the sale of uninsured investment products as a
significant noninterest income revenue opportunity and began a focused sales
effort in that direction.
Net Interest Income
Net interest income for the year ended December 31, 1993 was $198.1 million
compared with $152.6 million in 1992 and $105.1 million in 1991. The increase
from 1992 to 1993 was due primarily to a 27 percent increase in average
earning assets. The increase from 1991 to 1992 was due to a significant
widening of the net interest margin and a 13 percent increase in average
earning assets. The increase in average earning assets in each period
reflects the Company's acquisition strategy that is expected to continue in
the future.
Net interest income is the difference between the interest earned on interest
earning assets and interest paid on interest bearing liabilities. Net interest
income is affected by both the volume of interest earning assets in relation to
interest bearing liabilities and the net interest margin, representing the
difference in yields earned on assets and rates paid on interest bearing
liabilities. Economic, regulatory and competitive factors also have a
significant effect on net interest income. The Company's primary approach to
managing net interest income has been through growth, primarily by acquiring
organizations with asset/liability structures similar to its own and obtaining
the maximum interest rate spreads available between existing core assets and
liabilities, primarily single-family mortgage and secured consumer loans and
retail deposits, respectively, without accepting high levels of interest rate
risk.
The $45.6 million increase in net interest income during 1993 resulted mainly
from growth in average earning assets of $1,310 million, compared with growth in
interest bearing liabilities of $1,269 million. Interest earning assets
increased primarily in the areas of mortgage and consumer loans due to
acquisitions and record loan originations. Interest bearing liabilities
increased as a result of acquisitions with the majority of the increase coming
from certificates of deposit. The increase in interest earning assets and the
difference by which interest earning assets exceed interest bearing
liabilities resulted in $47.5 million of additional income in 1993 versus
1992. In 1992, average earning assets increased $558 million, compared with
average interest bearing liabilities growth of $492 million. The growth of
the Company's balance sheet from the preceding year was the
primary reason for the increase in net interest income. The details of these
changes are set forth in Table 2-Rate/Volume Analysis.
<PAGE> 21
Table 2: Rate/Volume Analysis
<TABLE>
<CAPTION> Year Ended December 31 Year Ended December 31
1993 vs. 1992 1992 vs. 1991
(In thousands) Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $104,046 $(40,335) $ 63,711 $66,678 $(15,453) $ 51,225
Mortgage-backed securities 8,895 (23,520) (14,625) 11,329 (19,179) (7,850)
FSLIC notes and covered assets _ _ _ (25,910) _ (25,910)
Investment securities and other interest
earning assets (1,093) (32) (1,125) 6,751 (6,471) 280
____________________________________________________________________________________________________________________________
111,848 (63,887) 47,961 58,848 (41,103) 17,745
Interest ExpenseTransaction deposit 3,622 (17,929) (14,307) 8,402 (2,299) 6,103
Passbook deposits 5,350 1,019 6,369 3,010 (15,157) (12,147)
Certificates 46,211 (40,771) 5,440 13,079 (28,786) (15,707)
FHLB advances 7,589 (8,595) (1,006) 613 (6,163) (5,550)
Borrowings 1,601 4,307 5,908 2,267 (4,666) (2,399)
____________________________________________________________________________________________________________________________
64,373 (61,969) 2,404 27,371 (57,071) (29,700)
Increase (Decrease)
in Net Interest Income $ 47,475 $ (1,918) $45,557 $31,477 $15,968 $47,445
</TABLE>
[FN]
The Rate/Volume Analysis presents the dollar amount of changes in interest
income and interest expense for interest earning assets and interest bearing
liabilities. The table distinguishes between the changes related to average
outstanding balances (changes in volume holding the average interest rate
constant) and changes related to average interest rates (changes in average
interest rates holding the initial balance constant). Changes in rate/volume
(changes in rate times the changes in volume) are allocated ratably between the
rate and volume variances.
As depicted in Table 3-Consolidated Average Balance Sheet and Related Yields and
Rates, the net interest margin, which represents net interest income as a
percentage of average interest earning assets, increased to 3.21 percent for the
year ended December 31, 1993, compared with 3.13 percent during 1992. In
addition to the interest rate environment described earlier, growth in equity
provided funds for interest earning assets with no direct cost of funds
reflected in the net interest margin. The average cost of interest bearing
liabilities declined 116 basis points from 1992 to 1993 due to the general
decline in rates during late 1992 and the first half of 1993, while yields on
interest earning assets declined only 107 basis points.
The net interest margin for 1992 improved to 3.13 percent from 2.44 percent for
1991. As in 1993, rates paid on interest bearing liabilities declined faster
than yields earned on interest earning assets. A primary factor limiting the
decline in yields earned, compared with 1991, was the reinvestment of the
proceeds from the repayment of the FSLIC notes and the settlement of the covered
asset assistance agreements received during 1991 in loans and mortgage-backed
securities with yields higher than those earned on the notes and covered
assets.
<PAGE> 22
Table 3: Consolidated Average Balance Sheet and Related Yields and Rates
<TABLE>
<CAPTION> 1993 1992 1991
Yields Yields Yields
and and and
(Dollars in thousands) Balance Interest Rates Balance Interest Rates Balance Interest Rates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans $ 4,014,215 $ 331,921 8.27% $ 2,801,697 $ 268,210 9.57% $ 2,113,733 $ 216,985 10.27%
Mortgage-backed
securities 1,837,109 122,649 6.68 1,720,034 137,274 7.98 1,589,460 145,124 9.13
FSLIC notes and
covered assets _ _ _ _ _ _ 365,569 25,910 7.09
Investment securities and other interest
earning assets 328,935 18,156 5.52 348,743 19,281 5.53 243,919 19,001 7.79
Total Interest
Earning Assets 6,180,259 472,726 7.65 4,870,474 424,765 8.72 4,312,681 407,020 9.44
Cash and due from banks 66,385 47,876 39,035
Other assets 385,118 339,686 259,312
Total Assets $6,631,762 $5,258,036 $4,611,028
Liabilities &
Shareholders' Equity
Transaction deposits $ 760,940 10,534 1.38% $ 651,398 24,841 3.81% $ 436,124 18,738 4.30%
Passbook deposits 745,805 19,025 2.55 533,682 12,656 2.37 469,697 24,803 5.28
Certificates 3,782,981 202,260 5.35 2,993,810 196,820 6.57 2,812,917 212,527 7.56
FHLB advances 614,871 31,522 5.13 485,444 32,528 6.70 477,634 38,078 7.97
Other borrowings 142,076 11,271 7.93 113,467 5,363 4.73 89,070 7,762 8.71
Total Interest
Bearing Liabilities 6,046,673 274,612 4.54 4,777,801 272,208 5.70 4,285,442 301,908 7.04
Other liabilities 119,587 83,682 73,419
Shareholders' equity 465,502 396,553 252,167
Total Liabilities &
Shareholders' Equity $6,631,762 $5,258,036 $4,611,028
Net Interest Income $198,114 $152,557 $105,112
Gross Interest Margin 3.11% 3.02% 2.40%
Net Interest Margin 3.21% 3.13% 2.44%
</TABLE>
[FN]
Delinquent loans on which interest is not being accrued are included in the
average balance of loans.
Asset and Liability Management
The Company is subject to interest rate risk to the extent that its interest
earning assets reprice or mature differently than its interest bearing
liabilities. The Company manages interest rate risk through production of
interest earning assets with repricing or maturity characteristics similar to
its retail deposit funding source, as well as concentrating on the gathering of
retail deposits which match the repricing and maturity characteristics of the
assets produced. This strategy emphasizes the production of fifteen year fixed
rate, five and seven year balloon and adjustable rate mortgage loans and
consumer loans. The Company augments its interest rate risk management
strategy by purchasing assets or borrowing funds with comparable maturity and
repricing characteristics to its loans or deposits. Finally, when considered
necessary and cost effective, the Company uses hedging instruments, such as
interest rate caps and swaps, to reduce its exposure to interest rate risk.
<PAGE> 23
A primary industry gauge of exposure to interest rate risk is the one year
interest rate sensitivity "gap" (the difference between interest earning assets
and interest bearing liabilities maturing or repricing within one year). See
Table 4-Interest Rate Sensitivity Gap. The Company mitigates its exposure to
interest rate risk by striving to maintain a neutral "gap" between the
maturities of its interest earning assets and interest bearing liabilities.
This strategy results in a stable net interest margin in periods of either
rising or falling interest rates.
Table 4: Interest Rate Sensitivity Gap
<TABLE>
<CAPTION> Maturing or Repricing in
1 Year Over 1 to Over 3 to Over 5
At December 31, 1993 (Dollars in thousands) or Less 3 Years 5 Years Years Total
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Mortgage-backed securities $1,042,071 $ 307,043 $ 135,978 $ 76,218 $1,561,310
Loans:
Real estate
Fixed rate 465,066 571,044 381,818 716,723 2,134,651
Adjustable rate 1,027,431 124,832 _ _ 1,152,263
Consumer and other 569,977 693,491 66,216 72,362 1,402,046
Investment securities and other 233,057 56,239 39,118 8,845 337,259
3,337,602 1,752,649 623,130 874,148 6,587,529
Interest Bearing Liabilities
Transaction and passbook deposits 716,437 187,148 187,524 469,558 1,560,667
Certificates 2,295,798 1,077,988 180,701 239,481 3,793,968
Borrowings 188,568 329,542 380,000 156,850 1,054,960
3,200,803 1,594,678 748,225 865,889 6,409,595
Impact of liability hedging (2,500) 2,500 _ _ _
3,198,303 1,597,178 748,225 865,889 6,409,595
Net Gap $ 139,299 $ 155,471 $(125,095) $ 8,259 $ 177,934
Cumulative Gap $ 139,299 $ 294,770 $ 169,675 $ 177,934
Cumulative ratio of interest earning assets
to interest bearing liabilities 104.36% 106.15% 103.06% 102.78%
Cumulative ratio of gap to total interest
earning assets 2.11% 4.47% 2.58% 2.70%
</TABLE>
[FN]
Major balance sheet categories are based on estimated prepayment rates ranging
from 4 percent to 50 percent for mortgage loans and mortgage-backed securities
depending on maturity and yield. Assets available-for-sale are included in the 1
year or less category if there is a firm sale commitment outstanding. Assets
available-for-sale without a firm commitment are based on their contractual
maturity considering amortization and prepayments. Passbook savings and checking
account balances assume a 10 percent annual decay rate and money market demand
accounts are included in the 1 year or less category. Loan balances are shown
gross of the allowance for loan losses and include nonaccrual loans.
Provision for Loan Losses
A total of $7.9 million was charged to the provision for loan losses during
1993, compared with $8.3 million in 1992 and $8.0 million in 1991. The Company's
exposure to credit risk relates principally to its consumer and residential
mortgage loan portfolios which historically are low risk loans. The adequacy of
the allowance for loan losses is presented in Table 10-Allowance for Loan Loss
Activity, and the related discussion on page 29 provides additional
information on the adequacy of the allowance for loan losses.
Noninterest Income
Noninterest income is a significant and recurring source of revenue for the
Company and represents a significant component of the Company's results of
operations. Edina Realty contributes the largest recurring component of
noninterest income through realty commissions generated by the sale of
residential real estate. Other significant recurring components of noninterest
income include mortgage loan servicing fees, service charges on deposit
accounts, title closing fees generated by Equity Title, and financial
services income generated by Metropolitan Financial Services.
<PAGE> 24
Edina Realty's realty commissions totaled $35.4 million in 1993, compared with
$32.1 million in 1992 and $26.2 million in 1991. The 10 percent and 27 percent
increases in realty commissions in 1993 and 1992, respectively, are due to
acquisitions and record single-family real estate sales volume in the Twin
Cities. Edina Realty is one of the largest residential real estate brokerage
companies in the Twin Cities, participating in more than 40 percent of all
residential real estate transactions.
Mortgage loan servicing fee income of $3.8 million in 1993 compares with $5.1
million and $10.7 million in 1992 and 1991, respectively. Mortgage loan
servicing fee income in 1993 and 1992 reflects accelerated amortization of
servicing assets resulting from the lower interest rate environment and
significant mortgage refinance activity throughout 1992 and 1993. Loans
serviced for others totaled $3.3 billion at December 31, 1993 compared with
$3.5 billion at December 31, 1992. The Company expects amortization of
servicing assets to decrease in future years as a result of the significant
write-downs in servicing assets recorded in 1992 and 1993.
Title closing fees increased to $13.7 million for the year ended December 31,
1993, compared with $11.5 million and $8.0 million in 1992 and 1991,
respectively. The 1993 increase is due to the strong real estate market and the
high levels of loan refinancings. Increased mortgage lending activity influenced
by loan refinancing and record real estate sales activity in the Twin Cities
resulted in the 1992 increase.
Historically, the Company has experienced significant gains on the sales of
assets, primarily mortgage-backed securities and mortgage loans. During 1993,
gains on sales of mortgage-backed securities and mortgage loans totaled $16.3
million. These sales are associated with ongoing mortgage banking activities
which result in the sale of agency conforming 30-year fixed rate FHA/VA
mortgage loans as well as FHA adjustable rate mortgages and other long-term
loan products not meeting management's portfolio requirements with respect to
interest rate risk. Ongoing mortgage banking activities accounted for gains
on sales of $9.3 million and $225,000 in 1992 and 1991, respectively.
Other gains on sales of mortgage-backed and other securities totaled $44.4
million and $33.4 million in 1992 and 1991, respectively. These gains in 1992
represent the disposition of $919 million of 30-year fixed rate mortgage-backed
securities in conjunction with the Company's decision to discontinue
retaining such assets in its portfolio. This decision is discussed in greater
detail in Investments and Mortgage-backed Securities on page 29. Sales of
mortgage-backed securities during 1991 were completed as part of management's
strategy to respond to interest rate and prepayment risk resulting from
declining interest rates, by disposing of higher yield mortgage-backed
securities.
In conjunction with its mortgage banking activities, the Company generally
hedges its risk of loss, resulting from increasing interest rates on its
actual and anticipated production of 30-year fixed agency conforming mortgage
loans, by entering into forward sales commitments.
Service charges on deposit accounts totaled $11.5 million in 1993, compared with
$6.9 million and $5.4 million in 1992 and 1991, respectively. The increase in
1993 from 1992 is a result of acquisitions and the strategic evaluation of
fees and implementation of a new fee structure for deposit accounts. The
increase in 1992 from 1991 was a result of acquisitions.
Financial services income increased to $4.6 million in 1993, compared with
$852,000 and $67,000 in 1992 and 1991, respectively. Financial services income
represents commissions associated with the sales of fixed and variable
annuities, mutual funds and other uninsured financial products by
Metropolitan Financial Services. The significant increase is a result of the
Company's strategic initiative to deepen relationships customers in order to
serve a broader range of their financial needs.
<PAGE> 25
Noninterest Expense
Noninterest expense increased to $193.6 million for the year ended December 31,
1993, compared with $148.6 million in 1992 and $124.7 million in 1991. The
increases in noninterest expense resulted mainly from acquisitions. These levels
of noninterest expense reflect efficiency ratios (noninterest expense excluding
goodwill amortization, real estate expense and nonrecurring expense as a percent
of net interest income before the provision for loan losses, plus noninterest
income) for the Company of 62 percent, 63 percent and 70 percent in 1993,
1992 and 1991, respectively.
Noninterest expense for 1993 includes a $3.5 million charge related to a
strategic restructuring announced in the first quarter. The strategic
restructuring included the consolidation or closing of certain retail branch
offices and other cost control initiatives. Management believes the
restructuring actions were successful in reducing ongoing compensation,
occupancy and other general and administrative costs.
Compensation and related items, the largest component of noninterest expense,
totaled $77.9 million for the year ended December 31, 1993. This compares with
$60.3 million and $48.0 million for the years ended December 31, 1992 and 1991,
respectively. The increases in 1993 and 1992 are primarily the result of
acquisitions which increased the total number of retail branch offices to 196 at
year-end 1993 from 125 at the end of 1991.
Occupancy expense, representing the second largest component of noninterest
expense, totaled $24.5 million for the year ended December 31, 1993,
compared with $16.7 million for 1992 and $15.2 million for 1991. The previously
noted acquisitions in late 1992 and 1993 added 71 offices to the bank office
network resulting in the current year increase. The increase in 1992 from 1991
was also due to an increase in bank offices.
Because compensation and related items and occupancy costs represent over
one-half of the Company's noninterest expense, these areas are the primary focus
of the Company's efforts to improve its efficiency ratio. Improvements in these
areas have occurred as a result of restructuring activities including
consolidation of the bank office network and centralization of certain
functions, especially in connection with acquisitions. These improvements
have been reflected in the efficiency ratios of the Bank, which were 55
percent, 56 percent and 64 percent for 1993, 1992 and 1991, after adjustment
for nonrecurring gains and charges.
Data processing expense totaled $10.5 million for the year ended December 31,
1993, compared with $7.5 million for 1992 and $6.6 million for 1991. The
increases in 1993 and 1992 reflect increased costs associated with the
Company's growth and improvements in technology. Although acquisitions,
including transition costs, represent the majority of the increases, 1993 costs
reflect the development of branch performance, product profitability and loan
collection systems. In addition, new mortgage loan origination and real
estate title closing systems were introduced in 1992.
Advertising expense decreased to $11.9 million in 1993, compared with $13.8
million in 1992 and $9.5 million in 1991. Product marketing expenses increased
in both 1993 and 1992 as a result of acquisitions. However, 1992 expense
includes additional costs associated with a name awareness campaign for the
Bank and an image and awareness advertising campaign for Edina Realty.
Deposit insurance premiums totaled $11.1 million in 1993, compared with $9.3
million in 1992 and $8.0 million in 1991. The increase is due entirely to
deposit growth associated with acquisitions, as the rate paid for insurance
premiums has remained constant. As a "well capitalized" institution, as defined
by the FDIC, the Company does not anticipate deposit insurance premiums to
increase as a percentage of insured deposits in the foreseeable future.
Real estate owned expense totaled $6.7 million in 1993, compared with $3.9
million in 1992 and $6.7 million in 1991. The increase in 1993 reflects
additional expense associated with real estate acquired in conjunction with
acquisitions in late 1992 and throughout 1993. The decrease in 1992 resulted
primarily from improved results of operations of certain income-producing
properties, as well as a reduction in charge-offs reflecting overall
improvement.
The increase in other general and administrative costs from $33.0 million in
1992 to $47.1 million in 1993 reflects the impact of acquisitions, as well as a
$3.5 million charge in the first quarter of 1993 related to the restructuring
discussed earlier.
<PAGE> 26
Income Taxes
The current year provision for federal and state income taxes was $21.3 million
compared with $42.5 million in 1992 and $4.4 million in 1991. The reduction in
federal and state income tax is due to lower taxable income, a $10.9 million
reduction in the valuation allowance and a $1.9 million adjustment to the
deferred tax asset. The reduction in the valuation allowance resulted from the
favorable resolution of certain tax issues for which the Company had previously
provided a valuation allowance. The adjustment to the deferred tax asset
resulted from an increase in the federal tax rate from 34 percent to 35 percent
and other adjustments.
As previously mentioned, during 1992 the Company adopted SFAS No. 109,
"Accounting for Income Taxes." In accordance with this Statement, the Company
recognized deferred tax assets reflecting the benefit expected to be realized
from the utilization of $182.4 million of net operating loss carryforwards
("NOLs") and $35.8 million of net deductible temporary differences.
The Company had taxable income and pre-tax book income for the periods presented
as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Taxable income $68,490 $ 76,543 $15,471
Pre-tax book income 86,459 110,062 61,866
</TABLE>
The primary difference between taxable income and pre-tax book income in 1993
and 1992 relates to the reversal of net deductible temporary differences. The
primary difference between taxable income and pre-tax book income in 1991
relates to the federally assisted acquisitions of seven insolvent thrift
institutions in 1988 and the related tax exempt assistance received in the form
of interest on FSLIC notes and covered assets and other assistance payments.
The tax exempt assistance was also the primary cause of the NOLs. As shown
above, the Company generated net taxable income in 1993, 1992 and 1991 resulting
in the utilization of NOLs. Except for the effects of the reversal of net
deductible temporary differences, the Company is not currently aware of any
factors which would cause any significant differences between taxable income
and pre-tax book income in future years. However, there can be no assurances
that there will be no significant differences in the future between taxable
income and pre-tax book income if circumstances change (such as, for example,
changes in tax laws or the Company's financial condition or performance).
In order to fully realize the $53.1 million net deferred tax asset at December
31, 1993, the Company will need to generate future taxable income of
approximately $133 million prior to expiration of the NOLs which begin to expire
in 2002. Based on the Company's historical and current pre-tax earnings,
management believes it is more likely than not that the Company will realize the
benefit of the NOLs before they expire. Further, management believes the
existing net deductible temporary differences will reverse during periods in
which the Company generates net taxable income. There can be no assurance,
however, that the Company will generate any earnings or any specific level of
continuing earnings.
Financial Condition
Loan Portfolio
The Company's loan portfolio totaled $4.6 billion at December 31, 1993, an
increase of $1.3 billion from December 31, 1992. The increase is due to new
production of residential mortgage and consumer loans, as well as the
addition of loans through acquisition.
Although consumer loan originations were strong in 1993, origination of first
mortgage loans for the purchase or construction of one to four family
residential property continues to be the main emphasis of the Company. Of the
$2.7 billion of loans originated in 1993, $1.6 billion, or 61 percent, were
residential real estate mortgage loans, compared with $1.3 billion, or 68
percent, in 1992. The reduction in mortgage loan origination as a percentage of
total loan originations results from increased efforts to originate secured
consumer loans. The increases in mortgage loan originations in 1993 and 1992
were a result of acquisitions and the low interest rate environment which
resulted in higher levels of refinancings. While the level of refinancings
may subside, the Company believes that acquisitions and the introduction of
new mortgage loan products will provide future increases in mortgage loan
originations.
The Company's current policy is to sell agency conforming FHA/VA 30-year fixed
rate and adjustable rate mortgage loans, thus significantly reducing interest
rate risk. Approximately 36 percent of the single family loan production meets
the Company's criteria to be classified as held-for-sale. The Company generally
maintains the servicing rights on mortgage loans sold to preserve the customer
relationship, create opportunities to cross sell other banking services and
generate fee income.
<PAGE> 27
The Company continues to promote the origination of secured consumer loans,
including personal property, savings account, property improvement, home equity
and education loans. Originations in 1993 totaled $1.0 billion, compared with
$608 million in 1992 and $312 million in 1991. The increase in consumer loan
originations is due primarily to the Company's expansion of indirect consumer
lending activities and lower interest rates. Indirect consumer loans originated
through selected automobile dealers located within the Bank's current and
immediately adjacent market area represent 76 percent of total consumer loan
originations. Remaining originations are generated through the Bank's branch
office network. Home equity loans and loans made pursuant to lines of credit are
usually secured by a second mortgage on the borrower's principal residence.
Other consumer loans are generally secured by personal property, such as
automobiles. During 1993, the Company's commercial real estate portfolio
increased $195 million; this increase as well as the increase from 1991 to 1992
resulted from acquisitions.
Table 5: Loan Portfolio
<TABLE>
<CAPTION> December 31
(In thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Real Estate:
Residential (One to four family) $ 2,700,214 $ 2,068,300 $ 1,577,435 $ 1,178,365 $ 859,965
Commercial 513,870 318,814 252,514 276,289 301,092
Construction 12,185 9,623 17,006 16,641 41,061
Commercial 6,402 9,457 10,385 14,422 19,421
Manufactured home 41,797 53,164 49,272 54,758 59,551
Consumer and other 1,353,847 843,605 455,653 353,094 246,441
4,628,315 3,302,963 2,362,265 1,893,569 1,527,531
Less:
Allowance for losses 42,905 35,832 26,272 30,386 27,176
$ 4,585,410 $ 3,267,131 $ 2,335,993 $ 1,863,183 $ 1,500,355
</TABLE>
Table 6: Loan Originations
<TABLE>
<CAPTION> December 31
(In thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 9,712 $ 2,050 $ 3,962 $ 11,518 $ 26,682
Loans on existing property 1,628,570 1,309,258 970,047 994,790 789,033
1,638,282 1,311,308 974,009 1,006,308 815,715
Commercial loans 96 1,342 2,045 8,196 16,404
Consumer and other loans:
Direct 216,708 160,383 91,344 77,808 66,767
Indirect 832,464 448,012 220,553 165,530 127,924
Total Loans Originated $ 2,687,550 $ 1,921,045 $ 1,287,951 $ 1,257,842 $ 1,026,810
Real Estate Loans Purchased $ 172,494 $ 121,497 $ 155,482 $ 36,630 $ _
Real Estate Loans Sold (including securitized) $ 743,797 $ 1,189,807 $ 464,673 $ 635,896 $ 673,175
</TABLE>
<PAGE> 28
Nonperforming Assets and Allowance for Loan Losses
Nonperforming assets are nonaccruing loans and real estate owned. Real estate
owned consists of real estate acquired through foreclosure (foreclosed real
estate for which a redemption period still remains) and in-substance
foreclosures (real estate loans in which the borrower has little or no equity,
repayment can be expected to come only from sale or operation of the real estate
and the borrower has formally or effectively abandoned control). The Company
places loans on a nonaccrual status when the loans are contractually delinquent
more than 90 days or when the facts and circumstances, regardless of the
delinquency status, support the likelihood that interest accrued may not be
recovered (e.g., bankruptcy).
Table 7: Nonperforming Assets
<TABLE>
<CAPTION> December 31
(Dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Nonperforming:
Loans $ 61,290 $ 46,503 $ 44,684 $ 30,903 $ 10,962
Real estate 54,134 51,916 63,399 41,074 23,878
Nonperforming Assets $ 115,424 $ 98,419 $ 108,083 $ 71,977 $ 34,840
Nonperforming loans to total loans 1.34% 1.42% 1.91% 1.60% 0.66%
Nonperforming assets to total assets 1.65 1.60 2.32 1.58 0.91
Net Interest Lost on Nonperforming Loans $ 5,713 $ 4,480 $ 4,006 $ 1,907 $ 1,694
</TABLE>
Table 8: Composition of Nonperforming Assets
<TABLE>
<CAPTION>
December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Nonperforming Loans:
Single family $ 15,150 $ 16,326 $ 12,507
Commercial real estate 42,330 26,556 29,179
Non real estate 3,810 3,621 2,998
61,290 46,503 44,684
Real Estate Owned:
Single family 6,857 7,779 12,875
Commercial real estate 47,277 44,137 50,524
54,134 51,916 63,399
$ 115,424 $ 98,419 $ 108,083
</TABLE>
Nonperforming assets totaled $115.4 million at December 31, 1993, compared with
$98.4 million at December 31, 1992. The increase is due entirely to the impact
of acquisitions during 1993 which added $47.6 million of nonperforming assets.
Excluding nonperforming assets added through 1993 acquisitions, the
nonperforming asset total at December 31, 1993 would have been $73.9 million, a
decrease of 25 percent for the year. Based on the Company's successful history
in resolving nonperforming assets, management is condent acquired nonperforming
assets can be resolved in an efficient manner without significant loss to the
Company. During the last three years, the Company aggressively challenged the
ultimate collectability of its remaining nonperforming commercial real estate
and commercial business loans. Accordingly, the Company recorded charge-offs of
such assets of $2.7 million, $4.4 million and $3.6 million in 1993, 1992 and
1991, respectively.
The Company periodically prepares estimates of fair value and, where
appropriate, obtains independent appraisals of all real estate owned. Provisions
for loss are recorded where the estimated fair value is less than the net book
value. As shown in Table 9 below, 90-day delinquent loans have decreased as a
percentage of total loans each of the last two years. Delinquent loans as a
percent of total loans were 1.27 percent and 0.25 percent of mortgage and other
loans at December 31, 1993, respectively.
Table 9: Delinquent Loans
<TABLE>
<CAPTION> Mortgage Loans Other Loans
(Dollars in thousands) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
As of December 31:
1993 $40,950 1.27% $3,485 0.25%
1992 34,456 1.44 3,570 0.39
1991 39,714 2.15 3,157 0.61
</TABLE>
The Company maintains a policy of managing asset quality and controlling credit
risk through systematic review and classification of assets and prompt follow-up
on problem loans and real estate. Allowances are established for losses inherent
in the loan portfolio. Charge-offs are recorded when amounts are deemed
uncollectible. As disclosed in Note G to the consolidated financial statements,
net charge-offs of loans were $12.3 million in 1993 compared with $10.6 million
in 1992.
<PAGE> 29
Although charge-offs related to commercial real estate and business loans
decreased 39 percent to $2.7 million in 1993, charge-offs associated with
consumer loans increased 33 percent to $8.5 million for 1993.
This coincides with a 76 percent increase in the average consumer loan portfolio
from 1992 to 1993.
The allowance for loan losses increased $7.1 million or 20 percent during 1993
to $42.9 million at year end. Allowances of approximately $11.5 million were
added through 1993 acquisitions. The provision for loan losses was $7.9
million during the year. Before acquisitions, nonperforming loans decreased
$9.0 million or 19 percent, because of improving credit quality in the
non-acquired loan portfolio. The reduction in charge-offs associated with
commercial real estate and business loans reflects the Company's emphasis of
single-family mortgage and secured consumer loans since 1989. The increase in
consumer loan charge-offs is a result of increases in the consumer loan
portfolio. The year-end allowance for loan losses as a percentage of
nonperforming assets of 37 percent compares favorably to the same ratio one
year ago. Management believes the allowance for loan losses is adequate to
provide for the credit risk in the loan portfolio at December 31, 1993.
Table 10: Allowance for Loan Loss Activity
<TABLE>
<CAPTION> Year Ended December 31
(Dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year: $35,832 $ 26,272 $ 30,386 $ 27,176 $ 34,712
Acquisitions 11,508 11,845 93 144 _
Provision for loan losses 7,859 8,316 8,000 4,316 3,438
Transfer of allowance (to) from real estate
and other assets _ _ (4,543) 1,539 (7,151)
Charge-offs (net of recoveries):
Mortgage loans (3,715) (4,198) (3,922) (568) (2,996)
Other loans (8,579) (6,403) (3,742) (2,221) (827)
Net Charge-offs (12,294) (10,601) (7,664) (2,789) (3,823)
Balance at End of Year:
Mortgage loans 30,810 29,085 21,591 25,309 22,809
Other loans 12,095 6,747 4,681 5,077 4,367
Total Allowance $42,905 $ 35,832 $ 26,272 $ 30,386 $ 27,176
Allowance as a Percentage of:
Mortgage loans 0.95% 1.21% 1.17% 1.72% 1.90%
Other loans 0.86 0.75 0.91 1.20 1.34
Nonperforming loans 70.00 77.05 58.80 98.33 247.91
Nonperforming assets 37.17 36.41 24.31 42.22 78.00
Ratio of Net Charge-offs During the Period
to Average Loans Outstanding 0.31% 0.38% 0.36% 0.16% 0.22%
</TABLE>
Investments and Mortgage-backed Securities
Federal thrift institutions have authority to invest in various types of liquid
assets, including short term U.S. Treasury obligations and securities of various
federal agencies, certificates of deposit of insured institutions, bankers'
acceptances and federal funds. Federal thrift institutions may also invest a
portion of their assets in other specified investments, which are subject to
regulatory limitations with respect to rating, marketability and average
portfolio maturity. These include commercial paper and corporate debt
securities. The Company's current portfolio has no investments rated lower than
AA. The Company's policy allows the purchase of investment grade, BBB rated or
higher, debt securities.
<PAGE> 30
Table 11: Investment Portfolio
<TABLE>
<CAPTION> Over 1 Year Over 5 Years
1 Year or Less Through 5 Years Through 10 Years Over 10 Years Total
Market Weighted Market Weighted Market Weighted Market Weighted Market Weighted
(Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury _ _ $13,012 4.82% _ _ _ _ $ 13,012 4.82%
U.S. government agencies $39,448 4.53% 81,833 6.97 _ _ _ _ 121,281 6.18
Commercial paper 39,793 3.27 _ _ _ _ _ _ 39,793 3.27
Corporate debt securities 10,044 8.95 _ - _ _ _ _ 10,044 8.95
Other 1,689 3.17 512 7.04 $ 153 4.80% $8,692 4.75% 11,046 4.62
$90,974 4.44% $95,357 6.68% $ 153 4.80% $8,692 4.75%$ 195,176 5.54%
</TABLE>
[FN]
Amounts are stated at market value and do not include accrued interest.
Table 12: Book Value of Investments
<TABLE>
<CAPTION> December 31
(In thousands) 1992 1991
<S> <C> <C>
U.S. Treasury $ 10,654 $ 18,989
U.S. government agencies 236,392 60,609
Commercial paper 146,745 _
Corporate debt securities 10,000 16,000
Other 15,338 5,095
$ 419,129 $ 100,693
</TABLE>
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" as of December 31, 1993. The Statement requires that
debt and equity securities be classified as trading, available-for-sale or
held-to-maturity. The only securities the Company classifies as trading are
securities formed as a part of mortgage banking activities of the Company.
There were no such mortgage-backed securities in the Company's portfolio at
December 31, 1993. Currently, the Company securitizes its 30 year fixed-rate
and adjustable-rate mortgage loans originated under the Federal Housing
Administration (FHA) and Veterans Administration (VA) programs. Securities
classified as available-for-sale include all securities which qualify for
regulatory liquidity as well as fixed-rate collateralized mortgage
obligations, mortgage derivative products and other mortgage-back
securities for which sales might be considered in response to changes in
interest rates, prepayment expectations, the need to improve capital ratios,
and similar factors. The Company considers all of the investment portfolio
and a portion of the mortgage-backed security portfolio available-for-sale.
Assets available-for-sale at December 31, 1993 total $874 million, which
reflects market value. The ending balance of shareholders' equity was
increased by $4.2 million to reflect the net unrealized gain on securities
classified as available-for-sale which are carried at market value. The
balance of the securities portfolio for which the Company has the positive
intent and ability to hold to maturity are classified as such.
Investment securities decreased to $195 million at December 31, 1993, compared
with $419 million at December 31, 1992. All investment securities qualify for
regulatory liquidity and are therefore considered "available-for-sale" as of
year end. The Company is required to maintain a minimum liquidity ratio
(liquid assets as a percentage of net withdrawable accounts and short-term
borrowings) of 5 percent. Cash as well as certain shorter duration
mortgage-backed securities also qualify for regulatory liquidity. See
Liquidity discussion on page 31. Mortgage-backed securities, including
those available-for-sale, remained unchanged at $1.6 billion at year end
1993. Approximately $618 million of this total are considered available-
for-sale and are carried at market value. At December 31, 1993 market value
of the Company's mortgage-backed securities portfolio held-to-maturity
exceeded the book value by $12 million. Mortgage-backed securities
classified as held-to-maturity total $943 million at December 31, 1993.
Sales of investments and mortgage-backed securities totaled approximately
$919 million in 1992, and accounted for gains of approximately $44.4 million.
Sales in 1991, representing a repositioning of the investment and
mortgage-backed securities portfolio, totaled approximately $800 million
and accounted for net gains of $33.6 million.
In 1991 and prior years the Company periodically sold mortgage-backed and other
securities as a means of reducing loan prepayment risk in a falling interest
rate environment and responding to increases in regulatory capital requirements.
<PAGE> 31
Sources of Funds
Deposits remain the Company's primary source of funds to support lending and
other general business purposes. The Company also derives funds from repayments
of loans and mortgage-backed securities, advances from the Federal Home Loan
Bank ("FHLB") of Des Moines and other borrowings. The FHLB of Des Moines
functions as a central reserve bank providing credit for member institutions.
The Company is required to own capital stock in the FHLB of Des Moines and is
authorized to apply for advances on the security of such stock and certain of
its home mortgage and other assets. Other available sources of funds to the
Company include reverse repurchase agreements with primary security dealers
and other outside borrowings.
Deposits
Deposits totaled $5.4 billion at December 31, 1993, compared with $5.2
billion at December 31, 1992. The increase of $150 million, or 3 percent,
relates primarily to acquisitions during 1993 offset by general deposit
outflow as a result of depositors reinvesting their funds in mutual funds
and other non FDIC-insured instruments. The Company expects some deposit
outflow to continue in the future as a result of disintermediation.
Borrowings
FHLB advances increased to $921.8 million at December 31, 1993 from $252.6
million at the end of 1992. The Company utilized FHLB advances to fund current
loan production and offset general deposit outflow. The FHLB advances have terms
which extend to 2000 and as such will provide low cost funds for years to
come. A portion of the proceeds from the sale of $919 million of mortgage-backed
securities in 1992 were used to repay approximately $525 million of FHLB
advances and a related prepayment penalty of $10.4 million. The Company
issued $86.3 million in subordinated debt securities with a 8.25 percent
during 1992. The proceeds of the borrowings were used to strengthen the
capital position of the Bank and position it for further acquisition
opportunities.
Liquidity
In addition to maintaining compliance with liquidity levels mandated by the
Office of Thrift Supervision ("OTS"), the Company manages its liquidity to
maximize net interest margin and provide readily available funds to support its
lending activities. Net interest income and loan sales and repayments are the
primary source of funds from operating activities. The Company regularly invests
available funds in loans and mortgage-backed and other securities. Because of
the relatively stable nature of the Company's deposit base and its use of
shorter term borrowings, financing activities provide a consistent source of
funds.
The Company's primary need for available funds in future periods, other than
continuation of its lending activities, will be determined by the size and
nature of its acquisition activities. While the Company frequently uses its
common shares to complete acquisitions, it may use cash to supplement the
exchange of equity or to complete certain transactions. The Company does not
expect its acquisition strategies to have a significant effect on its liquidity
levels. The Company's regulatory liquidity ratio was 6.68 percent as of
December 31, 1993.
Table 13: Borrowings and Rates
<TABLE>
<CAPTION> December 31, 1993 December 31, 1992 December 31, 1991
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan Bank advances $ 921,801 5.15% $252,643 5.22% $462,323 7.47%
Medium term notes _ _ 18,998 8.70 48,966 9.06
Collateralized mortgage obligations 39,931 7.37 54,909 8.98 _ _
Subordinated debt 86,250 8.25 86,250 8.25 _ _
Notes payable to banks and others 6,978 4.46 6,186 4.79 6,285 5.06
$1,054,960 5.48% $418,986 6.49% $517,574 7.59%
</TABLE>
<PAGE> 32
Capital Adequacy
Shareholders' equity totaled $504.4 million at December 31, 1993, representing
7.2 percent of total assets, compared to $426.6 million at December 31, 1992, or
6.9 percent of total assets. The increase is due principally to current year
income. Common shareholders' equity totaled $492.2 million at December 31,
1993 or $15.79 per share compared with $414.4 million or $14.15 per share at
December 31, 1992.
The following are the three regulatory capital requirements for thrift
institutions.
Tangible Capital Requirement. Generally this requirement measures capital
adequacy after consideration of the effect of intangibles, purchased servicing
assets and other factors on the financial statements. Tangible capital must meet
or exceed 1.50 percent of tangible assets, as defined in the regulations.
Core Capital Requirement. This measure permits thrifts to include in tangible
capital supervisory goodwill (goodwill related to certain acquisitions prior to
1989) on a declining basis through 1994 and core deposit intangibles. The core
capital of a thrift must meet or exceed 3 percent of assets.
Risk-based Capital Requirement. The risk-based capital ratio measures capital
adequacy taking into account the level of risk of an institution's assets. The
OTS has also issued a rule which would add, under certain circumstances, an
interest rate risk component which increases the risk-based capital requirement.
The Bank is currently not subject to any additional risk-based capital
requirements related to interest rate risk. As of December 31, 1993, a thrift's
risk-based capital must meet or exceed 8 percent of risk adjusted assets.
Table 14: Capital Ratios
<TABLE>
<CAPTION> Metropolitan
Federal Bank, fsb
and Subsidiaries
Capital Measure
Consolidated Requirement
<S> <C> <C>
Tangible capital 7.00% 1.50%
Core capital 7.44% 3.00%
Risk-based capital 13.52% 8.00%
</TABLE>
In September 1992, The Federal Deposit Insurance Company ("FDIC") issued
standards by which thrifts are rated in determining their deposit insurance
assessments. The Company qualifies as a "well capitalized" institution as
defined by the FDIC, which places it in the lowest premium range established by
the FDIC.
The OTS has issued a proposed rule establishing a minimum core capital ratio
of 3 percent for savings associations rated composite 1 under the OTS MACRO
rating system. For all other savings associations, the minimum core capital
ratio will be 3 percent plus an additional 100 to 200 basis points. In
determining the amount of additional core capital, the OTS will assess both
the quality of risk management systems and the level of overall risk in each
individual savings association through supervisory process on a case-by-case
basis.
The OTS amendment to risk-based capital requirements is fully effective July 1,
1994, and will require savings institutions with more than a "normal" level of
interest rate risk to maintain additional total capital. A savings institution's
interest rate risk will be measured in terms of the sensitivity of its "net
portfolio value" to changes in interest rates. Net portfolio is defined,
generally, as the present value of expected cash inflows from existing assets
and off-balance sheet contracts less the present value of expected cash outflows
from existing liabilities. A savings institution will be considered to have a
"normal" level of interest rate risk exposure if the decline in its net
portfolio value after an immediate 200 basis points increase or decrease in
market interest rates (whichever results in the greater decline) is less than
2 percent of the current estimated economic value of its assets. A savings
institution with a greater than normal interest rate risk will be required to
deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets. The Bank does not expect the amended requirements, when
adopted, to have a material impact on its regulatory capital ratios.
<PAGE> 33
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31
(Dollars in thousands, except share and per share data) 1993 1992
<S> <C> <C>
Assets
Cash and due from banks $ 85,084 $ 95,370
Short term interest bearing deposits 82,364 157,489
Assets available-for-sale, at market 873,938 162,304
Investment securities (market: $423,774) _ 419,129
Mortgage-backed securities (market: 1993 - $954,908; 1992 - $1,632,794) 943,193 1,612,801
Loans (net of allowance: 1993 - $42,905; 1992 - $35,832) 4,585,410 3,267,131
Federal Home Loan Bank stock, at cost 59,719 64,096
Accrued interest 36,817 36,393
Real estate (net of allowance: 1993 - $9,533; 1992 - $9,874) 56,110 51,915
Office properties and equipment 91,632 71,955
Goodwill 61,517 62,715
Deferred taxes 53,089 51,300
Other assets 77,912 93,913
Total Assets $ 7,006,785 $ 6,146,511
LIABILITIES
Transaction and passbook deposits $ 1,560,667 $ 1,498,578
Certificates 3,793,968 3,708,447
Total deposits 5,354,635 5,207,025
Federal Home Loan Bank advances 921,801 252,643
Other borrowings 133,159 166,343
Accrued interest 42,485 41,262
Other liabilities 50,322 52,594
Total Liabilities 6,502,402 5,719,867
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized 10,000,000 shares;
issued 1993 and 1992 - 488,750 shares 5 5
Common stock, par value $.01 per share; authorized 60,000,000 shares;
issued 1993 - 31,992,275 shares, 1992 - 26,718,855 shares 320 267
Additional paid-in capital 231,881 148,890
Retained earnings 280,813 278,424
Net unrealized gains on securities available-for-sale (net of tax) 4,209 _
Less cost of common stock in treasury: 1993 - 813,522 shares;
1992 - 85,789 shares (12,845) (942)
Total Shareholders' Equity 504,383 426,644
Total Liabilities and Shareholders' Equity $7,006,785 $6,146,511
</TABLE>
[FN]
See notes to consolidated financial statements.
<PAGE> 34
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands, except per share data) 1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Loans $331,921 $ 268,210 $ 216,985
Mortgage-backed securities 122,649 137,274 145,124
Investments 18,156 19,281 19,001
FSLIC notes and covered assets _ _ 25,910
472,726 424,765 407,020
INTEREST EXPENSE
Transaction and passbook deposits 29,559 37,497 43,541
Certificates 202,260 196,820 212,527
FHLB advances 31,522 32,528 38,078
Other borrowings 11,271 5,363 7,762
274,612 272,208 301,908
Net interest income 198,114 152,557 105,112
Provision for loan losses 7,859 8,316 8,000
Net interest income after provision for loan losses 190,255 144,241 97,112
NONINTEREST INCOME
Gains related to mortgage banking activities 16,271 9,264 225
Other gains on sale of mortgage-backed and other securities _ 44,377 33,366
Mortgage loan servicing fees 3,826 5,107 10,705
Realty commission income 35,350 32,113 26,172
Title closing fees 13,706 11,494 8,001
Service charges on deposit accounts 11,450 6,870 5,414
Financial services income 4,587 852 67
Other income 4,647 4,325 5,491
89,837 114,402 89,441
NONINTEREST EXPENSE
Compensation and related items 77,871 60,250 47,963
Occupancy 24,459 16,729 15,201
Data processing 10,476 7,542 6,585
Advertising 11,856 13,816 9,491
Deposit insurance premium 11,099 9,305 8,012
Amortization of goodwill 4,083 4,000 5,352
Real estate owned 6,684 3,917 6,673
Other general and administrative 47,105 33,022 25,410
193,633 148,581 124,687
Income before income taxes, extraordinary item
and cumulative effect of accounting change 86,459 110,062 61,866
Income tax expense 21,285 42,543 4,427
Income before extraordinary item and cumulative
effect of accounting change 65,174 67,519 57,439
Extraordinary item: Penalty for prepayment of FHLB
advances (net of tax benefit of $4,064) _ (6,329) _
Cumulative effect of accounting change _ 75,941 _
Net Income $ 65,174 $ 137,131 $ 57,439
EARNINGS PER SHARE
Primary:
Income per share before extraordinary item and
cumulative effect of accounting change $ 2.01 $ 2.34 $ 2.42
Extraordinary item _ (0.22) _
Cumulative effect of accounting change _ 2.66 _
Net Primary $ 2.01 $ 4.78 $ 2.42
Fully Diluted:
Income per share before extraordinary item and
cumulative effect of accounting change $ 2.01 $ 2.17 $ 1.96
Extraordinary item _ (0.21) _
Cumulative effect of accounting change _ 2.47 _
Net Fully Diluted $ 2.01 $ 4.43 $ 1.96
</TABLE>
[FN]
See notes to consolidated financial statements.
<PAGE> 35
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Gains on
Additional Securities Total
Dollars in thousands, Preferred Stock Common Stock Paid-In Retained Available- Treasury Stock Shareholders'
Shares Amount Shares Amount Capital Earnings for-sale Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1990 2,328,750 $23 18,127,453 $ 181 $133,432 $ 95,025 $ _ (286,302)$ (2,915) $225,746
Stock options
exercised 1,208,454 12 4,143 4,155
Warrants exercised 2,500 13 13
Net treasury stock sold 342 36,315 386 728
Common stock
cancelled (17,540)
Dividends declared:
Preferred (5,085) (5,085)
Common _
$.19 per share (4,233) (4,233)
Net income 57,439 57,439
Balance,
December 31, 1991 2,328,750 23 19,320,867 193 137,930 143,146 _ (249,987) (2,529) 278,763
Issuance of
common stock 1,013,367 10 6,732 7,240 13,982
Stock options
exercised 599,895 6 3,494 3,500
Warrants exercised 31,560 164 164
Net treasury stock sold 1,430 164,198 1,587 3,017
Redemption/Conversion
of series "A" preferred (1,840,000) (18) 5,753,166 58 (860) (820)
Dividends declared:
Preferred (1,405) (1,405)
Common _
$.27 per share (7,688) (7,688)
Net income 137,131 137,131
Balance,
December 31, 1992 488,750 5 26,718,855 267 148,890 278,424 _ (85,789) (942) 426,644
Issuance of
common stock:
Western Financial
Corporation
acquisition 935,772 9 16,991 17,000
Other 619,406 7 8,759 8,766
Stock options
exercised 700,314 7 7,046 7,053
Warrants exercised 194,628 2 921 923
Stock dividends, 10% 2,823,300 28 49,274 (49,302) _
Net treasury
stock acquired (727,733) (11,903) (11,903)
Net unrealized gain 4,209 4,209
Dividends declared:
Preferred (1,405) (1,405)
Common _
$.39 per share (12,078) (12,078)
Net income 65,174 65,174
December 31, 1993 488,750 $ 5 31,992,275 $320 $231,881 $280,813 $4,209 (813,522) $(12,845) $504,383
</TABLE>
[FN]
See notes to consolidated financial statements.
<PAGE> 36
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Net income $ 65,174 $ 137,131 $ 57,439
Reconciliation to cash provided by operating activities:
Extraordinary item (net of tax) - 6,329 -
Cumulative effect of accounting change _ (75,941) _
Net amortization of loan fees, discounts and premiums 32,751 14,606 7,639
Provision for loan losses 7,859 8,316 8,000
Decrease in deferred tax asset 11,610 24,641 _
Depreciation and amortization 9,291 6,654 4,244
Amortization of goodwill 4,083 4,000 5,352
Decrease in accrued interest receivable 4,405 6,111 11,011
(Decrease) increase in accrued interest payable (3,864) 6,480 2,734
Net Cash Provided by Operating Activities 131,309 138,327 96,419
Acquisitions of subsidiaries, net of cash received (6,719) 321,507 _
Increase in loans (1,475,603) (1,106,401) (733,150)
Purchase of:
Loans (172,494) (104,942) (144,453)
Investment securities held-to-maturity (39,793) (565,148) (112,468)
Mortgage-backed securities available-for-sale (86,236) (29,183) (75,612)
Mortgage-backed securities held-to-maturity (319,604) (460,398) (580,444)
Proceeds from the sale and maturity of:
Investment securities held-to-maturity 284,416 285,924 217,864
Proceeds from the sale of:
Mortgage-backed securities available-for-sale 713,303 1,274,920 702,701
Loans held-for-sale 169,271 108,734 56,655
Covered assets _ _ 19,403
Real estate 35,294 41,433 24,710
Principal repayments of mortgage-backed securities:
Available-for-sale 48,741 69,379 29,915
Held-to-maturity 617,612 222,523 30,197
Settlement of FSLIC assistance agreement _ _ 47,933
Other investing activities 27,184 (31,971) (30,471)
Net Cash (Used) Provided by Investing Activities (204,628) 26,377 (547,220)
Net increase (decrease) in:
Short term borrowings _ (2,394) (224,144)
Deposits (530,503) (19,210) 175,666
Purchase of deposits _ 231,535 254,228
Proceeds from:
Settlement of FSLIC notes receivable _ _ 365,778
FHLB advances 770,000 1,933,000 310,700
Issuance of subordinated notes _ 86,250 _
Issuance of common stock 5,478 716 _
Exercise of common stock options and warrants 7,976 3,664 4,168
Net sale (purchase) of stock (11,903) 3,017 728
Repayment of:
FHLB advances (186,108) (2,197,297) (422,625)
Other borrowings (35,656) (30,823) (19,161)
Redemption of preferred stock _ (820) _
Cash dividends (13,483) (9,093) (9,318)
Other financing activities (17,893) (4,112) (10,989)
Net Cash (Used) Provided by Financing Activities (12,092) (5,567) 425,031
Net (Decrease) Increase in Cash and Cash Equivalents (85,411) 159,137 (25,770)
Cash and cash equivalents at beginning of year 252,859 93,722 119,492
Ending Cash and Cash Equivalents $ 167,448 $ 252,859 $ 93,722
</TABLE>
[FN]
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
<PAGE> 37
Note A
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and results of
operations of Metropolitan Financial Corporation (the "Company") and its wholly
owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
Trading Account Assets
Trading account assets are mortgage-backed securities held for sale in
conjunction with mortgage banking activities. These mortgage-backed securities
are collateralized by 30-year fixed-rate and adjustable-rate mortgage loans and
are stated at fair value. Gains and losses, both realized and unrealized, are
included in net gains related to mortgage banking activities. The Company
carried no trading account assets at December 31, 1993.
Securities Held-To-Maturity and Available-For-Sale
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income with interest and dividends. Realized gains and losses, and declines in
value judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method.
Loans Held-For-Sale
Loans held for sale are valued at the lower of cost or market. Market value is
calculated on the aggregate basis, based on commitments outstanding from
investors and current quoted market prices. Net unrealized losses due to
declines in the market value are included in the determination of net income.
Loan Fees and Discounts
Loan origination fees and certain direct costs are deferred and amortized using
the interest method over the contractual lives of the related loans, adjusted
for prepayments, as a yield adjustment. Discounts and premiums on loans
purchased, net of deferred fees, which are considered yield adjustments, are
amortized using methods which approximate a level yield over the estimated
remaining lives.
Allowance for Loan Losses
Provisions for possible losses on mortgage and other loans are charged to
operations based upon management's review of the loan portfolio. The allowance
is based upon an assessment of the net realizable value of collateral
securing loans, loss experience and management's judgment as the risk
inherent in the loan portfolio.
Loans
Loans are carried at amortized cost, net of allowance for loan losses. Interest
on loans is recorded as it is earned. Allowances are established for uncollected
interest on loans for which payments are more than 90 days past due.
Real Estate
Real estate represents properties acquired through foreclosure, in judgment
(foreclosed real estate for which a redemption period still remains), and in-
substance foreclosure (real estate loans in which the borrower has little or no
equity, repayment can be expected to come only from sale or operation of the
real estate and the borrower has formally or effectively abandoned control)
and is carried at the lower of cost or fair value.
Intangible Assets
Goodwill, the excess of cost over fair value of net assets acquired, is
amortized to expense using the straight line and interest methods over periods
approximating the asset life of related long term assets, to a maximum of 25
years. Premiums paid for loan servicing rights are amortized against servicing
fee income over the estimated average life, adjusted for prepayments, of the
servicing portfolio acquired using the interest method. Accumulated amortization
of goodwill was $42.5 million and $38.4 million at December 31, 1993 and 1992,
respectively. Intangible assets are reviewed periodically for possible
impairment.
<PAGE> 38
Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated depreciation
computed using the straight line method based on estimated useful lives.
Interest Rate Exchange Agreements
Interest rate exchange agreements ("swaps") are designated as hedges against
future fluctuation's in the interest rates of specifically identified assets and
liabilities. The net interest differential resulting from floating rate interest
payments exchanged for fixed rate interest payments is recorded as incurred.
Protected Rate Agreements
Protected rate agreements ("caps") are designated as hedges against future
fluctuation's in the interest rates of specially identified liabilities. The
interest received is recorded on a current basis. The cost of the caps is
amortized on a straight line basis over the life of the caps.
Mortgage Options
Mortgage options ("puts") are designated as hedges against future fluctuation's
in the price of specific mortgage loans held for sale. The premium paid for the
put is accounted for as a component of the book value of the mortgage loans and
is realized upon settlement of the loan sales.
Income Taxes
A consolidated federal income tax return is filed for the Company and its
subsidiaries. Deferred taxes are recorded to reflect the tax consequences on
future years' differences between the tax basis of assets and liabilities and
the financial reporting amounts at each year end and the expected future
benefit of net operating loss and alternative minimum tax credit carryforwards.
Cash Flow Information
Cash equivalents include cash and due from banks, short term interest bearing
deposits and federal funds sold. Cash paid for interest expense in 1993, 1992
and 1991 was $278.5 million, $265.7 million and $299.2 million, respectively.
Cash paid during 1993, 1992 and 1991 for income taxes was $8.5 million, $3.5
million and $684,000, respectively. Cash received during 1993, 1992 and 1991
as a recovery of income tax was $343,000, $379,000 and $97,000, respectively.
Earnings Per Share
Earnings per share has been computed using the weighted average number of shares
of common stock outstanding during the period. Per share data reflects the 10
percent stock dividend declared in July 1993, the 100 percent stock dividend
declared in June 1992, and the 20 percent stock dividend declared in
September 1991. Amounts equal to the fair market value of the additional
shares issued in 1993 have been charged to retained earnings and credited to
common stock and paid-in capital. The stock dividends in 1992 and 1991
represent stock splits effected in the form of a dividend, an accounted for
as such.
The weighted average number of common and common equivalent shares outstanding
used to compute primary earnings per share were 31,662,000, 28,384,000 and
21,646,000 for the year ended December 31, 1993, 1992 and 1991, respectively.
The weighted average number of common and common equivalent shares outstanding
used to compute fully diluted earnings per share were 31,692,000, 30,613,000 and
28,494,000 for the year ended December 31, 1993, 1992 and 1991, respectively.
Note B
Business Combinations
On June 11, 1993, the acquisition of Western Financial Corporation ("Western")
and its federally chartered savings and loan association subsidiary Columbia
Savings Association F.A. ("Columbia") was completed. Pursuant to the
agreement and plan of merger, Western was merged into the Company and
Columbia was merged into Metropolitan Federal Bank, fsb, ("the Bank"). Total
merger consideration of approximately $21.9 million was paid in the form of
cash and the Company's stock. The transaction was accounted for as a
purchase and, accordingly, the purchase price was allocated to assets and
liabilities based on the estimated fair value as of the acquisition date.
Based on their election, Western shareholders received .55 shares of the
Company's common stock or $10 in cash for each Western share owned. The
results of operations of Western for the period since June 12, 1993 have
been included in the Company's consolidated results.
On August 6, 1993, the Bank completed its acquisition of Eureka Savings Bank,
fsb, Eureka, Kansas ("Eureka"). The acquisition consideration of approximately
$20.8 million was paid in cash and the transaction was accounted for as a
purchase. The results of operations of Eureka have been included in the
Company's consolidated results of operations for the period since August 7,
1993.
<PAGE> 39
During 1992, the Company completed several acquisitions designed to expand into
markets not previously served by the Bank. The acquisitions of Home Owners
Savings Bank of Fergus Falls, Minnesota ("Home Owners") and American Charter
Federal Savings and Loan Association of Lincoln, Nebraska ("American Charter"),
were completed December 1 and December 16, respectively. Home Owners was
acquired from the RTC and American Charter was acquired through a voluntary
supervisory conversion merger. These acquisitions were accounted for as purchase
transactions. The operating results of Home Owners and American Charter have
been included in the Company's consolidated results of operations from the
dates of acquisition.
On September 30, 1992 the Company completed the acquisition of Security
Financial Group, Inc., St. Cloud, Minnesota ("Security Financial"). The
Company issued 963,740 shares of common stock, valued at $12.8 million at the
time of the transaction. The acquisition of Security Financial was accounted for
as a pooling of interests. Security Financial is not material to the financial
condition or operating results of the Company, and therefore, prior years
balances were not restated. However, 1992 amounts were adjusted to reflect the
transaction as if it had occurred January 1, 1992.
The unaudited pro forma consolidated results of operations for the years ended
December 31, 1993 and 1992, assuming the acquisitions of Western, Eureka, Home
Owners and American Charter were consummated as of January 1, 1992 are as
follows:
<TABLE>
<CAPTION> Year Ended December 31
(Dollars in thousands, except per share data) 1993 1992
<S> <C> <C>
Net interest income $212,391 $203,321
Income before extraordinary
item and cumulative effect of
accounting change 79,610 89,538
Net income 79,610 159,150
Per share data:Income before extraordinary
item and cumulative effect of
accounting change $ 2.47 $ 2.79
Net income 2.47 4.99
</TABLE>
This unaudited pro forma information may not be indicative of the results that
would actually have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future.
In February 1993 the Office of Thrift Supervision notified the Bank that its
application to acquire Rocky Mountain Financial Corporation ("Rocky Mountain"),
Cheyenne, Wyoming, and its bank subsidiary, Rocky Mountain Bank, fsb, had been
approved. Rocky Mountain had assets of $537 million and deposits of $428 million
at December 31, 1993. The banking subsidiary operates 14 branches located
throughout Wyoming. The Bank will pay Rocky Mountain shareholders approximately
$64.2 million in cash as consideration after payment of approximately $3.0
million of transaction expenses. The transaction will be accounted for as a
purchase and is expected to close in March 1994.
Note C
Fair Value of Financial Instruments
The following schedule includes the book value and estimated fair value of all
financial assets and liabilities, as well as specific off-balance sheet items,
as of December 31, 1993. The aggregate fair value amounts presented do not
represent the underlying value of the Company. The fair values indicated for
nonfinancial assets and liabilities, including real estate, office properties
and equipment, goodwill, deferred taxes, other assets (excluding unamortized
premiums on interest rate caps and purchased mortgage servicing rights), and
other liabilities, represent the book value as of December 31, 1993.
<TABLE>
<CAPTION>
(In thousands) Book Value Fair Value
<S> <C> <C>
Assets
Cash and cash equivalents $ 167,448 $ 167,448
Assets available-for-sale 873,938 873,938
Mortgage-backed securities 943,193 954,908
Loans 4,585,410 4,602,925
FHLB stock 59,719 59,719
Nonfinancial assets 363,601 363,601
Other assets 13,476 31,306
Total Assets $7,006,785 $7,053,845
LiabilitiesTransaction
and passbook deposits $1,560,667 $1,560,667
Certificates 3,793,968 3,829,568
FHLB advances 921,801 928,185
Other borrowings 133,159 134,901
Other liabilities 92,807 92,807
Total Liabilities $6,502,402 $6,546,128
Off-balance Sheet Items:
Rate swaps $ _ $ (1,293)
Commitments _ 658
Total Off-balance Sheet Items $ _ (635)
Total Shareholders' Equity $ 504,383 $ 507,082
</TABLE>
<PAGE> 40
The following valuation methods and assumptions were used by the Company in
estimating the fair value of financial instruments:
Cash and Cash Equivalents
The book value of cash and due from banks and short-term interest bearing
deposits approximates fair value.
Assets Available-For-Sale
The book value represents market value of these instruments.
Loans Held-For-Sale
The book value represents the lower of cost or market value of these instruments
determined on an aggregate basis based on commitments outstanding and current
quoted market prices.
Mortgage-backed Securities
Fair values are based on quoted market prices.
Loans
The fair values for fixed rate, one to four family residential mortgage loans,
commercial real estate, commercial business, and consumer loans are calculated
using interest rates currently offered for loans with similar terms to borrowers
of similar credit quality.
FHLB Stock
Fair value for FHLB stock is based on the price at which it may be resold to the
FHLB.
Other Assets
Other assets represent unamortized premiums on interest rate caps and purchased
mortgage servicing rights. The fair value of the interest rate caps is
determined using quoted market prices for instruments with similar rate and
maturity characteristics. The fair value of the loan servicing rights is
based on average loan balances, interest rates, pass-through rates and
estimated servicing cost per loan adjusted for assumptions on prepayments,
delinquencies and foreclosures.
Deposits
The fair values disclosed for demand deposits (i.e., interest and noninterest
bearing checking, passbook savings and money market accounts) are equal to the
amount payable on demand at the reporting date. Fair values for fixed-
maturity certificates of deposit are calculated using a discounted cash flow
analysis that applies interest rates currently being offered on certificates.
Borrowings
The carrying amounts of short-term borrowings approximate their fair value. The
fair value of the Bank's long-term borrowing is calculated using a discounted
cash flow analysis, based on the Bank's current incremental borrowing rate for
similar types of borrowing. The subordinated notes are valued according to the
quoted market price.
Rate Swaps
The fair value of interest rate swaps is derived from a pricing model that
discounts the cash flows of both the paying side and receiving side of the swap
using quoted market rates of similar term instruments.
Commitments
Off-balance sheet commitments include commitments to originate mortgage loans
and sell mortgage-backed securities. Outstanding commitments approximate fair
value.
<PAGE> 41
Note D
Assets Available-For-Sale
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As permitted under the Statement,
the Company has elected to adopt the provisions of the Statement as of the end
of 1993. In accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting principle and there
were no cumulative adjustments to income as a result of adopting the standard.
However, the ending balance of shareholders' equity was increased by $4.2
million (net of $2.8 million in deferred income taxes) to reflect net
unrealized gains on securities classified as available-for-sale previously
carried at amortized cost or LOCOM. Assets available-for-sale consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Book Unrealized Unrealized Market
(In thousands) Value Gains Losses Value
<S> <C> <C> <C> <C>
Mortgage-backed
Securities:
GNMA $190,164 $ 61 $ _ $190,225
FNMA 36,873 452 (365) 36,960
FHLMC 130,890 1,397 (232) 132,055
Collateralized
mortgage
obligations 256,352 3,301 (776) 258,877
________________________________________________________________________
614,279 5,211 (1,373) 618,117
Investments:
U.S. Treasury 12,900 118 (6) 13,012
U.S. government
agencies 118,336 2,981 (36) 121,281
Corporate
debt securities 10,000 44 _ 10,044
Commercial paper 39,793 _ _ 39,793
Other 11,027 19 _ 11,046
________________________________________________________________________
192,056 3,162 (42) 195,176
Loans Held
For Sale 60,645 _ _ 60,645
________________________________________________________________________
$866,980 $8,373 $(1,415) $873,938
</TABLE>
Assets Held-For-Sale
<TABLE>
<CAPTION> 1992
(In thousands) Book Value Market Value
<S> <C> <C>
U.S. Agency $ 97 $ 97
GNMA 3,712 3,712
FNMA _ _
FHLMC _ _
Collateralized
mortgage obligations 7,594 7,594
Loans 150,901 150,901
$162,304 $162,304
</TABLE>
The amortized cost and market value of assets available-for-sale by contractual
maturity at December 31, 1993 are as follows:
<TABLE>
<CAPTION> Book Market
(In thousands) Value Value
<S> <C> <C>
Investments:
One year or less $ 90,721 $ 90,974
Over one year through five years 92,509 95,357
Over five years through ten years 153 153
Over ten years 8,673 8,692
192,056 195,176
Mortgage-backed securities 614,279 618,117
Mortgage loans 60,645 60,645
$866,980 $873,938
</TABLE>
Proceeds from the sale of assets available-for-sale were $835.8 million and
$1.4 billion during 1993 and 1992, respectively. Gross gains on these sales
were $19.3 million and $54.1 million during 1993 and 1992, respectively.
Gross losses were $3.0 million during 1993.
Accrued interest on assets available/held-for-sale at December 31, 1993 and
1992 was $7.0 million and $1.2 million, respectively. Assets available-for-
sale with a book value of $138.1 million were pledged to secure public and
private deposit accounts at December 31, 1993. At December 31, 1993 and 1992,
$59.8 million and $152.4 million, respectively, of loans were committed to be
sold with settlement dates of January through March 1994 and 1993, respectively.
<PAGE> 42
Note E
Investment Securities
Investment securities held-to-maturity consisted of the following:
<TABLE>
<CAPTION> December 31, 1992
Gross Gross
Book Unrealized Unrealized Market
(In thousands) Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 10,654 $ 44 $ _ $ 10,698
U.S. government
agencies 236,392 4,288 (82) 240,598
Corporate
debt securities 10,000 395 _ 10,395
Commercial paper 146,745 _ _ 146,745
Other 15,338 _ _ 15,338
$419,129 $4,727 $ (82) $423,774
</TABLE>
All investment securities are classified as available-for-sale as of December
31, 1993 and are shown in Note D. Accrued interest on investment securities at
December 31, 1992 was $5.2 million. Investment securities with a book value of
$158.7 million at December 31, 1992 were pledged to secure public and private
deposit accounts.
Note F
Mortgage-backed Securities
Mortgage-backed securities held-to-maturity consisted of the following:
<TABLE>
<CAPTION> December 31, 1993 December 31, 1992
Book Market Book Market
(In thousands) Value Value Value Value
<S> <C> <C> <C> <C>
GNMA $ 83,295 $ 86,705 $ 189,516 $ 193,523
FNMA 134,598 134,197 126,639 129,372
FHLMC 86,341 87,630 232,880 237,100
Collateralized
mortgage
obligations 29,913 29,981 438,307 445,262
Participation
certificates 609,046 616,395 625,459 627,537
$943,193 $954,908 $1,612,801 $1,632,794
</TABLE>
The market value of mortgage-backed securities held-to-maturity includes gross
unrealized gains of $14.9 million and $24.4 million and gross unrealized losses
of $3.2 million and $4.4 million for 1993 and 1992, respectively.
Accrued interest on mortgage-backed securities at December 31, 1993 and 1992 was
$5.4 million and $10.5 million, respectively. Mortgage-backed securities with a
book value of $181.7 million and $437.9 million at December 31, 1993 and 1992,
respectively, were pledged to secure public and private deposit accounts.
Mortgage-backed securities at December 31, 1993 include current year loan
production with original principal balances of approximately $39 million. During
1993, 1992 and 1991 the Company securitized $690 million, $234 million and $500
million of mortgage loans, respectively.
Note G
Loans
Loans consisted of the following:
<TABLE>
<CAPTION>
(In thousands) December 31, 1993 December 31, 1992
<S> <C> <C>
Real Estate Mortgage:
Residential $2,700,214 $2,068,300
Commercial 513,870 318,814
Construction 12,185 9,623
Commercial 6,402 9,457
Manufactured home 41,797 53,164
Consumer and other 1,353,847 843,605
4,628,315 3,302,963
Less:
Allowance for losses 42,905 35,832
$4,585,410 $3,267,131
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year $35,832 $26,272 $30,386
Provision for loan losses 7,859 8,316 8,000
Acquisitions 11,508 11,845 93
Net transfer of allowance
to covered assets and real estate owned _ _ (4,543)
Net charge-offs (12,294) (10,601) (7,664)
$42,905 $35,832 $26,272
</TABLE>
<PAGE> 43
Accrued interest on loans was $24.5 million and $19.9 million at December 31,
1993 and 1992, respectively.
Origination of residential mortgage loans and consumer loans is concentrated in
the states of North Dakota, Minnesota, Nebraska, Iowa, Kansas, South Dakota,
Wisconsin and Arizona. The ability of borrowers to honor these loan obligations
is influenced by the general economic health of the region. The Company's loans
are generally secured by readily marketable collateral. In addition, the Company
requires some form of mortgage insurance, either government sponsored or
private, on residential mortgage loans with a greater than 80 percent loan to
value ratio. The Company's exposure to loss is equal to the net carrying value
of these loans.
At December 31, 1993, approximately $176 million of commitments to make
residential real estate mortgage loans at specific rates were outstanding. These
commitments are subject to the same credit risk, total risk of loss and
collateral policies, as originated loans.
Loans serviced for others totaled $3.3 billion and $3.5 billion at December 31,
1993 and 1992, respectively. Residential mortgage loans sold with recourse
totaled $1.0 billion and $1.1 billion at December 31, 1993 and 1992,
respectively. Recourse provisions for loans sold relate primarily to
defaults. Substantially all loans sold with recourse have either government
sponsored or private mortgage insurance.
Loans at December 31, 1993 include $43.2 million of restructured loans, of which
$16.4 million are performing in accordance with the restructured terms. The
remaining $26.8 million are included in the Company's nonperforming loans.
In May 1993 the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," effective for years
beginning after December 15, 1994. SFAS No. 114 requires that impaired loans
be valued at the present value of expected cash flows. The Company will be
adopting SFAS No. 114 during the first quarter of 1994 and does not expect the
statement to be material to the Company's financial position or results of
operations.
Note H
Real Estate
Real estate consisted of the following:
<TABLE>
<CAPTION> December 31
(In thousands) 1993 1992
<S> <C> <C>
Acquired through foreclosure
and in-substance foreclosures $61,300 $60,781
Held for investment 1,976 _
In judgment and subject to
redemption 2,367 1,008
65,643 61,789
Less allowance for losses 9,533 9,874
$56,110 $51,915
</TABLE>
Changes in the allowance for real estate losses were
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year $9,874 $3,845 $2,707
Provision for decline in
value of real estate owned 4,540 4,491 2,900
Acquisitions 1,983 3,524 23
Net transfers _ _ 2,282
Net charge-offs (6,864) (1,986) (4,067)
$9,533 $9,874 $3,845
</TABLE>
Note I
Office Properties and Equipment
Office properties and equipment consisted of the following:
<TABLE>
<CAPTION> December 31
(In thousands) 1993 1992
<S> <C> <C>
Land $ 10,579 $ 7,841
Buildings 67,574 51,787
Furniture and equipment 52,972 41,683
131,125 101,311
Less allowance for depreciation 39,493 29,356
$ 91,632 $ 71,955
</TABLE>
<PAGE> 44
Note J
Deposits
Deposits consisted of the following:
<TABLE>
<CAPTION> Weighted Average
Interest Rates at
December 31 December 31
(Dollars in thousands) 1993 1992 1993 1992
<S> <C> <C> <C> <C>
Checking:
Noninterest
bearing $ 254,204 $ 232,010
Interest bearing 390,149 334,600 1.65% 2.45%
Money market
demand 185,440 182,953 2.33 2.95
Passbook and
statement 730,874 749,015 3.17 3.23
Certificates:
Nine months
and less 416,415 612,616 3.24 3.71
Over 9 to 30
months 2,187,970 2,230,348 4.28 5.11
Over 30 months 1,189,583 865,483 6.54 7.45
$5,354,635 $5,207,025 4.10% 4.65%
</TABLE>
Accrued interest on deposits was $38.6 million and $36.2 million at December 31,
1993 and 1992, respectively.
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Checking $ 6,601 $ 7,755 $ 7,090
Money market demand 3,933 4,901 11,648
Passbook and statement 19,025 24,841 24,803
Certificates 202,260 196,820 212,527
$231,819 $234,317 $256,068
</TABLE>
The following table sets forth the maturities of certificates in
denominations of $100,000 or more at December 31, 1993.
<TABLE>
<CAPTION>
(In thousands)
Maturity Amount
<S> <C>
Under three months $ 8,590
Three to six months 40,447
Over six to 12 months 54,077
Over 12 months 302,465
$405,579
</TABLE>
Note K
FHLB Advances and Other Borrowings
FHLB advances and other borrowings consisted of the following:
<TABLE>
<CAPTION> Weighted Average
Interest Rates at
December 31, December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Federal Home Loan
Bank advances $ 921,801 $ 252,643 5.15% 5.22%
Other Borrowings:
Medium term notes _ 18,998 _ 8.70
Collateralized
mortgage obligation 39,931 54,909 7.37 8.98
Subordinated debt 86,250 86,250 8.25 8.25
Notes payable to
banks and others 6,978 6,186 4.46 4.79
Total other borrowings 133,159 166,343
$ 1,054,960 $ 418,986 5.48% 6.49%
Borrowings due
within one year $ 165,177 $ 120,941 4.45% 4.19%
</TABLE>
At December 31, 1993 and 1992, borrowings due within one year consisted
primarily of FHLB line of credit and FHLB advances of $165.0 million at an
average rate of 4.45 percent and $99.5 million at an average rate of 3.37
percent, respectively.
Maturities of borrowings at December 31, 1993, were:
<TABLE>
<CAPTION>
(Dollars in thousands)
Year of Maturity Amount
<S> <C>
1994 $ 165,177
1995 100,823
1996 212,182
1997 165,000
1998 215,000
Thereafter 196,778
$1,054,960
</TABLE>
At December 31, 1993, the Company had an existing line of credit with the
FHLB of $100 million. The Company had no balance drawn on this line of credit
as of December 31, 1993. The rate paid on the FHLB line varies daily based on
the federal funds rate.
<PAGE> 45
At December 31, 1993, borrowings were secured by the following:
FHLB advances--FHLB stock, real estate loans and mortgage-backed securities
with a carrying value of $1.6 billion.
Collateralized mortgage obligations--mortgage-backed securities with a
carrying value of $41.5 million.
Accrued interest on borrowings was $849,000 and $1.4 million at December 31,
1993 and 1992, respectively.
Note L
Interest Rate Exchange and Protected
Rate Agreements
The Company has entered into interest rate exchange agreements ("swaps") with
primary securities dealers to stabilize its cost of funds. The notional
principal amount of interest rate exchange agreements totaled $200 million
and $250 million for 1993 and 1992, respectively. The Company pays a fixed rate
and receives a variable rate of interest on the stated notional principal
amount for a fixed period of time. The Company's exposure to market risk
results from a declining interest rate environment in which the fixed rate
paid exceeds the variable rate received. These agreements are subject to the
counterparty's ability to perform in accordance with the terms of the
agreements. The Company's risk of loss is equal to the interest payments due
from the counterparty. Net accrued interest payable on swaps was $3.0 million
and $3.8 million on December 31, 1993 and 1992, respectively.
In connection with its asset and liability management program, during 1993 the
Company entered into protected rate agreements ("caps") in the aggregate
notional amount of $450 million with varying maturities. Under the terms of
the caps, the Company will be reimbursed for increases in the three-month
London Inter-Bank Offer Rate ("LIBOR") for any quarter during the agreement
in which such rate exceeds the "strike price", which ranges from 6 percent to
8 percent depending on the maturity of the cap. These agreements are subject to
the counterparty's ability to perform in accordance with the terms of the
agreements. The Company's risk of loss is equal to the original premiums paid
to enter into these agreements.
A summary of the interest rate caps is as follows:
<TABLE>
<CAPTION> Strike Price
(In millions) 6.00 - 6.50% 7.00 - 7.50% 8.00%+ Total
<S> <C> <C> <C> <C>
Mature in 1994 $250 $100 $ 50 $400
Mature in 1995 50 _ _ 50
$300 $100 $ 50 $450
</TABLE>
Note M
Shareholders' Equity
Preferred Stock
The Company has 10,000,000 shares of $.01 par value preferred stock authorized.
At December 31, 1993, the Company had 488,750 units of Series B, $2.875
Cumulative Perpetual Preferred Stock, issued and outstanding.
The Company, at its option, redeemed the outstanding 1,840,000 shares of Series
A, $2.00 cumulative convertible preferred stock on April 20, 1992, for 5,753,166
shares of common stock and $400,000 to holders exercising the options to receive
cash.
Each unit of Series B preferred stock consists of one share of Cumulative
Perpetual Preferred Stock and one warrant to purchase 1.32 shares of Common
Stock. The preferred stock is redeemable at the option of the Company at a rate
of $25 per share. Redemption can occur at any time on or after January 31, 1996.
Each warrant entitles the holder to purchase 1.32 shares of the Company's Common
Stock at a price of $6.25. The warrants became exercisable on February 19, 1991,
and expire November 20, 2000. Warrants outstanding at December 31, 1993 allow
for the purchase of 408,751 shares of Common Stock and would result in total
proceeds to the Company, if exercised, of approximately $1.9 million.
The Company's Series B preferred stock ranks prior to Common Stock as to
dividends and liquidation. The liquidation preference of the preferred stock
is $25 per share plus accumulated unpaid dividends. Dividends on the
preferred stock are cumulative and are to be paid at an annual rate of $2.875.
Shares of the Company's preferred stock have no voting rights except in the
event of certain arrearages in which event holders of the preferred stock will
be entitled to elect two additional directors to the Company's Board of
Directors.
<PAGE> 46
Regulatory Capital Requirements
The Bank and its subsidiaries are required to meet capital requirements as
defined by the Office of Thrift Supervision ("OTS") for Tangible, Core and Risk-
based Capital. The requirements call for measures of capital as a percentage of
assets. Required capital levels increase through July 1, 1994, at which time
the fully phased in capital requirements will be effective. At December 31,
1993, the Bank exceeds all fully phased in requirements.
Note N
Income Taxes
Income tax expense consisted of the following:
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Current
Federal $ 6,670 $ 5,015 $4,373
State 3,005 3,058 54
9,675 8,073 4,427
Deferred
Federal $ 9,121 $28,657 _
State 2,489 5,813 _
11,610 34,470 _
$21,285 $42,543 $4,427
</TABLE>
The provision for federal income tax differs from that computed at the statutory
corporate tax rate as follows:
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Tax at 35% statutory $30,261 $37,421 $21,035
rate (34% in 1992
and 1991)
State income taxes, net
of federal tax benefit 4,364 5,474 36
Change in valuation
allowance (10,902) _ _
Tax effect of:
Amortization of goodwill 1,429 1,360 1,839
FSLIC assistance and tax
exempt interest _ _ (8,768)
Bad debt deduction _ _ (5,743)
Effect of operating losses _ _ (810)
Other, net (3,867) (1,712) (3,162)
$21,285 $42,543 $ 4,427
</TABLE>
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 1992, Metropolitan
established a valuation allowance for a portion of the operating loss
carryforwards as a result of unresolved matters with taxing authorities. During
1993, certain tax issues were resolved which were previously considered in
management's assessment of the valuation allowance. As a result, the Company has
reduced the remaining valuation allowance. The change in the deferred tax asset
valuation allowance of $10.9 million was recorded as a reduction of income tax
expense.
The adjustments to the net deferred tax asset in 1993 identified as the "Effect
of acquisitions and other transactions" result primarily from the acquisitions
of Western Financial Corporation and Eureka Savings Bank, fsb and the exercise
of compensatory stock options.
At December 31, 1993, Metropolitan had the following income tax net operating
loss carryforwards available for income tax purposes:
<TABLE>
<CAPTION>
Expiration
(Dollars in thousands) Date Amount
<S> <C> <C>
Federal regular tax operating loss
carryforwards acquired through
business combinations 2002 $ 3,933
Federal regular tax operating loss
carryforwards from other than
business combinations 2005 43,451
_______________________________________________________________
$47,384
Federal AMT operating loss
carryforwards 2002 $ 4,594
</TABLE>
<PAGE> 47
The components of and changes in the net deferred tax asset were as follows:
<TABLE>
<CAPTION> Effect of
Deferred Acquisitions
January 1, (expense) and other December 31,
(In thousands) 1993 benefit transactions 1993
<S> <C> <C> <C> <C>
Loan fees and discounts $ 6,366 $ (840) $ _ $ 5,526
Discounts on loans and mortgage-backed
securities arising from acquisitions 10,998 (8,125) 6,504 9,377
Bad debt deduction 2,160 1,241 3,819 7,220
FHLB stock dividends (6,833) 3,248 (2,781) (6,366)
Other 1,161 2,814 (2,097) 1,878
Net temporary differences 13,852 (1,662) 5,445 17,635
Carryforwards:
Federal regular tax operating loss carryforwards 35,993 (22,933) 2,718 15,778
Federal regular tax operating loss carryforwards
acquired in purchase business combinations 1,948 29 (600) 1,377
State regular tax operating loss carryforwards 7,836 (4,430) 238 3,644
State regular tax operating loss carryforwards
acquired in purchase business combinations 4,844 (135) _ 4,709
Federal AMT credit carryforwards 3,327 6,619 _ 9,946
Total carryforwards 53,948 (20,850) 2,356 35,454
67,800 (22,512) 7,801 53,089
Valuation allowance (16,500) 10,902 5,598 _
Deferred tax asset $51,300 $(11,610) $13,399 $53,089
</TABLE>
During the first quarter of 1992, the Company prospectively adopted SFAS No.
109, "Accounting for Income Taxes." In accordance with this statement, the
Company recognized deferred tax assets reflecting the benefit expected to be
realized from the utilization of net operating loss carryforwards ("NOLs") of
$182.4 million and net deductible temporary differences of approximately $35.8
million.
The Company had taxable income and pre-tax book income for the periods presented
as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Taxable income $68,490 $ 74,707 $15,471
Pre-tax book income 86,459 110,062 61,866
</TABLE>
The primary difference between taxable income and pre-tax book income in 1992
and 1993 relates to the reversal of net deductible temporary differences. In
1991 the primary difference between taxable income and pre-tax book income
related to the federally assisted acquisitions of seven insolvent thrift
institutions in 1988 and the related tax exempt assistance received in the
form of interest on FSLIC notes and covered assets and other assistance
payments. The tax exempt assistance is also the primary cause of NOLs.
The Company generated net taxable income in 1993, 1992 and 1991 resulting in
the utilization of a portion of the NOLs. Except for the effects of the
reversal of net deductible temporary differences, the Company is not
currently aware of any factors which would cause any significant differences
between taxable income and pre-tax book income in future years. However,
there can be no assurances that there will be no significant differences in the
future between taxable income and pre-tax book income if circumstances change
(such as changes in tax laws or the Company's financial condition or
performance).
In adopting SFAS No. 109 the Company recorded income and a deferred tax asset
equal to the cumulative effect of the accounting change of $75.9 million, $53.1
million of which remains at December 31, 1993. To fully realize the deferred tax
asset the Company will need to generate future taxable income of approximately
$133 million prior to expiration of the NOLs which will begin to expire in 2002.
Based on the Company's historical and current pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit of
the NOLs existing at December 31, 1993 before they begin to expire in 2002.
Further, management believes the existing net deductible temporary differences
will reverse during periods in which the Company generates net taxable income.
However, there can be no assurance that the Company will generate any
earnings or specific level of continuing earnings.
<PAGE> 48
The bank qualifies as a savings and loan institution as defined by the Internal
Revenue Code. As a qualifying savings and loan, the Bank is able to utilize an
available special tax provision for the bad debt reserve deduction which allows
the use of either the "experience" method or the "percentage of taxable income"
method in determining the annual allowable deduction.
Note O
Employee Benefits
Pension Plan
The Company has a defined benefit plan covering substantially all employees. The
benefits are based on years of service, minimum age requirements, and the
employee's compensation while employed with the Company. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. The actuarial cost method used to compute pension
cost is the Projected Unit Credit method.
Net pension cost (income) included the following components:
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost-benefits earned
during the period $1,289 $ 792 $ 218
Interest cost on projected
benefit obligation 580 336 363
Actual return on plan assets (1,453) (2,009) (2,761)
Net amortization and deferral 240 1,167 2,020
Net periodic pension
cost (income) $ 656 $ 286 $ (160)
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's statements of financial condition:
<TABLE>
<CAPTION> December 31
(In thousands) 1993 1992
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
including vested benefits of
$3,623 in 1993 and $5,330 in 1992 $(4,401) $(5,860)
Actuarial present value of
projected benefit obligation (7,401) (7,661)
Plan assets at market value,
primarily certificates of deposit,
U.S. Treasury securities and
listed stock, including $2,615
in 1993 and $2,523 in 1992
of Company stock 12,064 12,236
Plan assets in excess of projected
benefit obligation 4,663 4,575
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (562) (655)
Prior service cost not yet recognized
in net periodic pension cost (1,119) (1,233)
Unrecognized net assets at end of year (3,980) (3,035)
Pension liability $ (998) $ (348)
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7 percent at both December 31, 1993 and 1992. The expected long
term rate of return on plan assets in 1993, 1992 and 1991 was 7 percent.
<PAGE> 49
Postretirement Benefit Plan
In addition to the Company's defined pension benefit plan, the Company sponsors
a defined benefit health care plan that provides postretirement benefits to
eligible employees. The benefits, based on years of service, is contributory
and contains cost-sharing features such as deductibles and coinsurance. The
Company's policy is to fund the cost of medical benefits in amounts determined
by management.
In 1993, the Company adopted Financial Accounting Standard No. 106 "Employers
Accounting For Postretirement Benefits Other than Pensions." The Company's total
postretirement benefit cost for 1993 was $545,000. Postretirement benefit costs
for 1992 and 1991, which were recorded on a cash basis, have not been restated.
The postretirement benefit liability at December 31, 1993 was $499,000. Upon
adoption, the accumulated postretirement obligation was $2.4 million and
increased to $2.9 million at December 31, 1993.
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits is 13 percent for 1993 and is assumed to decrease gradually
to 6 percent for 2001 and remain at that level thereafter. The health care
cost trend rate assumption has minimal effect on the amounts reported.
Increasing the assumed health care trend rates by one percentage point in
each year would increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 1993 by
$160,000. The weighted average discount rate used in determining
postretirement benefit obligation was 7 percent at December 31, 1993.
The board of directors has approved a directors' retirement plan subject to
shareholder approval.
In November 1992, the Financial Accounting Standards Board issued SFAS No. 112,
"Employers Accounting for Post Employment Benefits." The Company is required to
adopt this Statement in 1994. As of December 31, 1993, the Company had not
adopted Statement No. 112. No material effect on the financial condition of the
Company is anticipated when the statement is adopted.
Savings Plans
The Company has a defined contribution savings plan covering substantially all
employees. Eligibility is based on years of service and minimum age
requirements. Employees elect to contribute a percentage of their compensation.
Contributions are invested, at the direction of the employee, in one or more
funds or can be directed to purchase common stock of the Company at fair market
value. The Company makes matching contributions, invested solely in common stock
of the Company, up to a specified percentage of employee's compensation. Company
contributions vest over a period of five years. Total savings plan expense was
$2.5 million $2.0 million and $1.5 million for the years ended December 31,
1993, 1992 and 1991, respectively.
Stock Purchase Plan
The Company established a shareholder approved Employee Stock Purchase Plan (the
"Plan") in 1992 for which 440,000 shares have been reserved. Under the Plan, the
Company conducts a series of offerings (each an "Offering") of its Common Stock,
each continuing for three months, beginning on January 1, April 1, July 1 and
October 1 of each year (the "Offering Date") and ending on March 31, June 30,
September 30 and December 31 of each year (the "Offering Period"). The per share
purchase price of the shares offered in a given Offering is the lower of 85
percent of the fair market value of one share of the Common Stock of the Company
on the first day of the Offering Period or the last day of the Offering Period.
Employees, subject to restrictions regarding length of service and age, may
designate a payroll deduction limited to a minimum deduction of $25 per pay
period and not exceeding an amount which would result in the purchase of Common
Stock with a fair value of more than $25,000 in any calendar year. During 1993,
a total of 353,450 shares were issued under the plan for an aggregate purchase
price of $4.4 million.
Stock Option and Incentive Plans
The Company has three board of director approved stock option and incentive
plans, initiated in 1984, 1990 and 1993. The 1993 plan is pending shareholder
approval. Two types of options are granted under the plans, incentive and
nonqualified. Incentive options are exercisable on a phased in basis beginning
one year after issuance. Nonqualified options before October 1993 are fully
exercisable on the grant date. Nonqualified options after October 1993 are
exercisable on a phased in basis beginning one year after issuance. All options
expire ten years from the grant date. Under the 1993 plan,restricted stock
awards, performance units, stock bonuses and stock appreciation rights may also
be granted.
The company initiated a non-employee director stock option plan, approved by the
shareholders, in 1993. The options are exercisable one year after issuance. The
grant of incentive and nonqualified stock options is to be made at the
discretion of the committee responsible for administering the plans and is to
be set forth in the option agreement.
<PAGE> 50
Shares reserved and options outstanding under all plans are as follows:
<TABLE>
<CAPTION> Options Outstanding
Shares Reserved Total Number and Exercisable Price
For Future Grant Of Shares Total Shares Per Share
<S> <C> <C> <C> <C>
Balance at December 31, 1990 1,371,102 2,805,567 2,805,567 $1.57 _ 4.90
Granted (413,248) 413,248 413,248 4.35 _ 4.35
Exercised _ (1,329,299) (1,329,299) 1.57 _ 4.90
Balance at December 31, 1991 957,854 1,889,516 1,889,516 1.57 _ 4.90
Share allocated 660,000 _ _ _
Granted (767,800) 767,800 767,800 9.72 _ 15.23
Cancelled 79,068 (79,068) (79,068) 4.35 _ 9.72
Exercised _ (574,497) (574,497) 1.84 _ 4.90
Balance at December 31, 1992 929,122 2,003,751 2,003,751 1.57 _ 15.23
Shares allocated 2,275,000 _ _ _
Granted (1,000,900) 1,000,900 553,400 15.13 _ 18.30
Cancelled _ _ _ _
Exercised _ (725,992) (725,992) 1.57 _ 16.02
Balance at December 31, 1993 2,203,222 2,278,659 1,831,159 $2.85 _ 18.30
</TABLE>
Note P
Parent Company Financial Information
The Company's ability to pay cash dividends depends upon the cash dividends it
receives from the Bank, Edina Realty and Equity Title.
The Bank is required to give the OTS thirty day notice prior to declaration of a
cash dividend to the parent company. The Bank's dividends to the parent
company are generally limited to the calendar year's earnings plus 50 percent
of the surplus capital (the percentage by which the ratio of its regulatory
capital to assets ratio exceeds the fully phased in ratio) at the beginning
of the year.
<PAGE> 51
The summarized financial information of Metropolitan Financial Corporation, the
parent company, is as follows:
Condensed Statements of Condition
<TABLE>
<CAPTION>
(In thousands) December 31, 1993 December 31, 1992
<S> <C> <C>
Assets
Cash and investments $ 12,254 $ 12,966
Equity in net assets of subsidiaries 578,046 503,107
Other assets 12,504 8,632
Total Assets $602,804 $524,705
Liabilities
Payable to subsidiaries $ 37 $ 1,180
Other borrowings 92,521 93,857
Other liabilities 5,863 3,024
Total Liabilities 98,421 98,061
Shareholders' Equity
Preferred stock 5 5
Common stock 320 267
Additional paid-in capital 231,881 148,890
Retained earnings 280,813 278,424
Net unrealized gains on securities
available-for-sale (net of tax) 4,209 _
Less cost of common stock in treasury (12,845) (942)
Total Shareholders' Equity 504,383 426,644
Total Liabilities and Shareholders' Equity $602,804 $524,705
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Net interest expense $ (7,756) $ (2,070) $ (434)
Cash dividends received from subsidiaries 23,672 17,136 8,930
Management fee income 20,906 15,364 11,979
Noninterest expense (20,731) (15,093) (11,545)
Income before equity in earnings of subsidiaries 16,091 15,337 8,930
Undistributed equity in earnings of subsidiaries 46,137 121,794 48,509
Income before income taxes 62,228 137,131 57,439
Income tax benefit 2,946 _ _
Net Income $65,174 $137,131 $57,439
</TABLE>
<PAGE> 52
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Operating Activities
Net income $ 65,174 $137,131 $57,439
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in earnings of subsidiaries (46,137) (121,794) (48,509)
Net Cash Provided by Operating Activities 19,037 15,337 8,930
Investing Activities
Capital contribution to subsidiary _ (78,000) _
Net Cash Used by Investing Activities _ (78,000) _
Financing Activities
(Decrease) increase in receivables from
or payables to subsidiaries (1,123) 68 (410)
Proceeds from:
Issuance of borrowings _ 86,250 _
Issuance of common stock 16,742 4,380 4,168
Sale of common stock held in Treasury _ 3,131 810
Repayment of borrowings (3,860) (3,048) (4,248)
Purchase of common stock held in Treasury (11,903) (114) (82)
Dividends (13,483) (9,093) (9,318)
Other financing activities (6,122) (9,480) 395
Net Cash (Used) Provided by Financing Activities (19,749) 72,094 (8,685)
(Decrease) Increase in Cash and Cash Equivalents (712) 9,431 245
Cash and cash equivalents at beginning of year 12,966 3,535 3,290
Ending Cash and Cash Equivalents $ 12,254 $ 12,966 $ 3,535
</TABLE>
<PAGE> 53
Note Q
Segment Information
The following summarizes financial data for the Company's business segments:
<TABLE>
<CAPTION> Year Ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Revenues:
The Bank $ 507,995 $ 492,907 $ 460,288
Edina Realty 36,267 33,905 28,105
Equity Title 13,714 11,503 8,001
MFS 4,587 852 67
562,563 539,167 496,461
Expenses:
The Bank 430,110 388,980 400,480
Edina Realty 33,093 30,855 27,052
Equity Title 10,693 9,113 7,009
MFS 2,208 157 54
476,104 429,105 434,595
Net income before income tax expense,
extraordinary item and cumulative effect of
accounting change:
The Bank 77,885 103,927 59,808
Edina Realty 3,174 3,050 1,053
Equity Title 3,021 2,390 992
MFS 2,379 695 13
$ 86,459 $ 110,062 $ 61,866
</TABLE>
[FN]
Nearly all assets are attributable to the financial institutions segment.
<PAGE> 54
Report of Management
The management of Metropolitan Financial Corporation and its subsidiaries is
responsible for the preparation of the accompanying annual report and
consolidated financial statements and for their integrity and objectivity. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include amounts based upon
management's judgment and best estimates.
The consolidated financial statements have been audited by Ernst & Young,
independent auditors, selection of which has been ratified by the shareholders
of Metropolitan Financial Corporation.
Metropolitan Financial Corporation and its subsidiaries have established and
maintain systems of internal control designed to provide reasonable assurance
that assets are safeguarded and transactions are properly authorized and
recorded. Metropolitan maintains an auditing program that assesses the
effectiveness of the internal controls. In addition, the independent auditors
consider the Company's internal control structure in order to determine their
auditing procedures for the purpose of expressing an opinion on the
consolidated financial statements.
The Audit Committee of the Board of Directors of Metropolitan Financial
Corporation, comprised exclusively of outside directors, meets regularly with
management and representatives of Ernst & Young to review audit, internal
control, and accounting and financial reporting issues.
Management recognizes its responsibility for fostering a strong, ethical climate
so that Metropolitan's affairs are carried out in accordance with the highest
standards of personal and business conduct. This responsibility is reflected in
Metropolitan's personnel policies which address conflict of interest and other
related subjects, and are publicized throughout the Company and its
subsidiaries.
Norman M. Jones
Chairman and Chief Executive Officer
Steven B. Dewald
Executive Vice President and Chief Financial Officer
William T. Cox
Senior Vice President and Chief Accounting Officer
Report of Independent Auditors
Board of Directors and Shareholders
Metropolitan Financial Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated statements of condition of
Metropolitan Financial Corporation and subsidiaries as of December 31, 1993 and
1992 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metropolitan
Financial Corporation and subsidiaries at December 31, 1993 and 1992 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note D to the financial statements, in 1993 the Company changed
its method of accounting for certain debt and equity securities. Also, as
discussed in Note O to the financial statements, in 1993 the Company changed its
method of accounting for certain postretirement benefits provided to its
employees.
Ernst & Young
Minneapolis, Minnesota
January 19, 1994
<PAGE> 55
Other Supplementary Data
Quarterly Results of Operations (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1993 and 1992.
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data) First Quarter* Second Quarter* Third Quarter* Fourth Quarter
<S> <C> <C> <C> <C>
1993
Interest income $112,073 $115,626 $123,577 $121,450
Interest expense 66,078 67,087 71,496 69,951
Net interest income 45,995 48,539 52,081 51,499
Provision for loan losses 1,500 2,400 2,087 1,872
Net interest income after provision for loan losses 44,495 46,139 49,994 49,627
Net gain on sale of investments, mortgage-backed
securities, mortgage loans and mortgage loan servicing 525 3,452 4,025 8,269
Other noninterest income 13,222 20,277 20,991 19,076
Noninterest expense 49,422 45,132 48,164 50,915
Income before income taxes, extraordinary item and
cumulative effect of accounting change 8,820 24,736 26,846 26,057
Income tax expense (benefit) (6,467) 9,582 9,963 8,207
Income before extraordinary item and cumulative effect
of accounting change 15,287 15,154 16,883 17,850
Extraordinary item _ _ _ _
Cumulative effect of accounting change _ _ _ _
Net income 15,287 15,154 16,883 17,850
Dividends on preferred stock 351 351 351 352
Net Income Applicable to Common Equity $ 14,936 $ 14,803 $ 16,532 $ 17,498
Primary Earnings Per Share $ 0.49 $ 0.47 $ 0.51 $ 0.54
Fully Diluted Earnings Per Share 0.48 0.47 0.51 0.54
Dividends Per Common Share $ 0.09 $ 0.10 $ 0.10 $ 0.10
1992
Interest income $106,540 $112,502 $105,173 $100,550
Interest expense 72,089 72,870 65,428 61,821
Net interest income 34,451 39,632 39,745 38,729
Provision for loan losses 2,321 2,744 1,651 1,600
Net interest income after provision for loan losses 32,130 36,888 38,094 37,129
Net gain on sale of investments, mortgage-backed
securities, mortgage loans and mortgage loan servicing 502 44,405 3,867 4,867
Other noninterest income 13,221 17,578 16,429 13,533
Noninterest expense 33,231 36,423 38,327 40,600
Income before income taxes, extraordinary item and
cumulative effect of accounting change 12,622 62,448 20,063 14,929
Income tax expense 5,102 24,439 7,852 5,150
Income before extraordinary item and
cumulative effect of accounting change 7,520 38,009 12,211 9,779
Extraordinary item _ (6,329) _ _
Cumulative effect of accounting change 75,941 _ _ _
Net income 83,461 31,680 12,211 9,779
Dividends on preferred stock 351 351 351 352
Net Income Applicable to Common Equity $ 83,110 $ 31,329 $ 11,860 $ 9,427
Primary Earnings Per Share 3.53 $ 1.09 $ 0.39 $ 0.31
Fully Diluted Earnings Per Share 2.78 1.04 0.39 0.31
Dividends Per Common Share $ 0.05 $ 0.06 $ 0.06 $ 0.09
</TABLE>
*Amounts have been reclassified to conform with the year-end presentation.
<PAGE> 56
Other Supplementary Data
Common Stock Prices
The following table sets forth, for each of the calendar periods indicated, the
range of high and low closing sale prices per share of the Company's common
stock. These prices have been adjusted to reflect stock dividends.
<TABLE>
<CAPTION>
1993 1992
Low High Low High
<S> <C> <C> <C> <C>
First quarter $13.86 $18.30 $ 9.03 $11.53
Second quarter 14.78 18.06 9.20 11.70
Third quarter 14.13 17.38 9.38 13.86
Fourth quarter 15.25 18.00 12.05 15.23
</TABLE>
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they depend on
future earnings, capital requirements and financial condition.
Preferred Stock Prices
During 1990, Metropolitan Financial Corporation issued 488,750 units consisting
of one share of $2.875 Series B Perpetual Preferred Stock and a warrant
entitling the holder to purchase 1.32 shares of MFC Common at $6.25. The
following table sets forth, for the periods indicated, the preferred stock's
range of high and low closing sale prices per unit.
<TABLE>
<CAPTION> 1993 1992
Low High Low High
<S> <C> <C> <C> <C>
First quarter $27.00 $29.00 $34.50 $36.50
Second quarter 27.25 29.00 35.50 37.50
Third quarter 27.13 29.00 37.00 39.00
Fourth quarter 27.13 28.75 40.00 42.00
</TABLE>
Executive Offices
1000 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
(612) 399-6000
Annual Meeting
Wednesday, May 4, 1994 at 1:30 PM
Lutheran Brotherhood
Minneapolis, Minnesota
Information Meeting
Thursday, May 5, 1994 at 1:30 PM
Radisson Hotel Fargo
Fargo, North Dakota
Counsel
Oppenheimer Wolff & Donnelly
Minneapolis, Minnesota
Independent Auditors
Ernst & Young
Minneapolis, Minnesota
Securities Information
Metropolitan Financial Corporation's common stock is traded on the New York
Stock Exchange under the symbol MFC and also may be found under the listing
MetFn.
Shareholders with questions concerning lost certificates, dividend payments, or
other transfer related issues are invited to contact the transfer agent and
registrar directly on these matters:
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, New York 10005
(212) 936-5100
Dividend Reinvestment
Metropolitan Financial Corporation shareholders can take advantage of a dividend
reinvestment plan that provides automatic reinvestment of quarterly cash
dividends and optional cash contributions of up to $2,500 per quarter. If you
would like more information, contact American Stock Transfer & Trust Company.
Investor Information
Form 10-K is available to shareholders at no cost upon request. Shareholders may
reach the Investor Relations department by calling (800) 399-METF (800-399-
6383). Members of the investment community may also contact:
Patricia Henning, Vice President
Investor Relations and Corporate Communications
(612) 399-6045
(612) 399-6995 (Facsimile)
<PAGE>
BY-LAWS
OF
METROPOLITAN FINANCIAL CORPORATION
(hereinafter called the "Corporation")
I. OFFICES
1. Registered Office.
The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
2. Other Offices.
The Corporation may also have offices at such other places both within and
without the State of Delaware as the board of directors may from time to
time determine.
II. MEETINGS OF STOCKHOLDERS
1. Place of Meetings.
Meetings of the stockholders for the election of directors or for any other
purpose shall be held at such time and place, either within or without the
State of Delaware, as shall be designated from time to time by the board of
directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2. Annual Meetings.
The annual meetings of stockholders shall be held on such date and at such
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, at which meetings the stockholders
shall elect by a plurality vote a board of directors and transact such
other business as may properly be brought before the meeting. Written
notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
The notice shall also set forth the purpose or purposes for which the
meeting is called.
3. Special Meetings.
<PAGE>
Unless otherwise prescribed by law or by the Certificate of Incorporation,
special meetings of stockholders, for any purpose or purposes, may be
called by either the chairman of the board or the president and shall be
called by either individual at the written request of a majority of the
directors then in office. Such request shall state the purpose or purposes
of the proposed meeting. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given not less than ten nor more than sixty
days before the date of the meeting to each stockholder entitled to vote at
such meeting.
4. Quorum.
Except as otherwise provided by law or by the Certificate of Incorporation,
the holders of a majority of the capital stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction
of business. If, however, such quorum shall not be present or represented
at any meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder entitled to vote at the meeting.
5. Voting.
Except as otherwise required by law, the Certificate of Incorporation or
these by-laws, any question brought before any meeting of stockholders
shall be decided by the vote of the holders of a majority of the stock duly
voted on the question. Each stockholder represented at a meeting of
stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such
votes may be cast in person or by proxy. The board of directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
6. List of Stockholders Entitled to Vote.
The officer of the Corporation who has charge of the stock ledger of the
Corporation shall prepare and make, at least twenty days before every
meeting of stockholders, a complete list of the stockholders entitled to
<PAGE>
vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least twenty days prior to the meeting,
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
7. Stock Ledger.
The stock ledger of the Corporation shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger, the list
required by Section 6 of this Article II or the books of the Corporation or
to vote in person or by proxy at any meeting of stockholders.
8. Proxies.
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or his duly authorized attorney in fact.
Proxies solicited on behalf of the management shall be voted as directed by
the stockholder or, in the absence of such direction, as determined by a
majority of the board of directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
9. Voting of Shares in the Name of Two or More Persons.
When ownership stands in the name of two or more persons, in the absence of
written direction to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may
cast, in person or by proxy, all votes to which such ownership is entitled.
In the event an attempt is made to cast conflicting votes, in person or by
proxy, by the several persons in whose names shares of stock stand, the
vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or by proxy
at such meeting, but no votes shall be cast for such stock if a majority
cannot agree.
10. Voting of Shares by Certain Holders.
Shares standing in the name of another corporation may be voted by any
officer, agent or proxy as the by-laws of such corporation may prescribe,
<PAGE>
or, in the absence of such provision, as the board of directors of such
corporation may determine. Shares held by an administrator, executor,
guardian or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of
such shares into his name. Shares standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name
if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by
the Corporation, shall be voted at any meeting or counted in determining
the total number of outstanding shares at any given time for purposes of
any meeting.
11. Inspectors of Election.
In advance of any meeting of stockholders, the board of directors may
appoint any persons other than nominees for office as inspectors of
election to act at such meeting or any adjournment thereof. The number of
inspectors shall be either one or three. If the board of directors so
appoints either one or three such inspectors, that appointment shall not be
altered at the meeting. If inspectors of election are not so appointed,
the chairman of the board or the president may, and on the request of not
less than ten percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority
of the voters present shall determine whether one or three inspectors are
to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act, the vacancy may be filled by appointment by the
board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by law, the duties of such inspectors shall
include: determining the number of shares of stock and the voting power of
each share, the shares of stock represented at the meeting, the existence
of a quorum, the authenticity, validity and effect of proxies; receiving
votes, ballots or consents; hearing and determining all challenges and
questions in any way arising connection with the right to vote; counting
<PAGE>
and tabulating all votes or consents; determining the result; and such acts
as may be proper to conduct the election or vote with fairness to all
stockholders.
12. Conduct of Meetings.
Annual and special meetings shall be conducted in accordance with the most
current edition of Robert's Rules of Order unless otherwise prescribed by
law or these by-laws. The board of directors shall designate, when
present, either the chairman of the board or president to preside at such
meetings.
13. New Business.
Any new business to be taken up at the annual meeting shall be stated in
writing and filed with the secretary of the Corporation at least ten days
before the date of the annual meeting, and all business so stated, proposed
and filed shall be considered at the annual meeting, but no other proposal
shall be acted upon at the annual meeting. Any stockholder may make any
other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at
least five days before the meeting, such proposal shall be laid over for
action at an adjourned, special or annual meeting of the stockholders
taking place thirty days or more thereafter. This provision shall not
prevent the consideration and approval or disapproval at the annual meeting
of reports of officers, directors or committees, but in connection with
such reports no new business shall be acted upon at such annual meeting
unless stated and filed as herein provided.
III. DIRECTORS
1. Number and Election of Directors.
The board of directors shall be 9. Directors need not be residents of the
State of Delaware. Each director shall at all times be the beneficial
owner of not less than 100 shares of capital stock of the Corporation. The
directors, other than the first board of directors, shall be elected at
annual meetings of the stockholders. Changes in the number of directors,
within the limits, if any, specified in the Certificate of Incorporation,
may be accomplished through amendment of these by-laws.
2. Vacancies.
The board of directors shall divide the directors into three classes and,
when the number of directors is changed, shall determine the class or
classes to which the increased or decreased number of directors shall be
<PAGE>
apportioned; provided that each class shall be equal or nearly equal in
size as possible; provided, further, that no decreases in the number of
directors shall affect the term of any director then in office, except the
initial directors. The term of office of directors elected at the initial
special meeting of stockholders shall be as follows: the term of office of
directors of the first class shall expire at the first annual meeting of
stockholders after their election; the term of office of directors of the
second class shall expire at the second annual meeting of stockholders
after their election; and the term of office of directors of the third
class shall expire at the third annual meeting of stockholders after their
election; and, as to directors of each class, when their respective
successors are elected and qualified. At each annual meeting of
stockholders subsequent to the initial special meeting of stockholders,
directors elected to succeed those whose terms are expiring shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders and when their respective successors are elected
and qualified.
Vacancies in the board of directors, however caused, shall be filled by a
majority vote of the directors then in office, whether or not a quorum, and
any director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which he has been
chosen expires and when his successor is elected and qualified.
3. Duties and Powers.
The business of the Corporation shall be managed by or under the direction
of the board of directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders. The board of
directors shall annually elect a chairman of the board and a president from
among its members and shall designate, when present, either the chairman of
the board or the president to preside at its meetings.
4. Meetings.
The Board of Directors may hold meetings both regular and special either
within or without Delaware. The annual and additional regular meetings of
Directors may be held at the time and place as determined by resolution of
the Board of Directors without notice other than the resolution. Special
meetings of Directors may be called by the Chairman, President, or a
majority of Directors. Notice of special meeting stating the time and place
of meeting shall be given to each director either by mail at least 48 hours
or by telephone or telegram at least 24 hours before the meeting date.
<PAGE>
5. Quorum.
Except as may be otherwise specifically provided by law, the Certificate of
Incorporation of these by-laws, at all meetings of the board of directors,
a majority of the directors then in office shall constitute a quorum for
the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the
board of directors. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
6. Actions of the Board.
Unless otherwise provided by the Certificate of Incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a
meeting, if all the members of the board of directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board of directors or
committee.
7. Meetings by Means of Conference Telephone.
Unless otherwise provided by the Certificate of Incorporation or these
by-laws, members of the board of directors of the Corporation, or any
committee designated by the board of directors, may participate in a
meeting of the board of directors or such committee by means of a
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
8. Compensation.
The directors may be paid their reasonable expenses, if any, of attendance
at each meeting of the board of directors and may be paid a reasonable
fixed sum for actual attendance at each meeting of the board of directors.
Directors, as such, may receive a stated salary for their services. No
such payment shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like compensation for attending
committee meetings.
9. Interested Directors.
<PAGE>
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board of directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted
for such purpose, if (i) the material facts as to his or their relationship
or interest and as to the contract or transaction are disclosed or are
known to the board of directors or the committee, and the board of
directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the
material facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract
or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the board of directors, a committee
thereof or the stockholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
10. Corporate Books.
The directors may keep the books of the Corporation, except such as are
required by law to be kept within the state, outside of the State of
Delaware at such place or places as they may from time to time determine.
11. Presumption of Assent.
A director of the Corporation who is present at a meeting of the board of
directors at which action on any Corporation matter is taken shall be
presumed to have assented to the action taken unless his dissent or
abstention shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Corporation within
five days after the date he receives a copy of the minutes of the meeting.
Such right to dissent shall not apply to a director who voted in favor of
such action.
12. Resignation.
<PAGE>
Any director may resign at any time by sending a written notice of such
resignation to the home office of the Corporation addressed to the chairman
of the board or the president. Unless otherwise specified therein such
resignation shall take effect upon receipt thereof by the chairman of the
board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the
board, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
13. Nominating Committee.
The board of directors shall act as a nominating committee for selecting
the management nominees for election as directors. Except in the case of a
nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written
nominations to the secretary at least twenty days prior to the date of the
annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee
shall be voted upon at the annual meeting unless other nominations by
stockholders are made in writing and delivered to the secretary of the
Corporation at least fifteen days prior to the date of the annual meeting.
Ballots bearing the names of all the persons nominated by the nominating
committee and by stockholders shall be provided for use at the annual
meeting. If the nominating committee shall fail or refuse to act at least
twenty days prior to the annual meeting, nominations for directors may be
made at the annual meeting by any stockholder entitled to vote and shall be
voted upon.
14. Age Limitation - Directors.
Article III - Section 14. Age Limitation - Directors. No person shall be
eligible for election, re-election, appointment, or reappointment to the
board of directors if such person is then more than 70 years of age. No
director shall serve beyond the annual meeting of the corporation
immediately following his attainment of 70 years of age; except that any
such director serving on January 31, 1984 may complete the unexpired
portion of his term being served on such date. This limitation shall not
apply to a person serving as an advisory director of the corporation.
IV. EXECUTIVE AND OTHER COMMITTEES
1. Appointment.
The board of directors, by resolution adopted by a majority of the full
board, may designate the chief executive officer and two or more of the
<PAGE>
other directors to constitute an executive committee. The designation of
any committee pursuant to this Article IV and the delegation of authority
thereto shall not operate to relieve the board of directors, or any
director, of any responsibility imposed by law or regulation.
2. Authority.
The executive committee, when the board of directors is not in session,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers
which may require it, except to the extent, if any, that such powers and
authority shall be limited by the resolution appointing the executive
committee; and except also that the executive committee shall not have the
power or authority of the board of directors with reference to amending the
Certificate of Incorporation; adopting an agreement of merger or
consolidation; recommending to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets;
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution; amending the by-laws of the Corporation; or
approving a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest; and unless
the resolution or by-laws expressly so provide, the executive committee
shall not have the power or authority to declare a dividend or to authorize
the issuance of stock.
3. Tenure.
Subject to the provisions of Section 8 of this Article IV, each member of
the executive committee shall hold office until the next annual regular
meeting of the board of directors following his designation and until his
successor is designated as a member of the executive committee.
4. Meetings.
Regular meetings of the executive committee may be held without notice at
such times and places as the executive committee may fix from time to time
by resolution. Special meetings of the executive committee may be called
by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral.
Any members of the executive committee may waive notice of any meeting and
no notice of any meeting need be given to any member thereof who attends in
person. The notice of a meeting of the executive committee need not state
the business proposed to be transacted at the meeting.
5. Quorum.
<PAGE>
A majority of the members of the executive committee shall constitute a
quorum for the transaction of business at any meeting thereof, and action
of the executive committee must be authorized by the affirmative vote of a
majority of the members present at a meeting at which a quorum is present.
6. Action Without a Meeting.
Any action required or permitted to be taken by the executive committee at
a meeting may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the members of the
executive committee.
7. Vacancies.
Any vacancy in the executive committee may be filled by a resolution
adopted by a majority of the full board of directors.
8. Resignations and Removal.
Any member of the executive committee may be removed at any time with or
without cause by resolution adopted by a majority of the full board of
directors. Any members of the executive committee may resign from the
executive committee at any time by giving written notice to the president
or secretary of the Corporation. Unless otherwise specified therein, such
resignation shall take effect upon receipt. The acceptance of such
resignation shall not be necessary to make it effective.
9. Procedure.
The executive committee shall elect a presiding officer from its members
and may fix its own rules of procedure which shall not be inconsistent with
these by-laws. It shall keep regular minutes of its proceedings and report
the same to the board of directors for its information at the meeting
thereof held next after the proceedings shall have been taken.
10. Other Committees.
The board of directors may by resolution establish an audit committee, a
loan committee or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of
the Corporation and may prescribe the duties, constitution and procedures
thereof.
V. OFFICERS
<PAGE>
1. General.
The officers of the Corporation shall be chosen by the board of directors
and shall be a president, a secretary and a treasurer. The chairman of the
board may also be designated as an officer. The board of directors may
designate one or more vice-presidents, assistant secretaries, assistant
treasurers and other officers. The offices of secretary and treasurer may
be held by the same person and a vice-president may also be either the
secretary or the treasurer. The officers of the Corporation need not be
either stockholders or directors of the Corporation.
2. Election.
The board of directors at its first meeting held after the annual meeting
of stockholders shall elect annually the officers of the Corporation who
shall exercise such powers and perform such duties as shall be set forth in
these by-laws and as determined from time to time by the board of
directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the board of directors may
be removed at any time by the affirmative vote of a majority of the board
of directors. Any vacancy occurring in any office of the Corporation shall
be filled by the board of directors. The salaries of all officers of the
Corporation shall be fixed by the board of directors.
<PAGE>
3. Removal.
Any officer may be removed by the board of directors whenever in its
judgment the best interests of the Corporation will be served thereby, but
such removal, other than for cause, shall be without prejudice to the
contract rights, if any, of the person so removed.
4. Voting Securities Owned by the Corporation.
Powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Corporation may be
executed in the name of and on behalf of the Corporation by the president
or any vice-president, and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may
deem advisable to vote in person or by proxy at any meeting of security
holders of any corporation which the Corporation may own securities and at
any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present.
The board of directors may, by resolution, from time to time confer like
powers upon any other person or persons.
5. President.
The president shall be a director of the Corporation. The president or the
chairman of the board, as designated by the board of directors, shall be
the chief executive officer. The president shall, subject to the control
of the board of directors, have general supervision of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under
the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these
by-laws, the board of directors or the president. If so designated by the
board of directors, the president shall preside at the annual meetings and
special meetings of the stockholders. The president shall also perform
such other duties and may exercise such other powers as from time to time
assigned to him by these by-laws or by the board of directors.
6. Vice-Presidents.
At the request of the president or in his absence or in the event of his
inability or refusal to act, the vice-president or the vice-presidents if
there is more than one (in the order designated by the board of directors)
<PAGE>
shall perform the duties of the president, and when so acting, shall have
all the powers and be subject to all the restrictions upon the president.
Each vice-president shall perform such other duties and have such other
powers as the board of directors from time to time may prescribe. The
board of directors may designate one or more vice-presidents as executive
vice-president or senior vice-president. If there be no vice-president,
the board of directors shall designate the officer of the Corporation who,
in the absence of the president or in the event of the inability or refusal
of the president to act, shall perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president.
7. Secretary.
The secretary shall attend all meetings of the board of directors and all
meetings of stockholders and record all the proceedings thereat in a book
or books to be kept for that purpose; the secretary shall also perform like
duties for the standing committees when required. The secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other
duties as may be prescribed by the board of directors or president, under
whose supervision he shall be. If the secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the board of directors, and if there be no assistant
secretary, then either the board of directors or the president may choose
another officer to cause such notice to be given. The secretary shall have
custody of the seal of the Corporation and the secretary or any assistant
secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
signature of the secretary or by the signature of any such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by
his signature. The secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to
be kept or filed are properly kept or filed, as the case may be.
8. Treasurer.
The treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the board of directors. The treasurer
<PAGE>
shall disburse the funds of the Corporation as may be ordered by the board
of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the
Corporation. If required by the board of directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
9. Assistant Secretaries.
Except as may be otherwise provided in these by-laws, assistant
secretaries, if there be any, shall perform such duties and have such
powers as from time to time may be assigned to them by the board of
directors, the president, any vice-president, if there be one, or the
secretary, and in the absence of the secretary or in the event of his
disability or refusal to act, shall perform the duties of the secretary,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the secretary.
10. Assistant Treasurers.
Assistant treasurers, if there be any, shall perform such duties and have
such powers as from time to time may be assigned to them by the board of
directors, the president, any vice-president, if there be one, or the
treasurer, and in the absence of the treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
treasurer. If required by the board of directors, an assistant treasurer
shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the
faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
11. Other Officers.
Such other officers as the board of directors may choose shall perform such
duties and have such powers as from time to time may be assigned to them by
the board of directors. The board of directors may delegate to any other
officer of the Corporation the power to choose such other officers and to
prescribe their respective duties and powers.
12. Age Limitation - Officers.
<PAGE>
No person shall be eligible for election, reelection, appointment, or
reappointment as an officer of the corporation if such person is then more
than 70 years of age. No officer shall serve beyond the annual meeting of
the corporation immediately following this attainment of 70 years of age;
except that any such officer serving on January 31, 1984 may complete the
unexpired portion of his term being served on such date. . . . However, an
officer shall, at the option of the Board, retire at age 65 if the officer
has served in an executive or high policy-making post for at least two
years immediately prior to retirement and is immediately entitled to
nonforfeitable annual retirement benefits of at least $44,000 per year.
VI. STOCK
1. Form of Certificates.
Every holder of stock in the Corporation shall be entitled to have a
certificate signed, in the name of the Corporation (i) by the chairman of
the board of directors, the president or a vice-president and (ii) by the
treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the Corporation, certifying the number of shares owned by him
in the Corporation.
2. Signatures.
Where a certificate is countersigned by (i) a transfer agent other than the
Corporation or its employee, or (ii) a registrar other than the Corporation
or its employee, any other signature on the certificate may be a facsimile.
In case any officer whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue.
3. Lost Certificates.
The board of directors may direct a new certificate to be issued in place
of any certificate theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate, the board of
directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such
manner as the board of directors shall require and/or to give the
<PAGE>
Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
4. Transfers.
Stock of the Corporation shall be transferable in the manner prescribed by
law and in these by-laws. Transfers of stock shall be made on the books of
the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate
shall be issued.
5. Record Date.
"In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty days nor less
than ten days before the date of such meeting, nor more than sixty days
prior to any other action."
6. Beneficial Owners.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be
bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
VII. NOTICES
1. Notices.
Whenever written notice is required by law, the Certificate of
Incorporation or these by-laws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to
such director, member of a committee or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall
<PAGE>
be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
2. Waivers of Notice.
Whenever any notice is required by law, the Certificate of Incorporation or
these by-laws, to be given to any director, member of a committee or
stockholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
VIII. GENERAL PROVISIONS
1. Dividends.
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation if any, may be declared by
the board of directors at any regular or special meeting, and may be paid
in cash, in property, or in shares of the capital stock.
2. Disbursements.
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the
board of directors may from time to time designate.
3. Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors.
4. Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
IX. AMENDMENTS
1. These by-laws may be altered, amended or repealed, in whole or in
part, or new by-laws may be adopted by the stockholders or by the board of
directors, provided, however, that notice of such alteration, amendment,
repeal or adoption of new by-laws be contained in the notice of such
<PAGE>
meeting of stockholders or board of directors as the case may be. All such
amendments must be approved by either the holders of at least 75 percent of
the outstanding capital stock entitled to vote thereon or by at least
two-thirds of the entire board of directors then in office.
2. Entire Board of Directors.
As used in this Article IX and in these by-laws generally, the term "entire
board of directors" means the total number of directors which the
Corporation would have if there were no vacancies.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
DIRECTORS' RETIREMENT PLAN
1. Description
___________
1) Name. The name of the Plan is the "Metropolitan Financial
Corporation Directors' Retirement Plan."
2) Purpose. The purpose of the Plan is to advance the interests of
the Company and its stockholders by assisting the Company in attracting
and retaining Directors of outstanding ability through payment of
benefits to eligible Directors for a period after they cease to be
Directors equal to their Period of Service on the Board.
3) Type. Benefits under the Plan relate solely to service
performed by a Director as a Director and compensation for such service
and not to status as an officer or employee of the Company or any
Affiliate. To the extent ERISA is applicable to the Plan, the Plan is
an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees and, as such, is intended to be exempt from the
provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by
operation of sections 201(2), 302(a)(3) and 401(a)(4) thereof,
respectively, and from the provisions of Title IV of ERISA by operation
of section 4021(b)(6) thereof. The Plan will be construed and
administered in a manner that is consistent with and gives effect to
such intent.
2. Definitions, Construction and Interpretations
_____________________________________________
The definitions and rules of construction and interpretation set forth
in this article apply in construing the Plan unless the context
otherwise requires.
1) Affiliate. "Affiliate" is:
(a) any corporation at least a majority of whose securities
having ordinary voting power for the election of directors is owned
directly or indirectly by the Company; or
(b) any other form of business entity in which the Company, by
virtue of a direct or indirect ownership interest, has the right to
elect a majority of the members of such entity's governing body.
2) Annual Retainer. "Annual Retainer" is the annual base cash fee
payable by the Company to a non-employee Director for service as a
Director, plus any other elements of compensation payable to a Director
for service as a Director (including service on any committee of the
Board) specified in a written resolution adopted by the Board,
determined in each case without regard to any deferral election by a
Director.
3) Board. "Board" is the Board of Directors of the Company.
<PAGE>
4) Change in Control.
(A) "Change in Control" is any of the following:
(1) the sale, lease, exchange or other transfer, directly
or indirectly, of all or substantially all of the assets of the Company,
in one transaction or in a series of related transactions, to any
person;
(2) the approval by the stockholders of the Company of
any plan or proposal for the liquidation or dissolution of the Company;
(3) any person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of (a) 20 percent or more, but not more than 50 percent, of the combined
voting power of the Company's outstanding securities ordinarily having
the right to vote at elections of directors, unless the transaction
resulting in such ownership has been approved in advance by the
continuity directors or (b) more than 50 percent of the combined voting
power of the Company's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any approval by
the continuity directors);
(4) a merger or consolidation to which the Company is a
party if the stockholders of the Company immediately prior to the
effective date of such merger or consolidation have beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of the
surviving company representing (a) 50 percent or more, but not more than
80 percent, of the combined voting power of the surviving corporation's
then outstanding securities ordinarily having the right to vote at
elections of directors, unless such merger or consolidation has been
approved in advance by the continuity directors, or (b) less than 50
percent of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections
of directors (regardless of any approval by the continuity directors);
(5) the continuity directors cease for any reason to
constitute at least a majority of the Board; or
(6) a change in control of a nature that is determined by
outside legal counsel to the Company to be required to be reported
(assuming such event has not been "previously reported") pursuant to
section 13 or 15(d) of the Exchange Act, whether or not the Company is
then subject to such reporting requirement.
(B) For purposes of this section:
(1) a "continuity director" means any individual who is
a member of the Board on the Effective Date while he or she is a member
of the Board, and any individual who subsequently becomes a member of
<PAGE>
the Board whose election or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors who are continuity directors (either by a specific vote or by
approval of the proxy statement of the Company in which such individual
is named as a nominee for director without objection to such
nomination);
(2) "Exchange Act" is the Securities Exchange Act of
1934, as amended from time to time; and
(3) "person" includes any individual, corporation,
partnership, group, association or other "person," as such term is
defined in section 14(d) of the Exchange Act, other than (a) the
Company; (b) any Affiliate; or (c) any benefit plan sponsored by the
Company or an Affiliate.
5) Code. "Code" is the Internal Revenue Code of 1986, as amended from
time to time.
6) Company. "Company" is Metropolitan Financial Corporation.
7) Cross References. References within a section of the Plan to a
particular subsection refer to that subsection within the same section
and references within a section or subsection to a particular clause
refer to that clause within the same section or subsection, as the case
may be.
8) Director. "Director" is an individual who (a) is a member of
the Board pursuant to Section 6 of the Company's Restated Certificate of
Incorporation or any successor provision of the Restated Certificate of
Incorporation, as it may be amended from time to time, and (b) was not,
on the Effective Date, both a member of the Board and an employee of the
Company.
9) Effective Date. "Effective Date" is defined in Section 4.1.
10) ERISA. "ERISA" is the Employee Retirement Income Security Act
of 1974, as amended from time to time.
11) Governing Law. To the extent that state law is not preempted
by the provisions of ERISA or any other laws of the United States, all
questions pertaining to the construction, validity, effect and
enforcement of the Plan will be determined in accordance with the
internal, substantive laws of the State of Minnesota without regard to
the conflict of laws rules of the State of Minnesota or of any other
jurisdiction
12) Headings. The headings of articles and sections are included
solely for convenience of reference; if there is a conflict between the
headings and the text of the Plan, the text controls.
13) Number and Gender. Wherever appropriate, the singular number
may be read as the plural, the plural may be read as the singular, and
one gender may be read as the other gender.
14) Period of Service.
<PAGE>
(A) "Period of Service" with respect to a Director is, subject
to Subsections (B) and (C), the sum of:
(1) the total number of complete calendar months, before
and after the Effective Date, during which he or she was a Director and
was not an employee of the Company or any Affiliate, plus
(2) the total number of complete calendar months prior to
March 1, 1985 during which he or she was a director of Metropolitan
Federal Bank, fsb, Metropolitan Federal Savings and Loan Association of
Fargo, Metropolitan Savings and Loan Association or Metropolitan
Building and Loan Association (a "Predecessor") and was not an employee
of the Predecessor or any entity that would be an Affiliate if
"Predecessor" were substituted for "Company" in Section 2.1 (a
"Predecessor Affiliate").
(B) The Period of Service with respect to a Director who was a
Director on the Effective Date is, subject to Subsection (C), the total
number of complete calendar months, before and after the Effective Date,
during which he or she was a Director or a director of a Predecessor,
including such months during which he or she was employed by the
Company, an Affiliate, a Predecessor or a Predecessor Affiliate.
(C) A Director's Period of Service does not include any
service on the board of directors of any entity acquired by either the
Company, an Affiliate, a Predecessor or a Predecessor Affiliate or any
service on the Board after a Change in Control.
15) Plan. "Plan" is the Metropolitan Financial Corporation
Directors' Retirement Plan set forth in this instrument, as it may be
amended from time to time.
3. Benefits
________
1) Eligibility. A Director will become eligible to receive a
benefit under the Plan upon the earlier to occur of:
(a) his or her ceasing to be a Director after the Effective
Date, other than due to his or her death or removal for cause, following
(1) his or her completion of a Period of Service of at
least 60 complete calendar months, or
(2) the date of the annual meeting of the stockholders of
the Company that is the fifth annual meeting after the annual meeting at
which he or she was elected to the Board if he or she has served on the
Board continuously since such election; or
(b) a Change in Control after the Effective Date.
<PAGE>
2. Benefit.
(A) Amount. Except as otherwise expressly provided in the Plan, a
Director or former Director who becomes eligible to receive a benefit
pursuant to Section 3.1 will receive a monthly cash benefit equal to
one-twelfth of the Annual Retainer at the rate in effect immediately
prior to the date on which he or she becomes eligible for the benefit.
(B) Period. Except as otherwise expressly provided in the Plan,
the benefit will begin on a date, selected by the Company, during the
first month following the month in which the Director or former Director
becomes eligible for the benefit and will continue to be paid on or
around the same date during each of the following months until the
number of months during which the benefit has been paid equals the
number of complete calendar months within his or her Period of Service.
(C) Change in Control.
(1) Basic Payment. Notwithstanding Subsections (A) and (B),
if a Director becomes eligible to receive a benefit upon the occurrence
of a Change in Control pursuant to clause (b) of Section 3.1 or upon the
occurrence of a Change in Control during the period described in
Subsection (B) with respect to a former Director, the benefit, or the
remainder of the benefit, will be paid to the Director or former
Director in a single lump sum cash payment not later than ten days after
the occurrence of the Change in Control. The amount of the payment will
be equal to the present value of the monthly benefit to which the
Director or former Director would otherwise be entitled, determined by
applying the same actuarial factors that would then be used to determine
a lump sum benefit of $3500 or less under the Metropolitan Federal Bank
Employees' Pension Plan (or any successor thereto) as then in effect.
(2) Gross-Up Payment. Following a Change in Control, the
Company will cause its independent auditors promptly to review, at the
Company's sole expense, the applicability of the excise tax pursuant to
Code section 4999 to payments pursuant to the Plan. If the auditors
determine that any payment or distribution of any type by the Company or
an Affiliate to or for the benefit of a Director or former Director,
whether paid or payable or distributed or distributable pursuant to the
terms of the Plan or otherwise (the "Total Payments"), would be subject
to the excise tax under Code section 4999 or any comparable tax under
state or local law, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax"), in
addition to the payment described in clause (1), the Company will make a
cash payment (a "Gross-Up Payment") to the Director or former Director
within ten days after such determination equal to an amount such that
after payment by the Director or former Director of all taxes (including
any interest or penalties imposed with respect to such taxes), including
any Excise Tax, imposed upon the Gross-Up Payment, the Director or
former Director would retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Total Payments. For purposes of the
foregoing determination, the Director's or former Director's tax rate
will be deemed to be the highest statutory marginal state and federal
tax rate (on a combined basis) then in effect. If no determination by
the Company's auditors is made prior to the time a tax return reflecting
the Total Payments is required to be filed by the Director or former
Director, he or she will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Total Payments he or she
reported on such tax return, within ten days after the later of the
filing of such tax return or the Company's receipt of a copy of the
return. In all events, if any tax authority determines that a greater
Excise Tax should be imposed upon the Total Payments than is determined
by the Company's independent auditors or reflected on the Director's or
<PAGE>
former Director's tax return pursuant to this clause (2), the Director
or former Director is entitled to receive from the Company the full
Gross-Up Payment calculated on the basis of the amount of Excise Tax
determined to be payable by such tax authority within ten days after the
Company's receipt of a copy of such determination. If the Director or
former Director is entitled to any payment under any other plan or
policy of or agreement with the Company or an Affiliate and such plan,
policy or agreement provides for a gross-up payment with respect to
Excise Tax, the Company will coordinate payment under this clause (2)
and the other gross-up provision solely to the extent necessary to avoid
double payment.
3. Nondeductibility. If the Company determines in good faith prior
to a Change in Control that there is a reasonable likelihood that any
compensation paid to a Director or former Director for a taxable year of
the Company would not be deductible by the Company solely by reason of
the limitation under Code section 162(m), solely to the extent deemed
necessary by the Company to ensure that the entire amount of any payment
to the Director or former Director pursuant to the Plan prior to the
Change in Control is deductible, the Company may defer all or any
portion of the payment. Upon the occurrence of a Change in Control, the
aggregate amount of payments deferred pursuant to this Section 3.3 will
be added to the amount of the lump sum payment made to the Director or
former Director pursuant to Section 3.2(C).
4. Death Benefits. If a former Director dies before the end of the
period described in Section 3.2(B), his or her benefits will be paid
through the month during which his or her death occurs and no further
benefits will be payable under the Plan with respect to the former
Director to any person. If a Director or former Director dies after the
occurrence of a Change in Control but before receiving the lump sum
payment to which he or she is entitled pursuant to Section 3.2(C), the
payment will be made to his or her estate not later than the date on
which it was required to have been made to the former Director and no
further benefits will be payable under the Plan with respect to the
former Director to any person. Except as provided in this Section 3.4,
no benefits will be payable with respect to a former Director after his
or her death.
5. Termination of Benefits. No further benefits will be payable
under the Plan to any former Director following the date, prior to a
Change in Control, on which the Board determines that the former
Director has: (a) acted as a director, officer, stockholder or employee
of or consultant to any bank, savings and loan association, credit union
or similar thrift, savings bank or institution within a 100-mile radius
of any branch of any insured depository institution owned, directly or
indirectly, by the Company as of the date the former Director began to
receive benefits under the Plan (unless the former Director was acting
in such capacity while he or she was a Director with the written
approval of the Board); or (b) alone or as a partner, director, officer,
stockholder or employee of or consultant to any entity, solicited or
attempted to solicit, directly or indirectly, (i) any employee of the
<PAGE>
Company or an Affiliate to terminate his or her employment relationship
with the Company or Affiliate, or (ii) any savings and loan, banking or
other business in which the Company or any Affiliate was engaged as of
the date the former Director began to receive benefits under the Plan
from any individual or entity that is or was a client, employee or
customer of the Company or an Affiliate. For purposes of this Section
3.5, a former Director will not be considered to be a "stockholder" if
he or she owns, directly and indirectly, less than five percent of the
combined voting power of a corporation's outstanding equity securities
which are traded on a nationally recognized securities exchange or on
the NASDAQ National Market System.
6. Suspension. If a former Director who is receiving benefits
under the Plan pursuant to Section 3.1(a) again becomes a Director,
payment of his or her benefits will be suspended until he or she again
becomes eligible to receive a benefit pursuant to Section 3.1. The
amount of the monthly benefit following resumption will be equal to one-
twelfth of the Annual Retainer at the rate in effect immediately prior
to the date on which he or she again becomes eligible to receive the
benefit. The benefits will be payable for a period equal to the number
of complete calendar months within his or her Period of Service, reduced
by the number of months during which benefits were paid prior to his or
her again becoming a Director.
7. Facility of Payment. If the Company determines that a Director or
former Director entitled to benefits under the Plan is under legal
disability or is otherwise unable to receive or acknowledge receipt of
any benefit payment, the Company may pay the benefit to his or her
spouse, parent or adult child or to any other person whom the Company
determines to have assumed responsibility for the Director's or former
Director's financial affairs. The Company is not required to see to the
proper application of any such payment and the payment completely
discharges all claims under the Plan to the extent of the payment.
4. Establishment, Amendment and Termination
________________________________________
1. Effective Date. The Plan will become effective upon its
approval by the stockholders of the Company at the annual meeting to be
held on May 4, 1994. No Director will acquire any rights under the Plan
until the Plan has been so approved.
2. Applicability to Certain Former Directors. The Plan does not
apply to any former Director who ceased to be a Director before the
Effective Date unless he or she (a) again becomes a Director on or after
the Effective Date, (b) otherwise becomes eligible to receive a benefit
under the Plan and (c) is not eligible to receive similar benefits with
respect to his or her service as a Director or an emeritus director
under any other plan or policy of, or agreement with, the Company or an
Affiliate.
3. Amendment. Subject to Section 4.5, the Company reserves the
right to amend the Plan at any time to any extent that it deems
advisable. Each amendment must be stated in a written instrument
approved by the Board or any committee or individual authorized to act
on the Board's behalf.
<PAGE>
4. Termination.
(A) Subject to Section 4.5, the Company reserves the right to
terminate the Plan at any time prior to a Change in Control by
resolution of the Board. In conjunction with the termination of the
Plan, any benefits that are otherwise payable to any former Director
will, subject to Section 3.3, be paid in the form of a single lump sum
cash payment made on or as soon as administratively practicable after
the effective date of the termination. The amount of the lump sum
payment will be determined in accordance with Section 3.2(C)(1).
(B) The Plan will terminate upon the payment of all benefits
pursuant to Section 3.2(C) following the occurrence of a Change in
Control.
5. Restrictions.
(A) Except as provided in Section 4.4(A), an amendment or
termination of the Plan prior to a Change in Control may not decrease
the amount or change the form or timing of the benefit payable to any
former Director who, prior to the later of (1) the effective date of the
amendment or termination or (2) the date of the written instrument or
Board action, as the case may be, has become eligible to receive a
benefit pursuant to clause (a) of Section 3.1.
(B) Upon the occurrence of a Change in Control, the Plan may not be
amended without the written consent of each Director or former Director
who could be affected by the amendment.
5. Miscellaneous
_____________
1. Administration.
(A) The Board has discretionary power and authority to
interpret, construe, apply, enforce and otherwise administer the Plan
and act on behalf of the Company. The Board may delegate such power and
authority to any individual or committee. Any action taken in good
faith by the Board or its delegates prior to a Change in Control is
binding and conclusive on all interested parties. No member of the
Board will participate in any manner in any Board decision regarding his
or her benefit.
(B) Any decision by the Board denying a claim by a Director or
former Director for benefits under the Plan will be stated in writing
and delivered or mailed to the Director or former Director. Each such
notice will set forth the specific reasons for the denial. The Board
will afford a reasonable opportunity to the Director or former Director
for a full and fair review of the decision denying such claim.
(C) Any act or failure to act by the Company, the Board or its
delegate or any waiver of any right or failure to enforce any provision
of the Plan with respect to a Director or former Director is unique to
that Director or former Director and in no way modifies or amends, or
<PAGE>
limits or impairs the rights of the Company or Board or its delegate
to enforce, the terms of the Plan with respect to any other Director
or former Director.
2. Disputes.
(A) Any dispute between the Company and a Director or former
Director (or any person making a claim for a benefit on his or her
behalf) regarding this Plan that is not satisfactorily resolved by
negotiation will be resolved exclusively by arbitration, by a panel of
three arbitrators, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect. Any arbitration
proceeding will be held in Minneapolis, Minnesota.
(B) In connection with any dispute arising before a Change in
Control, the Director or former Director (or the person making the claim
on his or her behalf) is responsible for paying any costs he or she
incurs, including attorney's fees and legal expenses, and the Company is
responsible for paying any costs it incurs, including attorney's fees
and legal expenses. In connection with any dispute arising after a
Change in Control, the Company is responsible for paying all costs of
both parties, including attorney's fees and expenses.
3. Source of Payment. Benefits payable under the Plan will be paid
only from the general assets of the Company. No person has any right to
or interest in any specific assets of the Company by reason of the Plan.
To the extent benefits under the Plan are not paid when due, the rights
of the person to whom they are due to receive such benefits are no
greater than the rights of any unsecured general creditor of the
Company.
4. Non-assignability of Benefits. The benefits payable under the
Plan and the right to receive future benefits under the Plan may not be
anticipated, alienated, sold, transferred, assigned, pledged, encumbered
or subjected to any charge or legal process and any attempt to do so is
void. No rights or benefits under the Plan may in any manner be liable
for or subject to the debts, contracts, liabilities, engagements or
torts of any Director or former Director and, to the full extent
permitted by law, the rights of any Director or former Director are not
subject in any manner to attachment or other legal process for the
Director's or former Director's obligations.
5. Withholding and Offsets. The Company retains the right to
withhold from any benefit payment under the Plan any and all income,
employment, excise and other tax as the Company deems necessary and,
prior to but not after a Change in Control, the Company may offset
against amounts payable to a former Director under the Plan any amounts
then owing to the Company or any Affiliate by the former Director.
6. Other Benefits. Amounts paid pursuant to the Plan do not
constitute salary or compensation for the purpose of computing benefits
under any other benefit plan, practice, policy or procedure of the
Company or any Affiliate unless otherwise expressly provided thereunder.
7. No Right to Continued Service.
<PAGE>
(A) Nothing in the Plan confers on any Director any right to
continued service as a Director or limits the right of the Company,
acting through the Board or otherwise, to terminate or otherwise modify
in any manner the service of the Director or decrease, eliminate or
change the form of payment of his or her compensation from the Company
for service as a Director.
(B) With respect to any Director who is also an employee of the
Company or any Affiliate, nothing in this Plan confers on the Director
the right to continued employment or limits the right of the Company or
Affiliate to discharge, transfer, demote, modify terms and conditions of
employment or otherwise deal with the Director in his or her capacity as
an employee.
8. Successors. The Plan will be binding on and inure to the
benefit of the successors of the Company and the Directors or former
Directors.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
1993 STOCK INCENTIVE PLAN
(As amended effective February 22, 1994)
1. Purpose of Plan.
The purpose of the Metropolitan Financial Corporation 1993 Stock
Incentive Plan (the "Plan") is to advance the interests of Metropolitan
Financial Corporation (the "Company") and its stockholders by enabling
the Company and its Subsidiaries to attract and retain persons of
ability to perform services for the Company and its Subsidiaries by
providing an incentive to such individuals through equity participation
in the Company and by rewarding such individuals who contribute to the
achievement by the Company of its economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
1) "Board" means the Board of Directors of the Company.
2) "Broker Exercise Notice" means a written notice pursuant to
which a Participant, upon exercise of an Option, irrevocably instructs a
broker or dealer to sell a sufficient number of shares or loan a
sufficient amount of money to pay all or a portion of the exercise price
of the Option and/or any related withholding tax obligations and remit
such sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or
dealer.
3) "Change in Control" means an event described in Section 13.1 of
the Plan.
4) "Code" means the Internal Revenue Code of 1986, as amended.
5) "Committee" means the group of individuals administering the
plan, as provided in Section 3 of the Plan.
6) "Common Stock" means the common stock of the Company, $.01 par,
value, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section
4.3 of the Plan.
7) "Disability" means the disability of the Participant such as
would entitle the Participant to receive disability income benefits
pursuant to the long-term disability plan of the Company or Subsidiary
then covering the Participant or, if no such plan exists or is
applicable to the Participant, the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
8) "Eligible Recipients" means all employees (including, without
limitation, officers and directors who are also employees) of the
Company or any Subsidiary and any non-employee consultants and
independent contractors of the Company or any Subsidiary.
9) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10) "Fair Market Value" means, with respect to the Common Stock,
as of any date (or, if no shares were traded or quoted on such date, as
of the next preceding date on which there was such a trade or quote),
<PAGE>
the reported closing sale price per share of the Common Stock on the
Composite Tape for the New York Stock Exchange.
11) "Incentive Award" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an
Eligible Recipient pursuant to the Plan.
12) "Incentive Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan
that qualifies as an "incentive stock option" within the meaning of
Section 422 of the Code.
13) "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan
that does not qualify as an Incentive Stock Option.
14) "Option" means an Incentive Stock Option or a Non-Statutory
Stock Option.
15) "Participant" means an Eligible Recipient who receives one or
more Incentive Awards under the Plan.
16) "Performance Unit" means a right granted to an Eligible
Recipient pursuant to Section 9 of the Plan to receive a payment from
the Company, in the form of stock, cash or a combination of both, upon
the achievement of established performance goals.
17) "Previously Acquired Shares" means shares of Common Stock that
are already owned by the Participant which have been held by the
Participant for at least six months or, with respect to any Incentive
Award, that are to be issued upon the grant, exercise or vesting of such
Incentive Award.
18) "Restricted Stock Award" means an award of Common Stock
granted to an Eligible Recipient pursuant to Section 8 of the Plan that
is subject to the restrictions on transferability and the risk of
forfeiture imposed by the provisions of such Section 8.
19) "Retirement" means normal or approved early termination of
employment or service pursuant to and in accordance with the regular
retirement/pension plan or practice of the Company or Subsidiary then
covering the Participant, provided that if the Participant is not
covered by any such plan or practice, the Participant will be deemed to
be covered by the Company's plan or practice for purposes of this
determination.
20) "Securities Act" means the Securities Act of 1933, as amended.
21) "Stock Appreciation Right" means a right granted to an
Eligible Recipient pursuant to Section 7 of the Plan to receive a
payment from the Company, in the form of stock, cash or a combination of
both, equal to the difference between the Fair Market Value of one or
more shares of Common Stock and the exercise price of such shares under
the terms of such Stock Appreciation Right.
22) "Stock Bonus" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 10 of the Plan.
23) "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
<PAGE>
24) "Tax Date" means the date any withholding tax obligation
arises under the Code for a Participant with respect to an Incentive
Award.
3. Plan Administration.
1) The Committee. The Plan will be administered by a committee
consisting solely of members of the Board who are disinterested persons
within the meaning of Rule 16b-3 under the Exchange Act, as amended from
time to time. The number of members of the Committee shall be
determined from time to time by the Board but in no event shall the
number of members of the Committee be less than the greater of (a) the
minimum number required in order to maintain the Plan's compliance with
Rule 16b-3 under the Exchange Act, or (b) the minimum number of members
of the Committee required, if any, in order to comply with any
applicable rules, regulations or requirements of any securities
exchange. As used in the Plan, the term "Committee" will refer to the
Board or to such a committee, if established. To the extent consistent
with corporate law, the Committee may delegate to any officers of the
Company the duties, power and authority of the Committee under the Plan
pursuant to such conditions or limitations as the Committee may
establish; provided, however, that only the Committee may exercise such
duties, power and authority with respect to Eligible Recipients who are
subject to Section 16 of the Exchange Act. Each determination,
interpretation or other action made or taken by the Committee pursuant
to the provisions of the Plan will be conclusive and binding for all
purposes and on all persons, and no member of the Committee will be
liable for any action or determination made in good faith with respect
to the Plan or any Incentive Award granted under the Plan.
2) Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Incentive Awards as the Committee may deem necessary or desirable and
as consistent with the terms of the Plan, including, without limitation,
the following: (i) the Eligible Recipients to be selected as
Participants; (ii) the nature and extent of the Incentive Awards to be
made to each Participant (including the number of shares of Common Stock
to be subject to each Incentive Award, any exercise price, the manner in
which Incentive Awards will vest or become exercisable and whether
Incentive Awards will be granted in tandem with other Incentive Awards)
and the form of written agreement, if any, evidencing such Incentive
Award; (iii) the time or times when Incentive Awards will be granted;
(iv) the duration of each Incentive Award; and (v) the restrictions and
other conditions to which the payment or vesting of Incentive Awards may
be subject. In addition, the Committee will have the authority under
the Plan in its sole discretion to pay the economic value of any
Incentive Award in the form of cash, Common Stock or any combination of
both.
(b) The Committee will have the authority under the Plan to amend
or modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of
shares or other terms and conditions of an Incentive Award, extend the
term of an Incentive Award, accelerate the exercisability or vesting or
otherwise terminate any restrictions relating to an Incentive Award,
accept the surrender of any outstanding Incentive Award or, to the
extent not previously exercised or vested, authorize the grant of new
Incentive Awards in substitution for surrendered Incentive Awards;
provided, however that the amended or modified terms are permitted by
the Plan as then in effect and that any Participant adversely affected
by such amended or modified terms has consented to such amendment or
modification. No amendment or modification to an Incentive
<PAGE>
Award, however, whether pursuant to this Section 3.2 or any other
provisions of the Plan, will be deemed to be a regrant of such Incentive
Award for purposes of the Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition
of a significant amount of assets or a significant business, (iii) any
change in accounting principles or practices, or (iv) any other similar
change, in each case with respect to the Company or any other entity
whose performance is relevant to the grant or vesting of an Incentive
Award, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the
surviving corporation) may, without the consent of any affected
Participant, amend or modify the vesting criteria of any outstanding
Incentive Award that is based in whole or in part on the financial
performance of the Company (or any Subsidiary or division thereof) or
such other entity so as equitably to reflect such event, with the
desired result that the criteria for evaluating such financial
performance of the Company or such other entity will be substantially
the same (in the sole discretion of the Committee or the board of
directors of the surviving corporation) following such event as prior to
such event; provided, however, that the amended or modified terms are
permitted by the Plan as then in effect.
4. Shares Available for Issuance.
1) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
2,000,000 shares, plus any shares of Common Stock that, as of the date
the Plan is approved by the Company's stockholders, are reserved for
issuance under the Company's 1990 Stock Option Plan. In addition, the
Board may increase the number of shares of Common Stock that will be
available for issuance under the Plan, without the approval of the
Company's stockholders; provided, however, that such number of shares
may not be increased to more than seven percent (7%) of the outstanding
shares of Common Stock at any time, without approval of the Company's
stockholders. Notwithstanding the foregoing, no more than 500,000
shares of Common Stock may be cumulatively issued under the Plan
pursuant to the exercise of Incentive Stock Options, subject to
adjustment as provided in Section 4.3 of the Plan. The shares available
for issuance under the Plan may, at the election of the Committee, be
either treasury shares or shares authorized but unissued, and, if
treasury shares are used, all references in the Plan to the issuance of
shares will, for corporate law purposes, be deemed to mean the transfer
of shares from treasury.
Notwithstanding any other provision of the Plan to the contrary, no
Participant in the Plan may be granted, during the term of the Plan, any
Options or Stock Appreciation Rights, or any other Incentive Awards with
a value based solely on an increase in the value of the Common Stock
after the date of grant, relating to more than an aggregate of 400,000
shares of Common Stock (subject to adjustment as provided in Section 4.3
of the Plan).
2) Accounting for Incentive Awards. Shares of Common Stock that
are issued under the Plan or that are subject to outstanding Incentive
Awards will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan. Any shares of
Common Stock that are subject to an Incentive Award that lapses,
expires, is forfeited or for any reason is terminated unexercised or
unvested and any shares of Common Stock that are subject to an Incentive
Award that is settled or paid in cash or any form other than shares of
<PAGE>
Common Stock will automatically again become available for issuance
under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
3) Adjustments to Shares and Incentive Awards. In the event of
any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination
of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off) or any other change in the corporate structure or
shares of the Company, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of
the surviving corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to
prevent dilution or enlargement of the rights of Participants, the
number, kind and, where applicable, exercise price of securities subject
to outstanding Incentive Awards.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are
expected to contribute to the achievement of economic objectives of the
Company or its Subsidiaries. Eligible Recipients may be granted from
time to time one or more Incentive Awards, singly or in combination or
in tandem with other Incentive Awards, as may be determined by the
Committee in its sole discretion subject to the limitations contained in
Section 4.1 of the Plan. Incentive Awards will be deemed to be granted
as of the date specified in the grant resolution of the Committee, which
date will be the date of any related agreement with the Participant.
6. Options.
1) Grant.
(a) An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock
Option or a Non-Statutory Stock Option.
(b) For Participants who are permitted to pay the purchase
price of an Option with Previously Acquired Shares as provided in
Section 6.4 below, the Committee, in its sole discretion, may, at or
after the date an Option is granted, provide for the automatic grant of
additional Options to replace the number of Previously Acquired Shares
used to pay the purchase price upon the exercise of all or any portion
of such Option. Such replacement Options shall be for a number of
shares of Common Stock as is equal to or less than the number of
Previously Acquired Shares used to pay the purchase price of the Option,
shall be granted at the Fair Market Value of the Common Stock on the
date of exercise of the Option and shall be automatically granted
without action by the Committee. The authority of the Committee to
provide for such replacement Options shall in no way limit its authority
to otherwise grant Options, whether or not related to any other Option,
in such amounts, at such prices and upon such other terms as it
determines in its sole discretion.
2) Exercise Price. The per share price to be paid by a
Participant upon exercise of an Option will be determined by the
Committee in its discretion at the time of the Option grant, provided
that (a) such price will not be less than 100% of the Fair Market Value
of one share of Common Stock on the date of grant with respect to an
Incentive Stock Option (110% of the Fair Market Value if, at the time
<PAGE>
the Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of
all classes of stock of the Company or any parent or subsidiary
corporation of the Company), and (b) such price will not be less than
75% of the Fair Market Value of one share of Common Stock on the date of
grant with respect to a Non-Statutory Stock Option.
3) Exercisability and Duration. An Option will become exercisable
at such times and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided,
however, that no Option may be exercisable prior to six months from its
date of grant and no Incentive Stock Option may be exercisable after 10
years from its date of grant (5 years from its date of grant if, at the
time the time the Incentive Stock Option is granted, the Participant
owns, directly or indirectly, more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company).
4) Payment of Exercise Price. The total purchase price of the
shares to be purchased upon exercise of an Option will be paid entirely
in cash (including check, bank draft or money order); provided, however,
that the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a Broker Exercise Notice, Previously
Acquired Shares, a promissory note (on terms acceptable to the Committee
in its sole discretion) or by a combination of such methods.
5) Manner of Exercise. An Option may be exercised by a
Participant in whole or in part from time to time, subject to the
conditions contained in the Plan and in the agreement evidencing such
Option, by delivery in person, by facsimile or electronic transmission
or through the mail of written notice of exercise to the Company
(Attention: Human Resources Department) at its principal executive
office in Minneapolis, Minnesota and by paying in full the total
exercise price for the shares of Common Stock to be purchased in
accordance with Section 6.4 of the Plan.
6) Aggregate Limitation of Stock Subject to Incentive Stock
Options.
To the extent that the aggregate Fair Market Value (determined as of the
date an Incentive Stock Option is granted) of the shares of Common Stock
with respect to which incentive stock options (within the meaning of
Section 422 of the Code) are exercisable for the first time by a
Participant during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or parent
corporation of the Company (within the meaning of the Code)) exceeds
$100,000 (or such other amount as may be prescribed by the Code from
time to time), such excess Options will be treated as Non-Statutory
Stock Options. The determination will be made by taking incentive stock
options into account in the order in which they were granted. If such
excess only applies to a portion of an incentive stock option, the
Committee, in its discretion, will designate which shares will be
treated as shares to be acquired upon exercise of an incentive stock
option.
7) Supplemental Bonuses. As to each Option granted pursuant to
the Plan, the Company may grant a supplemental cash bonus to the
Participant, in the discretion of the Committee. Such supplemental
bonuses may be granted or payable in connection with the grant or the
exercise of such Option or both. The determination of whether to grant a
supplemental bonus in connection with any particular grant or exercise
of an Option and the determination as to the nature and amount of any
such bonus shall be within the discretion of the Committee.
7. Stock Appreciation Rights.
<PAGE>
1) Grant. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights
shall be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion.
2) Exercise Price. The exercise price of a Stock Appreciation
Right will be determined by the Committee, in its discretion, at the
date of grant but will not be less than 100% of the Fair Market Value of
one share of Common Stock on the date of grant.
3) Exercisability and Duration. A Stock Appreciation Right will
become exercisable at such time and in such installments as may be
determined by the Committee in its sole discretion at the time of grant;
provided, however, that no Stock Appreciation Right may be exercisable
prior to six months or after 10 years from its date of grant. A Stock
Appreciation Right will be exercised by giving notice in the same manner
as for Options, as set forth in Section 6.5 of the Plan.
8. Restricted Stock Awards.
1) Grant. An Eligible Recipient may be granted one or more
Restricted Stock Awards under the Plan, and such Restricted Stock Awards
will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion. The Committee may impose such restrictions or
conditions, not inconsistent with the provisions of the Plan, to the
vesting of such Restricted Stock Awards as it deems appropriate,
including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a
certain period or that the Participant or the Company (or any Subsidiary
or division thereof) satisfy certain performance goals or criteria;
provided, however, that no Restricted Stock Award may vest prior to six
months from its date of grant.
2) Rights as a Stockholder; Transferability. Except as provided
in Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all
voting, dividend, liquidation and other rights with respect to shares of
Common Stock issued to the Participant as a Restricted Stock Award under
this Section 8 upon the Participant becoming the holder of record of
such shares as if such Participant were a holder of record of shares of
unrestricted Common Stock.
3) Dividends and Distributions. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the
grant of the Restricted Stock Award), any dividends or distributions
(other than regular quarterly cash dividends) paid with respect to
shares of Common Stock subject to the unvested portion of a Restricted
Stock Award will be subject to the same restrictions as the shares to
which such dividends or distributions relate. In the event the
Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether
any interest will be paid on such dividends or distributions. In
addition, the Committee in its sole discretion may require such
dividends and distributions to be reinvested (and in such case the
Participants consent to such reinvestment) in shares of Common Stock
that will be subject to the same restrictions as the shares to which
such dividends or distributions relate.
4) Enforcement of Restrictions. To enforce the restrictions
referred to in this Section 8, the Committee may place a legend on the
stock certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the stock
certificates, together with duly endorsed stock powers, in the custody
of the Company or its transfer agent or to maintain evidence of stock
<PAGE>
ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company's transfer
agent.
9. Performance Units.
An Eligible Recipient may be granted one or more Performance Units under
the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such Performance Units as it
deems appropriate, including, without limitation, that the Participant
remain in the continuous employ or service of the Company or any
Subsidiary for a certain period or that the Participant or the Company
(or any Subsidiary or division thereof) satisfy certain performance
goals or criteria. The Committee will have the sole discretion either
to determine the form in which payment of the economic value of vested
Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the
election by the Participant of the form of such payment.
10. Stock Bonuses.
An Eligible Recipient may be granted one or more Stock Bonuses under the
Plan, and such Stock Bonuses will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Participant
will have all voting, dividend, liquidation and other rights with
respect to the shares of Common Stock issued to a Participant as a Stock
Bonus under this Section 10 upon the Participant becoming the holder of
record of such shares; provided, however, that the Committee may impose
such restrictions on the assignment or transfer of a Stock Bonus as it
deems appropriate.
11. Effect of Termination of Employment or Other Service.
1) Termination Due to Death. In the event a Participant's
employment or other service with the Company and all Subsidiaries is
terminated by reason of death or in the event that the Participant dies
within three-months of such termination:
(a) All outstanding Options and Stock Appreciation Rights then
held by the Participant will remain exercisable to the extent
exercisable as of such termination for a period of one year after such
termination (but in no event after the expiration date of any such
Option or Stock Appreciation Right);
(b) All outstanding Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited; and
(c) All outstanding Performance Units and Stock Bonuses then
held by the Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement evidencing
such Performance Units or Stock Bonuses.
<PAGE>
(1) Termination Due to Cause.
(a) In the event a Participant's employment or other service
is terminated with the Company and all Subsidiaries for "cause" all
rights of the Participant under the Plan and any agreements evidencing
an Incentive Award will immediately terminate without notice of any
kind, and no Options or Stock Appreciation Rights then held by the
Participant will thereafter be exercisable, all Restricted Stock Awards
then held by the Participant that have not vested will be terminated and
forfeited, and all Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined
by the Committee and set forth in the agreement evidencing such
Performance Units or Stock Bonuses.
(b) For purposes of this Section 11.2, "cause" (as determined
by the Committee) will be as defined in any employment or other
agreement, plan or policy applicable to the Participant or, if no such
agreement, plan or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any intentional
and deliberate breach of a duty or duties that, individually or in the
aggregate, are material in relation to the Participant's overall duties,
or (iv) any material breach of any employment, service, confidentiality
or non-compete agreement entered into with the Company or any
Subsidiary.
3) Termination for Reasons Other than Death or Cause. In the
event a Participant's employment or other service with the Company and
all Subsidiaries is terminated for any reason other than death or cause,
or a Participant is in the employ or service of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the
Participant continues in the employ or service of the Company or another
Subsidiary):
(a) All outstanding Options and Stock Appreciation Rights then
held by the Participant will remain exercisable to the extent
exercisable as of such termination for a period of three months after
such termination (but in no event after the expiration date of any such
Option or Stock Appreciation Right);
(b) All outstanding Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited; and
(c) All outstanding Performance Units and Stock Bonuses then
held by the Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement evidencing
such Performance Units or Stock Bonuses.
4) Modification of Rights Upon Termination. Notwithstanding the
other provisions of this Section 11, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any
time on or after the date of grant, including following such
termination), cause Options and Stock Appreciation Rights (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of
employment or service and Restricted Stock Awards, Performance Units and
Stock Bonuses then held by such Participant to vest and/or continue to
vest or become free of transfer restrictions, as the case may be,
following such termination of employment or service, in each case in the
manner determined by the Committee; provided, however, that (a) no
Incentive Award will become exercisable or vest prior to six months from
its date of grant and (b) no Option or Stock Appreciation Right may
remain exercisable beyond its expiration date.
<PAGE>
5) Breach of Confidentiality or Non-Compete Agreements.
Notwithstanding anything in the Plan to the contrary, in the event that
a Participant materially breaches the terms of any confidentiality or
non-compete agreement entered into with the Company or any Subsidiary,
whether such breach occurs before or after termination of such
Participant's employment or other service with the Company or any
Subsidiary, the Committee in its sole discretion may immediately
terminate all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award then held by the Participant
without notice of any kind.
6) Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to
have terminated on the date recorded on the personnel or other records
of the Company or the Subsidiary for which the Participant provides
employment or other service, as determined by the Committee in its sole
discretion based upon such records.
12. Payment of Withholding Taxes.
1) General Rules. The Company is entitled to (a) withhold and
deduct from future wages of the Participant (or from other amounts that
may be due and owing to the Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all
legally required amounts necessary to satisfy any and all federal, state
and local withholding and employment-related tax requirements
attributable to an Incentive Award, including, without limitation, the
grant, exercise or vesting of, or payment of dividends with respect to,
an Incentive Award or a disqualifying disposition of stock received upon
exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before
taking any action, including issuing any shares of Common Stock, with
respect to an Incentive Award.
2) Special Rules. The Committee may, in its sole discretion and
upon terms and conditions established by the Committee, permit or
require a Participant to satisfy, in whole or in part, any withholding
or employment-related tax obligation described in Section 12.1 of the
Plan by electing to tender Previously Acquired Shares, a Broker Exercise
Notice or a promissory note (on terms acceptable to the Committee in its
sole discretion), or by a combination of such methods.
13. Change in Control.
1) Change in Control. For purposes of this Section 13.1, a
"Change in Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
(b) the approval by the stockholders of the Company of any
plan or proposal for the liquidation or dissolution of the Company;
(c) any person becomes after the effective date of the Plan
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (i) 20% or more, but not more than 50%
of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, unless
the transaction resulting in such ownership has been approved in advance
<PAGE>
by the Incumbent Directors (as defined in Section 13.2 below), or (ii)
more than 50% of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of directors
(regardless of any approval by the Incumbent Directors);
(d) a merger or consolidation to which the Company is a party
if the stockholders of the Company immediately prior to the effective
date of such merger or consolidation have "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), immediately following the
effective date of such merger or consolidation, of securities of the
surviving corporation representing (i) 50% or more, but not more than
80%, of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections
of directors, unless such merger or consolidation has been approved in
advance by the Incumbent Directors, or (ii) less than 50% of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of directors
(regardless of any approval by the Incumbent Directors);
(e) the Incumbent Directors cease for any reason to
constitute at least a majority of the Board; or
(f) a change in control of the Company of a nature that would
be required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such
reporting requirements.
2) Incumbent Directors. For purposes of this Section 13,
"Incumbent Directors" of the Company means any individuals who are
members of the Board on the effective date of the Plan and any
individual who subsequently becomes a member of the Board whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors comprising
the Board on the effective date of the Plan (either by specific vote or
by approval of the Company's proxy statement in which such individual is
named as a nominee for director without objection to such nomination).
3) Acceleration of Vesting. Without limiting the authority of the
Committee under Section 3.2 of the Plan, if a Change in Control of the
Company occurs, then, if approved by the Committee in its sole
discretion either in the agreement evidencing an Incentive Award at the
time of grant or at any time after the grant of an Incentive Award, (a)
all Options and Stock Appreciation Rights then held by the Participant
will become immediately exercisable in full and will remain exercisable
for the remainder of their terms, regardless of whether the Participant
to whom such Options or Stock Appreciation Rights have been granted
remains in the employ or service of the Company or any Subsidiary; (b)
all Restricted Stock Awards then held by the Participant will become
immediately fully vested and non-forfeitable; and (c) all outstanding
Performance Units and Stock Bonuses then held by the Participant will
vest and/or continue to vest in the manner determined by the Committee
and set forth in the agreement evidencing such Performance Units or
Stock Bonuses.
4) Cash Payment for Options. If a Change in Control of the
Company occurs, then the Committee, if approved by the Committee in its
sole discretion either in an agreement evidencing an Incentive Award at
the time of grant or at any time after the grant of an Incentive Award,
and without the consent of any Participant effected thereby, may
determine that some or all Participants holding outstanding Options will
receive, with respect to some or all of the shares of Common Stock
subject to such Options, as of the effective date of any such Change in
Control of the Company, cash in an amount equal to the excess of the
<PAGE>
Fair Market Value of such shares immediately prior to the effective date
of such Change in Control of the Company over the exercise price per
share of such Options.
5) Limitation on Change in Control Payments. Notwithstanding
anything in Section 13.3 or 13.4 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the vesting of an
Incentive Award as provided in Section 13.3 or the payment of cash in
exchange for all or part of an Incentive Award as provided in Section
13.4 (which acceleration or payment could be deemed a "payment" within
the meaning of Section 280G(b)(2) of the Code), together with any other
payments which such Participant has the right to receive from the
Company or any corporation that is a member of an "affiliated group" (as
defined in Section 1504(a) of the Code without regard to Section 1504(b)
of the Code) of which the Company is a member, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code), then
the payments to such Participant pursuant to Section 13.3 or 13.4 will
be reduced to the largest amount as will result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the
Code; provided, however, that if such Participant is subject to a
separate agreement with the Company or a Subsidiary which specifically
provides that payments attributable to one or more forms of employee
stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even
if it would constitute an excess parachute payment, or provides that the
Participant will have the discretion to determine which payments will be
reduced in order to avoid an excess parachute payment, then the
limitations of this Section 13.5 will, to that extent, not apply.
14. Rights of Eligible Recipients and Participants; Transferability.
1) Employment or Service. Nothing in the Plan will interfere with
or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the
Company or any Subsidiary.
2) Rights as a Stockholder. As a holder of Incentive Awards
(other than Restricted Stock Awards and Stock Bonuses), a Participant
will have no rights as a stockholder unless and until such Incentive
Awards are exercised for, or paid in the form of, shares of Common Stock
and the Participant becomes the holder of record of such shares. Except
as otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to such Incentive Awards as to
which there is a record date preceding the date the Participant becomes
the holder of record of such shares, except as the Committee may
determine in its discretion.
3) Restrictions on Transfer. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of any Participant in an
Incentive Award prior to the exercise or vesting of such Incentive Award
will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise. A Participant
will, however, be entitled to designate a beneficiary to receive an
Incentive Award upon such Participant's death, and in the event of a
Participant's death, payment of any amounts due under the Plan will be
made to, and exercise of any Options (to the extent permitted pursuant
to Section 11 of the Plan) may be made by, the Participant's legal
representatives, heirs and legatees.
4) Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans
or programs of the Company or create any limitations on the power or
authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.
<PAGE>
15. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to
issue any shares of Common Stock under the Plan, and a Participant may
not sell, assign, transfer or otherwise dispose of shares of Common
Stock issued pursuant to Incentive Awards granted under the Plan, unless
(a) there is in effect with respect to such shares a registration
statement under the Securities Act and any applicable state securities
laws or an exemption from such registration under the Securities Act and
applicable state securities laws, and (b) there has been obtained any
other consent, approval or permit from any securities exchange or other
regulatory body which the Committee, in its sole discretion, deems
necessary or advisable. The Company may condition such issuance, sale
or transfer upon the receipt of any representations or agreements from
the parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or
advisable by the Company in order to comply with such securities law or
other restrictions.
16. Plan Amendment, Modification and Termination.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as
the Board may deem advisable in order that Incentive Awards under the
Plan will conform to any change in applicable laws or regulations or in
any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no amendments to the Plan will be
effective without approval of the stockholders of the Company if
stockholder approval of the amendment is then required pursuant to Rule
16b-3 under the Exchange Act, Section 422 and 162(m) of the Code or the
rules of the New York Stock Exchange. No termination, suspension or
amendment of the Plan may adversely affect any outstanding Incentive
Award without the consent of the affected Participant; provided,
however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2(c), 4.3
and 13 of the Plan.
17. Effective Date and Duration of the Plan.
The Plan is effective as of December 21, 1993, the date it was adopted
by the Board; subject, however, to approval of the Company's
stockholders prior to December 20, 1994. The Plan will terminate at
midnight on December 20, 2003, and may be terminated prior to such time
to by Board action, and no Incentive Award will be granted after such
termination. Incentive Awards outstanding upon termination of the Plan
may continue to be exercised, or become free of restrictions, in
accordance with their terms.
18. Miscellaneous.
1) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed
exclusively in accordance with the laws of the State of Minnesota.
2) Successors and Assigns. The Plan will be binding upon and
inure to the benefit of the successors and permitted assigns of the
Company and the Participants.
May 29, 1990
John Michael Nilles
Fargo, North Dakota
This letter is to express our understanding with you concerning your
employment by Metropolitan Financial Corporation.
You have been hired by Metropolitan Financial Corporation effective May
22, 1990, with employment commencing within the next 120-day period.
You have agreed to serve as Executive Vice President and General
Counsel. The term of this employment is until December 31, 1995. At
the end of the term, if mutually agreeable between the parties, your
employment may be continued on the same basis as other senior officers
of Metropolitan, that is, as an employee at will subject to termination
by either party without any cause on 30 days notice.
During the term of this agreement, your employment can only be
terminated for cause, that is, for a breach by you of Metropolitan's
rules and regulations or dishonesty or failure to perform your duties at
the required level of industry and competence. Your compensation shall
be $140,000 per year plus raises, if any, Metropolitan may grant.
If this letter correctly states our agreement, please sign both copies,
keeping one for your file and returning one to us.
METROPOLITAN FINANCIAL CORPORATION
By:Norman M. Jones John Michael Nilles
_______________ ___________________
NORMAN M. JONES JOHN MICHAEL NILLES
Its: Chairman and CEO
<PAGE>
Resolutions Adopted at the January 25, 1994
Board of Directors Meeting
Upon motion made, seconded, and carried, with Charles D. Kalil not
present and participating,
RESOLVED, That the compensation for the Corporate Secretary be increased
from $25,000 to $35,000.
<PAGE>
SEPARATION AGREEMENT
Metropolitan Financial Corporation ("Metropolitan") having requested the
resignation of Stan K. Dardis ("Dardis") and both parties to this
agreement desiring to settle and resolve in a final and binding way all
issues between them, Metropolitan and Dardis hereby agree as follows:
1. Dardis hereby resigns his employment as President, Chief Executive
Officer and Director of Metropolitan Federal Bank and all his other
positions and responsibilities as officer, employee and member of the
board of directors of Metropolitan and all of its subsidiary and
affiliated corporations and business, effective June 15, 1993.
2. Upon expiration of the rescission period described in paragraph 8
below, Metropolitan shall pay Dardis his current monthly base salary up
to December 31, 1993. Dardis will continue to be covered under Medical,
Dental, and Life Insurance only until December 31, 1993. Long Term
Disability, Pension, 401K, and all other employee benefits will cease on
June 15, 1993. Dardis will have 90 days from the December 31, 1993 date
to exercise any outstanding Metropolitan Corporation stock options.
3. Metropolitan will pay all reasonable invoices of reputable providers
of outplacement services to Dardis up to a maximum of Twelve Thousand
Dollars ($12,000).
4. Dardis agrees to fully and finally release Metropolitan and all of
Metropolitan's subsidiaries and affiliates and all officers, employees
and agents of those corporations from all claims he has or might have
arising to the date hereof relating in any way to his employment or the
termination of his employment with those corporations and persons. This
release specifically includes, but is not limited to, all claims of age
or other discrimination in employment arising under the federal Age
Discrimination in Employment Act, the Minnesota Human Rights Act or any
other federal, state or local statue in ordinance as well as all claims
of reprisal, retaliation, defamation, invasion of privacy, breach of
express or implied contract, promissory, estoppel, intentional or
negligent infliction of emotional distress, intentional or negligent
misrepresentation or fraud, "whistleblowing," breach of public policy,
intentional or negligent interference with contract, improper
administration of employee benefits and any other claim, whether legal
or equitable. It is understood that this release will not impair any
existing rights Dardis may have under any presently existing pension,
retirement or employee benefit plan of Metropolitan, nor will it impair
any rights Dardis may have to seek unemployment compensation benefits.
5. Dardis agrees, as an essential and material element of this
Separation Agreement, that he will maintain all of the terms of this
Separation Agreement and any negative opinions about Metropolitan and
all of Metropolitan's subsidiaries and affiliates and their employees in
strictest confidence and that he will not disclose the facts or terms of
this Separation Agreement or those opinions to any person, except as
required by law.
6. Dardis agrees to hold in confidence and not to directly or
indirectly reveal, disclose or transfer any "Confidential Information"
at any time hereafter to any person or entity and promises and
represents that he has not done so heretofore. The term "Confidential
Information" means all information or material proprietary to
Metropolitan, its subsidiaries or affiliates and not generally known,
about which Dardis obtained knowledge of or access to through Dardis'
relationship with Metropolitan. "Confidential Information" includes,
but is not limited to the following types of information and other
information of a similar nature whether or not in writing:
Metropolitan's, its subsidiaries' or affiliates' financial information:
buying, marketing and pricing methods, plans and techniques; concepts,
compilations, know-how, procedures, manuals; reports; lists of existing
and contemplated clients and customers' financial information, employee
lists and confidential information entrusted by clients, customers and
other third parties to Metropolitan, its subsidiaries and affiliates.
Dardis agrees to promptly refer any requests for Confidential
Information he receives to the Vice President-Human Resources of
Metropolitan.
7. In responding to inquiries by third parties (other than governmental
regulators) regarding the reasons for Dardis' separation from
Metropolitan, the parties will only state that Dardis resigned for
"personal reasons to pursue other interests" and the dates of Dardis'
employment and nothing further.
8. Dardis acknowledges that he has had a 21 day opportunity to review
and reflect on the terms of this Separation Agreement. Dardis further
understands that he may rescind this Separation Agreement and the
Release contained within it within 15 days of signing it. To be
effective, his rescission must be in writing and delivered to
Metropolitan in care of Gordon Schroeder, within the 15 day period. If
sent by mail, the rescission must be 1) post-marked within the 15 day
period; 2) properly addressed to Metropolitan; and 3) sent by certified
mail, return receipt requested.
9. This Separation Agreement and the attached Release constitute the
entire agreement of the parties. No other agreement not expressed
within this Separation Agreement shall have any force or effect, and no
modification, amendment or change of any kind to this Separation
Agreement shall be effective unless it is in writing and signed by each
of the parties to this Separation Agreement.
10. The laws of the State of Minnesota shall apply to any disputes that
may arise relative to the construction of this agreement.
11. Dardis represents and agrees that he has carefully read and fully
understands all of the provisions of this Separation Agreement and the
attached Released, that he has had a full opportunity to have all of the
terms of this Separation Agreement and Release explained to him by legal
counsel of his choosing and at his expense and that he fully understands
that by signing this Separation Agreement and the attached Release, he
is giving up all rights to pursue any further claims against
Metropolitan and others mentioned in the Release for any reason arising
in or having roots in anything that happened up to the time of his
signature. Dardis therefore represents and agrees that he is signing
this Separation Agreement knowingly, freely and voluntarily.
Dated: ______________
Stan K. Dardis
Metropolitan Financial Corporation
Date: June 15, 1993 By__________________________________
Its __________________________________
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT SEVERANCE PAY PLAN
As Adopted Effective as of March 23, 1993
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT SEVERANCE PAY PLAN
Table of Contents
_________________
Page
ARTICLE 1 Introduction 1
1.1 Plan Name 1
1.2 Plan Type 1
1.3 Plan Purpose 1
ARTICLE 2 Definitions, Construction and Interpretations 2
2.1 Administrator 2
2.2 Base Pay 2
2.3 Code 2
2.4 Company 2
2.5 Comparable Position 2
2.6 Effective Date 2
2.7 Eligible Employee 3
2.9 ERISA 3
2.10 Governing Law 3
2.11 Headings 3
2.12 Notice of Qualifying Termination 3
2.13 Number and Gender 3
2.14 Officers 3
2.15 Plan 3
2.16 Qualifying Termination 3
2.17 Termination Date 4
ARTICLE 3 Eligibility for Benefits 5
3.1 Eligibility Requirements 5
3.2 Certain Qualifying Terminations Before Effective Date 5
3.3 Special Acquisition Agreement Benefits 5
3.4 Other Special Benefits 5
ARTICLE 4 Benefits 6
4.1 Cash Payment 6
4.2 Continuation of Welfare Benefits 7
4.3 Continued Job Posting 7
4.4 Limitation on Benefits 7
ARTICLE 5 Administration 8
5.1 Administration 8
5.2 Benefit Claims 8
5.3 Funding 9
5.4 Amendment and Termination 9
ARTICLE 6 Miscellaneous 10
6.1 No Employment Rights Created 10
6.2 Withholding and Offsets 10
6.3 Integration with Other Benefit Programs 10
6.4 Binding Plan 10
6.5 Notices 10
<PAGE>
METROPOLITAN FINANCIAL CORPORATION EXECUTIVE MANAGEMENT SEVERANCE PAY PLAN
1
Introduction
____________
.1 Plan Name. The name of the Plan is the "Metropolitan Financial
Corporation Executive Management Severance Pay Plan."
.2 Plan Type. The Plan is unfunded and is maintained by the Company
primarily for the purpose of providing benefits for a select group of
management or highly compensated employees. As such, the Plan is
intended to be exempt from the provisions of Parts 2 through 4 of
Subtitle B of Title I and from Title IV of ERISA by operation of
sections 201(2), 302(a)(3), 401(a)(1) an 4021(b)(6) thereof,
respectively. The Plan is not intended to qualify under Code section
401(a).
<PAGE>
2
.3 Plan Purpose. The purpose of the Plan is to provide Eligible
Employees who experience a Qualifying Termination with temporary
financial support during their transition to new employment.
Definitions, Construction and Interpretations
_____________________________________________
The definitions and rules of construction and interpretation set forth
in this Article 2 apply in construing the Plan unless the context
otherwise indicates.
.1 Administrator. The "Administrator" of the Plan is the Company's
Senior Vice President of Human Resources or an individual to whom
administrative responsibilities are delegated pursuant to Article 5, as
the context requires.
.2 Base Pay. The "Base Pay" of an Eligible Employee is his or her
annual base salary or wages from his or her Employer at the rate in
effect on the date Notice of Qualifying Termination is given. Base Pay
includes only regular cash salary and wages and is determined before any
reduction for deferrals pursuant to any nonqualified deferred
compensation plan or arrangement, qualified cash or deferred arrangement
or cafeteria plan.
.3 Code. The "Code" is the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference
to such provision as it may be amended from time to time and to any
successor provision.
.4 Company. The "Company" is Metropolitan Financial Corporation or
any successor thereto.
.5 Comparable Position. A "Comparable Position" is an employment
position that meets the following criteria:
(a) the work location is within the same community or metropolitan area
as the Eligible Employee's current work location;
(b) the annual base cash salary or wage rate of the new position is not
less than 80 percent of the Eligible Employee's Base Pay;
(c) the daily work schedule of the new position is substantially
similar to the Eligible Employee's current daily work schedule; and
(d) the availability of the position is not contingent on the Eligible
Employee's investment of capital.
These criteria are intended to be exhaustive; no other criteria will be
taken into account. Thus, an employment position will not fail to be a
Comparable Position because it involves a change in, for example, type
of position, job classification (for example, regular or transitional),
official title, salary midpoint or other perquisites or job conditions.
.6 Effective Date. The "Effective Date" of this Plan is July 1, 1993,
except that the Plan may be applied retroactively to January 1, 1993 in
accordance with Section 3.2.
.7 Eligible Employee. An "Eligible Employee" is an individual who
performs services for an Employer as a common law employee and (a) (1)
is classified as a "regular" employee pursuant to the Employer's
applicable employment policies, and (2) has a salary grade
classification of 20 or above, or (b) is employed in a temporary
position with an Employer if, immediately preceding his or her
employment in the temporary position, such individual was employed by an
Employer or by a business that was acquired by an Employer in a
permanent position that had a salary grade classification of 20 or above
or the equivalence thereof.
.8 Employer. An "Employer" is the Company and each member of a
controlled group of corporations (within the meaning Code section
414(b)), or a group of trades or businesses under common control (within
the meaning of Code section 414(c)), that includes the Company, or all
of them collectively, as the context acquires. An Employer that ceases
to be a member of the controlled group of corporations, or group of
trades or businesses under common control, that includes the Company,
will cease to be an Employer except with respect to liabilities under
the Plan attributable to Qualifying Terminations occurring before it
ceases to be an Employer.
.9 ERISA. "ERISA" is the Employee Retirement Income Security Act of
1974, as amended. Any reference to a specific provision of ERISA
includes a reference to such provision as it may be amended from time to
time and to any successor provision.
.10 Governing Law. Except to the extent that state law is preempted by
provisions of the ERISA, as amended, or any other laws of the United
States in effect from time to time, the Plan will be administered,
interpreted, construed and enforced according to the internal,
substantive laws of the State of Minnesota, without regard to the
conflict of law rules of the State of Minnesota or of any other
jurisdiction.
.11 Headings. The headings of articles and sections are included
solely for convenience. If there is a conflict between a heading and the
text of the Plan, the text will control.
.12 Notice of Qualifying Termination. A "Notice of Qualifying
Termination" is a written notice provided by the Employer to an Eligible
Employee which indicates that a termination of employment is a
Qualifying Termination.
.13 Number and Gender. Whenever appropriate, the singular number may
be read as the plural, the plural may be read as the singular and a
reference to one gender may be read as a reference to the other.
.14 Officers. Any reference in this Plan to a particular officer of an
Employer also refers to the functional equivalent of such officer if the
title or responsibilities of that office change.
.15 Plan. The "Plan" is the Metropolitan Financial Corporation
Executive Management Severance Pay Plan as set forth in this instrument
as it may be amended from time to time.
.16 Qualifying Termination. (A) Subject to Subsection (B), a
"Qualifying Termination" with respect to an Eligible Employee is a
complete termination of his or her employment relationship with all
Employers as a result of:
(1) the elimination of the Eligible Employee's position by an Employer
for any reason other than the Eligible Employee's job performance,
death, or permanent physical or mental incapacity;
(2) the replacement of the Eligible Employee with another employee of
an Employer for any reason other than the Eligible Employee's job
performance, death, or permanent physical or mental incapacity;
(3) the Eligible Employee's refusal to accept a position with an
Employer that is not a Comparable Position; or
(4) the sale, transfer or other disposition of all or any part of the
assets of the Employer if the Eligible Employee is neither offered a
Comparable Position nor accepts any position with the transferee of such
assets.
(B) An Eligible Employee whose termination of employment is described
in Subsection (A) will not be considered to have experienced a
Qualifying Termination if:
(1) the Eligible Employee voluntarily resigns under any circumstance
other than that described in Subsection (A)(3);
(2) the Eligible Employee refuses to interview for or accept a
Comparable Position with an Employer;
(3) the Eligible Employee refuses to accept a Comparable Position or
accepts any position with an entity in which an Employer has an
ownership interest; or
(4) the Eligible Employee's Employer ceases to be an Employer as a
result of the sale, transfer or other disposition of all or any of the
capital stock of such Employer, whether or not the Eligible Employee's
employment is terminated at any time after such sale, transfer, or other
disposition.
.17 Termination Date. The "Termination Date" of an Eligible Employee
is his or her last day of employment in connection with a Qualifying
Termination.
<PAGE>
3
Eligibility for Benefits
________________________
.1 Eligibility Requirements. An Eligible Employee is entitled to the
benefits provided in Article 4 upon his or her Qualifying Termination
but only if he or she signs and delivers to the Administrator:
(a) a release or waiver of employment-related claims, in form
prescribed by the Administrator, and
(b) an agreement of the type described in Section 4.4(A)(1), in form
prescribed by the Administrator.
The Administrator may, on a case-by-case basis, elect not to require a
release pursuant to clause (a) or an agreement pursuant to clause (b).
Any such election by the Administrator with respect to a particular
Eligible Employee applies only to that Eligible Employee and does not in
any way limit the Administrator's right to require any other Eligible
Employee to provide the release, the agreement or both.
.2 Certain Qualifying Terminations Before Effective Date. An Eligible
Employee who (a) experiences a Qualifying Termination after December 31,
1992 but prior to the Effective Date and (b) did not become an Eligible
Employee in connection with an acquisition after December 31, 1992, will
be entitled to all benefits provided by the Plan, except that the cash
payment determined under Section 4.1 will equal the greater of (y) the
amount determined in accordance with Section 4.1(A) or (z) his or her
Base Pay multiplied by a fraction, the numerator of which is the number
of continuous and complete six-calendar-month periods between the
Eligible Employee's adjusted date of hire (as reflected in the
Employer's personnel files) and the Termination Date, and the
denominator of which is 52.
.3 Special Acquisition Agreement Benefits. If the definitive
agreement pursuant to which an Employer acquires any business contains
special rules applicable to the entitlement to or amount or type of
severance benefits to be provided to an Eligible Employee who became
such in connection with the acquisition, those special rules will be
deemed to be part of the Plan and will be applied in lieu of any
contrary provisions of the Plan; provided that those special rules will
automatically expire six months following the date of the definitive
agreement unless such agreement expressly states otherwise.
.4 Other Special Benefits. The Administrator may (a) provide
severance benefits to any Eligible Employee who is not otherwise
entitled to such benefits and (b) provide severance benefits in excess
of the amount provided by the Plan to any Eligible Employee who is
entitled to benefits under the Plan. In either case, the amount and
type of such benefits will be determined by the Administrator in his or
her discretion but will be deemed to be provided pursuant to the Plan.
<PAGE>
4
Benefits
________
.1 Cash Payment. (A) Subject to Section 4.4, upon his or her
Qualifying Termination, an Eligible Employee will receive a cash payment
in an amount equal to the sum of (1) the amount of Base Pay the Eligible
Employee would have received if he or she had remained employed in the
same position for the 30 calendar day period following his or her
Termination Date, plus (2) the amount of the Eligible Employee's Base
Pay multiplied by a fraction, the numerator of which is his or her "days
of pay" and the denominator of which is 364.
(A) For purposes of Subsection (A), "days of pay" with respect to an
Eligible Employee equals the product of the number of continuous
calendar years between his or her adjusted date of hire (as reflected in
the Employer's personnel files) and his or her Termination Date
multiplied by seven. For any such period of employment that is less
than 12 complete calendar months, the following "days of pay" will be
assigned:
(1) one "day of pay" if the period includes at least two but less than
four calendar months;
(2) two "days of pay" if the period includes at least four but less
than six calendar months;
(3) three "days of pay" if the period includes at least six but less
than eight calendar months;
(4) four "days of pay" if the period includes at least eight but less
than ten calendar months; and
(5) five "days of pay" if the period includes at least ten but less
than 12 calendar months.
(C) Upon his or her Qualifying Termination, an Eligible Employee will
receive an amount, in addition to the amount determined under Subsection
(A), equal to the amount, if any, by which (1) the Eligible Employee's
Base Pay exceeds (2) the amount determined under Subsection (A).
(D) The amount determined under Subsection (A) will be paid (1) in a
single lump sum payment as soon as administratively practicable after
the Eligible Employee's Termination Date, or (2) if the Administrator in
his or her discretion so decides, in periodic payments made on the same
basis (weekly, semi-monthly or monthly) as such Eligible Employee's Base
Pay on his or her Termination Date subject to the Administrator's
retained right to at any time cause any remaining periodic payments to
be paid in a single lump sum payment; provided, that in no case will
payments be made or begin before the end of any rescission period
arising under applicable law or Plan rule in connection with the
Eligible Employee's release pursuant to clause (a) of Section 3.1. The
amount determined under Subsection (C) will be paid in accordance with
Subsection (D)(1).
.2 Continuation of Welfare Benefits. Subject to Section 4.4, an
Eligible Employee who is receiving periodic payments pursuant to Section
4.1 will be entitled to continue medical, dental and life insurance
coverage at the same cost and on the same basis as active employees of
his or her Employer during the period in which periodic payments
continue. If coverage is not uniform throughout the Employer, an
Eligible Employee will be entitled to the same coverage, at the same
cost and on the same basis, as active employees in the position the
Eligible Employee left, or in a comparable position if the position has
been eliminated. The continuation period under federal and state
continuation laws, to the extent applicable, will begin to run from the
date coverage pursuant to this Section 4.2 ends.
.3 Continued Job Posting. An Eligible Employee who is entitled to
benefits under this Plan may continue to post for job opportunities with
any Employer during the "limitation period" (described in Section
4.4(A)(2)).
.4 Limitation on Benefits. (A) (1) If an Eligible Employee who
becomes entitled to benefits under the Plan is reemployed during the
"limitation period" (described in clause (2)) by (a) an Employer, (b)
any entity from whom an Employer acquired a business or any affiliate of
such an entity, or (c) any entity that acquired any part of the assets
or business of an Employer or any affiliate of such an entity, then all
periodic payments under Section 4.1 will immediately stop. If the
Eligible Employee received a lump sum payment from an Employer pursuant
to Section 4.1, he or she must repay the Employer an amount equal to the
amount he or she received less the total amount of periodic payments he
or she would have received through his or her reemployment date had his
or her benefit been paid in that form. The Administrator may require
any Eligible Employee to sign an agreement to make such a repayment as a
condition to making a lump sum payment but the Administrator's failure
to do so does not relieve an Eligible Employee of his or her repayment
obligation.
(1) For purposes of Subsection (A) and Section 4.3, the "limitation
period" with respect to an Eligible Employee begins on his or her
Termination Date and ends on the last day of the last pay period for
which he or she would have received a periodic payment pursuant to
Section 4.1 if his or her benefit had been paid periodically (regardless
of the actual payment form).
(B) The amount of benefits to which an Eligible Employee would
otherwise be entitled under the Plan will be reduced by the full amount
of any benefits the Employer is required to provide to the Eligible
Employee under any provision of law on account of the termination of
employment, including, but not limited to, any payments made to satisfy
an actual or potential claim of an Eligible Employee under the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et seq.
("WARN"), or a similar law of any state. The Administrator will, in his
or her discretion, determine how the reduction will be made.
<PAGE>
5
Administration
______________
.1 Administration. (A) The Plan will be administered by the Company's
Senior Vice President of Human Resources, who is the "named fiduciary"
of the Plan for purposes of ERISA. The Senior Vice President of Human
Resources may delegate part or all of his or her administrative
responsibilities to another individual. Each delegation must be in
writing and may apply to a specified individual or the holder of a
specified position as the delegate. A designation of the holder of a
specified position will be deemed to include a designation of the
successor to the administrative functions of such position if the title
or functions of such position change. The designation of a specified
employee will be revoked automatically if he or she ceases to be an
employee.
(A) The Administrator has the discretionary power and authority to
adopt such rules as he or she deems advisable in connection with the
administration of the Plan, and to construe, interpret, apply and
enforce the Plan and any such rules.
(B) The Administrator will, consistent with the terms of the Plan, in
his or her discretion, determine whether an individual is entitled to
benefits under the Plan, and, if so, the amount and duration of, and
continuing entitlement to, such benefits. The Administrator's
determinations will be conclusive and binding on all parties affected by
the determination. The Administrator may exercise his or her
discretionary power and authority on a case-by-case basis. No decision
of the Administrator in any way limits or impairs his or her discretion
relative to future decisions, including those involving similarly
situated persons.
(C) The Employers will indemnify and hold harmless the Administrator,
to the greatest extent permitted by law, against any and all
liabilities, losses, costs and expenses (including legal fees) of every
kind and nature that may be imposed on, incurred by or asserted against
the Administrator at any time by reason of his or her services in
connection with the Plan, but only if he or she did not act dishonestly
or in bad faith or in willful violation of the law under which the
liability, loss, cost or expense arises. The Employers have the right
but not the obligation to select counsel and control the defense and
settlement of any action for which an individual may be entitled to
indemnification under this provision.
(D) If any person with administrative authority becomes eligible or
makes a claim for Plan benefits, he or she will have no authority with
respect to any matter specifically affecting his or her individual
interest under the Plan and the Company's Senior Vice President of Human
Resources will exercise such authority directly, or will designate
another person to exercise such authority, unless the matter relates to
his or her interest in the Plan, in which case the Company will
designate another person to exercise such authority.
.2 Benefit Claims. A person whose employment relationship with the
Employers has terminated and who has not been awarded benefits under the
Plan may, within 60 days after his or her employment has terminated,
file a written request for severance benefits with the Administrator.
The Administrator will review such request and will notify the claimant
of his or her decision within 90 days after such request is filed. If
the Administrator denies the claim for severance benefits, the notice of
the denial will contain
(a) the specific reason for the denial,
(b) a specific reference to the provision of the Plan on which denial
is based,
(c) a description of any additional information or material necessary
for the person to perfect his or her claim (and an explanation of why
such information is material or necessary), and
(d) an explanation of the Plan's claim review procedure.
If the Administrator determines that a claimant is not eligible for
benefits, or if the claimant believes that he or she is entitled to
greater or different benefits, the claimant may file a petition for
review with the Administrator within 60 days after the claimant receives
the notice issued by the Administrator. Within 60 days after the
Administrator receives the petition, the Administrator will give the
claimant (and his or her counsel, if any) an opportunity to present his
or her position to the Administrator orally or in writing, and the
claimant (or his or her counsel) will have the right to review the
pertinent documents. Within 60 days after the hearing (or the date of
receipt of the petition if the claimant presents his or her position in
writing) the Administrator will notify the claimant of his or her
decision in writing, stating the decision and the specific provisions of
the Plan on which the decision is based.
.3 Funding. Benefits payable to an Eligible Employee under this Plan
will be paid only from the general assets of the Employer with whom he
or she was employed immediately before his or her Termination Date. If
an Eligible Employee was simultaneously employed by more than one
Employer immediately before his or her Termination Date, each such
Employer will pay a portion of his or her benefits under the Plan that
bears the same ratio to his or her Base Pay from the Employer as the
total payments bear to his or her aggregate Base Pay from all such
Employers. No person has any right to or interest in any specific
assets of any Employer by reason of this Plan. To the extent benefits
under this Plan are not paid when due, the person to whom such benefits
are payable is a general unsecured creditor of the Employer in question
with respect to the amounts due.
.4 Amendment and Termination. (A) The Company reserves the right to
amend or terminate the Plan at any time. The Company's Senior Vice
President of Human Resources is authorized, on behalf of the Company, to
amend the Plan in any manner that is not reasonably expected to have a
material financial impact on an Employer. Any amendment must be set
forth in a written instrument and will be effective as of the date
specified in such instrument.
(A) No person has any right to benefits under this Plan until he or she
incurs a Qualifying Termination as an Eligible Employee. An Eligible
Employee's right to benefits under this Plan, if any, will be determined
solely under the provisions of the Plan in effect at the time of his or
her receipt of Notice of Qualifying Termination and such terms may be
changed or the Plan may be terminated at any time and to any extent
before then.
<PAGE>
6
Miscellaneous
_____________
.1 No Employment Rights Created. No Eligible Employee has any right
to continuing employment with an Employer as a result of this Plan.
Neither the establishment or continuation of the Plan limits the right
of any Employer to discharge any Eligible Employee or to otherwise deal
with him or her without regard to the effect such action might have upon
him or her with respect to the Plan.
.2 Withholding and Offsets. (A) Each Employer retains the right to
withhold from any amounts due under the Plan, any income, employment,
payroll, excise and other taxes as the Employer may, in its sole
discretion, deem necessary.
(A) To the full extent permitted by applicable law, each Employer
retains the right to offset against any amount otherwise due to any
person under the Plan any amounts then owing and payable by such person
to the Employer and, as a condition of receiving any benefits under this
Plan, such person must, if required by the Administrator, sign and
deliver to the Administrator a consent to such offset.
.3 Integration with Other Benefit Programs. Benefits payable under
this Plan, whether paid in a lump sum or in periodic payments, will not
increase or decrease the benefits otherwise available to an Eligible
Employee under any Employer's retirement plan, welfare plan or any other
employee benefit plan or program unless otherwise expressly provided in
any particular plan or program; provided that an Eligible Employee who
receives any benefits under this Plan is not eligible to receive
benefits under any other severance pay plan of the Employer. Except as
provided in Section 4.2, payments and benefits provided through any
Employer's retirement plan, welfare plan or any other employee benefit
plan or program will be exclusively controlled by the terms of such
other plan or program.
.4 Binding Plan. The Plan is for the benefit of, and is enforceable
by, each Eligible Employee. An Eligible Employee may not assign any of
his or her rights or delegate any of his or her obligations under the
Plan. If an Eligible Employee dies after becoming entitled to, but
before receiving, cash payments pursuant to Section 4.1, the cash
payments and all other benefits under the Plan will immediately cease.
.5 Notices. For the purposes of the Plan, notices and all other
communications provided for in, or required under, the Plan must be in
writing and will be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail,
return receipt requested, postage prepaid and addressed to an Eligible
Employee's or an Employer's (as the case may be) respective address
(provided that all notices to an Employer must be directed to the
attention of the Administrator). For purposes of any such notice
requirement, an Employer will use an Eligible Employee's most current
address on file in the Employer's personnel records. Any notice of an
Eligible Employee's change of address will be effective only upon
receipt by the Employer.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT SEVERANCE PAY PLAN
First Declaration of Amendment
______________________________
Pursuant to resolution of the Metropolitan Financial Corporation Board
of Directors, the Metropolitan Financial Corporation Executive
Management Severance Pay Plan is amended by adding a new Section 6.6
which reads as follows:
"6.6 Special Restrictions. Notwithstanding any other provision of the
Plan to the contrary, the provisions of this Section 6.6 apply in the
case of any Eligible Employee who is employed by an Employer that is a
"savings association" within the meaning of 12 USC 1813(b)(1) (an
"Association") to the extent a benefit is otherwise required to be
provided to the Eligible Employee by the Association.
(1) The Association's board of directors may terminate the Eligible
Employee's employment at any time, but any termination by the
Association's board of directors, other than termination for cause,
shall not prejudice the Eligible Employee's right to benefits under the
Plan. The Eligible Employee shall have no right to receive compensation
or other benefits for any period after termination for cause.
Termination for cause shall include termination because of the Eligible
Employee's personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final cease-and-
desist order, or material breach of any provision of an employment
contract.
(2) If the Eligible Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a
notice served under section 8(e)(3) or (g)(1) of the Federal Deposit
Insurance Act (12 USC 1818(e)(3) and (g)(1)), the Association's
obligations under the Plan shall be suspended as of the date of service
unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Association may in its discretion (1) pay the
Eligible Employee all or part of the benefits withheld while its
contract obligations were suspended and (2) reinstate (in whole or in
part) any of its obligations which were suspended.
(3) If the Eligible Employee is removed and/or permanently prohibited
from participating in the conduct of the Association's affairs by an
order issued under section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 USC 1818(e)(4) or (g)(1)), all obligations of the
Association under the Plan shall terminate as of the effective date of
the order, but vested rights of the Eligible Employee shall not be
affected.
(4) If the Association is in default (as defined in section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under the Plan shall
terminate as of the date of default, but this clause (d) shall not
affect any vested rights of the Eligible Employee.
(5) All obligations under the Plan shall be terminated, except to the
extent determined that continuation of the Plan is necessary for the
continued operation of the Association:
(1)by the Director of the Office of Thrift Supervision or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Association under the authority
contained in section 13(c) of the Federal Deposit Insurance Act; or
(2)by such Director or his or her designee, at the time the Director or
his or her designee approves a supervisory merger to resolve problems
related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not
be affected by such action.
(6) Any payments made by the Association to the Eligible Employee
pursuant to the Plan, or otherwise, are subject to and conditioned upon
their compliance with 12 USC 1828(k) and any regulations promulgated
thereunder."
The foregoing amendment is effective as of March 23, 1993.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT SEVERANCE PAY PLAN
Second Declaration of Amendment
_______________________________
Pursuant to resolution of the Metropolitan Financial Corporation Board
of Directors, the Metropolitan Financial Corporation Executive
Management Severance Pay Plan is amended in the following manner:
(ii) Section 2.7 is amended to read as follows:
"2.7Eligible Employee. An "Eligible Employee" is an individual who
performs services for an Employer as a common law employee and (a) is
classifed as a "regular" employee pursuant to the Employer's applicable
employment policies, and (b) has a salary grade classification of 21 or
above."
(iii) Section 4.1(B) is amended to read as follows:
"(B)For purposes of Subsection (A), "days of pay" with respect to an
Eligible Employee equals the product of the number of continuous
calendar years between his or her adjusted date of hire (as reflected in
the Employer's personnel files and, if applicable, as limited by
Appendix A) and his or her Termination Date multiplied by seven. For
any such period of employment that is less than 12 complete calendar
months, the following "days of pay" will be assigned:
(1)one "day of pay" if the period includes at least two but less than
four calendar months;
(2)two "days of pay" if the period includes at least four but less than
six calendar months;
(3)three "days of pay" if the period includes at least six but less than
eight calendar months;
(4)four "days of pay" if the period includes at least eight but less
than ten calendar months; and
(5)five "days of pay" if the period includes at least ten but less than
12 calendar months."
(iv) A new Appendix A is added to the Plan as follows:
"Appendix A
Limitation on Adjusted Date of Hire
for Certain Eligible Employees
For purposes of determining "days of pay" under Section 4.1(B) of the
Plan, the adjusted date of hire of an Eligible Employee who was employed
with an acquired entity named below immediately prior to employment with
an Employer will in no case precede the date indicated.
Acquired Entity Earliest Adjusted Date of Hire
Rocky Mountain Bank, FSB
or any related entity December 16, 1988"
The foregoing amendments are effective as of January 1, 1994.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT
CHANGE IN CONTROL SEVERANCE PAY PLAN
As Adopted Effective as of March 23, 1993
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT
CHANGE IN CONTROL SEVERANCE PAY PLAN
Table of Contents
_________________
Page
ARTICLE 1 Introduction 1
1.1 Plan Name 1
1.2 Plan Type 1
1.3 Plan Purposes 1
ARTICLE 2 Definitions, Construction and Interpretations 2
2.1 Affiliate 2
2.2 Annual Base Salary 2
2.3 Benefit Plan 2
2.4 Board 2
2.5 Cause 2
2.6 Change in Control 3
2.7 Code 4
2.8 Company 4
2.9 Date of Termination 4
2.10 Eligible Participant 5
2.11 ERISA 5
2.12 Exchange Act 5
2.13 Good Reason 5
2.14 Governing Law 6
2.15 Headings 6
2.16 Notice of Termination 7
2.17 Number and Gender 7
2.18 Parent Corporation 7
2.19 Participant 7
2.20 Plan 7
2.21 Person 7
2.22 Qualified Employee 7
2.23 Successor 7
ARTICLE 3 Participation and Eligibility for Benefits 8
3.1 Commencement of Participation 8
3.2 Ceasing to be a Qualified Employee 8
3.3 Eligibility for Benefits 8
ARTICLE 4 Benefits 9
4.1 Compensation and Benefits Before Date of Termination 9
4.2 Cash Payment 9
4.3 Continuation of Welfare Benefits 9
4.4 Pension Plans 10
4.5 Out Placement Counseling Services 10
4.6 Gross-Up Payments 10
4.7 Indemnification 11
ARTICLE 5 Administration and Enforcement of Rights 12
5.1 Plan Administration 12
5.2 Duration and Amendment 12
5.3 Benefit Claims 12
5.4 Disputes 13
5.5 Funding and Payment 13
ARTICLE 6 Miscellaneous 15
6.1 Successors 15
6.2 Binding Plan 15
6.3 Validity 15
6.4 No Mitigation 15
6.5 No Set-off 15
6.6 Taxes 15
6.7 Notices 15
6.8 Effect of Plan Benefits on Other Severance Plans 16
6.9 Related Plans 16
6.10 No Employment or Service Contract 16
6.11 Survival 16
6.12 Effect on Other Plans 16
6.13 Prohibition of Alienation 16
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT
CHANGE IN CONTROL SEVERANCE PAY PLAN
1
Introduction
____________
.1 Plan Name. The name of the Plan is the "Metropolitan Financial
Corporation Executive Management Change in Control Severance Pay Plan."
.2 Plan Type. The Plan is unfunded and is maintained by the Company
primarily for the purpose of providing benefits for a select group of
management or highly compensated employees. As such, the Plan is intended
to be exempt from the provisions of Parts 2 through 4 of Subtitle B of
Title I and from Title IV of ERISA by operation of sections 201(2),
302(a)(3), 401(a)(1) and 4021(b)(6) thereof, respectively.
.3 Plan Purposes. The Board considers the attraction and retention of a
strong executive management team to be essential to protecting and enhancing
the best interests of the Company and its stockholders. In this connection,
the Board recognizes that absent adequate assurances and protections, the
possibility of a Change in Control may inhibit the Company's fulfillment of
this essential objective. To this end, the Company has established this
Plan to:
(a) Permit the Company to effectively recruit and retain
executive management personnel who, in the absence of adequate
assurances and protections, may be deterred by the possibility of a
Change in Control from accepting or continuing employment with the
Company;
(b) Enable executive management to evaluate objectively whether
a potential change in control is in the best interests of the Parent
Corporation and its shareholders;
(c) Assure the Parent Corporation and its shareholders of
continuity of executive management in the event of an actual or
threatened change in control; and
(d) Ease the transition to new employment for executive
management personnel terminated as a result of a Change in Control.
<PAGE>
2
Definitions, Construction and Interpretations
_____________________________________________
The definitions and rules of construction and interpretation set forth in this
Article 2 apply in construing the Plan unless the context otherwise indicates.
.1 Affiliate. An "Affiliate" is:
(a) any corporation at least a majority of whose securities
having ordinary voting power for the election of directors is owned
directly or indirectly by the Parent Corporation; or
(b) any other form of business entity in which the Parent
Corporation, by virtue of a direct or indirect ownership interest,
has the right to elect a majority of the members of such entity's
governing body.
.2 Annual Base Salary. A Participant's "Annual Base Salary" is his or
her annual base cash salary from the Company attributable to services
rendered as an employee of the Company at the rate in effect (a) immediately
prior to the Change in Control or (b) at the time Notice of Termination is
given, whichever is greater, disregarding any decrease which constitutes
Good Reason for the Participant's termination of employment and determined
before any reduction for contributions or deferrals, whether voluntarily or
involuntarily, pursuant to any Benefit Plan.
.3 Benefit Plan. A "Benefit Plan" is any compensation plan (such as a
stock option, stock purchase, restricted stock or other equity-based plan),
any employee benefit plan (such as a thrift, savings, profit sharing,
pension, medical, dental, disability, accident, life insurance, relocation,
salary continuation, expense reimbursement, vacation, fringe benefit, office
and support staff plan or policy) or any other plan, program, policy,
practice, perquisite or agreement of the Company intended to benefit
employees (and/or their families or dependents) generally, executive
management employees (and/or their families or dependents) as a group or a
Participant (and/or a Participant's family or dependents) in particular.
.4 Board. The "Board" is the board of directors of the Parent
Corporation duly qualified and acting at the time in question.
.5 Cause. (A) Subject to Subsection (B), "Cause" with respect to a
particular Participant is any of the following:
(1) the Participant's gross misconduct which is materially and
demonstrably injurious to the Company;
(2) the Participant's willful and continued failure to perform
substantially his or her duties with the Company (other than a
failure resulting from the Participant's incapacity due to
bodily injury or physical or mental illness) after a demand
for substantial performance is delivered to the Participant by
the Board which specifically identifies the manner in which the
Board believes that the Participant has not substantially
performed his or her duties and provides for a reasonable period
of time within which the Participant may take corrective
measures; or
(3) the Participant's conviction (including a plea of nolo
contendere) of willfully engaging in illegal conduct constituting a
felony or gross misdemeanor under federal or state law which is
materially and demonstrably injurious to the Company or which
impairs the Participant's ability to perform substantially his
or her duties with the Company.
An act or failure to act will be considered "gross" or "willful" for this
purpose only if done, or omitted to be done, by the Participant in bad faith
and without reasonable belief that it was in, or not opposed to, the best
interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the board of directors or
governing body of any Company (or any committee thereof) or based upon the
advice of counsel for the Company will be conclusively presumed to be done, or
omitted to be done, by the Participant in good faith and in the best interests
of the Company. A Participant's attention to matters not directly related to
the business of the Company will not provide a basis for termination for Cause
so long as the Board did not expressly disapprove in writing of his or her
engagement in such activities either before or within a reasonable period of
time after the Board knew or could reasonably have known that the Participant
engaged in those activities.
(B)Notwithstanding Subsection (A), a Participant will not be
deemed to have been terminated for Cause unless and until there has been
delivered to such Participant a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for such purpose
(after reasonable notice to such Participant and an opportunity for such
Participant, together with his or her counsel, to be heard before the
Board), finding that in the good faith opinion of the Board such
Participant was guilty of the conduct set forth in clause (1), (2) or
(3) of Subsection (A) and specifying the particulars thereof in detail.
.6 Change in Control. (A) "Change in Control" is any of the following:
(1) the sale, lease, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of the Parent
Corporation, in one transaction or in a series of related
transactions, to any Person;
(2) the approval by the stockholders of the Parent Corporation
of any plan or proposal for the liquidation or dissolution of the
Parent Corporation;
(3) any Person is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
(a) 20 percent or more, but not more than 50 percent, of the
combined voting power of the Parent Corporation's outstanding
securities ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has
been approved in advance by the "continuity directors," as defined
at Subsection (B), or (b) more than 50 percent of the combined
voting power of the Parent Corporation's outstanding securities
ordinarily having the right to vote at elections of directors
(regardless of any approval by the continuity directors);
(4) a merger or consolidation to which the Parent Corporation is
a party if the stockholders of the Parent Corporation immediately
prior to the effective date of such merger or consolidation have
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange
Act) immediately following the effective date of such merger or
consolidation of securities of the surviving company representing
(a) 50 percent or more, but not more than 80 percent, of the
combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors, unless such merger or consolidation has
been approved in advance by the continuity directors, or (b) less
than 50 percent of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any by the
continuity directors);
(5) the continuity directors cease for any reason to constitute
at least a majority the Board; or
(6) a change in control of a nature that is determined by
outside legal counsel to the Parent Corporation to be required
pursuant to section 13 or 15(d) of the Exchange Act, whether or
not the Parent Corporation is then subject to such reporting
requirement.
(B) For purposes of this section, a "continuity director" means
any individual who is a member of the Board on May 5, 1993, while
he or she is a member of the Board, and any individual who
subsequently becomes a member of the Board whose election or
nomination for election by the Parent Corporation's stockholders
was approved by a vote of at least a majority of the directors
who are continuity directors (either by a specific vote or by
approval of the proxy statement of the Parent Corporation in
which such individual is named as a nominee for director without
objection to such nomination).
.7 Code. The "Code" is the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any successor
provision.
.8 Company. The "Company" is the Parent Corporation, any Affiliate
and any Successor.
.9 Date of Termination. The "Date of Termination" with respect to a
Participant means:
(a) if the Participant's employment is to be terminated by the
Participant for Good Reason, the date specified in the Notice of
Termination which in no event may be a date more than 60 days
after the date on which Notice of Termination is given unless
the Company agrees in writing to a later date;
(b) if the Participant's employment is to be terminated by the
Company for Cause, the date specified in the Notice of
Termination;
(c) if the Participant's employment is terminated by reason of
death, the date of death; or
(d) if the Participant's employment is to be terminated by the
Company for any reason other than Cause or death, the date
specified in the Notice of Termination, which in no event may be a
date earlier than 60 days after the date on which a Notice of
Termination is given, unless the Participant expressly agrees
in writing to an earlier date.
In the case of termination by the Company of a Participant's employment for
Cause, if the Participant has not previously expressly agreed in writing to
the termination, then within the 30-day period after the Participant's receipt
of the Notice of Termination, the Participant may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of the
parties or by the arbitrators or a court in a proceeding as provided in
Section 5.4.
.10 Eligible Participant. An "Eligible Participant" is a Participant
who has become eligible to receive benefits pursuant to Section 3.3.
.11 ERISA. "ERISA" is the Employee Retirement Income Security Act of
1974, as amended. Any reference to a specific provision of ERISA includes
a reference to such provision as it may be amended from time to time and
to any successor provision.
.12 Exchange Act. The "Exchange Act" is the Securities Exchange Act of
1934, as amended. Any reference to a specific provision of the Exchange
Act or to any rule or regulation thereunder includes a reference to such
provision as it may be amended from time to time and to any successor
provision.
.13 Good Reason. (A) Subject to Subsection (B), "Good Reason" with
respect to a Participant is any of the following:
(1) an adverse change in the Participant's status or position
as an executive of the Company as in effect immediately prior to
the Change in Control, including, without limitation, any
adverse change in the Participant's status or position as a
result of a material diminution in his or her duties or
responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to the Participant of duties
or responsibilities which, in such Participant's reasonable
judgment, are inconsistent with such status or position, or any
of the Participant from or any failure to reappoint or reelect the
Participant to such position (except in connection with the
termination of his or her employment for Cause or as a result of
his or her death or by a Participant other than for Good Reason);
however, Good Reason does not include an adverse change in a
Participant's status or position caused by an insubstantial and
inadvertent action that is remedied by the Company promptly
after receipt of notice of such change is given by the
Participant;
(2) a reduction by the Company in the Participant's Annual Base
Salary, or an adverse change in the form or timing of the payment
thereof, as in effect immediately prior to the Change in Control
or as thereafter increased;
(3) the failure by the Company to continue in effect any Benefit
Plan in which the Participant (and/or his or her family or
dependents) is participating at any time during the 90-day
period immediately preceding the Change in Control (or Benefit
Plans providing a Participant (and/or his or her family or
dependents) with at least substantially similar benefits) other
than as a result of the normal expiration of any such Benefit
Plan in accordance with its terms as in effect immediately prior
to the 90-day period immediately preceding the Change in Control,
or the taking of any action, or the failure to act, by the
Company which would adversely affect a Participant's (and/or his
or her family's or dependent's) continued participation in any
of such Benefit Plans on at least as favorable a basis to such
Participant (and/or his or her family or dependents) as is the
case immediately prior to the Change in Control or which would
materially reduce a Participant's (and/or his or her family's
or dependent's) benefits in the future under any of such Benefit
Plans or deprive a Participant (and/or his or her family or
dependents) of any material benefit enjoyed by such Participant
(and/or his or her family or dependents) immediately prior to
the Change in Control;
(4) the Company's requiring a Participant to be based more than
30 miles from where his or her office is located immediately
prior to the Change in Control, except for required travel on
the Company's business, and then only to the extent substantially
consistent with the business travel obligations which the
Participant undertook on behalf of the Company during the 90-day
period immediately preceding the Change in Control (without
regard to travel related to or in anticipation of the Change in
Control);
(5) the failure of the Parent Company to obtain from any
Successor the assent to this Plan contemplated by Section 6.1;
(6) any purported termination by the Company of a Participant's
employment which is not properly effected pursuant to a Notice of
Termination and pursuant to any other requirements of this Plan,
and for purposes of this Plan, no such purported termination
will be effective; or
(7) the Participant's termination of employment with the Company
for any reason other than death during the twenty-fourth month
following the month during which the Change in Control occurs.
(B)A Participant's continued employment does not constitute consent
to, or waiver of any rights arising in connection with, circumstance
constituting Good Reason. Termination by a Participant of his or her
employment for Good Reason as defined in this section will constitute Good
Reason for all purposes of this Plan, notwithstanding that the Participant
may also thereby be deemed to have "retired" under any applicable retirement
programs of the Company.
.14 Governing Law. To the extent that state law is not preempted by
provisions of ERISA or any other laws of the United States, this Plan will
be administered, construed, and enforced according to the internal,
substantive laws of the State of Minnesota, without regard to its conflict
of laws rules.
.15 Headings. The headings of articles and sections are included solely
for convenience. If there is a conflict between the headings and the text
of the Plan, the text will control.
.16 Notice of Termination. A "Notice of Termination" is a written notice
which indicates the specific termination provision in this Plan pursuant to
which the notice is given. Any purported termination by the Company or by a
Participant following a Change in Control (or prior to a Change in Control if
a Participant's termination was either a condition of the Change in Control or
was at the request or insistence of any Person related to the Change in
Control) must be communicated by written Notice of Termination to be
effective; provided, that a Participant's failure to provide Notice of
Termination will not limit any of his or her rights under the Plan except to
the extent the Company can demonstrate that it suffered material actual
damages by reason of such failure.
.17 Number and Gender. Wherever appropriate, the singular number may be
read as the plural, the plural number may be read as the singular and a
reference to one gender may be read as a reference to the other.
.18 Parent Corporation. The "Parent Corporation" is Metropolitan
Financial Corporation and any Successor.
.19 Participant. A "Participant" is a Qualified Employee who is
participating in the Plan pursuant to Article 3.
.20 Plan. The "Plan" is that set forth in this instrument as it may
be amended from time to time.
.21 Person. A "Person" includes any individual, corporation,
partnership, group, association or other "person," as such term is used in
section 14(d) of the Exchange Act, other than the Parent Corporation, any
Affiliate of the Parent Corporation or any Benefit Plan sponsored by the
Parent Corporation or an Affiliate.
.22 Qualified Employee. A "Qualified Employee" is an individual employed
by the Company on a full-time basis at a salary grade of 20 or higher. If
an individual is a Qualified Employee immediately prior to a Change in
Control, he or she will continue to be a Qualified Employee until his or
her Date of Termination.
.23 Successor. A "Successor" is any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Parent Corporation's business directly, by merger, consolidation
or other form of business combination, or indirectly, by purchase of the
Parent Corporation's outstanding securities ordinarily having the right to
vote at the election of directors, all or substantially all of its assets or
otherwise.
<PAGE>
3
Participation and Eligibility for Benefits
__________________________________________
.1 Commencement of Participation. Each Qualified Employee will commence
participation in the Plan on the first day on which he or she performs services
for the Company as a Qualified Employee.
.2 Ceasing to be a Qualified Employee. (A) A Participant who ceases for
any reason to be a Qualified Employee will, except with respect to any
current or future benefit to which he or she is then entitled, thereupon
cease his or her participation in the Plan.
(B) Notwithstanding any other provision of the Plan to the contrary, a
Participant will cease to be a Qualified Employee if, prior to a Change in
Control: (1) an Affiliate is sold, merged, transferred or in any other manner
or for any other reason ceases to be an Affiliate and no Change in Control
occurs in connection therewith; (2) the Participant's primary employment
duties are with the Affiliate at the time of the occurrence of such event;
and (3) such Participant does not, in conjunction therewith, transfer
employment directly to the Company.
.3 Eligibility for Benefits. A Participant will become eligible for the
benefits provided in Article 4 if (a) (i) his or her employment with the
Company is terminated for any reason other than his or her death or Cause or
(ii) the Participant terminates employment with the Company for Good Reason,
and (b) such termination occurs either (i) within the period beginning on
the date of a Change in Control and ending on the last day of the
twenty-fourth month that begins after the month in which the Change in
Control occurs or (ii) prior to a Change in Control if such termination was
either a condition of the Change in Control or was at the request or
insistence of a Person related to the Change in Control.
<PAGE>
4
Benefits
________
.1 Compensation and Benefits Before Date of Termination. During the
period beginning on the date an Eligible Participant or the Company, as the
case may be, receives Notice of Termination and ending on the Date of
Termination, the Company will continue to pay the Eligible Participant his or
her Annual Base Salary and cause his or her continued participation in all
Benefit Plans in accordance with the terms of such Benefit Plans.
.2 Cash Payment. (A) The Company will make a lump-sum cash payment to
an Eligible Participant in an amount equal to three times the sum of (1)
the Participant's Annual Base Salary plus (2) the maximum annual cash target
or incentive bonus that could be payable to the Participant for the annual
performance period that includes the date on which Notice of Termination is
given or, if greater, the Eligible Participant's actual annual cash target
or incentive bonus for the immediately preceding annual performance period.
(A) The payment provided for in Subsection (A) will be made no
later than the thirtieth day following the Eligible Participant's Date
of Termination; provided, however, that if the amount of such payment
cannot be finally determined on or before such day, the Company will pay
to the Eligible Participant on such day an estimate, as determined in
good faith by the Company, of the amount of such payment and will pay
the remainder (together with interest from the date of such estimated
payment at the rate provided in Code section 1274(b)(2)(B)) as soon as
the amount thereof can be determined but in no event later than 60 days
after the Date of Termination. If the amount of the estimated payment
exceeds the amount subsequently determined to have been due, such excess
will constitute a loan by the Company to the Eligible Participant
payable no later than 30 days after demand by the Company (together with
interest from the date of such estimated payment at the rate provided in
Code section 1274(b)(2)(B)).
.3 Continuation of Welfare Benefits. (A) During the period described in
Subsection (B), the Company will maintain welfare Benefit Plans (including,
without limitation, medical, vision, dental, life, disability and accidental
death and dismemberment plans) which by their terms cover each Eligible
Participant (and his or her family members and dependents who were eligible
to be covered at any time during the 90-day period immediately prior to a
Change in Control under the corresponding plan) under terms and at a cost to
the Eligible Participant and his or her family members and dependents that
is at least as favorable as the most favorable terms and cost in effect at
any time during the 90-day period immediately preceding the Change in
Control. The continuation period under federal and state continuation laws,
to the extent applicable, will be gin to run from the date on which coverage
pursuant to this Section 4.3 ends.
(A) For purposes of Subsection (A), the continuation period with
respect to any particular type of benefit is the period beginning on an
Eligible Participant's Date of Termination and ending on the earlier of
(1) the last day of the thirty-sixth month following the month in which
the Date of Termination occurs or (2) the date on which the Eligible
Participant becomes covered under a plan of another employer providing
such benefit to the Eligible Participant and his or her eligible family
members and dependents without any pre-existing condition limitation or
exclusion.
(B) To the extent an Eligible Participant incurs a tax liability
(including federal, state and local taxes and any interest and penalties
with respect thereto) in connection with a benefit provided pursuant to
Subsection (A) which he or she would not have incurred had he or she
been an active employee of the Company participating in a generally
applicable Benefit Plan, the Company will make a payment to the Eligible
Participant in an amount equal to such tax liability plus an additional
amount sufficient to permit the Eligible Participant to retain a net
amount after all taxes (including penalties and interest) equal to the
initial tax liability in connection with the benefit. For purposes of
applying the foregoing, an Eligible Participant's tax rate will be
deemed to be the highest statutory marginal state and federal tax rate
(on a combined basis) then in effect. The payment pursuant to this
subsection will be made within 30 days after the Eligible Participant's
remittal of a written request therefor accompanied by a statement
indicating the basis for and amount of the liability.
.4 Pension Plans. An Eligible Participant will be credited with three
additional years of service for all purposes (including eligibility,
vesting, benefit accrual and amount and entitlement to rights and features)
under any Benefit Plan that constitutes a "pension plan" within the meaning
of ERISA section 3(2). To the extent that the Company determines in good
faith that such service credit will cause any such Benefit Plan to lose its
qualified status under Code section 401(a), the Eligible Participant will
not be entitled to such credit but will be entitled to a cash payment from the
Company, made at the same time as the cash payment pursuant to Section 4.2,
in an amount equal to the actuarially equivalent (as determined in accordance
with the provisions of the Metropolitan Financial Corporation Pension Plan in
effect immediately prior to the Change in Control) lump sum value of the
benefits lost.
.5 Out Placement Counseling Services. The Company will pay up to 30
percent of an Eligible Employee's Annual Base Salary for individual out
placement counseling to the Eligible Participant. Such payments will be made
either directly to the counselor or to the Eligible Participant upon
presentation of an invoice for services rendered or to be rendered.
.6 Gross-Up Payments. The Company will cause its independent auditors
promptly to review, at the Company's sole expense, the applicability of Code
section 4999 to payments pursuant to the Plan. If such auditors determine
that any payment or distribution of any type by the Company to or for the
benefit of an Eligible Participant, whether paid or payable or distributed
or distributable pursuant to the terms of the Plan, any Benefit Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Code section 4999 or any comparable state or local law, or any interest or
penalties with respect to such excise tax (such excise tax together with any
such interest and penalties, are collectively referred to as the "Excise
Tax"), the Company will make an additional cash payment (a "Gross-Up
Payment") to the Eligible Participant within 30 days after such determination
equal to an amount such that after payment by the Eligible Participant of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross Payment, the
Eligible Participant would retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Total Payments. For purposes of the
foregoing determination, an Eligible Participant's tax rate will be deemed
to be the highest statutory marginal state and federal tax rate (on a
combined basis) then in effect. If no determination by the Company's auditors
is made prior to the time a tax return reflecting the Total Payments is
required to be filed by the Eligible Participant, he or she will be entitled
to receive from the Company a Gross-Up Payment calculated on the basis of the
Total Payments he or she reported in such tax return, within 30 days of the
filing of such tax return. In all events, if any tax authority determines
that a greater Excise Tax should be imposed upon the Total Payments than is
determined by the Company's independent auditors or reflected in the Eligible
Participants' tax return pursuant to this Section 4.6, the Eligible
Participant is entitled to receive from the Company the full Gross-Up Payment
calculated on the basis of the amount of Excise Tax determined to be payable
by such tax authority within 30 days after such determination.
.7 Indemnification. The Company will indemnify and advance expenses to
an Eligible Participant to the full extent permitted by law for damages,
costs and expenses (including, without limitation, judgments, fines,
penalties, settlements and reasonable fees and expenses of the Participant's
counsel) incurred in connection with all matters, events and transactions
relating to such Eligible Participant's service to or status with the Company
or any other corporation, employee benefit plan or other entity with whom the
Eligible Participant served at the request of the Company.
<PAGE>
5
Administration and Enforcement of Rights
________________________________________
.1 Plan Administration. The Board has the power and authority to
construe, interpret and administer the Plan. Prior to a Change in Control,
the Board may delegate such power and authority to any committee or
individual but such delegation will automatically cease to be effective at
the time of the Change in Control and thereafter the Board's duties are not
delegable. Prior to (but not after) a Change in Control, the power and
authority of the Board and any individual or committee to whom such power
and authority is in whole or in part delegated is discretionary as to all
matters.
.2 Duration and Amendment. (A) This Plan is effective as of March 23,
1993 and will remain in effect until December 31, 1995. Beginning on
January 1, 1994 and on each subsequent January 1, the term of this Plan will
automatically be extended for an additional calendar year unless the Board
gives written notice to all Participants not less than 90 days prior to any
such date of automatic extension that the term of the Plan will not be so
extended. In any event, the term of the Plan cannot and will not expire
within the period beginning on the date of a Change in Control and ending on
the last day of the twenty-fourth month that begins after the month in which
the Change in Control occurs.
(A)The Board may amend the Plan from time to time in such respects as
the Board may deem advisable; provided, first, that no amendment that
reduces, either directly or indirectly, a benefit or right to a benefit
provided or that may be provided under the Plan to any Qualified Employee
will be effective with respect to that Qualified Employee if a Change in
Control occurs within the 24-month period immediately following the later of
the date on which the amendment is adopted or the date on which the amendment
is effective; and, second, that on and after the date of a Change in Control,
the Plan may be amended only if each Participant and Eligible Participant is
provided with written notice of the amendment (which must include a complete
and accurate description of the amendment and its intended and potential
affects on Participants and Eligible Participants and a copy of the proposed
amendment) at least 90 days before the adoption of the amendment and the
amendment is approved by the affirmative vote of not less than 80 percent of
all Participants and Eligible Participants.
.3 Benefit Claims. A person whose employment relationship with the
Company has terminated and who has not been awarded benefits under the Plan
or who objects to the amount of the benefits so awarded may, within 60 days
after his or her employment has terminated, file a written request for
benefits with the Board. The Board will review such request and will notify
the claimant of its decision within 10 days after such request is filed. If
the Board denies the claim for benefits, the notice of the denial will
contain
(a) the specific reason for the denial,
(b) a specific reference to the provision of the Plan on which
denial is based,
(c) a description of any additional information or material
necessary for the person to perfect his or her claim (and an
explanation of why such information is material or necessary), and
(d) an explanation of the Plan's claim review procedure.
If the Board determines that a claimant is not eligible for benefits, or if
the claimant believes that he or she is entitled to greater or different
benefits, the claimant may file a petition for review with the Board within 60
days after the claimant receives the notice issued by the Board. Within 10
days after the Board receives the petition, the Board will give the claimant
(and his or her counsel, if any) an opportunity to present his or her position
to the Board orally or in writing, and the claimant (or his or her counsel)
will have the right to review the pertinent documents. Within 10 days after
the hearing (or the date of receipt of the petition if the claimant presents
his or her position in writing) the Board will notify the claimant of its
decision in writing, stating the decision and the specific provisions of the
Plan on which the decision is based.
.4 Disputes. (A) If a Participant so elects, any dispute or controversy
arising under or in connection with this Plan will be settled exclusively by
arbitration in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; provided, that a Participant may
seek specific performance of his or her right to receive compensation or
benefits until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with the Plan. If any dispute,
controversy or claim for damages arising under or in connection with this
Plan is settled by arbitration, all expenses incurred and related to such
arbitration will be paid by the Company.
(A)If a Participant does not elect arbitration, he or she may
pursue all available legal remedies. The Company will pay or reimburse
each Participant for all reasonable legal fees, court costs, experts'
fees and related costs and expenses incurred by such Participant in
connection with any actual, threatened or contemplated litigation
relating to this Plan to which the Participant is or reasonably expects
to become a party, whether or not initiated by the Participant, if the
Participant is successful in recovering any benefit under this Plan as a
result of such action. Such costs include (1) all such fees and
expenses, if any, incurred in contesting or disputing any termination of
employment or (2) any effort by the Participant to obtain or enforce any
right or benefit provided by this Plan.
(B)The Company will not assert in any dispute or controversy
with any Participant arising under or in connection with this Plan the
Participant's failure to exhaust administrative remedies.
.5 Funding and Payment. (A) Benefits payable to an Eligible Participant
under this Plan will be paid only from the general assets of the Company. No
person has any right to or interest in any specific assets of the Company by
reason of this Plan. To the extent benefits under this Plan are not paid when
due to an Eligible Participant, he or she is a general unsecured creditor of
the Company with respect to any amounts due under the Plan.
(A)The employer with whom an Eligible Participant was employed
immediately before his or her Date of Termination has primary
responsibility for any benefits to which the Eligible Participant is
entitled pursuant to the Plan but to the extent such employer is unable
or unwilling to provide such benefits, the Parent Corporation and each
other Affiliate are jointly and severally responsible therefor to the
extent permitted by applicable law. If an Eligible Participant was
simultaneously employed by more than one employer immediately before his
or her Date of Termination, each such employer has primary
responsibility for a portion of the benefits to which the Eligible
Participant is entitled pursuant to the Plan that bears the same ratio
to the total benefits to which he or she is entitled under the Plan as
his or her Annual Base Salary from the employer immediately before his
or her Date of Termination bears to his or her aggregate Annual Base
Salary from all such employers.
<PAGE>
6
Miscellaneous
_____________
.1 Successors. The Parent Company will require any Successor to expressly
assume and agree to perform the obligations of this Plan in the same manner
and to the same extent that the Parent Company would be required to perform
if no such succession had taken place. Failure of the Parent Company to
obtain such assumption and agreement at least three business days prior to
the time a Person becomes a Successor (or where the Parent Company does not
have at least three business days' advance notice that a Person may become a
Successor, within one business day after having notice that such Person may
become or has become a Successor) will constitute Good Reason for termination
of a Participant's employment. The date on which any such succession becomes
effective will be deemed the Date of Termination and Notice of Termination
will be deemed to have been given on such date.
.2 Binding Plan. This Plan is for the benefit of, and is enforceable by,
each Participant, each Participant's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees, but each Participant may not otherwise assign any of his or her
rights or delegate any of his or her obligations under this Plan. If a
Participant dies after becoming entitled to, but before receiving, any
amounts payable under this Plan, all such amounts, unless otherwise provided
in this Plan, will be paid in accordance with the terms of this Plan to such
Participant's devisee, legatee or other designee or, if there be no such
designee, to such Participant's estate.
.3 Validity. The invalidity or unenforceability of any provision of the
Plan does not affect the validity or enforceability of any other provision of
the Plan, which will remain in full force and effect.
.4 No Mitigation. No Eligible Participant will be required to mitigate
the amount of any benefits the Company becomes obligated to provide in
connection with this Plan by seeking other employment or otherwise and the
benefits to be provided in connection with this Plan may not be reduced,
offset or subject to recovery by the Company by any benefits an Eligible
Participant may receive from other sources.
.5 No Set-off. The Company has no right to set-off benefits owed under
this Plan against amounts owed or claimed to be owed by an Eligible
Participant to the Company under this Plan or otherwise.
.6 Taxes. All payments to be made to each Eligible Participant in
connection with this Plan will be subject to required withholding of federal,
state and local income, excise and employment-related taxes.
.7 Notices. For the purposes of this Plan, notices and all other
communications provided for in, or required under, this Plan must be in
writing and will be deemed to have been duly given when personally delivered
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each Participant's or the
Company's (as the case may be) respective address (provided that all notices
to the Company must be directed to the attention of the chair of the Board).
For purposes of any such notice requirement, the Company will use the
Participant's most current address on file in the Company's personnel
records. Any notice of a Participant's change of address will be effective
only upon receipt by the Company.
.8 Effect of Plan Benefits on Other Severance Plans. A Participant who
receives any payment under the terms of this Plan will not be eligible to
receive benefits under any other severance pay plan sponsored or maintained
by the Company.
.9 Related Plans. To the extent that any provision of any other Benefit
Plan or agreement between the Company and a Participant limits, qualifies or
is inconsistent with any provision of this Plan, then for purposes of this
Plan, while such other Benefit Plan or agreement remains in force, the
provision of this Plan will control and such provision of such other Benefit
Plan or agreement will be deemed to have been superseded, and to be of no
force or effect, as if such other agreement had been formally amended to the
extent necessary to accomplish such purpose. Nothing in this Plan prevents
or limits a Participant's continuing or future participation in any Benefit
Plan provided by the Company, and nothing in this Plan limits or otherwise
affects the rights Participants may have under any Benefit Plans or other
agreements with the Company. Amounts which are vested benefits or which
Participants are otherwise entitled to receive under any Benefit Plan or
other agreement with the Company at or subsequent to the Date of Termination
will be payable in accordance with such Benefit Plan or other agreement.
.10 No Employment or Service Contract. Nothing in this Plan is intended
to provide any Participant with any right to continue in the employ of the
Company for any period of specific duration or interfere with or otherwise
restrict in any way Participants' rights or the rights of the Company, which
rights are hereby expressly reserved, to terminate a Participant's employment
at any time for any reason or no reason whatsoever, with or without cause.
.11 Survival. The respective obligations of, and benefits afforded to,
the Company and the Participants which by their express terms or clear intent
survive termination of a Participant's employment with the Company or
termination of this Plan, as the case may be, will remain in full force and
effect according to their terms notwithstanding the termination of a
Participant's employment with the Company or termination of this Plan, as the
case may be.
.12 Effect on Other Plans. Unless otherwise expressly provided therein,
benefits paid or payable under the Plan will not be deemed to be salary or
compensation for purposes of determining the benefits to which a Participant
may be entitled under any other Benefit Plan sponsored, maintained or
contributed to by the Company.
.13 Prohibition of Alienation. No Participant will have the right to
alienate, assign, encumber, hypothecate or pledge his or her interest in any
benefit provided under the Plan, voluntarily or involuntarily, and any
attempt to so dispose of any interest will be void.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT
CHANGE IN CONTROL SEVERANCE PAY PLAN
First Declaration of Amendment
______________________________
Pursuant to resolution of the Metropolitan Financial Corporation Board of
Directors, the Metropolitan Financial Corporation Executive Management Change
in Control Severance Pay Plan is hereby amended by adding a new Section 6.14
which reads as follows:
"6.14 Special Restrictions. (A) Notwithstanding any other provision
of the Plan to the contrary, the provisions of this Section 6.14 apply
in the case of any Participant who is employed by an Affiliate that is
a "savings association" within the meaning of 12 USC 1813(b)(1)
(an "Association") to the extent a benefit is otherwise required to be
provided to the Participant by the Association.
(A) The Association's board of directors may terminate
the Participant's employment at any time, but any
termination by the Association's board of directors, other
than termination for cause, shall not prejudice the
Participant's right to benefits under the Plan. The
Participant shall have no right to receive compensation or
other benefits for any period after termination for cause.
Termination for cause shall include termination because of
the Participant's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving
person profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any
provision of an employment contract. In determining
whether a Participant's termination is for cause within
the meaning of this clause (1), the Association shall
follow the procedures specified in Section 2.5(B).
(B) If the Participant is suspended and/or temporarily
prohibited from participating in the conduct of the
Association's affairs by a notice served under section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
(12 USC 1818(e)(3) and (g)(1)), the Association's
obligations under the Plan shall be suspended as of the
date of service unless stayed by appropriate proceedings.
(C) If the Participant is removed and/or permanently
prohibited from participating in the conduct of the
Association's affairs by an order issued under section
8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 USC 1818(e)(4) or (g)(1)), all obligations of the
Association under the Plan shall terminate as of the
effective date of the order, but vested rights of the
Participant shall not be affected.
(D) If the Association is in default (as defined in
section 3(x)(1) of the Federal Deposit Insurance Act), all
obligations under the Plan shall terminate as of the date of
default, but this clause (4) shall not affect any vested
rights of the Participant.
(E) All obligations under the Plan shall be terminated,
except to the extent determined that continuation of the
Plan is necessary for the continued operation of the
Association:
_by the Director of the Office of Thrift
Supervision or his or her designee, at the time the
Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the
Association under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or
_by such Director or his or her designee, at the
time the Director or his or her designee approves a
supervisory merger to resolve problems related to
operation of the Association or when the Association
is determined by the Director to be in an unsafe or
unsound condition.
Any rights of the parties that have already vested, however,
shall not be affected by such action.
(F) Any payments made by the Association to the
Participant pursuant to the Plan, or otherwise, are subject
to and conditioned upon their compliance with 12 USC
1828(k) and any regulations promulgated thereunder.
(B) To the extent benefits that would otherwise be provided to
an Eligible Participant pursuant to the Plan are restricted pursuant
to the provisions of Subsection (A), the Parent Corporation and each
other Affiliate other than an Association are jointly and severally
liable to provide such restricted benefits, without interruption and
without regard to Subsection (A), to the Eligible Participant."
The foregoing amendment is effective as of March 23, 1993.
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
EXECUTIVE MANAGEMENT CHANGE IN CONTROL
SEVERANCE PAY PLAN
Second Declaration of Amendment
_______________________________
Pursuant to resolution of the Metropolitan Financial Corporation Board of
Directors, Section 2.22 of the Metropolitan Financial Corporation Executive
Management Change in Control Severance Pay Plan is amended to read as follows:
"2.22 Qualified Employee. A "Qualified Employee" is an individual
employed by the Company and classified as a "regular" employee
pursuant to the Company's applicable employment policies with a
salary grade classification of 21 or higher. If an individual is a
Qualified Employee immediately prior to a Change in Control, he or
she will continue to be a Qualified Employee until his or her Date of
Termination."
The foregoing amendment is effective as of January 1, 1994.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8, No. 33-41525 and No. 33-60924) pertaining to the
Metropolitan Financial Corporation 401(k) Savings Plan, (Forms S-8 No.
33-41711 and No. 33-60936) pertaining to the Metropolitan Financial
Corporation 1990 Stock Option Plan, (Form S-8 No. 33-47849) pertaining
to the Metropolitan Financial Corporation Employee Stock Purchase Plan,
(Form S-8 No. 33-47848) pertaining to the Edina Realty, Inc. Sales
Associate Stock Purchase Plan and (Form S-8 No. 60914) pertaining to the
Metropolitan Financial Corporation Executive Incentive Compensation Plan
of our report dated January 19, 1994, with respect to the consolidated
financial statements of Metropolitan Financial Corporation incorporated
by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1993.
Ernst & Young
Minneapolis, Minnesota
March 25, 1994
