SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly Period Ended September 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7436
REPUBLIC NEW YORK CORPORATION
(Exact name of registrant specified in its charter)
Maryland 13-276486
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
452 Fifth Avenue, New York, New York 10018
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 525-6100
Not Applicable
--------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
- --------------------------------------------------------------------------------
The number of shares outstanding of the registrant's common stock, was
104,739,748 at October 29, 1999.
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------------
PART I - FINANCIAL INFORMATION
- ------------------------------
Page No.
--------
Item 1. Financial Statements:
Consolidated Statements of Condition - Unaudited 2
September 30, 1999 and December 31, 1998
Consolidated Statements of Income - Unaudited
Nine Months and Three Months Ended September 30,
1999 and 1998 3
Consolidated Statements of Cash Flows - Unaudited
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity -
Unaudited Nine Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis 11-26
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27-28
Item 6. Exhibits and Reports on Form 8-K 29
The information contained in the financial statements furnished in
this report is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of operations for the interim periods presented,
have been included.
-1-
<PAGE>
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
UNAUDITED
(Dollars in thousands)
Assets September 30, December 31,
- ------ 1999 1998
---------------- ----------------
<S> <C> <C>
Cash and due from banks $ 836,086 $ 1,040,290
Interest-bearing deposits with banks 6,854,973 4,218,893
Precious metals 960,019 977,783
Securities held to maturity (approximate market
value of $5,286,720 in 1999 and $6,882,926 in 1998) 5,266,123 6,731,714
Securities available for sale (at approximate market value) 16,441,611 16,434,523
---------------- ----------------
Total investment securities 21,707,734 23,166,237
Trading account assets (note 2) 2,896,278 3,397,110
Federal funds sold and securities purchased
under resale agreements 2,188,012 689,335
Loans (net of unearned income of $3,340
in 1999 and $14,138 in 1998) 14,730,939 13,648,837
Allowance for credit losses (note 2) (293,161) (293,952)
Customers' liability on acceptances 57,724 36,287
Accounts receivable and accrued interest 866,265 1,352,619
Investment in affiliate 838,601 849,677
Premises and equipment 427,388 467,651
Other assets 980,743 873,387
---------------- ----------------
Total assets $ 53,051,601 $ 50,424,154
================ ================
Liabilities and Stockholders' Equity
- ------------------------------------
Noninterest-bearing deposits:
In domestic offices $ 2,801,907 $ 2,882,572
In foreign offices 208,060 179,709
Interest-bearing deposits:
In domestic offices 10,422,728 10,904,022
In foreign offices 18,423,525 19,253,456
---------------- ----------------
Total deposits 31,856,220 33,219,759
Trading account liabilities 3,141,539 3,350,456
Short-term borrowings 8,584,987 4,441,210
Acceptances outstanding 59,743 37,465
Accounts payable and accrued expenses 1,033,810 940,129
Due to factored clients 792,705 589,263
Other liabilities (note 2) 165,067 166,649
Long-term debt 1,164,745 1,542,773
Subordinated long-term debt and perpetual
capital notes 2,624,700 2,645,700
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely junior subordinated debt securities 350,000 350,000
Stockholders' equity (notes 1 and 3):
Cumulative preferred stock, no par value
7,501,250 shares outstanding in 1999 and 1998 500,000 500,000
Common stock, $5 par value
150,000,000 shares authorized; 104,756,204
shares issued in 1999 and 107,322,157 in 1998 523,781 536,611
Surplus 117,405 96,487
Retained earnings 2,589,320 2,373,147
Accumulated other comprehensive loss,
net of taxes (366,239) (361,872)
Common stock in treasury, at cost 1,770,875 shares in 1999 and
55,905 shares in 1998 (86,182) (3,623)
---------------- ----------------
Total stockholders' equity 3,278,085 3,140,750
---------------- ----------------
Total liabilities and stockholders' equity $ 53,051,601 $ 50,424,154
================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 770,179 $ 835,989 $ 260,291 $ 287,095
Interest on deposits with banks 106,554 221,776 31,623 75,466
Interest and dividends on investment securities:
Taxable 1,024,945 1,171,282 335,770 385,960
Exempt from federal income taxes 55,774 61,969 19,265 19,153
Interest on trading account assets 53,034 61,275 17,861 17,128
Interest on federal funds sold and securities
purchased under resale agreements 69,463 138,023 22,632 46,326
----------- ----------- ----------- -----------
Total interest income 2,079,949 2,490,314 687,442 831,128
----------- ----------- ----------- -----------
Interest Expense:
Interest on deposits 884,194 1,132,543 302,704 383,285
Interest on short-term borrowings 208,542 342,260 57,729 113,520
Interest on long-term debt 198,100 230,456 66,415 77,904
----------- ----------- ----------- -----------
Total interest expense 1,290,836 1,705,259 426,848 574,709
----------- ----------- ----------- -----------
Net Interest Income 789,113 785,055 260,594 256,419
Provision for credit losses 12,000 8,000 4,000 --
----------- ----------- ----------- -----------
Net interest income after provision for
credit losses 777,113 777,055 256,594 256,419
----------- ----------- ----------- -----------
Other Operating Income (Loss):
Trading revenue (note 4) 153,460 109,868 43,732 26,267
Investment securities transactions, net 35,711 (196,550) 18,390 (200,499)
Loans sold or held for sale, net 839 3,733 757 229
Commission income 76,232 73,268 25,800 25,100
Equity in earnings of affiliate 106,769 102,673 34,366 29,947
Other income (note 6) 136,325 74,043 26,512 19,079
----------- ----------- ----------- -----------
Total other operating income (loss) 509,336 167,035 149,557 (99,877)
----------- ----------- ----------- -----------
Other Operating Expenses:
Salaries and employee benefits 431,119 390,728 128,020 124,079
Occupancy, net 55,884 56,373 19,224 19,366
Restructuring charge (note 5) 97,000 -- -- --
Other expenses 272,945 292,173 85,182 100,701
----------- ----------- ----------- -----------
Total other operating expenses 856,948 739,274 232,426 244,146
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 429,501 204,816 173,725 (87,604)
Income taxes 113,404 61,164 47,256 5,055
----------- ----------- ------------ -----------
Net Income (Loss) $ 316,097 $ 143,652 $ 126,469 $ (92,659)
=========== =========== ============ ===========
Net Income (Loss) Applicable to Common
Stock-Diluted $ 296,597 $ 122,848 $ 119,187 $ (99,424)
=========== =========== ============ ===========
Net income (loss) per common share:
Basic $2.88 $1.16 $1.17 $(0.96)
Diluted 2.84 1.15 1.15 (0.96)
Average common shares outstanding:
Basic 102,727 104,522 102,331 103,985
Diluted 104,378 106,396 104,006 103,985
See accompanying notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Nine Months Ended
September 30,
----------------------------
1999 1998
------------- ----------
<S> <C> <C>
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization, net 82,767 82,591
Provision for trading and credit losses 16,000 12,000
Investment securities transactions, net (35,711) 196,550
Loans sold or held for sale, net (839) (3,733)
Equity in earnings of affiliate (106,769) (102,673)
Net change in precious metals 17,764 267,081
Net change in trading accounts 287,915 (123,956)
Net change in accounts receivable and accrued interest 509,261 757,296
Net change in accounts payable and accrued expenses 68,004 (579,474)
Other, net (note 6) (153,454) (223,825)
----------- -----------
Net cash provided by operating activities 1,001,035 425,509
----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Interest-bearing deposits with banks (2,636,080) 1,813,725
Federal funds sold and securities purchased under resale agreements (1,498,677) 1,379,848
Short-term investments 256,841 34,858
Purchases of securities held to maturity (33,766) (17,028)
Proceeds from maturities of securities held to maturity 1,499,357 1,855,344
Purchases of securities available for sale (4,975,400) (8,120,173)
Proceeds from sales of securities available for sale 1,639,071 3,439,324
Proceeds from maturities of securities available for sale 4,851,278 4,330,037
Loans (2,731,835) (2,496,613)
Investment in affiliate 56,437 56,439
----------- -----------
Net cash provided by (used in) investing activities (3,572,774) 2,275,761
----------- -----------
Cash Flows From Financing Activities:
Deposits (1,363,539) (1,550,001)
Short-term borrowings 4,143,777 (1,122,435)
Due to factored clients 203,442 102,468
Proceeds from issuance of long-term debt 443,611 675,248
Repayment of long-term debt (821,639) (724,716)
Repurchase of subordinated long-term debt and perpetual capital notes (21,000) --
Repurchase of common stock (40,534) (95,332)
Purchase of treasury stock at cost (82,559) (3,640)
Cash dividends paid (100,196) (99,227)
Other, net 10,115 15,793
----------- -----------
Net cash provided by (used in) financing activities 2,371,478 (2,801,842)
----------- -----------
Effect of exchange rate changes on cash and due from banks (3,943) (1,587)
----------- -----------
Net decrease in cash and due from banks (204,204) (102,159)
Cash and due from banks at beginning of period 1,040,290 901,783
----------- -----------
Cash and due from banks at end of period $ 836,086 $ 799,624
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,257,070 $ 1,598,999
Income taxes 72,800 58,336
Transfers from securities available for sale to trading account assets -- 227,784
See accompanying notes to consolidated financial statements.
-4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(Dollars in thousands)
Nine Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cumulative Preferred Stock:
Balance at beginning and end of period $ 500,000 $ 500,000
=========== ===========
Common Stock:
Balance at beginning of period $ 536,611 $ 543,543
Net issuance (cancellation) under stock option, restricted stock
and restricted stock election plans of (1,682,372)
shares in 1999 and 263,680 shares in 1998 (8,412) 1,318
Retirement of 883,581 shares in 1999 and 1,638,614 shares in 1998 (4,418) (8,193)
----------- -----------
Balance at end of period $ 523,781 $ 536,668
=========== ===========
Surplus:
Balance at beginning of period $ 96,487 $ 149,763
Net issuance (cancellation) of common stock under stock option,
restricted stock and restricted stock election plans of
(1,682,372) shares in 1999 and 263,680 shares in 1998 50,421 23,005
Treasury stock transactions of affiliate (442) (839)
Deferred compensation 7,055 3,640
Retirement of 883,581 common shares in 1999
and 1,638,614 common shares in 1998 (36,116) (87,139)
----------- -----------
Balance at end of period $ 117,405 $ 88,430
=========== ===========
Retained Earnings:
Balance at beginning of period $ 2,373,147 $ 2,259,172
Net income 316,097 143,652
Dividends declared on common stock (80,600) (80,938)
Dividends declared on issues of preferred stock (19,324) (19,718)
----------- -----------
Balance at end of period $ 2,589,320 $ 2,302,168
=========== ===========
Accumulated Other Comprehensive Loss,
Net of Taxes:
Balance at beginning of period $ (361,872) $ (14,498)
Net appreciation (depreciation) on securities available for sale 62,126 (547,528)
Less: reclassification adjustment for gains (losses) included in net income 27,713 (127,878)
----------- -----------
Net unrealized appreciation (depreciation) on securities available for sale 34,413 (419,650)
Foreign currency translation (38,780) (9,902)
----------- -----------
Other comprehensive loss (4,367) (429,552)
----------- -----------
Balance at end of period $ (366,239) $ (444,050)
=========== ===========
Common Stock in Treasury, at Cost:
Balance at beginning of period $ (3,623) $ --
Purchases of treasury stock at cost, 1,714,970 shares
in 1999 and 55,928 shares in 1998 (82,559) (3,640)
----------- -----------
Balance at end of period $ (86,182) $ (3,640)
=========== ===========
Total Stockholders' Equity:
Balance at beginning of period $ 3,140,750 $ 3,437,980
Net changes during the period 137,335 (458,404)
----------- -----------
Balance at end of period $ 3,278,085 $ 2,979,576
=========== ===========
Total Comprehensive Income (Loss), Net of Taxes:
Net income $ 316,097 $ 143,652
Other comprehensive loss (4,367) (429,552)
----------- -----------
Total comprehensive income (loss), net of taxes $ 311,730 $ (285,900)
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1. On May 10, 1999, Republic New York Corporation ("the Corporation") and Safra
Republic Holdings S.A. ("SRH ") entered into a definitive agreement providing
for (1) the merger of the Corporation with a wholly-owned subsidiary of HSBC
Holdings plc ("HSBC") in which each outstanding share of the Corporation's
common stock would be converted into the right to receive $72 in cash and
(2) a tender offer for the outstanding common shares of SRH (other than those
owned by the Corporation) at $72 in cash per common share or, as amended at
the shareholder's option, for all or any common shares tendered, an interest-
bearing note of HSBC due 2010, equal to $72 per common share. Saban S.A., the
principal stockholder of the Corporation, which is controlled by the
Corporation's founder, Edmond J. Safra, has irrevocably undertaken to vote its
29% stockholding in the Corporation in favor of the merger and, in addition,
to accept the cash tender offer in respect of its 20.8% stockholding in SRH.
All outstanding preferred shares and public debt securities of each company will
remain outstanding after these transactions.
In connection with the above agreement, the Corporation issued an option to
HSBC that would allow HSBC to purchase up to 19.9% of the outstanding common
shares of the Corporation at $72 per common share in limited circumstances.
The consummation of the transactions are subject to a number of conditions,
including approval by the Corporation's stockholders and regulatory approvals in
various jurisdictions.
As announced on October 19, 1999, the special meeting of common stockholders
called to vote on the proposed acquisition was adjourned for a third time until
November 30, 1999. On September 1, 1999, the Corporation announced that it had
commenced an investigation of the Futures Division of its subsidiary Republic
New York Securities Corporation ("RNYSC") as a result of a letter received
from the Financial Supervisory Agency ("FSA") of Japan concerning the FSA's
investigation of the Tokyo branch of an affiliate of Princeton Global Management
Ltd, a client of RNYSC's Philadelphia office. The Corporation is also
cooperating with the relevant U.S. regulatory and law enforcement authorities in
their investigation of this matter. (For further discussion, see Item 5,
"Other Information" on pages 27-28 of this Report)
HSBC has also extended the expiration of the period for SRH shareholders
to respond to the offer until November 30, 1999.
2. The following table sets forth the components of the aggregate allowance
for credit losses at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1999 1998 1998
------------- ------------- --------------
<S> <C> <C> <C>
Credit losses $ 293,161 $ 293,952 $ 290,490
Trading accounts 17,485 13,516 4,950
Off balance-sheet credit commitments 8,314 5,818 5,520
------------- ------------- --------------
Aggregate allowance for credit losses $ 318,960 $ 313,286 $ 300,960
============= ============= ==============
</TABLE>
-6-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
2. Continued
The following table presents data related to the Corporation's aggregate
allowance for credit losses for the nine-month periods ended September 30,
1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------- -------------
(In thousands)
<S> <C> <C>
Aggregate balance at beginning of period $ 313,286 $ 353,481
Charge-offs (19,521) (70,526)
Recoveries 10,399 5,963
------------- -------------
Net charge-offs (9,122) (64,563)
Provision for trading and credit losses 16,000 12,000
Translation adjustment (1,204) 42
------------- -------------
Aggregate balance at end of period $ 318,960 $ 300,960
============= =============
</TABLE>
3. Common stock in treasury consists of the cost of shares of common stock of
the Corporation which are held by a trust, established in connection with
the Corporation's 1998 Long-Term Incentive Compensation Plan (the "Plan"),
for the benefit of certain employees who have elected to invest a portion of
their deferred restricted cash compensation in common stock of the Corporation.
Pursuant to the Plan, at the end of the deferral period, the common stock will
be delivered by the trust to the employee. See Footnote 1 for a discussion of
the transaction described therein, as a result of which the common stock held
by the Plan will be converted into cash at $72 per share. During the first nine
months of 1999, there was a net increase in shares held in treasury of 1,715,000
shares at a cost of approximately $82.6 million.
4. The following table presents information related to trading revenue for the
periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Precious metals $ 19,864 $ 407 $ 17,810 $ (3,213)
Foreign exchange 113,470 114,987 22,202 42,765
Trading account profits and commissions 24,126 (1,526) 3,720 (9,285)
Provision for trading credit losses (4,000) (4,000) - (4,000)
------------- ------------- ------------ -------------
Total trading revenue $ 153,460 $ 109,868 $ 43,732 $ 26,267
============= ============ ============ ============
</TABLE>
-7-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
5.In the first quarter of 1999, the Corporation recorded a $97 million pre-tax
restructuring charge, resulting from the Corporation's lines-of-business review
and its plan to grow its core private banking and special niche businesses.
The restructuring charge is related to workforce reductions, branch
consolidations, outsourcing certain data processing functions and related
network and communication operations and the decision to exit certain
activities. The migration of the Corporation's data centers has been delayed
at the recommendation of the outsourcer due to telecommunication constraints
and will not occur until 2000. In addition to unfilled open positions being
closed, approximately 450 employees, of which 270 are officer level employees,
have been terminated or notified of their termination under the restructuring
plan.
The components of this charge are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Salaries and employee benefits $ 53,800
Occupancy, net 7,900
Other expenses 35,300
--------------
Total restructuring charge $ 97,000
==============
</TABLE>
The occupancy and other expenses in the table above include an aggregate
of approximately $32 million related to outsourcing certain data processing
functions and related network and communication operations.
The following table summarizes the accruals in the restructuring charge for
the nine-month period ended September 30, 1999:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Restructuring charge $ 97,000
Payments (39,951)
Non-cash writedowns (13,027)
--------------
Ending accrual at September 30, 1999 $ 44,022
==============
</TABLE>
6. In the second quarter of 1999, the Corporation recorded a gain of $69.8
million, pre-tax, relating to its investment in the Canary Wharf Group and
the completion of the Canary Wharf initial public offering. The non-cash portion
of this gain was $64.3 million.
7. The Corporation has strategically aligned its operations into five major
business segments based on the needs of its clients and trading partners. The
five major business segments are Private Banking, Consumer Financial
Services, Lending, Global Treasury and Global Markets. As a result of the
restructuring ("Reduction in Force") announced in the first quarter of
1999, the five major business segments were realigned and historical results
have been adjusted to reflect this realignment. The Corporation manages these
business segments using an internal profitability reporting system to measure
independently each of the major segments by its net income. The
information generated is not necessarily comparable with similar
information for any other financial institution.
-8-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
7. Continued
The following tables present the summary results by segment for the
three-month and nine-month periods ended September 30, 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 17.7 $ 96.1 $ 72.6 $ 67.6 $ 18.8 $ (12.2) $ 260.6
Other income 53.3 15.2 15.8 10.1 52.4 2.8 149.6
Revenue sharing 0.8 4.5 0.1 (5.2) (0.2) -- --
Income taxes 9.1 11.7 13.7 6.0 9.4 (2.6) 47.3
Net income 28.4 25.4 25.4 23.8 16.8 6.7 126.5
Average assets $ 2,761 $ 963 $ 10,107 $ 31,752 $ 4,212 $ (3,224) $ 46,571
============================================================================
Three Months Ended September 30, 1998
--------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 17.8 $ 89.4 $ 66.2 $ 45.4 $ 17.9 $ 19.7 $ 256.4
Other income (loss) 46.9 16.8 11.8 (224.0) 44.9 3.7 (99.9)
Revenue sharing 3.3 3.1 -- (3.1) (3.4) 0.1 --
Income taxes 10.1 11.7 8.5 (40.0) 8.8 6.0 5.1
Net income (loss) 23.6 26.1 15.6 (185.5) 16.3 11.2 (92.7)
Average assets $ 2,654 $ 872 $ 10,664 $ 37,393 $ 8,596 $ (5,770) $ 54,409
===========================================================================
Nine Months Ended September 30, 1999
-------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 53.5 $ 278.7 $ 206.0 $ 250.0 $ 52.4 $ (51.5) $ 789.1
Other income 160.2 42.8 38.5 98.1 164.2 5.5 509.3
Revenue sharing 8.0 12.8 0.3 (14.6) (8.2) 1.7 --
Restructuring charge -- -- -- -- -- 97.0 97.0
Income taxes 27.8 29.6 28.3 55.0 25.0 (52.3) 113.4
Net income (loss) 84.9 67.1 52.7 152.1 44.2 (84.9) 316.1
Average assets $ 2,733 $ 949 $ 10,004 $ 32,363 $ 4,612 $ (3,322) $ 47,339
===========================================================================
</TABLE>
<PAGE>
-9-
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
7. Continued
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 46.9 $ 259.8 $ 185.5 $ 193.5 $ 56.2 $ 43.2 $ 785.1
Other income 162.3 42.6 45.1 (210.1) 122.6 4.5 167.0
Revenue sharing 8.7 7.1 0.2 (8.4) (7.6) - -
Income taxes 31.9 26.5 24.7 (47.2) 22.7 2.6 61.2
Net income 83.2 62.2 45.8 (94.4) 42.1 4.8 143.7
Average assets $ 2,728 $ 847 $10,622 $37,642 $8,644 $(5,229) $55,254
=========================================================================
</TABLE>
8. Certain amounts from the prior year have been reclassified to conform
with 1999 classifications.
-10-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Management's discussion and analysis of the summary of operations
should be read in conjunction with the consolidated financial
statements (unaudited) and notes shown elsewhere in this Report. In
the following discussion, the interest income earned on tax exempt
obligations has been adjusted (increased) to a fully-taxable
equivalent basis. The rate used for this adjustment was approximately
43% in 1999 and 1998. This tax equivalent adjustment permits all
interest income and net interest income to be analyzed on a comparable
basis. The following tables present a comparative summary of the
results of operations for the three months and nine months ended
September 30, 1999, compared to the corresponding periods in 1998 and
the increases (decreases) in income and expense between such periods.
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------
Three Months Ended 3rd Qtr. 1999 vs.
September 30, 3rd Qtr. 1998
------------------------------- --------------------------
1999 1998 Amount Percent
-------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Interest income $ 694,124 $ 837,508 $ (143,384) (17.1)
Interest expense 426,848 574,709 (147,861) (25.7)
-------------- -------------- ---------------
Net interest income 267,276 262,799 4,477 1.7
Provision for credit losses 4,000 - 4,000 -
-------------- -------------- ---------------
Net interest income after
provision for credit losses 263,276 262,799 477 0.2
Other operating income (loss) 149,557 (99,877) 249,434 249.7
Other operating expenses 232,426 244,146 (11,720) (4.8)
-------------- -------------- ---------------
Income (loss) before income taxes 180,407 (81,224) 261,631 322.1
-------------- -------------- ---------------
Applicable income taxes 47,256 5,055 42,201 834.8
Tax equivalent adjustment 6,682 6,380 302 4.7
-------------- -------------- ---------------
Total applicable income taxes 53,938 11,435 42,503 371.7
-------------- -------------- ---------------
Net income (loss) $ 126,469 $ (92,659) $ 219,128 236.5
============== ============== =============== =========
Net income (loss) applicable to
common stock - diluted $ 119,817 $ (99,424) $ 219,241 220.5
============== ============== =============== =========
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------
Nine Months Ended Nine Months 1999 vs.
September 30, Nine Months 1998
------------------------------- --------------------------
1999 1998 Amount Percent
-------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Interest income $2,099,064 $2,511,400 $ (412,336) (16.4)
Interest expense 1,290,836 1,705,259 (414,423) (24.3)
-------------- -------------- ---------------
Net interest income 808,228 806,141 2,087 0.3
Provision for credit losses 12,000 8,000 4,000 50.0
-------------- -------------- --------------
Net interest income after
provision for credit losses 796,228 798,141 (1,913) (0.2)
Other operating income 509,336 167,035 342,301 204.9
Other operating expenses 856,948 739,274 117,674 15.9
-------------- -------------- ---------------
Income before income taxes 448,616 225,902 222,714 98.6
-------------- -------------- ---------------
Applicable income taxes 113,404 61,164 52,240 85.4
Tax equivalent adjustment 19,115 21,086 (1,971) (9.3)
-------------- -------------- ---------------
Total applicable income taxes 132,519 82,250 50,269 61.1
-------------- -------------- --------------
Net income $ 316,097 $ 143,652 $ 172,445 120.0
============== ============== =============== =========
Net income applicable to
common stock - diluted $ 296,597 $ 122,848 $ 173,749 141.4
============== ============== =============== =========
</TABLE>
Net Interest Income - on a fully-taxable equivalent basis was $267.3
million in the third quarter of 1999, compared to $262.8 million in
the third quarter of 1998. As shown in the table on page 13, the net
interest rate differential rose to 2.51% in the third quarter of 1999
compared to 2.20% in the third quarter of 1998, which reflected
reductions in higher-cost, short-term liabilities and a corresponding
decline in interest-bearing deposits with banks, investment securities
and federal funds. Included in the third quarters of 1999 and 1998 was
mortgage prepayment income of $6.3 million and $6.9 million,
respectively. Premium amortization attributable to prepayments on
mortgage-backed securities decreased dramatically to $9.8 million in
the third quarter of 1999, compared to $20.5 million in the third
quarter of 1998. Average interest-earning assets were $42.3 billion in
the third quarter of 1999, compared to $47.4 billion in the third
quarter of 1998. The effect on net interest income caused by the
decline in interest-earning assets on a quarter to quarter basis was
more than offset by the decline in premium amortization attributable
to mortgage-backed securities and the increase in the net interest
rate differential.
Net interest income on a fully-taxable equivalent basis was $808.2
million in the first nine months of 1999, compared to $806.1 million
in the comparable period of 1998. As shown in the table on page 14,
the net interest rate differential rose to 2.54% for the first nine
months of 1999, compared to 2.29% in the nine-month period of 1998.
Average interest-earning assets were $42.5 billion for the first nine
months of 1999, compared to $47.1 billion for the corresponding period
of 1998. The decline in average interest-earning assets and the
increase in net interest rate differential for the nine-month period
of 1999 compared to the nine-month period of 1998, were attributable
to the same factors that contributed to these changes in the third
quarter of 1999.
-12-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, NET INTEREST DIFFERENTIAL,
AVERAGE RATES EARNED AND PAID
UNAUDITED
(Fully taxable equivalent basis)
(Dollars in thousands)
Three Months Ended September 30,
--------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid % Balance Expense Paid %
------------ ----------- -------- ------------ ----------- --------
Interest-earning assets:
Interest-bearing deposits with banks $2,709,345 $ 31,623 4.63 $ 4,487,169 $ 75,466 6.67
Investment securities (1)<F1>:
Taxable 20,613,347 335,770 6.46 23,236,182 385,960 6.59
Exempt from federal income taxs 1,367,773 25,947 7.53 1,349,946 25,533 7.50
------------ ----------- ------------ -----------
Total investment securities 21,981,120 361,717 6.53 24,586,128 411,493 6.64
Trading account assets (2)<F2> 1,166,693 17,861 6.07 1,018,907 17,128 6.67
Federal funds sold and securities
purchased under resale agreements 1,761,695 22,632 5.10 3,275,722 46,326 5.61
Loans, net of unearned income:
Domestic offices 10,773,353 199,382 7.34 10,013,229 209,880 8.32
Foreign offices 3,894,178 60,909 6.21 3,995,738 77,215 7.67
------------ ----------- ------------ -----------
Total loans, net of unearned income 14,667,531 260,291 7.04 14,008,967 287,095 8.13
------------ ----------- ------------ -----------
Total interest-earning assets 42,286,384 $ 694,124 6.51 47,376,893 $ 837,508 7.01
=========== ======== =========== ========
Cash and due from banks 927,770 872,644
Other assets 3,356,376 6,159,305
------------ ------------
Total assets $ 46,570,530 $ 54,408,842
============ ============
Interest-bearing funds:
Consumer and other time deposits $ 9,782,489 $ 80,169 3.25 $ 10,264,566 $ 97,879 3.78
Certificates of deposit 688,824 7,377 4.25 1,050,679 13,142 4.96
Deposits in foreign offices 16,987,002 215,158 5.03 18,067,907 272,264 5.98
------------ ----------- ------------ -----------
Total interest-bearing deposis: 27,458,315 302,704 4.37 29,383,152 383,285 5.18
Trading account liabilities (2)<F2> 281,315 479 0.68 449,127 1,999 1.77
Short-term borrowings 5,123,435 57,250 4.43 8,500,697 111,521 5.20
Total long-term debt 4,260,765 66,415 6.18 4,827,355 77,904 6.40
------------ ----------- ------------ -----------
Total interest-bearing funds 37,123,830 $ 426,848 4.56 43,160,331 $ 574,709 5.28
========== ====== ============ =========== =====
Noninterest-bearing deposits:
In domestic offices 2,896,060 2,696,884
In foreign offices 170,260 218,525
Other liabilities 3,128,046 5,050,954
Stockholders' equity:
Preferred stock 500,000 500,000
Common stockholders' equity 2,752,334 2,782,148
------------ ------------
Total stockholders' equity 3,252,334 3,282,148
------------ ------------
Total liabilities and stockholders'
equity $ 46,570,530 $ 54,408,842
============ ============
Interest income/earning assets $ 694,124 6.51 $ 837,508 7.01
Interest expense/earning assets 426,848 4.00 574,709 4.81
----------- -------- ----------- --------
Net interest differential $ 267,276 2.51 $ 262,799 2.20
=========== ======== =========== ========
<FN>
<F1>(1) Based on amortized or historic cost with the mark-to-market adjustment on securities available for sale included
in other assets.
<F2>(2) Excludes noninterest-bearing balances, which are included in other assets or other liabilities, respectively.
</FN>
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, NET INTEREST DIFFERENTIAL,
AVERAGE RATES EARNED AND PAID
UNAUDITED
(Fully taxable equivalent basis)
(Dollars in thousands)
Nine Months Ended September 30,
---------------------------------------------------------------------------
1999 1998
------------------------------------ -------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid % Balance Expense Paid %
------------ ----------- -------- ------------ ----------- ---------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 2,858,877 $ 106,554 4.98 $ 4,530,358 $ 221,776 6.55
Investment securities (1)<F1>:
Taxable 21,038,334 1,024,945 6.51 23,224,016 1,171,282 6.74
Exempt from federal income taxes 1,344,085 74,889 7.45 1,421,288 83,055 7.81
------------ ----------- ------------ -----------
Total investment securities 22,382,419 1,099,834 6.57 24,645,304 1,254,337 6.80
Trading account assets (2)<F2> 1,214,797 53,034 5.84 1,094,672 61,275 7.48
Federal funds sold and securities
purchased under resale agreements 1,886,172 69,463 4.92 3,310,576 138,023 5.57
Loans, net of unearned income:
Domestic offices 10,428,574 573,673 7.35 9,531,669 593,760 8.33
Foreign offices 3,733,961 196,506 7.04 3,982,318 242,229 8.13
------------ ----------- ------------ -----------
Total loans, net of unearned income 14,162,535 770,179 7.27 13,513,987 835,989 8.27
------------ ----------- ------------ -----------
Total interest-earning assets 42,504,800 $ 2,099,064 6.60 47,094,897 $ 2,511,400 7.13
=========== ======== =========== =========
Cash and due from banks 930,398 856,123
Other assets 3,903,942 7,302,764
------------ ------------
Total assets $ 47,339,140 $55,253,784
============ ============
Interest-bearing funds:
Consumer and other time deposits $ 9,954,036 $ 242,615 3.26 $10,442,183 $ 301,502 3.86
Certificates of deposit 703,435 22,238 4.23 1,289,526 49,068 5.09
Deposits in foreign offices 16,254,207 619,341 5.09 17,722,120 781,973 5.90
------------- ---------- ------------ -----------
Total interest-bearing deposits 26,911,678 884,194 4.39 29,453,829 1,132,543 5.14
Trading account liabilities (2)<F2> 327,324 1,968 0.80 413,049 10,849 3.51
Short-term borrowings 6,037,147 206,574 4.57 8,480,191 331,411 5.23
Total long-term debt 4,356,120 198,100 6.08 4,778,470 230,456 6.45
------------ ----------- ------------ -----------
Total interest-bearing funds 37,632,269 $ 1,290,836 4.59 43,125,539 $ 1,705,259 5.29
=========== ======== =========== =========
Noninterest-bearing deposits:
In domestic offices 2,886,316 2,634,408
In foreign offices 201,370 244,468
Other liabilities 3,414,139 5,825,957
Stockholders' equity:
Preferred stock 500,000 500,000
Common stockholders' equity 2,705,046 2,923,412
------------ ------------
Total stockholders' equity 3,205,046 3,423,412
------------ ------------
Total liabilities and stockholders'
equity $ 47,339,140 $55,253,784
============ ============
Interest income/earning assets $ 2,099,064 6.60 $ 2,511,400 7.13
Interest expense/earning assets 1,290,836 4.06 1,705,259 4.84
----------- -------- ----------- --------
Net interest differential $ 808,228 2.54 $ 806,141 2.29
=========== ======== =========== ========
<FN>
<F1>(1) Based on amortized or historic cost with the mark-to-market adjustment on securities available for sale included in
other assets.
<F2>(2) Excludes noninterest-bearing balances, which are included in other assets or other liabilities, respectively.
</FN>
</TABLE>
<PAGE>
-14-
Provision for trading and credit losses - The aggregate provision of
$4.0 million in the third quarters of 1999 and 1998 was related to
credit losses and trading credit losses, respectively. The aggregate
provision for the first nine months of 1999 was $16.0 million which
consisted of $12.0 million related to credit losses and $4.0 million
related to trading credit losses which is reflected in trading
revenue. The aggregate provision of $12.0 million in the nine-month
period in 1998, consisted of $8.0 million related to credit losses
and $4.0 million related to trading credit losses.
Aggregate net charge-offs were $0.4 million in the third quarter of
1999, compared to $55.2 million in the third quarter of 1998, which
included $50.7 million attributable to the Corporation's Russian
exposure. For the first nine months of 1999, aggregate net
charge-offs were $9.1 million compared to aggregate net charge-offs
of $64.6 million for the nine-month period of 1998. See Note 2 of
notes to consolidated financial statements for additional information
related to the aggregate allowance for credit losses and aggregate
net charge-offs.
The following table presents summary data related to non-accrual
loans and other non-performing assets at periods ended:
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31,
(In thousands) 1999 1999 1998
------------- ------------ -------------
<S> <C> <C> <C>
Non-accrual loans:
Domestic $ 41,911 $ 49,832 $ 73,257
Foreign 6,996 8,162 7,597
------------- ------------ -------------
Total non-accrual loans 48,907 57,994 80,854
Other assets and real estate owned 12,176 10,785 12,297
------------- ------------ -------------
Total non-performing assets $ 61,083 $ 68,779 $ 93,151
============= ============ =============
Non-accrual loans as a percentage of
loans outstanding at period end 0.33% 0.41% 0.59%
============= ============ =============
Total non-performing assets as a
percentage of period end total assets 0.12% 0.13% 0.18%
============= ============ =============
</TABLE>
The decline in domestic non-accrual loans between December 31, 1998
and September 30, 1999, was primarily due to sales and the return to
performing status of loans previously classified as non-accrual.
Other Operating Income (Loss)- was $149.6 million in the third
quarter of 1999, compared to a loss of $99.9 million in the third
quarter of 1998 which included $210.9 million ($190.7 million after
tax) of investment securities losses on the Corporation's Russian
investment securities. For the first nine months of 1999, total other
operating income was $509.3 million, which included a pre-tax gain on
a real estate investment of $69.8 million, compared to $167.0 million
in the corresponding period of 1998.
-15-
<PAGE>
Total trading revenue, including associated net interest income,
which is reported as net interest income, was $57.0 million in the
third quarter of 1999, compared to $48.0 million in the third quarter
of 1998. The third quarter to third quarter change reflected
increased precious metals income and trading account profits and
commissions which were partially offset by a decrease in foreign
exchange trading income. For the nine-month period ended September
30, 1999, such revenue amounted to $203.5 million, compared to $177.6
million in the corresponding period of 1998. Trading net interest
income, which was primarily attributable to precious metals and
trading account activities, was $13.2 million and $50.0 million in
the third quarter and first nine months of 1999, respectively,
compared to $21.7 million and $67.7 million in the corresponding
periods of 1998. The items of net interest income/(expense) in the
following table represent the net interest earned or paid on
instruments held for trading, as well as an allocation by management
to reflect the funding benefit or cost associated with the trading
positions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
(In thousands)
Precious metals:
Trading revenue (loss) $ 17,810 $ (3,213) $ 19,864 $ 407
Net interest income 12,921 18,689 43,473 54,127
------------ ------------ ------------ -------------
Total 30,731 15,476 63,337 54,534
------------ ------------ ------------ -------------
Foreign exchange:
Trading revenue 22,202 42,765 113,470 114,987
Net interest expense (2,950) (1,773) (5,457) (4,604)
------------ ------------ ------------ -------------
Total 19,252 40,992 108,013 110,383
------------ ------------ ------------ -------------
Trading account profits and
commissions:
Trading revenue (loss) 3,720 (9,285) 24,126 (1,526)
Net interest income 3,256 4,804 12,023 18,226
------------ ------------ ------------ -------------
Total 6,976 (4,481) 36,149 16,700
------------ ------------ ------------ -------------
Provision for trading credit losses - (4,000) (4,000) (4,000)
------------ ------------ ------------ -------------
Total:
Trading revenue 43,732 26,267 153,460 109,868
Net interest income 13,227 21,720 50,039 67,749
------------ ------------ ------------ -------------
Total $ 56,959 $ 47,987 $ 203,499 $ 177,617
============ ============ ============ =============
</TABLE>
Investment securities transactions resulted in net gains of $18.4
million in the third quarter of 1999, compared to net losses of
$200.5 million in the third quarter of 1998. The net gains in the
third quarter of 1999 were realized primarily on sales of the
Corporation's remaining sovereign Russian securities and certain
sovereign Brazilian securities amounting to $11.8 million and $4.3
million, respectively. The net losses in the third quarter of 1998
included $210.9 million ($190.7 million after tax), on the
Corporation's Russian investment securities. For the first nine
months of 1999, investment securities net gains were $35.7 million,
compared to $196.6 million of investment securities losses in the
first nine months of 1998.
-16-
<PAGE>
Commission income consists primarily of securities brokerage
commissions, fees for the issuance of banker acceptances and letters
of credit and fees for certain retail services. Such income was $25.8
million in the third quarter of 1999, compared to $25.1 million in
the third quarter of 1998. For the first nine months of 1999,
commission income amounted to $76.2 million, compared to $73.3
million for the nine-month period of 1998.
Equity in the earnings of affiliate was $34.4 million in the third
quarter of 1999, compared to $29.9 million in the third quarter of
1998. This income represents the Corporation's share of the earnings
of Safra Republic Holdings S.A. ("SRH"), a European international
private banking group of which the Corporation owns approximately
49%. SRH's total client account assets, both on-and off-balance
sheet, increased to $34.1 billion at September 30, 1999 from $31.7
billion at September 30, 1998. For the nine-month period of 1999,
equity in the earnings of SRH was $106.8 million, compared to $102.7
million for the nine-month period of last year.
Other income was $26.5 million in the third quarter of 1999, compared
to $19.1 million in the third quarter of 1998. The consumer financial
services group and the private banking group generate fee income
through service charges to clients for deposit accounts and trust and
securities activities. Other income included revenues from these
activities of $19.2 million in the third quarter of 1999, compared to
$15.6 million in the third quarter of 1998, and $52.6 million for the
nine months of 1999, compared to $47.6 million for the nine months of
1998. Other income for the nine-month periods ended September 30,
1999 and 1998 was $136.3 million and $74.0 million, respectively. The
nine- month period in 1999 included a $69.8 million pre-tax gain
relating to an investment in the Canary Wharf Group and the
completion of the Canary Wharf initial public offering and in 1998, a
pre-tax gain of $4.4 million related to the sales of real estate.
Other Operating Expenses - were $232.4 million in the third quarter
of 1999, compared to $230.4 million in the third quarter of 1998
excluding $13.7 million of one-time expenses discussed below. For the
first nine months of 1999, other operating expenses were $732.6
million, excluding restructuring and one-time special charges of
$104.0 million and merger-related executive pension and incentive
accruals and certain other merger-related expenses of $20.3 million,
compared to $739.3 million in the corresponding period of 1998. Year
2000 expenses for the third quarter and first nine months of 1999
were $1.8 million and $10.0 million, respectively, compared to $4.3
million and $31.8 million, respectively, for the corresponding
periods of 1998.
Salaries and employee benefits were $128.0 million in the third
quarter of 1999, compared to $124.1 million in the third quarter of
1998. For the nine months of 1999, salaries and employee benefits
were $408.8 million, excluding $22.3 million related to the
implementation of a Supplemental Executive Retirement Plan to retain
the services of certain executive officers and one-time special
charges, compared to $390.7 million for the nine months of 1998. The
increases for both the third quarter and nine-month periods of 1999,
when compared to 1998 were due to higher levels of incentive
compensation accruals.
Occupancy expense was $19.2 million in the third quarter of 1999 and
$55.9 million for the nine-month period of 1999, compared to $19.4
million and $56.4 million in the corresponding periods of 1998.
-17-
<PAGE>
All other expenses were $85.2 million in the third quarter of 1999,
compared to $87.0 million in the third quarter of 1998 excluding
one-time expenses of $11.2 million for losses related to unauthorized
transactions in an offshore subsidiary and $2.5 million for losses on
banknote shipments. All other expenses were $272.9 million in the
first nine months of 1999, compared to $292.2 million in the
corresponding period of 1998. Amortization of goodwill and other
intangible assets was $6.8 million in the third quarter of 1999,
compared to $6.9 million in the third quarter of last year.
Total Applicable Income Taxes - have been adjusted (increased) to
eflect the inclusion of interest income on tax exempt obligations as
if they were subject to federal, state and local taxes, after giving
effect to the deductibility of state and local taxes for federal
income tax purposes. Total applicable income taxes increased $42.5
million in the third quarter of 1999 and $50.3 million during the
first nine months of 1999 when compared to the corresponding periods
of 1998. In the third quarter of 1998, the Corporation recorded
minimal tax benefits related to the Russian investment securities
losses. The effective tax rate, total applicable income taxes as a
percentage of income before income taxes, was 30% for the third
quarter of 1999 and was not meaningful for the third quarter of 1998
due to the loss reported for the period. The effective tax rate for
the nine-month period of 1999 was 30% compared to 36%, for the
corresponding period of last year.
Lines-of-Business
The Corporation's operation's are organized into five major business
segments: Private Banking, Consumer Financial Services, Lending,
Global Treasury and Global Markets. As a result of the Reduction in
Force and review of lines of business announced in the first quarter
of 1999, the five major business segments were realigned and
historical results have been adjusted to reflect this realignment.
The following table presents the results by segment for the
three-month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
---------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
----------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income $ 28.4 $ 25.4 $ 25.4 $ 23.8 $ 16.8 $ 6.7 $ 126.5
Average assets 2,761 963 10,107 31,752 4,212 (3,224) 46,571
Average liabilities and
preferred stock 8,577 11,032 8,456 10,605 6,149 (1,000) 43,819
Average risk-adjusted equity 557 410 360 1,189 218 18 2,752
Efficiency ratio 46% 66% 46% 49% 62% - 57%
Return on average
risk-adjusted equity 20.2% 24.6% 28.0% 5.7% 30.6% - 17.3%
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
---------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
----------- ---------- ---------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income (loss) $ 23.6 $ 26.1 $ 15.6 $(185.5) $ 16.3 $ 11.2 $ (92.7)
Average assets 2,654 872 10,664 37,393 8,596 (5,770) 54,409
Average liabilities and
preferred stock 10,977 11,442 9,141 14,315 11,828 (6,076) 51,627
Average risk-adjusted equity 539 426 384 1,149 284 - 2,782
Efficiency ratio 49 64% 59% (23)% 57% - 156%
Return on average
risk-adjusted equity 17.4% 24.3% 16.2% (66.4)% 22.8% - (14.2)%
</TABLE>
The variances in net income between the third quarter of 1999 and the
same quarter in 1998 are described below.
Private Banking had net income of $28.4 million in the third quarter
of 1999, compared to $23.6 million in the third quarter of 1998. The
increase in net income of $4.8 million related to an increase in the
equity earnings of SRH which included gains related to the sale of
certain Russian bonds that had appreciated since the write-down
during the 1998 third quarter. The Private Banking segment had an
increase in total private client account assets, both on- and
off-balance sheet, to $25.7 billion at September 30, 1999, compared
to $ 21.3 billion at September 30, 1998.
Consumer Financial Services had net income of $25.4 million in the
third quarter of 1999, compared to $26.1 million in the third quarter
of 1998. Client account assets, both on-and off-balance sheet,
increased to $14.4 billion at September 30, 1999, compared to $13.2
billion at September 30, 1998.
Lending had net income of $25.4 million in the third quarter of 1999,
compared to $15.6 million in the third quarter of 1998. The increase
of $9.8 million related to $5.0 million of gains in commercial real
estate from the sale of other real estate owned and loans, and
improvements in the Corporation's performance in its operations in
Mexico of $6.2 million from a revamping of business strategy, which
was partially offset by declines in other Latin American locations of
$2.1 million.
Global Treasury had net income of $23.8 million in the third quarter
of 1999, compared to a net loss of $185.5 million in the third
quarter of 1998. The increase of $209.3 million related primarily to
the write-down of Russian investment securities in 1998 and to a
one-time loss of $11.2 million related to unauthorized transactions
in 1998. The net interest rate differential was 2.51 percent in the
third quarter of 1999, compared to 2.20 percent in the third quarter
of 1998. The increase in the net interest rate differential in the
third quarter from the year ago period reflected reductions of
higher-cost, short-term liabilities and a corresponding decline in
interest-bearing deposits with banks, investment securities, and
federal funds. Total average assets declined to $31.8 billion at
September 30, 1999, compared to $37.4 billion at September 30, 1998.
-19-
<PAGE>
Global Markets had net income of $16.8 million in the third quarter
of 1999, compared to $16.3 million in the third quarter of 1998. The
$0.5 million increase includes increases in income from precious
metals and foreign exchange trading, offset by decreases in other
security trading activities including Republic New York Securities
Corp. The increases in income were also offset by increases in expenses
for incentive compensation for those units with income increases and
management overhead expenses following the Corporation's cost
allocation methodology. Expenses also included a decrease in 1999
from 1998 related to an uninsured loss of $2.5 million on banknote
shipments.
Other had net income of $6.7 million in the third quarter of 1999,
compared to net income of $11.2 million in the third quarter of 1998.
The decrease in such net income of $4.5 million includes an increase of
$7.4 million of intercompany eliminations of income that are being
segregated from the lines of business. This was partially offset by a
decline in Year 2000 expenses of $2.9 million in the third quarter of
1999, from the $5.2 million recorded in the third quarter of 1998.
The following table presents the results by segment for the
nine-month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
---------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
----------- ---------- ---------- --------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income (loss) $ 84.9 $ 67.1 $ 52.7 $ 152.1 $ 44.2 $ (84.9) $ 316.1
Average assets 2,733 949 10,004 32,363 4,612 (3,322) 47,339
Average liabilities and
preferred stock 8,610 11,184 8,250 11,863 6,083 (1,356) 44,634
Average risk-adjusted equity 559 411 350 1,160 219 6 2,705
Efficiency ratio 48% 69% 56% 34% 66% - 66%
Return on average
risk-adjusted equity 20.3% 21.8% 20.1% 15.3% 27.0% - 14.7%
Nine Months Ended September 30, 1998
--------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
----------- ---------- ---------- --------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income (loss) $ 83.2 $ 62.2 $ 45.8 $ (94.4) $ 42.1 $ 4.8 $ 143.7
Average assets 2,728 847 10,622 37,642 8,644 (5,229) 55,254
Average liabilities and
preferred stock 10,967 11,561 8,707 15,829 11,762 (6,495) 52,331
Average risk-adjusted equity 551 425 378 1,296 273 - 2,923
Efficiency ratio 46% 70% 59% (451)% 61% - 78%
Return on average
risk-adjusted equity 20.2% 19.6% 16.2% (11.9)% 20.6% - 5.6%
</TABLE>
The variances in net income between the nine months ended
September 30, 1999 and the same period in 1998 are described below.
Private Banking had net income of $84.9 million for the nine months
ended September 30, 1999, compared to $83.2 million for the
nine-month period in 1998. Client account assets, both on- and
off-balance sheet, increased to $25.7 billion at September 30, 1999,
from $21.3 billion at September 30, 1998.
-20-
<PAGE>
Consumer Financial Services had net income of $67.1 million for the
nine months ended September 30, 1999, compared to $62.2 million for
the nine-month period in 1998. The increase of $4.9 million related
to growth in the Retail Branch Banking business in New York and
Florida from loans to customers and from increases in fee based
products, both on- and off-balance sheet.
Lending had net income of $52.7 million for the nine months ended
September 30, 1999, compared to $45.8 million for the nine-month
period in 1998. The increase of $6.9 million related to net
improvements in offices outside the United States primarily in Mexico
of $6.1 million, and commercial real estate income of $1.6 million.
Global Treasury had net income of $152.1 million for the nine months
ended September 30, 1999, compared to a net loss of $94.4 million for
the nine-month period in 1998. The increase of $246.5 million
primarily related to the net losses in the third quarter of 1998
which included $210.9 million ($190.7 million after-tax) on the
Corporation's Russian investment securities and the after-tax gain of
$45.4 million relating to an investment in the Canary Wharf Group in
the second quarter of 1999. A one-time expense of $11.2 million for
losses related to unauthorized transactions was also recorded in 1998.
Total average assets declined to $32.4 billion for the nine months
ended September 30, 1999, compared to $37.6 billion for the
nine-month period in 1998.
Global Markets had net income of $44.2 million for the nine months
ended September 30, 1999, compared to $42.1 million for the
nine-month period in 1998. Income before expenses increased to $208.4
million for the nine-month period of 1999, compared to $171.2 million
for the nine-month period of 1998. The increase in net income of $2.1
million reflects increases income related to precious metals and
foreign exchange, offset by decreases in other security trading
activities including Republic New York Securities Corp. The income
increases were also offset by increases in expenses for the closing of the
Zurich office in 1999, Republic New York Securities Corp. and
increases in incentive compensation expense for those units with
income increases and increased allocations of management overhead
expenses following the Corporation's cost allocation methodology.
Other had a net loss of $84.9 million for the nine months ended
September 30, 1999, compared to net income of $4.8 million for the
nine-month period in 1998. The decrease of $89.7 million, $144.6
million before taxes, related primarily to a $97.0 million
restructuring charge in the first quarter of 1999, a decrease in Year
2000 expenses of $22.7 million from $34.3 million for the nine-month
period in 1998 to $11.6 million for the nine months ended September
30, 1999, $20.3 million of merger-related executive pension and
incentive accruals and certain other merger-related expenses in the
second quarter of 1999, offset by $50.0 million of intercompany
eliminations that are being segregated from the lines of businesses
in 1999.
STATEMENT OF CONDITION
Capital Ratios
The Corporation's leverage ratio, Tier 1 capital to quarterly average
assets, and its risk-based capital ratios, Tier 1 and total
qualifying capital to risk-weighted assets, include the assets and
capital of Safra Republic on a consolidated basis in accordance with
the requirements of the Federal Reserve Board (the "FRB")
specifically applied to the Corporation. These ratios do not reflect
the effect on stockholders' equity related to the FASB 115 valuation
of the Corporation's portfolio of securities available for sale which
is included in accumulated other comprehensive loss, net of taxes.
-21-
<PAGE>
The following table presents the Corporation's risk-based capital
ratios:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Risk-based capital ratios:
Tier 1 risk-based capital ratio 13.48% 13.95%
Total risk-based capital ratio 21.45% 22.99%
Leverage ratio 7.07% 6.51%
Common stockholders'
equity/total assets 5.24% 5.24%
</TABLE>
Cross-border Exposure
The following table presents information on the Corporation's
cross-border exposure to Latin American countries at the dates
indicated:
<TABLE>
<CAPTION>
Net Cross-border Outstandings at (1)<F1>
-------------------------------------
(In millions) Sept. 30, 1999 Dec. 31, 1998
---------------- ----------------
<S> <C> <C>
Brazil $415 (2)<F2> $720(2)<F2>
Mexico 273 350
Argentina 238 279
Venezuela 87 153
Chile 63 65
<FN>
<F1>(1) Net cross-border outstandings include foreign office local
country claims on local residents less local country liabilities.
<F2>(2) Net outstandings exclude $662 million at September 30, 1999 and
$653 million at December 31, 1998 of sovereign risk assets, before
the FASB 115 depreciation adjustment of $6 million at September 30,
1999 and $17 million at December 31, 1998, funded with U.S. dollars
where the providers of funds agree that, in the event their claims
cannot be repaid in the designated currency due to sovereign default
or currency exchange restrictions in a given country, they will wait
to receive the non-local currency until such time as such default is
cured or the currency restrictions are removed or such currency
becomes available in the local market; under limited circumstances,
the providers may receive either local currency or local market debt
instruments. Also excluded are net outstandings of approximately $155
million at September 30, 1999 and $147 million at December 31, 1998,
which represent the Corporation's share of SRH's net exposure.
The Corporation's Latin American exposure consists primarily of
sovereign securities. The mark-to-market value of these securities is
fully reflected, after tax benefit, as an adjustment to stockholders'
equity through accumulated other comprehensive loss.
</FN>
</TABLE>
-22-
<PAGE>
Risk Elements
Year 2000 Risk
State of Readiness
Scope Of Program - The Corporation continues to manage the risks
arising from the Year 2000 date change ("Year 2000 Risk") through its
Ready 2000 Program Management Office ("PMO"). The Ready 2000 Program
covers both information technology ("IT") applications and
non-information technology ("non-IT") applications.
Program Description - As the process of certifying its various
applications is almost complete, the Corporation is focusing its
attention on other aspects of its Ready 2000 program. These includ
the continued monitoring of Year 2000 Risk posed by third parties,
managing its "clean management" program and testing its business
resumption contingency plans. The Corporation is also finalizing the
procedures that will enable it to monitor operations on a centralized
basis on and after January 1, 2000 and thereby quickly recognize and
address any issues which may arise, commonly known as "event
planning".
When the PMO certifies an application, it has been subjected to such
standards as are appropriate for that type of application and a
reasonable belief was reached that the application will perform in a
Year 2000 ready manner. The Corporation's internal certification of
an application does not mean that it is warranting or guaranteeing to
any customer or other third party that the application will perform
in a Year 2000 ready manner. The Corporation is, however, confident
that its certification process will be effective.
Once an application is certified, it becomes subject to the PMO's
"clean management" procedures. Clean management means that if a
certified application is modified subsequently in a way that affects
date recognition or processing, the modified application may not be
returned to production without first being re-tested in order to
confirm that the modified application remains Year 2000 ready.
Program Status - As of September 30, 1999, the Corporation certified
almost 99 percent of all its IT and non-IT applications, including
more than 99 percent of its mission-critical applications. A small
number of applications are not yet certified because doing so
requires the participation of a third party, which has not yet
occurred, or because the application was recently added to inventory.
The Corporation expects to complete certifying all remaining
applications that will be implemented this year.
In addition to conducting its own Ready 2000 program, the Corporation
is reviewing the results of the progress of SRH's Year 2000 readiness
program. As of September 30, 1999, SRH has completed remediating and
testing 96% of its approximately 400 applications, including 99% of
its mission-critical business applications. SRH expects to complete
certifying its remaining applications shortly. SRH is finalizing its
business resumption contingency plans for its core business processes
and will be validating, testing and refining such plans during the
remainder of this year.
Costs
The incremental expenses incurred by the Corporation in connection
with its Ready 2000 program did not include a material amount for the
accelerated replacement of any software or hardware systems. In
addition, the Corporation's Year 2000 readiness program has not
resulted in the deferral or cancellation of any material IT projects.
-23-
<PAGE>
Year 2000 Risk
The Corporation is addressing Year 2000 risk with respect to business
activities conducted through its own applications and systems and
those that require reliance upon or interaction with a third party.
In either case, a partial malfunction or total failure could cause
the Corporation to suffer a business slowdown or interruption,
resulting in financial loss, legal liability or action by its
regulators that could have a material adverse affect on the
Corporation's financial condition and operations.
Business activities conducted using applications that the Corporation
owns or whose use is licensed from a vendor include trading with
counterparties, buying and selling securities on public exchanges and
in over-the-counter markets, managing customer deposits and
transactions and maintaining accurate accounting records. The
malfunction or failure of its own systems could result in a financial
loss to the Corporation and legal liability to customers and
counterparties for whom transactions could not be initiated or
completed.
The Corporation also faces Year 2000 Risk arising from numerous third
parties whose services or relationships are significant to its
operations. Even if the Corporation completes its Ready 2000 program
successfully, failures by such third parties to address their Year
2000 Risk may disrupt the Corporation's operations and cause it to
incur financial losses. These third parties include major trading
counterparties, securities exchanges, clearing organizations, service
bureaus, vendors, generating utilities, telecommunication companies
and borrowers. Accordingly, the Corporation is assessing the
readiness of such third parties in order to confirm that they are
evaluating their own Year 2000 Risk and, as necessary, remediating or
replacing their hardware and software systems, as well as developing
contingency plans addressing unexpected disruptions caused by the
Year 2000 date change.
On May 10, 1999, the Corporation announced that it had agreed to be
acquired by HSBC. This acquisition is expected to be consummated
during the fourth quarter of 1999. The HSBC acquisition will result
in the Corporation's various business units being consolidated into
complementary HSBC operations. The Corporation and HSBC plan to delay
the integration of the two company's systems until after January 1,
2000 in order to avoid adversely affecting the Year 2000 readiness
preparations that have been made by each of the parties.
The Corporation reported previously that a third party provider has
assumed responsibility for the operations of the Corporation's data
centers and related network and communication operations and the
measures it was taking to mitigate Year 2000 Risk pertaining to such
arrangement.
While the Corporation believes it is well-prepared for the Year 2000
date change, if an unexpected problem arises in one of its own
applications or one for which it relies on a third party provider the
Corporation has prepared contingency plans addressing Year 2000 Risk,
as more fully described below.
Contingency Planning
While the Corporation is confident that its Ready 2000 program will
be successful, the possibility remains that the Corporation may
experience Year 2000 related disruptions in its own applications or
in those supplied by third parties. The Corporation has evaluated
this type of Year 2000 Risk and developed contingency plans
addressing it. During 1998, the Corporation developed remediation
contingency plans that provided an alternative means for certifying
its mission-critical business applications to be Year 2000 ready in a
timely manner. The Corporation has recently completed developing
business resumption contingency plans for these same applications.
-24-
<PAGE>
Business resumption contingency planning addresses the risks of a
failure by each core business process as a result of the Year 2000
date change, including the failure of systems maintained by third
parties. The Corporation has revised its existing business resumption
contingency plans in order to address these special risks, including
developing a methodology for validating each plan. The Corporation
will be testing and refining its business resumption contingency
plans for the remainder of this year.
Risk Management
On- and off-balance sheet market risk sensitivity
One of the Corporation's most significant risks is to domestic
interest rate fluctuations in its investing, lending and borrowing
activities. The extent of this risk will fluctuate when the level and
interest sensitivity characteristics of its interest-earning assets
differs from its interest-bearing liabilities. Based on the
Corporation's asset and liability positions, including associated
off-balance sheet interest rate hedges, primarily swaps and caps, the
Corporation has simulated the effect of an immediate 10% parallel
upward shift in the base yield curve and the impact of this shift on
the fair value of its financial assets and liabilities and on net
interest income at September 30, 1999 and December 31, 1998.
Based on the results of this simulation, the Corporation estimated
that this change in interest rates would reduce the value of net
financial assets by approximately $413 million and $131 million at
September 30, 1999 and December 31, 1998, respectively. The change in
value in financial assets was primarily due to a lengthening of the
average maturities in the Corporation's mortgage-backed securities
portfolio during the nine-month period. Net interest income would
increase by approximately $13 million and $20 million over the twelve
months from the respective simulation dates.
Trading-market risk sensitivity
The Corporation uses Value at Risk ("VaR") analysis which attempts to
determine the potential U.S. dollar loss resulting from unfavorable
market developments within a given time horizon (typically one day)
and given a certain confidence level (99%) across all global trading
positions.
The following tables present the calculated VaR amounts based on
stress projections given a 99% confidence level across all global
trading positions, for the periods indicated in 1999 and 1998 and the
VaR components by risk category at September 30, 1999 and December
31, 1998, after considering correlation.
-25-
<PAGE>
9 Mos. Ended Sept. 30, 1999
- ------------------------------------
Average Minimum Maximum
- ----------- ----------- ----------
(In millions)
$4.7 $2.3 $8.9
9 Mos. Ended Sept. 30, 1998
- ------------------------------------
Average Minimum Maximum
- ----------- ----------- ----------
(In millions)
$12.0 $6.2 $17.4
3rd Qtr 1999
- ------------------------------------
Average Minimum Maximum
- ----------- ----------- ----------
(In millions)
$4.5 $2.3 $6.2
3rd Qtr 1998
- ------------------------------------
Average Minimum Maximum
- ----------- ----------- ----------
(In millions)
$13.9 $11.4 $16.0
1-day VaR at
---------------------
Sept. 30, Dec. 31,
Risk Asset Class 1999 1998
- ----------------- ---------- ----------
(In millions)
Foreign exchange $1.5 $0.5
Interest rate 3.4 3.8
Commodity 1.3 1.5
Equity 0.2 -
Optionality 1.6 1.3
Correlation effects (2.4) (2.9)
---------- ---------
$5.6 $4.2
========== =========
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders during the quarter
ended September 30, 1999.
(a) The Corporation held a Special Meeting of Stockholders on
September 9, 1999, which was adjourned until October 12, 1999.
(b) The following matter was voted upon at such meeting:
(i) To adjourn the Special Meeting of Stockholders of the Corporation to vote
on the proposal to approve a merger of the Corporation and a subsidiary of
HSBC Holdings plc, whereby the Corporation would become a wholly owned
subsidiary of HSBC Holdings plc and each outstanding share of the
Corporation's common stock would be converted into the right to receive $72
in cash.
Votes For Votes Against Abstaining
--------- ------------- ----------
77,032,136 415,819 340,070
-26-
<PAGE>
Item 5. Other Information
Republic New York Securities Corporation
- ----------------------------------------
On September 1, 1999, the Corporation announced that, as a
result of an inquiry received from the Financial Supervisory
Agency of Japan, it had commenced an internal investigation of
the Futures Division of its wholly-owned subsidiary Republic New York
Securities Corporation ("RNYSC"). The investigation, which is ongoing,
encompasses the involvement of the Futures Division of RNYSC with
its customers Princeton Global Management, Ltd. and affiliated entities
("Princeton") and their Chairman, Martin Armstrong. The employment of the
president of the Futures Division of RNYSC has been terminated and the
president of RNYSC has been suspended.
A number of regulatory and law enforcement agencies also have
commenced investigations of Princeton and Mr. Armstrong. The Corporation
and RNYSC have been cooperating fully with
those investigations, including by responding to various
subpoenas and requests for information. The Securities and
Exchange Commission and the Commodity Futures Trading
Commission have commenced civil actions against Princeton and
Mr. Armstrong. Additionally, Mr. Armstrong has been indicted by the U.S.
Attorney for the Southern District of New York on charges of
fraud and conspiracy.
At the core of these proceedings against Princeton and Mr. Armstrong are
allegations that Mr. Armstrong and Princeton perpetrated a fraud on non-United
States investors, who allegedly purchased U.S.$3 billion (face value) of
promissory notes from Princeton, approximately U.S.$1 billion (face value)of
which allegedly remain outstanding. Since 1995, Princeton had maintained
accounts at the Futures Division of RNYSC through which funds, allegedly
including proceeds from the sale in Japan of such promissory notes, were
invested and traded by Princeton. In furtherance of the alleged fraud,
Mr. Armstrong is alleged to have caused employees of the Futures Division of
RNYSC to issue letters containing inflated balances of the net assets values in
the accounts of Princeton, some of which allegedly were provided by Mr.
Armstrong and Princeton to at least some of its investors.
Pending Litigation
- -------------------
On October 7, 1999, a purported class action entitled
Ravens v. Republic New York Corporation, Republic New York Securities
Corporation and William H. Rogers was filed in the United
States District Court for the Eastern District of Pennsylvania
on behalf of investors who acquired common stock of the
Corporation between May 14, 1999 and September 15, 1999. The
complaint alleges that the named defendants violated federal
securities laws by failing to disclose facts relating to
potential liabilities on the transaction with HSBC. The
complaint seeks unspecified damages on behalf of the class. The
Corporation believes that there are substantial defenses to the
complaint, and intends to defend against it vigorously.
On October 15, 1999, a purported class and derivative action
entitled Ariel v. Cyril S. Dwek, et al. was filed in the
Circuit Court for Montgomery County, Maryland, purportedly on
behalf of shareholders of the Corporation and derivatively on
behalf of the Corporation. The complaint alleges that certain
officers and directors of the Corporation breached their
fiduciary duties to the Corporation by allegedly failing to
exercise appropriate management and oversight in connection
with the Princeton account relationship. The complaint seeks
unspecified damages and remittance by the individual defendants
of compensation paid to them. The Corporation believes that
there are substantial defenses to the complaint, and intends to
defend against it vigorously.
-27-
<PAGE>
Forward-looking Information
In connection with the information relating to the status of
the merger transaction with HSBC, net interest income, the
Value at Risk analysis, and the Year 2000, this report contains
statements that constitute forward-looking statements and are
subject to certain risks and uncertainties that could cause the
actual results to differ materially from those contained in
this report. With respect to the proposed merger with HSBC,
uncertainties could include the timing and receipt of
regulatory approvals and stockholder approval, the effect, if
any, of the matters relating to the investigation of the
Futures Division of RNYSC, and the satisfaction of other
customary closing conditions to the proposed merger. With
respect to net interest income and the Value at Risk analysis,
the actual results might be affected by such uncertainties as
defaults in certain emerging market countries and changes in
conditions in those markets, changes in interest rates, changes
in the global securities markets and the general economic
environment and the actions that the Corporation might take in
light of such changes. With respect to the Year 2000,
uncertainties could include unanticipated events relating to
Year 2000 readiness of suppliers and vendors to the
Corporation, and the satisfactory resolution of such events may
be beyond the Corporation's control in responding to such
events.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only to the date of
this report.
-28-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Material Contracts
(a) Agreement dated as of the 30th day of April 1999 and
letter agreement dated September 28, 1999 between
Republic New York Corporation and Dov C. Schlein
(b) Agreement dated as of the 30th day of April 1999 and
letter agreement dated September 28, 1999 between
Republic New York Corporation and Vito S. Portera
(c) Agreement dated as of the 30th day of April 1999 and
letter agreement dated September 28, 1999 between
Republic New York Corporation and Elias Saal
(d) Agreement dated as of the 30th day of April 1999 and
letter agreement dated September 28, 1999 between
Republic New York Corporation and Stephen J. Saali
11. Computation of Earnings Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
(i) On August 5, 1999 a report on Form 8-K was filed submitting the
Corporation's press release, dated July 21, 1999, with attached
financial statements, announcing results for the second quarter
and six month periods ended June 30, 1999.
(ii) On September 3, 1999 a report on Form 8-K was filed submitting
the Corporation's press release, dated September 1, 1999,
reporting an investigation of the Futures Division of Republic
New York Securities Corporation.
(iii) On September 7, 1999 a report on Form 8-K was filed submitting
the Corporation's press release dated September 3, 1999,
announcing the intended adjournment of the September 9, 1999
special meeting of stockholders.
(iv) On September 27, 1999 a report on Form 8-K was filed submitting
the Corporation's press release dated September 27, 1999,
as to the status of the Corporation's previously announced
internal investigation.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
REPUBLIC NEW YORK CORPORATION
Dated: November 12, 1999 By /s/Dov C. Schlein
---------------------------
Dov C. Schlein
Chairman of the Board
Dated: November 12, 1999 By /s/Stan Martin
---------------------------
Stan Martin
Executive Vice President and
Chief Financial Officer
-30-
<PAGE>
FORM 10-Q
QUARTERLY REPORT
For the fiscal quarter ended September 30, 1999
REPUBLIC NEW YORK CORPORATION
EXHIBIT INDEX
No. Exhibit Description
- ---- -------------------
10 Material Contracts
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
Exhibit 10(a)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 30th day of April, 1999, between
Republic New York Corporation, a Maryland corporation having its principal
executive offices in New York, New York (including as successor thereto, the
"Company"), and Dov C. Schlein (the "Executive").
WHEREAS, Executive currently serves as a senior executive
officer of the Company;
WHEREAS, the Company recognizes the Executive's substantial
contribution to the growth and success of the Company, desires to provide for
the continued employment of the Executive and to make certain changes in the
Executive's employment arrangements with the Company, which the Board has
determined will reinforce and encourage the continued attention and dedication
to the Company of the Executive as a member of the Company's senior management
in the best interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the
Company on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on April
30, 2004 (the "Employment Period").
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the
Executive shall serve as Chairman of the Board and Chief Executive
Officer of Republic New York Corporation and Chairman of the Board
and Chief Executive Officer of Republic National Bank of New York
with the appropriate authority, duties and responsibilities attendant
to such position. Prior to a change in control (as defined in the
Company Supplemental Executive Retirement Plan) ("Change in Control"),
the Company shall use its best efforts to cause the Executive to be
nominated for
<PAGE>
election to the Company's Board of Directors (the
"Board") during the Employment Period.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote substantially all of his
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonabl best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive, in
accordance with the Company's Standards of Conduct, to (A) serve, with
prior approval of the Board, on corporate, civic or charitable boards
or committees, (B) deliver lectures, fulfill speaking engagements or
teach on a limited basis at educational institutions and (C) manage
Executive's personal investments, so long as such activities described
in clauses (A), (B) and (C) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date in
accordance with the Company's Standards of Conduct, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. Effective
January 1, 1999, and during the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of at least
$450,000 which shall increase effective May 1, 2000 to $575,000.
Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced fter any such increase and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. During the Employment
Period, the Executive shall be paid an annual cash bonus ("Annual
Bonus") with a target level of not less than 3.75 times Annual Base
Salary ("Target Bonus"), or such greater amount as determined by the
Human Resources Committee of the Board (the "HR Committee"); provided,
however, that a minimum annual bonus shall be paid in any event to
the Executive equal to the difference between one million dollars
and the Annual Base Salary; and further provided, that (A) the formula
for
2
<PAGE>
determining Executive's 1999 Award under the Company's 1994
Performance Based Incentive Compensation Plan (the "Performance
Plan") that was adopted by the HR Committee at its meeting of March 30,
1999 and attached hereto as Annex I will not be modified without
Executive's written consent and (B) the formula for determining
Executive's Award under the Performance Plan and any successor
plan for each subsequent year during the Employment Period shall use
a "Base Year" and "Award Multiple" (as such terms are defined in the
Performance Plan as in effect on the Effective Date) which shall result
in an award that is no less than the amount that would have been paid
had the Base Year and Award Multiple used for 1999 been applied. The
Annual Bonu shall be paid within two month of the end of the
fiscal year of the Company to which it relates. If any extraordinary
event, such as a reorganization, recapitalization, spinoff, stock
split, stock dividend, merger of the Company, or sale of substantially
all of the assets of the Company, occurs in any fiscal year, the
Company shall equitably adjust the terms of the award under the
Performance Plan. If a Change in Control occurs and the Company has
"net income" (as defined in the Performance Plan as in effect on the
Effective Date and determined consistently with past practice) from its
continuing operations, the Executive shall be paid at least the Target
Bonus for the year in which such Change in Control occurs and in each
subsequent year until the end of the Employment Period. If because of a
merger or other corporate reorganization, it is not possible to
determine whether the Company has net income from its continuing
operations, such net income shall be presumed unless there is
conclusive proof to the contrary.
(iii) Incentive Awards. If the Board
approves any transaction which, if consummated, would constitute a
Change in Control (a "Change in Control Transaction"), then on such
approval date the Executive shall be awarded a special bonus, in
recognition of extraordinary services, of $1,000,000 payable January
1, 2000, provided the Executive is an employee of the Company on
such date or the earlier date on which the Change in Control
Transaction is consummated.
(iv) Other Employee Benefit Plans.
During the Employment Period, except as otherwise expressly provided
herein, the Executive shall be entitled to participate in all employee
benefit, welfare and other plans, practices, policies and programs
and fringe benefits (including the use of an automobile of his
selection with an approximate retail price not in excess of $50,000,
which automobile shall be replaced every three years at which time
it may be purchased by the Executive at its holesale value as reflected
in the Kelly Blue Book Auto Market Report, if the Company owns the car,
or, if the car is leased, the purchase price specified in the
Company's lease agreement)
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(collectively, Employee Benefit Plans")
on a basis no less favorable han that provided to the Chief Executive
Officer prior to any Change in Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during
the Employment Period. If the Company determines in good faith that the
Disabiliy of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 10(b) of this Agreement
of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean
the absence of the Executive from the Executive's duties with the Company on
a full-time basis for 180 business days during any consecutive twelve month
period as a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) With or Without Cause. The Company may
terminate the Executive's employment during the Employment Period with or
without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by the
Executive in illegal conduct or gross misconduct which is materially
and demonstrably injurious to the Company or the willful engaging in
conduct which materially interferes with any Change in Control
Transaction approved by the Board, or
(ii) conviction of a felony or guilty or
nolo contendere plea by the Executive with respect thereto or any event
requiring the consent of the Federal Deposit Insurance Corporation
Act under 12 U.S.C. ss.1829(a).
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in 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 or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of
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employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% of the
entire membership of the Board (excluding the Executive) at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may
be terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of
any duties inconsistent with the Executive's title and position
(including status, offices and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2(a)(i) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 2 (b) of this Agreement, other
than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) any purported termination by the
Company of the Executive's employment otherwise than as expressly
permitted by this Agreement for Cause, death or Disability, or any
failure by the Company to renew this Agreement;
(iv) any failure by the Company to comply
with and satisfy Section 9(c) of this Agreement;
(v) failure of the Company to appoint
the Executive to, and retain the Executive in, any of the positions as
specified in Section 2(a)(i) or equivalent positions (it being
understood that equivalent positions may have different titles);
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(vi) any requirement that the Executive (A)
be based anywhere more than fifty (50) miles from the office where the
Executive is currently located or (B) travel on Company business to
an extent substantially greater than the Executive's current travel
obligations;
(vii) any failure of the Company to use its
best efforts to assist the Executive in obtaining or retaining a visa
to work in the United States;
(viii) any failure of the Company to retain
the Executive in a position with respect to the Company's operations in
the United States that is comparable to the Executive's position with
the Company as of the Effective Date; and
(ix) any failure of the Executive to be
elected to, or to remain a member of, the Company's Board of Directors;
provided, however, that after a Change in Control, failure of the
Executive to be nominated to the Board of Directors of a successor
that is a publicly traded company shall not constitute Good Reason.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Without limiting the generality of
the foregoing, the Executive shall for all purposes of this Agreement be deemed
to have terminated his employment for Good Reason if he voluntarily terminates
his employment within sixty (60) days following the first anniversary of the
occurrence of a Change in Control due to an event described in Section 3(c)(i),
(v), (viii) or (ix) which occurs prior to the first anniversary of such Change
in Control.
(d) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
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(e) Date of Termination. "Date of Termination"
means if the Executive's employment is terminated by the Company other than for
Disability, or by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such
notice, and if the Executive's employment is terminated by reason of death
or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
(a) Good Reason; Death; Disability; Other Than for Cause. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, or the Executive shall terminate employment for
Good Reason or the Executive's employment shall terminate on account of death or
Disability:
(i) the Company shall pay to the
Executive or his estate in a lump sum in cash within 30 days after
the Date of Termination:
(A) the amount equal to the
product of (x) three 3) and (y) the sum of the Executive's
current Annual Base Salary and Target Bonus; and
(B) the sum of (x) the Executive's
Annual Base Salary through the Date of Termination to the
extent not theretofore paid, and (y) the product of (1)
the Target Bonus and (2) a fraction, the numerator of which
is the number of days in the fiscal year in which the Date of
Termination occurs through the Date of Termination and the
denominator of which is 365, to the extent not theretofore
paid (the sum of the amounts described in clauses (x) and (y)
shall be hereinafter referred to as the "Accrued Obligations")
(ii) for the remainder of the Executive's
life and that of his spouse, the Company shall continue to provide
medical and dental benefits to the Executive, his spouse and children
under age 25 on the same basis, including without limitation employee
contributions, as such benefits are then currently provided to the
Executive ("Medical Benefits"); provided that such Medical Benefits
shall be secondary to any other coverage obtained by the Executive
and further provided that the aggregate cost to the Company for
such coverage shall not exceed $1,000,000.
(iii) all stock options shall vest and
remain exercisable for at least ninety days from the Date of
Termination or the earlier expiration of
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their term and all restricted
stock awards and other awards shall vest and become immediately
payable;
(iv) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies through the Date of Termination, and the Executive shall be
permitted to retain the ompany automobile as provided in Section 2(b)
(iv) (such other amounts and benefits shall be hereinafter referred to
as the "Other Benefits"); and
(v) the xecutive's supplemental benefit
under the Company's Supplemental Executive Retirement Plan shall be
determined assuming the Executive had attained the age that he would
have attained at the end of the Employment Period.
Notwithstanding the foregoing provisions of this Section 4(a), if the Executive
terminates employment for Good Reason within one year of a Change in Control,
only the payment specified in paragraph (i)(B) shall be made unless (i) the
basis for such termination is the occurrence of one or more of the circumstances
set forth in each of Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (ii) the
Executive's title with the Company during such period is not that of Executive
Vice President (or such other title as shall be mutually agreed upon) or the
Executive is assigned duties inconsistent with the duties normally assigned to
an executive with such title in a financial organization of comparable size (it
being understood that no duties need be assigned to the Executive).
(b) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (i) his Annual Base Salary through the Date
of Termination to the extent theretofore unpaid and (ii) the Other Benefits,
provided, however that the Medical Benefits shall be paid if the Executive's
employment is terminated other than for Cause.
5. Non-exclusivity of Rights. Except as specifically provided
and subject to Section 10, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 10(f), shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
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otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement; provided that the Executive shall not be eligible
for severance benefits under any other program or policy of the Company.
6. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement (other than in
Section 10) to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are tereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 7(a), no Gross-Up
Payment shall be made to the Executive if the Executive
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terminates
employment within one year of a Change in Control, unless (i) such termination
is by the Company without Cause, (ii) the basis for such termination is the
occurrence of one or more of the circumstances set forth in each of Section
3(c)(ii), (iii), (iv), (vi) or (vii), or (iii) the Executive's title with the
Company during such period is not Executive Vice President (or such other title
as shall be mutually agreed upon) or the Executive is assigned duties
inconsistent with the duties normally assigned to an executive with such title
in a financial organization of comparable size (it being understood that no
duties need be assigned to the Executive).
(b) Subject to the provisions of Section 7(c),
all determinations required to be made under this Section 7, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by the Company's independent auditors or such other certified public
accounting firm reasonably acceptable to the Executive as may be designated by
the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive not later than the d ue date for the payment of any Excise Tax. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 7(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
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(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim, and
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7(c), the Executive becomes
entitled to receive any
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refund with respect to such claim, the Executive shall
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
8. Covenants Not to Compete or Solicit Company Clients and
Employees; Confidential Information.
(a) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or by the
Executive for any reason, the Executive shall not directly or indirectly, own,
manage, operate, join, control, or participate in the ownership, management,
operation or control of, or be employed by or connected in any manner with,
any competing business, whether for compensation or otherwise, without the prior
written consent of the Company. For the purposes of this Agreement, a
"competing business" shall be any business which is a significant competitor
of the Company in the New York area and has at least five (5) billion dollars
in deposits or at least five (5) billion dollars in assets under management,
unless the Executive's primary duties and responsibilities with respect
to such business are not related to the Executive's activities engaged
in for the Company within the one year period prior to the Date of Termination.
Should the Executive, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with, any competing business, all
payments under this Agreement shall cease.
(b) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or the Executive
for any reason, the Executive shall not, in any manner, directly or
indirectly, (i) solicit any client or prospective client of the Company to
whom the Executive provided services, or for whom the Executive transacted
business, or whose identity became known to the Executive in connection with the
Executive's employment with the Company to transact business with a competing
business or reduce or refrain from doing any business with the Company or (ii)
interfere with or damage (or attempt to interfere with or damage) any
relationship between the Company and any such client or prospective client.
During the term of this Agreement and for a period of one year after the Date of
Termination by the Company or the Executive for any reason, the Executive
further agrees that the Executive shall not, in any manner, directly or
indirectly, solicit any person who is an employee of the Company to apply for or
accept employment with any competing business. The term "solicit" as
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used in
this Agreement means any communication of any kind whatsoever, regardless
of by whom initiated, inviting, encouraging or requesting any person or entity
to take or refrain from taking any action.
(c) The Executive hereby acknowledges that, as
an employee of the Company, he will be making use of, acquiring and adding to
confidential information of a special and unique nature and value relating to
the Company and its strategic plan and financial operations. The Executive
further recognizes and acknowledges that all confidential information is the
exclusive property of the Company, is material and confidential, and is critical
to the successful conduct of the business of the Company. Accordingly, the
Executive hereby covenants and agrees that he will use confidential information
for the benefit of the Company only and shall not at any time, directly or
indirectly, during the term of this Agreement and thereafter divulge, reveal
or communicate any confidential information to any person, firm, corporation
or entity whatsoever, or use any confidential information for his own benefit
or for the benefit of others. In no event shall an asserted violation of the
provisions of this Section 8(c) constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
(d) Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 8.
(e) The Executive acknowledges and agrees that the
Company will have no adequate remedy at law, and could be irreparably harmed,
if the Executive breaches or threatens to breach any of the provisions of this
Section 8. The Executive agrees that the Company shall be entitled to equitable
and/or injunctive relief to prevent any breach or threatened breach of this
Section 8, and to specific performance of each of the terms hereof in addition
to any other legal or equitable remedies that the Company may have. The
Executive further agrees that he shall not, in any equity proceeding relating to
the enforcement of the term of this Section 8, raise the defense that the
Company has an adequate remedy at
law.
(f) The terms and provisions of this Section 8
are intended to be separate and divisible provisions and if, for any reason,
any one or more of them is held to be invalid or unenforceable, neither the
validity nor the enforceability of any other provision of this Agreement shall
thereby be affected. The parties hereto acknowledge that the potential
restrictions on the Executive's future employment imposed by this Section 8 are
reasonable in both duration and geographic scope and in all other respects. If
for any reason any court of competent jurisdiction shall find any provisions
of this Section 8 unreasonable in duration or geographic scope or otherwise,
the Executive and the Company agree that the restrictions and prohibitions
contained herein shall be effective to the fullest extent allowed under
applicable law in such jurisdiction.
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(g) The parties acknowledge that this Agreement would
not have been entered into and the benefits described in Sections 2 or 4 would
not have been promised in the absence of the Executive's promises under this
Section 8.
9. Successors.
(a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
10. No "Golden Parachute Payments" Required. Anything in this
Agreement to the contrary notwithstanding, the Company shall not be obligated to
make any payment hereunder that would be prohibited as a "golden parachute
payment" or "indemnification payment" under 12 U.S.C. ss.1828(k).
11. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
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Dov C. Schlein
1110 Cove Road
Mamaroneck, N.Y. 10543
If to the Company:
Republic New York Corporation
452 Fifth Avenue
New York, N.Y. 10018
Telecopy Number: (212) 525-6900
Attention: Elias Saal and Stephen Saali
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement,
shall no be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) From and after the Effective Date this Agreement
shall supersede any other employment agreement between the parties with respect
to the subject matter hereof.
(g) Subject to the provisions of Section 4(a),
there shall be no limitation on the ability of the Company to terminate the
Executive at any time with or without Cause.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has
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caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Dov C. Schlein
------------------
REPUBLIC NEW YORK CORPORATION
By: /s/ Elias Saal
------------------
Title: Vice Chairman &
Chairman of the
Executive Committee
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REPUBLIC NEW YORK CORPORATION
452 FIFTH AVENUE
NEW YORK, N.Y. 10018
TELEPHONE (212) 525-5000
Bonuses Payable Under Employment Agreement
Dear Dov C. Schlein:
This is to confirm the understanding of the parties regarding the
proper interpretation of Section 2(b)(ii) of the Employment Agreement (the
"Agreement") by and between Republic New York Corporation (the "Company") and
you, dated as of April 30, 1999, in the event that there is a Change in Control
(as defined in such Agreement).
We have agreed that, the consummation of the transaction contemplated
under the Transaction Agreement and Plan of Merger by and among HSBC Holdings
plc, Republic New York Corporation and Safra Republic Holdings S.A., dated as of
May 10, 1999, (the "Merger") would result in a Change in Control of the Company.
Further, we have agreed that under such Section 2(b)(ii), in the event such
Change in Control pursuant to the Merger occurs and the Company has "net income"
(as defined in the Performance Plan as in effect on April 30, 1999 and
determined consistently with past practice) from it continuing operations, you
will be paid a bonus for the year in which such Change in Control occurs and in
each subsequent year until the end or the Employment Period (as defined in the
Agreement) equal to the target level of bonus specified in such Section 2(b)(ii)
and that no additional bonus would be due under the Performance Plan. This
interpretation shall not preclude the Company from paying you a bonus in excess
of such targeted amount if, in its discretion and in accordance with the
applicable governing procedures then in effect, the Company determines that an
additional amount is warranted.
To indicate your agreement with this interpretation of Section 2(b)(ii)
of the Agreement in connection with the Merger, please sign your name where
indicated below and return one copy of this letter to the undersigned. Keep the
other copy for your records.
REPUBLIC NEW YORK CORPORATION
/s/ Vito S. Portera
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By: Vito Portera
AGREED AND ACCEPTED:
/s/ Dov C. Schlein
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Dated: Sept. 28, 1999
Exhibit 10(b)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 30th day of April, 1999, between
Republic New York Corporation, a Maryland corporation having its principal
executive offices in New York, New York (including as successor thereto, the
"Company"), and Vito S. Portera (the "Executive").
WHEREAS, Executive currently serves as a senior executive
officer of the company;
WHEREAS, the Company recognizes the Executive's substantial
contribution to the growth and success of the Company, desires to provide for
the continued employment of the Executive and to make certain changes in the
Executive's employment arrangements with the Company, which the Board has
determined will reinforce and encourage the continued attention and dedication
to the Company of the Executive as a member of the Company's senior management
in the best interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the
Company on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on April
30, 2003 (the "Employment Period").
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the
Executive shall serve as Vice Chairman of Republic New York Corporation
and Vice Chairman of Republic National Bank of New York with the
appropriate authority, duties and responsibilities attendant to such
position. Prior to a change in control (as defined in the Company
Supplemental Executive Retirement Plan) ("Change in Control"), the
Company shall use its best efforts to cause the Executive to be
nominated for
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election to the Company's Board of Directors (the
"Board") during the Employment Period.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote substantially all of his
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive, in
accordance with the Company's Standards of Conduct, to (A) serve, with
prior approval of the Board, on corporate, civic or charitable boards
or committees, (B) deliver lectures, fulfill speaking engagements or
teach on a limited basis at educational institutions and (C) manage
Executive's personal investments, so long as such activities described
in clauses (A), (B) and (C) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date in accordance
with the Company's Standards of Conduct, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. Effective
January 1, 1999, a nd during the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of at least
$375,000. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. During the Employment
Period, the Executive shall be paid an annual cash bonus ("Annual
Bonus") with a target level of not less than 3.75 times Annual Base
Salary ("Target Bonus"), or such greater amount as determined by the
Human Resources Committee of the Board (the "HR Committee"); provided,
however, that a minimum annual bonus shall be paid in any event to the
Executive equal to the difference between one million dollars and the
Annual Base Salary; and further provided, that (A) the formula for
determining Executive's 1999 Award under the Company's 1994 Performance
Based Incentive Compensation Plan (the "Performance Plan") that was
adopted
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by the HR Committee at its meeting of March 30, 1999 and
attached hereto as Annex I will not be modified without Executive's
written consent and (B) the formula for determining Executive's Award
under the Performance Plan
and any successor plan for each subsequent year during the Employment
Period shall use a "Base Year" and "Award Multiple" (as such terms are
defined in the Performance Plan as in effect on the Effective Date)
which shall result in an award that is no less than the amount that
would have been paid had the Base Year and Award Multiple used for 1999
been applied. The Annual Bonus shall be paid within two months of the
end of the fiscal year of the Company to which it relates. If any
extraordinary event, such as a reorganization, recapitalization,
spinoff, stock split, stock dividend, merger of the Company, or sale of
substantially all of the assets of the Company, occurs in any fiscal
year, the Company shall equitably adjust the terms of the award under
the Performance Plan. If a Change in Control occurs and the Company has
"net income" (as defined in the Performance Plan as in effect on the
Effective Date and determined consistently with past practice) from its
continuing operations, the Executive shall be paid at least the Target
Bonus for the year in which such Change in Control occurs and in each
subsequent year until the end of the Employment Period. If because of a
merger or other corporate reorganization, it is not possible to
determine whether the Company has net income from its continuing
operations, such net income shall be presumed unless there is
conclusive proof to the contrary.
(iii) Other Employee Benefit Plans. During
the Employment Period, except as otherwise expressly provided herein,
the Executive shall be entitled to participate in all employee benefit,
welfare and other plans, practices, policies and programs and fringe
benefits (including the use of an automobile of his selection with an
approximate retail price not in excess of $50,000, which automobile
shall be replaced every three years at which time it may be purchased
by the Executive at its wholesale value as reflected in the Kelly Blue
Book Auto Market Report, if the Company owns the car, or, if the car is
leased, the purchase price specified in the Company's lease agreement)
(collectively, "Employee Benefit Plans") on a basis no less favorable
than that provided to the Chief Executive Officer prior to any Change
in Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 10(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
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Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that,within the 30 days after such receipt, the Executive shall
not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 business days during any
consecutive twelve month period as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) With or Without Cause. The Company may
terminate the Executive's employment during the Employment Period with or
without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by the
Executive in illegal conduct or gross misconduct hich is materially and
demonstrably injurious to the Company or the willful engaging in
conduct which materially interferes with any Change in Control
Transaction approved by the Board, or
(ii) conviction of a felony or guilty or
nolo contendere plea by the Executive with respect thereto or any event
requiring the consent of the Federal Deposit Insurance Corporation Act
under 12 U.S.C. ss.1829(a).
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in 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 or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% of the
entire membership of the Board (excluding the Executive) at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
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(c) Good Reason. The Executive's employment may
be terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of
any duties inconsistent with the Executive's title and position
(including status, offices and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2(a)(i) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 2 (b) of this Agreement, other
than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) any purported termination by the
Company of the Executive's employment otherwise than as expressly
permitted by this Agreement for Cause, death or Disability, or any
failure by the Company to renew this Agreement;
(iv) any failure by the Company to comply
with and satisfy Section 9(c) of this Agreement;
(v) failure of the Company to appoint
the Executive to, and retain the Executive in, any of the positions as
specified in Section 2(a)(i) or equivalent positions (it being
understood that equivalent positions may have different titles);
(vi) any requirement that the Executive (A)
be based anywhere more than fifty (50) miles from the office where the
Executive is currently located or (B) travel on Company business to an
extent substantially greater than the Executive's current travel
obligations;
(vii) any failure of the Company to use
its best efforts to assist the Executive in obtaining or retaining a
visa to work in the United States;
(viii) any failure of the Company to retain
the Executive in a position with respect to the Company's operations in
the United States that is
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comparable to the Executive's position with the Company as of the
Effective Date; and
(ix) any failure of the Executive to be
elected to, or to remain a member of, the Company's Board of Directors;
provided, however, that after a Change in Control, failure of the
Executive to be nominated to the Board of Directors of a successor that
is a publicly traded company shall not constitute Good Reason.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Without limiting the generality of
the foregoing, the Executive shall for all purposes of this Agreement be deemed
to have terminated his employment for Good Reason if he voluntarily terminates
his employment within sixty (60) days following the first anniversary of the
occurrence of a Change in Control due to an event described in Section 3(c)(i),
(v), (viii) or (ix) which occurs prior to the first anniversary of such Change
in Control.
(d) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by Notice of Termination
to the o ther party hereto given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination"
means if the Executive's employment is terminated by the Company other than for
Disability, o r by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such notice,
and if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
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(a) Good Reason; Death; Disability; Other Than for Cause. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, or the Executive shall terminate employment for
Good Reason or the Executive's employment shall terminate on account of death or
Disability:
(i) the Company shall pay to the
Executive or his estate in a lump sum in cash within 30 days after the
Date of Termination:
(A) the amount equal to the
product of (x) three (3) and (y) the sum of the Executive's
current Annual Base Salary and the Target Bonus; and
(B) the sum of (x) the
Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, and (y) the product of (1)
the Target Bonus and (2) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of
Termination occurs through the Date of Termination and the
denominator of which is 365, to the extent not theretofore
paid (the sum of the amounts described in clauses (x) and (y)
hall be hereinafter referred to as the "Accrued Obligations").
(ii) for the remainder of the Executive's
life and that of his spouse, the Company shall continue to provide
medical and dental benefits to the Executive, his spouse and children
under age 25 on the same basis, including without limitation employee
contributions, as such benefits are then currently provided to the
Executive ("Medical Benefits"); provided that such Medical Benefits
shall be secondary to any other coverage obtained by the Executive and
further provided that the aggregate cost to the Company for such
coverage shall not exceed $1,000,000.
(iii) all stock options shall vest and
remain exercisable for at least ninety days from the Date of
Termination or the earlier expiration of their term and all restricted
stock awards and other awards shall vest and become immediately
payable;
(iv) to the extent not theretofore paid
or provided, the Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies through the Date of Termination, and the Executive shall be p
ermitted to retain the Company automobile as provided in Section
2(b)(iv) (such other amounts and benefits shall be hereinafter referred
to as the "Other Benefits").
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Notwithstanding the foregoing provisions of this Section 4(a), if the Executive
terminates employment for Good Reason within one year of a Change in Control,
only the payment specified in paragraph (i)(B) shall be made unless (i) the
basis for such
termination is the occurrence of one or more of the circumstances set forth in
each of Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (ii) the Executive's
title with the Company during such period is not that of Executive Vice
President (or such other title as shall be mutually agreed upon) or the
Executive is assigned duties inconsistent with the duties normally assigned to
an executive with such title in a financial organization of comparable size (it
being understood that no duties need be assigned to the Executive).
(b) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (i) his Annual Base Salary through the Date
of Termination to the extent theretofore unpaid and (ii) the Other Benefits,
provided, however that the Medical Benefits shall be paid if the Executive's
employment is terminated other than for Cause.
5. Non-exclusivity of Rights. Except as specifically provided
and subject to Section 10, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 10(f), shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement; provided that the Executive shall not be eligible
for severance benefits under any other program or policy of the Company.
6. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result
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of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement (other than in
Section 10) to the contrary notwithstanding and except as set forth below, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 7(a), no Gross-Up Payment shall be made to the Executive if the
Executive terminates employment within one year of a Change in Control, unless
(i) such termination is by the Company without Cause, (ii) the basis for such
termination is the occurrence of one or more of the circumstances set forth in
each of Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (iii) the Executive's
title with the Company during such period is not Executive Vice President (or
such other title as shall be mutually agreed upon) or the Executive is assigned
duties inconsistent with the duties normally assigned to an executive with such
title in a financial organization of comparable size (it being understood that
no duties need be assigned to the Executive).
(b) Subject to the provisions of Section 7(c),
all determinations required to be made under this Section 7, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by the Company's independent auditors or such other certified public
accounting firm reasonably acceptable to the Executive as may be designated by
the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive
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within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive not
later than the due date for the payment of any Excise Tax. Any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 7(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting
legal representation with respec to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim, and
(iv) permit the Company to participate in
any proceedings relating to such claim;
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provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
8. Covenants Not to Compete or Solicit Company Clients
and Employees; Confidential Information.
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(a) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or by the Executive
for any reason, the Executive shall not directly or indirectly, own, manage,
operate, join, control, or participate in the ownership, management, operation
or control of, or be employed by or connected in any manner with, any competing
business, whether for compensation or otherwise, without the prior written
consent of the Company. For the purposes of this
Agreement, a "competing business" shall be any business which is a significant
competitor of the Company in the New York area and has at least five (5) billion
dollars in deposits or at least five (5) billion dollars in assets under
management, unless the Executive's primary duties and responsibilities with
respect to such business are not related to the Executive's activities engaged
in for the Company within the one year period prior to the Date of Termination.
Should the Executive, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with, any competing business, all
payments under this Agreement shall cease.
(b) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or the Executive
for any reason, the Executive shall not, in any manner, directly or indirectly,
(i) solicit any client or prospective client of the Company to whom the
Executive provided services, or for whom the Executive transacted business, or
whose identity became known to the Executive in connection with the Executive's
employment with the Company to transact business with a competing business or
reduce or refrain from doing any business with the Company or (ii) interfere
with or damage (or attempt to interfere with or damage) any relationship between
the Company and any such client or prospective client. During the term of this
Agreement and for a period of one year after the Date of Termination by the
Company or the Executive for any reason, the Executive further agrees that the
Executive shall not, in a ny manner, directly or indirectly, solicit any person
who is an employee of the Company to apply for or accept employment with any
competing business. The term "solicit" as used in this Agreement eans any
communication of any kind whatsoever, regardless of by whom initiated, inviting,
encouraging or requesting any person or entity to take or refrain from taking
any action.
(c) The Executive hereby acknowledges that, as
an employee of the Company, he will be making use of, acquiring and adding to
confidential information of a special and unique nature and value relating to
the Company and its strategic plan and financial operations. The Executive
further recognizes and acknowledges that all confidential information is the
exclusive property of the Company, is material and confidential, and is critical
to the successful conduct of the business of the Company. Accordingly, the
Executive hereby covenants and agrees that he will use confidential information
for the benefit of the Company only and shall not at any time, directly or
indirectly, during the term of this Agreement and thereafter divulge, reveal
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or
communicate anyconfidential information to any person firm, corporation or
entity whatsoever, or use any confidential information for his own benefit or
for the benefit of others. In no event shall an asserted violation of the
provisions of this Section 8(c) constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
(d) Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 8.
(e) The Executive acknowledges and agrees that
the Company will hav e no adequate remedy at law, and could be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 8. The Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach of
this Section 8, and to specific performance of each of the terms hereof in
addition to any other legal or equitable remedies that the Company may have. The
Executive further agrees that he shall not, in any equity proceeding relating to
the enforcement of the terms of this Section 8, raise the defense that the
Company has an adequate remedy at law.
(f) The terms and provisions of this Section 8
are intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the validity
nor the enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 8 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 8
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(g) The parties acknowledge that this Agreement
would not have been entered into and the benefits described in Sections 2 or 4
would not have been promised in the absence of the Executive's promises under
this Section 8.
9. Successors.
(a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
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(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid.
10. No "Golden Parachute Payments" Required. Anything in this
Agreement to the contrary notwithstanding, the Company shall not be obligated to
make any payment hereunder that would be prohibited as a "golden parachute
payment" or "indemnification payment" under 12 U.S.C. ss.1828(k).
11. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Vito S. Portera
5 Stratton Road
Purchase, N.Y. 10577
If to the Company:
Republic New York Corporation
452 Fifth Avenue
New York, N.Y. 10018
Telecopy Number: (212) 525-6900
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Attention: Dov C. Schlein
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affec t the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upo n strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) From and after the Effective Date this
Agreement shall supersede any other employment agreement between the parties
with respect to the subject matter hereof.
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(g) Subject to the provisions of Section 4(a),
there shall be no limitation on the ability of the Company to terminate the
Executive at any time with or without Cause.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Vito S. Portera
-------------------
REPUBLIC NEW YORK CORPORATION
By: /s/ Dov C. Schlein
----------------------
Title: Chairman & Chief
Executive Officer
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REPUBLIC NEW YORK CORPORATION
452 FIFTH AVENUE
NEW YORK, N.Y. 10018
DOV C. SCHLEIN
Chairman and
Chief Executive Officer
TEL (212) 525-6531
Bonuses Payable Under Employment Agreement
Dear Veto S. Portera:
This is to confirm the understanding of the parties regarding the proper
interpretation of Section 2(b)(ii) of the Employment Agreement (the "Agreement")
by and between Republic New York Corporation (the "Company") and you, dated as
of April 30, 1999, in the event that there is a Change in Control (as defined in
such Agreement).
We have agreed that, the consummation of the transaction contemplated
under the Transaction Agreement and Plan of Merger by and among HSBC Holdings
plc, Republic New York Corporation and Safra Republic Holdings S.A., dated as of
May 10, 1999, (the "Merger") would result in a Change in Control of the Company.
Further, we have agreed that under such Section 2(b)(ii), in the event such
Change in Control pursuant to the Merger occurs and the Company has "net income"
(as defined in the Performance Plan as in effect on April 30, 1999 and
determined consistently with past practice) from it continuing operations, you
will be paid a bonus for the year in which such Change in Control occurs and in
each subsequent year until the end or the Employment Period (as defined in the
Agreement) equal to the target level of bonus specified in such Section 2(b)(ii)
and that no additional bonus would be due under the Performance Plan. This
interpretation shall not preclude the Company from paying you a bonus in excess
of such targeted amount if, in its discretion and in accordance with the
applicable governing procedures then in effect, the Company determines that an
additional amount is warranted.
To indicate your agreement with this interpretation of Section 2(b)(ii)
of the Agreement in connection with the Merger, please sign your name where
indicated below and return one copy of this letter to the undersigned. Keep the
other copy for your records.
REPUBLIC NEW YORK CORPORATION
/s/ Dov C. Schlein
------------------
By: Dov C. Schlein
AGREED AND ACCEPTED:
/s/ Vito S. Portera
- -------------------
Dated: Sept. 28, 1999
Exhibit 10(c)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 30th day of April, 1999, between
Republic New York Corporation, a Maryland corporation having its principal
executive offices in New York, New York (including as successor thereto, the
"Company"), and Elias Saal (the "Executive").
WHEREAS, Executive currently serves as a senior executive
officer of the Company;
WHEREAS, the Company recognizes the Executive's substantial
contribution to the growth and success of the Company, desires to provide for
the continued employment of the Executive and to make certain changes in the
Executive's employment arrangements with the Company, which the Board has
determined will reinforce and encourage the continued attention and dedication
to the Company of the Executive as a member of the Company's senior management
in the best interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the
Company on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on April
30, 2004 (the "Employment Period").
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the
Executive shall serve as Vice Chairman and Chairman of the Executive
Committee of Republic New York Corporation and President and
Chairman of the Executive Committee of Republic National Bank of
New York with the appropriate authority, duties and responsibilities
attendant to such position. Prior to a change in control (as defined
in the Company Supplemental Executive Retirement Plan) ("Change in
Control"), the Company shall use its best efforts to cause the
Executive to be nominated for
<PAGE>
election to the Company's Board of Directors (the "Board") during the
Employment Period.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote substantially all of his
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable est efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive, in
accordance with the Company's Standards of Conduct, to (A) serve, with
prior approval of the Board, on corporate, civic or charitable boards
or committees, (B) deliver lectures, fulfill speaking engagements or
teach on a limited basis at educational institutions and (C) manage
Executive's personal investments, so long as such activities described
in clauses (A), (B) and (C) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date in
accordance with the Company's Standards of Conduct, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deeme to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. Effective
January 1, 1999, and during the Employment Period, th Executive
shall receive an annual base salary ("Annual Base Salary") of at least
$425,000 which will increase effective May 1, 2000 to $525,000. Any
increase in Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. During the Employment
Period, the Executive shall be paid an annual cash bonus ("Annual
Bonus") with a target level of not less than 4.85 times Annual Base
Salary ("Target Bonus"), or such greater amount as determined by the
Human Resources Committee of the Board (the "HR Committee"); provided,
however, that a minimum annual bonus shall be paid in any event to the
Executive equal to the difference between one million dollars and
the Annual Base Salary; and further provided, that (A) the formula for
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determining Executive's 1999 Award under the Company's 1994 Performance
Based Incentive Compensation Plan (the "Performance Plan") that was
adopted by the HR Committee at its meeting of March 30, 1999 and
attached hereto as Annex I will not be modified without Executive's
written consent and (B) the formula for determining Executive's Award
under the Performance Plan and any successor plan for each subsequent
year during the Employment Period shall use a "Base Year" and "Award
Multiple" (as such terms are defined in the Performance Plan as in
effect on the Effective Date) which shall result in an award that is no
less than the amount that would have been paid had the Base Year and
Award Multiple used for 1999 been applied. The Annual Bonus shall be
paid within two months of the end of the fiscal year of the Company to
which it relates. If any extraordinary event, such as a reorganization,
recapitalization, spinoff, stock split, stock dividend, merger of the
Company, or sale of substantially all of the assets of the Company,
occurs in any fiscal year, the Company shall equitably adjust the terms
of the award under the Performance Plan. If a Change in Control occurs
and the Company has "net income" (as defined in the Performance Plan as
in effect on the Effective Date and determined consistently with past
practice) from its continuing operations, the Executive shall be paid
at least the Target Bonus for the year in which such Change in Control
occurs and in each subsequent year until the end of the Employment
Period. If because of a merger or other corporate reorganization, it is
not possible to determine whether the Company has net income from its
continuing operations, such net income shall be presumed unless there
is conclusive proof to the contrary.
(iii) Incentive Awards. If the Board
approves any transaction which, if consummated, would constitute a
Change in Control (a "Change in Control Transaction"), then on such
approval date the Executive shall be awarded a special bonus,
in recognition of extraordinary services, of $1,250,000 payable January
1, 2000, provided the Executive is an employee of the Company on such
date or the earlier date on which the Change in Control Transaction is
consummated.
(iv) Other Employee Benefit Plans.
During the Employment Period, except as otherwise expressly provided
herein, the Executive shall be entitled to participate in all employee
benefit, welfare and other plans, practices, policies and programs
and fringe benefits (including the use of an automobile of his
selection with an approximate retail price not in excess of $50,000,
which automobile shall be replaced every three years at which time it
may be purchased by the Executive at its wholesale value as reflected
in the Kelly Blue Book Auto Market Report, if the Company owns the car,
or, if the car is leased, the purchase price specified in the Company's
lease agreement)
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(collectively, "Employee Benefit Plans") on a basis no less favorable
than that provided to the Chief Executive Officer prior to any Change
in Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executiv has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 10(b) of this Agreement of its intention to
terminat the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 business days during any consecutive twelve month period as a
result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) With or Without Cause. The Company may
terminate the Executive's employment during the Employment Period with or
without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by the
Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company or the willful
engaging in conduct which materially interferes with any Change in
Control Transaction approved by the Board, or
(ii) conviction of a felony or guilty or
nolo contendere plea by the Executive with respect thereto or any event
requiring the consent of the Federal Deposit Insurance Corporation Act
under 12 U.S.C. ss.1829(a).
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in 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 or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of
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employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than 75% of the entire membership of
the Board (excluding the Executive) at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may
be terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of
any duties inconsisten with the Executive's title and position
(including status, offices and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2(a)(i) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 2 (b) of this Agreement, other
than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) any purported termination by the
Company of th e Executive's employment otherwise than as expressly
permitted by this Agreement for Cause, death or Disability, or any
failure by the Company to renew this Agreement;
(iv) any failure by the Company to comply
with and satisfy Section 9(c) of this Agreement;
(v) failure of the Company to appoint
the Executive to, and retain the Executive in, any of the positions
as specified in Section 2(a)(i) or equivalent positions (it being
understood that equivalent positions may have different titles);
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(vi) any requirement that the Executive (A)
be based
anywhere more than fifty (50) miles from the office where the Executive
is currently located or (B) travel on Company business to an extent
substantially greater than the Executive's current travel obligations;
(vii) any failure of the Company to use
its best efforts to assist the Executive in obtaining or retaining a
visa to work in the United States;
(viii) any failure of the Company to retain
the Executive in a position with respect to the Company's operations
in the United States that is comparable to the Executive's position
with the Company as of the Effective Date; and
(ix) any failure of the Executive to be
elected to, or to remain a member of, the Company's Board of
Directors; provided, however, that after a Change in Control, failure
of the Executive to be nominated to the Board of Directors of a
successor that is a publicly traded company shall not constitute Good
Reason.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Without limiting the generality of
the foregoing, the Executive shall for all purposes of this Agreement be deemed
to have terminated his employment for Good Reason if he voluntarily terminates
his employment within sixty (60) days following the first anniversary of the
occurrence of a Change in Control due to an event described in Section 3(c)(i),
(v), (viii) or (ix) which occurs prior to the first anniversary of such Change
in Control.
(d) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive o r the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
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(e) Date of Termination. "Date of Termination"
means if the Executive's employment is terminated by the Company other than for
Disability, or by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such
notice, and if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
(a) Good Reason; Death; Disability; Other Than for Cause. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, or the Executive shall terminate employment for
Good Reason or the Executive's employment shall terminate on account of death or
Disability:
(i) the Company shall pay to the
Executive or his estate in a lump sum in cash within 30 days after the Date of
Termination:
(A) the amount equal to the
product of (x) the number of months and portions thereof
from the Date of Termination until the end of the Employment
Period divided by twelve and (y) the sum of the Executive's
current Annual Base Salary and the Target Bonus; and
(B) the sum of (x) the
Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, and (y) the product of
(1) the Target Bonus and (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the
Date of Termination occurs through the Date of Termination
and the denominator of which is 365, to the extent not
theretofore paid (the sum of the amounts described in clauses
(x) and (y) shall be hereinafter referred to as the "Accrued
Obligations").
(ii) for the remainder of the Executive's
life and that of his spouse, the Company shall continue to provide
medical and dental benefits to the Executive, his spouse and children
under age 25 on the same basis, including without limitation employee
contributions, as such benefits are then currently provided to the
Executive ("Medical Benefits"); provided that such Medical Benefits
shall be secondary to any other coverage obtained by the Executive and
further provided that the aggregate cost to the Company for such
coverage shall not exceed $1,000,000.
(iii) all stock options shall vest and
remain exercisable for at leas ninety days from the Date of
Termination or the earlier expiration of
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their term and all restricted stock awards and other awards shall vest
and become immediately payable;
(iv) to the extent not theretofore paid
or provided, the Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies through the Date of Termination, and the Executive shall be
permitted to retain the Company automobile as provided in Section 2(b)
(iv) (such other amounts and benefits shall be hereinafter referred
to as the "Other Benefits"); and
(v) the Executive's supplemental benefit
under the Company's Supplemental Executive Retirement Plan shall be
determined assuming the Executive had attained the age that he would
have attained at the end of the Employment Period.
Notwithstanding the foregoing provisions of this Section 4(a), if the Executive
terminates employment for Good Reason within one year of a Change in Control,
only the payment specified in paragraph (i)(B) shall be made unless (i) the
basis for such termination is the occurrence of one or more of the circumstances
set forth in each of Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (ii) the
Executive's title with the Company during such period is not that of Executive
Vice President (or such other title as shall be mutually agreed upon) or the
Executive is assigned duties inconsistent with the duties normally assigned to
an executive with such title in a financial organization of comparable size (it
being understood that no duties need be assigned to the Executive).
(b) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (i) his Annual Base Salary through the Date
of Termination to the extent theretofore unpaid and (ii) the Other Benefits,
provided, however that the Medical Benefits shall be paid if the Executive's
employment is terminated other than for Cause.
5. Non-exclusivity of Rights. Except as specifically provided
and subject to Section 10, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 10(f), shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
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otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement; provided that the Executive shall not be
eligible for severance benefits under any other program or policy of the
Company.
6. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement (other than in
Section 10) to the contrary notwithstanding and except as set forth below, in
the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 7(a), no Gross-Up Payment shall be
made to the Executive if the Executive
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terminates employment within one year of a Change in Control, unless (i) such
termination is by the Company without Cause, (ii) the basis for such termination
is the occurrence of one or more of the circumstances set forth in each of
Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (iii) the Executive's title
with the Company during such period is not Executive Vice President (or such
other title as shall be mutually agreed upon) or the Executive is assigned
duties inconsistent with the duties normally assigned to an executive with such
title in a financial organization of comparable size (it being understood that
no duties need be assigned to the Executive).
(b) Subject to the provisions of Section 7(c),
all determinations required to be made under this Section 7, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by the Company's independent auditors or such other certified public
accounting firm reasonably acceptable to the Executive as may be designated by
the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the xecutive that there has been a Payment, or such
earlier time as is requeste by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive not later than the due date for the payment of any Excise Tax. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 7(c) and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
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<PAGE>
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting
legal representation with respec to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim, and
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7(c), the Executive becomes
entitled to receive any
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<PAGE>
refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
8. Covenants Not to Compete or Solicit Company Clients
and Employees; Confidential Information.
(a) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or by the Executive
for any reason, the Executive shall not directly or indirectly, own, manage,
operate, join, control, or participate in the ownership, management, operation
or control of, or be employed by or connected in any manner with, any competing
business, whether for compensation or otherwise, without the prior written
consent of the Company. For the purposes of this Agreement, a "competing
business" shall be any business which is a significant competitor of the Company
in the New York area and has at least five (5) billion dollars in deposits
or at least five (5) billion dollars in assets under management, unless the
Executive's primary duties and responsibilities with respect to such business
are not related to the Executive's activities engaged in for the Company within
the one year period prior to the Date of Termination. Should the Executive,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be employed by or
connected in any manner with, any competing business, all payments under this
Agreement shall cease.
(b) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or the Executive
for any reason, the Executive shall not, in any manner, directly or indirectly,
(i) solici any client or prospective client of the Company to whom the
Executive provided services, or for whom the Executive transacted business,
or whose identity became known to the Executive in connection with the
Executive's employment with the Company to transact busines with a competing
business or reduce or refrain from doing any business with the Company or (ii)
interfere with or damage (or attempt to interfere with or damage) any
relationship between the Company an any such client or prospective client.
During the term of this Agreement and for a period of one year after the Date
of Termination by the Company or the Executive for any reason, the Executive
further agrees that the Executive shall not, in any manner, directly or
indirectly, solicit any person who is an employee of the Company to apply for
or accept employment with any competing business. The term "solicit" as
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used in this Agreement means any communication of any kind whatsoever,
regardless of by whom initiated, inviting, encouraging or requesting any person
or entity to take or refrain from taking any action.
(c) The Executive hereby acknowledges that, as
an employee of the Company, he will be making use of, acquiring and adding to
confidential information of a special and unique nature and value relating to
the Company and its strategic plan and financial operations. The Executive
further recognizes and acknowledges that all confidential information is the
exclusive property of the Company, is material and confidential, and s
critical to the successful conduct of the business of the Company. Accordingly,
the Executive hereby covenants and agrees that he will use confidential
information for the benefit of the Company only and shall not at any time,
directly or indirectly, durin the term of this Agreement and thereafter
divulge, reveal or communicate any confidential information to any person,
firm, corporation or entity whatsoever, or use any confidential information
for his own benefit or for the benefit of others. In no event shall an asserted
violation of the provisions of this Section 8(c) constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
(d) Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 8.
(e) The Executive acknowledges and agrees that
the Company will have no adequate remedy at law, and could be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 8. The Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach
of this Section 8, and to specific performance of each of the terms hereof in
addition to any other legal or equitable remedies that the Company may have.
The Executive further agrees that he shall not, in any equity proceeding
relating to the enforcement of the terms of this Section 8, raise the defense
that the Company has an adequate remedy at law.
(f) The terms and provisions of thi s Section 8
are intended to be separate and divisible provisions and if, for any reason,
any one or more of them is held to be invalid or unenforceable, neither the
validity nor the enforceability of any other provision of this Agreement
shall thereby be affected. The parties hereto acknowledge that the potential
restrictions on the Executive's future employment imposed by this Section 8 are
reasonable in both duration and geographic scope and in all other respects. If
for any reason any court of competent jurisdiction shall find any provisions
of this Section 8 unreasonable in duration or geographic scope or otherwise, the
Executive and the Company agree that the restrictions and prohibitions contained
herein shall be effective to the fullest extent allowed under applicable
law in such jurisdiction.
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<PAGE>
(g) The parties acknowledge that this Agreement
would not have been entered into and the benefits described in Sections 2 or 4
would not have been promised in the absence of the Executive's promises under
this Section 8.
9. Successors.
(a) This Agreement is personal to the Executive
and without the prio written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid.
10. No "Golden Parachute Payments" Required. Anything in this
Agreement to the contrary notwithstanding, the Company shall not be obligated to
make any payment hereunder that would be prohibited as a "golden parachute
payment" or "indemnification payment" under 12 U.S.C. ss.1828(k).
11. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
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<PAGE>
Elias Saal
18 Cushman Road
Scarsdale, N.Y. 10583
If to the Company:
Republic New York Corporation
452 Fifth Avenue
New York, N.Y. 10018
Telecopy Number: (212) 525-6900
Attention: Dov C. Schlein
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this
Agreement.
(f) From and afte the Effective Date this
Agreement shall supersede any other employment agreement between the parties
with respect to the subject matter hereof.
(g) Subject to the provisions of Section 4(a),
there shall be no limitation on the ability of the Company to terminate the
Executive at any time with or without Cause.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has
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<PAGE>
caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Elias Saal
--------------
REPUBLIC NEW YORK CORPORATION
By: /s/ Dov C. Schlein
------------------
Title: Chairman & Chief
Executive Officer
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<PAGE>
REPUBLIC NEW YORK CORPORATION
452 FIFTH AVENUE
NEW YORK, N.Y. 10018
DOV C. SCHLEIN
Chairman and
Chief Executive Officer
TEL (212) 525-6531
Bonuses Payable Under Employment Agreement
Dear Elias Saal:
This is to confirm the understanding of the parties regarding the proper
interpretation of Section 2(b)(ii) of the Employment Agreement (the "Agreement")
by and between Republic New York Corporation (the "Company") and you, dated as
of April 30, 1999, in the event that there is a Change in Control (as defined in
such Agreement).
We have agreed that, the consummation of the transaction contemplated
under the Transaction Agreement and Plan of Merger by and among HSBC Holdings
plc, Republic New York Corporation and Safra Republic Holdings S.A., dated as of
May 10, 1999, (the "Merger") would result in a Change in Control of the Company.
Further, we have agreed that under such Section 2(b)(ii), in the event such
Change in Control pursuant to the Merger occurs and the Company has "net income"
(as defined in the Performance Plan as in effect on April 30, 1999 and
determined consistently with past practice) from it continuing operations, you
will be paid a bonus for the year in which such Change in Control occurs and in
each subsequent year until the end or the Employment Period (as defined in the
Agreement) equal to the target level of bonus specified in such Section 2(b)(ii)
and that no additional bonus would be due under the Performance Plan. This
interpretation shall not preclude the Company from paying you a bonus in excess
of such targeted amount if, in its discretion and in accordance with the
applicable governing procedures then in effect, the Company determines that an
additional amount is warranted.
To indicate your agreement with this interpretation of Section 2(b)(ii)
of the Agreement in connection with the Merger, please sign your name where
indicated below and return one copy of this letter to the undersigned. Keep the
other copy for your records.
REPUBLIC NEW YORK CORPORATION
/s/ Dov C. Schlein
------------------
By: Dov C. Schlein
AGREED AND ACCEPTED:
/s/ Elias Saal
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Dated: Sept. 28, 1999
Exhibit 10(d)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 30th day of April, 1999, between
Republic New York Corporation, a Maryland corporation having its principal
executive offices in New York, New York (including as successor thereto, the
"Company"), and Stephen J. Saali (the "Executive").
WHEREAS, Executive currently serves as a senior executive
officer of the Company;
WHEREAS, the Company recognizes the Executive's substantial
contribution to the growth and success of the Company, desires to provide for
the continued employment of the Executive and to make certain changes in the
Executive's employment arrangements with the Company, which the Board has
determined will reinforce and encourage the continued attention and dedication
to the Company of the Executive as a member of the Company's senior management
in the best interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the
Company on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on April
30, 2004 (the "Employment Period").
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the
Executive shall serve as President of New York Corporation and Vice
Chairman f Republic National Bank of New York with the appropriate
authority, duties and responsibilities attendant to such position.
Prior to a change in control (as defined in the Company Supplemental
Executive Retirement Plan) ("Change in Control"), the Company shall use
its best efforts to cause the Executive to be nominated for
<PAGE>
election to the Company's Board of Directors (the "Board")
during the Employment Period.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote substantially all of his
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive, in
accordance with the Company's Standards of Conduct, to (A) serve,
with prior approval of the Board, on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach on a limited basis at educational institutions
and (C) manage Executive's personal investments, so long as such
activities described in clauses (A), (B) and (C) do not significantly
interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement.
It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective
Date in accordance with the Company's Standards of Conduct, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. Effective
January 1, 1999, and during the Employment Period, the Executive shall
receive an annua base salary ("Annual Base Salary") of at least
$400,000 which shall increase effective May 1, 2000 to $500,000. Any
increase in Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. During the Employment
Period, the Executive shall be paid an annual cash bonus ("Annual
Bonus") with a target level of not less than 3.5 times Annual Base
Salary ("Target Bonus"), or such greater amount as determined by the
Human Resources Committee of the Board (the "HR Committee"); provided,
however, that a minimum annual bonus shall be paid in any event to the
Executive equal to the difference between one million dollars and
the Annual Base Salary; and further provided, that (A) the formula
for determining Executive's 1999 Award under the Company's 1994
Performance
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Based Incentive Compensation Plan (the "Performance Plan")
that was adopted by the HR Committee at its meeting of March 30,
1999 and attached hereto as Annex I will not be modified without
Executive's written consent and
(B) the formula for determining Executive's Award under the Performance
Plan and any successor plan for each subsequent year during the
Employment Period shall use a "Base Year" and "Award Multiple" (as such
terms are defined in the Performance Plan as in effect on the Effective
Date) which shall result in an award that is no less than the amount
that would have been paid had the Base Year and Award Multiple used for
1999 been applied. The Annual Bonus shall be paid within two months of
the end of the fiscal year of the Company to which it relates. If any
extraordinary event, such as a reorganization, recapitalization,
spinoff, stock split, stock dividend, merger of the Company, or sale of
substantially all of the assets of the Company, occurs in any fiscal
year, the Company shall equitably adjust the terms of the award under
the Performance Plan. If a Change in Control occurs and the Company has
"net income" (as defined in the Performance Plan as in effect on the
Effective Date and determined consistently with past practice) from its
continuing operations, the Executive shall be paid at least the Target
Bonus for the year in which such Change in Control occurs and in each
subsequent year until the end of the Employment Period. If because of a
merger or other corporate reorganization, it is not possible to
determine whether the Company has net income from its continuing
operations, such net income shall be presumed unless there is
conclusive proof to the contrary.
(iii) Incentive Awards. If the Board
approves any transaction which, if consummated, would constitute a
Change in Control (a "Change in Control Transaction"), then on such
approval date the Executive shall be awarded a special bonus, in
recognition of extraordinary services, of $1,000,000 payable January 1,
2000, provided the Executive is an employee of the Company on such date
or the earlier date on which the Change in Control Transaction is
consummated.
(iv) Other Employee Benefit Plans
During the Employment Period, except as otherwise expressly provided herein, the
Executive shall be entitled to participate in all employee benefit, welfare
and other plans, practices, policies and programs and fringe benefits
(including the use of an automobile of his selection with an approximate retail
price not in excess of $50,000, which automobile shall be replaced every three
years at which time it may be purchased by the Executive at its wholesale value
as reflected in the Kelly Blue Book Auto Market Report, if the Company owns the
car, or, if the car is leased, the purchase price specified in the Company's
lease agreement) (collectively, "Employee Benefit Plans") on a basis no less
favorable than that provided to the Chief Executive Officer prior to any Change
in Control.
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3. Termination of Employment.
(a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 10(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 business days during any consecutive twelve month period as a
result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) With or Without Cause. The Company may
terminate the Executive's employment during the Employment Period with or
without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by the
Executive in illegal conduct or gross misconduct which is materially
and demonstrably injurious to the Company or the willful engaging
in conduct which materially interferes with any Change in Control
Transaction approved by the Board, or
(ii) conviction of a felony or guilty or
nolo contendere plea by the Executive with respect thereto or any event
requiring the consent of the Federal Deposit Insurance Corporation Act
under 12 U.S.C. ss.1829(a).
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in 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 or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% of the
entire membership of the Board (excluding
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the Executive) at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may
be terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of
any duties inconsistent with the Executive's title and position
(including status, offices and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2(a)(i) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 2 (b) of this Agreement, other
than an isolated, insubstantial and inadvertent failure not occurring
in bad fait and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) any purported termination by the
Company of the Executive's employment otherwise than as expressly
permitted by this Agreement for Cause, death or Disability, or any
failure by the Company to renew this Agreement;
(iv) any failure by the Company to comply
with and satisfy Section 9(c) of this Agreement;
(v) failure of the Company to appoint
the Executive to, and retain the Executive in, any of the positions
as specified in Section 2(a)(i) or equivalent positions (it being
understood that equivalent positions may have different titles);
(vi) any requirement that the Executive (A)
be based anywhere more than fifty (50) miles from the office where the
Executive is currently located or (B) travel on Company business to
an extent substantially greater than the Executive's current travel
obligations;
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(vii) any failure of the Company to use
its best efforts to assist the Executive in obtaining or retaining a
visa to work in the United States;
(viii) any failure of the Company to retain
the Executive in a position with respect to the Company's operations
in the United States that is comparable to the Executive's position
with the Company as of the Effective Date; and
(ix) any failure of the Executive to be
elected to, or to remain a member of, the Company's Board of
Directors; provided, however, that after a Change in Control, failure
of the Executive to be nominated to the Board of Directors of a
successor that is a publicly traded company shall not constitute Good
Reason.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Without limiting the generality of
the foregoing, the Executive shall for all purposes of this Agreement be deemed
to have terminated his employment for Good Reason if he voluntarily terminates
his employment within sixty (60) days following the first anniversary of the
occurrence of a Change in Control due to an event described in Section 3(c)(i),
(v), (viii) or (ix) which occurs prior to the first anniversary of such Change
in Control.
(d) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of
such notice, specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude
the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination"
means if the Executive's employment is terminated by the Company other than for
Disability, or by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such
notice, and if the Executive's employment is terminated by
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reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
(a) Good Reason; Death; Disability; Other Than for Cause. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, or the Executive shall terminate employment for
Good Reason or the Executive's employment shall terminate on account of death or
Disability:
(i) the Company shall pay to the
Executive or his estate in a lump sum in cash within 30 days after the Date of
Termination:
(A) the amount equal to the
product of (x) the number of months and portions thereof
from the Date of Termination until the end of the Employment
Period divided by twelve and (y) the sum of the Executive's
current Annual Base Salary and the Target Bonus; and
(B) the sum of (x) the
Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, and (y) the
product of (1) the Target Bonus and (2) a fraction, the
numerator of which is the number of days in the fiscal year
in which the Date of Termination occurs through the Date of
Termination nd the denominator of which is 365, to the extent
not theretofore paid (the sum of the amounts described in
clauses (x) and (y) shall be hereinafter referred to as
the "Accrued Obligations").
(ii) for the remainder of the Executive's
life and that of his spouse, the Company shall continue to provide
medical and dental benefits to the Executive, his spouse and children
under age 25 on the same basis, including without limitation employee
contributions, as such benefits are then currently provided to the
Executive ("Medical Benefits"); provided that such Medical Benefits
shall be secondary to any other coverage obtained by the Executive and
further provided that the aggregat cost to the Company for such
coverage shall not exceed $1,000,000.
(iii) all stock options shall vest and
remain exercisable for at least ninety days from the Date of
Termination or the earlier expiration of their term and all restricted
stock award and other awards shall vest and become immediately
payable;
-7-
<PAGE>
(iv) to the extent not theretofore paid
or provided, the Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies through the Date of Termination, and the Executive shall be
permitted to retain the Company automobile as provided in Section 2(b)
(iv) (such other amounts and benefits shall be hereinafter referred
to as the "Other Benefits"); and
(v) the Executive's supplemental benefit
under the Company's Supplemental Executive Retirement Plan shall be
determined assuming the Executive had attained the age that he would
have attained at the end of the Employment Period, the Executive had
accumulated the number of years and portions thereof of service
from the Date of Termination until the end of the Employment Period and
the Executive's final average pay equals the sum of his Annual Base
Salary and Recent Annual Bonus.
Notwithstanding the foregoing provisions of this Section 4(a), if the Executive
terminates employment for Good Reason within one year of a Change in Control,
only the payment specified in paragraph (i)(B) shall be made unless (i) the
basis for such termination is the occurrence of one or more of the circumstances
set forth in each of Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (ii) the
Executive's title with the Company during such period is not that of Executive
Vice President (or such other title as shall be mutually agreed upon) or the
Executive is assigned duties inconsistent with the duties normally assigned to
an executive with such title in a financial organization of comparable size (it
being understood that no duties need be assigned to the Executive).
(b) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause or the Executive
terminates his employment without Good Reason during the Employment Period,
this Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive (i) his Annual Base Salary
through the Date of Termination to the extent theretofore unpaid and (ii) the
Other Benefits, provided, however that the Medical Benefits shall be paid if
the Executive's employment is terminated other than for Cause.
5. Non-exclusivity of Rights. Except as specifically provided
and subject to Section 10, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 10(f), shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
-8-
<PAGE>
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement; provided that the Executive shall not be
eligible for severance benefits under any other program or policy of the
Company.
6. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement (other than in
Section 10) to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, toge ther with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), no Gross-Up Payment shall be made to the
Executive if the Executive
-9-
<PAGE>
terminates employment within one year of a Change in Control, unless (i) such
termination is by the Company without Cause, (ii) the basis for such termination
is the occurrence of one or more of the circumstances set forth in each of
Section 3(c)(ii), (iii), (iv), (vi) or (vii), or (iii) the Executive's title
with the Company during such period is not Executive Vice President (or such
other title as shall be mutually agreed upon) or the Executive is assigned
duties inconsistent with the duties normally assigned to an executive with such
title in a financial organization of comparable size (it being understood that
no duties need be assigned to the Executive).
(b) Subjec to the provisions of Section 7(c),
all determinations required to be made under this Section 7, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by the Company's independent auditors or such other certified public
accounting firm reasonably acceptable to the Executive as may be designated by
the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive not later than the due date for the payment of any Excise Tax. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such clai is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
-10-
<PAGE>
(i) give th Company an information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim, and
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7(c), the Executive becomes
entitled to receive any
-11-
<PAGE>
refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
8. Covenants Not to Compete or Solicit Company Clients
and Employees; Confidential Information.
(a) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or by the Executive
for any reason, the Executive shall not directly or indirectly, own, manage,
operate, join, control, or participate in the ownership, management, operation
or control of, or be employed by or connected in any manner with, any competing
business, whether for compensation or otherwise, without the prior written
consent of the Company. For the purposes of this Agreement, a "competing
business" shall be any business which is a significant competitor of the Company
in the New York area and has at least five (5) billion dollars in deposits
or at least five (5) billion dollars in assets under management, unless the
Executive's primary duties and responsibilities with respect to such business
are not related to the Executive's activities engaged in for the Company
within the one year period prior to the Date of Termination Should the
Executive, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any competing business, all
payments under this Agreement shall cease.
(b) During the term of this Agreement, and for a
one year period after the Date of Termination by the Company or the Executive
for any reason, the Executive shall not, in any manner, directly or indirectly,
(i) solicit any client or prospective client of the Company to whom the
Executive provided services, or for whom the Executive transacted business,
or whose identity became known to the Executive in connection with the
Executive's employment with the Company to transact business with a competing
business or reduce or refrain from doing any business with the Company or (ii)
interfere with or damage (or attempt to interfere with or damage) any
relationship between the Company and any such client or prospective client
During the term of this Agreement and for a period of one year after the Date
of Termination by the Company or the Executive for any reason, the Executive
further agrees that the Executive shall not, in any manner, directly or
indirectly, solicit any person who is an employee of the Company to apply for
or accept employment with any competing business. The term "solicit" as used
in this Agreement means any communication of any kind whatsoever,
regardless of
-12-
<PAGE>
by whom initiated, inviting, encouraging or requesting any person
or entity to take or refrain from taking any action.
(c) The Executive hereby acknowledges that, as
an employee of the Company, he will be making use of, acquiring and adding to
confidential information of a special and unique nature and value relating to
the Company and its strategic plan and financial operations. The Executive
further recognizes and acknowledges that all confidential information is the
exclusive property of the Company, is material and confidential, and is
critical to the successful conduct of the business of the Company
Accordingly, the Executive hereby covenants and agrees that he will use
confidential information for the benefit of the Company only and shall not at
any time, directly or indirectly, during the term of this Agreement and
thereafter divulge, reveal or communicate any confidential information to
any person, firm, corporation or entity whatsoever, or use any confidential
information for his own benefit or for the benefit of others. In no event shall
an asserted violation of the provisions of this Section 8(c) constitute
a basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(d) Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 8.
(e) The Executive acknowledges and agrees that
the Company will have no adequate remedy at law, and could be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 8. The Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach
of this Section 8, and to specific performance of each of the terms hereof in
addition to any other legal or equitable remedies that the Company may have
The Executive further agrees that he shall not, in any equity proceeding
relating to the enforcement of the terms of this Section 8, raise the defense
that the Company has an adequate remedy at law.
(f) The terms and provisions of this Section 8
are intended to be separate and divisible provisions and if, for any reason,
any one or more of them is held to be invalid or unenforceable, neither the
validity nor the enforceability of any other provision of this Agreement
shall thereby be affected. The parties hereto acknowledge that the potential
restrictions on the Executive's future employment imposed by this Section 8 are
reasonable in both duration and geographic scope and in all other respects. If
for any reason any court of competent jurisdiction shall find any provisions
of this Section 8 unreasonable in duration or geographic scope or otherwise, the
Executive and the Company agree that the restrictions and prohibitions contained
herein shall be effective to the fullest extent allowed under applicable
law in such jurisdiction.
-13-
<PAGE>
(g) The parties acknowledge that this Agreement
would not have been entered into and the benefits described in Sections 2 or 4
would not have been promised in the absence of the Executive's promises under
this Section 8.
9. Successors.
(a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Company to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid.
10. No "Golden Parachute Payments" Required. Anything in this
Agreement to the contrary notwithstanding, the Company shall not be obligated to
make any payment hereunder that would be prohibited as a "golden parachute
payment" or "indemnification payment" under 12 U.S.C. ss.1828(k).
11. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notice and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
-14-
<PAGE>
Stephen J. Saali
21 E. 87th Street, Apt. 12B
New York, N.Y. 10128
If to the Company:
Republic New York Corporation
452 Fifth Avenue
New York, N.Y. 10018
Telecopy Number: (212) 525-6900
Attention: Dov C. Schlein
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) From and after the Effective Date this
Agreement shall supersede any other employment agreement between the parties
with respect to the subject matter hereof.
(g) Subject to the provisions of Section 4(a),
there shall be no limitation on the ability of the Company to terminate the
Executive at any time with or without Cause.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has
-15-
<PAGE>
caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Elias Saal
--------------
REPUBLIC NEW YORK CORPORATION
By: /s/ Dov C. Schlein
------------------
Title: Chairman & Chief
Executive Officer
-16-
<PAGE>
REPUBLIC NEW YORK CORPORATION
452 FIFTH AVENUE
NEW YORK, N.Y. 10018
DOV C. SCHLEIN
Chairman and
Chief Executive Officer
TEL (212) 525-6531
Bonuses Payable Under Employment Agreement
Dear Stephen J. Saali:
This is to confirm the understanding of the parties regarding the
proper interpretation of Section 2(b)(ii) of the Employment Agreement (the
"Agreement") by and between Republic New York Corporation (the "Company") and
you, dated as of April 30, 1999, in the event that there is a Change in Control
(as defined in such Agreement).
We have agreed that, the consummation of the transaction contemplated
under the Transaction Agreement and Plan of Merger by and among HSBC Holdings
plc, Republic New York Corporation and Safra Republic Holdings S.A., dated as of
May 10, 1999, (the "Merger") would result in a Change in Control of the Company.
Further, we have agreed that under such Section 2(b)(ii), in the event such
Change in Control pursuant to the Merger occurs and the Company has "net income"
(as defined in the Performance Plan as in effect on April 30, 1999 and
determined consistently with past practice) from it continuing operations, you
will be paid a bonus for the year in which such Change in Control occurs and in
each subsequent year until the end or the Employment Period (as defined in the
Agreement) equal to the target level of bonus specified in such Section 2(b)(ii)
and that no additional bonus would be due under the Performance Plan. This
interpretation shall not preclude the Company from paying you a bonus in excess
of such targeted amount if, in its discretion and in accordance with the
applicable governing procedures then in effect, the Company determines that an
additional amount is warranted.
To indicate your agreement with this interpretation of Section 2(b)(ii)
of the Agreement in connection with the Merger, please sign your name where
indicated below and return one copy of this letter to the undersigned. Keep the
other copy for your records.
REPUBLIC NEW YORK CORPORATION
/s/ Dov C. Schlein
------------------
By: Dov C. Schlein
AGREED AND ACCEPTED:
/s/ Stephen J. Saali
- --------------------
Dated: Sept. 28, 1999
<TABLE>
<CAPTION>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
UNAUDITED
(In thousands except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ -----------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings (loss):
Net income (loss) $ 316,097 $ 143,652 $ 126,469 $ (92,659)
Less preferred stock dividends (19,324) (19,701) (6,593) (6,529)
Less dividends on restricted stock plan shares (747) (2,424) (173) (674)
----------- ---------- ---------- ----------
Net income (loss) applicable to common stock - basic $ 296,026 $ 121,527 $ 119,703 $ (99,862)
========== ========== ========== ==========
Average common shares outstanding - excluding restricted
stock plan shares 102,727 104,522 102,331 103,985
========== ========== ========== ==========
Basic earnings (loss) per common share $ 2.88 $ 1.16 $ 1.17 $ (0.96)
========== ========== ========== ==========
Diluted earnings (loss):
Net income (loss) applicable to common stock -basic $ 296,026 $ 121,527 $ 119,703 $ (99,862)
Dividend adjustment on restricted stock plan
shares to reflect shares assumed issued 571 1,321 114 438
---------- ---------- --------- ----------
Net income (loss) applicable to common stock - diluted $ 296,597 $ 122,848 $ 119,817 $ (99,424)
========== ========== ========== ==========
Shares:
Average common shares outstanding - excluding
restricted stock plan shares 102,727 104,522 102,331 103,985
Net shares assumed issued under compensation stock 1,604 1,797 1,652 -
Shares assumed issued on exercise of stock options 47 77 23 -
---------- ---------- ---------- ----------
Average common shares outstanding 104,378 106,396 104,006 103,985
========== ========== ========== ==========
Diluted earnings (loss) per common share $ 2.84 $ 1.15 $ 1.15 $ (0.96)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 836,086
<INT-BEARING-DEPOSITS> 6,854,973
<FED-FUNDS-SOLD> 2,188,012
<TRADING-ASSETS> 2,896,278
<INVESTMENTS-HELD-FOR-SALE> 16,441,611
<INVESTMENTS-CARRYING> 5,266,123
<INVESTMENTS-MARKET> 5,286,720
<LOANS> 14,730,939
<ALLOWANCE> 293,161
<TOTAL-ASSETS> 53,051,601
<DEPOSITS> 31,856,220
<SHORT-TERM> 8,584,987
<LIABILITIES-OTHER> 165,067
<LONG-TERM> 3,789,445
<COMMON> 523,781
0
500,000
<OTHER-SE> 2,254,304
<TOTAL-LIABILITIES-AND-EQUITY> 53,051,601
<INTEREST-LOAN> 770,179
<INTEREST-INVEST> 1,080,719
<INTEREST-OTHER> 229,051
<INTEREST-TOTAL> 2,079,949
<INTEREST-DEPOSIT> 884,194
<INTEREST-EXPENSE> 1,290,836
<INTEREST-INCOME-NET> 789,113
<LOAN-LOSSES> 12,000
<SECURITIES-GAINS> 35,711
<EXPENSE-OTHER> 856,948
<INCOME-PRETAX> 429,501
<INCOME-PRE-EXTRAORDINARY> 316,097
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,097
<EPS-BASIC> 2.88
<EPS-DILUTED> 2.84
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
