CONFORMED 1.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission file number 1-7436
HSBC USA Inc.
(Exact name of registrant as specified in its charter)
Maryland Corporation 13-2764867
(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
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
All voting stock (704 shares of Common Stock, $5 par value) is owned by HSBC
North America Inc., an indirect wholly owned subsidiary of HSBC Holdings plc.
This report includes a total of 37 pages.
2.
Part I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements
Consolidated Balance Sheet
June 30, 2000 and December 31, 1999 3
Consolidated Statement of Income
For The Quarter and Six Months
Ended June 30, 2000 and 1999 4
Consolidated Statement of Changes in
Shareholders' Equity For The Six Months
Ended June 30, 2000 and 1999 5
Consolidated Statement of Cash Flows
For The Six Months Ended
June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
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3.
HSBC USA Inc.
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C O N S O L I D A T E D B A L A N C E S H E E T
June 30, December 31,
2000 1999
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in thousands
<S> <C> <C>
Assets
Cash and due from banks $ 2,073,075 $ 1,977,756
Interest bearing deposits with banks 5,348,441 4,234,668
Federal funds sold and securities
purchased under resale agreements 2,438,516 2,318,361
Trading assets 4,357,221 4,526,988
Securities available for sale 18,944,053 25,973,805
Securities held to maturity
(fair value $4,647,127 and $4,811,695) 4,633,200 4,811,695
Loans 38,146,289 37,909,143
Less - allowance for credit losses 636,166 659,603
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Loans, net 37,510,123 37,249,540
Premises and equipment 765,887 745,910
Accrued interest receivable 823,545 778,363
Equity investments 2,567,107 2,540,927
Goodwill and other acquisition intangibles 3,217,577 3,307,147
Other assets 2,146,592 1,774,459
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Total assets $ 84,825,337 $ 90,239,619
===============================================================================
Liabilities
Deposits in domestic offices
Noninterest bearing $ 6,850,109 $ 6,003,813
Interest bearing 29,054,325 29,393,957
Deposits in foreign offices
Noninterest bearing 146,522 187,099
Interest bearing 18,457,641 20,865,022
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Total deposits 54,508,597 56,449,891
-------------------------------------------------------------------------------
Trading account liabilities 2,403,592 2,440,729
Short-term borrowings 9,332,661 5,271,597
Interest, taxes and other liabilities 2,772,884 3,059,993
Payable to shareholders of acquired company - 7,091,209
Subordinated long-term debt and perpetual
capital notes 3,424,539 3,427,649
Guaranteed mandatorily redeemable securities 710,998 710,259
Other long-term debt 1,761,072 1,747,131
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Total liabilities 74,914,343 80,198,458
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Shareholders' equity
Preferred stock 500,000 500,000
Common shareholder's equity
Common stock 4 4
Capital surplus 8,923,059 8,920,113
Retained earnings 534,885 671,578
Accumulated other comprehensive loss (46,954) (50,534)
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Total common shareholder's equity 9,410,994 9,541,161
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Total shareholders' equity 9,910,994 10,041,161
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 84,825,337 $ 90,239,619
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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4.
HSBC USA Inc.
--------------------------------------------------------------------------------
C O N S O L I D A T E D S T A T E M E N T O F I N C O M E
Quarter ended June 30, Six months ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
in thousands
<S> <C> <C> <C> <C>
Interest income
Loans $ 728,791 $ 456,902 $ 1,449,812 $ 922,732
Securities 433,288 53,858 854,255 112,701
Trading assets 23,795 10,597 52,393 22,496
Other short-term investments 168,275 52,777 275,563 93,318
--------------------------------------------------------------------------------
Total interest income 1,354,149 574,134 2,632,023 1,151,247
--------------------------------------------------------------------------------
Interest expense
Deposits 569,285 208,930 1,094,725 409,863
Short-term borrowings 124,350 31,114 223,324 69,751
Long-term debt 112,136 27,158 216,319 53,447
--------------------------------------------------------------------------------
Total interest expense 805,771 267,202 1,534,368 533,061
--------------------------------------------------------------------------------
Net interest income 548,378 306,932 1,097,655 618,186
Provision for credit losses 28,007 22,500 56,000 45,000
--------------------------------------------------------------------------------
Net interest income, after
provision for credit losses 520,371 284,432 1,041,655 573,186
--------------------------------------------------------------------------------
Other operating income
Trust income 22,400 13,450 42,544 26,109
Service charges 43,173 30,516 86,681 59,709
Mortgage banking revenue 8,577 8,775 15,164 19,990
Other fees and commissions 74,247 41,076 153,690 81,038
Trading revenues 29,516 2,884 81,743 5,476
Security gains 4,024 4,855 745 7,306
Earnings from equity
investments 19,303 1,132 32,525 1,792
Other income 10,611 6,206 21,407 29,075
--------------------------------------------------------------------------------
Total other operating income 211,851 108,894 434,499 230,495
--------------------------------------------------------------------------------
Total income from operations 732,222 393,326 1,476,154 803,681
--------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 251,450 104,909 502,342 209,409
Occupancy expense, net 44,567 21,512 86,667 44,264
Goodwill amortization 43,731 9,771 87,461 19,353
Other expenses 136,551 67,655 274,709 137,334
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Total operating expenses 476,299 203,847 951,179 410,360
--------------------------------------------------------------------------------
Income before taxes 255,923 189,479 524,975 393,321
Applicable income tax expense 87,800 76,000 197,800 158,400
--------------------------------------------------------------------------------
Net income $ 168,123 $ 113,479 $ 327,175 $ 234,921
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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5.
HSBC USA Inc.
-------------------------------------------------------------------------------------------------
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S
I N S H A R E H O L D E R S' E Q U I T Y
Six months ended June 30,
2000 1999
-------------------------------------------------------------------------------------------------
Share- Compre- Share- Compre-
holders' hensive holders' hensive
Equity Income Equity Income
-------------------------------------------------------------------------------------------------
in thousands
<S> <C> <C> <C> <C>
Preferred stock
Balance, January 1, $ 500,000 $ - *
------------------------------------------------------------ -----------
Balance, June 30, 500,000 -
------------------------------------------------------------ -----------
Common stock
Balance, January 1, 4 5
------------------------------------------------------------ -----------
Balance, June 30, 4 5
------------------------------------------------------------ -----------
Capital surplus
Balance, January 1, 8,920,113 1,806,563
Capital contribution from parent 2,946 1,375
------------------------------------------------------------ -----------
Balance, June 30, 8,923,059 1,807,938
------------------------------------------------------------ -----------
Retained earnings
Balance, January 1, 671,578 377,179
Net income 327,175 $ 327,175 234,921 $ 234,921
Cash dividends declared:
Preferred stock (13,868) -
Common stock (450,000) (155,000)
------------------------------------------------------------ -----------
Balance, June 30, 534,885 457,100
------------------------------------------------------------ -----------
Accumulated other comprehensive income (loss)
Balance, January 1, (50,534) 44,506
Change in unrealized gains (losses)
on securities available for sale,
net of taxes and reclassification
adjustments 7,161 (67,226)
Foreign currency translation
adjustments, net of taxes (3,581) -
Change in accumulated other
comprehensive income, net 3,580 (67,226)
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Comprehensive income $ 330,755 $ 167,695
------------------------------------------------------------ ========= ----------- =========
Balance, June 30, (46,954) (22,720)
------------------------------------------------------------ -----------
Total shareholders' equity, June 30 $ 9,910,994 $ 2,242,323
============================================================ ===========
The accompanying notes are an integral part of the consolidated financial statements.
* $100 aggregate par value.
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6.
HSBC USA Inc.
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C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
Six months ended June 30,
2000 1999
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in thousands
<S> <C> <C>
Cash flows from operating activities
Net income $ 327,175 $ 234,921
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and deferred taxes 210,295 18,521
Provision for credit losses 56,000 45,000
Net change in other accrual accounts (165,885) 74,007
Net change in loans originated for sale (1,389,625) 596,186
Net change in trading assets and liabilities 71,032 (33,428)
Other, net (345,609) (51,516)
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Net cash provided (used) by operating activities (1,236,617) 883,691
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Cash flows from investing activities
Net change in interest bearing deposits with banks (1,113,773) 934,836
Net change in short-term investments (120,155) (2,978,613)
Purchases of securities (9,881,884) (1,506,552)
Sales of securities 6,562,011 1,726,999
Maturities of securities 10,382,808 529,388
Payment to shareholders of acquired company (7,091,209) -
Net originations and maturities of loans 943,182 355,637
Sales of loans 167,010 -
Expenditures for premises and equipment (66,541) (12,997)
Cash used in acquisitions, net of cash acquired - (8,787)
Other, net (124,539) (58,746)
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Net cash used by investing activities (343,090) (1,018,835)
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Cash flows from financing activities
Net change in deposits (1,941,294) 554,764
Net change in short-term borrowings 4,061,064 (500,821)
Issuance of long-term debt 439,291 200,132
Repayment of long-term debt (428,994) (100,582)
Capital contributions 2,946 1,375
Dividends paid (457,987) (155,000)
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Net cash provided (used) by financing activities 1,675,026 (132)
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Net change in cash and due from banks 95,319 (135,276)
Cash and due from banks at beginning of period 1,977,756 1,262,423
-----------------------------------------------------------------------------------
Cash and due from banks at end of period $ 2,073,075 $ 1,127,147
===================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
7.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accounting and reporting policies of HSBC USA Inc. (the Company) and its
subsidiaries including its principal subsidiary, HSBC Bank USA conform to
generally accepted accounting principles and to predominant practice within
the banking industry. Such policies, except as described in Note 6 below, are
consistent with those applied in the presentation of the Company's annual
financial statements.
The interim financial information in this report has not been audited. In the
opinion of the Company's management, all adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for
the interim periods have been made. The interim financial information should
be read in conjunction with the 1999 Annual Report on Form 10-K.
2. Acquisition
Following the acquisition of Republic New York Corporation (Republic) by HSBC
Holdings plc (HSBC) on December 31, 1999, HSBC merged Republic with the
Company. Republic had total assets of $46.9 billion and deposits of $29.9
billion at that date. The transaction was accounted for as a purchase and the
operating results of Republic are included from January 1, 2000. Goodwill was
approximately $3.0 billion and is being amortized against income over 20
years.
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The following pro forma financial information presents the combined results
of the Company and Republic as if the acquisition had occurred as of the
beginning of 1999, after giving effect to certain adjustments, including
accounting adjustments related to fair value adjustments, amortization of
goodwill and related income tax effect. The proforma financial information
does not necessarily reflect the results of operations that would have
occurred had the Company and Republic constituted a single entity during such
period.
---------------------------------------------------------------------------------
Historical Amortization
------------------ of
HSBC Republic Acquisition Pro Forma
Six months ended June 30, 1999 USA Inc. NY Corp. Adjustments Combined
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(in millions)
<S> <C> <C> <C> <C>
Net interest income $618 $529 $ (16) $1,131
Provision for credit losses 45 8 - 53
---------------------------------------------------------------------------------
Net interest income after
provision for credit losses 573 521 (16) 1,078
Other operating income 230 360 (42) 548
---------------------------------------------------------------------------------
803 881 (58) 1,626
Operating expenses 410 625 66 1,101
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Income before taxes 393 256 (124) 525
Income tax expense (benefit) 158 66 (8) 216
---------------------------------------------------------------------------------
Net income $235 $190 $(116) $ 309
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<CAPTION>
As a result of the acquisition as of December 31, 1999 the Company assumed
certain liabilities associated with merging Republic's operations with those
of the Company and recognized restructuring costs relating to the planned
severance of employees and exiting of businesses of the Company. The
following table represents the activity in these reserves through June 30,
2000.
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Severance
Related Premises Other Total
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(in millions)
<S> <C> <C> <C> <C>
Liabilities assumed $133.9 $ 9.7 $14.0 $157.6
Restructuring charges 5.7 21.0 - 26.7
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Balance December 31, 1999 139.6 30.7 14.0 184.3
Payments 45.2 1.0 9.5 55.7
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Balance June 30, 2000 $ 94.4 $29.7 $ 4.5 $128.6
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8.
3. Litigation
As described in Note 27 to the financial statements contained in the Company's
Annual Report on Form 10-K for 1999 (the 1999 10-K) and Note 3 to the
financial statements contained in the Company's Quarterly Report on Form 10-Q
for the first quarter of 2000, the Company and certain of its subsidiaries are
defendants in a number of legal actions arising out of the Princeton Note
Matter (as defined in the 1999 10-K). Regulatory and law enforcement
agencies, including the U.S. Attorney for the Southern District of New York,
the Securities and Exchange Commission and the Commodity Futures Trading
Commission, are continuing to investigate the Princeton Note Matter, including
the activities of Republic New York Securities Corporation (RNYSC) and
Republic New York Corporation (Republic) with respect to the Princeton Note
Matter. In addition, in June 2000, two additional civil actions arising from
the Princeton Note Matter were commenced in the United States District Court
for the Southern District of New York against RNYSC, the Company (as successor
to Republic) and HSBC Bank USA (as successor to Republic National Bank of New
York) (together the Republic Parties). Those actions, entitled Kita-Hyogo
Shinyo-Kumiai v. Republic New York Securities Corporation, et. al. and Ozawa
Denki Koji Co., et. al. v. Republic New York Securities Corporation, et. al.,
allege unpaid notes of approximately $21.4 million and $29.6 million on behalf
of twelve separate entities, respectively, and assert common law claims,
claims under the federal securities laws, the Commodities Exchange Act and the
Racketeer Influenced and Corrupt Organizations Act (RICO). These actions seek
compensatory and punitive damages and treble damages under the RICO statute.
Proceedings in all fifteen civil actions arising from the Princeton Note
Matter have been temporarily stayed by the court with the consent of all
parties at the request of the U.S. Attorney for the Southern District of New
York. It is not possible to assess the outcome of these proceedings at
present. The Republic Parties intend to defend vigorously against these
claims.
4. Derivative Financial Instruments
Derivatives used by the Company include futures, forwards, swaps, caps, floors
and options in the interest rate, and foreign exchange markets and, as a
result of the Republic acquisition, the precious metals markets. The Company
uses these instruments for trading purposes and as part of its asset and
liability management activities.
Derivatives that are used for trading purposes or are linked to other trading
instruments are carried on a mark to market basis with the resultant gains and
losses reported as trading revenue. Foreign exchange trading positions are
revalued daily by pricing spot foreign exchange and forward contracts for
foreign exchange at prevailing rates with the resultant gains and losses
reported as trading revenue. Unrealized gains and the balances of unamortized
option premiums paid are included in trading account assets while unrealized
losses and the unamortized balances of option premiums received are included
in trading account liabilities.
In conjunction with the Republic acquisition, the Company is involved in
various precious metals activities including arbitrage, purchases and sales of
precious metals for forward delivery, options on precious metals and precious
metals lending and borrowing. Precious metals inventory, outstanding open
positions in contracts for forward delivery, options contracts and precious
metals loans and borrowings are revalued monthly at prevailing market rates.
Precious metals interest arbitrage balances are recorded at cost, with the
difference between the fixed forward contract price and cost accreted into
trading revenue ratably over the life of the contracts.
The Company uses a variety of derivative instruments to manage interest rate
risk in conjunction with its asset and liability management process. Risk is
managed by achieving a mix of derivative instruments and balance sheet assets
and liabilities deemed consistent with expectations of interest rate
movements, balance sheet changes and risk management strategies.
9.
These instruments follow either the synthetic alteration or hedge model of
accounting with cash flows recognized on an accrual basis as an adjustment to
the interest income or interest expense associated with the balance sheet
items being synthetically altered or hedged. Under both the synthetic
alteration and hedge accounting models, derivative instruments are linked to
specific individual assets or liabilities or pools of similar assets or
liabilities by the notional and interest rate characteristics of the
associated instruments.
Under the hedge accounting model, it must be demonstrated that the hedged
asset, liability or event being hedged exposes the enterprise to price or
interest rate risk and that the related derivative reduces that risk.
Accordingly there must be high correlation between changes in the market value
of the derivative and the market value or cash flows associated with the
hedged items so that it is probable that the results of the derivative will
substantially offset the effects of price or interest rate movement on the
hedged item.
Derivatives that cease to qualify for synthetic alteration or hedge accounting
are marked to market prospectively through current period earnings with any
unrealized gains or losses at that time being deferred and amortized over the
life of the original hedge. When the altered or hedged position is
liquidated, any deferred amounts are immediately recognized in earnings.
Gains or losses realized on terminated derivatives that were used as hedges
are deferred and amortized over the life of the hedged item.
5. Pledged Financial Instruments
At June 30, 2000, securities, loans and other assets carried at $13.4 billion
were pledged as collateral for borrowings, to secure public and trust deposits
and for other purposes.
6. Business Segments
As a result of the Republic acquisition, the Company altered its business
segments that it uses to manage operations as of January 1, 2000. The Company
has four distinct segments that it utilizes for management reporting:
commercial banking, corporate and institutional banking, personal banking and
investment banking and markets.
The Commercial Banking Segment provides a diversified range of financial
products and services. This segment provides loan and deposit products to
small and middle-market corporations including specialized products such as
equipment and real estate financing. These products and services are offered
through multiple delivery systems, including the branch banking network. In
addition, various credit and trade related products are offered such as
standby facilities, performance guarantees, acceptances and accounts
receivable factoring.
The Corporate and Institutional Banking Segment provides deposit and lending
functionality to large corporate and multi-national corporations. U.S. dollar
clearing services are offered for domestic and international wire transfer
transactions. Corporate trust provides various trustee, agency and custody
products and services for both corporate and municipal customers. Credit and
trade related products such as standby facilities, performance guarantees and
acceptances are also provided to large corporate entities.
The Personal Banking Segment provides an extensive array of products and
services including installment and revolving term loans, deposits, branch
services, mutual funds, estate planning and other investment management
services. These products are marketed to individuals through the branch
banking network. Residential mortgage lending provides loan financing through
direct retail and wholesale origination channels. Mortgage loans are
originated through a network of brokers, wholesale agents and retail
originations offices. Servicing is performed for the individual mortgage
holder or on a contractual basis for mortgages owned by third parties.
10.
The Investment Banking and Markets Segment comprises treasury, traded markets
and international private banking businesses. The treasury function maintains
overall responsibility for the investment and borrowing of funds to ensure
liquidity, maximize return and manage interest rate risk. Traded markets
encompasses the trading and sale of foreign exchange, banknotes, derivatives,
precious metals, securities and emerging markets instruments, both
domestically and internationally. International private banking offers a full
range of services for high net worth individuals throughout the world
including deposit, lending, trading, trust and investment management.
Other consists of certain non-recurring expenses and the provision for credit
losses not assigned to business units.
The segment results show the financial performance of the major business
units. These results are determined based on the Company's management
accounting process, which assigns balance sheet, revenue and expense items to
each reportable business unit on a systematic basis. With respect to segment
results, management does not analyze depreciation and amortization expense or
expenditures for additions to long-lived assets which are not considered
significant. As such, these amounts are included in other expenses and
average assets, respectively, in the table. Prior year results have been
restated according to the redefined segments.
<TABLE>
<CAPTION>
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Segments
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Corporate/ Investment
Commercial Institutional Personal Banking/
Banking Banking Banking Markets Other Total
----------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 2000
Net interest income $ 253 $ 75 $ 541 $ 216 $ 13 $ 1,098
Other operating income 49 45 180 181 (21) 434
----------------------------------------------------------------------------------------------------------
Total income 302 120 721 397 (8) 1,532
Operating expenses 130 44 419 198 160 951
----------------------------------------------------------------------------------------------------------
Pretax income (loss) before
provision for credit losses 172 76 302 199 (168) 581
Provision for credit losses 28 12 34 14 (32) 56
----------------------------------------------------------------------------------------------------------
Pretax income (loss) 144 64 268 185 (136) 525
Taxes/preferred dividends 48 21 88 61 (6) 212
----------------------------------------------------------------------------------------------------------
Net income (loss) after
preferred dividends 96 43 180 124 (130) 313
----------------------------------------------------------------------------------------------------------
Average assets 13,002 5,836 19,565 43,908 2,799 85,110
Average liabilities/equity 8,211 5,281 29,861 34,873 6,884 85,110
----------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Net interest income $ 174 $ 58 $ 350 $ 25 $ 11 $ 618
Other operating income 41 36 139 5 10 231
----------------------------------------------------------------------------------------------------------
Total income 215 94 489 30 21 849
Operating expenses 89 28 260 7 27 411
----------------------------------------------------------------------------------------------------------
Pretax income (loss) before
provision for credit losses 126 66 229 23 (6) 438
Provision for credit losses 16 3 39 - (13) 45
----------------------------------------------------------------------------------------------------------
Pretax income 110 63 190 23 7 393
Taxes/preferred dividends 44 25 76 9 4 158
----------------------------------------------------------------------------------------------------------
Net income after preferred
dividends 66 38 114 14 3 235
----------------------------------------------------------------------------------------------------------
Average assets 7,385 3,718 12,566 8,831 1,444 33,944
Average liabilities/equity 5,985 2,018 16,078 6,942 2,921 33,944
----------------------------------------------------------------------------------------------------------
</TABLE>
11.
7. New Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (FAS 133). FAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that all derivatives be recognized as either assets or liabilities in
the balance sheet and that those instruments be measured at fair value. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation as described below.
- For a derivative designated as hedging the exposures to changes in the
fair value of a recognized asset or liability or a firm commitment, the
gain or loss is recognized in earnings in the period of change together
with the associated loss or gain on the hedged item attributable to the
risk being hedged.
- For a derivative designated as hedging the exposure to variable cash
flows, the derivatives gain or loss associated with the effective portion
of the hedge is initially reported as a component of other comprehensive
income and subsequently reclassified into earnings when the forecasted
transaction affects earnings. The ineffective portion is reported in
earnings immediately.
- For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change in fair value.
FAS 133, as amended, is effective for the Company beginning January 1, 2001.
The Company is in the process of evaluating the potential impact of FAS 133
including reconsidering the Company's risk management strategies.
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
HSBC USA Inc. (the Company) reported second quarter 2000 net income of $168.1
million, compared with $113.5 million in the second quarter of 1999. For the
first six months of 2000, net income was $327.2 million compared with $234.9
million for the first six months of last year. Net income plus goodwill
amortization was $454.8 million for the first six months of 2000 compared with
$254.3 million for the first six months of 1999. The largest factor
contributing to the increased net income between 2000 and 1999 was the
acquisition of Republic New York Corporation (Republic) on December 31, 1999.
Republic had consolidated total assets of $46.9 billion and deposits of $29.9
billion on December 31, 1999.
Net Interest Income
Net interest income for the second quarter of 2000 was $548.4 million compared
with $306.9 million for the second quarter of 1999. For the first six months
of 2000, net interest income was $1,097.7 million compared with $618.2 million
for the first six months of 1999. The Republic acquisition was the principal
factor contributing to the increase.
Interest income was $1,354.2 million in the second quarter of 2000 compared
with $574.1 million in the second quarter of 1999. Average earning assets
were $75.7 billion for the second quarter of 2000 compared with $32.0 billion
a year ago. The average rate earned on earning assets was 7.23% for the
second quarter of 2000 compared with 7.21% a year ago. Interest income was
$2,632.0 million for the first six months of 2000 compared with $1,151.2
million in the first six months of 1999. Average earning assets were $74.6
billion for the first six months of 2000 compared with $31.7 billion the first
six months of 1999. The average rate earned on earning assets was 7.13% for
the first six months of 2000 compared with 7.33% a year ago.
Interest expense for the second quarter of 2000 was $805.8 million compared
with $267.2 million in the second quarter of 1999. Average interest bearing
liabilities for the second quarter of 2000 were $64.1 billion, compared with
$28.1 billion a year ago. The average rate paid on interest bearing
liabilities was 5.06% compared with 3.82% a year ago. Interest expense for
the first six months of 2000 was $1,534.4 million compared with $533.1 million
in the first six months of 1999. Average interest bearing liabilities for the
first six months of 2000 were $62.7 billion, compared with $27.8 billion a
year ago. The average rate paid on interest bearing liabilities was 4.92% for
the first six months of 2000 compared with 3.86% a year ago.
The taxable equivalent net yield on average total assets for the second
quarter of 2000 was 2.59%, compared with 3.61% a year ago. The taxable
equivalent net yield on average total assets for the first six months of 2000
was 2.62%, compared with 3.68% a year ago. The reduced yield earned from 1999
relates primarily to higher levels of lower yielding treasury assets and
higher costing foreign deposits as a result of the Republic acquisition.
Other Operating Income
Total other operating income was $211.9 million in the second quarter of 2000,
compared with $108.9 million in the 1999 second quarter. For the first six
months of 2000, total operating income was $434.5 million compared with $230.5
million for the first six months of 1999. Fee income categories of trust,
service charges and other fees and commissions were up 71.1% during the first
six months of 2000 compared with the first six months of 1999, primarily as a
result of the Republic acquisition. Mortgage banking revenue declined in 2000
due to lower gains on sales of mortgages compared with 1999.
13.
<TABLE>
<CAPTION>
Republic was an active participant in trading activities including
derivatives, foreign exchange and precious metals. The following table
presents information related to trading revenues.
-------------------------------------------------------------------------
Six months ended June 30 2000 1999
-------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Derivatives $24.0 $(.5)
Foreign exchange 52.5 3.1
Precious metals 2.5 -
Trading account profits and commissions 2.7 2.9
-------------------------------------------------------------------------
Total trading revenue $81.7 $5.5
-------------------------------------------------------------------------
</TABLE>
Earnings from equity investments includes $29.4 million earned from the
Company's 49% ownership in HSBC Republic Holdings (Luxembourg) S.A. (HSBC
Republic), formerly Safra Republic Holdings S.A. This amount includes
goodwill amortization expense of $40.2 million as well as a gain of $12.2
million on the redemption of debentures.
Other Operating Expenses
Other operating expenses were $476.3 million in the 2000 second quarter
compared with $203.8 million for the 1999 second quarter. The expense
increase relates directly to the Republic acquisition. Other operating
expenses were $951.2 million for the first six months of 2000 compared with
$410.4 million a year ago. Operating expenses included $18.1 million and
$20.5 million in the second quarter and first six months of 2000,
respectively, in restructuring costs relating to integration activities
associated with the Republic acquisition. Since the acquisition was accounted
for as a purchase, goodwill was recognized and amortization of goodwill
increased to $87.5 million for the first six months of 2000 compared with
$19.4 million in the first six months of 1999. The cost:income ratio,
excluding goodwill amortization as well as the goodwill associated with the
investment in HSBC Republic, was 53.0% in the second quarter of 2000 and 53.5%
for the first six months of 2000, compared with 46.7% and 46.1% for the same
periods of 1999, respectively.
Income Taxes
The effective tax rate for the 2000 second quarter was 34% based on further
analysis of tax strategies of the Company. The effective tax rate was 38% in
the first half of 2000 compared with 40% in the same period of 1999. The
deferred tax asset at June 30, 2000 was $71.4 million compared with $120.7
million at December 31, 1999.
<TABLE>
<CAPTION>
Asset Quality
The following table provides a summary of the allowance for credit losses and
nonaccruing loans.
----------------------------------------------------------------------------------------
2nd 2nd 6 Months Year 6 Months
Quarter Quarter Ended Ended Ended
2000 1999 6/30/00 12/31/99 6/30/99
----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Allowance for Credit Losses
Balance at beginning
of period $659.6 $386.3 $659.6 $ 379.7 $379.7
Allowance related to
acquired (sold) companies (3.5) - (3.5) 290.2 1.1
Provision charged to income 28.0 22.5 56.0 90.0 45.0
Net charge offs (47.7) (37.2) (75.5) (100.3) (54.2)
Translation adjustment (.2) - (.4) - -
----------------------------------------------------------------------------------------
Balance at end of period $636.2 $371.6 $636.2 $ 659.6 $371.6
----------------------------------------------------------------------------------------
</TABLE>
14.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
June 30, December 31, June 30,
2000 1999 1999
---------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Nonaccruing Loans
Balance at end of period $ 352.2 $ 343.5 $ 278.6
As a percent of loans
outstanding .92% .91% 1.20%
Nonperforming Loans and Assets *
Balance at end of period $364.4 $ 357.5 $ 282.1
As a percent of total assets .43% .40% .82%
Allowance Ratios
Allowance for credit losses
as a percent of:
Loans 1.67% 1.74% 1.61%
Nonaccruing loans 180.62 192.01 133.36
---------------------------------------------------------------------------
* Includes nonaccruing loans, other real estate and other owned assets.
</TABLE>
Provisions for credit losses were $28.0 million in the second quarter of 2000
compared with $22.5 million in the second quarter of 1999. Provisions for
credit losses for the first half of 2000 were $56.0 million compared with
$45.0 million during the first half of 1999. Net charge offs in the credit
card portfolio were $30.8 million and $39.0 million in the first half of 2000
and 1999, respectively. The delinquency rate for the credit card portfolio
was 3.36% at June 30, 2000, compared with 3.41% at December 31, 1999 and 3.59%
at June 30, 1999. Commercial loan credit quality resulted in net charge offs
of $41.5 million in the first half of 2000 compared with net charge-offs of
$3.7 million in the first half of 1999. While credit quality has generally
been stable, we have seen a deterioration in credit quality of leveraged
commercial loans.
The Company identified impaired loans totaling $168 million at June 30, 2000,
of which $103 million had a specific credit loss allowance of $50 million. At
December 31, 1999, impaired loans were $216 million of which $110 million had
a specific credit loss allowance of $65 million.
Derivative Financial Instruments
The Company uses various derivative financial instruments to manage its
overall interest rate risk and to reduce the risk associated with changes in
the income stream of certain on-balance sheet assets and liabilities. At
June 30, 2000, $94 billion notional value of such positions, with an estimated
positive fair value of approximately $230 million were outstanding. At
December 31, 1999, $40.9 billion notional value of such positions, with an
estimated positive fair value of $759 million were outstanding.
The Company also maintains various derivatives in its trading portfolio to
offset risk associated with changes in market value of certain trading assets
and for speculative purposes, as hedges in conjunction with the acquired
precious metals businesses, foreign exchange trading activities and to
facilitate customer transactions. These derivatives are carried at fair
value. At June 30, 2000, $239 billion notional value of such positions with
an estimated negative fair value of $251 million were outstanding. At
December 31, 1999, $220.2 billion of notional value of such positions with an
estimated positive fair value of $182 million were outstanding.
The Company controls the credit risk associated with these positions by
dealing with investment grade counterparties including other members of the
HSBC Group, obtaining collateral where appropriate and by using master netting
agreements where available.
15.
Liquidity
The Company maintains a strong liquidity position which was further enhanced
by the Republic acquisition. The size and stability of its deposit base are
complemented by its maintenance of a surplus borrowing capacity in the money
markets, including the ability to issue additional commercial paper and access
unused lines of credit of $600 million at June 30, 2000. Wholesale
liabilities increased to $28.1 billion at June 30, 2000 compared with $26.9
billion at December 31, 1999. The Company also has strong liquidity as a
result of a high level of immediately saleable or pledgeable assets including
its available for sale securities portfolio, trading assets, mortgages and
other assets.
Capital
Total common shareholder's equity was $9.4 billion at June 30, 2000,
approximately the same level as December 31, 1999.
Under risk-based capital guidelines, the Company's capital ratios were 13.25%
at the Tier 1 level and 14.93% at the total capital level at June 30, 2000.
These ratios compared with 13.42% at the Tier 1 level and 15.53% at the total
capital level at December 31, 1999.
Under guidelines for leverage ratios, the Company's ratio of Tier 1 capital to
quarterly average total assets was 8.83% at June 30, 2000 compared with 23.41%
at December 31, 1999. Based on period end assets, the ratio was 8.48% at
December 31, 1999.
Pending Acquisitions
The Company purchased the banking operations of Chase Manhattan Bank, Panama
on August 1, 2000 for $115 million. The branch operations had $730 million in
assets and net book value of $33 million. The acquisition will be accounted
for as a purchase transaction. Assets acquired and liabilities assumed will
be recorded at their estimated fair values.
As a separate transaction, the Company plans to purchase the branches of HSBC
Bank plc in Panama. These branches had approximately $540 million in assets
and net book value of $15 million at March 31, 2000. This transaction is
expected to occur in the second half of 2000.
Forward-Looking Statements
This report includes forward-looking statements. Statements that are not
historical facts, including statements about management's beliefs and
expectations, are forward-looking statements and involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those contained in any forward-looking statements.
Such factors include, but are not limited to: sharp and/or rapid changes in
interest rates; significant changes in the economic conditions which could
materially change anticipated credit quality trends and the ability to
generate loans; technology changes and challenges; significant changes in
accounting, tax or regulatory requirements; and competition in the geographic
and business areas in which the Company conducts its operations.
<TABLE>
<CAPTION>
16.
HSBC USA Inc.
--------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Second Quarter 2000 Second Quarter 1999
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 5,872 $ 103.4 7.08 % $ 1,902 $ 24.2 5.11 %
Federal funds sold and
securities purchased under
resale agreements 3,838 64.9 6.80 2,331 28.6 4.91
Trading assets 4,669 23.9 2.04 781 10.7 5.44
Securities 23,783 439.7 7.44 3,607 53.9 5.99
Loans
Domestic
Commercial 18,211 347.1 7.67 10,502 208.1 7.95
Consumer
Residential mortgages 14,060 258.7 7.36 9,438 163.2 6.92
Other consumer 2,554 69.1 10.87 2,421 71.5 11.84
--------------------------------------------------------------------------------------
Total domestic 34,825 674.9 7.79 22,361 442.8 7.94
International 2,752 54.1 7.91 997 14.5 5.85
--------------------------------------------------------------------------------------
Total loans 37,577 729.0 7.80 23,358 457.3 7.85
--------------------------------------------------------------------------------------
Total earning assets 75,739 $1,360.9 7.23 % 31,979 $574.7 7.21 %
--------------------------------------------------------------------------------------
Allowance for credit losses (652) (386)
Cash and due from banks 1,765 1,019
Other assets 9,258 1,528
--------------------------------------------------------------------------------------
Total assets $86,110 $34,140
======================================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,877 $ 6.9 0.97 % $ 2,255 $ 5.1 0.91 %
Consumer savings deposits 10,531 69.1 2.64 5,714 35.7 2.51
Other consumer time deposits 8,191 104.3 5.12 6,836 77.8 4.56
Commercial, public savings
and other time deposits 7,591 104.7 5.55 4,280 38.5 3.61
Deposits in foreign offices 18,990 284.3 6.02 4,566 51.8 4.55
--------------------------------------------------------------------------------------
Total interest bearing deposits 48,180 569.3 4.75 23,651 208.9 3.54
--------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 2,181 31.1 5.70 901 9.9 4.41
Other short-term borrowings 7,762 93.3 4.83 1,663 21.2 5.12
Long-term debt 5,941 112.1 7.59 1,847 27.2 5.90
--------------------------------------------------------------------------------------
Total interest bearing
liabilities 64,064 $ 805.8 5.06 % 28,062 $267.2 3.82 %
--------------------------------------------------------------------------------------
Interest rate spread 2.17 % 3.39 %
--------------------------------------------------------------------------------------
Noninterest bearing deposits 6,266 3,037
Other liabilities 5,932 827
Shareholders' equity 9,848 2,214
--------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $86,110 $34,140
======================================================================================
Net yield on average earning assets 2.95 % 3.86 %
Net yield on average total assets 2.59 3.61
======================================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
17.
HSBC USA Inc.
--------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Six Months 2000 Six Months 1999
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 4,632 $ 162.3 7.04 % $ 1,997 $ 51.8 5.23 %
Federal funds sold and
securities purchased under
resale agreements 3,406 113.3 6.69 1,708 41.5 4.90
Trading assets 4,975 52.5 2.11 828 22.6 5.45
Securities 23,775 866.7 7.33 3,802 112.8 5.98
Loans
Domestic
Commercial 18,127 685.1 7.60 10,459 416.4 8.03
Consumer
Residential mortgages 13,751 501.1 7.29 9,481 328.7 6.93
Other consumer 2,570 136.1 10.65 2,447 146.0 12.03
--------------------------------------------------------------------------------------
Total domestic 34,448 1,322.3 7.72 22,387 891.1 8.03
International 3,407 128.0 7.55 988 32.5 6.64
--------------------------------------------------------------------------------------
Total loans 37,855 1,450.3 7.70 23,375 923.6 7.97
--------------------------------------------------------------------------------------
Total earning assets 74,643 $2,645.1 7.13 % 31,710 $1,152.3 7.33 %
--------------------------------------------------------------------------------------
Allowance for credit losses (658) (384)
Cash and due from banks 1,766 1,086
Other assets 9,359 1,532
--------------------------------------------------------------------------------------
Total assets $85,110 $33,944
======================================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,852 $ 13.7 0.97 % $ 2,234 $ 10.1 0.91 %
Consumer savings deposits 10,554 137.2 2.61 5,670 70.4 2.51
Other consumer time deposits 8,163 203.4 5.01 6,836 157.6 4.65
Commercial, public savings
and other time deposits 7,501 201.5 5.40 4,097 74.1 3.65
Deposits in foreign offices,
primarily banks 18,711 538.9 5.79 4,354 97.7 4.52
--------------------------------------------------------------------------------------
Total interest bearing deposits 47,781 1,094.7 4.61 23,191 409.9 3.56
--------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 2,006 55.8 5.56 938 20.4 4.39
Other short-term borrowings 7,012 167.6 4.81 1,877 49.4 5.30
Long-term debt 5,909 216.3 7.36 1,825 53.4 5.91
--------------------------------------------------------------------------------------
Total interest bearing
liabilities 62,708 $1,534.4 4.92 % 27,831 $ 533.1 3.86 %
--------------------------------------------------------------------------------------
Interest rate spread 2.21 % 3.47 %
--------------------------------------------------------------------------------------
Noninterest bearing deposits 6,284 3,138
Other liabilities 6,213 786
Shareholders' equity 9,905 2,189
--------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $85,110 $33,944
======================================================================================
Net yield on average earning assets 2.99 % 3.94 %
Net yield on average total assets 2.62 3.68
======================================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
18.
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
3 Registrant's By-Laws, as Amended to Date
12.01 Computation of Ratio of Earnings to Fixed Charges
12.02 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends.
(b) Reports on Form 8-K
None
19.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC USA Inc.
(Registrant)
Date: August 11, 2000 /s/ Gerald A. Ronning
Gerald A.Ronning
Executive Vice President & Controller
(On behalf of Registrant and
as Chief Accounting Officer)
<TABLE>
<CAPTION>
20.
Exhibit 12.01
HSBC USA Inc.
Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
-------------------------------------------------------------------------------
Six months ended June 30,
2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $ 327 $ 235
Applicable income tax expense 198 158
Less undistributed equity earnings 33 2
Fixed charges:
Interest on:
Borrowed funds 223 70
Long-term debt 216 53
One third of rents, net of income from
subleases 11 7
-------------------------------------------------------------------------------
Total fixed charges 450 130
Earnings before taxes based on income
and fixed charges $ 942 $ 521
-------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.09 4.01
-------------------------------------------------------------------------------
Including interest on deposits
Total fixed charges (as above) $ 450 $ 130
Add: Interest on deposits 1,095 410
-------------------------------------------------------------------------------
Total fixed charges and interest on deposits $1,545 $ 540
-------------------------------------------------------------------------------
Earnings before taxes based on income and
fixed charges (as above) $ 942 $ 521
Add: Interest on deposits 1,095 410
-------------------------------------------------------------------------------
Total $2,037 $ 931
-------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.32 1.72
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
21.
Exhibit 12.02
HSBC USA Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends
(in millions, except ratios)
-------------------------------------------------------------------------------
Six months ended June 30,
2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $ 327 $ 235
Applicable income tax expense 198 158
Less undistributed equity earnings 33 2
Fixed charges:
Interest on:
Borrowed funds 223 70
Long-term debt 216 53
One third of rents, net of income from
subleases 11 7
-------------------------------------------------------------------------------
Total fixed charges 450 130
Earnings before taxes based on income
and fixed charges $ 942 $ 521
-------------------------------------------------------------------------------
Total fixed charges $ 450 $ 130
Preferred dividends 14 -
Ratio of pretax income to income
after applicable income tax expense 1.60 1.67
-------------------------------------------------------------------------------
Total preferred stock dividend factor 22 -
Fixed charges, including preferred stock
dividend factor $ 472 $ 130
-------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred dividends 2.00 4.01
-------------------------------------------------------------------------------
Including interest on deposits
Total fixed charges, including preferred
stock dividend factor (as above) $ 472 $ 130
Add: Interest on deposits 1,095 410
-------------------------------------------------------------------------------
Fixed charges, including preferred stock
dividend factor and interest on deposits $1,567 $ 540
-------------------------------------------------------------------------------
Earnings before taxes based on
income and fixed charges (as above) $ 942 $ 521
Add: Interest on deposits 1,095 410
-------------------------------------------------------------------------------
Total $2,037 $ 931
-------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred dividends 1.30 1.72
-------------------------------------------------------------------------------
</TABLE>
22.
HSBC USA INC.
BY-LAWS
(As Amended and Restated effective April 20, 2000)
1
23.
BY-LAWS
OF
HSBC USA INC.
ARTICLE I
OFFICES
Section 1.1 The principal office of HSBC USA Inc. (the "Corporation") in the
State of Maryland shall be in the City of Baltimore, State of Maryland.
Section 1.2 The Corporation may also have offices at such other place or
places, both within and without the State of Maryland, as the Board of
Directors, or the President of the Corporation acting under delegated
authority, may from time to time determine.
ARTICLE II
STOCKHOLDERS
Section 2.1 Place of Stockholders' Meetings. Meetings of the Corporation's
stockholders shall be held at such place in the United States as is set from
time to time by the Corporation's Board of Directors.
Section 2.2 Annual Meetings of Stockholders. An annual meeting of the
Corporation's stockholders shall be held in April each year. At each annual
meeting, the Corporation's stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting in
accordance with these By-Laws. Except as the Charter or statute provides
otherwise, any business may be considered at an annual meeting without the
purpose of the meeting having been specified in the notice. Failure to hold
an annual meeting does not invalidate the Corporation's corporate existence or
affect any otherwise valid corporate acts of the Corporation.
Section 2.3 Special Meetings of Stockholders. At any time in the interval
between annual meetings, a special meeting of the Corporation's stockholders
may be called by the Chairman of the Board or the President or by a majority
of the Corporation's Board of Directors by vote at a meeting or in writing
(addressed to the Corporate Secretary of the Corporation) with or without a
meeting. Special meetings of the Corporation's stockholders shall be called by
the Corporate Secretary on the written request of stockholders of the
Corporation entitled to cast at least 25 percent of all the votes entitled to
be cast at the meeting. A stockholders' request for a special meeting shall
state the purpose of the meeting and the matters proposed to be acted on at
it. The Corporate Secretary shall inform the stockholders who make the
request of the reasonably estimated costs of preparing and mailing a notice of
meeting and, on payment of these costs to the Corporation, notify each
stockholder entitled to notice of the meeting. Unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
stockholders of the Corporation held in the preceding 12 months. Business
transacted at any special meeting of stockholders shall be limited to the
purpose stated in the notice thereof.
2
24.
Section 2.4 Notice of Stockholders' Meetings; Waiver of Notice. Not less
than 10 days nor more than 90 days before the date of every stockholders'
meeting, the Corporate Secretary shall give to each stockholder entitled to
vote at such meeting written notice stating the time and place of the meeting
and, in the case of a special meeting or if notice of the purpose is required
by statute, the purpose or purposes for which the meeting is called, either by
mail or by presenting it to him personally or by leaving it at his residence
or usual place of business. If mailed, such notice shall be deemed to be
given when deposited in the United States mail addressed to the stockholder at
his address as it appears on the records of the Corporation, with postage
thereon prepaid. Notwithstanding the foregoing provisions, a waiver of notice
in writing, signed by the person or persons entitled to such notice and filed
with the records of the meeting, whether before or after the holding thereof,
or actual attendance at the meeting in person or by proxy, shall be deemed
equivalent to the giving of such notice to such persons.
Section 2.5 Quorum at Stockholders' Meetings; Voting; Adjournments. Unless
any statute or the Charter provides otherwise, at each meeting of the
Corporation's stockholders, the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the
meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
Whether or not a quorum is present, a meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without
further notice by a majority vote of the stockholders present in person or by
proxy to a date not more than 120 days after the original record date. Any
business which might have been transacted at the meeting as originally
notified may be deferred and transacted at any such adjourned meeting at which
a quorum is present.
Section 2.6 General Right to Vote; Proxies. Unless the Charter provides for
a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, is entitled to
one vote on each matter submitted to a vote at a meeting of stockholders;
however, a share is not entitled to be voted if any installment payable on it
is overdue and unpaid. In all elections of directors, each share of stock may
be voted for as many persons as there are directors to be elected and for
whose election the share is entitled to be voted. A stockholder may vote the
stock the stockholder owns of record either in person or by proxy. A
stockholder may sign a writing authorizing another person to act as proxy.
Signing may be accomplished by the stockholder or the stockholder's authorized
agent signing the writing or causing the stockholder's signature to be affixed
to the writing by any reasonable means, including facsimile signature. A
stockholder may authorize another person to act as proxy by transmitting, or
authorizing the transmission of, a telegram, cablegram, datagram, or other
means of electronic transmission to the person authorized to act as proxy or
to a proxy solicitation firm, proxy support service organization, or other
person authorized by the person who will act as proxy to receive the
transmission. Unless a proxy provides for a longer period, it is not valid
more than eleven months after its date. A proxy is revocable by a stockholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted
under the proxy or another general interest in the Corporation or its assets
or liabilities.
3
25.
Section 2.7 List of Stockholders. At each meeting of stockholders, a full,
true and complete list of all stockholders entitled to vote at such meeting,
showing the number and class of shares held by each and certified by the
transfer agent for such class or by the Corporate Secretary, shall be
furnished by the Corporate Secretary.
Section 2.8 Conduct of Voting. At all meetings of stockholders, unless the
voting is conducted by inspectors, the proxies and ballots shall be received,
and all questions touching the qualification of voters and the validity of
proxies, the acceptance or rejection of votes and procedures for the conduct
of business not otherwise specified by these By-Laws, the Charter or law,
shall be decided or determined by the chairman of the meeting. If demanded by
stockholders, present in person or by proxy, entitled to cast 10% in number of
votes entitled to be cast, or if ordered by the chairman of the meeting, the
vote upon any election or question shall be taken by ballot. Before any
meeting of the stockholders, the Board of Directors may appoint persons to act
as inspectors of election at the meeting and any adjournment thereof. If no
inspectors of election are so appointed, the chairman of the meeting may, and
on the request of stockholders, present in person or by proxy, entitled to
cast 10% in number of votes entitled to be cast, shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one or
more. If inspectors are appointed at a meeting on the request of
stockholders, the holders of a majority of shares present in person or by
proxy shall determine whether one or more inspectors are to be appointed. No
candidate for election as a director at a meeting shall serve as an inspector
thereat. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of a
stockholder shall, appoint a person to fill that vacancy. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receive votes, ballots or
consents; hear and determine all challenges and questions in any way arising
in connection with the right to vote; count and tabulate all votes or
consents; determine when polls shall close; determine the result; and do any
other acts that may be proper to conduct the election or vote with fairness to
all stockholders. Unless so demanded or ordered, no vote need be by ballot and
voting need not be conducted by inspectors.
Section 2.9 Advance Notice Provisions for Election of Directors. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 2.9 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 2.9.
To be timely, a stockholder's notice must be delivered to or mailed and
received by the Corporate Secretary at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than 120 days nor
more than 150 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the 150th day prior to such annual meeting
and not later than the close of business on the later of the 120th day prior
to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made; and (b) in the case of
a special meeting of stockholders called for the purpose
4
26.
of electing directors, not later than the close of business on the 10th day
following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Corporate
Secretary must set forth (a) as to each person whom the stockholder proposes
to nominate for election as a director, all information relating to such
person that is required to be disclosed in connection with solicitations of
proxies for election of directors pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder; and (b) as to the stockholder giving the
notice, (i) the name and address of such stockholder as they appear on the
Corporation's books and of the beneficial owner, if any, on whose behalf the
nomination is made, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by such
stockholder and such beneficial owner, (iii) a description of all arrangements
or understandings between such stockholder and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholder, (iv) a representation that
such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information
relating to such stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Regulation 14A
of the Exchange Act and the rules and regulations promulgated thereunder.
Such notice must be accompanied by a written consent of each proposed nominee
to be named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.9. If the chairman of the meeting determines that nomination was not made
in accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall
be disregarded. No adjournment or postponement of a meeting of stockholders
shall commence a new period for the giving of notice of a stockholder proposal
hereunder.
Section 2.10 Advance Notice Provisions for Business to be Transacted at
Annual Meeting. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 2.10 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 2.10.
To be timely, a stockholder's notice must be delivered to or mailed and
received by the Corporate Secretary at the principal executive offices of the
Corporation not less than 120 days nor more than 150 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 150th day
prior to such annual meeting and not later than the close of business on the
later of the 120th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first
made.
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To be in proper written form, a stockholder's notice to the Corporate
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address of such stockholder
as they appear on the Corporation's books and of the beneficial owner, if any,
on whose behalf the proposal is made, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder and such beneficial owner, (iv) a description of
all arrangements or understandings between such stockholder and any other
person or persons (including their names) in connection with the proposal of
such business by such stockholder and any material interest of such
stockholder in such business, and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures
set forth in Section 2.09 or in this Section 2.10, provided, however, that
once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in Section 2.09 nor in this Section
2.10 shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of an annual meeting determines that business was
not properly brought before the annual meeting in accordance with the
foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall
not be transacted. No adjournment or postponement of a meeting of
stockholders shall commence a new period for the giving of notice of a
stockholder proposal hereunder.
ARTICLE III
DIRECTORS
Section 3.1 The number of directors of the Corporation which shall
constitute the whole of the Corporation's Board of Directors (the "Board")
shall not be less than three nor more than thirty. Within the limits above
specified, the number of directors constituting the Board shall be determined
by resolution of the Board or by the Corporation's stockholders at the Annual
Meeting, but the tenure of office of a director shall not be affected by any
decrease in the number of directors so made by the Board. The directors shall
be elected at the Annual Meeting of stockholders, except as provided in
Section 3.2 of this Article, and each director elected shall hold office until
the succeeding Annual Meeting of stockholders or until his successor is
elected and qualified. Directors need not be stockholders.
Section 3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
next Annual Meeting and until their successors are duly elected and shall
qualify, unless sooner displaced.
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Section 3.3 The business of the Corporation shall be managed by its Board,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders. The directors shall choose from among their number a Chairman
of the Board.
Section 3.4 At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast on the election or
removal of such director, remove any director or directors from office and may
elect a successor or successors to fill any resulting vacancies for the
unexpired terms of removed directors. In case such a removal occurs but the
stockholders entitled to vote thereon fail to fill any resulting vacancies,
such vacancies may be filled by the Board of Directors pursuant to Section
3.2.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.5 The Board may hold meetings, both regular and special, either
within or without the State of Maryland.
Section 3.6 After each meeting of stockholders at which a Board of Directors
shall have been elected, the Board of Directors so elected shall meet, as soon
as practicable, for the purpose of organization and the transaction of other
business; and, in the event that no other time is designated by the
stockholders, the Board of Directors shall meet one hour after the time for
such stockholders' meeting or immediately following the close of such meeting,
whichever is later, on the day of such meeting. No notice of such meeting
shall be necessary if held as hereinabove provided.
Section 3.7 Regular meetings of the Board shall be held at such time and
place as designated by the Board. No notice of a Regular Meeting shall be
required if the meeting is held according to a Schedule of Regular Meetings
approved by the Board.
Section 3.8 Special Meetings of the Board may be called by the Chairman or
the President upon notice to each director, either personally, by mail, by
telex or by telegram. Special Meetings shall be called by the President or
Secretary in like manner and on like notice upon the written request of three
or more directors. Notice of the place, day and hour of every Special Meeting
shall be given to each director at least twenty-four (24) hours before the
time of the meeting, by delivering the same to him personally, by telephone,
by telex, by telegraph, or by delivering the same at his residence or usual
place of business, or, in the alternative, by mailing such notice at least
seventy-two (72) hours before the time of the meeting, postage paid, and
addressed to him at his last known post office address, according to the
records of the Corporation. Unless required by the By-Laws or by resolution
of the Board of Directors, no notice of any meeting of the Board of Directors
need state the business to be transacted thereat. No notice of any meeting of
the Board of Directors need be given to any director who attends, or to any
director who, in writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice. Any meeting
of the Board of Directors, Annual or Special, may adjourn from time to time to
reconvene at the same or some other place, and no notice need be given of any
such adjourned meeting other than by announcement.
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Section 3.9 One third of the entire Board shall constitute a quorum at any
meeting except as may be otherwise specifically provided by statute or by the
Articles of Incorporation. If a quorum shall not be present at any meeting of
the Board, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. Members of the Board or any committee designated thereby
may participate in a meeting of the Board or any such committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at such
meeting.
Section 3.10 Unless otherwise restricted by the Articles of Incorporation or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto, in
writing or writings and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
Section 3.11 On any question on which the Board of Directors shall vote, the
names of those voting and their votes shall be entered in the minutes of the
meeting when any member of the Board so requests.
COMMITTEES OF DIRECTORS
Section 3.12 Executive Committee. The Board of Directors may appoint from
among its members an Executive Committee of not less than five directors and
one of which shall be appointed Chairman of the Executive Committee. When the
Board of Directors is not in session, the Executive Committee shall have and
may exercise, in the absence of or subject to any restrictions which the Board
of Directors may from time to time impose, all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
except the power to authorize dividends on stock, elect directors, issue stock
other than as provided in the next sentence, recommend to the stockholders any
action which requires stockholder approval, amend these By-Laws, or approve
any merger or share exchange which does not require stockholder approval. If
the Board of Directors has given general authorization for the issuance of
stock providing for or establishing a method or procedure for determining the
number of shares to be issued, a committee of the Board, in accordance with
that general authorization or any stock option or other plan or program
adopted by the Board of Directors, may authorize or fix the terms of stock
subject to classification or reclassification and the terms on which any stock
may be issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
Section 3.13 Audit & Examining Committee. The Board shall designate an
Audit & Examining Committee, which shall hold office until the next annual
meeting of the Board following the annual meeting of stockholders, consisting
of not less than three of its members, other than officers of the Corporation,
and whose duty it shall be to make an examination at least once during each
calendar year and within 15 months of the last such examination into the
affairs of the Corporation including the administration of fiduciary powers,
or cause suitable examinations to be made by auditors responsible only to the
Board and to report the result of such examination in writing to the Board.
Such report shall state whether the Corporation is in a sound condition,
whether adequate internal controls and procedures are being maintained and
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shall recommend to the Board such changes in the manner of conducting the
affairs of the Corporation as shall be deemed advisable.
Section 3.14 Other Committees. The Board of Directors may appoint any other
committees, each of which shall be composed of one or more directors, as
determined by the Board from time to time. Such other committees shall have
such powers, subject to the same limitations as are applicable to the
Executive Committee under Section 3.12, as shall be designated by the Board
from time to time.
Section 3.15 Committee Procedure. Each committee shall keep minutes of its
proceedings when exercising powers of the Board of Directors and may fix rules
of procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or
not they constitute a quorum, may appoint an eligible director to act in the
place of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the committee
and filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 3.9.
COMPENSATION OF DIRECTORS
Section 3.16 The Board shall fix the amounts to be paid directors for their
services as directors and for their attendance at the meetings of the Board or
of committees or otherwise. No director who receives a salary from the
Corporation shall receive any fee for attending meetings of the Board or of
any of its committees.
RESIGNATION OF DIRECTORS
Section 3.17 Any director may resign at any time either by oral tender of
such resignation at any meeting of the Board or to the Chairman or President
or by giving written notice thereof to the Corporation. Any resignation shall
be effective immediately, unless a date certain is specified for it to take
effect.
ARTICLE IV
OFFICERS
Section 4.1 The Corporation shall have a President, a Corporate Secretary
and a Treasurer who shall be the Chief Financial Officer, and who need not be
directors. The Corporation shall also have a Chairman of the Board and a
Chairman of the Executive Committee, each of whom shall be directors. The
Board shall designate who shall serve as Chief Executive Officer, who shall
have general supervision of the business and affairs of the Corporation. The
Corporation may also have one or more Vice-Presidents, assistant and
subordinate officers, other officers not designated by these By-Laws, and
agents as it shall deem necessary, none of whom need be a director. A person
may hold more than one office in the Corporation except that no person may
serve concurrently as both President and Vice-President of the Corporation.
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Section 4.2 Chairman of the Board. The Chairman of the Board shall be a
director and shall preside at all meetings of the Board and of the
Stockholders at which he shall be present.
Section 4.3 Chairman of the Executive Committee. The Chairman of the
Executive Committee shall be a director and shall chair meetings of the
Executive Committee, supervise and carry out policies adopted or approved by
the Board and exercise such further powers and duties as are, from time to
time, conferred upon or assigned to him by the Board.
Section 4.4 President. The President shall be a director. The President
may execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the execution
thereof shall have been expressly delegated to some other officer or agent of
the Corporation. In general, he shall perform such duties usually performed
by a president of a corporation and shall perform such other duties and may
have such other powers as are from time to time assigned to him by the Board.
Section 4.5 Chief Executive Officer. The Chief Executive Officer shall
exercise general supervision over the policies and business affairs of the
Corporation and the carrying out of the policies adopted or approved by the
Board. The Chairman of the Board or the President may at the same time be
appointed Chief Executive Officer. Except as otherwise provided by these By-
Laws, he shall have power to determine the duties to be performed by the
officers appointed as provided in Section 4.9 of these By-Laws, and to employ
and discharge officers and employees. Except as otherwise provided by the By-
Laws or the Board, he shall be a member ex officio of all committees
authorized by these By-Laws or created by the Board. In the absence of the
Chairman of the Board and the President, he shall preside at all meetings of
the Board and of shareholders.
Section 4.6 Corporate Secretary. The Corporate Secretary shall attend all
meetings of the stockholders and all meetings of the Board and record, or
cause to be recorded, all the procedures of the meetings of the stockholders
and the Board in books to be kept for that purpose. The Corporate Secretary
may perform like duties for the standing committees when required. He shall,
as required, give, or cause to be given, notice of all meetings of the
stockholders and meetings of the Board. He shall have custody of the
corporate seal of the Corporation and he, or a Deputy or Associate or
Assistant Corporate Secretary, shall affix the same to any instrument which is
required or desired to be under its seal and when so affixed, it may be
attested by his signature or by the signature of such Deputy or Associate or
Assistant Corporate Secretary. The Board may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
by his signature. In general, the Corporate Secretary shall perform all
duties incident to the office of a secretary of a corporation, and shall
perform such other duties and may have such other powers as are from time to
time assigned to him by the Board, the Chief Executive Officer or the
President.
Section 4.7 Deputy Corporate Secretary, Associate Corporate Secretary and
Assistant Corporate Secretary. The Deputy Corporate Secretary or the
Associate Corporate Secretary or the Assistant Corporate Secretary, or if
there be more than one, each of them, may, in the absence of the Corporate
Secretary or during his inability or refusal to act, perform the duties and
exercise the powers of the Corporate Secretary and shall perform such other
duties and have such other powers as are from time to time assigned to each of
them by the Board, the Chief Executive Officer, the President or the Corporate
Secretary.
Section 4.8 Treasurer. The Treasurer shall be the Chief Financial Officer
and shall have charge of and be responsible for all corporate funds and
securities and shall keep, or cause to be kept, full
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and accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit, or cause to be deposited, all moneys and other
valuable effects, in the name and to the credit of the Corporation, in such
depositories as may from time to time be designated. He shall render to the
Board, the Chief Executive Officer or the President, when so required, an
account of the financial condition of the Corporation. In general, the
Treasurer shall perform all the duties incident to the office of a treasurer
of a corporation, and shall perform such other duties and may have such other
powers as are from time to time assigned to him by the Board, the Chief
Executive Officer or the President.
Section 4.9 Executive and Other Senior Officers. The Board shall by
resolution determine from time to time those officers whose appointment shall
require approval by the Board or a committee of the Board. Each such officer
shall have such powers and duties as may be assigned by the Board, a committee
of the Board, the President or the Chief Executive Officer.
Section 4.10 Other Officers. The President or the Chief Executive Officer
or his designee may appoint all officers whose appointment does not require
approval by the Board or a committee of the Board, and assign to them such
titles, as from time to time may appear to be required or desirable to
transact the business of the Corporation. Each such officer shall have such
powers and duties as may be assigned by the Board, the President or the Chief
Executive Officer.
Section 4.11 Tenure of Office. The Chairman of the Board, the President and
the Chief Executive Officer shall hold office for the current year for which
the Board was elected, unless they shall resign, become disqualified, or be
removed. All other officers shall hold office until their successors have
been appointed and qualify unless they shall resign, become disqualified or be
removed. The Board shall have the power to remove the Chairman of the Board,
the President and the Chief Executive Officer. The Board or the President or
the Chief Executive Officer or his designee shall have the power to remove all
other officers and employees. Any vacancy occurring in the offices of
Chairman of the Board, President or Chief Executive Officer shall be filled
promptly by the Board.
Section 4.12 Compensation. The Board shall by resolution determine from
time to time the officers whose compensation will require approval by the
Board or a committee of the Board. The Chief Executive Officer shall fix the
compensation of all officers and employees whose compensation does not require
approval by the Board.
ARTICLE V
CERTIFICATES OF STOCK
Section 5.1 Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation by the
Chairman of the Board or President or a Vice President and the Treasurer or an
Assistant Treasurer, or the Secretary or a Deputy or Associate or Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 5.2 Where a certificate is manually countersigned (1) by a transfer
agent, other than the Corporation or its employee, or, (2) by a registrar,
other than the Corporation or its employee, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is signed, it may be issued by the
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Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
LOST CERTIFICATES
Section 5.3 The Board may authorize a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 5.4 Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5.5 The Board may, at its discretion, appoint one or more banks or
trust companies in New York City, and in such other city or cities as the
Board may deem advisable, including any banking subsidiary of the Corporation,
from time to time, to act as transfer agent(s) and registrar(s) of the stock
of the Corporation.
FIXING RECORD DATE
Section 5.6 The Board is hereby empowered to fix, in advance, date as the
record date for the purpose of determining stockholders, or stockholders
entitled to receive payment of any dividend or the allotment of any rights, or
in order to make determination of stockholders for any other proper purpose.
Such date in any case shall be not more than ninety (90) days, and in case of
a meeting of stockholders, not less than ten (10) days, prior to the date of
which the particular action, requiring such determination of stockholders is
to be taken. In lieu of fixing a record date, the Board may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, twenty (20) days. If the stock transfer books are closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
STOCK LEDGER
Section 5.7 Original or duplicate stock ledgers, containing the name and
addresses of the stockholders of the Corporation and the number of shares of
each class held by them respectively, shall be kept at the offices of a
transfer agent for the particular class of stock, within or without
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the State of Maryland, or, if none, at a principal office or the principal
executive offices of the Corporation.
REGISTERED STOCKHOLDERS
Section 5.8 The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Maryland.
ARTICLE VI
GENERAL PROVISIONS
DIVIDENDS
Section 6.1 Subject to the provisions of the Articles of Incorporation,
dividends, if any, may be declared by the Board at any meeting, pursuant to
the law.
EXECUTION OF INSTRUMENTS
Section 6.2 All agreements, indentures, mortgages, deeds, conveyances,
transfers, certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds,
undertakings, proxies and other instruments or documents may be signed,
executed, acknowledged, verified, delivered or accepted on behalf of the
Corporation by the Chairman of the Board, or the President, or the Chief
Executive Officer, or the Secretary, or any Vice President, or any other
officer or employee designated by the Board or the Chief Executive Officer or
his designee. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted in behalf of the Corporation in such other
manner and by such other officers as the Board may from time to time direct.
The provisions of this Section 6.2 are supplementary to any other provisions
of these By-Laws. Each of the foregoing authorizations shall be at the
pleasure of the Board, and each such authorization by the Chief Executive
Officer or his designee also shall be at the pleasure of the Chief Executive
Officer.
FISCAL YEAR
Section 6.3 The fiscal year of the Corporation shall be the calendar year.
SEAL
Section 6.4 The Corporation's seal shall have inscribed thereon the name of
the Corporation and the words "Corporate Seal, Maryland". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SHARES OF OTHER CORPORATIONS
Section 6.5 The Chairman of the Board, the President, any Vice President,
and the Secretary is each authorized to vote, represent and exercise on behalf
of the Corporation all rights incident to
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any and all shares of any other corporation or corporations standing in the
name of the Corporation. The authority herein granted to said officer to vote
or represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised either
by said officer in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said officers. Notwithstanding the
above, however, the Board, in its discretion, may designate by resolution the
person to vote or represent said shares of other corporations.
RECORDS
Section 6.6 The By-Laws and the proceedings of all meeting of the
shareholders, the Board, and standing committees of the Board, shall be
recorded in appropriate minute books provided for the purpose. The minutes of
each meeting shall be signed by the Secretary or other officer appointed to
act as Secretary of the meeting.
EMERGENCY OPERATIONS
Section 6.7 In the event of war or warlike damage or disaster of sufficient
severity to prevent the conduct and management of the affairs, business, and
property of the Corporation by its directors and officers as contemplated by
these By-Laws, any two or more available members of the then incumbent Board
shall constitute a quorum for the full conduct and management of the affairs,
business, and property of the Corporation. This By-Law shall be subject to
implementation by resolutions of the Board passed from time to time for that
purpose, and any provisions of these By-Laws (other than this Section) and any
resolutions which are contrary to the provisions of this Section or to the
provisions of any such implementary resolutions shall be suspended until it
shall be determined by any interim Board acting under this Section that it
shall be to the advantage of the Corporation to resume the conduct and
management of its affairs, business, and property under all of the other
provisions of these By-Laws.
RIGHT TO INDEMNIFICATION
Section 6.8 (a). Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was a director or officer of the Corporation or, while a
director or officer of the Corporation is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (an "Indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Annotated Code of
Maryland, as the same exists or may hereafter be amended, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be a director or officer
and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Section 6.8(b)
hereof with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such Indemnitee in connection with a
proceeding (or party thereof) initiated by such Indemnitee only if such
proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section 6.8
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shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Annotated Code of
Maryland so requires, an advancement of expenses incurred by an Indemnitee
shall be made only upon delivery to the Corporation of an undertaking, by or
on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this Section or otherwise.
(b) Right of Indemnitee to Bring Suit. If a claim under paragraph (a)
of this Section 6.8 is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
such Indemnitee's undertaking the Indemnitee shall be entitled to be paid the
expense of prosecuting or defending such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification hereunder it shall be a
defense that, and in any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met the applicable standard of conduct set forth in the
Annotated Code of Maryland. Neither the failure of the Corporation to have
made a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in the
Annotated Code of Maryland, nor an actual determination by the Corporation
that the Indemnitee has not met such applicable standard of conduct, shall
create a presumption that the Indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the Indemnitee, be a
defense to such suit. In any suit brought by the Indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking by the Indemnitee, the Corporation shall have the burden of
proving that the Indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section 6.8 or otherwise.
(c) Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Section 6.8 shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation, By-Law,
agreement, vote of shareholders or disinterested directors or otherwise.
(d) Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board,
grant rights to indemnification, and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of the provisions
of this Section 6.8 with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
(e) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense,
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37.
liability or loss under the Delaware General Corporation Law, as the same
exists or may hereafter be amended.
ARTICLE VII
AMENDMENTS
Section 7.1 The By-Laws may be added to, amended, altered or repealed at any
regular meeting of the Board, by a vote of a majority of the total number of
the directors, or at any meeting of shareholders, duly called and held, by a
majority of the stock represented at such meeting.
ARTICLE VIII
Section 8.1 Notwithstanding any other provision of the charter of the
Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to the acquisition of all of the common stock, $5.00
par value per share, of the Corporation by HSBC Holdings plc, an English
public limited company, pursuant to that certain Transaction Agreement and
Plan of Merger, dated May 10, 1999, as amended by Amendment No. 1, dated
November 8, 1999, and as may be further amended from time to time, by and
among HSBC Holdings Plc, the Corporation, Safra Republic Holdings S.A., a
societe anonyme organized and existing under the laws of Luxembourg, and RNYC
Merger Corporation, a Maryland corporation, and to the other transactions
contemplated thereby.
Section 8.2 Notwithstanding any other provision of the charter of the
Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to the grant by the Corporation of the option to HSBC
Holdings Plc, an English public limited company, pursuant to that certain
Stock Option Agreement, dated May 10, 1999, between the Corporation and HSBC
of shares of the Corporation s common stock pursuant thereto.
Section 8.3 Notwithstanding any other provision of the charter of the
Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to the Stockholders Agreement, dated May 10, 1999, as
amended by Amendment No. 1 to the Stockholders Agreement, dated November 8,
1999, and as may be further amended from time to time, among HSBC, an English
public limited company, RNYC Holdings Limited, a Gibraltar corporation,
Congregation Beit Yaakov, Saban S.A., a Panamanian corporation, Mr. Edmond J.
Safra, HSBC North America Inc., a Delaware corporation, and in part, the
Corporation, or the exercise by HSBC of its rights thereunder.
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