<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BANK UNITED CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6711 13-3528556
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUITE 500
50 CHARLES LINDBERGH BLVD.
UNIONDALE, NY 11553
(516) 745-6644
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SALVATORE A. RANIERI, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
SUITE 500
50 CHARLES LINDBERGH BLVD.
UNIONDALE, NY 11553
(516) 745-6644
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
WILLIAM F. BAVINGER, ESQ. CRAIG M. WASSERMAN, ESQ. JAMES F. MUNSELL, ESQ.
BRYAN CAVE LLP WACHTELL, LIPTON, ROSEN & KATZ CLEARY, GOTTLIEB, STEEN & HAMILTON
700 THIRTEENTH STREET 51 WEST 52ND STREET ONE LIBERTY PLAZA
WASHINGTON, D.C. 20005 NEW YORK, NY 10019 NEW YORK, NY 10006
(202) 508-6037 (212) 403-1000 (212) 225-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(e)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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Class A Common Stock, $0.01 par value per
share..................................... shares $ $100,000,000 $34,483
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</TABLE>
(1) Includes shares of Class A Common Stock that the Underwriters have
options to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
BANK UNITED CORP.
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
ITEM
NO. LOCATION IN PROSPECTUS
- ----- ------------------------------------------
<C> <S> <C>
I. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
II. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page; Table of Contents
III. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors; The
Company
IV. Use of Proceeds........................... Use of Proceeds
V. Determination of Offering Price........... Underwriting
VI. Dilution.................................. Not Applicable
VII. Selling Security Holders.................. Selling Stockholders
VIII. Plan of Distribution...................... Outside Front Cover Page; Underwriting
IX. Description of Securities to be
Registered................................ Outside Front Cover Page; Inside Front
Cover Page; Description of Capital Stock
X. Interests of Named Experts and Counsel.... Not Applicable
XI. Information with respect to the
Registrant................................ Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Consolidated Financial and Other
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Regulation;
Description of Properties; Legal
Proceedings; Management; Selling
Stockholders; Description of Capital
Stock; Underwriting; Legal Matters;
Experts; Available Information; Financial
Statements
XII. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1996
PROSPECTUS
[ ] SHARES
BANK UNITED CORP.
[LOGO] CLASS A COMMON STOCK
------------------------
All of the shares of Class A common stock, par value $0.01 per share ("Class
A Common Stock"), of Bank United Corp. (the "Company") offered hereby are being
sold by certain of the limited and general partners of Hyperion Partners L.P., a
Delaware Limited Partnership ("Hyperion Partners") as well as three other
entities with which an affiliate of Hyperion Partners has a fiduciary
relationship (collectively, the "Selling Stockholders"). See "Selling
Stockholders". Prior to this offering (the "Offering"), there has been no public
market for the Class A Common Stock. The Company will not receive any of the
proceeds from the sale of the shares by the Selling Stockholders. It is
currently anticipated that the initial public offering price for Class A Common
Stock will be between $ .00 and $ .00 per share. See "Underwriting" for
information relating to determination of the initial public offering price.
The Company has two classes of authorized common stock: Class A Common Stock
and Class B common stock, par value $0.01 per share ("Class B Common Stock" and
together with the Class A Common Stock, the "Common Stock"). Both classes of
Common Stock have identical dividend and other rights, except that the Class B
Common Stock is non-voting Common Stock which is convertible into Class A Common
Stock upon sale or transfer to unaffiliated parties or, subject to certain
limitations, at the election of the holder thereof. See "Description of Capital
Stock". Therefore, shares of Common Stock transferred to a purchaser pursuant to
the Offering will be shares of Class A Common Stock after such transfer, whether
or not such shares were Class A Common Stock or Class B Common Stock while held
by a Selling Stockholder.
Application will be made to have the Class A Common Stock quoted on the
NASDAQ Stock Market ("NASDAQ") under the symbol " ".
Shares of Class A Common Stock offered hereby are being reserved for sale to
certain employees and retirees of the Company and its affiliates at the initial
public offering price. See "Underwriting". Such employees and retirees will
purchase, in the aggregate, less than 10% of the Class A Common Stock offered in
the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE CLASS A COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC"), THE OFFICE OF THRIFT SUPERVISION (THE "OTS") OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION, THE FDIC, THE OTS
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION, AND ARE NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY.
<TABLE>
<S> <C> <C> <C>
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PROCEEDS
PRICE TO UNDERWRITING TO SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
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Per Share.......................... $ $ $
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Total(3)........................... $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have severally agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting".
(2) Before deducting expenses payable by the Company estimated to be $2,000,000.
(3) The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days after the date hereof, to purchase up to
additional shares of Class A Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to the Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriting".
------------------------
The shares of Class A Common Stock are being offered by the several
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Class A Common Stock will be made
in New York, New York on or about , 1996.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
------------------------
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 4
BANK UNITED CORP.
BANKING NETWORK
LOGO
------------------------
United States Map Showing
Community Banking Branches,
Commercial Banking Offices and
States in which mortgages are originated
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OPEN MARKET, ON THE NASDAQ OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information, definitions and financial statements appearing elsewhere herein.
Investors should carefully review the entire Prospectus. The fiscal year for
Bank United Corp. and its wholly owned subsidiary, Bank United (the "Bank"),
ends September 30, and, unless otherwise indicated, references to particular
years are to fiscal years ending September 30 of the year indicated. As used
herein, the term "Company" refers to Bank United Corp. and its predecessors, and
its consolidated subsidiaries, unless the context otherwise requires. See page
129 for the Index of Defined Terms used in this Prospectus.
THE COMPANY
Bank United Corp. is a broad-based financial services provider to consumers
and businesses in Texas and other selected regional markets throughout the
United States. Through the Bank, its principal subsidiary, the Company operates
67 Texas-based community banking branches serving nearly 182,000 households and
businesses, 9 commercial banking offices and a nationwide network of mortgage
offices. At March 31, 1996, the Company had consolidated total assets of $11.3
billion, total deposits of $5.0 billion and total stockholders' equity of
$526.4 million. Upon completion of the Offering, the Company will be the
largest publicly traded depository institution headquartered in Texas, in terms
of both assets and deposits.
The Company was incorporated in Delaware on December 19, 1988 as USAT
Holdings Inc. and became the holding company for the Bank upon the Bank's
formation on December 30, 1988. The Bank is a federally chartered savings bank,
the deposits of which are insured by the Savings Association Insurance Fund (the
"SAIF") which is administered by the FDIC. The Company has no significant assets
other than its equity interest in the Bank. In June 1996, the Company changed
its name to Bank United Corp.
BUSINESS STRATEGY
From its incorporation in December 1988 until the early 1990's, the
Company's operations were designed to minimize interest rate and credit risk
while maximizing the net value of the Company's assets and liabilities. To this
end, Company management's strategy focused on traditional thrift and mortgage
banking activities, certain wholesale activities (primarily related to
mortgage-backed securities ("MBS") and mortgage servicing rights ("MSRs")) and
internal as well as external growth. In addition, over this period the Company
benefited substantially from certain federal financial assistance and tax
benefits received and recorded in connection with its acquisitions of certain
assets and certain liabilities of failed thrift institutions during the period
1988-1992. As of March 31, 1996, the Company's stockholders' equity was $526.4
million (not adjusted for the dividend paid and related contractual payments
made to the FDIC in May 1996), a more than fourfold increase from $118.0
million, which represents total stockholders' equity at December 1988, adjusted
for subsequent capital contributions totaling $57.9 million.
Over the past few years, the Company's management has pursued a strategy
designed to reduce the Bank's reliance on its traditional thrift and mortgage
banking lines of business by developing higher margin consumer and commercial
lending lines of business. During this time, the Company increased its
originations and the size of its portfolio of multi-family, residential
construction, consumer and commercial loans as well as the level of lower cost
transaction and commercial deposit accounts. To support this strategy, the
Company has hired experienced commercial banking professionals and has engaged
in more aggressive marketing campaigns. In addition to its efforts to increase
originations of commercial and consumer loans, the Company plans to increase the
retention of higher yielding single family and multi-family mortgage loans that,
in the past, may have been sold or securitized.
3
<PAGE> 6
OPERATIONAL OVERVIEW
The Company's operating structure reflects its current strategy, with four
business groups in two business segments.
[Chart showing Business Groups]
- Community Banking Group. The Community Banking Group's principal
activities include deposit gathering, consumer lending, small-business
banking and investment product sales. The Community Banking Group, which
has marketed itself under the name "Bank United" since 1993, operates a
67 branch community banking network, a 24-hour telephone banking center
and a 62-unit ATM network, which together serve as the platform for the
Company's consumer and small business banking activities. The Company's
branch network includes 34 branches in the greater Houston area, 29
branches in the Dallas/Ft. Worth metropolitan area, and two branches each
in Austin and San Antonio. In addition, the Company plans to open at
least three supermarket-based banking branches in 1996. Through its
branch network, the Company maintains more than 400,000 accounts with an
estimated 182,000 households and businesses.
- Commercial Banking Group. The Commercial Banking Group provides credit
and a variety of cash management and other services to certain real
estate and real estate related businesses. The Commercial Banking Group
conducts its activities through four units: Mortgage Banker Finance
("MBF"), a financial services provider to small- to medium-sized mortgage
companies; Multi-Family Lending; Residential Construction Lending; and
Commercial Real Estate Lending. Business is solicited in Texas and in
targeted regional markets throughout the United States. The Commercial
Banking Group is expanding its products and industry specialties to
include health care lending, asset-based lending and other commercial and
industrial loan products.
- Financial Markets Group. The Financial Markets Group manages the
Company's asset portfolio activities, including loan acquisition and
management and the securitization of whole loans. Additionally, under the
supervision of the Bank's Asset and Liability Committee (the "ALCO"), the
Financial
4
<PAGE> 7
Markets Group is responsible for the Company's investment portfolio, for
interest rate risk hedging strategies, and for securing funding sources other
than consumer and commercial deposits.
- Mortgage Banking Group. The Mortgage Banking Group principally engages
in three activities: retail mortgage originations, wholesale mortgage
originations and mortgage servicing. The Mortgage Banking Group
originates and services first mortgage loans for single family residences
for both the Company's portfolio and for sale to investors. At December
31, 1995, the Company, with originations of $3.4 billion in fiscal 1995,
was ranked by the American Banker as among the 30 largest originators of
single family loans in the nation. In addition, the Company was ranked by
the American Banker as one of the 40 largest single family loan servicers
in the nation at December 31, 1995. The Company had an $11.6 billion
servicing portfolio at March 31, 1996. The Mortgage Banking Group
operates under the names "Bank United Mortgage" in Texas and Virginia and
"Commonwealth United Mortgage" elsewhere in the United States.
BACKGROUND OF THE OFFERING
The Company was organized, and through June 17, 1996 operated, as a
subsidiary of Hyperion Holdings Inc., a Delaware corporation ("Hyperion
Holdings"). During that period, all of the outstanding shares of Hyperion
Holdings were owned by Hyperion Partners. The general partner of Hyperion
Partners is indirectly controlled by three individuals, including Lewis S.
Ranieri, who from 1988 has served as Chairman of the Board of the Company and,
until June , 1996, also as President and Chief Executive Officer ("CEO") of
the Company and Chairman of the Board of the Bank.
Dividend Distribution and Restructuring
In May 1996, the Company paid a dividend of $100 million on its common
stock to Hyperion Holdings and other holders of its common stock. The proceeds
of this dividend received by Hyperion Holdings were distributed by Hyperion
Partners to its limited and general partners in accordance with the limited
partnership agreement of Hyperion Partners. During June 1996, the following
actions were taken in the order indicated (collectively, the "Restructuring"):
(i) Hyperion Holdings exchanged shares of a newly created class of its
non-voting common stock for certain shares of its voting common stock held by
Hyperion Partners; (ii) Hyperion Partners then distributed the Hyperion Holdings
common stock to its limited and general partners in accordance with the limited
partnership agreement of Hyperion Partners (the "Distribution"); and (iii)
following the Distribution, Hyperion Holdings was merged with and into the
Company (the "Merger"), with the result that holders of Hyperion Holdings voting
and nonvoting common stock received shares of Class A Common Stock and Class B
Common Stock and the holders of Class C Common Stock (as defined below) received
shares of Class B Common Stock as set forth under "Selling Stockholders". As
part of the Restructuring, the common stock of Hyperion Holdings and the Class C
Common Stock were converted 1,800 to one. See Note 21 to the Consolidated
Financial Statements for a discussion of subsequent events and see
"Capitalization". The Offering is intended to establish a public market for the
Class A Common Stock while providing the Selling Stockholders with liquidity for
their current holdings in the Company.
Management
Day-to-day operations of the Bank are directed by Barry C. Burkholder,
President and CEO of the Bank, who brings over 20 years of commercial banking
experience to the Bank, with specific experience in consumer banking, mortgage
banking and related areas. In connection with the Restructuring and the
Offering, Mr. Burkholder will also become Chairman of the Board of the Bank as
well as President and CEO of the Company. The executive management group of the
Bank consists of seven individuals who have worked together for the past six
years, giving them a thorough understanding of the businesses they have
developed together. They average more than 20 years of related industry
experience, the majority of which comes from commercial banking. As a team, they
have brought the discipline and sophistication of commercial banking to the
Bank. The next level of senior management is composed of 42 executives, a third
of whom were hired directly from commercial banks. The balance of the senior
management team has experience working with various financial services
companies, including mortgage banks, thrifts and accounting firms. See
"Management".
5
<PAGE> 8
Lewis S. Ranieri, who has over 20 years of investment experience with
particular expertise in the field of MBS, has previously served as Chairman of
the Board of the Bank and of the Company as well as President and CEO of the
Company, and will continue, after the Offering, to serve as Chairman of the
Board of the Company. The Company is contemplating entering into a consulting
agreement with Mr. Ranieri pursuant to which he would serve as a consultant to
the Company for a three year period. See "Business -- Management" and
"Management -- Certain Relationships and Related Transactions".
Future Tax Benefits
In connection with the acquisition from the Federal Savings and Loan
Insurance Corporation (the "FSLIC") of certain of the assets and the assumption
of all the deposits and certain other liabilities of United Savings Association
of Texas ("Old USAT"), an insolvent thrift (the "Acquisition"), and the related
Assistance Agreement (as defined below), the Company succeeded to and recorded
substantial net operating loss carryforwards ("NOLs") which have resulted in
certain tax benefits. As of March 31, 1996, the Company had NOLs of $808.0
million available to reduce taxable income in future years. Pursuant to the Tax
Benefits Agreement (as defined below), the Bank is required to pay to the FSLIC
Resolution Fund ("FRF") a specified portion of net tax benefits obtained through
the taxable year ending nearest to September 30, 2003. See
"Regulation -- Taxation -- FSLIC Assistance".
The Offering is structured with the intent to preserve the beneficial tax
attributes of the Company as described above. See "Regulation -- Taxation".
Accordingly, certain of the Selling Stockholders and other holders of the Common
Stock have agreed to limit their further disposition of Common Stock for up to
three years following the Offering except with the approval of the Board of
Directors of the Company (the "Company Board"). See "Description of Capital
Stock -- Common Stock". The limitations on transfers will allow the Company to
record a $101.7 million tax benefit in the quarter ended June 30, 1996. See
"Risk Factors -- Limitations on Use of Tax Losses; Restrictions on Transfers of
Stock" and Note 21 to the Consolidated Financial Statements. Pro forma for the
$100 million dividend, the related contractually required payment to the FDIC of
$5.9 million, the Restructuring and the recognition of the $101.7 million tax
benefit, stockholders' equity would have been $520.0 million as of March 31,
1996. See "Capitalization".
Claims Related to Forebearance Agreements
In connection with the original acquisition of the Bank by the Company, the
Federal Home Loan Bank (the "FHLB") approved a forbearance letter, issued on
February 15, 1989 (the "Forbearance Agreement"). Under the terms of the
Forbearance Agreement, the FSLIC agreed to waive or forbear from the enforcement
of certain regulatory provisions with respect to regulatory capital
requirements, liquidity requirements, accounting requirements and other matters.
After the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), the OTS took the position that the capital
standards set forth in FIRREA apply to all savings institutions, including those
institutions that had been operating under previously granted capital and
accounting forbearances, and that FIRREA eliminated these forbearances. On July
25, 1995, the Bank, the Company, and certain of their then-direct and indirect
parent entities filed suit against the United States in the Court of Federal
Claims for alleged failures of the United States to honor certain contractual
obligations, including obligations related to the Forbearance Agreement. The
lawsuit is in a preliminary stage. Discovery has been stayed pending the United
States Supreme Court's review of United States v. Winstar Corp., an action by
another thrift raising similar issues. The Company is unable to predict the
outcome of its suit against the United States and the amount of judgment for
damages, if any, that may be entered in favor of the Company. Consequently, no
assurances can be given as to the results of this suit. See "Legal Proceedings".
Senior Note Exchange
Substantially simultaneously with the consummation of the Offering, the
Company intends to commence an exchange offer (the "Exchange Offer") for its
outstanding Senior Notes due May 15, 1998 (the "Senior Notes"). The Exchange
Offer is intended to satisfy the condition of the Senior Notes pursuant to which
the interest rate on the Senior Notes will revert from 9.05% to 8.05% per annum
commencing with and including the date on which the Exchange Offer is
consummated. See Note 11 to the Consolidated Financial Statements.
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary selected historical financial data of
the Company. The information set forth below should be read in conjunction with
the consolidated financial statements of the Company and the Notes thereto set
forth elsewhere herein (the "Consolidated Financial Statements") and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The statement of operations data set forth below for each of the
three years ended September 30, 1995, 1994 and 1993 and the statement of
financial condition data at September 30, 1995 and 1994 are derived from, and
are qualified by reference to, the audited Consolidated Financial Statements.
The statement of operations data set forth below for each of the two years ended
September 30, 1992 and 1991 and the statement of financial condition data at
September 30, 1993, 1992 and 1991 are derived from the Company's audited
consolidated financial statements. Information at or for the six months ended
March 31, 1996 and 1995 is not audited, but, in the opinion of management,
includes all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of operations and financial condition for
those periods. Results of operations for the six months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the entire
fiscal year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED SEPTEMBER 30,
------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION
DATA:(2)
Total assets........................ $11,266,636 $10,144,777 $11,983,534 $8,910,161 $8,440,556 $6,255,283 $6,876,847
Loans............................... 7,878,080 6,161,432 8,260,240 5,046,174 4,862,379 4,101,716 3,431,154
Mortgage-backed securities.......... 1,954,070 2,600,876 2,398,263 2,828,903 2,175,925 833,425 419,064
Deposits............................ 4,963,321 5,015,713 5,182,220 4,764,204 4,839,388 4,910,760 6,054,474
FHLB advances....................... 4,139,023 3,284,373 4,383,895 2,620,329 2,185,445 632,345 287,345
Securities sold under agreements to
repurchase........................ 949,936 839,939 1,172,533 553,000 310,000 -- --
Minority interest -- Bank Preferred
Stock(3).......................... 185,500 85,500 185,500 85,500 85,500 -- --
Total stockholders' equity.......... 526,441 476,693 496,103 451,362 389,203 232,373 161,760
Book value per common share(4)...... $ 18.24 $ 16.52 $ 17.19 $ 15.64 $ 13.48 $ 8.19 $ 6.87
STATEMENT OF OPERATIONS DATA:(2)
Interest income..................... $ 421,221 $ 327,586 $ 746,759 $ 494,706 $ 482,490 $ 502,854 $ 422,184
Interest expense.................... 309,289 239,960 552,760 320,924 300,831 348,291 330,659
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net interest income............... 111,932 87,626 193,999 173,782 181,659 154,563 91,525
Provision for credit losses......... 5,850 4,157 24,293 6,997 4,083 21,133 4,122
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net interest income after
provision for credit losses..... 106,082 83,469 169,706 166,785 177,576 133,430 87,403
Non-interest income................. 54,609 66,653 114,981 118,889 146,691 103,790 44,930
Non-interest expense................ 99,304 101,645 194,576 199,593 201,964 180,415 113,627
----------- ----------- ----------- ---------- ---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary loss.............. 61,387 48,477 90,111 86,081 122,303 56,805 18,706
Income tax expense (benefit)........ 25,278 20,186 37,415 (31,899) (26,153) 200 (409)
Less minority interest(3)(5)........ 9,350 4,632 10,977 9,010 6,537 -- --
Extraordinary loss(6)............... -- -- -- -- 14,549 -- --
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income........................ $ 26,759 $ 23,659 $ 41,719 $ 108,970 $ 127,370 $ 56,605 $ 19,115
=========== =========== =========== ========== ========== ========== ==========
Operating earnings(7)............... $ 55,039 $ 48,849 $ 91,295 $ 75,514 $ 77,105 $ 50,024 $ 16,510
Earnings per common share(4)........ $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.11 $ 1.85 $ 0.71
CERTAIN RATIOS AND OTHER DATA:(2)(8)
Return on average assets............ 0.46% 0.50% 0.40% 1.32% 1.74% 0.89% 0.42%
Return on average common equity..... 10.45 10.23 8.77 26.32 44.87 28.18 13.95
Stockholders' equity to assets...... 4.67 4.70 4.14 5.07 4.61 3.71 2.35
Tangible stockholders' equity to
tangible assets................... 4.48 4.40 3.93 4.68 4.14 2.58 1.10
Net yield on interest-earning
assets............................ 2.00 1.92 1.92 2.20 2.61 2.60 2.16
Non-interest expense to average
total assets...................... 1.72 2.13 1.86 2.41 2.76 2.85 2.50
Efficiency ratio(9)................. 60.16 62.45 59.50 66.38 65.11 63.98 75.14
Allowance for credit losses to net
nonaccrual loans.................. 38.00 31.43 48.74 30.73 71.71 74.04 30.00
Allowance for credit losses to total
loans............................. 0.46 0.40 0.44 0.46 0.61 0.68 0.29
Net loan charge-offs to average
loans............................. 0.15 0.09 0.16 0.30 0.05 0.07 0.04
Nonperforming assets to total
assets............................ 1.10 1.04 0.84 1.09 0.72 0.89 0.59
REGULATORY CAPITAL RATIOS OF THE
BANK:(2)(10)
Tangible Capital.................. 6.88% 5.65% 6.20% 6.01% 6.17% 4.24% 2.64%
Core Capital...................... 6.96 5.77 6.29 6.17 6.43 5.04 3.59
Total Risk-Based Capital.......... 14.20 12.43 13.45 14.02 14.87 12.19 9.37
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED SEPTEMBER 30,
------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of Community Banking Group
branches(1)..................... 67 64 65 62 62 65 74
Number of Commercial Banking Group
origination offices............. 9 8 9 5 3 2 1
Number of Mortgage Banking Group
origination offices............. 112 131 122 145 109 93 72
Mortgage Banking Group servicing
portfolio....................... $11,594,485 $12,031,533 $12,532,472 $8,920,760 $8,073,226 $7,187,000 $4,681,712
Mortgage Banking Group
originations.................... 2,021,127 1,553,255 3,447,250 5,484,111 6,737,762 6,118,363 3,195,873
Financial Markets Group loans
purchased....................... 80,948 769,995 2,640,755 1,312,827 1,202,970 912,847 1,885,956
</TABLE>
- ---------------
(1) The Bank acquired from the Resolution Trust Company ("RTC") $2.2 billion in
deposit liabilities during fiscal 1991. Pursuant to the Bank's plan of
acquisition, rates on these deposits were reduced after acquisition and, as
expected, approximately $766 million of deposits were withdrawn from the
Bank during fiscal 1992. Also, the Bank consolidated overlapping branch
locations that resulted from these acquisitions. See "The
Company -- History".
(2) See Note 21 to the Consolidated Financial Statements for a discussion of
subsequent events and see "Capitalization". On a pro forma basis,
stockholder's equity would have been $520.0 million as of March 31, 1996.
(3) During fiscal 1993, the Bank issued its 10.12% Noncumulative Preferred
Stock, Series A, and, during fiscal 1995, the Bank issued its 9.60%
Noncumulative Preferred Stock, Series B (the Preferred Stock, Series A and
Series B, is collectively referred to as the "Bank Preferred Stock"). None
of the shares of Bank Preferred Stock are owned by the Company. Certain
Selling Stockholders and directors and managers of the Company own shares
of the Bank Preferred Stock. See "Management -- Security Ownership of
Certain Beneficial Owners and Management -- Principal Stockholders, Bank
Preferred Stock".
(4) Per share results have been restated to reflect an 1,800 to one stock
conversion effective June 1996 in connection with the Restructuring. See
Note 21 to the Consolidated Financial Statements.
(5) All of the outstanding shares of common stock, par value $0.01, of the Bank
(the "Bank Common Stock") are currently owned by the Company. The Bank has
issued to the FDIC warrants (the "Warrants") to acquire 158,823 shares of
Bank Common Stock (representing 5.56% of the Bank Common Stock as of March
31, 1996 and September 30, 1995, assuming exercise of the Warrants), for an
exercise price of $0.01 per share. See "Business -- The Assistance
Agreement -- Warrant Agreement" and Note 16 to the Consolidated Financial
Statements.
(6) Reflects costs and charges associated with the issuance of the Senior
Notes. See Note 11 to the Consolidated Financial Statements.
(7) Operating earnings represents income before taxes, minority interest, and
extraordinary loss and excludes net gains (losses) on securities, MBS, and
other loans.
(8) Ratio, yield, and rate information are based on weighted average daily
balances for the six months ended March 31, 1996 and 1995 and fiscal 1995,
1994, and 1993 and average monthly balances for prior periods, with the
exception of return on average common equity which is based on average
monthly balances for all periods presented. Interim rates and yields are
annualized.
(9) Efficiency ratio represents non-interest expenses (excluding goodwill
amortization) divided by net interest income plus non-interest income,
excluding net gains (losses) on securities, MBS, and other loans.
(10) See Note 21 to the Consolidated Financial Statements for a discussion of
subsequent events. On a pro forma basis, the regulatory ratios for tangible
capital, core capital and total risk-based capital would have been 5.89%,
5.97% and 12.12%, respectively, as of March 31, 1996.
8
<PAGE> 11
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the
Selling Stockholders............... shares Class A Common Stock(1)
Common Stock to be Outstanding after
the Offering....................... shares Class A Common Stock(2)
shares Class B Common Stock
Total......................... shares of Common Stock(3)
Use of Proceeds...................... All of the shares of Class A Common Stock are being
offered by the Selling Stockholders. The Company will
not receive any of the proceeds from the Offering.
Dividend Policy...................... The Company intends, subject to its financial results,
contractual, legal and regulatory restrictions, and
other factors that the Company Board may deem
relevant, to declare and pay a quarterly dividend of
$ per share of Common Stock beginning in the
quarter of 199 . The declaration of
dividends by the Company and the amount thereof,
however, will be at the discretion of the Company
Board.
Proposed NASDAQ Symbol...............
</TABLE>
- ---------------
(1) Excludes shares of Class A Common Stock that the Underwriters have
the option to purchase to cover over-allotments, if any. The Offering will
include shares of Class B Common Stock that will convert automatically to
shares of Class A Common Stock in the Offering.
(2) Excludes shares issuable upon exercise of options to be issued to employees
of the Company and shares to be issued, or issuable upon exercise of options
to be issued, to non-employee directors of the Company. See
"Management -- Executive Management Compensation Plans" and "-- Compensation
of Directors".
(3) As described under "Description of Capital Stock", the two classes of Common
Stock are identical other than with respect to conversion and voting rights.
The Class B Common Stock is non-voting common stock, but is convertible to
Class A Common Stock at the election of the holders, subject to certain
restrictions. See "Description of Capital Stock".
SELLING STOCKHOLDERS
The outstanding shares of Class A Common Stock and Class B Common Stock are
primarily owned by the limited and general partners of Hyperion Partners as
described more fully under "Selling Stockholders". The following table sets
forth information concerning each person who, following the Offering, will
beneficially own (within the meaning of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) more than 5% of the total number
of outstanding shares of Class A Common Stock and Class B Common Stock:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
CLASS A CLASS A CLASS B CLASS B CLASS A CLASS A
COMMON COMMON STOCK-- COMMON COMMON STOCK-- COMMON COMMON
STOCK OWNED PERCENT OWNED STOCK OWNED PERCENT OWNED STOCK OFFERED STOCK OWNED
NAME BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING HEREBY AFTER OFFERING
--------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
SHARES OF CLASS B
CLASS B COMMON
CLASS A COMMON STOCK--
COMMON STOCK-- STOCK OWNED PERCENT OWNED
PERCENT OWNED AFTER AFTER
NAME AFTER OFFERING OFFERING OFFERING
---------------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
In connection with the preservation of the Company's NOLs, each of the
Selling Stockholders and each of LW-SP1 (as defined below) and LW-SP2 (as
defined below) has agreed to hold its Common Stock pursuant to the Letter
Agreement (as defined below). Among other things, each 5% Stockholder (as
defined below) may sell only up to 45% of its shares of Common Stock in the
Offering, with the exception of LW-SP1
9
<PAGE> 12
and LW-SP2, affiliates of Lehman Brothers Inc., which are prohibited from
selling any shares until after August 8, 1998, and each other Selling
Stockholder may sell up to 16% of its shares in the Offering (subject to
increase under certain conditions). Selling Stockholders have also agreed to
refrain from selling any shares of Common Stock for (i) one year or (ii) six
months after the Offering, in the case of such shares that were received in
respect of (i) general partnership interests or (ii) limited partnership
interests in Hyperion Partners, respectively. Additionally, the Company's
Restated Certificate of Incorporation (the "Certificate") and By-Laws (the
"By-Laws") prohibit the acquisition or transfer of shares of Common Stock held
by 5% Stockholders for three years following the Offering unless the Company
Board earlier determines that such acquisition or transfer would not be
reasonably likely to have a material adverse effect on the tax position of the
Company. Moreover, the Company Board has the discretion to waive these
limitations or take certain other actions that could trigger an Ownership Change
(as defined below). See "Selling Stockholders -- Selling Stockholder Letter
Agreements", "Risk Factors -- Limitations on Use of Tax Losses; Restrictions or
Transfers of Stock" and "Description of Capital Stock -- Common
Stock -- Restrictions on Transfers of Stock".
10
<PAGE> 13
RISK FACTORS
Investment in the Class A Common Stock involves certain risks. Prospective
purchasers should carefully consider the following risk factors, in addition to
the other information included in this Prospectus, when evaluating the Company
and its business in making an investment decision.
GENERAL BUSINESS RISKS
The Company's business is subject to various material business risks. For
example, changes in prevailing interest rates can have significant effects on
the Company's business. Some of the risks to which the Company's business is
subject may become more acute in periods of economic slowdown or recession.
During such periods, payment delinquencies and foreclosures generally increase
and could result in an increased incidence of claims and legal actions against
the Company. In addition, such conditions could lead to a potential decline in
demand for the Company's products and services.
EVOLUTION OF BUSINESS
The Company's strategy in recent years has been to emphasize and grow its
Community Banking Group and Commercial Banking Group and to reduce the
significance over time of its residential mortgage lending business. See
"Business -- Business Strategy". The Community Banking Group and Commercial
Banking Group are expected to continue to represent a growing portion of the
Company's business. This strategic shift has occurred at a time of increasing
competitive pressures in the mortgage banking business. Community and commercial
banking activities, while potentially more profitable, generally entail a
greater degree of credit risk than does single family lending, the historical
focus of the Company.
In furtherance of the increasing emphasis on its community and commercial
banking businesses, the Company is in the process of evaluating its strategic
alternatives with respect to its mortgage banking business, including a sale or
restructuring of all or part of its mortgage origination business. No assurances
can be given regarding the timing or impact of any such sale or restructuring on
the Company's residential mortgage lending business.
Consistent with the Company's current business strategy, the Bank has
applied to establish a national bank subsidiary. If the Bank were to establish a
national bank subsidiary, the Company would become subject to regulation as a
bank holding company by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). Current rules and regulations of the Federal
Reserve Board would subject the Company to capital requirements that are not
currently applicable to the Company as a savings and loan holding company, and
would impose statutory limitations on the type of business activities in which
the Company may engage at the holding company level, which activities currently
are not restricted.
INTEREST RATE RISK
The Company's net interest income is the differential or "spread" between
the interest earned on loans and investments and the interest paid on deposits,
borrowings and notes payable. The Company has traditionally managed its business
to limit its overall exposure to changes in interest rates; however, under the
Company Board's current policies, management has more latitude to increase the
Company's interest rate sensitivity position within certain limits. See
"Business -- Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". As a result, changes in market
interest rates may have a greater impact on the Company's financial performance
in the future than they have had historically.
An increase in the general level of interest rates may affect the Company's
net interest spread due to the periodic caps which limit the interest rate
change on the Company's MBS and loans that pay interest at adjustable rates.
Additionally, an increase in interest rates may, among other things, reduce the
demand for loans and the Company's ability to originate loans. A decrease in the
general level of interest rates may affect the Company through, among other
things, increased prepayments on its loan and servicing portfolios and increased
competition for deposits. Accordingly, changes in the level of market interest
rates affect the
11
<PAGE> 14
Company's net interest spread, loan origination volume, loan and servicing
portfolios, and the overall results of the Company.
COMPETITION
The Company experiences substantial competition both in attracting and
retaining deposits and in making loans. Its most direct competition for deposits
historically has come from other thrift institutions, commercial banks and
credit unions doing business in the Houston and Dallas/Fort Worth metropolitan
areas. In addition, as with all banking organizations, the Company has
experienced increasing competition from nonbanking sources. For example, the
Company also competes for funds with full service and discount broker-dealers
and with other investment alternatives, such as mutual funds and corporate and
governmental debt securities. The Company's competition for loans comes
principally from other thrift institutions, commercial banks, mortgage banking
companies, consumer finance companies, insurance companies and other
institutional lenders. A number of institutions with which the Company competes
for deposits and loans have significantly greater assets and capital than the
Company.
FUNDING AND LIQUIDITY
In recent years, the Company has relied primarily on collateralized
borrowings (borrowings from FHLB of Dallas ("FHLB Dallas") and borrowings on
securities sold under agreement to repurchase ("reverse repurchase agreement"))
to fund its asset growth. At March 31, 1996, such borrowings funded 45% of the
Company's assets. The Company's collateralized borrowings have an average
maturity of approximately six months.
The Company borrows funds from the FHLB Dallas under a security and pledge
agreement that restricts the amount of such borrowings to 65% of fully disbursed
single family loans, unless assets are physically pledged to the FHLB Dallas,
not to exceed 45% of total assets in any event. At March 31, 1996, the amounts
available under these restrictions were $4.7 billion and $5.1 billion,
respectively. The Company had $4.1 billion of outstanding advances at March 31,
1996.
The Company's ability to borrow on reverse repurchase agreements is limited
to the amount and market value of collateral that is available to collateralize
through reverse repurchase agreements. At March 31, 1996, the Company had $1.2
billion in such collateral, $995 million of which was collateralizing such
reverse repurchase agreements. See "-- Interest Rate Risk". There can be no
assurance that the Company will continue to be able to arrange collateralized
borrowings or other borrowing arrangements to fund continued growth in its
assets.
CONCENTRATION OF LOAN PORTFOLIO
The Company's current single family mortgage loan portfolio is concentrated
in certain geographical regions, particularly California. The performance of
such loans may be affected by changes in local economic and business conditions.
The California economy since the early 1990s has experienced an economic
recession, although the economy has recently shown signs of improvement.
Unfavorable or worsened economic conditions in California could have a material
adverse effect on the Company's financial condition and results of operations.
ACTIVE PURCHASER OF LOAN PORTFOLIOS
The Company has been an active purchaser and securitizer of residential
mortgage loans originated by other financial institutions. See
"Business -- Financial Markets Group". While the Company intends to continue to
pursue this strategy on a selective basis, no assurance can be given as to the
continued availability of portfolio acquisition opportunities or the Company's
ability to obtain such portfolios on favorable terms.
When purchased by the Company, loan portfolios generally do not contain
delinquent or defaulted loans and may contain loans that have been outstanding
for a relatively short period of time. Consequently, the
12
<PAGE> 15
delinquency and loss experience of the Company's loan portfolios to date are not
necessarily indicative of future results.
LIMITATIONS ON USE OF TAX LOSSES; RESTRICTIONS ON TRANSFERS OF STOCK
As of March 31, 1996, the Company had NOLs of $808.0 million available to
reduce taxable income in future years. Such tax deductions would be subject to
significant limitation under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code") if the Company undergoes an ownership change (as defined
below, an "Ownership Change"). In the event of an Ownership Change, Section 382
of the Code imposes an annual limitation on the amount of taxable income a
corporation may offset with NOLs and certain recognized built-in losses. The
limitation imposed by Section 382 of the Code for any post-change year would be
determined by multiplying the value of the Company's stock (including both
Common Stock and preferred stock) at the time of the Ownership Change by the
applicable long-term tax exempt rate (which was 5.78% for June 1996). Any unused
annual limitation may be carried over to later years, and the limitation may
under certain circumstances be increased by the built-in gains in assets held by
the Company at the time of the change that are recognized in the five-year
period after the change. Under current conditions, if an Ownership Change were
to occur, the Company's annual NOL utilization would be limited to a minimum of
approximately $31.8 million.
The Company would undergo an Ownership Change if, among other things, the
stockholders who own or have owned, directly or indirectly, 5% or more of the
Common Stock or are otherwise treated as 5% stockholders or a "higher tier
entity" under Section 382 of the Code and the regulations promulgated thereunder
("5% Stockholders"), increase their aggregate percentage ownership of such stock
by more than 50 percentage points over the lowest percentage of such stock owned
by such stockholders at any time during the Testing Period (generally the
preceding three years). In applying Section 382 of the Code, at least a portion
of the stock sold pursuant to the Offering would be considered to be acquired by
a new 5% stockholder even if no person acquiring the stock in fact owns as much
as 5% of the Company's stock. While the application of Section 382 of the Code
is highly complex and uncertain in some respects, the sale of shares of Class A
Common Stock as contemplated by this Prospectus is not expected to cause an
Ownership Change. In addition, events could occur prior to or after the Offering
that are beyond the control of the Company which could result in an Ownership
Change. See "Regulation -- Taxation -- Net Operating Loss Limitations".
In an effort to protect against a future Ownership Change that is not
initiated by the Company, the Certificate and By-Laws limit Transfers, subject
to certain exceptions, at any time during the three years following the Offering
of shares of Common Stock that would either cause a person or entity to become a
5% Stockholder or increase a 5% Stockholder's percentage ownership interest.
"Transfers" are defined to include any sale, transfer, assignment, conveyance,
pledge, hedge, short sale, hypothecation or other disposition or the issuance of
any option to sell, transfer, assign, convey, pledge or otherwise dispose. While
such Transfers are deemed prohibited by the Certificate and the Company is
authorized not to recognize any transferee of such a Transfer as a stockholder
to the extent of such Transfer, these restrictions are incomplete since the
Company cannot, consistent with NASDAQ requirements, prevent the settlement of
transactions through NASDAQ, and because the prohibition on Transfers by 5%
Stockholders does not limit transactions in the securities of such 5%
Stockholders that could give rise to ownership shifts within the meaning of the
applicable Section 382 rules. Moreover, the Company Board retains the discretion
to waive these limitations or to take certain other actions that could trigger
an Ownership Change, including through the issuance of additional shares of
Common Stock in subsequent public or private offerings or through subsequent
merger or acquisition transactions.
Because the Company will have utilized a substantial portion of its
available ownership limitation in connection with the Offering, the Company may
not be able to engage in significant transactions that would create a further
shift in ownership within the meaning of Section 382 of the Code within the
following three-year period without triggering an Ownership Change. There can be
no assurance that future actions on the part of the Company's stockholders or
the Company itself will not result in the occurrence of an Ownership Change. See
"Regulation -- Taxation -- Net Operating Loss Limitations".
13
<PAGE> 16
HOLDING COMPANY STRUCTURE; ABILITY TO PAY DIVIDENDS
As a holding company without significant assets other than the Bank Common
Stock, the Company's ability to pay dividends on the Common Stock and to meet
its other cash obligations, including debt service on the Senior Notes and its
other debt obligations, is dependent upon the receipt of dividends from the Bank
on the Bank Common Stock. The declaration of dividends by the Bank on all
classes of its capital stock is subject to the discretion of the Board of
Directors of the Bank, the terms of the Bank Preferred Stock, applicable
regulatory requirements and compliance with the covenants of the Senior Notes.
In addition, the ability of the Company to pay dividends on the Common Stock is
subject to the terms of the Senior Notes. While it is the present intention of
the Board of Directors of the Bank to declare dividends in an amount sufficient
to provide the Company with the cash flow necessary to meet its debt service
obligations in respect of the Senior Notes and to pay dividends to the holders
of Common Stock, subject to applicable regulatory restrictions, no assurance can
be given that future circumstances might not exist which would limit or preclude
the declaration of such dividends. After giving effect to a dividend paid, a tax
benefit recorded and other subsequent events which occurred during the third
quarter of fiscal 1996, pro forma as of March 31, 1996, the Bank would be
permitted to pay $159.6 million of dividends on its capital stock without prior
approval of the OTS, and the Company would be able to pay $62.7 million of
dividends on its Common Stock under the covenants of the Senior Notes. See
"Regulation -- Safety and Soundness Regulations -- Capital
Requirements -- Capital Distributions", "Dividend Policy", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity" and Notes 11, 15, 16 and 21 to
the Consolidated Financial Statements.
REGULATION
Both the Company, as a savings and loan holding company, and the Bank, as a
federal stock savings bank, are subject to significant regulation. Statutes and
regulations now affecting the Company and the Bank, respectively, may be changed
at any time, and the interpretation of these statutes and regulations by
examining authorities is also subject to change. There can be no assurance that
future changes in the regulations or in their interpretation will not adversely
affect the business of the Company. As a savings and loan holding company, the
Company is subject to regulation and examination by the OTS. As a federal
savings bank, the Bank is subject to examination from time to time by the OTS,
its primary regulator, and the FDIC, as administrator of the Bank Insurance Fund
(the "BIF") and the SAIF. There can be no assurance that the OTS or the FDIC
will not, as a result of such examinations or otherwise, impose various
requirements or regulatory sanctions upon the Bank or the Company respectively.
See "Regulation". As indicated above under "-- Evolution of Business", the Bank
has applied to establish a national bank subsidiary, which, if established,
would subject such subsidiary, the Bank and the Company to significant
additional regulation under various federal bank statutes.
RECAPITALIZATION OF THE SAIF AND ITS IMPACT ON SAIF PREMIUMS; OTHER LEGISLATIVE
PROPOSALS
Deposits of the Bank are currently insured by the SAIF, which is
administered by the FDIC. Both the SAIF and the BIF, the deposit insurance fund
that covers most commercial bank deposits, are statutorily required to achieve
and maintain a reserve ratio equal to 1.25% of estimated insured deposits. As a
result of the BIF reaching the 1.25% level, on August 16, 1995, the FDIC lowered
the deposit insurance premium assessment rate for BIF members to between 0.04%
and 0.31% of insured deposits, while retaining the existing assessment rate of
0.23% to 0.31% of insured deposits for members of the SAIF. On November 14,
1995, the FDIC further reduced insurance premiums on BIF deposits by 0.04% of
insured deposits, creating an assessment range of 0% to 0.27% of insured
deposits, subject to a statutory requirement that all institutions pay at least
$2,000 annually. Approximately 92% of BIF members qualify for the lowest
assessment rate. As a result of the significant disparity in the deposit
insurance premiums paid by "well-capitalized" SAIF members, such as the Bank,
and well-capitalized BIF members, SAIF members are at a competitive disadvantage
to BIF members with respect to the pricing of loans and deposits and the ability
to achieve lower operating costs.
14
<PAGE> 17
Measures to mitigate the effect of the BIF/SAIF premium disparity are being
considered by the Congress. These proposals feature a one-time assessment (which
reports estimate from 0.75% of deposits to 0.90% of deposits) on SAIF-insured
institutions with the aim of fully recapitalizing the SAIF. Such an assessment
could result in an amount payable by the Bank, net of tax, of as much as $23.7
million to $28.5 million. See "Regulation". At this time, no assurance can be
given as to whether any BIF/SAIF legislative alternatives will become law.
Members of Congress have expressed their intention to consider legislation
in 1996 that generally would require federal savings associations, such as the
Bank, to convert to a national bank charter (or a state charter), and
legislation has been proposed in Congress that envisions such action as part of
a BIF/SAIF recapitalization package. It is uncertain to what extent, if at all,
the existing branch and investment powers of federal savings associations, such
as the Bank, that are impermissible for national banks would be grandfathered.
In addition, the proposals express the intent that savings and loan holding
companies such as the Company, convert to bank holding companies. It is also
uncertain to what extent, if at all, the existing powers of savings and loan
holding companies that are impermissible for bank holding companies, would be
grandfathered. None of the present activities of the Company would be
impermissible if the Company were to convert to a bank holding company or to
establish a national bank subsidiary. In addition, unless such legislation
provides grandfathering or other remedial provisions, a charter conversion could
result in recapture of deductions for bad debts previously taken by a thrift for
tax purposes. If this legislation requires the recapture of the pre-1988 tax bad
debt reserve, the Bank would be required to record an after-tax charge to
earnings of approximately $18 million. Other legislation, which has been passed
by each house of Congress, would require recapture of a thrift's post-1987 bad
debt reserve over a six taxable-year period with the opportunity to defer
recapture for up to two years if certain residential loan requirements are met.
There would be no financial statement impact from the recapture of the post-1987
tax bad debt reserves, because the Bank has already provided for this liability.
There can be no assurance as to the outcome of these various legislative
proposals, the effect of which could be material to the financial condition and
results of operations of the Company and the Bank.
FEDERAL PROGRAMS
The continuation of programs administered by the Federal National Mortgage
Association (the "FNMA"), the Federal Home Loan Mortgage Corporation (the
"FHLMC") and the Government National Mortgage Association (the "GNMA"), which
facilitate the issuance of MBS, as well as the Company's continued eligibility
to participate in such programs, enhances the Company's ability to generate
funds by sales of mortgage loans or MBS. A portion of the Company's business is
also dependent upon the continuation of various programs administered by the
Federal Housing Administration (the "FHA"), which insures mortgage loans, and
the Department of Veterans' Affairs (the "VA"), which partially guarantees
mortgage loans.
Any discontinuation of, or significant reduction in, the operation of such
programs would have a material adverse effect on the Company's mortgage banking
operations. The Company expects to remain eligible to participate in such
programs; however, any significant impairment of its eligibility could have a
material adverse impact on its operations. See "Business -- Mortgage Banking
Group".
LIMITATIONS ON STOCK OWNERSHIP
In addition to restrictions on Common Stock ownership necessary to avoid an
Ownership Change and preserve the Company's NOLs, see " --Limitations on Use of
Tax Losses; Restrictions on Transfers of Stock", with certain limited
exceptions, federal regulations prohibit a person or company or a group of
persons deemed to be acting in concert from, directly or indirectly, acquiring
more than 10% of any class of voting stock or obtaining the ability to control
in any manner the election of a majority of the directors or otherwise direct
the management or policies of a savings institution, such as the Bank, without
prior notice or application to and the approval of the OTS. See
"Regulation -- Regulation of Savings and Loan Holding Companies".
15
<PAGE> 18
ANTI-TAKEOVER PROVISIONS
The Certificate and the By-Laws, and applicable provisions of the Delaware
General Corporation Law (the "DGCL"), contain several provisions that may make
more difficult the acquisition of control of the Company without the approval of
the Company Board. Certain provisions of the Certificate and the By-Laws, among
other things, (i) authorize the issuance of additional shares of Common Stock
and shares of "blank check" Preferred Stock; (ii) classify the Company Board
into three classes, each of which (after an initial transition period) will
serve for staggered three year periods; (iii) provide that a director of the
Company may be removed by the stockholders only for cause; (iv) provide that
only the Company Board or the Chairman of the Board of the Company may call
special meetings of the stockholders; (v) provide that the stockholders may take
action only at a meeting of the stockholders or by unanimous written consent;
(vi) provide that stockholders must comply with certain advance notice
procedures in order to nominate candidates for election to the Company Board or
to place stockholders' proposals on the agenda for consideration at meetings of
the stockholders; and (vii) provide that the stockholders may amend or repeal
any of the foregoing provisions of the Certificate or the By-Laws only by a vote
of 80% of the stock entitled to vote generally in the election of directors (the
"Voting Stock"). With certain exceptions, Section 203 of the DGCL ("Section
203") imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the Common Stock. See
"Description of Capital Stock -- Certain Provisions of the Certificate and
By-Laws; Anti-takeover Effects" and "-- Delaware Business Combination Statute".
CONCENTRATION OF OWNERSHIP
Prior to June 18, 1996, the Company was indirectly owned by Hyperion
Partners, the general partner of which is indirectly controlled by three
individuals, including Lewis S. Ranieri, who served as Chairman of the Board,
President and CEO of the Company and Chairman of the Board of the Bank. As a
result of the Restructuring the limited and general partners of Hyperion
Partners primarily hold the outstanding Common Stock. See "The
Company -- Background of the Offering" and "Selling Stockholders". While it is
anticipated that no single stockholder of the Company will own in excess of 10%
of the voting stock of the Company immediately following the Offering, the
Selling Stockholders will continue to hold a significant ownership interest in
the Company, and certain Selling Stockholders have agreed to limit their further
disposition of Class A Common Stock. Following the consummation of the Offering,
Lewis S. Ranieri will serve as non-executive Chairman of the Board of the
Company, and Barry C. Burkholder, who is currently President and CEO of the
Bank, will also become Chairman of the Board of the Bank as well as the
President and CEO of the Company. While the Company is contemplating entering
into a consulting agreement with Mr. Ranieri pursuant to which he will serve as
a consultant to the Company for a period of three years, he may devote a
substantial amount of time to other business ventures, including competitive
activities through Hyperion Partners II, L.P. ("Hyperion Partners II") and its
affiliates.
CONVERSION OF CLASS B COMMON STOCK; DILUTION OF VOTING POWER
Certain Selling Stockholders will retain shares of Class B Common Stock
(which have no voting rights) which they may elect to convert to Class A Common
Stock subject to certain restrictions. See "Description of Capital
Stock -- Common Stock -- Conversion". Class B Common Stock is also converted to
Class A Common Stock automatically upon transfer to a person who is not an
affiliate of the holder, including in any such transfer effected pursuant to the
Offering. Transfers of Class B Common Stock by certain persons are subject to
certain restrictions. See "Description of Capital Stock -- Common
Stock -- Restrictions on Transfers of Stock".
NO PRIOR MARKET FOR THE CLASS A COMMON STOCK
Prior to the Offering, there was no public market for the Class A Common
Stock. The initial public offering price of the Class A Common Stock will be
determined through negotiations between the Company and the Underwriters, and
may not be indicative of the market price for the Class A Common Stock after the
Offering. The Company believes that certain factors, such as fluctuations in
operating results of the Company or of its competitors and market conditions
generally for similar stocks, could cause the market price of the
16
<PAGE> 19
Class A Common Stock to fluctuate substantially. Such market volatility may
adversely affect the market price of the Class A Common Stock. Although the
Company intends to have the Class A Common Stock quoted on NASDAQ, there can be
no assurance that an active public market will develop for such stock or, if
developed, will be sustained following the Offering. See "Underwriting".
LIABILITY UNDER REPRESENTATIONS AND WARRANTIES AND OTHER CREDIT RISKS
In the ordinary course of business, the Company has liability under
representations and warranties made to purchasers and insurers of mortgage loans
and to purchasers of MSRs. In connection with MSRs that the Company purchases,
it may have liability as a successor to third-party originators' representations
and warranties. Under certain circumstances, the Company may become liable for
the unpaid principal and interest on defaulted loans if there has been a breach
of representations or warranties. In the case of any mortgage loans found to be
defective with respect to representations or warranties made or succeeded to by
the Company, the Company may be required to repurchase such mortgage loans, with
any subsequent loss on resale or foreclosure being borne by the Company. The
Company's losses from breaches of representations and warranties have not been
material to date.
LITIGATION
The operations of financial institutions, such as the Company, are subject
to substantial statutory and regulatory compliance obligations. These
requirements are complex, and even inadvertent noncompliance could result in
liability. During the past several years, numerous individual claims and
purported consumer class action claims were commenced against a number of
financial institutions, their subsidiaries, and other mortgage lending
institutions, alleging violations of various statutory and regulatory provisions
relating to mortgage lending and servicing, including the Truth-in-Lending Act
(the "TILA"), the Real Estate Settlement Procedures Act (the "RESPA"), the Equal
Credit Opportunity Act (the "ECOA"), the Fair Housing Act (the "FH Act") and
various state laws. While the Company has had various claims asserted against it
under these statutes, management does not expect these claims to have a material
adverse effect on the Company's financial condition, results of operations, or
liquidity.
Maxxam, Inc. ("Maxxam") has filed a petition for review in a Federal
appeals court and a motion to intervene in Federal District Court, each
challenging the December 30, 1988 order of the FSLIC approving the Acquisition.
See "The Company -- History". Maxxam contends that it should have been selected
as the winning bidder. Management of the Company believes, after consultation
with legal counsel, that these claims are barred by applicable time limits, have
no basis under existing law, and will not have a material adverse effect on the
Bank's or the Company's financial condition, results of operations or liquidity.
See "Legal Proceedings".
17
<PAGE> 20
THE COMPANY
GENERAL
The Company is a broad-based financial services provider to consumers and
businesses in Texas and other selected regional markets throughout the United
States. Through the Bank, its principal subsidiary, the Company operates 67
Texas-based community banking branches serving nearly 182,000 households and
businesses, 9 commercial banking offices and a nationwide network of mortgage
offices. At March 31, 1996, the Company had consolidated total assets of $11.3
billion, total deposits of $5.0 billion and total stockholders' equity of $526.4
million. Upon completion of the Offering, the Company will be the largest
publicly traded depository institution headquartered in Texas, in terms of both
assets and deposits.
The Bank is a federally chartered savings bank, the deposits of which are
insured by the SAIF, which is administered by the FDIC. The Company has no
significant assets other than its equity interest in the Bank. In June 1996, the
Company changed its name to Bank United Corp. The Company's address is 50
Charles Lindbergh Blvd., Uniondale, NY 11553, and its phone number is (516)
745-6644.
HISTORY
The Company was incorporated in Delaware on December 19, 1988 as USAT
Holdings Inc. and became the holding company for the Bank upon the Bank's
formation on December 30, 1988. In the Acquisition, the Company initially
acquired from the FSLIC certain of the assets and assumed all the deposits and
certain other liabilities of Old USAT, an insolvent thrift. In connection with
the Acquisition, the Company entered into an Assistance Agreement which, among
other things, provided for federal financial assistance to the Bank. On December
23, 1993, the Company and the FDIC entered into an agreement providing for the
termination of the Assistance Agreement. See "Business -- The Assistance
Agreement".
Immediately after the Acquisition, the Bank operated 19 banking branches,
primarily in the greater Houston metropolitan area, with no significant loan
origination capabilities. Through both acquisitions and internal growth, the
Bank has substantially expanded its Texas community banking branch network,
built a nationwide mortgage banking business, and established itself as a
provider of a broad array of financial products, including commercial banking
services and products. In 1990, 1991, and 1992, the Bank entered into various
agreements with the RTC, whereby the Bank purchased certain assets and assumed
certain liabilities, primarily deposit liabilities, of six thrift institutions
in RTC receivership. In connection with these acquisitions, the Bank received
cash from the RTC. The amount of cash received from the RTC was based on the
amount by which the sum of the liabilities assumed exceeded the sum of the
market values of the assets purchased, less a purchase premium. In 1990, the
Bank consummated its agreement to purchase certain assets and assume certain
liabilities relating to the loan origination operations of Commonwealth Mortgage
of America, L.P. Since July 1992, and particularly in 1994, the Bank has entered
into agreements to purchase several mortgage origination networks.
BACKGROUND OF THE OFFERING
The Company was organized, and through June 17, 1996 operated, as a
subsidiary of Hyperion Holdings. During that period, all of the outstanding
shares of Hyperion Holdings were owned by Hyperion Partners. The general partner
of Hyperion Partners is indirectly controlled by three individuals, including
Lewis S. Ranieri, who, from December 1988, has served as Chairman of the Company
Board and, until June , 1996, also as President and CEO of the Company and
Chairman of the Board of the Bank.
Dividend Distribution and Restructuring
During May 1996, the Company paid a dividend of $100 million on its Common
Stock to Hyperion Holdings and other holders of its Common Stock. The proceeds
of this dividend received by Hyperion Holdings were distributed by Hyperion
Partners to its limited and general partners in accordance with the limited
partnership agreement of Hyperion Partners. During June 1996, the Restructuring
was effected as follows: (i) Hyperion Holdings exchanged shares of a newly
created class of its nonvoting common stock for certain shares of its voting
common stock held by Hyperion Partners; (ii) Hyperion Partners then distributed
18
<PAGE> 21
the Hyperion Holdings common stock to its limited and general partners in
accordance with the limited partnership agreement of Hyperion Partners; and
(iii) following the Distribution, Hyperion Holdings was merged with and into the
Company, with the result that holders of Hyperion Holdings voting and nonvoting
common stock received shares of Class A Common Stock and Class B Common Stock
and the holders of Class C Common Stock received shares of Class B Common Stock.
As part of the Restructuring, the common stock of Hyperion Holdings and the
Class C Common Stock were converted 1800 to one. See Note 21 to the Consolidated
Financial Statements for a discussion of subsequent events and see
"Capitalization". The Offering is intended to establish a public market value
for the Class A Common Stock while providing the Selling Stockholders with
liquidity for their current holdings in the Company.
Management
Day-to-day operations of the Bank are directed by Barry C. Burkholder,
President and CEO of the Bank, who brings over 20 years of commercial banking
experience to the Bank, with specific experience in consumer banking, mortgage
banking and related areas. In connection with the Restructuring and the
Offering, Mr. Burkholder will also become Chairman of the Board of the Bank as
well as President and CEO of the Company. The executive management group of the
Bank consists of seven individuals who have worked together for the past six
years, giving them a thorough understanding of the businesses they have
developed together. They average more than 20 years of related industry
experience, the majority of which comes from commercial banking. As a team, they
have brought the discipline and sophistication of commercial banking to the
Bank. The next level of senior management comprises 42 executives, a third of
whom were hired directly from commercial banks. The balance of the senior
management team has experience working with various financial services
companies, including mortgage banks, thrifts and accounting firms. See
"Management".
Lewis S. Ranieri, who has over 20 years of investment experience with
particular expertise in the field of MBS, has previously served as Chairman of
the Board of the Bank and of the Company, as well as President and CEO of the
Company, and will continue, after the Offering, to serve as non-executive
Chairman of the Board of the Company. The Company is contemplating entering into
a consulting agreement with Mr. Ranieri pursuant to which he would serve as a
consultant to the Company for a three year period.
Future Tax Benefits
In connection with the Acquisition and the Assistance Agreement, the
Company succeeded to and recorded substantial NOLs which have resulted in
certain tax benefits. As of March 31, 1996, the Company had NOLs of $808.0
million available to reduce taxable income in future years. Pursuant to the Tax
Benefits Agreement (as defined below), the Bank is required to pay to the FRF a
certain portion of net tax benefits obtained through the taxable year ending
nearest to September 30, 2003. See "Regulation -- Taxation -- FSLIC Assistance".
The Offering is structured with the intent to preserve the beneficial tax
attributes of the Company as described below. See "Regulation -- Taxation".
Accordingly, certain of the Selling Stockholders have agreed to limit their
further disposition of Common Stock for up to three years following the Offering
except with approval of the Company Board. See "Description of Capital
Stock -- Common Stock -- Restrictions on Transfers of Common Stock". The
limitations on transfers will allow the Company to record a $101.7 million tax
benefit in the quarter ended June 30, 1996. See "Risk Factors -- Limitations on
Use of Tax Losses; Restrictions on Transfers of Stock" and Note 21 to the
Consolidated Financial Statements.
Senior Note Exchange
Substantially simultaneously with the consummation of the Offering, the
Company intends to commence the Exchange Offer for the Senior Notes. The
Exchange Offer is intended to satisfy the condition of the Senior Notes pursuant
to which the interest rate on the Senior Notes will revert from 9.05% to 8.05%
per annum commencing with and including the date on which the Exchange Offer is
consummated. See Note 11 to the Consolidated Financial Statements.
Claims Related to Forbearance Agreement
In connection with the Acquisition, the FHLB approved the Forbearance
Agreement. Under the terms of the Forbearance Agreement, the FSLIC agreed to
waive or forbear from the enforcement of certain regulatory
19
<PAGE> 22
provisions with respect to regulatory capital requirements, liquidity
requirements, accounting requirements and other matters. Following enactment of
FIRREA, the OTS took the position that the capital standards set forth in FIRREA
apply to all savings institutions, including those institutions that had been
operating under previously granted capital and accounting forbearances, and that
FIRREA eliminated these forbearances. On July 25, 1995, the Bank, the Company,
and certain of their then-direct and indirect parent entities filed suit against
the United States in the Court of Federal Claims for alleged failures of the
United States to honor certain contractual obligations, including obligations
related to the Forbearance Agreement. The lawsuit is in a preliminary stage.
Discovery has been stayed pending the United States Supreme Court's review of
United States v. Winstar Corp, an action by another thrift raising similar
issues. The Company is unable to predict the outcome of its suit against the
United States and the amount of judgment for damages, if any, that may be
entered in favor of the Company. Consequently, no assurances can be given as to
the results of this suit. See "Legal Proceedings".
USE OF PROCEEDS
The sale of the shares of Class A Common Stock offered hereby is for the
account of the Selling Stockholders. Accordingly, the Company will not receive
any proceeds from the sale to the public of the shares of Class A Common Stock
offered hereby. See "Selling Stockholders".
DIVIDEND POLICY
The Company Board currently intends to declare and pay quarterly dividends
on its Common Stock. It is expected that the first quarterly dividend payment
will be $ per share (a rate of $ annually), with the initial
dividend to be declared and paid in the quarter of fiscal year . The
declaration and payment of dividends by the Company are subject to the
discretion of the Company Board and limitations imposed by the Senior Notes on
Restricted Payments (as defined in the Senior Notes), including dividends. At
March 31, 1996, pro forma after giving effect to the Restructuring, the Company
would be permitted to pay $62.7 million in dividends on its capital stock. The
Company's ability to pay dividends and to meet its other cash obligations,
including debt service on the Senior Notes, is dependent on the receipt of
dividends from the Bank. The declaration of dividends by the Bank on all classes
of its capital stock is subject to the discretion of the Board of Directors of
the Bank, the terms of the Bank Preferred Stock, applicable regulatory
requirements and compliance with the covenants of the Senior Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity". Any determination as to the
payment of dividends will depend upon, among other things, general business
conditions, the Company's financial results, contractual, legal and regulatory
restrictions regarding the payment of dividends by the Company's subsidiaries,
the credit ratings of the Company and such other factors as the Company Board
may consider to be relevant. Dividends may not be paid on the Bank Common Stock
if full dividends on the Bank Preferred Stock have not been paid for the four
most recent quarterly dividend periods. Thus, if for any reason the Bank failed
to declare and pay full quarterly dividends on the Bank Preferred Stock, the
Company would not receive any cash dividends from the Bank until four full
quarterly dividends on the Bank Preferred Stock had been paid. See "Risk
Factors -- Holding Company Structure; Ability to Pay Dividends". The Company has
not historically paid dividends, with the exception of a $100 million dividend
paid to holders of Class A Common Stock and its former Class C Common Stock, par
value $.01 per share, of the Company (the "Class C Common Stock") on May 6,
1996. On the same day, the Bank paid a dividend on the Bank Common Stock in the
amount of $100 million and also made a related contractually required payment in
lieu of dividends in the amount of $5.9 million to the FDIC, the holder of the
Warrants. Thus, the dividends historically paid by the Company are not
indicative of its future dividend policy.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
at March 31, 1996 and the pro forma capitalization of the Company at March 31,
1996 after giving effect to (i) the Restructuring and an associated 1,800 to one
Common Stock conversion, (ii) a $100 million dividend paid in May 1996 and a
$5.9 million contractually required payment to the FDIC, (iii) a $101.7 million
tax benefit recorded in June 1996, (iv) a $6.2 million charge, after tax, in
connection with the Executive Management Incentive Compensation Plans (as
defined below) and (v) estimated expenses related to the Offering. See Note 21
to the Consolidated Financial Statements. In addition to the long-term debt of
the Company reflected below, at March 31, 1996, the Bank had long-term debt
consisting of deposits, FHLB advances, and certain other funding liabilities
incurred in the ordinary course of business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital Resources
and Liquidity" and Notes 8, 9, 10 and 11 to the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt -- Senior Notes(1)........................... $115,000 $115,000
Minority Interest(2)........................................ 185,500 185,500
Stockholders' Equity:
Preferred Stock(3)........................................ -- --
Common Stock(4)........................................... 2 2
Paid-in capital(5)........................................ 118,009 122,009
Retained earnings......................................... 411,498 401,098
Unrealized gains (losses) on securities and
mortgage-backed securities available for sale, net of
tax.................................................... (3,068) (3,068)
-------- --------
Total stockholders' equity................................ 526,441 520,041
-------- --------
Total Consolidated Capitalization...................... $826,941 $820,541
======== ========
Ratio of equity to assets................................... 4.67% 4.62%
Ratio of tangible equity to tangible assets................. 4.48% 4.42%
Shares outstanding(6)
Class A................................................... 23,828,400
Class B................................................... -- --
Class C................................................... 5,034,600
Book value per common share(6).............................. $18.24 --
Tangible book value per share (6)........................... $17.44 --
Regulatory capital of the Bank(7)(8)
Tangible Capital
Amount................................................. $770,764 $658,664
Ratio.................................................. 6.88% 5.89%
Core Capital
Amount................................................. $780,227 $668,127
Ratio.................................................. 6.96% 5.97%
Total Risk-Based Capital
Amount................................................. $816,772 $704,672
Ratio.................................................. 14.20% 12.12%
</TABLE>
- ---------------
(1) The Senior Notes currently bear a stepped up rate of 9.05% per annum pending
consummation of the Exchange Offer, following which the rate will revert to
8.05% per annum.
21
<PAGE> 24
(2) Minority interest consists of $185.5 million stated value of the Bank
Preferred Stock. In addition, the Warrants represent a potential additional
minority interest in the Bank. See Notes 7 and 16 to the Consolidated
Financial Statements.
(3) The Company had 2,500 shares of Preferred Stock authorized, none of which
were issued as of March 31, 1996.
(4) The Company has reserved shares of its Common Stock for issuance
and to be available for grants under three separate plans. See
"Management -- The 1996 Incentive Compensation Plan", "-- Executive
Management Compensation Plan" and "-- The Director Stock Compensation
Plan".
(5) Offering expenses estimated to be $2,000,000.
(6) Historical and pro forma per share results have been restated to reflect an
1,800 to one Common Stock conversion, effective June 18, 1996, in
connection with the Restructuring. Pro forma per share amounts also include
the effects of stock issued pursuant to the 1996 Incentive Compensation
Plan.
(7) The Bank's portion of the $101.7 million tax benefit recorded in June 1996
was $85.2 million and has been excluded for purposes of computing the
Bank's regulatory capital ratios. OTS regulations limit the amount of
deferred tax asset an institution may include in its regulatory capital.
(8) The Bank's pro forma regulatory capital ratios reflect a $100 million
dividend payment from the Bank to the Company and a related contractually
required payment of $5.9 million to the FDIC. These payments were made in
May 1996.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial and other data as of and for
each of the years in the five-year period ended September 30, 1995 are derived
from the Company's audited Consolidated Financial Statements. The information
set forth below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Consolidated Statements of
Financial Condition as of September 30, 1995 and 1994, and the Consolidated
Statements of Operations for each of the years in the three year period ended
September 30, 1995, and the report thereon of Deloitte & Touche LLP are included
elsewhere in this Prospectus. The selected consolidated financial and other data
as of and for the six months ended March 31, 1996 and 1995 are derived from the
unaudited consolidated financial statements included in the Consolidated
Financial Statements which, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments), which are
necessary for a fair presentation of the results for such periods. The results
of operations for the six months ended March 31, 1996 are not necessarily
indicative of the results of operations to be obtained for the entire fiscal
year.
FIVE-YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
ASSETS(2)
Cash and cash equivalents....... $ 135,691 $ 90,912 $ 112,931 $ 76,938 $ 65,388 $ 94,723 $ 217,630
Securities purchased under
agreements to resell and
federal funds sold............ 659,279 636,274 471,052 358,710 547,988 206,000 1,632,600
Trading account assets.......... 1,267 1,044 1,081 1,011 1,006 94,691 --
Securities...................... 58,351 114,254 116,013 114,115 43,430 4,909 6,800
Mortgage-backed securities...... 1,954,070 2,600,876 2,398,263 2,828,903 2,175,925 833,425 419,064
Loans........................... 7,878,080 6,161,432 8,260,240 5,046,174 4,862,379 4,101,716 3,431,154
Covered Assets and related
assets(3)..................... -- -- -- -- 392,511 610,901 779,304
All other assets................ 579,898 539,985 623,954 484,310 351,929 308,918 390,295
----------- ----------- ---------- ---------- ---------- ----------
Total assets............ $11,266,636 $10,144,777 $11,983,534 $8,910,161 $8,440,556 $6,255,283 $6,876,847
=========== =========== ========== ========== ========== ==========
LIABILITIES, MINORITY INTEREST,
AND STOCKHOLDERS' EQUITY(2)
Deposits........................ $ 4,963,321 $ 5,015,713 $ 5,182,220 $4,764,204 $4,839,388 $4,910,760 $6,054,474
FHLB advances................... 4,139,023 3,284,373 4,383,895 2,620,329 2,185,445 632,345 287,345
Securities sold under agreements
to repurchase................. 949,936 839,939 1,172,533 553,000 310,000 -- --
Note payable to related party... -- -- -- -- -- 4,090 4,090
Long-term debt ("15.75%
Notes")....................... -- -- -- -- -- 102,000 107,000
Senior Notes.................... 115,000 115,000 115,000 115,000 115,000 -- --
All other liabilities........... 387,415 327,559 448,283 320,766 516,020 373,715 262,178
----------- ----------- ---------- ---------- ---------- ----------
Total liabilities........... 10,554,695 9,582,584 11,301,931 8,373,299 7,965,853 6,022,910 6,715,087
----------- ----------- ---------- ---------- ---------- ----------
Minority interest -- Bank
Preferred Stock(4)........ 185,500 85,500 185,500 85,500 85,500 -- --
Total stockholders'
equity.................... 526,441 476,693 496,103 451,362 389,203 232,373 161,760
----------- ----------- ---------- ---------- ---------- ----------
Total liabilities,
minority interest, and
stockholders'
equity................ $11,266,636 $10,144,777 $11,983,534 $8,910,161 $8,440,556 $6,255,283 $6,876,847
=========== =========== ========== ========== ========== ==========
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
AT OR FOR
THE SIX MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED SEPTEMBER 30,
------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
-------- -------- -------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS(2)
Interest income............................ $421,221 $327,586 $746,759 $494,706 $482,490 $502,854 $422,184
Interest expense........................... 309,289 239,960 552,760 320,924 300,831 348,291 330,659
-------- -------- -------- -------- -------- --------
Net interest income...................... 111,932 87,626 193,999 173,782 181,659 154,563 91,525
Provision for credit losses................ 5,850 4,157 24,293 6,997 4,083 21,133 4,122
-------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses.......................... 106,082 83,469 169,706 166,785 177,576 133,430 87,403
Non-interest income
Net gains (losses)
Sales of single family servicing rights
and single family warehouse loans.... 19,157 38,464 60,495 63,286 67,403 67,223 30,541
Securities and mortgage-backed
securities........................... 2,863 8 26 10,404 43,702 2,022 1,440
Other loans............................ 3,485 (380) (1,210) 163 1,496 4,759 756
Loan servicing fees and charges.......... 22,107 22,813 43,508 31,741 21,780 20,823 6,076
Other fees and charges................... 6,997 5,748 12,162 13,295 12,310 8,963 6,117
-------- -------- -------- -------- -------- --------
Total non-interest income................ 54,609 66,653 114,981 118,889 146,691 103,790 44,930
-------- -------- -------- -------- -------- --------
Non-interest expense
Compensation and benefits................ 39,898 43,192 83,520 86,504 81,472 69,476 46,580
Amortization of intangibles.............. 9,801 10,718 21,856 18,247 24,469 22,832 14,789
Other.................................... 49,605 47,735 89,200 94,842 96,023 88,107 52,258
-------- -------- -------- -------- -------- --------
Total non-interest expense............... 99,304 101,645 194,576 199,593 201,964 180,415 113,627
-------- -------- -------- -------- -------- --------
Income before income taxes, minority
interest, and extraordinary loss....... 61,387 48,477 90,111 86,081 122,303 56,805 18,706
Income tax expense (benefit)(5)............ 25,278 20,186 37,415 (31,899) (26,153) 200 (409)
-------- -------- -------- -------- -------- --------
Income before minority interest and
extraordinary loss..................... 36,109 28,291 52,696 117,980 148,456 56,605 19,115
Less minority interest
Bank Preferred Stock dividends(4)........ 9,126 4,326 10,600 8,653 6,537 -- --
Payments in lieu of dividends(6)......... 224 306 377 357 -- -- --
-------- -------- -------- -------- -------- --------
Income before extraordinary loss......... 26,759 23,659 41,719 108,970 141,919 56,605 19,115
Extraordinary loss(7)...................... -- -- -- -- 14,549 -- --
-------- -------- -------- -------- -------- --------
Net income............................... $ 26,759 $ 23,659 $ 41,719 $108,970 $127,370 $ 56,605 $ 19,115
======== ======== ======== ======== ======== ========
Operating earnings(8)...................... $ 55,039 $ 48,849 $ 91,295 $ 75,514 $ 77,105 $ 50,024 $ 16,510
Earnings per common share(9)
Income before extraordinary loss......... $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.61 $ 1.85 $ 0.71
Extraordinary loss....................... -- -- -- -- 0.50 -- --
-------- -------- -------- -------- -------- --------
Net income............................... $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.11 $ 1.85 $ 0.71
======== ======== ======== ======== ======== ========
Book value per common share(9)............. $ 18.24 $ 16.52 $ 17.19 $ 15.64 $ 13.48 $ 8.19 $ 6.87
CERTAIN RATIOS AND OTHER DATA(2)(10)
Regulatory capital ratios of the Bank(11):
Tangible Capital......................... 6.88% 5.65% 6.20% 6.01% 6.17% 4.24% 2.64%
Core Capital............................. 6.96 5.77 6.29 6.17 6.43 5.04 3.59
Total Risk-Based Capital................. 14.20 12.43 13.45 14.02 14.87 12.19 9.37
Return on average assets................... 0.46 0.50 0.40 1.32 1.74 0.89 0.42
Return on average common equity............ 10.45 10.23 8.77 26.32 44.87 28.18 13.95
Stockholders' equity to assets............. 4.67 4.70 4.14 5.07 4.61 3.71 2.35
Tangible stockholders' equity to tangible
assets................................... 4.48 4.40 3.93 4.68 4.14 2.58 1.10
Net yield on interest-earning assets(12)... 2.00 1.92 1.92 2.20 2.61 2.60 2.16
Interest rate spread(12)................... 1.66 1.61 1.61 1.95 2.41 2.54 2.15
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED SEPTEMBER 30,
------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTAIN RATIOS AND OTHER
DATA -- CONTINUED(2)(10)
Average interest-earning assets to
average interest-bearing
liabilities....................... 1.06x 1.06x 1.06x 1.06x 1.04x 1.01x 1.00x
Non-interest expense to average
total assets...................... 1.72% 2.13% 1.86% 2.41% 2.76% 2.85% 2.50%
Net operating expense ratio(13)..... 0.77 0.74 0.76 0.97 0.76 1.21 1.51
Efficiency ratio(14)................ 60.16 62.45 59.50 66.38 65.11 63.98 75.14
Nonperforming assets to total
assets............................ 1.10 1.04 0.84 1.09 0.72 0.89 0.59
Nonaccrual loans to total loans..... 1.21 1.29 0.91 1.51 0.85 0.92 0.98
Allowance for credit losses to net
nonaccrual loans.................. 38.00 31.43 48.74 30.73 71.71 74.04 30.00
Allowance for credit losses to
nonperforming assets.............. 29.36 23.62 36.65 24.18 49.28 50.54 25.05
Allowance for credit losses to total
loans............................. 0.46 0.40 0.44 0.46 0.61 0.68 0.29
Net loan charge-offs to average
loans............................. 0.15 0.09 0.16 0.30 0.05 0.07 0.04
Full-time equivalent employees...... 2,642 2,684 2,663 2,894 3,122 2,720 2,023
Number of Community Banking
branches(1)....................... 67 64 65 62 62 65 74
Number of Commercial Banking
origination offices............... 9 8 9 5 3 2 1
Number of Mortgage Banking
origination offices............... 112 131 122 145 109 93 72
Mortgage Banking servicing
portfolio......................... $11,594,485 $12,031,533 $12,532,472 $8,920,760 $8,073,226 $7,187,000 $4,681,712
Mortgage Banking originations....... 2,021,127 1,553,255 3,447,250 5,484,111 6,737,762 6,118,363 3,195,873
Financial Markets loans purchased... 80,948 769,995 2,640,755 1,312,827 1,202,970 912,847 1,885,956
</TABLE>
- ---------------
(1) The Bank acquired from the RTC $2.2 billion in deposit liabilities during
fiscal 1991. Pursuant to the Bank's plan of acquisition, rates on these
deposits were reduced after acquisition and, as expected, approximately
$766 million of deposits were withdrawn from the Bank during fiscal 1992.
Also, the Bank consolidated overlapping branch locations that resulted from
these acquisitions. See "The Company -- History".
(2) See Note 21 to the Consolidated Financial Statements for a discussion of
subsequent events and see "Capitalization". On a pro forma basis,
stockholders' equity would have been $520.0 million as of March 31, 1996.
(3) Reflects assets governed under the Assistance Agreement between the Bank
and the FRF. See "Business -- The Assistance Agreement".
(4) During fiscal 1993, the Bank issued Bank Preferred Stock, Series A, and
during fiscal 1995, the Bank issued Bank Preferred Stock, Series B. None of
the shares of Bank Preferred Stock are owned by the Company. Certain
Selling Stockholders and directors and management of the Company own shares
of the Bank Preferred Stock. See "Management -- Security Ownership of
Certain Beneficial Owners and Management -- Principal Stockholders, Bank
Preferred Stock".
(5) Fiscal 1994 and 1993 include tax benefits recognized as a result of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". See Note 13 to the Consolidated Financial Statements. A
tax benefit in the amount of $101.7 million was recognized in the third
quarter of fiscal 1996.
(6) All of the outstanding Bank Common Stock is currently owned by the Company.
The Bank has issued to the FDIC Warrants to acquire 158,823 shares of Bank
Common Stock (representing 5.56% of the Bank Common Stock as of March 31,
1996 and September 30, 1995, assuming exercise in full of the Warrants), at
an exercise price of $0.01 per share. Payments in lieu of dividends relate
to the Warrants. See "Business -- The Assistance Agreement -- Warrant
Agreement" and Note 16 to the Consolidated Financial Statements.
(7) Reflects costs and charges associated with the issuance of the Senior
Notes. See Note 11 to the Consolidated Financial Statements.
(8) Operating earnings represents income before taxes, minority interest, and
extraordinary loss and excludes net gains (losses) on securities, MBS, and
other loans.
(9) Per share results have been restated to reflect an 1,800 to one Common
Stock conversion effective June 1996 in connection with the Restructuring.
See Note 21 to the Consolidated Financial Statements.
(10) Ratio, yield, and rate information are based on weighted average daily
balances for the six months ended March 31, 1996 and 1995 and fiscal 1995,
1994, and 1993 and average monthly balances for prior periods, with the
exception of return on average common equity, which is based on average
monthly balances for all periods presented. Interim rates and yields are
annualized.
(11) Regulatory capital ratios presented are those of the Bank. No regulatory
capital ratios are presented for the Company because there are no such
applicable requirements for savings and loan holding companies such as the
Company. For a discussion of the regulatory capital requirements applicable
to the Bank, see "Regulation -- Safety and Soundness Regulations -- Capital
Requirements".
(12) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets. Interest rate spread
represents the difference between the average yield on interest-earning
assets and the average rate on interest-bearing liabilities.
(13) Net operating expense ratio represents total non-interest expense less
total non-interest income as a percentage of average assets for each
period.
(14) Efficiency ratio represents non-interest expenses (excluding goodwill
amortization) divided by net interest income plus non-interest income,
excluding net gains (losses) on securities, MBS and other loans.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DISCUSSION OF RESULTS OF OPERATIONS
Overview.
Six Months Ended March 31, 1996 Compared to the Six Months Ended March 31,
1995. Net income was $26.8 million for the six months ended March 31, 1996,
compared to $23.7 million for the six months ended March 31, 1995. The increase
primarily reflects the higher levels of interest-earning assets for the six
months ended March 31, 1996, partially offset by the effect of increased
dividends paid by the Bank on the Bank Preferred Stock (reflected as minority
interest on the Consolidated Statements of Operations) and lower gains on sales
of single family MSRs and single family warehouse loans. Loan servicing fees and
charges decreased during the six months ended March 31, 1996 as compared to the
six months ended March 31, 1995. As of March 31, 1996, the principal balances of
the single family servicing portfolio was $11.6 billion.
Operating earnings represents income before taxes, minority interest, and
extraordinary losses and excludes net gains (losses) on securities, MBS, and
other loans. Operating earnings were $55.0 million for the six months ended
March 31, 1996, compared to $48.8 million for the six months ended March 31,
1995. This increase primarily reflects the higher levels of interest-earning
assets, partially offset by a decrease in gains on sales of single family MSRs
and warehouse loans, as noted above.
1995 Compared to 1994. Net income was $41.7 million for fiscal 1995,
compared to $109.0 million for fiscal 1994. The decrease primarily reflects the
effect of a tax benefit of $58.2 million recognized in fiscal 1994 for the
expected utilization of NOLs under SFAS No. 109, a lower interest rate spread
realized on its interest-earning assets, lower gains on sales of securities and
MBS and higher provisions for credit losses in fiscal 1995. Net income for
fiscal 1995 was favorably impacted by the effect of higher levels of
interest-earning assets during fiscal 1995 compared to fiscal 1994 and an
increase in the single family servicing portfolio. The single family servicing
portfolio increased to $12.5 billion at September 30, 1995 compared to $8.9
billion at September 30, 1994, contributing to increased loan servicing fees and
charges during fiscal 1995.
Operating earnings were $91.3 million for fiscal 1995, compared to $75.5
million for fiscal 1994. This increase primarily reflects the higher levels of
interest-earning assets and increased loan servicing fees and charges, partially
offset by higher provisions for credit losses, as noted above.
1994 Compared to 1993. Net income was $109.0 million for fiscal 1994,
compared to $127.4 million for fiscal 1993. The decrease is primarily a result
of lower gains on sales of securities and MBS in fiscal 1994, unfavorable
changes in net interest rate spread and higher provisions for credit losses in
fiscal 1994. Net income for fiscal 1994 was favorably impacted by an increase in
the single family servicing portfolio. The single family servicing portfolio
increased to $8.9 billion at September 30, 1994, from $8.1 billion at September
30, 1993, contributing to increased loan servicing fees and charges during
fiscal 1994. Tax benefits of $58.2 million and $44.2 million were recognized in
fiscal 1994 and 1993, respectively, for the expected utilization of NOLs under
SFAS No. 109.
Operating earnings were $75.5 million for fiscal 1994, compared to $77.1
million for fiscal 1993. This decrease primarily reflects the effect of
unfavorable changes in the net interest rate spread and higher provisions for
credit losses, partially offset by increased loan servicing fees and charges, as
noted above.
26
<PAGE> 29
The following table sets forth a reconciliation of Bank and Company net
income.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------- ----------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BANK
Net income................................................... $41,358 $33,516 $ 62,708 $124,761 $163,671
Preferred stock dividends.................................... (9,126) (4,326) (10,600) (8,653) (6,537)
------- ------- -------- -------- --------
Net income available for Bank's common stock............... 32,232 29,190 52,108 116,108 157,134
Dividends to Company......................................... (3,810) (5,209) (6,409) (11,435) (15,224)
Payments in lieu of dividends................................ (224) (306) (377) (357) --
------- ------- -------- -------- --------
Undistributed income of Bank................................. 28,198 23,675 45,322 104,316 141,910
------- ------- -------- -------- --------
COMPANY
Dividends from Bank.......................................... 3,810 5,209 6,409 11,435 15,224
Interest expense............................................. (5,205) (5,202) (10,407) (10,177) (14,261)
Other (expense) income, net.................................. (44) (23) 395 3,396 (954)
Extraordinary loss........................................... -- -- -- -- (14,549)
------- ------- -------- -------- --------
Net (loss) income of Company without including
undistributed income of Bank............................. (1,439) (16) (3,603) 4,654 (14,540)
------- ------- -------- -------- --------
Consolidated net income(1)................................... $26,759 $23,659 $ 41,719 $108,970 $127,370
======= ======= ======== ======== ========
</TABLE>
- ---------------
(1) See Note 21 to the Consolidated Financial Statements for the effect of a
dividend paid and a tax benefit recorded during the third quarter of fiscal
1996 and other subsequent events.
Net Interest Income
Net interest income is based on the relative amounts of interest-earning
assets and interest-bearing liabilities and the spread between the yields earned
on assets and rates paid on liabilities. Net interest rate spread is affected by
changes in general market interest rates, including changes in the relationship
between short- and long-term interest rates (the yield curve), the effects of
periodic caps on the Bank's adjustable-rate mortgage and MBS portfolios and the
interest rate sensitivity position or "gap". The Bank has traditionally managed
its business to limit its overall exposure to changes in interest rates. See
"Business -- Business Strategy". Nevertheless, different aspects of its business
remain subject, in varying degrees, to risk from interest rate changes.
27
<PAGE> 30
AVERAGE BALANCES AND AVERAGE YIELDS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------------------ ----------------------
1996 1995 1995
-------------------------------- ------------------------------- ----------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE(3) BALANCE INTEREST RATE(3) BALANCE INTEREST
----------- -------- ------- ---------- -------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Short-term interest-earning
assets........................... $ 575,936 $ 17,360 5.93% $ 462,791 $ 14,415 6.16% $ 466,276 $ 29,675
Trading account assets............. 1,148 35 6.10 1,063 29 5.46 1,079 62
Securities(1)...................... 84,659 2,112 4.99 117,075 2,950 5.05 116,934 5,893
Mortgage-backed securities(1)...... 2,177,645 70,699 6.49 2,734,073 87,134 6.37 2,618,990 173,155
Loans(2)........................... 8,092,849 323,930 8.01 5,751,629 218,370 7.59 6,707,868 526,528
FHLB stock......................... 227,895 7,085 6.22 155,307 4,688 6.05 180,416 11,446
Covered Assets and related
assets........................... -- -- -- -- -- -- -- --
----------- -------- ---- ---------- -------- ---- ----------- --------
TOTAL INTEREST-EARNING ASSETS.... 11,160,132 421,221 7.55 9,221,938 327,586 7.10 10,091,563 746,759
Non-interest-earning assets......... 379,397 310,660 345,500
----------- ---------- -----------
Total assets..................... $11,539,529 $9,532,598 $10,437,063
=========== ========== ===========
INTEREST-BEARING LIABILITIES:
Deposits:
Transaction accounts............. $ 243,668 1,440 1.18 $ 228,716 1,694 1.49 $ 225,799 3,384
Insured money fund accounts...... 1,316,051 33,013 5.02 995,160 23,567 4.75 1,032,873 57,848
Savings accounts................. 145,427 1,883 2.59 193,759 2,620 2.71 171,308 4,715
Certificates of deposits......... 3,358,442 102,174 6.08 3,436,942 94,623 5.52 3,560,420 198,419
----------- -------- ---- ---------- -------- ---- ----------- --------
Total deposits................. 5,063,588 138,510 5.47 4,854,577 122,504 5.06 4,990,400 264,366
----------- -------- ---- ---------- -------- ---- ----------- --------
FHLB advances...................... 4,346,960 136,501 6.18 3,068,768 92,281 5.95 3,560,844 224,767
Reverse repurchase agreements and
federal funds purchased.......... 982,169 29,073 5.82 675,452 19,973 5.85 888,453 53,220
Note payable to related party...... -- -- -- -- -- -- -- --
Long-term debt..................... -- -- -- -- -- -- -- --
Senior Notes....................... 115,000 5,205 9.05 115,000 5,202 9.05 115,000 10,407
Other.............................. -- -- -- -- -- -- -- --
----------- -------- ---- ---------- -------- ---- ----------- --------
TOTAL INTEREST-BEARING
LIABILITIES.................... 10,507,717 309,289 5.89 8,713,797 239,960 5.49 9,554,697 552,760
Non-interest-bearing liabilities
and stockholders' equity......... 1,031,812 818,801 882,366
----------- ---------- -----------
Total liabilities and
stockholders' equity........... $11,539,529 $9,532,598 $10,437,063
=========== ========== ===========
Net interest income/interest rate
spread............................. $111,932 1.66% $ 87,626 1.61% $193,999
======== ==== ======== ==== ========
Net yield on interest-earning
assets............................. 2.00% 1.92%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................ 1.06 1.06 1.06
--- --- ---
--- --- ---
<CAPTION>
1994 1993
------------------------------ ------------------------------
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------ ---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Short-term interest-earning
assets........................... 6.36% $ 461,530 $ 19,019 4.12 % $ 408,972 $ 14,301 3.50 %
Trading account assets............. 5.75 1,026 (144) (14.04) 176,617 6,224 3.52
Securities(1)...................... 5.04 108,751 5,007 4.60 1,707 63 3.69
Mortgage-backed securities(1)...... 6.61 2,595,163 151,972 5.86 1,336,709 83,525 6.25
Loans(2)........................... 7.85 4,524,158 308,804 6.83 4,488,405 344,515 7.68
FHLB stock......................... 6.34 132,277 5,558 4.20 89,927 3,095 3.44
Covered Assets and related
assets........................... -- 74,547 4,490 6.02 469,742 30,767 6.55
---- ---------- -------- ------ ---------- -------- -----
TOTAL INTEREST-EARNING ASSETS.... 7.40 7,897,452 494,706 6.26 6,972,079 482,490 6.92
Non-interest-earning assets......... 386,175 346,698
---------- ----------
Total assets..................... $8,283,627 $7,318,777
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Transaction accounts............. 1.50 $ 237,537 3,753 1.58 $ 230,649 4,843 2.10
Insured money fund accounts...... 5.60 582,126 18,508 3.18 476,835 13,471 2.83
Savings accounts................. 2.75 284,885 7,311 2.57 341,785 7,055 2.06
Certificates of deposits......... 5.57 3,662,043 179,462 4.90 3,816,152 200,614 5.26
---- ---------- -------- ------ ---------- -------- -----
Total deposits................. 5.30 4,766,591 209,034 4.39 4,865,421 225,983 4.64
---- ---------- -------- ------ ---------- -------- -----
FHLB advances...................... 6.31 2,285,630 91,060 3.98 1,344,129 48,594 3.62
Reverse repurchase agreements and
federal funds purchased.......... 5.99 274,666 10,574 3.85 346,009 11,180 3.23
Note payable to related party...... -- -- -- -- 3,595 601 16.72
Long-term debt..................... -- -- -- -- 63,715 10,214 16.03
Senior Notes....................... 9.05 115,000 10,177 8.85 42,806 3,446 8.05
Other.............................. -- 3,350 79 2.36 11,123 813 7.31
---- ---------- -------- ------ ---------- -------- -----
TOTAL INTEREST-BEARING
LIABILITIES.................... 5.79 7,445,237 320,924 4.31 6,676,798 300,831 4.51
Non-interest-bearing liabilities
and stockholders' equity......... 838,390 641,979
---------- ----------
Total liabilities and
stockholders' equity........... $8,283,627 $7,318,777
========== ==========
Net interest income/interest rate
spread............................. 1.61% $173,782 1.95 % $181,659 2.41 %
==== ======== ====== ======== =====
Net yield on interest-earning
assets............................. 1.92% 2.20 % 2.61 %
==== ====== =====
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................ 1.06 1.04
--- ---
--- ---
</TABLE>
- ---------------
(1) For purposes of computing yields, the effects of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", have been excluded
from the average balances.
(2) Includes nonaccrual loans.
(3) Annualized.
28
<PAGE> 31
The following table analyzes net interest income in terms of changes in the
volume of interest-earning assets and interest-bearing liabilities and changes
in yields and rates. The table reflects the extent to which changes in the
interest income and interest expense are attributable to changes in volume
(changes in volume multiplied by prior year rate) and changes in rate (changes
in rate multiplied by prior year volume). Changes attributable to the combined
impact of volume and rate have been allocated proportionately to changes due to
volume and changes due to rate.
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------- ---------------------------------------------------------------
1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
----------------------------- ------------------------------ ------------------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
-------- ------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Short-term interest-earning
assets.................... $ 3,496 $ (551) $ 2,945 $ 198 $ 10,458 $ 10,656 $ 1,984 $ 2,734 $ 4,718
Trading account assets...... 2 4 6 (7) 213 206 (1,058) (5,310) (6,368)
Securities.................. (801) (37) (838) 390 496 886 4,924 20 4,944
Mortgage-backed
securities................ (18,037) 1,602 (16,435) 1,418 19,765 21,183 73,970 (5,523) 68,447
Loans....................... 93,144 12,416 105,560 166,278 51,446 217,724 2,725 (38,436) (35,711)
FHLB stock.................. 2,266 131 2,397 2,453 3,435 5,888 1,677 786 2,463
Covered Assets and related
assets.................... -- -- -- (4,490) -- (4,490) (23,971) (2,306) (26,277)
-------- ------- -------- -------- -------- -------- -------- -------- --------
Total................. 80,070 13,565 93,635 166,240 85,813 252,053 60,251 (48,035) 12,216
-------- ------- -------- -------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Deposits.................... 5,554 10,452 16,006 10,219 45,113 55,332 (4,640) (12,309) (16,949)
FHLB advances............... 40,476 3,744 44,220 65,246 68,461 133,707 37,186 5,280 42,466
Reverse repurchase
agreements and federal
funds purchased........... 9,189 (89) 9,100 34,151 8,495 42,646 (2,535) 1,929 (606)
Note payable to related
party..................... -- -- -- -- -- -- (601) -- (601)
Long-term debt.............. -- -- -- -- -- -- (10,214) -- (10,214)
Senior Notes................ -- 3 3 -- 230 230 6,357 374 6,731
Other....................... -- -- -- (79) -- (79) (373) (361) (734)
-------- ------- -------- -------- -------- -------- -------- -------- --------
Total................. 55,219 14,110 69,329 109,537 122,299 231,836 25,180 (5,087) 20,093
-------- ------- -------- -------- -------- -------- -------- -------- --------
NET CHANGE IN NET INTEREST
INCOME.................... $ 24,851 $ (545) $ 24,306 $ 56,703 $(36,486) $ 20,217 $ 35,071 $(42,948) $ (7,877)
======== ======= ======== ======== ======== ======== ======== ======== ========
</TABLE>
Six Months Ended March 31, 1996 Compared to the Six Months Ended March 31,
1995. Net interest income increased $24.3 million or 28% to $111.9 million for
the six months ended March 31, 1996, compared to $87.6 million for the six
months ended March 31, 1995. The increase in net interest income is primarily
attributable to a $1.9 billion, or 21%, increase in average interest-earning
assets and, to a lesser extent, to a five basis point increase in the net
interest rate spread.
Interest-earning assets are primarily comprised of single family mortgage
loans and MBS. Interest-bearing liabilities primarily include deposits and FHLB
advances. The increase in average interest-earning assets during the six months
ended March 31, 1996 can be principally attributed to single family loan
purchases during the second half of fiscal 1995, approximating $1.9 billion. The
increase in average interest-earning assets was funded primarily with FHLB
advances and reverse repurchase agreements. See "-- Discussion of Financial
Condition".
Approximately 79% of the Company's interest-earning assets at March 31,
1996 were adjustable-rate assets, a portion of which are tied to indices that
normally lag the changes in market interest rates. Substantially all of the
Company's adjustable-rate assets are subject to periodic and/or lifetime
interest rate caps. Periodic caps limit the amount by which the interest rate on
a particular mortgage loan may increase at its next interest rate reset date. In
a rising-rate environment, the interest rate spread may be negatively
29
<PAGE> 32
impacted when the repricing of interest-earning assets is limited by caps on
periodic interest rate adjustments, compared to market interest rate movements.
The periodic caps on loans and MBS with adjustable rates limited the
increase in income relative to the cost of deposits and borrowings, as market
interest rates increased during the six months ended March 31, 1995. Net
interest rate spread for the six months ended March 31, 1996 reflects an
improvement over the six months ended March 31, 1995 due to a lessening of the
impact of caps as market interest rates began to level off during the first six
months of fiscal 1996. As of March 31, 1996, substantially all of the mortgages
subject to caps would have no limitation on their next scheduled rate reset. The
net interest rate spread was also positively impacted during the six months
ended March 31, 1996 due to higher yields earned on loans purchased in the later
part of fiscal 1995.
1995 Compared to 1994. Net interest income increased $20.2 million, or
12%, to $194.0 million for fiscal 1995, compared to $173.8 million for fiscal
1994. Average interest-earning assets increased $2.2 billion, or 28%, during the
period, principally attributed to single family loan purchases during the second
half of fiscal 1995. The increase in average interest-earning assets was funded
primarily with FHLB advances and reverse repurchase agreements. Increased net
interest income resulting from higher volumes of interest-earning assets was
offset, to some extent, by unfavorable changes in the net spread between the
yield on interest-earning assets and cost of funds. The net interest rate spread
decrease of 34 basis points was the result of the rapid rise in market interest
rates during the early part of fiscal 1995. Increases in market interest rates
and the effect of lagging rate indices and caps on adjustable-rate assets and
the sale of higher yielding assets in fiscal 1994 all contributed to the drop in
net interest rate spread.
1994 Compared to 1993. Net interest income decreased $7.9 million, or 4%,
to $173.8 million for fiscal 1994, compared to $181.7 million for fiscal 1993.
This decrease was principally the result of unfavorable changes in net spread
between the yield on interest-earning assets and the cost of funds. Net interest
rate spread decreased 46 basis points primarily as a result of a reduction in
the yield on interest-earning assets from the sales and securitizations of high
yielding assets. In connection with the securitization of loans from the Bank's
own portfolio, the Bank sold the higher-yielding subordinated classes and
retained the lower-yielding, higher quality securities. Although general market
rates increased during the later portion of fiscal 1994, proceeds from sales and
increased prepayments could not be reinvested at the same rates as the assets
sold or prepaid. Partially offsetting the decrease in net interest rate spread
was a $925.4 million, or 13%, increase in average interest-earning assets during
fiscal 1994 reflecting growth in the loan and MBS portfolios, funded primarily
with FHLB advances.
Provision for Credit Losses
Six Months Ended March 31, 1996 Compared to the Six Months Ended March 31,
1995. The provision for credit losses increased to $5.9 million for the six
months ended March 31, 1996 from $4.2 million for the six months ended March 31,
1995. Loss experience on the unsecured consumer line of credit portfolio
resulted in increased consumer provisions of $3.0 million for the six months
ended March 31, 1996, compared to $1.8 million for the six months ended March
31, 1995, reflecting increased volume and increased charge-offs. Consumer loans
increased to $130.4 million at March 31, 1996, from $109.4 million at March 31,
1995, while consumer charge-offs increased to $3.0 million for the six months
ended March 31, 1996, from $1.2 million for the six months ended March 31, 1995.
See "-- Asset Quality" and Note 5 to the Consolidated Financial Statements.
1995 Compared to 1994. The provision for credit losses increased to $24.3
million for fiscal 1995 compared to $7.0 million for fiscal 1994. This increase
primarily resulted from increased provisions for credit losses for single family
loans, which increased to $18.5 million for fiscal 1995 compared to $2.4 million
for fiscal 1994, primarily as a result of an increase in the single family loans
portfolio to $7.1 billion at September 30, 1995 from $4.2 billion at September
30, 1994, which included loan purchases totaling $2.7 billion and originations
retained for portfolio of $1.0 billion during fiscal 1995. The growth in the
consumer lending business and loss experience on the unsecured consumer line of
credit portfolio also increased consumer provisions to $4.2 million for fiscal
1995, from $2.8 million for fiscal 1994. Consumer loans increased to $123.1
million at September 30, 1995, from $108.2 million at September 30, 1994, while
30
<PAGE> 33
consumer charge-offs increased to $2.8 million for fiscal 1995, from $1.3
million for fiscal 1994. See "-- Asset Quality" and Note 5 to the Consolidated
Financial Statements.
1994 Compared to 1993. The provision for credit losses increased to $7.0
million for fiscal 1994 compared to $4.1 million for fiscal 1993. The higher
provision during fiscal 1994 is due primarily to the growth in the consumer
lending business and loss experience on the unsecured consumer line of credit
portfolio. Consumer loans increased to $108.2 million at September 30, 1994,
from $57.9 million at September 30, 1993, and the consumer provision increased
to $2.8 million for fiscal 1994 from $264,000 for fiscal 1993. Consumer
charge-offs increased to $1.4 million for fiscal 1994 from $72,000 for fiscal
1993. Although single family loan purchases totaled $1.4 billion for fiscal 1994
and originations retained for portfolio were $1.3 billion for fiscal 1994, the
effect of these purchases and originations on the provision for credit losses
was partially offset by the effect of securitizations of $1.2 billion of loans
into MBS. The securitization process resulted in lower allowance requirements
because of the credit enhancement as a result of selling the subordinated
securities. See "-- Asset Quality" and Note 5 to the Consolidated Financial
Statements.
Non-Interest Income
Non-interest income includes gains from sales of single family servicing
rights and single family warehouse loans, gains (losses) on securities and MBS,
gains (losses) on other loans, loan servicing fees and charges, and other fees
and charges.
NON-INTEREST INCOME AND PRINCIPAL SOLD
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
------------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NON-INTEREST INCOME
Net gains (losses)
Sales of single family
servicing rights............ $ -- $ 28,304 $ 34,080 $ 67,198 $ 63,257
Single family warehouse
loans....................... 19,157 10,160 26,415 (3,912) 4,146
---------- ---------- ---------- ---------- ----------
19,157 38,464 60,495 63,286 67,403
Securities and mortgage-backed
securities.................. 2,863 8 26 10,404 43,702
Other loans................... 3,485 (380) (1,210) 163 1,496
Loan servicing fees and
charges....................... 22,107 22,813 43,508 31,741 21,780
Other fees and charges........... 6,997 5,748 12,162 13,295 12,310
---------- ---------- ---------- ---------- ----------
Total non-interest
income................. $ 54,609 $ 66,653 $ 114,981 $ 118,889 $ 146,691
========= ========= ========= ========= =========
PRINCIPAL SOLD
MSRs............................. $ 875,235 $2,028,813 $2,854,114 $4,521,491 $4,572,361
Single family warehouse loans.... 1,516,799 902,509 2,100,662 4,786,413 6,244,262
</TABLE>
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31,
1995. Non-interest income was $54.6 million for the six months ended March 31,
1996 compared to $66.7 million for the six months ended March 31, 1995,
resulting in a decrease of $12.1 million. During the six months ended March 31,
1996 and 1995, $875.2 million and $2.0 billion, respectively, of single family
MSRs were sold. The decrease in single family servicing sales during the six
months ended March 31, 1996 reflects management's decision to retain a greater
portion of MSRs in response to the implementation of SFAS No. 122, "Accounting
for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65". See
"Business -- Loan Servicing Portfolio". The 1995 period includes substantial
gains on sales of servicing rights originated in prior years. Excluding gains
from sales of single family MSRs and single family warehouse loans, non-interest
income increased $7.3 million for the six months ended March 31, 1996 compared
to the six months ended March 31, 1995, primarily due to increased gains on
sales of securities and MBS and other loans.
31
<PAGE> 34
Gains on sales of single family warehouse loans were $19.2 million during
the six months ended March 31, 1996, compared to $10.2 million during the six
months ended March 31, 1995, reflecting an increase in the volume of single
family warehouse loans sold.
Net gains on securities and MBS were $2.9 million and $8,000 for the six
months ended March 31, 1996 and 1995, respectively. During the six months ended
March 31, 1996, the net gains on MBS were from the sale of $198.8 million of
MBS. See "-- Discussion of Financial Condition".
Net gains (losses) on other loans were $3.5 million and $(380,000) for the
six months ended March 31, 1996 and 1995, respectively. During the six months
ended March 31, 1996, the Bank sold $93.7 million of single family loans held by
the Financial Markets Group for a gain of $1.5 million and $164.5 million of
multi-family loans for a gain of $2.6 million. See "-- Discussion of Financial
Condition".
During the six months ended March 31, 1996 loan servicing fees and charges
decreased $706,000, or 3% from the prior year period. This decrease is due to a
slight decrease in the portfolio of single family loans serviced for others,
$6.4 billion at March 31, 1996 compared to $6.9 billion at March 31, 1995.
Other fees and charges were $7.0 million in the first six months of fiscal
1996 compared to $5.7 million in the first six months of fiscal 1995. The
increase was primarily due to growth in mutual fund and annuity sales. The
growth in these alternative products reflected the low interest rate
environment, more experienced salespeople, and increased marketing of those
products.
1995 Compared to 1994. Non-interest income was $115.0 million for fiscal
1995, a $3.9 million decrease from $118.9 million for fiscal 1994. This decrease
is attributable, in part, to a $2.8 million decrease in gains on sales of single
family MSRs and single family warehouse loans which were $60.5 million and $63.3
million, respectively, for fiscal 1995 and 1994.
In September 1995, the Company adopted SFAS No. 122, effective October 1,
1994. This statement requires that, among other things, the book value of
mortgage loans be allocated at the time of origination between the MSRs and the
related loans, provided there is a plan to sell or securitize such loans. With
the implementation of SFAS No. 122, the original cost basis of the loan is
allocated between the loan and the MSRs, thus increasing the gains on sales of
loans and reducing the gains on sales of MSRs.
The implementation of SFAS No. 122 resulted in the capitalization of $28.7
million of originated MSRs during fiscal 1995 and an increase to net income and
stockholders' equity of $9.8 million. This implementation also had the effect of
decreasing the gains on sales of single family MSRs by $17.7 million and
increasing the gains on single family warehouse loans by $34.6 million.
Excluding the effects of implementing SFAS No. 122, the gains on sales of single
family MSRs and the gains (losses) on single family warehouse loans would have
been $51.8 million and $(8.2) million, respectively. In accordance with the
requirements of SFAS No. 122, the prior year amounts have not been restated. See
Notes 1 and 6 to the Consolidated Financial Statements.
Excluding the effects of SFAS No. 122 in fiscal 1995, the gains on single
family MSRs were $51.8 million, compared to $67.2 million for fiscal 1994.
During fiscal 1995, single family MSRs were sold at an average premium of 181
basis points, compared to 149 basis points during fiscal 1994. The average
premiums on MSRs sold in fiscal 1994 were lower compared to fiscal 1995,
reflecting the lower interest rate environment during the first half of fiscal
1994. The rise in market interest rates during the second half of fiscal 1994,
and continuing through the beginning of fiscal 1995 had a positive effect on the
average premiums on servicing rights sold, reflecting an increase in the value
of the servicing portfolio due to actual and anticipated declines in
prepayments. The increase in interest rates during the second half of fiscal
1994 and during fiscal 1995 resulted in a decrease in originations. The decrease
in originations and the retention of a greater proportion of originated loans
for the Bank's own portfolio decreased the volume of MSRs available for sale
during fiscal 1995.
Excluding the effects of SFAS No. 122 in fiscal 1995, the gains (losses) on
single family warehouse loans were $(8.2) million in fiscal 1995 and $(3.9)
million in 1994. The decrease reflects the increasingly competitive pricing in
the market during that period and decreased volumes sold.
32
<PAGE> 35
Net gains on securities and MBS were $26,000 and $10.4 million for fiscal
1995 and 1994, respectively. The gains in fiscal 1994 primarily relate to the
sale of $213.0 million of MBS created when the Bank securitized single family
loans from its own portfolio.
Loan servicing fees and charges increased $11.8 million, or 37%, during
fiscal 1995 compared to fiscal 1994. The increase was due primarily to an
increase in the portfolio of single family loans serviced for others and an
increase in the average fees collected on those loans due to a change in the
composition of that portfolio. The portfolio of single family loans serviced for
others increased to $7.2 billion at September 30, 1995, compared to $4.7 billion
at September 30, 1994, primarily due to loan originations and purchases of MSRs.
See "-- Discussion of Financial Condition". The increase in the single family
loan servicing portfolio during fiscal 1995 includes $3.4 billion of loans
associated with MSRs purchased in fiscal 1994 that were not transferred to the
Bank until fiscal 1995 and were not included in the portfolio as of September
30, 1994. See Note 6 to the Consolidated Financial Statements.
1994 Compared to 1993. Non-interest income was $118.9 million for fiscal
1994 compared to $146.7 million for fiscal 1993. This $27.8 million decrease is
primarily attributable to a $33.3 million decrease in gains on securities and
MBS partially offset by a $10.0 million increase in loan servicing fees and
charges.
Gains from sales of single family MSRs totaled $67.2 million in 1994, an
increase of $3.9 million, or 6%, from 1993. Although the dollar amount of single
family servicing sales decreased slightly to $4.5 billion in 1994 from $4.6
billion in 1993, the gains on sales of single family MSRs increased as a result
of an increase in the average servicing premium realized in such sales. The
average net servicing price was 149 basis points in 1994, up from 138 basis
points in 1993. During 1994, sales of single family MSRs were reduced and an
increased amount of originations were retained for the Company's own portfolio
along with the related MSRs, which contributed to the net increase of $847.5
million in the single family servicing portfolio in 1994. During 1994, the
single family servicing portfolio increased to $8.9 billion at September 30,
1994 from $8.1 billion at September 30, 1993. As of September 30, 1994, $3.4
billion of loans associated with the MSRs purchased in 1994 had not been
transferred to the Company and thus are not included in the single family
servicing portfolio balance of $8.9 billion.
The Company realized a net loss on single family warehouse loans of $3.9
million in fiscal 1994, compared to a net gain of $4.1 million in fiscal 1993,
primarily due to the increasingly competitive pricing in the market during
fiscal 1994. Additionally, volume sold decreased to $4.8 billion during fiscal
1994 as compared to $6.2 billion during fiscal 1993.
Gains on securities and MBS were $10.4 million in fiscal 1994 and $43.7
million in fiscal 1993. These gains relate to the sale of $213.0 million and
$359.4 million of MBS in fiscal 1994 and 1993, respectively, that were created
when the Bank securitized single family loans from its own portfolio. See
"-- Discussion of Financial Condition". The gains in 1993 reflect the
realization of gains on mortgages acquired at a substantial discount in
connection with the Acquisition.
Loan servicing fees and charges of $31.7 million in 1994 increased $10.0
million, or 46%, over 1993. The increase primarily reflects an increase in the
portfolio of single family loans serviced for others to $4.7 billion at
September 30, 1994 from $4.0 billion at September 30, 1993.
33
<PAGE> 36
Non-Interest Expense
Non-interest expense comprises the following significant items:
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Compensation and benefits............ $39,898 $ 43,192 $ 83,520 $ 86,504 $ 81,472
Occupancy............................ 9,439 9,072 18,713 17,196 15,971
Data processing...................... 8,120 8,116 16,360 15,821 15,072
Advertising and marketing............ 4,053 4,782 9,262 10,796 8,772
Amortization of intangibles.......... 9,801 10,718 21,856 18,247 24,469
SAIF deposit insurance premiums...... 6,129 5,630 11,428 11,329 10,162
Furniture and equipment.............. 3,128 3,219 6,428 6,810 5,535
Other................................ 18,736 16,916 27,009 32,890 40,511
------- -------- -------- -------- --------
Total non-interest expense...... $99,304 $101,645 $194,576 $199,593 $201,964
======= ======== ======== ======== ========
</TABLE>
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31,
1995. Non-interest expense was $99.3 million for the six months ended March 31,
1996 and $101.6 million for the six months ended March 31, 1995, or 1.72% and
2.13%, respectively, of average total assets for those same periods.
Compensation and benefits was the largest component of non-interest expense,
representing $39.9 million, or 40%, of total non-interest expense for the six
months ended March 31, 1996 and $43.2 million, or 42%, for the six months ended
March 31, 1995. Loan origination volume directly impacts the level of
compensation expense. Advertising expenses were also lower in the six months
ended March 31, 1996 compared to the six months ended March 31, 1995, reflecting
advertising expenses in connection with the introduction of community banking
products in the prior period. Reduced compensation and advertising expenses were
partially offset by increased other non-interest expenses. During the six months
ended March 31, 1996, $408,000 of gains on sales of real estate owned ("REO")
properties were recognized and included in other non-interest expense. Gains of
$1.7 million were recognized in the six months ended March 31, 1995.
1995 Compared to 1994. Non-interest expense was $194.6 million for fiscal
1995 compared to $199.6 million for fiscal 1994, or 1.86% and 2.41%,
respectively, of average total assets for those periods. Compensation and
benefits was $83.5 million for fiscal 1995 and $86.5 million for fiscal 1994, or
43% of total non-interest expense for both of these periods. Advertising
expenses were lower during fiscal 1995 reflecting the introduction of community
banking products in the prior year. During fiscal 1995 and 1994, $11.2 million
and $5.8 million of gains on sales of REO properties were recognized and
included in other non-interest expense. Amortization of intangibles increased in
fiscal 1995, reflecting increased amortization of MSRs due to servicing
acquisitions.
1994 Compared to 1993. Non-interest expense was $199.6 million for fiscal
1994 compared to $202.0 million for fiscal 1993, or 2.41% and 2.76%,
respectively, of average total assets for those periods. Compensation and
benefits was $86.5 million, or 43%, of total non-interest expense for fiscal
1994 and $81.5 million, or 40%, for fiscal 1993. Advertising expenses were
higher during fiscal 1994 due to advertising expenses in connection with the
introduction of community banking products during that period. During fiscal
1994, $5.8 million of gains on sales of REO properties were recognized and
included in other non-interest expense. Losses on sales of REO properties of
$120,000 were recognized in fiscal 1993. Amortization of intangibles decreased
in fiscal 1994 due to the reduction of goodwill; such a reduction is required
under SFAS No. 109 for tax benefits derived from acquisitions. See "Regulation
- -- Taxation".
34
<PAGE> 37
Income Taxes
The provision for income taxes is comprised of current federal income
taxes, deferred federal income taxes, state income taxes, and payments due in
lieu of taxes. The provision for income taxes was an expense of $25.3 million
and $20.2 million for the six months ended March 31, 1996 and 1995,
respectively, and an expense of $37.4 million in fiscal 1995, compared to
benefits of $31.9 million and $26.2 million in fiscal 1994 and 1993,
respectively. During fiscal 1994 and 1993, tax benefits of $58.2 million and
$44.2 million, respectively, were recorded. The benefits recorded reflect the
application of SFAS No. 109, which was implemented effective October 1, 1992.
Such benefits arose due to the expected utilization of net operating loss
carryforwards against future taxable income. No tax benefits were recorded in
fiscal 1995 or the first half of fiscal 1996. See Note 13 to the Consolidated
Financial Statements.
During the third quarter of fiscal 1996, the Company recorded a $101.7
million tax benefit for the expected utilization of NOLs against future taxable
income. See Note 21 to the Consolidated Financial Statements.
Minority Interest
Dividends on Bank Preferred Stock paid by the Bank increased to $9.1
million for the six months ended March 31, 1996 from $4.3 million for the six
months ended March 31, 1995, due to the Bank's issuance of Bank Preferred Stock,
Series B during the fourth quarter of fiscal 1995. These shares are not owned by
the Company and, accordingly, are reflected as minority interest in the
Consolidated Financial Statements. Certain of the Selling Stockholders and
certain directors and managers of the Company are owners of the Bank Preferred
Stock. See "Management -- Security Ownership of Certain Beneficial Owners and
Management -- Principal Stockholders, Bank Preferred Stock".
DISCUSSION OF FINANCIAL CONDITION
Overview
The Company, through its principal subsidiary, the Bank, operates a
broad-based financial services company. Historically, the Company focused on
traditional single family mortgage lending and deposit gathering, as well as
retail and wholesale mortgage banking activities. Over the past few years, the
Company's management has pursued a strategy designed to reduce the Bank's
reliance on its thrift and mortgage banking lines of business by developing
potentially higher margin community banking and commercial banking lines of
business. Over this time, the Company has increased its portfolio of
multi-family, residential construction, consumer and commercial loans and has
also increased the level of lower cost transaction and commercial deposit
accounts. In addition to its efforts to increase originations of commercial and
consumer loans, the Company plans to increase the retention of higher yielding
single family and multi-family mortgage loans that, in the past, may have
otherwise been sold or securitized.
35
<PAGE> 38
The following chart reflects activity in the MBS portfolio.
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance................ $2,398,263 $2,828,903 $2,828,903 $2,175,925 $ 833,425
Loans securitized.............. -- -- -- 1,182,172 572,582
Purchases...................... 3,841 38,515 38,745 667,298 1,212,592
Net change in unrealized gains
(losses) before tax......... 5,209 2,109 8,577 (71,815) 53,414
Sales.......................... (198,753) (77,646) (77,610) (212,954) (359,417)
Repayments..................... (251,481) (194,029) (406,710) (922,439) (330,270)
Transfers(1)................... -- -- -- -- 191,801
Other.......................... (3,009) 3,024 6,358 10,716 1,798
---------- ---------- ---------- ---------- ----------
Ending balance................... $1,954,070 $2,600,876 $2,398,263 $2,828,903 $2,175,925
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Principally related to the implementation of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". These securities were
transferred from the trading portfolio.
36
<PAGE> 39
The following chart reflects activity in the loan portfolio.
LOANS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------------- -----------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance............ $ 8,260,240 $5,046,174 $ 5,046,174 $ 4,862,379 $ 4,101,716
Originations
Single family(1)........ 1,945,434 1,453,267 3,226,324 5,424,550 6,645,096
Single family
residential
construction.......... 208,847 100,328 239,481 133,609 129,254
Consumer................ 53,570 41,734 99,249 94,153 64,742
Multi-family, commercial
real estate, and
business credit....... 146,309 162,897 307,636 230,995 60,489
Purchases
Single family........... 145,277 772,031 2,705,858 1,373,727 1,261,849
Consumer................ -- 68 68 24,982 9,133
Multi-family and
commercial real
estate................ 7,927 56,093 56,093 68,466 --
Net change in mortgage
banker finance line of
credit.................. 32,437 (76,009) (38,124) (238,223) 385,548
Repayments................. (1,109,850) (460,020) (1,192,156) (862,420) (957,327)
Securitized loans sold or
transferred(2).......... (1,335,333) (802,549) (1,864,313) (5,595,325) (6,439,835)
Sales...................... (452,211) (125,145) (308,612) (457,272) (402,029)
Other...................... (24,567) (7,437) (17,438) (13,447) 3,743
----------- ---------- ----------- ----------- -----------
Ending balance............... $ 7,878,080 $6,161,432 $ 8,260,240 $ 5,046,174 $ 4,862,379
=========== ========== =========== =========== ===========
</TABLE>
- ---------------
(1) Includes $493.2 million, $659.2 million, $1.0 billion, $1.3 billion, and
$529.0 million of loans originated for the Company's portfolio during the
six months ended March 31, 1996 and 1995, and during fiscal 1995, 1994, and
1993, respectively.
(2) Includes $1.3 billion, $802.5 million, $1.9 billion, $4.4 billion, and $5.9
billion of loans securitized by the mortgage banking segment and sold to
third parties during the six months ended March 31, 1996 and 1995 and during
fiscal 1995, 1994, and 1993, respectively.
1996 Activity. Total assets decreased by $716.9 million, or 6%, to $11.3 billion
at March 31, 1996 from $12.0 billion at September 30, 1995. This decrease
primarily resulted from loan and MBS sales and repayments.
Securities purchased under agreements to resell ("repurchase agreements")
and federal funds sold increased to $659.3 million at March 31, 1996 from $471.1
million at September 30, 1995. The increase primarily reflects the Company's
decision to borrow and invest funds on a short-term basis.
Securities decreased $57.6 million, to $58.4 million at March 31, 1996 from
$116.0 million at September 30, 1995 reflecting the sale of $67.4 million in
Treasury securities.
MBS decreased $444.2 million during the six months ended March 31, 1996,
primarily due to sales and repayments. During the six months ended March 31,
1996, the Company sold $198.8 million in MBS for a gain of $2.8 million,
compared to $77.6 million in sales for a gain of $5,000 during the six months
ended March 31, 1995. The increase in repayments resulted from a decline in
market interest rates.
37
<PAGE> 40
In November 1995, the Financial Accounting Standards Board (the "FASB")
issued "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities". This implementation guide provided
the Company the opportunity to reassess the appropriateness of the
classification of its securities. It further stated that reclassifications of
securities from the held to maturity category resulting from this one-time
reassessment would not call into question the intent to hold other securities to
maturity in the future. During the first quarter of fiscal 1996, the Company
reassessed its securities portfolios and reclassified $1.2 billion in MBS from
the held to maturity portfolio to the available for sale portfolio. An
unrealized gain of $4.2 million before tax, or $2.6 million after tax, was
recorded in stockholders' equity as a result of this transfer. At March 31, 1996
and 1995, the Company had unrealized losses on securities and MBS available for
sale, net of tax, of $3.1 million and $11.8 million, respectively. See Note 4 to
the Consolidated Financial Statements.
During the six months ended March 31, 1996, total loans decreased $382.2
million, primarily due to sales and repayments. During this period, the Bank
sold $93.7 million of single family portfolio loans for a gain of $1.5 million
and $164.5 million of multi-family loans for a gain of $2.6 million.
The increase in single family loan originations during the six months ended
March 31, 1996 resulted from a decline in market interest rates in comparison to
a year ago. The decline in market interest rates prompted borrowers to refinance
their mortgages at lower rates of interest, resulting in an increase in
repayments as well as in single family mortgage loan originations. Refinancings
approximated $831.4 million and $214.2 million, or 41%, and 14% of total single
family mortgage loan originations during the six months ended March 31, 1996 and
1995, respectively. While fundings of multi-family, commercial real estate and
business credit loans decreased $16.6 million during the six months ended March
31, 1996 as compared to the six months ended March 31, 1995, commitments to fund
multi-family loans increased $42.7 million or 58%, to $116.7 million for the six
months ended March 31, 1996, as compared to $74.0 million for the six months
ended March 31, 1995. At March 31, 1996, $64.5 million of multi-family loan
commitments had not yet been funded. The increase in commitments to fund
multi-family loans, as well as the increase in residential construction loan
originations during the six months ended March 31, 1996, as compared to the six
months ended March 31, 1995, reflects the geographic expansion of these
products.
Increased consumer loan originations during the six months ended March 31,
1996 as compared to the six months ended March 31, 1995 are primarily due to
increased home improvement loan originations evidencing increased marketing
efforts.
The decline in market interest rates during the six months ended March 31,
1996 resulted in a $32.4 million increase, to $141.8 million at March 31, 1996,
in the MBF line of credit portfolio.
Single family loan purchases were $145.3 million during the six months
ended March 31, 1996, compared to $772.0 million during the six months ended
March 31, 1995. The decrease in purchases reflects a decrease in available
products at attractive yields.
In the aggregate, FHLB advances, reverse repurchase agreements and federal
funds purchased decreased $467.5 million to $5.1 billion at March 31, 1996 from
$5.6 billion at September 30, 1995, reflecting a reduction in the Bank's asset
base.
The decrease in commercial deposits, as well as the decrease in advances
from borrowers for taxes and insurance, reflects the payment of property taxes
during the six months ended March 31, 1996. See "Business -- Commercial Banking
Group -- Mortgage Banker Finance". Consumer and wholesale deposits also
decreased, primarily due to maturities of certificates of deposit that were not
renewed.
1995 Activity. Total assets increased to $12.0 billion at September 30,
1995 from $8.9 billion at September 30, 1994, reflecting an increase of $3.1
billion. The majority of this increase occurred in the loan portfolio, primarily
as a result of single family adjustable-rate loan originations retained for the
Bank's portfolio and purchases of single family loans.
38
<PAGE> 41
Repurchase agreements and federal funds sold increased to $471.1 million at
September 30, 1995 from $358.7 million at September 30, 1994. The increase
primarily reflected the Company's decision to borrow and invest funds on a
short-term basis.
MBS decreased $430.6 million during fiscal 1995, primarily due to
repayments of $406.7 million. The decrease in purchases to $38.7 million for
fiscal 1995 from $667.3 million for fiscal 1994 reflected lower yields available
in the marketplace on MBS during fiscal 1995. The decreased volume of MBS sales,
to $77.6 million for fiscal 1995 as compared to $213.0 million during fiscal
1994, primarily resulted from reduced sales of securitized assets. There were no
loans securitized during fiscal 1995, as compared to $1.2 billion securitized
during fiscal 1994. The $515.7 million decrease in repayments for fiscal 1995,
as compared to fiscal 1994, reflected a decrease in prepayments resulting
primarily from rising interest rates, beginning in the second half of fiscal
1994.
At September 30, 1995 and 1994, unrealized losses on securities and MBS
available for sale, net of tax, were $6.6 million and $13.4 million,
respectively. The decrease resulted principally from a decline in market prices
due to increased interest rates in the second half of fiscal 1994 and
prepayments of certain high yielding securities. See Note 4 to the Consolidated
Financial Statements.
During fiscal 1995, loans increased $3.2 billion, primarily as a result of
the retention of single family adjustable-rate loan originations for the Bank's
portfolio and purchases of single family loans.
While the total loan portfolio increased, single family loan originations
decreased $2.2 billion, or 41%, in fiscal 1995 compared to fiscal 1994 and $1.2
billion, or 18%, in fiscal 1994 compared to fiscal 1993. The decrease in single
family loan originations during fiscal 1995 and 1994 can be attributed to higher
interest rates during those periods leading to a decline in mortgage loan
refinance activity during fiscal 1995 and 1994. Refinancings approximated $600.6
million and $2.0 billion, or 17% and 37%, respectively, of total originations in
fiscal 1995 and 1994. Despite lower origination volumes, the Bank retained a
greater percentage of originations for its portfolio due to an increase in the
proportion of adjustable-rate loans as compared to fixed-rate loans originated
by the mortgage banking segment. During fiscal 1995, 30% of single family loan
originations were retained for portfolio, as compared to 24% in fiscal 1994. The
higher market interest rates also resulted in a decline in the MBF line of
credit portfolio.
During fiscal 1994 and 1995, despite the decline in single family mortgage
loan originations, the Bank's single family loan portfolio increased as a result
of purchases from third parties. The Bank also began retaining a larger
percentage of its single family mortgage loan originations for its portfolio
than it had historically. While purchases of single family loans increased
during these periods, purchases of MBS decreased. During fiscal 1995, yields on
loan purchases were higher than yields on MBS purchased. During fiscal 1995,
$2.7 billion of single family loans yielding 8.46% were purchased, including a
$1.3 billion purchase consisting of adjustable-rate loans, compared to $38.7
million of MBS purchased at a yield of 5.93%.
Increased single family residential construction, multi-family, and
commercial real estate loan originations in fiscal 1995 reflect geographic
expansion of these products.
Total deposits increased $418.0 million, to $5.2 billion at September 30,
1995, from $4.8 billion at September 30, 1994. The majority of the increase is
due to an increase in commercial deposits from MBF customers, reflecting the
Bank's effort to build its customer base for this type of deposit.
In the aggregate, FHLB advances, reverse repurchase agreements, and federal
funds purchased increased to $5.6 billion at September 30, 1995 from $3.2
billion at September 30, 1994, primarily to fund asset originations and
purchases. In connection with the increase in FHLB advances, FHLB stock was
purchased to maintain the required balance of such stock. The Bank is in
compliance with such stock requirements at September 30, 1995.
During fiscal 1995, the Bank issued the Bank Preferred Stock, Series B.
Costs incurred in connection with the stock issuance were recorded as a
reduction to paid-in capital. The Bank's total capital was increased by $96.2
million as a result of the Offering.
39
<PAGE> 42
1994 Activity. Total assets increased $469.6 million to $8.9 billion at
September 30, 1994 from $8.4 billion at September 30, 1993. The primary reason
for the increase was the Bank's acquisition of single family loans and MBS.
MBS increased during 1994, primarily as a result of the securitization of a
portion of the single family loan portfolio and from purchases. During fiscal
1994, $1.2 billion of single family portfolio loans were securitized by the
Company. See Note 4 to the Consolidated Financial Statements. The securitization
process created $1.2 billion in MBS. The securitization process created both
senior and subordinated MBS. Approximately $39.1 million of MBS, which were the
subordinate portions of the securitizations, were sold. The MBS that were
created and retained were rated in one of the two highest rating categories by
the rating agencies of Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc.
Unrealized losses on securities and MBS available for sale, net of tax,
resulted in an unrealized loss of $13.4 million at September 30, 1994, down from
an unrealized gain of $33.4 million at September 30, 1993. This decrease
resulted principally from a decline in market prices due to increased interest
rates in the second half of fiscal 1994, sales of certain securities with gains,
and prepayments of certain high yielding securities. See Notes 3 and 4 to the
Consolidated Financial Statements.
Loans also increased during 1994, principally due to originations and
purchases of single family and multi-family loans. Single family loan
originations, however, decreased $1.2 billion, or 18%, as compared to the prior
year. Conversely, multi-family originations increased $170.5 million compared to
the prior year. During 1994, the Bank retained $1.3 billion of single family
loan originations for the held to maturity portfolio. These increases in the
portfolio were offset by loan sales and with the securitization of single family
loans during the year, as discussed above. The effect of lower refinance
activity resulting from higher interest rates during the second half of 1994
contributed to the decrease in single family loan originations, and a lower MBF
line of credit portfolio.
MSRs increased $46.0 million to $56.7 million at September 30, 1994 from
$10.7 million at September 30, 1993. During 1994, the Bank acquired or entered
into contracts to acquire MSRs associated with $3.9 billion in single family
loans at a premium of $50.9 million and $31.2 million in multi-family loans at a
premium of $59,000. See Note 6 to the Consolidated Financial Statements.
On December 23, 1993, the Bank entered into the Settlement Agreement
providing, among other things, for the termination of the Assistance Agreement
and the disposition of all remaining Covered Assets (as defined below). Covered
Assets and related assets decreased $392.5 million during 1994. For a
description of the Settlement Agreement, see "Business -- The Assistance
Agreement" and Note 7 to the Consolidated Financial Statements.
Other assets increased $84.6 million during 1994 primarily due to an
increase in the Company's deferred tax asset as a result of the recognition of
additional tax benefits. See Note 13 to the Consolidated Financial Statements.
Total deposits decreased $75.2 million during fiscal 1994. Retail deposits
decreased $390.9 million to $3.9 billion at September 30, 1994, from $4.3
billion at September 30, 1993. The Company's pricing strategy decreased rates
offered on deposits, resulting in an increase in the runoff of the Company's
certificates of deposits ("CDs"). Offsetting the decrease in retail deposits was
a $402.5 million increase in commercial deposits primarily due to the
introduction of commercial banking services (i.e. cash management and deposit
services) to the Company's MBF customers during 1994.
FHLB advances, reverse repurchase agreements, and federal funds purchased
increased to $3.2 billion at September 30, 1994 from $2.5 billion at September
30, 1993, primarily to fund asset originations and purchases and to replace
reduced deposit balances.
ASSET QUALITY
The Company, like all financial institutions, is exposed to certain credit
risks related to the value of the collateral that secures loans held in its
portfolio and the ability of borrowers to repay their loans during the
40
<PAGE> 43
term thereof. The Bank has a Credit Committee, which is comprised of senior
officers of the Bank, that closely monitors the loan and REO portfolios for
potential problems on a continuing basis and reports to the Board of Directors
of the Bank at regularly scheduled meetings.
The Bank also has established an Asset Classification Committee, which is
comprised of senior management. This committee reviews the classification of
assets and reviews the allowance for losses. This committee reviews all assets
and periodically reports its findings directly to the Board of Directors of the
Bank. The asset classification policy sets forth certain requirements with
respect to how to classify certain assets. The Bank also has an Asset Review
Department, the function of which is to provide to the Board of Directors of the
Bank an independent ongoing review and evaluation of the quality of assets.
Nonperforming assets consist of nonaccrual loans and REO. Loans are usually
placed on nonaccrual status when the loan is past due 90 days or more, or the
ability of a borrower to repay principal and interest is in doubt. The portion
of the purchase discount attributable to potential credit risk on certain
acquired delinquent single family loans is treated as non-accretable discount.
The Bank believes that these purchase discounts are sufficient to cover losses
from these portfolios and to provide a market rate of return. At September 30,
1994 and 1993, nonaccrual loans included $5.7 million and $9.0 million of single
family loans 90 days delinquent that were subject to government guaranty and
upon which interest continued to accrue. There were no such loans at March 31,
1996 and September 30, 1995. At March 31, 1996 and September 30, 1995, single
family nonaccrual loans included $10.1 million and $10.2 million, respectively,
of loans which were contractually current pursuant to the borrowers'
court-approved bankruptcy plans.
The following tables present the Company's nonperforming assets.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ----------------------------------
1996 1995 1994 1993
------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans
Single family(1)............................ $101,936 $ 83,954 $ 85,722 $ 61,451
Single family residential construction...... 35 505 -- --
Consumer.................................... 745 563 506 427
Multi-family................................ 510 213 3,802 3,233
Commercial real estate...................... 488 -- 2,342 --
-------- -------- -------- --------
103,714 85,235 92,372 65,111
-------- -------- -------- --------
(Discounts)/Premiums
Accretable(2)............................... (449) (560) (669) (781)
Non-accretable.............................. (7,246) (9,167) (15,384) (22,684)
-------- -------- -------- --------
(7,695) (9,727) (16,053) (23,465)
-------- -------- -------- --------
Net nonaccrual loans..................... 96,019 75,508 76,319 41,646
REO, primarily single family properties....... 28,266 24,904 20,684 18,954
-------- -------- -------- --------
Total nonperforming assets.......... $124,285 $100,412 $ 97,003 $ 60,600
======== ======== ======== ========
</TABLE>
- ---------------
(1) Originated single family nonaccrual loans to total single family nonaccrual
loans were 29.06%, 20.64%, 13.66%, and 15.44% at March 31, 1996 and at
September 30, 1995, 1994, and 1993, respectively.
(2) Accretable discount arises principally from the purchase of performing
single family residential loans in the secondary market. The discount in
effect functions principally as an additional reserve by lowering the book
value of the outstanding loans. If the accretable discount is included with
the allowance for credit losses, the resulting ratio of the allowance for
credit losses to total loans would have been 0.77% at March 31, 1996.
41
<PAGE> 44
SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
AT OR FOR
THE SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
--------------- ------------------------------
1996 1995 1994 1993
--------------- ----- ----- ------
<S> <C> <C> <C> <C>
Allowance for credit losses to net nonaccrual
loans...................................... 38.00% 48.74% 30.73% 71.71%
Allowance for credit losses to nonperforming
assets..................................... 29.36(2) 36.65 24.18 49.28
Allowance for credit losses and
non-accretable discounts to net nonaccrual
loans...................................... 45.55 60.88 50.89 126.18
Allowance for credit losses to total loans... 0.46 0.44 0.46 0.61
Nonperforming assets to total assets......... 1.10(2) 0.84 1.09 0.72
Nonaccrual loans to total loans.............. 1.21 0.91 1.51 0.85
Nonperforming assets to total loans and
REO........................................ 1.56 1.21 1.91 1.23
Net loan charge-offs to average loans(1)
Total................................... 0.15 0.16 0.30 0.05
Single family........................... 0.09 0.08 0.04 0.05
</TABLE>
- ---------------
(1) Annualized for the interim period.
(2) Excluding the $10.1 million of loans included above, which were
contractually current pursuant to the borrowers' court-approved bankruptcy
plans at March 31, 1996, the allowance for credit losses to nonperforming
assets ratio would have been 31.96% and the nonperforming assets to total
assets ratio would have been 1.01%.
PORTFOLIO OF GROSS NON-ACCRUAL LOANS BY STATE AND TYPE
AT MARCH 31, 1996
<TABLE>
<CAPTION>
SINGLE FAMILY COMMERCIAL
RESIDENTIAL REAL % OF
STATE SINGLE FAMILY CONSTRUCTION CONSUMER MULTI-FAMILY ESTATE TOTAL TOTAL
- ----------------------- ------------- ------------- -------- ------------ ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
California............. $ 53,378 $ -- $ 1 $ -- $ -- $ 53,379 51.5%
Texas.................. 10,895 35 730 -- -- 11,660 11.2
Florida................ 8,175 -- -- -- -- 8,175 7.9
New Jersey............. 5,143 -- -- -- -- 5,143 5.0
Illinois............... 5,023 -- -- -- -- 5,023 4.8
New York............... 3,388 -- -- -- -- 3,388 3.3
Connecticut............ 1,802 -- -- 510 488 2,800 2.7
Maryland............... 1,828 -- -- -- -- 1,828 1.8
Pennsylvania........... 1,798 -- -- -- -- 1,798 1.7
Virginia............... 1,352 -- -- -- -- 1,352 1.3
Massachusetts.......... 1,082 -- -- -- -- 1,082 1.0
Louisiana.............. 1,018 -- -- -- -- 1,018 1.0
Other.................. 7,054 -- 14 -- -- 7,068 6.8
------------- ------ -------- ----- ----- ---------- -----
Total.............. $ 101,936 $ 35 $745 $510 $488 $ 103,714 100.0%
============= ============= ========== ============= ============ ========= =====
% of Total............. 98.3% --% 0.7% 0.5% 0.5% 100.0%
============= ============= ========== ============= ============ =========
</TABLE>
Total nonperforming assets increased $23.9 million to $124.3 million at
March 31, 1996 from $100.4 million at September 30, 1995. The single family
nonaccrual loans increased $18.0 million, reflecting, in part, the effects of
the loan purchases which occurred in the second half of 1995.
The portion of the purchase discount attributable to potential credit risk
on certain acquired delinquent single family loans is treated as non-accretable
discount. The Bank believes that these purchase discounts are sufficient to
cover losses from these portfolios and to provide a market rate of return. The
non-accretable discount decreased $2.0 million to $7.2 million at March 31, 1996
from $9.2 million at September 30, 1995.
42
<PAGE> 45
This decrease resulted primarily from loans being foreclosed upon and
transferred to REO. The non-accretable discount related to these loans was also
transferred. REO increased $3.4 million to $28.3 million at March 31, 1996 from
$24.9 million at September 30, 1995. This increase primarily resulted from
higher levels of delinquencies on a larger loan portfolio.
Total nonperforming assets increased $3.4 million to $100.4 million at
September 30, 1995 from $97.0 million at September 30, 1994. The multi-family
and commercial real estate nonaccrual loans decreased $5.9 million from
September 30, 1994. This decrease resulted primarily from loans being paid in
full, and improvement in performance and cash flows. The non-accretable discount
decreased $6.2 million to $9.2 million at September 30, 1995 from $15.4 million
at September 30, 1994. This decrease resulted primarily from loans being
foreclosed upon and transferred to REO. The non-accretable discount related to
these loans was also transferred. REO increased $4.2 million to $24.9 million at
September 30, 1995 from $20.7 million at September 30, 1994. This increase
resulted primarily from increased volumes in the single family portfolio.
Total nonperforming assets increased $36.4 million to $97.0 million at
September 30, 1994 from $60.6 million at September 30, 1993. The single family
nonaccrual loans increased $24.3 million to $85.7 million at September 30, 1994
from $61.4 million at September 30, 1993. This increase resulted primarily from
the purchase, at substantial discounts, of single family loans that were
delinquent at acquisition. The Company has historically purchased nonperforming
loans as part of a larger loan purchase from the RTC, the FDIC or liquidating
institutions, and realized profits by modifying, restructuring and liquidating
the loans as necessary. The non-accretable discount decreased $7.3 million to
$15.4 million at September 30, 1994 from $22.7 million at September 30, 1993.
The decrease resulted primarily from a reallocation of approximately $11.2
million of non-accretable discounts to accretable discounts due to improved
performance of the loans, offset by an increase in non-accretable discounts
related to the purchase discussed above.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan", and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an amendment of SFAS No. 114",
effective October 1, 1995. These statements address the accounting by creditors
for impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogeneous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at lower of cost or fair value, leases
and debt securities. These statements apply to all loans that are restructured
in a troubled debt restructuring involving a modification of terms. Loans within
the scope of these statements are considered impaired when, based on current
information and events, it is probable that all principal and interest amounts
due will not be collected in accordance with the contractual terms of the loans.
At March 31, 1996, the recorded investment in impaired loans, pursuant to SFAS
No. 114, totaled $4.7 million. There was no allowance for credit losses
determined in accordance with SFAS No. 114 related to these impaired loans
because the measured values of the loans exceeded the Company's recorded
investments in the loans.
43
<PAGE> 46
The Company's criticized and classified assets are identified pursuant to
management's asset classification policy, which was established in accordance
with regulatory guidelines.
RECONCILIATION OF CRITICIZED AND CLASSIFIED ASSETS TO
NONPERFORMING ASSETS
AT MARCH 31, 1996
<TABLE>
<CAPTION>
NONPERFORMING PERFORMING TOTAL
------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Criticized assets:
Special Mention
Single family residential construction......... $ -- $ 186 $ 186
Multi-family................................... -- 10,753 10,753
Commercial real estate and business credit..... -- 2,501 2,501
------------- ---------- ----------
Total criticized assets................... -- 13,440 13,440
------------- ---------- ----------
Classified:
Substandard
Single family.................................. 94,962 -- 94,962
Single family residential construction......... 35 -- 35
Consumer....................................... 672 -- 672
Multi-family................................... 404 17,979 18,383
Commercial real estate and business credit..... 395 2,939 3,334
Real estate owned.............................. 28,266 -- 28,266
------------- ---------- ----------
124,734 20,918 145,652
Doubtful -- multi-family.......................... -- 350 350
Loss.............................................. -- -- --
------------- ---------- ----------
Total classified assets................... 124,734 21,268 146,002
------------- ---------- ----------
Total criticized and classified assets.... $ 124,734 $ 34,708 $ 159,442
============= ========== ========
Total classified assets as a % of total gross
loans............................................. 1.84%
Total allowance for credit losses as a % of total
classified assets................................. 24.99%
</TABLE>
The Company establishes an allowance for credit losses based on
management's periodic evaluation of the loan portfolio and considers such
factors as historical loss experience, delinquency status, identification of
adverse situations that may affect the ability of obligators to repay, known and
inherent risks in the portfolio, assessment of economic conditions, regulatory
policies, and the estimated value of the underlying collateral, if any. Although
the Company's credit management systems have resulted in a very low loss
experience, there can be no assurance that such results will continue in the
future. The allowance for credit losses is based principally on delinquency
status and historical loss experience.
The following table presents the Company's allowance for credit losses.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER
MARCH 31, 30,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Beginning balance........................ $36,801 $23,454 $23,454 $29,864 $28,214
Provision.............................. 5,850 4,157 24,293 6,997 4,083
Charge-offs net of recoveries.......... (6,162) (2,572) (10,946) (13,407) (2,433)
------- ------- ------- ------- -------
Ending balance........................... $36,489 $25,039 $36,801 $23,454 $29,864
======= ======= ======= ======= =======
</TABLE>
44
<PAGE> 47
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family.......................... $28,799 $16,784 $29,594 $15,905 $15,238
Single family residential
construction......................... 483 473 361 399 306
Consumer............................... 3,339 2,455 3,247 1,822 355
Multi-family........................... 3,229 2,974 3,054 2,456 1,474
Commercial real estate and business
credit............................... 183 2,112 97 2,112 11,382
Mortgage Banker Finance line of
credit............................... 412 236 410 684 944
Single family mortgage warehouse....... 44 5 38 76 165
------- ------- ------- ------- -------
Total............................. $36,489 $25,039 $36,801 $23,454 $29,864
======= ======= ======= ======= =======
</TABLE>
The allowance for credit losses decreased to $36.5 million at March 31,
1996 from $36.8 million at September 30, 1995. The single family allowance for
credit losses decreased to $28.8 million at March 31, 1996 from $29.6 million at
September 30, 1995. This decrease primarily resulted from a reduced level of
single family loans as repayments exceeded originations.
The allowance for credit losses increased to $36.8 million at September 30,
1995 from $23.5 million at September 30, 1994. The single family allowance for
credit losses increased to $29.6 million at September 30, 1995 from $15.9
million at September 30, 1994. This increase primarily resulted from an increase
in the single family loan portfolio to $7.1 billion at September 30, 1995 from
$4.2 billion at September 30, 1994 due to purchases of $2.7 billion during
fiscal 1995 and additional originations retained for portfolio of $1.0 billion.
Purchases and originations of loans result in provisions for credit losses being
provided which increase the allowance for credit loss relating to these loans.
The consumer allowance for credit losses increased to $3.2 million at September
30, 1995 from $1.8 million at September 30, 1994. This increase primarily
resulted from increased losses related to this unsecured consumer line of credit
portfolio.
The allowance for credit losses decreased to $23.5 million at September 30,
1994 from $29.9 million at September 30, 1993. The commercial real estate and
business credit allowance for credit losses decreased to $2.1 million at
September 30, 1994 from $11.4 million at September 30, 1993. This decrease
primarily resulted from a $10.1 million charge-off in fiscal 1994 related to a
single commercial real estate loan. See Note 5 to the Consolidated Financial
Statements.
The Bank charges-off loans, other than consumer loans, when all attempts
have been exhausted to resolve any outstanding loan or legal issues. For
consumer loans, all loans are charged-off when they contractually become 120
days delinquent.
45
<PAGE> 48
The components of charge-offs and recoveries by property type for the
periods indicated are as follows:
NET LOAN CHARGEOFFS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
------------------- ---------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Charge-offs
Single family........................ $(3,242) $(1,441) $ (4,840) $ (1,722) $(2,167)
Single family residential
construction...................... -- -- -- -- (71)
Consumer............................. (3,008) (1,190) (2,847) (1,365) (72)
Multi-family......................... -- -- -- (233) --
Commercial real estate and business
credit............................ -- -- (3,389) (10,145) --
Single family mortgage warehouse..... -- (2) (2) -- (148)
------- ------- -------- -------- -------
Total charge-offs................. (6,250) (2,633) (11,078) (13,465) (2,458)
------- ------- -------- -------- -------
Recoveries
Single family........................ 18 27 36 20 6
Consumer............................. 70 32 94 38 19
Multi-family......................... -- 2 2 -- --
------- ------- -------- -------- -------
Total recoveries.................. 88 61 132 58 25
------- ------- -------- -------- -------
Total net charge-offs............. $(6,162) $(2,572) $(10,946) $(13,407) $(2,433)
======= ======= ======== ======== =======
Net loan charge-offs to average
loans........................... 0.15% 0.09% 0.16% 0.30% 0.05%
</TABLE>
Net loan charge-offs for all loan types increased to $6.2 million for the
six months ended March 31, 1996 from $2.6 million for the six months ended March
31, 1995. The Bank's loan portfolio consists primarily of single family mortgage
loans. Net charge-offs on the single family portfolio increased to $3.2 million
for the six months ended March 31, 1996 from $1.4 million for the six months
ended March 31, 1995. This resulted in net charge-offs as a percentage of single
family loans on average of 0.09% and 0.06%, respectively, for the six months
ended March 31, 1996 and 1995 (annualized). Net charge-offs on the consumer loan
portfolio increased to $2.9 million for the six months ended March 31, 1996 from
$1.2 million for the six months ended March 31, 1995. The increase primarily
relates to the unsecured consumer line of credit portfolio.
Net loan charge-offs for all loans decreased to $10.9 million for fiscal
1995 compared to $13.4 million for fiscal 1994. Net charge-offs on the
commercial real estate and business credit portfolio decreased to $3.4 million
for fiscal 1995 compared to $10.1 million for fiscal 1994. The charge-off in
fiscal 1995 included a $3.4 million charge related to the sale of a single
commercial real estate loan. Excluding the commercial real estate loan
charge-offs, net charge-offs to average loans outstanding would have been $7.5
million and $3.3 million or 0.11% and 0.07%, respectively, for fiscal 1995
compared to fiscal 1994. Net charge-offs on the single family portfolio
increased to $4.8 million for fiscal 1995 compared to $1.7 million for fiscal
1994. This resulted in net charge-offs as a percentage of single family loans on
average of 0.08% and 0.04%, respectively, for fiscal 1995 compared to fiscal
1994. Net charge-offs on the consumer loan portfolio increased to $2.8 million
for fiscal 1995 compared to $1.3 million for fiscal 1994. This increase
primarily relates to the unsecured consumer line of credit portfolio.
Net loan charge-offs for all loans increased to $13.4 million for fiscal
1994 compared to $2.4 million for fiscal 1993. This increase reflects a $10.1
million charge-off related to a single commercial real estate loan. Excluding
this commercial real estate loan charge-off, net charge-offs to average loans
outstanding would have been $3.3 million and $2.4 million or 0.07% or 0.05%,
respectively, for fiscal 1994 compared to fiscal 1993. Net charge-offs on the
single family portfolio decreased to $1.7 million for fiscal 1994 compared to
$2.2 million for fiscal 1993. This resulted in net charge-offs as a percentage
of single family loans on average of 0.04% and 0.05%, respectively, for fiscal
1994 compared to fiscal 1993. Net charge-offs on the consumer loan portfolio
increased to $1.3 million for fiscal 1994. This increase primarily relates to
the unsecured consumer line of credit portfolio.
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<PAGE> 49
Excluding charge-offs associated with the single commercial real estate
loan, discussed above, net REO gains of $16.8 million exceeded net charge-offs
of $13.3 million for the three years ended September 30, 1995. REO gains have
historically been significant for the Company because of discounts attributable
to the original loan purchases.
The Company's only credit product that has had charge-offs higher than its
original formula reserves is the unsecured consumer line of credit. The Company
began offering this product in 1993. The portfolio outstandings at March 31,
1996 were $56.0 million, for which allowances for credit losses were recently
increased from 4% to 6% of total outstandings. Due to the initial growth and
loss experience in this portfolio, the Company modified its underwriting,
approval and collection processes. Net of charge-offs, the portfolio has had
positive net interest income after loss provisions. The Company believes that
its current formula reserve policy is appropriate for this product.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity refers to the ability or the financial flexibility to manage
future cash flows to meet the needs of depositors and borrowers and fund
operations on a timely and cost-effective basis. The Bank is required by the OTS
to maintain average daily balances of liquid assets and short-term liquid assets
in amounts equal to 5% and 1%, respectively, of net-withdrawable deposits plus
borrowings payable on demand or with remaining maturities of one year or less.
The average daily liquidity ratio for March 31, 1996 was 5.84%, and the average
short-term liquidity ratio for March 31, 1996 was 3.51%.
The primary sources of funds consist of deposits, advances from the FHLB,
reverse repurchase agreements, principal repayments on loans and MBS, and
proceeds from the issuance of Bank Preferred Stock. Liquidity may also be
provided from other sources including investments in short-term high credit
quality instruments. At March 31, 1996, these instruments generally comprised
repurchase agreements, federal funds sold, trading account assets, and MBS and
securities available for sale. These instruments totaled $2.0 billion at March
31, 1996 and $933.2 million, $905.4 million, and $2.4 billion at September 30,
1995, 1994, and 1993, respectively. Funding resources are principally used to
meet ongoing commitments to fund deposit withdrawals, repay borrowings, fund
existing and continuing loan commitments and maintain liquidity. See Notes 8, 9,
10, and 12 to the Consolidated Financial Statements.
As a holding company without significant assets other than its equity
interest in the Bank, the Company's ability to pay interest and principal on the
Senior Notes and on its other debt and to fund its operations depends upon cash
dividends it receives from the Bank and is subject to limitations imposed by the
Senior Notes. The Bank's ability to pay dividends is, in turn, dependent upon
its ability to generate earnings and is subject to a number of regulatory and
other restrictions and risks. Dividends may not be paid on the Bank Common Stock
if full dividends on the Bank Preferred Stock have not been paid for the four
most recent quarterly dividend periods. Thus, if for any reason the Bank failed
to declare and pay full quarterly dividends on the Bank Preferred Stock, the
Company would not receive any cash dividends from the Bank until four full
quarterly dividends on the Bank Preferred Stock had been paid. See "-- Capital"
and Notes 11 and 15 to the Consolidated Financial Statements for a discussion of
the various dividend limitations.
Deposits
Deposits have provided the Company with a source of relatively stable and
low cost funds. Average deposits funded 44% of average total assets for the six
months ended March 31, 1996, 48% for fiscal 1995, 58% for fiscal 1994, and 66%
for fiscal 1993. The relationship of the Company's deposits to its average
assets has decreased over the past three years, while overall deposit levels
have remained constant. This change in the relationship of deposit funding is
due to the opportunities for leverage created by increased capital raised by the
Company through the issuance of preferred stock, in 1993 and 1995, and earnings
retained by the Company. Additionally, other financial instrument opportunities
available to consumers, who have traditionally invested in bank deposit
products, have become more widely used as an alternative to deposit products.
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<PAGE> 50
The following table reflects net activity in the Company's deposit
accounts:
DEPOSIT ACCOUNT ACTIVITY
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
--------------------- -----------------------------------
1996 1995 1995 1994 1993
--------- -------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consumer Accounts:
Checking accounts (including
interest-bearing and
non-interest bearing).......... $ 33,995 $ 1,650 $ 4,984 $ 5,467 $ (3,437)
Savings accounts.................. (6,798) (61,520) (83,089) (97,286) (94,857)
Money market accounts............. 87,129 (19,140) (24,028) (1,275) (26,918)
Time deposits..................... (193,275) 82,709 35,425 (389,465) 4,296
--------- -------- --------- --------- ---------
Total consumer activity... (78,949) 3,699 (66,708) (482,559) (120,916)
Commercial deposits................. (134,763) 267,372 482,726 384,387 63,000
Wholesale deposits.................. (91,450) (94,802) (157,019) (108,196) (157,805)
--------- -------- --------- --------- ---------
Total activity before interest
credited.......................... (305,162) 176,269 258,999 (206,368) (215,721)
Interest credited................... 86,263 75,240 159,017 131,184 144,349
--------- -------- --------- --------- ---------
Net change in deposits.... $(218,899) $251,509 $ 418,016 $ (75,184) $ (71,372)
========= ======== ========= ========= =========
</TABLE>
The Company has historically utilized CDs to compete for consumer deposits.
Beginning in 1995, the Company's strategy has been to increase checking and
money market deposit accounts which are the core relationships that provide a
stable source of funding for the Company. As a complement to this strategy, the
Company continues to offer traditional deposit products, such as savings
accounts and CDs. See Note 8 to the Consolidated Financial Statements.
The Company offers cash management services to its MBF customers. These
services are commercial deposit accounts comprised of (i) operating accounts of
MBF customers, (ii) escrow deposits, and (iii) principal and interest payments
on the loans serviced by the MBF customers. At March 31, 1996, these deposits
totaled $797.3 million. The Company also raises wholesale deposits from
institutional customers through its Financial Markets Group. These deposits tend
to be interest rate sensitive and are subject to withdrawal if the rates paid on
these deposits are not competitive with other market rates. While the Company
does not generally solicit brokered deposits, the Company may accept brokered
deposits when permitted by regulation and available at favorable rates.
Borrowings
The Company also relies upon borrowings, primarily collateralized
borrowings such as advances from the FHLB and reverse repurchase agreements, to
fund its assets. These sources of funds were the primary source of funds for the
recent asset growth and accounted for 46% of the funding of average assets for
the six months ended March 31, 1996, 43% for fiscal 1995, 31% for fiscal 1994,
and 23% for fiscal 1993. Long-term fixed and variable rate advances are obtained
from the FHLB Dallas under a security and pledge agreement that restricts the
amount of borrowings to a percentage of (i) fully disbursed single family loans,
unless assets are physically pledged to the FHLB Dallas, and (ii) total assets.
At March 31, 1996, these limitations were 65% of the outstanding principal of
single family loans and 45% of total assets. See Notes 9 and 10 to the
Consolidated Financial Statements.
Notes Payable
In May 1989, the Bank issued $110 million of 15% subordinated capital notes
to raise regulatory capital as required by the Assistance Agreement. During
September 1990, the holders exchanged their notes for senior notes issued by the
Company with an interest rate of 15.75% (the "15.75% Notes") and the Bank
prepaid the 15% subordinated capital notes. In May 1993, the Company issued $115
million of Senior Notes at an initial rate of 8.05%. Simultaneously, the 15.75%
Notes and the note payable to related party were paid
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<PAGE> 51
off. The interest rate on the Senior Notes was subject to increase in certain
circumstances and the per annum interest rate was increased to 8.55% in October
1993, and to 9.05% in February 1994. The Senior Notes mature on May 15, 1998.
See Note 11 to the Consolidated Financial Statements. Substantially
simultaneously with the consummation of the Offering, the Company intends to
commence the Exchange Offer for the Senior Notes. The Exchange Offer is intended
to satisfy the condition of the Senior Notes pursuant to which the interest rate
on the Senior Notes will revert from 9.05% to 8.05% per annum commencing with
and including the date on which the Exchange Offer is consummated.
Commitments
At March 31, 1996, the Bank had mandatory forward delivery contracts for
single family loans of $514.8 million and had warehouse loans and a mortgage
pipeline of single family loans of $379.7 million and $190.8 million available
to fill these contracts. At March 31, 1996 the Bank had $1.3 billion of
commitments to extend credit. Because such commitments may expire without being
drawn upon, the commitments do not necessarily represent future cash
requirements. Scheduled maturities of CDs and borrowings (including advances
from the FHLB and reverse repurchase agreements) during the 12 months following
March 31, 1996, total $1.2 billion and $4.8 billion, respectively. Management
believes that the Bank has adequate resources to fund all of its commitments.
Capital
The Bank is subject to regulatory capital requirements as defined in the
OTS capital regulations. The Bank's capital level at March 31, 1996 and
September 30, 1995 qualified it as "well-capitalized", the highest of five tiers
under applicable regulatory definitions. See "Regulation -- Safety and Soundness
Regulations -- Capital Requirements" and Note 15 to the Consolidated Financial
Statements.
The following table sets forth the regulatory capital ratios of the Bank as
of the dates indicated. See "Regulation -- Safety and Soundness
Regulations -- Capital Requirements".
REGULATORY CAPITAL RATIOS
<TABLE>
<CAPTION>
AT MARCH AT SEPTEMBER 30,
31, -----------------------------
1996 1995 1994 1993
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Tangible Capital.......................... 6.88% 6.20% 6.01% 6.17%
Core Capital.............................. 6.96% 6.29% 6.17% 6.43%
Total Risk-Based Capital.................. 14.20% 13.45% 14.02% 14.87%
</TABLE>
During fiscal 1993, the Bank issued its Preferred Stock, Series A and
during fiscal 1995, the Bank issued its Preferred Stock, Series B. Shares
totalling $85.5 million were issued as a result of the Preferred Stock, Series A
offering and shares totalling $100 million were issued as a result of the
Preferred Stock, Series B offering. These shares are not owned by the Company.
Bank Preferred Stock, which is treated as core capital for regulatory purposes,
was issued to increase total capital to support further growth.
CONTINGENCIES AND UNCERTAINTIES
A petition for review has been filed in the United States Court of Appeals
for the Fifth Circuit seeking to modify, terminate, and set aside the order
approving the Acquisition, which involved substantially all the Bank's initial
assets and liabilities. The same petitioner has filed a Motion to Intervene and
a Complaint in Intervention in an action pending in the United States District
Court of Texas, also seeking to set aside the order approving the Acquisition.
The petitioner contends, in both cases, that it submitted the most favorable bid
to acquire the assets and liabilities of Old USAT and that it should have been
selected as the winning bidder.
The Company is not a party to either of these proceedings. The Bank has
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court of Texas case at a later date. Management believes, after
consultation with legal counsel, that the claims of the petitioner are barred by
applicable time
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<PAGE> 52
limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity. See "Legal Proceedings".
As noted above, the Bank, in its various operations, is subject to
substantial statutory and regulatory compliance obligations. See "Regulation".
The Bank attempts in good faith to comply with the requirements of the various
statutes and regulations to which it is subject. These statutes and regulations
are complex, however, and even inadvertent noncompliance could result in civil
and, in some cases, criminal liability. In this regard, a substantial part of
the Bank's business has involved the origination, purchase, and sale of mortgage
loans. During the past several years, numerous individual claims and purported
consumer class action claims have been commenced against a number of financial
institutions, their subsidiaries, and other mortgage lending institutions,
alleging violations of various state and regulatory provisions relating to
mortgage lending and servicing, including the TILA and the RESPA.
In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing and collection of mortgage loans, and
that allege inadequate disclosure, breach of fiduciary duty, breach of contract,
or violation of federal or state laws. Claims have involved, among other things,
interest rates and fees charged in connection with loans, interest rate
adjustments on adjustable-rate mortgage loans, timely release of liens upon loan
payoffs, the disclosure and imposition of various fees and charges, and the
placing of collateral protection insurance. See "Legal Proceedings".
Each house of Congress has passed legislation which, if it were to become
law, would require recapture of a thrift's post-1987 tax bad debt reserve over a
six-taxable-year period with the opportunity to defer recapture by up to two
years if certain residential loan requirements were met. A thrift's tax bad debt
reserve as of December 31, 1987 would not be subject to recapture. There would
be no financial statement impact on the Bank or the Company from this recapture
because a deferred tax liability has already been provided for on the Bank's
post-1987 tax bad debt reserves. At September 30, 1995, the Bank had
approximately $101 million of post-1987 tax bad debt reserves. The current tax
liability resulting from recapture of these reserves would be reduced by NOLs
available to offset this income. See "Risk Factors -- Recapitalization of the
SAIF and its Impact on SAIF Premiums; Other Legislative Proposals".
As of March 31, 1996, the Company had NOLs of $808.0 million available to
reduce taxable income in future years. There can be no assurance that the tax
deductions associated with these NOLs will be allowed by the IRS. In addition,
such tax deductions would be subject to significant limitation under Section 382
of the Code if the Company undergoes an Ownership Change. In the event of an
Ownership Change, Section 382 of the Code imposes an annual limitation on the
amount of taxable income a corporation may offset with NOLs and certain
recognized built-in losses. See "Regulation -- Taxation -- Net Operating Loss
Limitations".
FEDERAL FINANCIAL ASSISTANCE
The Bank received substantial payments from the FRF pursuant to the
Assistance Agreement and the Settlement Agreement. These payments aggregated
$218.9 million in fiscal 1994, including the settlement payment of $195.3
million, and $70.9 million in fiscal 1993. Approximately $23.1 million in fiscal
1994 and $9.3 million in fiscal 1993 reflected financial assistance that was
recorded as income. Pursuant to the Settlement Agreement, all financial
assistance and related payments ceased to accrue as of December 28, 1993, and,
as of that date, the Bank no longer managed or owned any Covered Assets. There
was no material adverse effect on the Company or the Bank as a result of the
Settlement Agreement, the transfer of certain Covered Assets to the FDIC and the
retention of the remainder of such Covered Assets without financial assistance.
See "Business -- The Assistance Agreement".
50
<PAGE> 53
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement
establishes accounting standards for recognizing and measuring impairment of
long-lived assets (and related goodwill) to be held and used and for such assets
held for disposal. The statement is effective for financial statements with
fiscal years beginning after December 15, 1995, with earlier application
encouraged. Implementation of this pronouncement should have no material adverse
effect on the Consolidated Financial Statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages
adoption of that method for all employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method currently being followed and make pro
forma disclosures of net income and earnings per share under the fair value
based method of accounting. This statement is effective for financial statements
with fiscal years beginning after December 15, 1995, with earlier application
encouraged. Management is currently evaluating the proposed alternatives under
this statement.
51
<PAGE> 54
BUSINESS
GENERAL
The Company is a broad-based financial services provider to consumers and
businesses in Texas and other selected regional markets throughout the United
States. Through the Bank, its principal subsidiary, the Company operates 67
Texas-based community banking branches serving nearly 182,000 households and
businesses, nine commercial banking offices and a nationwide network of mortgage
offices. At March 31, 1996, the Company had consolidated total assets of $11.3
billion, total deposits of $5.0 billion and total stockholders' equity of $526.4
million. Upon completion of the Offering, the Company will be the largest
publicly traded depository institution headquartered in Texas, in terms of both
assets and deposits.
The Company's operating structure reflects its current business strategy,
with four business groups in two business segments.
[CHART SHOWING BUSINESS GROUPS]
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<PAGE> 55
Operating earnings (loss) by business segment, for the Company, were as
follows:
OPERATING EARNINGS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
BANKING MORTGAGE BANKING BANK UNITED TOTAL OPERATING
SEGMENT SEGMENT CORP.(1) ELIMINATIONS(2) EARNINGS(3)
------- ----------------- ----------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Six months ended March 31,
1996....................... $58.3 $ 2.4 $(1.9) $ (3.8) $ 55.0
1995....................... 37.6 17.0 (0.6) (5.2) 48.8
Years ended September 30,
1995....................... 83.3 19.4 (5.0) (6.4) 91.3
1994....................... 63.2 24.4 (0.7) (11.4) 75.5
1993....................... 60.8 31.5 -- (15.2) 77.1
</TABLE>
- ---------------
(1) Principally interest expense on the Senior Notes.
(2) Reflecting the elimination of dividends received by the Company from the
Bank.
(3) Operating earnings represents income before taxes, minority interest and
extraordinary loss, and excludes net gains (losses) on securities, MBS and
other loans.
BUSINESS STRATEGY
The Company's initial strategy was to obtain assets and deposits through
the acquisition of failed thrifts and through purchases from the RTC during the
resolution of the banking and thrift problems that occurred in the late 1980s
and early 1990s. Operationally, the Company focused on traditional single family
mortgage lending and on deposit gathering. As a complement to these activities,
the Company entered the retail and wholesale mortgage banking businesses,
leveraging management's substantial experience in the origination, purchase,
sale, structuring, and securitization of mortgage loans and the purchase and
sale of MSRs.
The Company's financial priorities initially were focused towards
minimizing interest rate and credit risk while maximizing the net value of the
Company's assets and liabilities. To this end, the Company maintained a highly
liquid pool of securitizable assets as its core portfolio holdings. Given the
liquid nature of its portfolio, the Company was very active in the buying and
selling of loans, MBS and MSRs when economically attractive.
Over the past few years, the Company's management has pursued a strategy
designed to reduce the Bank's reliance on its traditional thrift and mortgage
banking lines of business by developing higher margin consumer and commercial
lines of business. During this time, the Company has increased its portfolio of
multi-family, residential construction, consumer, and commercial loans and has
also increased the level of lower cost transaction and commercial deposit
accounts. To support this strategy, the Company has hired experienced commercial
banking professionals and engaged in more aggressive marketing campaigns. In
addition to its efforts to increase originations of commercial and consumer
loans, the Company plans to increase the retention of higher yielding single
family and multi-family mortgage loans that, in the past, may have been sold or
securitized.
MANAGEMENT
Day-to-day operations of the Bank are directed by Barry C. Burkholder,
President and CEO of the Bank, who brings over 20 years of commercial banking
experience to the Bank, with specific experience in consumer banking, mortgage
banking and related areas. In connection with the Offering, Mr. Burkholder will
also become Chairman of the Board of the Bank and President and CEO of the
Company. The executive management group of the Bank is composed of seven
individuals who have worked together for the past six years, giving them a
thorough understanding of the businesses they have developed together. They
average more than 20 years of related industry experience, the majority of which
comes from commercial banks. As a team, they have brought the disciplines and
sophistication of commercial banking to the Bank. The next level
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<PAGE> 56
of senior management is composed of 42 executives, a third of whom were hired
directly from commercial banks. The balance of the senior management team has
experience working with various financial services companies, including mortgage
banks, thrifts and accounting firms. See "Management".
Lewis A. Ranieri, who has over 20 years of investment experience with
particular expertise in the field of MBS, has previously served as Chairman of
the Board of the Bank and of the Company, as well as President and CEO of the
Company, and will continue, after the Offering, to serve as Chairman of the
Board of the Company. The Company is contemplating entering into a consulting
arrangement with Mr. Ranieri pursuant to which he would serve as a consultant to
the Company for a period of three years.
COMMUNITY BANKING GROUP
The Community Banking Group, which has marketed itself under the name "Bank
United" since 1993, operates a 67 branch community banking network, a 24-hour
telephone banking center, and a 62-unit ATM network, which together serve as the
platform for the Company's consumer and small business banking activities. The
Company's branch network includes 34 branches in the greater Houston area, 29
branches in the Dallas/Ft. Worth metropolitan area, and two branches each in
Austin and San Antonio. In addition, the Company plans to open at least three
supermarket-based banking branches in 1996. Through its branch network, the
Company maintains more than 400,000 accounts with an estimated 182,000
households and businesses. The Community Banking Group's principal activities
include deposit gathering, consumer lending, small-business banking, and
investment product sales.
Deposit Gathering
The Community Banking Group offers a variety of traditional deposit
products and services, including checking and savings accounts, money market
accounts, and CDs. In addition, the Company offers deposit products and services
tailored specifically to small business needs. The Community Banking Group's
strategy is to become its customers' primary financial services provider by
emphasizing high levels of customer service and innovative products. The Company
has a history of introducing innovative products that have helped it increase
its competitive position within its primary banking markets. At March 31, 1996,
the Community Banking Group maintained over 310,000 deposit accounts with $3.9
billion in deposits.
Consumer Lending
Since 1992, the Community Banking Group has engaged in consumer lending for
its own portfolio. At March 31, 1996, consumer loans outstanding totaled $130.4
million. Through the Community Banking Group, the Company offers a variety of
consumer loan products, including home improvement loans, unsecured lines of
credit, and automobile loans. In addition, while the Company has offered its
customers credit cards since 1990, the Company intends to begin credit card
lending for its own portfolio in the fourth quarter of 1996. The consumer
lending division of the Community Banking Group also offers home equity lines of
credit ("HELOCs") outside of Texas. (Current laws prohibit HELOC lending in the
state of Texas; however, the Company has put in place the systems and controls
needed to manage a Texas-based HELOC operation in anticipation of Texas
legislative and constitutional changes that would authorize such lending.) The
Community Banking Group has developed the technology required for efficient loan
processing and underwriting, including credit scoring and such services as
taking loan applications by telephone.
Small Business Banking
The Community Banking Group provides a broad range of credit services to
its small business customers, including lines of credit, working capital loans,
equipment loans, owner-occupied real estate loans, and Small Business
Administration loans. At March 31, 1996, the Community Banking Group had
approximately 280 business credit loans outstanding, representing approximately
$26.1 million in loan commitments. At March 31, 1996, the Community Banking
Group also had approximately $7.5 million in approved, unclosed business credit
loans and another $5.6 million in pending applications for business credit
loans. The Community Banking Group's small business strategy is focused on
offering loan products and services tailored specifically to most small business
needs, with highly responsive credit decision-making. The Company is
aggressively seeking to increase its small business lending volume.
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<PAGE> 57
Investment Product Sales
Since 1993, a subsidiary of the Bank has been marketing investment products
to the Bank's consumer customer base. At March 31, 1996, the investment product
sales force was comprised of 23 commissioned Series 7 and Group I licensed
registered representatives. A broad range of investment products, including
stocks, bonds, mutual funds, annuities, and securities are offered by these
registered representatives.
COMMERCIAL BANKING GROUP
The Commercial Banking Group provides credit and a variety of cash
management and other services to certain real estate and real estate related
businesses. The Commercial Banking Group conducts its activities through four
units: MBF, a financial service provider to small- and medium-sized mortgage
companies; Multi-Family Lending; Residential Construction Lending; and
Commercial Real Estate Lending. Business is solicited in Texas and in targeted
regional markets throughout the United States. The Commercial Banking Group
earns fees on committed lines and fees and interest on loans outstanding. The
Commercial Banking Group is expanding its products and industry specialties to
include health care lending, asset-based lending, and other industrial and
commercial loan products.
Mortgage Banker Finance
The Commercial Banking Group's MBF unit provides third-party mortgage
companies with credit facilities, including warehouse lines of credit, gestation
repurchase agreements, term loans secured by MSRs and working capital credit
lines, as well as cash management services. At March 31, 1996, the MBF unit had
$100.8 million in unfunded commitments and $141.8 million of loans outstanding.
Since 1994, the MBF unit has also offered commercial banking services (i.e.,
cash management, document custody and deposit services) to its mortgage banking
customers. Deposits related to MBF activities totaled $797.3 million at March
31, 1996.
Multi-Family Lending
Since 1990, the Commercial Banking Group has been providing multi-family
financing for established, operating multi-family properties, real estate
investment trusts and selected construction, acquisition, and rehabilitation
projects. At March 31, 1996, the Multi-Family Lending unit had $243.0 million in
multi-family commitments and $341.1 million in multi-family loans outstanding,
including $297.7 million in permanent loans and $43.4 million in construction
loans. Loans are solicited directly in Texas and in targeted regional markets
throughout the United States, through regional offices and selected preapproved
multi-family mortgage banking correspondents. From time to time, the Commercial
Banking Group also purchases servicing rights related to multi-family loans. At
March 31, 1996, the multi-family servicing portfolio totaled $669.2 million, of
which $373.5 million represented loans in the Company's portfolio.
Residential Construction Lending
Since 1989, the Commercial Banking Group has been active in making loans to
builders for the construction of single family residential properties and, on a
more limited basis, loans for acquisition and development of improved
residential lots. During fiscal 1994 and 1995, the Company expanded into several
other major markets outside of Texas, including Atlanta, Chicago, Denver,
Orlando, Phoenix, and Philadelphia. Current markets in Texas include Houston,
Dallas, Austin, and San Antonio. At March 31, 1996, the Company had $401.7
million in commitments and $179.5 million of residential construction loans
outstanding.
Commercial Real Estate Lending
The Commercial Banking Group is engaged in commercial real estate lending
in targeted sectors, emphasizing permanent mortgages on income producing
properties, such as assisted living facilities. At March 31, 1996, the Company
had $45.1 million in permanent commercial real estate loans outstanding.
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<PAGE> 58
FINANCIAL MARKETS GROUP
The Financial Markets Group manages the Company's asset portfolio
activities, including loan acquisition and management and the securitization of
whole loans. Additionally, under the supervision of the ALCO, the Financial
Markets Group is responsible for the Company's investment portfolio, for
interest rate risk hedging strategies, and for securing funding sources other
than consumer and commercial deposits.
Loan Acquisition and Management
The Financial Markets Group acquires residential loans, primarily single
family loans, through traditional secondary market sources (mortgage companies,
financial institutions, and investment banks), as well as from the Mortgage
Banking Group. Since September, 1992, the Company has closed more than 50 loan
acquisition transactions representing more than $5.3 billion in loans. At March
31, 1996, the majority of the $7.5 billion of loans held to maturity by the
Company, which are primarily (88%) adjustable-rate loans, were managed by the
Financial Markets Group.
Wholesale Fundings
The Financial Markets Group arranges funding sources other than consumer
and commercial deposits for the Company. Wholesale funding sources include
advances from the FHLB Dallas, reverse repurchase agreements, commercial
borrowings, and brokered CDs. At March 31, 1996, wholesale activities provided
$5.3 billion in funding. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources and Liquidity" and
Notes 8, 9 and 10 to the Consolidated Financial Statements.
Investment Portfolio Management
The Financial Markets Group manages the Company's investment portfolio,
which totaled nearly $2.7 billion at March 31, 1996. The Financial Markets Group
seeks to maintain a portfolio of assets that provides for liquidity needs and
maintains an interest rate spread over matched funded liabilities, including
assets that may be pledged as collateral for secured borrowings, and that
maximize utilization of the Bank's risk-based capital. See
"Business -- Investment Portfolio" and Notes 2, 3 and 4 to the Consolidated
Financial Statements.
Securitization of Whole Mortgage Loans
The Financial Markets Group evaluates the Company's loan portfolio for
securitization opportunities and, when appropriate, creates MBS and retains the
master servicing. During the past three years, the Financial Markets Group has
structured seven securitization transactions, creating $1.8 billion in MBS. The
Company has sold substantially all of the non-investment grade securities
created, thus enhancing the Bank's risk-based capital ratios and credit quality.
These securitization activities are separate from the secondary marketing
activities of the Mortgage Banking Group.
MORTGAGE BANKING GROUP
The Mortgage Banking Group operates under the names "Bank United Mortgage"
in Texas and Virginia and "Commonwealth United Mortgage" elsewhere in the United
States. The Mortgage Banking Group originates and services first mortgage loans
for single family residences for both the Company's portfolio and for sale to
investors. At December 31, 1995, with originations of $3.4 billion in fiscal
year 1995, the Company was ranked by the American Banker as among the 30 largest
originators of single family loans in the nation. In addition, the Company was
ranked by the American Banker as one of the 40 largest single family loan
servicers in the nation at December 31, 1995. The Company's servicing portfolio
at March 31, 1996 was $11.6 billion. To manage the risk on mortgage pipeline
loans, the Company estimates the portion of the loans that will close and then
enters into forward sales of such loans in the secondary market. Consistent with
the increasing emphasis on its community and commercial banking business, the
Company is in the process of evaluating its strategic alternatives with respect
to its mortgage banking business, including a sale or
56
<PAGE> 59
restructuring of all or parts of its mortgage origination business. No
assurances can be made regarding the timing or impact of any such sale or
restructuring on the Company's residential mortgage lending business.
The Mortgage Banking Group principally engages in three activities: Retail
Mortgage Operations, Wholesale Mortgage Operations, and Mortgage Servicing
Operations.
Retail Mortgage Operations
The Mortgage Banking Group offers a variety of fixed-rate and
adjustable-rate mortgage products for consumers through a nationwide network of
retail mortgage origination offices. For the 12 months ended March 31, 1996, the
Mortgage Banking Group originated $2.2 billion in retail mortgage loans. Loans
are originated through direct contact with individual borrowers by the Group's
commissioned retail loan officers.
Wholesale Mortgage Operations
The Mortgage Banking Group provides qualified mortgage brokers nationwide
with a variety of fixed-rate and adjustable-rate mortgage products through its
network of wholesale mortgage origination offices. For the 12 months ended March
31, 1996, the Mortgage Banking Group originated $1.7 billion in mortgage loans
through its wholesale operations. Loans are originated through contact with one
of the Company's 3,255 mortgage brokers, serviced by the Group's wholesale
account executives. All loans originated through wholesale mortgage operations
are underwritten by the Company's staff according to secondary market
requirements and internal guidelines. The loans are originated and closed in
either the name of the Bank or, under certain circumstances, the mortgage
broker's name with immediate assignment to the Bank.
Mortgage Servicing Operations
The Mortgage Banking Group services residential mortgage loans owned by the
Bank and by others, including the GNMA, the FNMA, the FHLMC and private mortgage
investors. Mortgage loan servicing consists of collecting and accounting for
principal and interest payments from borrowers, remitting principal and interest
payments to investors, making cash advances when required, collecting funds for
and paying mortgage-related expenses such as taxes and insurance, inspecting
mortgaged properties when required, collecting delinquent mortgages, conducting
foreclosures and property dispositions in the event of unremedied defaults, and
generally administering the loans. At March 31, 1996, the Mortgage Banking Group
serviced over $11.6 billion in mortgage loans, including $4.0 billion for the
Company's portfolio and $7.6 billion for others. Mortgage servicing operations
are technology and process management intensive. The Company views itself as
being competitively positioned to service loans in an efficient and cost
effective manner relative to its peers. The Company has been ranked by ICM
Consultants, Inc. as one of the nation's top 10 servicing organizations in terms
of efficiency and productivity for the past five years.
57
<PAGE> 60
LOAN PORTFOLIO
The Company has focused in recent years on originating and servicing
commercial banking assets. However, the Company's loan portfolio still reflects
the Company's origins as a thrift institution, with single family mortgage
originations constituting a majority of loans made by the Company. The following
tables set out the Company's loan origination levels, as well as the product and
geographic distribution of its loan portfolio.
LOAN ORIGINATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family(1)..................... $1,945,434 $1,453,267 $3,226,324 $5,424,550 $6,645,096
Single family residential
construction....................... 208,847 100,328 239,481 133,609 129,254
Consumer............................. 53,570 41,734 99,249 94,153 64,742
Multi-family, commercial real estate,
and business credit................ 146,309 162,897 307,636 230,995 60,489
---------- ---------- ---------- ---------- ----------
Total...................... $2,354,160 $1,758,226 $3,872,690 $5,883,307 $6,899,581
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Includes $493.2 million, $659.2 million, $1.0 billion, $1.3 billion, and
$529 million of loans originated for the Company's portfolio during the six
months ended March 31, 1996 and 1995, and during fiscal 1995, 1994, and
1993.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ------------------------------------
1996 1995 1994 1993
------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Single family.................................. $6,651,723 $7,061,088 $4,203,614 $3,376,181
Single family residential construction......... 179,505 115,436 57,786 35,904
Consumer....................................... 130,356 123,096 108,179 57,902
Multi-family................................... 393,604 479,798 289,334 112,055
Commercial real estate and business credit..... 64,113 38,326 61,919 49,510
Mortgage banker finance line of credit......... 141,781 109,339 147,754 385,548
Single family mortgage warehouse............... 379,720 411,287 252,153 899,602
---------- ---------- ---------- ----------
7,940,802 8,338,370 5,120,739 4,916,702
Allowance for credit losses.................... (36,489) (36,801) (23,454) (29,864)
Accretable unearned discount................... (24,452) (38,460) (50,650) (27,923)
Net deferred loan origination fees............. (1,525) (1,727) (461) 3,464
Unrealized losses.............................. (256) (1,142) -- --
---------- ---------- ---------- ----------
Total $7,878,080 $8,260,240 $5,046,174 $4,862,379
========== ========== ========== ==========
</TABLE>
58
<PAGE> 61
GEOGRAPHIC DISTRIBUTION OF REAL ESTATE LOAN PORTFOLIO
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ----------------------------------------------
STATE 1996 1995 1994 1993
- ----------------------------------------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
California............................... $3,793,094 $ 3,958,293 $ 1,764,531 $ 1,375,506
Texas.................................... 1,238,727 1,259,306 1,131,225 891,459
Florida.................................. 450,849 479,379 456,812 485,977
Illinois................................. 168,905 190,801 138,072 72,749
Arizona.................................. 130,703 115,260 30,142 20,932
Pennsylvania............................. 120,853 128,693 68,728 33,489
New Jersey............................... 107,080 118,825 80,727 53,452
Virginia................................. 100,700 107,420 92,704 92,846
Washington............................... 85,425 81,005 32,899 7,682
Georgia.................................. 83,871 94,413 56,442 63,098
Other states............................. 1,039,559 1,202,943 827,480 532,740
Other -- single family mortgage
warehouse.............................. 379,720 411,287 252,153 899,602
---------- ---------- ---------- ----------
Total real estate.............. 7,699,486 8,147,625 4,931,915 4,529,532
Mortgage Banker Finance lines of
credit................................. 141,781 109,339 147,754 385,548
Business credit.......................... 19,015 7,320 -- --
Non real estate consumer................. 91,730 89,509 72,987 44,597
---------- ---------- ---------- ----------
Subtotal....................... 7,952,012 8,353,793 5,152,656 4,959,677
Non-accretable unearned discounts........ (11,210) (15,423) (31,917) (42,975)
---------- ---------- ---------- ----------
Total.......................... $7,940,802 $ 8,338,370 $ 5,120,739 $ 4,916,702
========== ========== ========== ==========
</TABLE>
GEOGRAPHIC AND PRODUCT DISTRIBUTION OF LOAN PORTFOLIO
AT MARCH 31, 1996
<TABLE>
<CAPTION>
SINGLE SINGLE
FAMILY COMMERCIAL FAMILY NON REAL
SINGLE RESIDENTIAL MULTI- REAL MORTGAGE TOTAL ESTATE % OF
STATE FAMILY CONSTRUCTION FAMILY ESTATE WAREHOUSE REAL ESTATE LOANS TOTAL TOTAL
- ---- ---------- ------------ ------------ ---------- --------- ----------- ------------ ------------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California... $3,771,710 $ -- $ 21,384 $ -- $ -- $3,793,094 $ -- $ 3,793,094 47.70%
Texas... 881,324 107,412 220,878 29,113 -- 1,238,727 -- 1,238,727 15.58
Florida... 421,850 27,013 -- 1,986 -- 450,849 -- 450,849 5.67
Illinois... 157,986 10,919 -- -- -- 168,905 -- 168,905 2.12
Arizona... 97,372 14,323 19,008 -- -- 130,703 -- 130,703 1.64
Pennsylvania... 111,273 7,083 2,497 -- -- 120,853 -- 120,853 1.52
New
Jersey... 107,080 -- -- -- -- 107,080 -- 107,080 1.35
Virginia... 100,700 -- -- -- -- 100,700 -- 100,700 1.27
Washington... 65,974 -- 19,451 -- -- 85,425 -- 85,425 1.07
Georgia... 56,331 6,957 20,583 -- -- 83,871 -- 83,871 1.06
Other
states... 926,785 5,798 91,211 15,765 -- 1,039,559 -- 1,039,559 13.07
Other(1)... -- -- -- -- 379,720 379,720 252,526 632,246 7.95
---------- -------- ---------- -------- -------- ---------- -------- ----------- ------
Total... $6,698,385 $179,505 $ 395,012 $ 46,864 $379,720 $7,699,486 $252,526 $ 7,952,012 100.00%
========== ======== ========== ======== ======== ========== ======== =========== ======
% of
Total... 84.23% 2.26% 4.97% 0.59% 4.77 % 96.82 % 3.18% 100.00%
========= ======== ========== ======== ======== ========== ======== ===========
</TABLE>
- ---------------
(1) Loans that cannot be classified by state.
59
<PAGE> 62
LOAN SERVICING PORTFOLIO
At March 31, 1996, the Mortgage Banking Group was servicing $4.0 billion in
residential mortgage loans owned by the Company and $7.6 billion in mortgages
owned by others. Mortgage loan servicing consists of collecting and accounting
for principal and interest payments from borrowers, remitting principal and
interest payments to investors, making cash advances when required, collecting
funds for and paying mortgage-related expenses such as taxes and insurance,
inspecting mortgaged properties when required, collecting delinquent mortgages,
conducting foreclosures and property dispositions in the event of unremedied
defaults, and generally administering the loans.
In return for performing the servicing functions listed above, the Mortgage
Banking Group receives servicing fees under loan administration contracts. These
fees are withheld from the monthly payments made to investors, are usually based
on the principal balance of the loan being serviced, generally range from 0.25%
to 0.50% annually of the outstanding principal amount of the loan, and are
collected only as payments are received. Minimum servicing fees for
substantially all loans serviced under MBS are set from time to time by the
sponsoring agencies. As a servicer of loans securitized by the GNMA, the FNMA
and the FHLMC, the Bank may be obligated to make timely payment of principal and
interest to security holders, whether or not such payments have been made by
borrowers on the underlying mortgage loans. With respect to mortgage loans
securitized under GNMA programs, the Company is insured by the FHA against
foreclosure loss on FHA loans, and by the VA through guarantees on VA loans.
Although the GNMA, the FNMA and the FHLMC are obligated to reimburse the Company
for principal and interest payments advanced by the Company as a servicer, the
funding of delinquent payments or the exercise of foreclosure rights involves
costs to the Company that may not be fully reimbursed or recovered.
60
<PAGE> 63
The following table sets forth information on the Mortgage Banking Group's
Single Family Servicing Portfolio.
SINGLE FAMILY SERVICING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER
ENDED MARCH 31, 30,
------------------- -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Beginning servicing portfolio................ $12,532 $ 8,921 $ 8,921 $8,073 $7,187
------- ------- ------- ------ ------
Add: Servicing acquisitions(1)............... 78 3,406 3,730 567 --
Servicing on loans purchased by the
Bank................................. 1 440 440 98 1,098
Servicing originated................... 1,980 1,497 3,339 5,407 6,690
Subservicing acquired.................. 23 135 255 -- --
------- ------- ------- ------ ------
Total additions.................... 2,082 5,478 7,764 6,072 7,788
------- ------- ------- ------ ------
Less: Prepayments............................ 823 329 938 1,051 1,169
Foreclosures........................... 52 37 80 41 39
Servicing released/transferred(1)...... 1,986 1,861 2,840 3,913 5,492
Amortization........................... 159 140 295 219 202
------- ------- ------- ------ ------
Total reductions................... 3,020 2,367 4,153 5,224 6,902
------- ------- ------- ------ ------
Ending servicing portfolio................... $11,594 $12,032 $12,532 $8,921 $8,073
======= ======= ======= ====== ======
COMPOSITION OF ENDING SERVICING PORTFOLIO BY
TYPE
Government................................. $ 2,391 $ 3,008 $ 3,090 $2,777 $1,874
Conventional............................... 9,203 9,024 9,442 6,144 6,199
------- ------- ------- ------ ------
Total servicing portfolio.................... $11,594 $12,032 $12,532 $8,921 $8,073
======= ======= ======= ====== ======
COMPOSITION OF ENDING SERVICING PORTFOLIO BY
OWNER
Company.................................... $ 3,956 $ 3,657 $ 4,010 $2,714 $3,634
Others(2).................................. 7,638 8,375 8,522 6,207 4,439
------- ------- ------- ------ ------
Total servicing portfolio.................... $11,594 $12,032 $12,532 $8,921 $8,073
======= ======= ======= ====== ======
</TABLE>
- ---------------
(1) The actual release or transfer of servicing does not necessarily take place
during the same period as the related sale or purchase of MSRs.
(2) Includes servicing related to loans securitized by the Financial Markets
Group into MBS, a portion of which have been retained by the Company.
During the six months ended March 31, 1996 and 1995 and in fiscal 1995 and
1994, the Mortgage Banking Group purchased MSRs associated with loan principal
amounts of $78.2 million, $526.0 million, $594.7 million and $3.9 billion at
premiums of $949,000, $8.9 million, $10.3 million and $50.9 million,
respectively. In addition to the MSRs acquired during fiscal 1994 associated
with $567 million of single family loans included above, MSRs associated with
$3.4 billion of single family loans were purchased in fiscal 1994. Because this
transaction was consummated at or near year-end, these loans were subserviced by
the seller until they were transferred to the Company in fiscal 1995.
Accordingly, this $3.4 billion purchase is not reflected in the table above
until fiscal 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Discussion of Results of
Operations -- Non-Interest Income" and Note 6 to the Consolidated Financial
Statements.
Gains on the sale of MSRs are affected by changes in interest rates as well
as the amount of MSRs capitalized at the time of loan origination or MSR
acquisition. Purchasers of MSRs analyze a variety of factors, including
prepayment sensitivity, to assess the purchase price they are willing to pay.
Lower market
61
<PAGE> 64
interest rates prompt an increase in prepayments as consumers refinance their
mortgages at lower rates of interest. As prepayments increase, the life of the
servicing portfolio is reduced, decreasing the servicing fee revenue that will
be earned over the life of that portfolio and the price third-party purchasers
are willing to pay. The fair value of servicing is also influenced by the supply
and demand of servicing available for purchase at any point in time. Conversely,
as interest rates rise, prepayments generally decrease, resulting in an increase
in the value of the servicing portfolio as well as the gains on sales of MSRs.
Historically, the Company has sold substantially all of the originated MSRs
related to non-portfolio loans. The Company may retain servicing in order to
maintain the servicing portfolio at an acceptable level, particularly during
periods of unusually high levels of prepayments or low levels of new
originations.
In September 1995, the Company adopted SFAS No. 122, effective October 1,
1994. This statement requires that, among other things, the book value of
mortgage loans be allocated at the time of origination between the MSRs and the
related loans, provided there is a plan to sell or securitize such loans. With
the implementation of SFAS No. 122, the original cost basis of the loan is
allocated between the loan and the MSRs, thus increasing the gains on sales of
loans and reducing the gains on sales of MSRs.
The following table presents the percentage of loans in the single family
servicing portfolio in each interest rate category.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------------------------------------------------
LESS
THAN 7.00- 8.01- 9.01- 10.01- 11.01- 12.01%
7.00% 8.00% 9.00% 10.00% 11.00% 12.00% & ABOVE
---- ----- ----- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Government................ 5.1% 7.5 % 5.3 % 2.1% 0.4% 0.2% 0.1%
Conventional.............. 9.1 29.6 28.9 8.4 2.0 0.7 0.6
-- --
---- ---- ---- ---- ---
Total........... 14.2% 37.1 % 34.2 % 10.5% 2.4% 0.9% 0.7%
==== ==== ==== ==== === == ==
</TABLE>
The weighted average interest rate in the single family servicing portfolio
has decreased from 9.57% at September 30, 1991 to 8.14% at March 31, 1996,
principally as a result of the origination of mortgage loans with increasingly
lower rates during fiscal 1991 to 1995, the prepayment and refinance of higher
rate mortgages, and purchases of MSRs on loans originated by others at lower
rates. At March 31, 1996, the weighted average contractual maturity (remaining
years to maturity) of the loans in the residential mortgage loan servicing
portfolio was 23 years.
The following table sets forth as of March 31, 1996 the percentage of
loans, by principal amount, in the Company's single family servicing portfolio
secured on properties located in each state listed:
<TABLE>
<CAPTION>
STATE PERCENT
------------------------------------------------------------- -------
<S> <C>
California................................................... 30.8%
Texas........................................................ 18.3
Florida...................................................... 6.2
Illinois..................................................... 5.1
New Jersey................................................... 4.8
Georgia...................................................... 3.0
Other(1)..................................................... 31.8
-----
Total.............................................. 100.0%
=====
</TABLE>
- ---------------
(1) No other state constitutes more than 3%.
62
<PAGE> 65
Of the approximately 159,000 loans serviced by the Mortgage Banking Group,
at March 31, 1996, 3.84% were delinquent and an additional 0.60% were in
foreclosure. The following table presents certain information regarding the
number of the delinquent single family loans serviced by the Mortgage Banking
Group as of the dates indicated. Completed foreclosures and loans less than 30
days delinquent have been excluded from the table below.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ----------------------
1996 1995 1994 1993
------------ ---- ---- ----
<S> <C> <C> <C> <C>
30-59 Days Past Due............................... 2.3% 2.7% 2.3% 2.4%
60-89 Days Past Due............................... 0.5 0.6 0.5 0.6
90+ Days Past Due................................. 1.0 0.9 0.8 0.8
Loans in foreclosure.............................. 0.6 0.6 0.7 0.6
---- ---- ---- ----
Total................................... 4.4% 4.8% 4.3% 4.4%
==== ==== ==== ====
</TABLE>
Loan administration contracts with the FNMA, and typically with private
investors, provide for continuation of servicing over the term of the loan, but
permit termination for cause or termination without cause upon payment of a
cancellation fee. Loan administration contracts with the GNMA and the FHLMC are
terminable only for cause. Management believes that the Mortgage Banking Group
is currently in substantial compliance with all material rules, regulations, and
contractual obligations related to mortgage loan servicing.
INVESTMENT PORTFOLIO
The Company maintains an investment portfolio for investment and liquidity
purposes.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ----------------------------------------
1996 1995 1994 1993
------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities purchased under agreements to
resell and federal funds sold.......... $ 659,279 $ 471,052 $ 358,710 $ 547,988
Trading account assets................... 1,267 1,081 1,011 1,006
Securities............................... 58,351 116,013 114,115 43,430
MBS...................................... 1,954,070 2,398,263 2,828,903 2,175,925
---------- ---------- ---------- ----------
Total.......................... $2,672,967 $2,986,409 $3,302,739 $2,768,349
========== ========== ========== ==========
</TABLE>
The investment portfolio consists primarily of MBS. MBS were acquired as a
means of investing in housing-related mortgage instruments while incurring less
credit risk than that which arises in holding a portfolio of non-securitized
loans. Additionally, MBS include securities created through the securitization
of the Company's single family loans.
63
<PAGE> 66
The MBS in the investment portfolio include FNMA, FHLMC, and GNMA
certificates, privately issued and credit enhanced MBS ("non-agency
securities"), and certain types of collateralized mortgage obligations ("CMOs").
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Held to maturity
Agency CMOs -- fixed-rate....... $ 3,061 $ 61 $ -- $ 3,122
Non-agency
Fixed-rate................... 7,529 1,837 93 9,273
Adjustable-rate.............. 559,365 635 12,526 547,474
CMOs -- fixed-rate........... 104,286 7 6,893 97,400
Other........................... 303 -- -- 303
-------- -------- -------- --------
674,544 $ 2,540 $ 19,512 657,572
======== ========
Allowance for losses............ (56) --
-------- --------
Held to maturity........ 674,488 657,572 $ 674,488
========
-------- --------
Available for sale
Agency
Adjustable-rate.............. 386,876 $ 3,335 $ 5 390,206
CMOs -- fixed-rate........... 4,032 6 -- 4,038
CMOs -- adjustable-rate...... 245,565 1,219 121 246,663
Non-agency
Fixed-rate................... 72,760 2,390 1 75,149
Adjustable-rate.............. 440,638 687 2,723 438,602
CMOs -- fixed-rate........... 79,944 -- 1,460 78,484
CMOs -- adjustable-rate...... 37,851 12 1,017 36,846
Other........................... 8,360 1,234 -- 9,594
-------- -------- -------- --------
Available for sale...... 1,276,026 $ 8,883 $ 5,327 1,279,582 $1,279,582
======== ======== ========
-------- --------
Total mortgage-backed
securities............ $1,950,514 $1,937,154
======== ========
</TABLE>
The FNMA, FHLMC and GNMA certificates are modified pass-through MBS that
represent undivided interests in underlying pools of fixed-rate or certain types
of adjustable-rate, single family loans issued by the GNMA, a governmental
agency, and by the FNMA and the FHLMC, government-sponsored enterprises. The
non-agency securities acquired by the Company have been pooled and sold by
private issuers and were generally underwritten by large investment banking
firms. These securities provide for the timely payments of principal and
interest either through insurance issued by a reputable insurer, or by
subordinating certain payments under other securities secured by the same
mortgage pool in a manner that is sufficient to have the senior MBS earn one of
the two highest credit ratings from one or more of the nationally recognized
statistical rating agencies. As of March 31, 1996, 99% of the non-agency MBS had
a credit rating of AA/Aa or higher as defined by the Standard & Poor's
Corporation or Moody's Investor Services, Inc., respectively.
The repurchase agreements outstanding at March 31, 1996 and September 30,
1995 were collateralized by single family, multi-family, and commercial real
estate loans and MBS. The loans and MBS underlying the repurchase agreements are
held by the counterparty in safekeeping for the account of the Company or by a
third-party custodian for the benefit of the Company. All of the investments in
repurchase agreements and
64
<PAGE> 67
federal funds sold at March 31, 1996 matured on or before April 24, 1996 and
those outstanding at September 30, 1995 matured on or before October 5, 1995.
The repurchase agreements provide for the same loans and MBS to be resold at
maturity.
See Notes 1 through 4 to the Consolidated Financial Statements for
additional information related to the assets in the investment portfolio.
DEPOSITS AND BORROWINGS
Deposits
The Company attracts deposits through the Bank's 67 community banking
branches located primarily in the Houston and Dallas/Ft. Worth areas. Currently,
the principal methods used by the Company to attract and retain deposit accounts
include offering generally competitive interest rates, having branch locations
in these major Texas markets, and offering a variety of services for the
Company's customers. The Company uses traditional marketing methods to attract
new customers and savings deposits, including newspaper, radio, and television
advertising. The Company offers a traditional line of deposit products that
currently includes checking, commercial checking, money market and savings
accounts and certificates of deposit. These deposit products are specifically
tailored to meet the needs of the Company's retail and small business banking
customers.
The following table illustrates the levels of deposits gathered by the
Company's branch network at March 31, 1996.
COMMUNITY BANKING NETWORK
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------------
AVERAGE
DEPOSITS
NUMBER OF DEPOSITS PER
LOCATION BRANCHES OUTSTANDING BRANCH
- ----------------------------------------------------------- --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Houston Area............................................... 34 $ 2,392,261 $ 70,361
Dallas/Ft. Worth Area...................................... 29 1,322,686 45,610
Other...................................................... 4 212,889 53,222
--
----------
Total deposits................................... 67 $ 3,927,836 58,624
== ==========
</TABLE>
The Company also offers cash management services to its MBF customers.
These services are commercial deposit accounts comprised of operating accounts
of MBF customers, escrow deposits, and principal and interest payments on the
loans serviced by MBF customers. At March 31, 1996, these deposits totaled
$797.3 million. While the Company does not generally solicit brokered deposits,
the Company from time to time accepts brokered deposits when permitted by
regulation and available at favorable rates. Wholesale deposits are raised from
time to time through the Company's money desk from institutional investors.
65
<PAGE> 68
The following table sets forth by account types the aggregate amount and
weighted average rate of the Company's deposits.
DEPOSITS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------
AT MARCH 31,
1996 1995 1994 1993
--------------------- --------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- -------- ---------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
deposits.................... $ 242,560 --% $ 181,196 --% $ 76,498 --% $ 44,149 --%
Interest-bearing deposits
Transaction accounts........ 222,148 1.00 219,307 1.50 233,666 1.49 229,972 2.07
Insured money fund accounts
Consumer.................. 493,000 4.11 397,473 3.73 407,029 3.12 397,511 2.69
Commercial................ 717,308 5.32 857,669 5.82 416,571 4.84 51,938 2.60
---------- ---- ---------- ---- ---------- ---- ---------- ----
Subtotal................ 1,210,308 4.83 1,255,142 5.16 823,600 3.99 449,449 2.68
---------- ---- ---------- ---- ---------- ---- ---------- ----
Savings accounts............ 139,343 2.50 144,301 2.73 222,769 2.60 312,778 2.68
Certificates of deposit
Consumer.................. 2,912,263 5.72 3,063,631 5.84 2,949,715 4.88 3,251,391 4.77
Commercial................ 3,348 5.02 2,273 5.36 -- -- -- --
Wholesale................. 233,351 9.70 316,370 9.06 457,956 7.92 551,649 7.13
---------- ---- ---------- ---- ---------- ---- ---------- ----
Subtotal................ 3,148,962 6.01 3,382,274 6.14 3,407,671 5.29 3,803,040 5.11
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total interest-bearing
deposits.............. 4,720,761 5.37 5,001,024 5.59 4,687,706 4.74 4,795,239 4.58
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total deposits.......... $4,963,321 5.11% $5,182,220 5.40% $4,764,204 4.67% $4,839,388 4.53%
========== ==== ========== ==== ========== ==== ========== ====
Consumer...................... $3,843,134 $3,868,498 $3,834,238 $4,207,739
Commercial.................... 886,836 997,352 472,009 80,000
Wholesale..................... 233,351 316,370 457,957 551,649
---------- ---------- ---------- ----------
Total deposits.......... $4,963,321 $5,182,220 $4,764,204 $4,839,388
========== ========== ========== ==========
</TABLE>
The following table sets forth, by various interest rate categories, the
dollar amounts and the periods to maturity of the Company's time deposits at
March 31, 1996.
DEPOSIT MATURITIES
<TABLE>
<CAPTION>
CERTIFICATES MATURING IN THE YEAR ENDING MARCH 31,
------------------------------------------------------------------------------
STATED RATE 1997 1998 1999 2000 2001 THEREAFTER TOTAL
- ------------------------------- ---------- ---------- -------- -------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
2.99% & below.................. $ 1,824 $ -- $ -- $ -- $ -- $ -- $ 1,824
3.00% to 3.99%................. 21,033 3,827 649 8 -- 3 25,520
4.00% to 4.99%................. 291,351 237,112 16,495 32,615 1,051 3,099 581,723
5.00% to 5.99%................. 524,650 564,293 144,050 47,412 5,496 15,581 1,301,482
6.00% to 6.99%................. 131,259 436,705 82,683 57,147 60,189 19,592 787,575
7.00% to 7.99%................. 127,964 80,121 7,690 5,723 21,599 12,888 255,985
8.00% to 8.99%................. 11,580 1,273 2,581 3,010 1,700 379 20,523
9.00% to 9.99%................. 265 741 6,249 2,925 12 446 10,638
10.00% to 10.99%............... 31,200 7,444 23,974 728 591 325 64,262
Over 10.99%.................... 69,648 29,517 -- 265 -- -- 99,430
---------- ---------- -------- -------- ------- ------- ----------
$1,210,774 $1,361,033 $284,371 $149,833 $90,638 $ 52,313 $3,148,962
========== ========== ======== ======== ======= ======= ==========
</TABLE>
66
<PAGE> 69
The following table sets forth the amount of the Company's certificates of
deposit that are $100,000 or greater by time remaining until maturity.
TIME DEPOSITS GREATER THAN $100,000
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------
NUMBER OF ACCOUNTS DEPOSIT AMOUNT
------------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less........................................ 648 $ 68,289
Over three through six months............................... 895 94,458
Over six through twelve months.............................. 1,455 151,881
Over twelve months.......................................... 1,352 143,660
----- -------
4,350 $458,288
===== =======
</TABLE>
Borrowings
The Company relies upon borrowings, primarily collateralized borrowings
such as advances from the FHLB and reverse repurchase agreements, to fund its
assets. These sources of funds were the primary source of funds for the recent
asset growth and accounted for 46% of the funding of average assets for the six
months ended March 31, 1996, 43% for fiscal 1995, 31% for fiscal 1994 and 23%
for fiscal 1993. Fixed and variable rate advances are obtained from the FHLB
Dallas under a security and pledge agreement that restricts the amount of
borrowings to the greater of (i) a percentage of fully disbursed single family
loans, unless assets are physically pledged to the FHLB Dallas, and (ii) a
percentage of total assets. At March 31, 1996, these limitations were 65% of the
outstanding principal of single family loans and 45% of total assets. See Notes
9 and 10 to the Consolidated Financial Statements.
67
<PAGE> 70
The following table sets forth certain information regarding the borrowings
of the Company as of or for the period indicated.
BORROWINGS
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------
MARCH 31, 1996 1995 1994 1993
------------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Reverse Repurchase Agreements
Balance outstanding at
period-end..................... $ 949,936 $1,172,533 $ 553,000 $ 300,000
Fair value of collateral at
period-end..................... 987,478 1,239,527 673,000 321,200
Maximum outstanding at any month-
end............................ 1,096,508 1,355,540 553,000 659,000
Daily average balance............. 982,115 887,932 273,899 345,269
Average interest rate............. 5.82% 5.99% 3.85% 3.23%
Federal Funds Purchased
Balance outstanding at
period-end..................... $ -- $ -- $ -- $ 10,000
Maximum outstanding at any month-
end............................ -- -- 15,000 10,000
Daily average balance............. 54 521 767 740
Average interest rate............. 5.94% 5.95% 3.73% 2.84%
FHLB Advances
Balance outstanding period-end.... $4,139,023 $4,383,895 $2,620,329 $2,185,445
Maximum outstanding at any month-
end............................ 4,384,798 4,386,605 2,697,829 2,217,745
Daily average balance............. 4,346,960 3,560,844 2,285,630 1,344,129
Average interest rate............. 6.18% 6.31% 3.98% 3.62%
</TABLE>
See Note 8 to the Consolidated Financial Statements for additional
information.
ASSET AND LIABILITY MANAGEMENT
The Company's asset and liability management process is utilized to manage
the Company's interest rate risk through structuring the balance sheet and
off-balance sheet portfolios to maximize net interest income while maintaining
acceptable levels of risk to changes in market interest rates. The achievement
of this goal requires a balance between profitability, liquidity and interest
rate risk.
Interest rate risk is managed by the ALCO, which is composed of senior
officers of the Bank, in accordance with policies approved by the Board of
Directors of the Bank. The ALCO formulates strategies based on appropriate
levels of interest rate risk. In determining the appropriate level of interest
rate risk, the ALCO considers the impact on earnings and capital of the current
outlook on interest rates, potential changes in interest rates, regional
economies, liquidity, business strategies and other factors. The ALCO meets
regularly to review, among other things, the sensitivity of assets and
liabilities to interest rate changes, the book and market values of assets and
liabilities, unrealized gains and losses, purchase and sale activity, the
mortgage pipeline, and the maturities of investments and borrowings.
Additionally, the ALCO reviews liquidity, cashflow flexibility, maturities of
deposits, consumer and commercial deposit activity, current market conditions,
and interest rates on both a local and national level.
The "interest rate sensitivity gap" is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to affect net interest income
adversely, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest
68
<PAGE> 71
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to affect net interest income adversely.
Different types of assets and liabilities with the same or similar maturities
may react differently to changes in overall market rates or conditions, thus
changes in interest rates may affect net interest income positively or
negatively even if an institution were perfectly matched in each maturity
category. While the interest rate sensitivity gap is a useful measurement and
contributes toward effective asset and liability management, it is difficult to
predict the effect of changing interest rates solely on that measure, without
accounting for alterations in the maturity or repricing characteristics of the
balance sheet that occur during changes in market interest rates.
To effectively measure and manage interest rate risk, the Company uses
simulation analysis to determine the impact on net interest income under various
interest rate scenarios, balance sheet trends and strategies. From these
simulations, interest rate risk is quantified and appropriate strategies are
developed and implemented. Additionally, duration and market value sensitivity
measures are utilized when they provide added value to the overall interest rate
risk management process. The overall interest rate risk position and strategies
are reviewed by executive management and the Bank's Board of Directors on an
ongoing basis.
69
<PAGE> 72
The following table sets forth the expected repricing characteristics of
the Company's consolidated assets and liabilities at March 31, 1996, utilizing
assumptions noted below:
ASSET/LIABILITY REPRICING
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING IN
------------------------------------------------------------
AFTER
THREE AFTER AFTER
LESS THAN MONTHS SIX MONTHS ONE YEAR AFTER
THREE BUT WITHIN BUT WITHIN BUT WITHIN FIVE NON-
MONTHS SIX MONTHS ONE YEAR FIVE YEARS YEARS REPRICING TOTAL
---------- ---------- ---------- ---------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS(1)(2)
Residential construction and
commercial real estate loans...... $ 599,923 $ 6,275 $ 12,837 $ 154,403 $ 6,254 $ -- $ 779,692
Single family mortgage warehouse.... 379,719 -- -- -- -- -- 379,719
Adjustable-rate loans and mortgage-
backed securities................. 3,025,481 2,101,348 1,487,350 1,007,120 26,395 -- 7,647,694
Fixed-rate loans and mortgage-backed
securities........................ 47,260 46,311 89,921 555,531 248,791 -- 987,814
Cash and investment securities...... 994,980 -- 52,600 -- 40,009 -- 1,087,589
Other assets........................ 76,470 -- -- -- -- 307,658 384,128
--------- --------- --------- --------- -------- --------- ----------
Total assets.................... $5,123,833 $2,153,934 $1,642,708 $1,717,054 $321,449 $ 307,658 $11,266,636
========= ========= ========= ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Certificates of deposit............. $ 465,343 $ 644,399 $1,107,134 $ 902,043 $ 30,043 $ -- $ 3,148,962
Checking and savings(3)............. 1,108,572 91,606 183,213 430,968 -- -- 1,814,359
--------- --------- --------- --------- -------- --------- ----------
Total deposits.................. 1,573,915 736,005 1,290,347 1,333,011 30,043 -- 4,963,321
Senior Notes........................ -- -- -- 115,000 -- -- 115,000
FHLB advances and other
borrowings........................ 3,516,307 653,564 843,202 71,200 5,045 -- 5,089,318
Other liabilities................... 287,056 -- -- -- -- 100,000 387,056
Minority interest................... -- -- -- -- -- 185,500 185,500
Stockholders' equity................ -- -- -- -- -- 526,441 526,441
--------- --------- --------- --------- -------- --------- ----------
Total liabilities, minority
interest, and stockholders'
equity........................ $5,377,278 $1,389,569 $2,133,549 $1,519,211 $ 35,088 $ 811,941 $11,266,636
========= ========= ========= ========= ======== ========= ==========
Gap before off-balance-sheet financial
instruments......................... $ (253,445) $ 764,365 $ (490,841) $ 197,843 $286,361 $(504,283)
OFF-BALANCE-SHEET(5)
Interest rate swap agreements -- pay
floating.......................... (50,000) -- 50,000 -- -- --
Interest rate swap agreements -- pay
fixed............................. -- -- -- -- -- --
--------- --------- --------- --------- -------- ---------
Gap................................... $ (303,445) $ 764,365 $ (440,841) $ 197,843 $286,361 $(504,283)
========= ========= ========= ========= ======== =========
Cumulative gap........................ $ (303,445) $ 460,920 $ 20,079
=========
Weighted average gap(4)............... $ (54,367)
=========
Cumulative gap as a percentage of
total assets........................ (2.69%) 4.09% 0.18%
</TABLE>
- ---------------
(1) Fixed-rate loans and MBS are distributed based on their contractual maturity
adjusted for prepayments, and adjustable-rate loans and MBS are distributed
based on the interest rate reset date and contractual maturity adjusted for
prepayments. Loans and MBS runoff and repricing assumes a constant
prepayment rate based on coupon rate and maturity. The weighted average
annual projected prepayment rate was 20%.
(2) Assets repricing to lagging rate indices are adjusted to reflect the delay
in the repricing of the index to market interest rates. The lagging indices
are based on a blended cost of funds, primarily the FHLB 11th District Cost
of Funds Index. These indices are assumed to take 18 months to reprice fully
to a change in the general level of interest rates.
70
<PAGE> 73
(3) Checking and savings deposits are distributed based on their assumed pricing
relationship to general market interest rates. Savings accounts are assumed
to reprice over a twelve month period, and checking accounts are assumed to
reprice to interest rate changes after one year but before five years.
(4) The weighted average gap weighs each maturity or repricing amount by the
number of months remaining in the year at the time of occurrence. It
provides a measure of net interest income sensitivity over the next twelve
months given a change in the general level of market interest rates without
altering the maturity or repricing characteristics of the balance sheet.
(5) The above table includes only those off-balance-sheet financial instruments
which impact the gap in all interest rate environments. The Company also has
certain off-balance-sheet financial instruments which hedge specific
interest rate risks.
COMPETITION
The Company competes with numerous other providers of financial products
and services in all aspects of its operations. Competitors for deposits include
thrift institutions, commercial banks, credit unions, full service and discount
broker dealers, and other investment alternatives, such as mutual funds, money
market funds, and savings bonds or other government securities. Primary
competitive factors include convenience of locations, variety of deposit or
investment options, quality of customer service and rates and/or terms offered.
The Company competes for mortgage originations with thrift institutions,
banks, insurance companies, and mortgage companies, many of which operate
nationwide mortgage origination networks similar to that of the Company. Primary
competitive factors include service quality, relationships with builders and
real estate brokers, and rates and fees. Many of the Company's competitors are,
or are affiliated with, organizations with substantially larger asset and
capital bases (including regional and multi-national banks and bank holding
companies) and with lower funding costs.
SUBSIDIARIES
The Company has no direct subsidiaries other than the Bank. The Bank is
permitted to invest in the capital stock, obligations, and other securities of
its service corporations in an aggregate amount not to exceed 2% of the Bank's
assets, plus an additional 1% of assets if such investment is used for community
development or inner-city development purposes. In addition, if the Bank meets
minimum regulatory capital requirements, it may make certain conforming loans in
an amount not exceeding 50% of the Bank's regulatory capital to service
corporations of which the Bank owns more than 10% of the stock. At March 31,
1996, the Bank was authorized to have a maximum investment of approximately
$338.1 million in its subsidiaries.
Commonwealth United Mortgage Company
The Bank is the sole shareholder of Commonwealth United Mortgage Company, a
Texas corporation formed in 1992 to function as a licensed mortgage banker in
the state of Vermont.
United Agency Corporation
United Agency Corporation is a wholly-owned subsidiary of the Bank whose
primary purpose is holding the stock of Commonwealth General Services Agency,
Inc., an Arkansas corporation incorporated in 1951 ("CGSA"). CGSA is a managing
general insurance agency that contracts with insurance companies and agencies
that offer insurance products to the Bank's mortgage loan customers. CGSA earns
a commission on each insurance policy sold by the insurance companies or
agencies with which CGSA contracts.
United Capital Management Corporation
The Bank is the sole shareholder of United Capital Management Corporation,
a Texas corporation formed in 1985 to function in the deposit referral business
and is currently inactive.
71
<PAGE> 74
United Financial Markets, Inc.
The Bank is the sole shareholder of United Financial Markets, Inc. ("UFM"),
a Texas corporation, which acts as a full-service broker-dealer. UFM, through
its institutional division, sells various securities products and whole loans
and engages in the deposit referral business with institutional and
sophisticated retail customers. Through its retail division, UFM markets
annuities and securities, including mutual funds, stocks and bonds, to the
Bank's retail customers. UFM is a broker-dealer registered with the Commission
and a member of the National Association of Securities Dealers, Inc. ("NASD").
This subsidiary commenced operations in late 1992, and its activities have been
expressly approved by the OTS.
United Greenway Securities Services, Inc.
The Bank is the sole shareholder of United Greenway Securities Services,
Inc., a Texas corporation formed in 1989 to make mutual funds and other
non-deposit products available to retail customers through referrals to a
registered broker-dealer. This subsidiary is currently inactive.
United Mortgage Securities Corporation
The Bank is the sole shareholder of United Mortgage Securities Corporation,
a Delaware corporation formed in 1993 to issue MBS securitized with mortgage
loans purchased from the Bank.
USAT Mortgage Securities, Inc.
The Bank is the sole shareholder of USAT Mortgage Securities, Inc., a Texas
corporation formed in 1985 to function as an issuer of three series of CMOs.
This subsidiary is currently inactive.
PERSONNEL
As of March 31, 1996, the Company employed 2,568 full-time employees and
129 part-time employees. The employees are not represented by a collective
bargaining agreement, and the Company believes that it has good relations with
its employees. See Note 14 to the Consolidated Financial Statements for
information relating to certain benefits generally available to all employees.
THE ASSISTANCE AGREEMENT
In connection with the Acquisition, the Bank, the Company and certain of
their direct and indirect parent entities entered into an overall agreement with
certain agencies of the federal government that was evidenced by several written
agreements. The principal contract relating to the Acquisition was the
Assistance Agreement, dated December 30, 1988, among the FSLIC, the Company, the
Bank, and certain of the Bank's other direct and indirect parent entities (the
"Assistance Agreement"). The Assistance Agreement set forth certain mutual,
interdependent commitments of the parties with respect to the Acquisition. Among
other provisions, the FSLIC agreed to provide the Bank with certain forms of
financial assistance.
The Company also succeeded to substantial NOLs as a result of the
Acquisition and has recorded substantial additional NOLs for tax purposes due to
the exclusion of assistance payments received from the FRF under the Assistance
Agreement from taxable income and the deduction of losses and writedowns on
certain assets (the "Covered Assets") for which tax-free assistance payments
were received. See "Regulation -- Taxation -- FSLIC Assistance".
In connection with the Acquisition, the Bank issued the Warrants, which
enable the FDIC, as administrator of the FRF, to acquire a specified number of
shares of the outstanding Bank outstanding Common Stock for a nominal price, and
agreed to make payments in lieu of dividends on the Warrants upon the payment of
dividends on the Bank Common Stock. See "-- Warrant Agreement".
The Assistance Agreement was terminated on December 23, 1993, when the
Company, the Bank, certain of their direct and indirect parent entities, and the
FDIC entered an agreement settling certain disputes with respect to various
matters relating to the Acquisition and the Assistance Agreement (the
"Settlement
72
<PAGE> 75
Agreement"). Pursuant to the Settlement Agreement, the Assistance Agreement was
terminated, the Bank no longer managed or owned the Covered Assets (except for
certain of the Covered Assets that were "uncovered" and retained), and, as of
December 28, 1993, the Bank no longer received any significant financial
assistance from the FRF. The Settlement Agreement also provided for the
continuation of certain of the Company's and the Bank's claims against the
United States in the United States Court of Federal Claims. See
"-- Forbearance".
Impact of Assistance Payments
The Bank received substantial payments from the FRF pursuant to the
Assistance Agreement prior to its termination. Payments received during fiscal
1994 and 1993 are summarized below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
--------------------
1994 1993
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Payments affecting the results of operations.................... $ 23,143 $ 9,289
Other Payments
Settlement payment............................................ 195,300 --
Other......................................................... 468 61,578
-------- -------
Total FRF payments.................................... $218,911 $70,867
======== =======
</TABLE>
Warrant Agreement
Concurrent with the execution of the Assistance Agreement, the Bank and the
FSLIC entered into a warrant agreement (the "Warrant Agreement"), pursuant to
which the FSLIC was granted the Warrants to purchase up to 158,823 shares of the
Bank Common Stock (5.56% of the Bank Common Stock as of December 28, 1993,
assuming exercise in full of the Warrants) at an exercise price of $0.01 per
share. Pursuant to the Settlement Agreement, the Bank and the FDIC (as
administrator of the FRF, the successor to FSLIC) entered into the First
Amendment to the Warrant Agreement on December 28, 1993 (the "First Amendment to
Warrant Agreement"). References to the Warrant Agreement below are to the
Warrant Agreement as amended by the First Amendment to Warrant Agreement.
The Warrant Agreement provides that the holder may exercise the Warrants,
in whole or in part, at any time, and from time to time until December 29, 2004.
The Warrant Agreement provides that the holder may sell, transfer, assign, or
otherwise dispose of the Warrant and its rights and obligations under the
Warrant Agreement at any time, subject to a right of first refusal by the Bank.
The Warrant Agreement provides that the holder of the Warrants shall have
the right to, among other things, have an offering circular filed with the OTS
in connection with the sale of the Bank Common Stock to be received upon
exercise thereof. The Warrant Agreement also provides for an adjustment of the
number of shares of the Bank Common Stock that are purchasable upon exercise of
the Warrants upon the occurrence of certain events, including a stock split and
the issuance of Bank Common Stock, at a price below the market price determined
at and immediately prior to the time of issuance. No adjustments had been made
to such number of shares of the Bank Common Stock at September 30, 1995 or March
31, 1996. Within 60 days following the submission by the holders of more than
50% interest of the Warrants or of the Bank Common Stock that has been issued
upon the exercise of the Warrants of a demand for filing of an offering circular
with the OTS, the Bank, the Company or their affiliates have the right to
repurchase all or a portion of both the Warrants and any shares of the Bank
Common Stock that have been issued upon the exercise of the Warrants, for cash,
in an amount equal to their market value (as defined in the Warrant Agreement).
Pursuant to the Settlement Agreement, all disputes with respect to the
Warrants, including the dispute concerning credit to the FRF for dividends paid
prior to December 28, 1993, were resolved, and the parties agreed that the Bank
will make payments to the holder of the Warrants in lieu of dividends upon any
payment of dividends on the Bank Common Stock (other than dividends for which
anti-dilution adjustments are made)
73
<PAGE> 76
beginning December 28, 1993 until December 30, 1998 or such earlier date as the
Warrants are no longer outstanding. In May 1996, the Bank made a payment to the
FDIC of $5.9 million in lieu of such dividends in connection with the
declaration of a $100 million dividend on the Bank Common Stock.
The Warrant Agreement also provides that the Warrants shall be redeemed
upon a merger or liquidation of the Bank or certain events constituting a change
in control of the Bank's direct or indirect parent entities, at a price
equivalent to the value of the number of shares of the Bank Common Stock for
which the Warrants are exercisable, such value to be derived from the
consideration paid in connection with such merger, liquidation, or change in
control.
Forbearance
In connection with the Acquisition, the FHLB also approved the Forbearance
Agreement. Under the terms of the Forbearance Agreement, the FSLIC agreed to
waive or forbear from the enforcement of certain regulatory provisions with
respect to regulatory capital requirements, liquidity requirements, accounting
requirements and other matters. On January 9, 1990, OTS took the position that
the capital standards set forth in the FIRREA apply to all savings institutions,
including those institutions that had been operating under previously granted
capital and accounting forbearances, and that FIRREA eliminated these
forbearances. While the Bank has not had to rely on such forbearances or waivers
in order to remain in compliance with existing capital requirements as
interpreted by the OTS, the position of the OTS has adversely affected the Bank
by curtailing the growth and reducing the leverage contemplated by the terms of
the Forbearance Agreement. The Bank also has been and continues to be in
compliance with all of the other referenced regulatory capital provisions and,
accordingly, has not had to rely on the waivers or forbearances provided in the
Acquisition. Pursuant to the Settlement Agreement, the Company, the Bank and
certain of their then-direct and indirect parent entities have retained all
causes of action and claims relating to the forbearances against the United
States in the United States Court of Federal Claims, and the FDIC and the other
governmental parties to the lawsuit have reserved any and all defenses to such
causes of actions and claims. On July 25, 1995, the Bank, the Company, and
certain of their then-direct and indirect parent entities filed suit against the
United States in the Court of Federal Claims for alleged failures of the United
States to honor certain contractual obligations, including obligations related
to the Forbearance Agreement. The lawsuit is in a preliminary stage. Discovery
has been stayed pending the United States Supreme Court's review of United
States v. Winstar Corp., an action by another thrift raising similar issues. See
"Legal Proceedings".
REGULATION
REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
The Company is a savings and loan holding company that is regulated and
subject to examination by the OTS. The activities of savings and loan holding
companies are governed by the provisions of the Home Owners' Loan Act, as
amended (the "HOLA"). Pursuant to the HOLA, a savings and loan holding company
may not (i) acquire control of a savings association or savings and loan holding
company without prior OTS approval; (ii) acquire, except with prior OTS
approval, by process of merger, consolidation, or purchase of assets of another
savings association or savings and loan holding company, all or substantially
all of the assets of any such association or holding company; or (iii) acquire,
by purchase or otherwise, more than 5% of the voting shares of a savings
association that is not a subsidiary, or of a savings and loan holding company
that is not a subsidiary. Other restrictions on activities of a savings and loan
holding company do not apply to the Company because its savings association
subsidiary is a qualified thrift lender, and further because its savings
association subsidiary was initially acquired in connection with assisted
transactions. See "-- Safety and Soundness Regulations -- Capital
Requirements -- Qualified Thrift Lender ("QTL") Test". Every subsidiary savings
association of a savings and loan holding company must give the OTS not less
than 30 days of advance notice of proposed dividend declarations.
74
<PAGE> 77
SAFETY AND SOUNDNESS REGULATIONS
Charter, Supervision and Examination
Charter. The Bank is chartered under the HOLA, which imposes certain
obligations and restrictions upon, and grants certain powers to, federally
chartered savings banks such as the Bank. The provisions of the HOLA are
implemented by regulations adopted and administered by the OTS.
OTS. Federally chartered savings banks, such as the Bank, are subject to
extensive regulation by the OTS and must regularly file financial and other
reports with that agency. The supervision and regulation to which the Bank is
subject is intended primarily for the protection of its depositors. The OTS
performs periodic examinations of the Bank to test compliance by the Bank with
various regulatory requirements. The OTS may revalue assets of an insured
institution based upon appraisals and require establishment of specific reserves
in amounts equal to the difference between such revaluation and the book value
of the assets, as well as require specific charge-offs relating to such assets.
The OTS prescribes regulations for the collection of fees in order to
recover the expenses of the agency, the cost of supervision of savings
associations, the examination of savings associations and their subsidiaries,
and the processing of applications, filings, notices, and certain other requests
of savings associations filed with the OTS. The OTS adopted a two-pronged
sliding scale approach in 1990 by which all institutions pay a general
assessment and troubled institutions pay an additional premium assessment. The
Bank has never been subject to a premium assessment. The Bank's assessments
amounted to approximately $719,600, $1.2 million, and $1.1 million in the
aggregate during the six months ended March 31, 1996 and fiscal 1995 and 1994,
respectively.
FDIC. The FDIC administers the SAIF, which insures the deposits of savings
associations such as the Bank. The Bank's deposits are insured by the SAIF to a
maximum of $100,000 for each insured depositor. In addition, the FDIC has
certain regulatory and full examination authority over OTS regulated savings
associations. The FDIC may also recommend enforcement actions against savings
associations to the OTS and, if the OTS fails to act on the FDIC's
recommendation, the FDIC may, under certain circumstances, compel the OTS to
take the requested enforcement action.
Insurance Assessments. The FDIC establishes premium assessment rates for
SAIF deposit insurance. There is no statutory limit on the maximum assessment
and the percent of increase in the assessment that the FDIC may impose in any
one year. Effective January 1, 1993, the FDIC adopted risk-based assessment
regulations.
To arrive at a risk-based assessment for each bank and thrift, the FDIC
places it in one of nine risk categories using a two-step process based first on
capital ratios and then on relevant supervisory information. Each institution is
assigned to one of three groups (well capitalized, adequately capitalized, or
undercapitalized) based on its capital ratios. A "well-capitalized" institution
is one that has at least a 10% "total risk-based capital" ratio (the ratio of
total capital to risk-weighted assets), a 6% "Tier 1 risk-based capital" ratio
(the ratio of Tier 1 (core) capital to risk-weighted assets) and a 5% "leverage
capital" ratio (the ratio of core capital to adjusted total assets). An
"adequately capitalized" institution has at least an 8% total risk-based capital
ratio, a 4% Tier 1 (core) risk-based capital ratio and a 4% leverage capital
ratio. An "undercapitalized" institution is one that does not meet either the
definition of well capitalized or adequately capitalized.
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The FDIC also assigns each institution to one of three supervisory
subgroups based on an evaluation of the risk posed by the institution. These
supervisory evaluations modify premium rates within each of the three capital
groups. The nine risk categories and the corresponding SAIF assessment rates are
as follows:
<TABLE>
<CAPTION>
SUPERVISORY
SUBGROUP
-------------------
A B C
--- --- ---
<S> <C> <C> <C>
Meets numerical standards for:
Well capitalized.................................................. 23 26 29
Adequately capitalized............................................ 26 29 30
Undercapitalized.................................................. 29 30 31
</TABLE>
For purposes of assessments of FDIC insurance premiums, the Bank is a
"well-capitalized" institution. FDIC regulations prohibit disclosure of the
supervisory subgroup to which an insured institution is assigned. The Bank's
insurance assessments for the six months ended March 31, 1996, fiscal 1995 and
1994 were $6.1 million, $11.4 million, and $11.3 million, respectively.
Both the SAIF and the BIF, the deposit insurance fund that covers most
commercial bank deposits, are statutorily required to achieve and maintain a
reserve ratio equal to 1.25% of estimated insured deposits. As a result of the
BIF reaching the 1.25% level, on August 16, 1995, the FDIC lowered the deposit
insurance premium assessment rate for BIF members to between .04% and .31% of
insured deposits, while retaining the existing assessment rate of .23% to .31%
of insured deposits for members of SAIF. On November 14, 1995, the FDIC further
reduced insurance premiums on BIF deposits by $.04 per $100 of insured deposits,
creating an assessment range of 0% to .27% of insured deposits, subject to a
statutory requirement that all institutions pay at least $2,000 annually.
Approximately 92% of BIF members qualify for the lowest assessment rate. As a
result of the significant disparity in the deposit insurance premiums paid by
well-capitalized SAIF members, such as the Bank, and well-capitalized BIF
members, SAIF members are at a competitive disadvantage to BIF members with
respect to the pricing of loans and deposits and the ability to achieve lower
operating costs.
Measures to mitigate the effect of the BIF/SAIF premium disparity are being
considered by the Congress. Many of these proposals feature a one-time
assessment (which reports estimate from 0.75% of deposits to 0.90% of deposits)
on SAIF-insured institutions with the aim of fully recapitalizing the SAIF. Such
an assessment could result in an amount payable by the Bank, net of tax, of as
much as $23.7 million to $28.5 million. At this time, no assurance can be given
as to whether any BIF/SAIF legislative alternatives will become law.
Partly in response to the BIF/SAIF premium disparity, the Bank has applied
to the appropriate regulatory authorities to establish a BIF-insured national
bank as a subsidiary of the Bank. As a long-term strategy, if the BIF/SAIF
premium disparity continues, the national bank could attract BIF deposits by
offering interest rates that compare more favorably to that of the Bank.
However, legislation has been introduced in Congress that could make it more
difficult to carry out such a deposit-shifting strategy. At this time, no
assurance can be given when, or if, the Company will be able to carry out its
plan to establish and operate a national bank.
Termination of Insurance. The FDIC may terminate the deposit insurance of
any insured depository institution, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, or order, or any condition imposed by an agreement
with the FDIC. It also may suspend deposit insurance temporarily during the
hearing process for the permanent termination of insurance if the institution
has no tangible capital. If insurance of an institution's accounts is
terminated, the accounts at the institution at the time of such termination,
less subsequent withdrawals, would continue to be insured for a period of six
months to two years, as determined by the FDIC.
Audit Requirements. In May 1993, the FDIC adopted rules establishing
annual independent audits and financial reporting requirements for all
depository institutions with assets of more than $500 million, and for their
management, and their independent auditors. The rules also establish
requirements for the composition,
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duties, and authority of such institutions' audit committees and boards of
directors. Among other things, all depository institutions with assets in excess
of $500 million are required to prepare and make available to the public annual
reports on their financial condition and management, including statements of
management's responsibility for preparing the institution's financial
statements, for establishing and maintaining an internal control structure and
procedures for financial reporting, and for complying with specified laws and
regulations relating to safety and soundness, and an assessment of the
effectiveness of such internal controls and procedures and the institution's
compliance with laws and regulations designated by the FDIC. The institution's
independent auditors are required to attest to these management assessments.
Each such institution also is required to have an audit committee composed of
directors who are independent of management of the institution. Audit committees
of large institutions (institutions with assets exceeding $3.0 billion) must:
(i) include members with banking or related financial management expertise; (ii)
have the ability to engage their own independent legal counsel; and (iii) must
not include any entities designated as "large customers" of the institution. In
some cases, the institution's responsibilities under these rules may be
fulfilled by its holding company.
Federal Reserve Board. The Federal Reserve Board requires all depository
institutions (including savings associations) to maintain reserves against their
transaction accounts (primarily NOW and Super NOW checking accounts) and
non-personal time deposits. Reserves of 3% must be maintained against total
transaction accounts of $52.0 million or less (subject to adjustment by the
Federal Reserve Board) and an initial reserve of $1,560,000 plus 10% (subject to
adjustment by the Federal Reserve Board to a level between 8% and 14%) must be
maintained when total transaction accounts exceed such amount. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements imposed by the OTS. See
"-- Investment Authority -- Liquidity".
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.
Federal Home Loan Banks. The Bank is a member of the FHLB Dallas, which is
one of 12 regional FHLBs, each subject to supervision and regulation by the
Federal Housing Finance Board. The FHLBs provide a central credit facility
primarily for member thrift institutions, as well as for qualified commercial
banks and other entities involved in home mortgage finance. The Bank, as a
member of the FHLB Dallas, is required to purchase and hold shares of the
capital stock in that FHLB in an amount at least equal to the greater of: (i) 1%
of the aggregate principal amount of its unpaid mortgage loans, home purchase
contracts and similar obligations at the beginning of each year; (ii) 0.3% of
its assets; or (iii) 5% (or such greater fraction as established by the FHLB) of
its advances (i.e., borrowings) from the FHLB.
Capital Requirements
Requirements and Standards. The OTS capital regulations have three
components: a leverage limit, a tangible capital requirement, and a risk-based
capital requirement. See Note 15 to the Consolidated Financial Statements for
compliance with the regulatory capital requirements.
Leverage Limit. The leverage limit requires that a savings association
maintain "core capital" of at least 3% of its adjusted total assets. For
purposes of this requirement, total assets are adjusted to exclude intangible
assets and investments in certain subsidiaries, and to include the assets of
certain other subsidiaries, certain intangibles arising from prior period
supervisory transactions, and permissible MSRs. "Core capital" includes common
shareholders' equity and retained earnings, noncumulative perpetual preferred
stock and related surplus and minority interests in consolidated subsidiaries,
minus intangibles, plus certain MSRs and certain goodwill arising from prior
regulatory accounting practices.
Although accounted for under Generally Accepted Accounting Principles
("GAAP") as an intangible asset, certain MSRs need not be deducted in computing
core and tangible capital. Generally, the lower of 90% of the fair market value
of readily marketable MSRs, or the current unamortized book value as determined
under GAAP may be included in core and tangible capital up to a maximum of 50%
of core capital computed
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before the deduction of any disallowed qualifying intangible assets. At March
31, 1996, the Bank's core capital included $82.7 million of MSRs.
In determining core capital, all investments in and loans to subsidiaries
engaged in activities not permissible for national banks, which are generally
more limited than activities permissible for savings associations and their
subsidiaries ("nonconforming subsidiaries"), must be deducted. Certain
exceptions are provided, including exceptions for mortgage banking subsidiaries
and subsidiaries engaged in agency activities for customers (unless determined
otherwise by the FDIC on safety and soundness grounds). Generally, all
subsidiaries engaged in activities permissible for national banks are required
to be consolidated for purposes of calculating capital compliance by the parent
savings association.
Tangible Capital Requirement. The tangible capital requirement mandates
that a savings association maintain tangible capital of at least 1.5% of
adjusted total assets. For purposes of this requirement, adjusted total assets
are calculated on the same basis as for the leverage limit. "Tangible capital"
is defined in the same manner as core capital, except that all intangible assets
except qualifying MSRs must be deducted. At March 31, 1996, the Bank's tangible
capital ratio was 6.88%.
Risk-based Capital Requirement. The risk-based requirement promulgated by
the OTS is required by the HOLA to track the standard applicable to national
banks, except that the OTS may determine to reflect interest rate and other
risks not specifically included in the national bank standard. However, such
deviations from the national bank standard may not result in a materially lower
risk-based requirement for savings associations than for national banks. The
risk-based standard adopted by the OTS is similar to the OCC standard for
national banks.
The risk-based standards of the OTS require maintenance of core capital
equal to at least 4% of risk-weighted assets and total capital equal to at least
8% of risk-weighted assets. "Total capital" includes core capital plus
supplementary capital (except that includable supplementary capital may not
exceed core capital). Supplementary capital includes: cumulative perpetual
preferred stock; mutual capital certificates, income capital certificates and
net worth certificates; nonwithdrawable accounts and pledged deposits to the
extent not included in core capital; perpetual and mandatory convertible
subordinated debt and maturing capital instruments meeting specified
requirements; and general loan and lease loss allowances, up to a maximum of
1.25% of risk-weighted assets. At March 31, 1996, the Bank's core capital and
total capital ratios were 6.96% and 14.20%, respectively.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet assets, are multiplied by a risk factor ranging from
0% to 100%, as assigned by the OTS based on the risks it believes inherent in
the type of asset. Comparable weights are assigned to off-balance sheet
activities.
Interest Rate Risk ("IRR") Component. OTS regulations add an IRR component
to the 8% risk-based capital requirement discussed above. Only savings
associations with more than a "normal" level of IRR are subject to IRR
requirements. The IRR component is calculated as one-half of the difference
between the institution's measured IRR and 2%, multiplied by the market value of
the institution's assets.
On October 13, 1994, the OTS waived the IRR capital deduction until
guidelines under which institutions may appeal such a deduction were published.
The OTS extended the waiver on March 20, 1995 until further notice. On August
21, 1995, the OTS adopted and approved an appeal process, but again delayed the
IRR capital deduction indefinitely.
Failure to Meet Requirements. Any savings association that fails to meet
its regulatory capital requirements is subject to enforcement actions by the OTS
or the FDIC. The OTS must limit the asset growth of any undercapitalized
association and issue a capital directive against the association. See
"-- Enforcement -- Prompt Corrective Action".
Capital Distributions. Limitations are imposed upon all "capital
distributions" by savings associations, including cash dividends, payments by an
institution in a cash-out merger and other distributions charged against
capital. The capital distribution regulation establishes a three-tiered system,
with the greatest flexibility afforded to well-capitalized institutions.
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Under the capital distribution regulation, an association that immediately
prior to a proposed capital distribution, and on a pro forma basis after giving
effect to a proposed capital distribution, has capital that is equal to or
greater than the amount of its fully phased-in capital requirement is a "Tier 1
association". To qualify, an association must maintain the following capital
ratios: (i) tangible capital to adjusted total assets ratio of 1.50%, (ii) core
capital to adjusted total assets ratio of 3.00%, and (iii) total risk-based
capital to risk-weighted assets ratio of 8.00%, of which at least 4.00% must be
core capital. An association that immediately prior to a proposed capital
distribution, and on a pro forma basis after giving effect to a proposed capital
distribution, has capital that is equal to or in excess of its minimum capital
requirements is a "Tier 2 association". An association that immediately prior to
a proposed capital distribution, and on a pro forma basis after giving effect to
a proposed capital distribution, has capital that is less than its minimum
regulatory capital requirement is a "Tier 3 association". The Bank currently
qualifies as a Tier 1 association. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources and
Liquidity -- Capital".
Upon 30 days' notice to the OTS, a Tier 1 association may make capital
distributions during a calendar year up to the higher of 100% of its net income
to date during the calendar year, plus the amount that would reduce by one-half
its surplus capital ratio at the beginning of the calendar year or 75% of its
net income over the most recent four quarter period. A Tier 1 association may
not make capital distributions in excess of the foregoing limitations except
upon notice to the OTS and an opportunity for the OTS to object to such capital
distribution. The OTS may prohibit an otherwise permissible capital distribution
upon a determination that making such a distribution would be an unsafe or
unsound practice. The OTS may notify an institution that qualifies as a Tier 1
association that it is subject to more than normal supervision and thereafter,
treat it as a Tier 2 or Tier 3 association.
Under the prompt corrective action provisions discussed below, no insured
depository institution may make a capital distribution if after such
distribution it would be undercapitalized. See "-- Enforcement -- Prompt
Corrective Action". The OTS has proposed to amend its capital distribution
regulation to conform to the prompt corrective action system and to provide
additional flexibility. Under the proposal, savings associations that were
adequately or well capitalized under prompt corrective action and that would
remain at least adequately capitalized after a capital distribution would be
permitted to make a distribution after providing notice to the OTS. "Troubled"
and undercapitalized institutions could make capital distributions only by
filing an application and receiving OTS approval, which would be granted only
under certain limited conditions. The proposal defines "troubled condition" as a
function of an institution's examination rating, its capital condition, or on
the basis of supervisory directives issued or designation made by the OTS.
Investment Authority
Permissible Loans and Investments. Federally chartered savings banks, such
as the Bank, are authorized to originate, invest in, sell, purchase, service,
participate, and otherwise deal in: (i) loans made on the security of
residential and nonresidential real estate, (ii) commercial loans, and (iii)
consumer loans, including credit card loans. The lending authority of federally
chartered associations is subject to numerous OTS requirements, including, as
applicable, requirements governing amortization, term, loan-to-value ratio,
percentage-of-assets limits, and loans-to-one-borrower limits. In January of
1996, the OTS proposed substantial revisions to its investment and lending
regulations intended to simplify the regulations and to eliminate many of their
specific requirements in favor of a more general standard of "safety and
soundness".
A federally chartered savings association may invest, without limitation,
in the following assets: (i) obligations of the United States government or
certain agencies or instrumentalities thereof; (ii) stock issued or loans made
by the FHLBs or the FNMA; (iii) obligations issued or guaranteed by the FNMA,
the Student Loan Marketing Association, the GNMA or any agency of the United
States government; (iv) certain mortgages, obligations, or other securities that
have been sold by the FHLMC, (v) stock issued by a national housing partnership
corporation; (vi) demand, time or savings deposits, shares, or accounts of any
insured depository institution; (vii) certain "liquidity" investments approved
by the OTS to meet liquidity requirements; (viii) shares of registered
investment companies the portfolios of which are limited to investments that a
federal association is otherwise authorized to make; (ix) certain MBS; (x)
general
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obligations of any state of the United States or any political subdivision or
municipality thereof, provided that not more than 10% of a savings association's
capital may be invested in the general obligations of any one issuer; and (xi)
loans on the security of liens upon residential real property. Federally
chartered savings associations are authorized by the HOLA to make investments in
business development credit corporations, certain commercial paper and corporate
debt securities, service corporations, and small business investment companies,
all of which investments are subject to percentage-of-assets and various other
limitations.
Lending Limits. Generally, savings associations, such as the Bank, are
subject to the same loans to one borrower limits that apply to national banks.
Generally, a savings association may lend to a single or related group of
borrowers, on an unsecured basis, in an amount not greater than 15% of its
unimpaired capital and unimpaired surplus (as defined). An additional amount,
not greater than 10% of the savings association's unimpaired capital and
unimpaired surplus (as defined), may be loaned if the loan is secured by readily
marketable collateral, which is defined to include certain securities and
bullion, but generally does not include real estate. Notwithstanding the general
lending limits, a savings association may make loans to one borrower of up to
$500,000, or to develop domestic residential housing units, up to the lesser of
$30 million or 30% of the savings association's unimpaired capital and
unimpaired surplus, if certain conditions are satisfied.
In addition to limits on loans to one borrower, the HOLA also limits a
federal savings association's aggregate nonresidential real property loans to
400% of the savings association's capital as determined pursuant to the OTS's
capital requirements. See "-- Capital Requirements". The OTS may allow a savings
association to exceed the aggregate limitation if the OTS determines that
exceeding the limitation would pose no significant risk to the safe and sound
operations of the association and would be consistent with prudent operating
practices.
Subsidiaries -- Service Corporations. The HOLA authorizes federally
chartered savings associations, such as the Bank, to invest in the capital
stock, obligations or other securities of service corporations. The HOLA
authorizes a savings association to invest up to a total of 3% of its assets in
service corporations. The last 1% of the 3% statutory investment limit
applicable to service corporations must be primarily invested in community
development investments drawn from a broad list of permissible investments that
include, among others: government guaranteed loans; loans for investment in
small businesses; investments in revitalization and rehabilitation projects; and
investments in low- and moderate-income housing developments.
Service corporations are authorized to engage in a variety of preapproved
activities, some of which (e.g., securities brokerage and real estate
development) are ineligible activities for the parent savings association. The
OTS regulations implementing the service corporation authority contained in the
HOLA also provide that activities reasonably related to the activities of a
federally chartered savings association may be approved on a case-by-case basis
by the Director of the OTS.
Operating Subsidiaries. All federal savings associations are authorized to
establish or acquire one or more operating subsidiaries. Operating subsidiaries
are subject to examination and supervision by the OTS to the same extent as the
parent thrift. An "operating subsidiary" is a corporation that meets all of the
following requirements: (i) it engages only in activities that a federal savings
association is permitted to engage in directly; (ii) the parent savings
association owns, directly or indirectly, more than 50% of the subsidiary's
voting stock; and (iii) no person or entity other than the parent thrift may
exercise "effective operating control" over the subsidiary. While a savings
association's investment in its service corporations is generally limited to an
amount that does not exceed 3% of the parent savings association's total assets,
OTS regulations do not limit the amount that a parent savings association may
invest in its operating subsidiaries. Operating subsidiaries may be incorporated
and operated in any geographical location where its parent may operate. An
operating subsidiary that is a depository institution may accept deposits in any
location, provided that the subsidiary has federal deposit insurance.
Finance Subsidiaries. In accordance with OTS regulations, federal savings
associations may establish one or more finance subsidiaries. The sole purpose of
a finance subsidiary is to issue securities that a federal savings association
may issue directly and to remit the net proceeds of the issuance to the parent
savings association.
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QTL Test. All savings associations are required to meet a QTL test for,
among other things, future eligibility for FHLB advances. An association must
have invested at least 65% of its portfolio assets in qualified thrift
investments and must maintain this level of qualified thrift investments on a
monthly average basis in nine of every 12 months.
"Portfolio assets" is defined as total assets less intangibles, properties
used to conduct business and liquid assets (up to 20% of total assets). The
following assets may be included as qualified thrift investments without limit:
domestic residential housing or manufactured housing loans; home equity loans
and MBS backed by residential housing or manufactured housing loans; FHLB stock
as well as certain obligations of the FDIC and certain other related entities.
Other qualifying assets, which may be included up to an aggregate of 20% of
portfolio assets, are: (i) 50% of originated residential mortgage loans sold
within 90 days of origination; (ii) investments in debt or equity of service
corporations that derive 80% of their gross revenues from housing-related
activities; (iii) 200% of certain loans to, and investment in, low cost one- to
four-family housing; (iv) 200% of loans for residential real property, churches,
nursing homes, schools and small businesses in areas where the credit needs of
low- and moderate-income families are not met; (v) other loans for churches,
schools, nursing homes and hospitals; and (vi) personal, family, household, or
education loans (up to 10% of total portfolio assets).
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies. A savings association may
requalify the next time it meets the requirement in nine of the preceding 12
months, but it may requalify only one time. If a savings association converts to
a bank charter, it must remain SAIF-insured until the expiration of the
moratorium (the moratorium, enacted in 1989, effectively prohibits most
conversions from the SAIF to the BIF insurance fund), which will not occur until
the date on which the SAIF fund meets its designated reserve ratio. If an
institution that fails the QTL test has not yet requalified and has not
converted to a national bank, its new investments and activities are limited to
those permissible for a national bank, it is immediately ineligible to receive
any new FHLB advances, is subject to national bank limits for payment of
dividends, and may not establish a branch office at any location at which a
national bank located in the savings association's home state could not
establish a branch.
Liquidity. The Bank is required to maintain an average daily balance of
"liquid assets" (cash, certain time deposits, bankers' acceptances, highly rated
corporate debt securities, and commercial paper, securities of certain mutual
funds, reserves maintained pursuant to Federal Reserve Board requirements, and
specified government, state or federal agency obligations) equal to a certain
percentage of net withdrawable deposit accounts and borrowings payable in one
year or less. The liquidity requirement may vary from time to time (between 4%
and 10%) depending upon economic conditions and savings flows of all savings
associations. Currently, OTS regulations require a savings association, such as
the Bank, to maintain liquid assets equal to not less than 5% of its net
withdrawable deposit accounts and borrowings payable in one year or less and
short-term liquid assets of not less than 1%. Penalties may be imposed for
failure to meet the liquidity requirements.
Mergers and Acquisitions
Restrictions on Acquisitions. As previously described, the Bank is
controlled by the Company. The Company must obtain approval from the OTS before
acquiring control of any other savings association. Such acquisitions are
generally prohibited if they result in a savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in supervisory acquisitions of failing savings associations. The Company may
acquire up to 5%, in the aggregate, of the voting stock of any non-subsidiary
savings association or savings and loan holding company without being deemed to
acquire control of the association or holding company. In addition, a savings
and loan holding company may hold shares of a savings association or a savings
and loan holding company for certain purposes, including as a bona fide
fiduciary, as an underwriter or in an account solely for trading purposes. Under
certain conditions, a savings and loan holding company may acquire up to 15% of
the shares of a savings association or savings and loan holding company in a
"qualified stock issuance".
The Change in Bank Control Act and the savings and loan holding company
provisions of the HOLA, together with the regulations of the OTS under such
Acts, require that the consent of the OTS be obtained
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prior to any person or company acquiring control of a savings association or a
savings and loan holding company. Under OTS regulations, "control" is
conclusively presumed to exist if an individual or company acquires more than
25% of any class of voting stock of a savings association or holding company.
Control is rebuttably presumed to exist if a person acquires more than 10% of
any class of voting stock (or more than 25% of any class of non-voting stock)
and is subject to any of several "control factors". The control factors relate,
among other matters, to the relative ownership position of a person, the
percentage of debt and/or equity of the association or holding company
controlled by the person, agreements giving the person influence over a material
aspect of the operations of the association or holding company, and the number
of seats on the board of directors thereof held by the person or his designees.
The regulations provide a procedure for challenge of the rebuttable control
presumption. Certain restrictions applicable to the operations of savings and
loan holding companies and certain conditions imposed by the OTS in connection
with its approval of companies to become savings and loan holding companies may
deter companies from seeking to obtain control of the Bank.
Insured depository institutions are authorized to merge or engage in
purchase and assumption transactions with other insured depository institutions
with the prior approval of the federal banking regulator of the resulting
entity.
Branching. Subject to certain statutory restrictions in the HOLA and the
Federal Deposit Insurance Act (the "FDIA"), the Bank is authorized to branch on
a nationwide basis. Branching by savings associations is also subject to other
regulatory requirements, including compliance with the Community Reinvestment
Act (the "CRA") and its implementing regulations.
Officers, Directors, and Controlling Shareholders
Insider Loans. Loans to an executive officer, director, or to any person
who directly or indirectly, or acting through or in concert with one or more
persons, owns, controls, or has the power to vote more than 10% of any class of
voting securities of such institution ("Principal Shareholder") and their
related interests (i.e., any company controlled by such executive officer,
director, or Principal Shareholder), or to any political or campaign committee,
the funds or services of which will benefit such executive officer, director or
Principal Shareholder, or which is controlled by such executive officer,
director or Principal Shareholder, are subject to Sections 22(g) and 22(h) of
the Federal Reserve Act (the "FRA") and the regulations promulgated thereunder.
Among other things, such loans must be made on terms substantially the same as
those prevailing on transactions made to unaffiliated individuals, and certain
extensions of credit to such persons must first be approved in advance by a
disinterested majority of a savings association's entire board of directors.
Section 22(h) of the FRA prohibits loans to any such individuals where the
aggregate amount exceeds an amount equal to 15% of an insured institution's
unimpaired capital and surplus, plus an additional 10% of unimpaired capital and
surplus (as defined) in the case of loans that are fully secured by readily
marketable collateral, or when the aggregate amount on all such extensions of
credit outstanding to all such persons would exceed the Bank's unimpaired
capital and unimpaired surplus. Section 22(g) identifies limited circumstances
in which the Bank is permitted to extend credit to executive officers.
Changes in Directors and Senior Executive Officers. Section 32 of the FDIA
requires a depository institution or holding company thereof to give 30 days'
prior written notice to its primary federal regulator of any proposed
appointment of a director or senior executive officer if the institution: (i)
has been chartered less than two years; (ii) has undergone a change in control
within the preceding two years; or (iii) is not in compliance with the minimum
capital requirements or otherwise is in a troubled condition. The regulator then
has the opportunity to disapprove any such appointment.
Transactions With Affiliates
Pursuant to Section 11 of the HOLA, savings associations are subject to
restrictions regarding transactions with affiliates ("Covered Transactions")
substantially similar to those imposed upon member banks under Sections 23A and
23B of the FRA. Savings associations are also prohibited from extending credit
to any affiliate engaged in an activity not permissible for a bank holding
company.
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The term "affiliate" includes any company that controls or is controlled by
a company that controls the Bank, or a bank or savings association subsidiary of
the Bank. The term "affiliate" also includes any company controlled by
controlling stockholders of the Bank or the Company and any company sponsored
and advised on a contractual basis by the Bank or any subsidiary or affiliate of
the Bank. The Company is an affiliate of the Bank.
Section 23A of the FRA limits Covered Transactions with any one affiliate
to 10% of an association's capital stock and surplus (as defined therein) and
limits aggregate affiliate transactions to 20% of the Bank's capital stock and
surplus. A Covered Transaction is defined generally as a loan to an affiliate,
the purchase of securities issued by an affiliate, the purchase of assets from
an affiliate, the acceptance of securities issued by an affiliate as collateral
for a loan, or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate. In addition, the Bank generally may not purchase
securities issued or underwritten by an affiliate. Sections 23A and 23B of the
FRA provide that a loan transaction with an affiliate generally must be
collateralized (but may not be collateralized by a low quality asset or
securities issued by an affiliate) and that all Covered Transactions, as well as
the sale of assets, the payment of money or the provision of services by the
Bank to an affiliate, must be on terms and conditions that are substantially the
same, or at least as favorable to the Bank, as those prevailing for comparable
nonaffiliate transactions.
The OTS generally requires savings associations, such as the Bank, to
attribute to an affiliate the amounts of all transactions conducted with
subsidiaries of that affiliate and grants the Director of the OTS the authority
to deem certain non-bank or non-thrift subsidiaries of a savings association as
affiliates.
Enforcement
Prompt Corrective Action. The OTS is required by statute to take certain
actions against savings associations that fail to meet certain capital-based
requirements. Each of the federal banking agencies, including the OTS, is
required to establish five levels of insured depository institutions based on
leverage limit and risk-based capital requirements established for institutions
subject to their jurisdiction plus, in each agency's discretion, individual
additional capital requirements for such institutions.
Under the final rules that have been adopted by each of the federal banking
agencies, an institution will be designated well capitalized if the institution
has a total risk-based capital ratio of 10% or greater, a core risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific capital level
for any capital measure.
An institution will be designated adequately capitalized if the institution
has a total risk-based capital ratio of 8% or greater, a core risk-based capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (or a leverage
ratio of 3% or greater if the institution is rated a composite 1 in its most
recent report of examination). An institution will be designated
undercapitalized if the institution has a total risk-based capital ratio of less
than 8%, a core risk-based capital ratio of less than 4%, or a leverage ratio of
less than 4% (or a leverage ratio of less than 3% if the institution is rated
composite 1 in its most recent report of examination). An institution will be
designated significantly undercapitalized if the institution has a total
risk-based capital ratio of less than 6%, a core risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution will be
designated critically undercapitalized if the institution has a ratio of
tangible equity to total assets equal to or less than 2%.
Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan subject to an aggregate limitation of the
lesser of 5% of the institution's assets, or the amount of the capital
deficiency when the institution first failed to meet the plan.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that have not submitted or complied with
acceptable capital restoration plans are subject to regulatory sanctions. A
forced sale of shares or merger, restrictions on affiliate transactions, and
restrictions on rates paid on deposits are
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required to be imposed unless the supervisory agency has determined that such
restrictions would not further capital improvement. The agency may impose other
specified regulatory sanctions at its option. Generally, the appropriate federal
banking agency is required to authorize the appointment of a conservator or
receiver within 90 days after an institution becomes critically
undercapitalized.
The federal banking agencies have adopted uniform procedures for the
issuance of directives by the appropriate federal banking agency. Under these
procedures, an institution will generally be provided advance notice when the
appropriate federal banking agency proposes to impose one or more of the
sanctions set forth above. These procedures provide an opportunity for the
institution to respond to the proposed agency action or, where circumstances
warrant immediate agency action, an opportunity for administrative review of the
agency's action.
Administrative Enforcement Authority. The OTS exercises extensive
enforcement authority over all savings associations and their
"institution-affiliated parties" (i.e., officers, directors, controlling
shareholders, employees, as well as attorneys, appraisers or accountants) who
knowingly or recklessly participate in a wrongful action likely to have adverse
effect on an insured institution. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue
cease-and-desist or removal and prohibition orders, and to initiate injunctive
actions. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. The OTS may use written
agreements to correct compliance deficiencies with respect to applicable laws
and regulations and to ensure safe and sound practices. Except under certain
narrow circumstances, public disclosure of final enforcement actions by the
federal banking agencies, including the OTS, is required.
The OTS has the authority, when statutorily prescribed grounds exist, to
appoint a conservator or receiver for a savings association. Grounds for such
appointment include: insolvency; substantial dissipation of assets or earnings;
existence of an unsafe or unsound condition to transact business; likelihood
that the association will be unable to pay its obligations in the normal course
of business; undercapitalization where the association (i) has no reasonable
prospect of becoming adequately capitalized, (ii) fails to become adequately
capitalized when required to do so, (iii) fails timely to submit an acceptable
capital restoration plan, or (iv) materially fails to implement a capital
restoration plan; or where the association is "critically undercapitalized" or
"otherwise has substantially insufficient capital".
CONSUMER PROTECTION REGULATIONS
The Bank is subject to many federal consumer protection statutes and
regulations including, but not limited to, the following:
Mortgage and Consumer Lending
The Truth in Lending Act. The TILA, enacted into law in 1968, is designed
to ensure that credit terms are disclosed in a meaningful way so that consumers
may compare credit terms more readily and knowledgeably. As a result of the
TILA, all creditors must use the same credit terminology and expressions of
rates, the annual percentage rate, the finance charge, the amount financed, the
total of payments, and the payment schedule.
The TILA is implemented by the FRB's Regulation Z. Regulation Z contains
disclosure and advertising rules, rules related to the calculation of annual
percentage rates, document retention rules, and error resolution procedures. The
appendices to the regulation set forth model forms and clauses that creditors
may use when providing open-end and closed-end disclosures. The appendices also
contain detailed rules for calculating the annual percentage rate. Official
staff interpretations of the regulation are published in the FRB's Commentary.
Good faith compliance with the Commentary protects creditors from civil
liability under the TILA.
Under certain circumstances involving extensions of credit secured by the
borrower's principal dwelling, the TILA and Regulation Z thereunder provide a
right of rescission. The period within which the consumer may exercise the right
to rescind runs for three business days from the last of three events: (i) the
occurrence that gives rise to the right of rescission; (ii) delivery of all
required material disclosures, i.e., the annual percentage rate, the finance
charge, the amount financed, the total of payments, and the payment schedule; or
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(iii) delivery to the consumer of the required rescission notice. When a
creditor has failed to take the action necessary to start the three-day
rescission period running, the right to rescind automatically lapses on the
occurrence of the earliest of the following three events: (i) the expiration of
three years after the occurrence giving rise to the right of rescission; (ii)
transfer of all the consumer's interest in the property; or (iii) sale of the
consumer's interest in the property. After that time, depending on state law, a
consumer may assert a right of recission as a defense in a foreclosure action
under certain circumstances. Under the TILA, the consumer cannot be required to
pay any amount in the form of money or property either to the creditor or to a
third party as a part of the transaction in which a consumer exercises the right
of rescission. Any amounts of this nature already paid by the consumer must be
refunded. "Any amount" includes finance charges already accrued, as well as
other charges such as application and commitment fees or fees for a title search
or appraisal. Once the creditor has fulfilled its rescission obligation under
the TILA, the consumer must tender to the creditor any property or money the
creditor has already delivered to the consumer.
The regulatory agencies are authorized to order creditors to make monetary
and other adjustments to the accounts of consumers in cases where an annual
percentage rate or finance charge is inaccurately disclosed. Generally, the
agencies order restitution when such disclosure errors resulted from a clear and
consistent pattern or practice of violation or gross negligence or a willful
violation that was intended to mislead the person to whom the credit was
extended. However, the agencies are not precluded from ordering restitution for
isolated disclosure errors. The TILA also provides for statutory damages of
twice the finance charge, with a minimum of $200 and a maximum of $2,000 for
closed end loans secured by real property or a dwelling. If successful, the
borrower is entitled to reasonable attorneys' fees and the costs of bringing the
action. The TILA also provides for class actions for actual damages and for
statutory damages of the lesser of $500,000 or 1% of the creditor's net worth,
plus court costs and attorneys' fees.
On September 30, 1995, President Clinton signed into law the Truth In
Lending Amendments of 1995 (the "1995 Amendments"). The 1995 Amendments increase
finance charge tolerances, limit the liability of assignees and loan servicers,
and provide protection from civil liability for claims based on certain
disclosure rules covered by the 1995 Amendments, including prohibiting the
maintenance of certain class action cases not certified as class actions prior
to January 1, 1995. The 1995 Amendments also clarify that third party fees not
required or retained by a lender, taxes levied on a security interest, and fees
to prepare all loan-related documents for real estate loans, as well as pest and
flood inspections, are excluded from the finance charge.
The Bank attempts in good faith to comply with the TILA and Regulation Z
thereunder. The requirements are complex, however, and even inadvertent
non-compliance could result in civil liability or the extension of the
rescission period for a mortgage loan for up to three years from the date the
loan was made. During the past several years, numerous individual claims and
purported consumer class action claims were commenced against a number of
financial institutions, their subsidiaries, and other mortgage lending
institutions, seeking civil statutory and actual damages and rescission under
the TILA, as well as remedies for alleged violations of various state unfair
trade practices acts and restitution or unjust enrichment in connection with
certain mortgage loan transactions.
The Fair Housing Act. The FH Act, enacted into law in 1968, regulates many
practices, including making it unlawful for any lender to discriminate in its
housing-related lending activities against any person because of race, color,
religion, national origin, sex, handicap, or familial status.
Section 805 of the FH Act, which applies to the financing of housing, makes
it unlawful for a bank to deny a loan or any other financial assistance for the
purpose of purchasing, constructing, improving, repairing, or maintaining a
dwelling because of the race, color, religion, national origin, sex, handicap,
or familial status of the loan applicant, any person associated with the loan
applicant, any present or prospective owner of the dwelling, any lessees, or any
tenants or occupants. It is also unlawful to discriminate in fixing the amount,
interest rates, duration, or other terms of the credit.
Section 813 of the FH Act provides that aggrieved persons may sue anyone
who they believe has discriminated against them. Section 814 of the FH Act
provides that the Attorney General of the United States may sue for an
injunction against any pattern or practice that denies civil rights granted by
the FH Act. Section 810 of the FH Act allows a person to file a discrimination
complaint with the Department of Housing
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and Urban Development ("HUD"). HUD will investigate the complaint and may
attempt to resolve the grievance through conciliation or persuasion. Penalties
for violation of the FH Act include actual damages suffered by the aggrieved
person and injunctive or other equitable relief. The court's order may also
assess civil penalties.
The Equal Credit Opportunity Act. The ECOA, enacted into law in 1974,
prohibits discrimination in any credit transaction, whether for consumer or
business purposes, on the basis of race, color, religion, national origin, sex,
marital status, age (except in limited circumstances), receipt of income from
public assistance programs, or good faith exercise of any rights under the
Consumer Credit Protection Act. Regulation B, which implements the ECOA, covers
all individuals and institutions that regularly participate in decisions to
extend credit. In addition to prohibiting outright discrimination on any of the
impermissible bases listed above, an effects test has been applied to the
analysis of discrimination under Regulation B. This means that if a creditor's
actions have had the effect of discriminating, the creditor may be held
liable -- even when there is no intent to discriminate.
In addition to actual damages, the ECOA provides for punitive damages of up
to $10,000 in individual lawsuits and up to the lesser of $500,000 or 1% of the
creditor's net worth in class action suits. Successful complainants may also be
entitled to an award of court costs and attorneys' fees.
The Real Estate Settlement Procedures Act. The RESPA, enacted into law in
1974, requires lenders to provide borrowers with disclosures regarding the
nature and cost of real estate settlements. Also, the RESPA prohibits certain
abusive practices, such as kickbacks, and places limitations on the amount of
money that a lender may require a borrower to place in an escrow account.
Regulation X, which implements RESPA, also establishes escrow accounting
procedures and mandates the use of aggregate accounting for determining the
maximum dollar amount that may be collected in connection with escrow accounts.
RESPA is applicable to all federally related mortgage loans. A "federally
related mortgage loan" includes any loan secured by a first or subordinate lien
on residential real property designed for occupancy by one to four families,
including a refinancing of an existing loan secured by the same property, if:
(i) the loan is made by any lender, the deposits of which are federally insured
or any lender that is regulated by a federal agency; or (ii) the loan is
insured, guaranteed or supplemented by a federal agency; or (iii) the loan is
intended to be sold to the FNMA, the GNMA, or the FHLMC; or (iv) the loan is
made by any creditor who makes or invests in residential real estate loans
aggregating more than $1 million per year.
Section 8 of the RESPA prohibits any person from giving or receiving a fee
or a thing of value (payments, commissions, fees, gifts or special privileges)
for a referral of settlement business. Such "kickbacks" include payments in
excess of the reasonable value of goods provided or services rendered.
Violations of Section 8 of the RESPA may result in imposition of the following
penalties: (i) civil liability equal to three times the amount of any charge
paid for the settlement services; (ii) the possibility that court costs and
attorneys' fees can be recovered; and (iii) a fine of not more than $10,000 or
imprisonment for not more than one year, or both.
The Bank attempts in good faith to comply with the requirements of the
RESPA and its implementing regulations. The requirements are complex, however,
and even inadvertent non-compliance could result in civil or criminal liability.
During the past several years, numerous individual claims and purported consumer
class action claims were commenced against a number of financial institutions,
their subsidiaries, and other mortgage lending institutions alleging violations
of the RESPA's escrow account rules and seeking civil damages, court costs, and
attorneys' fees.
The Home Mortgage Disclosure Act (the "HMDA"). The HMDA, enacted into law
in 1975, is intended to provide public information that can be used to help
determine whether financial institutions are serving the housing credit needs of
the neighborhoods and communities in which they are located and to assist in
identifying possible discriminatory lending patterns.
The HMDA requires institutions to report data regarding applications for
one- to four-family loans, home improvement loans, and multi-family loans, as
well as information concerning originations and purchases of such types of
loans. The HMDA also requires most lenders to report the race, sex, and income
of mortgage
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applicants and borrowers. Generally, insured institutions, like the Bank, are
also required to indicate the reasons for decisions not to grant credit.
Compliance with the HMDA implementing regulations is enforced by the
appropriate federal banking agency, or, in some cases, by HUD. Administrative
sanctions, including civil money penalties, may be imposed by supervisory
agencies for violations.
The Community Reinvestment Act. The CRA, enacted into law in 1977, is
intended to encourage insured depository institutions, while operating safely
and soundly, to help meet the credit needs of their communities. The CRA
specifically directs the federal regulatory agencies, in examining insured
depository institutions, to assess their record of helping to meet the credit
needs of their entire community, including low-and moderate-income
neighborhoods, consistent with safe and sound banking practices. The CRA further
requires the agencies to take a financial institution's record of meeting its
community credit needs into account when evaluating applications for, among
other things, domestic branches, consummating mergers or acquisitions, or
holding company formations. Under the CRA, which is implemented by uniform
regulations adopted by each of the bank regulatory agencies, including the OTS,
financial institutions are required to describe their local community by
outlining the community on a map. If the financial institution has more than one
local community, it must describe each one. A financial institution's local
community consists of the areas surrounding each deposit-taking office or
cluster of offices, including any low- or moderate-income neighborhoods within
that area.
The regulations require the banking agencies to assess each financial
institution's record of performance in helping to meet the credit needs of its
community by reviewing 12 assessment factors. These assessment factors include:
(i) activities conducted by a financial institution to ascertain the credit
needs of its community; (ii) the extent of marketing and special credit related
programs to make members of the community aware of credit services; (iii) the
extent of participation of the financial institution's board of directors in
formulating policy and reviewing performance; (iv) the presence or absence of
practices intended to discourage applications for types of credit set forth in
the institution's CRA statement; (v) the geographic distribution for the
financial institution's credit extensions, credit applications, and denials;
(vi) the presence or absence of evidence of prohibited discriminatory or other
illegal credit practices; (vii) the financial institution's record of opening
and closing offices and providing services at offices; (viii) the financial
institution's participation, including investments, in local community
development projects; (ix) the financial institution's origination or purchase
of residential mortgage loans, housing rehabilitation loans, home improvement
loans, and small business and farm loans within its community; (x) the financial
institution's participation in governmentally insured, guaranteed, or subsidized
loan programs for housing and small farms and businesses; (xi) the financial
institution's ability to meet various community credit needs based on its
financial condition, size, and other factors; and (xii) any other factors, that
in the agencies' judgment, reasonably bear on the extent to which a financial
institution has helped to meet the credit needs of its community.
The agencies use the CRA assessment factors in order to provide a rating to
the financial institution. The ratings range from a high of "outstanding" to a
low of "substantial noncompliance".
On April 19, 1995, the agencies jointly adopted revised CRA regulations.
Under the new system, the 12 assessment factors used to evaluate the CRA
performance of most large retail institutions, such as the Bank, will be
replaced with three tests, the lending, investment, and service tests, with the
lending test carrying the primary importance. To receive a satisfactory or
better rating, an institution must achieve at least a satisfactory lending
performance.
The lending test evaluates an institution's record of helping to meet the
credit needs of its assessment area(s) through its lending activities by
considering, among other things, the number, amount, geographic distribution,
and certain borrower characteristics of the institution's home mortgage, small
business, small farm, and community development lending. The investment test
evaluates an institution's record of helping to meet the credit needs of its
assessment area or areas through "qualified investments" (lawful investments,
deposits, membership shares, or grants that have community development as their
primary purpose). The service test evaluates an institution's record of helping
to meet the credit needs of its assessment area or areas
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by analyzing the availability and effectiveness of an institution's systems for
delivering retail banking services and an institution's community development
services. An institution may elect to be evaluated on the basis of a strategic
plan approved by its primary regulator rather than the three tests.
Although the regulations became effective on July 1, 1995, the primary
provisions are subject to a two-year phase-in period. Most large retail
institutions will become subject to the new examination criteria beginning July
1, 1997, although institutions may elect to be examined with the new tests
beginning January 1, 1996. Finally, new data collection requirements that became
effective on January 1, 1996 are included in the new regulations.
While the Bank is strongly committed to serving all of its CRA communities,
including its low- and moderate-income neighborhoods, the OTS might determine
the Bank's CRA-related programs to be insufficient. The Bank was last examined
for CRA compliance by its primary regulator, the OTS, on October 14, 1995 and
received a CRA assessment rating of "outstanding". The Bank's previous CRA
assessment rating, as of March 8, 1993, was also "outstanding".
Savings and Checking Accounts and Public Accommodations
The Bank Secrecy Act ("BSA") and Money Laundering Laws. The BSA, enacted
into law in 1970, requires every financial institution within the United States
to file a Currency Transaction Report with the IRS for each transaction in
currency of more than $10,000 not exempted by the Treasury Department. The
reports must be filed within 15 days of the transaction. A "transaction in
currency" is defined by the regulations to include any transaction "involving
the physical transfer of currency from one person to another". The Treasury
Department deems multiple transactions by the same person on the same day
exceeding $10,000 in the aggregate to be reportable. Financial institutions are
also required to file a Suspicious Activity Report with respect to any known or
suspected criminal conduct or suspicious activities, including transactions
valued at more than $5,000 that the institution knows or suspects involve funds
derived from illegal activities, are designed to evade the requirements of the
BSA, have no business or apparent lawful purpose, or are not the sort in which
the particular customer would normally be expected to engage.
In 1988, Congress enacted the Money Laundering Prosecution Improvements Act
(the "1988 Act"). The 1988 Act expanded the BSA's definition of "financial
institution" and broadened the BSA's reporting requirements to require financial
institutions, typically banks, to verify and record the identity of the
purchaser upon the issuance or sale of bank checks or drafts, cashier's checks,
traveler's checks, or money orders involving $3,000 or more in cash.
Institutions must also verify and record the identity of the originator and
beneficiary of certain funds transfers.
Under the FDIA, a receiver or conservator may be appointed for an insured
depository institution on the receipt of written notice from the Attorney
General that an insured depository institution has been found guilty of a
criminal money laundering offense or criminal offense under the BSA. The FDIC
may also take action to terminate the deposit insurance of an institution
convicted of criminal violations of the BSA and money laundering offenses. Any
person who willfully causes a violation of the BSA's record-keeping requirements
for insured institutions is subject to the imposition of up to a $50,000 civil
money penalty, in addition to any other applicable penalties.
The Bank has instituted a policy against money laundering that is
communicated by top management to the Bank's employees. The policy includes
safeguards to prevent money laundering, including, but not limited to, regular
education programs to teach employees the requirements of the federal money
laundering laws and to make them aware of the innovative and ever-changing
techniques employed by money launderers.
Electronic Fund Transfer Act (the "EFTA"). The EFTA, enacted into law in
1978, provides a basic framework establishing the rights, liabilities, and
responsibilities of participants in "electronic fund transfer systems", defined
to include automated teller machine transfers, telephone bill-payment services,
point-of-sale terminal transfers, and preauthorized transfers from or to a
consumer's account (e.g., direct deposit of Social Security payments). Its
primary objective is to protect the rights of individuals using these systems.
The
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EFTA limits a consumer's liability for certain unauthorized electronic fund
transfers and requires certain error resolution procedures.
Unless an error is resolved in accordance with the error-resolution
procedures specified in the EFTA, the institution may be liable for civil
damages. The statutory damages the institution would have to pay in a successful
individual action are actual damages and statutory damages between $100 and
$1,000, as determined by the court, plus court costs and attorneys' fees. In a
successful class action, the institution would have to pay actual damages and
statutory damages up to the lesser of $500,000 or 1% of the institution's net
worth, plus court costs and reasonable attorneys' fees. The EFTA also sets forth
provisions for criminal liability for certain EFTA violations. Penalties under
these provisions run from a $5,000 fine and one year's imprisonment for
knowingly and willfully failing to comply with the EFTA, to a $10,000 fine and
10 years' imprisonment for fraudulent use of a debit card.
The Expedited Funds Availability Act ("Expedited Funds Act"). The
Expedited Funds Act, enacted into law in 1987, seeks to insure prompt
availability of funds deposited into a customer's account and to expedite the
return of checks. The Expedited Funds Act is implemented by the Federal Reserve
Board's Regulation CC. The Act and Regulation CC include specific detailed
provisions requiring a financial institution to: (i) make funds available to its
customers within specified time frames; (ii) ensure that interest accrues on
funds in interest-bearing transaction accounts not later than the day the
financial institution receives credit; and (iii) disclose the financial
institution's funds-availability policies to its customers.
In addition to administrative enforcement, there is civil liability for
violations of the Expedited Funds Act. Any depository institution that fails to
comply with any requirement of the Expedited Funds Act or regulation with
respect to any person other than another depository institution is liable to
such person in an amount equal to the sum of actual damages, such additional
amount as the court may allow (with a minimum of $100 and a maximum of $1,000 in
an individual action and, in a class action, a maximum of the lesser of $500,000
or 1% of the net worth of the depository institution), plus court costs and
attorneys' fees in the case of any successful action.
The Truth in Savings Act (the "TISA"). The TISA, enacted into law in 1991,
is principally a disclosure law, the purpose of which is to encourage
comparative shopping for deposit products. The common denominator used by the
TISA to facilitate comparison shopping of interest payable on deposit accounts
is the Annual Percentage Yield (the "APY"). TISA is implemented by Regulation
DD. The TISA and Regulation DD thereunder require depository institutions to pay
interest on the full amount of the principal in the account for each day, under
either the "daily balance method" or the "average daily balance method". No
other balance calculation methods are permitted by the TISA.
In addition to administrative enforcement, TISA violations carry civil
liability. Any depository institution that fails to comply with any requirement
of the TISA with respect to any person who is an account holder is liable to
such person in an amount equal to the sum of actual damages, such additional
amount as the court may allow (with a minimum of $100 and a maximum of $1,000 in
an individual action and, in a class action, a maximum of the lesser of $500,000
or 1% of the net worth of the depository institution), plus court costs and
attorneys' fees in the case of any successful action.
The Americans with Disabilities Act (the "ADA"). The ADA, enacted into law
in 1990, prohibits private employers, state and local governments, employment
agencies, and labor unions from discriminating against qualified individuals
with disabilities in connection with job application procedures, hiring, firing,
advancement, compensation, job training, and other terms, conditions, and
privileges of employment. An individual with a disability is a person who: (i)
has a physical or mental impairment that substantially limits one or more major
life activities; (ii) has a record of such an impairment; or (iii) is regarded
as having such an impairment.
Title 3 of the ADA covers banks, thrifts, credit unions, and finance
companies -- all of which are considered to be "public accommodations". Section
302(a) of the ADA provides that "no individual shall be discriminated against on
the basis of disability in the full and equal enjoyment of the goods, services,
or facilities, privileges, advantages, or accommodations of any place of public
accommodation". Section 302(b) of the ADA sets forth specific requirements and
prohibitions for public accommodations; for example, a place
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of public accommodation, such as the Bank's retail branch offices, may not
impose eligibility criteria that screen out persons with disabilities.
Discrimination also includes the failure to provide the auxiliary aids and
services necessary to enable individuals with disabilities to take advantage of
a financial institution's services, unless the financial institution can
demonstrate that providing the aids and services would "fundamentally" alter the
nature of the service or would result in an "undue burden". Another significant
provision of Section 302 of the ADA is the requirement to remove from public
accommodations all architectural barriers and communication barriers that are
structural in nature if the removal is "readily achievable". "Readily
achievable" is defined as "easily accomplishable and able to be carried out
without much difficulty or expense". In deciding whether a particular action is
readily achievable, the size of the institution and the nature and the cost of
the action will be considered. The last substantive provision of Title 3 of the
ADA that applies to financial institutions is Section 303, dealing with new
construction. It provides that any building opening to the public after January
26, 1993 must be "readily accessible to and useable by individuals with
disabilities" unless doing so is structurally impracticable.
Anyone who has been discriminated against on the basis of a disability in
relation to employment may file an action with the United States Equal
Employment Opportunity Commission and may be entitled to remedies that include
rehiring, promotion, reinstatement, back pay or remuneration, or reasonable
accommodation including reassignment. Such individuals may also be entitled to
damages intended to compensate for future pecuniary losses, mental anguish, and
inconvenience. The ADA authorizes the Attorney General to sue institutions that
are engaged in a pattern or practice of discrimination. At the Attorney
General's request, the court may impose civil penalties of $50,000 for a first
violation and $100,000 for any subsequent violation or certain other remedies.
The Bank attempts in good faith to assure compliance with the requirements
of the consumer protection statutes to which it is subject, as well as the
regulations that implement the statutory provisions. The requirements are
complex, however, and even inadvertent non-compliance could result in civil and,
in some cases, criminal liability. Based on the Bank's history of claims under
the consumer protection statutes and regulations to which it is subject,
management does not believe that claims are likely to be asserted that will have
a material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.
LEGISLATION
Federal legislation and regulation have significantly affected the
operations of federally insured savings associations, such as the Bank, and
other federally regulated financial institutions in the past several years and
have increased competition among savings associations, commercial banks, and
other financial institutions. The operations of regulated depository
institutions will continue to be subject to changes in applicable statutes and
regulations from time to time, which changes could adversely affect the Bank and
its affiliates. See "Risk Factors -- Recapitalization of the SAIF and Its Impact
on SAIF Premiums; Other Legislative Proposals" and "-- Taxation -- Proposed
Legislation".
TAXATION
Federal Taxation
The Company is a savings and loan holding company and the Bank is a federal
savings bank. Both are subject to provisions of the Code, in the same manner,
with certain exceptions, as other corporations. The Company and the Bank
participate in the filing of a consolidated federal income tax return with their
"affiliated group", as defined by the Code. For financial reporting purposes,
however, the Company and the Bank compute their tax on a separate company basis.
The accompanying Consolidated Financial Statements include provisions for income
taxes as a result of the Company's and the Bank's taxable income for the six
months ended March 31, 1996 and 1995, and fiscal 1995. For fiscal 1994 and 1993,
the provision for income taxes includes a deferred tax benefit as a result of
the Bank's expected utilization of its NOLs against future taxable income in
accordance with SFAS 109, "Accounting for Income Taxes". No tax benefit for
income taxes was recognized as a result of the Company's stand alone losses. See
"-- Residual Interest", "--
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<PAGE> 93
Alternative Minimum Tax", and "-- Accounting for Income Taxes". The Company and
the Bank have generated losses creating NOLs. See "-- Net Operating Losses". In
addition to federal income taxes, the Bank is required to make payments in lieu
of federal income taxes pursuant to the Assistance Agreement with the FSLIC. The
tax benefit sharing provisions contained in the Assistance Agreement were
replaced by similar provisions contained in the tax benefits agreement ("Tax
Benefits Agreement") entered into in connection with the Settlement Agreement;
these provisions, relating to the obligation to share tax benefit utilization,
will continue through the taxable year ending nearest to September 30, 2003. See
"-- FSLIC Assistance", and Note 13 to the Consolidated Financial Statements. See
"-- Proposed Legislation" for changes which would affect the bad debt deduction
and the bad debt reserve.
Residual Interest
The Bank is a holder of residual interests in Real Estate Mortgage
Investment Conduits ("REMICs") as defined by the Code. The Code limits the
amount of NOLs that may be used to offset the taxable income derived by holders
of residual interests in a REMIC. However, the Code states that this limitation
does not apply to certain financial institutions that are holders of residual
interests that meet a significant value test prescribed by applicable Treasury
regulations. The Bank incurs taxable income from residual interests that meet
such test and, therefore, may be offset by NOLs without respect to this
limitation. Also, the Bank incurs taxable income from residual interests that
does not meet such test and, therefore, may not be offset by NOLs. This income
caused the Bank to incur a regular tax liability for the six months ended March
31, 1995, and fiscal 1994.
Domestic Building and Loan ("DBL") Test
Savings institutions such as the Bank that meet the definitional DBL test
prescribed by the Code may benefit from certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. The DBL test consists of a supervisory test, a business operations
test, and an asset test. If the Bank fails to meet these tests, the transition
from the reserve method to the direct charge-off method of tax accounting for
bad debts would result in a recapture of this reserve into taxable income. At
September 30, 1995, the Bank was in excess of the minimum thresholds. There can
be no assurance that the Bank will meet these tests for subsequent tax years.
Bad Debt Deduction
For purposes of the bad debt reserve deduction, loans are separated into
"qualifying real property loans", which generally are loans secured by certain
interests in real property, and "non-qualifying loans", which are all other
loans. The deduction with respect to non-qualifying loans must be computed under
the experience method, which generally allows a deduction based on a savings
association's actual bad debt loss experience, consisting of the current year
and the prior five years. The bad debt reserve deduction with respect to
qualifying real property loans, however, may be the larger of the amounts
computed under (i) the experience method, or (ii) the percentage of taxable
income method. The percentage of taxable income method generally permits a
qualifying savings association to deduct 8% of its taxable income prior to such
deduction, as adjusted for certain items.
Savings associations, such as the Bank, that file federal income tax
returns as part of a consolidated group are required by applicable Treasury
regulations to reduce their taxable income, for purposes of computing the
percentage of taxable income deduction, for losses attributable to activities of
the non-savings association members of the consolidated group that are
functionally related to the activities of the savings association member.
Currently, the Bank is computing its bad debt deduction pursuant to the
experience method. All or a portion of the Bank's tax reserve for bad debts may
be required to be includible in taxable income in a subsequent taxable year
under certain circumstances, including the Bank's failure to meet the definition
of a savings institution for federal income tax purposes, dividend distributions
in excess of the Bank's then current or accumulated earnings and profits, or as
a result of distributions in liquidation or redemption of the Bank Common Stock
or the Bank Preferred Stock.
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<PAGE> 94
Proposed Legislation
For a discussion of proposed legislation which could, if enacted, have a
material effect on the financial condition and results of operations of the
Company and the Bank, see "Risk Factors -- Recapitalization of the SAIF and Its
Impact on SAIF Premiums; Other Legislative Proposals".
Alternative Minimum Tax ("AMT")
In addition to regular income taxes, corporations including saving and loan
holding companies and savings associations are subject to an AMT, which is
generally equal to 20% of alternative minimum taxable income ("AMTI") (taxable
income increased by tax preference items and adjusted for other items). The
preference item principally affecting the Bank relates to the adjusted current
earnings ("ACE") adjustment, which includes FRF assistance. See "Business -- The
Assistance Agreement". Although the amounts received by the Bank pursuant to the
Assistance Agreement are not taxable for federal income tax purposes, a portion
of such amounts are considered to be an ACE adjustment. For the six months ended
March 31, 1996, and for fiscal 1995 and 1993, the Bank incurred AMTI that was
offset by the utilization of AMT NOLs. However, corporations may offset only 90%
of their AMTI with the related NOLs. For the six months ended March 31, 1995,
and for fiscal 1994, 1992, and 1991, the Bank did not incur an AMT liability.
Environmental Tax
The Code imposes an additional tax at the rate of .12% on the modified AMTI
of a corporation. Because the tax was enacted to provide funds for various
environmental programs, it is denominated as an environmental tax. Modified AMTI
is essentially AMTI without regard to any utilization of available AMT NOLs less
$2 million.
FSLIC Assistance
Pursuant to the Assistance Agreement, the FRF, as successor to the FSLIC,
was obligated to provide the Bank with financial assistance in connection with
various matters that arose under the Assistance Agreement. See "Business -- The
Assistance Agreement". The tax treatment of the assistance payments to savings
associations that acquire assets from institutions in receivership (such as the
predecessor to the Company) has been amended several times in recent years.
Payments to the Bank pursuant to the Assistance Agreement were subject to the
applicable provisions of the Code that were in effect in 1988, the year of the
Acquisition. Payments from the FRF to the Bank pursuant to the Assistance
Agreement were not included in the Bank's taxable income, and the Bank was not
required to reduce its basis in the Covered Assets by the amount of such
financial assistance; however, certain writedowns and losses are limited as
discussed below. Accordingly, there was no requirement to pay federal income
taxes with respect to any amount of the assistance payments received pursuant to
the Assistance Agreement. The Bank also succeeded to substantial NOLs as a
result of the Acquisition.
The Assistance Agreement did, however, require the Bank, in effect, to pay
to the FRF an amount equal to one-third of the sum of federal and state net tax
benefits ("Net Tax Benefits") (as defined by the Assistance Agreement). The Net
Tax Benefits shall be equal to the excess of any of the federal income tax
liability which would have been incurred if the tax benefit item had not been
deducted or excluded from income over the federal income tax liability actually
incurred. The Net Tax Benefits items are the tax savings resulting from (i) the
utilization of the deduction by the Bank of any amount of NOLs, capital loss
carryforwards, and certain other carryforwards on the books and records of Old
USAT, (ii) the exclusion from gross income of the amount of certain interest or
assistance payments made to the Bank by the FRF, and (iii) the deduction of
certain costs, expenses, or losses incurred by the Bank for which the FRF has
made tax-free assistance payments. These provisions were replaced by similar
provisions in the Tax Benefits Agreement entered into in connection with the
termination of the Assistance Agreement. Pursuant to the Tax Benefits Agreement,
these provisions relating to the obligation to share tax benefit utilization
will continue through the taxable year ending nearest to September 30, 2003.
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<PAGE> 95
Under the Assistance Agreement, the Bank received assistance payments from
the FRF for writedowns and losses from the sales of Covered Assets. For federal
income tax purposes, the Bank included the writedowns and losses from the sale
of Covered Assets in its calculation of the bad debt deduction, using the
experience method. However, the Revenue Reconciliation Act of 1993 denied the
inclusion of writedowns and losses from the sale of Covered Assets in the
calculation of bad debt deductions for assistance payments credited on or after
March 4, 1991. Amendment of federal tax returns for fiscal 1991 and 1992 did not
cause any additional federal tax liabilities to be incurred. However, the new
tax law reduced the Bank's federal NOLs in the amount of approximately $259
million.
The aforementioned tax relief provided savings (costs) on the amount of
taxes required to be paid. The estimated tax savings (costs), by year, were as
follows (in millions):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, SAVINGS (COSTS)
- ------------------ ---------------
<S> <C> <C>
1991.................................................. $(1.7)
1992.................................................. (2.8)
1993.................................................. 10.5
1994.................................................. 3.6
1995.................................................. 31.8
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31,
- ------------------
<S> <C> <C>
1996.................................................. 17.2
</TABLE>
The remaining NOLs associated with this tax relief aggregated approximately
$745 million at March 31, 1996.
Net Operating Losses
There are federal income tax NOLs of approximately $808 million as of March
31, 1996. Included in the $808 million is $24 million of Old USAT's NOLs that
will expire in fiscal 2003 if not utilized. Because Old USAT's NOLs are
"separate return limitation year" losses within the meaning of the consolidated
return Treasury regulations, their utilization is limited to future taxable
income of the Bank. The remaining $784 million of NOLs are attributable to
operations for fiscal 1989 to 1994, and will begin expiring in fiscal 2004 if
not utilized. See Note 13 to the Consolidated Financial Statements. These NOLs
may be utilized against the taxable income of the other companies within the
consolidated group of which the Company and the Bank are members.
Net Operating Loss Limitations
In the event of an Ownership Change, Section 382 of the Code imposes an
annual limitation on the amount of taxable income a corporation may offset with
NOLs and certain recognized built-in losses. The limitation imposed by Section
382 of the Code for any post-change year would be determined by multiplying the
value of the Company's stock (including both Common Stock and Preferred Stock)
at the time of the Ownership Change by the applicable long-term tax exempt rate
(which was 5.78% for June 1996). Any unused annual limitation may be carried
over to later years, and the limitation may under certain circumstances be
increased by the built-in gains in assets held by the Company at the time of the
change that are recognized in the five-year period after the change. Under
current conditions, if an Ownership Change were to occur, the Company's annual
NOL utilization would be limited to a minimum of approximately $31.8 million.
The Company would undergo an Ownership Change if, among other things, 5%
Stockholders increase their aggregate percentage ownership of such stock by more
than 50 percentage points over the lowest percentage of such stock owned by such
stockholders at any time during the Testing Period (generally the preceding
three years). In applying Section 382 of the Code, at least a portion of the
stock sold pursuant to the Offering would be considered to be acquired by a new
5% stockholder even if no person acquiring the stock in
93
<PAGE> 96
fact owns as much as 5% of the issuer's stock. While the application of Section
382 of the Code is highly complex and uncertain in some respects, the sale of
shares of Class A Common Stock as contemplated by this Prospectus is not
expected to cause an Ownership Change. In addition, events could occur prior to
or after the Offering that are beyond the control of the Company which could
result in an Ownership Change.
In an effort to protect against a future Ownership Change that is not
initiated by the Company, the Certificate and By-Laws limit Transfers, subject
to certain exceptions, at any time during the three years following the Offering
of shares of Common Stock that would either cause a person or entity to become a
5% Stockholder or increase a 5% Stockholder's percentage ownership interest.
While such Transfers are deemed prohibited by the Certificate and the Company is
authorized not to recognize any transferee of such a Transfer as a stockholder
to the extent of such Transfer, these restrictions are incomplete since the
Company cannot, consistent with NASDAQ requirements, prevent the settlement of
transactions through NASDAQ, and because the prohibition on Transfers by 5%
Stockholders does not limit transactions in the securities of such 5%
Stockholders that could give rise to ownership shifts within the meaning of the
applicable Section 382 rules. Moreover, the Company Board retains the discretion
to waive these limitations or to take certain other actions that could trigger
an Ownership Change, including through the issuance of additional shares of
Common Stock in subsequent public or private offerings or through subsequent
merger or acquisition transactions.
Because the Company will have utilized a substantial portion of its
available ownership limitation in connection with the Offering, the Company may
not be able to engage in significant transactions that would create a further
shift in ownership within the meaning of Section 382 of the Code within the
following three-year period without triggering an Ownership Change. There can be
no assurance that future actions on the part of the Company's stockholders or
the Company itself will not result in the occurrence of an Ownership Change.
See "Risk Factors -- Limitations on Use of Tax Losses, Restrictions on
Transfer of Stock", "Selling Stockholders -- Selling Stockholder Letter
Agreements" and "Description of Capital Stock -- Common Stock -- Restrictions on
Transfer of Stock".
Preferred stock that meets the requirements of section 1504(a)(4) of the
Code is not considered stock when calculating an Ownership Change. Preferred
stock meets the definition under section 1504(a)(4) of the Code if such stock:
(i) is not entitled to vote; (ii) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent; (iii) has
redemption and liquidation rights which do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium); and (iv) is
not convertible into another class of stock.
In fiscal 1995, the Bank publicly issued 4,000,000 shares, $25 liquidation
preference per share, of 9.60% Preferred Stock, Series B (par value $0.01). In
fiscal 1993, the Bank publicly issued 3,420,000 shares, $25 liquidation
preference per share, of 10.12% noncumulative Preferred Stock, Series A (par
value $0.01). Management believes that the Bank's issuance of the Bank Preferred
Stock met the requirements of Section 1504(a)(4) of the Code and, therefore, did
not result in an Ownership Change.
The tax laws in effect in 1988 that applied to the Acquisition provided
that generally applicable limitations on the ability of an acquiring corporation
to utilize the NOLs, and built-in losses, of acquired savings associations did
not apply in the case of the acquisition of assets from insolvent savings and
loan associations. Pursuant to this exception to the generally applicable law,
which existed in 1988, the Bank is allowed to use the NOLs and built-in losses
of Old USAT without limitation.
If an Ownership Change should occur, the Company's ability to utilize its
NOLs will be limited as described above, and the Company's ability to deduct its
built-in losses, if any, as they are realized will be subject to the same
limitation. Limitation of the utilization of these tax benefits could have a
material impact on the Company's financial condition.
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<PAGE> 97
Consolidated Group
The Company and the Bank were and are members of an "affiliated group" of
corporations, as defined in the Code and, accordingly, participate in the filing
of a consolidated tax return. One of the requirements of being a member of an
affiliated group is that 80% of the total voting power and 80% of the total
value of stock be owned, directly or indirectly, by other members of the
affiliated group. Stock for this purpose does not include preferred stock that
meets certain definitional requirements prescribed by the Code. Therefore, the
Bank did not cease to be a member of an affiliated group as a result of the
prior issuance of the Bank Preferred Stock. However, if subsequent events occur
that cause the Bank Preferred Stock to no longer meet these requirements (as
could occur if a default in dividends permitted the holders of such stock to
vote in the election of Bank directors), the Bank may cease to be a member of
the affiliated group. If the Bank ceases to be a member of the affiliated group,
other members of the affiliated group will lose their ability to utilize the
Bank's nonseparate return year limitation NOLs in the amount of $736 million.
See "-- Net Operating Losses".
Accounting for Income Taxes
Effective October 1, 1992, the Company and the Bank adopted SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 changes the method of computing
income taxes for financial statement purposes by adopting the liability method
under which the net deferred tax asset or liability is determined based on the
tax effects of tax benefits attributable to tax carryforwards such as NOLs,
investment tax credits and capital losses, and the differences between the book
and tax bases of the various assets and liabilities. The deferred tax asset must
be reduced by a valuation allowance if, based on available evidence, it is more
likely than not that some portion of the tax benefit will not be realized.
Accounting guidance under Accounting Principles Board No. 11, "Accounting for
Income Taxes", did not require these amounts to be recognized previously. During
the fourth quarter of fiscal 1993, the Bank recognized $59 million as a tax
benefit for the expected utilization of $252 million in NOLs against future
taxable income. SFAS No. 109 requires that tax benefits arising from an
acquisition should be used first to reduce to zero any goodwill related to that
acquisition, second to decrease other non-current intangible assets resulting
from that acquisition, and finally to reduce income tax expense. As a result of
the recognition of $59 million in tax benefits, income tax expense was reduced
$44 million, and goodwill associated with the Acquisition was reduced $15
million during the fourth quarter of fiscal 1993. During fiscal 1994, the
Company recognized an additional $58 million as a tax benefit for the expected
utilization of $249 million in NOLs against future taxable income. For fiscal
1994 and 1993, the Company recognized no tax benefit for income taxes for its
NOLs because the criteria to recognize a tax benefit under SFAS No. 109 was not
met. For the six months ended March 31, 1996 and 1995 and fiscal 1995, there
have been no tax benefits recognized by the Company or the Bank for the expected
utilization of NOLs against future taxable income. See "-- Net Operating Loss
Limitations". During the third quarter of 1996, the Company recognized a tax
benefit of $101.7 million for the expected utilization of NOLs against future
taxable income. See Note 21 to the Consolidated Financial Statements.
State Taxation
The Company and the Bank file unitary and combined state returns with
certain subsidiaries and also file separate state returns. The location of
mortgage bank branches, loan solicitations, or real property securing loans
creates jurisdiction for taxation in certain states, which results in the filing
of state income tax returns. Amounts for state tax liabilities are included in
the statements of operations for the six months ended March 31, 1996 and 1995,
and fiscal 1995, 1994, and 1993. See Note 13 to the Consolidated Financial
Statements.
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<PAGE> 98
DESCRIPTION OF PROPERTIES
The Company's offices are located at 50 Charles Lindbergh Boulevard, Suite
500, Uniondale, New York 11553, in space provided by an affiliate of the
Company. The headquarters of the Bank is located in leased premises in Houston,
Texas. The leases for the Bank's headquarters have terms expiring from one to
five years, with annual rental expenses of $4.3 million, subject to increases
under certain circumstances. The following table sets forth the number and
location of the community banking, commercial banking, and mortgage banking
offices of the Company as of March 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF OFFICES
------------------------------------------------------------------
COMMUNITY
BANKING BRANCHES COMMERCIAL
---------------- BANKING MORTGAGE BANKING
LOCATION OWNED LEASED OFFICES LEASED OFFICES LEASED TOTAL
------------------------------ ----- ------ -------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
Houston Area.................. 14 20 1 5 40
Dallas/Ft. Worth Area......... 12 17 1 3 33
Other Texas................... -- 4 -- 3 7
California.................... -- -- 1 25 26
Florida....................... -- -- 1 6 7
Other U.S..................... -- -- 5 70 75
-- -- -
--- ---
Total............... 26 41 9 112 188
== == = === ===
</TABLE>
A majority of leases outstanding at March 31, 1996 expire within five years
or less. See Note 17 to the Consolidated Financial Statements.
Net investment in premises and equipment totaled $36.2 million at March 31,
1996.
LEGAL PROCEEDINGS
On December 7, 1995, Maxxam filed a Petition for Review in the United
States Court of Appeals for the Fifth Circuit seeking to modify, terminate, and
set aside the order, dated December 30, 1988 (the "Order"), of the FSLIC
approving the Acquisition, which was consummated on December 31, 1988 and
involved substantially all the Bank's initial assets and liabilities. See "The
Company -- History". On December 8, 1995, Maxxam filed a Motion to Intervene and
a Complaint in Intervention in an action pending in the U.S. District Court for
the Southern District of Texas, entitled Federal Deposit Insurance Corporation
v. Charles E. Hurwitz, also seeking to set aside the Order. Maxxam contends, in
both cases, that it submitted the most favorable bid to acquire the assets and
liabilities of Old USAT and that it should have been selected as the winning
bidder.
The Company is not a party to either of these proceedings. The Bank has
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court case at a later date. Management believes, after consultation
with legal counsel, that the claims of Maxxam are barred by applicable time
limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.
The Bank's operations are subject to various consumer protection statutes
and regulations, including, for example, the TILA, the FH Act, the CRA, the
ECOA, the HMDA, the RESPA, the EFTA, the Expedited Funds Act, the TISA, and the
ADA. See "Regulation -- Consumer Protection Regulations". During the past
several years, numerous individual claims and purported consumer class action
claims were commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking civil statutory
and actual damages and rescission under the TILA, as well as remedies for
alleged violations of various state unfair trade practices laws and restitution
or unjust enrichment in connection with certain mortgage loan transactions.
Also, there have been numerous individual claims and purported consumer class
action claims commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking declaratory relief
that certain of the lenders' escrow account servicing practices violate the
RESPA and breach the lenders' contracts with borrowers. Such claims also
generally seek actual damages and attorneys' fees.
In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing, and collection of mortgage loans and
that allege inadequate
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<PAGE> 99
disclosure, breach of contract, breach of fiduciary duty, or violation of
federal or state laws. Claims have involved, among other things, interest rates
and fees charged in connection with loans, interest rate adjustments on
adjustable-rate mortgage loans, timely release of liens upon loan payoffs, the
disclosure and imposition of various fees and charges, and the placing of
collateral protection insurance. While the Bank has had various claims asserted
against it similar to those discussed above, management does not expect these
claims to have a material adverse effect on the Bank's or the Company's
financial condition, results of operations or liquidity.
On July 25, 1995, the Bank, the Company and Hyperion Partners filed suit in
the United States Court of Federal Claims against the United States of America
for breach of contract and taking of property without compensation in
contravention of the Fifth Amendment of the United States Constitution. The
action arose because the passage of FIRREA and the regulations adopted by the
OTS pursuant to FIRREA deprived the Company of its contractual rights against
the United States.
In December 1988, the United States, through its agencies, entered into
certain agreements with the Company that resulted in contractual obligations
owed to the Company. The Company contends that the obligations were undertaken
to induce, and did induce, the Company's acquisition of substantially all of the
assets and the secured, deposit, and certain tax liabilities of Old USAT, an
insolvent savings and loan association, thereby relieving the FSLIC of the
immense costs and burdens of taking over and managing or liquidating the
institution. The FSLIC, an agency of the United States government, actively
solicited buyers for Old USAT, and in the weeks preceding the acquisition the
Company and the FSLIC negotiated the terms of a complex transaction involving
some six contractual documents. To accomplish this transaction, the FSLIC and
its regulating agency, the Federal Home Loan Bank Board (the "FHLBB"), which was
also an agency of the United States government, were required to undertake to
pay certain other amounts of money over time and to count for regulatory
purposes certain monies and book entries of the Bank in ways that allowed the
Company greater leverage to increase the size of the Bank prudently and
profitably. The United States obtained the right to share in this leveraged
growth through warrants for stock and through so-called "tax benefit payments"
to the United States from the Company.
The lawsuit involves the United States' contractual obligations (i) to
abide by a capital forbearance, which allowed the Bank to operate for ten years
under negotiated capital levels lower than the levels required by the then
existing regulations or successor regulations, (ii) to abide by its commitment
to allow the Bank to count subordinated debt as regulatory capital for all
purposes and (iii) to abide by an accounting forbearance, which allowed the Bank
to count as capital for regulatory purposes, and to amortize over a period of
twenty-five years, the difference between certain FSLIC payment obligations to
the Bank, denominated "Reimbursable Goodwill," and the discounted present value
of those future FSLIC payments. The lawsuit seeks monetary relief for the
breaches by the United States of its contractual obligations to plaintiffs and,
in the alternative, seeks just compensation for a taking of property and for a
denial of due process under the Fifth Amendment to the United States
Constitution.
There are over 100 similar cases pending in the United States Court of
Federal Claims, which has entered summary judgment for the plaintiffs as to
liability, but not damages, in three of the cases. These three cases (the
"Winstar cases") were appealed to the United States Court of Appeals for the
Federal Circuit, which affirmed the judgment for the plaintiffs following a
hearing en banc after a three-judge panel had found for the United States. The
United States Supreme Court has agreed to review the decision in the Winstar
cases, oral argument occurred on April 24, 1996, and the Supreme Court is
expected to issue a decision during 1996. The Company's claim has been stayed,
pending the decisions of the Supreme Court in the Winstar cases. There have been
no decisions determining damages in any of the similar cases. The Company is
unable to predict the outcome of its claim against the United States and the
amount of any damages that may be awarded to the Bank or the Company, if any, in
the event that judgment is made in favor of the Bank or the Company.
Consequently, no assurances can be given as to the results of this claim or the
timing of any proceeding in relation thereto.
The Bank is involved in other legal proceedings occurring in the ordinary
course of business that management believes, after consultation with legal
counsel, are not, in the aggregate, material to the financial condition, results
of operations, or liquidity of the Bank or the Company.
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<PAGE> 100
MANAGEMENT
DIRECTORS
The Company Board consists of three members and is divided into three
classes. The members of each class are elected for a term of three years with
one class being elected annually. Each director of the Company is also a
director of the Bank. The following table sets forth certain information with
respect to the directors of the Company, including information regarding their
ages and when they became directors.
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
THE COMPANY THE BANK TERM
NAME AGE SINCE SINCE EXPIRES
----------------------------------- --- -------------- ----------- -------
<S> <C> <C> <C> <C>
Lewis S. Ranieri................... 49 1988 1988
Salvatore A. Ranieri............... 47 1988 1988
Scott A. Shay...................... 38 1988 1988
</TABLE>
The principal occupation and position with the Company and the Bank of each
director is set forth below.
LEWIS S. RANIERI. Mr. Ranieri is the Chairman of the Company. He was also
the President of the Company and Chairman of the Bank from 1988 until
1996. Mr. Ranieri is the Chairman and CEO of Ranieri & Co.,
positions he has held since founding Ranieri & Co. in 1988. Mr. Ranieri is a
founder of Hyperion Partners and of Hyperion Partners II. He is also Chairman of
Hyperion Capital Management, Inc., a registered investment advisor and an
affiliate of the Bank ("Hyperion Capital") and The Hyperion Total Return Fund,
Inc. He is director of the Hyperion 1999 Term Trust, Inc., the Hyperion 1997
Term Trust, Inc., the Hyperion 2002 Term Trust, Inc. and Hyperion 2005
Investment Grade Opportunity Trust, Inc. Mr. Ranieri is also Chairman and
President of various other indirect subsidiaries of Hyperion Partners. Along
with his brother, Salvatore A. Ranieri, and Scott A. Shay, Mr. Ranieri controls
the general partner of Hyperion Partners. Along with Mr. Shay, Mr. Ranieri
controls the general partner of Hyperion Partners II, a recently formed
investment partnership which plans to make investments primarily in the
financial and real estate sectors of the economy. He is also Chairman of the
Board and a director of American Marine Holdings, Inc. ("American Marine"). Mr.
Ranieri is also a director of Delphi Financial Group, Inc.
Mr. Ranieri is a former Vice Chairman of Salomon Brothers Inc ("Salomon")
where he was employed from 1968 to 1987, and was one of the principal developers
of the secondary mortgage market. While at Salomon, Mr. Ranieri helped to
develop the capital markets as a source of funds for housing and commercial real
estate and to establish Salomon's then leading position in the MBS area. He is a
member of the National Association of Home Builders Mortgage Roundtable.
Mr. Ranieri is a Trustee for the Parish of Our Lady of the Rosary/Shrine of
St. Elizabeth Ann Seton and the Environmental Defense Fund. Mr. Ranieri is also
a director of the Peninsula Hospital Center in Queens, New York. Mr. Ranieri
received his Bachelor of Arts degree from St. John's University.
SALVATORE A. RANIERI. Mr. Ranieri is the General Counsel and a Managing
Director of Ranieri & Co. He was also the Vice President, Secretary and General
Counsel of the Company from 1988 until 1996. He is a director of
Hyperion Capital, as well as of various other direct and indirect subsidiaries
of Hyperion Partners. Along with his brother, Lewis S. Ranieri, and Scott A.
Shay, Mr. Ranieri controls the general partner of Hyperion Partners. He is also
a director of American Marine. Mr. Ranieri was one of the original founders of
Ranieri & Co. and of Hyperion Partners. Prior to joining Ranieri & Co., he had
been President of Livia Enterprises, Inc., a private venture capital and real
estate investment company that oversaw investments in the real estate,
construction, and manufacturing sectors. In addition to his business experience,
Mr. Ranieri is also a lawyer. During his career, his practice has included the
areas of corporate, litigation, real estate and regulatory matters. Until 1984,
he had been a member of a law firm in New York City. He is admitted to practice
law in New York and various federal courts. He received his Bachelor of Arts
degree from New York University and his Juris Doctor degree from Columbia
University School of Law.
SCOTT A. SHAY. Mr. Shay has been a Managing Director of Ranieri & Co.
since its formation in 1988. He was also a Vice President of the Company from
1988 until 1996. Mr. Shay is a founder of
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Hyperion Partners and Hyperion Partners II. Mr. Shay is currently a director of
Hyperion Capital and Transworld Home Healthcare, Inc., as well as an officer or
director of other direct and indirect subsidiaries of Hyperion Partners and
Hyperion Partners II. Along with Lewis S. Ranieri and Salvatore A. Ranieri, Mr.
Shay controls the general partner of Hyperion Partners. Along with Mr. Lewis S.
Ranieri, Mr. Shay controls the general partner of Hyperion Partners II. Prior to
joining Ranieri & Co., Mr. Shay was a director of Salomon where he was employed
from 1980 to 1988. Mr. Shay was involved with Salomon's thrift mergers and
acquisitions practice and with mortgage banking financing and mergers and
acquisitions. Mr. Shay also worked on acquisitions of real estate investment
trusts while at Salomon. Mr. Shay graduated Phi Beta Kappa from Northwestern
University with a B.A. degree in economics and received a Master of Management
degree with distinction from Northwestern's Kellogg Graduate School of
Management. Mr. Shay has lectured at the School of Mortgage Banking and has
written articles on the strategic environment for mortgage banking and on merger
and acquisition theory. Mr. Shay currently serves as a member of the board and
was President of Hillel of New York from 1990 until June 30, 1992. He is also on
the board of UJA-Federation of New York.
The principal occupation of each director of the Bank is set forth below.
BARRY C. BURKHOLDER. Mr. Burkholder has been the President and CEO of the
Company since 1996, and has held similar positions with the Bank
since joining it on April 10, 1991. Since , 1996, Mr. Burkholder has also
been Chairman of the Bank. In May 1994, Mr. Burkholder assumed the additional
responsibilities of managing the Bank's retail banking operations. Prior to
joining the Bank, Mr. Burkholder was employed at Citicorp/Citibank for 15 years.
Mr. Burkholder became associated with Citicorp through its then newly formed
Consumer Services Group in 1976, and then became a member of its International
Staff. Mr. Burkholder moved to Citibank Savings in London where he was named
Chairman and Managing Director in 1977. Mr. Burkholder returned to the United
States in 1981 to become President of Citicorp Person-to-Person, now part of
Citicorp Mortgage, Inc., a nationwide mortgage lending business with related
mortgage banking, servicing, and insurance activities. In 1984, he was named
Chairman and CEO of Citibank Illinois, and two years later became Central
Division Executive for the U.S. Consumer Bank. As Central Division Executive,
Mr. Burkholder was responsible for Citicorp's consumer banking activities in the
Midwest and Southeast. Mr. Burkholder began his career at Ford Motor Company in
the financial planning area and moved to Certain-teed Corporation where his last
position prior to joining Citicorp was as President of its real estate
development subsidiary. Mr. Burkholder received a B.S. and an M.B.A. from Drexel
University. Mr. Burkholder is President elect of the Houston Symphony, and
serves on the Board of Trustees of the Texas Gulf Coast United Way.
LAWRENCE CHIMERINE, PH.D. Dr. Chimerine has served as President of his own
economic consulting firm, Radnor Consulting Services, since 1990, and as a
Senior Economic Counselor for Data Resources Inc. since 1990. He is currently
also the Managing Director and Chief Economist of the Economic Strategy
Institute in Washington, D.C. Dr. Chimerine served as Chairman and Chief
Executive Officer of the WEFA Group from 1987 to 1990 and of Chase Econometrics
from 1979 to 1987, both of which provide economic consulting. Dr. Chimerine
received a B.S. from Brooklyn College and a Ph.D. from Brown University.
DAVID M. GOLUSH. Mr. Golush is a Managing Director of Ranieri & Co. with
which he has been associated since the firm's founding in 1988. He is an officer
of direct and indirect subsidiaries of Hyperion Partners and Hyperion Partners
II, and has an economic interest in Hyperion Partners and Hyperion Partners II.
Mr. Golush was at Salomon from 1972 to 1987 and was a Vice President from 1975.
From 1984 to 1987, he was Chief Administrative Officer of Salomon's Mortgage and
Real Estate Department at Salomon. From 1966 to 1972, he held positions in
public accounting and private industry. He has been a certified public
accountant in New York since 1972. Mr. Golush received a B.B.A. from the
University of Cincinnati. He is Treasurer of the New York Police & Fire Widows'
and Children's Fund, Inc. and a member of the board of the Jewish Federation of
Central New Jersey.
PAUL M. HORVITZ, PH.D. Dr. Horvitz has been on the faculty of the
University of Houston since 1977, and holds the University's Judge James Elkins
Chair of Banking and Finance. From 1967 to 1977, Dr. Horvitz held positions as
Assistant Director of Research, Director of Research and Deputy to the Chairman
at the FDIC. Prior to joining the FDIC he was an economist at the Federal
Reserve Bank of Boston and the Office of
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Comptroller of the Currency. From 1983 to 1990, Dr. Horvitz was a member of the
Board of Directors of the FHLB Dallas, and in 1986 and 1987 he was a member of
the Federal Savings and Loan Advisory Council. He is currently a director of the
Pulse EFT Association, and a member of the Shadow Financial Regulatory
Committee. Dr. Horvitz received a B.A. from the University of Chicago, an M.B.A.
from Boston University, and a Ph.D. from MIT.
ALAN E. MASTER. Mr. Master began his career with Chemical Bank in 1961 as
a commercial lending officer, became a Branch Office Head, and worked on
start-ups or clean-ups of banks in Miami, Florida. In 1973, he joined Barnett
Banks of Florida ("Barnett") and led a unit of Barnett formed from the
reorganization and merger of five subsidiaries of Barnett. In 1977, he became
President, CEO, and Chief Financial Officer, and in 1978 was elected Vice
Chairman of United Americas Bank of New York. Mr. Master joined The Merchants
Bank of New York in 1979 as Executive Vice President and was elected a director
in 1980. In 1983, Mr. Master joined Ensign Bank FSB in New York City as
President and CEO. In 1991, Mr. Master established a consulting practice
specializing in the financial services and banking sectors. Mr. Master has
served on the Board of Trustees of the Hyperion Government Mortgage Trust II,
has participated in meetings of the Advisory Board of Hyperion Partners, is a
member of the Advisory Board of the Johnson Graduate School of Management of
Cornell University and joined PaineWebber Incorporated in April 1996. Mr. Master
received a B.A. from Cornell University and has completed course work in finance
and accounting at the New York University Graduate School of Business
Administration.
ANTHONY J. NOCELLA. Mr. Nocella has been the Executive Vice President and
Chief Financial Officer of the Company since 1996, and has held
those same positions with the Bank since joining it in July 1990. He manages the
Financial Markets and Commercial Banking Groups of the Bank. From 1988 to 1990,
Mr. Nocella provided consulting services to the Bank as President of Nocella
Management Company, a firm that specialized in asset and liability management
consulting for financial institutions. From 1981 to 1987, Mr. Nocella served as
Executive Vice President and Chief Financial Officer of Meritor Financial Group,
as well as President of the Company's Commercial banking/financial markets arm,
Meritor Financial Markets ("Meritor"). During his 13 years at Meritor
(1974-1987), he also served as President of PSFS Management Company, Inc., the
holding company of The Philadelphia Saving Fund Society, the nation's largest
savings institution at the time. Other career positions include Controller and
Director of Financial Services for American Medicorp (now Humana), Managing
Auditor and Consultant for Peat Marwick and adjunct professor of finance at St.
Joseph's University and Drexel University. Mr. Nocella, a Certified Public
Accountant, received an undergraduate degree in accounting from LaSalle
University, and an M.B.A. in computer science and finance from Temple
University. He also completed the graduate Bank Financial Management Program of
the Wharton School at the University of Pennsylvania. Mr. Nocella is the
President and a director of the Community Bankers Association of Southeast
Texas, a delegate and member of the Mortgage Finance and Accounting Committees
of the America's Community Bankers, a director of the Texas Community Bankers
Association, and delegate and past President of the Financial Executives
Institute.
PATRICIA A. SLOAN. Ms. Sloan is a Managing Director of Ranieri & Co. and
has an economic interest in Hyperion Partners and Hyperion Partners II. She is
also a director of certain funds managed by Hyperion Capital Management,
including Hyperion 1999 Term Trust, Inc., Hyperion 1997 Term Trust, Inc.,
Hyperion 2002 Term Trust, Inc., Hyperion Investment Grade Opportunity Term
Trust., Inc., and the Hyperion Total Return Fund, Inc. Prior to joining Ranieri
& Co. in 1988, Ms. Sloan was employed at Salomon from 1972 to 1988, where she
served as Director of the Company's Financial Institutions Group. Prior to
joining Salomon, Ms. Sloan was employed at Bache & Co., Inc. from 1965 to 1972.
Ms. Sloan received a B.A. from Radcliffe College and an M.B.A. from Northwestern
University.
KENDRICK R. WILSON III. Mr. Wilson currently is a Managing Director and
head of investment banking of Lazard Freres & Co. LLC, a New York-based
investment banking firm. Prior to his joining Lazard Freres & Co. LLC in 1990,
Mr. Wilson served as President of Ranieri & Co. from March 1988 to December
1989, and Senior Executive Vice President for E.F. Hutton from April 1987 to
February 1988. Mr. Wilson was also employed at Salomon from June 1978 to April
1987 where he became a Managing Director. Mr. Wilson has an economic interest in
Hyperion Partners. He is a director of ITT Corporation, Black Rock Asset
Investors,
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American Marine Holdings, American Buildings Company, Inc., and Meigher
Communications, Inc. Mr. Wilson received a B.A. from Dartmouth College and an
M.B.A. from Harvard Business School.
Mr. Lewis Ranieri and Mr. Salvatore Ranieri are brothers. No other director
or executive officer is related to any other director or executive officer by
blood, marriage, or adoption. Mr. Lewis Ranieri, Mr. Salvatore Ranieri and Mr.
Shay served since 1990 as directors of the Company pursuant to an agreement
entered into in 1990 between the owners of certain non-voting stock of the
Company and Hyperion Partners, which was terminated in 1996. There are no
existing arrangements or understandings between a director and any other person
pursuant to which such person was elected a director.
ANNUAL MEETING
The By-Laws provide that annual meetings of stockholders will be held at
the Company's principal office or at such other place and on such date as may be
fixed from time to time by resolution of the Company Board. The first annual
meeting for which proxies will be solicited from stockholders will be held on
, 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board has established committees:
COMPENSATION OF DIRECTORS
Non-employee directors currently receive an annual retainer of $ .
The chair of each committee will receive an additional annual retainer of
$ . Directors will not receive separate meeting fees.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth information concerning executive officers of
the Company and principal executive officers of the Bank who do not serve on the
Company Board. All executive officers of the Company and the Bank are elected by
the Company Board and the Board of Directors of the Bank, respectively, and
serve until their successors are elected and qualified. There are no
arrangements or understandings between any director and any other person
pursuant to which such individual was elected an executive officer.
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PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<TABLE>
<CAPTION>
NAME AGE POSITION AND OCCUPATION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
George R. Bender.............. 56 Executive Vice President -- Mortgage Banking of the
Company since 1996 and of the Bank since July 1990.
Prior to joining the Bank, Mr. Bender was employed by
CenTrust Mortgage Corporation as President and CEO from
June 1985 to February 1990. As President and CEO, Mr.
Bender was responsible for the overall management of
this mortgage banking subsidiary of CenTrust Savings.
Mr. Bender's career also includes positions as Chairman
and CEO of WestAmerica Mortgage Company in Denver,
President and CEO of Unity Mortgage Corporation in
Chicago; Senior Vice President of United First Mortgage
Corporation of San Diego; and Senior Vice President of
Production and Marketing at Advance Mortgage
Corporation. Mr. Bender attended the University of
Michigan in Ann Arbor.
Jonathon K. Heffron........... 43 Executive Vice President and General Counsel of the
Company since 1996 and of the Bank since May 1990,
named Chief Operating Officer of the Bank in May, 1994.
Prior to joining the Bank, Mr. Heffron served for two
years as President and CEO of First Northern Bank,
Keene, New Hampshire. Prior to joining First Northern
Bank, Mr. Heffron served for more than 10 years in
several capacities at the FHLB Board, Washington, D.C.
and at the FHLB Dallas, including Attorney Advisor,
Trial Attorney, General Counsel, Chief Administrative
Officer, and Chief Operating Officer. Mr. Heffron
received a B.A. Magna Cum Laude from the University of
Minnesota, a J.D. from Southwestern University School of
Law, and an LL.M. from the National Law Center of George
Washington University. Mr. Heffron serves on the Boards
of Directors of the FHLB Dallas, the Credit Coalition of
Greater Houston and the Texas Conference for Homeowners'
Rights.
Leslie H. Green............... 57 Senior Vice President -- Operations and Technology of
the Company since 1996 and of the Bank since
June 1991. Prior to joining the Bank, Mr. Green was
employed by Equimark since 1988 as Executive Vice
President -- Systems and Operations. Prior to joining
Equimark, Mr. Green served in several capacities at
Keystone Computer Association, Fidelity Bank, National
Information Systems and RCA Computer Systems. Mr. Green
received a degree in Business Management from Rutgers
University.
Karen J. Hartnett............. 48 Senior Vice President -- Human Resources of the Company
since 1996 and of the Bank since January 1991. Prior
to joining the Bank, Ms. Hartnett was employed by
Equimark as Senior Vice President Human Resources since
1989. From 1988 to 1989, Ms. Hartnett was Senior Vice
President and Chief Personnel Officer for NCNB Texas.
Ms. Hartnett served NCNB Texas, and predecessor
organizations, as Vice President and as Director of
Human Resources. Ms. Hartnett's human resources
experiences include positions at Zale Corporation,
Mobile Oil Corporation and Sweet Briar College. Ms.
Hartnett received an A.B. from Sweet Briar College in
1970. Ms. Hartnett serves on the Board of Directors of
the Gulf Coast Chapter of the American Heart
Association, on the Board of Trustees for the Houston
Ballet Foundation and is a lifetime member of the
Houston Livestock Show and Rodeo.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION AND OCCUPATION
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Sonny H. Lyles................ 50 Senior Vice President and Chief Credit
Officer of the Company since
1996 and of the Bank since February 1991.
Prior to joining the Bank, Mr. Lyles
was employed by First Union National Bank
as Senior Credit Officer beginning in 1983.
Prior to joining First Union National Bank,
Mr. Lyles was employed at First Tulsa
Bank, Florida National Bank and South
Carolina National Bank. Mr. Lyles
received a B.A. from Wofford College. Mr.
Lyles is a member of the Board, First Vice
President of the Texas Chapter, and a
national member, of the Credit and Risk
Management Council of Robert Morris
Associates, a trade association of bank
lending and credit officers. Mr. Lyles
is the Wofford College alumni
representative from Houston.
</TABLE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Compensation
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the CEO of the Company
and the other four most highly compensated executive officers of the Company and
the Bank:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ---------------------------------
AWARDS
-----------------------
OTHER SECURITIES PAYOUTS ALL
ANNUAL UNDERLYING ------- OTHER
COMPEN- RESTRICTED OPTIONS/ LTIP COMPEN-
SALARY BONUS(1) SATION(2)(3) STOCK SAR PAYOUTS SATION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($) ($)
- --------------------------- ---- ------ -------- ------------ --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barry C. Burkholder................. 1995 375,000 594,000 -- -- -- -- 9,240
President and 1994 375,000 607,500 -- -- -- -- 9,240
Chief Executive Officer 1993 375,000 500,000 1,328 -- -- -- 8,994
Anthony J. Nocella.................. 1995 315,000 235,000 -- -- -- -- 9,402
Executive Vice President and 1994 315,000 200,000 -- -- -- -- 8,878
Chief Financial Officer 1993 315,000 210,000 1,323 -- -- -- 9,069
Financial Markets/Treasury
Commercial Banking
Jonathon K. Heffron................. 1995 225,000 200,000 -- -- -- -- 9,402
Executive Vice President, 1994 225,000 175,000 -- -- -- -- 8,984
General Counsel, and 1993 225,000 185,000 118 -- -- -- 5,386
Chief Operating Officer
George R. Bender.................... 1995 200,000 75,000 -- -- -- -- 13,980
Executive Vice President 1994 200,000 408,900 -- -- -- -- 4,500
Mortgage Banking 1993 200,000 703,601 1,341 -- -- -- 8,994
Leslie H. Green..................... 1995 175,000 75,000 -- -- -- -- 4,620
Senior Vice President 1994 175,000 70,000 -- -- -- -- 4,615
Operations & Technology 1993 167,500 70,000 -- -- -- -- 6,320
</TABLE>
- ---------------
(1) Mr. Burkholder was hired on April 10, 1991, and was paid a bonus based on
the financial performance of the Bank, according to the provisions of his
employment contract, for each of the first five full years of his
employment. Amounts indicated represent the amount paid in the respective
fiscal year. For the 12-month period ended April 10, 1996, Mr. Burkholder
was paid a bonus of $550,000. See "-- Management Employment Arrangements".
All other management bonuses were paid as determined by the Compensation
Committee of the Bank's Board of Directors, based on the Bank's financial
and individual performance for 1995. The Bank's financial performance is
measured by net income, return on assets, and return on equity as compared
to the Bank's annual business plan and a specified peer group of other
thrifts of comparable size.
(2) "Other Annual Compensation" for 1993 includes a tax equalization amount paid
to Messrs. Burkholder, Bender, Nocella, and Heffron to offset a failed
401(k) discrimination test for calendar year 1992.
(3) Messrs. Burkholder, Bender, Nocella, and Heffron are each provided an auto
allowance and a country club and/or dining club membership. However, in no
case does the aggregated value of such auto allowance and memberships exceed
the lesser of $50,000 or 10% of such officer's annual cash
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compensation. Therefore, the value of auto allowances and club memberships are
excluded from these numbers.
(4) "All Other Compensation" amounts represent contributions by the Bank to each
executive's account in the Bank's 401(k) Plan.
EXECUTIVE MANAGEMENT COMPENSATION PLAN
In June 1996, the Company Board approved an Executive Management
Compensation Plan (the "Compensation Plan") containing the following provisions:
(i) a cash bonus of $ million payable by June 30, 1996; (ii) the award of
shares of Company common stock with restrictions on its transferability
for a period of three years from its issuance; and (iii) the issuance of
options for purchase of an equivalent number of shares of common stock:
such options vest ratably over three years from the date of grant. The options'
exercise price approximates the fair market value at the date of the grant and
will expire if not exercised by June 2003.
THE 1996 INCENTIVE COMPENSATION PLAN
The Company has adopted the Bank United 1996 Incentive Compensation Plan
(the "1996 Incentive Compensation Plan"). The 1996 Incentive Compensation Plan
is designed to promote the success and enhance the value of the Company by
linking the interests of certain of the full-time employees of the Company
("Participants") to those of the Company's stockholders and by providing
Participants with an incentive for outstanding performance. The 1996 Incentive
Compensation Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain Participants upon whose judgment,
interest and special efforts the Company's successful operation largely is
dependent. As determined by the Compensation and Directors Committee of the
Company Board, or any other designated committee of the Company Board, the
Company employees, including employees who are members of the Company Board, are
eligible to participate in the 1996 Incentive Compensation Plan. Non-employee
directors are not eligible to participate in the 1996 Incentive Compensation
Plan. The Company Board has provided for the 1996 Incentive Compensation Plan to
remain in effect for 10 years, to 2006. The description below is intended as a
summary only and is qualified in its entirety by reference to the 1996 Incentive
Compensation Plan, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
General
The 1996 Incentive Compensation Plan will be administered by the
Compensation and Directors Committee of the Company Board or, at the discretion
of the Company Board, any other committee appointed by the Company for such
purpose (the "Committee"). Four types of awards may be granted to Participants
under the 1996 Incentive Compensation Plan: (i) stock options (both
non-qualified and incentive) ("Options"), (ii) stock appreciation rights
("SARs"), (iii) restricted Common Stock ("Restricted Stock") and (iv)
performance awards ("Performance Awards," and together with the Options, SARs
and Restricted Stock, the "Awards").
The 1996 Incentive Compensation Plan provides that the total number of
shares of Class A Common Stock available for grant under the 1996 Incentive
Compensation Plan may not exceed shares; provided that, if during
the term of the 1996 Incentive Compensation Plan, the Company repurchases shares
of Class A Common Stock additional shares equal to the number of such
repurchased shares, up to outstanding shares; provided that, if
during the term of the 1996 Incentive Compensation Plan, the Company repurchases
shares of Class A Common Stock additional shares equal to the number of such
repurchased shares, up to shares, will be available for Options; and
provided, further, that the total number of shares of Class A Common Stock
Available for Restricted Stock awards is not to exceed . No Participant may be
granted Awards covering in excess of 10% of the shares of Class A Common Stock
available for issuance over the life of the 1996 Incentive Compensation Plan. If
any Award is cancelled or forfeited or terminates, expires, or lapses (other
than a termination of a Tandem SAR (as defined below)), upon exercise of the
related Option or the termination of a related Option upon exercise of the
corresponding Tandem SAR, shares subject to such Award will be available for the
grant of an Award under the 1996 Incentive Compensation Plan.
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<PAGE> 107
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Committee or the Company Board may make such substitutions or
adjustments in the aggregate number and class of shares reserved for issuance or
subject to outstanding Awards and in the number, kind and price of shares
subject to outstanding Options of SAR's as it may determine to be appropriate.
The 1996 Incentive Compensation Plan is not subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
is not qualified under Section 401(a) of the Code.
Options
The term of Options granted under the 1996 Incentive Compensation Plan may
not exceed 10 years. The exercise price for each Option granted will be
determined by the Committee; provided that the exercise price may not be less
than 100% of the fair market value (as defined in the 1996 Incentive
Compensation Plan) of a share of Class A Common Stock on the date of grant.
A Participant exercising an Option may pay the exercise price in full in
cash, or, if approved by the Committee, with previously acquired shares of Class
A Common Stock. The Committee, in its discretion, may allow cashless exercise of
Options.
Options are nontransferable other than by will or laws of descent and
distribution (and, in the case of a nonqualified Option, pursuant to a domestic
relations order or by gift to members of the holder's immediate family, whether
directly or indirectly or by means of a trust or partnership), and, during the
Participant's lifetime, may be exercised only by the Participant or his legal
representative.
SARs
SARs may be granted by the Committee in connection with all or part of any
Option grant ("Tandem SARs"), or granted separately and unrelated to any Option
("Freestanding SARs"). A Tandem SAR may be exercised only with respect to the
shares for which its related Option is then exercisable. SARs permit the
Participant to receive in cash or shares of Class A Common Stock (or a
combination of both) an amount equal to the excess of the fair market value of a
share of Class A Common Stock on the date the SAR is exercised over the exercise
price for the SAR times the number of shares of Class A Common Stock with
respect to which such SAR is exercised.
The term of SARs granted under the 1996 Incentive Compensation Plan may not
exceed 10 years. The exercise price of a Freestanding SAR will be determined by
the Committee. The exercise price of a Tandem SAR will equal the exercise price
of the related Option.
SARs are nontransferable other than by will or laws of descent and
distribution, and, during the Participant's lifetime, may be exercised only by
the Participant; provided that, at the discretion of the Committee, an Award
agreement may permit transfer of an SAR by a Participant solely to members of
the Participant's immediate family or trusts or partnerships for the benefit of
such persons.
Restricted Stock
The Committee may grant Restricted Stock to eligible employees in such
amounts as the Committee determines. At the time of each award of Restricted
Stock the Committee will establish a restricted period, which may not, unless
specified conditions described below are satisfied, be less than three years
from the grant date (the "Restricted Period") during which such stock may not be
sold, transferred, pledged, assigned or otherwise alienated; provided that the
Committee may permit transfers of Restricted Stock during such period to members
of the Participant's immediate family or trusts or partnerships for the benefit
of such persons. If a Participant terminates his employment or is involuntarily
terminated for cause during the Restricted Period, all Restricted Stock held by
such Participant will be forfeited. If a Participant is involuntarily terminated
other than for cause, the Committee may waive all or part of any remaining
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<PAGE> 108
restrictions on such Participant's Restricted Stock. Up to one-third of the
shares of Class A Common Stock available for grant under the 1996 Incentive
Compensation Plan as Restricted Stock awards may be issued without a minimum
Restricted Period. After the Restricted Period has expired, the related
Restricted Stock is freely transferable.
The Committee has discretion to determine whether holders of Restricted
Stock will be entitled to dividends or other distributions thereon. If any such
dividends or distributions are in shares of Class A Common Stock, such shares
will be subject to the same restrictions as the related Restricted Stock. In the
event the holder of Restricted Stock on which dividends or distributions are
made is subject to Section 16 of the Exchange Act, the vesting period for such
dividend or distribution will be the longer of (i) the remaining vesting period
on the related Restricted Stock and (ii) six months.
Performance Awards
The Committee may from time to time grant Performance Awards, which, as
determined by the Committee, may include, without limitation, cash, Common
Stock, performance units, performance shares or any combination thereof. The
Committee will set the performance goals and restrictions applicable to each
Performance Award, including establishing the applicable performance period and
the value of the Performance Award. After the applicable performance period has
ended, the holder of a Performance Award will be entitled to receive the payout
earned to the extent to which the corresponding performance goals were
satisfied.
Performance Awards are nontransferable other than by will or laws of
descent and distribution and during the Participant's lifetime may be exercised
only by the Participants; provided that, at the discretion of the Committee, an
award agreement may permit transfer of a Performance Award by a Participant
solely to members of the Participant's immediate family or trusts or
partnerships for the benefit of such persons.
Change of Control
In the event of a Change of Control (as defined in the 1996 Incentive
Compensation Plan), (i) any Option or SAR that is not then exercisable and
vested will become fully exercisable and vested (provided that in the case of
any holder of an Option or SAR who is subject to Section 16(b) of the Exchange
Act, such Option or SAR has been outstanding for at least six months as of the
date of such Change of Control), (ii) the restrictions on any Restricted Stock
will lapse and (iii) all Performance Awards will be deemed earned.
During the 60-day period following a Change of Control, any Participant
will have the right to surrender all or part of any Option held by such
Participant, in lieu of payment of the exercise price, and to receive cash in an
amount equal to the difference between (i) the higher of the price received for
Common Stock in connection with the Change of Control and the fair market value
of a share of Common Stock in connection with the Change of Control and the fair
market value of a share of Common Stock on the date, if any, that such Option is
cancelled (the "Change of Control Price"), and (ii) the exercise price (the
difference between (i) and (ii) being referred to as the "Spread") multiplied by
the number of shares of Class A Common Stock granted in connection with the
exercise of such Option; provided that such Change of Control transaction would
not thereby be made ineligible for pooling of interests accounting; and
provided, further, that, if the Change of Control is within six months of the
grant date for any such Option, no such election may be made prior to six months
from such grant date; and provided, further, that, if the Option is an
"incentive stock option" under Section 422 of the Code, the Change of Control
Price will equal the fair market value of a share of the Class A Common Stock on
the date, if any, that such Option is cancelled. If such 60-day period ends
within the period six months after the grant date for an Option, any such Option
held by a Participant subject to Section 16 of the Exchange Act will be
cancelled and the holder thereof will receive six months and one day after the
grant of such Option, an amount equal to the Spread multiplied times the number
of shares of Class A Common Stock granted under or comprising such Option.
106
<PAGE> 109
Deferrals
The Committee may permit a Participant to elect, or the Committee may
require, at its sole discretion, subject to the proviso set forth below, any one
or more of the following: (i) the deferral of a Participant's receipt of cash,
(ii) a delay in the exercise of an Option or SAR, (iii) a delay in the lapse or
waiver of restrictions with respect to Restricted Stock, or (iv) a delay of the
satisfaction of any requirements or goals with respect to Performance Awards;
provided that the Committee's authority to take such actions exists only to the
extent necessary to reduce or eliminate a limitation on the deductibility of
compensation paid to a Participant pursuant to (and so long as such action in
and of itself does not constitute the exercise of impermissible discretion
under) Section 162(m) of the Code, or any successor provision thereunder. If any
such deferral is required or permitted, the Committee will establish rules and
procedures for such deferrals, including provisions relating to periods of
deferral, the terms of payment following the expiration of the deferral periods,
and the rate of earnings, if any, to be credited to any amounts deferred
thereunder.
Amendments
The Company Board may at any time terminate, amend, or modify the 1996
Incentive Compensation Plan; provided that no amendment, alteration or
discontinuation will be made which will disqualify the 1996 Incentive
Compensation Plan from the exemption provided by Rule 16b-3 promulgated under
the Exchange Act, and, to the extent required by law, no such amendment will be
made without the approval of the Company's stockholders.
Federal Income Tax Considerations
The following brief summary of the United States federal income tax rules
currently applicable to nonqualified stock options, incentive stock options,
SARs, restricted stock and performance awards is not intended to be specific tax
advice to Participants under the 1996 Incentive Compensation Plan.
Two types of stock options may be granted under the 1996 Incentive
Compensation Plan: nonqualified stock Options ("NQOs") and incentive stock
Options ("ISOs"). SARs, Restricted Stock and Performance Awards may also be
granted under the Plan. The grant of an Award generally has no immediate tax
consequences to the Participant or the Company. Generally, Participants will
recognize ordinary income upon: (i) the exercise of NQOs or SARs; (ii) the
vesting of shares of Restricted Stock; and (iii) the actual receipt of cash or
stock pursuant to Performance Awards. In the case of NQOs and SARs, the amount
of income recognized is measured by the difference between the exercise price
and the fair market value of Common Stock on the date of exercise. In the case
of Restricted Stock and Performance awards, the amount of income is equal to the
fair market value of the stock or other property (including cash) received. The
exercise of an ISO for cash generally has no immediate tax consequences to a
Participant or to the Company. Participants may, in certain circumstances,
recognize ordinary income upon the disposition of shares acquired by exercise of
an ISO, depending upon how long such shares were held prior to disposition.
Special rules apply to shares acquired by exercise of ISOs for previously held
shares. In addition, special tax rules may result in the imposition of a 20%
excise tax on any "excess parachute payments" that result from the acceleration
of the vesting or exercisability of Awards upon a Change of Control.
The Company is generally required to withhold applicable income and Social
Security taxes ("employment taxes") from ordinary income which a Participant
recognizes on the exercise or receipt of an Award. The Company thus may either
require Participants to pay to the Company an amount equal to the employment
taxes the Company is required to withhold or retain or sell without notice a
sufficient number of the shares to cover the amount required to be withheld.
The Company generally will be entitled to a deduction for the amount
includible in a Participant's gross income for federal income tax purposes upon
the exercise or actual receipt of an Award. However, such deduction generally is
available only if the Company timely complies with applicable information
reporting requirements under Sections 6041 and 6041A of the Code. Furthermore,
Section 162(m) of the Code and the regulations thereunder may, in some
circumstances, limit deductibility with respect to "covered employees" whose
total annual compensation exceeds one million dollars, and Section 280G of the
Code and the
107
<PAGE> 110
regulations thereunder may render nondeductible amounts includible in income by
employees that are contingent upon a Change of Control and that are
characterized as "excess parachute payments".
Resale of Shares
The registration requirements of any applicable state securities laws and
the resale restrictions of Rule 144 under the Securities Act may restrict the
sale of shares of Class A Common Stock acquired pursuant to the exercise of
Awards by "affiliates" of the Company within the meaning of the Securities Act.
For purposes of creating short-swing profit liability under Section 16 of the
Exchange Act, sales of such shares by affiliates will be matchable with market
purchases within less than six months before or after such sales.
THE DIRECTOR STOCK COMPENSATION PLAN
The Company has adopted the Bank United Director Stock Compensation Plan
(the "Director Stock Plan"). The purposes of the Director Stock Plan are to (i)
promote a greater identity of interest between the Company's non-employee
directors and its stockholders, and (ii) attract and retain individuals to serve
as directors and to provide a more direct link between directors' compensation
and stockholder value.
General
The Director Stock Plan will be administered by the Company Board or a
committee of the Company Board designated for such purpose.
Pursuant to the terms of the Director Stock Plan, non-employee directors of
the Company will be eligible to participant in the Director Stock Plan following
the Distribution (each, an "Eligible Director"). A total of
shares of Class A Common Stock will be reserved for issuance and available for
grants under the Director Stock Plan.
In the event of any change in corporate capitalization (such as a stock
split) or a corporate transaction (such as a merger, consolidation, separation
including a spin-off or other distribution of stock or property of the Company,
any reorganization or any complete liquidation of the Company), the Company
Board or the designated committee may make such substitution or adjustments in
the aggregate number and class of shares reserved for issuance under the
Director Stock Plan, in the number, kind and option price of shares subject to
outstanding Options, in the number and kind of shares subject to other
outstanding awards granted under the Director Stock Plan, and/or such other
equitable substitution or adjustments as it may determine to be appropriate in
its sole discretion; provided, however, that the number of shares subject to any
award must always be a whole number.
Pursuant to the Director Stock Plan, each Eligible Director will receive an
initial award of shares of Class A Common Stock after serving the first
three months as a member of the Company Board.
Class A Common Stock
With respect to the annual retainer paid to directors (the "Annual
Retainer"), each Eligible Director may make an annual irrevocable election to
receive shares of Class A Common Stock in lieu of all or any portion (in 25%
increments) of the Annual Retainer; provided that the election of cash, Class A
Common Stock and options under the Director Stock Compensation Plan are
alternatives and taken together, may not exceed 100% of such Annual Retainer.
The number of shares of Class A Common Stock granted to an Eligible Director
will be equal to the appropriate percentage of the Annual Retainer payable in
each fiscal quarter divided by the fair market value (as defined in the Director
Stock Compensation Plan) of a share of Class A Common Stock on the last business
day of such fiscal quarter rounded to nearest number of shares of Class A Common
Stock. Fractional shares of Class A Common Stock will not be granted and any
remainder in Annual Retainer which otherwise would have purchased fractional
shares will be paid in cash.
108
<PAGE> 111
Options Class A
Each Eligible Director may also make an irrevocable election to receive an
Option for Class A Common Stock in lieu of all or any portion (in 25%
increments) of the Annual Retainer equal to:
<TABLE>
<CAPTION>
PERCENT OF ANNUAL
NUMBER OF OPTIONS RETAINER FORGONE
- ---------------------------------------------------------------------------------------------
<S> <C>
100%
75%
50%
25%
</TABLE>
The election of cash, Class A Common Stock and options under the Director Stock
Compensation Plan are alternatives and, taken together, may not exceed 100% of
such Annual Retainer. The exercise price for the options will be based on the
fair market value of Class A Common Stock on the date of the grant of such
option adjusted for the percentage of the Annual Retainer forgone, but in no
event will the exercise price be less than 50% of such fair market value. The
date of grant of any option will be the later of (i) the date of the annual
stockholders' meeting following the Eligible Director's election to receive an
Option in lieu of the Annual Retainer and (ii) six months and one day after such
election.
Except in the case of death, disability, retirement or termination, options
granted under the Director Stock Compensation Plan will have a term of ten years
and will vest and become exercisable on the last day of the fiscal year in which
such option is granted, provided that the Eligible Director remains on the
Company Board. An option shall vest immediately in the event of death. In the
event that an Eligible Director terminates his or her membership on the Company
Board due to disability or retirement, the amount of any outstanding options
which are not then vested will be adjusted to reflect that portion of such
Eligible Director's Annual Retainer actually earned in the year. In the event
that an Eligible Director's membership on the Company Board is terminated by the
Company for cause, options which have not become vested will be forfeited. As
used in the Director Stock Compensation Plan, "cause" means (i) the conviction
of a felony, or (ii) dishonesty in the course of performing the duties as a
director.
Transferability
Grants and awards under the Director Stock Plan are not assignable or
transferable nor may they be pledged or hypothecated. Any grant or award that
constitutes a "derivative security" within the meaning of the Exchange Act may
not be transferred other than by will or Laws of descent and distribution or
pursuant to domestic relations order or qualified domestic relations order.
Amendments
The Director Stock Compensation Plan may be amended by the Company Board,
provided that, to the extent required to qualify transactions under the Director
Stock Plan for exemption under Rule 16b-3 promulgated under the Exchange Act, no
amendment to the Director Stock Compensation Plan may be adopted without further
approval by the holders of at least a majority of the shares of Class A Common
Stock present, or represented, and entitled to vote at a meeting held for such
purpose; and provided, further, that, if and to the extent required for the
Director Stock Compensation Plan to comply with Rule 16b-3, no amendment to the
Director Stock Compensation Plan shall be made more than once in any six-month
period that would change the amount, price or timing of the grants of awards or
Options thereunder other than to comply with changes in the Code, ERISA, or the
regulations thereunder.
Termination
The Director Stock Compensation Plan may be terminated at any time by
either the Company Board or by holders of a majority of the shares of Class A
Common Stock present and entitled to vote at a duly convened meeting of
stockholders.
109
<PAGE> 112
Change of Control
In the event of a Change of Control (as defined in the Director Stock
Plan), any outstanding options that are not then exercisable and vested will
become fully exercisable and vested. During the 60-day period following a Change
of Control, any Eligible Director will have the right to surrender all or part
of any option or award of Class A Common Stock held by such Eligible Director,
and, in the case of an option, in lieu of payment of the exercise price, to
receive cash in an amount equal to the Spread multiplied by the number of shares
of Class A Common Stock granted in connection with the exercise of such option
so surrendered, or, in the case of an award of Class A Common Stock, to receive
cash in an amount equal to the Change of Control Price multiplied by the number
of shares of Class A Common Stock so surrendered; provided that, if the Change
of control is within six months of the grant date for any such option or award,
no such election may be made prior to six months from such grant date. If such
60-day period ends within the period six months after the grant date for an
option or award, such option or award will be cancelled and the holder thereof
will receive six months and one day after the grant of such option or award, an
amount equal, in the case of an option, to the Spread multiplied times the
number of shares of Class A Common Stock granted under such option and in the
case of an award, the Change of Control Price multiplied by the number of Class
A Common Stock so awarded.
Federal Income Tax Considerations
Eligible Directors electing Class A Common Stock in lieu of cash fees will
be taxed on the value of the Class A Common Stock at the time of receipt.
Eligible Directors making an irrevocable election to receive an option in lieu
of cash fees will be taxed at the time of exercise of the option on the
difference between the exercise price and the fair market value of the Class A
Common Stock covered by the option. In each case, the Company will receive a
corresponding deduction; provided that Section 280G of the Code and the
regulations thereunder may render nondeductible amounts that are contingent upon
a Change of Control and are characterized as "excess parachute payments".
Resale of Shares. The holders of shares of Class A Common Stock received
upon the exercise of an option must comply with the resale requirements of the
Securities Act and the rules and regulations promulgated thereunder. Securities
registration requirements under the Securities Act may be applicable to resales
by any Eligible Director. The restrictions imposed by Section 16 of the Exchange
Act upon any Eligible Director and the registration requirements of any
applicable state securities laws may restrict the resales of shares acquired
pursuant to the exercise of options by an Eligible Director.
MANAGEMENT EMPLOYMENT ARRANGEMENTS
Mr. Burkholder's employment contract, which was recently amended and
extended for one year to April 10, 1997, provides for payment of an annual
salary of $375,000 and a discretionary bonus. In addition, as a result of this
transaction, Mr. Burkholder will receive 38% of the Executive Management
Compensation Plan, which satisfies the terms of his present employment
agreement.
Mr. Bender's employment letter provides for payment of an annual salary and
a bonus up to 2.86% of the added economic value of the mortgage banking segment.
The employment letter provides that added economic value is defined to be the
sum of pre-tax income and the value of new loan servicing reduced by the sum of
excess servicing revenues and revenues from the sale of servicing.
Mr. Nocella's employment letter provides for the payment of an annual
salary, a discretionary bonus, and in the event Mr. Nocella's employment is
terminated without cause, payment of six months' base salary (or $157,500 based
on 1995 base salary).
NON-QUALIFIED RETIREMENT SAVINGS PLAN
In June 1995, the Board of Directors of the Bank approved the
implementation of a Supplemental Executive Savings Plan ("SESP"). The SESP was
effective on August 1, 1995. The 1995 SESP year covers the period of August 1,
1995 to December 31, 1995. In subsequent years, the SESP plan year will coincide
110
<PAGE> 113
with the calendar year. The SESP is available to a select group of management
and other highly compensated employees. Eligible employees are allowed to make
irrevocable decisions prior to the beginning of the plan year to defer up to 20%
of compensation (as defined in the SESP) and up to 100% of bonus income. The
monies deferred earn interest at a rate approximately equal to the Bank's one
year certificate of deposit rate. The Bank does not contribute to the SESP.
The SESP is funded from the general assets of the Bank and participants are
general unsecured creditors of the Bank. As of March 31, 1996, there were 17
participants in the SESP, and the total amount of deferrals and interest equaled
approximately $380,000. The rate of interest for the SESP was 4.42% as of March
31, 1996.
DIRECTORS SUPPLEMENTAL SAVINGS PLAN
In June 1995, the Board of Directors of the Bank approved the
implementation of a Directors Supplemental Savings Plan ("DSSP"). The DSSP was
effective on August 1, 1995. The 1995 DSSP year covers the period of August 1,
1995 to December 31, 1995. In subsequent years, the plan year will coincide with
the calendar year. The DSSP is available to outside directors. Eligible
Directors are allowed to make irrevocable decisions prior to the beginning of
the plan year to defer up to 100% of retainer and meeting fees. The monies
deferred earn interest at a rate approximately equal to the Bank's one year CD
rate. The Bank does not contribute to the DSSP.
The DSSP is funded from the general assets of the Bank, and participants
are general unsecured creditors of the Bank. As of March 31, 1996, there was one
participant in the DSSP and the total amount of deferrals and interest equaled
approximately $29,000. The rate of interest for the DSSP was 4.42% as of March
31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company Board determines the compensation
of the Company's executive officers. The members of the Compensation Committee
are Lewis S. Ranieri, Salvatore A. Ranieri and Scott A. Shay, none of whom is an
executive officer of the Company. Lewis S. Ranieri, Salvatore A. Ranieri and
Scott A. Shay are also members of the Compensation Committee of the Board of
Directors of the Bank. No other member of the Bank Compensation Committee is an
officer or employee of the Company or the Bank.
The Bank is a party to a written investment advisory services agreement
which provides for payment by the Bank to Hyperion Capital, an affiliate of the
Bank, of $175,000 per year for investment advisory services and for payment by
Hyperion Capital to the Bank of $175,000 for information regarding the Bank's
mortgage pipeline.
111
<PAGE> 114
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of June 18, 1996 the outstanding capital stock of the Company consists
of 381,925 shares of Class A Common Stock, which entitles the holder thereof to
one vote per share on each matter on which the stockholders of the Company are
entitled to vote, and 28,481,075 shares of Class B Common Stock, which have no
voting rights. Shares of Class B Common Stock are convertible, at the election
of the holder thereof, into shares of Class A Common Stock, subject to certain
restrictions set forth in the Certificate and the Letter Agreement, and except
to the extent that the holder of the Class B Common Stock is prohibited by any
applicable Federal or state regulation from holding voting securities of the
type or in the amount represented by the shares of Class A Common Stock that
such holder would hold upon such conversion. See "Description of Capital
Stock -- Common Stock -- Conversion." Certain Selling Stockholders hold
significant shares of Class B Common Stock and are expected to continue to hold
such shares after the Offering. See "Selling Stockholders". Conversion of such
shares of Class B Common Stock by a holder thereof to shares of Class A Common
Stock would have the effect of diluting the voting power of the existing holders
of Class A Common Stock and would increase the voting power of such holder
commensurately.
The following table sets forth information concerning the persons who
beneficially own more than 5% of the Company's voting stock assuming no
elective, nonsale conversion of Class B Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
NAME AND AMOUNT AND ESTIMATED
ADDRESS NATURE OF PERCENT OF PERCENT OF
TITLE OF OF BENEFICIAL BENEFICIAL CLASS AS OF CLASS FOLLOWING
CLASS OWNER OWNERSHIP JUNE 18, 1996 OFFERING(4)
- -----------------------------------------------------------------------------------------------
Class A Common LSR Hyperion 188,747 49% 2.1%
Stock Corp.(1)
- -----------------------------------------------------------------------------------------------
Class A Common SAR Hyperion 93,906 25% 1.1%
Stock Corp.(2)
- -----------------------------------------------------------------------------------------------
Class A Common SAS Hyperion 93,906 25% 1.1%
Stock Corp.(3)
- -----------------------------------------------------------------------------------------------
Class A Common Hyperion Funding 5,366 1% *
Stock Corp.(5)
- -----------------------------------------------------------------------------------------------
</TABLE>
* Percentage does not exceed 1% of the issued and outstanding shares.
(1) The sole shareholder of LSR Hyperion Corp. is Lewis S. Ranieri, a Director
of the Company and the Chairman of the Company.
(2) The sole shareholder of SAR Hyperion Corp. is Salvatore A. Ranieri, a
Director of the Company.
(3) The sole shareholder of SAS Hyperion Corp. is Scott A. Shay, a Director of
the Company.
(4) Assumes the sale of 8,480,000 shares of Common Stock in the Offering, that
each such share is a share of Class B Common Stock immediately prior to such
sale, and that no elective, nonsale conversion of Class B Common Stock
occurs.
(5) Hyperion Funding Corp. is controlled by Lewis S. Ranieri, Salvatore A.
Ranieri and Scott A Shay.
112
<PAGE> 115
The following table sets forth information about certain persons who would
own 5% or more of the Company's voting stock, assuming that each holder of
shares of Class B Common Stock converts each such share into one share of Class
A Common Stock, and assuming that each Selling Stockholder sells the maximum
number of shares such Selling Stockholder may sell in the Offering pursuant to
the Letter Agreement and this prospectus. Significant restrictions apply to such
conversions. See "Description of Capital Stock -- Common Stock -- Conversion".
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF CLASS AS ESTIMATED PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF JUNE 18, 1996 CLASS FOLLOWING
OFFERING
- --------------------------------------------------------------------------------------------
Prudential Insurance 5,279,895 18.29% 10.06%
Co. of America
- --------------------------------------------------------------------------------------------
American Home 2,790,772 9.67% 5.32%
Assurance Co.
- --------------------------------------------------------------------------------------------
Ameritech Pension 2,817,209 9.76% 5.37%
Trust
- --------------------------------------------------------------------------------------------
LW-SP1, L.P. and 2,146,748 7.44% 7.44%
LW-SP2, L.P.(6)
- --------------------------------------------------------------------------------------------
Lewis S. Ranieri(7) 1,926,879 6.68% 3.7%
- --------------------------------------------------------------------------------------------
Equitable Life 1,730,705 6.0% 3.3%
Assurance Society of
the US
and Equitable Variable
Life Insurance Co.
- --------------------------------------------------------------------------------------------
</TABLE>
(6) LW-SP1 and LW-SP2 are each limited partnerships in which an affiliate of
Lehman Brothers Inc. is general partner and owns a 99% interest. See
"Underwriting".
(7) Includes 752 shares held as custodian for two minors, as to which Mr.
Ranieri disclaims beneficial ownership.
113
<PAGE> 116
Security Ownership of Management
The following table sets forth information, as of June , 1996, regarding
each class of equity securities of the Company beneficially owned by all
directors and each of the executive officers set forth in the Summary
Compensation Table.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
(1) (2) (3) (4)
AMOUNT AND
NATURE OF
TITLE BENEFICIAL PERCENT OF
OF NAME OF BENEFICIAL OWNERSHIP CLASS
CLASS OWNER
- ------------------------------------------------------------
-- Barry C. -- --
Burkholder,
President and
Chief Executive
Officer
- ------------------------------------------------------------
-- Anthony J. -- --
Nocella, Executive
Vice President and
Chief Financial
Officer
- ------------------------------------------------------------
-- Jonathon K. -- --
Heffron, Executive
Vice President,
General Counsel,
and
Chief Operation
Officer
- ------------------------------------------------------------
-- George R. Bender, -- --
Executive Vice
President
- ------------------------------------------------------------
-- Leslie H. Green, -- --
Senior
Vice President
Operations &
Technology
- ------------------------------------------------------------
Class Lewis R. Ranieri, 188,747 49%
A Director(1)
Common
Stock
- ------------------------------------------------------------
Class Salvatore A. 93,906 25%
A Ranieri,
Common Director(2)
Stock
- ------------------------------------------------------------
Class Scott A. Shay, 93,906 25%
A Director(3)
Common
Stock
- ------------------------------------------------------------
Class Lewis R. Ranieri, 1,738,132(4) 6.1%
B Director
Common
Stock
- ------------------------------------------------------------
Class Salvatore A. 866,310(5) 3.0%
B Ranieri, Director
Common
Stock
- ------------------------------------------------------------
Class Scott A. Shay, 864,163 3.0%
B Director
Common
Stock
- ------------------------------------------------------------
Directors and Executive 3,845,162 (6)
Officers as a Group
- ------------------------------------------------------------
</TABLE>
(1) See Notes 1 and 4 to "Security Ownership of Certain Beneficial Owners,"
above.
(2) See Notes 2 and 4 to "Security Ownership of Certain Beneficial Owners,"
above.
(3) See Notes 3 and 4 to "Security Ownership of Certain Beneficial Owners,"
above.
(4) Includes 752 shares held as custodian for two minors as to which Mr. Ranieri
disclaims beneficial ownership.
(5) Includes 7,513 shares held as custodian for a minor as to which Mr. Ranieri
disclaims beneficial ownership.
(6) 100% of the outstanding Class A Common Stock and 13.32% of the outstanding
Common Stock.
114
<PAGE> 117
Principal Stockholders, Bank Preferred Stock
The following tables set forth with respect to the Bank Preferred Stock as
of , 1996: (i) shares beneficially owned by all directors of the
Company; (ii) each of the executive officers named in the Summary Compensation
Table set forth herein; and (iii) shares beneficially owned by all directors of
the Company, and executive officers as a group.
Preferred Stock, Series A
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
BENEFICIAL PERCENT
NAME OWNERSHIP(1) OF CLASS
----------------------------------------------------------- ---------------- --------
<S> <C> <C>
Lewis S. Ranieri........................................... -- *
Salvatore A. Ranieri....................................... -- *
Scott A. Shay.............................................. -- *
Barry C. Burkholder........................................ 8,000 *
George R. Bender........................................... 4,000 *
Anthony J. Nocella......................................... 1,000 *
Jonathon K. Heffron........................................ 1,400(2) *
Leslie H. Green............................................ -- *
Directors and Executive Officers as a Group................ 14,400 *
</TABLE>
Preferred Stock, Series B
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
BENEFICIAL PERCENT
NAME OWNERSHIP(1) OF CLASS
----------------------------------------------------------- ---------------- --------
<S> <C> <C>
Lewis S. Ranieri........................................... -- *
Salvatore A. Ranieri....................................... -- *
Scott A. Shay.............................................. -- *
Barry C. Burkholder........................................ -- *
George R. Bender........................................... -- *
Anthony J. Nocella......................................... 2,000 *
Jonathon K. Heffron........................................ -- *
Leslie H. Green............................................ -- *
Directors and Executive Officers as a Group................ 2,000 *
</TABLE>
- ---------------
* Percentages do not exceed 1% of the issued and outstanding shares.
(1) Calculated in accordance with Rule 13d-3 under the Exchange Act. Nature of
beneficial ownership is direct unless indicated otherwise by footnote.
Beneficial ownership as shown in the table arises from sole investment power
unless otherwise indicated by footnote.
(2) 1,000 shares direct, 400 shares held as custodian for minor children.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
The Bank may from time to time make home mortgage or consumer loans to
directors, officers, and employees. Any such loan will be made in the ordinary
course of business, and on the same terms and conditions, including interest
rates and collateral, as those of comparable transactions prevailing at the time
with non-affiliated parties. The Bank had no loans to directors or executive
officers outstanding during the six months ended March 31, 1996, or in fiscal
1995 or 1994.
Historically, expenses paid to related parties were (i) for services
provided in connection with hedging and asset and liability management
strategies, and (ii) for services provided in connection with the
115
<PAGE> 118
management and marketing of real estate properties. No such expenses were
incurred during the six months ended March 31, 1996, or fiscal 1995 or 1994. At
March 31, 1996 and September 30, 1995 and 1994, the Company and the Bank had no
outstanding receivables from or payables to related parties other than those
related to participation in the filing of the consolidated tax return and there
are no loans outstanding to directors, executive officers, or principal holders
of the Company's equity securities.
As a general benefit to all full-time employees with at least six months of
service (excluding executive officers), the Bank, through its Mortgage Banking
Group, will waive the 1% origination fee for a mortgage loan for the purchase or
refinance of the employee's principal residence. In addition, the Bank offers a
0.50% discount on its posted rates for consumer installment loans made to
employees.
The Company is contemplating entering into a consulting agreement pursuant
to which Lewis S. Ranieri would serve as a consultant to the Company for a
three-year period.
116
<PAGE> 119
SELLING STOCKHOLDERS
The Selling Stockholders consist of the limited and general partners of
Hyperion Partners. LW-SP1 and LW-SP2 are limited partners of Hyperion Partners
but are not Selling Stockholders. See "Underwriting". The partners received
Class A Common Stock and Class B Common Stock in the Restructuring which was
effected in June 18, 1996 and LW-SP1 and LW-SP2 received shares of Class B
Common Stock. See "Prospectus Summary -- Background of the Offering".
The following table sets forth information with respect to the beneficial
ownership of Common Stock by the Selling Stockholders, LW-SP1 and LW-SP2 as of
the date of this Prospectus and as adjusted to reflect the sale of the Class A
Common Stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option).
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
CLASS A CLASS A CLASS B CLASS B CLASS A CLASS A
COMMON COMMON STOCK-- COMMON COMMON STOCK-- COMMON COMMON
STOCK-- OWNED PERCENT OWNED STOCK-OWNED PERCENT OWNED STOCK OFFERED STOCK-OWNED
BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING HEREBY AFTER OFFERING
--------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
LSR Hyperion Corp.(1)....... 188,747 49% 1,698,725 6.0%
Hyperion Funding Corp.(2)... 5,366 1% 48,298 0.2%
SAR Hyperion Corp.(3)....... 93,906 25% 845,153 3.0%
SAS Hyperion Corp.(4)....... 93,906 25% 845,153 3.0%
KRW Hyperion Corp.(5)....... -- -- 281,036 1.0%
CJK Hyperion Corp.(6)....... -- -- 226,676 0.8%
David M. Golush(7).......... -- -- 423,251 1.5%
Patricia A. Sloan(8)........ -- -- 193,979 0.7%
David A. Marcus(9).......... -- -- 176,630 0.6%
Jeffrey P. Cheesman(10)..... -- -- 152,709 0.5%
Robert A. Perro(11)......... -- -- 98,149 0.3%
Prudential Insurance Co. of
America................... -- -- 5,279,895 18.6%
<CAPTION>
SHARES OF CLASS B
CLASS B COMMON
CLASS A COMMON STOCK--
COMMON STOCK-- STOCK OWNED PERCENT OWNED
PERCENT OWNED AFTER AFTER
AFTER OFFERING OFFERING OFFERING
---------------- ------------ -------------
<S> <C> <C> <C>
LSR Hyperion Corp.(1).......
Hyperion Funding Corp.(2)...
SAR Hyperion Corp.(3).......
SAS Hyperion Corp.(4).......
KRW Hyperion Corp.(5).......
CJK Hyperion Corp.(6).......
David M. Golush(7)..........
Patricia A. Sloan(8)........
David A. Marcus(9)..........
Jeffrey P. Cheesman(10).....
Robert A. Perro(11).........
Prudential Insurance Co. of
America...................
American Home Assurance
Company................... -- -- 2,790,772 9.8%
LW-SP1 L.P. ................ -- -- 2,029,372 7.1%
LW-SP2 L.P. ................ -- -- 117,376 0.4%
Ameritech Pension Trust..... -- -- 2,817,209 9.8%
Equitable Life Assurance
Society of the
United States............. -- -- 1,623,368 5.7%
Equitable Variable Life
Insurance Company......... -- -- 107,337 0.4%
Equitable Deal Flow
Fund LP................... -- -- 907,200 3.2%
Equitable Capital
Partners LP............... -- -- 1,085,400 3.8%
Equitable Capital Partners
(Retirement Fund) LP...... -- -- 534,600 1.9%
Lewis S. Ranieri............ -- -- 11,404 0.0%
Salvatore A. Ranieri Cust
for Margaret Ranieri NY
UGMA-AGE 21............... -- -- 7,513 0.0%
Lewis S. Ranieri A/C/F Eric
Jimenez NJ UTMA-21........ -- -- 376 0.0%
Lewis S. Ranieri A/C/F Jason
Jimenez NJ UTMA-21........ -- -- 376 0.0%
Ranieri Family Trust F/B/O
Claudia L. Ranieri U/A
7/1/93.................... -- -- 4,938 0.0%
Ranieri Family Trust F/B/O
Angela S. Ranieri U/A
7/1/93.................... -- -- 4,938 0.0%
Scott A. Shay............... -- -- 5,366 0.0%
Trust F/B/O Benjamin Jacob
Shay U/A 7/23/93.......... -- -- 2,254 0.0%
Trust F/B/O Ariel Rebecca
Shay U/A 7/23/93.......... -- -- 2,254 0.0%
Trust F/B/O Dara Jen Golush
U/A 12/20/84.............. -- -- 3,086 0.0%
Trust F/B/O Jason Reid
Golush U/A 12/20/84....... -- -- 2,683 0.0%
Gail W. Marcus.............. -- -- 2,281 0.0%
Janet L. Perro.............. -- -- 1,073 0.0%
Ranieri Bros. Shay &
Co., Inc. ................ -- -- 24,117 0.1%
The Sweater Trust........... -- -- 644,024 2.3%
<CAPTION>
American Home Assurance
LW-SP1 L.P. ................
LW-SP2 L.P. ................
Ameritech Pension Trust.....
Equitable Life Assurance
Society of the
United States.............
Equitable Variable Life
Insurance Company.........
Equitable Deal Flow
Fund LP...................
Equitable Capital
Partners LP...............
Equitable Capital Partners
(Retirement Fund) LP......
Lewis S. Ranieri............
Salvatore A. Ranieri Cust
for Margaret Ranieri NY
UGMA-AGE 21...............
Lewis S. Ranieri A/C/F Eric
Jimenez NJ UTMA-21........
Lewis S. Ranieri A/C/F Jason
Jimenez NJ UTMA-21........
Ranieri Family Trust F/B/O
Claudia L. Ranieri U/A
7/1/93....................
Ranieri Family Trust F/B/O
Angela S. Ranieri U/A
7/1/93....................
Scott A. Shay...............
Trust F/B/O Benjamin Jacob
Shay U/A 7/23/93..........
Trust F/B/O Ariel Rebecca
Shay U/A 7/23/93..........
Trust F/B/O Dara Jen Golush
U/A 12/20/84..............
Trust F/B/O Jason Reid
Golush U/A 12/20/84.......
Gail W. Marcus..............
Janet L. Perro..............
Ranieri Bros. Shay &
Co., Inc. ................
The Sweater Trust...........
<CAPTION>
Company...................
</TABLE>
117
<PAGE> 120
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
CLASS A CLASS A CLASS B CLASS B CLASS A CLASS A
COMMON COMMON STOCK-- COMMON COMMON STOCK-- COMMON COMMON
STOCK-- OWNED PERCENT OWNED STOCK-OWNED PERCENT OWNED STOCK OFFERED STOCK-OWNED
BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING BEFORE OFFERING HEREBY AFTER OFFERING
--------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sun Life Insurance Co. of
America................... -- -- 1,073,374 3.8%
<CAPTION>
SHARES OF CLASS B
CLASS B COMMON
CLASS A COMMON STOCK--
COMMON STOCK-- STOCK OWNED PERCENT OWNED
PERCENT OWNED AFTER AFTER
AFTER OFFERING OFFERING OFFERING
---------------- ------------ -------------
<S> <C> <C> <C>
Sun Life Insurance Co. of
America...................
Marilyn B. Arison........... -- -- 858,699 3.0%
Masco Capital Corp.......... -- -- 536,687 1.9%
Wolfson Descendants' 1983
Trust..................... -- -- 214,675 0.8%
South Ferry #2, L.P......... -- -- 271,921 1.0%
EDN Equities................ -- -- 135,961 0.5%
Leslie Wexner............... -- -- 429,350 1.5%
The Airlie Group, L.P....... -- -- 429,350 1.5%
Julius Berman............... -- -- 126,975 0.4%
FAME Associates............. -- -- 193,207 0.7%
Institutional Interests..... -- -- 336,097 1.2%
Houston Firemen's Relief and
Retirement Fund........... -- -- 536,687 1.9%
Alpine Investment
Partners.................. -- -- 214,675 0.8%
Mortimer Zuckerman.......... -- -- 21,467 0.1%
Edward Linde................ -- -- 21,467 0.1%
Connie S. Maniatty.......... -- -- 21,467 0.1%
Micha Astrachan............. -- -- 66,232 0.2%
<CAPTION>
Marilyn B. Arison...........
<S> <C> <C> <C>
Masco Capital Corp..........
Wolfson Descendants' 1983
Trust.....................
South Ferry #2, L.P.........
EDN Equities................
Leslie Wexner...............
The Airlie Group, L.P.......
Julius Berman...............
FAME Associates.............
Institutional Interests.....
Houston Firemen's Relief and
Retirement Fund...........
Alpine Investment
Partners..................
Mortimer Zuckerman..........
Edward Linde................
Connie S. Maniatty..........
Micha Astrachan.............
</TABLE>
- ---------------
(1) All stock owned by Lewis S. Ranieri.
(2) All stock owned by Lewis S. Ranieri, Salvatore A. Ranieri, Scott A. Shay and
Kendrick R. Wilson III.
(3) All stock owned by Salvatore A. Ranieri.
(4) All stock owned by Scott A. Shay.
(5) All stock owned by Kendrick R. Wilson III.
(6) All stock owned by Clinton J. Kendrick.
(7)
(8)
(9)
(10)
(11)
Since its formation in 1988, Hyperion Partners directly or indirectly has
made a number of investments, other than in the Bank, including: (i) Hyperion
Credit Capital Partners L.P., the partnership which purchased a portfolio of
commercial and multifamily loans and real estate from the RTC; (ii) Hyperion
Credit Services Corporation, which was formed to service the portfolio of real
estate loans owned by Hyperion Credit Capital Partners L.P., (iii) Suntex
Ventures, which made real estate investments in multifamily apartments and in
high-rise residential condominiums; (iv) the Centeq Companies, which are real
estate service companies, (v) Hyperion Capital, a Commission-registered
investment advisory firm; (vi) Cardholder Partners L.P., which held accounts and
other intangibles related to a credit card portfolio; (vii) de minimis minority
equity investments in a Spanish mortgage banker and a mortgage conduit vehicle
for the securitization of Spanish residential mortgage loans; and (viii)
miscellaneous investments in marketable financial instruments.
The general partner of Hyperion Partners is Hyperion Ventures L.P.
("Hyperion Ventures"). Four corporations are general partners of Hyperion
Ventures: (i) LSR Hyperion Corp., which is wholly owned by Lewis S. Ranieri;
(ii) Hyperion Funding Corp., which is owned by Lewis S. Ranieri, Salvatore A.
Ranieri, Scott A. Shay and Kendrick R. Wilson III; (iii) SAR Hyperion Corp.,
which is wholly owned by Salvatore A. Ranieri; and (iv) SAS Hyperion Corp.,
which is wholly owned by Scott A. Shay.
In June 1995, Lewis S. Ranieri and Scott A. Shay established a new private
equity fund, Hyperion Partners II. Hyperion Partners II follows many of the same
investment strategies as Hyperion Partners. Both the general partner of and the
advisor to Hyperion Partners II are controlled by Lewis S. Ranieri and Scott A.
Shay, who were also among the founders, and remain two of the three control
persons, of Hyperion Partners and are members of the Company Board. See "Risk
Factors -- Concentration of Ownership".
Prior to the Restructuring, Hyperion Partners held all of the Company's
common stock, other than the Class C Common Stock, through its wholly owned
subsidiary, Hyperion Holdings. On June 18, 1996, Hyperion Holdings was merged
with and into the Company in the Merger.
118
<PAGE> 121
SELLING STOCKHOLDER LETTER AGREEMENTS
Each of the Selling Stockholders, LW-SP1 and LW-SP2 (which are subject to
each of the provisions described herein as applicable to Selling Stockholders,
except as otherwise indicated) have entered into a Letter Agreement, dated as of
June 17, with each of Hyperion Partners and the Company (the "Letter
Agreement"). Pursuant to the Letter Agreement, each Selling Stockholder
consented to the Distribution and agreed to hold the common stock of Hyperion
Holdings received pursuant to the Distribution according to the terms of such
Letter Agreement. Also, each Selling Stockholder (including those who prior to
the Merger held voting shares of capital stock of Hyperion Holdings and those
who prior to the Merger held shares of Class C Common Stock), by executing the
Letter Agreement and agreeing to be bound thereby, consented to and approved of,
for purposes of Section 228 of the DGCL and otherwise, the Merger Agreement,
dated as of June 17, 1996, by and between Hyperion Holdings and the Company (the
"Merger Agreement"), and the Merger.
Pursuant to the Letter Agreement, each Selling Stockholder acknowledged (i)
that under the By-laws of Hyperion Holdings, it is not permitted to Transfer any
shares of capital stock of Hyperion Holdings except pursuant to the Merger
Agreement and (ii) that, under the By-Laws, after the Distribution and prior to
the consummation of the Offering, such Selling Stockholder would not effect any
Transfer of shares of capital stock of the Company (a) in the case of such
shares received in respect of Class C Common Stock in the Merger, except as such
Selling Stockholder would have been permitted to transfer such Class C Common
Stock under the Stockholders' Agreement, dated as of August 1, 1989, by and
among the Company and the other parties specified therein, and (b) in the case
of any other such shares, except in accordance with the terms of the limited
partnership agreement of Hyperion Partners applicable to the transfer of
partnership interests of Hyperion Partners. Each 5% Stockholder acknowledged
that it is not permitted, prior to the earlier of an IPO or October 31, 1996, to
Transfer any such shares owned by such 5% Stockholder or its affiliates (other
than to a person of whom the 5% Stockholder is a wholly-owned subsidiary) or
acquire any additional such shares. If an IPO is not consummated within six
months of the date of the Transaction Agreement, the Company is obligated to
provide each Selling Stockholder with registration and tag-along rights
substantially similar to those set forth in the Stock Purchase Agreement, dated
as of August 1, 1989, by and among the Company and certain Selling Stockholders
and the Stockholders' Agreement. Under the Letter Agreements, each Selling
Stockholder is also obligated to provide certain cooperation to the Company in
the case of an IPO, including entering into customary underwriting and lockup
agreements.
Selling Stockholders retaining shares of Common Stock may not sell such
shares for (1) one year after the Offering, if such stock was received in
respect of general partnership interests in Hyperion Partners or (2) six months
after the Offering, if such shares were received in respect of limited
partnership interests in Hyperion Partners (although a regulated insurance
company may sell shares in a private off-market transaction subject to Rule 144
limits and reasonable representations requested by the Underwriters). Subject to
certain adjustments by the Company Board based upon advice of the Underwriters
to improve the marketability of the shares of Common Stock to be sold in the
Offering, each 5% Stockholder may sell up to 45% of such holder's shares of
Common Stock in the Offering, except for LW-SP1 and LW-SP2, affiliates of Lehman
Brothers Inc., which are prohibited from selling any shares until August 8,
1998, and any other Selling Stockholder may sell up to 16% of its shares in the
Offering (subject to increase pro rata in the discretion of the Company Board if
the 5% Stockholders elect to sell fewer than the maximum number of shares they
are permitted to sell in the Offering). Each Selling Stockholder acknowledged
that, except for shares that could have been sold pursuant to the Offering but
were not sold at the election of such 5% Stockholder, no 5% Stockholder is
permitted by the By-Laws to acquire or Transfer any shares of capital stock of
the Company for three years following the Offering (or upon termination of the
Letter Agreement, if earlier) unless as of an earlier date the Company Board
determines that such acquisition or Transfer would not be reasonably likely to
have a material adverse effect on the tax position of the Company.
Pursuant to the Letter Agreement, as soon as practicable after the
Offering, the Company is obligated to file, and to use best efforts to cause to
promptly become effective, a registration statement under the Securities Act
with respect to shares of class A or Class B Common Stock then held by any
Selling Stockholder. The Company is also obligated to take action to keep such
registration statement effective (subject to occasional periods of suspension of
such effectiveness as necessary) until all Common Stock registered thereunder
has been sold pursuant thereto or until such registration under the Securities
Act is no longer required to sell such shares without restriction but in no case
later than December 31, 1999.
The Letter Agreement also restricts the conversion rights of holders of
Class B Common Stock. See "Description of Capital Stock -- Common Stock --
Conversion".
In connection with the Letter Agreement, each of the Selling Stockholders,
Hyperion Partners, Hyperion Holdings and the Company have made certain
representations and warranties. The Letter Agreement may be terminated by
consent of each of the parties thereto and if not earlier terminated will
terminate on the earlier of the third anniversary of the Offering or of October
31, 1996 (except for certain provisions restricting transfers and pertaining to
registration rights and conversion of Class B Common Stock).
119
<PAGE> 122
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Immediately following the Offering, the Company's authorized capital stock
will consist of 10 million shares of preferred stock, par value $0.01 per share
("Preferred Stock"), 40 million shares of Class A Common Stock and, 40 million
shares of Class B Common Stock. Immediately following the Offering,
shares of Class A Common Stock will be outstanding and shares of Class
B Common Stock will be outstanding. All of the shares of Class A Common Stock
that will be outstanding immediately following the Offering, including the
shares of Class A Common Stock sold in the Offering, will be validly issued,
fully paid and nonassessable.
COMMON STOCK
Dividends
The holders of each class of Common Stock, to the exclusion of the holders
of Preferred Stock, share equally in all dividends or other distributions. The
Company's ability to pay dividends is limited by certain restrictions generally
imposed on Delaware corporations. Under these restrictions, dividends may be
paid only out of "surplus," as defined by Delaware law, or, if there should be
no surplus, out of the corporation's net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of the affairs of
the Company, after payment has been made to the holders of Preferred Stock of
the full amount to which they are entitled, the holders of Common Stock share
ratably according to the number of shares of Common Stock held by them, in all
remaining assets of the Company available for distribution to its stockholders.
Voting Rights
The holders of Class A Common Stock are entitled to vote on each matter on
which the stockholders of the Company are entitled to vote, and each holder of
Class A Common Stock is entitled to one vote for each share held. The holders of
Class B Common Stock do not have any voting rights except as otherwise required
by applicable law.
Conversion
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock (a) automatically, upon the sale or other transfer of the share of
Class B Common Stock to a person other than an Affiliate (as defined in the
Certificate) of the holder or (b) at the election of the holder of such share of
Class B Common Stock (except that such election shall not apply to shares of
Class B Common Stock held by any person that is prohibited under applicable
federal or state statute or regulation from holding voting securities of the
type or in an amount represented by the shares of Class A Common Stock that
could otherwise be held by such person upon such conversion). An "Affiliate" of
a person is defined in the Certificate as any other person directly or
indirectly controlling, controlled by or under common control with such person,
and "control" with respect to any person means the possession, directly or
indirectly, of the power to direct the management and policies of such person,
whether through the ownership of voting securities, by contract or otherwise.
Elective conversion of Class B Common Stock pursuant to clause (b) of the first
sentence of this paragraph may not be effected by a Selling Stockholder prior to
the earlier to occur of the consummation of an initial public offering of shares
of capital stock of the Company (including the Offering) or October 31, 1996,
unless the Company Board agrees to such conversion or unless such holder is
subject to Title I of ERISA. In addition, pursuant to the Letter Agreement no
holder of Class B Common Stock may convert such Class B Common Stock to Class A
Common Stock if after the conversion the holder would beneficially own (within
the meaning of applicable federal banking and thrift regulations) more than 9.9%
of
120
<PAGE> 123
the outstanding shares of Class A Common Stock (or such lower percentage as may
apply to such holder under regulatory restrictions).
Restrictions on Transfers of Stock
The Certificate limits transfers of shares of Common Stock and other
interests that would be treated as stock of the Company under the Code or
applicable IRS regulations and certain options that would cause either a person
or an entity to become a 5% Stockholder or increase a 5% Stockholder's
percentage ownership interest in the Company. This limitation is intended to
prevent transfers of stock of the Company from triggering an Ownership Change
which would result in the limitation of certain potential tax benefits available
to the Company. See "Regulation -- Taxation". The By-Laws prohibit any 5%
Stockholder from acquiring or transferring any shares of Common Stock received
by such 5% Stockholder in the Merger for three years following the consummation
of an IPO, such as the Offering, unless as of an earlier date such acquisition
or transfer would not, as determined by the Company Board, be reasonably likely
to have a material adverse effect on the tax position of the Corporation.
Also, pursuant to the Letter Agreements, the holders of shares of Class B
Common Stock which such holders may not elect to convert to shares of Class A
Common Stock because of the restrictions described in the last sentence of
"-- Conversion", may not transfer such shares of Class B Common Stock other than
to an affiliate, in a widely-dispersed offering of shares of the Company's
capital stock under an effective registration statement filed under the
Securities Act or in a transaction in which no single person or group acting in
concert would, as a result of such transfer and assuming the conversion of such
shares of Class B Common Stock into shares of Class A Common Stock, possess more
than 2% of the voting power of the shares of Class A Common Stock.
PREFERRED STOCK
The Certificate authorizes the Company Board to establish one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Company Board may thereafter (except where otherwise provided in the
applicable certificate of designation) increase or decrease (but not below the
number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative, and, in the case of shares of any series
having cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series shall be
cumulative, (iv) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable; (v) the
redemption rights and price or prices, if any, for shares of the series, (vi)
the terms and amounts of any sinking funds provided for the purchase or
redemption of shares of the series, (vii) the amounts payable on and the
preferences, if any, of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made, (ix) restrictions
on the issuance of shares of the same series or of any other class or series,
(x) the voting rights, if any, of the holders of the shares of the series, and
(xi) any other relative rights, preferences and limitations of such series.
The Company believes that the ability of the Company Board to issue one or
more series of Preferred Stock, while providing the Company with flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs which might arise, could make it more difficult for a third
party to acquire a majority of the outstanding voting stock. The authorized
shares of Preferred Stock, as well as shares of Common Stock, will be available
for issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on
121
<PAGE> 124
which the Company's securities may be listed or traded. If the approval of the
Company's stockholders is not required for the issuance of shares of Preferred
Stock or Common Stock, the Company Board may determine not to seek stockholder
approval. Accordingly, the issuance of Preferred Stock may be used as an "anti-
takeover" device without further action on the part of the Company's
stockholders.
Although the Company Board has no intention at the present time of doing
so, it could issue a series of Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Company Board will make any determination to issue such
shares based on its judgment as to the best interests of the Company and its
stockholders. The Company Board, in so acting, could issue Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Company Board, including a
tender offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS; ANTI-TAKEOVER EFFECTS
Board of Directors
The Certificate provides that, except as otherwise fixed by or pursuant to
the provisions of a certificate of designations setting forth the rights of the
holders of any class or series of Preferred Stock, the number of the directors
of the Company will be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the total number of directors which the
Company would have if there were no vacancies (the "Whole Board") (but shall not
be less than three). The directors, other than those who may be elected by the
holders of Preferred Stock, will be classified with respect to the time for
which they severally hold office into three classes, as nearly equal in number
as possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1996, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1997 and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1998, with each director to
hold office until its successor is duly elected and qualified. Commencing with
the 1996 annual meeting of stockholders, directors elected to succeed directors
whose terms then expire will be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with each
director to hold office until such person's successor is duly elected and
qualified.
The Certificate provides that, except as otherwise provided for or fixed by
or pursuant to a certificate of designations setting forth the rights of the
holders of any class or series of Preferred Stock, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Company Board resulting from death, resignation, disqualification, removal or
other cause will be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Company Board, and not by the stockholders. Any director elected in accordance
with the preceding sentence will hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting the
Company Board will shorten the term of any incumbent director. Subject to the
rights of holders of Preferred Stock, any director may be removed from office
only for cause by the affirmative vote of the holders of at least a majority of
the voting power of all Voting Stock then outstanding, voting together as a
single class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of the Company Board by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of the Company Board. Accordingly,
these provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of the Company.
122
<PAGE> 125
Stockholder Action by Unanimous Written Consent; Special Meetings
Except as otherwise required by law and subject to the rights of the
holders of any Preferred Stock, special meetings of stockholders of the Company
for any purpose or purposes may be called only by the Company Board pursuant to
a resolution stating the purpose or purposes thereof approved by a majority of
the Whole Board or by the Chairman of the Board. Any power of stockholders to
call a special meeting is specifically denied. No business other than that
stated in the notice shall be transacted at any special meeting. Stockholders
entitled to vote at an annual or special meeting may act by written consent in
lieu of such meeting only if such consent is unanimous. These provisions may
have the effect of delaying consideration of a stockholder proposal until the
next annual meeting unless a special meeting is called by the Company Board or
the Chairman of the Board.
Advance Notice Procedures
The By-Laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of stockholders of the Company (the "Stockholder Notice
Procedure"). The Stockholder Notice Procedure provides that only individuals who
are nominated by, or at the direction of, the Chairman of the Board, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedure also
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Chairman of the
Board or the Company Board, or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to bring
such business before such meeting. Under the Stockholder Notice Procedure, for
notice of stockholder nominations to be made at an annual meeting to be timely,
such notice must be received by the Company not later than the close of business
on the 90th calendar day nor earlier than the close of business on the 120th
calendar day prior to the first anniversary of the preceding year's annual
meeting (except that, in the event that the date of the annual meeting is more
than 30 calendar days before or more than 60 calendar days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 120th calendar day prior to such
annual meeting and not later than the close of business on the later of the 90th
calendar day prior to such annual meeting or the 10th calendar day following the
day on which public announcement of a meeting date is first made by the
Company).
Notwithstanding the foregoing, in the event that the number of directors to
be elected to the Company Board is increased and there is no public announcement
by the Company naming all of the nominees for director or specifying the size of
the increased Company Board at least 100 calendar days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice also
will be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered not later than the
close of business on the 10th calendar day following the day on which such
public announcement is first made by the Company. Under the Stockholder Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by the Company not earlier than the close of business on the 120th
calendar day prior to such special meeting and not later than the close of
business on the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Company Board to
be elected at such meeting.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to the Company proposing to nominate an individual for election as a director or
relating to the conduct of business other than the nomination of directors must
contain certain specified information. If the chairman of a meeting determines
that an individual was not nominated, or other business was not brought before
the meeting, in accordance with the Stockholder Notice Procedure, such
individual will not be eligible for election as a director, or such business
will not be conducted at such meeting, as the case may be.
123
<PAGE> 126
Amendment
The Certificate provides that the affirmative vote of the holders of at
least 80% of the Voting Stock, voting together as a single class, is required to
amend provisions of the Certificate relating to stockholder action without a
meeting; the calling of special meetings; the number, election and term of the
Company's directors; the filling of vacancies; and the removal of directors. The
Certificate further provides that the related By-Laws described above (including
the Stockholder Notice Procedure) may be amended only by the Company Board or by
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. Except as otherwise specified in
Section 203, an interested stockholder is defined to include (x) any person that
is the owner of 15% or more of the outstanding voting stock of the corporation,
or is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within three
years immediately prior to the date of determination and (y) the affiliate and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring the
Company to negotiate in advance with the Company Board, since the stockholder
approval requirement would be avoided if a majority of the directors then in
office approves either the business combination or the transaction which results
in any such person becoming an interested shareholder. Such provisions also may
have the effect of preventing changes in the management of the Company. It is
possible that such provisions could make it more difficult to accomplish
transactions which the Company's stockholders may otherwise deem to be in their
best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Certificate will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
124
<PAGE> 127
The Certificate provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company 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 employee benefit plans, 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, officer, employee or agent, will be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have the Company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, By-Laws, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the Company thereunder in respect of any occurrence or matter arising
prior to any such repeal or modification. The Certificate also specifically
authorizes the Company to maintain insurance and to grant similar
indemnification rights to employees or agents of the Company.
TRANSFER AGENT AND REGISTRAR
will be the transfer agent and registrar for the Class A Common
Stock.
125
<PAGE> 128
UNDERWRITING
Subject to the terms and conditions set forth in the purchase agreement
(the "Purchase Agreement") among the Selling Stockholders, the Company and each
of the underwriters named below (the "Underwriters"), the Selling Stockholders
have agreed to sell to each of the Underwriters, and each of the Underwriters,
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, is acting as
representative (the "Representative"), has severally agreed to purchase from the
Selling Stockholders the aggregate number of shares of Class A Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Lehman Brothers Inc. .............................................
Smith Barney Inc. ................................................
-------
Total...................................................
=======
</TABLE>
In the Purchase Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Class A
Common Stock being sold pursuant to such Purchase Agreement if any of the shares
of Class A Common Stock being sold pursuant to such Purchase Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased.
The Underwriters have advised the Company and the Selling Stockholders that
the Underwriters propose to offer the shares of Class A Common Stock offered
hereby to the public initially at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price, less a
concession not in excess of $ per share of Class A Common Stock. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Class A Common Stock on sales to certain other dealers.
After the public offering, the public offering price, concession and discount
may be changed.
The Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of an additional shares of Class A Common
Stock at the initial public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. The Underwriters may exercise the
option only to cover over-allotments, if any, made on the sale of shares of
Class A Common Stock offered hereby. To the extent that the Underwriters
exercise the option, each Underwriter will be obligated, subject to certain
conditions, to purchase the same percentage of such additional shares of Class A
Common Stock as the number of shares of Class A Common Stock to be purchased by
it bears to the total number of shares of Class A Common Stock initially offered
by the Underwriters.
The Company and the Selling Stockholders have agreed with the Underwriters
not to directly or indirectly offer, sell, contract to sell or otherwise dispose
of any shares of Class A Common Stock of the Company or any interests therein or
securities convertible into or exchangeable or exercisable for shares of Class A
Common Stock of the Company (except, in the case of the Selling Stockholders,
for the shares of Class A Common Stock offered hereby), for a period of days
after the date of this Prospectus, without the prior written consent of the
Representative.
At the request of the Company, the Underwriters have initially reserved up
to shares of Class A Common Stock for sale at the price at which the
shares of Class A Common Stock are being offered to the public to certain
employees and retirees of the Company and its affiliates. The number of shares
of Class A Common Stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
126
<PAGE> 129
The Company and the Selling Stockholders have severally agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, investment banking services to the Company
and its affiliates, for which such Underwriters or their affiliates have
received or will receive fees and commissions.
LW-SP1 L.P. ("LW-SP1") and LW-SP2 L.P. ("LW-SP2") are limited partnerships
of which LW Real Estate Investments, L.P. is general partner and of which it
owns a 99% interest. Lehman Brothers Inc. owns an approximately 75% partnership
interest in LW Real Estate Investments, L.P. LW-SP1 and LW-SP2 hold a limited
partnership interest in Hyperion Partners. Accordingly, as a result of the
Restructuring, LW-SP1 and LW-SP2 became owners of Class B Common Stock. Although
LW-SP1 and LW-SP2 have indicated their intention not to participate in the
Offering and, accordingly, are not among the Selling Stockholders, they have
entered into the Letter Agreement pursuant to which, among other things, they
have agreed not to transfer their Common Stock until August 8, 1998. See
"Selling Stockholders". In light of this indirect beneficial ownership interest
of Lehman Brothers Inc. in the Company, the Offering is being made pursuant to
the provisions of Rule 2720 ("Schedule E") of the NASD Conduct Rules. Merrill
Lynch Pierce Fenner & Smith Incorporated will act as qualified independent
underwriter as defined in Schedule E and in accordance with Schedule E will
conduct due diligence and recommend the initial public offering price of the
shares of Class A Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock was
determined by negotiations between the Company and the Underwriters. Among the
factors considered in determining the initial public offering price were the
sales, earnings and certain other pro forma financial and operating information
of the Company in recent periods, the future prospects of the Company and its
industry in general, and certain ratios and market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Bryan Cave LLP, Washington
D.C. and Wachtell, Lipton, Rosen & Katz, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Cleary, Gottlieb, Steen and
Hamilton, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1995 and 1994 and for each of the three years in the period ended September 30,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Class A Common Stock offered
hereby (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement"). This Prospectus, which forms a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Class A Common Stock offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract, agreement or other document
are not necessarily complete, and, in each instance, reference is made to the
127
<PAGE> 130
copy of the document filed as an exhibit to the Registration Statement. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at Suite 1400,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661, and 7
World Trade Center (13th Floor), New York, New York 10048. Copies of such
material can also be obtained from the Commission at prescribed rates through
its Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the Offering, the Company will become subject
to the informational requirements of the Exchange Act. The Company will fulfill
its obligations with respect to such requirements by filing periodic reports and
other information with the Commission. In addition, the Company intends to
furnish to its stockholders annual reports containing consolidated financial
statements examined by an independent public accounting firm.
128
<PAGE> 131
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
1988 Act............................... 88
1995 Amendments........................ 85
1996 Incentive Compensation Plan....... 104
15.75% Notes........................... 48
5% Stockholders........................ 13
Acquisition............................ 6
ACE.................................... 92
ADA.................................... 89
adequately capitalized................. 75
affiliate.............................. 83
ALCO................................... 4
American Marine........................ 98
AMT.................................... 92
AMTI................................... 92
Annual Retainer........................ 108
APY.................................... 89
Assistance Agreement................... 72
Awards................................. 104
Bank................................... 3
Bank Common Stock...................... 8
Bank Preferred Stock................... 8
Barnett................................ 100
BIF.................................... 14
BSA.................................... 88
By-Laws................................ 10
capital distributions.................. 78
CDs.................................... 40
CEO.................................... 5
Certificate............................ 10
CGSA................................... 71
Change of Control Price................ 106
Class A Common Stock................... 1
Class B Common Stock................... 1
Class C Common Stock................... 20
CMOs................................... 64
Code................................... 13
Commission............................. 1
Committee.............................. 104
Common Stock........................... 1
Company................................ 1
Company Board.......................... 6
Compensation Plan...................... 104
Consolidated Financial Statements...... 7
core capital........................... 77
Covered Assets......................... 72
Covered Transactions................... 82
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
CRA.................................... 82
DBL.................................... 91
DGCL................................... 16
Director Stock Plan.................... 108
Distribution........................... 5
DSSP................................... 111
ECOA................................... 17
EFTA................................... 88
Eligible Director...................... 108
employment taxes....................... 107
ERISA.................................. 105
Exchange Act........................... 9
Exchange Offer......................... 6
Expedited Funds Act.................... 89
FASB................................... 38
FDIA................................... 82
FDIC................................... 1
Federal Reserve Board.................. 11
federally related mortgage loan........ 86
FH Act................................. 17
FHA.................................... 15
FHLB................................... 6
FHLB Dallas............................ 12
FHLBB.................................. 97
FHLMC.................................. 15
FIRREA................................. 6
First Amendment to Warrant Agreement... 73
FNMA................................... 15
Forbearance Agreement.................. 6
FRA.................................... 82
Freestanding SARs...................... 105
FRF.................................... 6
FSLIC.................................. 6
GAAP................................... 77
GNMA................................... 15
HELOCs................................. 54
HMDA................................... 86
HOLA................................... 74
HUD.................................... 86
Hyperion Capital....................... 98
Hyperion Holdings...................... 5
Hyperion Partners...................... 1
Hyperion Partners II................... 16
Hyperion Ventures...................... 118
institution-affiliated parties......... 84
interest rate sensitivity gap.......... 68
</TABLE>
129
<PAGE> 132
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
IRR.................................... 78
ISOs................................... 107
Letter Agreement....................... 119
leverage capital....................... 75
LW-SP1................................. 127
LW-SP2................................. 127
Maxxam................................. 17
MBF.................................... 4
MBS.................................... 3
Merger................................. 5
Meritor................................ 100
MSRs................................... 3
Merger Agreement....................... 119
NASD................................... 72
NASDAQ................................. 1
Net Tax Benefits....................... 92
NOLs................................... 6
non-agency securities.................. 64
non-qualifying loans................... 91
nonconforming subsidiaries............. 78
NQOs................................... 107
Offering............................... 1
Old USAT............................... 6
operating subsidiary................... 80
Options................................ 104
Order.................................. 96
OTS.................................... 1
Ownership Change....................... 13
Participants........................... 104
Performance Awards..................... 104
portfolio assets....................... 81
Preferred Stock........................ 120
Principal Shareholder.................. 82
Purchase Agreement..................... 126
QTL.................................... 74
qualified investments.................. 87
qualifying real property loans......... 91
Registration Statement................. 127
REMICs................................. 91
REO.................................... 34
Representative......................... 126
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
repurchase agreements.................. 37
RESPA.................................. 17
Restricted Period...................... 105
Restricted Stock....................... 104
reverse repurchase agreement........... 12
Restructuring.......................... 5
RTC.................................... 8
SAIF................................... 3
Salomon................................ 98
SARs................................... 104
Schedule E............................. 127
Section 203............................ 16
Securities Act......................... 1
Selling Stockholders................... 1
Senior Notes........................... 6
SESP................................... 110
Settlement Agreement................... 72
SFAS................................... 25
Stockholder Notice Procedure........... 123
Tandem SARs............................ 105
tangible capital....................... 78
Tax Benefits Agreement................. 91
Tier 1 Association..................... 79
Tier 2 Association..................... 79
Tier 3 Association..................... 79
Tier 1 risk-based capital.............. 75
TILA................................... 17
TISA................................... 89
total capital.......................... 78
total risk-based capital............... 75
Transfers.............................. 13
UFM.................................... 72
undercapitalized....................... 75
Underwriters........................... 126
VA..................................... 15
Voting Stock........................... 16
Warrant Agreement...................... 73
Warrants............................... 8
well capitalized....................... 75
Whole Board............................ 122
Winstar cases.......................... 97
</TABLE>
130
<PAGE> 133
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Statements of Financial Condition as of March 31, 1996 (unaudited) and
September 30, 1995 and 1994......................................................... F-3
Consolidated Statements of Operations for the Six Months Ended March 31, 1996
(unaudited) and March 31, 1995 (unaudited) and for the Years Ended September 30,
1995, 1994, and 1993................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Six Months Ended March 31,
1996 (unaudited) and March 31, 1995 (unaudited) and for the Years Ended September
30, 1995, 1994, and 1993............................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994,
and 1993............................................................................ F-6
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1996
(unaudited) and March 31, 1995 (unaudited).......................................... F-8
Notes to Consolidated Financial Statements............................................ F-10
</TABLE>
All supplemental schedules are omitted as inapplicable or because the
required information is included in the Consolidated Financial Statements or
Notes thereto.
F-1
<PAGE> 134
INDEPENDENT AUDITORS' REPORT
Board of Directors of Bank United Corp. (formerly USAT Holdings Inc.):
We have audited the accompanying consolidated statements of financial
condition of Bank United Corp. (formerly USAT Holdings Inc.) and its subsidiary
(collectively known as the "Company") as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
September 30, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The information as of
September 30, 1993, 1992 and 1991 and for the years ended September 30, 1992 and
1991 included in notes 3, 4, 5 and 8 are presented for the purpose of additional
analysis, and are not a required part of the basic consolidated financial
statements. This information is the responsibility of the Company's management.
Such information has been subjected to the auditing procedures applied in our
audits of the basic consolidated financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic consolidated
financial statements from which such information has been derived.
As discussed in notes 1 and 6 to the consolidated financial statements,
effective October 1, 1994, the Company changed its method of accounting for
mortgage servicing rights to conform with Statement of Financial Accounting
Standards No. 122.
DELOITTE & TOUCHE LLP
New York, New York
October 31, 1995, except for Note 21, as to
which the date is June , 1996
F-2
<PAGE> 135
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------- SEPTEMBER 30,
1996 ------------------------
NOTES ----------- 1995 1994
--------- (UNAUDITED) ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................................. 21 $ 135,691 $ 112,931 $ 76,938
Securities purchased under agreements to resell and
federal funds sold...................................... 2 659,279 471,052 358,710
Trading account assets, at fair value..................... 1,267 1,081 1,011
Securities 3, 12
Held to maturity, at amortized cost (fair value of
$3.0 million in 1996, $2.7 million in 1995, and
$2.8 million in 1994).............................. 1,903 1,902 2,358
Available for sale, at fair value.................... 56,448 114,111 111,757
Mortgage-backed securities 4, 9, 10
Held to maturity, at amortized cost (fair value of
$657.6 million in 1996, $2,031 million in 1995, and
$2,341 million in 1994)............................ 674,488 2,051,304 2,394,978
Available for sale, at fair value.................... 1,279,582 346,959 433,925
Loans 5, 9
Held to maturity (net of the allowance for credit
losses of $36.4 million in 1996, $36.8 million in
1995, and $23.4 million in 1994)................... 7,447,500 7,763,676 4,780,328
Held for sale (net of the allowance for credit losses
of $44 thousand in 1996, $38 thousand in 1995, and
$76 thousand in 1994).............................. 430,580 496,564 265,846
FHLB stock................................................ 233,038 225,952 132,816
Premises and equipment.................................... 36,157 37,687 40,537
Mortgage servicing rights................................. 6 83,383 75,097 56,677
Intangible assets......................................... 23,105 26,519 36,446
Real estate owned (net of allowance for losses of
$727 thousand in 1996, $1.1 million in 1995, and
$373 thousand in 1994).................................. 27,539 23,764 20,311
Other assets.............................................. 4, 13, 21 176,676 234,935 197,523
----------- ----------- ----------
TOTAL ASSETS.............................................. $11,266,636 $11,983,534 $8,910,161
========== ========== =========
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits.................................................. 8 $ 4,963,321 $ 5,182,220 $4,764,204
FHLB advances............................................. 4, 5, 9 4,139,023 4,383,895 2,620,329
Securities sold under agreements to repurchase and federal
funds purchased......................................... 4, 10 949,936 1,172,533 553,000
Senior Notes.............................................. 11 115,000 115,000 115,000
Advances from borrowers for taxes and insurance........... 104,749 183,968 145,383
Other liabilities......................................... 282,666 264,315 175,383
----------- ----------- ----------
Total liabilities............................... 10,554,695 11,301,931 8,373,299
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES 12, 17
MINORITY INTEREST
Preferred stock issued by consolidated subsidiary......... 16 185,500 185,500 85,500
----------- ----------- ----------
STOCKHOLDERS' EQUITY...................................... 15, 16
Common stock
Class A: 13,238 shares outstanding................... 21 1 1 1
Class C: 2,797 shares outstanding.................... 21 1 1 1
Paid-in capital........................................... 118,009 118,009 121,767
Retained earnings......................................... 21 411,498 384,739 343,020
Unrealized gains (losses) on securities and
mortgage-backed securities available for sale, net of
tax..................................................... 4 (3,068) (6,647) (13,427)
----------- ----------- ----------
Total stockholders' equity...................... 526,441 496,103 451,362
----------- ----------- ----------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY.................................................. $11,266,636 $11,983,534 $8,910,161
========== ========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 136
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, SEPTEMBER 30,
------------------- ------------------------------
NOTES 1996 1995 1995 1994 1993
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INTEREST INCOME
Short-term interest-earning assets............................... $ 17,360 $ 14,415 $ 29,675 $ 19,019 $ 14,301
Trading account assets........................................... 35 29 62 (144) 6,224
Securities....................................................... 3 2,112 2,950 5,893 5,007 63
Mortgage-backed securities....................................... 4 70,699 87,134 173,155 151,972 83,525
Loans............................................................ 5 323,930 218,370 526,528 308,804 344,515
FHLB stock....................................................... 7,085 4,688 11,446 5,558 3,095
Covered Assets and related assets................................ 7 -- -- -- 4,490 30,767
-------- -------- -------- -------- --------
Total interest income.................................... 421,221 327,586 746,759 494,706 482,490
-------- -------- -------- -------- --------
INTEREST EXPENSE
Deposits......................................................... 8 138,510 122,504 264,366 209,034 225,983
FHLB advances.................................................... 9 136,501 92,281 224,767 91,060 48,594
Securities sold under agreements to repurchase and
federal funds purchased........................................ 10 29,073 19,973 53,220 10,574 11,180
Long-term debt................................................... 11 -- -- -- -- 10,214
Senior Notes..................................................... 11 5,205 5,202 10,407 10,177 3,446
Other............................................................ -- -- -- 79 1,414
-------- -------- -------- -------- --------
Total interest expense................................... 309,289 239,960 552,760 320,924 300,831
-------- -------- -------- -------- --------
Net interest income...................................... 111,932 87,626 193,999 173,782 181,659
PROVISION FOR CREDIT LOSSES...................................... 5 5,850 4,157 24,293 6,997 4,083
-------- -------- -------- -------- --------
Net interest income after provision for credit
losses................................................. 106,082 83,469 169,706 166,785 177,576
-------- -------- -------- -------- --------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights and single
family warehouse loans..................................... 19,157 38,464 60,495 63,286 67,403
Securities and mortgage-backed securities.................... 3,4 2,863 8 26 10,404 43,702
Other loans.................................................. 3,485 (380) (1,210) 163 1,496
Loan servicing fees and charges.................................. 22,107 22,813 43,508 31,741 21,780
Other fees and charges........................................... 6,997 5,748 12,162 13,295 12,310
-------- -------- -------- -------- --------
Total non-interest income................................ 54,609 66,653 114,981 118,889 146,691
-------- -------- -------- -------- --------
NON-INTEREST EXPENSE
Compensation and benefits........................................ 14 39,898 43,192 83,520 86,504 81,472
Occupancy........................................................ 17 9,439 9,072 18,713 17,196 15,971
Data processing.................................................. 17 8,120 8,116 16,360 15,821 15,072
Advertising and marketing........................................ 4,053 4,782 9,262 10,796 8,772
Amortization of intangibles...................................... 9,801 10,718 21,856 18,247 24,469
SAIF deposit insurance premiums.................................. 6,129 5,630 11,428 11,329 10,162
Furniture and equipment.......................................... 3,128 3,219 6,428 6,810 5,535
Other............................................................ 18,736 16,916 27,009 32,890 40,511
-------- -------- -------- -------- --------
Total non-interest expense............................... 99,304 101,645 194,576 199,593 201,964
-------- -------- -------- -------- --------
Income before income taxes, minority interest, and
extraordinary loss..................................... 61,387 48,477 90,111 86,081 122,303
INCOME TAX EXPENSE (BENEFIT)..................................... 13, 21 25,278 20,186 37,415 (31,899) (26,153)
-------- -------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST AND
EXTRAORDINARY LOSS............................................. 36,109 28,291 52,696 117,980 148,456
Less minority interest:
Subsidiary preferred stock dividends......................... 9,126 4,326 10,600 8,653 6,537
Payments in lieu of dividends................................ 16, 21 224 306 377 357 --
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS................................. 26,759 23,659 41,719 108,970 141,919
Extraordinary loss -- early extinguishment of debt............... 11 -- -- -- -- 14,549
-------- -------- -------- -------- --------
NET INCOME....................................................... $ 26,759 $ 23,659 $ 41,719 $108,970 $127,370
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss................................. 16, 21 $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.61
Extraordinary loss............................................... -- -- -- -- 0.50
-------- -------- -------- -------- --------
Net income....................................................... $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.11
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 137
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
CLASS A CLASS C UNREALIZED TOTAL
------------------ ----------------- PAID-IN RETAINED GAINS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS (LOSSES) EQUITY
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992..... 13,238 $1 2,797 $1 $125,691 $106,680 $ -- $232,373
Net income.................... -- -- -- -- -- 127,370 -- 127,370
Cost of subsidiary's preferred
stock issuance.............. -- -- -- -- (3,924) -- -- (3,924)
Change in unrealized gains
(losses).................... -- -- -- -- -- -- 33,384 33,384
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1993..... 13,238 1 2,797 1 121,767 234,050 33,384 389,203
Net income.................... -- -- -- -- -- 108,970 -- 108,970
Change in unrealized gains
(losses).................... -- -- -- -- -- -- (46,811) (46,811)
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1994..... 13,238 1 2,797 1 121,767 343,020 (13,427) 451,362
Net income.................... -- -- -- -- -- 41,719 -- 41,719
Cost of subsidiary's preferred
stock issuance.............. -- -- -- -- (3,758) -- -- (3,758)
Change in unrealized gains
(losses).................... -- -- -- -- -- -- 6,780 6,780
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1995..... 13,238 $1 2,797 $1 $118,009 $384,739 $ (6,647) $496,103
====== ========== ===== ========== ============ ============ ============ ============
(UNAUDITED)
BALANCE AT SEPTEMBER 30, 1994..... 13,238 $1 2,797 $1 $121,767 $343,020 $(13,427) $451,362
Net income.................... -- -- -- -- -- 23,659 -- 23,659
Change in unrealized gains
(losses).................... -- -- -- -- -- -- 1,672 1,672
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1995......... 13,238 $1 2,797 $1 $121,767 $366,679 $(11,755) $476,693
====== ========== ===== ========== ============ ============ ============ ============
(UNAUDITED)
BALANCE AT SEPTEMBER 30, 1995..... 13,238 $1 2,797 $1 $118,009 $384,739 $ (6,647) $496,103
Net income.................... -- -- -- -- -- 26,759 -- 26,759
Change in unrealized gains
(losses).................... -- -- -- -- -- -- 3,579 3,579
------ ---------- ----- ---------- ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1996......... 13,238 $1 2,797 $1 $118,009 $411,498 $ (3,068) $526,441
====== ========== ===== ========== ============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 138
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 41,719 $ 108,970 $ 127,370
Adjustments to reconcile net income to net cash (used) provided
by operating activities:
Provision for credit losses............................... 24,293 6,997 4,083
Net gains on sales of assets.............................. (72,918) (80,524) (112,349)
Net depreciation, amortization, and accretion............. (49,335) (7,921) (8,781)
Amortization of intangibles............................... 21,856 18,247 24,469
FHLB stock dividend....................................... (11,446) (5,558) (3,095)
Purchases of trading account assets....................... (203) (46) (222,593)
Proceeds from sales of trading account assets............. 143 103 30,220
Repayments of trading account assets...................... -- -- 29,590
Originations of loans held for sale....................... (2,275,058) (4,128,979) (6,116,430)
Purchases of loans held for sale.......................... (103,926) (60,900) (58,879)
Proceeds from sales of loans held for sale................ 2,164,407 4,838,051 6,258,670
Change in loans held for sale............................. 5,661 53,117 207,477
Change in interest receivable............................. (37,778) (10,284) 791
Change in other assets.................................... (1,547) (4,213) 41,616
Change in other liabilities............................... 89,056 (44,432) 131,034
----------- ----------- -----------
Net cash (used) provided by operating activities..... (205,076) 682,628 333,193
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under agreements to
resell and federal funds sold........................... (117,342) 189,278 (341,988)
Purchases of securities held to maturity.................. (2,920) (32,812) (2,500)
Proceeds from maturities of securities held to maturity... 3,472 33,000 5,500
Purchases of mortgage-backed securities held to
maturity................................................ (38,515) (83,854) (480,915)
Proceeds from sales of mortgage-backed securities held to
maturity................................................ -- 38,294 --
Repayments of mortgage-backed securities held to
maturity................................................ 390,364 162,328 40,966
Purchases of securities available for sale................ -- (135,930) --
Proceeds from sales of securities available for sale...... -- 61,482 --
Purchases of mortgage-backed securities available for
sale.................................................... (230) (735,757) (731,677)
Proceeds from sales of mortgage-backed securities
available for sale...................................... 77,626 187,189 403,129
Repayments of mortgage-backed securities available for
sale.................................................... 16,346 760,111 289,304
Change in mortgage-backed securities available for sale... -- (12,148) --
Purchases of loans held to maturity....................... (2,658,093) (1,406,275) (1,212,103)
Proceeds from sales of loans held to maturity............. 31,543 27,093 2,878
Change in loans held to maturity.......................... (379,229) (734,276) (404,530)
Change in Covered Assets.................................. -- 318,176 152,467
Purchases of FHLB stock................................... (100,190) (793) (55,030)
Redemption of FHLB stock.................................. 18,500 -- --
Purchases of premises and equipment....................... (6,132) (10,379) (14,401)
Proceeds from sales of real estate owned acquired through
foreclosure............................................. 34,137 31,212 29,117
Proceeds from sales of servicing rights................... 34,080 67,198 64,260
----------- ----------- -----------
Net cash used by investing activities................ (2,696,583) (1,276,863) (2,255,523)
----------- ----------- -----------
</TABLE>
(Continued on following page)
F-6
<PAGE> 139
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits.................................. $ 419,738 $ (73,290) $ (72,284)
Proceeds from FHLB advances............................. 3,821,754 2,161,384 8,454,000
Repayment of FHLB advances.............................. (2,058,200) (1,726,500) (6,900,900)
Net change in securities sold under agreements to
repurchase and federal funds purchased................ 619,533 243,000 310,000
Change in advances from borrowers for taxes and
insurance............................................. 38,585 1,191 11,693
Repayment of long-term debt............................. -- -- (102,000)
Repayment of notes payable to related party............. -- -- (4,090)
Proceeds from issuance of Senior Notes.................. -- -- 115,000
Proceeds from issuance of the Bank's Preferred Stock.... 96,242 -- 81,576
---------- ---------- ----------
Net cash provided by financing activities.......... 2,937,652 605,785 1,892,995
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 35,993 11,550 (29,335)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 76,938 65,388 94,723
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 112,931 $ 76,938 $ 65,388
========== ========== ==========
Supplemental disclosures of cash flow information and noncash
investing activities
Cash paid for interest.................................. $ 523,250 $ 313,092 $ 298,643
Cash paid for income taxes.............................. 9,863 5,102 --
Cash paid in lieu of taxes.............................. 157 4,000 2,800
Real estate owned acquired through foreclosure.......... 49,403 44,753 30,751
Covered real estate owned acquired through
foreclosure........................................... -- 3,744 26,320
Sales of real estate owned financed by the Bank......... 30 2,732 16,752
Securitization of loans................................. -- 1,182,172 572,582
Transfer of loans from held to maturity to held for
sale.................................................. -- 88,100 575,306
Transfer of loans from held for sale to held to
maturity.............................................. -- 486,745 --
Transfer of mortgage-backed securities from available
for sale to held to maturity.......................... -- 1,318,877 8,907
Transfer of mortgage-backed securities from held to
maturity to loans held to maturity.................... -- -- 23,125
Transfer of mortgage-backed securities from held to
maturity to available for sale........................ -- 68,741 202,509
Transfer of trading account assets to mortgage-backed
securities available for sale......................... -- -- 214,926
Transfer of trading account assets to securities
available for sale.................................... -- -- 41,526
Change in unrealized gains (losses) on securities and
mortgage-backed securities available for sale......... 6,780 (46,811) 33,384
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE> 140
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
MARCH 31,
-----------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 26,759 $ 23,659
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit losses............................................. 5,850 4,157
Net gains on sales of assets............................................ (26,783) (40,976)
Net depreciation, amortization, and accretion........................... (7,753) (11,386)
Amortization of intangibles............................................. 9,801 10,718
FHLB stock dividend..................................................... (7,086) (4,687)
Purchases of trading account assets..................................... (10,722) (30)
Proceeds from sales of trading account assets........................... 10,620 --
Originations of loans held for sale..................................... (1,492,463) (826,541)
Purchases of loans held for sale........................................ (52,957) (63,074)
Proceeds from sales of loans held for sale.............................. 1,810,776 932,582
Change in loans held for sale........................................... 11,368 (455)
Change in interest receivable........................................... 19,443 (11,304)
Change in other assets.................................................. 27,365 (8,691)
Change in other liabilities............................................. 18,350 16,164
---------- ----------
Net cash provided by operating activities.......................... 342,568 20,136
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under agreements to resell and
federal funds sold..................................................... (188,227) (277,564)
Purchases of securities held to maturity................................ (1,460) (1,451)
Proceeds from maturities of securities held to maturity................. 1,500 1,972
Purchases of mortgage-backed securities held to maturity................ (3,841) (38,515)
Repayments of mortgage-backed securities held to maturity............... 135,527 183,210
Purchases of securities available for sale.............................. (9,142) --
Proceeds from sales of securities available for sale.................... 67,375 --
Proceeds from sales of mortgage-backed securities available for sale.... 201,523 77,651
Repayments of mortgage-backed securities available for sale............. 115,954 10,819
Purchases of loans held to maturity..................................... (100,247) (765,118)
Change in loans held to maturity........................................ 203,214 (399,890)
Purchases of FHLB stock................................................. -- (47,875)
Redemption of FHLB stock................................................ -- 18,500
Purchases of premises and equipment..................................... (2,989) (1,228)
Proceeds from sales of real estate owned acquired through foreclosure... 20,099 14,134
Proceeds from sales of servicing rights................................. 6,174 28,304
---------- ----------
Net cash provided (used) by investing activities................... 445,460 (1,197,051)
---------- ----------
</TABLE>
Continued on following page
F-8
<PAGE> 141
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
MARCH 31,
-----------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits.................................................. $(218,952) $ 251,521
Proceeds from FHLB advances............................................. 200,000 1,620,000
Repayment of FHLB advances.............................................. (444,500) (958,200)
Net change in securities sold under agreements to repurchase and federal
funds purchased........................................................ (222,597) 286,939
Change in advances from borrowers for taxes and insurance............... (79,219) (9,371)
--------- ---------
Net cash (used) provided by financing activities................... (765,268) 1,190,889
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................... 22,760 13,974
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 112,931 76,938
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 135,691 $ 90,912
========= =========
Supplemental disclosures of cash flow information and noncash investing
activities
Cash paid for interest.................................................. $ 318,849 $ 226,171
Cash paid for income taxes.............................................. 2,044 6,440
Real estate owned acquired through foreclosure.......................... 33,983 20,700
Transfer of loans from held to maturity to held for sale................ 188,748 --
Transfer of mortgage-backed securities from held to maturity to
available for sale..................................................... 1,244,945 --
Change in unrealized gains (losses) on securities and mortgage-backed
securities available for sale.......................................... 3,579 1,672
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-9
<PAGE> 142
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Bank United Corp. (formerly USAT Holdings Inc.) (the "Parent Company") was
incorporated in the State of Delaware on December 19, 1988, and became the
holding company for Bank United (formerly Bank United of Texas), a federal
savings bank (the "Bank") upon the Bank's formation on December 30, 1988. The
Parent Company has no significant assets other than its equity interest in the
Bank. The Parent Company owns all of the outstanding common stock of the Bank,
subject to a potential minority interest represented by certain warrants. The
Parent Company and the Bank, are referred to on a consolidated basis as the
"Company". Substantially all of the Parent Company's revenues are derived from
the operations of the Bank.
The accompanying consolidated financial statements include the accounts of
the Parent Company, the Bank, and the Bank's wholly-owned subsidiaries. To date,
the results of operations of these subsidiaries are not significant to the
Bank's consolidated results of operations. All intercompany accounts and
balances of these subsidiaries have been eliminated in consolidation.
The accompanying consolidated financial statements and information as of
March 31, 1996 and for the six months ended March 31, 1996 and 1995 are
unaudited, and include all adjustments (consisting of only normal recurring
adjustments), that are necessary, in the opinion of management, for a fair
presentation.
The accounting and reporting policies conform to generally accepted
accounting principles and general practices within the thrift and mortgage
banking industries. The following summarizes the more significant of these
policies.
SHORT-TERM INTEREST-EARNING ASSETS
Short-term interest-earning assets are comprised of cash, cash equivalents,
securities purchased under agreements to resell ("repurchase agreements"), and
federal funds sold. Short-term instruments with original maturities of three
months or less (measured from their acquisition date) and highly liquid
instruments readily convertible to cash are generally considered to be cash
equivalents. Cash and cash equivalents consist primarily of interest-earning and
non-interest earning deposits in other banks.
The Parent Company's cash is principally invested in repurchase agreements
that mature on a daily basis. Cash required for operating activities is
withdrawn prior to the daily purchase of the securities.
Federal Reserve Board regulations require average cash reserve balances
based on deposit liabilities to be maintained by the Bank with the Federal
Reserve Bank. The required reserve balances were approximately $62.6 million,
$63.7 million, and $45.4 million for the periods including March 31, 1996 and
September 30, 1995, and 1994. The Bank was in compliance with these requirements
for each of these periods.
TRADING ACCOUNT ASSETS, SECURITIES, AND MORTGAGE-BACKED SECURITIES
Debt and equity securities, including mortgage-backed securities, are
classified into one of three categories: held to maturity, available for sale,
or trading securities.
Trading account assets are carried at fair value with any realized or
unrealized gains and losses recognized in current operations. Trading account
assets are generally comprised of assets that are actively and frequently bought
and sold with the objective of generating income on short-term changes in price.
Securities and mortgage-backed securities that the Bank has the positive
intent and ability to hold to maturity are classified as held to maturity and
recorded at cost, adjusted for the amortization of premiums and the accretion of
discounts. Under certain circumstances (including the deterioration of the
issuer's
F-10
<PAGE> 143
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
creditworthiness or a change in tax law, statutory requirements, or regulatory
requirements), securities and mortgage-back securities held to maturity may be
sold or transferred to another portfolio.
Securities and mortgage-back securities that the Bank intends to hold for
indefinite periods of time are classified as available for sale and are recorded
at fair value. Unrealized holding gains or losses are excluded from earnings and
reported net of tax as a separate component of stockholders' equity until
realized.
In connection with the securitization of certain loans into mortgage-backed
securities, a portion of the original loan basis is allocated to an excess
servicing receivable. This receivable represents the present value of the
estimated future servicing revenue in excess of a "normal" service fee. The
securitized portion of the receivable is classified and accounted for as
mortgage-backed securities in the Consolidated Statements of Financial
Condition. That portion of the receivable not securitized is classified as other
assets in the Consolidated Statements of Financial Condition and is amortized to
operations over the lives of the underlying mortgages. The Bank reviews this
asset periodically for valuation impairment in a manner similar to its mortgage
servicing rights ("MSRs").
The overall return or yield earned on mortgage-backed securities depends on
the amount of interest collected over the life of the security and the
amortization of any premium or discount. Premiums and discounts are recognized
in income using the level-yield method over the assets' remaining lives
(adjusted for anticipated prepayments). The actual yields and maturities of
mortgage-backed securities depend on the timing of the payment of the underlying
mortgage principal and interest. Accordingly, changes in interest rates and
prepayments can have a significant impact on the yields of mortgage-backed
securities.
If the fair value of a security or mortgage-backed security classified as
held to maturity or available for sale was to decline for reasons other than
temporary market conditions, the carrying value of such a security would be
written down to current fair value by a charge to operations.
LOANS
Loans that the Bank has the intent and ability to hold to maturity are
classified as held to maturity and are carried at unpaid principal balances,
adjusted for unamortized premiums, unearned discounts, the allowance for credit
losses, and net deferred loan origination fees (costs) ("Book Value"). Loans
held for sale, excluding single family mortgage warehouse loans, are carried at
the lower of allocated Book Value, as applicable, or fair value on an aggregate
basis, as determined by discounting contractual cash flows (adjusted for
anticipated prepayments) and using discount rates based on secondary market
sources. The Book Value is allocated to loans and the MSRs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 122. See " -- Loan
Servicing". Single family mortgage warehouse loans held for sale are carried at
the lower of aggregate allocated Book Value or market value, as determined by
commitments from investors or current investor yield requirements. Any net
unrealized losses on loans held for sale are recognized in a valuation allowance
by a charge to current operations.
Interest income on loans, including impaired loans, is recognized
principally using the level-yield method. Based upon management's periodic
evaluation or at the time a loan is ninety days past due ("nonperforming"), the
related accrued interest is generally reversed by a charge to operations and the
subject loan is simultaneously placed on nonaccrual. Once a loan becomes current
and the borrower demonstrates a continuation of its ability to repay the loan,
the loan is returned to accrual status.
Premiums, discounts and loan fees (net of certain direct loan origination
costs) on warehouse loans held for sale are recognized in income when the
related loans are sold. Premiums, discounts and loan fees (net of certain direct
loan origination costs) associated with other loans for which collection is
probable and estimable are recognized in income using the level-yield method,
over the loans' remaining lives (adjusted for anticipated prepayments) or when
such loans are sold. Net discounts associated with loans for which
F-11
<PAGE> 144
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collection may not be probable and estimable are not accreted to income
("non-accretable discounts"). These non-accretable discounts relate to bulk
purchases of loans, a portion of which were nonperforming and acquired at
discounts from their principal balance. Management periodically evaluates
current loss estimates on loans with non-accretable discounts to determine if
the remaining non-accretable discounts should be accreted to income.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at levels management deems
adequate to cover estimated losses on loans. The adequacy of the allowance is
based on management's periodic evaluation of the loan portfolio and considers
such factors as historical loss experience, delinquency status, identification
of adverse situations that may affect the ability of obligors to repay, known
and inherent risks in the portfolio, assessment of economic conditions,
regulatory policies, and the estimated value of the underlying collateral, if
any. Provisions for credit losses are charged to current operations when they
are determined to be both probable and estimable. Losses are charged to the
allowance for credit losses when the loss actually occurs or when a
determination is made that a loss is likely to occur. Cash recoveries are
credited to the allowance for credit losses.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an amendment of SFAS No. 114,"
effective October 1, 1995. These statements address the accounting by creditors
for impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogenous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at lower of cost or fair value, leases,
and debt securities. These statements apply to all loans that are restructured
in a troubled debt restructuring involving a modification of terms. Loans within
the scope of these statements are considered impaired when, based on current
information and events, it is probable that all principal and interest amounts
due will not be collected in accordance with the contractual terms of the loans.
The adoption of SFAS No. 114 did not result in additional provisions for
credit losses. SFAS No. 114 requires that impaired loans that are within the
scope of this statement be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Any excess of the Bank's
recorded investment in the loans (unpaid principal balance, adjusted for
unamortized premium or discount and net deferred loan origination fees or costs)
over the measured value of the loans is provided for in the allowance for credit
losses.
LOAN SERVICING
In September 1995, the Bank adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65," effective October 1,
1994. (See Note 6). This statement requires mortgage loan servicing rights to be
recognized as separate assets from the related loans, regardless of how those
servicing rights are acquired. Upon origination of a mortgage loan, the Book
Value of the mortgage loan is allocated to the MSR and to the loan (without the
MSR) based on its estimated relative fair value, provided there is a plan to
sell or securitize the related loan. The allocation of the Book Value of the
loan between the MSR and the loan basis results in increased gains on the sales
of the loan, reflecting the value of the servicing rights. Prior to the
implementation of SFAS No. 122, the value of the originated mortgage servicing
rights ("OMSRs") was not recognized until the servicing rights were sold.
The statement further requires that MSRs, both OMSRs and purchased mortgage
servicing rights ("PMSRs"), periodically be evaluated for impairment based on
the fair value of those rights. The fair value of
F-12
<PAGE> 145
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MSRs is determined by discounting the present value of estimated expected future
cash flows using a discount rate commensurate with the risks involved. This
method of valuation incorporates assumptions that market participants would use
in their estimates of future servicing income and expense, including assumptions
about prepayment, default, and interest rates. For purposes of measuring
impairment, the loans underlying the MSRs are stratified on the basis of
interest rate and type (conventional or government). The amount of impairment is
the amount by which the MSRs, net of accumulated amortization, exceed their fair
value. Impairment, if any, is recognized through a valuation allowance and a
charge to current operations.
MSRs, net of valuation allowances, are amortized in proportion to, and over
the period of, the estimated net servicing revenue of the underlying mortgages,
which are collateralized by single family properties. The amortization expense
is reflected in amortization of intangibles in the Consolidated Statement of
Operations.
An allowance for other losses associated with the mortgage servicing
portfolio and certain receivables, advances, and other assets associated with
that portfolio is established for expected costs that are incurred as a result
of the Bank's responsibility as servicer of the Federal Housing Administration
(the "FHA") insured and the Department of Veteran Affairs (the "VA") guaranteed
loans and is determined based on a number of variables. The allowance is netted
against the related assets in the Consolidated Statements of Financial Condition
and the related provision is included in non-interest expense in the
Consolidated Statements of Operations.
SALES OF SINGLE FAMILY LOANS
Loans are sold periodically to institutional and private investors. Gains
or losses on loan sales are recognized at the time of sale, determined using the
specific identification method, and reflect the extent that net sales proceeds
differ from the allocated Book Value of the loans. Single family mortgage
warehouse loans are generally packaged into pools and sold as mortgage-backed
securities. Accordingly, gains or losses on loan sales include both gains from
sales of mortgage-backed securities created from single family mortgage
warehouse loans and whole loan sales. Certain of the loans and servicing rights
are sold with general representations and warranties under contracts for sales
of loans and servicing rights. Repurchases of the loans and servicing rights may
be required when a loan fails to meet certain conditions specified in the
contract pursuant to which the loans and servicing rights were sold and that
failure was caused by a matter covered by the general representations and
warranties. An accrual is determined for the estimated future costs of such
obligations and is maintained at a level management believes is adequate to
cover estimated losses. This accrual is included in other liabilities on the
Consolidated Statements of Financial Condition and the related expense is
reflected in non-interest expense in the Consolidated Statements of Operations.
FEDERAL HOME LOAN BANK STOCK
As a member of the Federal Home Loan Bank (the "FHLB") System, the Bank is
required to purchase and maintain stock in the FHLB of Dallas in an amount equal
to the greater of 1% of the aggregate unpaid balance of loans and securities
secured by single family and multi-family properties, .3% of total assets, or 5%
of total FHLB advances. FHLB stock is redeemable by the Bank at par value at the
discretion of the FHLB of Dallas and is used to collateralize FHLB advances.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation,
and include certain branch facilities and the related furniture, fixtures, and
equipment. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets ranging from two to 40 years.
F-13
<PAGE> 146
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of the excess cost over fair value of net assets
acquired, acquisition costs and debt issuance costs. The excess of cost over
fair value of net assets acquired is comprised of identifiable and
unidentifiable intangibles. The identifiable portion relates to core deposit
premiums paid and the value of mortgage origination networks acquired. The core
deposit premiums are amortized using an accelerated method over the estimated
lives of the deposit relationships acquired. The premiums paid for mortgage
origination networks are amortized using the straight-line method over five
years. The unidentifiable intangible, or goodwill, resulting from thrift related
acquisitions is amortized at a constant rate applied to the carrying amount of
the long-term interest-earning assets acquired that are expected to be
outstanding at the beginning of each subsequent period based on their terms. The
original estimated lives of these long-term interest-earning assets ranged from
one to 26 years. The amortization periods of the identifiable and unidentifiable
intangibles are evaluated on an ongoing basis to determine whether events and
circumstances have developed that warrant revision of the estimated lives of the
related assets. Acquisition costs are being amortized over 5 years using the
straight-line method. Debt issuance costs are being amortized over the life of
the notes using the straight-line method.
REAL ESTATE OWNED
At the time of foreclosure, REO is recorded at the lower of the outstanding
loan amount (including accrued interest, if any) or fair value (less estimated
costs to sell). The resulting loss, if any, is charged to the allowance for
credit losses. Subsequent to foreclosure, REO is carried at the lower of its new
cost basis or fair value, with any further declines in fair value charged to
current operations. Revenues, expenses, gains or losses on sales and increases
or decreases in the allowance for losses are charged to operations as incurred.
Net gains on sales of certain REO properties, primarily single family
residences, are deferred (a) when such properties are acquired through the
foreclosure of loans that are part of discounted bulk purchases of loans and,
(b) uncertainty exists as to the total gains or losses that would be realized
from foreclosures associated with the bulk loan purchase. Upon obtaining
sufficient loss history or seasoning of the purchases, the deferred net gains
are recognized.
OTHER FINANCIAL INSTRUMENTS
The Bank enters into traditional financial instruments such as interest
rate exchange agreements ("swaps"), interest rate caps and floors, financial
options and futures contracts, and forward delivery contracts in the normal
course of business in an effort to reduce its exposure to changes in interest
rates. Fees incurred to enter into these financial contracts are amortized over
the lives of the contracts as a component of the income or expense on the asset
or liability hedged. Gains or losses on early termination of such contracts, if
any, are amortized over the remaining terms of the hedged items. The Bank does
not utilize instruments such as leveraged derivatives or structured notes.
Interest Rate Exchange Agreements, Caps, Floors, and Options. Amounts
receivable and payable are accrued and offset against interest income or expense
on the hedged items.
Financial Futures Contracts. Changes in the market value of futures
contracts are deferred and recognized as interest income or expense over the
remaining terms of the hedged items or recognized at the time the hedged items
are sold.
Forward Delivery Contracts. Any gains or losses resulting from entering
into forward delivery contracts are recognized when the hedged items are sold as
net gains (losses) on sales of single family warehouse loans. Fees paid for
commitments to deliver loans are charged to other non-interest expense if the
likelihood that the
F-14
<PAGE> 147
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment will be exercised is remote or the fees are offset against the
related net gains as the commitment is filled.
Other Off-Balance-Sheet Instruments. The Bank has entered into other
off-balance-sheet financial instruments consisting of commitments to extend
credit. Such financial instruments are recorded in the financial statements when
they are funded.
FEDERAL INCOME TAXES
The Parent Company and the Bank are members of a consolidated group of
corporations as defined by the Internal Revenue Code of 1986, as amended (the
"Code") and accordingly participate in the filing of a consolidated tax return.
For financial reporting purposes, however, the Parent Company and the Bank each
compute their tax on a separate company basis and the results are combined for
purposes of preparing the consolidated financial statements. Deferred tax assets
and liabilities are recognized for the estimated tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. A deferred tax asset has
been recognized for certain net operating losses and credit carryforwards that
will be utilized against future taxable income.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This statement establishes accounting
standards for recognizing and measuring impairment of long-lived assets (and
related goodwill) to be held and used and for such assets held for disposal. The
statement is effective for financial statements with fiscal years beginning
after December 15, 1995, with earlier application encouraged. Implementation of
this pronouncement should have no material adverse effect on the Consolidated
Financial Statements.
EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net income (adjusted
for earnings on the common stock equivalents attributable to the Bank's warrants
outstanding) by the weighted average number of Parent Company common shares
outstanding. Common stock equivalents on the Bank's warrants are computed using
the treasury stock method. Earnings per common share results have been
retroactively restated for all periods presented to reflect an 1,800 to one
stock conversion. See Notes 16 and 21.
RELATED PARTY TRANSACTIONS
All transactions with the Parent Company's and the Bank's related parties
have been reflected herein. Management believes that the amounts, terms, and
conditions of such transactions are reasonably indicative of the marketplace at
the time the transaction occurred. During the six months ended March 31, 1996
and for fiscal 1995, 1994, and 1993, there were no material transactions with
related parties. At March 31, 1996 and September 30, 1995 and 1994, the Parent
Company and the Bank had no outstanding receivables from or payables to related
parties other than those related to participation in the filing of the
consolidated tax return and there were no loans outstanding to directors,
executive officers, or principal shareholders of the Bank's or the Parent
Company's voting securities.
F-15
<PAGE> 148
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain amounts within the accompanying Consolidated Financial Statements
and the related Notes as of March 31, 1995 and September 30, 1995, 1994, 1993,
1992, and 1991 have been reclassified to conform to the current presentation.
Such reclassifications had no effect on previously presented net income or
retained earnings.
2. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND FEDERAL FUNDS SOLD
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED FOR THE YEAR ENDED SEPTEMBER 30,
MARCH 31, ------------------------------------
1996 1995 1994 1993
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Repurchase agreements
Balance outstanding at period-end............ $ 631,279 $ 428,052 $ 248,710 $ 547,988
Fair value of collateral at period-end....... 668,538 449,152 255,210 557,013
Maximum outstanding at any month-end......... 666,836 602,274 768,200 656,000
Daily average balance........................ 518,839 420,355 422,745 374,407
Average interest rate........................ 5.89% 6.28% 4.04% 3.45%
Federal funds sold
Balance outstanding at period-end............ $ 28,000 $ 43,000 $ 110,000 $ --
Maximum outstanding at any month-end......... 69,000 75,000 110,000 65,000
Daily average balance........................ 47,060 37,493 16,948 3,559
Average interest rate........................ 5.39% 5.68% 4.01% 3.00%
</TABLE>
F-16
<PAGE> 149
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The repurchase agreements outstanding at March 31, 1996 and September 30,
1995 were collateralized by single family, multi-family, and commercial real
estate loans and mortgage-backed securities. The loans and mortgage-backed
securities underlying the repurchase agreements are held by the counterparty in
safekeeping for the account of the Bank or by a third party custodian for the
benefit of the Bank. All of the investments in repurchase agreements and federal
funds sold at March 31, 1996 matured on or before April 24, 1996 and those
outstanding at September 30, 1995 matured on or before October 5, 1995. The
repurchase agreements provide for the same loans and mortgage-backed securities
to be resold at maturity. At March 31, 1996 and September 30, 1995, the
following concentrations of repurchase agreements and federal funds sold
outstanding with individual counterparties exceeded ten percent of stockholders'
equity:
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
1996 1995
------------- -----------------
CARRYING VALUE
-----------------------------------
(IN THOUSANDS)
<S> <C> <C>
Donaldson, Lufkin, and Jenrette Mortgage Capital......... $ 204,936 $ 185,000
Salomon Brothers Holding Company Inc..................... 120,000 88,000
Paine Webber Inc......................................... 120,000 75,000
Merrill Lynch Mortgage Capital Inc....................... 80,000 --
Bear Stearns and Company, Inc............................ -- 58,500
------------- -----------------
$ 524,936 $ 406,500
============= ================
</TABLE>
3. SECURITIES
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ----------- ----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to maturity
Federal agency.................. $ 1,903 $ 1,107 $ -- $ 3,010 $ 1,903
========== ========== =========
Available for sale
Federal agency.................. $ 4,278 $ -- $ -- $ 4,278
U.S. Treasury notes............. 52,466 -- 296 52,170
--------- ---------- ---------- --------
Available for sale.............. 56,744 $ -- $ 296 56,448 $ 56,448
--------- ========== ========== -------- =========
Total securities........... $ 58,647 $ 59,458
========= ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ----------- ----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to maturity
Federal agency.................. $ 1,902 $ 799 $ 1 $ 2,700 $ 1,902
========== ========== =========
Available for sale
U.S. Treasury notes............. 114,924 $ -- $ 813 114,111 $114,111
--------- ========== ========== -------- =========
Total securities........... $116,826 $116,811
========= ========
</TABLE>
F-17
<PAGE> 150
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ----------- ----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to maturity
Federal agency.................. $ 1,894 $ 541 $ 76 $ 2,359
U.S. Treasury notes............. 464 -- -- 464
-------- -------- -------- --------
Held to maturity........... 2,358 $ 541 $ 76 2,823 $ 2,358
-------- ======== ======== -------- ========
Available for sale
U.S. Treasury notes............. 114,833 $ -- $ 3,076 111,757 $111,757
-------- ======== ======== -------- ========
Total securities........... $117,191 $114,580
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1993
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Held to maturity
Federal agency.................. $ 1,904 $ 492 $ -- $ 2,396 $ 1,904
========== ========== =========
Available for sale
Mutual funds.................... 41,526 $ -- $ -- 41,526 $ 41,526
--------- ========== ========== -------- =========
Total securities........... $ 43,430 $ 43,922
========= ========
</TABLE>
During the six months ended March 31, 1996, there were $67.4 million of
available for sale securities sold with proceeds of $67.4 million and a gross
gain of $1,000. During fiscal 1994, there were $62.7 million of available for
sale securities sold with proceeds of $61.5 million and a gross loss of $1.2
million. There were no sales of securities during fiscal 1995 or 1993. At
September 30, 1995, securities with carrying values totalling $13.5 million and
fair values totalling $13.3 million, were pledged towards margin requirements
for futures transactions and interest rate swap agreements.
Securities outstanding at March 31, 1996 and September 30, 1995 mature as
follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------ -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less................... $1,903 $ 3,010 $ 52,466 $ 52,170
Due from one to five years................ -- -- 4,278 4,278
------ ------- ------- --------
$1,903 $ 3,010 $ 56,744 $ 56,448
====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less................... $1,902 $ 2,700 $ 64,972 $ 64,838
Due from one to five years................ -- -- 49,952 49,273
-------- -------- -------- --------
$1,902 $ 2,700 $114,924 $114,111
======== ======== ======== ========
</TABLE>
F-18
<PAGE> 151
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to maturity
Agency CMOs -- fixed-rate....... $ 3,061 $ 61 $ -- $ 3,122
Non-agency
Fixed-rate................... 7,529 1,837 93 9,273
Adjustable-rate.............. 559,365 635 12,526 547,474
CMOs -- fixed-rate........... 104,286 7 6,893 97,400
Other........................... 303 -- -- 303
---------- ------- -------- ----------
674,544 $ 2,540 $ 19,512 657,572
======= ========
Allowance for losses............ (56) --
---------- ----------
Held to maturity........ 674,488 657,572 $ 674,488
---------- ---------- ==========
Available for sale
Agency
Adjustable-rate.............. 386,876 $ 3,335 $ 5 390,206
CMOs -- fixed-rate........... 4,032 6 -- 4,038
CMOs -- adjustable-rate...... 245,565 1,219 121 246,663
Non-agency
Fixed-rate................... 72,760 2,390 1 75,149
Adjustable-rate.............. 440,638 687 2,723 438,602
CMOs -- fixed-rate........... 79,944 -- 1,460 78,484
CMOs -- adjustable-rate...... 37,851 12 1,017 36,846
Other........................... 8,360 1,234 -- 9,594
---------- ------- -------- ----------
Available for sale...... 1,276,026 $ 8,883 $ 5,327 1,279,582 $1,279,582
---------- ======= ======== ---------- ==========
Total mortgage-backed
securities............ $1,950,514 $1,937,154
========== ==========
</TABLE>
F-19
<PAGE> 152
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Held to maturity
Agency
Fixed-rate................... $ 4,259 $ 167 $ 77 $ 4,349
Adjustable-rate.............. 489,412 5,212 2,711 491,913
CMOs -- fixed-rate........... 57,935 96 1,623 56,408
Non-agency
Fixed-rate................... 126,562 4,489 318 130,733
Adjustable-rate.............. 1,130,102 4,343 21,256 1,113,189
CMOs -- fixed-rate........... 239,487 173 8,643 231,017
Other........................... 3,603 -- -- 3,603
-------- -------- -------- --------
2,051,360 $14,480 $34,628 2,031,212
======== ========
Allowance for losses............ (56) --
-------- --------
Held to maturity............. 2,051,304 2,031,212 $2,051,304
========
-------- --------
Available for sale
Agency
CMOs -- adjustable-rate...... 250,208 $ 1,132 $ 217 251,123
Non-agency
Fixed-rate................... 22,060 627 -- 22,687
CMOs -- fixed-rate........... 36,895 -- 640 36,255
CMOs -- adjustable-rate...... 37,580 7 693 36,894
-------- -------- -------- --------
Available for sale...... 346,743 $ 1,766 $ 1,550 346,959 $ 346,959
======== ======== ========
-------- --------
Total mortgage-backed
securities............ $2,398,047 $2,378,171
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Held to maturity
Agency
Fixed-rate................... $ 5,313 $ 20 $ 15 $ 5,318
Adjustable-rate.............. 563,629 830 15,290 549,169
CMOs -- fixed-rate........... 81,395 -- 3,967 77,428
Non-agency
Fixed-rate................... 184,929 603 2,057 183,475
Adjustable-rate.............. 1,288,271 226 23,048 1,265,449
CMOs -- fixed-rate........... 267,658 -- 11,601 256,057
Other........................... 3,896 -- -- 3,896
-------- -------- -------- --------
2,395,091 $ 1,679 $55,978 2,340,792
======== ========
Allowance for losses............ (113) --
-------- --------
Held to maturity........ 2,394,978 2,340,792 $2,394,978
========
-------- --------
Available for sale
Agency
Fixed-rate................... 85,492 $ 1,688 $ 1,552 85,628
CMOs -- adjustable-rate...... 254,933 -- 2,727 252,206
Non-agency
Fixed-rate................... 22,141 -- 1,198 20,943
CMOs -- fixed-rate........... 41,825 -- 2,634 39,191
CMOs -- adjustable-rate...... 37,733 -- 1,776 35,957
-------- -------- -------- --------
Available for sale...... 442,124 $ 1,688 $ 9,887 433,925 $ 433,925
======== ======== ========
-------- --------
Total mortgage-backed
securities............ $2,837,102 $2,774,717
======== ========
</TABLE>
F-20
<PAGE> 153
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1993
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Held to maturity
Agency CMOs -- fixed-rate.......... $ 8,809 $ 166 $ -- $ 8,975
Non-agency
Fixed-rate...................... 46,573 3,461 -- 50,034
Adjustable-rate................. 205,482 1,271 371 206,382
CMOs -- fixed-rate.............. 95,169 1,396 115 96,450
Other.............................. 3,436 -- -- 3,436
-------- -------- -------- --------
359,469 $ 6,294 $ 486 365,277
======== ========
Allowance for losses............... (573) --
-------- --------
Held to maturity........... 358,896 365,277 $ 358,896
========
-------- --------
Available for sale
Agency fixed-rate.................. 149,519 $ 6,514 $ 189 155,844
CMOs -- fixed-rate.............. 50,827 -- 7 50,820
CMOs -- adjustable-rate......... 505,046 1,202 25 506,223
Non-agency
Fixed-rate...................... 365,433 41,122 -- 406,555
Adjustable-rate................. 619,874 4,833 41 624,666
CMOs -- fixed-rate.............. 21,982 -- 20 21,962
CMOs -- adjustable-rate......... 35,563 28 3 35,588
Other.............................. 15,371 -- -- 15,371
-------- -------- -------- --------
Available for sale......... 1,763,615 $53,699 $ 285 1,817,029 $1,817,029
======== ======== ========
-------- --------
Total mortgage-backed
securities............... $2,122,511 $2,182,306
======== ========
</TABLE>
In November 1995, the FASB issued, "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." This
implementation guide provided the Bank the opportunity to reassess the
appropriateness of the classifications of its securities. It further stated that
reclassifications of securities from the held to maturity category resulting
from this one-time reassessment would not call into question the intent to hold
other securities to maturity in the future. During the first quarter of fiscal
1996, the Bank reassessed its securities portfolios and reclassified $1.2
billion in mortgage-backed securities from the held to maturity portfolio to the
available for sale portfolio. An unrealized gain of $4.2 million before tax, or
$2.6 million after tax, was recorded in stockholders' equity as a result of this
transfer.
During fiscal 1994, $68.7 million of fixed-rate collateralized mortgage
obligations ("CMOs") were transferred at fair value from the held to maturity
portfolio to the available for sale portfolio. The related unrealized gain
($66,000 at the time of transfer, before taxes) is included as a component of
stockholders' equity. This transfer was made in response to the classification
of securities as high-risk under the FASB's Emerging Issues Task Force
guidelines in effect at that time. Subsequent to the transfer, $45.5 million of
these securities were sold and the remaining $23.2 million was no longer
classified as high-risk.
F-21
<PAGE> 154
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1994, $38.3 million of non-agency mortgage-backed securities
that had been included in the held to maturity portfolio were sold. This sale
was made due to a deterioration of the issuer's creditworthiness and resulted in
a gross gain of $42,000.
Mortgage-backed securities of approximately $1.3 billion were transferred
from the available for sale portfolio to the held to maturity portfolio at fair
value during fiscal 1994. The gross unrealized loss of $10.8 million on these
securities at the time of transfer is included as a component of stockholders'
equity and is being amortized over the remaining lives of the securities.
At March 31, 1996 and September 30, 1995, mortgage-backed securities with
carrying values totalling $1,213.9 million and $1,691.1 million and fair values
totalling $1,199.4 million and $1,678.1 million were used to collateralize FHLB
advances and securities sold under agreements to repurchase ("reverse repurchase
agreements").
CHANGES IN UNREALIZED GAINS (LOSSES)
<TABLE>
<CAPTION>
MORTGAGE-BACKED
SECURITIES
--------------------- SECURITIES
AVAILABLE HELD TO AVAILABLE TAX
FOR SALE MATURITY FOR SALE EFFECT TOTAL
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at September 30, 1993........ $ 53,414 $ -- $ -- $(20,030) $ 33,384
Market value changes and the effect
of prepayments.................. (60,960 ) -- (4,264) 24,457 (40,767)
(Gains) losses realized due to
sales........................... (11,488 ) -- 1,188 3,862 (6,438)
Transfer to held to maturity....... 10,835 (10,835) -- -- --
Amortization of held to maturity... -- 633 -- (239) 394
--------- -------- ---------- -------- --------
Balance at September 30, 1994........ (8,199 ) (10,202) (3,076) 8,050 (13,427)
--------- -------- ---------- -------- --------
Market value changes and the effect
of prepayments.................. 8,431 -- 2,263 (4,005) 6,689
(Gains) losses realized due to
sales........................... (16 ) -- -- 6 (10)
Amortization of held to maturity... -- 162 -- (61) 101
--------- -------- ---------- -------- --------
Balance at September 30, 1995........ 216 (10,040) (813) 3,990 (6,647)
--------- -------- ---------- -------- --------
Market value changes and the effect
of prepayments.................. 3,070 -- 526 (1,348) 2,248
(Gains) losses realized due to
sales........................... (2,770 ) -- (9) 1,042 (1,737)
Transfer from held to maturity..... 3,040 1,114 -- (1,558) 2,596
Amortization of held to maturity... -- 755 -- (283) 472
--------- -------- ---------- -------- --------
Balance at March 31, 1996............ $ 3,556 $ (8,171) $ (296) $ 1,843 $ (3,068)
======== ======== ========= ======== ========
</TABLE>
F-22
<PAGE> 155
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1994 and 1993, the Banking Segment securitized single family
loans from its own portfolio as follows:
SECURITIZATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
-----------------------
1994 1993
---------- --------
<S> <C> <C>
(IN THOUSANDS)
Principal securitized, gross......................................... $1,178,999 $674,132
Principal securitized, net......................................... 1,182,172 572,582
Principal sold....................................................... 161,864 269,511
Gains recognized..................................................... 10,441 41,001
</TABLE>
The activity in the excess servicing receivable generated as a result of
these securitizations was as follows:
EXCESS SERVICING RECEIVABLE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
--------------------- ---------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at beginning of period......... $ 11,116 $ 12,182 $ 12,182 $ 15,023 $ 3,623
Additions............................ -- -- -- 2,044 13,534
Amortization......................... (512) (506) (1,066) (4,885) (2,134)
--------- --------- --------- --------- ---------
Balance at end of period............... $ 10,604 $ 11,676 $ 11,116 $ 12,182 $ 15,023
========= ========= ========= ========= =========
</TABLE>
Approximately $3.7 million, $4.0 million, $4.3 million, and $5.5 million of
the excess servicing receivable balance at March 31,1996 and at September 30,
1995, 1994, and 1993 represented the securitized portion of the receivable,
which was included in the mortgage-backed securities portfolio. The remaining
balance was included in other assets.
The following table provides information related to the sales of
mortgage-backed securities available for sale, including those assets
securitized by the Bank.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Proceeds from sales................... $201,523 $77,651 $77,626 $186,190 $403,129
Gross gains on sales.................. 3,472 206 217 16,300 43,712
Gross losses on sales................. 702 201 201 4,812 --
</TABLE>
F-23
<PAGE> 156
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LOANS
The loan portfolio, less the non-accretable unearned discounts and the
undisbursed portion of loans in process, was as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, -------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Held to maturity
Single family......................... $6,651,723 $7,061,088 $4,203,614 $2,847,602 $2,302,073 $3,053,914
Single family residential
construction........................ 179,505 115,436 57,786 35,904 31,920 24,215
Consumer.............................. 130,356 123,096 108,179 57,902 21,732 19,826
Multi-family.......................... 341,094 392,017 276,799 112,055 50,741 23,870
Commercial real estate................ 45,098 31,006 61,919 49,510 58,521 58,931
Business credit....................... 15,008 6,495 -- -- -- --
Mortgage banker finance line of
credit.............................. 141,781 109,339 147,754 385,548 -- --
---------- ---------- ---------- ---------- ---------- ----------
7,504,565 7,838,477 4,856,051 3,488,521 2,464,987 3,180,756
Allowance for credit losses........... (36,445) (36,763) (23,378) (27,970) (25,529) (9,919)
Accretable unearned discounts......... (17,168) (34,784) (50,384) (25,486) (53,174) (193,900)
Net deferred loan origination fees.... (3,452) (3,254) (1,961) (625) (402) (485)
---------- ---------- ---------- ---------- ---------- ----------
Held to maturity.................. 7,447,500 7,763,676 4,780,328 3,434,440 2,385,882 2,976,452
---------- ---------- ---------- ---------- ---------- ----------
Held for sale
Single family mortgage warehouse...... 379,720 411,287 252,153 899,602 1,016,854 457,137
Single family......................... -- -- -- 528,579 783,002 --
Multi-family.......................... 52,510 87,781 12,535 -- -- --
Business credit....................... 4,007 825 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
436,237 499,893 264,688 1,428,181 1,799,856 457,137
Allowance for credit losses........... (44) (38) (76) (1,894) (2,685) (229)
Unrealized losses..................... (256) (1,142) -- -- -- --
Accretable unearned discounts......... (7,284) (3,676) (266) (2,437) (85,115) (3,160)
Net deferred loan origination costs... 1,927 1,527 1,500 4,089 3,778 954
---------- ---------- ---------- ---------- ---------- ----------
Held for sale..................... 430,580 496,564 265,846 1,427,939 1,715,834 454,702
---------- ---------- ---------- ---------- ---------- ----------
Total loans....................... $7,878,080 $8,260,240 $5,046,174 $4,862,379 $4,101,716 $3,431,154
========== ========== ========== ========== ========== ==========
Supplemental information
Non-accretable unearned discounts..... $ (11,210) $ (15,423) $ (31,917) $ (42,975) $ (41,060) $ (41,306)
Undisbursed portion of loans in
process............................. (195,478) (179,737) (136,797) (39,162) (41,534) (25,975)
</TABLE>
F-24
<PAGE> 157
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the geographic distribution of loans by
states with concentrations of 4% of loans or greater at March 31, 1996 and
September 30, 1995. The geographic data is based on gross loan principal and
includes REO.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------------------------------------------------
COMMERCIAL
SINGLE % OF REAL ESTATE % OF % OF
FAMILY TOTAL AND BUSINESS TOTAL TOTAL
STATE AND OTHER ASSETS CREDIT ASSETS TOTAL ASSETS
- ------------------------------- ---------- ----- ------------ ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
California..................... $3,793,197 33.67% $ -- --% $3,793,197 33.67%
Texas.......................... 1,299,730 11.54 44,660 0.39 1,344,390 11.93
Florida........................ 448,958 3.98 1,986 0.02 450,944 4.00
Other.......................... 1,851,933 16.44 18,313 0.16 1,870,246 16.60
---------- ----- ------- ---- ---------- -----
7,393,818 65.63% 64,959 0.57% 7,458,777 66.20%
===== ==== =====
---------- ------- ----------
Mortgage banker finance line of
credit....................... 141,781 -- 141,781
Single family mortgage
warehouse.................... 379,720 -- 379,720
---------- ------- ----------
Total..................... $7,915,319 $ 64,959 $7,980,278
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
-------------------------------------------------------------------------
COMMERCIAL
SINGLE % OF REAL ESTATE % OF % OF
FAMILY TOTAL AND BUSINESS TOTAL TOTAL
STATE AND OTHER ASSETS CREDIT ASSETS TOTAL ASSETS
- ------------------------------ ---------- ------ ------------ ------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California.................... $3,958,401 33.03% $ -- --% $3,958,401 33.03%
Texas......................... 1,340,063 11.18 15,065 0.13 1,355,128 11.31
Florida....................... 477,479 3.98 1,999 0.02 479,478 4.00
Other......................... 2,038,953 17.02 24,971 0.20 2,063,924 17.22
---------- ----- ------- ---- ---------- -----
7,814,896 65.21% 42,035 0.35% 7,856,931 65.56%
===== ==== =====
---------- ------- ----------
Mortgage banker finance line
of credit................... 109,339 -- 109,339
Single family mortgage
warehouse................... 411,287 -- 411,287
---------- ------- ----------
Total.................... $8,335,522 $ 42,035 $8,377,557
========== ======= ==========
</TABLE>
F-25
<PAGE> 158
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contractual maturities of the loans held to maturity portfolio as of March
31, 1996 and September 30, 1995, were as follows:
<TABLE>
<CAPTION>
PRINCIPAL PAYMENTS CONTRACTUALLY DUE IN YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------
2000- 2002- 2007- 2012 AND
1997 1998 1999 2001 2006 2011 THEREAFTER TOTAL
-------- -------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Type of loan
Single family................... $105,763 $113,983 $122,841 $275,066 $ 897,988 $1,265,826 $3,870,256 $6,651,723
Single family residential
construction.................. 179,505 -- -- -- -- -- -- 179,505
Consumer........................ 74,627 9,303 10,244 23,698 12,484 -- -- 130,356
Multi-family.................... 93,097 101,389 55,140 4,943 85,329 1,196 -- 341,094
Commercial real estate.......... 2,780 3,018 3,276 6,593 17,652 6,453 5,326 45,098
Business credit................. 8,619 6,389 -- -- -- -- -- 15,008
Mortgage banker finance line of
credit........................ 136,606 -- -- 2,685 2,490 -- -- 141,781
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total....................... $600,997 $234,082 $191,501 $312,985 $1,015,943 $1,273,475 $3,875,582 $7,504,565
======== ======== ======== ======== ======== ========== ========== ==========
Type of interest
Fixed-rate loans................ $ 39,979 $ 43,349 $ 46,558 $104,417 $ 333,122 $ 298,805 $ -- $ 866,230
Adjustable-rate loans........... 561,018 190,733 144,943 208,568 682,821 974,670 3,875,582 6,638,335
-------- -------- -------- -------- -------- ---------- ---------- ----------
Total....................... $600,997 $234,082 $191,501 $312,985 $1,015,943 $1,273,475 $3,875,582 $7,504,565
======== ======== ======== ======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PAYMENTS CONTRACTUALLY DUE IN YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
1999- 2001- 2006- 2011 AND
1996 1997 1998 2000 2005 2010 THEREAFTER TOTAL
-------- -------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Type of loan
Single family................... $106,424 $114,883 $124,015 $278,393 $ 914,393 $1,221,214 $4,301,766 $7,061,088
Single family residential
construction.................. 115,436 -- -- -- -- -- -- 115,436
Consumer........................ 80,277 7,624 8,398 19,437 7,360 -- -- 123,096
Multi-family.................... 82,207 89,932 57,012 3,740 158,086 1,040 -- 392,017
Commercial real estate.......... 607 655 706 1,584 14,385 6,507 6,562 31,006
Business credit................. 2,154 2,201 2,140 -- -- -- -- 6,495
Mortgage banker finance line of
credit........................ 102,274 -- -- 4,587 2,478 -- -- 109,339
-------- -------- -------- -------- ---------- ---------- ---------- ----------
Total....................... $489,379 $215,295 $192,271 $307,741 $1,096,702 $1,228,761 $4,308,328 $7,838,477
======== ======== ======== ======== ========== ========== ========== ==========
Type of interest
Fixed-rate loans................ $ 34,770 $ 37,643 $ 40,857 $ 92,814 $ 397,784 $ 229,547 $ -- $ 833,415
Adjustable-rate loans........... 454,609 177,652 151,414 214,927 698,918 999,214 4,308,328 7,005,062
-------- -------- -------- -------- ---------- ---------- ---------- ----------
Total....................... $489,379 $215,295 $192,271 $307,741 $1,096,702 $1,228,761 $4,308,328 $7,838,477
======== ======== ======== ======== ========== ========== ========== ==========
</TABLE>
The performing single family loans are pledged, under a blanket lien, as
collateral securing advances from the FHLB at March 31, 1996 and September 30,
1995.
F-26
<PAGE> 159
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPAL BALANCE OF NONACCRUAL LOANS
<TABLE>
<CAPTION>
AT MARCH AT SEPTEMBER 30,
31, ---------------------------------
1996 1995 1994 1993
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Nonaccrual loans
Single family............................. $ 101,936 $ 83,954 $ 85,722 $ 61,451
Single family residential construction.... 35 505 -- --
Consumer.................................. 745 563 506 427
Multi-family.............................. 510 213 3,802 3,233
Commercial real estate.................... 488 -- 2,342 --
------ ------ ------ ------
Total................................ $ 103,714 $ 85,235 $ 92,372 $ 65,111
====== ====== ====== ======
</TABLE>
At September 30, 1994 and 1993, nonaccrual loans above included $5.7
million and $9.0 million of single family loans that were ninety days
delinquent, subject to government guaranty, and upon which interest continued to
accrue. There were no such loans at March 31, 1996 and September 30, 1995.
If the nonaccrual loans as of March 31, 1996 and September 30, 1995 had
been performing in accordance with their original terms throughout the six
months ended March 31, 1996 and fiscal 1995, interest income recognized would
have been $4.3 million and $6.4 million. The actual interest income recognized
on these loans for the six months ended March 31, 1996 was $695,000 and for
fiscal 1995 was $2.0 million. No commitments exist to lend additional funds to
borrowers whose loans were on nonaccrual status at March 31, 1996 and September
30, 1995.
At March 31, 1996, the recorded investment in impaired loans pursuant to
SFAS No. 114, totalled $4.7 million and the average outstanding balance for the
six months ended March 31, 1996 was $4.5 million. No allowance for credit losses
was required on these loans because the measured values of the loans exceeded
the recorded investments in the loans. Interest income of $230,000 was
recognized on impaired loans during the six months ended March 31, 1996, of
which $192,000 was collected in cash.
F-27
<PAGE> 160
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
LOANS HELD TO MATURITY
------------------------------------------------------------------ LOANS
COMMERCIAL HELD FOR SALE
REAL MORTGAGE ------------------
SINGLE ESTATE BANKER SINGLE
FAMILY AND FINANCE FAMILY
SINGLE RESIDENTIAL MULTI- BUSINESS LINE OF MORTGAGE SINGLE
FAMILY CONSTRUCTION CONSUMER FAMILY CREDIT CREDIT WAREHOUSE FAMILY TOTAL
------- ------------ -------- ------ ---------- -------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at
September 30, 1990.......... $ 6,729 $ 38 $-- $ 53 $ -- $-- $-- $-- $ 6,820
Provision................. 3,133 148 -- 60 552 -- 229 -- 4,122
Net charge-offs........... (775) -- (19) -- -- -- -- -- (794)
Other..................... (131) -- 100 31 -- -- -- -- --
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
September 30, 1991.......... 8,956 186 81 144 552 -- 229 -- 10,148
Provision................. 14,156 135 39 75 6,261 -- 467 -- 21,133
Net charge-offs........... (2,827) -- (76) -- -- -- (118) -- (3,021)
Other..................... (6,817) -- 100 -- 4,564 -- -- 2,107 (46)
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
September 30, 1992.......... 13,468 321 144 219 11,377 -- 578 2,107 28,214
Provision................. 1,824 56 264 1,285 (25) 944 (265) -- 4,083
Net charge-offs........... (2,161) (71) (53) -- -- -- (148) -- (2,433)
Other..................... 378 -- -- (30 ) 30 -- -- (378 ) --
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
September 30, 1993.......... 13,509 306 355 1,474 11,382 944 165 1,729 29,864
Provision................. 2,369 93 2,794 1,215 875 (260) (89) -- 6,997
Net charge-offs........... (1,702) -- (1,327) (233 ) (10,145) -- -- -- (13,407)
Other..................... 1,729 -- -- -- -- -- -- (1,729) --
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
September 30, 1994.......... 15,905 399 1,822 2,456 2,112 684 76 -- 23,454
Provision................. 18,493 (38) 4,178 596 1,374 (274) (36) -- 24,293
Net charge-offs........... (4,804) -- (2,753) 2 (3,389) -- (2) -- (10,946)
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
September 30, 1995.......... $29,594 $361 $3,247 $3,054 $ 97 $ 410 $ 38 $-- $36,801
======= ==== ====== ====== ======== ====== ===== ====== =======
Balance at
September 30, 1994.......... $15,905 $399 $1,822 $2,456 $ 2,112 $ 684 $ 76 $-- $23,454
Provision................. 2,293 74 1,791 516 -- (448) (69) -- 4,157
Net charge-offs........... (1,414) -- (1,158) 2 -- -- (2) -- (2,572)
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
March 31, 1995.............. $16,784 $473 $2,455 $2,974 $ 2,112 $ 236 $ 5 $-- $25,039
======= ==== ====== ====== ======== ====== ===== ====== =======
Balance at
September 30, 1995.......... $29,594 $361 $3,247 $3,054 $ 97 $ 410 $ 38 $-- $36,801
Provision................. 2,429 122 3,030 175 86 2 6 -- 5,850
Net charge-offs........... (3,224) -- (2,938) -- -- -- -- -- (6,162)
------- ---- ------ ------ -------- ------ ----- ------ -------
Balance at
March 31, 1996.............. $28,799 $483 $3,339 $3,229 $ 183 $ 412 $ 44 $-- $36,489
======= ==== ====== ====== ======== ====== ===== ====== =======
</TABLE>
F-28
<PAGE> 161
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LOAN SERVICING
SINGLE FAMILY SERVICING PORTFOLIO
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
AT MARCH AT SEPTEMBER 30,
31, --------------------
1996 1995 1994
----------- ------- ------
<S> <C> <C> <C>
(IN MILLIONS)
Owned loans............................................... $ 7,261 $ 7,603 $4,537
Less: Loans serviced by others...................... 3,125 3,477 1,764
------ ------ ------
Total owned loans serviced by Bank.............. 4,136 4,126 2,773
------ ------ ------
Loans serviced for others
Purchased servicing rights........................... 4,315 4,652 1,419
Loans originated and sold with servicing retained.... 1,720 1,187 1,886
Servicing sales -- not yet transferred from Bank..... 351 1,047 1,109
Other................................................ 27 276 239
------ ------ ------
Total loans serviced for others................. 6,413 7,162 4,653
Mortgage-backed securities securitized by Banking
Segment................................................. 1,225 1,360 1,554
------ ------ ------
Total servicing portfolio....................... $11,774 $12,648 $8,980
====== ====== ======
</TABLE>
The table above includes single family, single family residential
construction, and single family mortgage warehouse loans. In addition to the
single family servicing portfolio, there were $296 million, $177 million, and
$252 million of multi-family loans serviced for others at March 31, 1996 and
September 30, 1995 and 1994.
FAIR VALUE OF SINGLE FAMILY SERVICING PORTFOLIO
<TABLE>
<CAPTION>
AT MARCH AT SEPTEMBER 30,
31, -----------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
(IN MILLIONS)
Principal
Total loans serviced for others................... $ 6,413 $ 7,162 $ 4,653
Mortgage-backed securities securitized by Banking
Segment......................................... 1,225 1,360 1,554
Servicing purchases -- not yet transferred to
Bank............................................ -- -- 3,357
Servicing sales -- not yet transferred from
Bank............................................ (351) (1,047) (1,109)
Single family mortgage warehouse loans subject to
SFAS No. 122.................................... 380 411 --
------ ------ ------
Total principal.............................. $ 7,667 $ 7,886 $ 8,455
====== ====== ======
(IN THOUSANDS)
Fair value............................................. $ 132,235 $122,250 $137,433
Book value
OMSR.............................................. 38,267 23,062 --
PMSR.............................................. 45,116 52,035 56,677
------ ------ ------
Total book value............................. 83,383 75,097 56,677
------ ------ ------
Fair value in excess of book value (see Note
12)........................................ $ 48,852 $ 47,153 $ 80,756
====== ====== ======
</TABLE>
F-29
<PAGE> 162
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE SERVICING RIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------------ ------------------ ------------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OMSRS PMSRS OMSRS PMSRS OMSRS PMSRS PMSRS PMSRS
(IN THOUSANDS)
Balance at beginning of
period........................ $23,062 $52,035 $ -- $56,677 $ -- $56,677 $10,650 $16,036
Additions..................... 14,944 1,142 13,435 10,508 28,694 12,546 50,955 1,768
Amortization.................. (1,125) (4,823) (234) (4,930) (1,010) (9,821) (4,928) (3,518)
Writedown..................... -- -- -- -- -- -- -- (2,633)
Deferred hedging (gains)
losses...................... -- (1,730) -- -- -- (7,173) -- --
Sales......................... -- (122) (8,543) -- (4,622) (376) -- (1,003)
Other......................... 1,386 (1,386) -- (173) -- 182 -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of period........ $38,267 $45,116 $ 4,658 $62,082 $23,062 $52,035 $56,677 $10,650
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
As discussed in Note 1, SFAS No. 122 was implemented effective October 1,
1994. As a result, originated MSRs of $28.7 million were recorded, net income
for fiscal 1995 and stockholders' equity increased $9.8 million, and earnings
per common share increased $0.33. Per share results have been restated to
reflect the 1,800 to one stock conversion effective June 1996. See Note 21 for a
discussion of subsequent events. The effect of the implementation on the
Consolidated Statement of Operations was as follows:
<TABLE>
<CAPTION>
TOTAL
FISCAL FOURTH THIRD SECOND FIRST
1995 QUARTER QUARTER QUARTER QUARTER
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Before SFAS No. 122 Implementation
Non-interest income.................. $ 98,042 $13,096 $23,185 $29,120 $32,641
Non-interest expense................. 193,567 51,905 40,251 51,381 50,030
Income before income taxes and
minority interest.................. 74,181 9,256 21,106 17,593 26,226
Income tax expense................... 31,323 3,754 9,164 7,546 10,859
Net income........................... 31,881 1,391 9,708 7,884 12,898
Earnings per common share............ 1.02 0.04 0.31 0.25 0.42
After SFAS No. 122 Implementation
Non-interest income.................. 114,981 25,201 23,127 30,641 36,012
Non-interest expense................. 194,576 52,466 40,465 51,553 50,092
Income before income taxes and
minority interest.................. 90,111 20,800 20,834 18,942 29,535
Income tax expense................... 37,415 8,169 9,060 8,062 12,124
Net income........................... 41,719 8,520 9,540 8,717 14,942
Earnings per common share............ 1.35 0.28 0.31 0.28 0.48
</TABLE>
7. COVERED ASSETS AND FEDERAL FINANCIAL ASSISTANCE
Concurrent with the Bank's incorporation on December 30, 1988, the Parent
Company, the Bank, and certain of their direct and indirect parent entities
entered into an Assistance Agreement (the "Assistance Agreement") with the
Federal Savings and Loan Insurance Corporation (the "FSLIC") whereby the Bank
acquired substantially all of the assets and assumed all of the deposits and
certain liabilities of United Savings Association of Texas ("Old USAT"), an
insolvent thrift institution (the "Acquisition"). The majority of assets
acquired were designated as Covered Assets ("Covered Assets") and were subject
to certain provisions contained in the Assistance Agreement. The Assistance
Agreement provided for, among other things, financial assistance to the Bank.
F-30
<PAGE> 163
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 23, 1993, the Parent Company, the Bank, and certain of their
direct and indirect parent entities, and the Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund ("FRF"), entered into a
Settlement and Termination Agreement (the "Settlement Agreement") providing,
among other things, for the termination of the Assistance Agreement and the
disposition of Covered Assets. Accordingly, effective December 28, 1993, the
Bank no longer owned or managed any Covered Assets, and stopped receiving
financial assistance from the FRF. In connection with this settlement, the Bank
received a payment totalling $195.3 million.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
----------------------
1994 1993
-------- -------
<S> <C> <C>
(IN THOUSANDS)
Payments affecting the results of operations.......... $ 23,143 $ 9,289
Other Payments
Settlement payment............................... 195,300 --
Other............................................ 468 61,578
-------- -------
Total FRF payments.......................... $218,911 $70,867
======== =======
</TABLE>
8. DEPOSITS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------------------
AT MARCH 31,
1996 1995 1994 1993
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Non-interest bearing deposits....... $ 242,560 --% $ 181,196 --% $ 76,498 --% $ 44,149 --%
Interest-bearing deposits
Transaction accounts.............. 222,148 1.00 219,307 1.50 233,666 1.49 229,972 2.07
Insured money fund accounts
Consumer........................ 493,000 4.11 397,473 3.73 407,029 3.12 397,511 2.69
Commercial...................... 717,308 5.32 857,669 5.82 416,571 4.84 51,938 2.60
--------- --- --------- --- --------- --- --------- ---
Subtotal...................... 1,210,308 4.83 1,255,142 5.16 823,600 3.99 449,449 2.68
--------- --- --------- --- --------- --- --------- ---
Savings accounts.................. 139,343 2.50 144,301 2.73 222,769 2.60 312,778 2.68
Certificates of deposit
Consumer........................ 2,912,263 5.72 3,063,631 5.84 2,949,715 4.88 3,251,391 4.77
Commercial...................... 3,348 5.02 2,273 5.36 -- -- -- --
Wholesale....................... 233,351 9.70 316,370 9.06 457,956 7.92 551,649 7.13
--------- --- --------- --- --------- --- --------- ---
Subtotal...................... 3,148,962 6.01 3,382,274 6.14 3,407,671 5.29 3,803,040 5.11
--------- --- --------- --- --------- --- --------- ---
Total interest-bearing
deposits.................... 4,720,761 5.37 5,001,024 5.59 4,687,706 4.74 4,795,239 4.58
--------- --- --------- --- --------- --- --------- ---
Total deposits................ $4,963,321 5.11% $5,182,220 5.40% $4,764,204 4.67% $4,839,388 4.53%
========= ========= ========= ========= ========= ========= ========= =========
Consumer............................ $3,843,134 $3,868,498 $3,834,238 $4,207,739
Commercial.......................... 886,836 997,352 472,009 80,000
Wholesale........................... 233,351 316,370 457,957 551,649
--------- --------- --------- ---------
Total deposits................ $4,963,321 $5,182,220 $4,764,204 $4,839,388
========= ========= ========= =========
</TABLE>
F-31
<PAGE> 164
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1996 and September 30, 1995, certificates of deposit ("CDs")
summarized by scheduled maturity by year and weighted average interest rate were
as follows:
<TABLE>
<CAPTION>
CERTIFICATES MATURING IN THE YEAR ENDING MARCH 31,
--------------------------------------------------------------------------
STATED RATE 1997 1998 1999 2000 2001 THEREAFTER TOTAL
--------- --------- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
2.99% and below...... $ 1,824 $ -- $ -- $ -- $ -- $ -- $ 1,824
3.00% to 3.99%....... 21,033 3,827 649 8 -- 3 25,520
4.00% to 4.99%....... 291,351 237,112 16,495 32,615 1,051 3,099 581,723
5.00% to 5.99%....... 524,650 564,293 144,050 47,412 5,496 15,581 1,301,482
6.00% to 6.99%....... 131,259 436,705 82,683 57,147 60,189 19,592 787,575
7.00% to 7.99%....... 127,964 80,121 7,690 5,723 21,599 12,888 255,985
8.00% to 8.99%....... 11,580 1,273 2,581 3,010 1,700 379 20,523
9.00% to 9.99%....... 265 741 6,249 2,925 12 446 10,638
10.00% to 10.99%..... 31,200 7,444 23,974 728 591 325 64,262
Over 10.99%.......... 69,648 29,517 -- 265 -- -- 99,430
---------- ---------- -------- -------- ------- ------- ----------
$1,210,774 $1,361,033 $284,371 $149,833 $90,638 $ 52,313 $3,148,962
========== ========== ======== ======== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
CERTIFICATES MATURING IN THE YEAR ENDING SEPTEMBER 30,
--------------------------------------------------------------------------
1996 1997 1998 1999 2000 THEREAFTER TOTAL
--------- --------- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
2.99% and below...... $ 1,947 $ -- $ -- $ -- $ -- $ -- $ 1,947
3.00% to 3.99%....... 49,923 4,209 649 8 -- 3 54,792
4.00% to 4.99%....... 419,671 58,644 7,242 32,816 50 100 518,523
5.00% to 5.99%....... 637,453 338,794 142,232 46,123 5,308 476 1,170,386
6.00% to 6.99%....... 449,506 437,013 82,291 57,725 60,339 16,062 1,102,936
7.00% to 7.99%....... 147,563 82,049 7,726 5,728 21,722 12,944 277,732
8.00% to 8.99%....... 33,642 1,262 675 4,165 2,272 376 42,392
9.00% to 9.99%....... 42,640 564 6,504 2,909 11 442 53,070
10.00% to 10.99%..... 4,950 37,235 13,594 10,019 657 325 66,780
Over 10.99%.......... -- 78,438 15,026 252 -- -- 93,716
---------- ---------- -------- -------- ------- ------- ----------
$1,787,295 $1,038,208 $275,939 $159,745 $90,359 $ 30,728 $3,382,274
========== ========== ======== ======== ======= ======= ==========
</TABLE>
Scheduled maturities of CDs of $100,000 or more were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, 1996 1995
-------------------- --------------------
NUMBER OF DEPOSIT NUMBER OF DEPOSIT
ACCOUNTS AMOUNT ACCOUNTS AMOUNT
--------- -------- --------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Three months or less....................... 648 $ 68,289 475 $ 51,307
Over three through six months.............. 895 94,458 664 70,615
Over six through twelve months............. 1,455 151,881 1,188 124,752
Over twelve months......................... 1,352 143,660 2,115 222,801
----- -------- ----- --------
Total............................ 4,350 $458,288 4,442 $469,475
===== ======== ===== ========
</TABLE>
F-32
<PAGE> 165
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST EXPENSE ON DEPOSITS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Transaction and insured money fund
accounts.............................. $ 34,453 $ 25,261 $ 61,232 $ 22,261 $ 18,314
Savings accounts........................ 1,883 2,620 4,715 7,311 7,055
Certificates of deposit................. 102,174 94,623 198,419 179,462 200,614
-------- -------- -------- -------- --------
Total.............................. $138,510 $122,504 $264,366 $209,034 $225,983
======== ======== ======== ======== ========
</TABLE>
9. FEDERAL HOME LOAN BANK ADVANCES
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR ENDED SEPTEMBER 30,
MARCH 31, --------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Maximum outstanding at any month-end......... $4,384,798 $4,386,605 $2,697,829 $2,217,745
Daily average balance........................ 4,346,960 3,560,844 2,285,630 1,344,129
Average interest rate........................ 6.18% 6.31% 3.98% 3.62%
</TABLE>
The aggregate amounts of principal maturities for FHLB advances for the
periods indicated were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------
AT MARCH 31,
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
1995......................... $ -- -- % $ -- -- % $1,838,200 4.98%
1996......................... -- -- 2,391,885 6.22 640,884 5.19
1997......................... 3,815,107 5.79 1,855,765 6.33 115,000 6.03
1998......................... 192,671 6.03 115,000 6.60 5,000 7.44
1999......................... 118,700 5.50 8,700 7.65 8,700 7.65
2000......................... 2,700 7.80 2,700 7.80 2,700 7.80
2001......................... 4,800 7.92 4,800 7.92 4,800 7.92
Thereafter................... 5,045 8.33 5,045 8.33 5,045 8.33
---------- -------- ---------- -------- ---------- --------
Total................... $4,139,023 5.80% $4,383,895 6.28% $2,620,329 5.11%
========= ======== ========= ======== ========= ========
</TABLE>
F-33
<PAGE> 166
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
AND FEDERAL FUNDS PURCHASED
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED FOR THE YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------
1996 1995 1994 1993
--------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Reverse repurchase agreements
Balance outstanding at period-end.......... $ 949,936 $1,172,533 $553,000 $300,000
Fair value of collateral at period-end..... 987,478 1,239,527 673,000 321,200
Maximum outstanding at any month-end....... 1,096,508 1,355,540 553,000 659,000
Daily average balance...................... 982,115 887,932 273,899 345,269
Average interest rate...................... 5.82% 5.99% 3.85% 3.23%
Federal funds purchased
Balance outstanding at period-end.......... $ -- $ -- $ -- $ 10,000
Maximum outstanding at any month-end....... -- -- 15,000 10,000
Daily average balance...................... 54 521 767 740
Average interest rate...................... 5.94% 5.95% 3.73% 2.84%
</TABLE>
Scheduled maturities of reverse repurchase agreements outstanding at March
31, 1996 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT SEPTEMBER 30, 1995
----------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
October 1995................................ $ -- $ 627,533
April 1996.................................. 589,936 185,000
July 1996................................... 360,000 360,000
---------- ----------
$ 949,936 $1,172,533
========== ==========
</TABLE>
The counterparties to all reverse repurchase agreements at March 31, 1996
and September 30, 1995 have agreed to resell the same securities upon maturity
of such agreements. The securities collateralizing the reverse repurchase
agreements have been delivered to the counterparty or its agent. At March 31,
1996 and September 30, 1995, the reverse repurchase agreements were outstanding
with the following counterparties:
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT SEPTEMBER 30, 1995
----------------- ---------------------
CARRYING VALUE
-----------------------------------------
<S> <C> <C>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Morgan Stanley and Co. Incorporated......... $ 360,000 $ 496,614
Donaldson, Lufkin, and Jenrette Securities
Corporation............................... 239,936 94,000
CS First Boston Corporation................. 185,000 239,309
Goldman, Sachs and Co....................... 165,000 146,500
Salomon Brothers Holding Company Inc........ -- 196,110
---------- ----------
$ 949,936 $1,172,533
========== ==========
</TABLE>
F-34
<PAGE> 167
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SENIOR NOTES
In May 1993, the Parent Company issued $115 million of 8.05% Senior Notes
("Senior Notes") and repaid the long-term debt and the note payable to a related
party. In connection with this transaction, the Parent Company paid a prepayment
penalty, a make-whole premium, and charged-off the remaining capitalized debt
issuance costs of $9.5 million, $1.6 million, and $3.4 million, respectively.
These penalties and costs are reflected as an extraordinary loss in fiscal 1993.
The extraordinary loss had no tax benefit in accordance with SFAS No. 109.
The Senior Notes were not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but were offered and sold in a private offering
to qualified institutional investors in reliance on Rule 144A under the
Securities Act and to a limited number of institutional accredited investors
within the meaning of Rule 501 of Regulation D under the Securities Act.
The Senior Notes had an initial interest rate of 8.05% per annum, payable
semi-annually, and are due on May 15, 1998. The interest rate on the Senior
Notes was subject to increase in certain circumstances if the Parent Company did
not consummate an exchange offer ("Exchange Offer") by certain dates. The
Exchange Offer would provide holders of the Senior Notes with the ability to
effect, for federal income tax purposes, a tax free exchange of the Senior
Notes, for Exchange Notes ("Exchange Notes"). The per annum interest rate on the
Senior Notes increased by 0.5%, to 8.55% in October 1993, and increased by 0.5%
to 9.05% in February 1994. When the Exchange Offer is consummated, the interest
rate will revert to the initial rate of 8.05%.
The Senior Notes are not redeemable prior to maturity, except upon the
occurrence of a change of control (as defined) of the Parent Company or the Bank
(i) at the option of the Parent Company, in whole but not in part, and (ii) at
the option of holders, in whole or in part, in each case, at 101% of their
principal amount plus accrued interest to the date of redemption. The Senior
Notes do not have the benefit of any sinking fund obligation.
The cost of issuing the Senior Notes totalled $4.9 million, and
amortization for the six months ended March 31, 1996 and 1995 and fiscal 1995,
1994, and 1993 was $488,000, $488,000, $976,000, $977,000, and $366,000,
respectively.
The Parent Company's ability to meet its long-term obligations is
contingent on the Bank's ability to pay dividends on its common stock. As
discussed in Note 15, the ability of the Bank to pay dividends on its preferred
or common stock without prior Office of Thrift Supervision (the "OTS") approval
is subject to its continued profitability and the maintenance of certain capital
ratios. Further, the payment of dividends by the Bank to the Parent Company on
the Bank's common stock is subordinate to the payment of dividends on the Bank's
preferred stock. See Note 16 for a discussion of the preferred stock of the
Bank. Under the Senior Note indenture, aggregate dividends paid by the Company
on the Common Stock and by the Bank on the Preferred Stock, Series A and
Preferred Stock, Series B, and certain other payments or investments, is limited
to the sum of (i) 50% of cumulative consolidated net income (or, if negative
100% of such deficit) after March 31, 1993, subject to certain exclusions, (ii)
the proceeds from any issuance of capital stock by the Parent Company after
March 31, 1993, and (iii) $12 million. At March 31, 1996 and September 30, 1995,
$123.7 million and $117.5 million were available for payment of future dividends
under this restriction. See Note 21 for a discussion of subsequent events.
F-35
<PAGE> 168
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. Quoted market
prices, when available, are used as the measure of fair value. In cases where
quoted market prices are not available, fair values are based on present value
estimates or other valuation techniques. Because assumptions used in these
valuation techniques are inherently subjective in nature, the estimated fair
values cannot always be substantiated by comparison to independent market quotes
and, in many cases, the estimated fair values could not necessarily be realized
in an immediate sale or settlement of the instrument.
The fair value estimates presented herein are based on relevant information
available to management as of March 31, 1996, September 30, 1995, and 1994.
Management is not aware of any factors that would significantly affect these
estimated fair value amounts. As these reporting requirements exclude certain
financial instruments and all non-financial instruments, the aggregate fair
value amounts presented herein do not represent management's estimate of the
underlying value of the Parent Company and the Bank. Additionally, such amounts
exclude intangible asset values such as the value of core deposit intangibles.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Short-Term Interest-Earning Assets. The carrying amount approximates the
fair value.
Trading Account Assets. The carrying values are market values, which are
generally based on quoted market prices or dealer quotes, if available. If a
quoted market price is not available, market value is estimated using quoted
market prices for instruments with similar credit, maturity, and interest
characteristics.
Securities and Mortgage-Backed Securities. The carrying amounts for
certain securities and mortgage-backed securities approximate fair value as they
mature within 90 days and do not present significant credit concerns. The fair
value of securities and mortgage-backed securities with longer maturities are
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
Loans. Fair values are estimated for portfolios of loans with similar
characteristics and include the value of related servicing rights, if
appropriate. Loans are segregated by type, by rate, and by performing and
nonperforming categories. As adjustable-rate loans (excluding single family)
reprice frequently, their carrying value approximates their fair value. For
fixed-rate loans and single family loans, excluding the single family mortgage
warehouse, fair value is estimated using contractual cash flows discounted at
secondary market rates, adjusted for prepayment estimates, or using current
rates offered for similar loans. Fair value of the single family mortgage
warehouse loans is estimated using outstanding commitment prices from investors
or current investor yield requirements. The fair value of nonperforming loans is
estimated using the carrying value less any related allowance for credit losses.
FHLB Stock. The carrying amount approximates the fair value as it is
redeemable at its par value.
Deposits. Under SFAS No. 107, the estimated fair value of deposits with no
stated maturity, which includes demand deposits, money market, and other savings
accounts, is equal to the amount payable on demand. Although market premiums
paid for depository institutions reflect an additional value for these deposits,
SFAS No. 107 prohibits adjusting fair value for any value expected to be derived
from retaining those deposits for a future period of time or from the benefit
that results from the ability to fund interest-earning assets with these deposit
liabilities. The SFAS No. 107 fair value of fixed-maturity deposits is
estimated, using a discounted cash flow model with rates currently offered by
the Bank for deposits of similar remaining maturities.
F-36
<PAGE> 169
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FHLB Advances, Reverse Repurchase Agreements, and Federal Funds
Purchased. The fair value is estimated based on the discounted value of
contractual cash flows using rates currently available to the Bank for
borrowings with similar terms and remaining maturities.
Senior Notes. The fair value of the Senior Notes is based on discounting
future cash flows using the current rates at which similar debt would be issued
by issuers with similar credit ratings and remaining maturities.
Other Assets and Liabilities. With the exception of that portion of the
excess servicing receivable classified as other assets, the carrying amounts of
financial instruments in these classifications are considered a reasonable
estimate of fair value due to their short-term nature. At March 31, 1996 and
September 30, 1995 and 1994, the fair value of the excess servicing receivable
exceeded its carrying value of $6.9 million, $7.1 million, and $7.9 million, by
$4.3 million, $5.1 million, and $4.7 million. The fair value of the excess
servicing receivable is equal to the present value of estimated net future cash
flows discounted at a current market rate.
Financial Instruments With Off-Balance-Sheet Risk. The fair value of
interest rate swaps, caps, and floors, and financial options are based on
pricing models. The fair value of financial futures contracts, forward delivery
contracts, and fixed-rate commitments to extend credit are based on current
market prices. The notional amount of adjustable-rate commitments to extend
credit approximates their fair value.
Servicing Portfolio. See Note 1 for a description of the method used to
value the single family servicing portfolio.
SFAS NO. 107 FAIR VALUES
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------
AT MARCH 31,
1996 1995 1994
------------------------- ------------------------- ------------------------
CARRYING SFAS NO. CARRYING SFAS NO. CARRYING SFAS NO.
VALUE 107 VALUE VALUE 107 VALUE VALUE 107 VALUE
----------- ---------- ----------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets
Short-term interest-earning assets.... $ 794,970 $ 794,970 $ 583,983 $ 583,983 $ 435,648 $ 435,648
Trading account assets................ 1,267 1,267 1,081 1,081 1,011 1,011
Securities............................ 58,351 59,458 116,013 116,811 114,115 114,580
Mortgage-backed securities............ 1,954,070 1,935,188 2,398,263 2,378,171 2,828,903 2,774,717
Loans................................. 7,878,080 8,014,145 8,260,240 8,418,464 5,046,174 5,095,133
FHLB stock............................ 233,038 233,038 225,952 225,952 132,816 132,816
Other assets.......................... 108,708 112,996 150,542 155,631 86,849 91,548
Non-financial assets.................... 238,152 N/A 247,460 N/A 264,645 N/A
========= ========= =========
----------- ----------- ----------
Total assets...................... $11,266,636 $11,983,534 $8,910,161
=========== =========== ==========
Financial Liabilities
Deposits.............................. $ 4,963,321 $5,004,342 $ 5,182,220 $5,215,438 $4,764,204 $4,791,027
FHLB advances......................... 4,139,023 4,145,304 4,383,895 4,395,965 2,620,329 2,615,204
Reverse repurchase agreements and
federal funds purchased............. 949,936 950,282 1,172,533 1,171,884 553,000 553,000
Senior Notes.......................... 115,000 119,701 115,000 115,383 115,000 111,324
Other liabilities..................... 156,418 156,418 162,073 162,073 116,484 116,484
Non-financial liabilities, minority
interest, and stockholders' equity.... 942,938 N/A 967,813 N/A 741,144 N/A
========= ========= =========
----------- ----------- ----------
Total liabilities, minority
interest, and stockholders'
equity.......................... $11,266,636 $11,983,534 $8,910,161
=========== =========== ==========
</TABLE>
F-37
<PAGE> 170
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS NO. 107 FAIR VALUES, CONTINUED
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------
AT MARCH 31,
1996 1995 1994
------------------------- ------------------------- ------------------------
CARRYING SFAS NO. CARRYING SFAS NO. CARRYING SFAS NO.
VALUE 107 VALUE VALUE 107 VALUE VALUE 107 VALUE
----------- ---------- ----------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Other Financial -- Fair Value
Interest rate swaps................... $ -- $ (359) $ -- $ (1,517) $ -- $ (1,462)
Interest rate caps.................... -- 2,954 -- 1,113 -- --
Interest rate floors.................. -- 3,305 -- 4,895 -- --
Financial options..................... -- 156 -- 103 -- --
Financial futures contracts........... -- 971 -- (1,869) -- 375
Forward delivery contracts............ -- 6,686 -- (2,877) -- 3,014
Commitments to extend credit.......... -- 1,257 -- 897 -- (767)
Non-Financial -- Unrealized Gains
Single family servicing portfolio, as
adjusted (See Note 6)............... -- 48,852 -- 47,153 -- 80,756
</TABLE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank enters into certain financial instruments with off-balance-sheet
risk in the ordinary course of business to reduce its exposure to changes in
interest rates. The Bank utilizes only traditional financial instruments for
this purpose and does not enter into instruments such as leveraged derivatives
or structured notes. The financial instruments used for hedging interest rate
risk include interest rate swaps, caps, floors, and financial options, financial
futures contracts, and forward delivery contracts. A hedge is an attempt to
reduce risk by creating a relationship whereby any losses on the hedged asset or
liability are expected to be counterbalanced in whole or part by gains on the
hedging financial instrument. Thus, market risk resulting from a particular
off-balance-sheet instrument is normally offset by other on or off-balance-sheet
transactions. The Bank seeks to manage credit risk by limiting the total amount
of arrangements outstanding, both by counterparty and in the aggregate, by
monitoring the size and maturity structure of the financial instruments, by
assessing the creditworthiness of the counterparty, and by applying uniform
credit standards for all activities with credit risk.
Notional principal amounts indicated in the following table represent the
extent of the Bank's involvement in particular classes of financial instruments
and generally exceed the expected future cash requirements relating to the
instruments.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, -------------------
1996 1995 1994
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest rate swaps.......................................... $ 150,000 $615,000 $505,000
Interest rate caps........................................... 1,315,000 565,000 --
Interest rate floors......................................... 310,000 310,000 200,000
Financial options............................................ 89,100 23,000 --
Financial futures contracts.................................. 31,800 529,000 40,900
Forward delivery contracts................................... 514,767 509,463 354,439
Commitments to extend credit................................. 1,300,855 999,792 969,072
</TABLE>
F-38
<PAGE> 171
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial instruments with off-balance-sheet risk at March 31, 1996 and
September 30, 1995 were scheduled to mature as follows:
<TABLE>
<CAPTION>
MATURING IN THE YEAR ENDING MARCH 31,
------------------------------------------
1997 1998 1999 THEREAFTER TOTAL
---------- -------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest rate swaps....................... $ 150,000 $ -- $ -- $ -- $ 150,000
Interest rate caps........................ 350,000 400,000 -- 565,000 1,315,000
Interest rate floors...................... -- 310,000 -- -- 310,000
Financial options......................... 89,100 -- -- -- 89,100
Financial futures contracts............... 31,800 -- -- -- 31,800
Forward delivery contracts................ 514,767 -- -- -- 514,767
Commitments to extend credit.............. 1,051,080 195,766 12,231 41,778 1,300,855
---------- -------- ------- -------- ----------
Total........................... $2,186,747 $905,766 $12,231 $606,778 $3,711,522
========== ======== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
MATURING IN THE YEAR ENDING SEPTEMBER 30,
-------------------------------------------
1996 1997 1998 THEREAFTER TOTAL
---------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest rate swaps...................... $ 565,000 $ 50,000 $ -- $ -- $ 615,000
Interest rate caps....................... -- -- -- 565,000 565,000
Interest rate floors..................... -- 60,000 250,000 -- 310,000
Financial options........................ 23,000 -- -- -- 23,000
Financial futures contracts.............. 529,000 -- -- -- 529,000
Forward delivery contracts............... 509,463 -- -- -- 509,463
Commitments to extend credit............. 866,728 78,195 17,764 37,105 999,792
---------- -------- -------- -------- ----------
Total.......................... $2,493,191 $188,195 $267,764 $602,105 $3,551,255
========== ======== ======== ======== ==========
</TABLE>
F-39
<PAGE> 172
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swaps. Below is an itemization of swaps by type and items
hedged. These swaps were entered into in an effort to more closely match the
repricing of the Bank's liabilities with the related assets. During the six
months ended March 31, 1996, $465 million of interest rate swap contracts
expired.
<TABLE>
<CAPTION>
NOTIONAL FIXED FLOATING HEDGED
AMOUNT RATE RATE ITEM
-------- ---- -------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
At March 31, 1996
Receive Floating/Pay Fixed............ $100,000 6.58% 5.63% (2) Commercial deposits
Receive Fixed/Pay Floating............ 25,000 4.60 5.58 (2) Consumer deposits
25,000 6.00 5.40 (1) Consumer deposits
--------
Total....................... $150,000
========
At September 30, 1995
Receive Floating/Pay Fixed............ $ 75,000 6.10 5.81 (1) FHLB advances
Reverse repurchase
340,000 6.50 5.86 (1) agreements
100,000 6.58 6.00 (2) Commercial deposits
Receive Fixed/Pay Floating............ 75,000 4.32 5.88 (2) Consumer deposits
25,000 6.00 5.81 (1) Consumer deposits
--------
Total............................... $615,000
========
At September 30, 1994
Receive Floating/Pay Fixed............ $150,000 6.02 5.02 (1) FHLB advances
Reverse repurchase
280,000 5.76 4.90 (1) agreements
Receive Fixed/Pay Floating............ 75,000 4.32 4.82 (2) Consumer deposits
--------
Total............................... $505,000
========
</TABLE>
(1) Based on the one month London InterBank Offered Rate ("LIBOR") as of the
last reset prior to the date reported.
(2) Based on the three month LIBOR as of the last reset prior to the date
reported.
During fiscal 1993, the Bank sold interest rate swap agreements with
notional amounts totalling $215.0 million prior to the original maturities,
resulting in a $4.1 million gain on the sale. The gain was deferred and
amortized as a credit to interest expense over the remaining terms of the hedged
deposit liabilities. This deferred gain was $1.8 million at September 30, 1994
and was fully amortized during fiscal 1995.
Interest Rate Caps. The Bank simultaneously purchased and sold caps during
fiscal 1995 in an effort to hedge certain adjustable-rate loans. The Bank
purchased interest rate caps during fiscal 1996 in an effort to hedge certain
adjustable-rate mortgage-backed securities. The Bank will receive interest on
the caps it purchased if the index rates rise above the contracted rates. The
Bank will pay interest on the cap it sold if the index rate rises above the
contracted rate.
<TABLE>
<CAPTION>
NOTIONAL INDEX CONTRACTED
AMOUNT RATE RATE
-------- ---- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
At March 31, 1996................................ buy $565,000 5.48%(1) 7.86%
sell 565,000 5.48(1) 8.57
750,000 5.06(2) 5.81
At September 30, 1995............................ buy $565,000 5.91(1) 7.86
sell 565,000 5.91(1) 8.57
</TABLE>
(1) Based on the six month LIBOR as of the last reset prior to the date
reported.
F-40
<PAGE> 173
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) Based on the one year Constant Maturity Treasury ("CMT") as of the last
reset prior to the date reported.
Interest Rate Floors. Floor agreements outstanding at September 30, 1994
were entered into in an effort to shorten the duration of certain long-term
fixed-rate consumer deposits in a declining interest rate environment.
Additional floor contracts were entered into during fiscal 1995 in an effort to
hedge the MSRs against declines in value as a result of prepayments.
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL INDEX FLOOR HEDGED
AMOUNT RATE RATE ITEM
-------- ---- ----- ------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
At March 31, 1996.......................... $260,000 5.78%(1) 6.70 % MSRs
50,000 6.43(2) 7.20 MSRs
--------
Total................................. $310,000
--------
--------
At September 30, 1995...................... $260,000 6.01(1) 6.70 MSRs
50,000 6.17(2) 7.20 MSRs
--------
Total................................. $310,000
--------
--------
At September 30, 1994...................... $200,000 5.13(3) 3.13 Consumer deposits
--------
--------
</TABLE>
(1) Based on the five year CMT as of the last reset prior to the date reported.
(2) Based on the ten year CMT as of the last reset prior to the date reported.
(3) Based on the one month LIBOR as of the last reset prior to the date
reported.
An interest rate floor agreement with a notional principal amount of $530.0
million hedging single family MSRs was sold prior to its original maturity
during fiscal 1995, resulting in a gain of $6.4 million. The gain was deferred
and is being accreted to operations offsetting the related MSR intangible
amortization expense. At March 31, 1996, the deferred gain remaining from the
sale of the interest rate floor was approximately $5.5 million. Interest
received on interest rate floor agreements totalled $1.7 million and $817,000 at
March 31, 1996 and September 30, 1995.
Financial Options. At March 31, 1996 and September 30, 1995 there were
purchased Treasury call options outstanding with notional principal amounts
totalling $22.5 million and $23.0 million. These options were entered into in an
effort to hedge MSRs against declines in value as a result of an increase in
prepayments caused by declining interest rates. The purchased Treasury call
option outstanding at September 30, 1995 was sold during fiscal 1996, for a gain
of $319,000 as the MSRs being hedged were sold. This gain was included in the
gain on the sale of MSRs. During the six months ended fiscal 1996, an additional
option with notional principal amount of $22.5 million was purchased.
During fiscal 1996, the Bank purchased a Eurodollar put option with
notional principal amount of $2 billion in an effort to hedge certain MBS. The
Eurodollar put option was then sold for a loss of $49,000 as the mortgage-backed
securities being hedged were sold. The loss was included in the gain on the sale
of the MBS.
During fiscal 1996, Treasury put options with notional principal amounts
totalling $16.6 million were entered into in an effort to hedge loans the Bank
originated for its own portfolio from the date that the interest rate is locked
until the date the loans are sold or funded ("portfolio pipeline").
F-41
<PAGE> 174
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1996, the Bank purchased a Treasury call option with a
notional principal amount of $50.0 million. The option was entered into as a
trading activity and the related premium paid was included in trading account
assets at March 31, 1996.
Financial Futures Contracts. At March 31, 1996 and September 30, 1995 and
1994 there were Treasury futures contracts outstanding with notional principal
amounts totalling $31.8 million, $160.0 million and $40.9 million. These
Treasury futures contracts were entered into in an effort to hedge loans in the
portfolio pipeline. During fiscal 1996, Treasury futures contracts with notional
principal amounts totalling $141.0 million were closed as the loans being hedged
were sold. Losses of $327,000 and $6.0 million and gains of $37,000 on Treasury
futures contracts as of March 31, 1996 and September 30, 1995 and 1994 were
deferred and included as an adjustment to the carrying amount of the loans.
The Eurodollar futures contracts outstanding at September 30, 1995 with
notional amounts totalling $369.0 million, were entered into in an effort to
hedge the interest costs for a fixed period on certain borrowings that reprice
based on short-term rates. As of March 31, 1996, all of the Eurodollar futures
contracts outstanding at September 30, 1995 were closed or had expired. Losses
of $360,000 on closed Eurodollar futures contracts were deferred and included as
an adjustment to the carrying amount of the borrowings at March 31, 1996.
Forward Delivery Contracts. Forward delivery contracts are entered into to
sell single family mortgage warehouse loans and to manage the risk that a change
in interest rates will decrease the value of the single family mortgage loan
warehouse or commitments to originate mortgage loans ("mortgage pipeline").
FORWARD DELIVERY CONTRACTS
<TABLE>
<CAPTION>
AT MARCH AT SEPTEMBER 30,
31, ----------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN MILLIONS)
Counterparty
FNMA.......................................... $173 $265 $133
GNMA.......................................... 258 205 205
Other......................................... 84 39 16
---------- ---------- ----------
Total.................................... $515 $509 $354
========== ========== ==========
Type
Fixed......................................... $463 $428 $236
Variable...................................... 52 81 118
---------- ---------- ----------
Total.................................... $515 $509 $354
========== ========== ==========
Loans available to fill commitments
Single family mortgage warehouse.............. $380 $411 $252
Mortgage pipeline (estimated)................. 191 185 136
---------- ---------- ----------
Total.................................... $571 $596 $388
========== ========== ==========
</TABLE>
Short Sales. During fiscal 1994, the Bank entered into short sales of
$121.5 million of Treasury notes in an effort to hedge the fixed-rate portfolio
pipeline, and also in an effort to hedge loans. The short sale positions were
closed out prior to their maturity and the resulting gain of $103,000 was
reflected as a realized gain on
F-42
<PAGE> 175
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trading account assets for the year ended September 30, 1994. The Bank does not
routinely enter into short sales.
Commitments to Extend Credit. The Bank's exposure to credit loss for
commitments to extend credit is represented by the contractual amount of those
agreements. The Bank uses the same credit policies in making funding commitments
as it does for on-balance-sheet instruments. These commitments generally have
fixed expiration dates or other termination clauses and require the payment of a
fee to the Bank. Because commitments may expire without being drawn upon, the
total contract amounts do not necessarily represent future cash requirements.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, --------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Single family................................ $ 773,137 $589,157 $468,604
Other........................................ 527,718 410,635 500,468
------------- ------------ ------------
Total.............................. $1,300,855 $999,792 $969,072
============= ============ ============
Fixed........................................ $ 398,698 $282,101 $338,462
Variable..................................... 902,157 717,691 630,610
------------- ------------ ------------
Total.............................. $1,300,855 $999,792 $969,072
============= ============ ============
</TABLE>
Included in the commitments to extend credit amounts above are letters of
credit of $6.0 million, $5.4 million, and $320,000 at March 31, 1996 and
September 30, 1995 and 1994.
Recourse Obligations. The Bank had servicing of approximately $25.6
million, $26.6 million, and $25.4 million, at March 31, 1996 and September 30,
1995 and 1994 for which certain recourse obligations apply. Management believes
that it has adequately provided reserves for its recourse obligations related to
this servicing.
13. INCOME TAXES
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------------ ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Current tax provision (benefit)
Federal...................... $ 1,677 $ 2,094 $ 3,459 $ 1,145 $ 7,448
State........................ 2,033 1,447 2,080 1,841 2,091
Payments due in lieu of
taxes...................... 7,112 6,327 15,261 (3,449) 8,491
Deferred tax provision (benefit)
Federal...................... 14,456 10,318 16,575 17,681 44,441
State........................ -- -- 40 (1,279) --
Change in valuation
allowance.................. -- -- -- (47,838) (103,203)
Goodwill reduction for utilization
of acquired net operating loss
carryforwards................... -- -- -- -- 14,579
----------- ----------- ----------- ------------ ------------
Total income tax expense
(benefit)............. $25,278 $20,186 $37,415 $(31,899) $(26,153)
=========== =========== =========== ============ ============
</TABLE>
F-43
<PAGE> 176
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEDERAL TAXATION
The Parent Company and the Bank are subject to regular income tax and
alternative minimum tax ("AMT"). For the six months ended March 31, 1996 and
fiscal 1995, alternative minimum taxable income ("AMTI") was generated resulting
primarily from the limitation on the utilization of AMT net operating loss
carryforwards ("NOLs"). Corporations may only offset 90% of their AMTI with AMT
NOLs. For the six months ended March 31, 1995 and fiscal 1994, federal taxable
income was generated resulting primarily from residual interests in real estate
mortgage investment conduits ("REMICs"), which cannot be offset by NOLs. For
fiscal 1993, AMTI was generated resulting primarily from assistance received
from the FRF and the limitation on the utilization of AMT NOLs.
Tax NOLs at March 31, 1996 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------------
REGULAR ALTERNATIVE EXPIRATION
YEAR GENERATED TAX MINIMUM TAX DATE
---------------------------------- ---------- ----------- -------
<S> <C> <C> <C>
(IN MILLIONS)
December 30, 1988................. $ 24 $ 46 2003
September 30, 1989................ 329 154 2004
September 30, 1990................ 296 139 2005
September 30, 1991................ 119 52 2006
September 30, 1992................ 33 12 2007
September 30, 1994................ 7 -- 2009
<CAPTION>
AT SEPTEMBER 30, 1995
------------------------------------------
<S> <C> <C> <C>
December 30, 1988................. $ 103 $ 113 2003
September 30, 1989................ 329 154 2004
September 30, 1990................ 296 139 2005
September 30, 1991................ 119 52 2006
September 30, 1992................ 33 12 2007
</TABLE>
Utilization of the NOLs generated for the year ended December 30, 1988 are
subject to federal income tax rules that limit the utilization to federal
taxable income of the Bank and its subsidiaries only. The remaining NOLs may be
utilized against the federal taxable income of the other companies within the
"affiliated group" of which the Parent Company and the Bank are members.
PAYMENTS DUE IN LIEU OF TAXES
Pursuant to the terms of the Assistance Agreement, the amount of financial
assistance paid to the Bank by the FRF was reduced each year by an amount equal
to one-third of any Federal and State Net Tax Benefits (as defined by the
Assistance Agreement). The Assistance Agreement further provided that in no
event would the amount paid to the FRF related to Net Tax Benefits be less than
a guaranteed minimum totalling $10 million payable over five years. Additional
payments due in lieu of taxes above the guaranteed minimum payments are included
in the Consolidated Statements of Operations as incurred as a component of the
provision for taxes. The final guaranteed payment was made in July 1994 for
fiscal 1993. The Assistance Agreement was terminated in December 1993. As part
of the Settlement Agreement, the Parent Company, the Bank, and certain of their
direct and indirect parent entities entered into the Tax Benefits Agreement,
pursuant to which the Bank will pay one-third of certain tax benefits that are
utilized by the Bank through the taxable year ending nearest to September 30,
2003. The amounts reflected in the Consolidated Financial Statements are based
on estimated tax benefits utilized by the Bank and may vary from amounts paid
due to the actual utilization of tax benefits reported in the federal income tax
return.
F-44
<PAGE> 177
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR INCOME TAXES
During the fourth quarter of fiscal 1993, the Bank recognized $59 million
as a tax benefit for the expected utilization of $252 million in NOLs against
future taxable income. Tax benefits arising from an acquisition should first
reduce to zero any goodwill related to that acquisition, then decrease other
non-current intangible assets resulting from that acquisition, and finally
reduce income tax expense. As a result of the recognition of $59 million in tax
benefits, income tax expense was reduced $44 million and goodwill associated
with the Acquisition was reduced by $15 million during the fourth quarter of
1993. During fiscal 1994, the Bank recognized an additional $58 million as a tax
benefit for the expected utilization of $249 million in NOLs against future
taxable income. For the six months ended March 31, 1996 and 1995 and fiscal
1995, no tax benefit was recognized. See Note 21 for a discussion of subsequent
events.
For the six months ended March 31, 1996 and 1995 and fiscal 1995, 1994, and
1993, the Parent Company recognized no benefit for income taxes for its stand
alone net operating loss and net operating loss carryforwards, because the
criteria to recognize a tax benefit under SFAS No. 109 was not met.
Income tax and related payments differ from the amount computed by applying
the federal income tax statutory rate on income as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------- ---------------------------------
1996 1995 1995 1994 1993
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Taxes calculated....................... $21,485 $16,967 $31,539 $ 34,356 $ 47,784
Increase (decrease) from
Reduction in valuation allowance for
deferred tax assets............... -- -- -- (47,838) (103,203)
Change in estimate of net deferred
tax assets........................ -- -- -- (11,340) --
Goodwill reduction for utilization of
acquired net operating loss
carryforwards..................... -- -- -- -- 14,579
Nontaxable assistance................ -- -- -- (8,100) (3,343)
Alternative minimum tax.............. -- -- -- -- 7,448
Provision (benefit) for payments due
in lieu of taxes.................. -- -- -- (3,449) 8,491
State income tax..................... 2,033 1,448 2,080 1,841 2,091
Other................................ 1,760 1,771 3,796 2,631 --
------- ------- ------- -------- --------
Total............................. $25,278 $20,186 $37,415 $(31,899) $(26,153)
======= ======= ======= ======== ========
</TABLE>
The change in the valuation allowance for fiscal 1994 and 1993 arises from
the utilization of NOLs against both current and expected future taxable income
of the Bank.
F-45
<PAGE> 178
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT MARCH 31, ----------------------
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax assets
Net operating losses................................. $ 193,196 $ 211,637 $ 241,702
Purchase accounting.................................. 9,451 10,064 12,700
Capital loss carryforwards........................... -- -- 169
Unrealized losses on securities available for sale... 1,842 3,990 8,050
State................................................ 2,817 2,817 4,338
AMT credit........................................... 4,458 2,985 --
Other................................................ 11,028 7,648 8,344
------------ --------- ---------
Total deferred tax assets......................... 222,792 239,141 275,303
------------ --------- ---------
Deferred tax liabilities
Bad debt reserve..................................... 8,955 11,577 34,928
FHLB stock........................................... 8,673 8,673 --
REO.................................................. 7,096 7,096 --
State................................................ 16 16 3,059
Other................................................ 6,016 3,008 7,897
------------ --------- ---------
Total deferred tax liabilities.................... 30,756 30,370 45,884
------------ --------- ---------
Net deferred tax asset before valuation allowance.... 192,036 208,771 229,419
Valuation allowance.................................. (131,200) (131,200) (131,200)
------------ --------- ---------
Net deferred tax assets........................... $ 60,836 $ 77,571 $ 98,219
============ ========= =========
</TABLE>
The Bank is permitted under the Code to deduct an annual addition to a
reserve for bad debts in determining taxable income, subject to certain
limitations. This addition differs from the provision for credit losses for
financial reporting purposes. No deferred taxes have been provided on
approximately $52 million of tax bad debt reserves prior to 1988. This tax
reserve for bad debts is included in taxable income of later years only if the
bad debt reserves are subsequently used for purposes other than to absorb bad
debt losses. Circumstances that would require an accrual of a portion or all of
this unrecorded tax liability are a reduction in loan levels relative to the end
of 1987, failure to meet the tax definition of a savings institution, dividend
payments in excess of both current year and accumulated tax earnings and
profits, or other distributions in dissolution, liquidation, or redemption of
stock. Because the Bank does not intend to use the reserves for purposes other
than to absorb losses, deferred income taxes of approximately $18 million have
not been provided. The Bank has recognized the deferred tax consequences of
differences between the financial statement and income tax treatment of
allowances for credit losses arising after December 31, 1987. See Note 17.
14. EMPLOYEE BENEFITS
The Bank has an employee tax deferred savings plan (plan 401(k) under the
Code) available to all eligible employees. Through June 30, 1995, the Bank
contributed dollar for dollar up to three percent of the participant's earnings
and employees could contribute up to twelve percent of their earnings on a tax
deferred basis. The Bank's 401(k) plan was amended effective July 1, 1995. The
Bank currently contributes fifty cents for every dollar contributed up to two
percent of the participant's earnings, and dollar for dollar for contributions
between two percent and four percent of the participant's earnings. The maximum
contribution percentage is now fifteen percent of an employee's earnings on a
tax deferred basis, subject to Internal Revenue Service maximum contributions
limitations. This is a participant directed plan. Plan assets are held in trust
and managed by Fidelity Institutional Retirement Services Company. Contributions
to the
F-46
<PAGE> 179
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan are in such amounts and within certain limitations as the Bank may
authorize. The Bank's contributions to the plan were approximately $739,000,
$774,000, $1.5 million, $1.7 million, and $1.5 million for the six months ended
March 31, 1996 and 1995 and for fiscal 1995, 1994, and 1993.
15. REGULATORY MATTERS
The regulatory capital requirements, as defined in the OTS capital
regulations, are 1.50% for Tangible Capital, 3.00% for Core Capital, and 8.00%
for Total Capital. Tangible and Core Capital are stated as a percentage of
adjusted total assets and Total Capital is stated as a percentage of
risk-weighted assets. The following table shows the Bank's compliance with
regulatory capital requirements:
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT SEPTEMBER 30, 1995 AT SEPTEMBER 30, 1994
-------------------------------- -------------------------------- --------------------------------
ACTUAL REQUIRED ACTUAL % ACTUAL REQUIRED ACTUAL % ACTUAL REQUIRED ACTUAL %
--------- --------- -------- --------- --------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholders'
equity.............. $826,455 $794,678 $646,334
Add: Net unrealized
losses............ 3,068 6,647 --
Less:
Intangible
assets.......... (21,030) (23,956) (32,907)
Non-qualifying
deferred tax
assets.......... (37,617) (37,617) (81,864)
Non-qualifying
MSRs............ (112) (25) (3,244)
--------- --------- ---------
Tangible Capital...... 770,764 $168,104 6.88% 739,727 $178,844 6.20% 528,319 $131,887 6.01%
Add: Core deposit
intangibles....... 9,463 10,838 15,259
--------- --------- ---------
Core Capital.......... 780,227 336,492 6.96% 750,565 358,013 6.29% 543,578 264,232 6.17%
General allowance
for credit
losses............ 36,545 36,855 23,567
--------- --------- ---------
Total capital......... $816,772 460,220 14.20% $787,420 468,245 13.45% $567,145 323,525 14.02%
========= ========= =========
</TABLE>
Notwithstanding the above capital requirements, the Bank's capital
requirements were established pursuant to the Forbearance Agreement issued
simultaneously with the Assistance Agreement. The OTS has taken the position,
with which the Bank disagrees, that the capital forbearances are no longer
available because of the enactment of the FIRREA. Despite the OTS position,
management believes that all significant waivers, approvals, and forbearances
related to the Bank's acquisition, including the capital forbearances, remain in
full force and effect following the enactment of FIRREA. Pursuant to the
Settlement Agreement, the Bank has retained all claims relating to the
forbearances against the United States of America, and on July 25, 1995, the
Bank, the Parent Company, and certain of their direct and indirect parent
entities filed suit against the United States of America in the Court of Federal
Claims for alleged failures of the United States to honor certain contractual
obligations, including obligations related to the Forbearance Agreement. The
lawsuit is in a preliminary stage.
The Bank meets its fully phased-in capital requirements. OTS regulations
generally allow dividends to be paid without prior OTS approval under certain
conditions provided that the level of regulatory capital, following the payment
of such dividends, meets the fully phased-in capital requirements. At March 31,
1996 and September 30, 1995, there was an aggregate of approximately $186.5
million and $148.9 million available for the payment of dividends under these
requirements. See Note 21 for a discussion of subsequent events.
The Bank's net income and stockholders' equity figures as presented in the
Consolidated Statements of Financial Condition and Operations in the Bank's
quarterly report on Form 10-Q for the quarter ended March 31, 1996 and the
Bank's annual report on Form 10-K for the year ended September 30, 1995 agree
F-47
<PAGE> 180
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the information included in the Bank's Thrift Financial Report filed with
the OTS as of March 31, 1996 and as of September 30, 1995. The Bank's capital
level at March 31, 1996 and September 30, 1995, qualified it as
"well-capitalized", the highest of five tiers under applicable regulatory
definition.
16. MINORITY INTEREST AND STOCKHOLDERS' EQUITY
MINORITY INTEREST
The Bank is authorized by its charter to issue a total of 10,000,000 shares
of preferred stock. In fiscal 1995, the Bank publicly issued 4,000,000 shares,
$25 liquidation preference per share, of 9.60% noncumulative preferred stock
(par value $0.01) (the "Preferred Stock, Series B"). In fiscal 1993, the Bank
publicly issued 3,420,000 shares, $25 liquidation preference per share, of
10.12% noncumulative preferred stock (par value $0.01) (the "Preferred Stock,
Series A"). Costs incurred in connection with the stock issuances were recorded
as reductions of paid-in capital. These shares are not owned by the Parent
Company.
Shares of the Series A and Series B Preferred Stock are not subject to
redemption prior to December 31, 1997 and September 30, 2000, except in the
event of certain mergers and other transactions. The shares of Series A and
Series B Preferred Stock are redeemable at the option of the Bank, in whole or
in part, at any time on or after December 31, 1997 or September 30, 2000, at the
redemption prices set forth in the table below:
<TABLE>
<CAPTION>
SERIES B
SERIES A BEGINNING SEPTEMBER DOLLAR EQUIVALENT
BEGINNING DECEMBER 31, 30, REDEMPTION PRICE PER SHARE
- -------------------------------- --------------------- ---------------- -----------------
<S> <C> <C> <C>
1997............................ 2000 105% $ 26.25
1998............................ 2001 104 26.00
1999............................ 2002 103 25.75
2000............................ 2003 102 25.50
2001............................ 2004 101 25.25
2002 and thereafter............. 2005 and thereafter 100 25.00
</TABLE>
WARRANTS
Warrants outstanding represent the right to purchase 158,823 shares of the
Bank's common stock for an exercise price of $0.01 per share. The warrants are
exercisable through December 29, 2004. The Bank agreed to make payments in lieu
of dividends to the holder of the warrants upon payment of dividends on the
Bank's common stock from December 28, 1993 through December 30, 1998. The
warrants will be redeemed upon the occurrence of the merger or liquidation of
the Bank or certain events constituting a change in control of the Bank's direct
or indirect parent entities, at a price equivalent to the value of the number of
shares of the Bank's common stock into which the warrants are exercisable, such
value to be derived from the consideration paid in connection with the merger,
liquidation, or change in control.
CAPITAL STOCK
The authorized capital stock of the Parent Company, par value of $0.01,
consists of Preferred Stock and Common Stock, Class A, B, and C. Of the 2,500
shares of preferred stock and the 2,797 shares of Class B Common Stock
authorized, no shares were issued at March 31, 1996 and September 30, 1995 and
1994. At March 31, 1996 and September 30, 1995, authorized shares of Class A
Common Stock and Class C Common Stock were 22,500 and 2,797. The Class C Common
Stock shares have been privately sold to investors and are non-voting stock.
Holders of Class C Common Stock may, under certain circumstances, convert their
shares into the same number of shares of Class B Common Stock.
F-48
<PAGE> 181
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
The table below presents information necessary for the computation of
earnings per common share, on both a primary and fully diluted basis (in
thousands, except earnings per share). The dilutive effect of the outstanding
Bank warrants has been considered in computing earnings per common share.
Average shares and per share results have been restated to reflect the 1,800 to
one stock conversion effective June 1996. See Note 21 for a discussion of
subsequent events.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before extraordinary
loss............................ $ 26,759 $ 23,659 $ 41,719 $ 108,970 $ 141,919
Less: Bank's net income
attributable to common stock
equivalents on warrants......... (1,791) (1,622) (2,895) (6,451) (8,730)
---------- ------- ------- ------- --------
Income before extraordinary loss
applicable to common shares..... 24,968 22,037 38,824 102,519 133,189
Extraordinary loss................ -- -- -- -- (14,549)
---------- ------- ------- ------- --------
Net income applicable to common
shares.......................... $ 24,968 $ 22,037 $ 38,824 $ 102,519 $ 118,640
========== ======= ======= ======= ========
Average number of common shares
outstanding..................... 28,863 28,863 28,863 28,863 28,863
========== ======= ======= ======= ========
Earnings per common share before
extraordinary loss.............. $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.61
Extraordinary loss per common
share........................... -- -- -- -- 0.50
---------- ------- ------- ------- --------
Earnings per common share......... $ 0.87 $ 0.76 $ 1.35 $ 3.55 $ 4.11
========== ======= ======= ======= ========
</TABLE>
17. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
A petition for review has been filed in the United States Court of Appeals
for the Fifth Circuit seeking to modify, terminate, and set aside the order
approving the Acquisition, which involved substantially all of the Bank's
initial assets and liabilities. The same petitioner filed a Motion to Intervene
and a Complaint in Intervention in an action pending in the U.S. District Court
of Texas, also seeking to set aside the order approving the Acquisition. The
petitioner contends, in both cases, that it submitted the most favorable bid to
acquire the assets and liabilities of Old USAT and that it should have been
selected as the winning bidder.
The Parent Company is not a party to either of these proceedings. The Bank
has intervened in the Fifth Circuit case and may file a Motion to Intervene in
the District Court case at a later date. Management believes, after consultation
with legal counsel, that the claims of the petitioner are barred by applicable
time limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Parent Company's financial
condition, results of operations, or liquidity.
The Bank is involved in legal proceedings occurring in the ordinary course
of business that management believes, after consultation with legal counsel, are
not, in the aggregate, material to the financial condition, results of
operations, or liquidity of the Bank or the Parent Company.
A substantial part of the Bank's business has involved the origination,
purchase, and sale of mortgage loans. During the past several years, numerous
individual claims and purported consumer class actions were commenced against a
number of financial institutions, their subsidiaries, and other mortgage lending
companies seeking civil statutory and actual damages and rescission under the
federal Truth In Lending Act (the "TILA"), as well as remedies for alleged
violations of various state unfair trade practices laws and restitution or
unjust enrichment in connection with certain mortgage loan transactions.
F-49
<PAGE> 182
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank has a substantial mortgage loan servicing portfolio and maintains
escrow accounts in connection with this servicing. During the past several
years, numerous individual claims and purported consumer class action claims
were commenced against a number of financial institutions, their subsidiaries,
and other mortgage lending institutions generally seeking declaratory relief
that certain of the lenders' escrow account servicing practices violate the Real
Estate Settlement Practices Act and breach the lenders' contracts with
borrowers. Such claims also generally seek actual damages and attorney's fees.
In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing, and collection of mortgage loans and
that allege inadequate disclosure, breach of contract, or violation of state
laws. Claims have involved, among other things, interest rates and fees charged
in connection with loans, interest rate adjustments on adjustable-rate mortgage
loans, timely release of liens upon loan payoffs, the disclosure and imposition
of various fees and charges, and the placing of collateral protection insurance.
While the Bank has had various claims similar to those discussed above
asserted against it, management does not expect these claims to have a material
adverse effect on the Bank's or the Parent Company's financial condition,
results of operations, or liquidity.
INSURANCE ASSESSMENT
Congress has passed legislation, which is currently in joint conference
committee that, if it became law, would result in an assessment on all Savings
Association Insurance Fund ("SAIF")-insured deposits in such amounts that will
increase the SAIF Fund reserve ratio to 1.25% of SAIF-insured deposits. This
one-time assessment has been estimated in the range of 0.75% to 0.90% of
deposits. If this legislation became law, it could result in an assessment, net
of tax, payable by the Bank amounting to as much as $23.7 million to $28.5
million. Thereafter, SAIF premiums are expected to decline to levels
approximating BIF premiums. Management believes that the Bank will be able to
maintain its status as a "well-capitalized" institution after payment of any
assessment described above.
BAD DEBT RESERVE RECAPTURE
The United States Congress has passed legislation that, if it became law,
would require recapture of a thrift's post-1987 tax bad debt reserve over a six
year period, with the opportunity to defer recapture by up to two years if
certain residential loan requirements are met. There would be no financial
statement impact from this recapture because a deferred tax liability has
already been provided for on the Bank's post-1987 tax bad debt reserves. At
September 30, 1995, the Bank has approximately $101 million of post-1987 tax bad
debt reserves. The current tax liability resulting from recapture of these
reserves would be reduced by NOLs available to offset this income.
FACILITIES OPERATIONS
Future minimum payments on data processing agreements and significant
operating leases in effect at September 30, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30, AMOUNT
--------------------------------------------------------------------------- ---------
<S> <C>
1996.................................................................... $19,884
1997.................................................................... 11,671
1998.................................................................... 8,937
1999.................................................................... 5,072
2000.................................................................... 1,495
Thereafter.............................................................. 8,678
-------
$55,737
=======
</TABLE>
Total data processing and rental expense for the six months ended March 31,
1996 and 1995 and fiscal 1995, 1994, and 1993, under the same or similar
agreements as in the preceding table, after consideration of
F-50
<PAGE> 183
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain credits and rental income, were $11.5 million, $11.5 million, $22.9
million, $22.4 million, and $21.5 million.
18. FINANCIAL HIGHLIGHTS BY PRINCIPAL BUSINESS OPERATION
The Bank operates as a fully integrated financial services company. This
business is conducted through the Community Banking, Financial Markets, and
Commercial Banking Groups, which comprise the Banking Segment, and the Mortgage
Banking Segment of the Bank. Summarized financial information by business
segment and for the Parent Company for the periods indicated, was as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------
MORTGAGE
BANKING BANKING PARENT
SEGMENT SEGMENT COMPANY ELIMINATIONS COMBINED
--------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues........................................ $ 123,856 $ 49,842 $(1,366) $ (5,791) $ 166,541
Earnings before income taxes and minority
interest...................................... 64,121 3,006 (1,930) (3,810) 61,387
Depreciation and amortization of intangibles.... 4,594 11,132 488 (1,981) 14,233
Capital expenditures............................ 2,750 239 -- -- 2,989
Average identifiable assets..................... 11,295,739 634,013 4,707 (394,930) 11,539,529
Loan transfers to (from)........................ 493,180 (493,180) -- -- --
Interest income (expense) on single family
mortgage warehouse outstanding loan balance... 11,895 (11,895) -- -- --
Servicing (expense) income on Banking Segment's
loans......................................... (6,917) 6,917 -- -- --
</TABLE>
- ---------------
The elimination amounts reflect the following: (i) dividends received by the
Parent Company from the Bank, (ii) interest income and MSR amortization expense
relating to loans held by the Banking Segment serviced by the Mortgage Banking
Segment, and (iii) the single family mortgage warehouse funded by the Banking
Segment.
F-51
<PAGE> 184
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MARCH 31, 1995
----------------------------------------------------------
MORTGAGE
BANKING BANKING PARENT
SEGMENT SEGMENT COMPANY ELIMINATIONS COMBINED
--------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues........................................ $ 93,919 $ 67,149 $ 38 $ (6,827) $ 154,279
Earnings before income taxes and minority
interest...................................... 37,223 17,029 (566) (5,209) 48,477
Depreciation and amortization of intangibles.... 6,194 10,149 488 (1,618) 15,213
Capital expenditures............................ 1,123 105 -- -- 1,228
Average identifiable assets..................... 9,359,478 452,593 9,587 (289,060) 9,532,598
Loan transfers to (from)........................ 659,186 (659,186) -- -- --
Interest income (expense) on single family
mortgage warehouse outstanding loan balance... 9,393 (9,393) -- -- --
Servicing (expense) income on Banking Segment's
loans......................................... (5,604) 5,604 -- -- --
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues........................................ 203,115 119,601 (3,910) (9,826) 308,980
Earnings before income taxes and minority
interest...................................... 82,163 19,357 (5,000) (6,409) 90,111
Depreciation and amortization of intangibles.... 12,305 20,965 976 (3,417) 30,829
Capital expenditures............................ 5,859 273 -- -- 6,132
Average identifiable assets..................... 10,258,857 482,965 8,061 (312,820) 10,437,063
Loan transfers to (from)........................ 1,012,771 (1,012,771) -- -- --
Interest income (expense) on single family
mortgage warehouse outstanding loan balance... 19,903 (19,903) -- -- --
Servicing (expense) income on Banking Segment's
loans......................................... (12,672) 12,672 -- -- --
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues........................................ 189,378 115,544 1,279 (13,530) 292,671
Earnings before income taxes and minority
interest...................................... 73,757 24,404 (645) (11,435) 86,081
Depreciation and amortization of intangibles.... 16,560 10,696 977 (2,095) 26,138
Capital expenditures............................ 5,456 4,962 -- -- 10,418
Average identifiable assets..................... 8,174,275 717,551 4,401 (612,600) 8,283,627
Loan transfers to (from)........................ 1,319,020 (1,319,020) -- -- --
Interest income (expense) on single family
mortgage warehouse outstanding loan balance... 33,173 (33,173) -- -- --
Servicing (expense) income on Banking Segment's
loans......................................... (10,223) 10,223 -- -- --
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1993
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues........................................ 221,476 121,028 1,070 (15,224) 328,350
Earnings before income taxes, minority interest,
and extraordinary loss........................ 106,015 31,492 20 (15,224) 122,303
Depreciation and amortization of intangibles.... 20,757 8,445 694 -- 29,896
Capital expenditures............................ 6,145 8,256 -- -- 14,401
Average identifiable assets..................... 7,193,808 981,711 7,790 (864,532) 7,318,777
Loan transfers to (from)........................ 528,666 (528,666) -- -- --
Interest income (expense) on single family
mortgage warehouse outstanding loan balance... 43,103 (43,103) -- -- --
Servicing (expense) income on Banking Segment's
loans......................................... (8,256) 8,256 -- -- --
</TABLE>
Revenues are comprised of net interest income (before the provision for
credit losses) and non-interest income, and, in the case of Parent Company only
revenue, dividends received from the Bank. Interest costs incurred by the Parent
Company are included in its results above since they relate to long-term debt
and are not directly attributable to a specific segment. Earnings before income
taxes, minority interest, and extraordinary loss equal revenue, less the
provision for credit losses and non-interest expenses. Non-interest expenses of
the Bank are fully allocated to each segment of the Bank. Non-interest expenses
incurred by support departments that are directly attributable to a segment are
charged to the appropriate segment.
F-52
<PAGE> 185
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General corporate overhead expenses not specifically identified to an individual
segment, but necessary for the maintenance of the Bank as a going concern, are
also allocated to the two segments. Parent Company expenses are not allocated to
the Bank's business segments.
For segment reporting purposes, the value of servicing related to loans
purchased from third parties by the Banking Segment is segregated from the
original loan basis and is allocated to the Mortgage Banking Segment. The
amortization of this capitalized amount approximated $1.2 million and $1.2
million or the six months ended March 31, 1996 and 1995, respectively, $2.4
million for fiscal 1995, and $1.8 million for fiscal 1994, and is reflected in
the Mortgage Banking Segment figures above.
For loans transferred from the Mortgage Banking Segment to the Banking
Segment, the difference, if any, between the Banking Segment's "purchase price"
and the loan's actual Book Value is retained by the Mortgage Banking Segment at
the time of transfer. The amount retained is amortized to operations of the
Mortgage Banking Segment and approximated $736,000 and $443,000 for the six
months ended March 31, 1996 and 1995, respectively, $1.0 million for fiscal
1995, and $283,000 for fiscal 1994.
F-53
<PAGE> 186
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table represents summarized data for the first two quarters
in fiscal 1996 and each of the quarters in fiscal 1995 and 1994 (dollars in
thousands, except earnings per share).
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ----------------------------------------- -----------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income..... $203,436 $217,785 $224,308 $194,865 $172,992 $154,594 $133,563 $119,136 $118,333 $123,674
Interest expense.... 148,548 160,741 166,580 146,220 129,915 110,045 93,118 76,998 73,617 77,191
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest
income........ 54,888 57,044 57,728 48,645 43,077 44,549 40,445 42,138 44,716 46,483
Provision for credit
losses............ 3,181 2,669 9,663 10,473 3,223 934 3,421 798 1,298 1,480
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest income
after provision
for credit
losses............ 51,707 54,375 48,065 38,172 39,854 43,615 37,024 41,340 43,418 45,003
Non-interest
income............ 27,687 26,922 25,201 23,127 30,641 36,012 28,479 26,453 27,909 36,048
Non-interest
expense........... 50,012 49,292 52,466 40,465 51,553 50,092 50,607 53,723 45,133 50,130
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes and minority
interest.......... 29,382 32,005 20,800 20,834 18,942 29,535 14,896 14,070 26,194 30,921
Income tax expense
(benefit)......... 12,144 13,134 8,169 9,060 8,062 12,124 681 (38,551) 5,751 220
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income before
minority
interest.......... 17,238 18,871 12,631 11,774 10,880 17,411 14,215 52,621 20,443 30,701
Less minority
interest:
Subsidiary
preferred
stock
dividends..... 4,563 4,563 4,111 2,163 2,163 2,163 2,164 2,163 2,163 2,163
Payments in lieu
of
dividends..... -- 224 -- 71 -- 306 -- 298 59 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income...... $ 12,675 $ 14,084 $ 8,520 $ 9,540 $ 8,717 $ 14,942 $ 12,051 $ 50,160 $ 18,221 $ 28,538
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Net income
applicable to
common stock...... $ 11,824 $ 13,144 $ 7,936 $ 8,851 $ 8,086 $ 13,951 $ 11,531 $ 47,199 $ 17,038 $ 26,751
Earnings per common
share............. $ 0.41 $ 0.46 $ 0.28 $ 0.31 $ 0.28 $ 0.48 $ 0.40 $ 1.63 $ 0.59 $ 0.93
Average common
shares and common
stock equivalents
outstanding....... 28,863 28,863 28,863 28,863 28,863 28,863 28,863 28,863 28,863 28,863
</TABLE>
The 1995 figures have been restated to reflect the implementation of SFAS
No. 122 effective October 1, 1994. See Notes 1 and 6. Average shares and per
share results have been restated to reflect the 1,800 to one stock conversion
effective June 1996. See Note 21 for a discussion of subsequent events.
F-54
<PAGE> 187
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The condensed financial statements of the Parent Company do not include all
of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. See Note
21 for a discussion of subsequent events.
PARENT COMPANY
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT
MARCH AT SEPTEMBER 30,
31, --------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1 $ 1 $ 1
Securities purchased under agreements to resell............. 682 2,121 710
Investment in Bank United................................... 640,955 609,178 560,834
Intangible assets........................................... 2,075 2,563 3,539
Other assets................................................ 1,775 1,287 5,398
-------- -------- --------
TOTAL ASSETS................................................ $645,488 $615,150 $570,482
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior Notes................................................ $115,000 $115,000 $115,000
Other liabilities........................................... 4,047 4,047 4,120
-------- -------- --------
Total liabilities................................. 119,047 119,047 119,120
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock
Class A................................................ 1 1 1
Class C................................................ 1 1 1
Paid-in capital............................................. 118,009 118,009 121,767
Retained earnings........................................... 411,498 384,739 343,020
Unrealized gains (losses) on subsidiary's securities and
mortgage-backed securities available for sale, net of
tax....................................................... (3,068) (6,647) (13,427)
-------- -------- --------
Total stockholders' equity........................ 526,441 496,103 451,362
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $645,488 $615,150 $570,482
======== ======== ========
</TABLE>
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
F-55
<PAGE> 188
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
----------------- ---------------------------------
1996 1995 1995 1994 1993
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME
Dividends from the Bank...................... $ 3,810 $ 5,209 $ 6,409 $ 11,435 $ 15,224
Short-term interest-earning assets........... 29 31 88 21 107
-------- -------- -------- -------- --------
Total income....................... 3,839 5,240 6,497 11,456 15,331
-------- -------- -------- -------- --------
EXPENSE
Interest expense -- note payable to related
party...................................... -- -- -- -- 601
Interest expense -- long-term debt........... -- -- -- -- 10,214
Interest expense -- Senior Notes............. 5,205 5,202 10,407 10,177 3,446
Amortization of intangibles.................. 488 488 976 977 694
Other........................................ 76 116 114 947 356
-------- -------- -------- -------- --------
Total expense...................... 5,769 5,806 11,497 12,101 15,311
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE UNDISTRIBUTED INCOME OF
BANK, INCOME TAXES, AND EXTRAORDINARY
LOSS....................................... (1,930) (566) (5,000) (645) 20
Equity in undistributed income of the
Bank.................................... 28,198 23,675 45,322 104,316 141,910
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS....................................... 26,268 23,109 40,322 103,671 141,930
Income tax (benefit) expense............... (491) (550) (1,397) (5,299) 11
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS............. 26,759 23,659 41,719 108,970 141,919
Extraordinary loss -- early extinguishment of
debt....................................... -- -- -- -- (14,549)
-------- -------- -------- -------- --------
NET INCOME................................... $26,759 $23,659 $41,719 $108,970 $127,370
======== ======== ======== ======== ========
</TABLE>
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
F-56
<PAGE> 189
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER
ENDED MARCH 31, 30,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 26,759 $ 23,659 $ 41,719 $108,970 $127,370
Adjustments to reconcile net income to net
cash (used) provided by operating
activities:
Equity in undistributed income of the
Bank................................ (28,198) (23,675) (45,322) (104,316) (141,910)
Amortization of intangibles........... 488 488 976 977 694
Change in other assets................ (488) 3,566 4,111 (5,393) (1,594)
Change in other liabilities........... -- 26 (73) 159 2,670
-------- -------- -------- -------- --------
Net cash (used) provided by
operating activities........... (1,439) 4,064 1,411 397 (12,770)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under
agreements to resell..................... 1,439 (4,064) (1,411) (397) (313)
-------- -------- -------- -------- --------
Net cash provided (used) by
investing activities........... 1,439 (4,064) (1,411) (397) (313)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and note
payable to related party............ -- -- -- -- (106,090)
Proceeds from issuance of Senior
Notes............................... -- -- -- -- 115,000
-------- -------- -------- -------- --------
Net cash provided by financing
activities..................... -- -- -- -- 8,910
-------- -------- -------- -------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS.............................. -- -- -- -- (4,173)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................... 1 1 1 1 4,174
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... $ 1 $ 1 $ 1 $ 1 $ 1
======== ======== ======== ======== ========
</TABLE>
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
F-57
<PAGE> 190
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. SUBSEQUENT EVENTS
Name Change. In June 1996, the Company changed its name from USAT Holdings
Inc. to Bank United Corp. and the Bank changed its name from Bank United of
Texas to Bank United.
Dividend Payment. On May 6, 1996, the Bank paid a $100 million dividend to
the Company on the Bank Common Stock and a related contractually required
payment to the FDIC in lieu of dividends in the amount of $5.9 million. On the
same day, the Company paid a dividend on its common stock in the amount of $100
million.
Restructuring. Prior to June 1996, the Company was a subsidiary of
Hyperion Holdings Inc., a Delaware corporation ("Hyperion Holdings"), which was
a subsidiary of Hyperion Partners L.P., a Delaware limited partnership
("Hyperion Partners"). In June 1996, the following actions were taken
(collectively, the "Restructuring"): (i) Hyperion Holdings exchanged shares of a
newly created class of its nonvoting common stock for certain shares of its
voting common stock held by Hyperion Partners; (ii) Hyperion Partners then
distributed the Hyperion Holdings common stock owned by it to its limited and
general partners in accordance with the terms of the limited partnership
agreement of Hyperion Partners (the "Distribution") and; (iii) following the
Distribution, Hyperion Holdings was merged with and into the Company (the
"Merger"). As a result of the Merger, the common stockholders of Hyperion
Holdings (i.e. the limited and general partners of Hyperion Partners) received
shares of Class A voting and Class B nonvoting Common Stock of the Company. As
of the date of the Merger, Hyperion Holdings had no significant assets,
liabilities or business other than its investment in the Company. The Merger was
accounted for in a manner similar to a pooling of interests. Due to the
immaterial nature of the assets, liabilities and operations of Hyperion Holdings
prior to the Merger, prior period results were not restated.
Stock Conversion. Prior to the Merger, the Company had outstanding 13,238
shares of Class A voting and 2,797 shares of Class C nonvoting Common Stock.
Subsequent to the Restructuring and an 1,800 to one stock conversion, the
Company had a total of 28,863,000 shares of Common Stock outstanding as follows:
Class A Common Stock (voting) -- 23,828,400 shares, Class B
(nonvoting) -- 5,034,600 shares, and no shares of Class C Common Stock (which
were cancelled upon their conversion to Class B Common Stock in the Merger). The
Company also filed a registration statement in June 1996 with the Securities and
Exchange Commission to offer shares of the Class A Common Stock to the
public.
Recognition of Tax Benefits. The Parent Company's Certificate of
Incorporation and By-Laws were restated with the intent to preserve certain
beneficial tax attributes limiting disposition of Class A Common Stock and other
interests in the Parent Company by certain stockholders. These limitations
allowed the recognition of tax benefits in June 1996 for the expected
utilization of NOLs. These tax benefits were not recognized in prior periods due
to limitations on the utilization of NOLs if an ownership change had occurred.
In June 1996 the Parent Company and the Bank entered into a federal tax sharing
agreement. This agreement results in the recognition of a tax benefit for the
expected utilization of the Parent Company's NOLs by the Bank. A total tax
benefit of $101.7 million was recognized as a reduction of income tax expense
and an increase in the net deferred tax asset.
Executive Management Compensation Plan. In June 1996, the Company Board
approved an Executive Management Compensation Plan (the "Compensation Plan")
containing the following provisions: (i) a cash bonus of $ million payable by
1996; (ii) the award of shares of Company Class A Common Stock with
restrictions on its transferability for a period of three years from its
issuance; and (iii) issuance of options for purchase of an equivalent
number of shares of Company Class A Common Stock; such options vest ratably over
three years from the date of grant. The options' exercise price approximates the
fair market value at the date of the grant and will expire if not exercised in
June 2003.
F-58
<PAGE> 191
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compensation expense totaling $10 million, $6.2 million net of tax, will be
recognized in the third quarter of 1996 for the cash bonus and the restricted
stock award. Since the stock options have an exercise price approximating the
fair value of the Parent Company's stock, compensation expense is not recognized
for their issuance.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages
adoption of that method for all employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method currently being followed and make pro
forma disclosures of net income and earnings per share under the fair value
based method of accounting. This statement is effective for financial statements
with fiscal years beginning after December 15, 1995, with earlier application
encouraged. Management is currently evaluating the proposed alternatives under
this statement.
F-59
<PAGE> 192
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These transactions are illustrated in the March 31, 1996 Pro Forma
Condensed Consolidated Statement of Financial Condition and the March 31, 1996
Pro Forma Condensed Consolidated Statement of Operations.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL ------------------------------------------------ PRO FORMA
MARCH 31, DIVIDEND TAX ISSUANCE COMPENSATION MARCH 31,
1996 PAYMENT BENEFIT COSTS PLAN 1996
---------- --------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents.............. $ 135,691 $ -- $ -- $ -- $ -- $ 135,691
Securities purchased under agreements
to resell and federal funds sold..... 659,279 (105,900) -- (2,000) (4,000) 547,379
Trading account assets................. 1,267 -- -- -- -- 1,267
Securities............................. 58,351 -- -- -- -- 58,351
Mortgage-backed securities............. 1,954,070 -- -- -- -- 1,954,070
Loans.................................. 7,878,080 -- -- -- -- 7,878,080
Other assets........................... 579,898 -- 101,700 -- -- 681,598
---------- --------- -------- ------- ---------- ----------
Total Assets....................... $11,266,636 $(105,900) $101,700 $(2,000) $ (4,000) $11,256,436
========== ========= ======== ======= ========== ==========
LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY
LIABILITIES
Deposits............................... $4,963,321 $ -- $ -- $ -- $ -- $4,963,321
Borrowings............................. 5,088,959 -- -- -- -- 5,088,959
Other liabilities...................... 502,415 -- -- -- (3,800) 498,615
---------- --------- -------- ------- ---------- ----------
Total liabilities.................. 10,554,695 -- -- -- (3,800) 10,550,895
MINORITY INTEREST
Preferred stock issued by consolidated
subsidiary........................... 185,500 -- -- -- -- 185,500
STOCKHOLDERS' EQUITY..................... 526,441 (105,900) 101,700 (2,000) (200) 520,041
---------- --------- -------- ------- ---------- ----------
TOTAL LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY................... $11,266,636 $(105,900) $101,700 $(2,000) $ (4,000) $11,256,436
========== ========= ======== ======= ========== ==========
</TABLE>
F-60
<PAGE> 193
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FOR THE SIX PRO FORMA ADJUSTMENTS FOR THE SIX
MONTHS ENDED ------------------------------------------------- MONTHS ENDED
MARCH 31, DIVIDEND TAX ISSUANCE COMPENSATION MARCH 31,
1996 PAYMENT BENEFIT COSTS PLAN 1996
-------------- --------- -------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INTEREST INCOME
Interest income................... $ 421,221 $ -- $ -- $ -- $ -- $ 421,221
Interest expense.................. 309,289 -- -- -- -- 309,289
-------------- --------- -------- ------- ----------- --------------
Net interest income........... 111,932 -- -- -- -- 111,932
Provision for credit losses....... 5,850 -- -- -- -- 5,850
-------------- --------- -------- ------- ----------- --------------
Net interest income after
provision for credit
losses...................... 106,082 -- -- -- -- 106,082
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing
rights and single family
warehouse loans............... 19,157 -- -- -- -- 19,157
Securities and mortgage-backed
securities.................... 2,863 -- -- -- -- 2,863
Other loans..................... 3,485 -- -- -- -- 3,485
Loan servicing fees and
charges....................... 22,107 -- -- -- -- 22,107
Other income.................... 6,997 -- -- -- -- 6,997
-------------- --------- -------- ------- ----------- --------------
Total non-interest income..... 54,609 -- -- -- -- 54,609
NON-INTEREST EXPENSE
Compensation and benefits......... 39,898 -- -- -- 10,000 49,898
Occupancy......................... 9,439 -- -- -- -- 9,439
Data processing................... 8,120 -- -- -- -- 8,120
Amortization of intangibles....... 9,801 -- -- -- -- 9,801
Other............................. 32,046 -- -- -- -- 32,046
-------------- --------- -------- ------- ----------- --------------
Total non-interest expense.... 99,304 -- -- -- 10,000 109,304
-------------- --------- -------- ------- ----------- --------------
INCOME BEFORE TAXES AND MINORITY
INTEREST.......................... 61,387 -- -- -- (10,000) 51,387
Income tax expense (benefit)........ 25,278 -- (101,700) -- (3,800) (80,222)
-------------- --------- -------- ------- ----------- --------------
Net Income Before Minority
Interest.......................... 36,109 -- 101,700 -- (6,200) 131,609
Less minority interest:
Preferred Stock Dividends....... 9,126 -- -- -- -- 9,126
Payments in lieu of dividends... 224 5,900 -- -- -- 6,124
-------------- --------- -------- ------- ----------- --------------
Net Income.......................... $ 26,759 $ (5,900) $101,700 $ -- $(6,200) $ 116,359
============== ========= ======== ======= =========== ==============
EARNINGS PER COMMON SHARE........... $ 0.87
--------------
--------------
</TABLE>
F-61
<PAGE> 194
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The historical average number of common shares outstanding used in
computing earnings per common share for the six months ended March 31, 1996 were
28,863,000 and reflects the 1,800 to one stock conversion in June 1996. The pro
forma average number of common shares outstanding have been adjusted to give
effect to the shares of restricted stock issued in accordance with the
Compensation Plan, as though these shares were issued on October 1, 1995.
The following table shows the Bank's regulatory capital ratios on a
historical and a pro forma basis:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1996
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Tangible Capital.......................................... 6.88% 5.89%
Core Capital.............................................. 6.96 5.97%
Total Capital............................................. 14.20 12.12%
</TABLE>
The Parent Company's and the Bank's dividend restrictions on a historical
and a pro forma basis follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1996
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Parent Company
Dividend Limitation-Senior Note Indenture............ $ 123,746 $ 62,672
Bank
Dividend Limitation-OTS Regulations.................. $ 186,460 $ 159,577
</TABLE>
F-62
<PAGE> 195
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSONS IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
The Company........................... 18
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Selected Consolidated Financial and
Other Data.......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 52
Regulation............................ 74
Description of Properties............. 96
Legal Proceedings..................... 96
Management............................ 98
Selling Stockholders.................. 117
Description of Capital Stock.......... 120
Underwriting.......................... 126
Legal Matters......................... 127
Experts............................... 127
Available Information................. 127
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
BANK UNITED CORP.
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 196
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee, the
National Association of Securities Dealers, Inc. ("NASD") filing fee and the
NASDAQ listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee............................................ $
NASD filing fee.................................................
NASDAQ listing fee..............................................
Blue Sky fees and expenses......................................
Accounting fees and expenses....................................
Legal fees and expenses.........................................
Printing and engraving expenses.................................
Miscellaneous fees and expenses.................................
--------------
Total................................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by them in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation, a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
The Restated Certificate of Incorporation of the Company (the
"Certificate") provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company 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 employee benefit plans, 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, officer, employee or agent, will be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have the Company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, By-Laws, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or
II-1
<PAGE> 197
adversely affect the rights of any director, officer, employee or agent of the
Company thereunder in respect of any occurrence or matter arising prior to any
such repeal or modification. The Certificate also specifically authorizes the
Company to maintain insurance and to grant similar indemnification rights to
employees or agents of the Company.
The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
The Purchase Agreement provides for indemnification by the Underwriters of
the registrant, its Directors and officers, and by the registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act, and affords certain rights of contribution with respect thereto.
In addition, Lewis S. Ranieri, Salvatore A. Ranieri, and Scott A. Shay, who
are directors of the Company, may be entitled to indemnification from Hyperion
Partners L.P. and Hyperion Ventures L.P., the former upstream affiliates of the
Company. Such former upstream affiliates, at their sole discretion, may elect to
indemnify other persons who serve as directors or officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION
- -------------- -------------------------------------------------------------------------------
<S> <C>
1.1* -- Underwriting Agreement.
2.1 -- Form of Letter Agreement, by and among the general and limited partners of
Hyperion Partners, L.P., dated as of June 17, 1996, relating to certain
transactions consummated prior to the Offering.
2.2* -- Merger Agreement, dated as of June 17, 1996, by and between the Company and
Hyperion Holdings relating to the Merger.
3.1 -- Form of Restated Certificate of Incorporation of the Registrant, as amended.
3.2 -- Form of By-Laws of the Registrant.
4.1 -- Indenture, dated as of May 15, 1993, between the Registrant and Bank of New
York, as Trustee, relating to the Registrant's 8.05% Senior Notes due May
15, 1998.
4.2 -- Form of 8.05% Senior Note due May 15, 1998 (included in the Indenture filed
as Exhibit 4.1 hereto).
4.3 -- Exchange and Registration Rights relating to Registrant's 8.05% Senior Notes
due May 15, 1998.
</TABLE>
II-2
<PAGE> 198
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION
- -------------- -------------------------------------------------------------------------------
<S> <C>
4.4 -- First Supplemental Indenture, dated as of January 23, 1995, between the
Registrant and the Bank of New York, as Trustee, relating to Registrant's
8.05% Senior Notes due May 15, 1998.
5.1* -- Opinion and consent of ______________ .
8* -- Opinion and consent of ______________ (Federal Tax Matters).
10.1 -- Assistance Agreement, dated December 30, 1988, among the Bank, the
Registrant, Hyperion Holdings, Hyperion Partners, and the FSLIC.
10.1a -- Settlement and Termination Agreement, dated as of December 23, 1993, among
the Bank, the Registrant, Hyperion Holdings, Hyperion Partners and the FDIC.
10.1b -- Tax Benefits Agreement, dated December 28, 1993, among the Bank, the
Registrant, Hyperion Holdings, Hyperion Partners and the FDIC.
10.2 -- Acquisition Agreement, dated December 30, 1988, between the Bank and the
FSLIC.
10.3 -- Warrant Agreement, dated December 30, 1988, between the Bank and the FSLIC.
10.3a -- Amended and Restated Warrant Agreement dated December 28, 1993, between the
Bank and the FDIC.
10.4 -- Regulatory Capital Maintenance Agreement, dated December 30, 1988 among the
Bank, the Registrant, Hyperion Holdings, Hyperion Partners, and the FSLIC
(terminated).
10.5 -- Federal Stock Charter of the Bank and First Amendment to charter approved on
August 26, 1992.
10.6 -- Amended and Restated Federal Stock Charter of the Bank and Second Amendment
approved on October 30, 1992.
10.6a -- Third Amendment to the Federal Stock Charter of the Bank approved on April
23, 1996.
10.6b -- Amended and Restated Bylaws of the Bank.
10.7 -- Specimen Preferred Stock, Series A, certificate, $25.00 per share stated
value of the Bank.
10.7a -- Certificate of Designation of Noncumulative Preferred Stock, Series A, of
the Bank.
10.7b -- Specimen Preferred Stock, Series B, certificate, $25.00 per share stated
value, of the Bank.
10.7c -- Certificate of Designation of Noncumulative Preferred Stock, Series B, of
the Bank.
10.8 -- Data Processing Agreement, dated January 1, 1992, between the Bank and
Systematics Financial Services, Inc., and First Amendment (dated October 28,
1992) and Second Amendment (dated September 1, 1992).
10.8a -- Third Amendment, dated December 17, 1993, to the Data Processing Agreement,
dated January 1, 1992, between the Bank and Systematics Financial Services,
Inc.
10.8b -- Fourth Amendment, dated March 28, 1994, to the Data Processing Agreement,
dated January 1, 1992, between the Bank and Systematics Financial Services,
Inc.
10.8c -- Fifth Amendment, dated April 1, 1994 to the Data Processing Agreement, dated
January 1, 1992, between the Bank and Systematics Financial Services, Inc.
10.8d -- Sixth Amendment, dated February 26, 1996 to the Data Processing Agreement,
dated January 1, 1992, between the Bank and Systematics Financial Services,
Inc.
10.9 -- Management and Consulting Services Agreement, dated January 1, 1992, between
the Bank and Systematics Financial Services, Inc., and First Amendment
(dated March 18, 1992) and Second Amendment (dated September 1, 1992).
10.10 -- Lease Agreement, dated April 1, 1989, between the Bank and Homart
Development Co. (Leased premises at 3200 Southwest Freeway) and First
Amendment thereto dated January 31, 1990.
10.10a -- Second Amendment, dated November 14, 1994 to Lease Agreement dated April 1,
1989, between the Bank and Homart Development Co. (assigned to HD Delaware
Properties, Inc.).
10.10b -- Third Amendment, dated January 8, 1996 to Lease Agreement dated April 1,
1989 between the Bank and Homart Development Co. (predecessor in interest of
HMS Office, L.P.).
</TABLE>
II-3
<PAGE> 199
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION
- -------------- -------------------------------------------------------------------------------
<S> <C>
10.11 -- Lease Agreement, dated November 20, 1990, between the Bank and Greenway
Plaza, LTD. (Leased premises at 3800 Buffalo Speedway).
10.12 -- Employment Agreement, dated March 18, 1991, between the Bank and Barry C.
Burkholder.
10.12a -- Amendment, dated April 10, 1996, to the Employment Agreement between the
Bank and Barry C. Burkholder.
10.13 -- Letter Agreement Related to Employment, dated April 4, 1990, between the
Bank and Anthony J. Nocella.
10.14 -- Letter Agreement Related to Employment, dated June 18, 1990 between the Bank
and George R. Bender.
10.15 -- Letter Agreement Related to Employment, dated April 6, 1990, between the
Bank and Jonathon K. Heffron.
10.16 -- Letter Agreement Related to Employment, dated May 10, 1991, between the Bank
and Leslie H. Green.
10.17 -- Management Incentive Plan, dated April 20, 1992.
10.18 -- Letter Agreement, dated January 5, 1990, between Hyperion Partners and
certain shareholders of the Registrant with respect to the provision of
managerial assistance to the Registrant.
10.22 -- Supplemental Executive Savings Plan of the Bank.
10.23 -- Directors Supplemental Savings Plan of the Bank.
12* -- Statement re: Calculation of Ratios of Earnings to Fixed Charges.
21* -- Subsidiaries of the Registrant.
23.1* -- Consent of Bryan Cave LLP (included in Exhibit 5.1).
23.2* -- Consent of Deloitte & Touche LLP, independent auditors.
24 -- Powers of Attorney (see the signature pages to the Form S-4 Registration
Statement).
26* -- Statement of Eligibility and Qualification of Trustee on Form T-1 of the
Bank of New York under the Trust Indenture Act of 1939.
99.2* -- Exchange Agent Agreement between Registrant and Bank of New York, as
Exchange Agent.
99.3 -- Complaint filed by the Registrant and certain of its affiliates against the
FDIC and certain other governmental agencies in the Southern District of
Texas, Galveston Division, C.A. No. G-93-461.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
The Consolidated Financial Statements listed in the Index to Consolidated
Financial Statements contained in the Offering Circular are hereby incorporated
herein by reference.
Schedules to the Consolidated Financial Statements are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing of the Offering specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy
II-4
<PAGE> 200
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 201
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON THE 18TH DAY OF
JUNE, 1996.
BANK UNITED CORP.
By /s/ BARRY C. BURKHOLDER
------------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE DATES
INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
(1) Principal Executive Officer:
/s/ LEWIS S. Chairman of the Board, June 18, 1996
RANIERI President and
- --------------------------------------------- Chief Executive Officer
Lewis S. Ranieri
(2) Principal Financial and Accounting
Officer:
/s/ ROBERT A. PERRO Vice President and June 18, 1996
- --------------------------------------------- Chief Financial Officer
Robert A. Perro
(3) Directors:
/s/ LEWIS S. RANIERI Director June 18, 1996
- ---------------------------------------------
Lewis S. Ranieri
/s/ SALVATORE A. RANIERI Director June 18, 1996
- ---------------------------------------------
Salvatore A. Ranieri
/s/ SCOTT A. SHAY Director June 18, 1996
- ---------------------------------------------
Scott A. Shay
</TABLE>
II-6
<PAGE> 202
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------------------------------------------- ----
<S> <C> <C>
1.1* -- Underwriting Agreement................................................
2.1 -- Form of Letter Agreement, by and among the general and limited
partners of Hyperion Partners, L.P., dated as of June 17, 1996,
relating to certain transactions consummated prior to the Offering....
2.2* -- Merger Agreement, dated as of June 17, 1996, by and between the
Company and Hyperion Holdings relating to the Merger..................
3.1 -- Form of Restated Certificate of Incorporation of the Registrant, as
amended...............................................................
3.2 -- Form of By-Laws of the Registrant.....................................
4.1 -- Indenture, dated as of May 15, 1993, between the Registrant and Bank
of New York, as Trustee, relating to the Registrant's 8.05% Senior
Notes due May 15, 1998................................................
4.2 -- Form of 8.05% Senior Note due May 15, 1998 (included in the Indenture
filed as Exhibit 4.1 hereto)..........................................
4.3 -- Exchange and Registration Rights relating to Registrant's 8.05% Senior
Notes due May 15, 1998................................................
4.4 -- First Supplemental Indenture, dated as of January 23, 1995, between
the Registrant and the Bank of New York, as Trustee, relating to
Registrant's 8.05% Senior Notes due May 15, 1998......................
5.1* -- Opinion and consent of ______________ ...............................
8* -- Opinion and consent of ______________ (Federal Tax Matters)..........
10.1 -- Assistance Agreement, dated December 30, 1988, among the Bank, the
Registrant, Hyperion Holdings, Hyperion Partners, and the FSLIC.......
10.1a -- Settlement and Termination Agreement, dated as of December 23, 1993,
among the Bank, the Registrant, Hyperion Holdings, Hyperion Partners
and the FDIC..........................................................
10.1b -- Tax Benefits Agreement, dated December 28, 1993, among the Bank, the
Registrant, Hyperion Holdings, Hyperion Partners and the FDIC.........
10.2 -- Acquisition Agreement, dated December 30, 1988, between the Bank and
the FSLIC.............................................................
10.3 -- Warrant Agreement, dated December 30, 1988, between the Bank and the
FSLIC.................................................................
10.3a -- Amended and Restated Warrant Agreement dated December 28, 1993,
between the Bank and the FDIC.........................................
10.4 -- Regulatory Capital Maintenance Agreement, dated December 30, 1988
among the Bank, the Registrant, Hyperion Holdings, Hyperion Partners,
and the FSLIC (terminated)............................................
10.5 -- Federal Stock Charter of the Bank and First Amendment to charter
approved on August 26, 1992...........................................
10.6 -- Amended and Restated Federal Stock Charter of the Bank and Second
Amendment approved on October 30, 1992................................
10.6a -- Third Amendment to the Federal Stock Charter of the Bank approved on
April 23, 1996........................................................
10.6b -- Amended and Restated Bylaws of the Bank...............................
10.7 -- Specimen Preferred Stock, Series A, certificate, $25.00 per share
stated value of the Bank..............................................
10.7a -- Certificate of Designation of Noncumulative Preferred Stock, Series A,
of the Bank...........................................................
10.7b -- Specimen Preferred Stock, Series B, certificate, $25.00 per share
stated value, of the Bank.............................................
10.7c -- Certificate of Designation of Noncumulative Preferred Stock, Series B,
of the Bank...........................................................
</TABLE>
<PAGE> 203
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------------------------------------------- ----
<S> <C> <C>
10.8 -- Data Processing Agreement, dated January 1, 1992, between the Bank and
Systematics Financial Services, Inc., and First Amendment (dated
October 28, 1992) and Second Amendment (dated September 1, 1992)......
10.8a -- Third Amendment, dated December 17, 1993, to the Data Processing
Agreement, dated January 1, 1992, between the Bank and Systematics
Financial Services, Inc...............................................
10.8b -- Fourth Amendment, dated March 28, 1994, to the Data Processing
Agreement, dated January 1, 1992, between the Bank and Systematics
Financial Services, Inc...............................................
10.8c -- Fifth Amendment, dated April 1, 1994 to the Data Processing Agreement,
dated January 1, 1992, between the Bank and Systematics Financial
Services, Inc.........................................................
10.8d -- Sixth Amendment, dated February 26, 1996 to the Data Processing
Agreement, dated January 1, 1992, between the Bank and Systematics
Financial Services, Inc...............................................
10.9 -- Management and Consulting Services Agreement, dated January 1, 1992,
between the Bank and Systematics Financial Services, Inc., and First
Amendment (dated March 18, 1992) and Second Amendment (dated September
1, 1992)..............................................................
10.10 -- Lease Agreement, dated April 1, 1989, between the Bank and Homart
Development Co. (Leased premises at 3200 Southwest Freeway) and First
Amendment thereto dated January 31, 1990..............................
10.10a -- Second Amendment, dated November 14, 1994 to Lease Agreement dated
April 1, 1989, between the Bank and Homart Development Co. (assigned
to HD Delaware Properties, Inc.)......................................
10.10b -- Third Amendment, dated January 8, 1996 to Lease Agreement dated April
1, 1989 between the Bank and Homart Development Co. (predecessor in
interest of HMS Office, L.P.).........................................
10.11 -- Lease Agreement, dated November 20, 1990, between the Bank and
Greenway Plaza, LTD. (Leased premises at 3800 Buffalo Speedway).......
10.12 -- Employment Agreement, dated March 18, 1991, between the Bank and Barry
C. Burkholder.........................................................
10.12a -- Amendment, dated April 10, 1996, to the Employment Agreement between
the Bank and Barry C. Burkholder......................................
10.13 -- Letter Agreement Related to Employment, dated April 4, 1990, between
the Bank and Anthony J. Nocella.......................................
10.14 -- Letter Agreement Related to Employment, dated June 18, 1990 between
the Bank and George R. Bender.........................................
10.15 -- Letter Agreement Related to Employment, dated April 6, 1990, between
the Bank and Jonathon K. Heffron......................................
10.16 -- Letter Agreement Related to Employment, dated May 10, 1991, between
the Bank and Leslie H. Green..........................................
10.17 -- Management Incentive Plan, dated April 20, 1992.......................
10.18 -- Letter Agreement, dated January 5, 1990, between Hyperion Partners and
certain shareholders of the Registrant with respect to the provision
of managerial assistance to the Registrant............................
10.22 -- Supplemental Executive Savings Plan of the Bank.......................
10.23 -- Directors Supplemental Savings Plan of the Bank.......................
12* -- Statement re: Calculation of Ratios of Earnings to Fixed Charges......
21* -- Subsidiaries of the Registrant........................................
23.1* -- Consent of Bryan Cave LLP (included in Exhibit 5.1)...................
23.2* -- Consent of Deloitte & Touche LLP, independent auditors................
24 -- Powers of Attorney (see the signature pages to the Form S-4
Registration Statement)...............................................
</TABLE>
<PAGE> 204
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE
NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------------------------------------------- ----
<S> <C> <C>
26* -- Statement of Eligibility and Qualification of Trustee on Form T-1 of
the Bank of New York under the Trust Indenture Act of 1939............
99.2* -- Exchange Agent Agreement between Registrant and Bank of New York, as
Exchange Agent........................................................
99.3 -- Complaint filed by the Registrant and certain of its affiliates
against the FDIC and certain other governmental agencies in the
Southern District of Texas, Galveston Division, C.A. No. G-93-461.....
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
June 17, 1996
Hyperion Partners L.P.
50 Charles Lindbergh Boulevard
Suite 500
Uniondale, New York 11553
Attn.: Salvatore A. Ranieri
Hyperion Holdings Inc.
50 Charles Lindbergh Boulevard
Suite 500
Uniondale, New York 11553
Attn.: Salvatore A. Ranieri
Bank United Corp.
50 Charles Lindbergh Boulevard
Suite 500
Uniondale, New York 11553
Attn.: Salvatore A. Ranieri
Ladies and Gentlemen:
1. Introduction. Bank United Corp., a Delaware corporation, formerly named
USAT Holdings Inc. ("BUC" or the "Company"), Hyperion Partners L.P. ("HPLP"), a
Delaware limited partnership, and Hyperion Holdings Inc. ("HHI"), a Delaware
Corporation, desire to effect a reorganization (the "Reorganization") which is
described more fully in the Transaction Memorandum attached hereto as Exhibit A.
In order to facilitate the proposed Reorganization, the undersigned hereby
agrees as follows:
2. The Distribution. The undersigned Investor being a holder of such
partnership interest in HPLP set forth next to such Investor's name on Schedule
I hereby agrees in respect of the distribution by HPLP to the Investor of the
shares of capital stock of HHI held by HPLP (the "Distribution") as described in
the Transaction Memorandum, to hold such shares in accordance with the terms of
this Agreement.
3. The Merger. The undersigned Investor, if a holder following the
Distribution of issued and outstanding shares of voting common stock of HHI (the
number, if any, of which is as set forth on Schedule I hereto), and acting
without and in lieu of a meeting pursuant to the Certificate of Incorporation
and By-Laws of HHI and pursuant to and in accordance with Section 228 of the
Delaware General Corporation Law (the "DGCL"), does hereby consent to and
approve of, for all purposes of the DGCL and for all other purposes, the Merger
Agreement by and between HHI and BUC dated as of June 17, 1996 (the "Merger
Agreement") which is attached hereto as Exhibit B, and all of the transactions
and matters contemplated thereby (the "Merger"), as approved by the board of
directors of HHI by written consent and submitted to the undersigned for
consideration and approval.
4. Limitations on Transfers Pending an IPO.
<PAGE> 2
(a) The undersigned Investor hereby acknowledges that under the By-Laws of HHI,
holders of shares of HHI capital stock shall not be permitted, from and
after the Distribution, to transfer, sell, assign, pledge, sell short or
hypothecate, or grant an option or interest similar to an option on, or
other disposition of, or in any way dispose of any interest in or take any
action whatsoever that would cause or constitute an "owner shift" (within
the meaning of Section 382 and the regulations thereunder) with respect to
(any such act, a "Transfer"), any shares of capital stock of HHI owned by
such Investor other than pursuant to the Merger Agreement. HHI and BUC
agree to use their best efforts to effectuate the Merger as promptly as
practicable following the Distribution.
(b) The undersigned Investor hereby acknowledges that under the By-Laws of BUC,
from and after the Distribution and prior to the consummation of an IPO (as
defined therein), the undersigned Investor shall not be permitted to
Transfer any shares of capital stock (such shares that are received in
respect of shares of HHI stock and shares of Class C Common Stock, par
value $.01 per share of BUC, "Shares") of BUC, other than Transfers (x) in
the case of Shares held by Investors who received Shares in respect of
shares of Class C Common Stock, par value $.01 per share of BUC ("Class C
Common Stock") consistent with the transfer restriction provisions of the
Stockholders' Agreement dated as of January 5, 1990 among HHI and the other
parties specified therein (the "Stockholders' Agreement") as if such Shares
are shares of Class C Common Stock and (y) in the case of all Shares held
by other Investors, limited to Transfers that would be permissible in the
case of partnership interests held pursuant to the terms of the HPLP
Partnership Agreement (but subject to tag-along rights as if such Shares
were held under the Stockholders' Agreement). The undersigned Investor
hereby acknowledges that in addition under the By-Laws of BUC, a Five
Percent Stockholder (as therein defined) cannot, prior to the earlier of
the consummation of an IPO or October 31, 1996, Transfer any Shares owned
by such Investor, other than Transfers to any person of which the
transferor is a direct or indirect wholly owned subsidiary, which
transferee agrees to be bound by the provisions of this Agreement.
(c) Each stock certificate representing Shares shall bear the following legend
on the face thereof, which legend may be removed following termination of
this Agreement:
BANK UNITED CORP. (THE "COMPANY") IS A CORPORATION ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE AND THE STOCK REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS
OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, BY-LAWS AND THOSE
CERTAIN AGREEMENTS DATED AS OF JUNE 17, 1996, AMONG THE COMPANY, HYPERION
PARTNERS L.P., HYPERION HOLDINGS INC. AND THE STOCKHOLDERS OF THE COMPANY.
A COPY OF SUCH
2
<PAGE> 3
STOCKHOLDERS' AGREEMENT IS ON FILE AND AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY.
(d) In the event that a registration statement with respect to an IPO on the
terms contemplated in the Transaction Memorandum has not been declared
effective by October 31, 1996, BUC shall provide the Investor with
registration rights and tag-along rights, each on terms substantially
similar to those currently contained in the Stock Purchase Agreement dated
as of August 1, 1989 by and among BUC and certain signatories thereto and
the Stockholders' Agreement, respectively (a copy of each of which has been
made available to Investor), subject to any IPO being arranged to permit
the Five Percent Stockholders to share disproportionately in the selling
allocation consistent with the intent and purpose of Section 5(c), and the
provisions of the BUC By-laws referenced in the first sentence of Section
4(b) shall remain in effect. This Agreement constitutes the agreement by
the undersigned Investor to allow for such tag-along rights in connection
with any proposed sale of Shares in any circumstances.
5. Arrangements Relating to an IPO.
(a) Upon the filing of a registration statement (the "IPO Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act") with respect to an initial public offering of Shares on the terms
contemplated herein ("IPO"), the undersigned Investor undertakes in
connection therewith to provide in a timely manner all such information and
materials and take all such action as may reasonably be required in order
to permit BUC to comply with all applicable legal requirements and to
obtain the acceleration of the effective date of the IPO Registration
Statement including, without limitation, to designate in writing to BUC
within two weeks of the notification by BUC to such Investor that BUC has
filed an IPO Registration Statement such number of Shares within a
specified offering range that such Investor intends to sell in the IPO
(subject to Section 5(c)), and to enter into a customary underwriting
agreement and lockup agreement (as further described in Section 5(b)) in
form and substance reasonably satisfactory to BUC and such Investor with
respect to such Shares at a time determined by BUC and the underwriters of
the IPO.
(b) In an IPO, to improve the marketability of the Shares sold in such IPO, (i)
any Investor holding Shares received directly or indirectly in respect of
general partnership interests in HPLP shall agree with the underwriters of
such IPO not to sell any shares of the Company's common stock held by such
Investor (other than Shares to be sold in the IPO) within one year
following consummation of the IPO, and (ii) any Investor holding Shares
received directly or indirectly in respect of limited partnership interests
in HPLP shall agree with the underwriters of such IPO not to sell any
shares of the Company's common stock held by such Investor (other than
Shares to be sold in the IPO) within six months following consummation of
the IPO; provided however that the foregoing lockup agreement shall not
restrict any regulated insurance company that is headquartered in and
governed by the insurance laws of the state of New Jersey, from selling
Shares not sold in an
3
<PAGE> 4
IPO in a private off-market transaction not involving a public offering,
subject to such reasonable representations as the underwriters may request
of such party, and in accordance with Section 5(c) and the other provisions
contained in this Agreement.
(c) In connection with an IPO, as discussed in the Transaction Memorandum,
subject to such adjustments (other than a decrease of the 45% allocation
listed below, which may not be reduced without the consent of such Five
Percent Stockholder) as the Board of Directors of BUC based upon the advice
of the underwriters of the IPO may determine to be desirable to improve the
marketability of Shares sold in the IPO (i) each Five Percent Stockholder
shall be offered the opportunity to sell up to 45% of such Holder's Shares
in the IPO, and (ii) any Investor that is not a Five Percent Stockholder
shall be offered the opportunity to sell up to 16% of such Investor's
Shares in the IPO, provided however, that if the number of Shares
designated pursuant to Section 5(a) to be sold in the IPO by all Five
Percent Stockholders is less than the maximum amount allocated to such
stockholders, Investors that are not Five Percent Stockholders may be
provided with an opportunity to increase the number of Shares that are sold
in the IPO at the sole discretion of, and to the extent determined by, the
Board of Directors of BUC in consultation with the underwriters. BUC
agrees that any such opportunity shall be shared pro rata among all
stockholders of BUC that are not Five Percent Stockholders.
(d) The undersigned Investor acknowledges that under the By-Laws of BUC, any
Five Percent Stockholder shall not be permitted to Transfer any Shares
without the prior written consent of the Board of Directors of BUC for a
period of three years following consummation of any IPO or, if earlier, the
termination of this Agreement, unless as of such earlier date such Transfer
would not be reasonably likely to have a material adverse affect on the tax
position of BUC as determined by the Board of Directors of BUC, provided
however that any Shares which could have been sold in an IPO by a Five
Percent Stockholder, but are not sold at the election of such Five Percent
Stockholder in an IPO, shall not be subject to this restriction following
an IPO. BUC shall, not less than annually, evaluate and report to the Five
Percent Stockholders the amount of any remaining net operating loss
carryforwards of the Bank, the tax effect of any previous transfers and
whether the restrictions referred to in this Section 5(d) shall be relaxed
in whole or in part (any such relaxation shall be applied pro rata among
all Five Percent Stockholders).
(e) Notwithstanding any other provision contained herein or in the Certificate
of Incorporation or By-Laws of BUC, LW Real Estate Investors, L.P., a
Delaware limited partnership ("LWR") shall not Transfer any Shares prior to
the third anniversary of August 8, 1995, and shall thereafter be subject to
the provisions of this Agreement as if LWR were a Five Percent Stockholder.
6. Conversion of Class B Stock into Class A Stock.
4
<PAGE> 5
(a) Unless otherwise agreed to by the Board of Directors of BUC, no Investor
may convert shares of Class B Common Stock, par value $.01 per share of the
Company (the "Class B Stock") into Class A Common Stock, par value $.01 per
share of the Company (the "Class A Stock"), until the earlier to occur of
(i) the consummation of an IPO, and (ii) October 31, 1996, provided,
however, that subject to the limitations set forth in Section 6(b), any
Investor that is subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations promulgated
thereunder, shall be permitted to convert shares of Class B Stock into
Class A Stock from and after the Merger subject to the other provisions of
this Section 6.
(b) Notwithstanding any other provision contained herein, in no event shall any
holder of Class B Stock convert shares of Class B Stock into shares of
Class A Stock if after giving effect to such conversion, such holder would
beneficially own (within the meaning of the applicable Federal banking and
thrift regulations) in excess of 9.9%, or such lower percentage (e.g.,
either 4.9% or 0%) where regulatory restrictions provide that such Investor
shall not acquire up to 9.9% (or such lower percentage), of the total
number of then outstanding shares of Class A Stock. The Distribution
and other transactions referred to herein shall not affect any previously
existing passivity commitments to any Federal bank or thrift regulatory
agency in respect of the ownership interests in HPLP and BUC which
commitments shall continue to remain in effect with respect to their
interests in the HHI shares and the Shares.
(c) Any holder of shares of Class B Stock shall be prohibited from Transferring
any such shares other than (i) to an affiliate, (ii) in any
widely-dispersed offering of Shares pursuant to an effective registration
statement filed under the Securities Act, or (iii) to any single person,
entity or group acting in concert if the number of shares of Class B Stock
so transferred would, if converted into shares of Class A Stock, entitle
the holder of such Shares to exercise more than 2% of the vote of all the
shares of Class A Stock that would be outstanding upon conversion of such
shares of Class B Stock.
7. Resale Registration Statement.
(a) As soon as practicable after any public offering of shares of Bank
United Corp. common stock, BUC shall file a registration statement (the
"Resale Registration Statement") under the Securities Act with respect to
the resale of all Shares then held by the Investor, and BUC will use its
reasonable best efforts to cause the Resale Registration Statement to
become effective as soon as practicable. The Investor undertakes in
connection therewith to provide in a timely manner all such information and
materials and take all such action as may reasonably be required in order
to permit BUC to comply with all applicable legal requirements and to
obtain the acceleration of the effective date of the Resale Registration
Statement including, without limitation, if required by the U.S. Securities
and Exchange Commission (the "Commission") as a condition to the
effectiveness of the Resale Registration Statement, to either withdraw such
Investor's Shares from the Resale Registration Statement (if such
Subscriber has no current intention of effecting a public sale of such
5
<PAGE> 6
Shares) or to enter into an underwriting agreement in form and substance
reasonably satisfactory to such Investor with respect to such Shares.
(b ) BUC will prepare and file with the Commission such amendments and
supplements to the Resale Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Resale Registration
Statement effective until the later of the date (i) on which all the Shares
have been sold pursuant thereto but in no event later than December 31,
1999; and (ii) the date on which by reason of Rule 144 under the Securities
Act or any other rule of similar effect, the Shares are no longer required
to be registered for the sale thereof by any Investors without restriction.
The Investor acknowledges that there may occasionally be times when BUC
must suspend the use of the prospectus forming a part of the Resale
Registration Statement until such time as an amendment to the Resale
Registration Statement has been filed by BUC and declared effective by the
Commission, or until such time as BUC has filed an appropriate report with
the Commission. The Investor hereby covenants that it will not sell any
Shares pursuant to said prospectus during the period commencing at the time
at which BUC gives the Investor notice of the suspension of the use of said
prospectus and ending at the time BUC gives the Investor notice that such
Investor may thereafter effect sales pursuant to said prospectus. BUC
shall use its reasonable best efforts to minimize the duration of the
period of any suspension of the use of the Prospectus forming part of the
Resale Registration Statement.
8. Representations and Warranties of BUC. BUC and HHI each respectively,
represents and warrants to, and agrees with, the Investor that immediately prior
to the consummation of the Reorganization:
(a) BUC and HHI will be duly organized, validly existing and in good standing
as a corporation under the laws of the state of Delaware. BUC and HHI will
have full corporate power, authority and legal right to own its material
properties and to conduct its business as such properties are presently
owned and such business is presently conducted in all material respects
and to execute, deliver and perform its obligations under this Agreement.
(b) The execution, delivery and performance by BUC and HHI of this Agreement
will be duly authorized by all necessary action and this Agreement has been
duly executed and delivered and will constitute the legal, valid, binding
and enforceable obligation of BUC and HHI, subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance,
receivership, conservatorship, or other similar laws, regulations or
procedures of general applicability now or hereafter in effect relating to
or affecting creditors' or other obligees' rights generally, and subject,
as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
9. Representations and Warranties of HPLP. HPLP represents and warrants to, and
agrees with, the Investor that:
6
<PAGE> 7
(a) Immediately prior to the consummation of the Reorganization, the execution,
delivery and performance by HPLP of this Agreement will be duly authorized
by all necessary action and this Agreement has been duly executed and
delivered and will constitute the legal, valid, binding and enforceable
obligation of HPLP, subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, receivership, conservatorship, or other
similar laws, regulations or procedures of general applicability now or
hereafter in effect relating to or affecting creditors' or other obligees'
rights generally, and subject, as to enforceability, to general principles
of equity (regardless of whether enforcement is sought in a proceeding in
equity or at law).
(b) To the knowledge of HPLP, (i) as of the date hereof, the Bank has not
undergone an "ownership change" (within the meaning of Section 382) since
June 7, 1993, and (ii) the Distribution, Merger and sale of Shares in an
IPO, each as contemplated in this Agreement shall not constitute an
"ownership change" of the Bank.
10. Representations and Warranties of the Investor. The Investor represents
and warrants to, and agrees with, HPLP, HHI and BUC that:
(a) The execution, delivery and performance by the Investor of this Agreement
have been duly authorized by all necessary action and this Agreement has
been duly executed and delivered and, when executed and delivered by HPLP,
HHI and BUC, will constitute the legal, valid, binding and enforceable
obligation of the Investor, subject to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, receivership,
conservatorship, ERISA prohibited transaction restrictions, or other
similar laws, regulations or procedures of general applicability now or
hereafter in effect relating to or affecting creditors' or other obligees'
rights generally and subject, as to enforceability, to general principles
of equity (regardless of whether enforcement is sought in a proceeding in
equity or at law).
(b) The Investor has been advised and understands that the securities to be
issued in the Merger have not been registered under the Securities Act in
reliance upon the exemption from such registration and that such securities
have not been registered under the securities laws of any state in reliance
on exemptions therefrom and, therefore, such securities may not be resold
unless registered under applicable state securities laws or an exemption
from registration is available.
(c) Except as disclosed in writing to HPLP, the Investor has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Shares, is able to bear the
economic risk of an investment in the Shares, including at the date hereof,
the ability to afford a complete loss of the investment, and is (i) a
sophisticated institutional or corporate investor as well as an "accredited
investor" as defined in Rule 501(a) under the Securities Act; or (ii) a
sophisticated individual investor as well as an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
7
<PAGE> 8
(d) The Investor has been advised that any and all certificates representing
the Shares and any and all certificates issued in replacement thereof or in
exchange therefor shall bear the following legends, or ones substantially
similar thereto:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS THEREFROM AND, THEREFORE, MAY NOT BE RESOLD UNLESS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
In addition, certificates representing the Shares acquired by Investors
located in certain states will bear additional legends as required by the
securities laws of those states.
(e) The Investor will not sell or otherwise transfer any of the Shares, except
in compliance with the provisions of the applicable securities laws and as
stated in any legend. The Investor has been advised that (i) there are
significant restrictions on the transfer of the Shares, (ii) there has been
no prior trading market for the Shares, and (iii) as a result, an
investment in the Shares may be extremely illiquid.
(f) The Investor, if it is a partnership, trust, corporation or other entity,
also represents and warrants that it is duly organized, validly existing
and in good standing (to the extent applicable) under the laws of the state
of its organization and that it has full power, authority and legal right
to execute, deliver and perform its obligations under this Agreement.
(g) The Investor has not Transferred any shares of Class C Common Stock or any
partnership interest in HPLP, since acquiring the same, without notifying
BUC or HPLP, in writing, respectively.
11. Termination.
(a) Prior to the Distribution, HPLP may terminate this Agreement in the event
(x) HPLP, in its reasonable judgment, determines that it is not in the best
interests of HPLP and the Investors to consummate the Reorganization or (y)
consummation of the Reorganization is prohibited by law, rule or
regulation.
(b) This Agreement may be terminated upon the consent of the parties hereto and
to any counterpart of this Agreement.
(c) If not previously terminated pursuant to clauses (a) or (b) of this Section
11, this Agreement shall terminate on the earlier to occur of (i) the third
anniversary of the date an IPO is consummated, or (ii) October 31, 1996 if
the IPO is not consummated by such date (except that (x) the provisions of
Section 6 shall survive any termination pursuant to this clause (ii) and
(y) the
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<PAGE> 9
provisions of Section 4(d) shall survive any termination pursuant to this
clause (ii) until October 31, 1999).
(d) The parties hereto hereby agree that any termination of this Agreement
pursuant to this Section 11 for any reasons whatsoever shall be without
liability to any other party hereto.
12. Survival. The parties hereto agree that the respective
representations, warranties and agreements made by them herein and in any
certificate or other instrument delivered pursuant hereto shall be deemed to be
relied upon, and shall survive consummation of the Reorganization.
13. Notices. All notices, consents, approvals and requests required or
permitted by this Agreement shall be given in writing and shall be effective for
all purposes if hand-delivered or sent by (i) certified or registered United
States mail, postage prepaid, (ii) expedited prepaid delivery service, either
commercial or United States Postal Service, with proof of attempted delivery or
(iii) facsimile transmission (with answerback, acknowledged), addressed as
provided below (or to such other address as the applicable party shall specify
in writing to the other party hereto): (1) if to the Investor, to the Investor's
address as it appears on Schedule I hereto, and if to HPLP, HHI, or BUC to their
respective addresses as set forth above. A notice shall be deemed to have been
given, in the case of hand delivery, at the time of delivery; in the case of
registered or certified mail, when delivered or upon the first attempted
delivery on a business day, or in the case of expedited prepaid delivery and
facsimile, upon the first attempted delivery on a business day. A party
receiving a notice which does not comply with the technical requirements for
notice under this Section 13 may elect to waive any deficiencies and treat the
notice as having been properly given.
14. Further Assurances. Each of the parties hereto agrees that it shall
take or cause to be taken such actions, and execute, deliver and file or cause
to be executed, delivered and filed, such certificates, documents and
instruments, and obtain such consents, as may be necessary or reasonably
requested in connection with the consummation of the transactions contemplated
by this Agreement or in order to fully effectuate the purposes, terms and
conditions of this Agreement. In accordance with the foregoing, following the
Distribution, each of BUC and HHI shall use their respective best efforts to
consummate the Merger.
15. Condition to the Merger. The merger contemplated by Section 3 shall
not be consummated unless HHI shall have received the opinion of Wachtell,
Lipton, Rosen & Katz that such merger shall qualify as a reorganization under
the provisions of Section 368 of the Code.
16. Successors. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and permitted assigns.
Nothing expressed herein is intended or shall be construed to give any person
other than the persons referred to in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement.
17. Severability of Provisions. Any convenant, provision, agreement or
term of this Agreement that is prohibited or is held to be void or unenforceable
in any jurisdiction shall
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as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
thereof.
18. Scope of Restrictions. Without limiting any of the provisions of
the BUC Certificate of Incorporation or By-laws, it is the intent of the parties
hereto that any agreements relating to the transfer of stock of BUC contained in
this Agreement shall apply only to the activities of the parties hereto and
shall not affect the activities of any affiliates of such Investor. In
addition, without limiting any of the provisions of the BUC Certificate of
Incorporation or By-laws, the provisions set forth herein relating to the
transfer of the stock of BUC do not apply with respect to stock of BUC held by
an insurance company in its capacity as a fiduciary for a separate account or
directly by a separate account.
19. Miscellaneous. This Agreement including the Schedules hereto
constitutes the entire agreement and understanding of the parties hereto with
respect to the matters and transactions contemplated hereby and supersedes all
prior agreements and understandings whatsoever relating to such matters and
transactions. Neither this Agreement nor any term hereof may be changed, waived
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought. The headings in this Agreement are for the purposes of
references only and shall not limit or otherwise affect the meaning hereof.
This Agreement may be executed in counterparts, each of which shall constitute
an original, but all of which shall together constitute one instrument.
20. APPLICABLE LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAWS PROVISIONS THEREOF.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when taken together, shall constitute one and the
same Agreement.
22. Execution. By executing this Agreement below, the Investor agrees
to be bound by all of the terms, provisions, warranties and conditions contained
herein. Upon acceptance by HPLP, HHI and BUC, this Agreement shall be binding
on all of the parties hereto. HPLP, HHI and BUC shall not accept this Agreement
until they shall also have accepted a substantially similar agreement executed
by (i) all partners of HPLP that shall as a result of the transactions
contemplated hereby be Five Percent Stockholders, and (ii) a number of partners
of HPLP that after consummation of the Merger shall represent in the aggregate
no less than 80% of the total number of outstanding shares of capital stock of
BUC immediately following the Merger.
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Very truly yours,
By:
-----------------------
Name:
Title:
This Agreement is
hereby confirmed and
accepted as of the date
first above written.
HPLP
By: Hyperion Ventures L.P.
the General Partner
By: SAR Hyperion Corp.,
a General Partner
By:
------------------------
Name: Salvatore A. Ranieri
Title: President
HHI
By:
-----------------------
Name:
Title:
BUC
By:
-----------------------
Name:
Title:
Exhibit A sets forth the Transaction Memorandum which describes the
transactions that were undertaken in connection with the Restructuring. Exhibit
B sets forth the form of Merger Agreement relating to the merger of Hyperion
Holdings, Inc. into USAT Holdings, Inc. Copies of the omitted Exhibits shall
be filed supplementally to the Commission upon request.
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EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF BANK UNITED CORP.
-----------------
The name of the corporation (which is hereinafter referred to as the
"Corporation") is: "Bank United Corp."
The original certificate of incorporation was filed with the Secretary
of State of the State of Delaware on December 19, 1988 under the name "USAT
Holdings Inc." Such Certificate of Incorporation was amended on January 3,
1990.
This Restated Certificate of Incorporation has been duly proposed by
resolutions adopted and declared advisable by the Board of Directors of the
Corporation, duly adopted by the stockholders of the Corporation and duly
executed and acknowledged by the officers of the Corporation in accordance with
Sections 103, 242 and 245 of the General Corporation law of the State of
Delaware.
The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (which is hereinafter referred to as the
"Corporation") is: "Bank United Corp."
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware (the "DGCL").
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ARTICLE IV
CAPITAL STOCK
SECTION 1. The Corporation shall be authorized to issue 90 million
shares of capital stock, of which 40 million shares shall be shares of Class A
Common Stock, $ 0.01 par value ("Class A Common Stock"), 40 million shares shall
be shares of Class B Common Stock, $0.01 par value ("Class B Common Stock" and
together with Class A Common Stock, "Common Stock"), and 10 million shares shall
be shares of Preferred Stock, $0.01 par value ("Preferred Stock").
SECTION 2. The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is hereby authorized to provide for the
issuance of shares of Preferred Stock in series and, by filing a certificate
pursuant to the DGCL (hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, privileges,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative,
and, in the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which dividends on
the shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions upon which
such dividends shall be paid and the date or dates or the method for determining
the date or dates upon which such dividends shall be payable;
(e) the price or prices (or method of determining such price or prices)
at which, the form of payment of such
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price or prices (which may be cash, property or rights, including securities of
the same or another corporation or other entity) for which, the period or
periods within which and the terms and conditions upon which the shares of such
series may be redeemed, in whole or in part, at the option of the Corporation
or at the option of the holder or holders thereof or upon the happening of a
specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price or
prices at which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the same or another corporation or
other entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or purchased,
in whole or in part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to the
holders of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
(h) provisions, if any, for the conversion or exchange of the shares of
such series, at any time or times at the option of the holder or holders thereof
or at the option of the Corporation or upon the happening of a specified event
or events, into shares of any other class or classes or any other series of the
same or any other class or classes of stock, or any other security, of the
Corporation, or any other corporation or other entity, and the price or prices
or rate or rates of conversion or exchange and any adjustments applicable
thereto, and all other terms and conditions upon which such conversion or
exchange may be made;
(i) restrictions on the issuance of shares of the same series or of any
other class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the series.
SECTION 3. (a) The Common Stock shall be subject to the express terms
of the Preferred Stock and any series thereof. Except as otherwise provided by
law or by the resolution or resolutions adopted by the Board of Directors
designating the rights, powers and preferences of any series of Preferred Stock,
the Class A Common Stock shall have the exclusive right to vote for the election
of directors and for all other purposes, and holders of Preferred Stock shall
not be entitled to receive notice of any meeting of stockholders at which they
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<PAGE> 4
are not entitled to vote. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding Class A Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to any Preferred Stock Designation.
(b) A statement of the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Common Stock is
as follows:
(i) Dividends. The Board of Directors of the Corporation may cause
dividends to be paid to the holders of shares of Common Stock out of funds
legally available for the payment of dividends by declaring an amount per share
as a dividend. When and as dividends or other distributions are declared on the
Common Stock, whether payable in cash, in property or in shares of stock of the
Corporation, other than in shares of Class A Common Stock or Class B Common
Stock, the holders of Common Stock shall be entitled, to the exclusion of the
holders of Preferred Stock, to share equally, share for share, in such dividends
or other distributions. No dividends or other distributions shall be declared
or paid on the Common Stock in shares of Class A Common Stock or Class B Common
Stock or options, warrants or rights to acquire such stock or securities
convertible into or exchangeable for shares of such stock, except dividends or
other distributions payable ratably according to the number of shares of Common
Stock held by them, in shares of, or options, warrants or rights to acquire or
securities convertible into or exchangeable for, Class A Common Stock to holders
of that class of stock and Class B Common Stock to holders of that class of
stock.
(ii) Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, after payment shall have been made to the holders of Preferred
Stock of the full amount to which they shall be entitled, the holders of Common
Stock shall be entitled, to the exclusion of the holders of Preferred Stock, to
share, ratably according to the number of shares of Common Stock held by them,
in all remaining assets of the Corporation available for distribution to its
stockholders.
(iii) Voting Rights. (1) Except as otherwise provided in this
Certificate of Incorporation or required by applicable law, the holders of Class
A Common Stock shall be entitled to vote on each matter on which the
stockholders of the Corporation shall be entitled to vote, and each holder of
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<PAGE> 5
Class A Common Stock shall be entitled to one vote for each share of such stock
held by such holder.
(2) The holders of Class B Common Stock shall not have any
voting rights except as otherwise required by applicable law.
(iv) Conversion. (1) Shares of Class B Common Stock shall be
converted into the same number of shares of Class A Common Stock (A)
automatically, upon the sale or other transfer of such shares of Class B Common
Stock to a person other than an Affiliate of the holder or (B) at the election
of the holder of such shares of Class B Common Stock, subject to the terms,
conditions and restrictions (the "Conversion Restrictions") set forth in each of
the Agreements, dated June 17, 1996 by and among Hyperion Partners L.P., a
Delaware limited partnership, Hyperion Holdings Inc., a Delaware corporation,
the Corporation and each of the persons receiving Common Stock of the
Corporation pursuant to the merger (the "Merger") contemplated by the Merger
Agreement, dated June 17, 1996, by and between the Corporation and Hyperion
Holding Inc., a Delaware corporation, provided however that clause (B) shall not
apply to any shares of Class B Stock held by The Equitable Life Assurance
Society of the United States or Equitable Variable Life Insurance Company. Each
conversion of shares of Class B Common Stock into shares of Class A Common Stock
shall be effected by the surrender of the certificate(s) evidencing the shares
of the Class B Common Stock to be converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Class B Common
Stock) at any time during its usual business hours.
(2) In the case of any conversion or purported conversion
of Class B Common Stock into Class A Common Stock (A) pursuant to clause (A) of
the first sentence of Section 3(b)(iv)(1), the Corporation shall be entitled to
rely without independent verification upon the representation of any holder,
that (i) a proposed transferee of such holder is not an Affiliate of such person
and (ii) that a conversion is being effected upon a sale or other transfer, and
(B) pursuant to clause (B) of the first sentence of Section 3(b)(iv)(1), the
Corporation shall be entitled to rely without independent verification upon the
representation of any holder that such holder is not effecting or has not
effected such conversion other than in full compliance with the Conversion
Restrictions. In no event shall the Corporation be liable to any such holder or
any third party arising from any such conversion whether or not permitted by
this Certificate of Incorporation or by applicable law.
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<PAGE> 6
(3) Upon the issuance of the shares of Common Stock converted
in accordance with this paragraph (iv), such shares shall be deemed to be duly
authorized, validly issued, fully paid and nonassessable.
(4) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock or
its treasury shares, solely for the purpose of issue upon conversion of Class B
Common Stock, such number of shares of Class A Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Class B Common Stock.
(5) The issue of certificates evidencing shares of Class A
Common Stock upon conversion of shares of Class B Common Stock shall be made
without charge to the holders of such shares for any issue tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion; provided, however, the Corporation shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Common Stock converted.
SECTION 4. Limitations on Five-Percent Stockholders.
(a) Any Transfer of legal or beneficial ownership of Common
Stock prior to the Restriction Release Date, or any attempted Transfer of Common
Stock under an agreement (including any arrangement treated as an option under
Treasury Regulation Section 1.382-4) entered into prior to the Restriction
Release Date shall be prohibited and void ab initio, regardless of whether such
transfer has been recorded by the transfer agent of the Corporation (the
"Agent") and new certificates have been issued, to the extent that, as a result
of such purported Transfer (or any series of Transfers of which such purported
Transfer is a part), either (i) any Person or group of Persons would become a
Five-Percent Stockholder or (ii) the Percentage Stock Ownership of any
Five-Percent Stockholder would be increased, provided, however, that the
provisions of this Section 4(a) shall not preclude the settlement of any
transaction entered into through the facilities of the Nasdaq Stock Market in
the Common Stock. The prohibition set forth in the preceding sentence shall not
apply to (i) any Transfer that has been approved in advance by the Board of
Directors of the Corporation, which approval may be withheld or granted in the
sole judgment of the Board of Directors and (ii) any Transfer made in compliance
with exceptions provided by the Board of Directors in a resolution or
resolutions adopted from time to time.
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<PAGE> 7
(b) No employee or agent of the Corporation shall record any Prohibited
Transfer, and the purported transferee of such a Prohibited Transfer (the
"Purported Transferee") shall not be recognized as a stockholder of the
Corporation for any purpose whatsoever in respect of the Common Stock that is
the subject of the Prohibited Transfer (the "Excess Stock"). The Purported
Transferee shall not be entitled, with respect to such Excess Stock, to any
rights of a stockholder of the Corporation, including without any limitation,
the right to vote such Excess Stock and to receive dividends or distributions in
respect thereof, if any.
(c) If a purported Transfer of Common Stock would constitute a
Prohibited Transfer then the Purported Transferee shall transfer or cause to be
transferred any certificate or other evidence of ownership of all Excess Stock
then within the Purported Transferee's possession or control, together with all
dividends or distributions, if any, that may have been received by the Purported
Transferee from the Corporation with respect to such Excess Stock ("Prohibited
Distributions"), to the Agent. The Agent shall thereupon sell the Excess Stock
transferred to it in an arm's-length transaction or transactions (over the
principal securities exchange on which the appropriate class or series of Stock
is traded, if possible). If the Purported Transferee shall have resold any
Excess Stock before receiving the foregoing demand from the Corporation, the
Purported Transferee shall be deemed to have sold such Excess Stock on behalf of
the Agent and shall be required to transfer to the Agent any Prohibited
Distributions and the proceeds of such sale, except to the extent that the Agent
grants written permission to the Purported Transferee to retain a portion of
such sales proceeds not exceeding the amount that the Purported Transferee would
have received from the Agent pursuant to the following sentence if the Agent
rather than the Purported Transferee had resold such Excess Stock. The Agent
shall apply any Prohibited Distributions and any proceeds of a sale by it of
Excess Stock and, if the Purported Transferee has previously resold such Excess
Stock, any amounts received by it from a Purported Transferee as follows: (i)
first, such amounts shall be paid to the Agent to the extent necessary to cover
its costs and expenses incurred in connection with its duties hereunder; (ii)
second, any remaining amounts shall be paid to the Purported Transferee, up to
the amount paid by the Purported Transferee for such Excess Stock (or the fair
market value, calculated on the basis of the closing market price for the
appropriate class or series of Common Stock on the trading day immediately
preceding the Transfer, of such Excess Stock at the time of the purported
Transfer to the Purported Transferee by gift, inheritance, or similar Transfer),
which amount (or fair market value) shall be determined by the Board of
Directors in
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its sole discretion; and (iii) third, any remaining amounts shall be paid to
such charitable organization as is designated by the Board of Directors of the
Corporation. The recourse of any Purported Transferee in respect of any
Prohibited Transfer shall be limited to the amount specified in clause (ii) of
the preceding sentence. In no event shall the proceeds of any sale of Excess
Stock pursuant to this Section 4 of Article IV inure to the benefit of the
Corporation.
(d) If the Purported Transferee fails to surrender Excess Stock or the
proceeds of a sale thereof to the Agent within thirty business days from the
date on which the Corporation makes a demand pursuant to the preceding
paragraph, then the Corporation shall institute legal proceedings to compel the
surrender.
(e) Insofar as necessary or appropriate, the By-Laws of the Corporation
shall make appropriate provisions to effectuate the requirements of this
Section 4 of Article IV. All certificates representing Common Stock issued
prior to the Restriction Release Date shall bear a legend to the effect that
such Common Stock and any Common Stock acquired prior to the Restriction Release
Date upon exercise or conversion of such Common Stock are subject to the
restrictions set forth in this Section 4 of Article IV. A majority of the
directors of the Corporation shall have the power to determine all matters
necessary to determine compliance with this Section 4 of Article IV, including
without limitation (i) whether a new Five-Percent Stockholder would be required
to be identified in certain circumstances, (ii) whether a purported Transfer is
a Prohibited Transfer, (iii) the Percentage Stock Ownership of any holder of
Stock, (d) whether an instrument constitutes Common Stock, (iv) the amount (or
fair market value) due to a Purported Transferee and (v) any other matters which
a majority of the directors determine to be relevant; and the good faith
determination of a majority of the directors on such matters shall be conclusive
and binding on the Corporation and all holders of Common Stock.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
SECTION 5. Certain Definitions. As used in this Article IV, the
following terms shall have the meanings ascribed to them below:
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"Affiliate" shall mean, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person. For purposes of this definition, the term "control" (including
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with") when used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct the management and
policies of such person, whether through the ownership of voting securities, by
contract or otherwise.
"Code" means the Internal Revenue Code of 1986, as amended.
"Five-Percent Stockholder" means a Person or group of Persons
identified as a "5-percent shareholder" of the Corporation within the meaning of
Section 382 of the Code and the Treasury Regulations promulgated thereunder.
"Percentage Stock Ownership" means percentage beneficial or legal
ownership of Stock as determined in accordance with Section 382 of the Code and
the Treasury Regulations promulgated thereunder.
"Person" means an individual, corporation, estate, trust, association,
company, partnership or similar organization.
"Prohibited Transfer" means any purported Transfer of Common Stock to
the extent that such Transfer would be prohibited and void under Section 4 of
Article IV, including any transaction entered into through the facilities of the
Nasdaq Stock Market that is permitted to settle in accordance with the proviso
to the first sentence of Section 4(a) hereof.
"Restriction Release Date" means the earlier to occur of (i) the date
one day following the third anniversary of the date of the commencement of
trading of Common Stock of the Corporation on the New York Stock Exchange or the
Nasdaq Stock Market, or (ii) October 31, 1996 if the trading of Common Stock of
the Corporation on the New York Stock Exchange or the Nasdaq Stock Market, on a
"when issued" basis, does not occur prior to October 31, 1996.
"Stock" means (i) shares of Common Stock, (ii) shares of Preferred Stock
(except to the extent that such Preferred Stock meets the requirements of
Section 1504(a)(4) of the Code), (iii) warrants, rights or options (within the
meaning of Treasury Regulation Section 1.382-4(d)) to purchase Common
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Stock or Preferred Stock (except to the extent that such Preferred Stock meets
the requirements of Section 1504(a)(4) of the Code) from the Corporation and
(iv) any other interests that would be treated as "stock" of the Corporation
pursuant to Treasury Regulation Section 1.382-2T(f)(18).
"Transfer" means any sale, transfer, assignment, conveyance, pledge,
short sale or other disposition or the issuance of any option or interest
similar to an option to sell, transfer, assign, convey, pledge, or otherwise
dispose.
"Treasury Regulation Section 1.382" means the final and temporary income
tax regulations promulgated under Section 382 of the Code and any successor
temporary or final regulation or regulations. Each reference to any subsection
of such regulations includes references to any successor to such subsection.
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders,
unless effected by the unanimous written consent, setting forth the action to be
taken, of all holders of the outstanding shares of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), provided
however that prior the consummation of an initial public offering of Common
Stock (whether primary or secondary), stockholder action may be taken by the
written consent of stockholders holding a majority of the outstanding shares of
Voting Stock. Except as otherwise required by law and subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of stockholders of
the Corporation for any purpose or purposes may be called only by the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof
approved by a majority of the total number of directors which the Corporation
would have if there were no vacancies (the "Whole Board") or by the Chairman of
the Board of Directors of the Corporation and any power of stockholders to call
a special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of the Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
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amend, adopt any provision inconsistent with or repeal this Article V.
ARTICLE VI
ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed by or
pursuant to the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of the directors of the Corporation shall be
fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the Whole Board (but shall not be less than three). The directors,
other than those who may be elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1996, another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1997, and another class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1998, with each class to hold
office until its successor is duly elected and qualified. At each succeeding
annual meeting of stockholders, directors elected to succeed those directors
whose terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with each
director to hold office until such person's successor shall have been duly
elected and qualified.
SECTION 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER
PROPOSAL OF BUSINESS. Advance notice of stockholder nominations for the
election of directors and of the proposal of business by stockholders shall be
given in the manner provided in the By-Laws of the Corporation, as amended and
in effect from time to time.
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SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise provided for or fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors, and not by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 4. REMOVAL. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, any director may
be removed from office only for cause by the affirmative vote of the holders of
at least a majority of the voting power of all Voting Stock then outstanding,
voting together as a single class.
SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.
ARTICLE VIII
BY-LAWS
The By-Laws may be altered or repealed and new By-Laws may be adopted
(1) at any annual or special meeting of stockholders, by the affirmative vote of
the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, provided, however, that any proposed
alteration or repeal of, or the adoption of any By-Law inconsistent with,
Section 2.2, 2.7 or 2.10 of Article II of the By-Laws or with Section 3.2, 3.9
or 3.11 of Article III of the By-Laws, by the stockholders shall require the
affirmative vote of the holders of at least 80% of the voting power of all
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Voting Stock then outstanding, voting together as a single class; and
provided, further, however, that in the case of any such stockholder action at
a special meeting of stockholders, notice of the proposed alteration, repeal
or adoption of the new By-Law or By-Laws must be contained in the notice of
such special meeting, or (2) by the affirmative vote of a majority of the
Whole Board.
Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80% of the
voting power of all Voting Stock then outstanding, voting together as a single
class shall be required to alter, amend, adopt any provision inconsistent with
or repeal this Article VIII.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Article X, all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this Article. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the Voting Stock then outstanding, voting together as
a single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal Article V, VII, VIII or this sentence, provided
however that no amendment to this Certificate of Incorporation which alters or
changes the powers, preferences, or special rights of any shares of Class B
Stock to be issued in the Merger so as to affect them adversely shall be
effective with respect to any original holder or affiliate thereof without the
consent of such holder or affiliate.
ARTICLE X
LIMITED LIABILITY; INDEMNIFICATION
SECTION 1. LIMITED LIABILITY OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by the
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DGCL, as amended from time to time, for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of Section 1 of this Article X shall eliminate
or reduce the effect of Section 1 of this Article X in respect of any matter
occurring, or any cause of action, suit or claim that, but for Section 1 of
this Article X would accrue or arise, prior to such amendment or repeal.
SECTION 2. INDEMNIFICATION AND INSURANCE.
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation or 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 employee benefit plans, 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, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974, as in effect from
time to time) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
such person's heirs, executors and administrators; provided, however, that,
except as provided in paragraph (b) hereof, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification conferred in this Section
shall be
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a contract right and shall include the right to have the Corporation pay the
expenses incurred in defending any such proceeding in advance of its final
disposition; any advance payments to be paid by the Corporation within 20
calendar days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that, if and to the extent the DGCL requires, the payment of
such expenses incurred by a director or officer in such person's capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to have the
Corporation pay the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within 30 calendar days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which make it permissible under the DGCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel,
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or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indem- nification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of this Article
shall in any way diminish or adversely affect the rights of any director,
officer, employee or agent of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
(d) 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 such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
(e) Severability. If any provision or provisions of this Article X
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(1) the validity, legality and enforceability of the remaining provisions of
this Article X (including, without limitation, each portion of any paragraph of
this Article X containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article X (including, without
limitation, each such portion of any paragraph of this Article X containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
IN WITNESS WHEREOF, said ______________ has caused this Certificate of
Incorporation to be signed by its _____________________ and attested by its
_______________ this 17th day of June 1996.
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EXHIBIT 3.2
BY-LAWS
OF BANK UNITED CORP.
-------------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The principal office of the
Corporation in the State of Delaware shall be located in the City of Dover,
County of Kent, and the name and address of its registered agent is The
Prentice Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100,
Dover, Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may have such
other offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places
as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation shall be held on such date and at such time as
may be fixed by resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING. Except as otherwise required
by law and subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
special meetings of stockholders of the Corporation for any purpose or purposes
may be called only by (i) the Board of Directors pursuant to a resolution
stating the purpose or purposes thereof approved by a majority of the total
number of directors which the Corporation would have if there were no vacancies
(the "Whole Board"), or (ii) by the Chairman of the Board of Directors of the
Corporation. No business other than that stated in the notice shall be
transacted at any special meeting.
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SECTION 2.3. PLACE OF MEETING. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for any special meeting of the stockholders. If no
designation is so made, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered by the Corporation not less
than 10 calendar days nor more than 60 calendar days before the date of the
meeting, either personally or by mail, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at such person's address as it appears on
the stock transfer books of the Corporation. Such further notice shall be
given as may be required by law. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Meetings may be held without
notice if all stockholders entitled to vote are present, or if notice is waived
by those not present in accordance with Section 6.4 of these By-Laws. Any
previously scheduled meeting of the stockholders may be postponed, and any
special meeting of the stockholders may be canceled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled
for such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT; VOTING. Except as
otherwise provided by law or by the Certificate of Incorporation, the holders
of a majority of the voting power of all outstanding shares of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders, except that when specified business is to be voted on by a class
or series of stock voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum of such class or series for
the transaction of such business. The Chairman of the meeting may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law. The stockholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
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SECTION 2.6. PROXIES. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner prescribed
by the General Corporation Law of the State of Delaware (the "DGCL")) by the
stockholder, or by such person's duly authorized attorney in fact.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting pursuant to Section 2.4 of
these By-Laws, (b) by or at the direction of the Board of Directors, or (c) by
any stockholder of the Corporation who was a stockholder of record at the time
of giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be
properly brought before an annual meeting by a stockholder pursuant to clause
(c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 90th calendar day nor earlier than the close of business on the
120th calendar day 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 more than 30 calendar days before or more than 60 calendar
days after such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the 120th calendar
day prior to such annual meeting and not later than the close of business on
the later of the 90th calendar day prior to such annual meeting or the 10th
calendar day following the calendar day on which public announcement of the
date of such meeting is first made by the Corporation. For purposes of
determining whether a stockholder's notice shall have been delivered in a
timely manner for the annual meeting of stockholders in 1996, the first
anniversary of the previous year's meeting shall be deemed to be October 1,
1996. In no event shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (a) as to
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each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
Rule 14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least 100 calendar days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
By-Law shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the 10th calendar day following the day on which such
public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting
under Section 2.4 of these By-Laws. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors, or (b) provided that the
Board of Directors has determined that directors shall be elected at such
meeting, by any stockholder of the Corporation who is a stockholder of
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record at the time of giving of notice provided for in this By-Law, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors to the Board
of Directors, any stockholder may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the Corporation's notice
of meeting pursuant to such clause (b), if the stockholder's notice required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th calendar day prior to such special meeting and not later
than the close of business on the later of the 90th calendar day prior to such
special meeting or the 10th calendar day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as
described above.
(C) General.
(1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public an
nouncement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of
this By-Law, a stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in
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this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i)
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under an applicable
Preferred Stock Designation (as defined in the Corporation's Certificate of
Incorporation).
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED
VOTE. Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot, and, subject to the rights of
the holders of any series of Preferred Stock to elect directors under an
applicable Preferred Stock Designation, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation, Preferred Stock Designation, or these By-Laws, in all matters
other than the election of directors, the affirmative vote of a majority of the
voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter shall be the act of the
stockholders.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE
POLLS. The Board of Directors by resolution shall appoint, or shall authorize
an officer of the Corporation to appoint, one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate
inspector(s) to replace any inspector who fails to act. If no inspector or
alternate has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging such person's
duties, shall take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of such person's
ability. The inspector(s) shall have the duties prescribed by law. The
Chairman of the meeting shall fix and announce at the meeting the date and time
of the opening and the closing of the polls for each matter upon which the
stockholders will vote at a meeting.
SECTION 2.10. STOCKHOLDER ACTION BY UNANIMOUS WRITTEN
CONSENT. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be
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effected by any consent in writing by such holders, unless effected by the
unanimous written consent, setting forth the action to be taken, of the
holders of the Voting Stock then outstanding.
SECTION 2.11. RESTRICTIONS ON FIVE PERCENT STOCKHOLDERS.
(A) In addition to any limitations or restrictions contained
in the Certificate of Incorporation of the Corporation, prior to the
consummation of an initial public offering of the common stock of the
Corporation, whether primary or secondary (an "IPO"), all holders of stock of
the Corporation received in the merger (the "Merger") of Hyperion Holdings
Inc., a Delaware corporation, with and into the Corporation shall not Transfer
(as defined below) any such stock other than Transfers (x) in the case of stock
received in the Merger held by stockholders who received stock in the Merger in
respect of shares of the Class C Common Stock of the Corporation which existed
prior to the Merger, consistent with the transfer restriction provisions of the
Stockholders' Agreement dated as of January 5, 1990 among Hyperion Holdings
Inc. and the other parties specified therein (the "Stockholders' Agreement") as
if such shares of the Corporation's stock are shares of Class C Common Stock,
and (y) in the case of all shares of the Corporation's stock received by any
other stockholder in the Merger, limited to Transfers that would be permissible
in the case of partnership interests held pursuant to the terms of the Hyperion
Partners L.P. Limited Partnership Agreement. A copy of the Stockholders'
Agreement and the Hyperion Limited Partners L.P. Partnership Agreement shall
be maintained at the principal executive offices of the Corporation and shall
be made available for inspection by any stockholder of the Corporation.
(B) In addition to any limitations or restrictions contained
in the Certificate of Incorporation of the Corporation, any stockholder that
acquired stock in the Corporation in the Merger that is a Five Percent
Stockholder (as hereinafter defined) as a result of its ownership immediately
following the Merger of shares of common stock of the Corporation (such shares,
"Original Shares") shall not, prior to the earlier of the consummation of an
IPO or October 31, 1996, transfer, sell, assign, pledge, sell short or
hypothecate, or grant an option or interest similar to an option on, or other
disposition of, or in any way dispose of any interest in or take any action
whatsoever that would cause or constitute an "owner shift" (within the meaning
of Section 382 (as hereinafter defined)) with respect to (any such act, a
"Transfer") any Original Shares of the Corporation owned by such Five Percent
Stockholder; and any Five Percent Stockholder shall not Transfer any Original
Shares without the prior written consent of the Board
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of Directors of the Corporation for a period of three years following
consummation of any IPO occurring prior to October 31, 1996 unless as of such
earlier date such Transfer would not be reasonably likely to have a material
adverse affect on the tax position of the Corporation as determined by the
Board of Directors of the Corporation, provided however that any Original
Shares which could have been sold in an IPO prior to October 31, 1996 by a Five
Percent Stockholder under the Agreements, dated June 17, 1996 by and among
Hyperion Partners L.P., a Delaware limited partnership, Hyperion Holdings Inc.,
a Delaware corporation, the Corporation and each of the initial holders of
Original Shares, but are not sold at the election of such Five Percent
Stockholder in an IPO prior to October 31, 1996, shall not be subject to this
restriction following such an IPO. As used herein, a "Five-Percent
Stockholder" is a stockholder that is either: (i) a "5-percent shareholder" (as
such term is defined in Section 382 of the Internal Revenue Code of 1986, as
amended (together with the regulations promulgated thereunder, the "Code"), and
the regulations promulgated under such Section (such regulations, together with
Section 382 of the Code, "Section 382")) with respect to Bank United, a federal
savings bank (the "Bank") or (ii) a "higher tier entity" (as such term is
defined in Section 382) with respect to the Bank. Whether or not there has
been an IPO, this Section 2.11 shall be of no further force and effect from
and after October 31, 1999.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred
upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws required to be exercised
or done by the stockholders.
SECTION 3.2. NUMBER AND TENURE. Except as otherwise fixed by
or pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of the directors
of the Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Whole Board (but shall not be less than
three).
- 8 -
<PAGE> 9
The directors, other than those who may be elected by the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, one class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1997, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1999, with each class to
hold office until its successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor shall
have been duly elected and qualified.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the
Board of Directors shall be held without other notice than this By-Law
immediately after, and at the same place as, the annual meeting of
stockholders. The Board of Directors may, by resolution, provide the time and
place for the holding of additional regular meetings without other notice than
such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors then in office. The person
or persons authorized to call special meetings of the Board of Directors may
fix the place and time of the meetings.
SECTION 3.5. NOTICE. Notice of any special meeting of
directors shall be given to each director at such person's business or
residence in writing by hand delivery, first-class or overnight mail or courier
service, telegram or facsimile transmission, or orally by telephone. If mailed
by first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon
prepaid, at least 5 calendar days before such meeting. If by telegram,
overnight mail or courier service, such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company or the notice
is delivered to the overnight mail or courier service company at least 24 hours
before such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least 12 hours before
such meeting. If by telephone or by hand delivery, the notice shall be given
at least 12
- 9 -
<PAGE> 10
hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-Laws, as provided under Section 8.1. A meeting may be
held at any time without notice if all the directors are present or if those
not present waive notice of the meeting either before or after such meeting.
SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number
of directors equal to at least a majority of the Whole Board shall constitute a
quorum for the transaction of business, but if at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of the
directors present may adjourn the meeting from time to time without further
notice. The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors. The directors
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
SECTION 3.9. VACANCIES. Except as otherwise provided for or
fixed by or pursuant to the provisions of Article IV of the Certificate of
Incorporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of Directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a
- 10 -
<PAGE> 11
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES. (a) The Board
of Directors may, by resolution adopted by a majority of the Whole Board,
designate an Executive Committee to exercise, subject to applicable provisions
of law, all the powers of the Board in the management of the business and
affairs of the Corporation when the Board is not in session, including without
limitation the power to declare dividends, to authorize the issuance of the
Corporation's capital stock and to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of
Delaware, and may, by resolution similarly adopted, designate one or more other
committees. The Executive Committee and each such other committee shall
consist of two or more directors of the Corporation. The Board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. Any such
committee, other than the Executive Committee (the powers of which are
expressly provided for herein), may to the extent permitted by law exercise
such powers and shall have such responsibilities as shall be specified in the
designating resolution. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the Board to act at the meeting in
the place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board when required.
(b) A majority of any committee may determine its action
and fix the time and place of its meetings, unless the Board shall otherwise
provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Section 3.5 of these By-Laws. The
Board shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting
in whole or in part of persons who are not directors of the Corporation;
provided, however, that no such committee shall have or may exercise any
authority of the Board.
- 11 -
<PAGE> 12
SECTION 3.11. REMOVAL. Subject to the rights of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances, any director
may be removed from office only for cause by the affirmative vote of the
holders of at least a majority of the voting power of all Voting Stock then
outstanding, voting together as a single class.
SECTION 3.12. RECORDS. The Board of Directors shall cause to
be kept a record containing the minutes of the proceedings of the meetings of
the Board and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct
of the business of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a President, a
Secretary, a Treasurer, and such other officers (including, without limitation,
Senior Vice Presidents and Executive Vice Presidents and Vice Presidents) as
the Board of Directors from time to time may deem proper. The Chairman of the
Board shall be chosen from among the directors. All officers elected by the
Board of Directors shall each have such powers and duties as generally pertain
to their respective offices, subject to the specific provisions of this Article
IV. Such officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof. The
Board or any committee thereof may from time to time elect, or the Chairman of
the Board or President may appoint, such other officers (including one or more
Vice Presidents, Controllers, Assistant Secretaries and Assistant Treasurers),
as may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee or by the Chairman of the
Board or President, as the case may be.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected
officers of the Corporation shall be elected annually by the Board of Directors
at the regular meeting of the Board of Directors held after the annual meeting
of the stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient. Each
officer shall hold office until such person's successor shall have been duly
elected and shall have qualified or until
- 12 -
<PAGE> 13
such person's death or until he shall resign or be removed pursuant to Section
4.8.
SECTION 4.3. CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER.
The Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors and shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to such person's office which may be required by law and all such
other duties as are properly required of him by the Board of Directors. The
Chairman of the Board shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect. The Chairman of
the Board may also serve as President, if so elected by the Board. The
directors also may elect a Vice-Chairman to act in the place of the Chairman
upon his or her absence or inability to act.
SECTION 4.4. PRESIDENT. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President, if he or she is also a
director, shall, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of stockholders and of the Board of Directors.
SECTION 4.5. VICE PRESIDENTS. Each Senior Vice President and
Executive Vice President and any Vice President shall have such powers and
shall perform such duties as shall be assigned to him by the Board of
Directors.
SECTION 4.6. TREASURER. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such
banks as may be authorized by the Board of Directors, or in such banks as may
be designated as depositories in the manner provided by resolution of the Board
of Directors. The Treasurer shall have such further powers and duties and
shall be subject to such directions as may be granted or imposed from time to
time by the Board of Directors, the Chairman of the Board or the President.
SECTION 4.7. SECRETARY. (a) The Secretary shall keep or
cause to be kept in one or more books provided for that
- 13 -
<PAGE> 14
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders; the Secretary shall see that all notices are duly given
in accordance with the provisions of these By-Laws and as required by law;
shall be custodian of the records and the seal of the Corporation and affix and
attest the seal to all stock certificates of the Corporation (unless the seal
of the Corporation on such certificates shall be a facsimile, as hereinafter
provided) and affix and attest the seal to all other documents to be executed
on behalf of the Corporation under its seal; and shall see that the books,
reports, statements, certificates and other documents and records required by
law to be kept and filed are properly kept and filed; and in general, shall
perform all the duties incident to the office of Secretary and such other
duties as from time to time may be assigned to the Secretary by the Board, the
Chairman of the Board or the President.
(b) Assistant Secretaries shall have such of the authority
and perform such of the duties of the Secretary as may be provided in these
By-Laws or assigned to them by the Board of Directors or the Chairman of the
Board or by the Secretary. During the Secretary's absence or inability, the
Secretary's authority and duties shall be possessed by such Assistant
Secretary or Assistant Secretaries as the Board of Directors, the Chairman of
the Board, the President or a Vice Chairman of the Board may designate.
SECTION 4.8. REMOVAL. Any officer elected, or agent
appointed, by the Board of Directors may be removed by the affirmative vote of
a majority of the Whole Board whenever, in their judgment, the best interests
of the Corporation would be served thereby. Any officer or agent appointed by
the Chairman of the Board or the President may be removed by him whenever, in
such person's judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of such person's successor, such person's death, such person's
resignation or such person's removal, whichever event shall first occur, except
as otherwise provided in an employment contract or under an employee deferred
compensation plan.
SECTION 4.9. VACANCIES. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chairman of the Board or the President because of death, resignation, or
removal may be filled by the Chairman of the Board or the President.
- 14 -
<PAGE> 15
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest
of each stockholder of the Corporation shall be evidenced by certificates for
shares of stock in such form as the appropriate officers of the Corporation may
from time to time prescribe. The shares of the stock of the Corporation shall
be transferred on the books of the Corporation by the holder thereof in person
or by such person's attorney, upon surrender for cancellation of certificates
for at least the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require. The certificates of stock shall be signed, countersigned
and registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No
certificate for shares of stock in the Corporation shall be issued in place of
any certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors or any financial officer may
in its or such person's discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation
shall begin on the first day of October and end on the thirtieth day of
September of each year.
SECTION 6.2. DIVIDENDS. The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.
- 15 -
<PAGE> 16
SECTION 6.3. SEAL. The corporate seal shall have inscribed
thereon the words "Corporate Seal," the year of incorporation and around the
margin thereof the words "Delaware."
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is
required to be given to any stockholder or director of the Corporation under
the provisions of the DGCL or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or the Board of Directors or
committee thereof need be specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 6.6. RESIGNATIONS. Any director or any officer,
whether elected or appointed, may resign at any time by giving written notice
of such resignation to the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Chairman of the Board,
the President, or the Secretary, or at such later time as is specified therein.
No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. CONTRACTS. Except as otherwise required by law,
the Certificate of Incorporation, a Preferred Stock Designation, or these
By-Laws, any contracts or other instruments may be executed and delivered in
the name and on the behalf of the Corporation by such officer or officers of
the Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. The Chairman of the Board, the President or any Senior Vice
President, Executive Vice President or Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or on
behalf of the Corporation. Subject to any restrictions imposed by the Board of
Directors or the Chairman of the Board,
- 16 -
<PAGE> 17
the President or any Senior Vice President, Executive Vice President or Vice
President of the Corporation may delegate contractual powers to others under
such person's jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.2. PROXIES. Unless otherwise provided by
resolution adopted by the Board of Directors, the Chairman of the Board, the
President or any Senior Vice President, Executive Vice President or Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as the holder of
stock or other securities in any other corporation, any of whose stock or
other securities may be held by the Corporation, at meetings of the holders of
the stock or other securities of such other corporation, or to consent in
writing, in the name of the Corporation as such holder, to any action by such
other corporation, and may instruct the person or persons so appointed as to
the manner of casting such votes or giving such consent, and may execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal or otherwise, all such written proxies or other instruments as
he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. The By-Laws may be altered or
repealed and new By-Laws may be adopted (1) at any annual or special meeting of
stockholders by the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote thereat,
provided, however, that any proposed alteration or repeal of, or the adoption
of any By-Law inconsistent with, Section 2.2, 2.7, 2.10 or 2.11 of Article II
or Section 3.2, 3.9 or 3.11 of Article III of the By-Laws by the stockholders
shall require the affirmative vote of the holders of at least 80% of the voting
power of all Voting Stock then outstanding, voting together as a single class,
and provided, further, however, that, in the case of any such stockholder
action at a special meeting of stockholders, notice of the proposed alteration,
repeal or adoption of the new By-Law or By-Laws must be contained in the notice
of such special meeting, or (2) by the affirmative vote of a majority of the
Whole Board.
- 17 -
<PAGE> 1
EXHIBIT 4.1
<PAGE> 2
- -------------------------------------------------------------------------------
USAT HOLDINGS INC.
TO
THE BANK OF NEW YORK
Trustee
--------------------
Indenture
Dated as of May 15, 1993
-------------------
$115,000,000
8.05% Senior Notes due May 15, 1998
- -------------------------------------------------------------------------------
<PAGE> 3
<TABLE>
<CAPTION>
USAT HOLDINGS, INC.
Reconciliation and tie between Trust Indenture Act of
1939 and Indenture, dated as of May 15, 1993
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
Section 310 (a) (1) ......................................................................... 609
(a) (2) ......................................................................... 609
(a) (3) ......................................................................... Not
Applicable
(a) (4) ......................................................................... Not
Applicable
(b) ......................................................................... 608
......................................................................... 610
SECTION 311(a) ......................................................................... 613 (a)
(b) ......................................................................... 613 (b)
(b) (2) ......................................................................... 703 (a) (2)
......................................................................... 703 (b)
SECTION 312 (a) ......................................................................... 701
......................................................................... 702 (a)
(b) ......................................................................... 702 (b)
(c) ......................................................................... 702 (c)
Section 313 (a) ......................................................................... 703 (a)
(b) ......................................................................... 703 (b)
(c) ......................................................................... 703 (a)
......................................................................... 703 (b)
(d) ......................................................................... 703 (c)
Section 314 (a) ......................................................................... 704
(b) ......................................................................... Not
Applicable
(c) (1) ......................................................................... 102
(c) (2) ......................................................................... 102
(c) (3) ......................................................................... Not
Applicable
(d) ......................................................................... Not
Applicable
(e) ......................................................................... 102
SECTION 315 (a) ......................................................................... 601(a)
(b) ......................................................................... 602
......................................................................... 703 (a) (6)
(c) ......................................................................... 601(b)
(d) ......................................................................... 601(c)
(d) (1) ......................................................................... 601(a) (1)
(d) (2) ......................................................................... 601(c) (2)
(d) (3) ......................................................................... 601(c) (3)
(e) ......................................................................... 514
</TABLE>
-i-
<PAGE> 4
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
SECTION 316 (a) ......................................................................... 101
(a) (1) (A) ..................................................................... 502
512
(a) (1) (B) ..................................................................... 513
(a) (2) ......................................................................... Not
Applicable
(b) ......................................................................... 508
SECTION 317 (a) (1) ......................................................................... 503
(a) (2) ......................................................................... 504
(b) ......................................................................... 1003
SECTION 318 (a) ......................................................................... 107
</TABLE>
- -------------------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Parties ..................................................................................... 1
Recitals of the Company ..................................................................... 1
ARTICLE ONE
Definitions and Other Provisions of
General Application
SECTION 101. Definitions ................................................................... 1
Act ........................................................................... 2
Additional Interest ........................................................... 2
Affiliate ..................................................................... 2
Asset Disposition ............................................................. 2
Bank Subsidiary ............................................................... 3
Bank United.................................................................... 3
Bank United Preferred Stock.................................................... 3
Board of Directors ............................................................ 3
Board Resolution............................................................... 3
Business Day .................................................................. 3
Capital Distribution Requirement............................................... 3
Capital Stock ................................................................. 4
Change of Control.............................................................. 4
Commission .................................................................... 4
Common Stock . . .............................................................. 4
Company ....................................................................... 4
Company Request; Company Order................................................. 5
Consolidated Net Income ....................................................... 5
Consolidated Net Worth ........................................................ 5
Corporate Trust Office ........................................................ 5
corporation ................................................................... 6
Covered Asset ................................................................. 6
Debt .......................................................................... 6
Depositary. ................................................................... 6
Disqualified Stock ............................................................ 6
Event of Default .............................................................. 6
Exchange Act .................................................................. 7
Exchange and Registration Rights . ............................................ 7
Exchange Offer ................................................................ 7
Exchange Security ............................................................. 7
Expiration Date ............................................................... 7
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-iii-
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C>
FDIC ................................................................................. 7
FSLIC Pledge ......................................................................... 7
FSLIC Warrant ........................................................................ 7
Global Security ...................................................................... 7
Guarantee ............................................................................ 7
Holder ............................................................................... 8
Hyperion.............................................................................. 8
Incur ................................................................................ 8
Indenture ............................................................................ 8
Interest Payment Date ................................................................ 8
Investment ....................................................................... ... 8
Insured Depositary Institution........................................................ 9
Lien ................................................................................. 9
Maturity ............................................................................. 9
Moody's............................................................................... 9
Net Available Proceeds ............................................................... 9
Offer ................................................................................ 9
Offer to Purchase .................................................................... 9
Officers' Certificate ............................................................... 12
Opinion of Counsel .................................................................. 12
OTS ................................................................................. 12
Outstanding ......................................................................... 12
Parent .............................................................................. 13
Paying Agent ........................................................................ 13
Permitted Holder .................................................................... 13
Person .............................................................................. 14
Predecessor Security ................................................................ 14
Preferred Stock ..................................................................... 14
Purchase Amount ..................................................................... 14
Purchase Date ....................................................................... 14
Purchase Price ...................................................................... 14
Qualified Investments ............................................................... 14
Redeemable Stock .................................................................... 15
Regular Record Date ................................................................. 15
Regulatory Capital Agreement ........................................................ 15
Regulatory Requirement .............................................................. 15
Related Person ...................................................................... 16
Responsible Officer ................................................................. 16
Restricted Payments ................................................................. 16
Rule 144A Securities ................................................................ 16
Second Step-Up ...................................................................... 16
Securities .......................................................................... 16
Securities Act ...................................................................... 16
Security Register;
Security Registrar ............................................................. 16
Special Record Date ................................................................. 16
Stated Maturity ..................................................................... 16
Step-Down Date ...................................................................... 17
Step-Up ............................................................................. 17
</TABLE>
-iv-
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C>
Subordinated Debt ...................................................... 17
Subsidiary ............................................................. 17
Trustee ................................................................ 18
Trust Indenture Act .................................................... 18
U.S. Government Obligations ............................................ 18
Unrestricted Subsidiary ................................................ 18
Vice President ......................................................... 19
Voting Stock ........................................................... 19
Wholly Owned Subsidiary ................................................ 19
SECTION 102. Compliance Certificates and Opinions . ................................. 20
SECTION 103. Form of Documents Delivered
to Trustee . ......................................................... 20
SECTION 104. Acts of Holders; Record Date ........................................... 21
SECTION 105. Notices, Etc., to Trustee and
Company ........................................................... 23
SECTION 106. Notice to Holders; Waiver .............................................. 23
SECTION 107. Application of Trust Indenture Act . . ................................. 24
SECTION 108. Effect of Headings and
Table of Contents .................................................. 24
SECTION 109. Successors and Assigns ................................................. 24
SECTION 110. Separability Clause .................................................... 24
SECTION 111. Benefits of Indenture .................................................. 25
SECTION 112. Governing Law .......................................................... 25
SECTION 113. Legal Holidays ......................................................... 25
SECTION 114. No Recourse Against Others ............................................. 25
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally ........................................................ 26
SECTION 202. Form of Face of Security ............................................... 26
SECTION 203. Form of Reverse of Security ............................................ 30
</TABLE>
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SECTION 204. Form of Trustee's
Certificate of Authentication . . . .................................. 33
ARTICLE THREE
The Securities
SECTION 301. Title and Terms ........................................................ 34
SECTION 302. Denominations .......................................................... 35
SECTION 303. Execution, Authentication,
Delivery and Dating ................................................... 35
SECTION 304. Temporary Securities ................................................... 37
SECTION 305. Registration, Registration of
Transfer and Exchange ................................................ 38
SECTION 306. Mutilated, Destroyed,
Lost and Stolen Securities ........................................... 41
SECTION 307. Payment of Interest;
Interest Rights Preserved ............................................ 42
SECTION 308. Persons Deemed Owners .................................................. 44
SECTION 309. Cancellation ........................................................... 44
SECTION 310. Computation of Interest ................................................ 45
SECTION 311. Cusip Numbers .......................................................... 45
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and
Discharge of Indenture .............................................. 45
SECTION 402. Application of Trust Money ............................................. 47
</TABLE>
ARTICLE FIVE
Remedies
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SECTION 501. Events of Default .................................................. 47
SECTION 502. Acceleration of Maturity;
Rescission and Annulment ....................................... 50
SECTION 503. Collection of Indebtedness and
Suits for Enforcement by
Trustee ........................................................ 51
SECTION 504. Trustee May File Proofs of Claim . . . .............................. 52
SECTION 505. Trustee May Enforce Claims
Without Possession of
Securities ........................................................ 53
SECTION 506. Application of Money Collected ...................................... 53
SECTION 507. Limitation on Suits ................................................. 54
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium
and Interest ...................................................... 55
SECTION 509. Restoration of Rights and Remedies . . .............................. 55
SECTION 510. Rights and Remedies Cumulative ...................................... 55
SECTION 511. Delay or Omission Not Waiver ........................................ 56
SECTION 512. Control by Holders .................................................. 56
SECTION 513. Waiver of Past Defaults ............................................. 56
SECTION 514. Undertaking for Costs ............................................... 57
SECTION 515. Waiver of Stay or Extension Laws . .................................. 57
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and
Responsibilities ................................................ 57
SECTION 602. Notice of Defaults .................................................. 59
SECTION 603. Certain Rights of Trustee ........................................... 59
</TABLE>
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SECTION 604. Not Responsible for Recitals
or Issuance of Securities ......................................... 60
SECTION 605. May Hold Securities ................................................. 61
SECTION 606. Money Held in Trust ................................................. 61
SECTION 607. Compensation and Reimbursement ...................................... 61
SECTION 608. Disqualification; Conflicting
Interests ......................................................... 62
SECTION 609. Corporate Trustee Required;
Eligibility ....................................................... 62
SECTION 610. Resignation and Removal;
Appointment of Successor ........................................... 63
SECTION 611. Acceptance of Appointment by
Successor . . ..................................................... 64
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business ......................................... 65
SECTION 613. Preferential Collection of
Claims Against Company ............................................ 65
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names
and Addresses of Holders .............................. 65
SECTION 702. Preservation of Information;
Communications to Holders .............................. 66
SECTION 703. Reports by Trustee .................................................. 66
SECTION 704. Reports by Company .................................................. 67
SECTION 705. Officer's Certificate with Respect
to Change in Interest Rates ....................................... 67
</TABLE>
ARTICLE EIGHT
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Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc.
Only on Certain Terms .............................................. 67
SECTION 802. Successor Substituted ................................................ 69
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without
Consent of Holders ................................................. 70
SECTION 902. Supplemental Indentures with
Consent of Holders ................................................. 70
SECTION 903. Execution of Supplemental
Indentures ........................................................ 72
SECTION 904. Effect of Supplemental Indentures . . ................................ 72
SECTION 905. Conformity with Trust Indenture Act . ................................ 72
SECTION 906. Reference in Securities to
Supplemental Indentures ............................................ 72
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium
and Interest ....................................................... 73
SECTION 1002. Maintenance of Office or Agency . . .................................. 73
SECTION 1003. Money for Security Payments to
be Held in Trust .................................................... 73
SECTION 1004. Existence ............................................................ 75
SECTION 1005. Maintenance of Properties ............................................ 75
SECTION 1006. Payment of Taxes and Other Claims . .................................. 76
SECTION 1007. Maintenance of Insurance ............................................. 76
</TABLE>
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SECTION 1008. Limitation on Company Debt ............................................ 76
SECTION 1009. Limitation on Investments ............................................. 77
SECTION 1010. Limitation on Conduct of
Business .......................................................... 78
SECTION 1011. Limitation on Restricted Payments . . ................................. 78
SECTION 1012. Limitations Concerning Distributions
By Subsidiaries, etc. ............................................. 80
SECTION 1013. Limitation on Liens ................................................... 81
SECTION 1014. Limitation on Transactions with
Affiliates and Related Persons . . . ............................... 82
SECTION 1015. Limitation on Dispositions of,
and Liens upon, Certain Capital
Stock of Subsidiaries that are
Insured Depository Institutions . . ................................ 83
SECTION 1016. Change of Control ..................................................... 86
SECTION 1017 Provision of Financial Information . .................................. 87
SECTION 1018. Statement by Officers as to
Default; Compliance
Certificates .................................................... 88
SECTION 1019. Waiver of Certain Covenants ........................................... 88
SECTION 1020. Exchange and Registration Rights . . .................................. 89
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Election to Redeem; Notice
to Trustee ........................................................... 89
SECTION 1102. Notice of Redemption .................................................. 89
SECTION 1103. Deposit of Redemption Price ........................................... 90
SECTION 1104. Securities Payable on
Redemption Date ................................................... 90
</TABLE>
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ARTICLE TWELVE
Defeasance and Covenant Defeasance
Page
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SECTION 1201. Company's Option to Effect
Defeasance or Covenant
Defeasance ............................................................ 91
SECTION 1202. Defeasance and Discharge ............................................... 91
SECTION 1203. Covenant Defeasance .................................................... 91
SECTION 1204. Conditions to Defeasance or
Covenant Defeasance ................................................. 92
SECTION 1205. Deposited Money and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions . . . ................................ 95
SECTION 1206. Reinstatement .......................................................... 95
TESTIMONIUM ............................................................................. 96
SIGNATURES AND SEALS .................................................................... 97
ACKNOWLEDGMENTS ......................................................................... 98
</TABLE>
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INDENTURE, dated as of May 15, 1993, between USAT Holdings
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 520
Madison Avenue, New York, New York, 10020, and The Bank of New York, a banking
corporation duly organized and existing under the laws of the State of New York,
as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
$115,000,000 aggregate principal amount of its 8.05% Senior Notes due May 15,
1998 (the "Securities") of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture. The Securities may consist of either or both of Rule
144A Securities or Exchange Securities, each as defined herein.
All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act,
<PAGE> 15
either directly or by reference therein, have the meanings assigned to
them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles (whether or not such is indicated herein), and,
except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles
as are generally accepted as consistently applied by the Company at the
date of such computation;
(4) unless otherwise specifically set forth herein, all
calculations or determinations of a Person shall be performed or made
on a consolidated basis in accordance with generally accepted
accounting principles; and
(5) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in
that Article.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Interest" has the meaning set forth in the form of
Security contained in Section 202. Unless the context otherwise requires,
references herein to "interest" on the Securities shall include Additional
Interest.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer,
conveyance, sale, lease or other disposition by such Person or any of its
Subsidiaries (including a consolidation
-2-
<PAGE> 16
or merger or other sale of any such Subsidiary with, into or to another Person
in a transaction in which such Subsidiary ceases to be a Subsidiary, but
excluding a disposition by a Subsidiary of such Person to such Person or a
Wholly Owned Subsidiary of such Person or by such Person to a Wholly Owned
Subsidiary of such Person) of (i) shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests of a Subsidiary of such Person,
(ii) substantially all of the assets of such Person or any of its Subsidiaries
representing a division or line of business or (iii) other assets or rights of
such Person or any of its Subsidiaries outside of the ordinary course of
business. Notwithstanding the foregoing, an Asset Disposition shall not be
deemed to include (i) any sale of a Covered Asset in the ordinary course of
business or (ii) the sale in the ordinary course of business of any ownership
interest in, or the assets of, any special purpose entity formed for the purpose
of acquiring mortgages, mortgage-backed securities and related assets and
issuing mortgage-backed securities.
"Bank Subsidiary" means any Subsidiary of the Company that is
an Insured Depository Institution.
"Bank United" means Bank United of Texas FSB, a federally
chartered savings bank.
"Bank United Preferred Stock" means the shares of 10.12%
Noncumulative Preferred Stock, Series A, issued by Bank United and outstanding
on the date of this Indenture.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or executive order to close.
"Capital Distribution Requirement" means that Bank United
shall (a) be a "Tier 1 association" as defined in the OTS regulation regarding
capital distributions as in effect on the date of this Indenture (12 C.F.R.
563.134), (b) be treated as a Tier 1 association for all purposes of such
regulation, and (c) not be subject to any written agreement,
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<PAGE> 17
order, prohibition or directive with or by the 0TS, the FDIC or any other
supervisory entity restricting capital distributions (other than the Regulatory
Capital Agreement); provided, that if an entity meeting the definition of Tier 1
association as in effect on the date of this Indenture under the OTS regulation
regarding capital distributions would not, as a result of a change or addition
to applicable Regulatory Requirements, be permitted, without prior approval by a
supervisory entity, to make capital distributions in at least the amount
provided in such regulation as in effect at the date of this Indenture, then
"Capital Distribution Requirement" shall mean (x) that Bank United shall be
permitted, without prior approval by a supervisory entity, to make capital
distributions to the Company in an aggregate amount equal to the aggregate
interest payments scheduled to be made with respect to the Securities for the
two next succeeding Interest Payment Dates or (y) until such time, if any, as a
supervisory entity shall have disapproved the making of any such capital
distribution, that the Company shall have delivered to the Trustee an officers'
certificate within 10 days after it first proposes to rely on this clause (y)
(and shall continue to deliver such certificate thereafter as of each January 1,
March 1, July 1 and October 1, for so long as it proposes to rely on this clause
(y)) of the Chief Executive Officer and the Chief Financial Officer of the Bank,
in the form set forth in Annex I hereto.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock of such Person.
"Change of Control" has the meaning specified in Section 1016.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
" Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor
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<PAGE> 18
Person shall have become such pursuant to the applicable provisions of this
Indenture and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Income" of any Person means for any period
the net income (or loss) of such Person and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by such Person or a Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (b) the net income (but not net loss) of any
Subsidiary of such Person which is subject to restrictions which prevent the
payment of dividends or the making of distributions to such Person to the extent
of such restrictions, (c) the net income (or loss) of any Person that is not a
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (d) gains or losses on Asset Dispositions by such Person or its
Subsidiaries and (e) all extraordinary gains and extraordinary losses; provided,
further, that there shall be added thereto the aggregate amount of dividends
paid with respect to Preferred Stock of Subsidiaries of the Company to the
extent such amount was otherwise deducted in the foregoing calculation of
Consolidated Net Income.
"Consolidated Net Worth" of any Person means the stockholders'
equity of such Person and its Subsidiaries, determined on a consolidated basis
in accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
the Company, adjustments following the date of this Indenture to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person shall not be
given effect.
"Corporate Trust Office" means the principal office of the
Trustee in the City of New York, New York at which at any particular time its
corporate trust business shall be administered.
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<PAGE> 19
"corporation" means a corporation, association, company,
joint-stock company, partnership or business trust.
"Covered Asset" means any asset defined as such under the
terms of the Assistance Agreement, dated December 30, 1988, among Bank United,
the FSLIC Resolution Fund and the other parties thereto.
"Debt" means, with respect to any Person, whether recourse is
to all or a portion of the assets of such Person and whether or not contingent,
(i) every obligation of such Person for money borrowed, (ii) every obligation of
such Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) the maximum fixed redemption or repurchase price of Redeemable
Stock of such Person at the time of determination, and (vi) every obligation of
the type referred to in Clauses (i) through (v) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed or is responsible or liable, directly or indirectly, as obligor,
Guarantor or otherwise.
"Depositary" means, the Person designated to act as Depositary
by the Company in Section 301 until a successor Depositary shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
Depositary shall mean or include each Person who is then a Depositary hereunder.
"Disqualified Stock" of any Person means any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Company, any
subsidiary of the Company or the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the Securities.
"Event of Default" has the meaning specified in Section 501.
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<PAGE> 20
"Exchange Act" refers to the Securities Exchange Act of 1934,
as it may be amended and any successor act thereto.
"Exchange and Registration Rights" means the exchange and
registration rights set forth in Annex II hereto.
"Exchange Offer" has the meaning set forth in the form of the
Security contained in Section 202.
"Exchange Security" means any Security issued in exchange for
a Rule 144A Security or Securities pursuant to an Exchange Offer or otherwise in
a transaction registered under the Securities Act and any Security with respect
to which the next preceding Predecessor Security of such Security was an
Exchange Security.
"Expiration Date" has the meaning specified in the definition
of Offer to Purchase.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor Federal agency.
"FSLIC Pledge" means the pledge of the Capital Stock of Bank
United pursuant to the Regulatory Capital Maintenance Agreement dated December
30, 1988, among the Company, Bank United, Hyperion Holdings, Inc., Hyperion
Partners, L.P. and the Federal Savings and Loan Insurance Corporation.
" FSLIC Warrant" means the warrant issued pursuant to the
Warrant Agreement dated December 30, 1988 between United Savings Association of
Texas FSB and the Federal Savings and Loan Insurance Corporation.
"Global Security" means a Security that evidences all or part
of the Securities issued to the Depositary in accordance with Section 303 and
bearing the legend prescribed in Section 303.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Debt of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Debt, (ii) to purchase property, securities or services for the purpose
of assuring the holder of such Debt of the payment of such Debt, or (iii) to
maintain
-7-
<PAGE> 21
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Hyperion" means Hyperion Partners L.P., a limited partnership
organized under the laws of the State of Delaware.
"Incur" means, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Debt shall not
be deemed an Incurrence of such Debt.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
Indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental Indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an
instalment of interest on the Securities.
" Investment" in any Person means the acquisition or ownership
of Capital Stock, bonds, notes, debentures or other securities or evidence of
Debt of such Person, any capital contribution to such Person, any deposit with,
or advance, loan or other extension of credit to, such Person, any Guarantee of,
or other contingent obligation with respect to, Debt or other liability of such
Person or any amount committed to be advanced, lent or extended to such Person.
-8-
<PAGE> 22
"Insured Depository Institution" means an insured depository
institution within the meaning of 12 U.S.C. Section 1813(c) (2) or any successor
law, rule or regulation.
"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
" Moody's" means Moody's Investors Service, Inc.
"Net Available Proceeds" from any disposition by any Person
means cash or readily marketable cash equivalents received (including by way of
sale or discounting of a note, instalment receivable or other receivable)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a liability
as a consequence of such disposition, (ii) all payments made by such Person or
its Subsidiaries on any Debt which is secured by such assets in accordance with
the terms of any Lien upon or with respect to such assets or which must by the
terms of such Lien, or in order to obtain a necessary consent to such
disposition or by applicable law be repaid out of the proceeds from such
disposition, and (iii) all distributions and other payments made to minority
interest holders in Subsidiaries of such Person or joint ventures as a result of
such disposition.
"Offer" has the meaning specified in the definition of Offer
to Purchase.
"Offer to Purchase" means a written offer (the "Offer") sent
by the Company by first class mail, postage prepaid, to each Holder at his
address appearing in the Security Register on the date of the Offer offering to
purchase up to the principal amount of Securities specified in such Offer at the
purchase price specified in such Offer
'9-
<PAGE> 23
(as determined pursuant to this Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase which shall be, subject to any contrary
requirements of applicable law, not less than 30 days or more than 60 days after
the date of such Offer and a settlement date (the "Purchase Date") for purchase
of Securities within five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to Section 1017 (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial Statements referred to in
Clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding
Securities offered to be purchased by the Company pursuant to the Offer
to Purchase (including, if less than 100%, the manner by which such has
been determined pursuant to the Section hereof requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each
$1,000 aggregate principal amount of
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<PAGE> 24
Securities accepted for payment (as specified pursuant to this
Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any portion
of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount, provided, that if such Holder does not tender
all of such Holder's Securities and the Securities are Rule 144A
Securities, the principal amount of the remaining Securities of such
Holder shall be equal to at least $250,000 plus integral multiples of
$1,000 in excess thereof;
(6) the place or places where Securities are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become
due and payable upon each Security accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
(9) that each Holder electing to tender a Security pursuant to
the Offer to Purchase will be required to surrender such Security at
the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Security being, if the Company or
the Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing);
(10) that Holders will be entitled to withdraw all or any
portion of Securities tendered (subject to paragraph (5) above) if the
Company (or its Paying Agent) receives, not later than the close of
business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount
less than or equal to the Purchase
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Amount are duly tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase all such Securities and (b) if
Securities in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase Securities having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Securities
in denominations of $1,000 or integral multiples thereof shall be
purchased and, if the Securities of a particular Holder are Rule 144A
Securities, so that the principal amount of the remaining Securities of
such Holder shall be equal to at least $250,000); and
(12) that in case of any Holder whose Security is purchased
only in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to and
in exchange for the unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary, of the
Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, and who shall be acceptable to the Trustee.
"OTS" means the Office of Thrift Supervision or any successor
Federal Agency.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee
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or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been defeased pursuant to Section
1202 hereof; and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"Parent" means Hyperion Holdings, Inc.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Permitted Holder" means Hyperion or any Affiliate of
Hyperion.
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"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock", as applied to the Capital Stock of any
Person, means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Purchase Amount" has the meaning specified in the definition
of Offer to Purchase.
"Purchase Date" has the meaning specified in the definition of
Offer to Purchase.
"Purchase Price" has the meaning specified in the definition
of Offer to Purchase.
"Qualified Investments" means investments in the following
types of instruments:
(a) direct obligations of the United States of America or any
agency or instrumentality thereof, or obligations guaranteed by the
United States of America or any agency or instrumentality thereof,
provided that such obligations mature within one year from the date of
acquisition thereof;
(b) demand deposit accounts, or certificates of deposit or
other obligations, maturing within one year after acquisition thereof,
either fully insured by the FDIC (or any successor Federal agency) or
issued by a national or state bank, trust or thrift institution having
capital, surplus and undivided profits of at least $250,000,000, and
having (or being the Wholly Owned Subsidiary of a holding company
having) a short-term credit rating, at the time of purchase, within one
of the two then-highest rating categories of Moody's or S&P; or
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(c) commercial paper rated at the time of purchase in one of
the two then-highest rating categories by Moody's or by S&P and
maturing not more than 270 days from the date of creation thereof; or
(d) guaranteed investment contracts of insurance companies
whose claims-paying ability at the time of purchase is rated AA/Aa or
higher by Moody's or by S&P, provided that the total amount of
investments in such contracts which may constitute Qualified
Investments at any one time pursuant to this section (d) shall not at
any time exceed 20% of the Company's total Qualified Investments; or
(e) repurchase agreements with respect to direct obligations
of the United States of America or any agency or instrumentality
thereof, or obligations guaranteed by the United States of America or
any agency or instrumentality thereof, provided that such repurchase
agreements mature within one year from the date of creation thereof; or
(f) cash.
"Redeemable Stock" of any Person means any equity security of
such Person that by its terms or otherwise is required to be redeemed prior to
the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to the final Stated Maturity of the
Securities.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulatory Capital Agreement" means the Regulatory Capital
Maintenance Agreement, dated December 30, 1988, by and among Bank United, the
Company, certain of its direct and indirect parents and the Federal Savings and
Loan Insurance Corporation, as in effect at the date of this Indenture.
"Regulatory Requirement", as to any Person, means any law,
ordinance, administrative or governmental rule, regulation or official
interpretation applicable to it or any of its properties or any order or decree
of any court or governmental agency or body having jurisdiction over such Person
or any of its properties, including any such order or directive by the OTS
applicable to OTS regulated institutions generally, including such Person.
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<PAGE> 29
"Related Person" of any Person means any other Person directly
or indirectly owning (a) 5% or more of the outstanding Common Stock of such
Person (or, in the case of a Person that is not a corporation, 5% or more of the
equity interest in such Person) or (b) 5% or more of combined voting power of
the Voting Stock of such Person.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning specified in Section
1011.
"Rule 144A Securities' means Securities that are not Exchange
Securities.
"Second Step-Up" has the meaning set forth in the form of
Security contained in Section 202.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Rule 144A Securities and any
Exchange Securities authenticated and delivered under this Indenture.
"Securities Act" refers to the Securities Act of 1933, as it
may be amended and any successor act thereto.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or
any instalment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such instalment
of interest is due and payable.
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<PAGE> 30
"Step-Down Date" has the meaning set forth in the form of the
Security contained in Section 202.
"Step-Up" has the meaning set forth in the form of the
Security contained in Section 202.
"Subordinated Debt" means Debt of the Company as to which the
payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior payment in
full of the Securities to at least the following extent: (i) no payments of
principal of (or premium, if any) or interest on or otherwise due in respect of
such Debt may be permitted for so long as any default in the payment of
principal (or premium, if any) or interest on the Securities exists; (ii) in the
event that any other default that with the passing of time or the giving of
notice, or both, would constitute an Event of Default exists with respect to the
Securities, upon notice by 25% or more in principal amount of the Securities to
the Trustee, the Trustee shall have the right to give notice to the Company and
the holders of such Debt (or trustees or agents therefor) of a payment blockage,
and thereafter no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be made for a period of 179 days
from the date of such notice; and (iii) such Debt may not (x) provide for
payments of principal of such Debt at the stated maturity thereof or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of acceleration
of such Debt upon an event of default thereunder), in each case prior to the
final Stated Maturity of the Securities or (y) permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company) of
such other Debt at the option of the holder thereof prior to the final Stated
Maturity of the Securities (unless the Securities shall no longer be
Outstanding), other than a redemption or other retirement at the option of the
holder of such Debt (including pursuant to an offer to purchase made by the
Company) which is conditioned upon the change of control of the Company pursuant
to provisions substantially similar to those contained in Section 1016 hereof.
"Subsidiary" of any Person means (i) a corporation more than
50% of the outstanding Voting Stock of which is owned, directly or indirectly,
by such Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or
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more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof. "Subsidiary"
shall not include an Unrestricted Subsidiary created in accordance with the
definition of "Unrestricted Subsidiary"
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after such
date, "Trust Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 as so amended.
"U.S. Government Obligations" has the meaning specified in
Section 1204.
"Unrestricted Subsidiary" means (1) any entity which, but for
its designation as an Unrestricted Subsidiary by the Board of Directors, would
be a Subsidiary of the Company, but only if (a) neither the Company nor any of
its other Subsidiaries (i) provides credit support for, or a Guarantee of, any
Debt of such entity or any Subsidiary of such entity (including any undertaking,
agreement or instrument evidencing such Debt) or (ii) is directly or indirectly
liable for any Debt of such entity or any Subsidiary of such entity, and (b) no
default with respect to any Debt of such entity or any Subsidiary of such entity
(including any right which the holders thereof may have to take enforcement
action against such entity or Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of the Company and its Subsidiaries
to declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity and (2) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary (other than Bank United or its successor) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated, provided that either (x) the
Subsidiary to be so designated has total assets of $1,000 or less or (y)
immediately after giving pro forma effect to such designation, the Company would
then be
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permitted to make a Restricted Payment pursuant to the "Limitation on Restricted
Payments" covenant in an amount equal to the greater of (A) the aggregate amount
of all Investments made by the Company and all Subsidiaries of the Company in
such proposed Unrestricted Subsidiary and its Subsidiaries prior to such
designation and (B) the Consolidated Net Worth of such proposed Unrestricted
Subsidiary, and upon such designation such amount shall be deemed to be a
Restricted Payment. The Board of Directors may designate any Unrestricted
Subsidiary to be a Subsidiary, provided that (i) had such Unrestricted
Subsidiary been a Subsidiary of the Company immediately prior thereto there
would not have occurred and be continuing any Event of Default or event that
with the lapse of time or the giving of notice, or both, would constitute an
Event of Default, and (ii) for purposes of the definition of "Consolidated Net
Income," only the net income of such entity for the period beginning on the date
of such designation shall be included therein. Any such designation by the Board
of Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person. For
purposes of Sections 1008, 1014 and 1015 for purposes of clause (iii) of Section
1011, and for the purpose of the definition of "Asset Disposition", Bank United
(or any entity into or with which Bank United may merge or consolidate) shall be
deemed to be a Wholly Owned Subsidiary of the Company provided that it is wholly
owned by the Company except to the extent of (i) Common Stock issued pursuant to
the FSLIC Warrant and not then held by an Affiliate of the Company and (ii) the
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issuance of any Preferred Stock that is not Voting Stock and is not issued in
contravention of the terms of this Indenture.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the Company,
or an Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one
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document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders: Record Date.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
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<PAGE> 35
Without limiting the generality of the foregoing, a Holder,
including the Depositary that is a Holder of a Global Security, may make, give
or take, by a proxy, or proxies, duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted in this Indenture to be made, given or taken by Holders, and the
Depositary that is a Holder of a Global Security may provide its proxy or
proxies to the beneficial owners of interest in any such Global Security.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the
Trust Indenture Act, fix any future day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted to be given or taken by Holders. If not set
by the Company prior to the first solicitation of a Holder made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day (or, if
later, the date of the most recent list of Holders required to be provided
pursuant to Section 701) prior to such first solicitation or vote, as the case
may be. With regard to any record date, only the Holders on such date (or their
duly designated proxies) shall be entitled to give or take, or vote on, the
relevant action.
(d) The ownership of Securities shall be proved by the
Security Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor
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<PAGE> 36
or in lieu thereof in respect of anything done, omitted or suffered to be done
by the Trustee or the Company in reliance thereon, whether or not notation of
such action is made upon such Security.
SECTION 105. Notices. Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument, Attention:
General Counsel, or at any other address previously furnished in
writing to the Trustee by the Company.
SECTION 106. Notice to Holders: Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not
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be a condition precedent to the validity of any action taken in reliance upon
such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. Application of Trust Indenture Act.
The Trust Indenture Act shall apply as a matter of contract to
this Indenture for purposes of interpretation, construction and defining the
rights and obligations hereunder. If any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required under
such Act to be part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any Paying Agent, the Security Registrar and the Holders
of Securities, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Purchase Date or Stated Maturity of any Security shall not be a Business Day,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date
or Purchase Date, or at the Stated Maturity, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption Date
or Purchase Date or Stated Maturity, as the case may be.
SECTION 114. No Recourse Against Others.
This Indenture and the Securities are solely corporate
obligations of the Company. No recourse shall be had against, and no personal
liability shall attach to, any director, officer, employee, incorporator,
stockholder or Affiliate, past, present or future, of the Company or any
successor thereto, or any of them, because of the creation of the indebtedness
hereby authorized, or under, upon or by reason of any obligation, covenant or
agreement contained in this Indenture or in any of the Securities or implied
therefrom or any claim based thereon or in respect thereof; it being expressly
understood that all such recourse and personal liability are hereby expressly
waived and released as a condition of, and as consideration for, the execution
of this Indenture and the issuance of such Securities.
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ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Rule 144A Securities, the Exchange Securities and the
Trustee's certificates of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution of the Securities.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
SECTION 202. Form of Face of Security.
[If a Global Security to be held by The Depository Trust
Company, then insert -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE A CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[If a Global Security, then insert - THIS IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE
OR IN PART FOR THE INDIVIDUAL SECURITIES PEPRESENTED HEREBY, THIS GLOBAL
SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
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<PAGE> 40
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]
[If Rule 144A Securities, then insert-- THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
(EXCEPT IN THE EVENT 0F REPURCHASE BY THE COMPANY) MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 0R RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT
TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (4) TO AN ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.]
USAT HOLDINGS INC.
8.05% SENIOR NOTES DUE MAY 15, 1998
NO._____ $_____
USAT Holdings Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to , or registered assigns, the
principal sum of Dollars on May 15, 1998, and to pay interest
thereon from May 17, 1993 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on May 15 and
November 15 in each year, commencing November 15, 1993, at the rate of 8.05% per
annum, until the principal hereof is paid or made available for payment, and (to
the extent that the payment of such interest shall be legally enforceable) at
the rate of 9.05% per annum on any overdue principal and premium and on any
overdue installment of interest until paid [If Rule 144A Securities, then insert
- -- ; provided, however, (A) if a registration statement under the Securities Act
of 1933, as amended, with the Securities and Exchange Commission (the
"Commission") registering a security substantially identical to this Security
pursuant to an exchange offer (the "Exchange Offer") upon the terms and
conditions set forth in the Exchange and Registration Rights (as defined in the
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<PAGE> 41
Indenture) (or, in accordance with such terms and conditions, registering this
Security for resale on a continuous basis, in lieu of registering such
securities pursuant to an exchange offer (the "Resale Registration")) shall not
have been filed with the Commission by June 16, 1993, or (B) if the Exchange
Offer has not been commenced by September 14, 1993 or consummated by (or, in
lieu thereof, such Resale Registration shall not have become effective by)
October 14, 1993, then in the case of Clause (A) and Clause (B) the aforesaid
rate of 8.05% per annum shall increase (the "Step-Up") in an amount equal to 50
basis points (1/2 of 1%) per annum so that interest on this Security shall
accrue at the rate of 8.55% per annum and provided, further, if the Exchange
Offer has not been consummated (or such Resale Registration has not become
effective) by February 11, 1994, then the aforesaid rate of 8.55% per annum
shall increase (the "Second Step-Up") by an additional amount equal to 50 basis
points (1/2 of 1%) per annum so that interest on this Security shall accrue
at the rate of 9.05% per annum. Interest accruing as a result of the Step-Up or
the Second Step-Up is referred to herein as "Additional Interest." Additional
Interest in respect of the Step-Up will accrue from and including June 16, 1993,
in the case of Clause (A) above or September 14, 1993 (in the case of failure to
commence the Exchange Offer) or October 14, 1993 (in the case of failure to
consummate the Exchange Offer or be effective as to such Resale Registration),
in the case of Clause (B) above, and Additional Interest in respect of the
Second Step-Up will accrue from and including February 11, 1994, until in the
case of Clause (A) above, the date on which such registration statement is
filed, or otherwise until the Exchange Offer is so consummated (or, in lieu
thereof, the effectiveness of such Resale Registration) (any such date, the
"Step-Down Date"). Additional Interest shall no longer accrue and interest shall
accrue on this Security at the aforesaid rate of 8.05% per annum from and
including the Step-Down Date. Accrued Additional Interest shall be paid
semi-annually on the Interest Payment Dates; and the amount of accrued
Additional Interest shall be determined on the basis of the number of days
actually elapsed. Any accrued and unpaid interest (including Additional
Interest) on this Security upon the issuance of an Exchange Security in exchange
for this Security shall cease to be payable to the Holder hereof but such
accrued and unpaid interest (including Additional Interest) shall be payable on
the next Interest Payment Date for such Exchange Security to the Holder thereof
on the related Regular Record Date.] The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such
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<PAGE> 42
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in the Borough of Manhattan, The City of New York, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
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<PAGE> 43
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
USAT HOLDINGS INC.
[Seal]
BY
---------------------
Title:
Attest:
- ---------------------
Title:
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities
of the Company designated as its 8.05% Senior Notes due May 15, 1998 (the
"Securities") issued under an Indenture, dated as of May 15, 1993 (herein called
the "Indenture"), between the Company and The Bank of New York, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture). The Securities are limited in aggregate principal amount to
$115,000,000. Reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered.
The Securities are not redeemable prior to their Stated
Maturity, except upon a Change of Control. Upon the occurrence of a Change of
Control, the Company may at its option redeem the Securities in whole but not in
part at 101% of their principal amount plus accrued interest to the date of
redemption. If within 15 days of such Change of Control the Company has not
exercised its option to redeem the Securities, the Company shall be required to
make an Offer to Purchase for all of the Securities at 101% of their principal
amount plus accrued interest to the date of purchase. The Indenture further
provides that, subject to certain conditions, if certain Net Available Proceeds
are available to the Company as a result of certain dispositions of certain
capital stock of Subsidiaries that are Insured Depository Institutions, the
Company shall be required to make an Offer to Purchase for a specified portion
of the Securities at 100% of their principal amount plus accrued interest to the
date of purchase.
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<PAGE> 44
The Securities do not have the benefit of any sinking fund
obligations.
In the event of purchase pursuant to an Offer to Purchase of
this Security in part only, a new Security or Securities for the unpurchased
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of this Security or (ii) certain restrictive
covenants and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth therein.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the mannner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
Unless the context otherwise requires, the Securities
(including all Rule 144A Securities (as defined in the Indenture) and Exchange
Securities (as defined in the Indenture)) shall constitute one series for all
purposes under the Indenture, including without limitation, amendments, waivers,
redemptions and Offers to Purchase.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if
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<PAGE> 45
any) and interest on this Security at the times, place and rate, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in the Borough of Manhattan, The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Exchange Securities are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof and
the Rule 144A Securities are issuable only in registered form in denominations
of $250,000 and any integral multiple of $1,000 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture provides that no Holder of any Securities
thereunder may enforce any remedy or institute any proceeding under the
Indenture except to the extent and on the conditions specified therein.
Interest on this Security shall be computed on the basis of a
360-day year of twelve 30-day months provided, that Additional Interest shall be
computed on the basis of a 365-day year and the number of days actually elapsed.
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<PAGE> 46
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and
construed in accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its
entirety by the Company pursuant to Section 1015 or 1016 of the Indenture,
check the box:
/ /
If you want to elect to have only a part of this Security
purchased by the Company pursuant to Section 1015 or 1016 of the Indenture,
state the amount: $
Dated: Your Signature:__________________
(Sign exactly as name appears
on the other side of this Security)
Signature Guarantee:________________________________________
(Signature must be guaranteed by a member
firm of the New York Stock Exchange or a
commercial bank or trust company)
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the
within-mentioned Indenture.
Dated:
The Bank of New York
as Trustee
By ___________________
Authorized Signatory
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<PAGE> 47
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $115,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, or 906 or in connection with an Offer to Purchase pursuant to Section
1015 or 1016. The Company may issue Exchange Securities from time to time
pursuant to an Exchange Offer pursuant to a Board Resolution, subject to Section
303, included in an Officers' Certificate delivered to the Trustee, in
authorized denominations in exchange for a like principal amount of Rule 144A
Securities. Upon any such exchange the Rule 144A Securities shall be cancelled
in accordance with Section 309 and shall no longer be deemed Outstanding for any
purpose. In no event shall the aggregate principal amount of Rule 144A
Securities and Exchange Securities Outstanding exceed $115,000,000.
The Securities shall be known and designated as the "8.05%
Senior Notes due May 15, 1998" of the Company. The Stated Maturity of the
Securities shall be May 15, 1998. The Securities shall bear interest at the rate
of 8.05% per annum (subject, in the case of the Rule 144A Securities, to
increase by .50% or 1.00% per annum, as provided in such Security), from May 17,
1993 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, as the case may be, payable semi-annually on May 15
and November 15, commencing November 15, 1993, until the principal thereof is
paid or made available for payment.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company in the City
of New York, New York maintained for such purpose and at any other office or
agency maintained by the Company for such purpose; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
The Depositary for the Rule 144A Securities to be
authenticated and delivered in the form of a Global Security or Securities upon
original issuance shall be The Depository Trust Company.
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<PAGE> 48
The Securities shall be subject to repurchase by the Company
pursuant to an Offer to Purchase as provided in Sections 1015 and 1016.
The Securities shall be redeemable as provided in Section
1016.
The Securities shall be subject to defeasance at the option of
the Company as provided in Article Twelve.
Unless the context otherwise requires, the Rule 144A
Securities and the Exchange Securities shall constitute one series for all
purposes under the Indenture, including without limitation, amendments, waivers,
redemptions and Offers to Purchase.
SECTION 302. Denominations.
The Rule 144A Securities shall be issuable only in registered
form without coupons and only in denominations of $250,000 and any integral
multiple of $1,000 above that amount and the Exchange Securities shall be
issuable only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman of the Board, its President or one of its Vice Presidents, under
its corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Securities
may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
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<PAGE> 49
At any time and from time to time after the execution and
delivery of this Indenture and after the effectiveness of a Registration
Statement under the Securities Act of 1933 with respect thereto, the Company may
deliver Exchange Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Exchange Securities and a like principal amount of Rule 144A
Securities for cancellation in accordance with Section 309 of this Indenture,
and the Trustee in accordance with the Company Order shall authenticate and
deliver such Securities.
In authenticating Securities in accordance with any Company
Order as provided in the preceding two paragraphs, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(a) that such Securities when authenticated and delivered by
the Trustee and issued by the Company in the manner and subject to the
conditions specified in such Opinion of Counsel, will constitute valid
and legally binding obligations of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and
(b) if applicable, that the issuance of the Exchange
Securities in exchange for the Rule 144A Securities has been effected
in compliance with the Securities Act of 1933, as amended.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature, and such certificate upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
The Company shall execute and the Trustee shall authenticate
one or more Global Securities that (i) shall represent an aggregate amount equal
to the aggregate
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<PAGE> 50
principal amount of such of the Outstanding Securities as the Company shall have
directed the Trustee to authenticate in the form of a Global Security or Global
Securities, (ii) shall be registered in the name of the Depositary or the
nominee of the Depositary, (iii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially to the following effect (or in the form required by the
Depositary): "THIS IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL
SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY
OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY."
The Depositary must, at all times while it serves as such
Depositary, be a clearing agency registered under the Securities Exchange Act of
1934, as amended, and any other applicable statute or regulation.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
1002, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
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<PAGE> 51
SECTION 305. Registration. Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided. Such Security
Register shall distinguish between Rule 144A Securities and Exchange Securities.
Upon surrender for registration of transfer of any Security at
an office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and (subject to the provisions in the Rule 144A Securities
regarding the payment of Additional Interest) entitled to the same benefits
under this Indenture, as the Securities surrendered upon such registration of
transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing. As a condition to the
registration of transfer of any Rule 144A Securities, the Company or the Trustee
may require evidence reasonably satisfactory to them
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<PAGE> 52
as to the compliance with the restrictions set forth in the legend below.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304 or 906 or in accordance with any Offer to
Purchase pursuant to Section 1015 or 1016 not involving any transfer.
The Company shall not be required to issue, register the
transfer of or exchange any Security during the period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities under Section 1102.
All Rule 144A Securities issued hereunder shall bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT") AND (EXCEPT IN THE EVENT OF REPURCHASE BY THE
COMPANY) MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)
(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (4) TO AN
ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE 0F THE UNITED STATES. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO ABOVE.
All Rule 144A Securities issued upon transfer or exchange or
replacement thereof shall bear such legend unless the Company shall have
delivered to the Trustee (and the Securities Registrar, if other than the
Trustee) a Company Order which states that the Security may be issued without
such legend thereon.
Notwithstanding any other provision of this Section, unless
and until it is exchanged in whole or in part for the individual Securities
represented thereby, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the
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<PAGE> 53
Depositary to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary.
If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
shall no longer be eligible under Section 303, the Company shall appoint a
successor Depositary. If a successor Depositary is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee, upon receipt of a
Company Order for the authentication and delivery of individual Securities, will
authenticate and delivery, individual Securities in an aggregate principal
amount equal to the principal amount of the Global Security or Global Securities
representing Securities in exchange for such Global Security or Global
Securities.
The Company may at any time and in its sole discretion
determine that individual Securities issued in the form of one or more Global
Securities shall in whole or in part no longer be represented by such Global
Security or Global Securities. In such event, or if an Event of Default has
occurred and is continuing, the Company will execute, and the Trustee, upon
receipt of a Company Order for the authentication and delivery of individual
Securities, will authenticate and deliver, individual Securities in an aggregate
principal amount equal to the principal amount of the Global Security or Global
Securities to be exchanged therefor.
The Depositary may surrender a Global Security in exchange in
whole or in part for individual Securities on such terms as are acceptable to
the Company and such Depositary. Thereupon, the Company shall execute, and the
Trustee shall authenticate and deliver, without service charge,
(i) to each Person specified by such Depositary a new
individual Security or Securities of any authorized denomination as
requested by such Person in aggregate principal amount equal to and in
exchange for such Person's beneficial interest in the Global Security;
and
(ii) to such Depositary a new Global Security in a
denomination equal to the difference, if any, between the principal
amount of the surrendered Global Security
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and the aggregate principal amount of individual Securities delivered
to Holders thereof.
Upon the exchange of a Global Security for individual
Securities, such Global Security shall be cancelled by the Trustee. Individual
Securities issued in exchange for a Global Security pursuant to this Section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee and
the Company shall not have any liability for the accuracy of the instructions
received from the Depositary. The Trustee shall deliver such Securities to the
Persons in whose names such Securities are so registered.
Neither the Company nor the Trustee shall have any
responsibility or obligation to any participant in the Depositary, any Person
claiming a beneficial ownership interest in the Securities under or through the
Depositary or any such participant, or any other Person which is not shown on
the Security Register as being a Holder, with respect to (1) the Securities; (2)
the accuracy of any records maintained by the Depositary or any such
participant; (3) the payment by the Depositary or any such participant of any
amount in respect of the principal of or premium or interest on the Securities;
(4) any notice which is permitted or required to be given to Holders of
Securities under this Indenture; (5) the selection by the Depositary or any such
participant of any Person to receive payment in the event of a partial
redemption of the Securities; or (6) any consent given or other action taken by
the Depositary as Holder of Securities.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed,
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lost or stolen Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest: Interest Rights Preserved.
The Company hereby appoints the Trustee as Paying Agent and
the Trustee hereby accepts such appointment.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
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(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be
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required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange or any Offer to Purchase pursuant to
Section 1015 or 1016 shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order; provided,
however, that the Trustee may not be required to destroy such cancelled
Securities.
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SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months, provided, however, that Additional
Interest on Rule 144A Securities shall be computed on the basis of a 365-day
year and the number of days actually elapsed.
SECTION 311. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company request cease to be of
further effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, upon
Company request and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or
paid as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided
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in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all such Securities not there-
tofore delivered to the Trustee for
cancellation
(i) have become due and payable,
or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due
and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations
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of the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity; or
(2) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(3) default, on the applicable Purchase Date, in the purchase
of Securities required to be purchased by the Company pursuant to an
Offer to Purchase as to which an Offer has been mailed to Holders; or
(4) default in the performance, or breach, of Section 801; or
(5) default in the performance, or breach, of any covenant or
warranty of the
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Company in this Indenture (other than a covenant or warranty a default
in the performance of which or the breach of which is elsewhere in this
Section specifically dealt with), and continuance of such default or
breach for a period of 30 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(6) the occurrence of any event under the terms of any
bond(s), debenture(s), note(s) or other evidence(s) of Debt by the
Company or any Subsidiary of the Company or under any mortgage(s),
indenture(s) or instrument(s) under which there may be issued or by
which there may be secured or evidenced any Debt of such type by the
Company or any such Subsidiary with a principal amount then
outstanding, individually or in the aggregate, in excess of $10
million, whether such Debt now exists or shall hereafter be created,
which (i) shall constitute a failure to pay any portion of the
principal of such Debt when due and payable or any portion of interest
on such Debt when due and payable after the expiration of any
applicable grace period with respect thereto or (ii) shall have
resulted in, or (with the giving of any notice or the lapse of time or
both) would permit the holder or holders of such Debt (or a trustee or
agent on behalf of such holder or holders) to cause, such Debt becoming
or being declared due and payable prior to the date on which it would
otherwise have become due and payable; or
(7) the failure to declare or pay in full any regular
quarterly dividend with respect to the Bank United Preferred Stock or
any Preferred Stock providing for regular dividends issued by any
Subsidiary of the Company; or
(8) the failure of Bank United at any time to meet the Capital
Distribution Requirement; or
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(9) a final judgment or final judgments for the payment of
money are entered against the Company or any Subsidiary of the Company
in an aggregate amount in excess of $10 million by a court or courts of
competent jurisdiction, which judgments remain undischarged or unbonded
for a period (during which execution shall not be effectively stayed)
of 60 days after the right to appeal all such judgments has expired; or
(10) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Subsidiary of the Company in an involuntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or (B) a decree or order adjudging the Company or
any such Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any such Subsidiary
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any such Subsidiary or of any substantial
part of the property of the Company or any such Subsidiary, or ordering
the winding up or liquidation of the affairs of the Company or any such
Subsidiary, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period
of 60 consecutive days; or
(11) the commencement by the Company or any Subsidiary of the
Company of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Company or any such Subsidiary to the
entry of a decree or order for relief in respect of the Company or any
Subsidiary of the Company in an involuntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the
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Company or any Subsidiary of the Company, or the filing by the Company
or any such Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or
the consent by the Company or any such Subsidiary to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or any Subsidiary of the Company or of any
substantial part of the property of the Company or any Subsidiary of
the Company, or the making by the Company or any Subsidiary of the
Company of an assignment for the benefit of creditors, or the admission
by the Company or any such Subsidiary in writing of its inability to
pay its debts generally as they become due, or the taking of corporate
action by the Company or any such Subsidiary in furtherance of any such
action.
SECTION 502. Acceleration of Maturity: Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(10) or (11)) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal and any accrued interest shall become immediately due and
payable. If an Event of Default specified in Section 501(10) or (11) occurs, the
principal of and any accrued interest on the Securities then Outstanding shall
ipso facto become immediately due and payable without any declaration or other
Act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Outstanding Securities, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration (including any Securities required
to have been purchased on the Purchase Date pursuant to an
Offer to Purchase made by the Company) and, to the extent that
payment of such interest is lawful, interest thereon at the
rate provided by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate provided by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
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(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof or, with
respect to any Security required to have been purchased pursuant to an
Offer to Purchase made by the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
provided by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any
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moneys or other property payable or deliverable on any such claims and to
distribute the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and
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premium, if any) and interest on the Securities in respect of which or
for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and premium, if any)
and interest, respectively.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
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SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Section 307) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date or in the case of an Offer to Purchase made by the Company and
required to be accepted as to such Security, on the Purchase Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to
have been purchased pursuant to an Offer to Purchase which has been
made by the Company), or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be
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deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit by a Security Holder for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, a court may require any
party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and to
the extent provided in the Trust Indenture Act; provided, that neither this
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit instituted
by the Company or the Trustee.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
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SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default
hereunder as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(5), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel of its selection and
the written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
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(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(h) any expenses and compensation for any services rendered by
the Trustee after the occurrence of an Event of Default specified in
Section 501(10) or 501(11) shall, to the extent permitted by applicable
law, constitute expenses and compensation for services of
administration under all applicable federal or state bankruptcy,
insolvency, reorganization or other similar laws.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 604. Not Responsible for Recitals
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or Issuance of Securities.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company, in its individual or any other capacity, may become
the owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 607. Compensation and Reimbursement.
The Company Agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or
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advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any and all loss, liability, damage, claim or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for payment of principal of (and premium, if any) or
interest on Securities.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required: Eligibility.
There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000 and its Corporate
Trust Office in the City of New York, New York. If such Person publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
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SECTION 610. Resignation and Removal:
Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
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SECTION 612. Merger, Conversion, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection
of Claims Against Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be subject
to the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee
Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the
Trustee
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of such Regular Record
Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after
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the receipt by the Company of any such request, a list of similar form
and content as of a date not more than 15 days prior to the time such
list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information;
Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities and
the corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to the names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) Within 60 days after April 15 of each year commencing with
the first April 15 following the first issuance of Securities hereunder, if
required by Section 313(a) of the Trust Indenture Act, the Trustee shall
transmit pursuant to Section 313(c) of the Trust Indenture Act, a brief report
dated as of such April 15 with respect to any of the events specified in said
Section 313(a) which may have occurred since the later of the immediately
preceding April 15 and the date of this Indenture.
The Trustee shall transmit the reports required by Section
313(b) of the Trust Indenture Act and Section 602 at the times specified
therein.
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Reports pursuant to this Section shall be transmitted in the
manner and to the persons required by Section 313(c) and 312(d) of the Trust
Indenture Act.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with Commission pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
SECTION 705. Officers' Certificate with Respect
to Change in Interest Rates.
Within five days after any Step-Up, a Second Step-Up or
Step-Down Date, the Company shall deliver an Officers' Certificate to the
Trustee stating the new interest rate and the date on which it became effective.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate,
Etc. Only on Certain Terms.
The Company (a) shall not consolidate with or merge into any
other Person; (b) shall not permit any other Person to consolidate with or merge
into the Company or any Subsidiary of the Company (in a transaction in which
such Subsidiary remains a Subsidiary of the Company); (c) shall not, directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its consolidated properties and assets as an entirety; and
(d) shall not, and shall not permit any Subsidiary of the Company to, (i)
acquire Capital Stock or other ownership
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interests of any other Person such that such Person becomes a Subsidiary of the
Company or (ii) directly or indirectly, purchase, lease or otherwise acquire all
or substantially all of the property and assets of any Person as an entirety or
any existing business (whether existing as a separate entity, subsidiary,
division, unit or otherwise) of any Person, unless, in any such transaction:
(1) immediately before and after giving effect to such
transaction and treating any Debt Incurred by the Company or a
Subsidiary of the Company as a result of such transaction as having
been Incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or
lapse of time, or both, would become an Event of Default, shall have
happened and be continuing;
(2) in case the Company shall consolidate with or merge into
another Person or shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by transfer, conveyance, sale, lease or other disposition all
or substantially all of the properties and assets of the Company as an
entirety (for purposes of this Article Eight, a "Successor Company")
shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any
State thereof or the District of Columbia and shall expressly assume by
an indenture supplemental hereto executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the principal of (and premium, if any) and interest on all the
Securities and the performance of every covenant of this Indenture on
the part of the Company to be performed or observed;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company or, if applicable, the Successor
Company shall be equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction;
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(4) if, as a result of any such transaction, property and
assets of the Company would become subject to a Lien which would not be
permitted by Section 1013, the Company or, if applicable, the Successor
Company, as the case may be, shall take such steps as shall be
necessary effectively to secure the Securities equally and ratably with
(or prior to) Debt secured by such Lien; and
(5) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, lease or acquisition
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, complies with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with, and, with respect to such
Officer's Certificate, setting forth the manner of determination of
the Consolidated Net Worth of the Company or, if applicable, of the
Successor Company as required pursuant to the foregoing.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any transfer, conveyance, sale, lease or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety in accordance with Section 801, the Successor Company
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
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ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures
Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities pursuant to the requirements of
Section 1013 or otherwise; or
(4) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the
Trust Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided such action pursuant to
this Clause (5) shall not adversely affect the interests of the Holders
in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the
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Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) change the Stated Maturity of the principal of, or any
instalment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
thereon, or change the place of payment where, or the coin or currency
in which, any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date or, in the case of
an Offer to Purchase which has been made, on or after the applicable
Purchase Date), or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513
or Section 1019, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby, or
(4) following the mailing of an Offer with respect to an Offer
to Purchase pursuant to Section 1015 or 1016, modify the provisions of
this Indenture with respect to such Offer to Purchase in a manner
adverse to such Holder.
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It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities
to Supplemental Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
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ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside the Borough of Manhattan, The City of
New York) where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 1003. Money for Security
Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (and premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of
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the Persons entitled thereto a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of (and premium, if any) or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal, premium
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the English language, customarily published on each Business Day
and of general circulation in The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION 1004. Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors in good faith shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1005. Maintenance of Properties.
The Company will cause all properties used or useful in the
conduct of its business or the business of any Subsidiary of the Company to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discon-
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tinuance is, as determined by the Board of Directors in good faith, desirable in
the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all taxes, assessments
and governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company or
any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1007. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep
at all times all of their properties which are of an insurable nature insured
against loss or damage with insurers believed by the Company to be responsible
to the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties in accordance with
good business practice. The Company shall, and shall cause its Subsidiaries to,
use the proceeds from any such insurance policy to repair, replace or otherwise
restore the property to which such proceeds relate, unless in the good faith
judgment of the Company such use is not in the best interests of the Company or
would be disadvantageous to the holders of the Securities.
SECTION 1008. Limitation on Company Debt.
The Company shall not Incur any Debt except:
(i) Debt represented by the Securities;
(ii) Debt owed by the Company to any Wholly Owned Subsidiary
of the Company (but only so long as such Debt is held by a Wholly Owned
Subsidiary of the Company), provided, that the obligations of the
Company to any of its Wholly Owned Subsidiaries with respect to such
Debt shall be evidenced
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by an intercompany promissory note and shall be Subordinated Debt;
(iii) Debt issued (A) the proceeds of which Debt are used to
effect acquisitions of the capital stock or assets of, assume the
liabilities of, or make capital contributions to, Insured Depository
Institutions, (B) which Debt does not exceed in outstanding principal
amount any then unused binding capital commitments available to the
Company to enable it to repay such Debt, (C) the Company in fact
receives such amount and uses such amount to repay all of such Debt
within 60 days of the Incurrence thereof and (D) such Debt shall be
evidenced by an intercompany promissory note and shall be Subordinated
Debt; and
(iv) Debt the proceeds of which are immediately applied to
redeem or repurchase Securities, in an amount not to exceed the
principal amount of the Securities so redeemed or repurchased, provided
that, if the Securities are redeemed or repurchased only in part, such
refunding or refinancing Debt does not require the payment of all or a
portion of the principal thereof (whether pursuant to repurchase,
redemption, repayment, defeasance, retirement or sinking fund payment
obligation, payment at stated maturity or otherwise) prior to the
Stated Maturity of the Securities.
SECTION 1009. Limitation on Investments.
The Company (i) shall not have or make any Investment other
than (a) Qualified Investments and (b) Investments in Subsidiaries that are
Insured Depository Institutions, provided, that the Company may make an
Investment in an Unrestricted Subsidiary to the extent such Investment complies
with Section 1011; and (ii) shall not permit any Subsidiary to have or make any
Investment other than Investments that are not in contravention of any
Regulatory Requirements applicable to the Company or any of its Subsidiaries.
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SECTION 1010. Limitation on Conduct of Business.
The Company shall not engage in any line of business other
than the ownership of the Capital Stock of, and the making of Investments in,
Bank Subsidiaries, except to the extent the Company is otherwise permitted to
make an investment in an Unrestricted Subsidiary; provided, that any Subsidiary
of the Company may engage in any line of business that is not in contravention
of any Regulatory Requirement applicable to the Company and its Subsidiaries.
The Company shall cause each Bank Subsidiary to maintain its status as an
Insured Depository Institution and to do all things necessary to ensure that
savings accounts of each Bank Subsidiary are insured by the FDIC up to the
maximum amount permitted by the Federal Deposit Insurance Act, as amended, and
regulations thereunder (or any succeeding legislation).
SECTION 1011. Limitation on Restricted Payments.
The Company (i) shall not, and shall not permit any Subsidiary
of the Company to, directly or indirectly, declare or pay any dividend, or make
any distribution, of any kind or character (whether in cash, property or
securities) in respect of any class of its Capital Stock or to the holders of
any class of its Capital Stock (including pursuant to a merger or consolidation
of the Company or such Subsidiary, but excluding (a) any pro rata dividends or
distributions payable solely in shares of its Capital Stock or in options,
warrants or other rights to acquire its Capital Stock and (b) any dividends or
distributions payable by any Subsidiary to the Company or another Subsidiary),
(ii) shall not, and shall not permit any Subsidiary of the Company, directly or
indirectly, to purchase, redeem or otherwise acquire or retire for value (a) any
Capital Stock of the Company, any Subsidiary of the Company (other than (i)
Capital Stock of a Wholly Owned Subsidiary of the Company or (ii) so long as
Bank United shall be a Wholly Owned Subsidiary within the meaning of the second
sentence of the definition of "Wholly Owned Subsidiary," Capital Stock of Bank
United owned by the Company or Capital Stock of a Wholly Owned Subsidiary of
Bank United) or any Related Person of the Company or (b) any options, warrants
or rights to purchase or acquire shares of Capital Stock of the Company, any
Subsidiary of the Company or any Related Person of the Company or any securities
convertible or exchangeable into shares of Capital Stock of the Company, any
Subsidiary of the Company or any Related Person of the Company, (iii) shall not
make, or permit any Subsidiary of the Company to make, any Investment in, or
payment on a Guarantee of any obligation of, any Affiliate or any Related
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Person, other than the Company or a Wholly Owned Subsidiary which is a Wholly
Owned Subsidiary prior to such Investment, (iv) shall not, and shall not permit
any Subsidiary of the Company to, redeem, defease (including, but not limited
to, legal or covenant defeasance), repurchase, retire or otherwise acquire or
retire for value prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Company (other than the Securities and other than the
repayment of debt of the Company contemporaneously with the original issuance of
the Securities), and (v) shall not, and shall not permit any Subsidiary of the
Company to, make any Investment in any Unrestricted Subsidiary (the transactions
described in Clauses (i) through (v) being referred to herein as "Restricted
Payments"), if at the time thereof:
(1) an Event of Default, or an event that with the lapse of
time or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and is continuing, or
(2) upon giving effect to such Restricted Payment, the
aggregate of all Restricted Payments from March 31, 1993 exceeds the
sum of:
(a) 50% of cumulative Consolidated Net Income of the
Company (or, in the case Consolidated Net Income of
the Company shall be negative, less 100% of such
deficit) since March 31, 1993 through the last day of
the last full fiscal quarter immediately preceding
such Restricted Payment for which quarterly or annual
financial statements of the Company are available;
plus
(b) 100% of the aggregate net proceeds after the date of
this Indenture, including the fair value of property
other than cash (determined in good faith by the
Board of Directors and evidenced by a Board
Resolution), from the issuance of Capital Stock
(other than Disqualified Stock) of the Company and
options, warrants or other rights on Capital Stock
(other than Disqualified Stock) of the Company (other
than to a Subsidiary of the
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Company) and the amount by which Debt of the Company
is reduced on the Company's balance sheet upon the
conversion of such Debt into Capital Stock (other
than Disqualified Stock) of the Company (other than
by a Subsidiary of the Company) after March 31, 1993;
plus
(c) $12,000,000.
The foregoing provision shall not be violated by reason of (i)
the payment of any dividend within 60 days after declaration thereof if at the
declaration date such payment would have complied with the foregoing provision,
(ii) the declaration and payment of quarterly dividends by Bank United on the
Bank United Preferred Stock pursuant to the terms thereof as in effect on the
date of this Indenture, provided, that amounts so paid shall be deducted from
amounts available for Restricted Payments pursuant to the preceding paragraph,
(iii) payments made in lieu of dividends with respect to periods after the date
of this Indenture to the extent such payments are required to be made under the
terms of the FSLIC Warrant as in effect on the date of the Indenture, provided,
that amounts so paid shall be deducted from amounts available for Restricted
Payments pursuant to the preceding paragraph or (iv) dividends paid on a pro
rata basis by Bank United with respect to common stock issued pursuant to the
FSLIC Warrant to the extent such stock is not then held by an Affiliate of the
Company, provided that amounts so paid shall be deducted from amounts available
for Restricted Payments pursuant to the preceding paragraph.
SECTION 1012. Limitations Concerning Distributions
By Subsidiaries, etc.
The Company shall not, and shall not permit any Subsidiary of
the Company that is an Insured Depository Institution and that is not a
Subsidiary of another Subsidiary or Subsidiaries of the Company (a "Direct Bank
Subsidiary") to, suffer to exist any consensual encumbrance or restriction
(other than pursuant to law or regulation) on the ability of such Direct Bank
Subsidiary of the Company (i) to pay, directly, or indirectly, dividends or make
any other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Subsidiary of the Company (other
than a Subsidiary of such Direct Bank Subsidiary); (ii) to make loans or
advances to the Company or any Subsidiary of the Company (other than a
Subsidiary of such Direct Bank Subsidiary); or (iii) to
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transfer any of its property or assets to the Company; but only if such
encumbrance or restriction shall consist of either (x) an express encumbrance or
restriction on the ability of the Company or such Direct Bank Subsidiary to take
any such action or (y) the right of any party to encumber or restrict the
Company or such Direct Bank Subsidiary from taking any such action through
enforcing the specific performance of a term or covenant that does not expressly
encumber or restrict the ability of the Company or such Direct Bank Subsidiary
from taking any such action. Notwithstanding the foregoing, the Company may
permit a Direct Bank Subsidiary to suffer to exist any such encumbrance or
restrictions:
(a) pursuant to the terms of Preferred Stock issued by such
Subsidiary of the Company on terms no more restrictive than the terms
of the Bank United Preferred Stock as in effect on the date of this
Indenture, or
(b) pursuant to an agreement relating to any Debt Incurred by
such Subsidiary prior to the date on which such Direct Bank Subsidiary
was acquired, directly or indirectly, by the Company and outstanding on
such date and not Incurred in anticipation of becoming a Subsidiary, or
(c) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of Debt or Preferred Stock Incurred pursuant
to an agreement referred to in Clause (a) or (b) above; provided,
however, that the provisions contained in such renewal, extension,
refinancing or refunding agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement the subject thereof, as
determined in good faith by the Board of Directors and evidenced by a
Board Resolution.
SECTION 1013. Limitation on Liens.
The Company shall not Incur any Debt that is secured, directly
or indirectly, by any Lien upon any of its property or assets, now owned or
hereinafter acquired, without making effective provision for securing the
Securities (and, if the Company shall so determine, any other Debt of the
Company which is not subordinate to the Securities) (x) equally and ratably with
such Debt as to
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such property for so long as such Debt shall be so secured or (y) in the event
such Debt is Subordinated Debt, prior to such Debt as to such property for so
long as such Debt shall be so secured.
The foregoing restrictions will not apply to (i) the FSLIC
Pledge, (ii) Liens securing only the Securities or (iii) Liens upon property or
assets of Subsidiaries of the Company securing Debt of Subsidiaries of the
Company.
SECTION 1014. Limitation on Transactions with
Affiliates and Related Persons.
The Company shall not, and shall not permit any Subsidiary of
the Company to, directly or indirectly enter into any transaction (including,
without limitation, the purchase, sale, lease or exchange of property, the
rendering of any service or the making of any loan or advance, but excluding
transactions between the Company and Wholly Owned Subsidiaries of the Company)
with any Affiliate or Related Person, unless
(i) such transaction is on terms no less favorable to the
Company or such Subsidiary than those that could be obtained in a
comparable arm's length transaction with an entity that is not an
Affiliate or a Related Person,
(ii) with respect to a transaction or series of transactions
involving aggregate value in excess of $1,000,000, the transaction or
series of transactions is approved by a majority of the Board of
Directors of the Company and evidenced by a Board Resolution and
(iii) with respect to a transaction or series of transactions
involving aggregate value in excess of $5,000,000, the Company delivers
to the Trustee an opinion of a nationally recognized investment banking
firm stating that the transaction or series of transactions is fair
(from a financial point of view) to the Company.
A capital contribution to the Company or the issuance by the
Company of Debt otherwise permitted under the Indenture shall not be deemed to
be a transaction for purposes of this Section 1014.
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SECTION 1015. Limitation on Dispositions of, and Liens
upon, Certain Capital Stock of Subsidiaries
that are Insured Depository Institutions,
(a) The Company shall not, and shall not permit any Subsidiary
of the Company to, directly or indirectly, (i) transfer, convey, sell, lease or
otherwise dispose of any Common Stock or Voting Stock of any Bank Subsidiary to
any Person other than the Company or a Wholly Owned Subsidiary of the Company or
such Subsidiary, (ii) permit any Bank Subsidiary to merge or consolidate with
any other Person unless the surviving entity is the Company, a Wholly Owned
Subsidiary of the Company or, in the case of a Bank Subsidiary that is a
Subsidiary of another Subsidiary of the Company, such other Subsidiary or a
Wholly Owned Subsidiary thereof, (iii) permit any Bank Subsidiary to convey or
transfer its properties and assets substantially as an entirety to any Person
except the Company, a Wholly Owned Subsidiary of the Company or, in the case of
a Bank Subsidiary that is a Subsidiary of another Subsidiary of the Company,
such other Subsidiary or a Wholly Owned Subsidiary thereof, (iv) permit any Bank
Subsidiary to issue shares of its Common Stock or Voting Stock (other than
directors' qualifying shares), or securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, its Common Stock or
Voting Stock, to any Person other than the Company or a Wholly Owned Subsidiary
of the Company or, in the case of a Bank Subsidiary that is a Subsidiary of
another Subsidiary of the Company, such other Subsidiary or a Wholly Owned
Subsidiary thereof and (v) Incur or suffer to exist a Lien upon the Voting Stock
or Common Stock of any Bank Subsidiary as security for indebtedness for money
borrowed or for bonds, debentures, notes or similar instruments unless
(A) with respect to clause (i), such transfer, conveyance,
sale, lease or other disposition consists of a sale of all of the
Common Stock and Voting Stock of such Bank Subsidiary owned by the
Company and any Subsidiary of the Company, and
(B) with respect to clauses (i), (ii) and (iii),
(1) the Company (or the Subsidiary of the Company, as
the case may be) receives consideration at the time of such
disposition (or merger or consolidation, in the case of
clause (ii)) at least equal to the fair market value of the
shares or assets disposed of (or of the Company's
proportionate interest in the assets of the Bank Subsidiary
that is merged or consolidated, in the case of clause (ii))
(which
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shall be as determined in good faith by the Board of Directors
and evidenced by a Board Resolution), and
(2) the consideration for such disposition (or merger
or consolidation, in the case of clause (ii)) consists of cash
or readily marketable cash equivalents, and
(3) 100% of the Net Available Proceeds, less any
amounts reinvested as an Investment in a Wholly Owned
Subsidiary within 90 days of such disposition (including from
the sale of any marketable cash equivalents received therein)
are applied by the Company (or the Subsidiary, as the case may
be) to purchases of Outstanding Securities from tendering
Holders pursuant to an Offer to Purchase at a purchase price
equal to 100% of their principal amount plus accrued interest
to the date of purchase (provided, however, that
instalments of interest whose Stated Maturity is on or
prior to the Purchase Date shall be payable to the Holders of
such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant
Record Dates according to their terms and the provisions of
Section 307).
Any Net Available Proceeds remaining after purchase of all
Securities duly tendered for purchase pursuant to such Offer to Purchase may be
applied by the Company in any manner otherwise permitted by this Indenture,
without reference to this Section 1015. If the Net Available Proceeds (after
deduction of any amount applied as an Investment in a Wholly Owned Subsidiary as
provided above) exceeds the amount required to purchase all Outstanding
Securities pursuant to an Offer to Purchase made in accordance with this
Section, any such excess may be applied by the Company in any manner otherwise
permitted by this Indenture, without reference to this Section 1015.
Notwithstanding the foregoing, this Section 1015 shall not be
deemed to be violated by, or to prohibit, (x) the existence of the FSLIC Warrant
or the exercise thereof or (y) the FSLIC Pledge.
(b) The Company will mail the Offer for an Offer to Purchase
required pursuant to Section 1015(a) not more than 90 days after consummation of
the disposition referred to in Section 1015(a). The aggregate principal amount
of the Securities to be offered to be purchased pursuant to the Offer to
Purchase shall equal the Net Available Proceeds
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available therefor pursuant to Clause (3) of Section 1015(a) (rounded down to
the next lowest integral multiple of $1,000). Each Holder shall be entitled to
tender all or any portion of the Securities owned by such Holder pursuant to the
Offer to Purchase, subject to the requirement that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount,
and subject to the provisions of Section 302.
The Company shall not be entitled to any credit against its
obligations under this Section 1015 for the principal amount of any Securities
acquired by the Company otherwise than pursuant to the Offer to Purchase
pursuant to this Section 1015.
(c) Not later than the date of the Offer with respect to an
Offer to Purchase pursuant to this Section 1015, the Company shall deliver to
the Trustee an Officers' Certificate as to (i) the Purchase Amount, and (ii) the
allocation of the Net Available Proceeds from the disposition pursuant to which
such Offer is being made, including, if amounts are reinvested in a Wholly Owned
Subsidiary, the amount and nature of any Investment in a Wholly Owned
Subsidiary.
The Company and the Trustee shall perform their respective
obligations specified in the Offer for the Offer to Purchase. On or prior to the
Purchase Date, the Company shall (i) accept for payment (on a pro rata basis, if
necessary) Securities or portions thereof tendered pursuant to the Offer, (ii)
deposit with the Paying Agent (or, if the Company is acting as its own paying
agent, segregate and hold in trust as provided in Section 1003) money sufficient
to pay the purchase price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent (or the Company,
if so acting) shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security surrendered. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
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SECTION 1016. Change of Control.
(a) Upon the occurrence of a Change in Control, the Company
may at its option, as evidenced by a Board Resolution, elect to redeem the
Securities in whole but not in part at 101% of their principal amount plus
accrued interest to the Redemption Date. The Company shall comply with the
provisions of Article Eleven if it exercises its redemption option. If within
fifteen days following the date of the consummation of a transaction resulting
in a Change of Control the Company shall not have exercised its redemption
option, each Holder of a Security shall have the right to have such Security
repurchased by the Company on the terms and conditions precedent set forth in
this Section 1016 and this Indenture. The Company shall, within 45 days
following the date of the consummation of a transaction resulting in a Change of
Control, mail an Offer with respect to an Offer to Purchase all Outstanding
Securities at a purchase price equal to 101% of their aggregate principal amount
plus accrued interest to the Purchase Date (provided, however, that
instalments of interest whose Stated Maturity is on or prior to the Purchase
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307). Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Security tendered must be tendered in an
integral multiple of $1,000 principal amount, and subject to the provisions of
Section 302.
(b) The Company and the Trustee shall perform their respective
obligations specified in the Offer for the Offer to Purchase. Prior to the
Purchase Date, the Company shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an 0fficers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Security or Securities equal in principal amount to any unpurchased portion of
the Security surrendered as requested by the Holder. Any Security not accepted
for payment shall
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be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Offer on or as soon as
practicable after the Purchase Date.
(c) A "Change of Control" shall be deemed to have occurred in
the event that, after the date of this Indenture, either (A) any Person or any
Persons (other than a Permitted Holder) acting together which would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto, together with any Affiliates or Related Persons
thereof, shall beneficially own (as defined in Rule 13d-3 of the Exchange Act or
any successor provision thereto) at least 50% of the Voting Stock of the
Company; or (B) any Person or Group (other than a Permitted Holder), together
with any Affiliates or Related Persons thereof, shall succeed in having
sufficient of its or their nominees elected to the Board of Directors of the
Company such that such nominees, when added to any existing director remaining
on the Board of Directors of the Company after such election who were nominated
by or at the suggestion of, or is an Affiliate of, such Person or Group, shall
constitute a majority of the Board of Directors of the Company.
SECTION 1017. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
prepare the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
required, and, unless such filing is not permitted under the Exchange Act, file
such reports and other documents with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so required. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee
copies of such annual reports, quarterly reports and other documents and (b) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request supply copies of such documents
to any prospective Holder or prospective purchaser of Securities.
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SECTION 1018. Statement by Officers as to
Default: Compliance Certificates.
(a) The Company will deliver to the Trustee, within
90 days after the end of each fiscal year of the Company ending after the date
hereof an Officers' Certificate of the principal executive, financial or
accounting officer of the Company, stating whether or not to the best knowledge
of the signers thereof the Company is in default in the performance and
observance of any of the terms, provisions and conditions of Section 801 or
Sections 1004 to 1017, inclusive, and if the Company shall be in default,
specifying all such defaults and the nature and status thereof of which they may
have knowledge.
(b) The Company shall deliver to the Trustee, as soon
as possible and in any event within 10 days after the Company becomes aware or
should reasonably become aware of the occurrence of an Event of Default or an
event which, with notice or the lapse of time or both, would constitute an Event
of Default, an Officers' Certificate setting forth the details of such Event of
Default or default, and the action which the Company proposes to take with
respect thereto.
(c) The Company shall deliver to the Trustee within
90 days after the end of each fiscal year a written statement by the Company's
independent public accountants stating (A) that their audit examination has
included a review of the terms of this Indenture and the Securities as they
relate to accounting matters, and (B) whether, in connection with their audit
examination, any event which, with notice or the lapse of time or both, would
constitute an Event of Default has come to their attention and, if such a
default has come to their attention, specifying the nature and period of the
existence thereof.
SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to
comply with any covenant or condition set forth in Section 801 or Sections 1004
to 1017, if before the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Securities shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such covenant or condition shall
remain in
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full force and effect; provided, however, with respect to an Offer to Purchase
as to which an Offer has been mailed, no such waiver may be made or shall be
effective against any Holder tendering Securities pursuant to such Offer, and
the Company may not omit to comply with the terms of such Offer as to such
Holder.
SECTION 1020. Exchange and Registration Rights.
The Company agrees that each Holder of Rule 144A
Securities shall have, to the extent set forth therein, the rights provided in
the Exchange and Registration Rights. Notwithstanding any other provision of
this Indenture, each such Holder of Rule 144A Securities shall have the right to
enforce such Exchange and Registration Rights as if such Holder and the Company
each had executed and delivered such Exchange and Registration Rights.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Election to Redeem; Notice to Trustee.
The election of the Company to redeem the Securities
pursuant to Section 1016 shall be evidenced by a Board Resolution. The Company
shall notify the Trustee of any Redemption Date at least 45 days prior thereto,
unless a shorter notice shall be satisfactory to the Trustee.
SECTION 1102. Notice of Redemption.
Notice of redemption shall be given by first-class
mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date,
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(4) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(5) the CUSIP number.
Notice of redemption of Securities shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 1103. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, the Securities.
SECTION 1104. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that instalments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate provided
by the Security.
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ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Company's Option To Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at
any time, elect to have either Section 1202 or Section 1203 applied to the
Outstanding Securities upon compliance with the conditions set forth below in
this Article Fourteen.
SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise of the option provided in
Section 1201 applicable to this Section, the Company shall be deemed to have
been discharged from its obligations with respect to the Outstanding Securities
on the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities and to have satisfied all its other obligations under
such Securities and this Indenture insofar as such Securities are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of such
Securities to receive, solely from the trust fund described in Section 1204 and
as more fully set forth in such Section, payments in respect of the principal of
(and premium, if any) and interest on such Securities when such payments are
due, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 1202 notwithstanding the prior exercise of its option under Section
1203.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise of the option provided in
Section 1201 applicable to this Section, (i) the Company shall be released from
its obligations under Sections 1005 through 1016, inclusive, and Clauses (3) and
(4) of Section 801 and (ii) the occurrence of an event specified in Sections
501(3), 501(4) (with respect to Clauses (1), (3) or
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(4) of Section 801), 501(5) (with respect to any of Sections 1005 through 1016,
inclusive), 501(6), 501(7), 501(8) and 501(9) shall not be deemed to be an
Event of Default on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"). For this purpose, such
covenant defeasance means that the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Section or Clause, whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or Clause or by reason of any
reference in any such Section or Clause to any other provision herein or in any
other document, but the remainder of this Indenture and such Securities shall be
unaffected thereby.
SECTION 1204. Conditions to Defeasance or
Covenant Defeasance.
The following shall be the conditions to application
of either Section 1202 or Section 1203 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 609 who shall agree to comply with the
provisions of this Article Fourteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
money in an amount, or (C) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the
principal of, premium, if any, and each instalment of interest on
the Securities on the Stated Maturity of such principal or
instalment of interest in accordance with the terms of this
Indenture and of such Securities. For this purpose, "U.S.
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Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of
which its full faith and credit is pledged or (y) obligations
of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which,
in either case, are not callable or redeemable at the option
of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository
receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of
or interest on the U.S. Government Obligation evidenced by
such depository receipt.
(2) In the case of an election under Section 1202, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Outstanding Securities will not
recognize gain or loss for Federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge
had not occurred.
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(3) In the case of an election under Section 1203, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Securities will not recognize gain
or loss for Federal income tax purposes as a result of such deposit and
covenant defeasance and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have
been the case if such deposit and covenant defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an
Officer's Certificate to the effect that the Securities, if then listed
on any securities exchange, will not be delisted as a result of such
deposit.
(5) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 608 and
for purposes of the Trust Indenture Act with respect to any securities
of the Company.
(6) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default shall have occurred and
be continuing on the date of such deposit or, insofar as subsections
501(10) and (11) are concerned, at any time during the period ending on
the 121st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of
such period).
(7) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it
is bound.
(8) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1202 or the covenant defeasance under Section 1203 (as
the case may be) have been complied with.
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(9) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment
company as defined in the Investment Company Act of 1940, as
amended, or such trust shall be qualified under such act or exempt
from regulation thereunder.
SECTION 1205. Deposited Money and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of
Section 1003, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee--collectively,
for purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 1204 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.
Anything in this Article Twelve to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1204 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1206. Reinstatement.
If the Trustee or the Paying Agent is unable to apply
any money in accordance with Section 1202 or 1203 by
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reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article
Fourteen until such time as the Trustee or Paying Agent is permitted to apply
all such money in accordance with Section 1202 or 1203; provided, however, that
if the Company makes any payment of principal of (and premium, if any) or
interest on any Security following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or the Paying Agent.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to
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be an original, but all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
USAT HOLDINGS INC.
By /s/ Scott A. Shay
---------------------------
Attest: Scott A. Shay
/s/ Salvatore A. Ranieri Vice President
- -----------------------------
Salvatore A. Ranieri
THE BANK OF NEW YORK
By
---------------------------
Robert F. McIntyre
Assistant Vice President
Attest:
- -----------------------------
Lucille Firrincieli
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<PAGE> 111
STATE OF NEW YORK )
COUNTY OF NEW YORK ) ss.:
On the 14th day of May, 1993, before me personally
came Scott A. Shay, to me known, who, being by me duly sworn, did depose and say
that he is Vice President of USAT HOLDINGS INC., one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/ ANDREA JOHNSTON
--------------------------------
Andrea Johnston
Notary Public. State of New York
No. 4790323
Qualified in New York County
Commission Expires March 30, 1995
STATE OF NEW YORK )
COUNTY OF NEW YORK ) ss.:
On the 14th day of May, 1993, before me personally
came Robert F. Mcintyre, to me known, who, being by me duly sworn, did depose
and say that he is Assistant Vice President of THE BANK OF NEW YORK, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
-------------------------
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be an original, but all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
USAT HOLDINGS INC.
By
---------------------
SCOTT A. SHAY
Vice President
Attest:
- -----------------------------
SALVATORE A. RANIERI
SECRETARY
THE BANK OF NEW YORK
BY /S/ ROBERT F. MCINTYRE
----------------------
ATTEST: ROBERT F. MCINTYRE
/s/ LUCILLE FIRRINCIELI ASSISTANT VICE PRESIDENT
- -----------------------------
LUCILLE FIRRINCIELI
ASSISTANT TREASURER
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STATE OF NEW YORK )
COUNTY OF NEW YORK )
On the 14th day of May, 1993, before me personally came
Scott A. Shay, to me known, who, being by me duly sworn, did depose and say that
he is Vice President of USAT HOLDINGS INC., one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation: that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
-----------------------------------
STATE OF NEW YORK )
COUNTY OF NEW YORK )
On the 14th day of May, 1993, before me personally came
Robert F. McIntyre, to me known, who, being by me duly sworn, did depose and
say that he is Assistant Vice President of THE BANK OF NEW YORK, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Robert Schneck
-------------------------------------
ROBERT SCHNECK
Notary Public, State of New York
No. 4746935
Qualified in Nassau County
Certificate filed in New York County
Commission Expires May 31, 1993
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ANNEX I
Certificate as to Capital Distribution Requirement
The undersigned, , the Chief Executive Officer of Bank United of
Texas FSB (the "Bank"), and ,the Chief Financial Officer of the
Bank, hereby certify pursuant to the definition of "Capital Distribution
Requirement" in Section 101 of the Indenture, dated as of May 15, 1993 (the
"Indenture"), between USAT Holdings Inc. (the "Company"), a Delaware
corporation, and The Bank of New York, as Trustee, relating to the 8.05% Senior
Notes due May 15, 1998 issued by the Company, that, in our good faith judgment
and based upon such information as we believe is necessary or appropriate as a
basis for such belief, we reasonably believe that the Bank would be granted all
regulatory approvals that may be necessary to permit the Bank to make in a
timely fashion capital distributions to the Company in amounts as are necessary
in order for the Company to make the next two scheduled interest payments with
respect to the Notes, as such payments become due.
Dated: _________________
By:
---------------------------------
Name:
Title:
--------------------------------
Name:
Title:
<PAGE> 115
EXHIBIT 4.3
ANNEX II
EXCHANGE AND REGISTRATION RIGHTS
EXCHANGE AND REGISTRATION RIGHTS, dated as of May 10, 1993, by and
between USAT Holdings Inc., a Delaware corporation (the "Company"), and the
purchasers (collectively the "Purchasers") of the 8.05% Senior Notes due May 15,
1998 of the Company.
1. Certain Definitions.
For purposes of these Exchange and Registration Rights, the following
terms shall have the following respective meanings:
(a) "Closing Date" shall mean the date on which the Securities are
initially issued.
(b) "Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Exchange Act
or the Securities Act, whichever is the relevant statute for the
particular purpose.
(c) "Effective Time", in the case of an Exchange Offer, shall mean
the date on which the Commission declares the Exchange Offer
registration statement effective or on which such registration
statement otherwise becomes effective and, in the case of a Shelf
Registration, shall mean the date on which the Commission declares the
Shelf Registration effective or on which the Shelf Registration
otherwise becomes effective.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934,
or any successor thereto, as the same shall be amended from time to
time.
(e) "Exchange Offer" shall have the meaning assigned thereto in
Section 2 hereof.
(f) The term "holder" shall mean any person who, at the Closing
Date, owns any Registrable Securities and such of its respective
successors and assigns who acquire Registrable Securities, directly or
indirectly, from such person or from any successor or assign of such
person.
(g) "Indenture" shall mean the Indenture, dated as of May 15, 1993,
between the Company and The Bank of New York, as Trustee.
(h) The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or
political subdivision thereof or governmental agency.
(i) "Registrable Securities" shall mean the Securities; provided,
however, that such Securities shall cease to be Registrable Securities
when (i) a registration statement registering such Securities under the
Securities Act has been declared or becomes effective and such
Securities have been sold or otherwise transferred by the holder
thereof pursuant to such effective registration statement or (ii) such
Securities are sold pursuant to Rule 144 (or any successor provision)
promulgated under the Securities Act under circumstances in which any
legend borne by such Securities relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is
removed by the Company or pursuant to the Indenture.
(j) "Registration Expenses" shall have the meaning assigned thereto
in Section 4 hereof.
(k) "Securities" shall mean, collectively, the 8.05% Senior Notes
due May 15, 1998 of the Company to be issued and sold to the
Purchasers, and Securities issued in exchange therefor or in lieu
thereof pursuant to the lndenture
(l) "Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
(m) "Shelf Registration" shall have the meaning assigned thereto in
Section 2 hereof.
(n) "Trust Indenture Act" shall mean the Trust Indenture Act of
1939, or any successor thereto, and the rules, regulations and forms
promulgated thereunder, all as the same shall be amended from time to
time.
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2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Company agrees to
use its best efforts to file under the Securities Act, as soon as practicable,
but no later than 30 days after the Closing Date, a registration statement
relating to an offer to exchange (the "Exchange Offer") any and all of the
Securities for a like aggregate principal amount of debt securities of the
Company which are substantially identical to the Securities (and which are
entitled to the benefits of a trust indenture which is substantially identical
to the indenture and which has been qualified under the Trust Indenture Act)
except that they have been registered pursuant to an effective registration
statement under the Securities Act. The Company agrees to use its best efforts
to consummate the Exchange Offer on or prior to the date that is 150 days after
the Closing Date. The Exchange Offer will be registered under the Act on the
appropriate form and will comply with all applicable tender offer rules and
regulations under the Exchange Act. The Exchange Offer will be deemed to have
been consummated only if the debt securities received by holders in the Exchange
Offer for Registrable Securities are, upon receipt, transferable by each such
holder (other than an affiliate of the Company) without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
blue sky or securities laws of a substantial proportion of the States. The
Exchange Offer shall be deemed to have been consummated upon the earlier to
occur of (i) the Company having exchanged new securities for all outstanding
Registrable Securities pursuant to the Exchange Offer and (ii) the Company
having exchanged, pursuant to the Exchange Offer, new securities for all
Registrable Securities that have been tendered and not withdrawn on the date
that is 30 days following the commencement of the Exchange Offer. Upon the
making of an Exchange Offer in accordance with this paragraph (a), the Company
may omit to comply with such of the procedures set forth in Section 3(c) hereof
as may be appropriate under the circumstances without adversely affecting the
interests of the holders of Registrable Securities under these Exchange and
Registration Rights, taken as a whole, but the other provisions of these
Exchange and Registration Rights other than Sections 3(d), 3(e), clause (i) and
the last sentence of Section 4, and Section 7, shall continue to apply mutatis
mutandis. The Company agrees, in the event any holder of Securities that is a
broker-dealer shall have so requested a reasonable time prior to the
effectiveness of the registration statement relating to the Exchange Offer and
provided that such broker-dealer shall have provided the Company with all
information required to be included in the registration statement with respect
to such holder, (i) to use its best efforts to include in such registration
statement a prospectus for use in any resales by such broker-dealer and (ii) to
keep such registration statement effective for a period of 60 days after the
effective date thereof. With respect to such registration statement the Company
and such holder shall have the benefit of, and shall provide to the other party,
the rights of indemnification and contribution set forth in Section 6 hereof.
(b) If prior to the consummation of the Exchange Offer existing
Commission interpretations are changed such that the debt securities received by
holders in the Exchange Offer for Registrable Securities are not or would not
be, upon receipt, transferable by each such holder (other than an affiliate of
the Company) without restriction under the Securities Act, the Company shall
file under the Securities Act, as soon as practicable, but no later than 30 days
after the Closing Date, a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities, pursuant to Rule 415 under the Securities
Act and/or any similar rule that may be adopted by the Commission (the "Shelf
Registration"). The Company agrees to use its best efforts to cause the Shelf
Registration to become or be declared no later than 150 days after the Closing
Date and to keep such Shelf Registration continuously effective for a period
ending on the earlier of the third anniversary of the Effective Time or such
time as there are no longer any Registrable Securities. The Company further
agrees, if necessary, to supplement or make amendments to the Shelf
Registration, if required by the rules, regulations or instructions applicable
to the registration form used by the Company for such Shelf Registration or by
the Securities Act or rules and regulations thereunder for shelf registration,
and the Company agrees to furnish to the holders of the Registrable Securities
copies of any such supplement or amendment prior to its being used and/or filed
with the Commission.
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(c) The holders of the Registrable Securities shall be entitled to a
"Step-Up" in the interest rate as set forth in the Registrable Securities during
any period after the 30th day after the Closing Date prior to the date on which
a registration statement is filed pursuant to Section 2(a) or 2(b) above, and
during any period after the 150th day after the Closing Date prior to the date
on which the Exchange Offer has been consummated or the Shelf Registration has
become or been declared effective by the Commission. In addition, the holders of
the Registrable Securities shall be entitled to a "Second Step-Up" in the
interest rate as set forth in the Registrable Securities during any period after
the 270th day after the Closing Date prior to the date on which the Exchange
Offer has been consummated or the Shelf Registration has become or been declared
effective by the Commission.
3. Registration Procedures.
(a) Prior to or at the Effective Time of the Exchange Offer or the
Shelf Registration, as the case may be, the Company shall qualify the Indenture
under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the appointment
of a new trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(c) In connection with the Company's obligations with respect to the
Shelf Registration, if applicable, the Company shall use its best efforts to
effect or cause the Shelf Registration to permit the sale of the Registrable
Securities by the holders thereof in accordance with the intended method or
methods of distribution thereof described in the Shelf Registration. In
connection therewith, the Company shall, as soon as reasonably possible:
(i) prepare and file with the Commission a registration statement
with respect to the Shelf Registration on any form which may be
utilized by the Company and which shall permit the disposition of the
Registrable Securities in accordance with the intended method or
methods thereof, as specified in writing by the holders of the
Registrable Securities, and use its best efforts to cause such
registration statement to become effective as soon as reasonably
possible thereafter;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement for the period specified in Section 2(b)
hereof and as may be required by the applicable rules and regulations
of the Commission and the instructions applicable to the form of such
registration statement, and furnish to the holders of the Registrable
Securities copies of any such supplement or amendment prior to its
being used and/or filed with the Commission;
(iii) comply with the provisions of the Securities Act with respect
to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the intended methods of
disposition by the holders thereof set forth in such registration
statement;
(iv) provide (A) the holders of the Registrable Securities to be
included in such registration statement, (B) the underwriters (which
term, for purposes of these Exchange and Registration Rights, shall
include a person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act), if any, thereof, (C) the sales or
placement agent, if any, therefor, (D) counsel for such underwriters
or agent, and (E) not more than one counsel for all the holders of such
Registrable Securities the opportunity to participate in the
preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment or supplement
thereto;
(v) for a reasonable period prior to the filing of such
registration statement, and throughout the period specified in Section
2(b) hereof, make available for inspection by the parties referred to
in Section 3(c)(iv) above who shall certify to the Company that they
have a current intention to sell the Registrable Securities pursuant to
the Shelf Registration Statement such financial and other information
and books and records of the Company, and cause the officers,
employees, counsel and independent certified public accountants of the
Company to respond to such inquiries, as shall be reasonably necessary,
in the judgment of the respective counsel referred to
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in such Section, to conduct a reasonable investigation within the
meaning of Section 11 of the Securities Act; provided, however, that
each such party shall be required to maintain in confidence and not to
disclose to any other person any information or records reasonably
designated by the Company in writing as being confidential, until such
time as (A) such information becomes a matter of public record (whether
by virtue of its inclusion in such registration statement or
otherwise), or (B) such person shall be required so to disclose such
information pursuant to the subpoena or order of any court or other
governmental agency or body having jurisdiction over the matter
(subject to the requirements of such order, and only after such person
shall have given the Company prompt prior written notice of such
requirement), or (C) such information is required to be set forth in
such registration statement or the prospectus included therein or in an
amendment to such registration statement or an amendment or supplement
to such prospectus in order that such registration statement,
prospectus, amendment or supplement, as the case may be, does not
contain an untrue statement of a material fact or omit to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vi) promptly notify the selling holders of Registrable
Securities, the sales or placement agent, if any, therefor and the
managing underwriter or underwriters, if any, thereof and confirm such
advice in writing; (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same
has become effective, (B) of any comments by the Commission and by the
Blue Sky or securities commissioner or regulator of any state with
respect thereto or any request by the Commission for amendments or
supplements to such registration statement or prospectus or for
additional information, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement
or the initiation or threatening of any proceedings for that purpose,
(D) if at any time the representations and warranties of the Company
contemplated by Section 3(c)(xv) or Section 5 hereof cease to be true
and correct in all material respects, (E) of the receipt by the Company
of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, or (F) at
any time when a prospectus is required to be delivered under the
Securities Act, that such registration statement, prospectus,
prospectus amendment or supplement or post-effective amendment, or any
document incorporated by reference in any of the foregoing, contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vii) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date:
(viii) if requested by any managing underwriter or underwriters, any
placement or sales agent or any holder of Registrable Securities,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as is required by the applicable rules and
regulations of the Commission and as such managing underwriter or
underwriters, such agent or such holder specifies should be included
therein relating to the terms of the sale of such Registrable
Securities, including, without limitation, information with respect to
the principal amount of Registrable Securities being sold by such
holder or agent or to any underwriters, the name and description of
such holder, agent or underwriter, the offering price of such
Registrable Securities and any discount, commission or other
compensation payable in respect thereof, the purchase price being paid
therefor by such underwriters and with respect to any other terms of
the offering of the Registrable Securities to be sold by such holder or
agent or to such underwriters; and make all required filings of such
prospectus supplement or post-effective amendment promptly after
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
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(ix) furnish to each holder of Registrable Securities, each
placement or sales agent, if any, therefor, each underwriter, if any,
thereof and the respective counsel referred to in Section 3(c)(iv) an
executed copy of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and such number of copies
of such registration statement (excluding exhibits thereto and
documents incorporated by reference therein unless specifically so
requested by such holder, agent or underwriter, as the case may be) and
of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity
with the requirements of the Securities Act, and such other documents,
as such holder, agent, if any, and underwriter, if any may reasonably
request in order to facilitate the offering and disposition of the
Registrable Securities owned by such holder, offered or sold by such
agent or underwritten by such underwriter and to permit such holder,
agent and underwriter to satisfy the prospectus delivery requirements
of the Securities Act; and the Company hereby consents to the use of
such prospectus (including such preliminary and summary prospectus) and
any amendment or supplement thereto by each such holder and by any such
agent and underwriter, in each case in the form most recently provided
to such party by the Company, in connection with the offering and sale
of the Registrable Securities covered by the prospectus (including such
preliminary and summary prospectus) or any supplement or amendment
thereto;
(x) use its best efforts to (A) register or qualify the
Registrable Securities to be included in such registration statement
under such securities laws or blue sky laws of such jurisdictions as
any holder of such Registrable Securities and each placement or sales
agent, if any, therefor and underwriter, if any, thereof shall
reasonably request, (B) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein in such jurisdictions during the
period the Shelf Registration is required to remain effective under
Section 2(b) above and for so long as may be necessary to enable any
such holder, agent or underwriter to complete its distribution of
Securities pursuant to such registration statement and (C) take any
and all other actions as may be reasonably necessary or advisable to
enable each such holder, agent, if any, and underwriter, if any, to
consummate the disposition in such jurisdictions of such Registrable
Securities; provided, however, that the Company shall not be required
for any such purpose to (I) qualify as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but
for the requirements of this Section 3(c)(x), (II) consent to general
service of process in any such jurisdiction or (III) make any changes
to the Company's Certificate of Incorporation or By-laws or any
agreement between the Company and its stockholders;
(xi) use its best efforts to obtain the consent or approval of
each governmental agency or authority, whether federal, state or local,
which may be required to effect the Shelf Registration or the offering
or sale in connection therewith or to enable the selling holder or
holders to offer, or to consummate the disposition of, their
Registrable Securities;
(xii) cooperate with the holders of the Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
sold, which certificates shall be printed, lithographed or engraved, or
produced by any combination of such methods, and which shall not bear
any restrictive legends; and, in the case of an underwritten offering,
enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at
least two business days prior to any sale of the Registrable
Securities;
(xiii) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Shelf Registration
(xiv) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including (without limitation)
customary provisions relating to indemnification and contribution, and
take such other actions in connection therewith as any holder of
Registrable Securities aggregating at
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least 33 1/3% in aggregate principal amount of the Outstanding
Securities, and as the holders of Registrable Securities aggregating at
least 66 2/3% in aggregate principal amount of the Outstanding
Securities, shall request in order to expedite or facilitate the
disposition of such Registrable Securities; provided, that the Company
shall not be required to enter into any such agreement more than once
with respect to all of the Registrable Securities, and may delay
entering into such agreement until the consummation of any underwritten
public offering which the Company shall have then engaged;
(xv) whether or not an agreement of the type referred to in Section
(3)(c)(xiv) hereof is entered into and whether or not any portion of
the offering contemplated by such registration statement is an
underwritten offering or is made through a placement or sales agent or
any other entity, (A) make such representations and warranties to the
holders of such Registrable Securities and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof in form,
substance and scope as are customarily made in connection with an
offering of debt securities pursuant to any appropriate agreement
and/or to a registration statement filed on the form applicable to the
Shelf Registration; (B) obtain an opinion of counsel to the Company in
customary form and covering such matters, of the type customarily
covered by such an opinion, as the managing underwriters, if any, as
any holder of at least 25% in aggregate principal amount of the
Registrable Securities, and as the holders of at least a majority in
aggregate principal amount of the Registrable Securities may reasonably
request, addressed to such holder or holders and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof and dated
the effective date of such registration statement (and if such
registration statement contemplates an underwritten offering of a part
or all of the Registrable Securities, dated the date of the closing
under the underwriting agreement relating thereto) (it being agreed
that the matters to be covered by such opinion shall include, without
limitation, the due incorporation and good standing of the Company
and its subsidiaries; the qualification of the Company and its
subsidiaries to transact business as foreign corporations; the due
authorization, execution and delivery of these Exchange and
Registration Rights and of any agreement of the type referred to in
Section (3)(c)(xiv) hereof; the due authorization, execution,
authentication and issuance, and the validity and enforceability, of
the Securities, the absence of material legal or governmental
proceedings involving the Company; the absence of a breach by the
Company or its subsidiaries of, or a default under, agreements binding
the Company or any subsidiary; the absence of governmental approvals
required to be obtained in connection with the Shelf Registration, the
offering and sale of the Registrable Securities, these Exchange and
Registration Rights or any agreement of the type referred to in Section
(3)(c)(xiv) hereof; the compliance as to form of such registration
statement and any documents incorporated by reference therein and of
the Indenture with the requirements of the Securities Act and the Trust
Indenture Act, respectively; and, as of the date of the opinion and of
the registration statement or most recent post-effective amendment
therein, as the case may be, the absence from such registration
statement and the prospectus included therein, as then amended or
supplemented, and from the documents incorporated by reference therein
of an untrue statement of a material fact or the omission to state
thereto a material fact necessary to make the statements therein not
misleading (in the case of such documents, in the light of the
circumstances existing at the time that such documents were filed with
the Commission under the Exchange Act)); (C) obtain a "cold comfort"
letter or letters from the independent certified public accountants of
the Company addressed to the selling holders of Registrable Securities
and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof, dated (I) the effective date of such
registration statement and (II) the effective date of any prospectus
supplement to the prospectus included in such registration statement or
post-effective amendment to such registration statement which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such
prospectus (and, if such registration statement contemplates an
underwritten offering pursuant to any prospectus supplement to the
prospectus included in such registration statement or post-effective
amendment to such registration statement which includes unaudited or
audited
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financial statements as of a date or for a period subsequent to that of
the latest such statements included in such prospectus, dated the date
of the closing under the underwriting agreement relating thereto), such
letter or letters to be in customary form and covering such matters of
the type customarily covered by letters of such type; (D) deliver such
documents and certificates, including officers' certificates, as may be
reasonably requested by any holder of at least 25% in aggregate
principal amount of the Registrable Securities being sold or by the
holders of at least a majority in aggregate principal amount of the
Registrable Securities being sold and the placement or sales agent, if
any, therefor and the managing underwriters, if any, thereof to
evidence the accuracy of the representations and warranties made
pursuant to clause (A) above or those contained in Section 5(a) hereof
and the compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other agreement entered into
by the Company; and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in
Section 6 hereof;
(xvi) notify in writing each holder of Registrable Securities of
any proposal by the Company to amend or waive any provision of these
Exchange and Registration Rights pursuant to Section 9(h) hereof and of
any amendment or waiver effected pursuant thereto, each of which
notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xvii) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate
as a member of an underwriting syndicate or selling group or "assist in
the distribution" (within the meaning of the Rules of Fair Practice and
the By-Laws of the National Association of Securities Dealers, Inc.
("NASD")) thereof, whether as a holder of such Registrable Securities
or as an underwriter, a placement or sales agent or a broker or dealer
in respect thereof, or otherwise, assist such broker-dealer in
complying with the requirements of such Rules and By-Laws, including,
without limitation, by (A) if such Rules or By-Laws including Schedule
E thereto, shall so require, engaging a "qualified independent
underwriter" (as defined in such Schedule) to participate in the
preparation of the registration statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect
thereto and, if any portion of the offering contemplated by such
registration statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Registrable
Securities, (B) indemnifying any such qualified independent underwriter
to the extent of the indemnification of underwriters provided in
Section 6 hereof, and (C) providing such information to such
broker-dealer as may be required in order for such broker-dealer to
comply with the requirements of the Rules of Fair Practice of the NASD;
and
(xviii) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as
soon as practicable but in any event not later than eighteen months
after the effective date of such registration statement, an earning
statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act (including, at the option of the Company,
Rule 158 thereunder).
(d) In the event that the Company would be required, pursuant to
Section 3(c)(vi)(F) above, to notify the selling holders of Registrable
Securities, the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof, the Company shall without delay prepare and
furnish to each such holder, to each placement or sales agent, if any, and to
each underwriter, if any, a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Securities, such prospectus shah not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing. Each holder of Registrable Securities agrees that
upon receipt of any notice from the Company pursuant to Section 3(c)(vi)(F)
hereof, such holder shall forthwith discontinue the disposition of Registrable
Securities pursuant to the registration statement applicable to such Registrable
Securities until such holder shall have received copies of such amended or
supplemented prospectus, and if so directed by
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the Company, such holder shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such holder's possession
of the prospectus covering such Registrable Securities at the time of receipt
of such notice.
(e) The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such holder and such holder's intended method of
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing, but only to the extent that such information is
required in order to comply with the Securities Act. Each such holder agrees to
notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by such holder to the Company or of the
occurrence of any event in either case as a result of which any prospectus
relating to such registration contains or would contain an untrue statement of a
material fact regarding such holder or such holder's intended method of
distribution of such Registrable Securities or omits to state any material fact
regarding such holder or such holder's intended method of distribution of such
Registrable Securities required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that such
prospectus shall not contain, with respect to such holder or the distribution of
such Registrable Securities, an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements there in not misleading in light of the circumstances then existing,
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly upon
request being made therefor all expenses incident to the Company's performance
of or compliance with these Exchange and Registration Rights, including, without
limitation, (a) all Commission and any NASD registration and filing fees and
expenses, (b) all fees and expenses in connection with the qualification of the
Securities for offering and sale under the State securities and blue sky laws
referred to in Section 3(c)(x) hereof, including reasonable fees and
disbursements of counsel for the placement or sales agent or underwriters in
connection with such qualifications, (c) all expenses relating to the
preparation, printing, distribution and reproduction of each registration
statement required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to the
foregoing, the certificates representing the Securities and all other documents
relating hereto, (d) messenger and delivery expenses, (e) fees and expenses of
the Trustee under the Indenture and of any escrow agent or custodian, (f)
internal expenses (including, without limitation, all salaries and expenses of
the Company's officers and employees performing legal or accounting duties), (g)
fees, disbursements and expenses of counsel and independent certified public
accountants of the Company (including the expenses of any opinions or "cold
comfort" letters required by or incident to such performance and compliance),
(h) fees, disbursements and expenses of any "qualified independent underwriter"
engaged pursuant to Section 3(c)(xvii) hereof, (i) reasonable fees,
disbursements and expenses of one counsel for the holders of Registrable
Securities retained in connection with such registration, as selected by the
holders of at least a majority in aggregate principal amount of the Registrable
Securities being registered, and fees, expenses and disbursements of any other
persons, including special experts, retained by the Company in connection with
such registration (collectively, the "Registration Expenses"). To the extent
that any Registration Expenses are incurred, assumed or paid by any holder of
Registrable Securities or any placement or sales agent therefor or underwriter
thereof, the Company shall reimburse such person for the full amount of the
Registration Expenses so incurred, assumed or paid promptly after receipt of a
request therefor. Notwithstanding the foregoing, the holders of the Registrable
Securities being registered shall pay all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Registered Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other than
the counsel and experts specifically referred to above.
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5. Representations and Warranties.
The Company represents and warrants to, and agrees with, each Purchaser
and each of the holders from time to time of Registrable Securities that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(c)(ix) hereof and
any further amendments or supplements to any such registration
statement or prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten
offering of Registrable Securities, at the time of the closing under
the underwriting agreement relating thereto will conform in all
material respects to the requirements of the Securities Act and the
Trust Indenture Act and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
at all times subsequent to the Effective Time when a prospectus would
be required to be delivered under the Securities Act, other than from
(i) such time as a notice has been given to holders of Registrable
Securities pursuant to Section 3(c)(vi)(F) hereof until (ii) such time
as the Company furnishes an amended or supplemented prospectus pursuant
to Section 3(d) hereof, each such registration statement, and each
prospectus (including any summary prospectus) contained therein or
furnished pursuant to Section 3(c)(ix) hereof, as then amended or
supplemented, will conform in all material respects to the requirements
of the Securities Act and the Trust Indenture Act and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by a
holder of Registrable Securities expressly for use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5(a) hereof, when they become or became
effective or are or were filed with the Commission, as the case may be;
will conform or conformed in all material respects to the requirements
of the Securities Act or the Exchange Act, as applicable, and none of
such documents will contain or contained an untrue statement of a
material fact or will omit or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by a holder of Registrable Securities expressly for use therein.
(c) The compliance by the Company with all of the provisions of
these Exchange and Registration Rights and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any subsidiary is a
party or by which the Company or any subsidiary is bound or to which
any of the property or assets of the Company or any subsidiary is
subject, nor will such action result in any violation of the provisions
of the Certificate of Incorporation, as amended, or the By-Laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
subsidiary or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by these
Exchange and Registration Rights, except the registration under the
Securities Act of the Registrable Securities, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under State securities or blue sky laws in connection with the offering
and distribution of the Registrable Securities.
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(d) These Exchange and Registration Rights have been duly
authorized, executed and delivered by the Company.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of the
Registrable Securities pursuant to Section 2 hereof, and in consideration of the
agreements of the Purchasers contained herein, and as an inducement to the
Purchasers to purchase the Securities, the Company shall, and it hereby agrees
to, indemnify and hold harmless each of the holders of Registrable Securities to
be included in such registration, and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of such
Registrable Securities against any losses, claims, damages or liabilities, joint
or several, to which such holder, agent or underwriter may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, or any preliminary, final or summary prospectus
contained therein or furnished by the Company to any such holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company shall and it hereby agrees to, reimburse such
holder, such agent and such underwriter for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable to any such person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such person expressly for use
therein; provided, further, that the Company shall not be liable to any
underwriter to the extent such loss, claim, damage, or liability results from
the fact that there was not delivered by such underwriter a final prospectus the
delivery of which would have avoided such loss, claim, damage or liability.
(b) Indemnification by the Holders and any Agents and Underwriters. The
Company may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2 hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from the holder of
such Registrable Securities and from each underwriter named in any such
underwriting agreement, severally and not jointly, to (i) indemnify and hold
harmless the Company, and all other holders of Registrable Securities, against
any losses, claims, damages or liabilities to which the Company or such other
holders of Registrable Securities may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such holder, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such holder
or underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim; provided, however, that no
such holder shall be required to undertake liability to any person under this
Section 6(b) for any amounts in excess of the dollar amount of the proceeds to
be received by such holder from the sale of such holder's Registrable Securities
pursuant to such registration.
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<PAGE> 125
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' and any underwriters' obligations in this
Section 6(d) to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to
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<PAGE> 126
each officer, director and partner of each holder, agent and underwriter and
each person, if any, who controls any holder, agent or underwriter within the
meaning of the Securities Act; and the obligations of the holders and any
underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder or underwriter may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Company (including any person who, with his consent, is named in any
registration statement as about to become a director of the Company) and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by the holders of at least a majority in aggregate principal amount of the
Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Company.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Registrable Securities that to
the extent it shall be required to do so under the Exchange Act, the Company
shall timely file the reports required to be filed by it under the Exchange Act
or the Securities Act (including, but not limited to, the reports under Section
13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144
adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and shall take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitations
of the exemption provided by Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company shall deliver to such holder a written statement as to
whether it has complied with such requirements.
9. Miscellaneous.
(a) No lnconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other securities which
would be inconsistent with the terms contained in these Exchange and
Registration Rights.
(b) Specific Performance. The parties hereto acknowledge that there may
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under these Exchange
and Registration Rights in accordance with the terms and conditions of these
Exchange and Registration Rights, in any court of the United States or any State
thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at USAT Holdings Inc., 520 Madison Ave., New York, New York 10022, Attention:
General Counsel, and if to
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<PAGE> 1
(d) These Exchange and Registration Rights have been duly
authorized, executed and delivered by the Company.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of the
Registrable Securities pursuant to Section 2 hereof, and in consideration of the
agreements of the Purchasers contained herein, and as an inducement to the
Purchasers to purchase the Securities, the Company shall, and it hereby agrees
to, indemnify and hold harmless each of the holders of Registrable Securities to
be included in such registration, and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of such
Registrable Securities against any losses, claims, damages or liabilities, joint
or several, to which such holder, agent or underwriter may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, or any preliminary, final or summary prospectus
contained therein or furnished by the Company to any such holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company shall and it hereby agrees to, reimburse such
holder, such agent and such underwriter for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable to any such person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such person expressly for use
therein; provided, further, that the Company shall not be liable to any
underwriter to the extent such loss, claim, damage, or liability results from
the fact that there was not delivered by such underwriter a final prospectus the
delivery of which would have avoided such loss, claim, damage or liability.
(b) Indemnification by the Holders and any Agents and Underwriters. The
Company may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2 hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from the holder of
such Registrable Securities and from each underwriter named in any such
underwriting agreement, severally and not jointly, to (i) indemnify and hold
harmless the Company, and all other holders of Registrable Securities, against
any losses, claims, damages or liabilities to which the Company or such other
holders of Registrable Securities may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such holder, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such holder
or underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim; provided, however, that no
such holder shall be required to undertake liability to any person under this
Section 6(b) for any amounts in excess of the dollar amount of the proceeds to
be received by such holder from the sale of such holder's Registrable Securities
pursuant to such registration.
A-10
<PAGE> 2
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' and any underwriters' obligations in this
Section 6(d) to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to
A-11
<PAGE> 3
each officer, director and partner of each holder, agent and underwriter and
each person, if any, who controls any holder, agent or underwriter within the
meaning of the Securities Act; and the obligations of the holders and any
underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder or underwriter may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Company (including any person who, with his consent, is named in any
registration statement as about to become a director of the Company) and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by the holders of at least a majority in aggregate principal amount of the
Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Company.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Registrable Securities that to
the extent it shall be required to do so under the Exchange Act, the Company
shall timely file the reports required to be filed by it under the Exchange Act
or the Securities Act (including, but not limited to, the reports under Section
13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144
adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and shall take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitations
of the exemption provided by Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company shall deliver to such holder a written statement as to
whether it has complied with such requirements.
9. Miscellaneous.
(a) No lnconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other securities which
would be inconsistent with the terms contained in these Exchange and
Registration Rights.
(b) Specific Performance. The parties hereto acknowledge that there may
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under these Exchange
and Registration Rights in accordance with the terms and conditions of these
Exchange and Registration Rights, in any court of the United States or any State
thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at USAT Holdings Inc., 520 Madison Ave., New York, New York 10022, Attention:
General Counsel, and if to
A-12
<PAGE> 1
EXHIBIT 4.4
THIS FIRST SUPPLEMENTAL INDENTURE dated as of January 23, 1995,
between USAT HOLDINGS INC., a corporation duly organized and existing under the
laws of the State of Delaware (the "Company"), and THE BANK OF NEW YORK, a
banking corporation duly organized and existing under the laws of the State of
New York, as trustee under the Original Indenture referred to below (the
"Trustee").
WITNESSETH:
WHEREAS, the Holders and the Company desire to enter into this
First Supplemental Indenture to modify as set forth below the provisions of the
Company's Indenture, dated as of May 15, 1993 (the "Original Indenture" and, as
supplemented and amended by this First Supplemental Indenture, sometimes
referred to herein as the "Indenture"), relating to its 8.05% Senior Notes due
May 15, 1998 (the "Securities"); and
WHEREAS, consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities and of not less than two-thirds
in principal amount of the Registrable Securities has been obtained by Act of
said Holders delivered to the Company and the Trustee;
NOW, THEREFORE, in consideration of the mutual promises and
forebearances set forth herein, the Company and the Trustee mutually covenant
and agree for the equal and proportionate benefit of the respective Holders
from time to time of the Securities as follows:
Section 1. Addition of Section 1015(d). The Indenture is
hereby amended by the addition of a new Section 1015(d), which Section 1015(d)
is to read in its entirety as follows:
"(d) Notwithstanding anything to the contrary which
may be contained herein, if the Company or any Subsidiary of
the Company shall, directly or indirectly, in a transaction or
in a series of transactions pursuant to a plan evidenced by a
Board Resolution, convey or transfer properties or assets of
Bank United representing in the aggregate at least 80% of the
value of all of the assets of Bank United (as determined in
good faith by a majority of the Board of Directors and
evidenced by a Board Resolution) to any Person except the
Company or a Wholly Owned Subsidiary of the Company, then the
Company may at its option, as evidenced by a Board Resolution,
elect to redeem the Securities in whole but not in part at 101%
of their principal amount plus accrued interest to the
Redemption Date. The Company shall comply with the provisions
of Article Eleven if it exercises its redemption option
pursuant to this Section 1015(d). If within fifteen days
following the date of consummation
<PAGE> 2
of such a transaction or series of transactions the Company
shall not have exercised its redemption option, each Holder of
a Security shall have the right to have such Security
repurchased by the Company in the same manner as if such
transaction or series of transactions had resulted, upon the
consummation thereof, in a Change in Control within the
meaning of section 1016."
Section 2. Amendment of Section 1016(c). Section 1016(c) of
the Indenture is hereby amended so as to read in its entirety as follows:
"(c) A 'Change of Control' shall be deemed to have
occurred in the event that, after the date of this Indenture,
either (A) any Person or any Persons (other than a Permitted
Holder) acting together which would constitute a 'group' (a
'Group') for purposes of Section 13(d) of the Exchange Act, or
any successor provision thereto, together with any Affiliates
or Related Persons thereof, shall beneficially own (as defined
in Rule 13d-3 under the Exchange Act or any successor
provision thereto) at least 50% of the Voting Stock of Bank
United or the Company; or (B) any Person or Group (other than
a Permitted Holder), together with any Affiliates or Related
Persons thereof, shall succeed in having sufficient of its or
their nominees elected to the Board of Directors of Bank
United or the Company such that such nominees, when added to
any existing director remaining on the Board of Directors of
Bank United or the Company, as the case may be, after such
election who were nominated by or at the suggestion of, or is
an Affiliate of, such Person or Group, shall constitute a
majority of the Board of Directors of Bank United or the
Company, as the case may be."
Section 3. Amendment of Section 1020. Section 1020 of the
Indenture is hereby amended to add the following sentence at the end thereof:
"Notwithstanding anything to the contrary contained
in the Indenture, including but not limited to Section 2 of
the Exchange and Registration Rights, the Company shall not,
prior to December 31, 1994, either consummate the Exchange
offer or permit the Shelf Registration Statement to be
declared effective by the commission."
2
<PAGE> 3
Section 4. Amendment of Section 1101. The first sentence of
Section 1101 of the Indenture is hereby amended so as to read in its entirety
as follows: "The election of the Company to redeem the Securities pursuant to
Section 1015(d) or Section 1016 shall be evidenced by a Board Resolution."
Section 5. Miscellaneous. The Trustee accepts the trusts
hereunder and agrees to perform the same, but only upon the terms and
conditions set forth in the Original Indenture and in this First Supplemental
Indenture, to all of which the Company agrees and the Holders of Securities at
any time outstanding by their acceptance thereof agree. The provisions of this
First Supplemental Indenture shall become effective immediately upon the
execution and delivery hereof. The Original Indenture is hereby ratified and
confirmed and shall remain and continue in full force and effect in accordance
with the terms and provisions thereof, as supplemented and amended by this
First Supplemental Indenture, and with such omissions, variations and
modifications thereof as may be appropriate to make each such term and
condition conform to this First Supplemental Indenture, and the Original
Indenture and this First Supplemental Indenture shall be read, taken and
construed together as one instrument. Capitalized terms used but not defined
in this First Supplemental Indenture are defined in the Original Indenture and
shall have the meanings specified in the Original Indenture, unless the
context shall otherwise require. This First Supplemental Indenture may be
executed in several counterparts, each of which shall be deemed an original,
but all of which together shall constitute one instrument.
Section 6. Governing Law. This First Supplemental Indenture
shall be governed by and construed in accordance with the laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and year first
written above.
USAT HOLDINGS INC.
(CORPORATE SEAL)
By /s/ SCOTT A. SHAY
-----------------------------
Scott A. Shay
Vice President
Attest:
/s/ SALVATORE A. RANIERI
- --------------------------
Salvatore A. Ranieri
Secretary
3
<PAGE> 4
THE BANK OF NEW YORK
(CORPORATE SEAL)
By: /s/ ROBERT F. MCINTYRE
------------------------------
Name: Robert F. McIntyre
Title: Assistant Vice President
Attest:
[ILLEGIBLE]
- ------------------------------
Name: [ILLEGIBLE]
Title: [ILLEGIBLE]
ACKNOWLEDGEMENTS
STATE OF NEW YORK
COUNTY OF NASSAU
On the 23rd day of January, 1995, before me personally came
Scott A. Shay, to me known, who, being by me duly sworn, did depose and say
that he is Vice President of USAT HOLDINGS INC., one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation; and that he signed his name thereto by like authority.
/s/ NANCY MARTINEK
------------------------------
Nancy Martinek
Notary Public, State of New York
No. 31-4640325
Qualified in New York County
Commission Expires 09/30/95
4
<PAGE> 1
EXHIBIT 10.1
=======================================================================
ASSISTANCE AGREEEMENT
AMONG
THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION,
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
HOUSTON, TEXAS,
USAT HOLDINGS INC.,
HYPERION HOLDINGS INC.
=========================================================================
VINSON & ELKINS
Attorney at Law
<PAGE> 2
ASSISTANCE AGREEMENT INDEX
<TABLE>
<C> <C> <C>
Recitals................................................................ 1-5
Section 1 Definitions.................................................. 5-27
Section 2 Conditions
(a) Consummation of Transaction............................. 27
(b) Conditions to the Corporation Obligations............... 27
(c) Conditions to the Acquiring Association Obligations..... 31
Section 3 Special Reserve Accounts
(a) Debits to Special Reserve Account I..................... 32
(b) Credits to Special Reserve Account I.................... 35
(c) Debits to Special Reserve Account II.................... 38
(d) Credits to Special Reserve Account II................... 39
Section 4 Write-Down or Required Sale of Covered Asset
(a) Corporation Directed Write-Down......................... 40
(b) Requested Write-Downs by Acquiring Association.......... 40
(c) Determination of Write-Down............................. 41
(d) Required Sale........................................... 42
(e) Write-Down of Covered Assets That Could Not Be
Liquidated............................................ 42
Section 5 Inventory and Initial Audit
(a) Inventory............................................... 43
(b) Audits.................................................. 44
Section 6 Payments, Contributions and Warrants
(a) Contributions by the Corporation........................ 45
(b) Reimbursement of Net Credit Balances of Special
Reserve Accounts I and II............................. 49
(c) Adjustments............................................. 49
(d) Warrants................................................ 50
Section 7 Indemnification and Pursuit of Related Claims
(a) Indemnifications........................................ 50
(b) Pursuit of Related Claims............................... 54
(c) Scope of Indemnification................................ 55
Section 8 Acquired Association Claims
(a) Assignment to Corporation of Claims..................... 55
(b) Manner of Assignment.................................... 56
(c) Notification of Claims.................................. 56
</TABLE>
<PAGE> 3
<TABLE>
<C> <C> <C>
Section 9 Tax Benefits
(a) Tax Benefit Items...................................... 58
(b) Federal Net Tax Benefits............................... 59
(c) State Tax Benefits..................................... 60
(d) Timing of Payments..................................... 61
(e) Cooperation............................................ 61
(f) Disallowed Deductions.................................. 62
Section 10 Duplicate Payments.......................................... 62
Section 11 Non-Reimbursable Expenses................................... 63
Section 12 Major Covered Assets
(a) Submissions............................................ 64
(b) Budget Summaries....................................... 66
(c) Specific Requests for Approvals........................ 67
(d) Financing.............................................. 69
(e) Asset Disposition...................................... 69
(f) Revised Submissions.................................... 70
(g) Corporation's Approval Requirements.................... 71
(h) Form of Submissions.................................... 72
(i) Additional Submissions................................. 72
Section 13 Significant Covered Assets
(a) Submissions............................................ 73
(b) Budget Summaries....................................... 74
(c) Specific Requests for Approval......................... 75
(d) Financing.............................................. 77
(e) Asset Disposition...................................... 77
(f) Revised Submissions.................................... 78
(g) Corporations Approval Requirements..................... 79
(h) Form of Submissions.................................... 79
(i) Additional Submissions................................. 80
Section 14 Other Covered Assets
(a) Schedule............................................... 81
(b) Specific Requests for Approval......................... 82
(c) Financing.............................................. 82
(d) Asset Disposition...................................... 83
(e) Additional Submissions................................. 84
Section 15 Litigation
(a) Pending Litigation..................................... 84
(b) Litigation Plans and Budgets........................... 86
(c) Post-Effective Date Litigation......................... 87
(d) Plaintiff Litigation................................... 88
(e) Authority Before Approval of Litigation
Plans and Budgets.................................... 88
</TABLE>
<PAGE> 4
<TABLE>
<C> <C> <C>
(f) Authority Following Approval of Litigation
Plans and Budgets.................................... 89
(g) Revised Litigation Plans and Budgets................... 90
(h) Corporation's Authority to Litigate.................... 90
(i) Corporation Approvals.................................. 91
(j) Form of Submissions.................................... 91
(k) Foreclosure and Bankruptcy Actions..................... 92
(l) Attorneys Fees for Work Performed by Attorneys
who are Employees of the Acquiring
Association.......................................... 92
Section 16 Reports, Records, Audits
(a) Quarterly Reports...................................... 94
(b) Access to Books and Records............................ 96
(c) Audits and Examinations................................ 97
(d) Final Accounting....................................... 97
(e) Other Reports.......................................... 97
(f) Corporation Approvals.................................. 98
(g) Form of Submissions.................................... 98
Section 17 Covenants of the Acquiring Association
(a) Management Standard.................................... 99
(b) Management Services.................................... 99
(c) Pursuit of Related Claims.............................. 103
(d) Significant Subsidiaries............................... 104
Section 18 Additional Covenants
(a) Additional Covenants................................... 107
(b) Disclosure of Agreement/Confidentiality................ 108
(c) Compliance with Law.................................... 108
Section 19 Corporation's Purchase of Covered Assets.................... 109
Section 20 Office Space, Personnel and Facilities for the
Corporation............................................... 111
Section 21 Accounting Principles....................................... 111
Section 22 Representations and Warranties.............................. 112
Section 23 Notices..................................................... 113
Section 24 Termination of Agreement.................................... 114
Section 25 Rights and Forbearances..................................... 116
Section 26 Governing Law............................................... 116
Section 27 Entire Agreement, Severability.............................. 117
Section 28 Counterparts, Modifications, Headings........................ 118
</TABLE>
<PAGE> 5
<TABLE>
<C> <C>
Section 29 Successors and Assigns...................................... 118
Section 30 Sole Benefit................................................ 119
Section 31 Continuing Operation........................................ 119
Section 32 Rights of the Bank as Assignee.............................. 120
</TABLE>
<PAGE> 6
ASSISTANCE AGREEMENT INDEX
INDEX OF SECTION 1 DEFINITIONS
<TABLE>
<S> <C>
Acquired Association Claim ......................................... 5
Acquirer's Contribution ............................................ 5
Acquisition ........................................................ 6
Acquisition Agreement .............................................. 6
Actual Yield ....................................................... 6
Adjusted Book Value ................................................ 7
Affiliate .......................................................... 8
Affiliated Person .................................................. 8
Applicable Term .................................................... 8
Average Book Value ................................................. 9
Bank ............................................................... 9
Bank Board ......................................................... 9
Books and Record ................................................... 9
Book Value ......................................................... 10
Claim .............................................................. 12
Common Stock ....................................................... 13
Covered Asset ...................................................... 13
Covered Asset Incentive Loss ....................................... 19
Covered Asset Loss ................................................. 20
Covers Asset Recovery .............................................. 20
Covered Asset Reserve .............................................. 20
Credit or Credit Item .............................................. 20
Debit or Debit Item ................................................ 20
Effective Date ..................................................... 21
Fair Market Value .................................................. 21
Foreclosure ........................................................ 21
Guaranteed Rate .................................................... 22
Guaranteed Yield Amount ............................................ 22
Initial Audit ...................................................... 22
Insurance Regulations............................................... 23
Investment ......................................................... 23
Liquidation ........................................................ 23
Marketable Securities .............................................. 23
Mortgage Backed Security Portfolio ................................. 23
Negative Capital ................................................... 23
Net Proceeds Received .............................................. 24
Promissory Notes ................................................... 25
Quarter ............................................................ 25
Real Estate Owned .................................................. 25
Related Claim ...................................................... 25
Repossessed Personal Property ...................................... 26
Shared Gain ........................................................ 26
Significant Subsidiary ............................................. 26
Special Reserve Account ............................................ 26
Subsidiary ......................................................... 26
Supervisory Agent .................................................. 26
Tax Claim .......................................................... 27
Texas COF .......................................................... 27
Transaction ........................................................ 27
Warrants ........................................................... 27
</TABLE>
<PAGE> 7
ASSISTANCE AGREEMENT
THIS AGREEMENT, dated December 30, 1988, is entered into by and among
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB, Houston, Texas ("ACQUIRING
ASSOCIATION"); USAT HOLDINGS INC. ("USAT HOLDINGS"), a savings and loan holding
company incorporated under the laws of the state of Delaware of which the
ACQUIRING ASSOCIATION is a wholly-owned subsidiary, HYPERION HOLDINGS INC., a
savings and loan holding company incorporated under the laws of the State of
Delaware of which USAT HOLDINGS is a wholly-owned subsidiary, ("HYPERION
HOLDINGS"), HYPERION PARTNERS LP, a partnership organized under the laws of the
State of Delaware of which Hyperion Holdings Inc is a wholly-owned subsidiary
("HYPERION PARTNERS"), (USAT HOLDINGS, HYPERION HOLDINGS, HYPERION PARTNERS,
collectively, the "ACQUIRERS") and the FEDERAL SAVINGS AND LOAN INSURANCE
CORPORATION, a corporate instrumentality and agency of the United States
("CORPORATION").
RECITALS
A. The Federal Home Loan Bank Board has (1) authorized the appointment
of the CORPORATION as receiver ("RECEIVER")
<PAGE> 8
2
for United Savings Association of Texas, Houston, Texas (the "ACQUIRED
ASSOCIATION"), (2) authorized the organization of the ACQUIRING ASSOCIATION
pursuant to Section 406 of the National Housing Act, as amended ("NHA"), 12
U.S.C. Section 1729 (1982) and the issuance of 100% of the Common Stock of the
ACQUIRING ASSOCIATION to USAT HOLDINGS, and (3) authorized the transfer to the
ACQUIRING ASSOCIATION of substantially all of the assets and the secured,
deposit and certain tax liabilities of the ACQUIRED ASSOCIATION pursuant to the
Acquisition Agreement (herein so called) by and between the RECEIVER and the
ACQUIRING ASSOCIATION dated the date hereof.
B. The CORPORATION insure the accounts of the ACQUIRED ASSOCIATION and
will insure the accounts of the ACQUIRING ASSOCIATION in accordance with
Section 403 of the NHA, 12 U.S.C. Section 1726 (1982).
C. Pursuant to the Acquisition Agreement, the ACQUIRING ASSOCIATION
will succeed to substantially all the obligations, duties, and liabilities of
the ACQUIRED ASSOCIATION to secured creditors, depositors, and governmental
units for Tax Claims (defined below), and substantially all assets and property
of every kind and character belonging to the ACQUIRED ASSOCIATION will be
vested in and become the property of the ACQUIRING ASSOCIATION.
<PAGE> 9
3
D. A condition to the obligation of the parties to consummate the
Transaction (defined below) is that the CORPORATION, the ACQUIRING ASSOCIATION,
and the ACQUIRERS enter into an agreement in the form of this Agreement,
pursuant to which the CORPORATION will provide financial assistance and
indemnification to the ACQUIRING ASSOCIATION and the ACQUIRERS, and that certain
forbearances be granted in a separate forbearance letter.
E. The CORPORATION has decided, pursuant to Section 406(f)(1)-(4) of
the NHA, 12 U.S.C. Section 1729(f)(1)-(4) (1982), to provide financial
assistance and indemnification as set forth in this Agreement, having determined
that the ACQUIRED ASSOCIATION is in danger of default and that the amount of
such financial assistance and indemnification with respect to the ACQUIRED
ASSOCIATION would be less than the losses the CORPORATION would sustain upon the
liquidation of the ACQUIRED ASSOCIATION through a receivership accompanied by
the payment of insurance of accounts.
F. The ACQUIRING ASSOCIATION has agreed to consummate the Transaction
and use its best efforts to manage the resulting business, acquired assets and
liabilities in order
<PAGE> 10
4
to (i) define and establish a thrift business operated in accordance with
applicable laws and regulations in effect from time to time which will focus on
providing single family mortgage loans and consumer services to its market to
the extent contemplated by the Business Plan submitted to the Bank Board in
connection with this Transaction; (ii) will consolidate operations, reduce
operating and funding costs and thereby, to the extent possible under the
circumstances, increase net interest margin and profitability; and (iii) will
liquidate or convert to earning assets the non-core business and assets of the
ACQUIRED ASSOCIATION in a manner that will minimize exposure to additional loss
and maximize Covered Asset Recoveries (as defined below.)
G. The CORPORATION has approved the acquisition of the ACQUIRING
ASSOCIATION (including the issuance and acquisition of its shares and
subordinated debentures as contemplated by this Agreement) and the acquisition
of the ACQUIRED ASSOCIATION (including the acquisition of its assets) under
Section 408(m) of the National Housing Act, as amended.
In consideration of the mutual promises contained in this Agreement,
the parties hereto enter into the following Agreement.
<PAGE> 11
5
AGREEMENT
Section 1 Definitions. For the purposes of this Agreement, the
following terms have the indicated meanings:
(a) "Acquired Association Claim": Any Claim of the ACQUIRED
ASSOCIATION that the ACQUIRING ASSOCIATION as its successor has against any
person or persons, partnership, corporation, or other entity ("third party"),
and any administrator, executor, personal representative, heir, or assign of
such third party, that is related to a Claim retained by the RECEIVER pursuant
to Section 2 of the Acquisition Agreement.
(b) "Acquirer's Contribution": The amount of $90 million in cash,
which will be contributed to the ACQUIRING ASSOCIATION on the Effective Date,
in return for 100% of the Common Stock. Within thirty (30) days after receipt
of audited financial statements as of December 31, 1988, the Acquiring
Association will file with the Corporate and Securities Division, Bank Board,
(as defined below), a Registration Statement covering $110 million of
subordinated debentures. The ACQUIRING ASSOCIATION has received a letter
(Exhibit ______) from an investment bank or other financial institution setting
forth its commitment to underwrite or otherwise arrange for the sale of
subordinated debentures as set forth in Section 2(b)(7) of this Agreement. The
<PAGE> 12
6
ACQUIRING ASSOCIATION will use its best efforts to enforce such agreement to
have issued such debentures within 60 days after such Registration Statement is
effective.
(c) "Acquisition": The acquisition of substantially all of the assets
and the assumption of the secured, deposit and certain tax Claim liabilities of
the ACQUIRED ASSOCIATION by the ACQUIRED ASSOCIATION by purchase and assumption
from the RECEIVER.
(d) "Acquisition Agreement": The agreement entered into
contemporaneously with this Agreement between the ACQUIRED ASSOCIATION and the
RECEIVER pursuant to which the ACQUIRED ASSOCIATION purchases substantially all
of the assets and assumes the secured, deposit, and certain tax claim
liabilities of the ACQUIRED ASSOCIATION from the RECEIVER.
(e) "Actual Yield": With respect to a Covered Asset, the amount of all
interest and other income or loss received or accrued (the calculation of such
income or loss to include all expenses in the form of payments to third
parties, including the ACQUIRERS and their Affiliates in accordance with
Section 17 (b), accrued or paid by or on behalf of the ACQUIRED ASSOCIATION
that are directly related to such Covered Asset), including specifically, with
respect to any Real Estate Owned, all net operating income or loss, and with
respect to any Investment in any Subsidiary, the ACQUIRED ASSOCIATION's share
of net earnings that may be distributed
<PAGE> 13
7
to the ACQUIRING ASSOCIATION without violating any applicable law or any valid
and binding contract, whether or not distributed, or loss. Net operating income
or loss for any Real Estate Owned shall be equal to the difference between the
gross income received from or accrued with respect to the asset and the sum of
expenses in the form of payments to third parties (including the ACQUIRERS and
their Affiliates in accordance with Section 17 (b)) accrued or paid by or on
behalf of the ACQUIRING ASSOCIATION that are directly related to the Real
Estate Owned and that have been approved, if required, by the CORPORATION in
accordance with the procedures set forth in Section 12, 13, and 14. Net
earnings or loss for any Subsidiary shall be computed in accordance with
generally accepted accounting principles, but without deduction for any
dividend or other distribution from such Subsidiary to the ACQUIRING
ASSOCIATION or any Affiliate of the ACQUIRING ASSOCIATION, provided that no
loss of a Subsidiary will be taken into account in determining Actual Yield if
the amount of the loss, when combined with all losses previously taken into
account in determining Actual Yield with respect to such Subsidiary, would
exceed the Book Value of the Investment in such Subsidiary.
(f) "Adjusted Book Value": (i) Eighty percent (80%) of (A) the Book
Value of any Covered Asset minus (B) any Covered Asset Reserve, plus (ii)
Cumulative Holding Costs (as set
<PAGE> 14
8
forth below) For the period from the Effective Date through December 31, 1989,
Cumulative Holding Costs shall equal zero (0). For each subsequent period from
January 1 until December 31 throughout the term of this Agreement, Cumulative
Holding Costs shall be determined through application of the following formula:
(ABV x (1 + COF)) - ABV - HC). ABV is the Adjusted Book Value on the
immediately preceding December 31. COF is the arithmetic average of the four
most recently available quarterly publications of the Texas COF at the time of
each such calculation. HC is the Cumulative Holding Costs of the periods
preceding that for which the Cumulative Holding Costs are being calculated.
(g) "Affiliate": Affiliate, as that term is defined in Section 561.25
of the Insurance Regulations.
(h) "Affiliated Person": Affiliated Person, as that term is defined in
Section 561.29 of the Insurance Regulations and all attorneys, accountants,
employees and other agents of the ACQUIRING ASSOCIATION.
(i) "Applicable Term": The period of time beginning on the Effective
Date and ending (i) for Category I Covered Assets, 120 days after the Effective
Date, (ii) for Category II Covered Assets, at the end of the fourth Quarter,
(iii) for Category III Covered Assets, at the end of the 20th Quarter, (iv) for
Category IV Covered Assets, at the end of
<PAGE> 15
9
the 28th Quarter and (v) for Category V Covered Assets, on the tenth
anniversary of the Effective Date.
(j) "Average Book Value": For any full Quarter, the sum of the Book
Value of Covered Assets, which have not been Liquidated or written down to one
dollar, on the first day of the Quarter and on the last day of each calendar
month ending within the Quarter divided by four; for the first Quarter, the sum
of (x) the Book Value of Covered Assets, which have not been liquidated or
written down to one dollar, on the first day of the Quarter and on the last day
of each calendar month ending within the Quarter divided by (y) the number of
such days on which the book value is calculated; and in the event the last
Quarter ends on any day other than the last day of a full Quarter, for the last
Quarter, the sum of (x) the Book Value of Covered Assets, which have not been
liquidated or written down to one dollar, on the first and last days of the
Quarter and on the last day of each calendar month ending within the Quarter
divided by (y) two plus the number of full calendar months in the Quarter.
(k) "Bank": The Federal Home Loan Bank of Dallas.
(l) "Bank Board": The Federal Home Loan Bank Board.
(m) "Books and Records": Any and all books and records of the ACQUIRED
ASSOCIATION as of immediately prior to the Effective Date, but excluding any
books and records of any Subsidiary or other entity.
<PAGE> 16
10
(n) "Book Value":
(1) The Book Value of any asset shall be determined as follows:
(A) With respect to any Covered Asset reflected on the
Books and Records, the book value of the asset (before deduction for any
specific valuation allowance, loan loss, credit loss or other loss reserve) as
so reflected or as adjusted by the Initial Audit.
(B) With respect to any real or personal property or
interest therein which secures a Covered Asset and is acquired by the ACQUIRING
ASSOCIATION after the Effective Date by Foreclosure, the outstanding principal
amount of the indebtedness secured by such property (before deduction for any
specific valuation allowance, loan loss, credit loss or other loss reserve),
plus any costs, fees and expenses incurred in connection with the acquisition
of such property, provided that such costs, fees and expenses have been
approved in accordance with Sections 12, 13 and 14 of this Agreement and have
not been reimbursed under another provision of this Agreement.
(C) With respect to the Debit balance of Special
Reserve Account I treated as a Covered Asset pursuant to Section 6(a)(2) for
any Quarter for yield maintenance purposes only, the amount of such Debit
balance for such Quarter.
<PAGE> 17
11
(D) With respect to any Covered Asset acquired by the
ACQUIRING ASSOCIATION after the Effective Date pursuant to a legally binding
commitment of the ACQUIRED ASSOCIATION, the amount determined in accordance
with the accounting principles required by this Agreement.
(2) After initial determination, Book Value of any asset shall
be adjusted or determined in accordance with the accounting principles required
by this Agreement, provided that:
(A) Any expenditure that would properly be capitalized
must be permitted by Sections 12, 13, 14 or 15 of this Agreement and must not
have been reimbursed under another provision of this Agreement, and
(B) Book Value of an Investment in a Subsidiary which
is a Covered Asset shall be (i) increased for any additional Investment in the
Subsidiary made after the Effective Date which is permitted under Sections 12,
13, 14 or 15 of this Agreement and not reimbursed under another provision of
this Agreement and (ii) increased or decreased but not below zero, as the case
may be, by the net earnings or loss of such Subsidiary taken into account in
determining Actual Yield and (iii) decreased by any capital distributions paid
to the ACQUIRING ASSOCIATION by such Subsidiary, and
<PAGE> 18
12
(C) Book Value of Real Estate Owned shall not be
decreased by any depreciation expense.
(3) The following shall not be included in the determination of
Book Value:
(A) The amount of any accrued and uncollected interest
or late charges on the principal amount of indebtedness related to a Covered
Asset that has been accrued through the Effective Date:
(B) The undisbursed portion of any loan in process
account;
(C) The amount of any deferred income related to a
Covered Asset, including, without limitation, unearned discounts on loans
purchased, unearned profit on real estate sold, deferred loan fees or
acquisition credits, unearned discounts on installment loans, deferred gains on
securities, and other unearned discounts;
(D) With respect to any Covered Asset reflected on the
Books and Records, any adjustment to the value of such Covered Asset made
solely as a result of the purchase accounting adjustments under generally
accepted accounting principles made as a result of the Transaction; and
(E) Any Guaranteed Yield Amount.
(o) "Claim": Any claim, demand, cause of action or judgment.
<PAGE> 19
13
(p) "Common Stock": The duly authorized Common Stock par value $0.01
per share of the ACQUIRING ASSOCIATION.
(q) "Covered Asset":
(1) All assets acquired by the ACQUIRING ASSOCIATION pursuant
to the Acquisition Agreement (including Investments in Subsidiaries but
excluding any asset owned by a Subsidiary or other entity), except for the
assets specifically excluded from coverage under Section 1(q)(6);
(2) A loan, contract, or Investment made by the ACQUIRING
ASSOCIATION in connection with the sale of, or to salvage, a Covered Asset, or
any property or interest therein received in exchange for a Covered Asset or by
Foreclosure, or any loan disbursement made by the ACQUIRING ASSOCIATION with
the prior written consent of the CORPORATION pursuant to a loan in process or a
loan commitment of the ACQUIRING ASSOCIATION in order to maximize the value of
a Covered Asset, if prior to the making of any such loan, contract or
Investment or obtaining such property or interest or making such disbursement
the ACQUIRING ASSOCIATION has obtained the CORPORATION's approval in accordance
with the requirements of Sections 12, 13 and 14 of this Agreement with respect
to the Covered Asset;
(3) The Debit balance of Special Reserve Account is treated as
a Covered Asset for yield maintenance purposes pursuant to Section 6(1)(2) for
any Quarter;
<PAGE> 20
14
(4) Any Covered Asset which, with the CORPORATION's prior approval,
is liquidated with recourse and as a result of such recourse subsequently
becomes an asset of the ACQUIRING ASSOCIATION;
(5) The Mortgage Backed Security Portfolio (as defined below);
(5a) Any non-performing one-to-four family residential mortgage loan
that lacks a note, mortgage, or security agreement which is legally enforceable
in all material respects shall be treated as a Category III Covered Asset,
provided that a note, mortgage, or security agreement shall be considered
legally enforceable in all material respects if there are enforceable legal
remedies available to the ACQUIRING ASSOCIATION (including a non-judicial power
of sale where generally available under state law) under the documentation
provided to it that are reasonably sufficient to enable the ACQUIRING
ASSOCIATION to realize upon the security afforded by such mortgage or security
agreement as a valid, subsisting, and enforceable first lien (or such other
lien as may be expressly provided for under such documentation) on the
mortgaged property or other security;
(6) The term "Covered Asset" shall not include:
(A) Any Marketable Securities, on the Books and Records, other
than the Mortgage Backed Security Portfolio (as defined below);
<PAGE> 21
15
(B) Any one-to-four family residential or mobile home mortgage
loan on the Books and Records that is performing according to its original
terms on the Effective Date, provided that such loan (i) does not become
contractually delinquent 90 days or more at any time within two years of the
Effective Date, or (ii) is not restructured with the approval of the
CORPORATION in order to avoid a delinquency within two years after the
Effective Date or (iii) is not a Covered Asset under Section 1(q)(5a). In the
event that either of the conditions specified in (i) or (ii) occurs, such loan
shall be a Covered Asset for a period of five years after such condition is met
only, provided that in the case of a secured loan, Foreclosure, or, in the case
of an unsecured loan, judicial collection proceedings, must have been formally
instituted within four years after the Effective Date (or such longer time as
the CORPORATION has approved in writing, unless (i) the CORPORATION has
determined, in its sole judgment, that Foreclosure or judicial collection
proceeding is impractical or unnecessarily costly to the CORPORATION, (ii) the
CORPORATION has waived the Foreclosure or judicial collection proceeding
requirement in writing, and (iii) the CORPORATION has approved a request for a
write-down of Book Value to zero or one dollar pursuant to Section 4.
<PAGE> 22
16
(C) The ACQUIRED ASSOCIATION'S office furniture, fixtures and
equipment (i) that are acquired pursuant to Section 8(b) of the Acquisition
Agreement or (ii) that are being used by the ACQUIRING ASSOCIATION, provided
that any furniture, fixtures and equipment that are being used on the first
anniversary of the Effective Date shall not be a Covered Asset, even if they
ceased to be used after such anniversary.
(D) Office buildings and facilities owned by the ACQUIRED
ASSOCIATION of which 75% or more of the usable square footage of the building
is being used by the ACQUIRING ASSOCIATION as a savings and loan facility on
the first anniversary of the Effective Date.
(E) The ACQUIRED ASSOCIATION's leasehold improvements, office
furniture, fixtures and equipment that are being used on the Effective Date
unless such item ceases to be used during the year following the Effective
Date, and,
<PAGE> 23
17
in that event, shall be treated as a Covered Asset beginning in the first
Quarter following the Quarter in which such item ceases to be used.
(F) Any property, real or personal, or interest therein or any
asset of any nature or kind that belongs to a Subsidiary of the ACQUIRED
ASSOCIATION.
(G) Any intangible asset listed in Section 1(hh)(i)-(v).
(H) Any cash on the Books and Records of the ACQUIRED
ASSOCIATION as of the Effective Date.
(I) Any purchased servicing.
(7) Covered Assets shall be divided into the following five categories:
(A) "Category I Covered Assets" shall mean the Mortgage Backed
Security Portfolio.
(B) "Category II Covered Assets" shall mean (i) the Investment
of the Acquired Association in United MBS Corporation and (ii) the Investment of
the Acquired Association in the Equity Subsidiary (as hereinafter defined.) For
purposes of this Agreement, United Financial Corporation shall be considered
three separate subsidiaries -- one holding the securities and certain other
assets and liabilities, and with an Investment, set forth on Schedule I (the
"Equity Subsidiary"), one holding the undeveloped land (including subdivisions)
and related liabilities, and with an
<PAGE> 24
18
Investment, set forth on Schedule II (the "Land Subsidiary") and one holding
venture capital investments and certain other assets and with an Investment set
forth on Schedule III (the "Venture Capital Subsidiary"),
(C) "Category III Covered Assets" shall mean any Covered Asset
that is non-performing, completed one-to-four family residential mortgage loan
or the property securing such loan that has been acquired by Foreclosure of a
mortgage loan with respect to a completed one-to-four family residence;
(D) "Category IV Covered Assets" shall mean any Covered Asset
that is not a Category I Covered Asset, a Category II Covered Asset, a Category
III Covered Asset or a Category V Covered Asset, and specifically including
without limitation (i) any Covered Asset that is a completed five or more
dwelling unit mortgage loan or the property securing such loan that has been
acquired by Foreclosure of a mortgage loan with respect to a completed five or
more dwelling residence; and (ii) until the end of the 28th Quarter (at which
time it will be paid), the Debt balance of Special Reserve Account I treated as
a Covered Asset for yield maintenance purposes pursuant to Section 6(a)(2) for
any Quarter;
(E) "Category V Covered Assets" shall mean (i) any Covered
Asset that is undeveloped land (including subdivisions), (ii) the Investment
by the Acquired
<PAGE> 25
19
Association in the Land Subsidiary, and (iii) beginning with the 29th Quarter,
any new Debit balance of Special Reserve Account I treated as a Covered Asset
for yield maintenance purposes pursuant to 6(a)(2) for any Quarter.
(8) Each asset described in Section 1(q)(7)(A)-(E) shall cease to be a
Covered Asset at the end of the Applicable Term for such Covered Asset;
provided, that the CORPORATION shall have debited or paid the amount, if any,
required to be debited or paid at the end of such Applicable Term pursuant to
Section 6(a)(2).
(r) "Covered Asset Incentive Loss":
(1) With respect to a Category I or a Category II Covered Asset: (i)
5% of the amount, if any, by which the Fair Market Value as of the Effective
Date of a Category I or a Category II Covered Asset exceeds the Net Proceeds
Received by the ACQUIRING ASSOCIATION upon the Liquidation of such Covered
Asset.
(2) With respect to a Category III through Category V Covered Asset:
10% of the amount, if any, by which the Adjusted Book Value of a Category III-V
Covered Asset (or, if the Book Value of such Covered Asset has been written
down with the CORPORATION'S permission as provided in Section 4(b), the
Adjusted Book Value plus the amount of such write-down), exceeds the Net
Proceeds Received by the ACQUIRING ASSOCIATION upon the Liquidation of such
Covered Asset.
<PAGE> 26
20
(s) "Covered Asset Loss": The amount authorized pursuant to the
provisions of Sections 12, 13 and 14, (i) by which the Book Value of a Covered
Asset exceeds the Net Proceeds Received by the ACQUIRING ASSOCIATION upon the
Liquidation of such Covered Asset, or (ii) of any write-down in Book Value of a
Covered Asset approved or directed by the CORPORATION pursuant to Section 4.
(t) "Covered Asset Recovery": The amount by which the Net Proceeds
Received by the ACQUIRING ASSOCIATION upon the Liquidation of any Covered Asset
exceeds the Book Value of such Covered Asset or, if the Book Value of such
asset has been written down with the CORPORATION'S permission as provided in
Section 4(b), the amount, if any, by which Net Proceeds Received exceeds the
Book Value plus the amount of the write-down.
(u) "Covered Asset Reserve": With respect to any Covered Asset, any
specific valuation allowance, loan loss, credit loss, or other loss reserve on
such asset on the Books and Records as of the Effective Date.
(v) "Credit" or "Credit Item": An amount credited to the Special
Reserve Accounts pursuant to the provisions of Section 3.
(w) "Debit" or "Debit Item": An amount charged or debited to the
Special Reserve Accounts pursuant to the provisions of Section 3.
<PAGE> 27
21
(x) "Effective Date": The date and time at which the Acquisition
becomes effective pursuant to the terms of the Acquisition Agreement, Bank
Board Resolutions and applicable law.
(y) "Fair Market Value": An amount determined by (i) agreement of the
CORPORATION and the ACQUIRING ASSOCIATION or (ii) an independent appraiser
mutually acceptable to the CORPORATION and the ACQUIRING ASSOCIATION, provided
that such appraiser's determination of fair market value shall be binding on
both the CORPORATION and the ACQUIRING ASSOCIATION (unless both agree to the
contrary).
(y-1) "Foreclosure": Unless specifically indicated otherwise by the
context, includes, in addition to foreclosure, (1) the forfeiture of a contract
of sale or a contract for deed, (2) a trustee's sale under a deed of trust, (3)
the grant of a deed in lieu of foreclosure, (4) the acquisition of title to
real estate pursuant to other comparable procedures allowed under applicable
law, (5) the acquisition of title to any property pursuant to procedures for
the enforcement of a security interest in such property under applicable law,
and (6) the exercise of rights of possession to or control over personal
property arising under contract or applicable law.
<PAGE> 28
22
(z) "Guaranteed Rate": A rate of interest determined through
application of the following formula: (Texas COF + BASIS POINTS) multiplied by
a fraction the numerator of which is the number of days in the Quarter and the
denominator of which is 365. For purposes of the foregoing formula, BASIS
POINTS for each four Quarter period and for each category of Covered Assets
shall be as follows:
<TABLE>
<CAPTION>
Basis Basis Basis Basis Basis
Four Points Points Points Points Points
Quarter on on on on on
Period Category I Category II Category III Category IV Category V
- ------- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
120 days 0
1 220 220 220 220
2 210 220 210
3 205 210 205
4 200 205 200
5 195 200 195
6 195 190
7 190 185
8 180
9 180
10 180
</TABLE>
(aa) "Guaranteed Yield Amount": The Guaranteed Yield Amount for any
Quarter shall be the sum of the products of (x) the Average Book Value for such
Quarter for each Category of Covered Asset and (y) the Guaranteed Rate for such
Quarter for such category of Covered Asset.
(bb) "Initial Audit": The audit conducted pursuant to Section 5(b) of
this Agreement.
<PAGE> 29
23
(cc) "Insurance Regulations": The Rules and Regulations for the
Federal Savings and Loan Insurance Corporation in Title 12 of the Code of
Federal Regulations, or any successor rules and regulations.
(dd) "Investment": Any advance, loan, other extension of credit or
equity investment.
(ee) "Liquidation": (1) A sale of any Covered Asset, whether for
cash or on other terms, other than a Foreclosure pursuant to which the
ACQUIRING ASSOCIATION or any of its Affiliates, acquires title to such Covered
Asset; or (2) the release, compromise, satisfaction, settlement, reduction to
judgment which is then collected, or assignment to other than the CORPORATION
of any Claim.
(ff) "Marketable Securities": Any asset shown on the Books and
Records as a marketable security for which there is a regular trading market
and as to which at least two nationally recognized investment banking firms
regularly quote prices.
(gg) "Mortgage Backed Security Portfolio": All of the securities
collateralized by mortgages which are on the Books and Records including
mortgage pass-through securities.
(hh) "Negative Capital": The amount by which the sum of all
secured, deposit and Tax Claim (defined below) liabilities, including mortgage
escrows, assumed by the ACQUIRING ASSOCIATION pursuant to the Acquisition
Agreement
<PAGE> 30
24
exceeds the sum of the book values as reflected on the Books and Records
(before deduction for any specific valuation allowance, loan loss, credit loss
or other loss reserve) of all tangible assets acquired by the ACQUIRING
ASSOCIATION pursuant to the Acquisition Agreement. For purposes of this
section, tangible assets shall mean all assets on the Books and Records of the
ACQUIRED ASSOCIATION except (i) Appraised Equity Capital (as defined in Section
563.13(c) of the Insurance Regulations), (ii) goodwill, (iii) deferred losses
on loans and investments, including deferred hedging losses, which have been
disposed of by the ACQUIRED ASSOCIATION prior to the Effective Date, (iv)
prepaid expenses and (v) all other intangibles.
(ii) "Net Proceeds Received": As used in reference to the amount
received upon the Liquidation of a Covered Asset or a Claim, the amount
computed by deducting from the gross proceeds received all expenses in the form
of payments to third parties (including the ACQUIRERS and their Affiliates in
accordance with Section 17(b)) actually incurred or paid by the ACQUIRING
ASSOCIATION in connection with such Liquidation, provided that such expenses
are authorized pursuant to Sections 12, 13 and 14, have not been reimbursed
otherwise and have not previously been properly capitalized to increase Book
Value in accordance with Section 1(n)(2)(A).
<PAGE> 31
25
(jj) "Promissory Notes": The initial promissory note to be delivered
by the CORPORATION to the ACQUIRING ASSOCIATION pursuant to Section 6(a)(1) and
the new promissory note for which the initial promissory note is to be
exchanged pursuant to Section 6(a)(1) and any other note that may be issued by
the CORPORATION to the ACQUIRING ASSOCIATION pursuant to this Agreement.
(kk) "Quarter": Three consecutive calendar months, provided that the
first Quarter during the term of this Agreement shall be deemed to include the
period, if any, from the Effective Date to and including the day preceding the
first day of fourth full calendar month following the Effective Date, and
provided further, that the last Quarter during the term of this Agreement shall
be deemed to include the period, if any from the first day after the last day
of the last full Quarter during the term of this Agreement to the date on which
this Agreement terminates.
(ll) "Real Estate Owned": Any real estate interest held for investment
or acquired by Foreclosure.
(mm) "Related Claim": Any counterclaim, offset, insurance settlement,
or other Claim which may result in a recovery by the ACQUIRING ASSOCIATION and
which is related to a Claim for which the CORPORATION is obligated to indemnify
the ACQUIRING ASSOCIATION under Section 7 of this Agreement.
<PAGE> 32
26
(nn) "Repossessed Personal Property": An item of personal property
acquired by Foreclosure.
(oo) "Shared Gain": 10% of the amount, if any, by which the lesser of
(x) the Net Proceeds Received by the ACQUIRING ASSOCIATION upon the Liquidation
of a Covered Asset, and (y) the Book Value of such Covered Asset, less the
amount of any write-down of the Book Value of such asset previously approved or
requested by the CORPORATION under Section 4 of this Agreement, exceeds (i) in
the case of a Category I or Category II Covered Asset, the Fair Market Value of
such Category I or Category II Covered Asset as of the Effective Date or (ii)
in the case of any other Covered Asset, the Adjusted Book Value of such Covered
Asset.
(pp) "Significant Subsidiary": Any corporation or other entity
acquired by the ACQUIRING ASSOCIATION pursuant to the Acquisition Agreement and
with respect to which it has the present voting power to elect a majority of
the directors or the managing party or parties.
(qq) "Special Reserve Account": An account established pursuant to
Section 3 of this Agreement.
(rr) "Subsidiary": Any corporation or other entity 25 percent or more
owned, directly or indirectly, by the ACQUIRED ASSOCIATION immediately prior to
the Effective Date.
(ss) "Supervisory Agent": The Principal or other Supervisory Agent of
the Federal Home Loan Bank Board at Dallas, Texas.
<PAGE> 33
27
(tt) "Tax Claim": Any Claim of a governmental unit for unpaid taxes
other than federal income taxes, except to the extent subordinated to depositor
claims pursuant to applicable law.
(uu) "Texas COF": The average cost of funds, expressed as a simple
annual rate, as determined on a quarterly basis, of all FSLIC-insured
institutions whose main offices are located in Texas, as most recently publicly
reported by the Bank; or if the Bank ceases to report such rate, as provided by
the Bank Board.
(vv) "Transaction": The Acquisition and all related transactions.
(ww) "Warrants": The duly authorized Warrants of the ACQUIRING
ASSOCIATION to be issued in accordance with Section 2(b)(5) of this Agreement.
Section 2 Conditions
(a) Consummation of Transaction. The obligations of the parties are
subject to the Transaction becoming effective on or before December 31, 1988,
unless such date is extended by mutual agreement of the parties.
(b) Conditions to the Corporation's Obligations. The CORPORATION'S
obligations under this Agreement are also conditioned upon the following:
<PAGE> 34
28
(1) The CORPORATION's receipt on or prior to the Effective Date (or
such later date as the CORPORATION shall specify in the case of actions not to
be taken as of the Effective Date) of an opinion from counsel for the ACQUIRING
ASSOCIATION and the ACQUIRERS, in form and substance satisfactory to the
CORPORATION and its counsel, to the effect that:
(A) The transaction and the issuance of the Common Stock and
Warrants have been duly authorized by all requisite corporate action of the
ACQUIRING ASSOCIATION and the ACQUIRERS and effected in compliance with the
Charter and Bylaws of the ACQUIRING ASSOCIATION and with applicable law; and
(B) This Agreement, the Warrant Agreement, the Acquisition
Agreement and the Capital Maintenance Agreement and any other agreements or
instruments executed by the ACQUIRING ASSOCIATION and/or the ACQUIRERS in
connection with the Transaction have been duly authorized, executed and
delivered and constitute valid and binding obligations of the ACQUIRING
ASSOCIATION and/or ACQUIRERS, as the case may be, enforceable in accordance
with their respective terms, except as enforceability thereof may be limited
by appointment of a receiver or conservator, bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the rights
of creditors of corporations or
<PAGE> 35
29
FSLIC-insured institutions and except that the remedy of specific performance
and injunctive and other forms of equitable relief (whether sought in a
proceeding in equity or at law) are subject to certain equitable defenses and
to the discretion of the court or administrative body before which proceedings
may be brought;
(2) The CORPORATION's receipt on or prior to the Effective Date of a
certified copy of the corporate resolutions of (A) the ACQUIRING ASSOCIATION
(i) authorizing the Transaction and the execution and delivery of this
Agreement, the Warrant Agreement, the Acquisition Agreement, the Capital
Maintenance and any other agreements or instruments executed by the ACQUIRING
ASSOCIATION; and (ii) authorizing the issuance, execution and delivery of the
Common Stock, and the Warrants; and (iii) such other resolutions as the
CORPORATION may reasonably request; and (B) the ACQUIRERS (i) authorizing the
Transaction and the execution and delivery of this Agreement, the Capital
Maintenance Agreement and any other agreements or instruments executed by the
ACQUIRERS; and (ii) such other resolutions as the CORPORATION may reasonably
request;
(3) The ACQUIRING ASSOCIATION and any of its Affiliates and
Subsidiaries within the time periods specified by the terms of this Agreement
or by the Bank Board, (A) having executed and delivered to the CORPORATION all
other
<PAGE> 36
30
agreements, instruments, filings and documents required to be executed and
delivered by the terms of this Agreement and in the resolutions or other
actions of the Bank Board in approving the Transaction, and (B) having taken
all other actions imposed as conditions herein to the CORPORATION's obligation
to provide assistance in any action taken by the Bank Board in approving the
Transaction;
(4) The ACQUIRING ASSOCIATION and the ACQUIRERS continuing to fulfill
their obligations under Section 17 and Section 18 hereof;
(5) On the Effective Date, the ACQUIRING ASSOCIATION shall enter into a
Warrant Agreement in the form of Exhibit 4, shall issue warrants to the
CORPORATION in accordance with the Agreement and shall comply with the
provisions of the Warrant Agreement and Section 6(d) of this Agreement;
(6) On the Effective Date, the ACQUIRING ASSOCIATION shall have
received the ACQUIRER'S cash contribution of $90 million from USAT HOLDINGS; and
(7) On the Effective Date, the ACQUIRING ASSOCIATION shall have
delivered to the CORPORATION (i) a letter setting forth its agreement to file
with the Corporate and Securities Division, Office of the General Counsel of
the Bank Board within 30 days after receipt of audited financial statements as
of December 31, 1988, a registration statement
<PAGE> 37
31
covering a public offering of subordinated debentures in the aggregate
principal amount of $110 million, and to take such other actions as may be
necessary for the issuance of such debentures, and (ii) a letter from an
investment bank or other financial institution setting forth its commitment to
underwrite or otherwise arrange for the sale of such subordinated debentures so
that the proceeds therefrom will be available to ACQUIRING ASSOCIATION within
60 days after the effectiveness of such registration statement. The ACQUIRING
ASSOCIATION will use its best efforts to enforce such agreement to have issued
such debentures within sixty (60) days after such Registration Statement is
effective.
(c) Conditions to ACQUIRING ASSOCIATION's Obligations. The
obligations of the ACQUIRING ASSOCIATION and the ACQUIRERS under this Agreement
are conditioned upon the following:
(1) The receipt by ACQUIRING ASSOCIATION of the following:
(A) A letter from the Bank Board certifying that the
ground specified in 12 U.S.C. Section 1464(d)(6)(A)(i) exists with respect to
the ACQUIRED ASSOCIATION:
(B) A regulatory forbearance and waiver letter from
the Bank Board with respect to the ACQUIRING
<PAGE> 38
32
ASSOCIATION acceptable to the sole shareholders of the ACQUIRING ASSOCIATION;
(C) Certified copies of all Bank Board Resolutions
authorizing this Transaction, this Agreement and all related Agreements.
Section 3 Special Reserve Accounts. The ACQUIRING ASSOCIATION shall
establish as of the Effective Date two memorandum accounts, with opening
balances of zero, to be called Special Reserve Accounts I and II, and shall
maintain such accounts solely for the purpose of, and in accordance with, the
provisions of this Agreement.
(a) Debits to Special Reserve Account I. The ACQUIRING ASSOCIATION may,
following the Effective Date, charge as Debits to Special Reserve Account I
amounts equal to each of the following items:
(1) Capital Losses on Covered Assets. The amount of any Covered
Asset Losses;
(2) Related Claim Expenses. The amounts payable by the
CORPORATION under Section 7 pursuant to its obligation to reimburse the
ACQUIRING ASSOCIATION for the reasonable costs and expenses incurred by the
ACQUIRING ASSOCIATION in pursuit of a Related Claim pursuant to Section 7(b);
(3) Covered Asset Purchase. The amount of the purchase price of
an asset purchased by the CORPORATION pursuant to Section 19;
<PAGE> 39
33
(4) Assignment of Acquired Association Claims. The amount, if
any, of the Book Value reflected on the Books and Records of an Acquired
Association Claim assigned to the CORPORATION pursuant to Section 8;
(5) Interim Negative Capital Adjustment. The amount, if any,
permitted to be debited to Special Reserve Account I pursuant to
Section 6(a)(1)(B);
(6) Nonexistent Assets. The value reflected on the Books and
Records of any asset determined by the ACQUIRING ASSOCIATION, with the written
concurrence of the CORPORATION, to have been nonexistent or permanently missing;
(7) Purchased Claims. The amount, if any, paid by the ACQUIRING
ASSOCIATION, with the written consent of the CORPORATION, to general creditors
of the ACQUIRED ASSOCIATION for the amount of liabilities and debts not
assumed by the ACQUIRING ASSOCIATION pursuant to the Acquisition Agreement;
(8) Shared Gain. The amount of the Shared Gain, if any;
(9) Disallowed Deductions. The amount permitted to be debited
to Special Reserve Account I pursuant to Section 9(f);
(10) Uncollected Interest and Late Charges Accrued Prior to
Effective Date. On the date written off, the amount of the ACQUIRED
ASSOCIATION'S uncollected interest and late charges, if any, accrued as of the
Effective Date that
<PAGE> 40
34
remains uncollected subsequent to the Effective Date, at such time as such
accrued and uncollected interest and late charges is determined by the
ACQUIRING ASSOCIATION, with the written concurrence of the CORPORATION, to be
uncollectible and is written off, provided that the amount of such interest and
late charges that is subsequently collected shall be credited to Special
Reserve Account I upon collection; and
(11) Payment of Credits. The amount of any payments made by the
ACQUIRING ASSOCIATION to eliminate a credit balance in Special Reserve Account
I.
(12) Indemnifications. The amount payable by the CORPORATION
under Section 7 and Section 17(d)(3) pursuant to its obligation to indemnify
the ACQUIRING ASSOCIATION for the items described in Sections 7(a) and 17(d)(3);
(13) Goodwill Amortization. The allocable expense for the
amortization, over the Applicable Term by the straight line method, of the
amount of goodwill (as of the Effective Date) determined by an audit performed
at the ACQUIRING ASSOCIATION's expense in accordance with generally accepted
auditing standards and generally accepted accounting principles and approved by
the CORPORATION that is attributable to the acquisition from the ACQUIRED
ASSOCIATION of (i) purchased servicing, (ii) one-to-four family residential
mortgage loans that do not constitute Covered Assets under this Agreement to the
extent that such goodwill
<PAGE> 41
35
arises from the fact that such loans bear interest at a rate below market rates
at the Effective Date; and (iii) marketable securities other than the Mortgage
Backed Securities Portfolio.
(14) Unreflected Deposits. The amount of any Deposits, as
defined in the Acquisition Agreement, which are not reflected as Deposits on
the Books and Records of the ACQUIRED ASSOCIATION, but only to the extent that
such Deposits are paid by the ACQUIRING ASSOCIATION and are not included as
liabilities for purposes of calculating Negative Capital.
(15) Unreflected Tax Claims. With the prior written approval of
the CORPORATION, any amount paid by the ACQUIRING ASSOCIATION with respect to
Tax Claims of the ACQUIRED ASSOCIATION in excess of the amount reflected on
the Books and Records as of the Effective Date, as adjusted by the Initial
Audit.
(b) Credits to Special Reserve Account I. The ACQUIRING ASSOCIATION
shall promptly credit each of the following items to Special Reserve Account I,
to the extent that such item was not shown as an asset on the Books and
Records, as adjusted by the Initial Audit:
(1) Unreflected Assets. Any amounts attributable to periods
prior to the Effective Date received by the ACQUIRING ASSOCIATION, including
interest, late fees,
<PAGE> 42
36
penalties, refunds and other recoveries or benefits, which were not reflected
as assets in the determination of Negative Capital;
(2) Covered Asset Recoveries. An amount equal to 90% of each Covered
Asset Recovery;
(3) Offset Gains. The amounts which the ACQUIRING ASSOCIATION
recovers from other than the CORPORATION, whether by counterclaim, offset,
insurance settlement, or otherwise, with respect to any Claim or other item
with respect to which the ACQUIRING ASSOCIATION debited Special Reserve Account
I;
(4) Recovered Interest. The credits contemplated by the proviso to
Section 3(a)(10) when any interest referred to therein is collected;
(5) CORPORATION'S Contributions. Contributions made by the
CORPORATION to eliminate a Debit balance in Special Reserve Account I;
(6) Tax Benefits. The amount, if any, required to be credited to the
Special Reserve Account I pursuant to Section 9.
(7) Lease Payments. An amount equal to the Fair Market Value of the
rent at which a willing lessor and a willing lessee, under no undue pressure to
lease, would lease the portion of all office buildings and facilities owned by
the ACQUIRED ASSOCIATION for the period of time, if any, that such buildings
and facilities are Covered Assets and only for
<PAGE> 43
37
the percentage of the square footage of such buildings and facilities being
used by the ACQUIRING ASSOCIATION;
(8) Dividend Payments. For any Quarter in which the ACQUIRING
ASSOCIATION pays a cash dividend or other distribution to holders of its Common
Stock, an amount equal to the cash dividend or other distribution of property
which would have been payable with respect to each share subject to the FSLIC
Warrants which has not yet been purchased by the holder of the FSLIC Warrants;
(9) Shared Gain Offset. The amount of all Covered Asset Incentive
Losses; provided, that, except with respect to Category I Covered Assets, no
such credit shall cause the aggregate amount of credits required by this
paragraph with respect to a particular Category of Covered Assets to exceed the
aggregate amount of Shared Gains debited to Special Reserve Account I pursuant
to Section 3(a)(8) with respect to such category of Covered Assets; and
provided further, that the amount of any such Covered Asset Incentive Loss that
may not be credited as a result of the preceding provision shall subsequently
be credited to the extent of subsequent Debits to Special Reserve Account I
pursuant to Section 3(a)(8) for Shared Gains with respect to such Category of
Covered Assets; and
(10) FHLMC Stock. An amount equal to the excess of the fair market
value as of the Effective Date of any Federal Home Loan Mortgage Corporation
stock acquired from
<PAGE> 44
38
the ACQUIRED ASSOCIATION over the value of such stock on the Books and Records.
(11) Excess Tax Claims. An amount equal to any excess of the
amounts for Tax Claims reflected on the Books and Records as of the Effective
Date, as adjusted by the Initial Audit, over the amounts actually paid on or
before December 31, 1990 by the ACQUIRING ASSOCIATION to satisfy such Tax
Claims, provided, however, that the proceeds actually paid by the ACQUIRING
ASSOCIATION to satisfy such Tax Claims after December 31, 1990 shall be debited
to Special Reserve Account I upon payment.
(12) Recovery of Write-Down. With respect to any Covered
Asset that has been written down pursuant to Section 4, the amount by which
the Net Proceeds Received by the ACQUIRING ASSOCIATION upon the Liquidation of
any Covered Asset exceeds the Book Value of such Covered Asset up to the amount
of such write-down.
(c) Debits to Special Reserve Account II. The ACQUIRING
ASSOCIATION may, following the Effective Date, charge as Debits to Special
Reserve Account II the following:
(1) Guaranteed Yield Amount. The Guaranteed Yield Amount
for each Quarter, provided that no debit may be charged to Special Reserve
Account II pursuant to this subparagraph with respect to any Covered Asset for
any period after the last day of the Applicable Term;
<PAGE> 45
39
(2) Actual Loss. With respect to the Covered Assets for which a Debit
to Special Reserve Account II for the Guaranteed Yield Amount was made for any
Quarter, the negative amount, if any, of Actual Yield for such Quarter, on such
Covered Assets; and
(3) Accrued but Uncollected Interest and Late Charges. The amount of
uncollected interest and late charges, if any, accrued by the ACQUIRING
ASSOCIATION after the Effective Date with respect to a Covered Asset and
included in the amount of Actual Yield credited to Special Reserve Account II
at such time as such accrued and uncollected interest is determined by the
ACQUIRING ASSOCIATION, with the written concurrence by the CORPORATION, to be
uncollectable and is written off; provided that the amount of such interest
that is subsequently collected shall be credited to Special Reserve Account II
as Actual Yield in the first Quarter after collection; and
(d) Credits to Special Reserve Account II. The ACQUIRING ASSOCIATION
shall promptly credit to Special Reserve Account II the following:
(1) Actual Yield. With respect to the Covered Assets for which a Debit
to Special Reserve Account II for the Guaranteed Yield Amount was made for any
given Quarter, (i) the positive amount, if any, of Actual Yield for such
Quarter on such Covered Assets and, (ii) to the extent not
<PAGE> 46
40
included in (i), in the event of reinstatement of a Covered Asset to income
producing status and collection of delinquent interest or other income
attributable to a Quarter during which the Guaranteed Yield Amount was paid on
such Asset, the amount of such delinquent interest or other income collected;
and
(2) Recovered Interest. The credits contemplated by the
proviso to Section 3(c)(3) when any interest referred to therein is collected.
(3) Cash Payments for Furniture, Fixtures, Equipment and
Leasehold Improvements. The amount of any cash payment that otherwise would be
made to the Receiver to purchase Furniture, Fixtures, Equipment or Leasehold
Improvements pursuant to Section 8(b) of the Acquisition Agreement.
Section 4 Write-Down or Required Sale of a Covered Asset.
(a) Corporation Directed Write-down. The Corporation may require the
ACQUIRING ASSOCIATION to write down the Book Value of any Covered Asset.
(b) Requested Write-Downs by ACQUIRING ASSOCIATION. For purposes of
this Agreement, the ACQUIRING ASSOCIATION shall not write down any Covered
Asset without first obtaining the CORPORATION's written consent pursuant to the
terms of this Section 4. In the event that the ACQUIRING ASSOCIATION proposes
to write down a Covered Asset, the
<PAGE> 47
41
ACQUIRING ASSOCIATION shall first apply to the CORPORATION for permission to
write down a Covered Asset pursuant to Section 4(b) by submitting to the
CORPORATION in writing the terms, including the amount, of the proposed
write-down, and the grounds for the ACQUIRING ASSOCIATION's opinion that the
Covered Asset should be written down, supported by such information or
documents as the CORPORATION may reasonably request.
(c) Determination of Write-Down. Within 30 days of the CORPORATION's
receipt of an application from the ACQUIRING ASSOCIATION setting forth the
grounds for the ACQUIRING ASSOCIATION's opinion that the value of a Covered
Asset is less than its Book Value, and such information or documents as the
CORPORATION may reasonably request, the CORPORATION may:
(1) approve the application, with or without modifications or
conditions, and permit the ACQUIRING ASSOCIATION to write down the Covered
Asset's Book Value;
(2) deny the application; or
(3) require the ACQUIRING ASSOCIATION to submit such additional
information as the CORPORATION may reasonably request, including, but not
limited to, an independent appraisal. Within 30 days after the CORPORATION's
receipt of any additional information requested, the CORPORATION shall
<PAGE> 48
42
approve, with or without modifications or conditions, or deny such application.
(d) Required Sale. The CORPORATION may at any time require the
ACQUIRING ASSOCIATION to sell Covered Assets to any person or entity the
CORPORATION designates, including the CORPORATION, at a price specified
pursuant to Section 19(a).
(e) Write-Down of Covered Assets That Could Not Be Liquidated. (1) The
Corporation shall approve a write down of the Book Value of each Category I
Covered Asset and Category II Covered Asset to the Fair Market Value of such
Category I Covered Asset and Category II Covered Asset as of the last day of
the Applicable Term for such Covered Assets. Such write-down shall be debited
to Special Reserve Account I. The Acquiring Association shall provide to the
Corporation a plan of disposition with respect to the Category I and Category
II Covered Assets and shall consult with the Corporation regarding the
implementation of such plan and provide any other such documentation as the
Corporation may request with regards to the disposition of such assets. (2)
Within one year prior to the expiration of the Applicable Term for each
category of Covered Assets (other than Category I and II), the ACQUIRING
ASSOCIATION shall provide a detailed report in a form satisfactory to the
CORPORATION with respect to any Covered Asset that has not been the subject of
a Liquidation describing the efforts that
<PAGE> 49
43
the ACQUIRING ASSOCIATION has made to liquidate each such asset. In the case of
each such Covered Asset with respect to which the ACQUIRING ASSOCIATION has
submitted plans which were approved by the CORPORATION in accordance with the
procedures set forth in Sections 12 and 13 of this Agreement and in the case of
any other Covered Assets with respect to which the ACQUIRING ASSOCIATION has
complied in all material respects with the terms of this Agreement and has used
its best efforts to dispose of such Covered Asset, the CORPORATION shall
approve a write down of the Book Value of such Covered Asset to the Fair Market
Value of such Covered Asset promptly following such submission to be effective
on the last day of the Applicable Term for such Covered Asset, or in the case
of Category V Covered Assets, as of the last day of the second Quarter
following the ninth anniversary of the Effective Date. Such write-down shall be
debited to Special Reserve Account I.
Section 5 Inventory and Initial Audit. As soon as is practicable after
the Effective Date, the CORPORATION, at its own expense, but with the
assistance of the ACQUIRING ASSOCIATION's personnel, whose salaries and
expenses shall be paid by the ACQUIRING ASSOCIATION without reimbursement from
the CORPORATION, shall:
(a) Inventory. Cause to be prepared a separate inventory of all assets
and liabilities acquired by the ACQUIRING ASSOCIATION under the Acquisition
Agreement. Such
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44
inventory shall be limited to such assets and liabilities as are shown on the
Books and Records or which are reasonably ascertainable during the preparation
of the inventory. A copy of the inventory, in such form as the CORPORATION
shall determine, shall be furnished to the ACQUIRING ASSOCIATION upon
completion and approval by the CORPORATION.
(b) Audits. In accordance with and to the extent directed by the Bank
Board by resolution, cause to be prepared a separate audit of the ACQUIRED
ASSOCIATION in accordance with generally accepted auditing standards as of
immediately prior to the Effective Date, except that the scope of the audit
shall be limited to that which the CORPORATION determines to be necessary to
implement this Agreement and shall include such adjustments and auditing
procedures as are necessary to determine in accordance with Section 1(hh), the
Negative Capital of the ACQUIRED ASSOCIATION. The scope of the audit shall not
include a determination of whether accrued but uncollected interest and late
charges if any, is collectible and shall not include (i) a reevaluation of the
ACQUIRED ASSOCIATION's assets, or (ii) a determination of the adequacy of any
specific or general loss reserves or valuation allowances, all of which shall
be reversed for the purposes of the audit. A copy of the audit, which shall be
prepared in such form as the CORPORATION shall determine, shall be furnished to
the ACQUIRING ASSOCIATION upon
<PAGE> 51
45
completion and approval by the CORPORATION. The ACQUIRING ASSOCIATION shall be
provided a reasonable opportunity to review the initial audit and submit its
comments within ten (10) days upon receipt to the CORPORATION before such audit
becomes final.
Section 6 Payments, Contributions and Warrants.
(a) Contributions by the CORPORATION.
(1) Negative Capital. On the Effective Date, the CORPORATION
shall deliver to the ACQUIRING ASSOCIATION an initial promissory note, duly
executed by the CORPORATION and in substantially the form of Exhibit 2 attached
hereto ("Initial Promissory Note"), the principal amount of which shall be
equal to the Negative Capital of the ACQUIRED ASSOCIATION immediately prior to
the Effective Date based on the information contained in the latest monthly
report submitted by the ACQUIRED ASSOCIATION to the Bank Board prior to the
Effective Date, and calculated in accordance with Section 1(hh) and bearing
interest at a rate determined through the application of the following formula:
(Texas COF + 50 BASIS POINTS) multiplied by a fraction the numerator of which
is the number of days in the period for which interest is being paid and the
denominator of which is 365.
(A) On the interest payment date immediately following
the CORPORATION'S receipt and approval of the
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46
Initial Audit, in addition to receiving the interest payment due, the ACQUIRING
ASSOCIATION shall exchange the Initial Promissory Note for a new promissory
note (the "Exchange") in the form of the Initial Promissory Note to be
executed and delivered by the CORPORATION, the principal amount of which shall
be equal to the actual Negative Capital of the ACQUIRED ASSOCIATION, as
determined by the Initial Audit, minus the aggregate amount of any principal
payments made by the CORPORATION on the Initial Promissory Note prior to the
date of the Exchange. At the same time, the CORPORATION or the ACQUIRING
ASSOCIATION shall pay in cash to the other, as the case may be, the difference
between (x) the aggregate amount of interest which would have been payable from
the Effective Date to the date of the Exchange if the principal amount of the
Initial Promissory Note had been equal to the actual Negative Capital of the
ACQUIRED ASSOCIATION, as determined by the Initial Audit, and (y) the actual
aggregate amount of interest that was paid for such period.
(B) Notwithstanding the provisions of Section 6(a)(1)(A), the
CORPORATION at its sole option may permit the ACQUIRING ASSOCIATION to charge
as a Debit to Special Reserve Account I interim adjustments if the CORPORATION
is satisfied that the Initial Audit will result in a determination of Negative
Capital that will require an
<PAGE> 53
47
additional payment by the CORPORATION. The amount of any such interim
adjustments shall be taken into account in calculating the adjustment required
by Section 6(a)(1) after receipt of the completed Initial Audit.
(2) Net Debit Balance of Special Reserve Account I.
(A) Within 30 days after the CORPORATION's receipt of
each Quarterly Report required pursuant to Section 16(a), the CORPORATION shall
have the option either (i) to wire transfer to the account of the ACQUIRING
ASSOCIATION at the Federal Home Loan Bank of Dallas (Account No. 5482607) in
immediately available funds an amount equal to the net Debit balance, if any, of
Special Reserve Account I, or (ii) to direct the net Debit balance, if any, of
Special Reserve Account I to carryover as an opening balance for the following
Quarter and to treat such net Debit balance for yield maintenance purposes as a
Covered Asset for the Quarter following the Quarter to which the Quarterly
Report relates; provided, however, that after the fourth anniversary of the
Effective Date, the CORPORATION shall not be entitled to carry over a net Debit
balance pursuant to this clause (ii) if, after giving effect thereto, the
aggregate outstanding balance of Special Reserve Account I would exceed 33% of
the then aggregate Average Book Value of Covered Assets; and
<PAGE> 54
48
provided, further, that the CORPORATION will not be entitled to carry over a
net Debit balance pursuant to this clause (ii) at the end of the 28th Quarter.
(B) Within 90 days after the final accounting required
pursuant to Section 16(d) of this Agreement, the CORPORATION shall wire
transfer to the account of the ACQUIRING ASSOCIATION at the Federal Home Loan
Bank of Dallas (Account No. 5482607) in immediately available funds an amount
equal to the entire net Debit balance, if any, of Special Reserve Account I.
(3) Net Debit Balance of Special Reserve Account II. Within 30
days after the CORPORATION'S receipt of each Quarterly Report required pursuant
to Section 16(a) and within 90 days after the final accounting required
pursuant to Section 16(d) of this Agreement, the CORPORATION shall wire
transfer to the account of the ACQUIRING ASSOCIATION at the Federal Home Loan
Bank of Dallas (Account No. 5482607) in immediately available funds an amount
equal to the net Debit balance, if any, of Special Reserve Account II.
(4) Timing. For purposes of this Agreement, each contribution
made pursuant to this Section 6(a) of this Agreement, except for any
contribution made following the final accounting required by Section 16(d) of
this Agreement, shall be deemed to have been made as of the last day of the
Quarter
<PAGE> 55
49
reported in the Quarterly Report on which such contributions is based.
(b) Reimbursement of Net Credit Balances of Special Reserve Accounts I
and II. Within 30 days after the CORPORATION'S receipt of each Quarterly Report
and within 90 days after the final accounting required under Section 16(d), the
ACQUIRING ASSOCIATION shall in its sole discretion either (i) credit, as a
payment to reduce the Book Value of the Covered Asset described in Section
1(q)(3), or (ii) remit to the CORPORATION in immediately available funds, an
amount equal to the net credit balance, if any, of Special Reserve Accounts I
and II as of the last day of the Quarter to which such quarterly report or the
last day of the term to which such final accounting, as the case may be,
relates, provided that if such amount exceeds the total contributions made by
the CORPORATION to date under this Agreement and not repaid, then the ACQUIRING
ASSOCIATION shall remit to the CORPORATION only so much of such amount as
equals the total of such contributions to the extent not previously repaid.
(c) Adjustments. Any contribution or payment by the CORPORATION or the
ACQUIRING ASSOCIATION pursuant to this Agreement, any Credit or Debit to a
Special Reserve Account, or any accounting or report furnished by the ACQUIRING
ASSOCIATION under this Agreement shall be subject to adjustment after the date
of the contribution, payment,
<PAGE> 56
50
credit, debit, accounting or report if it is subsequently determined that such
contribution, payment, credit, debit, accounting or report was based upon error
or upon a tax determination that has been subsequently adjusted, or was not
computed in accordance with the accounting principles prescribed by this
Agreement.
(d) Warrants. On the Effective Date, the ACQUIRING ASSOCIATION shall
enter into a Warrant Agreement in the form of Exhibit 4 and shall execute and
deliver to the CORPORATION a whole number of Warrants (the "FSLIC Warrants")
(on the terms set forth in the Warrant Agreement) entitling the CORPORATION to
acquire, for an exercise price of $.01 per share and an aggregate amount not in
excess of $1,589 for $158,823 shares (which represents 15 percent) of the
Common Stock of the ACQUIRING ASSOCIATION and shall perform all of its
obligations under and shall comply with the provisions of the Warrant Agreement.
Section 7 Indemnifications and Pursuit of Related Claims.
(a) Indemnifications. To the extent not otherwise reimbursed or
reimbursable, the CORPORATION will indemnify the ACQUIRERS, the ACQUIRING
ASSOCIATION, Hyperion Partners, L.P., and their directors, officers, and
employees, partners, or any of the ACQUIRERS' or ACQUIRING ASSOCIATION'S
<PAGE> 57
51
Affiliates (collectively, the "Indemnified Parties"), for, and pay as provided
in Section 6(a), (i) the amounts actually incurred and paid by any Indemnified
Party in connection with the satisfaction, settlement or compromise of the
following types of Claims and challenges to the Transaction, and (ii) the
reasonable costs and expenses of litigation related to such Claims and to the
defense of such challenges to the Transaction, including reasonable attorneys'
and accountants' fees, travel expenses, court costs and related litigation
expenses, and such other actual and reasonable costs as may be actually
incurred by any Indemnified Party in connection with such satisfaction,
settlement, or compromise, provided that nothing in this section shall be
construed as indemnifying any person who was a director, officer or controlling
person, or employee of the ACQUIRED ASSOCIATION ("Old USAT Personnel") for any
claim with respect to the ACQUIRED ASSOCIATION or any of its assets or
operations ("Old USAT Claim"), or indemnifying or obligating the Corporation to
reimburse, the ACQUIRING ASSOCIATION, the ACQUIRER or any Affiliate of either
of them for any indemnification payments made by the ACQUIRING ASSOCIATION, the
ACQUIRER, or any Affiliate of either of them to or on behalf of any Old USAT
Personnel with respect to any Old USAT Claim, and provided further, that before
such costs and expenses may be debited to Special Reserve Account I, the
ACQUIRING ASSOCIATION shall
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52
comply in all material respects with the covenants set forth in Section 17 and
Section 18 and the provisions of Section 31 and submit to the CORPORATION in a
form reasonably satisfactory to the CORPORATION the reports and submissions
required by Section 15 and Section 16 of this Agreement, and provided further,
that such costs and expenses shall be related to matters subject to
indemnification under this Section 7(a):
(1) Unassumed Liabilities and Claims. Any Claim based upon a
liability, contract or action or failure to act or status or capacity of the
ACQUIRED ASSOCIATION (including any Claim based upon a status or capacity of
the ACQUIRED ASSOCIATION as parent of a Subsidiary), which is asserted against
the ACQUIRING ASSOCIATION notwithstanding the absence of any assumption of such
liability by the ACQUIRING ASSOCIATION in the Acquisition Agreement, provided,
however, that the indemnification provided in Section 7(a) shall not be made
unless the compromise, settlement or satisfaction of such a claim shall have
been expressly approved in writing by the CORPORATION.
(2) Challenges to the Transaction. Any action brought by any person or
entity other than the ACQUIRER, the ACQUIRING ASSOCIATION or any of their
stockholders, Affiliates, Subsidiaries, or creditors (whose action arises in
whole or in part by virtue of their capacity as creditors of the ACQUIRER or
the ACQUIRING ASSOCIATION) to challenge or
<PAGE> 59
53
set aside or seek damages in respect of the Transaction or this Agreement to
the extent that such action is grounded (i) upon the negotiation of the
Transaction, the negotiation or execution of this Agreement or any other
agreement relating to the Transaction or (ii) upon a claim that an action or
failure to act by the Bank Board or the CORPORATION was not in accordance with
the Bank Board's or the Corporation's enabling legislation, and in the event
that a court of competent jurisdiction directs the ACQUIRING ASSOCIATION or the
ACQUIRER to divest assets or liabilities of the ACQUIRED ASSOCIATION on such
ground, the reasonable costs and expenses of such divestiture and any damages
due to a breach of contract caused directly by such divestiture, provided that
such damages are directly attributable to one of the grounds set forth above.
(3) Environmental Liabilities. Any claim against the ACQUIRING
ASSOCIATION based upon or arising out of:
(A) Conditions of any asset acquired pursuant to the
Acquisition Agreement as of the Effective Date arising from or related to the
generation, storage, manufacturing, refining, transportation, treatment,
disposal, spilling, discharge or other presence of any hazardous substance, or
any pollutant or contaminant;
(B) The presence of asbestos or other toxic substance used in
construction of or on such assets prior to the Effective Date; or
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54
(C) Conditions of such assets on the Effective Date which
violate any applicable federal, state or local law or regulation for
environmental protection. This Section 7(a)(3) shall survive the termination of
this Agreement.
(b) Pursuit of Related Claims. The ACQUIRER, the ACQUIRING
ASSOCIATION and any of their Affiliates shall use their best efforts to reduce
or minimize the CORPORATION'S indemnity payments under this Section 7 by the
pursuit of Related Claims, and the CORPORATION shall indemnify the ACQUIRER, the
ACQUIRING ASSOCIATION and their Affiliates for the amount of the reasonable and
related costs and expenses, and such other actual and reasonable and related
costs as may be actually incurred and paid by them in complying with this
Section 7(b), or incurred by the ACQUIRED ASSOCIATION prior to the Effective
Date and paid, with the Corporation's prior written approval, by the ACQUIRING
ASSOCIATION, provided that the ACQUIRING ASSOCIATION complies with the covenants
set forth in Section 17, and provided further that the pursuit of related Claims
shall be subject to approval by the CORPORATION and the reports and submissions
required by Sections 12, 13, 14, 15 and 16 of this Agreement, in a form
satisfactory to the CORPORATION, shall be submitted to the CORPORATION before
costs and expenses related to the pursuit of Related Claims shall be debited to
Special Reserve Account I pursuant to Section 3(a). All sums recovered from each
such Related Claim shall be credited to
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55
Special Reserve Account I pursuant to Section 3(b)(1) of this agreement. The
CORPORATION's right to recovery on any Related Claim shall survive the
termination of this Agreement and shall be paid in cash after such date.
(c) Scope of Indemnifications. The indemnifications provided for in
Section 7(a) above shall not extend to capital losses on or attributable to
assets of an ACQUIRED ASSOCIATION to the extent that such amount is recovered
under Section 3(a)(1) as a debit to Special Reserve Account I. Capital loss as
used herein refers to loss of value of a particular asset and not to other
losses incurred by the ACQUIRING ASSOCIATION that otherwise qualify for
indemnification pursuant to this Section 7.
Section 8 Acquired Association Claims.
(a) Assignment to CORPORATION of Claims. At any time during the term
of this Agreement and until 90 days after the date on which this Agreement
terminates, upon the request of the CORPORATION, the ACQUIRING ASSOCIATION shall
assign without recourse to the CORPORATION to the fullest extent permitted by
law or applicable contract provision all of its right, title and interest in and
to any Acquired Association Claim. The purchase price for any Acquired
Association Claim shall be the Book Value (if any) of such Claim on the Books
and Records.
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56
(b) Manner of Assignment. In order to facilitate and effectuate the
assignment of ACQUIRED ASSOCIATION Claims and other Claims pursuant to Section
8(a), the ACQUIRING ASSOCIATION shall, at the CORPORATION'S request:
(1) Execute and deliver instruments of assignment or transfer
in addition to this Agreement and make endorsements in such form and manner,
and at such time, as the CORPORATION shall require;
(2) Execute and deliver all other instruments that the
ACQUIRING ASSOCIATION possesses and the CORPORATION deems necessary to complete
such assignments or transfers; and
(3) Deliver to the CORPORATION all related documents and other
materials in its possession or control and use its best efforts to obtain any
further information that the CORPORATION deems necessary to prosecute
effectively any ACQUIRED ASSOCIATION Claim.
(c) Notification of Claims. The ACQUIRING ASSOCIATION agrees to
notify the CORPORATION of any evidence it discovers indicating the existence of
an Acquired Association Claim, to use its best efforts, cooperate fully and
take all such actions as are necessary to assist the CORPORATION in the pursuit
of Acquired Association Claims and other Claims assigned to the CORPORATION
pursuant to Section 8(a), and to
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57
provide the same cooperation and assistance with respect to claims retained by
the RECEIVER pursuant to Section 2 of the Acquisition Agreement.
Section 9 Tax Benefits. For each taxable year of the ACQUIRING
ASSOCIATION that closes after the Effective Date, the ACQUIRING ASSOCIATION
shall credit to Special Reserve Account I an amount equal to one-third (1/3) of
the sum of the Federal Net Tax Benefits (as defined and calculated in
accordance with Section 9(b)) and the State Net Tax Benefits (as defined and
calculated in accordance with Section 9(c)), (collectively "Net Tax Benefits")
if any, realized by the ACQUIRING ASSOCIATION in such year, but in no event
shall the amount credited to the Special Reserve Account I be less than the
following amounts with respect to the first five full fiscal years of the
ACQUIRING ASSOCIATION following the Effective Date:
Guaranteed
Fiscal Year Amount
----------- ----------
1 $ 500,000
2 1,000,000
3 1,700,000
4 2,800,000
5 4,000,000
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58
(a) Tax Benefit Items. For purposes of this Agreement, the Net Tax
Benefits shall be the tax benefits that are attributable to the items described
in Sections 9(a)(1), (2) and (3) below ("Tax Benefit Items") and that are
either utilized by the ACQUIRING ASSOCIATION to reduce its Federal or state
income tax liability in a given year, as calculated in Sections 9(b) and (c)
below, or are excluded from Federal or state income in a given tax year:
(1) The amount of any net operating loss carryovers, any
capital loss carryovers, and any other carryovers on the Books and Records of
the ACQUIRED ASSOCIATION at the Effective Date resulting in a tax deduction
from the ACQUIRING ASSOCIATION's gross income;
(2) Any cost, expense or loss (i) that is incurred by the
ACQUIRING ASSOCIATION, (ii) for which the CORPORATION has made assistance
payments to the ACQUIRING ASSOCIATION pursuant to Section 3(a) of this
Agreement that are excludable from gross income for Federal or state income tax
purposes, and (iii) that are deductible on the ACQUIRING ASSOCIATION's Federal
or state income tax return or reduce the balance of the ACQUIRING ASSOCIATIONS'
bad debt reserves;
(3) The sum of (i) the amount of any interest paid to the
ACQUIRING ASSOCIATION by the CORPORATION on the
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59
Promissory Notes and (ii) the amount of guaranteed yield assistance payments
that the ACQUIRING ASSOCIATION receives under this Agreement that are
excludable from gross income for Federal or state income tax purposes.
(b) Federal Net Tax Benefits. The Federal Net Tax Benefits for a
taxable year shall be equal to the excess, if any, of:
(1) the Federal income tax liability for such taxable year
(taking into account all carryovers and carrybacks to such year that would have
been allowable and assuming that dividends on preferred stock are treated as
tax deductible interest expense) which would have been incurred by the
ACQUIRING ASSOCIATION or the consolidated group (as defined in Section 1504 of
the Internal Revenue Code) of which it is a member ("Consolidated Group"),
whichever is applicable, if the Tax Benefit Items described in Sections
9(a)(1), (2) and (3) had not been deducted or excluded from income in any
taxable year, but without adjustment to the bad debt reserve (provided that
Federal income tax liability shall not include Federal income tax liability
imposed on the following: income includable pursuant to adjustments under
Section 481 agreed to by the ACQUIRED ASSOCIATION; income resulting from the
recapture of any portion of the bad debt reserve created by the ACQUIRED
ASSOCIATION where the ACQUIRING ASSOCIATION has not received a corresponding
amount
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of cash or property; gain with respect to any asset acquired from the ACQUIRED
ASSOCIATION in an amount up to the excess, if any, of the fair market value of
such asset on the date of acquisition over the adjusted basis of such asset on
such date), over
(2) the Federal income tax liability (including any alternative
minimum tax liability) for such taxable year (taking into account all allowable
carryovers and carrybacks to such year) actually incurred by the ACQUIRING
ASSOCIATION or the consolidated Group, whichever is applicable
(c) State Net Tax Benefits. The State Net Tax Benefits for a taxable
year shall be equal to the excess, if any, of:
(1) the state income tax liability for such taxable year
(taking into account all carryovers and carrybacks to such year that would have
been allowable and assuming that dividends on preferred stock are treated as
tax deductible interest expense) which would have been incurred by the
ACQUIRING ASSOCIATION, or the Consolidated Group, if the Tax Benefit Items
described in Section 9(a)(1), (2) and (3) had not been deducted or excluded
from the income in any taxable year, but without adjustment to the bad debt
reserve, (provided that state income tax liability shall not include state
income tax liability imposed on the following: income includable pursuant to
adjustments under Section 481 agreed to by the ACQUIRED ASSOCIATION; income
resulting from the
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61
recapture of any portion of the bad debt reserve created by the ACQUIRED
ASSOCIATION where the ACQUIRING ASSOCIATION has not received a corresponding
amount of cash or property; gain with respect to any asset acquired from the
ACQUIRED ASSOCIATION in an amount up to the Excess, if any, of the fair market
value of such asset on the date of acquisition over the adjusted basis of such
asset on such date), over
(2) the state income tax liability for such taxable year
(taking into account all allowable carryovers and carrybacks to such year)
actually incurred by the ACQUIRING ASSOCIATION, or the Consolidated Group.
(d) Timing of Payments. The CORPORATION's share of the Net Tax
Benefits shall be credited to Special Reserve Account I or if this Agreement
was terminated, paid to the CORPORATION, within 30 days after the ACQUIRING
ASSOCIATION or the Consolidated Group files its Federal and state income tax
returns for the taxable year in which such Net Tax Benefits are realized.
(e) Cooperation. The ACQUIRING ASSOCIATION shall, upon request of
the CORPORATION, provide copies of the tax returns and amended tax returns of
the ACQUIRING ASSOCIATION and members of the Consolidated Group for any taxable
years specified by the CORPORATION. As provided in Section 18(c), the ACQUIRING
ASSOCIATION agrees to use its best efforts, cooperate fully with the
CORPORATION, and take all such
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62
actions as are necessary, and consistent with prudent and reasonable business
standards to maximize the Net Tax Benefits realizable by it and to implement
the provisions of this Section 9.
(f) Disallowed Deductions. In the event Net Tax Benefits result in
credits or payments with respect to (i) Tax Benefit Items the deduction of
which is subsequently disallowed or that are subsequently determined not to be
excluded or that cease to be Tax Benefit Items because it is determined that
payments with respect to such Tax Benefits Items are not to be excludable from
gross income, or (ii) there are adjustments (not including carryovers or
carrybacks) with respect to the return of the Consolidate Group which reduce
utilization of such Tax Benefits by the Consolidated Group, an appropriate
amount shall be debited to Special Reserve Account I or, if this Agreement was
terminated, paid to the ACQUIRING ASSOCIATION.
Section 10 Duplicate Payments. Any cost or expense for which the
ACQUIRING ASSOCIATION has been reimbursed under any section of this Agreement,
or any recovery which has been paid over to or retained by the CORPORATION
under any section of this Agreement, shall not be reimbursed to the ACQUIRING
ASSOCIATION, or paid over to or retained by the CORPORATION
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63
under any other section of this Agreement, even though such cost, expense, or
recovery may be described in whole or in part in two or more sections of this
Agreement.
Section 11 Non-Reimbursable Expenses. In calculating Actual Yield with
respect to a Covered Asset, the ACQUIRING ASSOCIATION shall not deduct expenses
incurred in the administration of this Agreement and shall not seek
reimbursement from the CORPORATION for such expenses under any other provision
of this Agreement. For purposes of this Section 11, such non-reimbursable
expenses shall include, but not be limited to, compensation paid for the
preparation of reports and submissions and supporting documentation required to
be filed with the CORPORATION under Sections 12, 13, 14 and 15 of this
Agreement, provided that the cost of Technical Assistance within the meaning of
Section 17(b) required from attorneys for the preparation of some or all of
the Significant Litigation Plans and Budgets required by Section 15 and,
approved in writing by the CORPORATION, may be deducted as an expense in
calculating Actual Yield with respect to the asset to which it relates, or
debited to Special Reserve Account I as a cost to an indemnifiable item
described in Section 7(a).
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Section 12 Major Covered Assets. Unless otherwise permitted in
writing by the CORPORATION, the material failure of the ACQUIRING ASSOCIATION
to comply with the provisions of this Section 12 with respect to any Covered
Asset that is a Major Covered Asset, as defined below, shall result in the
disallowance of any related Debit to Special Reserve Account I, the
disallowance of any adjustment of a related contribution or payment by the
CORPORATION, the disallowance of any deduction in determining Actual Yield, and
the disallowance of the addition to the Book Value of such asset of any
properly capitalized expense within the meaning of Section 1(n)(2)(A) until, in
the CORPORATION's judgement, such requirement is met or the CORPORATION
otherwise permits:
(a) Submissions. Each Covered Asset except Category I Covered Assets,
or asset of a Significant Subsidiary that would constitute a Covered Asset if
owned by the ACQUIRING ASSOCIATION directly, (i) with a Book Value as of the
Effective Date of $5,000,000 or more, or (ii) with respect to which the
ACQUIRING ASSOCIATION anticipates that a Covered Asset Loss in excess of the
greater of $1,000,000 or 50% of the Book Value of the Covered Asset will be
incurred upon its Liquidation, shall be deemed to be a Major Covered Asset
("Major Covered Asset"). The ACQUIRING ASSOCIATION shall provide to the
CORPORATION for approval the following information relating to Major Covered
Assets:
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65
(1) Within 90 days after the Effective Date, a schedule, in the
form attached as Exhibit 5 ("MCA Schedule"), of (a) all Major Covered Assets as
of the Effective Date and (b) dates, none of which dates shall be taken through
the first anniversary of the Effective Date, on which the Property Plan,
Collection Plan or Business Plan required pursuant to Section 12(a)(3) with
respect to each Major Covered Asset will be submitted. A revised MCA Schedule
shall be submitted within fifteen days after the end of each Quarter during the
first year.
(2) Within 150 days after the Effective Date, with respect to
each Major Covered Asset, an Asset Summary in the form attached as Exhibit 6.
(3) By the dates set forth on Exhibit 5, (A) a collection plan
("Collection Plan") in the form attached as Exhibit 7 pursuant to which the
ACQUIRING ASSOCIATION proposes to provide information regarding its plan with
respect to each Major Covered Asset that is a loan, (B) a business plan
("Business Plan") in the form attached as Exhibit 7 pursuant to which the
ACQUIRING ASSOCIATION proposes to provide information regarding its plan with
respect to each Major Covered Asset that is an investment in
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66
a Subsidiary, and (C) a property plan ("Property Plan") in the form attached as
Exhibit 7 pursuant to which the ACQUIRING ASSOCIATION proposes to provide
information regarding its plans with respect to each Major Covered Asset that
is Real Estate Owned or Repossessed Personal Property. In the case of any Asset
that the ACQUIRING ASSOCIATION has not designated as a Major Covered Asset
within 30 days after the Effective Date but which is subsequently so
designated, the submissions required by Section 12(a)(1) and Section 12(a)(2)
shall be made within 90 days, and 150 days, respectively, of the date upon
which such Asset is designated as a Major Covered Asset.
(b) Budget Summaries. An annual Budget Summary setting forth the
projected annual income and expenditures for each Major Covered Asset shall be
submitted by the ACQUIRING ASSOCIATION as an attachment to the relevant
Collection Plan, Business Plan or Property Plan for such Asset. Each line of
the Budget Summary shall be known as a Line Item. A proposed form of such
budget Summary, containing information of the type set forth in Exhibit 8, shall
be submitted by the ACQUIRING ASSOCIATION to the CORPORATION concurrently with
the Asset Summary with respect to such Asset as prescribed by Section 12(a)(2).
Each Budget Summary shall be submitted in the form proposed by the ACQUIRING
ASSOCIATION except to the extent the CORPORATION determines that additional
Line Items
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are required to provide greater specificity of information sufficient to permit
analysis of the Collection Plan, Business Plan or Property Plan for such Asset,
and so notifies the ACQUIRING ASSOCIATION, indicating the additional Line Items
required.
(c) Specific Requests for Approvals.
(1) Until such time as the CORPORATION has approved a Budget
Summary for a Major Covered Asset, the ACQUIRING ASSOCIATION shall attempt to
minimize expenses incurred with respect to each such Asset which is owned by the
ACQUIRING ASSOCIATION directly and may increase Book Value for expenses
properly capitalized under Section 1(n)(2)(A) or deduct expenses when
determining Actual Yield with respect to such asset only to the extent that
they are reasonably necessary to maintain such Major Covered Asset in its
current condition and do not exceed $50,000 for a particular expense incurred
by the ACQUIRING ASSOCIATION and $250,000 in the aggregate for all such expense
items, unless the ACQUIRING ASSOCIATION submits a Specific Request for Approval
of the Expenditure ("Specific Request") in the form attached as Exhibit 9,
together with an Asset Summary in the form attached as Exhibit 6, and such
Specific Request is approved by the CORPORATION, or the CORPORATION otherwise
waives such requirement in writing. The CORPORATION shall within 30 days
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after receipt thereof, either approve or disapprove the Specific Request or
request further information, and, if the CORPORATION fails to do any of those
things within 30 days, the Request will be deemed to be approved.
(2) After approval of the Collection Plan, Business Plan or
Property Plan and Budget Summary for a Major Covered Asset, if no Line Item in
the Budget Summary has a negative variance in excess of 10% for the most recent
Quarter or for the current budget year, and the ACQUIRING ASSOCIATION has
complied with Section 12(f) with respect to the filing of an updated quarterly
and annual Budget Summary, then the ACQUIRING ASSOCIATION may, without a
Specific Request, make an expenditure that does not exceed $250,000 within each
Line Item of the Budget Summary.
(3) After approval of the Collection Plan, Business Plan or
Property Plan and Budget Summary for a Major Covered Asset, if a Line Item in
the Budget Summary has a negative variance in excess of 10% for the most recent
Quarter or for the year, or the ACQUIRING ASSOCIATION has not complied with
Section 12(f) with respect to the filing of an updated quarterly or annual
Budget Summary, then the ACQUIRING ASSOCIATION must file a Specific Request, as
provided in Section 12(c)(1), together with a revised Budget Summary, for any
expenditure in excess of $50,000 within a Line Item of the Budget Summary.
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(4) In any event, the ACQUIRING ASSOCIATION must file a
Specific Request as provided in Section 12(c)(1) for any expenditure within a
Line Item in excess of $250,000.
(5) If a Specific Request is required, until the
CORPORATION has approved it, the ACQUIRING ASSOCIATION may not implement or
deduct the unauthorized expense in determining Actual Yield, or increase Book
Value by the amount of a properly capitalizable expense covered by the
Specific Request.
(d) Financing. In its disposition of Major Covered Assets, the
ACQUIRING ASSOCIATION may, to the extent otherwise permissible under applicable
law and regulation, offer financing to interested third party purchasers
without assistance from the CORPORATION except as provided in Section 1(q)(2).
(e) Asset Disposition. At such time as the ACQUIRING ASSOCIATION
desires to sell a Major Covered Asset prior to submission of a Business Plan
or Property Plan, it shall submit to the CORPORATION an Asset Sale Request in
the form attached as Exhibit 10 setting forth the terms of the proposed sale,
together with an Asset Summary in the form attached as Exhibit 6. If the terms
of the proposed sale involve financing to be provided by the ACQUIRING
ASSOCIATION, the Asset Sale Request shall be accompanied by a
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Term Sheet in the form attached as Exhibit 11, setting forth the terms of such
financing. The CORPORATION shall within 30 days after receipt thereof, either
approve or disapprove the Asset Sale Request and Term Sheet or request further
information, and, if the CORPORATION fails to do either within 30 days, the
request will be deemed to be approved.
(f) Revised Submissions.
(1) Annual Revisions. Not later than two months (or such
shorter time period as the CORPORATION in its sole discretion may permit) prior
to expiration of the 12-month period covered by each Property Plan, Collection
Plan or Business Plan, annual Budget Summary and Asset Summary which has been
approved by the CORPORATION, the ACQUIRING ASSOCIATION shall provide to the
CORPORATION a revised Property, Collection or Business Plan, annual Budget
Summary and Asset Summary for the 12-month period following such expiration.
(2) Revisions Due to Changes in Plans or Underlying
Assumptions. In the event the ACQUIRING ASSOCIATION determines that (1) the
Property Plan, Collection Plan or Business Plan, Budget Summary or Asset
Summary for a Major Covered Asset should be changed materially, whether due to
a change in plans, assumptions or otherwise, or (2) any other document
submitted is no longer complete or accurate in
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some material respect, the ACQUIRING ASSOCIATION shall provide to the
CORPORATION for approval such revised documents as are necessary to keep the
CORPORATION informed on a current basis of its plans concerning Major Covered
Assets.
(3) Quarterly Budget Summary Updates. Not later than 30 days after the
end of each Quarter, the ACQUIRING ASSOCIATION shall provide to the CORPORATION
an updated annual Budget Summary.
(4) General Applicability of Section 12 Requirements. The provisions
of this section 12 shall govern the form, content and treatment of documents
submitted pursuant to this section 12(f).
(g) CORPORATION'S Approval Requirements. With respect to each MCA
Schedule, Asset Summary, Collection Plan, Business Plan, Property Plan and
Budget Summary, submitted for a Major Covered Asset, the CORPORATION shall,
within 60 days after receipt, approve such document or disapprove all or any
portion of such document. In the event that the CORPORATION disapproves all or
a portion of a document, the ACQUIRING ASSOCIATION and the CORPORATION shall
consult in good faith to establish within a reasonable time an appropriate
document that is approved by the CORPORATION. Any permission or approval of the
CORPORATION pursuant to
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this Section 12 shall be effective only if made in writing by the Director,
Financial Assistance Division, or his designee.
(h) Form of Submissions. The forms of Exhibits 5 through 11 and any
other documents with respect to Major Covered Assets may be changed by the
CORPORATION after consultation with the ACQUIRING ASSOCIATION to include such
other information and documentation as the CORPORATION determines to be
necessary to monitor and to approve the ACQUIRING ASSOCIATION's plans and
expenditures with respect to Major Covered Assets.
(i) Additional Submissions. The CORPORATION shall have the right to
obtain from the ACQUIRING ASSOCIATION (a) additional or revised documents with
respect to any Major Covered Asset, and (b) all information and documents
reasonably within the control of the ACQUIRING ASSOCIATION or any Affiliate
thereof that supports any document or relates to any Major Covered Asset.
Section 13 Significant Covered Assets. Unless otherwise permitted in
writing by the CORPORATION, the material failure of the ACQUIRING ASSOCIATION
to comply with the provisions of this section 13 with respect to any Covered
Asset that is a Significant Covered Asset, as defined below, shall result in
the disallowance of any related Debit to Special Reserve Account I, the
disallowance of any adjustment of a related
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contribution or payment by the CORPORATION, the disallowance of any deduction
in determining Actual Yield, and the disallowance of the addition to the Book
Value of such asset of any properly capitalized expense within the meaning of
Section 1(n)(2)(A) until, in the CORPORATION's judgment, such requirement is
met or the CORPORATION otherwise permits:
(a) Submissions. Each Covered Asset, or asset of a Significant
Subsidiary that would constitute a Covered Asset if owned by the ACQUIRING
ASSOCIATION directly, (other than a Major Covered Asset) (i) with a Book Value
as of the Effective Date of at least $1,000,000 but less than $5,000,000, or
(ii) with respect to which the ACQUIRING ASSOCIATION anticipates that a Covered
Asset Loss in excess of the greater of $300,000 or 50% of the Book Value of the
Covered Asset will be incurred upon its Liquidation, shall be deemed to be a
Significant Covered Asset ("Significant Covered Asset"). The ACQUIRING
ASSOCIATION shall provide to the CORPORATION for approval the following
information relating to Significant Covered Assets:
(1) Within 90 days after the Effective Date a schedule, in
the form attached as Exhibit 5 ("SCA Schedule"), of all Significant Covered
Assets as of the Effective Date. A revised SCA Schedule shall be submitted
within 15 days after the end of each Quarter during the first year of this
Agreement.
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(2) Within 150 days after the Effective Date, with respect to
each Significant Covered Asset, an Asset Summary in the form attached as
Exhibit 6. In the case of any Asset that the ACQUIRING ASSOCIATION has not
designated as a Significant Covered Asset within 30 days after the Effective
Date but which is subsequently so designated, the submissions required by
Sections 13(a)(1) and 13(a)(2) shall be made within 90 days, and
150 days, respectively, of the date upon which such Asset is Designated as a
Significant Covered Asset.
(b) Budget Summaries. An annual Budget Summary setting forth the
projected annual income and expenditures for each Significant Covered Asset
shall be submitted by the ACQUIRING ASSOCIATION as an attachment to the
relevant Collection Plan, Business Plan or Property Plan for such Asset. Each
line on the Budget Summary shall be known as a Line Item. A proposed form of
such Budget Summary, containing information of the type set forth in Exhibit 8,
shall be submitted by the ACQUIRING ASSOCIATION to the CORPORATION concurrently
with the Asset Summary with respect to such Asset as prescribed by Section
12(a)(2). Each Budget Summary shall be submitted in the form proposed by the
ACQUIRING ASSOCIATION except to the extent the CORPORATION determines the
additional Line Items are required to provide greater specificity of
information sufficient to permit analysis of the Collection Plan,
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Business Plan or Property Plan for such Asset, and so notifies the ACQUIRING
ASSOCIATION, indicating the additional; Line Items required.
(c) Specific Requests for Approvals.
(1) Until such time as the CORPORATION has approved a
Budget Summary for a Significant Covered Asset, the ACQUIRING ASSOCIATION shall
attempt to minimize expenses incurred with respect to each such Asset which is
owned by the ACQUIRING ASSOCIATION directly and may increase Book Value for
expenses properly capitalized under Section 1(n)(2)(A) or deduct expenses when
determining Actual Yield with respect to such Asset only to the extent that
they are reasonably necessary to maintain such Significant Covered Asset in its
current condition and do not exceed $50,000 for a particular expense incurred
by the ACQUIRING ASSOCIATION and $250,000 in the aggregate for all such expense
items, unless the ACQUIRING ASSOCIATION submits a Specific Request for Approval
of the expenditure ("Specific Request") in the form attached as Exhibit 9,
together with an Asset Summary in the form attached as Exhibit 6, and such
Specific Request is approved by the CORPORATION, or the CORPORATION otherwise
waives such requirement in writing. The CORPORATION shall within 30 days after
receipt thereof, either approve or disapprove the Specific Request or request
additional information and, if
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the CORPORATION fails to do either within 30 days, the Request will be deemed
to be approved.
(2) After approval of the Asset Summary and Budget Summary for a
Significant Covered Asset, if no Line Item in the Budget Summary has a
negative variance in excess of 10% for the most recent Quarter or for the
current year, and the ACQUIRING ASSOCIATION has complied with Section 13(f)
with respect to filing of an updated quarterly and annual Budget Summary, then
the ACQUIRING ASSOCIATION may, without a Specific Request, make an expenditure
that does not exceed $250,000 within each Line Item of the Budget Summary.
(3) After approval of the Asset Summary and Budget Summary for a
Significant Covered Asset, if a Line Item in the Budget Summary has a negative
variance in excess of 10% for the most recent Quarter or for the current year,
or the ACQUIRING ASSOCIATION has not complied with Section 13(f) with respect
to the filing of an updated quarterly or annual Budget Summary, then the
ACQUIRING ASSOCIATION must file a Specific Request, as provided in Section
13(c)(1), together with a revised Budget Summary, for any expenditure in excess
of $50,000 within a Line Item of the Budget Summary.
(4) In any event, the ACQUIRING ASSOCIATION must file a Specific
Request as provided in Section 13(c)(1) for any expenditure within a Line Item
in excess of $250,000.
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(5) If a Specific Request is required, until the
CORPORATION has approved it, the ACQUIRING ASSOCIATION may not implement or
deduct the unauthorized expense in determining Actual Yield, or increase Book
Value by the amount of a properly capitalizable expense covered by the Specific
Request.
(d) Financing. In its disposition of Significant Covered Assets,
the ACQUIRING ASSOCIATION may, to the extent otherwise permissible under
applicable law and regulation, offer financing to interested third party
purchasers, without assistance from the CORPORATION except as provided in
Section 1(q)(2).
(e) Asset Disposition. At such time as the ACQUIRING ASSOCIATION
desires to enter into a contract to sell a Significant Covered Asset, it shall
submit to the CORPORATION an Asset Sale Request in the form attached as Exhibit
10 setting forth the terms of the proposed sale, together with an Asset
Summary in the form attached as Exhibit 6. If the terms of the proposed sale
involve financing to be provided by the ACQUIRING ASSOCIATION, the Asset Sale
Request shall be accompanied by a Term Sheet in the form attached as Exhibit
11, setting forth the terms of such financing. The CORPORATION shall within 30
days after receipt thereof, either approve or disapprove the Asset Sale
Request and Term
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Sheet or request further information and, if the CORPORATION fails to do any of
those things within 30 days, the Request will be deemed to be approved.
(f) Revised Submissions.
(1) Annual Revisions. Not later than two months (or such
shorter time period as the CORPORATION in its sole discretion may permit) prior
to expiration of the 12-month period covered by each annual Budget Summary and
Asset Summary which has been approved by the CORPORATION, the ACQUIRING
ASSOCIATION shall provide to the CORPORATION a revised Asset Summary and Annual
Budget Summary for the 12-month period following such expiration.
(2) Revisions Due to Changes in Plans or Underlying
Assumptions. In the event the ACQUIRING ASSOCIATION determines that (1) the
Budget Summary or Asset Summary for a Significant Covered Asset should be
changed materially, whether due to a change in plans, assumptions or otherwise,
or (2) any other document submitted is no longer complete or accurate in some
material respect, the ACQUIRING ASSOCIATION shall provide to the CORPORATION
for approval such revised documents as are necessary to keep the CORPORATION
informed on a current basis of its plans concerning Significant Covered Assets.
(3) Quarterly Budget Summary Updates. Not later than 30 days
after the end of each Quarter, the ACQUIRING
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ASSOCIATION shall provide to the CORPORATION an updated annual Budget Summary.
(4) General Applicability of Section 13 Requirements. The
provisions of this Section 13 shall govern the form, content and treatment of
documents submitted pursuant to this Section 13(f).
(g) CORPORATION's Approval Requirements. With respect to each SCA
Schedule, Asset Summary and annual Budget Summary, submitted for a Significant
Covered Asset, the CORPORATION shall within 60 days after receipt, approve such
document or disapprove all or any portion of such document. In the event that
the CORPORATION disapproves all or a portion of a document, the ACQUIRED
ASSOCIATION and the CORPORATION shall consult in good faith to establish within
a reasonable time an appropriate document that is approved by the CORPORATION.
Any permission or approval of the CORPORATION pursuant to this Section 13 shall
be effective only if made in writing by the Director, Financial Assistance
Division, or his designee.
(h) Form of Submissions. The forms of Exhibits 5 through 11 and any
other documents with respect to Significant Covered Assets may be changed by
the CORPORATION after consultation with the ACQUIRING ASSOCIATION to include
such other information and documentation as the CORPORATION
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determines to be necessary to monitor and to approve the ACQUIRING
ASSOCIATION'S plans and expenditures with respect to Significant Covered Assets.
(i) Additional Submissions. The CORPORATION shall have the right to
obtain from the ACQUIRING ASSOCIATION (a) additional or revised documents with
respect to any Significant Covered Asset, and (b) all information and documents
reasonably within the control of the ACQUIRING ASSOCIATION or any Affiliate
thereof that supports any document or relates to any Significant Covered Asset.
Section 14 Other Covered Assets. Unless otherwise permitted in writing
by the CORPORATION, the material failure of the ACQUIRING ASSOCIATION to comply
with the provisions of this Section 14 with respect to any Covered Asset that
is an Other Covered Asset, as defined below, shall result in the disallowance
of any related Debit to Special Reserve Account I, the disallowance of any
adjustment of a related contribution or payment by the CORPORATION, the
disallowance of any deduction in determining Actual Yield, and the disallowance
of the addition to the Book Value of such asset of any properly capitalized
expense within the meaning of Section 1(n)(2)(A) until, in the CORPORATION'S
judgment, such requirement is met or the CORPORATION otherwise permits:
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(a) Schedule. Each Covered Asset other than a Category I Covered Asset
that is neither a Major Covered Asset nor a Significant Covered Asset shall be
deemed to be an other Covered Asset ("Other Covered Asset"). The ACQUIRING
ASSOCIATION shall provide to the CORPORATION within 90 days after the Effective
Date, a schedule in the form as Exhibit 5 ("OCA Schedule"), of all Other
Covered Assets as of the Effective Date. In the case of any Asset that the
ACQUIRING ASSOCIATION has not designated as an Other Covered Asset within 30
days after the Effective Date but which is subsequently so designated, the OCA
Schedule shall be submitted within 90 days of the date upon which such Asset is
designated as an Other Covered Asset. A revised OCA schedule shall be submitted
within fifteen days after the end of each Quarter during the first year.
(b) Specific Requests for Approvals. The ACQUIRING ASSOCIATION shall
attempt to minimize expenses incurred with respect to each Other Covered Asset
and may increase Book Value for expenses properly capitalized under Section
1(n)(2)(A) or deduct expenses when determining Actual Yield with respect to
such Asset only to the extent that they are reasonably necessary to maintain
such Other Covered Asset in its current condition and do not exceed $50,000 for
a particular expense item and $150,000 in the aggregate for all expense items,
unless the ACQUIRING ASSOCIATION submits a Specific Request
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for Approval of the unauthorized expenditure ("Specific Request") in the form
attached as Exhibit 9, together with an Asset Summary in the form attached as
Exhibit 6, and such Specific Request is approved by the CORPORATION, or the
CORPORATION otherwise waives such requirement in writing. The CORPORATION shall
within 30 days after receipt thereof, either approve or disapprove or request
further information the Specific Request and, if the CORPORATION fails to do
any of those things within 30 days, the Specific Request will be deemed to be
approved.
(c) Financing. In its disposition of Other Covered Assets, the
ACQUIRING ASSOCIATION is permitted, to the extent otherwise permissible under
applicable law and regulations, to offer financing to interested third party
purchasers (unless the ACQUIRING ASSOCIATION believes, and the CORPORATION
agrees, that financing is otherwise available) without assistance from the
CORPORATION except as provided in Section 1(q)(2).
(d) Asset Disposition.
(1) At such time as the Acquiring Association desires to sell
an Other Covered Asset, unless already contemplated by an approved business
plan, it shall submit to the CORPORATION an Asset Sale Request in the form
attached as Exhibit 10 setting forth the terms of the proposed sale,
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together with an Asset Summary in the form attached as Exhibit 6. If the terms
of the proposed sale involve financing to be provided by the ACQUIRING
ASSOCIATION, the Asset Sale Request shall be accompanied by a Term Sheet in the
form attached as Exhibit 11, setting forth the terms of such financing. The
CORPORATION shall within 30 days after receipt thereof, either approve or
disapprove the Asset Sale Request and Term Sheet or request further information
and, if the CORPORATION fails to do any of those things within 30 days, the
Request will be deemed to be approved.
(2) Notwithstanding the provisions of Section 14(d)(1) above,
the ACQUIRING ASSOCIATION may dispose of any Other Covered Asset without
submitting an Asset Sale Request to the CORPORATION if
(A) The ACQUIRING ASSOCIATION has a current appraisal
of such asset prepared by an appraiser approved by the CORPORATION;
(B) The ACQUIRING ASSOCIATION disposes of such asset
for a contract purchase price of no less than 90 percent of the appraised value
of such asset less ordinary and customary sales commissions and other costs; and
(C) The ACQUIRING ASSOCIATION has not incurred and will
not incur any costs or expenses for the repair, rehabilitation or completion of
such asset or any
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other expenses in connection with such asset that have not been
contemplated by an approved business plan and that are capitalized
pursuant to Section 1(n)(2)(A), or deductible in determining Actual
Yield, and, in the case of dispositions based upon the existence of
an appraisal, nothing else has occurred, including the passage of
time, that would diminish the reliability of or invalidate the
assumptions underlying the appraisal or in any way effect the
appraised value of such assets.
(e) Additional Submissions. The CORPORATION shall have the right to
obtain from the ACQUIRING ASSOCIATION (a) additional or revised documents with
respect to any Other Covered Asset, and (b) all information and documents
reasonably within the control of the ACQUIRING ASSOCIATION or any Affiliate
thereof that supports any document or relates to any Other Covered Asset.
Section 15 Litigation.
(a) Pending Litigation.
(1) Litigation Schedule. Within 30 days after the Effective
Date, the ACQUIRING ASSOCIATION shall submit a analysis of the litigation to
which the ACQUIRED ASSOCIATION was a party immediately prior to the Effective
Date (i) as a plaintiff or (ii) with respect to a secured liability assumed
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by the ACQUIRING ASSOCIATION under the Acquisition Agreement, as a defendant,
which the ACQUIRING ASSOCIATION believes is Significant and the reasons for its
determination ("Litigation Analysis") along with a schedule ("Litigation
Schedule") of all such litigation to which the ACQUIRED ASSOCIATION was a
party immediately prior to the Effective Date that could result in a Debit to
Special Reserve Account I. The Litigation Schedule shall contain substantially
the information required in Exhibit 13. Within 90 days after the Effective
Date, the CORPORATION and the ACQUIRING ASSOCIATION shall consult in good faith
regarding the Litigation Analysis and the Litigation Schedule to determine
which matters shall be treated as significant litigation matters ("Significant
Litigation") for purposes of this Section 15. After reaching an agreement as to
which matters shall constitute Significant Litigation, the ACQUIRING
ASSOCIATION and the CORPORATION shall agree upon a time period within which the
ACQUIRING ASSOCIATION shall submit copies of all significant leadings and
dispositive motions relating to Significant Litigation.
(2) Imminent Proceedings. Beginning on the Effective Date,
the ACQUIRING ASSOCIATION shall use its best efforts to identify any
Significant Litigation in which a trail, injunction hearing or other
evidentiary hearing is scheduled to occur within 120 days after the Effective
Date.
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The ACQUIRING ASSOCIATION shall submit a preliminary schedule of such
litigation of which it has learned, or which it could have learned through the
exercise of due diligence after the Effective Date substantially in the form of
Exhibit 13 (with attachments) as soon as practicable and, in any event, prior
to the scheduled trial, injunction hearing or other evidentiary hearing.
(3) Revisions. After submission, the ACQUIRING ASSOCIATION
shall revise the Litigation Schedule required by this Section 15(a) on a
quarterly basis and shall submit such revised Schedules to the CORPORATION with
any required attachments. Revised Litigation Schedules shall include all
litigation filed by or against the ACQUIRING ASSOCIATION that could result in a
Debit to Special Reserve Account I, a deduction in calculating Actual Yield or
an increase in the Book Value of a Covered Asset.
(b) Litigation Plans and Budgets. Unless otherwise directed by the
CORPORATION, within six months after the Effective Date (or such longer period
as the CORPORATION in its sole discretion may authorize in writing), the
ACQUIRING ASSOCIATION shall submit for each Significant Litigation matter a
litigation plan and budget substantially in the form of and containing
substantially the information specified in Exhibit 12 ("Significant Litigation
Plan and Budget"). Unless otherwise directed by the CORPORATION, the ACQUIRING
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ASSOCIATION shall also submit, within the same period, an Abbreviated Litigation
Plan and Budget for litigation listed on the Litigation Schedule, other than
Significant Litigation. An Abbreviated Litigation Plan and Budget shall contain
an estimate of probable liability or damages, a recommendation with respect to
continued prosecution, defense or settlement and an estimate of legal expenses
and other cost by month until resolution of the case. The form and content of a
Significant Litigation Plan and Budget and an Abbreviated Litigation Plan and
Budget (referred to collectively herein as "Litigation Plan and Budget") may be
changed by the CORPORATION after consultation with the ACQUIRING ASSOCIATION.
(c) Post-Effective Date Litigation. If, following the Effective Date,
litigation is filed against the ACQUIRING ASSOCIATION (i) with respect to a
liability assumed by the ACQUIRING ASSOCIATION pursuant to the Acquisition
Agreement or (ii) that could result in a Debit to Special Reserve Account I, a
deduction in calculating Actual Yield or an increase in Book Value of a Covered
Asset, the ACQUIRING ASSOCIATION shall promptly notify the CORPORATION in
writing and, within 90 days after such filing, submit a Litigation Plan and
Budget to the CORPORATION.
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(d) Plaintiff Litigation. Before instituting any new action or filing
any new Claim in court in an existing action with respect to a Claim which
could result in a Debit or Credit to Special Reserve Account I, a deduction in
calculating Actual Yield or an increase in the Book Value of a Covered Asset,
the ACQUIRING association shall submit to the CORPORATION a Litigation Plan and
Budget.
(e) Authority Before Approval of Litigation Plans and Budgets. Within
60 days after receipt of any Litigation Plan and Budget, the CORPORATION shall
approve such Litigation Plan and Budget or disapprove all or any portion of
such Litigation Plan and Budget and, if appropriate, require the ACQUIRING
ASSOCIATION to submit a revised Litigation Plan and Budget in accordance with
its instructions. With respect to litigation described in Section 15(a), (c)
and (d), until the CORPORATION has approved a Litigation Plan and Budget, the
ACQUIRING ASSOCIATION shall exercise its best efforts to minimize the cost of
such litigation. As such expenses are paid, the ACQUIRING ASSOCIATION may only
debit Special Reserve Account I for those amounts which may properly be debited
pursuant to Section 3, deduct those amounts which may properly be deducted in
calculating Actual Yield, and increase the Book Value of any asset by those
amounts which may properly be capitalized pursuant to Section 1(n)(2)(A) if the
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expenses so debited, deducted or capitalized are no greater than the minimum
necessary expenses of such litigation, provided that the ACQUIRING ASSOCIATION
may enter into a binding commitment for the satisfaction, settlement or
compromise of any claim based on a secured liability of an ACQUIRED ASSOCIATION
for which the CORPORATION is obligated to indemnify the ACQUIRING ASSOCIATION
if such satisfaction, settlement or compromise involves the payment of an
amount not in excess of $100,000. Until the CORPORATION has approved a
Litigation Plan and Budget, the ACQUIRING ASSOCIATION shall not be entitled to
debit Special Reserve Account I for, increase Book Value by, or deduct in the
calculation of Actual Yield, the amount of any expenses with respect to any
proposed legal action described in Section 15(d).
(f) Authority Following approval of Litigation Plans and Budgets. After
the CORPORATION has approved a Litigation Plan and Budget, the ACQUIRING
ASSOCIATION may, with respect to amounts attributable to expense items
specified in the Litigation Plan and Budget, debit Special Reserve Account I
for amounts which may properly be debited to Special Reserve Account I, or
increase Book Value by such amounts as may be properly capitalized under
Section 1(n)(2)(A), or deduct such amounts as may be properly deductible in
calculating Actual Yield as such amounts are paid, provided that in no event
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shall the aggregate expenses exceed the total amount budgeted for such expense
in the Litigation Plan and Budget without the express prior written approval of
the CORPORATION.
(g) Revised Litigation Plans and Budgets. The ACQUIRING ASSOCIATION
shall submit to the CORPORATION for approval revised Litigation Plans and
Budgets as necessary to keep the CORPORATION informed on a current basis of its
plans concerning litigation. The ACQUIRING ASSOCIATION shall not implement a
revised Litigation Plan and Budget until the CORPORATION approves such
Litigation and Budget. Within 60 days of receipt of any revised Litigation Plan
and Budget, the CORPORATION shall approve such Litigation Plan and Budget, or
disapprove all or any portion of such Litigation Plan and Budget and, if
appropriate, require the ACQUIRING ASSOCIATION to subject a revised Litigation
Plan in accordance with its instructions. The CORPORATION shall have the right
to require from time to time submission of additional or revised Litigation
Plans and budgets and to require prompt submission of all information and
documents reasonably within the control of the ACQUIRING ASSOCIATION or its
Affiliates that supports any Litigation Plan and Budget.
(h) CORPORATION'S Authority as to Litigation. With respect to any
litigation that could result in a Debit or Credit to Special Reserve Account I,
or that could result in
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an increase in Book Value due to amounts properly capitalized pursuant to
Section 1(n)(2)(A), or that could affect the computation of Actual Yield, the
CORPORATION shall have the right (1) to monitor and direct the defense or
prosecution of the matter, (2) to defend against or to prosecute the matter
with its own attorneys in the name of the ACQUIRING ASSOCIATION or the
CORPORATION, as the case may be, or (3) to require the ACQUIRING ASSOCIATION to
assign its right, title or interest in such matter, any defense related to such
matter (including any counterclaim or setoff), or the proceeds from such matter
to the CORPORATION, provided, that the CORPORATION's exercise of such rights
shall not affect the rights of the ACQUIRING ASSOCIATION to be indemnified
under the provisions of this Agreement. The ACQUIRING ASSOCIATION shall
cooperate fully with the CORPORATION in such defense or prosecution including
the furnishing to the CORPORATION of all applicable books, records and other
information in the possession or control of the ACQUIRING ASSOCIATION or any of
its Affiliates, agents or counsel.
(i) CORPORATION Approvals. Any permission or approval of the
CORPORATION pursuant to this Section 15 shall be effective only if made in
writing by the Director, Financial Assistance Division, or his designee.
(j) Form of submissions. The form of Exhibits 12 and 13 and any other
submissions for any litigation with respect
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to which compliance with this Section 15 is required may be changed by the
CORPORATION after consultation with the ACQUIRING ASSOCIATION.
(k) Foreclosures and Bankruptcy Actions. Notwithstanding anything else
to the contrary in this Section 15, Foreclosures and bankruptcy actions shall
be governed by the provisions of Sections 12, 13 and 14 relating to Major and
Significant Covered Assets and unless, in the course of a foreclosure or
bankruptcy action, a counterclaim is filed against the ACQUIRING ASSOCIATION,
in which case the ACQUIRING ASSOCIATION shall comply with the provisions of
this Section 15 regarding its course of conduct with respect to such
Foreclosure and bankruptcy action.
(l) Attorneys' Fees for Work Performed by Attorneys Who are Employees
of the ACQUIRING ASSOCIATION. For purposes of this Agreement, if the ACQUIRING
ASSOCIATION desires to handle a Claim or action, the cost of which may be
debited to Special Reserve Account I, deducted as an expense in calculating
Actual Yield, or added to Book Value as a properly capitalized expense pursuant
to Section 1(n)(2)(A), by using an attorney who is an employee of the
ACQUIRING ASSOCIATION ("in-house attorney"), and such use of an in-house
attorney is otherwise approved by the CORPORATION to the extent contemplated by
other provisions of this
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Agreement, the ACQUIRING ASSOCIATION shall calculate its attorneys' fee expense
as the product of (i) the number of hours actually expended by the in-house
attorney on a matter covered by the CORPORATION's indemnification under this
Agreement, and (ii) an hourly rate equal to 135 percent of the annual salary of
the in-house attorney so utilized divided by 2,080, provided that such rate
does not exceed fees chargeable by outside counsel to the ACQUIRING ASSOCIATION
and, provided further that the CORPORATION shall not indemnify the ACQUIRING
ASSOCIATION for any in-house attorney expense incurred to supervise or oversee
the handling of any Claim or action by an outside attorney. The payment rate
herein provided shall be considered to compensate the ACQUIRING ASSOCIATION
fully for the services rendered by any in-house attorney.
Section 16 Reports, Records, Audits. The material failure of the
ACQUIRING ASSOCIATION to comply with any of the following requirements shall
result in the disallowance of any related Debit to a Special Reserve Account,
the disallowance of any adjustment of a related contribution or payment by the
CORPORATION, the disallowance of a deduction of any expense in calculating
Actual Yield, and the disallowance of the addition in Book Value of any expense
that would otherwise be
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properly capitalizable pursuant to Section 1(n)(2)(A) until, in the
CORPORATION'S judgment, such requirement is met or the CORPORATION otherwise
permits:
(a) Quarterly Reports. Within 45 days following the end of each Quarter
during the term of this Agreement, the ACQUIRING ASSOCIATION shall furnish to
the CORPORATION, in a format approved by the CORPORATION and supported by such
data as, in the CORPORATION's judgment, may be necessary to verify the
reporting, a report on the following items for such Quarter:
(1) Accounting. A statement of all Debits and Credits which the
ACQUIRING ASSOCIATION has made to the Special Reserve Accounts and the net
Debit or Credit balance of the Accounts, including, with respect to any Debit
for the Guaranteed Yield Amount pursuant to Section 3(c)(1), a statement of how
the ACQUIRING ASSOCIATION calculated the aggregate Average Book Value during
such Quarter upon which the Guaranteed Yield Amount was calculated and, with
respect to any Debit for attorneys' and accountants' fees, the following
documentation and such other documentation as the CORPORATION may request:
(A) Copies of itemized statements of charges received
by the ACQUIRING ASSOCIATION from each law firm and accounting firm, which
statements will specify (i) a
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description of each of the services performed by each individual attorney and
accountant; (ii) the identify of the person who performed each service; (iii)
the date on which each service was performed; (iv) the hourly rate charged for
each service; and (v) the total number of hours billed for such services;
(B) Copies of any letters, contracts, or other
documents that set forth the agreement between the ACQUIRING ASSOCIATION and
such law firms and accounting firms concerning the basis on which fees and
other compensation due such attorneys and accountants from the ACQUIRING
ASSOCIATION are to be computed;
(2) Status Reports. If requested by the CORPORATION, a status
report in such format as the CORPORATION may specify after consultation with
the ACQUIRING ASSOCIATION on any current or potential Claims and litigation
that may result in a Debit or Credit to Special Reserve Account I.
(3) Litigation Summaries; Variances from Budgets. Beginning as
soon as practicable after the Effective Date but, in any event, not later than
the first anniversary of the Effective Date, the ACQUIRING ASSOCIATION shall,
within 20 days of the end of each three-month period during the 12-month period
covered by a Litigation Plan and Budget,
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submit to the CORPORATION written reports substantially in the form attached as
Exhibit 14 ("Litigation Summary"), stating for each item in the budget
contained in such Litigation Plan and Budget, the budgeted amounts and the
actual amounts received or paid or incurred for each month of the three-month
period. In the event any such actual amount of expense or revenue varies from
the budgeted amount for such three-month period by the greater of $10,000 or 25
percent, the ACQUIRING ASSOCIATION shall include a written explanation therefor
with the Litigation Summary, and the ACQUIRING ASSOCIATION may request the
CORPORATION's approval of a change in the budget or the CORPORATION may require
such a change as a result of such variance.
(b) Access to Books and Records. The ACQUIRING ASSOCIATION shall cause
to be made available to the CORPORATION, at such reasonable times and places
and for such reasonable periods of time as the CORPORATION may specify, all
books, papers, records and information of any kind relating to any or all
matters subject to the provisions of this Agreement, including any such
materials subject to the provisions of this Agreement and any such materials or
information in the possession or control of the ACQUIRING ASSOCIATION or any of
its Affiliates, Subsidiaries, agents or counsel and no privilege attached to
such information shall
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be waived because of such submission. The ACQUIRING ASSOCIATION shall cooperate
with the CORPORATION in establishing and maintaining a system of document
control as the CORPORATION deems necessary.
(c) Audits and Examinations. The CORPORATION may audit or examine the
ACQUIRING ASSOCIATION or any of its Affiliates or Subsidiaries with respect to
transactions affecting the implementation of this Agreement at any reasonable
time or times chosen by the CORPORATION. Such audits shall be conducted by the
CORPORATION at its own expense but, if requested by the CORPORATION, with the
assistance of the ACQUIRING ASSOCIATION's personnel whose salaries and expenses
shall be paid by the ACQUIRING ASSOCIATION, without reimbursement from the
CORPORATION.
(d) Final Accounting. Within 90 days after the date this Agreement
terminates, or such longer time as the CORPORATION may permit, the ACQUIRING
ASSOCIATION shall render to the CORPORATION a final accounting, which shall
include such information and be in such form as the CORPORATION shall request.
(e) Other Reports.
(1) The ACQUIRING ASSOCIATION shall submit an annual report to
the CORPORATION, certified by the ACQUIRING ASSOCIATION'S independent auditors,
in a form satisfactory to
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the CORPORATION, showing the total Tax Benefit Items available to the ACQUIRING
ASSOCIATION in the year covered by such report, the amount of such Tax Benefit
Items, if any, utilized during such year and a calculation of the Net Tax
Benefits, if any, for such year. Such report, as of the close of each tax year,
shall be submitted, regardless of whether any Net Tax Benefits are realized by
the ACQUIRING ASSOCIATION with respect to that tax year, on the date Tax
Benefits, if any, are required to be credited to Special Reserve Account I
pursuant to Section 3(b)(6) of this Agreement.
(2) The ACQUIRING ASSOCIATION shall provide such other
reports as the CORPORATION may reasonably require.
(f) CORPORATION Approvals. Any permission or approval of the
CORPORATION pursuant to this Section 16 shall be effective only if made in
writing.
(g) Form of Submissions. The form of Exhibit 14 and any other
submissions required pursuant to this Section 16 may be changed by the
CORPORATION after consultation with the ACQUIRING ASSOCIATION.
Section 17 Covenants of the ACQUIRING ASSOCIATION. The material
failure of the ACQUIRING ASSOCIATION to comply with any of the following
covenants with respect to any assets or liability on the Books and Records or
any Related Claim shall
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result in the disallowance of related Debits to Special Reserve Account I, the
disallowance of any adjustment of a related contribution or payment by the
CORPORATION, the disallowance of the deduction of an expense in calculating
Actual Yield, and the disallowance of the addition to Book Value of any
expense that would otherwise be properly capitalizable pursuant to Section
1(n)(2)(A), until in the CORPORATION's judgment such material failure of
compliance is cured or the CORPORATION otherwise permits:
(a) Management Standard. Subject to the provisions of this
Agreement, the ACQUIRING ASSOCIATION shall administer and deal with all Covered
Assets and liabilities assumed pursuant to the Acquisition Agreement by
employing the higher of the standard of prudent business practice used by the
ACQUIRING ASSOCIATION in administering its assets and liabilities not acquired
from the ACQUIRING ASSOCIATION or the standard employed in the savings and loan
industry generally in administering similar assets and liabilities. Subject to
the provisions of this Agreement, the ACQUIRING ASSOCIATION will use its best
efforts to minimize losses and maximize gains and recoveries in the best
interest of both the ACQUIRING ASSOCIATION, its stockholders and the
CORPORATION.
(b) Management Services. The ACQUIRING ASSOCIATION shall provide,
at its own expense (except with respect to
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Technical Assistance below), the executive and managerial resources, with
adequate supporting staff, to develop, to review and to oversee the
implementation of documents required to be submitted in accordance with
Sections 12, 13, and 14 Litigation Plans and Budgets in accordance with Section
15 and all Reports and Summaries required by Section 15 of this Agreement
("Management Services"). Management Services to be provided by the ACQUIRING
ASSOCIATION pursuant to this Section 17(b) include (1) initial evaluation of
all Covered Assets and litigation, (2) performance of appropriate financial
analysis of alternative courses of action for Covered Assets and litigation,
(3) review and evaluation of appraisals of Covered Assets or of properties
securing Covered Assets, (4) preparation of all submissions, plans, proposals,
summaries and reports required by this Agreement, and (5) maintenance of a
reporting, review and accounting system with adequate internal controls to
monitor the management of Covered Assets and litigation, the incurrence of
expenses and compliance with submissions, proposals and plans required by this
Agreement.
With the prior written approval of the CORPORATION, the ACQUIRING
ASSOCIATION may engage third parties, which may include the ACQUIRERS and
their Affiliates, to provide technical assistance ("Technical Assistance"), in
connection
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with the performance of Management Services and the costs of such assistance,
approved by the CORPORATION, may be deducted in calculating Actual Yield or
added to the Book Value of the related asset pursuant to Section 1(n)(2)(A) as
a properly capitalized expense. Technical Assistance may include the services
of asset/liability managers, marketing experts, property managers, brokers,
investment bankers, appraisers, leasing companies and the like, but shall not
include the general management, review and oversight services to be supplied by
the ACQUIRING ASSOCIATION pursuant to its obligation to perform Management
Services. With the prior written approval of the CORPORATION, Technical
Assistance may also include the services of attorneys (including employees of
the ACQUIRING ASSOCIATION) engaged to prepare Significant Litigation Plans and
Budgets in accordance with the requirements of Section 15.
The ACQUIRING ASSOCIATION or its affiliates shall not provide the
following services for fees on the covered assets, except pursuant to the
limitations described in this section which prohibition and limitations shall
not apply to asset/liability management: (i) Property Management, (ii) Real
Estate Brokerage, (iii) Leasing, (iv) Real Estate Development or Construction,
and (v) Architecture and Engineering. The foregoing services may be performed
only if (i) the ACQUIRING ASSOCIATION (immediately after the
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Transaction) is in the business of providing the particular service on the same
type of properties in the same geographic markets, (ii) the fees and contract
terms for such services are comparable, or better, in all material respects to
those which the ACQUIRING ASSOCIATION could or does obtain from unrelated
parties, and (iii) except as otherwise agreed in writing by the CORPORATION,
the ACQUIRING ASSOCIATION, on the first anniversary date of the Effective Date
and thereafter, does not engage in performing the services described above with
respect to more than 25% of the total Book Value of the Covered Assets during
any year, provided that the CORPORATION may direct the ACQUIRING ASSOCIATION to
discontinue performance of any or all such services on any or all of the
covered assets if the Corporation determines that such services are not being
performed in accordance with the terms of this Agreement. The fees for such
services that are performed in accordance with the provisions of this Agreement
may be deducted in calculating Actual Yield or added to the Book Value of the
related asset pursuant to Section 1(q)(2)(A) as a properly capitalized expense.
The ACQUIRING ASSOCIATION will supervise its contractors, agents, subsidiaries,
affiliates and staff to insure that reasonable standards of performance are met
with regard to services on the Covered Assets and
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will insure that the liquidation and consolidation objectives described in the
Consolidation Plan will not be adversely influenced through the use of the
ACQUIRING ASSOCIATION's staff, subsidiaries or affiliates to perform services
on Covered Assets.
The ACQUIRING ASSOCIATION should market Covered Assets in such a manner
as to provide reasonable market exposure to qualified buyers and to attempt to
obtain multiple offers for the purchase of Covered Assets, except to the extent
that a Business Plan approved by the CORPORATION provides for an alternative
form of disposition. Records should be maintained of offers, letters of intent
or such other memoranda of negotiations as may be required to demonstrate to
the CORPORATION that fair value is being received upon the liquidation of
Covered Assets.
(c) Pursuit of Related Claims.
(A) Subject to the requirements set forth in Section 15, the
ACQUIRING ASSOCIATION shall pursue and, where appropriate, file actions with
respect to all potentially recoverable Related Claims which accrue to the
ACQUIRING ASSOCIATIONS, including, but not limited to, Claims under the
appropriate fidelity bond(s) or insurance policy or policies of an ACQUIRED
ASSOCIATION, whether discovered before or after the Effective Date, unless the
Acquiring Association assigns such claims to the Corporation.
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(B) The ACQUIRING ASSOCIATION shall notify the CORPORATION
before pursuing any Related Claim which could result in a Debit or Credit to
Special Reserve Account I. The ACQUIRING ASSOCIATION agrees to institute any
legal action with respect to a Related Claim requested by the CORPORATION in
connection with this Agreement. If the ACQUIRING ASSOCIATION objects to any
such request, it shall provide its reason in writing to the CORPORATION. If
after receipt of such statement, the CORPORATION does not withdraw its request,
then the ACQUIRING ASSOCIATION shall institute such action. The ACQUIRING
ASSOCIATION shall be indemnified by the CORPORATION for all losses resulting
from, and the reasonable costs and expenses of, pursuing the action, excepting
only losses arising from the ACQUIRING ASSOCIATION's negligence or lack of due
diligence in pursuing or prosecuting the action.
(d) Significant Subsidiaries.
(1) The ACQUIRING ASSOCIATION shall not, without the
CORPORATION'S prior written consent, cause or permit any Significant
Subsidiary to:
(A) declare a dividend or make a capital distribution
except that the United Capital Mortgage Corporation may transfer by way of
dividend, distribution or otherwise mortgage servicing to the ACQUIRING
ASSOCIATION;
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(B) Sell any of its assets except for Covered Assets in
Categories I and II, for less than the book value of such asset reflected on
the books and records of such Subsidiary, or encumber any such asset, except in
the ordinary course of business;
(C) Satisfy any liability for an amount greater than
the amount provided for such purpose on the books and records of such
Subsidiary, except in the ordinary course of business;
(D) Acknowledge or accept as a liability of such
Subsidiary as of the Effective Date any liability not reflected on the books
and records of such Subsidiary as of the Effective Date;
(E) Apply any net cash received from the disposition of
any of its assets to any use other than the payment of indebtedness or advances
that are due and owing from such Subsidiary to the ACQUIRING ASSOCIATION,
except in transactions in the ordinary course of the Subsidiary's business; or
(F) Cause the voluntary bankruptcy of or other
statutory reorganization proceeding to be filed for any Subsidiary, provided
that the CORPORATION shall respond to any request by the ACQUIRING ASSOCIATION
to take any action under this subsection within 30 days of receipt of such
request.
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(2) In the event the ACQUIRING ASSOCIATION takes or permits any
action prohibited by the foregoing Section 17(d)(1), the sole remedy of the
CORPORATION shall be to prohibit increases to Book Value of properly
capitalized expenses pursuant to Section 1(n)(2)(A) or deduction of expenses in
calculating Actual Yield and any or all Debits to Special Reserve Account I
that relate to such asset or liability or the ACQUIRING ASSOCIATION's
Investment in the Significant Subsidiary until such time as the ACQUIRING
ASSOCIATION has corrected such violation.
(3) Upon the request of the CORPORATION, the ACQUIRING
ASSOCIATION shall cause the voluntary bankruptcy of or other statutory
reorganization proceeding to be filed for any Significant Subsidiary, provided
the financial condition of such Significant Subsidiary permits such proceedings
and, provided further, that the ACQUIRING ASSOCIATION does not determine within
30 days after such request is made that such proceeding is likely to have a
material adverse effect on its business, and provided further that this
provision shall not apply in the event the ACQUIRING ASSOCIATION elects, with
the consent of the CORPORATION, to write down the value of the Investment in
such Subsidiary to zero and to no longer treat such Investment or other
interest in such Subsidiary as a Covered Asset for purposes of this Agreement,
and provided
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further, that the CORPORATION shall indemnify the ACQUIRING ASSOCIATION for any
actions taken pursuant to this sub-paragraph 3.
(4) Except as otherwise provided in any Business Plan which has
been approved by the CORPORATION, the ACQUIRING ASSOCIATION shall not sell or
dispose of any Significant Subsidiary or substantially all of its assets
without the prior written approval of the CORPORATION if such sale could result
in a Debit to the Special Reserve Account. With respect to any such proposed
sale, the ACQUIRING ASSOCIATION shall offer the CORPORATION a right of first
refusal and 30 days in which to exercise such right.
Section 18 Additional Covenants.
(a) Additional Covenants. The material failure of the ACQUIRING
ASSOCIATION to comply with any of the following covenants may, in the
discretion of the CORPORATION, result in the disallowance of any further Debits
to Special Reserve Account I, the disallowance of any further deductions when
calculating Actual Yield, the disallowance of any further increases to Book
Value pursuant to Section 1(n)(2)(A) for properly capitalized expenses, or the
CORPORATION's pursuit against
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the ACQUIRING ASSOCIATION of any other available remedy at law or equity,
until, in the CORPORATION's reasonable judgment, such material failure of
compliance is cured or the CORPORATION otherwise permits.
(b) Disclosure of Agreement/Confidentiality. Except as otherwise
required by law or in a proceeding to enforce this Agreement, neither the
ACQUIRING ASSOCIATION nor the ACQUIRERS shall, without the prior written
consent of the CORPORATION, disclose the terms of this Agreement, or the
obligation of the CORPORATION to indemnify the ACQUIRING ASSOCIATION or the
ACQUIRERS against the Claims described in Section 7 to any person, other than
stockholders, partners, directors, employees, agents, attorneys, the ACQUIRING
ASSOCIATION's underwriters, or the ACQUIRING ASSOCIATION's investment bankers,
or accountants of the ACQUIRING ASSOCIATION, the ACQUIRERS.
(c) Compliance with Law. The ACQUIRING ASSOCIATION and the ACQUIRERS
will use their best efforts to, and will cause all of their Affiliates and
Significant Subsidiaries to use their best efforts to, comply in all material
respects with all applicable statutes, regulations and orders of, and all
restrictions imposed by, the United States of America and any state,
municipality or other political subdivision or any agency of the foregoing
public units, in respect of the ownership of its properties and conduct of its
business, including, without limitation, all applicable statutes,
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regulations, orders and restrictions relating to equal employment
opportunities, employment retirement income security and environmental
standards and controls; provided, however, that nothing contained in this
Section 18(b) shall require the ACQUIRING ASSOCIATION, the ACQUIRERS, or any of
their Affiliates or Subsidiaries to comply with any law so long as the validity
or applicability of such law shall be contested in good faith.
Section 19 CORPORATION's Purchase of Covered Assets.
(a) At any time during the term of this Agreement, the CORPORATION
shall have the right to purchase, at a price equal to the greater of the Book
Value or the Fair Market Value and without recourse against the ACQUIRING
ASSOCIATION, any Covered Asset that has not been liquidated prior to the
ACQUIRING ASSOCIATION's receipt of the CORPORATION's notice that it shall
exercise its right to purchase such Covered Asset. Such a sale shall be a
Liquidation of the Covered Asset.
(b) If such purchase occurs prior to the termination of this Agreement,
the purchase price shall be debited to Special Reserve Account I as of the
closing of such purchase. If the closing of a purchase occurs after the date
this Agreement terminates, the purchase price shall be paid to the
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ACQUIRING ASSOCIATION by the CORPORATION in cash within 10 days following
conveyance to the CORPORATION of the ACQUIRING ASSOCIATION's right, title and
interest in such asset.
(c) In order to facilitate such sale to the CORPORATION, the
ACQUIRING ASSOCIATION shall, at the CORPORATION's request:
(1) Execute and deliver such instruments of sale, grant,
conveyance, or transfer and make endorsements without recourse against the
ACQUIRING ASSOCIATION in such form and manner, and at such time, as the
CORPORATION shall require; and
(2) Execute and deliver all such other instruments together
with all insurance policies, title policies, and title certificates, which the
ACQUIRING ASSOCIATION possesses, as shall be deemed necessary, in the opinion
of the CORPORATION, to complete such sale, grant, conveyance, or transfer
without recourse; provided that any recording, title and other similar costs of
transfer normally incurred by the purchaser of property shall be borne by the
CORPORATION.
Section 20 Office Space, Personnel and Facilities for the
CORPORATION.
(a) The ACQUIRING ASSOCIATION agrees to provide the CORPORATION,
without charge and for the term of this
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Agreement, including any extensions thereto, adequate space, including vault
space and furnishings, for the CORPORATION's use in connection with the
transfers and transactions contemplated by this Agreement. Such space and
furnishings shall be adequate to accommodate up to three full-time employees,
contractors or designees of the CORPORATION to administer the Assistance
Agreement.
(b) The ACQUIRING ASSOCIATION also agrees to make available to the
CORPORATION in connection with the transfers and transactions contemplated by
this Agreement personnel of the ACQUIRING ASSOCIATION as may be useful to the
CORPORATION, without charge.
(c) The rights of the CORPORATION under this Section 20 may be
exercised by an agent of the CORPORATION.
Section 21 Accounting Principles. Except as otherwise provided
herein, any computations made for purposes of this Agreement shall be governed
by generally accepted accounting principles as applied in the savings and loan
industry, except that where such principles conflict with the terms of the
Agreement, applicable regulations, or any resolution or action of the Bank
Board approving or relating to the
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Transaction or to this Agreement, then this Agreement, such regulations, or
such resolution or action shall govern. In the case of any ambiguity in the
interpretation or construction of any provision of this Agreement, such
ambiguity shall be resolved in a manner consistent with such regulations and
the Bank Board's resolution or action relating to the Transaction or to this
Agreement. If there is a conflict between such regulations and the Bank Board's
resolution or action relating to the Transaction or to this Agreement, the Bank
Board's resolution or action shall govern. For purposes of this section, the
governing regulations and accounting principles shall be those in effect on the
Effective Date or as subsequently clarified or interpreted by the Bank Board or
the Financial Accounting Standards Board ("FASB"), respectively, or any
successor organization of the American Institute of Certified Public
Accountants. Where there is a conflict between what is required by the FASB and
the Bank Board, the Bank Board's interpretation shall govern.
Section 22 Representations and Warranties. All representations and
warranties made by the ACQUIRING ASSOCIATION in the Acquisition Agreement or
otherwise in connection with the Transaction shall, as between the ACQUIRING
ASSOCIATION and the CORPORATION, also be deemed to
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have been made to and shall inure to the benefit of the CORPORATION. The
CORPORATION shall not, however, have the right to terminate or repeal this
Agreement because of any breach of any such warranty or representation without
the written consent of the ACQUIRING ASSOCIATION.
Section 23 Notices.
(a) Any notice or other communication required or permitted under this
Agreement, unless otherwise specifically provided for, shall be deemed given if
sent by first class mail, postage prepaid, to a party at its address set forth
below or at such other address as the party shall furnish in writing, except
that a notice of default shall be sent by certified mail, return receipt
requested:
If to the ACQUIRING ASSOCIATION:
Attn:
If to the ACQUIRERS:
Attn:
If to the CORPORATION:
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
Attn: Director, Financial Assistance Division
801 Seventeenth Street, N.W.
Washington, D.C. 20552
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(b) Unless otherwise specifically provided for, if this Agreement
requires that notice be given within a certain period of time, notice shall be
deemed given as of the date of posting.
Section 24 Termination of Agreement.
(a) Except as otherwise specifically provided elsewhere in this
Agreement, this Agreement shall terminate 10 years following the Effective Date
or on such other date to which the parties or their successors agree in
writing, provided that in the event a receiver is appointed for the purpose of
liquidating the ACQUIRING ASSOCIATION, or the ACQUIRING ASSOCIATION ceases to
be an institution the accounts of which are insured by the CORPORATION or its
successor, all of the CORPORATION's obligations under this Agreement shall
terminate upon the effective date of such occurrence, and provided further that
the CORPORATION may at its option terminate all of its obligations under this
Agreement if the ACQUIRING ASSOCIATION fails, after reasonable notice, which
specifies the nature of the failure, not to be less than 30 days, and an
opportunity to correct its failure, to use its best efforts to comply in a
material respect with the terms of the Consolidation Plan set forth on
Exhibit 1.
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(b) Notwithstanding termination of this Agreement as described in
Section 24(a) above, provided that the ACQUIRING ASSOCIATION continues to
observe in all material respects after the termination date all covenants,
agreements, reporting and other requirements set forth in this Agreement,
including the requirements in Sections 12, 13, 14, 15, 16, 17, and 32, the
CORPORATION shall indemnify the ACQUIRING ASSOCIATION, the ACQUIRER and their
Affiliates for the amount of (i) any items described in Section 7(a), including
the reasonable costs and expenses of related litigation actually incurred and
paid by the ACQUIRING ASSOCIATION, provided that any such item is in
litigation on the date that this Agreement terminates, and (ii) the reasonable
costs and expenses actually incurred and paid by the ACQUIRING ASSOCIATION in
the pursuit of a Related Claim pursuant to Section 7(b), provided that any such
Related Claim is in litigation on the date that this Agreement terminates and
the CORPORATION approves in writing the pursuit of such Related Claim beyond
the termination date, and provided further that any recoveries by the ACQUIRING
ASSOCIATION on any Related Claim described in Section 24(b) shall be paid over
to the CORPORATION, subject to the limitations of Section 6(b), and provided
further that the obligations of the CORPORATION stated in this Section 24(b)
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shall terminate as stated in the provision contained in subsection (a) above.
(c) After termination of this Agreement for any reason, the CORPORATION
shall thereafter indemnify directly an Affiliated Person for the amounts set
forth in Section 24(b) above, provided that such amount relates to a matter in
litigation on the date that this Agreement terminates and provided further that
the Affiliated Person complies with the provisions of Section 24(b) as if it
were the ACQUIRING ASSOCIATION, unless it is impractical for such person
to do so.
Section 25 Rights and Forbearances. The rights, powers, and remedies
given to the parties by this Agreement shall be in addition to all rights,
powers, and remedies given by any applicable statute or rule of law. No
forbearance, failure, or delay by any party in exercising or partially
exercising any such right, power, or remedy shall operate as a waiver thereof
or preclude its further exercise.
Section 26 Governing Law. To the extent that Federal law does not
control, this Agreement and the parties' rights and obligations under it shall
be governed by the law of the
<PAGE> 123
117
State of Texas. Nothing in this Agreement shall require any unlawful action or
inaction by any party to this Agreement.
Section 27 Entire Agreement, Severability.
(a) This Agreement and the other agreements entered into by the
ACQUIRING ASSOCIATION pursuant hereto, together with any interpretation or
understanding agreed to in writing by the parties, constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings of the parties in connection with it, excepting only the
Acquisition Agreement and any resolutions or letters concerning the Transaction
of this Agreement issued by the Bank Board or the CORPORATION in connection
with the approval of the Transaction and this Agreement, provided, however,
that in the event of any conflict, variance or inconsistency between this
Agreement and the Acquisition Agreements or any other agreement entered into by
the ACQUIRING ASSOCIATION in connection with the Transaction, the provisions of
this Agreement shall govern and be binding on all parties insofar as the
rights, privileges, duties, obligations and liabilities of the CORPORATION are
concerned.
(b) If any provision of this Agreement is invalid or unenforceable,
then all of the remaining provisions of this Agreement shall, to the extent
possible, nevertheless remain
<PAGE> 124
118
in full force and effect and shall be binding upon the CORPORATION and the
ACQUIRING ASSOCIATION.
Section 28 Counterparts, Modifications, Headings.
(a) This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which shall constitute one and the
same instrument, and any party may execute this Agreement by signing any such
counterpart.
(b) No amendment or modification of this Agreement shall be binding
unless executed in writing by the parties or their successors.
(c) Section headings are not to be considered part of this Agreement,
are solely for convenience of reference, and shall not affect the meaning or
interpretation of this Agreement or any of its provisions.
Section 29 Successors and Assigns. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
and their respective transferees, successors, and assigns, but this Agreement
may not be assigned to any party nor may any rights or obligations under it be
transferred or delegated to or vested in any other party (except through
merger, consolidation, or
<PAGE> 125
119
change of control), without the prior written consent of the CORPORATION. The
CORPORATION hereby consents to the assignment of assistance payments under this
Agreement to the Bank and its transferees, successors and assigns as security
for indebtedness, including but not limited to advances, of the ACQUIRING
ASSOCIATION to the Bank.
Section 30 Sole Benefit. It is the intention of the parties that this
Agreement, the assumption of obligations and statements of responsibilities
under it, and all of its conditions and provisions are for the sole benefit of
the parties hereto and for the Bank and its transferees, successors and assigns
as security for indebtedness of the ACQUIRING ASSOCIATION to the Bank and for
the benefit of no other person. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person other than the
parties hereto and the Bank and its transferees, successors and assigns any
legal or equitable right, remedy, or claim under, or in respect to, this
Agreement or any of its provisions.
Section 31 Continuing Cooperation. It is the purpose of this Agreement
to provide a means by which the depositors of the ACQUIRED ASSOCIATION may be
protected against losses, the
<PAGE> 126
120
thrift and financing needs of the community in which the ACQUIRED ASSOCIATION's
offices are located may be served, the ACQUIRING ASSOCIATION may receive the
benefits and assume the risks contracted for, and expense to the CORPORATION
may be reduced. The parties therefore agree that they shall in good faith, and
with their best efforts, cooperate with one another to carry out the purposes
of this Agreement as described in this section. Before any party shall take any
action, hereunder with respect to other party's material failure to comply,
such other party shall have the right to cure any material failure to comply
with the provisions of this Agreement during a period of 30 days after it has
notice of its material failure. Whenever a party is required by any provision
of this Agreement to use its best efforts, the best efforts requirement shall
not be construed to include an obligation to pay money, unless specifically
required by the language of this Agreement.
Section 32 Rights of the Bank as Assignee. In the event that the
Promissory Notes or assistance payments under this Agreement are assigned to
the Bank as security for indebtedness, including but not limited to advances,
of the ACQUIRING ASSOCIATION to the Bank:
<PAGE> 127
121
(a) The Bank shall be given prior written notice of all modifications
or amendments of this Agreement at least ten (10) business days before the
effective date of such modification or amendment.
(b) The Bank shall also be given written notice at least five (5)
business days prior to early termination of this Agreement.
(c) ACQUIRING ASSOCIATION shall and the CORPORATION consents to
furnishing the Bank with all information relating to Covered Assets and the
Debits and Credits to the Special Reserve Accounts as the Bank shall require.
(d) In the event that the ACQUIRING ASSOCIATION defaults on payment
due on such advances, the CORPORATION consents to the exercise by the Bank of
its rights as a secured party and agrees to make payments of assistance to or
for the benefit of the Bank. The amount of any such payments shall not be
reduced by reason of any failure of the ACQUIRING ASSOCIATION to comply with
Sections 12 through 15 of this Agreement, or any implied or express defense
arising under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers or agents.
<PAGE> 128
122
<TABLE>
<S> <C>
Date: December 30, 1988
ATTEST: UNITED SAVINGS ASSOCIATION
OF TEXAS FSB
By: /s/ JOHN J. KENDRICK By: /s/ LEWIS S. RANIERI
---------------------------- -----------------------------
John J. Kendrick Lewis S. Ranieri
Its: Secretary Its: Chairman and CEO
--------------------------- ----------------------------
ATTEST: USAT HOLDINGS INC.
By: /s/ SALVATORE A. RANIERI By: /s/ SCOTT A. SHAY
---------------------------- -----------------------------
Salvatore A. Ranieri Scott A. Shay
Its: Secretary Its: Vice President
--------------------------- ----------------------------
ATTEST: HYPERION PARTNERS LP
By: Hyperion Ventures LP,
Sole General Partner
By: LSR Hyperion Corp.,
A General Partner
By: /s/ SALVATORE A. RANIERI By: /s/ LEWIS S. RANIERI
---------------------------- -----------------------------
Salvatore A. Ranieri Lewis S. Ranieri
Witness Its: President
--------------------------- ----------------------------
ATTEST: HYPERION HOLDINGS INC.
By: /s/ SALVATORE A. RANIERI By: /s/ SCOTT A. SHAY
---------------------------- -----------------------------
Salvatore A. Ranieri Scott A. Shay
Its: Secretary Its: Vice President
--------------------------- ----------------------------
Date: December 30, 1988
ATTEST: FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
By: /s/ WENDY ROBIN SNEFF By: /s/ NANCY K. MAGINA
---------------------------- -----------------------------
Wendy Robin Sneff Nancy K. Magina
Its: Assistant Secretary Its: Designee, Executive Director
--------------------------- ----------------------------
</TABLE>
<PAGE> 129
LIST OF EXHIBITS
Exhibit 1 Consolidation Plan
Exhibit 2 Promissory Note
Exhibit 3 Schedules I, II, III [reserved]
Exhibit 4 Warrant Agreement
Exhibit 5 Covered Asset Schedule
Exhibit 6 Asset Summary
Exhibit 7 Collection Plan
Exhibit 8 Budget Summary
Exhibit 9 Specific Request
Exhibit 10 Asset Sale Request
Exhibit 11 Term Sheet Approval Request
Exhibit 12 Litigation Schedule
Exhibit 13 Major Litigation Plan and Budget
Exhibit 14 Litigation Summary
Exhibit 15 Capital Note Commitment Agreement, dated December 30, 1988
<PAGE> 130
Schedule I
Equity Arbitrage Subsidiary
($000's)
---------------------------
Assets Liabilities
------ -----------
Cash & CD's $ 96,331
Equity Positions $ 70,000 Equity $166,331
-------- --------
$166,331 $166,331
======== ========
<PAGE> 131
Schedule II
Land Subsidiary
($000's)
---------------
Assets Liabilities
------ -----------
Commer Loans $ 16,576
Real Estate $118,417
Other $ 12 Equity $135,005
-------- --------
$135,005 $135,005
======== ========
<PAGE> 132
Schedule III
Venture Capital Subsidiary
($000's)
--------------------------
Assets Liabilities
------ -----------
Non-Liquid Sec. $ 8,651
Inv. in Sub. $ 6,420 Equity $15,071
------- -------
$15,071 $15,071
======= =======
<PAGE> 133
Exhibit 1
CONSOLIDATION PLAN
The Association will deliver a Consolidation Plan to the Corporation
for its review and approval pursuant to the following schedule.
Short Term Business Plan: 1st 90 days of operation.
To be delivered within 15 days of the Effective Date.
The Short Term Business Plan is to address such topics as:
. Short Term Organization Chart and Staffing Plan
. Defalcation Protection
. Inventory and Information Controls
. Stabilization of Employee Base
. External and Internal Communications Plan
. Financial Controls and Coordination
. Liquidity Management
. Financial Decision Making
. Major Transactions in Process
. Any Branch Consolidation planned for the first 90 days
Medium Term Business Plan: 1st Year of Operation.
To be delivered within 90 days of Effective Date.
The Medium Term Business Plan is to address such topics as:
. Integration of Policies, Procedures and Controls
. Products, Specifications and Pricing - both Asset and
Liability oriented
. Initial Branch Consolidation, Sales and Closings
. Systems Consolidation Plan - General Ledger and Servicing
. Personnel Assessment, Staffing Plan and Organization Chart
. Covered Asset Plans
. Pension, Profit Sharing, Employee Benefits
<PAGE> 134
. Employee Training
. Profitability Enhancement Plans
. Asset/Liability Management
. Signage and Advertising Plans
. Key Personnel Retention Plans
Long Range Business Plan: 1st 5 years of Operation.
To be delivered within the 1st year of the Effective Date.
The Long Range Business Plan is to address such topics as:
. Environmental Analysis
. Timing of and expected recoveries from exiting non-core
business and selling non-core assets
. Development of Core Business - Products, Pricing, Volumes, mix
. Personnel Assessment, Staffing Plan and Organization Chart
. Asset/Liability Management - plans and goals for investment,
funding and managing credit risk and interest rate risk
. Systems integration and consolidation
. Branch consolidation, sales, closings
. Other topics to address
<PAGE> 135
COVERED ASSET SCHEDULE
Association ____________
Date Prepared __________
Prepared By ____________
I. MAJOR COVERED ASSETS
Book Value greater than $______ or
Anticipated loss greater than $______
<TABLE>
<CAPTION>
Plan Schedule (Mo/Day/Yr)
------------------------------------------------------
Plan Asset Summary Budget Summary
Asset Property Loan or Book Appraised Value Estimated ----------------- ----------------- -----------------
Name Type I.D. Number Value or Est. Recovery Loss Original Revised Original Revised Original Revised
- ---- ------- ----------- ----- ---------------- --------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C>
Subtotal ----- -------------- -----------
</TABLE>
<PAGE> 136
Association ____________
Date Prepared __________
Prepared By ____________
II. SIGNIFICANT COVERED ASSETS
Book Value greater than $______ or
Anticipated loss greater than $______
<TABLE>
<CAPTION>
Plan Schedule (Mo/Day/Yr)
------------------------------------------------------
Plan Asset Summary Budget Summary
Asset Property Loan or Book Appraised Value Estimated ----------------- ----------------- -----------------
Name Type I.D. Number Value or Est. Recovery Loss Original Revised Original Revised Original Revised
- ---- ------- ----------- ----- ---------------- --------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C>
Subtotal ----- -------------- -----------
</TABLE>
<PAGE> 137
Association ____________
Date Prepared __________
Prepared By ____________
III. OTHER COVERED ASSETS
Book Value less than or equal to $______ and
Anticipated loss less than or equal to $______
<TABLE>
<CAPTION>
Asset Property Loan or Book Appraised Value Estimated
Name Type I.D. Number Value or Est. Recovery Loss
- ---- ------- ----------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Subtotal ----- -------------- -----------
</TABLE>
<PAGE> 138
Exhibit [ILLEGIBLE COPY]
ASSET
Association: ___________________________
Asset Manager: _________________________
Estimated Value: _______________________
Date:
Asset Name:
Address:
Borrower's Name:
Gross Book Value: __________________ Loss Reserve: __________________________
Net Book Value: ____________________ Future Loan Commitments: _______________
Priority Position of Interest:
Asset Type: ___________ Loan: ____________ REC: __________ Other: ________
Loan Status: Performing: _______, Non-Performing: _____, Restructured: ______
Other Participants & Share: (if applicable)
Lead Lender: (if applicable)
Receiver: N/A
Appraised Value: ____________________ Appraiser: _____________________________
Previous Approval Containing Appraisal: ________________________________________
Appraisal Date: _____________________
Critical Assumptions:
Property Description & Status:
Status of Title:
Litigation:
Insurance Summary: (Coverage Limits) Expiration Date
Liability $
Property $
Personal $
Automobile $
Annual Premium $
Real Estate Taxes: Annual Amount Due:
Due Dates:
Current Status:
Business Plan Summary: The business plan recommends . . .
Business Plan Status:
Budgeted Additional Cash Outlays:
Ratio:
New Money Coverage Ratio _______, New Money/Total Project Cost __________
[ILLEGIBLE]
<PAGE> 139
Exhibit 7
STANDARD FORMAT FOR
COLLECTION, BUSINESS AND PROPERTY PLANS
This is the standard outline for the preparation of a Collection, Business, or
Property Plan. The Plan covers a one year period and is updated the earlier of
annually or at the point of a material deviation from the forecast results.
Business Plans are required for subsidiaries of the Association where the
Association's net investment in the subsidiary (equity and/or loans) exceeds
_________ or the anticipated loss exceeds _______________. Additionally, if the
principal assets of the subsidiary are real estate and/or loans then the
reporting requirements and limitations on authority of the Association for the
assets of the subsidiary will be the same as for Major Covered Assets and
Significant Covered Assets even though such assets may not specifically be
Covered Assets.
I. Executive Summary
This section would be a short topical summary of each major
section of the entire report. Include any critical dates or
approvals being sought.
II. Background
This section should address project description, project
history, appraised value and methodologies used by the appraiser
in determining value.
Describe the borrower (if appropriate) including discussions on
its commitment to the project, level of trust and integrity
between the association and the borrower, borrower's resources
and critical skills to implement the proposed plan (financial,
experience, knowledgeable personnel) economic incentive borrower
has to implement the plan, other projects borrower may have
which will affect its ability to implement this plan, and the
financial condition of the borrower.
III. Current Status
Discuss the current status of the construction, marketing, and
sales or leasing. Also, comment on any municipal approvals being
sought or held and the time constraints for a response.
<PAGE> 140
IV. Recommended Plan
Discuss the proposed plan as it relates to the construction period,
marketing or absorption period and investment period risks. This section
should discuss in detail and provide support for any approvals being
sought by the association. The financial impact of executing this plan
should be estimated in the financial analysis section of the plan.
This section should contain the expected annual budget for each year of
the plan until the asset is liquidated.
V. Major Perceived Risks
This section should discuss the risks associated with the project and
proceeding with or not providing with the proposed plan. This section can
at times be incorporated in with the recommendation section of the
report.
VI. Critical Skills Required to Implement the Plan
The asset manager should make a judgment as to the Critical Skills which
are necessary to implement and successfully execute the plan. These
needed skills should be compared to the resources which the borrower or
association possess or can reasonably be expected to retain from third
party contractors.
VII. Alternatives Considered
This section should address the major alternatives that were considered
and rejected with the reasoning for rejection of the alternatives. In
particular, alternatives considered other than those arising out of
contractual relationships should be compared to existing contractual
rights or remedies. If a Business Plan is for a subsidiary and the
subsidiary is insolvent the Business Plan must address, among other
alternatives, the potential for recovery through bankruptcy of the
subsidiary. The alternatives considered should be tied to, and supported
by, the financial analysis section.
VIII. Financial Analysis
This section should provide the financial analysis by risk period (as
discussed above) and a description of the major assumptions used in
determining the discounted value of the recovery under the recommended
plan and each of the alternatives discussed.
-2-
<PAGE> 141
IX. Action Items and Responsible Party
This section would describe the recommended action items and the
suggested responsible party for the implementation of the plan should it
be approved. It is not necessary to name all parties to the plan;
however, those necessary to start the implementation should be
identified.
-3-
<PAGE> 142
Exhibit 8
Association ____________________________
Date Prepared __________________________
Prepared By ____________________________
Asset Name _____________________________
I.D. Number ____________________________
BUDGET SUMMARY - PROPERTIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL BUDGET QUARTER YEAR TO DATE
--------------------------------------- --------------------- ---------------------
Items Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Bud Act Var Bud Act Var
----- ------ ------ ------ ------ --- --- --- --- --- ---
I. Operations
Operating Income
Operating Expenses
Net Operating Income
II. Capital Expenditures
Construction
Refurbishment
Total Capital Exp.
III. Asset Sales
Gross Sales
Sales Costs
Net Sales Proceeds
</TABLE>
<PAGE> 143
Association ____________________________
Date Prepared __________________________
Prepared By ____________________________
Asset Name _____________________________
I.D. Number ____________________________
BUDGET SUMMARY - LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL BUDGET QUARTER YEAR TO DATE
--------------------------------------- --------------------- ---------------------
Items Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Bud Act Var Bud Act Var
----- ------ ------ ------ ------ --- --- --- --- --- ---
I. Collections/Repayments
Min. Periodic Payments
Contingent Payments
Loan Payoffs
II. Advances
Additional Advances
</TABLE>
<PAGE> 144
Exhibit 9
Association _________________
Asset Name __________________
Asset Manager _______________
SPECIFIC REQUEST FOR APPROVAL
Approvals Requested:
Amount of Expenditure:
Purpose:
Payee:
Payor:
Item Which Quarter Year to Date
Precipitated ---------------------------- ----------------------------
This Request Forecast Actual Variance Forecast Actual Variance
Will variance increase estimated loss? If so, what is
estimated increased loss? $__________________________
Alternatives Considered:
Association: Corporation
Approval ______________________ Approval _________________________
Date __________________________ Date _____________________________
Note: Include Asset Summary Sheet with Request for Approval
<PAGE> 145
Exhibit 10
Association: ___________________________
Asset Name: ____________________________
Date: __________________________________
Asset Mgr.: ____________________________
ASSET SALE REQUEST
GENERAL INFORMATION
Owner:
Property Address:
Land:
Improvements:
Financing: 1st 2nd 3rd Total
Amount
Mortgagor
Mortgagee
Book Value: _______________________
As of date: _______________________
Reserves: _________________________
Net Book Value: ___________________
RECOMMENDATION
Asking Price: _____________________
Minimum Price: ____________________
Financing: (Provide TERM SHEET if applicable)
Net Cash Proceeds Anticipated at Closing: __________________
Amount of Senior Debt Anticipated at Closing: ______________
<PAGE> 146
Anticipated Gain or loss from:
Book Value: __________________________________________
Net Book Value: ______________________________________
Suggested Expiration Date: ___________________________
VALUATION
Appraised Value: __________________________________________
Appraiser: ________________________________________________
As of Date: _______________________________________________
Management Estimate of Value: _____________________________
Explanation of Major Differences __________________________
(use back-up material as required)
MARKETING PLAN
. Marketing Plan Used or Planned:
. Range of Prior Offers (if any)
Amount
Date
Offeror
. Discussion of Sample of Known Competing Properties on the Market
and Comparability to Subject Property.
Association
Approval: ______________________________
Date: __________________________________
Corporation
Approval: ______________________________
Approval Date: _________________________
Expiration Date: _______________________
-1-
<PAGE> 147
Exhibit 11
Association ___________________________
Asset Name ____________________________
Date __________________________________
Asset Manager__________________________
TERM SHEET APPROVAL REQUEST
Lender:
Loan Amount:
Appraised Value:
Debt Coverage Ratio (Yr. 1)
1st Mortgage:
Total Debt:
Investment by Borrower:
Guarantor:
Net Worth of Guarantor:
Other Collateral (Description and Estimated Value):
Borrower:
Background:
Net Increase (Decrease) in Associations Inv:
Rate:
Pay Rate (min)
Contract Rate:
Additional Contingent Interest:
Fees:
Term and Amortization Period:
Other Terms or Condition:
Projected Closing Date:
<PAGE> 148
Exhibit 12
LITIGATION SCHEDULE
Case Amount Counsel Name, Type Stage of
Name Court Involved Address, Phone of Case Proceedings
- ---- ----- -------- -------------- ------- -----------
<PAGE> 149
Exhibit 13
OUTLINE OF SIGNIFICANT LITIGATION PLAN AND BUDGET FORMAT
I. BACKGROUND
A. Description of parties and the relationships among them
B. Summary of facts out of which dispute arose
C. Procedural history of action
D. Current status of action
E. With respect to foreclosures, a description of the loan, the
delinquency or other default and the anticipated date of
commencement of the foreclosure
II. LEGAL ISSUES
A. Claims and arguments raised by the plaintiff and attorney's
evaluation of their merits - discuss and evaluate each count
of complaint or theory separately
B. Defenses to each of plaintiff's claims and attorney's
evaluation of their merits
III. POTENTIAL EXPOSURE
A. Liability/Damages
1. Most probable estimate - (include discussion of what
types of damages may be recoverable, i.e., actual
(including how to measure), punitive, attorneys fees,
double or treble damages)
2. Worst case estimate
B. Other potential sources of recovery
1. Cross-claims or counterclaims
2. Other sources (e.g., parties who for some reason cannot
be named in a cross-claim or counterclaim but who
could be pursued in a separate action or insurance
claims)
C. Whether settlement has been discussed and summary of
discussions regarding terms and estimated amount of settlement
D. Impact of settlement/pursuit of litigation on other pending or
threatened litigation
<PAGE> 150
E. Estimated legal expenses (most probable estimate and worst case
estimate) --
1. To pursue litigation
2. To pursue settlement
IV. TIME FRAMES
A. Estimate of time involved in pursuing litigation
1. Discovery period
2. Anticipated trial date
3. Length of trial
4. With respect to foreclosures, the anticipated date of
the foreclosure sale
B. Estimate of time involved in pursing settlement
C. Foreseeable dates by which action requiring specific FSLIC
approval must be taken
V. COST/BENEFIT ANALYSIS (Based upon factors specified in III and IV,
above)
VI. RECOMMENDATION
A. Continue litigation
B. Pursue settlement/dismiss claims
VII. STRATEGY
A. Litigation
1. Discovery to be taken (estimate number of witnesses to
interview and depose, extent of document discovery,
etc.)
B. Settlement
1. Goals of settlement
2. Initial offer
-2-
<PAGE> 151
VIII. BUDGET
A. Description of staffing needs
1. Law firms to be used (e.g., in-house staff/outside
counsel/combination of foregoing)
2. Other staff (e.g., accounting firms, consulting firms,
other experts)
3. Number of attorneys, paralegals, expert witnesses etc.,
needed to adequately staff case
B. Estimated legal expenses and other costs by month until
resolution of case
IX. ATTACHMENTS
A. Major pleadings, (e.g., complaint, answers, motions to dismiss,
motions for summary judgment, briefs)
B. Other relevant documents (e.g., contracts, correspondence on
which parties rely)
-3-
<PAGE> 152
Exhibit 14
LITIGATION SUMMARY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Approved Cumulative Remaining
FSLIC Budget Current Period Period Budget
Approval # Amount Expenditures Expenditures Balance
---------- -------- -------------- ------------ ---------
Litigation Matter
Period From/To
Prepared By
Expenditures
</TABLE>
-4-
<PAGE> 153
Exhibit 15
CAPITAL NOTE COMMITMENT AGREEMENT
December 30, 1988
Shearson Lehman Hutton Holdings Inc.
American Express Tower
World Financial Center
200 Vesey Street
New York, New York 10285-1800
Gentlemen:
This Agreement sets forth our mutual understanding concerning your
agreement to cause Shearson Lehman Hutton Inc. ("SLH") to act as underwriter or
placement agent, as the case may be, for an offering of $110,000,000 in
aggregate principal amount of Capital Notes (as hereinafter defined) of United
Savings Association of Texas, FSB (the "Borrower"), a federally chartered stock
savings bank and an indirect subsidiary of Hyperion Partners, L.P. or,
alternatively, your agreement to purchase such notes. The Capital Notes are
proposed to be issued by the Borrower in connection with the acquisition on the
date hereof by Borrower of certain of the assets of, and the assumption by the
Borrower of certain of the secured and deposit liabilities of, United Savings
Association of Texas ("United") from the Federal Savings and Loan Insurance
Corporation ("FSLIC"), as receiver for such entity, pursuant to an Acquisition
Agreement between FSLIC, as receiver, and United Savings Association of Texas,
FSB, and Section 408(m) of the National Housing Act (the "Acquisition"). The
Capital Notes shall bear interest and have such other terms as are provided for
herein. All capitalized terms not otherwise defined herein shall have the
meanings assigned to them in Exhibit A hereto.
1. Representations, Warranties and Agreements.
In order to induce you to enter into this Agreement, Borrower
represents and warrants to you and to SLH, as of the date hereof, as of the
Offering Date (as defined in paragraph 2 hereof), if any, and as of the Closing
Date (as defined in paragraph 2 hereof), unless expressly provided otherwise
below, as follows:
<PAGE> 154
(a) Organization; Good Standing. (1) Borrower has been duly organized
as a federally chartered stock savings bank, with corporate power and authority
to own its properties and conduct its business as presently being conducted and
is duly qualified to do business and is in good standing in all other
jurisdictions in which it owns or leases substantial properties or in which the
conduct of its business requires such qualification, except where the failure
so to qualify would not have a Material Adverse Effect.
(2) Each Affiliate of Borrower required by reason of its affiliation
with Borrower to be registered with FSLIC as a savings and loan holding company
within the meaning of the National Housing Act, as amended, is or will be duly
registered within the prescribed period. All of the issued and outstanding
shares of Capital Stock of Borrower have been duly authorized and validly
issued and are fully paid and non-assessable. Schedule I annexed hereto sets
forth the beneficial and record owners of Capital Stock of Borrower as of the
date hereof and the amount of shares of Capital Stock of Borrower owned by such
persons.
(3) Borrower is a member in good standing of FHLB-Dallas. Borrower is
in compliance with all laws and regulations applicable to it except where
noncompliance would not have a Material Adverse Effect. Borrower is not a party
to any consent order, cease and desist order or any condition of any regulatory
order or decree with or by the FHLBB, FSLIC (other than the Principal
Documents) or any other regulatory agency which would have a Material Adverse
Effect. The deposit accounts of Borrower are insured by FSLIC to the maximum
extent permitted by federal law and Borrower has paid all premiums and
assessments and filed all material reports required in connection therewith.
(4) Borrower has heretofore delivered to you true, complete and
current copies of the Principal Documents (other than this Agreement) and the
Certificate of Incorporation and By-Laws (or the equivalent thereof) of
Borrower, in each case certified by the Borrower as being true and complete.
Borrower has made available to you true and complete copies of its (and to the
extent available, United's) minute books and the records of meetings and
consents in lieu of meetings of their respective boards of directors (and any
committee thereof) and stockholders of each thereof and such books and records
of Borrower accurately reflect the transactions referred to therein.
(b) Due Authorization. Each of the Principal Documents (other than
this Agreement with respect to you) has been duly authorized, executed and
delivered by the persons who
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<PAGE> 155
EXHIBIT C
[PAGE ILLEGIBLE]
<PAGE> 156
(ii) materially impair the ability of Borrower to fulfill its obligations under
this Agreement or the Capital Notes or adversely affect the value of Borrower's
securities, or (iii) materially impair the business, financial condition or
prospects of Borrower.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or any other entity.
"Principal Documents" means the following documentation:
Acquisition Agreement between FSLIC and Borrower
Assistance Agreement among FSLIC, Borrower USAT Holdings and Hyperion
Holdings
Capital Maintenance Agreement (prenuptial) among FSLIC, Borrower USAT
Holdings and Hyperion Holdings
Forbearance Letter
Warrants Agreement between FSLIC and Borrower, including the form of
Warrant.
Receiver's Agreement
FSLIC Note
Capital Note Commitment Agreement between Borrower and Shearson Lehman
Holdings Inc.
Tax Certification
Certified Resolutions of FHLBB
[more to come]
In this Agreement the singular includes the plural and the
plural the singular; words importing any gender include the other gender;
references to statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute referred to;
references to "writing" include printing, typing, lithography and other means
of reproducing words in a visible form; reference to agreements are meant to
include any subsequent amendments to such agreements approved in accordance
with this Agreement; "including" means including, without limitation; "or" is
not exclusive; and an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles.
<PAGE> 157
UNITED SAVINGS ASSOCIATION OF TEXAS
FOOTNOTES FROM PRO FORMA BALANCE SHEET
a) Normal amortization of mortgage portfolio.
b) Normal amortization of MBS portfolio.
c) Receivable from high yield corporate securities which were called in
December and will settle in 1989.
d) Normal amortization of consumer loan portfolio.
e) Reduction in high yield corporate securities which were called in December.
f) Amortization of goodwill.
g) Increase in valuation reserves.
h) Reduction in other assets.
i) Increase in deposits.
j) Reduction in escrow account due to scheduled disbursement of taxes.
k) Reduction in capital due to anticipated net loss in December.
l) Reduction in other assets due to decrease in accrued interest receivable of
$8.6 million associated with the liquidation of interest rate swaps and the
write-off of deferred losses of $26.2 million from prior swap liquidations.
m) Reduction in cash of $32.3 million associated with the liquidation of
interest rate swaps.
n) Reduction of investment securities due to the mark to market write-down of
high yield corporate securities of $8.9 million, the mark to market
write-down of CMO residuals of $5.3 million and the mark to market
write-down of liquidity securities of $2.0 million.
o) Creation of a FSLIC receivable which equals the present value at a 9.0%
discount rate of the 10 year amortization of goodwill associated with the
write-down of the high yield corporate securities, the CMO residuals, and
the liquidity securities.
p) Goodwill associated with the $40.0 million write-up in
<PAGE> 158
deposits and the $5.8 million goodwill representing the
difference between the FSLIC receivable and the aggregate
write-down on the corporate securities, residuals, and liquidity
securities.
q) Mark to market write-up of deposits of $40.0 million.
r) Elimination of cash flow bond with a par value of $210.3
million and a discount of $29.8 million. The cash flow bond was
called in December and will settle in 1989.
s) Increase in other liabilities which includes $212.0 million
payable on the cash flow bond less accrued interest payable of
$1.8 million and a $20.8 million reduction in accrued interest
payable associated with the liquidation of interest rate swaps.
t) Reduction in capital associated with losses of $20.1 million on
the liquidation of interest rate swaps, $26.2 million on the
write-off of deferred loss on prior swap liquidations, and $29.8
million when the cash flow bond was called.
u) Placement in covered asset account.
v) Reversal of reserves.
w) Elimination of existing goodwill.
x) Infusion of the FSLIC note which represents the negative net
worth of $428.4 million plus existing goodwill of $219.6 million
less reserves reversed of $331.5 million.
y) Capital infusion of $90 million.
<PAGE> 159
UNITED SAVINGS ASSOCIATION OF TEXAS
PRO FORMA REGULATORY BALANCE SHEET
JOURNAL ENTRIES
<TABLE>
<CAPTION>
Debit Credit
------- -------
<S> <C> <C>
Liquidation of Interest Rate Swaps
Loss on Liquidation (Capital) 20,096
Other Liabilities (Accrued Int. Pay.) 20,768
Other Assets (Accrued Int. Rec.) 8,608
Cash 32,256
Deferred Losses on Prior Swap Liquidations
Loss on Liquidation (Capital) 26,165
Deferred Losses (Other Assets) 26,165
Redemption of Cash Flow Bond
Loss on Redemption 29,811
Cash Flow Bond (Par) 210,271
Accrued Interest Payable 1,776
Discount on Cash Flow Bond 29,811
Payable to Bondholders 212,047
Mark to Market of CMO Residuals
FSLIC Receivable 3,376
Goodwill 1,885
Investment Securities 5,261
Mark to Market of Deposits
Goodwill 40,000
Deposits 40,000
Mark to Market of Corporate Securities
FSLIC Goodwill 5,699
Goodwill 3,189
Corporate Securities 8,888
Mark to Market of Liquidity Securities
FSLIC Receivable 1,284
Goodwill 716
Corporate Securities 2,000
</TABLE>
<PAGE> 160
are party thereto and each is a legal, valid and binding obligation of all
persons party thereto, enforceable against such persons in accordance with
their respective terms, except that no representation is given as to the
legality, validity or enforceability of this Agreement against you and except
as enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforceability
of creditors' rights generally and by general principles of equity.
(c) Requisite Approvals. Borrower has obtained all requisite
consents of or approvals from each Federal, state and other governmental
agency, authority or regulatory body necessary to consummate the Acquisition,
to enter into and perform the Principal Documents, and to issue and sell the
Capital Notes in accordance herewith. Borrower has obtained all requisite
material consents of or approvals from each Federal, state and other
governmental agency, authority or regulatory body necessary to conduct its
business as contemplated by the Business Plan.
(d) Authority; No Conflicts. Borrower has the corporate power and
authority and the legal right to make, deliver and perform the Principal
Documents and to issue and sell the Capital Notes as contemplated hereby.
Borrower has taken all necessary corporate action to authorize the transactions
contemplated to be performed by it under the Principal Documents and to issue
and sell the Capital Notes in accordance herewith. Neither the execution and
delivery of any of the Principal Documents or the Capital Notes nor the
consummation of any of the transactions contemplated therein nor compliance
with the terms and provisions thereof nor the issuance and sale of the Capital
Notes (i) violates any law or regulation (including Regulations G, T, U and X
of the Board of Governors of the Federal Reserve) or any order or decree of
any court or governmental instrumentality applicable to Borrower, which
violation would have a Material Adverse Effect; (ii) conflicts with or would
result in the breach of, or constitutes a default under, any contract, lease,
indenture, loan agreement, mortgage, deed of trust or other agreement or
instrument to which Borrower is a party or by which Borrower may be bound,
which conflict, breach or default would have a Material Adverse Effect, or
(iii) violates any Certificate of Incorporation or By-Laws (or the equivalents
thereof) of Borrower. No consent, approval, authorization or order of any
governmental authority is required in connection with the execution and
delivery of the Capital Notes or the Principal Documents by Borrower or the
consummation of the transactions contemplated thereby or the issuance and sale
of the Capital Notes, except such as have been obtained and are in full force
and effect.
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<PAGE> 161
(e) Full Disclosure. There is no fact known to Borrower that has not,
on or prior to the date hereof, been disclosed to you which has or would have a
Material Adverse Effect. No information, report, financial statement or
certificate of Borrower delivered to you in connection with this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make such statements not misleading in light of the
circumstances in which such statements were made. All other information,
reports, financial statements or certificates delivered or to be delivered to
you by Borrower in connection herewith are, and in the case of materials
hereafter delivered will be, true, genuine and complete copies of such
information, reports, financial statements and certificates as delivered to
Borrower.
(f) Litigation. There is no pending or, to the best knowledge of
Borrower, threatened, action, suit or proceeding before any court, governmental
or regulatory authority, agency, commission or board of arbitration that
relates to or challenges the legality, validity or enforceability of any of the
Principal Documents or the Capital Notes or any other action, suit or
proceeding, which, in any event, is reasonably likely to have a Material
Adverse Effect.
(g) Other Arrangements. Except as specifically disclosed in the
Principal Documents, neither Borrower nor any of its Affiliates is a party to
or bound by any agreement or arrangement pertaining to the Acquisition.
Borrower is not a party to or bound by any agreement or arrangement whereby it
has engaged or proposes to engage in a transaction of any kind with an
Affiliate or with FSLIC (other than as permitted by the Principal Documents),
and Borrower has not provided nor has it entered into any agrement requiring it
to provide financial assistance of any kind, lend money or lease property to any
Affiliate, other than as set forth in Schedule II hereto.
(h) Offer or Sale of Certain Securities. Neither Borrower nor anyone
acting on its behalf has offered or sold or will offer to sell or sell any
securities or has taken or will take any other action that would subject the
issuance and sale of the Capital Notes to the registration provisions of the
Securities Act of 1933, as amended or Title 12 of the Code of Federal
Regulations ("C.F.R.") Section 563g, except as provided herein or contemplated
hereby.
(i) Investment Company Act of 1940. Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(j) Stockholders' Equity. As of the date hereof, Borrower has
stockholders' equity, computed in accordance with
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<PAGE> 162
generally accepted accounting principles, of at least $90,000,000.
(k) After due inquiry, Borrower represents and warrants to you and to
SLH that Borrower and any persons controlling Borrower, directly or indirectly
(including, but not limited to Hyperion Partners, L.P., Hyperion Ventures,
L.P., the general partners of Hyperion Ventures, L.P., and such person's
respective officers, directors and controlling shareholders), are not, in
control of, controlled by, or under common control or "acting in concert" with
any of the persons the names of which have been heretofore supplied to Borrower
by you in writing. For purposes of this representation, "control" of a person
means the power, directly or indirectly, to exercise a controlling influence
over the management or policies of such person. For purposes of this
representation, "acting in concert" has the meaning ascribed to it in 12 C.F.R.
Section 574.2(c) and includes the activities listed in 12 C.F.R. Section
574.4(d).
2. Purchase and Sale of the Capital Notes. On the basis of and in
consideration of the representations, warranties and agreements contained herein
and subject to the provisions of paragraph 3 hereof:
(a) You shall notify Borrower in writing of (i) the date on which you
elect to cause SLH to enter into an underwriting agreement or placement agent
agreement in respect of the public offering or private placement, as the case
may be, by Borrower of Offered Capital Notes (as hereinafter defined) or (ii)
the date on which you elect to purchase Purchased Capital Notes (as hereinafter
defined). The date of execution of any agreement referred to in clause (i) above
is hereinafter referred to as the "Offering Date" and the closing of the
underwriting or private placement therein referred to or the closing of the
purchase referred to in clause (ii) above is hereinafter referred to as the
"Closing Date". Notes issued pursuant to an underwriting agreement or private
placement as contemplated in clause (i) above are referred to herein as "Offered
Capital Notes." Notes issued to you as contemplated in clause (ii) above are
referred to herein as "Purchased Capital Notes." The Purchased Capital Notes and
Offered Capital Notes are herein collectively referred to as "Capital Notes."
Subject, in the case of Offered Capital Notes, to the terms and conditions of
the underwriting or placement agent agreement referred to above, in no event may
the Closing Date be later the 60 days after the effective date of the
Registration Statement (as defined in paragraph 5 hereof).
(b) In the case of a transaction involving Offered Capital Notes, on
the Offering Date you shall execute and deliver to Borrower (and Borrower shall
execute and deliver to
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<PAGE> 163
you) an underwriting or placement agent agreement, as the case may be,
containing representations, warranties and covenants that are customary in such
agreements for similar securities in similar transactions and which are
reasonably acceptable to Borrower. The Offered Capital Notes shall have terms
and conditions generally described in Exhibit B hereto and such other terms and
conditions as are reasonably determined by you in light of existing market
conditions (after consultation with Borrower); provided that (x) you shall not
include terms and conditions in the Capital Notes not reflected on Exhibit B
hereto that would prevent the Capital Notes from qualifying as regulatory
capital under 12 C.F.R. Section 561.13 as such regulation is in effect on the
date hereof and (y) the Offered Capital Notes shall have such yields and
redemption prices as you reasonably consider appropriate (after consultation
with Borrower) in light of the existing financial condition and prospects of
Borrower and market conditions for securities such as the Offered Capital Notes
and shall be in the aggregate principal amount of $110,000,000. In case of the
private placement of Offered Capital Notes, such Notes may, if you reasonably
determine, be accompanied by registration rights reasonably determined by you,
which registration rights shall include two demand registrations (in which the
holders of Capital Notes only may participate) and an unlimited number of
"piggy back" registrations on other registration statements prepared by or on
behalf of Borrower, subject to customary limitations.
(c) In the case of a transaction involving Purchased Capital Notes, on
the Closing Date, Borrower shall issue and sell to you and you shall purchase
from Borrower the Purchased Capital Notes in an aggregate principal amount of
$110,000,000 for a total purchase price of $105,600,000 payable in New York
Clearinghouse Funds. The Purchased Capital Notes shall have terms and conditions
generally described in Exhibit B hereto in aggregate principal amount equal to
$110,000,000 and such other terms and conditions as you may determine in light
of existing market conditions (after consultation with Borrower); provided that
(x) you shall not include terms and conditions in the Purchased Capital Notes
not reflected on Exhibit B hereto that would prevent the Capital Notes from
qualifying as regulatory capital under 12 C.F.R. Section 561.13 as such
regulation is in effect on the date hereof; and (y) subject to applicable
regulatory restrictions, the Purchased Capital Notes shall be subject to
redemption by Borrower at any time within 90 days after the Closing Date at a
price equal to 100% of the aggregate principal amount thereof, together with
accrued but unpaid interest thereon. The yield to investors on Purchased Capital
Notes shall not exceed 25% if a majority or more in principal amount of the
Purchased Capital Notes are acquired by you or your affiliates and, subject to
clause (y) of the proviso to the
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<PAGE> 164
preceding sentence, redemption prices of the Purchased Capital Notes shall be at
then prevailing market standard premiums; provided, however, that no redemption
premium will be paid in connection with the redemption of Purchased Capital
Notes owned by you. You acknowledge that it is your intention to attempt to
remarket any Purchased Capital Notes with such yield to investors (less than
25%) and such other terms as you reasonably determine to be necessary based
upon then prevailing market conditions; provided, however, that during the
first 180 days following the Closing Date, the yield to investors on any
remarketed Purchased Capital Notes shall not exceed 25%.
3. Conditions Precedent. Your obligation to cause SLH to enter into or
perform any underwriting agreement or placement agent agreement in respect of
Offered Capital Notes, or to purchase Capital Notes (pursuant to such agreement
or otherwise) is subject to the satisfaction of the following conditions
precedent on the Offering Date (if any) and the Closing Date:
(a)(i) the representations and warranties contained in paragraph 1
hereof will be true and correct in all material respects; and (ii) you and your
counsel shall be satisfied that the transactions contemplated by the Principal
Documents do not and will not contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction, or decree of any court or
governmental instrumentality in any material respect;
(b) the Principal Documents shall remain in full force and effect and
no material term or condition of any thereof shall have been changed or waived
by any party thereto without your prior written consent, which consent shall
not be unreasonably withheld;
(c) you shall have received a true and correct copy of all schedules,
exhibits, certificates, opinions and other documents then delivered (or if
delivered on the date hereof, then on or before the date hereof) by Borrower
pursuant to the Principal Documents and certified to be such by the Secretary
of Borrower;
(d) no Event of Default shall have occurred or be continuing and no
event shall have occurred which, after notice and lapse of time or both, would
constitute an Event of Default under such agreements;
(e) there shall not have occurred, in your reasonable judgment, any
material adverse change (or an event which in your reasonable judgement is
likely to result in such a change) in the condition (financial or other),
operations or prospects of Borrower since the date hereof;
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<PAGE> 165
(f) you and SLH shall have received all fees required to be paid on or
prior to such date pursuant to the Engagement Letter and paragraph 6 of this
Agreement;
(g) neither Borrower nor any other person (other than you) shall have
breached any of their respective obligations under any Principal Document in any
material respect and the FHLBB shall not have modified or otherwise altered the
Forbearance Letter in any material and adverse respect;
(h) no registration statement or offering document pertaining to the
Offered Capital Notes shall contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, when made, not misleading;
(i) you shall have been given such access as you reasonably request to
Borrower's and United's books, records, personnel and properties to verify the
same;
(j) on the Closing Date, you shall have received an opinion, dated
such Closing Date, from counsel to Borrower in form and substance reasonably
acceptable to you and your counsel relating to matters customarily included in
opinions of counsel to the issuer in transactions of the nature contemplated
hereby and, in addition thereto, an opinion to the effect that the Principal
Documents remain in full force and effect, have not been modified in any
material and adverse respect since the date hereof and that the obligations of
the Borrower and its affiliates thereunder constitute legal, valid and binding
obligations and are enforceable against such persons in accordance with their
respective terms, subject to customary exceptions.
(k) on the Offering Date (if any) and the Closing Date, you shall have
received a certificate signed by Borrower and dated such date to the effect that
the conditions set forth in this paragraph 3 have been satisfied;
(l) on the Offering Date (if any) and on the Closing Date all
corporate and other proceedings taken or to be taken by Borrower in connection
with the Capital Notes and the Principal Documents shall be in form and
substance reasonably satisfactory to you and your counsel as being consistent
with the satisfaction of the foregoing conditions;
(m) on the Offering Date (if any) and on the Closing Date, Hyperion
Partners, L.P. shall own, directly or indirectly, beneficially at least a
majority of the issued and outstanding Capital Stock (on a fully diluted basis)
of Borrower, which
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<PAGE> 166
shares shall be sufficient to elect a majority of the Board of Directors of
Borrower;
(n) the General Counsel of the FHLBB and FSLIC shall have issued an
opinion to the effect that the Acquisition has been duly authorized by all
requisite action of the FHLBB and FSLIC, that all Principal Documents to which
FSLIC, in its capacity as receiver for United or otherwise, is party to have
been duly authorized, executed, delivered by, and constitute valid and binding
obligations of FSLIC, enforceable against FSLIC in accordance with their terms
(subject, as to enforceability, to customary exceptions), and is otherwise in
form and substance satisfactory to you and, if such opinion is addressed to any
person other than you, it shall state, or be accompanied by a letter issued to
you stating, that you can rely on such opinion;
(o) the (x) certified copies of FHLBB resolutions authorizing the
execution and delivery of the Principal Documents to which it and FSLIC are
parties and stating that the FHLBB has approved the Acquisition (including the
issuance of the Capital Notes) under Section 408(m) of the National Housing
Act; (y) evidence of approval by FSLIC of the terms of the Capital Notes and
the agreements pursuant to which the Capital Notes were issued, including this
Agreement; and (z) evidence from FHLBB that you shall not be deemed to have
acquired control of a "company" or "savings and loan holding company" within
the meaning of 12 C.F.R. Section of 574.4(a)(2) or 12 C.F.R. Section
574.4(a)(3) in the event that you shall acquire Capital Notes for your own
account, each of which have been heretofore delivered to you shall be, in form
and substance satisfactory to you (as evidenced by your execution and delivery
hereof); and
(p) neither (x) the resolutions of FHLBB and FSLIC authorizing the
execution, delivery and performance by FHLBB and FSLIC, as the case may be, of
the Principal Documents and their approval of the Acquisition (including the
issuance of the Capital Notes in accordance herewith) under Section 408(m) of
the Housing Act; (y) FSLIC's approval of the terms of this Agreement and the
terms of the Capital Notes; nor (z) FHLBB's determination that you shall not be
deemed to have acquired control of a "company" or "savings and loan holding
company" within the meaning of 12 C.F.R. Section of 574.4(a)(2) or 12 C.F.R.
Section 574.4(a)(3) in the event that you shall acquire Capital Notes for your
own account (all of which the parties hereto acknowledge have been heretofore
obtained) shall have been rescinded or modified in any material and adverse
respect.
(q) the audited balance sheet of the Borrower referred to in paragraph
5(a) hereof shall not, in your reasonable judgment, show a material adverse
change (taking into account, among other things, FSLIC assistance), in
Borrower's financial
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<PAGE> 167
condition from that reflected on the pro forma balance sheet of Borrower
attached as Exhibit C hereto.
4. Information Covenants. So long as any Capital Notes are outstanding
Borrower will furnish to you:
(a) Quarterly Financial Statements. At the time such statements are
required to be filed with the FHLBB or, if earlier, are filed therewith, in
each fiscal year of Borrower, the consolidated balance sheet of Borrower as at
the end of such quarterly period and the related consolidated statements of
income, shareholders' equity and changes in financial position for such
quarterly period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, and in each case setting forth comparative
figures for the related periods in the prior fiscal year. Such statements shall
be prepared in accordance with generally accepted accounting principles.
(b) Annual Financial Statements. At the time such statements are
required to be filed with the FHLBB or, if earlier, are filed therewith, for
each fiscal year of Borrower, the audited consolidated balance sheet of Borrower
as of the end of such fiscal year and the related consolidated statements of
income, shareholders' equity and changes in financial position for such fiscal
year, in each case setting forth comparative figures for the preceding fiscal
year. Such statements shall be prepared in accordance with generally accepted
accounting principles.
(c) Requested Information. From time to time, such other information
or documents (financial or otherwise) as you may reasonably request (but only
so long as any Purchased Capital Notes are outstanding).
5. Registration or Private Placement of Capital Notes. (a) Upon your
written request, Borrower shall prepare and, in the case of Offered Capital
Notes within 30 days after the completion of the consolidated financial
statements of Borrower (which financial statements shall be as of the date
hereof) accompanied by the unqualified opinion of the independent certified
public accountants of Borrower and in all other cases no earlier than after
delivery to you of such financial statements, file a registration statement
with respect to the Capital Notes with the FHLBB and the Principal Supervisory
Agent as contemplated by 12 C.F.R. Section 563g (the "Registration
Statement"). Borrower will use its best efforts to cause such Registration
Statement to become effective thereunder. Borrower shall also cause an
indenture relating to the Notes or (the "Indenture") to be qualified under
such
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regulations, if necessary. Borrower shall afford SLH and its counsel an
opportunity to participate in the preparation of such Registration Statement
and Indenture, shall provide such persons with any information they reasonably
request in connection therewith and shall not file such Registration Statement
or any amendment thereof with the FHLBB or qualify such Indenture or any
amendment thereof, without the prior approval of SLH, which approval shall not
be unreasonably withheld.
(b) Upon your written request, Borrower shall promptly prepare a
private placement memorandum in respect of the Capital Notes and an indenture,
registration rights agreement and other appropriate documentation relating
thereto. Borrower shall afford SLH and its counsel an opportunity to
participate in the preparation of such private placement memorandum, indenture,
registration rights agreement and other documentation, shall provide such
person with any information they may reasonably request in connection therewith
and shall not change or amend such material without the prior approval of SLH,
which approval shall not be unreasonably withheld.
(c) In connection with any public or private sale of Capital Notes
with respect to which SLH acts as placement agent or underwriter, Borrower
shall, and shall cause its Affiliates to, take all action reasonably requested
by SLH, after consultation with Borrower to facilitate such sale, including
participating in meetings with prospective purchasers, providing prospective
purchasers with all information and documents they reasonably request and,
after the date of filing of the Registration Statement and until the earlier of
the termination of this Agreement or the Closing Date, Borrower shall not,
directly or indirectly, sell or offer for sale or seek indications of interest
in respect of, any debt securities of Borrower which, in your reasonable
judgment, would impair your ability to market the Capital Notes.
(d) SLH shall act as placement agent or underwriter, as the case may
be, in respect of any public or private offering of Capital Notes and shall, in
the case of Offered Capital Notes, receive for such services fees between 3.5%
and 4% of the gross proceeds of such sale as may be agreed upon by Borrower and
you. SLH may appoint a co-underwriter or co-underwriters (reasonably acceptable
to Borrower) in respect of any public offering of Offered Capital Notes if it
deems such appointment advisable, at no additional fee (but Borrower shall
reimburse such other underwriter or underwriters for fees and expenses incurred
in connection therewith as are customarily reimbursed to underwriters). In
connection with any resale to the public by you of Capital Notes, Borrower
agrees to pay the fees and expenses of any additional underwriter required to
be used in
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the offering by reason of Schedule E of the by-laws of the National Association
of Securities Dealers, Inc.
6. Compensation. Borrower shall deliver (or cause to be delivered)
the following to you:
(a) upon execution of this Agreement, a fee of $1,400,000;
(b) the termination fee provided for in paragraph 8 hereof, when and
if earned; and
(c) from time to time upon your request, your reasonable out-of-pocket
expenses incurred in connection with your activities hereunder (other than
acting as underwriter or private placement agent with respect to the
underwriting or placement of securities), including the reasonable fees and
disbursements of your legal counsel.
7. Return of Certain Fees. If all outstanding Purchased Capital Notes
are repurchased by Borrower prior to 90 days after the Closing Date, you shall
return to Borrower, on the date of such repurchase, 2% of the principal amount
of the Purchased Capital Notes so repurchased.
8. Termination. (a) Borrower may terminate this Agreement (and your
and its obligations hereunder) at any time prior to the earlier of the Offering
Date or Closing Date upon notice to you in writing.
(b) This Agreement and your obligations hereunder shall terminate on
the earlier of (i) December 15, 1989, or (ii) the date occurring five months
after delivery of the audited financial statements referred to in paragraph
5(a) hereof. In addition, you may terminate your obligations hereunder by
notice to Borrower if within the Measuring Period (as hereinafter defined) one
or more of the following events occurs or, if such an event shall occur prior
to the Measuring Period, the material adverse effects of such event, in your
reasonable judgment, exist in the Measuring Period: (i) a general banking
moratorium shall have been declared by Federal or state authorities, (ii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange or the over-the-counter market shall have been suspended or
minimum prices shall have been established on such exchanges or such market by
such exchange or by the SEC, (iii) a crisis or calamity shall have occurred so
as to cause trading in debt securities rated less than investment grade by
Moody's or Standard and Poor's to have become impracticable in your reasonable
judgment, or (iv) any decline in either the Dow Jones
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Industrial Average or the Standard and Poor's Index of 400 Industrial Companies
by an amount in excess of 15% shall have occurred at any time during a period
designated by you (at the time of your termination), such period not to exceed
five business days. The term "Measuring Period" means the period following the
Base Date. The term "Base Date" means the date on which the Registration
Statement becomes effective or the date on which you shall advise Borrower that
a Registration Statement shall not be required. Subject to the first sentence
of this paragraph 8(b), no event described in clause (i), (ii), (iii) or (iv)
above (whensoever occurring) shall give rise to a right to terminate this
Agreement unless in your reasonable judgment such event, or its material
adverse effects, exists at any time during the 30 day period prior to the date
by which the Closing Date is required to occur by FSLIC or the FHLBB (as such
date may be extended).
(c) Termination pursuant to the foregoing provisions notwithstanding,
(i) the following provisions shall remain in effect whether or not Capital
Notes are sold: paragraphs 6, 8, 9, 10, 11 and 12; and (ii) the following
provisions shall remain in effect only if Capital Notes are sold: paragraphs 1,
2, 4, 5, 6(c), 7, 10, 11 and 12.
(d) If this Agreement is terminated by Borrower (other than as a
result of your material breach hereof) pursuant to subparagraph (a) hereof or
is otherwise terminated pursuant to the first sentence of subparagraph (b)
hereof or is terminated by you in the event of a material breach hereof by
Borrower. Borrower shall pay to you in cash a termination fee equal to
$1,925,000 on the date of such termination. In addition, after any such
termination (other than as a result of your material breach hereof), on the
date of sale of any debt securities of Borrower effected within six months
after termination of this Agreement which you reasonably determine are a
replacement for the Capital Notes, a fee equal to the excess of (x) 4% of the
gross proceeds from such securities sold to any purchaser reasonably identified
by you as having been previously solicited by you and from whom you have
obtained an indication of interest, prior to the termination hereof to purchase
Capital Notes over (y) $1,925,000, shall also be paid.
9. Assignment. This Agreement may not be assigned by Borrower.
10. Governing Law; Consent to Jurisdiction and Venue. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. By the execution hereof, Borrower (solely for purposes of claims
arising under this Agreement) consents to the jurisdiction and venue of the
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<PAGE> 171
Courts of the State of New York and the United States Federal District Court
located in the Borough of Manhattan.
11. Paragraph Headings. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
12. Counterparts. This Agreement may be signed in counterparts,
each of which shall constitute an original and which together shall constitute
one and the same agreement.
If the foregoing correctly sets forth our agreement, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between Borrower and you.
Very truly yours,
UNITED SAVINGS ASSOCIATION
OF TEXAS
By: ___________________________
Name: _________________________
Title: ________________________
ACCEPTED at New York, N.Y.
as of ______ A.M., E.S.T.
on ____________, 1988:
SHEARSON LEHMAN HUTTON
HOLDINGS INC.
By: ___________________________
Name: _________________________
Title: ________________________
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<PAGE> 172
EXHIBIT A
DEFINITIONS
"Affiliate" of any person means (i) any person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such person or (ii) any person who is a director or officer (A) of such person,
(B) of any subsidiary of such person or (C) of any person described in clause
(i) above. For purposes of this definition, control of a person means the
power, direct or indirect, to direct or cause the direction of the management
and policies of such person whether by contract, ownership or otherwise, and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this definition, Affiliate shall not be deemed to
include FSLIC.
"Business Plan" means the plan of operation of Borrower as submitted to
FSLIC, a certified copy of which has been delivered to you.
"Capital Stock" of any corporation means and includes any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) common or preferred
stock of such corporation.
"Engagement Letter" means the letter agreement among the Borrower,
Hyperion Partners, L.P., and SLH, dated the date hereof.
"Event of Default" means the occurrence of any event which gives rise
to (or which, after notice and lapse of time gives rise to) a right by the
holder or holders of $5,000,000 of principal amount of indebtedness of Borrower
outstanding under any single agreement to declare the entire principal amount
thereof to become immediately due and payable.
"FHLBB" means the Federal Home Loan Bank Board and any successor
thereto.
"FHLB--Dallas" means the Federal Home Loan Bank of Dallas and any
successor thereto.
"Forbearance Letter" means [To Come].
"FSLIC Note" means the promissory note, dated the date hereof, from
FSLIC, as maker, to Borrower.
"Material Adverse Effect" means any circumstance or event which, in
your reasonable judgment is likely to (i) have any material adverse effect
whatsoever upon the validity or enforceability of this Agreement or the Capital
Notes.
<PAGE> 1
EXHIBIT 10.1a
Execution Copy
SETTLEMENT AND TERMINATION AGREEMENT
This SETTLEMENT AND TERMINATION AGREEMENT (this "Agreement"), dated as
of December 23, 1993, is entered into by and among the Federal Deposit
Insurance Corporation ("FDIC"), as manager of the FSLIC Resolution Fund ("FRF")
(the FDIC as Manager of FRF herein called the "FDIC Manager"), and Bank United
of Texas FSB (formerly United Savings Association of Texas FSB), a federal
stock savings bank, located in Houston, Texas ("Bank United"), USAT Holdings
Inc. ("USAT Holdings"), a savings and loan holding company incorporated under
the laws of Delaware of which Bank United is a subsidiary, Hyperion Holdings
Inc., a savings and loan holding company incorporated under the laws of the
State of Delaware of which USAT Holdings is a subsidiary ("Hyperion Holdings"),
and Hyperion Partners L.P., a limited partnership organized under the laws of
the State of Delaware of which Hyperion Holdings is a wholly-owned subsidiary
("Hyperion Partners"), (USAT Holdings, Hyperion Holdings, and Hyperion
Partners, collectively, the "Holding Companies").
RECITALS
The FRF is the transferee of the assets and liabilities of the Federal
Savings and Loan Insurance Corporation ("FSLIC"). The FDIC Manager, Bank United
and the Holding Companies desire to provide for (i) the termination of that
certain Assistance Agreement dated December 30, 1988, by and between the FSLIC,
Bank United and the Holding Companies (the "Assistance Agreement"), (ii) the
amendment of that certain Warrant Agreement dated December 30, 1988, by and
between the FDIC Manager and Bank United (the "Warrant Agreement"), and (iii)
the termination and full and final settlement, as between the parties to the
Mutual Release attached hereto as Exhibit 2.5, of that certain lawsuit, filed
August 3, 1993, by Bank United and the Holding Companies against the FDIC
Manager and certain other parties in the United States District Court for the
Southern District of Texas (Galveston Division) (Docket G-93-461) (the
"Lawsuit").
Capitalized terms not otherwise defined herein shall have the meanings
given such terms in the Assistance Agreement, the Acquisition Agreement, dated
December 30, 1988, between the FSLIC and Bank United (the "Acquisition
Agreement"), and the Warrant Agreement.
AGREEMENT
In consideration of the mutual promises and covenants contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and notwithstanding anything to
the contrary under the terms of the Assistance Agreement, the Acquisition
Agreement and the Warrant Agreement and any other related agreements, the
parties hereby agree as follows:
<PAGE> 2
ARTICLE I
CLOSING
The consummation of the transactions contemplated by this Agreement,
subject to the satisfaction or waiver of the conditions precedent set forth in
Article V, shall take place at a closing (the "Closing") to be held at the
offices of Vinson & Elkins L.L.P., 1455 Pennsylvania Avenue, N.W., Washington,
D.C. at 11:00 a.m. local time on December 28, 1993, with certain deliveries to
be made at the offices of Bank United, 3200 Southwest Freeway, Houston, Texas
77027, or such earlier date, or in such other manner, as the parties hereto may
agree in writing (the "Closing Date").
ARTICLE II
PAYMENTS AND TRANSFERS
On the Closing Date, subject to the satisfaction or waiver in writing
of the conditions precedent set forth in Article V:
Section 2.1 Payment of Termination Amount. The FDIC Manager shall pay
or cause to be paid to Bank United, by wire transfer in immediately available
funds, $250,175,714 (the "Termination Amount"). The Termination Amount is
subject to adjustment as provided in Section 3.4 hereof.
Section 2.2 Warrants. Bank United and the FDIC Manager will execute
and deliver, each to the other, a fully executed Amendment to Warrant
Agreement, attached as Exhibit 2.2 hereto.
Section 2.3 Tax Benefit Sharing. Bank United and the FDIC Manager will
execute and deliver, each to the other, the Tax Benefits Agreement attached
hereto as Exhibit 2.3.
Section 2.4 Termination of Assistance Agreement. Except as set forth
herein, the Assistance Agreement and all rights and obligations of the parties
thereto not previously fulfilled shall terminate effective as of the Closing
Date.
Section 2.5 Release. The release attached hereto as Exhibit 2.5 shall
be executed and delivered by each of Bank United, the Holding Companies, the
FDIC in its own capacity, the RTC and the FDIC Manager.
Section 2.6 Dismissal of Lawsuit. An agreed form of dismissal of Bank
United of Texas FSB, et al. v. Federal Deposit Insurance Corporation, et al.,
Civil Action No. G-93-0461, now pending in the United States District Court
for the Southern District of Texas (Galveston
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<PAGE> 3
Division), in substantially the form attached hereto as Exhibit 2.6, shall be
signed by the parties thereto and be suitable for filing with the court and for
signature by the court in an order of dismissal embodying this Settlement and
Termination Agreement.
ARTICLE III
TRANSFER OF ASSETS
Section 3.1 Transferred Assets. At the Closing, Bank United shall
transfer, assign and convey to the FDIC Manager, without recourse (except as
otherwise expressly set forth in this Agreement or in the documents ("Transfer
Documents") executed by Bank United as of the Closing Date effecting such
transfer, assignment and conveyance referred to below) and to the fullest
extent permitted by law or applicable contract provision, all of Bank United's
right, title and interest in and to the following assets, properties and rights
(the "Transferred Assets"):
(a) The mortgage and non-mortgage loans listed on
Exhibit 3.1(a) attached hereto (the "Transferred Loans");
(b) All mortgages, deeds Of trust (collectively, "Mortgages")
and other collateral interests securing the Transferred Loans,
including but not limited to all assignments of leases and rents, all
assignments of office, hotel, parking and other management agreements,
all assignments of contracts for construction and architectural work,
all security interests in owned and leased personal property of any of
the borrowers under the Transferred Loans, including but not limited
to the Mortgages, and other collateral listed on Exhibit 3.1(b)
attached hereto;
(c) All environmental and other indemnities given to Bank
United or any of its subsidiaries in connection with any of the
Transferred Loans, together with all puts, options and rights of Bank
United to either sell such Transferred Loans or portions thereof to
third parties, or acquire any real or personal property securing any
of the Transferred Loans;
(d) The real property listed on attached Exhibit 3.1(d)
hereto (the "Transferred REO"), together with (i) the improvements and
fixtures located on the Transferred REO, and (ii) all appurtenances,
rights, easements, rights-of-way, tenements and hereditaments incident
to the ownership and operation of the Transferred REO;
(e) All machinery, equipment, vehicles, furniture, tools,
spare parts, supplies, materials, and other similar personal property
owned or leased by Bank United or any of its subsidiaries and located
at the site of the Transferred REO and which either (i) are accounted
for by Bank United as part of the Transferred REO, or (ii) constitute
items the purchase price or other cost of which has been reimbursed or
credited to Bank United
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<PAGE> 4
as an allowable expense under the Assistance Agreement and including,
without limitation, the items described in Exhibit 3.1(e) attached
hereto;
(f) Those agreements related to the operation, ownership,
sale, leasing, maintenance or development of the Transferred REO which
are described in Exhibit 3.1(f) attached hereto (collectively, the
"Assigned Contracts");
(g) Originals (in the case of items relating exclusively to
the Transferred REO or Transferred Loans, provided such originals are
in the possession of Bank United) or copies of all operating data and
records of Bank United relating to the Transferred REO and the
Transferred Loans, including books, records, blueprints,
specifications, tenant lists, rent rolls, legal files, credit
information and correspondence;
(h) All transferable computer software and related
documentation used in connection with the operation, ownership,
leasing, maintenance or development of the Transferred REO or the
servicing of the Transferred Loans, to the extent that the costs of
acquiring or developing such software has been reimbursed or credited
to Bank United as an allowable expense under the Assistance Agreement;
(i) All United States trademarks, service marks, trademark
and service mark applications, trade names, trade rights, whether or
not registered, and assignable licenses and permits (collectively,
"Intellectual Property"), in each case (i) used exclusively in the
operation, ownership, leasing, maintenance or development of the
Transferred REO or the property encumbered by the Mortgages or (ii)
the costs of the acquisition of which have been reimbursed or credited
to Bank United as an allowable expense under the Assistance Agreement,
including, without limitation, those listed in Exhibit 3.1(i)(1)
hereto, but excluding any Intellectual Property listed on Exhibit
3.1(i)(2);
(j) All transferrable permits, certificates of occupancy,
licenses, approvals and authorizations (collectively, "Permits")
issued to Bank United or any of its subsidiaries by federal, state or
local governments or governmental authorities which are necessary or
appropriate to comply with applicable laws and regulations and which
either (i) relate exclusively to any of the Transferred Assets, or (ii)
the costs of the acquisition of which have been reimbursed or credited
to Bank United as an allowable expense under the Assistance Agreement,
including, without limitation, those items listed in Exhibit 3.1(j)(1)
attached hereto (collectively, the "Licenses"), but excluding any
Permits listed on Exhibit 3.1(j)(2) hereto;
(k) Each of the other assets listed on Exhibit 3.1(k);
(l) All other transferable assets relating to the Transferred
Loans or any of the Transferred REO, the costs of the acquisition of
which have been reimbursed or credited to Bank United as an allowable
expense under the Assistance Agreement; and
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<PAGE> 5
(m) All other Covered Assets owned by Bank United at Closing
that are not set forth on Exhibit 3.6 hereto.
The transfer, assignment, and conveyance of the foregoing assets to be conveyed
shall be effected by means of the Transfer Documents. The Transfer Documents
shall consist of the following: (i) deeds and assignments of leases, in
recordable form, with respect to the Transferred REO, and landlord consents, to
the extent obtained, and assignments related thereto, all substantially in the
form of Exhibit 3.1(n); (ii) a duly executed bill of sale, substantially in
the form of Exhibit 3.1(o); (iii) with respect to the Transferred Loans, the
original note, if in the possession of Bank United, endorsed by Bank United
without recourse in the form attached hereto as Exhibit 3.1(p); (iv) with
respect to the Mortgages, the original Mortgage, if in the possession of Bank
United, as recorded with evidence of recording indicated therein and an
original Mortgage assignment, without recourse, in recordable form to the FDIC
Manager in substantially the form attached hereto as Exhibit 3.1(q); (v)
instruments of assignment and licenses with respect to Intellectual Property,
Permits and Licenses; and (vi) with respect to Assigned Contracts, assignment
and assumption agreements under which all of Bank United's rights are
transferred to the FDIC Manager, together with the original Assigned Contract
(if in the possession of Bank United).
Section 3.2 Bank United's Cooperation with Respect to Transfer of
Transferred Assets. On and after the Closing Date (i) Bank United will execute
and deliver the Transfer Documents and such other instruments as are reasonably
necessary to complete the assignments or transfers of the Transferred Assets,
provided that all such other instruments shall be satisfactory in form and
substance to Bank United and its counsel and the FDIC Manager and its counsel,
shall not include any terms inconsistent with the terms of this Agreement or
the Transfer Documents, and shall not impose or purport to impose on Bank
United or any affiliate of Bank United any liability or other obligation other
than those expressly set forth in this Agreement or the Transfer Documents, and
(ii) Bank United will transfer and deliver to the FDIC Manager originals (in
the case of items relating exclusively to the Transferred REO or Transferred
Loans, provided such originals are in the possession of Bank United) or copies
of all books, records, documents, files and all other information (including,
without limitation, loan trial balances (magnetic tape and hard copy to the
extent Bank United has systems capacity to provide such information in such
format), loan histories, tax records, insurance policies, litigation (both
asset and non-asset) information, bankruptcy information, information on
potential environmental liabilities, consulting reports, third party property
management contracts, participation information and subsidiary information) in
Bank United's control or possession relating to the Transferred Assets and
reasonably deemed to be necessary by the FDIC Manager to effectively take
ownership and control of such Transferred Assets. All out-of-pocket expenses
(excluding legal fees and expenses) actually incurred by Bank United directly
associated with providing such documents shall be split equally between Bank
United and the FDIC Manager.
Section 3.3 Transferred Claims. On the Closing Date, Bank United
shall transfer, assign and convey to the FDIC Manager, without recourse (except
as expressly set forth in this
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<PAGE> 6
Agreement or the Transfer Documents) and to the fullest extent permitted by law
or applicable contract provision, all of Bank United's right, title and interest
in and to any Acquired Association Claim or Related Claim with respect to the
Transferred Assets, including but not limited to those Acquired Association
Claims and Related Claims being identified in Exhibit 3.3 attached hereto
("Transferred Claims"). On and after the Closing Date (i) Bank United will
execute and deliver all instruments as are reasonably necessary to complete the
assignments or transfers of the Transferred Claims, provided that all such
instruments shall be satisfactory in form and substance to Bank United and its
counsel and the FDIC Manager and its counsel, shall not include any terms
inconsistent with the terms of this Agreement or the Transfer Documents, and
shall not impose or purport to impose on Bank United or any Affiliate of Bank
United any liability or other obligation other than those expressly set forth
in this Agreement or the Transfer Documents, and (ii) Bank United will deliver
to the FDIC Manager originals or copies of all documents and files in Bank
United's control or possession relating to the Transferred Claims or deemed
necessary by the FDIC Manager to effectively prosecute such Transferred Claims.
All out-of-pocket expenses (excluding legal fees and expenses) actually
incurred by Bank United directly associated with providing such documents shall
be split equally between Bank United and the FDIC Manager.
Section 3.4 Adjustments to the Termination Amount.
(a) Sale of Assets Prior to Closing. If any Transferred Asset
is sold or otherwise liquidated by Bank United prior to Closing (each
Transferred Asset so sold or otherwise liquidated being referred to
herein as a "Sold Asset"), then:
(1) Each exhibit referred to in Section 3.1 hereof
shall be deemed to have been amended, as appropriate, to
delete such Sold Asset;
(2) The amount to be paid by the FDIC Manager to Bank
United at the Closing pursuant to Section 2.1 hereof shall be
reduced by an amount equal to the Net Proceeds Received (as
defined in the Assistance Agreement) by Bank United in respect
of such Sold Asset;
(3) Each exhibit referred to in Section 3.1 hereof
shall be deemed to be amended to include therein any non-cash
consideration which under the Assistance Agreement would
constitute a Covered Asset received by Bank United in payment
for such Sold Asset; and
(4) Bank United shall deliver a certificate at
Closing setting forth each of the matters referred to in
clauses (1), (2), and (3) of this Section 3.4(a).
For purposes of determining the Final Period Payment, any loss
resulting from the sale or liquidation of a Sold Asset, and goodwill
amortization pursuant to Section 3(a)(13) of
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<PAGE> 7
the Assistance Agreement, shall be disregarded (such amounts being
reflected in the payment made pursuant to Section 2.1 hereof).
(b) Adjustments to Book Value of Transferred Assets. If the
Book Value as of the Closing Date (or, in the case of a Sold Asset, as
of the time of sale or liquidation) of a Transferred Asset is less
than the Book Value of the Transferred Asset as of September 30, 1993,
then the amount equal to the difference between the Book Value as of
the Closing Date (or, in the case of a Sold Asset, as of the time of
sale or liquidation) of the Transferred Asset and the Book Value as of
September 30, 1993 of the Transferred Asset shall be credited to
Special Reserve Account I for purposes of the Final Period Payment
calculated pursuant to Article IV. If the Book Value as of the Closing
Date (or, in the case of a Sold Asset, as of the time of sale or
liquidation) of a Transferred Asset is greater than the Book Value of
the Transferred Asset as of September 30, 1993, then an amount equal
to the difference between the Book Value as of the Closing Date (or,
in the case of a Sold Asset, as of the time of sale or liquidation) of
the Transferred Asset and the Book Value as of September 30, 1993 of
the Transferred Asset shall be debited to Special Reserve Account I
for purposes of the Final Period Payment calculated pursuant to
Article IV.
Section 3.5 Transfer of Litigation.
(a) Effective upon the Closing Date, the FDIC Manager shall
assume the responsibility for managing and conducting all proceedings
relating to the litigation cases (the "Transferred Cases") listed on
Exhibit 3.5(a) hereto. Prior to the Closing, Bank United will advise
its outside counsel in writing of the FDIC's assumption of the
responsibility for managing the Transferred Cases and prepare and
direct its outside counsel to prepare those documents reasonably
necessary to designate new counsel of record for the Transferred
Cases.
(b) Effective upon the Closing Date, the FDIC Manager shall
pay all legal fees and expenses incurred in connection with the
Transferred Cases on or after the Closing Date and shall indemnify and
hold harmless the Bank United Indemnitees (as defined in Section 9.1)
from all claims for such legal fees and expenses.
(c) Effective upon the Closing Date, the FDIC Manager shall
continue to indemnify the Bank United Indemnitees to the same extent
as it does so with respect to the Transferred Cases currently, for any
claims plead to date in the Transferred Cases. Subject to the accuracy
of the representations set forth in Section 6.1(g)(ii), the FDIC
Manager agrees that it is obligated to indemnify the Bank United
Indemnitees with respect to each claim that has been asserted to date
in the pleadings related to the Transferred Cases. With respect to
those matters set forth on Exhibit 3.5(c), and with respect to any
claims which may be alleged in the Transferred Cases after the date
hereof, the FDIC Manager agrees to indemnify Bank United to the extent
that such
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<PAGE> 8
claims are claims for which Bank United would have been entitled to
indemnity, reimbursement, or credit under the terms of the Assistance
Agreement if such Assistance Agreement had not been terminated. Such
indemnification shall be provided in accordance with the provisions of
Section 9.4 hereof.
(d) Notwithstanding the transfer of litigation contemplated by
this Section 3.5, and subject to the provisions of Section 9.4(b), any
Bank United Indemnitee may, at its sole discretion, elect to continue
to participate in, but, so long as the FDIC Manager has admitted in
writing (as set forth in Section 9.4(b)) its obligation to indemnify
such Bank United Indemnitee with respect to such claims, not control
the defense of, claims relating to any matter in which it is a named
party, or which relates, directly or indirectly, to any property or
assets, tangible or intangible, in which such Bank United Indemnitee
retains an interest; provided that such Bank United Indemnitee shall,
so long as the FDIC Manager has admitted in writing its obligation to
indemnify such Bank United Indemnitee with respect to such claims (as
set forth in Section 9.4(b)), be responsible for the costs and
expenses of its own attorneys with respect to such participation.
Section 3.6 Certain Assets to be Retained. The FDIC Manager and Bank
United acknowledge and agree that there are certain Covered Assets which will
be retained by Bank United following the Closing (the "Retained Assets"), and
that effective upon the Closing such Retained Assets will cease to be Covered
Assets under the Assistance Agreement and will be owned by Bank United free and
clear of any right, claim, equity, or other adverse interest of the FDIC
Manager. Except with respect to matters included in the Final Period Payment
and for matters subject to Section 4.4, Bank United shall not be obligated to
make any payment with respect to such Retained Assets, and the retention of
such Retained Assets shall for all purposes hereunder and under the Assistance
Agreement be deemed to have occurred at Closing at Book Value. The FDIC Manager
shall not be obligated to make any payment with respect to such Retained Assets
under the Assistance Agreement on or after the Closing, except with respect to
matters included in the Final Period Payment, for matters subject to Section
4.4, and for matters with respect to which indemnity is otherwise available
hereunder. The Retained Assets shall include only those Covered Assets set
forth on Exhibit 3.6 hereto.
Section 3.7 Letters of Credit. (a) The FDIC Manager acknowledges that
Bank United has issued those letters of credit set forth in Exhibit 3.7 hereto
(the "Letters of Credit") in connection with the administration of the Covered
Assets, and that, to the extent set forth on such Exhibits, the Letters of
Credit are secured by cash which either is, or is owned by a subsidiary which
is, a Covered Asset. The FDIC Manager agrees that Bank United will retain its
security interest in the cash securing the Letters of Credit notwithstanding
the consummation of the transactions contemplated hereby.
(b) The FDIC Manager agrees that it shall (i) use its best
efforts to secure the release of each Letter of Credit as promptly as
is reasonably practical following the Closing Date, and (ii) if a
drawing under any Letter of Credit is made, promptly
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<PAGE> 9
reimburse Bank United for the amount of any such draw to the extent
that cash collateral is not available to Bank United for such
reimbursement.
ARTICLE IV
FINAL PERIOD PAYMENT
Section 4.1 Determination of Final Period Payment. Bank United
shall calculate, as of the Closing Date, the amount of each adjustment to Book
Value of the Transferred Assets from September 30, 1993 to the Closing Date
(or, in the case of a Sold Asset, to the date of sale or liquidation) as
contemplated by Section 3.4(b) and each debit and credit to Special Reserve
Account I and Special Reserve Account II attributable to the period from
October 1, 1993 to the Closing Date (the "Final Period"), treating the Closing
Date as if it were the end of a calendar quarter for the purposes of such
calculation; provided, however, that Guaranteed Yield shall be calculated for
this purpose on the basis of the actual number of days elapsed from and
including October 1, 1993, to and excluding the Closing Date; and provided
further that for purposes of the Final Period Payment (x) Guaranteed Yield on
cash held in Covered Asset Subsidiaries will be deemed to be equal to the
Actual Yield on such cash, (y) for purposes of determining Guaranteed Yield
payable with respect to any Covered Asset that is sold, transferred, or
otherwise liquidated during the Final Period, such Guaranteed Yield will be
payable only to the date on which such Covered Asset is so sold, transferred,
or liquidated and (z) any dividend or other distributions made on or in respect
of Bank United's Common Stock between October 1, 1993 and the Closing Date
shall be taken into account in determining the Final Period Payment as
contemplated by Section 3(b)(9) of the Assistance Agreement, treating the
Warrants as representing the right to acquire 158,823 shares of Common Stock of
Bank United. The net amount of such adjustments, debits and credits is herein
referred to as the "Final Period Payment", and shall be expressed as a
positive dollar amount if total debits exceed total credits, and as a negative
amount if total credits exceed total debits. It is expressly understood and
agreed among the parties hereto that for purposes of determining the Final
Period Payment, no debit or credit shall be considered or taken into account to
the extent that such debit or credit reflects an adjustment to any amount
debited or credited to Special Reserve Account I or Special Reserve Account II
for any period prior to October 1, 1993, nor shall any item be considered or
taken into account which, under the terms of the Assistance Agreement, could
have been properly included as a debit or credit to Special Reserve Account I
or Special Reserve Account II for a period prior to October 1, 1993, it being
further expressly understood that all such prior period adjustments or other
debits or credits have, except to the extent provided in Section 4.4, been
settled between the parties as part of the payment made pursuant to Section 2.1
hereof.
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<PAGE> 10
Section 4.2 Final Report.
(a) Bank United shall deliver to the FDIC Manager a report
with respect to the period commencing on October 1, 1993 and ending on
the Closing Date (the "Final Report") no later than sixty (60) days
after the Closing Date setting forth in reasonable detail the
calculation of the Final Period Payment. The Final Report shall
contain the items required to be included in a Quarterly Report under
Section 16 of the Assistance Agreement and be in the format (with
supporting documentation) as previously utilized by Bank United and
accepted by the FDIC Manager with respect to previous Quarterly
Reports under the Assistance Agreement. Subject to Section 4.4, Bank
United shall not be entitled to increase the amount of any debit or
adjustment to Special Reserve Account I or Special Reserve Account II
claimed to be due hereunder for the Final Period after the submission
of the Final Report. If the Final Report indicates a negative dollar
amount for the Final Period Payment, such Final Report shall be
accompanied by a check of Bank United, payable to the FDIC Manager,
for the amount of such difference. If the Final Report indicates a
positive dollar amount for the Final Period Payment, then no later
than thirty (30) days after receipt of the Final Report, the FDIC
Manager will pay or cause to be paid to Bank United, in immediately
available funds, an amount equal to (x) the Final Period Payment
indicated as due on the Final Report, minus (y) the Final Report
Disputed Item Amount. If the amount due hereunder is not paid when and
as due, such amount shall accrue and be paid with interest at an
annual rate equal to TCOF plus 200 basis points, such interest to be
deemed to have accrued from and including the date which is thirty
(30) days after receipt of the Final Report until and excluding the
date actually paid in immediately available funds.
(b) The FDIC Manager shall, no later than thirty (30) days
after receipt of the Final Report, provide to Bank United a report
(the "Disputed Item Report") setting forth the Final Report Disputed
Item Amount, if any. The term "Final Report Disputed Item Amount"
means the full amount of any exceptions or disputes noted by the FDIC
Manager with respect to the Final Report. If the Disputed Item Report
has not been delivered to Bank United within said 30-day period, the
FDIC Manager shall be deemed for all purposes hereunder to have waived
all rights hereunder (other than rights under Section 4.4) to
challenge the Final Report or the Final Period Payment as set forth
therein. The Disputed Item Report shall include a reasonably detailed
description of each disputed item, together with such other
information and supporting documentation as may reasonably be required
in order for Bank United to evaluate the position taken by the FDIC
Manager with respect to such disputed item.
(c) If there are any Disputed Items, then the FDIC Manager and
Bank United shall attempt to resolve such items within 30 days
following the receipt by Bank United of the Disputed Item Report (the
date on which such 30 day period expires, or on which any extension of
such period as the parties hereto may mutually agree to in writing
expires, herein called the "Resolution Deadline Date"). If the FDIC
Manager and Bank
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United resolve all such items to their mutual satisfaction by the
Resolution Deadline Date, then within 10 days following such
resolution, the FDIC Manager shall pay to Bank United such amount, if
any, as may be due to Bank United pursuant to such resolution (the
"Final Payment") together with interest on such Final Payment from the
date which is thirty (30) days after receipt of the Final Report to
the date the Final Payment is made at an annual rate equal to TCOF
plus 200 basis points.
(d) If the FDIC Manager and Bank United fall to resolve any
outstanding Disputed Items by the Resolution Deadline Date, then
either party may submit specific unresolved Disputed Items to
arbitration pursuant to the provisions of this Section 4.2(d). Failure
to submit any unresolved Disputed Item to arbitration within thirty
days following the Resolution Deadline Date (the date on which such
30-day period expires herein called the "Arbitration Deadline Date")
shall be deemed a waiver of both parties' right to dispute such
non-submitted Disputed Item(s). Either party shall submit a matter for
arbitration by delivering a notice to the other party in writing
setting forth:
(i) A description of the Disputed Item;
(ii) A statement of the moving party's position; and
(iii) the identity of the arbitrator selected by
the moving party, which shall be one of the individuals set
forth on Exhibit 4.2(d) hereto.
(e) The non-moving party shall, within 30 days following
receipt of a notice pursuant to Section 4.2(d) hereof, deliver a
notice to the moving party setting forth
(i) the identity of the arbitrator selected by the
non-moving party to consider such disputed item, which shall
be one of the individuals set forth on Exhibit 4.2(d) hereto,
and
(ii) a statement of the position of the non-moving
party with respect to such Disputed Item.
(f) The two arbitrators selected pursuant to Sections 4.2(d)
and (e) hereof shall select a third arbitrator from those listed on
Exhibit 4.2(d) hereto, and such three arbitrators shall constitute the
arbitration panel for resolution of such Disputed Items. The
concurrence of any two arbitrators shall be deemed to be the decision
of the arbitrators for all purposes hereunder. The arbitration shall
proceed on such time schedule and pursuant to such procedures as the
arbitrators shall determine. The arbitration proceedings shall take
place in Houston, Texas, or such other location as the parties may
mutually agree.
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<PAGE> 12
(g) The FDIC Manager and Bank United shall facilitate the
resolution of any outstanding Disputed Items by making available in a
prompt and timely manner to one another and to the arbitrators for
examination and copying, as appropriate, all documents, books and
records under their respective control that are reasonably relevant to
the issues involved and that would be discoverable under the Federal
Rules of Civil Procedure.
(h) The arbitrators designated pursuant to Sections 4.2(d),
(e) and (f) shall select, with respect to each Disputed Item submitted
to arbitration pursuant to this Section 4.2, either (i) the
determination submitted by Bank United with respect to such Disputed
Item(s), or (ii) the determination submitted by the FDIC Manager with
respect to such Disputed Item(s), in either case as set forth in its
respective notice pursuant to Sections 4.2(d) or (e) hereof, the
arbitrators shall have no authority to select a value for any Disputed
Item other than the determination set forth in clauses (i) and (ii) of
this sentence. The decision of the arbitrators designated pursuant
hereto shall be final and binding on the parties, except in the case
of fraud. Any payment due pursuant to the decision made by the
arbitrators shall be made within 30 days of the decision made by the
arbitrators pursuant to this Section 4.2, and shall be accompanied by
interest on the payment due at an annual rate equal to TCOF plus 200
basis points from the date which is thirty (30) days after receipt of
the Final Report until the date actually paid.
Section 4.3 Fees and Expenses of Arbitrators. The fees and expenses of
the arbitrators shall be allocated by the arbitrators proportionately among
each Disputed Item on such basis as the arbitrators deem equitable, with each
such allocated portion paid by the party who is not the prevailing party with
respect to such Disputed Item.
Section 4.4 Post-Closing Expenses and Receipts. (a) If Bank United
receives any bills or otherwise incurs any cost or expense for periods after
the Closing Date which would have been a reimbursable item under the Assistance
Agreement had it not been terminated but was not included as a reimbursable
item in either the Final Period Report or in any quarterly report filed
pursuant to the Assistance Agreement, then any bills for any such cost or
expense shall be forwarded to the FDIC Manager, FDIC-Division of Depositor and
Asset Services, 5080 Spectrum Drive, Suite 1000E, Dallas, Texas 75248, for
payment. For purposes of this Agreement, a cost or expense shall be deemed to
have been incurred after the Closing Date, and a bill shall be deemed to have
been received after the Closing Date, if (i) such cost or expense is actually
paid, or first becomes payable, after the Closing Date, or such bill is
received after the Closing Date, and (ii) with respect to expenses related to
Covered Assets other than the Transferred Assets, the expense or cost, or
amount payable pursuant to such bill, relates solely to goods or services
provided, or expenses incurred, on or prior to the Closing Date. All such bills
shall be promptly paid by the FDIC Manager. If any such bills, costs, or
expenses are paid by Bank United, the FDIC Manager shall, promptly following
receipt of notice of such payment, reimburse Bank United for the amount of such
payment.
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<PAGE> 13
(b) If the FDIC Manager receives any bills or otherwise incurs
any cost or expense with respect to (i) the Retained Assets for
periods on or after the Closing Date, or (ii) the Transferred Assets
for periods on or prior to the Closing Date (and such cost or expense,
or amount reflected in such bill, would not have been reimbursable or
creditable to Bank United pursuant to the Assistance Agreement), any
bills for any such cost or expense shall be forwarded to Bank United,
3200 Southwest Freeway, 16th Floor, Houston, Texas 77027, for payment.
All such bills shall be promptly paid by Bank United. If any such
bills are paid by the FDIC Manager, Bank United shall, promptly
following receipt of notice of such payment, reimburse the FDIC
Manager for the amount of such payment.
(c) If Bank United receives any payment or other proceeds with
respect to any Transferred Asset after the Closing Date, it shall
promptly pay such amount over to the FDIC Manager.
(d) If the FDIC Manager receives any payment or other proceeds
with respect to the Retained Assets, it shall promptly pay such amount
over to Bank United.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1 Conditions to Obligations of the FDIC Manager. The
obligations of the FDIC Manager under this Agreement shall be subject to the
waiver (in writing) or fulfillment, on or prior to the Closing Date, of each of
the following conditions precedent:
(a) Certified Resolutions. The FDIC Manager shall have
received a certificate from each of Bank United and each of the
Holding Companies, signed by a corporate secretary, or assistant
corporate secretary, or other appropriate representative, and dated
the Closing Date, certifying that: (i) the board of directors (or
other governing body) has duly adopted resolutions, copies of which
shall be attached to such certificate, or otherwise duly approved (a)
approving the substantive terms of this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement, and
(b) authorizing an officer, or other appropriate representative, of
such entity to execute and deliver this Agreement and all necessary
ancillary documents; (ii) all of such resolutions are in full force
and effect; and (iii) none of such resolutions has been amended or
modified.
(b) Incumbency Certificate. The FDIC Manager shall have
received a certificate from each of Bank United and each of the
Holding Companies, signed by a corporate secretary or assistant
corporate secretary, or other appropriate representative, and dated
the Closing Date, certifying as to each person executing this
Agreement on
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<PAGE> 14
behalf of such entity, that (i) such person is an officer, or other
appropriate representative, of such entity holding the office or
offices specified therein, and (ii) the signature of each such person
set forth on such certificate is his or her genuine signature.
(c) Legal Opinion. The FDIC Manager shall have received a
signed opinion addressed to the FDIC Manager from counsel to Bank
United and each of the Holding Companies, dated the Closing Date and
substantially in the form of Exhibit 5.1(c).
(d) Proceedings. All corporate and other proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents incident thereto, shall be reasonably satisfactory in
form and substance to the FDIC Manager and its counsel, and the FDIC
Manager shall have received such counterpart originals or certified
or other copies of such documents as it may reasonably request.
(e) Accuracy of Representations and Warranties: Performance.
The representations and warranties of Bank United and each of the
Holding Companies contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with
the same effect as if made on and as of the Closing Date (except for
changes permitted or contemplated hereunder), and Bank United and each
of the Holding Companies shall have performed or complied in all
material respects with all covenants, agreements, and conditions
herein that it is required to perform or comply with on or prior to
the Closing Date. The FDIC Manager shall have received a certificate
from Bank United and each of the Holding Companies executed by an
executive officer or general partner thereof dated the Closing Date
certifying, with respect to itself, to the foregoing in the form
attached hereto as Exhibit 5.1(e).
(f) Section 3.4 Certificate. If applicable, Bank United shall
have delivered the certificate contemplated by Section 3.4(a)(4)
hereof.
(g) Certificates. The FDIC Manager shall have received (i) an
executed Certificate from Bank United, or an opinion of counsel, with
respect to the non-applicability to the matters contemplated in this
Agreement of the Texas Limited Sales, Excise and Use Tax (Chapter 151
of the Texas Tax Code), and (ii) an executed Certificate of
Non-Foreign Status from Bank United with respect to Section 1445 of
the Internal Revenue Code of 1986, as amended.
Section 5.2 Conditions to Obligations of Bank United and Holding
Companies. The obligations of Bank United and the Holding Companies shall be
subject to the waiver (in writing) or fulfillment, on or prior to the Closing
Date, of the following conditions precedent:
(a) Accuracy of Representations and Warranties; Performance.
The representations and warranties of the FDIC Manager contained in
this Agreement shall be true and correct in all material respects on
and as of the Closing Date with the same
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<PAGE> 15
effect as if made on and as of the Closing Date and the FDIC Manager
shall have performed or complied with in all material respects all
covenants, agreements, and conditions herein that it is required to
perform or comply with on or prior to the Closing Date, and Bank
United and the Holding Companies shall each have received a
certificate, executed by an appropriate official of the FDIC Manager,
to the foregoing effect.
(b) Delivery of Certain Documents. The FDIC Manager shall
deliver to Bank United and the Holding Companies copies of a
Resolution of its Board of Directors demonstrating the authority of
the FDIC Manager to enter into the transactions contemplated by this
Agreement.
(c) Legal Opinions. Bank United and the Holding Companies
shall have received from the FDIC Manager signed opinions addressed to
each of Bank United and each Holding Company, from counsel to the FDIC
Manager dated the Closing Date and substantially in the form of
Exhibit 5.2(c) hereto.
(d) Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents
incident thereto, shall be reasonably satisfactory in form and
substance to Bank United, each Holding Company, and their respective
counsel, and Bank United and each Holding Company shall have received
such counterpart originals or certified or other copies of such
documents as it may reasonably request.
Section 5.3 Conditions to Obligations of All Parties. The obligations
of the FDIC Manager, Bank United, and the Holding Companies shall be subject to
the waiver (in writing) or fulfillment, on or prior to the Closing Date, of
each of the following conditions precedent:
(a) Closing Date. The occurrence of the Closing on or prior to
December 28, 1993, or such later date as mutually agreed to by the
parties.
(b) Consents and Approvals. Bank United and each Holding
Company shall have received any and all governmental approvals or
other third party consents, which may be required in connection with
the execution, delivery, and performance of this Agreement by Bank
United and the Holding Companies, and no such governmental approval or
other third party consent shall impose, or be subject to or
conditioned upon, the compliance by Bank United or any Holding Company
with any obligation or condition other than those explicitly set forth
in this Agreement, or otherwise contain any terms or provisions which,
in the opinion of Bank United or any Holding Company, are unduly
burdensome or impractical, or which, in the opinion of Bank United,
any Holding Company, or the FDIC Manager, would adversely affect the
benefits to such party anticipated from this Agreement.
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<PAGE> 16
(c) No Change in Law. Between the date hereof and the Closing
Date, there shall not have occurred any change in applicable law,
regulation, or interpretation of any law or regulation (collectively,
a "Change in Law"), nor shall there be pending any proposed or
prospective Change in Law, including without limitation any Change in
Law related to the federal income tax laws or any applicable state
income tax laws, which may, or if adopted or implemented which may, in
the opinion of Bank United or any Holding Company, or of the FDIC
Manager, alter the anticipated legal effect of this Agreement, or
alter, diminish or impair the anticipated economic benefits of this
Agreement to Bank United or any Holding Company or the FDIC Manager,
or impose any duties, obligations or other burdens or costs on Bank
United or any Holding Company or on the FDIC Manager related to this
Agreement or the transactions contemplated hereby; provided, however,
that the FDIC Manager's obligations hereunder shall not be subject to
the absence of any Change in Law to the extent that any such Change in
law (i) results from any change in any regulation, or the
interpretation thereof, which is promulgated or administered by the
FDIC or the RTC, or (ii) is implemented by law, regulatory action, or
court determination at the request of, or with the support of, the
FDIC or the RTC.
(d) No Litigation. No litigation, claim, investigation, or
other proceeding shall be pending or threatened by or before any
court, tribunal, agency, regulatory authority, arbitration panel, or
otherwise, which challenges this Agreement or any of the transactions
contemplated hereby, seeks an injunction against or the payment of
damages in respect of the consummation of or compliance with any of
the terms hereof, questions the legal authority of any of the parties
to this Agreement with respect to the transactions contemplated
herein, or which otherwise, in the opinion of Bank United or any
Holding Company, or of the FDIC Manager, makes consummation of the
transactions contemplated herein inadvisable.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of Bank United. To induce
the FDIC Manager to enter into this Agreement and to consummate the
transactions contemplated hereby, Bank United makes the following
representations and warranties to the FDIC Manager as of the date hereof, (i)
each of which shall survive the consummation of the transaction contemplated
herein in the case of the representations and warranties set forth in
subsections (a) through (g)(i), and (ii) each of which shall survive the
consummation of the transactions contemplated herein for a period of one year
in the case of the representations and warranties set forth in subsections
(g)(ii) through (q) and shall thereupon terminate:
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<PAGE> 17
(a) Corporate Existence. Bank United is a federally chartered
stock savings bank duly organized, validly existing and in good
standing under the laws of the United States of America, with all
requisite power and authority to (i) own and operate its properties
and conduct its business as currently conducted by it, and (ii) engage
in the activities and transactions described in and contemplated by
this Agreement.
(b) Due Authorization. Bank United has full power and
authority to execute, deliver, and perform this Agreement, and has
taken all necessary action to authorize the execution, delivery, and
performance of this Agreement in accordance with its terms.
(c) Binding Agreement. This Agreement has been duly
authorized, executed and delivered by Bank United and, when duly
authorized, executed, and delivered by the FDIC Manager, this
Agreement shall constitute a legal, valid and binding obligation of
Bank United, enforceable against Bank United in accordance with its
terms except as such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization, conservatorship, receivership, or other
similar laws affecting the enforcement of creditors' right generally,
and (ii) general equitable principles (regardless of whether the issue
of enforceability is considered in a proceeding in equity or at law).
(d) Compliance with Law. The execution, delivery, and
performance by Bank United of this Agreement will not violate or
conflict with any provision of any applicable law or regulation, or
any order, writ, judgment, or decree of any court or governmental
authority to which it is otherwise subject, in each case to an extent
which would be materially adverse to the interests of any party
hereunder.
(e) Compliance with Obligations. The execution, delivery, and
performance by Bank United of this Agreement does not and will not (i)
violate or conflict with any provision of the charter or bylaws of
Bank United, or (ii) result in a violation, or breach of, or default
under any material contract, lease, or other instrument to which Bank
United is a party (or which is binding on it or any of its assets).
(f) Approvals and Consents. All material governmental approvals
and other material third party consents that are required in
connection with the execution, delivery, or performance of this
Agreement or the transactions contemplated by this Agreement by Bank
United, if any, have been obtained.
(g) Litigation.
(i) There is no legal action, suit, investigation, or
proceeding pending (in which Bank United is a party) or, to
Bank United's actual knowledge, threatened against or
affecting Bank United (whether or not Bank United is a party
thereto) or any of its subsidiaries or their assets which
questions the validity of this Agreement, or any of the
transactions contemplated hereby, or which
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<PAGE> 18
would be reasonably expected, either individually or in the
aggregate with all such other actions, suits, investigations,
or proceedings, to materially and adversely affect the
financial condition of Bank United or its ability to perform,
satisfy, or observe any obligation or condition under this
Agreement.
(ii) No claim asserted to date in any of the
Transferred Cases involves an allegation of fraud or willful
misconduct on the part of Bank United, its directors,
officers, employees or agents; provided, however, that this
representation does not apply to (x) allegations relating to
any act or failure to act by Bank United taken in accordance
with the written concurrence or direction of the FDIC Manager
or its predecessors in interest, or in accordance with a
written request delivered by Bank United to the FDIC Manager
or its predecessors in interest with respect to which no
written objection was delivered to Bank United or (y)
allegations that are without substantial basis in fact.
(h) Covered Assets. Each of the Transferred Loans and each
item of Transferred REO has been accounted for on the books and
records of Bank United as a Covered Asset within the meaning of the
Assistance Agreement.
(i) Capital Compliance. After giving effect to the
transactions contemplated by this Agreement, Bank United will at the
Closing Date be in compliance with the minimum regulatory capital
requirements of the Office of Thrift Supervision currently applicable
to Bank United.
(j) Capitalization. The authorized capital stock of Bank
United will, as of the Closing, consist of (i) 5,000,000 shares of
Preferred Stock having a stated value of $25 per share, of which
3,450,000 shares have been designated as Series A Preferred Stock,
with the relative powers, rights, preferences, qualifications,
limitations and restrictions as set forth in Bank United's charter (a
true and complete copy of which has been provided to the FDIC Manager)
and of which 1,550,000 shares are issuable in series with such
designations, relative powers, rights, preferences, qualifications,
limitations and restrictions as may be fixed from time to time by Bank
United's Board of Directors, and (ii) 5,000,000 shares of Common Stock
having a par value of $.01 per share.
As of the Closing, no shares of Bank United's Preferred Stock
will have been issued or will be outstanding which are convertible
into, or otherwise exchangeable for, Common Stock.
As of the Closing, 2,699,725 shares of Common Stock will be
outstanding and will be held beneficially and of record by USAT
Holdings, assuming that the Warrants are not exercised prior to the
Closing. No other shares of Bank United's Common Stock have been
issued or are presently outstanding.
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<PAGE> 19
Except for the Warrants, there are no outstanding
subscriptions, options, warrants, contracts, demands, or convertible
securities, under which Bank United is obligated to issue its capital
stock or equity securities of any kind.
Set forth on Exhibit 6.1(j) are the amount per share of each
cash dividend declared and paid by Bank United, and the dates on which
such dividends were declared and paid, with respect to its outstanding
Common Stock at any time from December 30, 1988 to and including the
date hereof. Except as set forth on Exhibit 6.1(j), there has been no
other cash dividend or other dividend or distribution of property
declared or made by Bank United with respect to its Common Stock at
any time from December 30, 1988 to and including the date hereof.
Nothing herein shall be construed as prohibiting Bank United from
paying any dividend or making any other distribution on or in respect
of its Common Stock between the date hereof and the Closing Date.
(k) Tax Matters. USAT Holdings, Hyperion Holdings, and Bank
United have supplied or made available to the RTC or the FDIC Manager
all federal and state income tax (or, where utilized, franchise or
other net-income-based equivalent of income tax) returns (the "Tax
Returns") for USAT Holdings, Hyperion Holdings, and Bank United
(including amended returns) which have been filed for the periods
ended September 30, 1989, September 30, 1990, September 30, 1991, and
September 30, 1992, to the extent that such Tax Returns are for
periods in which Bank United was included in such Tax Returns. Bank
United is, and at all times during the term of the Assistance
Agreement has been, a "domestic building and loan association" under
the terms of Section 7701(a)(19) of the Internal Revenue Code of 1986,
as amended (the "Code"). USAT Holdings, Hyperion Holdings and Bank
United have made available to the RTC or the FDIC Manager, and there
is attached hereto as Exhibit 6.1(k), certain tax information as
hereinafter described. The information on Exhibit 6.1(k) is taken from
the books and records used in preparing the tax returns for the
companies enumerated thereon, but no further representation or
warranty is made with respect to such information.
Exhibit 6.1(k) sets forth for each of the taxable years ended
September 30, 1989, September 30, 1990, September 30, 1991, and
September 30, 1992: (i) the amount of net operating loss that remained
available to be utilized by Bank United or the consolidated group of
which it is a member (subject to any applicable limitations under the
Code or applicable state tax statutes) to reduce its federal or state
income tax liability in a future taxable year, and (ii) the portion of
such net operating loss that is attributable to Tax Benefit Items (as
defined in Section 1(a) of Exhibit 2.3 hereto) and the portion that is
not attributable to Tax Benefit Items. Nothing herein shall be
construed as limiting or restricting the right of Bank United or any
member of the consolidated group of which it is a member from amending
or otherwise modifying any such Tax Return, subject to the provisions
of the Tax Sharing Agreement. The FDIC Manager acknowledges that such
amendments or other changes could have the effect of altering
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<PAGE> 20
the information set forth on Exhibit 6.1(k), and that such alteration
shall not constitute a breach of the representations and warranties
made hereby.
(l) Title and Related Matters. On the Closing Date, Bank
United will transfer, convey and assign to the FDIC Manager all of
Bank United's right, title, and interest in and to the Transferred
Assets, free and clear of any adverse claim, lien, mortgage, charge,
security interest, pledge, option, encumbrance and other restriction
or limitation held by Bank United or any of its affiliates except as
set forth in Exhibit 6.1(l). Bank United has not taken any actions
(or failed to take any actions) in violation of the terms of the
Assistance Agreement with respect to the Transferred Assets that have
resulted in or will result in (i) any material adverse title claims,
liens, mortgages, charges, security interests, pledges, options,
encumbrances or other restrictions or limitations of any nature
whatsoever affecting the Transferred Assets, or (ii) any material
adverse change in the physical condition of the Transferred Assets;
provided, however, that no representation is made with respect to any
action (or failure to act) (x) taken (or omitted) with the written
concurrence or at the written direction of the FDIC Manager or any of
its predecessors in interest, or in accordance with a written request
delivered by Bank United to the FDIC Manager or its predecessors in
interest with respect to which no written objection was delivered to
Bank United, or (y) that does not constitute gross negligence, fraud,
or intentional or willful misconduct demonstrating a greater disregard
of a duty of care than gross negligence.
(m) Condemnation, etc. Except as set forth on Exhibit 6.1(m)
hereto, Bank United has not received written notice of any
condemnation, expropriation, eminent domain or similar proceeding
pending or threatened against any of the Transferred Assets, and Bank
United has made no commitments to, and has received no written notice
from, any public authority or other entity with respect to the taking
or use of any of the Transferred Assets, whether temporarily or
permanently, for easements, rights-of-way, or other public or
quasi-public purposes.
(n) No Other Arrangements. Except as set forth in Exhibit
6.1(n) attached hereto, and except as may be entered into between the
date hereof and the Closing Date in accordance with the terms of the
Assistance Agreement, Bank United has not entered into any other
agreement for the sale of the Transferred Assets.
(o) No Leases, etc. Except as provided in Exhibit 6.1(o), and
except as may be entered into between the date hereof and the Closing
Date in accordance with the terms of the Assistance Agreement, Bank
United has entered into no oral or written leases, licenses, permits,
franchises, concessions, or employment, collective bargaining or
occupancy agreements affecting the Transferred Assets.
(p) No Violations of Law. Except with respect to those items
identified on Exhibit 6.1(p) hereto, and except for laws relating to
occupational health or safety or the
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<PAGE> 21
generation, transportation, use, installation or disposition of
hazardous materials or the discharge of hazardous materials or other
pollutants into air or water, Bank United has not received any written
notice, and Bank United has no actual knowledge, of existing
violations of any requirements of law that materially adversely affect
the Transferred Assets, and Bank United has not received written
notice of any violation of laws relating to occupational health or
safety with respect to the Transferred REO; provided, however, that no
representation is made with respect to matters existing on or prior
to December 30, 1988.
(q) Environmental. Except as set forth in Exhibit 6.1(q), (i)
Bank United has no actual knowledge of any written studies or reports
regarding the presence of hazardous substances (as defined as of the
date hereof by the Environmental Protection Agency pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), as amended, 42 U.S.C. Section 9601 et seq.) on the
Transferred REO (or the property to which the Mortgages relate), (ii)
subject to incidental and non-consequential exceptions, Bank United
has no actual knowledge of the discharge or existence on the
Transferred REO (or the property to which the Mortgages relate) of any
such hazardous substances, (iii) Bank United has not received and has
no actual knowledge of any prior owner of the Transferred REO (or the
property to which the Mortgages relate) having received any notice of
any kind relating to or in connection with the violation of any
environmental statute including but not limited to the Resource
Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. Section
6901 et seq., and CERCLA, and all regulations adopted pursuant to RCRA
and CERCLA, and (iv) Bank United has not caused any such hazardous
substances to be generated, treated, transported, stored, used,
installed or disposed in or on the Transferred REO (or the property to
which the Mortgages relate), except for incidental and non-
consequential exceptions or in accordance with the requirements of
applicable law; provided, however, that no representation is made with
respect to matters existing on or prior to December 30, 1988.
For purposes of this Agreement, "actual knowledge" of Bank United shall mean an
item actually known to Jonathon Heffron, Max Epperson, or the Asset Manager
identified on Exhibit 6.1(r), with respect to the assets indicated on such
Exhibit.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of the Holding Companies.
To induce the FDIC Manager to enter into this Agreement and to consummate the
transactions contemplated hereby, each Holding Company, severally with respect
to itself only, makes the following
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representations and warranties to the FDIC Manager as of the date hereof, each
of which shall survive the consummation of the transaction contemplated herein:
(a) Existence. Such Holding Company is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with all requisite power and authority to (i) own and
operate its properties and conduct its business as currently conducted
by it, and (ii) engage in the transactions described in and
contemplated by this Agreement.
(b) Due Authorization. Such Holding Company has full power and
authority to execute, deliver, and perform this Agreement, and has
taken all necessary action to authorize the execution, delivery, and
performance of this Agreement in accordance with its terms.
(c) Binding Agreement. This Agreement has been duly
authorized, executed and delivered by such Holding Company and, when
duly authorized, executed, and delivered by the FDIC Manager, this
Agreement shall constitute a legal, valid and binding obligation of
such Holding Company, enforceable against such Holding Company in
accordance with its terms except as such enforceability may be limited
by (i) bankruptcy, insolvency, reorganization, conservatorship,
receivership, or other similar laws affecting the enforcement of
creditors' right generally, and (ii) general equitable principles
(regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law).
(d) Compliance with Law. The execution, delivery, and
performance by such Holding Company of this Agreement will not violate
or conflict with any provision of any applicable law or regulation, or
any order, writ, judgment, or decree of any court or governmental
authority to which it is otherwise subject, in each case to an extent
which would be materially adverse to the interests of any party
hereunder.
(e) Compliance with Obligations. The execution, delivery, and
performance by such Holding Company of this Agreement does not and
will not (i) violate or conflict with any provision of the
organizational documents of such Holding Company, or (ii) result in a
violation, or breach of, or default under any material contract,
lease, or other instrument to which such Holding Company is a party
(or which is binding on it or any of its assets).
(f) Approvals and Consents. All material governmental
approvals and other material third party consents that are required in
connection with the execution, delivery, or performance of this
Agreement or the transactions contemplated by this Agreement by such
Holding Company, if any, have been obtained.
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<PAGE> 23
(g) Litigation. There is no legal action, suit, investigation,
or proceeding pending (in which such Holding Company is a party) or,
to such Holding Company's actual knowledge, threatened against or
affecting such Holding Company (whether or not such Holding Company is
a party thereto) or any of its subsidiaries or their assets which
questions the validity of this Agreement, or any of the transactions
contemplated hereby,or which would be reasonably expected, either
individually or in the aggregate with all such other actions, suits,
investigations, or proceedings, to materially and adversely affect the
financial condition of such Holding Company or its ability to perform,
satisfy, or observe any obligation or condition under this Agreement.
Section 7.2 Representations and Warranties of the FDIC Manager. To
induce Bank United and the Holding Companies to enter into this Agreement and
to consummate the transactions contemplated hereby, the FDIC Manager hereby
makes the following representations and warranties, each of which shall survive
the consummation of the transaction contemplated herein:
(a) Power and Authorization. The execution, delivery, and
performance of this Agreement (i) are within the legal power and
authority of the FDIC Manager, and (ii) have been duly authorized by
all necessary action on the part of the FDIC Manager. The FRF is the
transferee of the assets and liabilities of the FSLIC on August 8,
1989. The FDIC Manager is the statutory manager of FRF and, as such,
has the rights, powers and duties to control, dispose of, or otherwise
act with all of the rights, powers, and duties of a manager or owner of
the assets and liabilities of the FRF. The FDIC Manager is the sole
successor to all rights, duties, and obligations of the FSLIC under the
Assistance Agreement and the Warrant Agreement. The FDIC as receiver of
Old United is the sole successor to all rights, duties and obligations
of the FSLIC as receiver of Old United under the Acquisition Agreement.
The FDIC Manager has the sole statutory authority to execute, deliver
and perform this Agreement and no joinder of any other person or party
that is an agency or instrumentality of the federal government of the
United States, is necessary in order to fully effect the transactions
contemplated by this Agreement. The FRF is not an agency or
instrumentality of the United States and does not have the power to sue
or be sued in its own name or capacity.
(b) Binding Agreement. This Agreement has been duly
authorized, executed and delivered by the FDIC Manager, and upon the
due authorization, execution, and delivery of this Agreement by each
of the other parties hereto, this Agreement shall be a legal, valid
and binding obligation of the FDIC Manager, enforceable against it in
accordance with its terms except as such enforceability may be limited
by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).
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<PAGE> 24
(c) Warrants. The FRF, as managed by the FDIC Manager, is the
sole owner of the Warrants and has not exercised, assigned,
transferred, or otherwise encumbered the Warrants.
ARTICLE VIII
COVENANTS
Section 8.1 Allocations for Federal Tax Purposes. For purposes of
calculating Bank United's federal income tax liability, the FDIC Manager and
Bank United shall allocate the Termination Amount as set forth on Exhibit 8.1
hereto.
Section 8.2 Bank United Cooperation Regarding Transferred Assets. At
the request of the FDIC Manager, upon reasonable written notice, Bank United
shall make its employees available to testify in any litigation concerning the
Transferred Assets to the extent the FDIC Manager or its counsel, in their sole
judgment, considers such testimony to be appropriate. All reasonable
out-of-pocket expenses incurred by each employee of Bank United associated with
the giving of any such testimony shall be paid by the FDIC Manager or, if paid
by Bank United or any such employee, promptly reimbursed by the FDIC Manager to
Bank United or such employee.
Section 8.3 Further Assurances. Each of the parties hereto shall
promptly and duly cause to be taken, executed, acknowledged or delivered all
such further acts, conveyances, documents and assurances as any party hereto
may from time to time reasonably request in order more effectively to carry out
the intent and purposes of this Agreement and the transactions contemplated
hereby; provided, that the costs associated with the preparation, execution, or
filing of any such documents shall be borne by the party requesting the same.
Section 8.4 Costs and Expenses. Except to the extent otherwise
specifically provided herein, each party hereto agrees to pay all costs and
expenses incurred by it in connection with or incidental to the matters
contained in this Agreement, including any fees and disbursements of attorneys,
accountants, and investment banking consultants.
ARTICLE IX
INDEMNIFICATIONS
Section 9.1 Indemnification by the FDIC Manager. The FDIC Manager will
indemnify and hold harmless Bank United (including by way of indemnification of
its officers, directors, employees and affiliated persons (including the
Holding Companies and their officers, directors, employees and affiliated
persons)) ("Bank United Indemnities") for amounts actually incurred
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<PAGE> 25
and paid by Bank United Indemnities in connection with the defense,
prosecution, satisfaction, settlement or compromise, including the reasonable
costs and expenses of litigation (including reasonable attorneys' and
accountants' fees, travel expenses, judgments, court costs and related
litigation expenses, and such other reasonable costs as may be actually
incurred and paid by Bank United Indemnities in connection with the defense,
prosecution, satisfaction, settlement or compromise) of any claims that are
asserted against any of the Bank United Indemnities (i) relating to the
Transferred Assets or Transferred Claims arising out of, contributed to by, or
based upon any liability, action or failure to act of, the FDIC Manager or its
officers, employees, or agents occurring after the Closing Date, (ii) arising
out of, contributed to by, or based upon any breach of the representations and
warranties of the FDIC Manager set forth in Article VII hereof, or (iii)
arising out of or based upon the Transferred Cases or any matter subject to the
provisions of Section 3.5(c) hereof (other than a matter subject to Section
7(a)(3) of the Assistance Agreement) to the extent provided in Section 3.5
hereof, but only, in the case of matters described in clause (iii), above, if
notice of such claim is given prior to December 30, 1998.
Section 9.2 Indemnification Pursuant to Assistance Agreement.
Notwithstanding any other provision of this Agreement or the granting of the
Mutual Release contemplated hereby, the provisions of Section 7(a) of the
Assistance Agreement shall for all purposes remain in full force and effect to
the same extent as they would in the absence of this Agreement and the granting
of the Mutual Release; provided, however, that (i) the provisions of Section
7(a) requiring that Bank United comply with the requirements of Sections 15,
16, 17, 18, and 31 of the Assistance Agreement shall be deemed to have been
deleted for all purposes, and (ii) the obligations of the FDIC Manager shall
terminate at the time and in the manner specified in Section 24 of the
Assistance Agreement, except that (x) no Indemnified Party shall be obligated
to comply with the requirements specified in the first sentence of Section
24(b) of the Assistance Agreement, and (y) the indemnification provided for in
Section 7(a)(3) of the Assistance Agreement shall not in any event terminate.
Section 9.3 Indemnification by Bank United. Bank United shall
indemnify and hold harmless the FDIC Manager and the FRF (including by way of
indemnification of their respective officers, directors and employees) (and the
respective statutory successors and assigns of the foregoing) ("FDIC
Indemnitees") for amounts actually incurred and paid by the FDIC Indemnitees in
connection with the defense, prosecution, satisfaction, settlement or
compromise, including the reasonable costs and expenses of litigation
(including reasonable attorneys' and accountants' fees, travel expenses,
judgments, court costs and related litigation expenses, and such other actual
and reasonable costs as may be incurred and paid by the FDIC Indemnitees in
connection with the defense, prosecution, satisfaction, settlement or
compromise), of any claims that are asserted against any of the FDIC
Indemnitees arising out of, contributed to by, or based upon any breach of the
representations and warranties of Bank United and/or any of the Holding
Companies set forth in Articles VI and VII hereof, but only if notice of such
claim is given prior to the expiration of the survival period of such
representation or warranty.
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<PAGE> 26
Section 9.4 Procedures for Obtaining Indemnification. (a) Any party
entitled to indemnification under this Article IX (an "Indemnified Party")
shall provide the Indemnifying Party with written notice of any claim which may
give rise to indemnification hereunder; provided that failure to give such
notice shall not relieve the Indemnifying Party of its obligations hereunder,
unless such failure to provide notice shall have materially and substantially
prejudiced the rights of the Indemnifying Party hereunder. The Indemnified
Party shall in any event (x) notify and provide the Indemnifying Party with any
summons, complaint or other notice of lawsuit and any other documents directly
related to such claims, and (y) provide appropriate documentation of the
expenses for which the Indemnified Party requests indemnification.
(b) Provided that the Indemnifying Party has admitted in
writing its obligation to provide indemnification under this Article 9
with respect to such claim:
(i) The Indemnified Party shall cooperate with the
Indemnifying Party in connection with the defense of such
claims.
(ii) The Indemnifying Party may assume the defense of
such claims, at its cost and expense, and control the conduct
of the defense of such claims, including the decision to
settle any such claims, pursuant to (iii) below. The election
by the Indemnifying Party to assume such defense shall be
evidenced by a notice in writing delivered to the Indemnified
Party. The Indemnifying Party, if it so elects to assume such
defense, shall promptly reimburse the Indemnified Party for
all amounts theretofore incurred in connection with such
matter as provided in Section 9.1, 9.2, or 9.3, or, subject to
Section 9.4(b)(iv) below, thereafter incurred by the
Indemnified Party.
(iii) The settlement or compromise of any claims
against an Indemnified Party by the Indemnifying Party is
subject to the prior written approval of the Indemnified
Party, which shall not be unreasonably withheld.
(iv) Notwithstanding the assumption by an Indemnifying
Party of the defense of a claim, an Indemnified Party may
retain its own counsel and elect to participate in (but not
control) the defense of such a claim, but the fees and expense
of such counsel incurred after the date on which the
Indemnifying Party delivers notice in writing to the
Indemnified Party that the Indemnifying Party is assuming such
defense shall be at the expense of such Indemnified Party.
(c) If the Indemnifying Party does not elect to assume the
defense of a claim which may give rise to an indemnification
hereunder, or has not acknowledged its obligation to provide
indemnification as contemplated by subsection (b), above, the
Indemnifying Party will nonetheless upon demand by the Indemnified
Party promptly reimburse such Indemnified Party for all costs and
expenses otherwise subject to
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<PAGE> 27
indemnification hereunder, as they are incurred; provided, however,
that the Indemnified Party shall have complied with the requirements
of subsection (a), above, and shall repay on demand all amounts paid
hereunder by the Indemnifying Party in the event it is subsequently
determined by a final and non-appealable judgment of a court of
competent jurisdiction that such Indemnified Party is not entitled to
such indemnification.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments. No amendment, modification, or waiver of any
provision of this Agreement, nor any consent to any departure therefrom by any
party, shall in any event be effective unless the same shall be embodied in a
writing signed by all parties hereto, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 10.2 Notices. Any notice, report, request, claim, demand,
consent, approval, or other communication to any party hereto shall be deemed
effective when received and shall be given in writing, and delivered in person
against receipt therefor, or sent by certified mail, postage prepaid, or by
confirmed facsimile transmission (with hard copy mailed at the same time), to
such party at its address set forth below (with copies as indicated below) or
at such other address as such party shall hereafter furnish in writing to the
other parties.
(a) If to Bank United:
Bank United of Texas FSB
3200 Southwest Freeway
16th Floor
Houston, Texas 77027
Attention: Jonathon K. Heffron
Telecop No.: (713) 963-7915
With a copy to:
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: Richard W. Scott
Telecopy No.: (713) 758-2346
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<PAGE> 28
(b) If to the Holding Companies:
Hyperion Holdings Inc.
Attention: Salvatore A. Ranieri
Suite 500
50 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
Telefax: (516) 745-6769
Telecopy Confirmation: (516) 745-6644
(c) If to the FDIC Manager:
Federal Deposit Insurance Corporation
Division of Resolutions
Assisted Acquisitions (FRF)
550 17th Street, N.W.
Washington, D.C. 20429
Attention: Associate Director (FRF)
Telecopy No.: (202) 898-8929
With a copy to:
Federal Deposit Insurance Corporation
Legal Division
550 17th Street, N.W.
Washington, D.C. 20429
Attention: Associate General Counsel
Resolutions Section
Telecopy No: (202) 898-3658
Section 10.3 Waiver. No failure or delay on the part of any party to
this Agreement in exercising any right, privilege, power, or remedy under this
Agreement, and no course of dealing among the parties hereto, shall operate as
a waiver of such right, privilege, power, or remedy; nor shall any single or
partial exercise of any right, privilege, power, or remedy under this Agreement
preclude any other or further exercise of such right, privilege, power, or
remedy. The rights, privileges, powers, and remedies available to the parties
hereto are cumulative and not exclusive of any other rights, privileges,
powers, or remedies provided by statute, at law, in equity, or otherwise. No
notice to or demand on any party shall in any case entitle such party to any
other or further notice or demand in any similar or other circumstances or
constitute a waiver of the right of the party giving such notice or making such
demand to take any other or further action in any circumstances without notice
or demand.
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<PAGE> 29
Section 10.4 Governing Law. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
federal law of the United States of America and, in the absence of controlling
federal law, in accordance with the law of the State of Texas.
Section 10.5 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under all applicable laws. However, in the event that any provision of this
Agreement shall be held to be prohibited or invalid under any applicable law,
or declared unenforceable, then all of the remaining provisions of this
Agreement shall, to the fullest extent possible, remain in full force and
effect and shall be binding on the parties hereto; provided, that this Section
10.5 shall be of no force or effect if the exclusion of such provision or
portion thereof shall render the remaining provisions of this Agreement
incapable of observance or shall cause this Agreement as a whole to fail of its
essential purpose, or shall otherwise be inequitable to any party in light of
the intent of the parties as set forth herein.
Section 10.6 Successors and Assigns. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
and their respective transferees, successors, and assigns, but this Agreement
may not be assigned to any party nor may any rights or obligations under it be
transferred or delegated to or vested in any other party (except through
merger, consolidation, liquidation, statutory succession, or change of control)
without the prior written consent of Hyperion Partners, Bank United, and the
FDIC Manager, which consents shall not be unreasonably withheld.
Section 10.7 Headings. The headings contained in this Agreement are
for convenience only and shall not affect the construction of any provision of
this Agreement.
Section 10.8 Exhibits. All exhibits attached hereto are an integral
part of and are hereby incorporated into this Agreement.
Section 10.9 Entire Agreement. This Agreement and the Exhibits hereto
embody the entire agreement among the parties hereto relating to the subject
matters herein, and supersedes all prior agreements and understandings among
the parties, oral or written, relating to such matters.
Section 10.10 Third Party Beneficiaries. Except as expressly provided
in this Agreement, no provision of this Agreement is intended to nor shall it
benefit any person other than the parties hereto.
Section 10.11 Execution in Counterparts. This Agreement may be
executed in separate counterparts, each of which when executed and delivered
shall be deemed to be an original, and all of which taken together shall
constitute one and the same agreement.
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<PAGE> 30
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed us by themselves or their respective officers, as the case may be, as
of the day and year first above written.
BANK UNITED OF TEXAS FSB
By: /s/ JONATHON R. HEFFRON
-----------------------------------------
Name: Jonathon R. Heffron
Title: Executive Vice President &
General Counsel
FEDERAL DEPOSIT INSURANCE CORPORATION,
as MANAGER of THE FSLIC RESOLUTION FUND
By: /s/ KEVIN STEIN
-----------------------------------------
Name: Kevin Stein
Title: Associate Director
USAT HOLDINGS INC.
By: /s/ SALVATORE A. RANIERI
-----------------------------------------
Name: Salvatore A. Ranieri
Title: Vice President
HYPERION HOLDINGS INC.
By: /s/ SCOTT A. SHAY
-----------------------------------------
Name: Scott A. Shay
Title: Vice President
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<PAGE> 31
HYPERION PARTNERS L.P.
By: Hyperion Ventures L.P.,
the general partner
By: SAR Hyperion Corp.,
a general partner
By: /s/ SALVATORE A. RANIERI
-----------------------------------
Salvatore A. Ranieri
President
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<PAGE> 1
EXHIBIT 10.1b
TAX BENEFITS AGREEMENT
This TAX BENEFITS AGREEMENT (this "Agreement") is entered into as of
December 28, 1993 by and among the Federal Deposit Insurance Corporation
("FDIC"), as manager and on behalf of the FSLIC Resolution Fund ("FRF"), which
is the transferee of the assets and liabilities of the Federal Savings and Loan
Insurance Corporation ("FSLIC"), (the FDIC as manager and on behalf of FRF
herein called the "FDIC Manager"), and Bank United of Texas FSB (formerly United
Savings Association of Texas FSB), a federal stock savings bank, located in
Houston, Texas ("Bank United"), USAT Holdings Inc. ("USAT Holdings"), a savings
and loan holding company incorporated under the laws of Delaware of which Bank
United is a subsidiary, Hyperion Holdings Inc., a savings and loan holding
company incorporated under the laws of the State of Delaware of which USAT
Holdings is a subsidiary ("Hyperion Holdings"), and Hyperion Partners L.P., a
limited partnership organized under the laws of the State of Delaware of which
Hyperion Holdings is a wholly-owned subsidiary ("Hyperion Partners"), (USAT
Holdings, Hyperion Holdings, and Hyperion Partners, collectively, the "Holding
Companies"). Capitalized terms not otherwise defined herein shall have the
meaning set forth in that certain Settlement and Termination Agreement,
including exhibits thereto of even date herewith, by and among the FDIC Manager,
Bank United and the Holding Companies (the Settlement and Termination Agreement
and exhibits thereto hereinafter referred to as the "Settlement and Termination
Agreement") and the Assistance Agreement, and the meaning set forth in the
Settlement and Termination Agreement shall control in the event of a conflict.
R E C I T A L S
A. FDIC Manager, Bank United and the Holding Companies are
parties to that certain Assistance Agreement dated December 30, 1988 (the
"Assistance Agreement").
B. The Assistance Agreement provides for certain payments
("Assistance Payments") to be made by FDIC Manager to Bank United, and sets
forth provisions pursuant to which a portion of Net Tax Benefits generated by
Assistance Payments are to be paid by Bank United to the FDIC Manager.
C. Pursuant to the Settlement and Termination Agreement, the
parties have agreed to terminate the Assistance Agreement and forego the rights
and obligations created therein, in consideration of the payments made, and
rights and obligations undertaken, pursuant to the Settlement and Termination
Agreement.
D. The parties desire to set forth herein their understanding and
agreement regarding the certain federal and state tax matters contemplated by
the Settlement and Termination Agreement.
E. References herein to the Code are to the Internal Revenue Code
of 1986, as amended ("Code").
<PAGE> 2
AGREEMENT
In consideration of the premises and the mutual covenants and
obligations contained herein and in the Settlement and Termination Agreement,
the parties agree as follows:
Section 1. Tax Benefits. For each taxable year of Bank United
commencing with the taxable year ending September 30, 1993 and ending with the
taxable year ending nearest to September 30, 2003 (each such taxable year being
referred to herein as a "Tax Sharing Period"), Bank United shall pay to the
FDIC Manager an amount equal to one-third (1/3) of the sum of the Federal Net
Tax Benefits (as defined and calculated in accordance with Section 1(c)) and
the State Net Tax Benefits (as defined and calculated in accordance with
Section 1(d)), (collectively "Net Tax Benefits") if any, realized by Bank
United in such year, but in no event shall the amount paid be less than $4
million for the year ended September 30, 1993.
(a) Tax Benefit Items. For purposes of this Agreement, the Net
Tax Benefits shall be the tax benefits that are attributable to the
items described in Sections 1(a)(1), (2) and (3) below ("Tax Benefit
Items") and that are either utilized by Bank United to reduce its
federal or state income tax liability (all references hereinafter to
"state income tax" includes where utilized, franchise or other taxes
which are based upon net income and are the equivalent of an income
tax) in a given year, as calculated in Section 1(c) and (d) below, or
are excluded from federal or state income in a given tax year:
(1) The amount of any net operating loss carryovers,
any capital loss carryover, and any other carryovers on the
Books and Records of United Savings Association of Texas ("Old
United") at the Effective Date resulting in a tax deduction
from Bank United's gross income;
(2) Any cost, expense or loss (i) that is incurred by
Bank United, (ii) for which the FRF or the FSLIC has made
assistance payments to Bank United pursuant to Section 3(a) of
the Assistance Agreement or payments pursuant to the
Settlement and Termination Agreement, that are excludable from
gross income for federal or state income tax purposes, and
(iii) that are deductible on Bank United's federal or state
income tax return or reduce the balance of Bank United's bad
debt reserves;
(3) The sum of (i) the amount of any interest paid to
Bank United by the FRF or the FSLIC on the Promissory
Notes and (ii) the amount of guaranteed yield assistance
payments that Bank United receives under the Assistance
Agreement or pursuant to the Settlement and Termination
Agreement, that are excludable from gross income for
federal or state tax purposes.
(b) In applying Sections 1(a)(1) and (2) above, the parties
agree to the following:
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<PAGE> 3
(1) A loss for federal or state income tax purposes from
the sale, exchange, other disposition or charge off, of any
of the following assets:
(A) purchased servicing;
(B) one-to-four family residential mortgage
loans that did not as of the Effective Date
constitute Covered Assets under the Assistance
Agreement; or
(C) marketable securities other than the
Mortgage Backed Securities Portfolio
where such asset was acquired by Bank United from Old United, was marked-
to-market on the Effective Date, and with respect to which a goodwill payment
was made pursuant to Section 3(a)(13) of the Assistance Agreement (the
"Goodwill Assets"), is a Tax Benefit Item pursuant to Section 1(a)(2) in the
following amount:
(i) If the amount of such loss is equal to or
less than the difference (the "Mark-to-Market Spread")
on the Effective Date between the tax basis of such Goodwill
Asset and its fair market value, the entire amount of such
loss is a Tax Benefit Item.
(ii) If the amount of such loss is greater than the
Mark-to-Market Spread, the amount of the Tax Benefit Item is
limited to the Mark-to-Market Spread.
Solely for purposes of this Agreement, the Mark-to-Market Spread of a Goodwill
Asset shall be equal to 19.5% of the tax basis on the Effective Date of such
Goodwill Asset. The application of this paragraph is illustrated by the examples
set forth in Schedule A attached hereto.
(2) No adjustment in a payment due hereunder shall be made
by reason of the difference, if any, between the tax basis of
an asset acquired from Old United on the Effective Date, and
its book value of that date as reflected in the financial
records of Old United, except for a difference that is claimed
on a federal or state income tax return, or amended return,
filed by Bank United or the Consolidated Group, or that results
from an adjustment made in an audit of an income tax return by
the IRS or the appropriate state taxing authority.
(3) The amount of the Tax Benefit Items that are realized
through a bad debt deduction attributable to a Covered Asset
or to any other asset to the extent of the difference on the
Effective Date between the tax basis of such other asset and
its fair market value shall be determined by comparing the
amount of
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<PAGE> 4
its bad debt deduction for the taxable year with the amount
of such deduction that would have been available had its bad
debt deduction been computed without taking into account (i)
the pre-acquisition bad debt history of Old United (i.e.,
with respect to the qualifying and non-qualifying loans, the
beginning bad debt reserve balances, the charge-off history
and loan history, and the reserve balances at the close of
the base year (as defined in Section 585(b)(2) of the Code))
and (ii) losses from assets that are reimbursed through
capital loss coverage or reimbursable goodwill. In
establishing the amount of its bad debt deduction Bank United
shall be entitled to use any method, at its sole discretion,
as may be permissible under the Code; provided, however, in
calculating Net Tax Benefits under this Agreement, Bank United
shall use the same method it uses on its tax returns.
(c) Federal Net Tax Benefits. The Federal Net Tax Benefits for
a taxable year shall be equal to the excess, if any, of:
(1) the federal income tax liability for such taxable
year (taking into account all carryovers and carrybacks to such
year that would have been allowable and assuming that dividends
on preferred stock are treated as tax deductible interest
expense) which would have been incurred by Bank United or the
consolidated group (as defined in Section 1504 of the Code) of
which it is a member ("Consolidated Group"), whichever is
applicable, if the Tax Benefit Items described in Sections
1(a)(1), (2) and (3) had not been deducted or excluded from
income in any taxable year, but without adjustment to the bad
debt reserve (provided that federal income tax liability shall
not include federal income tax liability imposed on the
following: income includable pursuant to the adjustments under
Section 481 of the Code agreed to by Old United; income
resulting from the recapture of any portion of the bad debt
reserve created by Old United where Bank United has not
received a corresponding amount of cash or property; gain with
respect to any asset acquired from Old United in an amount up
to the excess, if any, of the fair market value of such asset
on the date of acquisition over the adjusted tax basis of such
asset on such date), over
(2) the federal income tax liability (including any
alternative minimum tax liability) for such taxable year
(taking into account all allowable carryovers and carrybacks to
such year) actually incurred by Bank United or the Consolidated
Group, whichever is applicable.
(d) State Net Tax Benefits. The State Net Tax Benefits for a
taxable year shall be equal to the excess, if any, of:
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<PAGE> 5
(1) the state income tax liability for such taxable year
(taking into account all carryovers and carrybacks to such year
that would have been allowable and assuming that dividends on
preferred stock are treated as tax deductible interest expense)
which would have been incurred by Bank United, or the
Consolidated Group, if the Tax Benefit Items described in
Sections 1(a)(1), (2) and (3) had not been deducted or excluded
from the income in any taxable year but without adjustment to
the bad debt reserve, (provided that state income tax liability
shall not include state income tax liability imposed on the
following: income includable pursuant to adjustments under
Section 481 of the Code agreed to by Old United; income
resulting from the recapture of any portion of the bad debt
reserve created by Old United where Bank United has not
received a corresponding amount of cash or property; gain with
respect to any asset acquired from Old United in an amount up
to the excess, if any, of the fair market value of such asset
on the date of acquisition over the adjusted tax basis of such
asset on such date), over
(2) the state income tax liability for such taxable year
(taking into account all allowable carryovers and carrybacks
to such year) actually incurred by Bank United, or the
Consolidated Group.
(e) Timing of Payment. In the case of all payments due
hereunder to the FDIC Manager, Bank United shall make payment to the
FDIC Manager within 30 days after (i) the date on which Bank United or
the Consolidated Group files its federal or state income tax return
for the taxable year in which such Net Tax Benefits are realized, or
(ii) if such Net Tax Benefits are realized as a result of an
adjustment on audit or the filing of an amended return, the date on
which a refund is received (either by way of a direct payment or a
credit against other tax liability) (or if no refund is due, the date
of filing the amended return or agreeing to the adjustment), or (iii)
if such Net Tax Benefits are realized as the result of adjustment of a
net operating loss or capital loss carryover from a prior tax year,
the date on which the return showing such adjustment is filed.
(f) Cooperation. Bank United and the Holding Companies shall,
upon request of the FDIC Manager, provide copies of the federal
and state tax returns and amended tax returns of Bank United and
members of the Consolidated Group for any Tax Sharing Period and all
amended federal and state tax returns of Bank United and members of
the Consolidated Group for any tax year prior to the Tax Sharing
Period, in each case to the extent that Bank United is included in
such tax returns for such Tax Sharing Periods. Upon request of the
FDIC Manager, Bank United and the Holding Companies shall provide
evidence that Bank United was not included in a particular tax return,
and, for tax returns including Bank United, will provide access to
supporting workpapers solely to the extent that such workpapers relate
to determination of payments due hereunder and copies of selected
portions of those workpapers. The FDIC Manager agrees that such tax
returns and workpapers shall be kept confidential to the full extent
permitted by law
-5-
<PAGE> 6
and shall be used by the FDIC Manager solely for the purposes of the
Settlement and Termination Agreement. The FDIC Manager, Bank United,
and the Holding Companies agree to use their best efforts to cooperate
fully with each other and to take all such actions as are necessary to
fulfill their respective obligations under this Agreement.
(g) Tax Benefit Reports. For each Tax Sharing Period, Bank
United shall submit an annual report to the FDIC Manager showing the
total Tax Benefit Items available to Bank United in the year covered
by such report, the amount of such Tax Benefit Items, if any, utilized
during such year and a calculation of the Net Tax Benefits, if any,
for such year. Such report shall be in substantially the same form,
and reviewed by Bank United's independent auditors to the same extent,
as the information furnished by Bank United to the FDIC Manager for
the taxable year ending September 30, 1992. Such report, as of the
close of each Tax Sharing Period, shall be submitted, regardless of
whether any Net Tax Benefits are realized by Bank United with respect
to that tax year, within 30 days after the filing of the federal or
state income tax return of Bank United or the Consolidated Group for
such year, or within 30 days of the filing of any amended federal or
state income tax return for such year by Bank United or the
Consolidated Group.
Section 2. Period of Tax Sharing. Except as set forth in Section 5(c)
of this Agreement, Bank United shall have no obligation to make any payment to
the FDIC Manager hereunder by reason of the utilization of a Tax Benefit Item
in a taxable year that is not a Tax Sharing Period. The obligation of Bank
United to reimburse the FDIC Manager for utilization of a Tax Benefit Item in a
year that is a Tax Sharing Period shall continue until each such Tax Sharing
Period is a tax year that is closed under the Code.
Section 3. Disallowed Tax Benefits. In the event that during a Tax
Sharing Period Net Tax Benefits result in credits or payments with respect to
(i) Tax Benefit Items which are subsequently disallowed or that are
subsequently determined not to be excluded or that cease to be Tax Benefit
Items because it is determined that payments with respect to such Tax Benefits
Items are not to be excludable from gross income, or (ii) there are adjustments
(including adjustments to net operating loss or capital loss carryovers but not
carrybacks) with respect to the return of the Consolidated Group which reduce
utilization of such Tax Benefit Items by Bank United or the Consolidated Group,
then the Net Tax Benefits for any such Tax Sharing Period shall be recalculated
taking into account such reduction in utilization of Tax Benefit Items, and
FDIC Manager shall reimburse Bank United for any decrease in Net Tax Benefits
to the extent that Bank United has paid the FDIC Manager for such Net Tax
Benefits pursuant to Section 1 of this Agreement. In no event shall the FDIC
Manager reimburse Bank United pursuant to this Section for adjustments to Net
Tax Benefits for the taxable year ending September 30, 1993, to the extent that
such reimbursement would cause the total amount paid by Bank United to FDIC
Manager for such year, pursuant to Section 1 of this Agreement, to be less than
$4 million. The obligation of the FDIC Manager to reimburse Bank United shall
continue after the end of the Tax Sharing Periods and until each Tax Sharing
Period has become a tax year that is closed
-6-
<PAGE> 7
under the Code and all payments due Bank United hereunder have been made. Any
payments due under this section shall be paid by the FDIC Manager in
immediately available funds within 30 days after written request. This section
shall not apply with respect to the utilization of Tax Benefit Items in a
taxable year that is not a Tax Sharing Period. The application of this section
is illustrated by the examples set forth in Schedule B attached hereto.
Section 4. Effect of Settlement and Termination Agreement. The
parties hereto agree that, subject to the provisions of Section 5 hereof, the
payment made pursuant to the Settlement and Termination Agreement reflects,
among other matters, a full and final settlement of all obligations of Bank
United under the Assistance Agreement with respect to all tax years ending on
or prior to September 30, 1992. The parties hereto further agree that Bank
United shall not have any continuing liability to any person under Section 9 of
the Assistance Agreement with respect to all tax years ending on or prior to
September 30, 1992 except to the extent provided in Section 5(c) of this
Agreement.
Section 5. Preparation of Tax Returns and Amended Tax Returns of Bank
United.
(a) Bank United and the Holding Companies shall have the sole
authority to determine the position to be taken in the preparation and
filing of all tax returns and the position to be taken with respect to
all tax matters in dealings with the IRS and appropriate state taxing
authorities.
(b) Nothing herein shall be construed as limiting or
restricting the right of Bank United or the Consolidated Group of
which it is a member to amend any tax return.
(c) Bank United and the Holding Companies agree that if they
amend or make any adjustment to any tax return of Bank United or the
Consolidated Group of which it is a member for tax years ending on or
prior to September 30, 1992, including any amendments or adjustments
required by the Internal Revenue Service or appropriate state taxing
authority, and such amendment or adjustment results in additional Net
Tax Benefits to which the FDIC Manager or the FSLIC would have been
entitled to share pursuant to Section 9 of the Assistance Agreement,
then Bank United and the Holding Companies shall pay FDIC Manager in
cash an amount equal to one-third of the additional Net Tax Benefits
so resulting.
(d) The FDIC Manager agrees that if there is an amendment or
adjustment to any tax return of Bank United or to the Consolidated
Group of which it is a member for tax years ending on or prior to
September 30, 1992, including any amendments or adjustments required
by the Internal Revenue Service or appropriate state taxing authority,
then the Net Tax Benefits for any such tax year, shall be recalculated
taking into account such amendment or adjustment, and the FDIC Manager
shall reimburse Bank United for any decrease in Net Tax Benefits to
the extent that Bank United has paid
-7-
<PAGE> 8
the FDIC Manager for such Net Tax Benefits pursuant to Section 9 of
the Assistance Agreement or pursuant to Section 5 of this Agreement.
(e) In no event shall the FDIC Manager reimburse Bank United
or the Holding Companies pursuant to this Section 5 for a tax year to
the extent that such reimbursement would cause the total amount paid
by Bank United and the Holding Companies to FDIC Manager, pursuant to
Section 9 of the Assistance Agreement and Sections 1 and 5 of this
Agreement, to be less than $500,000 for the tax year ending September
30, 1989, $1 million for the tax year ending September 30, 1990, $1.7
million for the tax year ending September 30, 1991, $2.8 million for
the tax year ending September 30, 1992 ("minimum payments"). No
payment will be due under this Section 5 by Bank United and the
Holding companies for a tax year except to the extent that the total
amount payable to the FDIC Manager pursuant to Section 9 of the
Assistance Agreement and Sections 1 and 5 of this Agreement exceeds
the minimum payment for such tax year.
(f) Payments or reimbursements due under this Section because
of an amendment or adjustment to any tax return of Bank United or the
Consolidated Group of which it is a member shall be made in cash not
later than 30 days after the filing of such amended return or the
finalization of such adjustment to such tax return.
Section 6. Amendment of Tax Returns of Old United. Each of the FDIC
Manager, Bank United, and each Holding Company agrees that it shall not cause,
solicit or request Old United or the Consolidated Group of which it is or was a
member to file an amended tax return for any taxable year.
Section 7. Assignment. This Agreement shall be assignable to the same
extent, and on the same terms, as the Settlement and Termination Agreement.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this agreement has been executed as of the date
first above written.
BANK UNITED OF TEXAS FSB
By: /s/ JONATHON K. HEFFRON
------------------------------
Name: Jonathon K. Heffron
----------------------------
Title: Executive Vice President &
---------------------------
General Counsel
---------------------------
FEDERAL DEPOSIT INSURANCE
CORPORATION, as MANAGER
of THE FSLIC RESOLUTION FUND
By: /s/ KEVIN STEIN
------------------------------
Name: Kevin Stein
----------------------------
Title: Associate Director
---------------------------
USAT HOLDINGS INC.
By: /s/ SALVATORE A. RANIERI
------------------------------
Name: Salvatore A. Ranieri
----------------------------
Title: Vice President
---------------------------
HYPERION HOLDINGS INC.
By: /s/ SCOTT A. SHAY
------------------------------
Name: Scott A. Shay
----------------------------
Title: Vice President
---------------------------
-9-
<PAGE> 10
HYPERION PARTNERS L.P.
By: Hyperion Ventures L.P.,
the general partner
By: SAR Hyperion Corp.,
a general partner
By: /s/ SALVATORE A. RANIERI
---------------------------
Salvatore A. Ranieri
President
-10-
<PAGE> 11
SCHEDULE A
Example 1 - A Goodwill Asset with a tax basis of $100 is subsequently sold
for $70. Of the $30 loss, $19.50 is a Tax Benefit Item and
$10.50 is not a Tax Benefit Item.
Example 2 - Same as Example 1, except the Goodwill Asset is sold for $90.
The $10 loss is a Tax Benefit Item.
Example 3 - Same as Example 1, except the Goodwill Asset is sold for $100 or
more. There is no Tax Benefit Item.
-11-
<PAGE> 12
SCHEDULE B
Example 1 -- In the year 2005, the Internal Revenue Service audits Bank
United or the Consolidated Group and determines that for the
taxable year ending September 30, 2002, Bank United owes an
additional $3 million as a result of the disallowance of the
utilization of certain Tax Benefit Items. Bank United has made a
$1 million payment to the FDIC Manager pursuant to Section 1 of
this Agreement as a result of the utilization of these Tax
Benefit Items. Bank United concedes that the determination by
the Internal Revenue Service is correct. Pursuant to Section 3
of the Agreement, the FDIC Manager owes Bank United $1 million.
Example 2 -- In the year 2005, the Internal Revenue Service audits Bank
United or the Consolidated Group and determines that for the
taxable year ending September 30, 2002, Bank United's gross
income was $8.8 million less than the amount reported on its tax
return (or, alternatively, Bank United's expenses that were not
Tax Benefit Items were $8.8 million more than the amount
deducted on its tax return). Bank United has made a $1 million
payment to the FDIC Manager pursuant to Section 1 of this
Agreement as a result of the utilization of these Tax Benefit
Items. As a result, Bank United would need to utilize $8.8
million less Tax Benefit Items for the taxable year ending
September 30, 2002 with the result that the FDIC Manager would
owe Bank United $1 million ($8.8 million x .34 x .33) which had
been previously paid to the FDIC Manager as a result of the
utilization of the Tax Benefit Items. The same result would
apply if the reduction in income (or increase in deductible
expenses) occurred pursuant to the filing of an amended return
rather than an audit by the Internal Revenue Service.
Example 3 -- In the year 2005, Bank United owes the Internal Revenue Service
$3 million as a result of the disallowance of the utilization in
the taxable year ending September 30, 2004 of Tax Benefit Items
that arose in the taxable year ending September 30, 1992. Bank
United did not make a payment to the FDIC Manager because it did
not have a payment obligation pursuant to Section 1 of this
Agreement. The FDIC Manager has no indemnity obligation to Bank
United under Section 3 of the Agreement.
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<PAGE> 1
EXHIBIT 10.2
ACQUISITION AGREEMENT
BETWEEN
THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
AS RECEIVER FOR
UNITED SAVINGS ASSOCIATION OF TEXAS,
HOUSTON, TEXAS
AND
UNITED SAVINGS ASSOCIATION OF TEXAS FSB,
HOUSTON, TEXAS
<PAGE> 2
TABLE OF CONTENTS
ACQUISITION AGREEMENT BETWEEN
THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
AS RECEIVER FOR
UNITED SAVINGS ASSOCIATION OF TEXAS,
HOUSTON, TEXAS
AND
UNITED SAVINGS ASSOCIATION OF TEXAS FSB,
HOUSTON, TEXAS
Page
----
Recitals .................................... 1
Section 1 Definitions ................................. 3
Section 2 Purchase of Assets and Transfer of Property
Held in Trust ............................... 7
Section 3 Assumption of Secured and Deposit
Liabilities ................................. 9
Section 4 Records ..................................... 10
Section 5 Inventory ................................... 11
Section 6 Purchase Price .............................. 11
Section 7 Duties with Respect to Depositors ........... 12
Section 8 Leased Offices, Leasehold Improvements,
Equipment and Furniture and Fixtures......... 13
Section 9 Office Space for the RECEIVER ............... 18
Section 10 Litigation; Power of Attorney ............... 18
Section 11 Rights and Forbearance ...................... 19
Section 12 Sole Benefit ................................ 19
Section 13 Successors and Assigns ...................... 19
Section 14 Notices ..................................... 20
Section 15 Accounting Principles ....................... 20
Section 16 Governing Law ............................... 21
Section 17 Effective Date .............................. 21
Section 18 Entire Agreement; Severability .............. 22
Section 19 Counterparts; Modification; Headings ........ 22
Section 20 Warranties .................................. 23
Section 21 Continuing Cooperation ...................... 24
Signature Page .............................. 25
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<PAGE> 3
ACQUISITION AGREEMENT
THIS AGREEMENT is made and entered into this 30th day of December, 1988,
by and between the FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, in its
capacity as RECEIVER for UNITED SAVINGS ASSOCIATION OF TEXAS, Houston, Texas,
(respectively, "RECEIVER" and "CLOSED ASSOCIATION"), and UNITED SAVINGS
ASSOCIATION OF TEXAS FSB, Houston, Texas ("ACQUIRING ASSOCIATION").
RECITALS
A. The CLOSED ASSOCIATION is a stock savings association organized
under the laws of the State of Texas, the accounts of which are insured by the
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION in its capacity as a corporate
instrumentality of th United States ("CORPORATION").
B. The FEDERAL HOME LOAN BANK BOARD ("BANK BOARD") has duly appointed
the CORPORATION as RECEIVER for the CLOSED ASSOCIATION, and the RECEIVER'S
appointment has become effective.
<PAGE> 4
2
C. The RECEIVER has taken possession of the CLOSED ASSOCIATION and by
operation of law has succeeded to all the rights, titles, powers, and privileges
of the CLOSED ASSOCIATION.
D. The ACQUIRING ASSOCIATION is a Federal stock savings bank, the
accounts of which are insured by the CORPORATION.
E. It has been mutually agreed between the ACQUIRING ASSOCIATION and the
RECEIVER, and the BANK BOARD has determined that it is in the best interests of
the CLOSED ASSOCIATION, its savers, and the CORPORATION, that substantially all
of the CLOSED ASSOCIATION'S assets and secured, deposit, and certain tax
liabilities be immediately transferred to and assumed by the ACQUIRING
ASSOCIATION, as provided in this Agreement.
F. The ACQUIRING ASSOCIATION is unwilling to assume the CLOSED
ASSOCIATION'S secured, deposit, and certain tax liabilities in consideration for
the acquisition by it of the CLOSED ASSOCIATION'S assets, having concluded that
the value of such assets is less than the amount of the liabilities to be
assumed, and the ACQUIRING ASSOCIATION has therefore required as a condition to
entering into this
<PAGE> 5
3
Agreement that the CORPORATION enter into a separate Assistance Agreement
providing financial assistance in addition to such assets adequate to compensate
it for the assumption of the CLOSED ASSOCIATION'S secured, deposit and certain
tax liabilities.
G. The ACQUIRING ASSOCIATION is unwilling to acquire and to bear the
expense of pursuing claims that the CLOSED ASSOCIATION may have against
directors, officers, employees, stockholders and various third parties, and has
requested that it not be obligated to assume liabilities under leases of office
facilities, some of which may be closed in connection with the implementation of
a plan of consolidation.
In consideration of the foregoing and of the mutual covenants and
promises contained herein, the RECEIVER and the ACQUIRING ASSOCIATION enter into
the following agreement.
AGREEMENT
Section 1 Definitions. For the purposes of this Agreement, the following
terms have the indicated meanings:
<PAGE> 6
4
(a) "Deposit." The term "Deposit" means a withdrawable or repurchasable
share, investment certificate or deposit in the CLOSED ASSOCIATION of a type
that is (or would be, but for the $100,000 limitation) insurable under Section
405(a) of the National Housing Act, as amended ("NHA"), 12 U.S.C. Section
1728(a) (1982), including, without limitation, all uncollected items included in
the depositors' balances and credited on the books of the CLOSED ASSOCIATION,
provided, however, that the term "Deposit" shall not include all or any portion
of those Deposit balances that may be required, in the RECEIVER'S or
CORPORATION'S sole discretion, as appropriate, to satisfy any liquidated or
contingent liability of the depositor arising from any known or unknown claim,
demand, cause of action or judgment described in Section 2(e), (f) or (g) of
this Agreement, whether or not the amount of the liability is, or can be,
determined as of the Effective Date of this Agreement.
(b) "Depositor." The term "Depositor" means the holder of a Deposit in
the CLOSED ASSOCIATION.
(c) "Effective Date." The "Effective Date" is the date on which this
Agreement is executed as provided in Section 17 of this Agreement.
<PAGE> 7
5
(d) "Equipment." The term "Equipment" means all equipment included in
the books and records of the CLOSED ASSOCIATION on the Effective Date that is
located in leased offices, including, but not limited to: Automatic Teller
Machines, vault doors, drive-through equipment, under-counter steel safes,
fireproof cabinets, computer hardware and software, and telephone surveillance
and security systems.
(e) "Excluded Papers." The term "Excluded Papers" shall have the
meaning set forth in Section 2 of this Agreement.
(f) "Fair Market Value." The term "Fair Market Value" means, with
respect to the purchase and sale of any property, the price at which a willing
buyer and willing seller under no undue pressure to buy or sell would purchase
and sell such property on the Effective Date, taking into account any debt
secured by such property or any security interest to which it is subject at the
time of the transfer of such property to the ACQUIRING ASSOCIATION, and, with
respect to the lease of any property, the rent at which a willing lessor and a
willing lessee, under no undue pressure to lease, would lease such property on
the Effective Date.
<PAGE> 8
6
(g) "Fixtures" and "Leasehold Improvements." The terms "Fixtures" and
"Leasehold Improvements" mean those improvements, additions, alterations and
installations constituting all or a part of the leased offices that were
acquired, added, built, installed or purchased at the expense of the CLOSED
ASSOCIATION, regardless of who shall hold legal title to such on the Effective
Date.
(h) "Furniture." The term "Furniture" means all furniture included in
the books and records of the CLOSED ASSOCIATION on the Effective Date that is
located in leased offices, including, without limitation, carpeting, furniture,
shelving, office supplies and artwork.
(i) "Leased Offices." The term "Leased Offices" means the offices,
drive-in facilities and teller facilities (staffed or automated), together with
appurtenant parking, storage and service facilities, leased by the CLOSED
ASSOCIATION on the Effective Date.
(j) "Tax Claims." The term "Tax Claim" means any claim of a governmental
unit for unpaid taxes other than Federal income taxes except to the extent
subordinated to depositor claims pursuant to applicable law.
<PAGE> 9
7
Section 2 Acquisition of Assets and Transfer of Property Held in Trust.
The RECEIVER hereby transfers to the ACQUIRING ASSOCIATION, and the ACQUIRING
ASSOCIATION hereby acquires from the RECEIVER, all of the RECEIVER'S right,
title, and interest in and to all of the CLOSED ASSOCIATION'S assets that the
Receiver owns or holds and any of the CLOSED ASSOCIATION's assets hereafter
acquired by the RECEIVER, excluding, however: (a) Leased Offices; (b)
Equipment;(c) Fixtures and Leasehold Improvements; (d) Furniture; (e) any known
or unknown claim, demand, cause of action, or judgment (or proceeds therefrom)
(i) against the CLOSED ASSOCIATION'S or any of its subsidiaries' present or
former employees, agents, or controlling persons, directors, officers, or other
persons directly or indirectly exercising a controlling influence over the
management or policies of the CLOSED ASSOCIATION or any of its subsidiaries;
(ii) against any stockholder of the CLOSED ASSOCIATION; (iii) against any
appraiser, accountant, auditor, attorney, investment banker or broker, loan
broker, deposit broker, securities dealer or other professional individual or
entity performing services for the CLOSED ASSOCIATION, or employees, agents, or
other persons acting for or in concert with such persons, arising out of events
which occurred prior to the date and time of the RECEIVER'S taking possession of
the CLOSED ASSOCIATION; and (iv) against any administrator, executor, personal
<PAGE> 10
8
representative, heir, assign, director or officer of any person or entity
identified in Section 2(e) (i), (ii), or (iii) above arising out of any act(s)
or omission(s) of such person or entity prior to the Effective Date with respect
to the CLOSED ASSOCIATION or its property, or any of its subsidiaries or the
subsidiaries' property; (f) any known or unknown claim, demand, cause of action
or judgment against a surety for any person or entity identified in Section 2(e)
(i), (ii), (iii), or (iv) above, including any insurer who may be liable for
indemnification for the loss caused by the action or inaction of any such person
or entity; (g) any claim against counsel for the CLOSED ASSOCIATION for recovery
of sums paid by the CLOSED ASSOCIATION to challenge the receivership or
contemporary or subsequent actions of the BANK BOARD or the CORPORATION; and (h)
all items, parts, or portions of the CLOSED ASSOCIATION'S books and records that
relate to liabilities that are not assumed by the ACQUIRING ASSOCIATION pursuant
to Section 3 of this Agreement and such limited items, parts, or portions of the
CLOSED ASSOCIATION'S books and records as are specifically identified by the
RECEIVER (the "Excluded Papers"). The RECEIVER also transfers to the ACQUIRING
ASSOCIATION all assets or property held by the CLOSED ASSOCIATION in trust or
subject to arrangements in the nature of a trust ("Trust") and the
<PAGE> 11
9
ACQUIRING ASSOCIATION agrees to honor the obligations of the CLOSED ASSOCIATION
under such a Trust to the extent of the assets or property so held in Trust.
Section 3 Assumption of Secured, Deposit and Tax Claim Liabilities. The
ACQUIRING ASSOCIATION hereby expressly assumes and agrees to pay, perform, and
discharge (a) all of the CLOSED ASSOCIATION's liabilities to Depositors with
respect to their Deposits, (b) the CLOSED ASSOCIATION's liabilities that are
secured by assets purchased by the ACQUIRING ASSOCIATION pursuant to Section 2
of this Agreement to the extent of the value of the security, and (c) the CLOSED
ASSOCIATION's liabilities for Tax Claims. Except as expressly set forth in this
Section 3, the ACQUIRING ASSOCIATION will not assume any of the claims, debts,
obligations or liabilities (including, without limitation, known or unknown
contingent or unasserted claims, demands, causes of action or judgments; or
debts, obligations or liabilities; or commitments to loan or obligations to make
future fundings or advances under existing loans or other obligations even if
such loans or other obligations are acquired by the ACQUIRING ASSOCIATION) of
the CLOSED ASSOCIATION. It is expressly understood and agreed that neither the
ACQUIRING ASSOCIATION nor any of its officers, directors, shareholders, or
<PAGE> 12
10
affiliates assumes any obligation with respect to secured liabilities of the
ACQUIRING ASSOCIATION beyond the value of the assets securing those liabilities.
Section 4 Records.
(a) The ACQUIRING ASSOCIATION acknowledges that the RECEIVER
is delivering to it, among the assets transferred and acquired under Section 2
of this Agreement, all of the CLOSED ASSOCIATION's books and records, except the
Excluded Papers, if any.
(b) The ACQUIRING ASSOCIATION agrees to preserve and keep safe
for a period of ten years all of the CLOSED ASSOCIATION's books and records that
it acquires pursuant to this Agreement, to permit the RECEIVER at any reasonable
time to inspect, make extracts from or copies of any of such books and records,
and to cooperate fully with the RECEIVER in the preparation of the inventory
described below.
(c) As a condition of this Agreement, the ACQUIRING
ASSOCIATION agrees, at its own expense, either to segregate and keep separate
or, in the alternative and at the option of the ACQUIRING ASSOCIATION, to
reconstruct as of the
<PAGE> 13
11
date of this Agreement, the CLOSED ASSOCIATION'S books and records transferred
to it until the period in which the CLOSED ASSOCIATION may file an action for
removal of the RECEIVER pursuant to law has expired, or, if such action is
filed, until the dismissal of such action or the issuance of an order
determining an appeal from any order of a court directing the removal of the
RECEIVER.
Section 5 Inventory. To the extent directed by the BANK BOARD and as
soon as practicable after the Effective Date of this Agreement, the RECEIVER
shall make or cause to be made an inventory of the CLOSED ASSOCIATION's assets
and a record of its liabilities. The RECEIVER shall furnish to the ACQUIRING
ASSOCIATION upon its completion a copy of the inventory and a record of the
CLOSED ASSOCIATION's secured, deposit and Tax Claim liabilities that were
assumed pursuant to this Agreement.
Section 6 Purchase Price. The purchase price of all assets acquired by
the ACQUIRING ASSOCIATION pursuant to Section 2 shall be the assumption of
liabilities provided for in Section 3.
<PAGE> 14
12
Section 7 Duties With Respect to Depositors.
(a) The ACQUIRING ASSOCIATION agrees to pay, in accordance
with the provisions of applicable law and the individual contracts governing the
CLOSED ASSOCIATION's Deposits, all properly drawn and presented withdrawal
requests by the CLOSED ASSOCIATION's depositors whose Deposits are assumed by
the ACQUIRING ASSOCIATION pursuant to Section 3 of this Agreement, to the extent
that such Deposits are sufficient to permit such payments and in compliance with
the contractual terms of such Deposits, and in all other respects to discharge,
in the usual course of business, the CLOSED ASSOCIATION'S duties and
obligations with respect to its Depositors; provided, however, that the
ACQUIRING ASSOCIATION does not assume any special or unusual duties of the
CLOSED ASSOCIATION to such Depositors unless the terms of such duties are
disclosed in the CLOSED ASSOCIATION'S records. Further, in accordance with
applicable law and individual contracts governing such Deposits, the ACQUIRING
ASSOCIATION agrees to pay interest on all of the CLOSED ASSOCIATION's Deposits
that are assumed pursuant to Section 3 of this Agreement.
(b) If any such Depositor declines to accept the obligation
of the ACQUIRING ASSOCIATION to pay the CLOSED ASSOCIATION's Deposit liabilities
assumed pursuant to Section 3 of
<PAGE> 15
13
this Agreement and asserts a claim against the RECEIVER for any part of such
assumed Deposit liability, the ACQUIRING ASSOCIATION shall provide the RECEIVER,
upon demand, with an amount of money sufficient to enable it to pay the claim of
such Depositor, less any applicable early withdrawal penalties, not exceeding
the amount credited to such person on the ACQUIRING ASSOCIATION's records at the
time such demand is made, and, upon paying the RECEIVER as so demanded, the
ACQUIRING ASSOCIATION shall be discharged from any further liability for such
claim under this Agreement.
(c) The ACQUIRING ASSOCIATION shall give written notice, in a
form approved by the RECEIVER or its counsel, to the CLOSED ASSOCIATION's
Depositors whose Deposits are assumed by the ACQUIRING ASSOCIATION pursuant to
Section 3 of this Agreement of its assumption of liability for such Deposits.
Section 8 Leased offices, Leasehold Improvements, Equipment and
Furniture and Fixtures.
(a) The ACQUIRING ASSOCIATION shall continue to provide full
thrift services in the trade area of the CLOSED ASSOCIATION commencing on the
first regular business day after the Effective Date, however nothing herein
shall
<PAGE> 16
14
prevent the ACQUIRING ASSOCIATION from closing branches or other offices
pursuant to the ACQUIRING ASSOCIATION's plan of consolidation in accordance with
Exhibit 1 to the Assistance Agreement of even date herewith. At the option of
the ACQUIRING ASSOCIATION, such services may be provided at any or all of the
Leased Offices, or at other premises within the trade area. For any period
during which the ACQUIRING ASSOCIATION occupies one or more of the Leased
Offices, the ACQUIRING ASSOCIATION agrees to pay the RECEIVER a Fair Market
Value rent (as hereinafter set forth) for the use of each Leased Office occupied
and of all Furniture, Fixtures, Equipment and Leasehold Improvements located
therein or thereon. Rent for Furniture, Fixtures, Equipment and Leasehold
Improvements owned by the CLOSED ASSOCIATION shall be determined within sixty
(60) days after the Effective Date by mutual agreement of the RECEIVER and the
ACQUIRING ASSOCIATION, or, if they cannot agree, by an appraiser mutually
acceptable to the RECEIVER and the ACQUIRING ASSOCIATION. The cost of such
appraisal shall be shared equally by the RECEIVER and the ACQUIRING ASSOCIATION.
Rent for property not owned by the CLOSED ASSOCIATION shall be an amount equal
to any and all rents and other amounts which the RECEIVER incurs or accrues as
an obligation or is obligated to pay (for the period of the ACQUIRING
ASSOCIATION'S occupancy) pursuant to all leases and contracts regarding the
respective property.
<PAGE> 17
15
(b) The RECEIVER hereby grants to the ACQUIRING ASSOCIATION a ninety
(90) day option, commencing at the Effective Date, to take an assignment, or
sublease for the entire remaining term of any or all of the Leased Offices, to
the extent that the respective lease(s) can be assigned or premises sublet;
provided that the exercise of the option with respect to any lease must be as to
all premises subject to such lease. The ACQUIRING ASSOCIATION may extend this
option for an additional thirty (30) days upon notice to the RECEIVER provided
within seventy-five (75) days after Effective Date. If the ACQUIRING ASSOCIATION
(i) exercises its option with respect to a Leased Office, (ii) elects to extend
the ninety (90) day option for an additional thirty (30) days (regardless of
whether the ACQUIRING ASSOCIATION ultimately exercises the option as so
extended), or (iii) or does not exercise its option with respect to a Leased
Office but subsequently obtains the right to occupy such Leased Office whether
by assignment, lease, sublease, purchase or otherwise), the ACQUIRING
ASSOCIATION shall purchase all Furniture, Fixtures, Equipment and Leasehold
Improvements of the RECEIVER located therein or thereon. If the ACQUIRING
ASSOCIATION exercises its option with respect to a Leased Office not occupied
by the ACQUIRING ASSOCIATION continuously since the Effective Date, the
<PAGE> 18
16
ACQUIRING ASSOCIATION shall pay to the RECEIVER rent as determined pursuant to
Section 8 (a) for the period from the Effective Date to the date of exercise of
the option.
(c) If the ACQUIRING ASSOCIATION exercises its option with
respect to any Leased Office, the RECEIVER shall use its best efforts to assist
the ACQUIRING ASSOCIATION in obtaining an assignment or sublease, provided,
however, the RECEIVER shall not pay, nor shall it become obligated to pay any
monies to the ACQUIRING ASSOCIATION, the lessor, or any third party as a part of
its effort to assist in effectuating such assignment or sublease.
(d) The ACQUIRING ASSOCIATION shall vacate any Leased Office
as to which it does not exercise the 90-day option provided in Section 8(b)
within ninety (90) days after the Effective Date, or if the ACQUIRING
ASSOCIATION has extended such option for an additional thirty (30) days as
provided in Section 8(b), within one hundred and twenty (120) days after the
Effective Date, unless the ACQUIRING ASSOCIATION negotiates an agreement with
the owner or lessor of the Leased Office satisfactory to the RECEIVER, providing
for occupation of the Leased Office for a longer period of time, which agreement
shall provide for a release of any further obligations of the RECEIVER under the
CLOSED
<PAGE> 19
17
ASSOCIATION'S lease. If the ACQUIRING ASSOCIATION vacates a Leased Office, it
will arrange for the discontinuance or transfer to another location of any safe
deposit business conducted at the Leased Office. If the ACQUIRING ASSOCIATION
elects to occupy any Leased Office for more than fifteen (15) days, it shall
provide the RECEIVER with fifteen (15) days written notice of its intention to
vacate prior to vacating such premises.
(e) If the ACQUIRING ASSOCIATION purchases any Leasehold
Improvements, the purchase price shall be the Fair Market Value of such
Leasehold Improvements.
(f) If the ACQUIRING ASSOCIATION purchases any item of
Furniture, Fixtures or Equipment, the purchase price shall be the item's Fair
Market Value. The RECEIVER shall have the option to retain, without cost to the
ACQUIRING ASSOCIATION, such items of Furniture and Equipment as the RECEIVER, in
its sole discretion, shall determine.
(g) Conveyance of real and personal property interests shall
be made, as appropriate, by RECEIVER'S Deed or Bill of Sale "as is," "where is,"
and without warranty of title, and shall be subject to any liens, encumbrances
and other charges upon such property. The ACQUIRING ASSOCIATION
<PAGE> 20
18
shall pay all closing costs and expenses with respect to closing, except for
attorneys' fees of the RECEIVER.
Section 9 Office Space for the RECEIVER. The ACQUIRING ASSOCIATION
agrees to provide the RECEIVER, without charge and, if its duties so require,
for such period as the Receiver may request from the date of this Agreement,
adequate space, including vault space and furnishings, for the RECEIVER'S use in
connection with the transfers and transactions required by this Agreement and
with the exercise and discharge of its powers and duties as receiver of the
CLOSED ASSOCIATION.
Section 10 Litigation; Power of Attorney. In the event that any action
at law or in equity in which the RECEIVER has an interest is instituted by any
person against the CLOSED ASSOCIATION, the ACQUIRING ASSOCIATION, or both of
them, or against the RECEIVER and either or both of the foregoing as
co-defendants, or in which action the RECEIVER joins or is joined as co-
defendant, the ACQUIRING ASSOCIATION agrees to file, or to join with the
RECEIVER in filing, a petition to remove the action to an appropriate court, and
hereby authorizes and appoints as its attorney for the purpose of effecting such
removal any attorney designated or approved by the RECEIVER to act in that
capacity.
<PAGE> 21
19
Section 11 Rights and Forbearance. The rights, powers, and remedies
given to the parties by this Agreement shall be in addition to all rights,
powers, and remedies given by any applicable statute or rule of law. Any
forbearance, failure, or delay by either party in exercising or partially
exercising any right, power, or remedy shall not preclude the further exercise
of such right, power, or remedy.
Section 12 Sole Benefit. It is the intention of the parties that this
Agreement, the assumption of obligations and statements of responsibilities
under it, and all conditions and provision of it, are for the sole benefit of
the RECEIVER and the ACQUIRING ASSOCIATION and for the benefit of no other
person. Nothing expressed or referred to in this Agreement is intended to or
shall be construed to give any person other than the RECEIVER or the ACQUIRING
ASSOCIATION any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any of its provisions.
Section 13 Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties, their
respective transferees, successors, assigns, but this Agreement may not be
assigned nor may any rights under it be transferred to or
<PAGE> 22
20
vested in any other party through merger, consolidation, or otherwise, without
the prior written consent of the CORPORATION.
Section 14 Notices. Any notice, request, demand, or other communication
to either of the parties shall be deemed given when received and shall be given
in writing and delivered in person or sent by first class mail in a prepaid
envelope to such party at its address set forth below or at such other address
as such party shall hereafter furnish in writing:
UNITED SAVINGS ASSOCIATION
OF TEXAS FSB,
Phoenix Tower
3200 S.W. Freeway
Suite 2000
Houston, Texas 77027
Attn: President
FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
As Receiver for United Savings
Association of Texas
801 17th Street, N.W.
Washington, D.C. 20552
Attn: Special Representative
Section 15 Accounting Principles. Except as otherwise provided in this
Agreement, any computations made for the purposes of this Agreement shall be
governed by generally accepted accounting principles as applied in the savings
and loan industry, except that where such principles conflict
<PAGE> 23
21
with the terms of this Agreement, any assistance agreement or agreements to
which the ACQUIRING ASSOCIATION and the CORPORATION are parties, applicable
regulations of the BANK BOARD or the CORPORATION, or any resolution or action of
the BANK BOARD or the CORPORATION approving, or adopted concurrently with, this
Agreement, then this Agreement, the Assistance Agreement, such regulations, and
such resolutions or actions shall govern. In the case of any ambiguity in the
interpretation or construction of any provision of this Agreement, such
ambiguity shall be resolved in a manner consistent with the Assistance
Agreement, such regulations, and the BANK BOARD's or the CORPORATION's
resolutions or actions. If there is a conflict between this Agreement and the
Assistance Agreement or such regulations or resolutions or actions, then the
Assistance Agreement or such regulations or resolutions or actions shall govern.
Section 16 Governing Law. To the extent that Federal law does not
control, this Agreement and the rights and obligations under it shall be
governed by the law of the State of Texas. Nothing in this Agreement shall
require any unlawful action or inaction by either party.
Section 17 Effective Date. This Agreement, and the transfer of the
CLOSED ASSOCIATION's assets and secured,
<PAGE> 24
22
deposit, and Tax Claim liabilities provided for by this Agreement, shall become
effective upon its execution by the parties.
Section 18 Entire Agreement; Severability.
(a) This Agreement, together with any interpretation of it or
any understanding agreed to in writing by the parties, constitutes the entire
agreement between the ACQUIRING ASSOCIATION and the CORPORATION as RECEIVER, but
not in its corporate capacity, in connection with the transactions contemplated
by this Agreement, and supersedes all prior agreements and understandings of the
parties, excepting only any resolutions or letters approved or adopted
contemporaneously with this Agreement by the BANK BOARD or the CORPORATION.
(b) If any provision of this Agreement is invalid or
unenforceable, then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the parties.
Section 19 Counterparts; Modification; Headings.
(a) This Agreement may be executed in any number of
counterparts, each of which shall be an original,
<PAGE> 25
23
but all of which shall together constitute one and the same instrument, and
either party may execute this Agreement by signing any such counterpart.
(b) No modification of this Agreement shall be binding unless
executed in writing and signed by the parties or their successors.
(c) Section headings are not to be considered part of this
Agreement, are solely for convenience of reference, and shall not affect the
meaning or interpretation of this Agreement or any of its provisions.
Section 20 Warranties.
(a) The RECEIVER warrants and represents that it has
authority to enter into this Agreement and that as RECEIVER it has full power
and authority to transfer the CLOSED ASSOCIATION's assets and secured, deposit,
and Tax Claim liabilities as provided by this Agreement.
(b) The ACQUIRING ASSOCIATION warrants and represents that
all of the transactions contemplated by this Agreement have been or will be
authorized by all necessary corporate action and that it, by its proper officers
or
<PAGE> 26
24
agents, has executed this Agreement and shall execute and deliver all
instruments, certificates, and other documents that may be necessary or
incidental to the performance of this Agreement.
(c) These warranties shall survive the execution,
performance, and termination of this Agreement.
Section 21 Continuing Cooperation. The RECEIVER agrees, upon the request
of the ACQUIRING ASSOCIATION, to execute and deliver such further instruments
and documents of conveyance as shall be necessary or proper to vest in the
ACQUIRING ASSOCIATION the RECEIVER's full legal or equitable title to the
property transferred to the ACQUIRING ASSOCIATION pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or agents.
<PAGE> 27
25
Date: DECEMBER 30, 1988 FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
AS RECEIVER FOR UNITED
SAVINGS ASSOCIATION OF TEXAS
Attest: /s/ Wendy Robin ??? By: /s/ ???
------------------------- -------------------------
Assistant Secretary Special Representative
Date: DECEMBER 30, 1988 UNITED SAVINGS ASSOCIATION OF
TEXAS FSB
Attest: /s/ ??? By: /s/ ???
------------------------- -------------------------
Secretary Its: Chairman & CEO
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
and
THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
-----------------
WARRANT AGREEMENT
-----------------
DATED AS OF DECEMBER 30, 1988
- --------------------------------------------------------------------------------
<PAGE> 2
Exhibit __
WARRANT AGREEMENT
THIS AGREEMENT ("Agreement"), dated December 30, 1988, is entered into by
and between UNITED SAVINGS ASSOCIATION OF TEXAS, FSB, Houston, Texas, a
federally chartered savings bank (the "Association"), and the FEDERAL SAVINGS
AND LOAN INSURANCE CORPORATION, a corporate instrumentality and agency of the
United States of America ("FSLIC").
WITNESSETH:
WHEREAS, pursuant to that certain Assistance Agreement, of even date
herewith, by and between the Association and FSLIC (the "Assistance Agreement")
and in connection with the transactions contemplated thereby, the Association
has agreed to issue warrants (the "Warrants") representing the right to purchase
up to 158,823 shares of the Association's common stock, par value $0.01 (One
Cent) per share (the "Common Stock").
WHEREAS, the Association and FSLIC desire to enter into this Agreement to
set forth the terms and conditions of the Warrants and the rights and
obligations with respect thereto of the Association and FSLIC and any subsequent
holder or
<PAGE> 3
2
holders of the Warrants and the shares of Common Stock issued upon the exercise
of such Warrants (FSLIC and such holder or holders may hereinafter be referred
to individually as the "Holder or collectively as the "Holders");
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
1. Issuance of Warrants. The Association hereby issues 158,823 Warrants to
FSLIC which issuance is evidenced by the execution and delivery of a warrant
certificate substantially in the form of Exhibit A hereto (the "Warrant
Certificate"). The Warrant Certificate may have such letters, numbers, or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any securities exchange, or to conform
to usage, or as may, consistently herewith, be determined by the officers
executing such Warrant Certificate as evidenced by the officers executing such
Warrant Certificate. The Warrant Certificate evidences the total number of
Warrants issued
<PAGE> 4
3
hereunder and registered in the name of the Holder in the Warrant Register (as
defined in Section 6(a)). Each Warrant shall entitle the Holder to purchase one
share of Common Stock ("Common Share") subject to adjustment pursuant to the
provisions of Section 8. The Common Shares issued pursuant to the exercise of
Warrants are hereinafter referred to as the "Warrant Shares." The Warrant and
Warrant Shares are hereinafter referred to as the "Subject Securities."
2. Execution of Warrant Certificates. Each Warrant Certificate, whenever
issued, shall be signed manually by, or bear the facsimile signature of, the
Chairman of the Board or the President or a Vice President of the Association;
shall be dated the date of its issuance; shall have the Association's seal or a
facsimile thereof affixed or imprinted thereon; and shall be attested by the
manual or facsimile signature of the Secretary or an Assistant Secretary of the
Association (if facsimile signatures are utilized, the Warrant Certificates
shall be manually countersigned by an authorized officer of the Association or
by a Warrant Agent duly appointed by the Association). In case any officer of
the Association whose manual or facsimile signature has been placed upon any
Warrant Certificate shall have ceased to be such an officer before such Warrant
<PAGE> 5
4
Certificate is issued, it may be issued with the same effect as if such officer
had not ceased to be such at the date of issuance. Any Warrant Certificate may
be signed on behalf of the Association by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Association to sign such Warrant Certificate, although at the date of the
execution of this Agreement any such person was not an officer.
3. Warrant Price. The price to be paid by the Holder upon the issuance of
each Common Share pursuant to the exercise of any of the warrants (the "Warrant
Price") shall be $0.01 (One Cent) per Common Share.
4. Exercise of Warrant.
(a) The Warrants shall be exercisable by the Holders thereof at any time and
from time to time until 11:59 p.m., Houston, Texas time, on December 29, 2004,
or the sixteenth anniversary of the date hereof (the "Expiration Date"), at
which time the Warrants shall expire. Each Warrant not exercised during the
foregoing period shall, upon the expiration of such period, become null and
void, and all rights thereunder and all rights in respect thereof under this
Agreement shall cease upon the Expiration Date. Warrants shall be exercised by
the Holder giving the
<PAGE> 6
5
Association 15 business days' written notice ("Notice of Exercise") and then, on
the fifteenth day, the Holder shall present and surrender to the Association a
Warrant Certificate evidencing such Warrants at the Association's principal
office, accompanied by (i) a written Notice of Exercise in the form of Exhibit B
duly filled in and signed, and (ii) payment in full in cash or by certified or
official bank check to the Association of the aggregate Warrant Price for the
Common Shares to be purchased, as specified in such notice. Warrants exercised
by the Holder anytime after the fifteenth anniversary of the date hereof shall
provide the Notice of Exercise, no later than December 14, 2003, including prior
written notice to the Association of the date certain by which the Holder shall
exercise the Warrants in the year following, but not to exceed the Expiration
Date, and on which date certain the Holder shall present and surrender to the
Association a Warrant Certificate evidencing such Warrants at the Association's
principal office, accompanied by (i) a written Notice of Exercise in the form of
Exhibit B duly filled in and signed, and (ii) payment in full in cash or by
certified or official bank check to the Association of the aggregate Warrant
Price for the Common Shares to be purchased, as specified in such notice.
<PAGE> 7
6
(b) As soon as practicable after the exercise of the Warrants and payment by
the registered Holder of the full Warrant Price for the Common Shares which are
then being exercised, the Association shall promptly issue and deliver to or
upon the order of such Holder the number of Common Shares to which such Holder
is entitled, registered in such name(s) as such Holder may direct, and, if the
full number of Warrants represented by a Warrant Certificate shall not have been
exercised, a new warrant certificate for the balance of the Warrants represented
by the surrendered Warrant Certificate.
(c) Each person in whose name such certificates for Common Shares is issued
shall for all purposes be deemed to have become the holder of record of such
Common Shares on the date on which the Warrant Certificate and a proper Notice
of Exercise (defined below) was surrendered and the Warrant Price paid,
irrespective of the date that certificates representing such Common Shares shall
actually be issued or delivered irrespective of whether or not the stock
transfer books of the Association shall then be closed.
(d) The Association shall pay all expenses, and any taxes (other than income
taxes) and other charges that may be payable in connection with the preparation,
issuance, and
<PAGE> 8
7
delivery of stock certificates under this Section 4 in the name of the Holders;
provided, however, that the Association shall not be required to pay, and such
Holders shall be responsible for, any tax that may be payable in respect of any
transfer in connection with the issuance of any Warrant Certificate in a name
other than that of a registered Holder of the Warrant Certificate surrendered
upon the exercise of a Warrant.
5. Reservation of Shares; Preservation of Rights of the Holder.
(a) The Association covenants that it will at all times reserve and keep
available out of its authorized shares of Common Stock, solely for issuance
and/or delivery upon exercise of Warrants, free from preemptive rights, the full
number of Common Shares then issuable if all outstanding Warrants then
exercisable were exercised.
(b) The Association further covenants (i) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution, or sale
of assets, or by any other voluntary act or inaction, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations, or conditions
to be observed or performed hereunder by the Association, and (ii) promptly to
take all action as may from time to time be required (including
<PAGE> 9
8
complying with all federal and state laws, cooperating fully with the Holders in
preparing such applications and providing such information to such federal and
state regulatory authorities as may be required) in order to permit the Holders
to exercise Warrants and the Association duly and effectively to issue Common
Shares pursuant thereto.
6. Restriction on Transfer, Exchange or Loss of Warrants.
(a) The Association shall keep a Warrant register (the "Warrant Register")
in which it shall register the name and address of any Holder of Warrant
Certificates. Subject to Section 13, the Association shall register the transfer
of any outstanding Warrant Certificates in the Warrant Register upon surrender
at the principal office of the Association of the Warrant Certificates
accompanied by a written instrument of transfer, in form satisfactory to the
Association, duly executed by the registered Holder of the Warrant Certificate
or accompanied by proper evidence of succession or assignment. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrant Certificates shall be cancelled;
provided, however, that except for transfers pursuant to Section 10, the
Warrants may only be transferred in a private
<PAGE> 10
9
transaction that is, in the opinion of counsel to the Holder that is reasonably
acceptable to the Association, exempt from any applicable securities
registration requirement.
(b) Each Holder may, at its option, exchange its Warrant Certificates for
other Warrant Certificates representing in the aggregate a like number of
warrants by the surrender of such Warrant Certificates at the principal office
of the Association accompanied by written instructions for such exchange.
(c) If any Warrant Certificate is lost, stolen, mutilated, or destroyed, the
Association shall issue in exchange and substitution for and upon cancellation
of a mutilated Warrant Certificate, or in the case of a Warrant Certificate
lost, stolen, or destroyed, upon receipt of a proper affidavit and reasonably
satisfactory indemnification of the Association, a new Warrant Certificate of
like tenor and representing the number of Warrants equal to the number
represented by the Warrant Certificate so lost, stolen, mutilated, or destroyed.
Any such new Warrant Certificate executed and delivered shall constitute a
contractual obligation on the part of the Association, whether or not the
Warrant Certificate so lost, stolen, destroyed, or mutilated shall be at any
time enforceable by anyone. No service
<PAGE> 11
10
charge or fee shall be assessed against the Holder of such Warrant Certificate
for any transfer, exchange, or replacement of Warrant Certificates pursuant to
this Section 6.
7. Rights Upon Consolidation, Merger, Sale, Transfer, or Reclassification.
(a) In case the Association (i) shall consolidate with or merge into any
other entity and shall not be the continuing or surviving corporation of such
consolidation or merger or (ii) shall lease, sell, or otherwise convey all or
substantially all of its assets, then such successor, leasing, or purchasing
person or entity, as the case may be, shall execute with each Holder a
supplemental agreement providing that (A) each Holder shall have the right to
receive, upon the exercise of its Warrants, in lieu of each Common Share that
could have been purchased upon exercise of Warrants if the Warrants had been
exercised immediately prior to such transaction, the kind and amount of shares,
securities, cash, or property receivable upon such consolidation, merger, lease,
sale, or conveyance by a holder of one Common Share of Common Stock of the
Association, and (B) setting forth the Warrant Price for the shares and/or other
securities and/or property and/or cash so issuable, which shall be an amount
equal to the Warrant Price per Common Share of the Association immediately prior
to such event.
<PAGE> 12
11
(b) In case of the reclassification or change of the Common Shares issuable
upon exercise of the Warrant, or in the case of any consolidation or merger of
another corporation into the Association in which the Association is the
continuing corporation and in which the holders of Common Shares thereafter
receive shares, other securities, property, or cash for such Common Shares, the
Association shall execute with each Holder a supplemental agreement (A)
providing that the Holder shall have the right to receive, upon exercise of its
Warrants, in lieu of each Common Share deliverable upon such exercise
immediately prior to such event, the kind and amount of shares, other
securities, property, or cash receivable upon such reclassification, change,
consolidation, or merger by a holder of one Common Share of the Association, and
(B) setting for the Warrant Price for the shares and/or other securities and/or
property and/or cash so issuable, which shall be an amount equal to the Warrant
Price per Common Share of the Association immediately prior to such event.
(c) The provisions of this Section 7 shall similarly apply to successive
consolidations, mergers, leases, sales, or conveyances and successive
reclassifications and changes of shares of Common Stock.
<PAGE> 13
12
8. Antidilution Provision. So long as any Warrants are outstanding and
unexercised, in whole or in part:
(a) If the Association shall, on or after the date hereof, pay a dividend in
Common Shares or make any other distribution in Common Shares on or with respect
to any class of its capital stock, the number of Common Shares purchasable upon
exercise of each Warrant outstanding unexercised at such time shall be increased
by multiplying such number of shares by a fraction, the denominator of which
shall be the number of Common Shares outstanding at the close of business on the
day immediately preceding the date of such dividend or other distribution and
the numerator shall be the sum of such number of shares and the total number of
Common Shares constituting such dividend or other distribution, such increase to
become effective immediately after the record date of such dividend or other
distribution.
(b) In the event outstanding Common Shares shall be subdivided into a
greater number of Common Shares, the number of Common Shares purchasable upon
exercise of each Warrant shall be proportionately increased, and conversely, in
case outstanding Common Shares shall each be combined into a smaller number of
Common Shares, the number of Common Shares purchasable upon exercise of each
Warrant shall be
<PAGE> 14
13
proportionately decreased, such increase or decrease, as the case may be, shall
become effective immediately after the effective date of such subdivision or
combination.
(c) If the Association issues or distributes to all holders of Common Stock
(i) rights or warrants entitling them to subscribe for or purchase shares of any
class or capital stock of the Association or (ii) evidences of its indebtedness
or assets (excluding cash dividends and excluding stock dividends referred to
subsection (a) above), the Association shall issue or distribute to each holder
of Warrants the subscription rights or evidences of indebtedness or assets that
such Holder would have been entitled to receive such rights, warrants or
evidences of indebtedness or assets.
(d) The Association shall provide each Holder with at least 30 days prior
written notice of any of the events described in this Section 8.
9. Registration Rights.
(a) Demand Registration Rights. Subject to the terms hereof, the Association
convenants and agrees with Holders, and any other subsequent holder of Common
Shares issued pursuant to the exercise of the Warrants ("Warrant Shares," such
Warrants and Warrant Shares being hereinafter referred
<PAGE> 15
14
to as the "Subject Securities") that within 60 days after receipt of a written
request ("Demand Request") from Holders of more than 50% in interest of the
aggregate number of Subject Securities that such holders of the Subject
Securities ("Requesting Holder") desire and intend to sell or transfer more than
50% in interest of the aggregate number of Subject Securities under such
circumstances that a public offering, within the meaning of the Offering
Regulations (defined below), will be involved, the Association shall file a
registration statement (and use its best efforts to cause such registration
statement to become effective under the Offering Regulations) with respect to
the offering and sale or other disposition of such Subject Securities (the
"Offered Securities"); provided, however, that the Association shall have no
obligation to comply with the foregoing provisions of this Section 9 if in the
opinion of counsel to the Association (reasonably acceptable to the Requesting
Holder(s)) registration under the Offering Regulations is not required for the
transfer of the Offered Shares in the manner proposed by such person or persons
or that a post-effective amendment to an existing registration statement would
be legally sufficient for such transfer (in which latter event the Association
shall promptly file such
<PAGE> 16
15
post-effective amendment (and use its best efforts to cause such amendment to
become effective under the offering Regulations)); and provided further that
only one registration may be demanded pursuant to provisions of this Section
9(a). Any registration abandoned after its filing in accordance with the
provisions of this Section 9(a) shall not be deemed the one demand registration
right pursuant to this Section 9(a).
The provisions of this Section 9(a) shall be subject to the following
conditions, qualifications, and limitations, among others:
(i) The Association may provide the Requesting Holders with a notice
("Purchase Notice") that the Association or its Holding Company or
affiliates, as an alternative to effecting a registration of the Subject
Securities pursuant to this Section 9(a), will purchase the Offered
Securities at a price that the Requesting Holders would receive from a sale
of the Offered Securities in an underwritten public offering for cash (the
"Offering Price"). The Offering Price shall be determined by an independent
financial expert mutually agreeable to the Requesting Holders and the
Association satisfying the qualifications set forth hereinafter.
<PAGE> 17
16
The Association shall retain an independent financial expert (the
"Independent Financial Expert") to determine the Purchase Price (defined
below). The Independent Financial Expert shall be any investment banking
firm mutually agreeable to the Association and the Holder which (i) is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and has aggregate net capital of at least $50,000,000; (ii) does
not have a direct or indirect financial interest, and the directors,
officers, employees, affiliates, or stockholders of which do not have a
direct or indirect material financial interest, in the Association or any of
its affiliates; (iii) has not been within the last three years, and at the
time it is called upon to give independent financial advice pursuant to this
Agreement is not (and none of the directors, officers, employees,
affiliates, or stockholders of the Independent Financial Expert is), a
promoter, director, or officer of the Association or any of its affiliates;
and (iv) does not provide any advice or opinions to the Association or any
of its affiliates. Any Independent Financial Expert retained pursuant to
this Agreement shall be required to acknowledge that any report produced by
such Independent
<PAGE> 18
17
Financial Expert will be relied upon by the FSLIC as well as the Association
and that such Independent Financial Expert shall have the same duty of care
to the FSLIC as it does to the Association. The purchase price for the
Warrants pursuant to this section 9 (the "Purchase Price") shall be the
amount, as determined by such Independent Financial Expert, that the Holder
(assuming that all Warrants being valued were exercised as of the Valuation
Date) would receive with respect to the Common Shares subject to the
Warrants from a sale of all of such Common Shares for cash on the Valuation
Date. The Independent Financial Expert shall disregard any possible effect
of the Regulatory Capital Maintenance Agreement, as defined in the
Assistance Agreement, provided that the FSLIC terminates such Regulatory
Capital Maintenance Agreement before the Purchase Price is finally
determined pursuant hereto. The Independent Financial Expert shall use one
or more valuation methods that it, in its best professional judgment,
determines to be most appropriate. The Association shall cause the
Independent Financial Expert to deliver to the Association at least 20
business days prior to the Valuation Date, with a copy to the FSLIC, a
<PAGE> 19
18
preliminary value report (the "Preliminary Value Report") addressed to the
Association and the FSLIC, which Preliminary Value Report shall (x) state
the methods of valuation considered or used and the preliminary Purchase
Price of the Warrants as of the Valuation Date determined pursuant to this
Section 9(a)(i) (the "Preliminary Purchase Price"), (y) assume that the
Regulatory Capital Maintenance Agreement will not be terminated, unless it
shall have been terminated previously, but indicate the extent to which the
Purchase Price would be different from the Preliminary Purchase Price if it
were terminated, and (z) contain a statement as to the nature and scope of
the examination or investigation upon which the determination of the
Preliminary Purchase Price was made. The Association shall and the FSLIC may
provide information and data relevant to such Independent Financial Expert's
valuation and shall have the opportunity to comment on the Preliminary
Purchase Price. The Independent Financial Expert shall afford both the
Association and the FSLIC the opportunity to attend any meetings held by it
at which either of the parties or any affiliates is in attendance and shall
furnish to both the
<PAGE> 20
19
Association and the FSLIC any correspondence or documents delivered to or by
it to either of them or any of their affiliates. The Independent Financial
Expert may revise the Preliminary Purchase Price within 20 business days
after delivery of the Preliminary Value Report to the Association and FSLIC,
provided that its final Value Report reflecting the final Purchase Price
shall reflect both the initial valuation and the determination to revise it
and shall be addressed to the Association and the FSLIC. If the Independent
Financial Expert becomes aware of any material changes within 20 business
days after delivery of the Preliminary Value Report, in the business or
financial condition or prospects of the Association or its subsidiaries, the
Independent Financial Expert shall specify such material changes in the
final Value Report. The Preliminary Value Report shall become the final
Value Report and shall be final and binding upon the Association and the
FSLIC on the twentieth business day after delivery of the Preliminary Value
Report to the Association and the FSLIC unless revised prior to such
twentieth business day and if so revised shall thereupon be final and
binding upon the Association and the FSLIC as so
<PAGE> 21
2O
revised, and any references in this Agreement to the Purchase Price shall
mean the Purchase Price set forth in the Value Report as it becomes final
and binding pursuant to this Section 9(a)(i). The Valuation Date shall, for
purposes of this Section 9(a)(i), be a date 60 days after the Demand Request
is made. Unless the Requesting Holders notify the Association in writing
within ten days of the receipt of the Purchase Notice that they are
abandoning their Demand Request, the Association shall purchase the Offered
Securities on the twentieth day after the final determination of the
Offering Price in cash or by certified check or bank cashier's check payable
to the respective Requesting Holders against presentation and surrender of
the certificates evidencing the Offered Securities duly endorsed;
(ii) The Association shall not be obligated to file a registration
statement or post-effective amendment pursuant to this Section 9(a)(ii)
which, under the Offering Regulations and the then effective rules,
regulations, forms, and releases of the FHLBB (defined below) thereunder,
would be required to contain audited financial statements as of the date
other than the end of a fiscal year of the Association and the related
<PAGE> 22
21
fiscal periods then ended unless the Holder or Holders requesting
registration undertake to pay (or reimburse) the incremental expenses
incurred by the Association in preparing such other audited financial
statements for inclusion.
(iii) The Association may defer the filing of a registration statement
or post-effective amendment for up to 90 days after the request for
registration is made if the Board of Directors of the Association determines
in good faith that such registration would adversely affect or otherwise
interfere with a proposed or pending transaction of the Association,
including, without limitation, a material financing or a corporate
reorganization, or during any period of time in which the Association is in
possession of material inside information concerning the Association or its
securities, which information the Association, in consultation with the
FSLIC, reasonably determines in good faith is not ripe for disclosure.
(b) Piggy-Back Registration Rights. Whenever the Association proposes to
register under the Offering Regulations shares of Common Stock, other than with
respect to an offering for consideration other than cash, the
<PAGE> 23
22
Association will give 90 days prior written notice to the Holder(s) of any
Subject Securities of its intention to do so and, upon the written request of
the Holder(s) of more than 50% in interest in the aggregate number of Subject
Securities given within 20 days after the Association provides such notice, the
Association shall, subject to the terms of this Section 9(b), use its best
efforts to cause all or such portion of the Warrant Shares which may be or have
been acquired by any Holder(s) to be included in a registration statement to be
filed by the Association to the extent the Association has been requested by
such Holder(s) to register Warrant Shares for sale in its proposed public
offering. Notwithstanding the foregoing, the Association shall not be required
to include any Warrant Shares in any registration statement if the registration
statement relates solely to securities of the Association to be issued pursuant
to a stock option or other employee benefit plan.
For the purposes of this Section 9, the term "Offering Regulations" shall
refer to Part 563g of the Rules and Regulations for FSLIC-Insured Institutions,
12 C.F.R. Part 563g (1988), or any successor regulations promulgated by any
agency of the United States government or any statute enacted into law, relating
to or governing the offering of
<PAGE> 24
23
securities by the Association; the term "FHLBB" shall refer to the Federal Home
Loan Bank Board and to any successor agency having jurisdiction over the
offering of securities of a savings bank such as the Association; and the term
"registration statement" or "prospectus," as the case may be, shall refer to an
offering circular on Form OC or any other form of filing required by the
Offering Regulations.
(c) Underwriting Terms. In connection with any proposed public offering by
the Association which any Holder has requested to include Warrant Shares
pursuant to Section 9(b), if such offering involves a best efforts or firm
commitment underwriting, the Association shall not be required to include any of
the Warrant Shares in such offering unless the Holder accepts the terms of the
underwriting as agreed upon between the Association and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the managing underwriter(s), jeopardize the success of the offering by the
Association. If, in the opinion of the managing underwriter(s), including all or
any portion of the Warrant Shares would materially and adversely affect such
public offering, then the Association shall be required to include in the
underwriting only that number of the Warrant Shares, if any, which the managing
underwriter(s) believes
<PAGE> 25
24
may be sold without causing such adverse effect; provided, however, that to the
extent that the Warrant Shares cannot be so included, the number of Warrant
Shares shall be reduced only after shares or other securities proposed to be
included in such offering by all other shareholders or security holders are
eliminated from such offering.
(d) Expenses. All expenses of registration for any registration effected
pursuant to this Section 9 shall be borne by the Association; provided however,
that the following shall not be deemed to be expenses of registration: sales
commissions or underwriter discounts with respect to any Selling Holder's
Shares, blue sky fees of any jurisdiction in which any Selling Holder
specifically requests registration, any stock transfer taxes on any Selling
Holder's shares, and the fees of any financial advisor(s) or attorney(s) hired
to represent any Selling Holder; such expenses can be borne wholly by the
appropriate Selling Holder to which such expenses are attributable.
For the purposes of this Section 9, the term "Selling Holders" shall refer
to the Holder(s) of Warrants and Warrant Shares being offering for sale on their
behalf pursuant to a registration statement.
(e) Selling Holders Indemnified. If a Selling Holder shall sell or
distribute Warrants or Warrant Shares pursuant
<PAGE> 26
25
to a registration statement proposed in accordance with the terms of this
Section 9, with respect to such proposed sale or distribution, the Association
will indemnify and hold harmless the Selling Holder, and each person, if any,
who controls the Selling Holder, against any losses, claims, damages, or
liabilities, joint or several, to which the Selling Holder or such controlling
person may become subject insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the preliminary or final registration statement under which such shares were
registered, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement to such registration statement or to such
prospectus, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Selling
Holder and each such controlling person for any legal or other expenses
reasonably incurred by the Selling Holder or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Association
<PAGE> 27
26
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, preliminary prospectus, final prospectus, or amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Association by the Selling Holder and specifically
identified for use in the preparation thereof; provided, further, however, that
the Association shall not be liable for any amounts paid in settlement without
the Association's express written consent or which arise out of a claim based
upon any preliminary prospectus and the underwriter in the offering failed to
deliver the final prospectus which corrected or reflected such untrue statement
or omission.
(f) Association Indemnified. It shall be a condition to the Association's
obligations under this Section 9 that each Selling Holder shall indemnify and
hold harmless the Association and each of its directors, officers, stockholders,
employees, agents and affiliates (as that term is defined under Securities and
Exchange Commission Rule 405) and each person, if any, who controls the
Association, and any underwriter(s) utilized by the Association in connection
<PAGE> 28
27
with an offering contemplated herein against any losses, claims, damages, or
liabilities to which the Association or any such director, officer, stockholder,
employee, agent, affiliate (as that term is defined under Securities and
Exchange Commission Rule 405), controlling person, or underwriter may become
subject, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
preliminary prospectus, final prospectus, or offering circular or any amendment
or supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
to necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, offering circular, preliminary prospectus, final prospectus, or
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Association by the Selling Holder specifically for
use in the preparation thereof, and will reimburse to the Association any legal
or other expenses
<PAGE> 29
28
reasonably incurred by the Association or any such director, officer,
stockholder, employee, agent or affiliate of the Association or any controlling
person, or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action.
(g) Notice of Indemnification, Etc. Promptly after receipt by a party
entitled to indemnification under this Section 9 of any notice of the
commencement of any action or proceeding, such indemnified party will, if a
claim in respect thereof is made against an indemnifying party under this
Section 9, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 9 if the indemnified party shall sustain the burden of proving that the
indemnifying party shall not have been prejudiced by the omission. In case any
such action is brought against any indemnified party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party or parties, to assume the defense thereof,
with counsel satisfactory to such indemnified party and after notice from the
indemnifying party to such indemnified party, of its election to so assume
<PAGE> 30
29
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof.
(h) Efforts. If and whenever the Association is requested under this Section
9 to effect the registration of Subject Securities, the Association shall as
promptly as reasonably possible, (i) prepare and file with the FHLBB a
registration statement on suitable form with respect to such securities and
thereafter use its best efforts to cause such registration statement to become
and, subject to clause (ii) hereof, remain effective and any prospectus
contained in such registration statement to remain current and to cause such
registration statement to comply with the provisions of the Offering
Regulations; (ii) prepare and file with the FHLBB such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
such prospectus current for a period not exceeding 180 days and to comply with
the provisions of the Offering Regulations with respect to the sale or other
disposition of such Subject Securities by such registration statement; (iii)
furnish to each Selling Holder and each
<PAGE> 31
30
underwriter of such shares being sold such number of copies of a prospectus,
including a preliminary prospectus or amendment thereto, in conformity with the
requirements of the Securities Act of 1933, as amended, and the Offering
Regulations; (iv) use all reasonable efforts to register or qualify (where
required) the Subject Securities covered by such registration statement under
such securities or blue sky laws of jurisdictions in which the Subject
Securities are being offered or sold, and do any and all other acts and things
which may be reasonably required of the Association to enable each Selling
Holder and the underwriters to consummate the public sale or other disposition
in such jurisdictions in which the Subject Securities are being sold; and (v)
use its best efforts to notify each Selling Holder of any amendment or
supplement to the registration statement or the prospectus included therein and
the time at which any such registration statement, agreement, or supplement
becomes effective, provided, however, that the Association will not be required
to qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not then so subject.
10. Right of First Refusal. The provisions of this Section 10 shall apply to
the Warrants and if the Warrants, or any
<PAGE> 32
31
of them, are exercised, the terms of this Section 10 shall apply to the shares
of Common Stock (for the purposes of this Section 10, the "Shares") so acquired
unless such shares are acquired pursuant to a registered offering pursuant to
Section 9.
(a) Restriction on Transfer; Right of First Refusal.
(i) The Holder of Warrants and Shares shall not sell, assign, transfer
or otherwise dispose of Warrants or Shares, now or thereafter owned or held
by it, except as provided in this Section 10. The Association may refuse to
transfer the Warrants and Shares when such transfer would not be in
compliance with the terms of this Agreement, and any attempted disposition
in violation hereof shall be null and void.
(ii) In the event that any Holder of Warrants or Shares proposes to
sell, transfer or otherwise dispose of any Warrants or Shares, such Holder
shall give the Association written notice of its intent to do so, which
shall not be required to disclose any proposed purchase terms or purchaser.
(iii) Upon receipt by the Association of such notice from the holder
(hereinafter sometimes referred to as the "Disposing Holder") or its legal
representative, as the case may be, the Association or
<PAGE> 33
32
its Holding Company or its affiliates shall have the exclusive right and
option, exercisable at any time within 30 days after receipt of the notice,
to purchase all (but not less than all) of the Shares at the Purchase Price
per share determined as of the date of the notice pursuant to Section
9(a)(i). If the Association chooses to exercise its option, it shall give
written notification to this effect to the Disposing Holder or its legal
representative, as the case may be, and such sale and purchase shall be
consummated within 30 days after the Independent Financial Expert referred
to in Section 9(a)(i) determines the Purchase Price.
(iv) If the Association does not elect to exercise its rights hereunder,
the Disposing Holder, or its legal representative, shall be free to retain
or dispose of the Warrants or Shares for the next 90 days subject to the
terms of this Agreement. The Disposing Holder shall not effect such a
disposition after such 90 day period without first complying again with the
requirements of this Section 10 with respect to a subsequent attempt to
sell, transfer or otherwise dispose of any such Warrants or Shares.
(v) If, in accordance with this Section 10, Shares are sold to a third
party in a transaction not constituting
<PAGE> 34
33
a public offering, the Disposing Shareholder shall require, as a condition
of the sale to such third party, that the purchaser of its Shares will
become a party to this Agreement, but only if the Association so desires
such purchaser to become subject to this Agreement. All Warrants and Shares
retained by the Disposing Holder shall remain subject to the prohibitions,
restrictions and requirements of this Agreement.
(b) The Closing Date; Payment for the Stock. The Closing Date shall be five
(5) business days following the determination of the Purchase Price as set forth
in Section 9 above. At 10:00 a.m. on the Closing Date, and at the Association's
headquarters, or at some other time or place designated by the parties, the
Disposing Holder shall deliver to the Association the certificates representing
all of the Warrants and/or Shares to be sold, duly endorsed, and free and clear
of any liens, claims, or encumbrances, and all assignments, certificates of
authority, tax releases, and other instruments or documents as may be
recommended by the Association's counsel, and the Association shall pay the
purchase price of the Warrants and/or Shares being acquired, determined in
accordance with subparagraph (a)(iii) above. The purchase price shall be paid by
the Association in a lump
<PAGE> 35
34
sum payment of 100% of the Purchase Price, paid in cash or by certified or
cashier's check. In the event that the Association fails to complete a purchase
pursuant to the exercise of rights granted under this Section 10, the Disposing
Holder shall have the right to dispose of such Warrants or Warrant Shares for
the next 90 days in accordance with subparagraph (a)(iv) above as if the
Association had not elected to exercise such rights.
(c) Copy of Agreement; Restrictive Legend. A counterpart of this Agreement
shall be placed on file at the principal place of business of the Association
and at its registered office. In addition to any other legends required on the
certificates pursuant to the terms hereof or otherwise, upon any exercise of any
of the Warrants hereunder, the certificates representing the Shares subject
hereto shall be endorsed as follows:
"The shares represented by this certificate are transferable only upon
compliance with the provisions of a Warrant Agreement dated December 30,
1988, a copy of which will be furnished to the record holder of this
certificate without charge upon written request to the Association at
the
<PAGE> 36
35
principal place of business of the Association at the Association's
registered office. A holder of record or its agent, attorney or
accountant shall have the right to examine the Warrant Agreement during
regular business hours of the Association."
11. Participation in Transfers. For as long as the FSLIC is a Holder, the
Association agrees not to transfer any Common Shares except in accordance with
the provisions of this Section 11. In the event the Association proposes to
transfer Common Shares in an transaction or series of transactions ("Subject
Transfer") which would cause the Association to cease owning beneficially in the
aggregate more than 50% of the voting control of the Association immediately
after the transfer, the Association shall give a written notice (the "Transfer
Notice") to the FSLIC stating that it intends to make or participate in a
Subject Transfer and identifying the terms of the Subject Transfer. By giving a
written notice ("Participation Notice") to the Association within 30 days after
its receipt of the Transfer Notice, the FSLIC shall have the right to require,
as a precondition to the Subject Transfer by the Association, that the purchaser
in such Subject Transfer enter into an agreement with the FSLIC
<PAGE> 37
36
whereby the FSLIC shall be entitled to sell to such purchaser that percentage of
the total number of Subject Securities and Common Shares to be sold as is equal
to the percentage of the total number of outstanding Subject Securities and
Common Shares then owned by the FSLIC. The purchase price per security for the
FSLIC's Subject Securities shall be the per share price paid for the Common
Shares sold by the Association in the Subject Transfer minus, in the case of
Warrants sold by the FSLIC, the exercise price per Warrant. The Purchase Price
for the Subject Securities shall be paid to the FSLIC at the closing of the
Subject Transfer.
12. Representations, Warranties and Covenants. The Association hereby makes
to the Holders the representations, warranties, and covenants set forth in the
following subsections, all of which shall survive the execution and delivery of
this Agreement:
(a) Due Authorization. The execution, delivery, and performance of the terms
and conditions of this Agreement and issuance and delivery of the Warrants have
been duly and validly authorized.
(b) Binding Agreements. This Agreement constitutes a legal, valid, and
binding agreement of the Association, enforceable against the Association in
accordance with its terms.
<PAGE> 38
37
(c) Consents. All governmental and regulatory consents in connection with
the issuance and delivery of the Warrants have been obtained by the Association.
(d) Warrant. When executed and delivered by the Association pursuant to this
Agreement, the Warrant will be a valid and binding obligation of the
Association, enforceable against the Association in accordance with its terms.
All Common Shares issued upon the exercise of the Warrant will be duly
authorized, validly issued and outstanding, fully paid and non-assessable.
13. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants, and
counsel.
(b) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing (including telex, telecopy, or
similar writing) and shall be given in the manner set forth in Section 22 of the
Assistance Agreement.
<PAGE> 39
38
(c) Severability. If any term, provision, convenant, or restriction of this
Agreement is held to be invalid, void, or unenforceable, the remainder of the
terms, provisions, convenants, and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired, or
invalidated.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws (other than laws governing conflicts or choice of law)
of the State of Texas.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(f) Headings. The section headings herein are for convenience only and shall
not affect the construction hereof.
(g) Assignment. A Holder may sell, transfer, assign, or otherwise dispose
(in whole or in part) of its rights and obligations under this Agreement to any
subsequent Holder of the Warrants or the Warrant Shares. This Agreement shall
not be assignable by the Association except by operation of law.
(h) Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party
<PAGE> 40
39
hereto, and nothing in this Agreement, express or implied, is intended to confer
upon any other person (other than an assignee of a Holder) any rights or
remedies of any nature whatsoever under or by any reason of this Agreement.
(i) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(j) No Waiver. No delay on the part of either party in exercising any right
hereunder or under a Warrant shall operate as a waiver thereof, nor shall any
waiver on the part of either party, nor any single or partial exercise of any
right hereunder or under a Warrant, preclude any other or further exercise
thereof or any other right hereunder or under a Warrant.
IN WITNESS WHEREOF, the Association and the FSLIC have caused this Agreement
to be duly executed as of the day and year first above written.
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
Attest:
By:
----------------------------
Its:
- ---------------------- ----------------------------
Secretary
FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
Attest:
By:
----------------------------
Its:
- ---------------------- ----------------------------
<PAGE> 41
EXHIBIT A
(Form of Warrant Certificate)
No W- Warrants
------------ ------------
WARRANT TO PURCHASE COMMON STOCK OF
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN THE WARRANT AGREEMENT REFERENCED BELOW.
United Savings Association of Texas, FSB, a federally-chartered savings bank
(hereinafter called the "Association"), for value received, hereby certifies
that the Federal Savings and Loan Insurance Corporation, or registered assigns,
is the owner of the number of Warrants set forth above, each of which represents
the right, initially to purchase that whole number of shares of Common Stock,
per value $0.01 (One Cent) per share, of the Association (hereinafter called the
"Common Stock") at the price of $0.01 (One Cent) per share (the "Warrant
Price"), subject to the terms and conditions hereof and of the Warrant Agreement
hereafter referred to, each such purchase to be made, and to be deemed effective
for the purpose of determining the date of exercise, only upon surrender hereof
to the Association at its principal office in Houston, Texas, with the form of
Election to Exercise attached hereto duly filled in and signed, and upon payment
in full to the Association of the Warrant Price (i) in cash or (ii) by certified
or official bank check, all as provided in the Warrant Agreement hereafter
referred to and upon compliance with and subject to the conditions set forth
herein and in the Warrant Agreement hereafter referred to.
The Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of December __, 1988 (herein called the "Warrant Agreement"),
by and between the Association and the Federal Savings and Loan Insurance
Corporation and is subject to the terms and provisions of the Warrant Agreement,
which terms and provisions are hereby incorporated by reference herein and
<PAGE> 42
made a part hereof. Each holder of this Warrant Certificate consents to all of
the terms contained in the Warrant Agreement by acceptance hereof. A copy of the
Warrant Agreement is available for inspection by the registered holder hereof at
the principal office of the Association in Houston, Texas.
The Warrant Agreement and each Warrant Certificate, including this Warrant
Certificate, shall be deemed a contract made under the laws of Texas and for all
purposes shall be construed in accordance with the laws of Texas.
IN WITNESS WHEREOF, the Association has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: December , 1988
--
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
[Corporate Seal]
By:
------------------------------------
ATTEST:
- ----------------------------
<PAGE> 43
Exhibit B
ELECTION TO EXERCISE
(To be executed upon exercise of Warrant)
TO: UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant Certificate for, and to purchase thereunder,
____________ shares of Common Stock, as provided for therein, and tenders
herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $________.
Please issue a certificate or certificates for such shares of Common Stock
in the name of, and pay any cash for any fractional share to:
PLEASE INSERT SOCIAL Name ________________________________________
SECURITY OR OTHER (Please print name and address)
IDENTIFYING NUMBER
OR ASSIGNEE
__________________________ Address _____________________________________
__________________________ Signature ___________________________________
NOTE: The above signature should
correspond exactly with the name on
the face of this Warrant
Certificate or with the name or
assignee appearing in the
assignment form below.
Signature guarantee:
_____________________________________________
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder.
Dated: ____________, 19
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EXHIBIT 10.3a
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BANK UNITED OF TEXAS FSB
and
THE FEDERAL DEPOSIT INSURANCE CORPORATION,
as Manager of the FSLIC Resolution Fund
WARRANT AGREEMENT
Dated as of December 30, 1988, as amended by the
First Amendment to Warrant Agreement
dated as of December 28, 1993
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AMENDED WARRANT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of December 30, 1988, as
amended as of December 28, 1993, is entered into by and between BANK UNITED OF
TEXAS FSB, Houston, Texas, a federally chartered savings bank (the
"Association"), and the FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of
the FSLIC Resolution Fund, ("FDIC Manager").
W I T N E S S E T H
WHEREAS, pursuant to that certain Assistance Agreement (the
"Assistance Agreement"), dated December 30, 1988, herewith, by and between the
Association and the Federal Savings and Loan Insurance Corporation ("FSLIC")
and in connection with the transactions contemplated thereby, the Association
issued warrants (the "Warrants") representing the right to purchase up to
158,823 shares of the Association's common stock, par value $0.01 (One Cent)
per share (the "Common Stock").
WHEREAS, the FDIC Manager has succeeded to all rights of the FSLIC
with respect to the Warrants;
WHEREAS, the FDIC Manager and the Association have entered into a
Settlement and Termination Agreement, dated as of December 23, 1993 (the
"Settlement Agreement"), and a related First Amendment to Warrant Agreement
providing for the amendment of the Warrants as set forth herein;
WHEREAS, the Association and the FDIC Manager desire to enter into
this Agreement to set forth the terms and conditions of the Warrants and the
rights and obligations with respect thereto of the Association and the FDIC
Manager and any subsequent holder or holders of the Warrants and the shares of
Common Stock issued upon the exercise of such Warrants (the FDIC Manager and
such holder or holders may hereinafter be referred to individually as the
"Holder" or collectively as the "Holders");
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
1. Issuance of Warrants. The Association hereby issues 158,823
Warrants to the FDIC Manager which issuance is evidenced by the execution and
delivery of a warrant certificate substantially in the form of Exhibit A hereto
(the "Warrant Certificate"). The Warrant Certificate may have such letters,
numbers, or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange, or to conform to usage, or as may, consistently herewith,
be determined by the
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officers executing such Warrant Certificate as evidenced by the officers
executing such Warrant Certificate. The Warrant Certificate evidences the
total number of Warrants issued hereunder and registered in the name of the
Holder in the Warrant Register (as defined in Section 6(a)). Each Warrant
shall entitle the Holder to purchase one share of Common Stock ("Common
Share") subject to adjustment pursuant to the provisions of Section 8. The
Common Shares issued pursuant to the exercise of Warrants are hereinafter
referred to as the "Warrant Shares". The Warrant and Warrant Shares are
hereinafter referred to as the "Subject Securities".
2. Execution of Warrant Certificates. Each Warrant Certificate,
whenever issued, shall be signed manually by, or bear the facsimile signature
of, the Chairman of the Board or the President or a Vice President of the
Association; shall be dated the date of its issuance; shall have the
Association's seal or a facsimile thereof affixed or imprinted thereon; and
shall be attested by the manual or facsimile signature of the Secretary or an
Assistant Secretary of the Association (if facsimile signatures are utilized,
the Warrant Certificates shall be manually countersigned by an authorized
officer of the Association or by a Warrant Agent duly appointed by the
Association). In case any officer of the Association whose manual or facsimile
signature has been placed upon any Warrant Certificate shall have ceased to be
such an officer before such Warrant Certificate is issued, it may be issued
with the same effect as if such officer had not ceased to be such at the date
of issuance. Any Warrant Certificate may be signed on behalf of the Association
by any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Association to sign such Warrant
Certificate, although at the date of the execution of this Agreement any such
person was not an officer.
3. Warrant Price. The price to be paid by the Holder upon the issuance
of each Common Share pursuant to the exercise of any of the Warrants (the
"Warrant Price") shall be $0.01 (One Cent) per Common Share.
4. Exercise of Warrant.
(a) The Warrants shall be exercisable by the Holders thereof
at any time and from time to time until 11:59 p.m., Houston, Texas
time, on December 29, 2004, or the sixteenth anniversary of the date
hereof (the "Expiration Date"), at which time the Warrants shall
expire. Each Warrant not exercised during the foregoing period shall,
upon the expiration of such period, become null and void, and all
rights thereunder and all rights in respect thereof under this
Agreement shall cease upon the Expiration Date. Warrants shall be
exercised by the Holder giving the Association 15 business days
written notice ("Notice of Exercise") and then, on the 15th day, the
Holder shall present and surrender to the Association a Warrant
Certificate evidencing such Warrants at the Association's principal
office, accompanied by (i) a written Notice of Exercise in the form of
Exhibit B duly filled in and signed, and (ii) payment in full in cash
or by certified or official bank check to the Association of the
aggregate Warrant Price for the Common Shares to be purchased, as
specified in such notice. Warrants exercised by the Holder anytime
after the fifteenth anniversary of the date hereof shall provide the
Notice
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of Exercise, no later than December 14, 2003, including prior written
notice to the Association of the date certain by which the Holder
shall exercise the Warrants in the year following, but not to exceed
the Expiration Date, and on which date certain the Holder shall
present and surrender to the Association a Warrant Certificate
evidencing such Warrants at the Association's principal office,
accompanied by (i) a written Notice of Exercise in the form of Exhibit
B duly filled in and signed, and (ii) payment in full in cash or by
certified or official bank check to the Association of the aggregate
Warrant Price for the Common Shares to be purchased, as specified in
such notice.
(b) As soon as practicable after the exercise of the Warrants
and payment by the registered Holder of the full Warrant Price for the
Common Shares which are then being exercised, the Association shall
promptly issue and deliver to or upon the order of such Holder the
number of Common Shares to which such Holder is entitled, registered
in such name(s) as Holder may direct, and, if the full number of
Warrants represented by a Warrant Certificate shall not have been
exercised, a new warrant certificate for the balance of the Warrants
represented by the surrendered Warrant Certificate.
(c) Each person in whose name such certificates for Common
Share is issued shall for all purposes be deemed to have become the
holder of record of such Common Shares on the date on which the
Warrant Certificate and a proper Notice of Exercise (defined below)
was surrendered and the Warrant Price paid, irrespective of the date
that certificates representing such Common Shares shall actually be
issued or delivered irrespective of whether or not the stock transfer
books of the Association shall then be closed.
(d) The Association shall pay all expenses, and any taxes
(other than income taxes) and other charges that may be payable in
connection with the preparation, issuance, and delivery of stock
certificates under this Section 4 in the name of the Holders;
provided, however, that the Association shall not be required to pay,
and such Holders shall be responsible for, any tax that may be payable
in respect of any transfer in connection with the issuance of any
Warrant Certificate in a name other than that of a registered Holder
of the Warrant Certificate surrendered upon the exercise of a Warrant.
5. Reservation of Shares; Preservation of Rights of the Holder.
(a) The Association covenants that it will at all times
reserve and keep available out of its authorized shares of Common
Stock, solely for issuance and/or delivery upon exercise of Warrants,
free from preemptive rights, the full number of Common Shares then
issuable if all outstanding Warrants then exercisable were exercised.
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(b) The Association further covenants (i) that it will not,
by charter amendment or through reorganization, consolidation, merger,
dissolution, or sale of assets, or by any other voluntary act or
inaction, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations, or conditions to be observed or
performed hereunder by the Association, including the antidilution
provisions in Section 8 herein, (ii) promptly to take all action as
may from time to time be required (including complying with all
federal and state laws, cooperating fully with the Holders in preparing
such applications and providing such information to such federal and
state regulatory authorities as may be required) in order to permit
the Holders to exercise Warrants and the Association duly and
effectively to issue Common Shares pursuant thereto, and (iii)
promptly to take all action provided in Section 8 herein.
6. Restriction on Transfer, Exchange or Loss of Warrants.
(a) The Association shall keep a warrant register (the
"Warrant Register") in which it shall register the name and address of
any Holder of Warrant Certificates. Subject to Section 13 and Section
16, the Association shall register the transfer of any outstanding
Warrant Certificates in the Warrant Register upon surrender at the
principal office of the Association of the Warrant Certificates
accompanied by a written instrument of transfer, in form satisfactory
to the Association, duly executed by the registered Holder of the
Warrant Certificate or accompanied by proper evidence of succession or
assignment. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered
Warrant Certificates shall be cancelled; provided, however, that
except for transfers pursuant to Section 10, the Warrants may only be
transferred in a private transaction that is, in the opinion of
counsel to the Holder that is reasonably acceptable to the
Association, exempt from any applicable securities registration
requirement.
(b) Each Holder may, at its option, exchange its Warrant
Certificates for other Warrant Certificates representing in the
aggregate a like number of warrants by the surrender of such Warrant
Certificates at the principal office of the Association accompanied by
written instructions for such exchange.
(c) If any Warrant Certificate is lost, stolen, mutilated, or
destroyed, the Association shall issue in exchange and substitution
for and upon cancellation of a mutilated Warrant Certificate, or in
the case of a Warrant Certificate lost, stolen, or destroyed, upon
receipt of a proper affidavit and reasonably satisfactory
indemnification of the Association, a new Warrant Certificate of like
tenor and representing the number of Warrants equal to the number
represented by the Warrant Certificate so lost, stolen, mutilated, or
destroyed. Any such new Warrant Certificate executed and delivered
shall constitute a contractual obligation on the part of the
Association, whether or not the Warrant Certificate so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by anyone. No
service charge or fee shall be assessed against the Holder
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of such Warrant Certificate for any transfer, exchange, or replacement
of Warrant Certificates pursuant to this Section 6.
7. Rights Upon Consolidation, Merger, Sale, Transfer, or
Reclassification.
(a) In case the Association (i) shall consolidate with or
merger into any other entity and shall not be the continuing or
surviving corporation of such consolidation or merger or (ii) shall
lease, sell, or otherwise convey all or substantially all of its
assets, then such successor, leasing, or purchasing person or entity,
as the case may be, shall execute with each Holder a supplemental
agreement providing that (A) each Holder shall have the right to
receive, upon the exercise of its Warrants, in lieu of each Common
Share that could have been purchased upon exercise of Warrants if the
Warrants had been exercised immediately prior to such transaction, the
kind and amount of shares, securities, cash, or property receivable
upon such consolidation, merger, lease, sale, or conveyance by a
holder of one Common Share of Common Stock of the Association, and (B)
setting forth the Warrant Price for the shares and/or other securities
and/or property and/or cash so issuable, which shall be an amount
equal to the Warrant Price per Common Share of the Association
immediately prior to such event.
(b) In case of the reclassification or change of the Common
Shares issuable upon exercise of the Warrant, or in the case of any
consolidation or merger of another corporation into the Association in
which the Association is the continuing corporation and in which the
holders of Common Shares thereafter receive shares, other securities,
property, or cash for such Common Shares, the Association shall
execute with each Holder a supplemental agreement (A) providing that
the Holder shall have the right to receive, upon exercise of its
Warrants, in lieu of each Common Share deliverable upon such exercise
immediately prior to such event, the kind and amount of shares, other
securities, property, or cash receivable upon such reclassification,
change, consolidation, or merger by a holder of one Common Share of
the Association, and (B) setting forth the Warrant Price for the
shares and/or other securities and/or property and/or cash so
issuable, which shall be an amount equal to the Warrant Price per
Common Share of the Association immediately prior to such event.
(c) The provisions of this Section 7 shall similarly apply to
successive consolidations, mergers, leases, sales, or conveyances and
successive reclassifications and changes of shares of Common Stock.
(d) If at any time the Holders become entitled to exercise a
Warrant or Warrants for any securities of the Association or any other
person other than Common Stock, thereafter the number of shares or
units of such securities purchasable upon exercise of a Warrant or
Warrants shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions set
forth in Section 8 of this Agreement.
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8. Antidilution Provision. So long as any Warrants are outstanding and
unexercised, in whole or in part:
(a) If the Association shall, on or after the date hereof,
pay a dividend in Common Shares or make any other distribution in
Common Shares on or with respect to any class of its capital stock,
the number of Common Shares purchasable upon exercise of each Warrant
outstanding unexercised at such time shall be increased by multiplying
such number of shares by a fraction, the denominator of which shall be
the number of Common Shares outstanding at the close of business on
the day immediately preceding the date of such dividend or other
distribution and the numerator shall be the sum of such number of
shares and the total number of Common Shares constituting such
dividend or other distribution, such increase to become effective
immediately after the record date of such dividend or other
distribution.
(b) In the event outstanding Common Shares shall be
subdivided into a greater number of Common Shares, the number of
Common Shares purchasable upon exercise of each Warrant shall be
proportionately increased, and conversely, in case outstanding Common
Shares shall each be combined into a smaller number of Common Shares,
the number of Common Shares purchasable upon exercise of each Warrant
shall be proportionately decreased, such increase or decrease, as the
case may be, shall become effective immediately after the effective
date of such subdivision or combination.
(c) If the Association issues or distributes to all holders
of Common Stock (i) rights or warrants entitling them to subscribe for
or purchase shares of Common Stock or (ii) evidences of its
indebtedness or assets (excluding cash dividends and excluding stock
dividends referred to in subsection (a) above), the Association shall
issue or distribute to each Holder of the Warrants the subscription
rights or evidences of indebtedness or assets that such Holder would
have been entitled to receive had the Warrants been exercised
immediately prior to the record date for determination of stockholders
entitled to receive such rights, warrants, or evidences of
indebtedness or assets.
(d) Issuance of Common Stock for a Price Below the Market
Price Per Share. If the Association sells or issues additional shares
of Common Stock at a price per share less than the Market Price Per
Share (as defined in Section 8(e)) immediately prior to the time of
such sale or issue, then in each such case the number of shares of
Common Stock purchasable upon the exercise of each unexercised Warrant
shall be determined by multiplying the number of shares theretofore
purchasable upon the exercise of such Warrant by a fraction, of which
(i) the numerator shall be (x) the number of shares of Common Stock
outstanding immediately prior to such sale or issue plus (y) the
number of additional shares of Common Stock so sold or issued, and
(ii) the denominator shall be (x) the number of shares of Common Stock
outstanding immediately prior to such sale or issue plus (y) the
number of additional shares of Common Stock that the aggregate
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offering price of the shares of Common Stock so sold or issued would purchase
at the Market Price Per Share on the date of such sale. For purposes of this
paragraph, the sale or issuance of securities convertible into or exercisable
for shares of Common Stock shall be deemed to be the sale or issuance of the
shares of Common Stock into or for which such securities are convertible or
exercisable at an aggregate price equal to the aggregate price of such
securities plus the minimum aggregate amount (if any) payable upon conversion
or exercise of such securities into or for shares of Common Stock.
This Section 8(d) shall not apply to (i) transactions subject to
Section 8(c), or the exercise of any warrants or rights to which Section 8(c)
applies; (ii) the exercise of any other rights, warrants, or conversion or
exchange option, or other option, if the exercise price under such rights,
warrants, options, or other convertible or exchangeable security was at least
equal to the Market Price Per Share on the date such right, warrant, option or
other convertible or exchangeable security was initially issued; (iii) shares
issued pursuant to employee stock options or other equity based employee stock
plans or other equity based employee compensation programs; (iv) shares or
other securities (or Common Stock issued upon the exercise, conversion, or
exchange of such other securities) issued in a public offering; (v) any other
issuance of shares in which the price or other terms of issuance are
established by, or through negotiation with, an unaffiliated third party; (vi)
any merger, consolidation, or similar transaction, other than a transaction
with an entity or person which is an affiliate of the Association prior to the
consummation of such transaction; or (vii) any other transaction which results
in an adjustment in the number of shares purchasable hereunder pursuant to any
other provision of this Section 8.
(e) Definition of "Market Price Per Share". For the purpose of any
computation under this Section 8, the "Market Price Per Share" of Common Stock
on any date shall be deemed to be the average of the daily Closing Prices for
the ten (10) consecutive Trading Days ending on the fifth (5th) Trading Day
before the date for which the Market Price Per Share shall be determined. The
term "Closing Price" on any day shall mean the reported last sale price per
share of Common Stock regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in each case on the New York Stock Exchange Composite Tape, or, if
the Common Shares are not listed or admitted to trading on such exchange, on
the American Stock Exchange Composite Tape, or, if the shares of Common Stock
are not listed or admitted to trading on such exchange, the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading, or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the closing sales price, or, if
there is no closing sales price, the average of the closing bid and asked
prices, in the over-the-counter market as reported by the National Association
of Securities Dealers' Automated Quotation System ("NASDAQ"), or, if not so
reported, as reported by the National Quotation Bureau, Incorporated, or any
successor thereof, or if not so reported, the average of the closing
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bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc., selected from time to time by the Board of Directors
of the Association for that purpose, or, if no such prices are furnished, the
fair market value of a share of Common Stock as estimated by a nationally
recognized investment banking firm selected in good faith by a majority of the
disinterested members of the Board of Directors of the Association, which
estimate shall be prepared at the expense of the Association and shall be
binding for all purposes hereunder; and the term "Trading Day" shall mean a day
on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of
business, or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which prices in the over-the-counter market are reported
by NASDAQ. A director of the Association shall be deemed to be "disinterested"
if he or she (i) is not an officer or employee of the Association; and (ii) is
not an officer, director, employee of, or beneficial owner of more than 5% of
the stock or other ownership interests in, a corporation or other entity
controlling the Association.
(f) Survivability of Certificates, Number and Price. Irrespective of
any adjustments in the number of shares purchasable upon exercise of the
Warrants, the Warrants, including any Warrants issued after any such
adjustment, may continue to express the same price and number and kind of
securities or other property as are stated therein but shall be deemed for all
purposes to represent the number and kind of securities or other property and
to be exercisable at such price as determined pursuant to any adjustment
required by the terms of this Warrant Agreement.
(g) The Association shall provide each Holder with at least 30 days
prior written notice of any of the events described in this Section 8.
9. Registration Rights.
(a) Demand Registration Rights. Subject to the terms hereof, the
Association covenants and agrees with Holders, and any other subsequent holder
of Common Shares issued pursuant to the exercise of the Warrants ("Warrant
Shares", such Warrants and Warrant Shares being hereinafter referred to as the
"Subject Securities") that within 60 days after receipt of a written request
("Demand Request") from Holders of more than 50% in interest of the aggregate
number of Subject Securities that such holders of the Subject Securities
("Requesting Holder") desire and intend to sell or transfer more than 50% in
interest of the aggregate number of Subject Securities under such circumstances
that a public offering, within the meaning of the Offering Regulations (defined
below), will be involved, the Association shall file a registration statement
(and use its best efforts to cause such registration statement to become
effective under the Offering Regulations) with respect to the offering and sale
or other disposition of such Subject Securities (the "Offered Securities");
provided, however, that the Association shall have
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no obligation to comply with the foregoing provisions of this Section 9 if in
the opinion of counsel to the Association (reasonably acceptable to the
Requesting Holder(s)) registration under the Offering Regulations is not
required for the transfer of the Offered Shares in the manner proposed by such
person or persons or that a post-effective amendment to an existing
registration statement would be legally sufficient for such transfer (in which
latter event the Association shall promptly file such post-effective amendment
(and use its best efforts to cause such amendment to become effective under the
Offering Regulations)); and provided further that only one registration may be
demanded pursuant to provisions of this Section 9(a). Any registration
abandoned after its filing in accordance with the provisions of this Section
9(a) shall not be deemed the one demand registration right pursuant to this
Section 9(a).
The provisions of this Section 9(a) shall be subject to the following
conditions, qualifications, and limitations, among others:
(i) The Association may provide the Requesting Holders with a
notice ("Purchase Notice") that the Association or its Holding Company
or affiliates, as an alternative to effecting a registration of the
Subject Securities pursuant to this Section 9(a), will purchase the
Offered Securities at a price that the Requesting Holders would
receive from a sale of the Offered Securities in an underwritten
public offering for cash (the "Offering Price"). The Offering Price
shall be determined by an independent financial expert mutually
agreeable to the Requesting Holders and the Association satisfying the
qualifications set forth hereinafter. The Association shall retain an
independent financial expert (the "Independent Financial Expert") to
determine the Purchase Price (defined below). The Independent
Financial Expert shall be any investment banking firm mutually
agreeable to the Association and the Holder which (i) is registered as
a broker-dealer under the Securities Exchange Act of 1934, as amended,
and has aggregate net capital of at least $50,000,000; (ii) does not
have a direct or indirect financial interest, and the directors,
officers, employees, affiliates, or stockholders of which do not have
a direct or indirect material financial interest, in the Association
or any of its affiliates; (iii) has not been within the last three
years, and at the time it is called upon to give independent financial
advice pursuant to this Agreement is not (and none of the directors,
officers, employees, affiliates, or stockholders of the Independent
Financial Expert is), a promoter, director, or officer of the
Association or any of its affiliates; and (iv) does not provide any
advice or opinions to the Association or any of its affiliates. Any
Independent Financial Expert retained pursuant to this Agreement shall
be required to acknowledge that any report produced by such
Independent Financial Expert will be relied upon by the FDIC Manager
as well as the Association and that such Independent Financial Expert
shall have the same duty of care to the FDIC Manager as it does to the
Association. The purchase price for the Warrants pursuant to this
Section 9 (the "Purchase Price") shall be the amount, as
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determined by such Independent Financial Expert, that the Holder (assuming
that all Warrants being valued were exercised as of the Valuation Date) would
receive with respect to the Common Shares subject to the Warrants from a sale
of all of such Common Shares for cash on the Valuation Date. The Independent
Financial Expert shall disregard any possible effect of the Regulatory
Capital Maintenance Agreement, as defined in the Assistance Agreement,
provided that the Regulatory Capital Maintenance Agreement is terminated
before the Purchase Price is finally determined pursuant hereto. The
Independent Financial Expert shall use one or more valuation methods that it,
in its best professional judgment, determines to be most appropriate. The
Association shall cause the Independent Financial Expert to deliver to the
Association at least 20 business days prior to the Valuation Date, with a
copy to the FDIC Manager, a preliminary value report (the "Preliminary Value
Report") addressed to the Association and the FDIC Manager, which Preliminary
Value Report shall (x) state the methods of valuation considered or used and
the preliminary Purchase Price of the Warrants as of the Valuation Date
determined pursuant to this Section 9(a)(i) (the "Preliminary Purchase
Price"), (y) assume that the Regulatory Capital Maintenance Agreement will
not be terminated, unless it shall have been terminated previously, but
indicate the extent to which the Purchase Price would be different from the
Preliminary Purchase Price if it were terminated, and (z) contain a statement
as to the nature and scope of the examination or investigation upon which the
determination of the Preliminary Purchase Price was made. The Association
shall and the FDIC Manager may provide information and data relevant to such
Independent Financial Expert's valuation and shall have the opportunity to
comment on the Preliminary Purchase Price. The Independent Financial Expert
shall afford both the Association and the FDIC Manager the opportunity to
attend any meetings held by it at which either of the parties or any
affiliates is in attendance and shall furnish to both the Association and the
FDIC Manager any correspondence or documents delivered to or by it to either
of them or any of their affiliates. The Independent Financial Expert may
revise the Preliminary Purchase Price within 20 business days after delivery
of the Preliminary Value Report to the Association and FDIC Manager, provided
that its final Value Report reflecting the final Purchase Price shall reflect
both the initial valuation and the determination to revise it and shall be
addressed to the Association and the FDIC Manager. If the Independent
Financial Expert becomes aware of any material changes within 20 business
days after delivery of the Preliminary Value Report, in the business or
financial condition or prospects of the Association or its subsidiaries, the
Independent Financial Expert shall specify such material changes in the final
Value Report. The Preliminary Value Report shall become the final Value
Report and shall be final and binding upon the Association and the FDIC
Manager on the twentieth business day after delivery of the Preliminary Value
Report to the Association and the FDIC Manager unless revised prior to such
twentieth business day and if so revised shall thereupon be final and binding
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upon the Association and the FDIC Manager as so revised, and any references in
this Agreement to the Purchase Price shall mean the Purchase Price set forth
in the Value Report as it becomes final and binding pursuant to this Section
9(a)(i). The Valuation Date shall, for purposes of this Section 9(a)(i), be a
date 60 days after the Demand Request is made. Unless the Requesting Holders
notify the Association in writing within ten days of the receipt of the
Purchase Notice that they are abandoning their Demand Request, the Association
shall purchase the Offered Securities on the twentieth day after the final
determination of the Offering Price in cash or by certified check or bank
cashier's check payable to the respective Requesting Holders against
presentation and surrender of the certificates evidencing the Offered
Securities duly endorsed.
(ii) The Association shall not be obligated to file a registration
statement or post-effective amendment pursuant to this Section 9(a)(ii) which,
under the Offering Regulations and the then effective rules, regulations,
forms, and releases of the OTS (defined below) thereunder, would be required to
contain audited financial statements as of the date other than the end of a
fiscal year of the Association and the related fiscal periods then ended unless
the Holder or Holders requesting registration undertake to pay (or reimburse)
the incremental expenses incurred by the Association in preparing such other
audited financial statements for inclusion.
(iii) The Association may defer the filing of a registration statement
or post-effective amendment for up to 90 days after the request for
registration is made if the Board of Directors of the Association determines in
good faith that such registration would adversely affect or otherwise interfere
with a proposed or pending transaction of the Association, including, without
limitation, a material financing or a corporate reorganization, or during any
period of time in which the Association is in possession of material inside
information concerning the Association or its securities, which information the
Association, in consultation with the FDIC Manager, reasonably determines in
good faith is not ripe for disclosure.
(b) Piggy-Back Registration Rights. Whenever the Association proposes
to register under the Offering Regulations shares of Common Stock, other than
with respect to an offering for consideration other than cash, the Association
will give 90 days prior written notice to the Holder(s) of any Subject
Securities of its intention to do so and, upon the written request of the
Holder(s) of more than 50% in interest in the aggregate number of Subject
Securities given within 20 days after the Association provides such notice, the
Association shall, subject to the terms of this Section 9(b), use its best
efforts to cause all or such portion of the Warrant Shares which may be or have
been acquired by any Holder(s) to be included in a registration statement to be
filed by the Association to the extent the Association has been requested by
such Holder(s) to register Warrant
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<PAGE> 13
Shares for sale in its proposed public offering. Notwithstanding the foregoing,
the Association shall not be required to include any Warrant Shares in any
registration statement if the registration statement relates solely to
securities of the Association to be issued pursuant to a stock option or other
employee benefit plan.
For the purposes of this Section 9, the term "Offering Regulations"
shall refer to 12 C.F.R. Part 563g (1993), or any successor regulations
promulgated by any agency of the United States government or any statute
enacted into law, relating to or governing the offering of securities by the
Association; the term "OTS" shall refer to the Office of Thrift Supervision and
to any successor agency having jurisdiction over the offering of securities of
a savings bank such as the Association; and the term "registration statement"
or "prospectus", as the case may be, shall refer to an offering circular on
Form OC or any other form of filing required by the Offering Regulations.
(c) Underwriting Terms. In connection with any proposed public
offering by the Association which any Holder has requested to include Warrant
Shares pursuant to Section 9(b), if such offering involves a best efforts or
firm commitment underwriting, the Association shall not be required to include
any of the Warrant Shares in such offering unless the Holder accepts the terms
of the underwriting as agreed upon between the Association and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the managing underwriter(s), jeopardize the success of the offering by the
Association. If, in the opinion of the managing underwriter(s), including all
or any portion of the Warrant Shares would materially and adversely affect such
public offering, then the Association shall be required to include in the
underwriting only that number of the Warrant Shares, if any, which the managing
underwriter(s) believes may be sold without causing such adverse effect;
provided, however, that to the extent that the Warrant Shares cannot be so
included, the number of Warrant Shares shall be reduced only after shares or
other securities proposed to be included in such offering by all other
shareholders or security holders are eliminated from such offering.
(d) Expenses. All expenses of registration for any registration
effected pursuant to this Section 9 shall be borne by the Association;
provided, however, that the following shall not be deemed to be expenses of
registration: sales commissions or underwriter discounts with respect to any
Selling Holder's Shares, blue sky fees of any jurisdiction in which any Selling
Holder specifically requests registration, any stock transfer taxes on any
Selling Holder's shares, and the fees of any financial advisor(s) or
attorney(s) hired to represent any Selling Holder; such expenses can be borne
wholly by the appropriate Selling Holder to which such expenses are
attributable.
For the purposes of this Section 9, the term "Selling Holders" shall
refer to the Holder(s) of Warrants and Warrant Shares being offered for sale on
their behalf pursuant to a registration statement.
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<PAGE> 14
(e) Selling Holders Indemnified. If a Selling Holder shall sell or
distribute Warrants or Warrant Shares pursuant to a registration statement
proposed in accordance with the terms of this Section 9, with respect to such
proposed sale or distribution, the Association will indemnify and hold harmless
the Selling Holder, and each person, if any, who controls the Selling Holder,
against any losses, claims, damages, or liabilities, joint or several, to which
the Selling Holder or such controlling person may become subject insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the preliminary or final registration
statement under which such shares were registered, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement to such
registration statement or to such prospectus, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Selling Holder and each such controlling person for any
legal or other expenses reasonably incurred by the Selling Holder or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the Association
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, preliminary prospectus, final prospectus, or amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Association by the Selling Holder and specifically
identified for use in the preparation thereof, provided, further, however, that
the Association shall not be liable for any amounts paid in settlement without
the Association's express written consent or which arise out of a claim based
upon any preliminary prospectus and the underwriter in the offering failed to
deliver the final prospectus which corrected or reflected such untrue statement
or omission.
(f) Association Indemnified. It shall be a condition to the
Association's obligations under this Section 9 that each Selling Holder shall
indemnify and hold harmless the Association and each of its directors,
officers, stockholders, employees, agents and affiliates (as that term is
defined under Securities and Exchange Commission Rule 405) and each person, if
any, who controls the Association, and any underwriter(s) utilized by the
Association in connection with an offering contemplated herein against any
losses, claims, damages, or liabilities to which the Association or any such
director, officer, stockholder, employee, agent, affiliate (as that term is
defined under Securities and Exchange Commission Rule 405), controlling person,
or underwriter may become subject, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, preliminary prospectus, final prospectus, or
offering circular or any amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to statement therein a
material fact required to be stated therein necessary to make the statements
therein not misleading,
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<PAGE> 15
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in said
registration statement, offering circular, preliminary prospectus, final
prospectus, or amendment or supplement, in reliance upon and in conformity with
written information furnished to the Association by the Selling Holder
specifically for use in the preparation thereof, and will reimburse to the
Association any legal or other expenses reasonably incurred by the Association
or any such director, officer, stockholder, employee, agent or affiliate of the
Association or any controlling person, or underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action.
(g) Notice of Indemnification, Etc. Promptly after receipt by a party
entitled to indemnification under this Section 9 of any notice of the
commencement of any action or proceeding, such indemnified party will, if a
claim in respect thereof is made against an indemnifying party under this
Section 9, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 9 if the indemnified party shall sustain the burden of proving that the
indemnifying party shall not have been prejudiced by the omission. In case any
such action is brought against any indemnified party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party or parties, to assume the defense
thereof, with counsel satisfactory to such indemnified party and after notice
from the indemnifying party to such indemnified party, of its election to so
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof.
(h) Efforts. If and whenever the Association is requested under this
Section 9 to effect the registration of Subject Securities, the Association
shall as promptly as reasonably possible, (i) prepare and file with the OTS a
registration statement on suitable form with respect to such securities and
thereafter use its best efforts to cause such registration statement to become
and, subject to clause (ii) hereof, remain effective and any prospectus
contained in such registration statement to remain current and to cause such
registration statement to comply with the provisions of the Offering
Regulations; (ii) prepare and file with the OTS such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and such
prospectus current for a period not exceeding 180 days and to comply with the
provisions of the Offering Regulations with respect to the sale or other
disposition of such Subject Securities by such registration statement; (iii)
furnish to each Selling Holder and each underwriter of such shares being sold
such number of copies of a prospectus, including a preliminary prospectus or
amendment thereto, in conformity with the requirements of the Securities Act of
1933, as amended, and the Offering Regulations; (iv) use all reasonable efforts
to register or qualify (where required) the Subject Securities covered by such
registration statement
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<PAGE> 16
under such securities or blue sky laws of jurisdictions in which the
Subject Securities are being offered or sold, and do any and all other
acts and things which may be reasonably required of the Association to
enable each Selling Holder and the underwriters to consummate the
public sale or other disposition in such jurisdictions in which the
Subject Securities are being sold; and (v) use its best efforts to
notify each Selling Holder of any amendment or supplement to the
registration statement or the prospectus included herein and the time
at which any such registration statement, agreement, or supplement
becomes effective, provided, however, that the Association will not be
required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action which would subject
it to general service of process in any jurisdiction where it is not
then so subject.
10. Right of First Refusal. The provisions of this Section 10 shall
apply to the Warrants and if the Warrants, or any of them, are exercised, the
terms of this Section 10 shall apply to the shares of Common Stock (for the
purposes of this Section 10, the "Shares") so acquired unless such shares are
acquired pursuant to a registered offering pursuant to Section 9.
(a) Restriction on Transfer; Right of First Refusal.
(i) The Holder of Warrants and Shares shall not sell, assign,
transfer or otherwise dispose of Warrants or Shares, now or thereafter
owned or held by it, except as provided in this Section 10. The
Association may refuse to transfer the Warrants and Shares when such
transfer would not be in compliance with the terms of this Agreement,
and any attempted disposition in violation hereof shall be null and
void.
(ii) In the event that any Holder of Warrants or Shares
proposes to sell, transfer or otherwise dispose of any Warrants or
Shares, such Holder shall give the Association written notice of its
intent to do so, which shall not be required to disclose any proposed
purchase terms or purchaser.
(iii) Upon receipt by the Association of such notice from the
holder (hereinafter sometimes referred to as the "Disposing Holder")
or its legal representative, as the case may be, the Association or
its Holding Company or its affiliates shall have the exclusive right
and option, exercisable at any time within 30 days after receipt of
the notice, to purchase all (but not less than all) of the Shares at
the Purchase Price per share determined as of the date of the notice
pursuant to Section 9(a)(i). If the Association chooses to exercise
its option, it shall give written notification to this effect to the
Disposing Holder or its legal representative, as the case may be, and
such sale and purchase shall be consummated within 30 days after the
Independent Financial Expert referred to in Section 9(a)(i) determines
the Purchase Price.
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<PAGE> 17
(iv) If the Association does not elect to exercise its rights
hereunder, the Disposing Holder, or its legal representative, shall be
free to retain or dispose of the Warrants or Shares for the next 90
days subject to the terms of this Agreement. The Disposing Holder
shall not effect such a disposition after such 90 day period without
first complying again with the requirements of this Section 10 with
respect to a subsequent attempt to sell, transfer or otherwise dispose
of any such Warrants or Shares.
(v) If, in accordance with this Section 10, Shares are sold
to a third party in a transaction not constituting a public offering,
the Disposing Shareholder shall require, as a condition of the sale to
such third party, that the purchaser of its Shares will become a party
to this Agreement, but only if the Association so desires such
purchaser to become subject to this Agreement. All Warrants and Shares
retained by the Disposing Holder shall remain subject to the
prohibitions, restrictions and requirements of this Agreement.
(b) The Closing Date; Payment for the Stock. The Closing Date shall be
five (5) business days following the determination of the Purchase Price as set
forth in Section 9 above. At 10:00 a.m. on the Closing Date, and at the
Association's headquarters, or at some other time or place designated by the
parties, the Disposing Holder shall deliver to the Association the certificates
representing all of the Warrants and/or Shares to be sold, duly endorsed, and
free and clear of any liens, claims, or encumbrances, and all assignments,
certificates of authority, tax releases, and other instruments or documents as
may be recommended by the Association's counsel, and the Association shall pay
the purchase price of the Warrants and/or Shares being acquired, determined in
accordance with subparagraph (a)(iii) above. The purchase price shall be paid
by the Association in a lump sum payment of 100% of the Purchase Price, paid in
cash or by certified or cashier's check. In the event that the Association
fails to complete a purchase pursuant to the exercise of rights granted under
this Section 10, the Disposing Holder shall have the right to dispose of such
Warrants or Warrant Shares for the next 90 days in accordance with subparagraph
(a)(iv) above as if the Association had not elected to exercise such rights.
(c) Copy of Agreement; Restrictive Legend. A counterpart of this
Agreement shall be placed on file at the principal place of business of the
Association and at its registered office. In addition to any other legends
required on the certificates pursuant to the terms hereof or otherwise, upon
any exercise of any of the Warrants hereunder, the certificates representing
the Shares subject hereto shall be endorsed as follows:
"The shares represented by this certificate are transferable only
upon compliance with the provisions of a Warrant Agreement dated
December 30, 1988, as amended by an amendment dated December 28, 1993,
a copy of which will be furnished to the record holder of this
certificate without charge upon written
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<PAGE> 18
request to the Association at the principal place of business
of the Association at the Association's registered office. A
holder of record or its agent, attorney or accountant shall
have the right to examine the Warrant Agreement during regular
business hours of the Association."
11. [This section intentionally blank].
12. Representations. Warranties and Covenants. The Association
hereby makes to the Holders the representations, warranties, and covenants set
forth in the following subsections, all of which shall survive the execution and
delivery of this Agreement:
(a) Due Authorization. The execution, delivery, and
performance of the terms and conditions of this Agreement and
issuance and delivery of the Warrants have been duly and validly
authorized.
(b) Binding Agreements. This Agreement constitutes a legal,
valid, and binding agreement of the Association, enforceable against
the Association in accordance with its terms.
(c) Consents. All governmental and regulatory consents in
connection with the issuance and delivery of the Warrants have been
obtained by the Association.
(d) Warrant. When executed and delivered by the Association
pursuant to this Agreement, the Warrant will be a valid and binding
obligation of the Association, enforceable against the Association in
accordance with its terms. All Common Shares issued upon the exercise
of the Warrant will be duly authorized, validly issued and
outstanding, fully paid and non-assessable.
13. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own final
consultants, investment bankers, accountants, and counsel.
(b) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing (including telex,
telecopy, or similar writing) and shall be given in the manner set
forth in Section 10.2 of the Settlement Agreement.
(c) Severability. If any term, provision, covenant, or
restriction of this Agreement is held to be invalid, void, or
unenforceable, the remainder of the terms,
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<PAGE> 19
provisions, covenants, and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired, or
invalidated.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws (other than laws governing
conflicts or choice of law) of the State of Texas.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but all of
which together shall constitute one and the same agreement.
(f) Headings. The section headings herein are for convenience
only and shall not affect the construction hereof.
(g) Assignment. A Holder may sell, transfer, assign, or
otherwise dispose (in whole or in part) of its rights and obligations
under this Agreement to any subsequent Holder of the Warrants or the
Warrant Shares. This Agreement shall not be assignable by the
Association except by operation of law.
(h) Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to confer upon any
other person (other than an assignee of a Holder) any rights or
remedies of any nature whatsoever under or by any reason of this
Agreement.
(i) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto and supersedes
all prior agreements and understandings relating to the subject matter
hereof.
(j) No Waiver. No delay on the part of either party in
exercising any right hereunder or under a Warrant shall operate as a
waiver thereof, nor shall any waiver on the part of either party, nor
any single or partial exercise of any right hereunder or under a
Warrant, preclude any other or further exercise thereof or any other
right hereunder or under a Warrant.
14. Payments in Lieu of Dividends. If at any time during the period
beginning on December 28, 1993 and ending on December 30, 1998, the
Association pays any cash dividend on its outstanding shares of Common Stock
or makes any distribution of property on its outstanding shares of Common
Stock (other than (i) any such dividend or distribution that would give rise
to an adjustment to the number of Warrants outstanding pursuant to Section 8
of the Warrant Agreement; or (ii) any distribution subject to Section 8(c) of
this Warrant Agreement) then, to the extent that the Warrants have not been
exercised at the time of such payment or distribution, the Association shall
pay or distribute to each Holder of the Warrants on the date of payment of the
dividend or distribution that amount in cash or property that each Holder of
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the Warrants would have been entitled to receive in respect of the shares of
Common Stock evidenced by the then unexercised portion of the Warrant had such
portion of the Warrant been duly exercised prior to the record date for such
dividend or other distribution.
15. Common Stock Issuance. The FDIC Manager hereby agrees on behalf of
itself and all subsequent Holders of any Warrants that as of December 28, 1993,
the number of issued and outstanding shares of Common Stock is 2,699,725, and
that as of such date the number of shares of Common Stock purchasable upon
exercise of the Warrant is 158,823, and that all of the anti-dilution
provisions of the Warrant Agreement and the Warrant, including those set forth
in Section 8 hereof, shall apply exclusively to transactions occurring after
December 28, 1993.
16. Change in Control.
(a) Notice of Prospective Change in Control. The Association
may at any time and from time to time deliver to the Holder of any
unexercised Warrants hereunder a notice (a "Change in Control Notice")
indicating that a signed, written agreement in principle (whether or
not binding) for a Change in Control Transaction (the "Change in
Control Agreement in Principle") or a signed, written definitive
agreement for Change in Control Transaction (a "Change in Control
Agreement") has been entered into by the Association. Any such Change
in Control Notice shall include a true and complete copy of the Change
in Control Agreement in Principle or Change in Control Agreement
(excluding schedules and exhibits thereto, other than exhibits
containing material terms of such Agreement). Each Holder of Warrants
hereby covenants and agrees that it will not exercise the Warrants or
transfer record or beneficial ownership thereof without the express
prior written consent of the Association, from the date on which a
Change in Control Notice is received by such Holder until that date
which is the earlier of (i) the date that is thirty (30) days after
the date on which the Change in Control Transaction is consummated,
(ii) the date on which the Change in Control Transaction is abandoned,
or (iii) six (6) months after the receipt of the Change in Control
Notice, provided, however, that such six-month period shall be
extended so long as (x) a Change in Control Agreement has been entered
into, and (y) the parties to such Change in Control Agreement are
actively pursuing the consummation of the related Change in Control
Transaction, such extension to continue until the occurrence of the
earliest to occur of the events specified in clauses (i) and (ii) of
this subsection (a); and provided further that such period shall
terminate 60 days after the delivery of a Change in Control Notice
with respect to a Change in Control Agreement in Principle if prior to
such date no Change in Control Agreement has been entered into. The
period during which the Warrants shall not be exercisable as aforesaid
is referred to herein as the "Lockout Period." An amendment to the
terms of Change in Control Agreement in Principle or Change in Control
Agreement shall not be construed as an abandonment of such Change in
Control Transaction. The Association shall promptly provide to the
Holders a true and complete copy of any such amendment (excluding
schedules and exhibits, other than exhibits containing material terms
of such amendment). The Association shall promptly advise
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the Holder by notice in writing of any event constituting the
termination of any Lockout Period hereunder.
(b) Redemption Upon Change in Control. Upon the consummation
of any Change in Control Transaction, the group, person, corporation
or other entity controlling the Association after giving effect to
such Change in Control Transaction, shall redeem or acquire the then
outstanding Warrants for cash in an amount equal to the Per Share
Amount (as defined in subsection (f), below) multiplied by the number
of Warrants to be redeemed. Such redemption shall be effected by
notice mailed to the address of each record holder of Warrants,
setting forth a statement that a Change in Control Transaction has
occurred, specifying the Per Share Amount and the date (which shall
not be later than 35 days after the date on which such Change in
Control Transaction occurs; provided, however, that, if applicable,
such 35-day period shall be extended to the date that is five days
after the last to occur of any calculation or valuation received by
subsections (g) or (h), below, to the extent that such calculations or
valuations involve determinations or actions by persons not parties to
this Warrant Agreement) and place at which payment is to be made.
Notice of such redemption may be mailed prior to the consummation of a
Change in Control Transaction, provided that redemption shall not be
effected prior to the consummation of the Change in Control
Transaction. Any such notice made prior to such consummation shall be
deemed to have been rescinded and to be of no force or effect if the
Change in Control Transaction to which it relates is not consummated.
(c) Effect of Change in Control. Upon the consummation of a
Change in Control Transaction, the Warrants shall cease to be
exercisable, and all rights of the holders thereof, other than the
right to have such Warrants redeemed as provided in Section 16(b),
above, shall cease.
(d) Change in Control Transaction. Any of the following items
(i) through (v) shall constitute a Change in Control Transaction:
(i) Any merger or consolidation of the Association
with or into any other association, corporation, or other
entity, as a result of which the outstanding shares of Common
Stock of the Association are converted into cash, stock,
securities, or other assets, whether or not the Association
is the surviving corporation in such transaction;
(ii) Any final distribution in liquidation of the
Association;
(iii) The merger or consolidation of any direct or
indirect parent corporation of the Association (other than a
direct or indirect parent corporation which is such solely by
virtue of clause (e)(y), below) with any entity (other than
another entity that is a direct or indirect parent
corporation of the Association
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before giving effect to such transaction), other than any
such merger or consolidation in which a direct or indirect
parent corporation is the surviving entity in such merger or
consolidation and the shares of voting common stock of such
surviving corporation outstanding prior to such transaction
are not exchanged for other securities or assets as a result
of such transaction and remain outstanding following such
transaction;
(iv) The sale, exchange or other transfer of all of
the outstanding Common Stock of the Association owned
directly or indirectly by any direct or indirect parent
corporation of the Association to any single corporation,
person, or group (other than a sale to one or more
underwriters in connection with the public distribution of
such shares) if after giving effect to such transaction the
person, corporation or group so purchasing would own in
excess of 50% of the total outstanding Common Stock of the
Association, provided that a transfer to another corporation
which is prior to such transaction a direct or indirect
parent corporation of the Association shall not constitute a
Change in Control Transaction; and
(v) The acquisition by any person, corporation or
other entity of all of the outstanding common stock of any
direct or indirect parent corporation of the Association
(other than a direct or indirect parent corporation which is
such solely by virtue of clause (e)(y) below), other than an
acquisition by a person, corporation or entity which prior to
such transaction was a direct or indirect parent corporation
of the Association; provided, that any such transfer made as
a liquidating distribution, a dividend, or otherwise without
consideration shall not constitute or result in a Change in
Control Transaction.
(e) For purposes of this Section 16, the term "direct or
indirect parent corporation" shall be deemed to include (x) any
corporation, partnership, or other entity that, before giving effect to
any Change in Control Transaction, owns directly or through one or more
majority owned intermediary corporations, partnerships, or other
entities, in excess of 50% of the Common Stock, and (y) the direct or
indirect majority-owned subsidiaries (including majority-owned
partnerships or other entities) of a direct or indirect parent
corporation shall be deemed to be direct or indirect parent
corporations, whether or not such subsidiary owns, directly or
indirectly, any Common Stock.
(f) Per Share Amount. For purposes of this Agreement, the Per
Share Amount shall be the amount of cash or other consideration,
expressed on a per share basis of the Common Stock of Bank United,
equivalent to the consideration received by the shareholders of the
entity the change in control of which has given rise to the application
of this Section 16, and that is attributable to the ownership, directly
or indirectly, by such entity of Common Stock of the Association, it
being understood that if a Change in Control Transaction occurs as a
result of the sale or exchange of the
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outstanding Common Stock of the Association, the Per Share Amount shall be
equal to the consideration per share received in respect of such outstanding
shares of Common Stock of the Association by the Holders thereof. In the case
of a Change in Control Transaction not involving the sale or exchange of the
outstanding Common Stock of the Association, the Per Share Amount shall be
determined by making such adjustments as may be necessary to reflect the value
of such other assets, liabilities, and minority equity interests as may be
appropriate to fairly reflect the allocation of value in such Change in
Control Transaction to the Common Stock of the Association. Without limiting
the generality of the foregoing, the following adjustments shall be made:
(i) To the extent not paid by the Association, all expenses
of the transaction, including, without limitation, legal, accounting,
brokerage, investment banking, and financial advisory fees and
expenses, shall be deducted from the consideration received;
(ii) Consideration received shall include liabilities of the
entity acquired that is assumed by the acquirer (other than
liabilities of the Association), valued at the book value thereof
(plus any redemption premium payable as a result of such Change in
Control Transaction) as reported in the books and records of the
entity acquired, and shall be reduced by the amount of any cash or
cash equivalents, or accounts receivable, valued at book value less
any applicable reserve, acquired by the acquirer in such Change in
Control Transaction;
(iii) All intercompany accounts shall be valued at book
value;
(iv) Any other assets of the entity acquired, other than the
equity interest of such entity in the Association, shall be valued at
fair market value as of the effective date of the Change in Control
Transaction, and consideration in an amount equal to the fair market
value of such assets shall be excluded in determining the Per Share
Amount; and
(v) The consideration received shall be adjusted as
appropriate to reflect the amount of any payment made or required to
be made in connection with such Change in Control Transaction to the
holders of minority interests, or as may otherwise be necessary to
reflect the rights or ownership interest of such minority interest of
such holders.
(g) The Per Share Amount shall be determined in good faith by the party
responsible for the payment thereof (the "Responsible Party"). Such
determination shall be reviewed and concurred in by a nationally recognized
public accounting firm selected by the Responsible Party. The selection of
such public accounting firm shall be subject to the concurrence of Holders of
a majority of the Warrants then outstanding, which concurrence shall not be
unreasonably withheld and which concurrence shall be deemed
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to have been given if no written objection by the Holders of a majority of the
Warrants then outstanding shall have been received by the Responsible Party
within 20 days of the mailing of a notice of the selection of such public
accounting firm to the Holders of the Warrants at their registered addresses.
If the Holders of a majority of the Warrants do not so concur, the Responsible
Party and the Holder of a majority of Warrants shall meet and seek in good
faith to agree on a mutually acceptable public accounting firm. If no such
agreement is reached within 10 days after receipt by the Responsible Party of
the written objection referred to above, the Responsible Party shall request
the President of the New York Stock Exchange to select such a firm, which
selection shall be final and binding on all parties. If such president shall
fail or refuse to so select such a firm as aforesaid, either the Responsible
Party or the Holders of a majority of the Warrants may petition any court of
competent jurisdiction to appoint such a firm, which appointment shall be
final and binding on the parties hereto.
(h) Any valuation required to be made pursuant to such section
(f)(iv), above, or (j), below, shall be made in good faith by the Responsible
Party. Such valuation shall be reviewed and concurred in by a nationally
recognized investment banking firm selected by the Responsible Party. The
selection of such investment banking firm shall be subject to the concurrence
of Holders of a majority of the Warrants then outstanding, which concurrence
shall not be unreasonably withheld, and which concurrence shall be deemed to
have been given if no written objection by the Holders of a majority of the
Warrants then outstanding shall have been received by the Responsible Party
within 20 days of the mailing of a notice of selection of such investment
banking firm to the Holders of the Warrants at their registered addresses. If
the Holders of a majority of the Warrants do not so concur, the Responsible
Party and the Holders of a majority of the Warrants shall meet and seek in good
faith to agree on a mutually acceptable investment banking firm. If no such
agreement is reached within 10 days after receipt by the Responsible Party of
the written objection referred to above, the Responsible Party shall request
the President of the New York Stock Exchange to select such a firm, which
selection shall be final and binding on all parties. If such president shall
fail or refuse to so select such a firm as aforesaid, either the Responsible
Party or the Holders of a majority of the Warrants may petition any court of
competent jurisdiction to appoint such a firm, which appointment shall be final
and binding on the parties hereto.
(i) The determination of the Per Share Amount as aforesaid shall be
conclusive on all parties in the absence of manifest error. The cost of such
review and concurrence by such public accounting or investment banking firm
shall be borne entirely by the Responsible Party.
(j) Form of Payment. The Payment of the Per Share Amount shall be in
cash based on the fair market value of any non-cash consideration as of the
effective date of the Change in Control Transaction. The fair market value of
any publicly traded securities received shall be based upon the average closing
price of such securities as
-23-
<PAGE> 25
reported in the Wall Street Journal for the five trading days immediately
preceding the closing date of such Change in Control Transaction. The valuation
of any non-cash consideration that is not publicly traded shall be made as
provided in section (h), above.
-24-
<PAGE> 26
IN WITNESS WHEREOF, the Association and the FDIC Manager have caused
this Agreement to be duly executed as of December 28, 1993.
BANK UNITED OF TEXAS FSB
Attest:
By: /s/ JONATHAN K. [ILLEGIBLE]
-----------------------------------------
/s/ [ILLEGIBLE] Its: Executive Vice President
- ----------------------------- ----------------------------------------
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Manager of the
FSLIC Resolution Fund
Attest:
By: /s/ KEVIN STEIN
--------------------------------------
/s/ CHARLES A. FULTON Its: Associate Director
- -------------------------------- -------------------------------------
-25-
<PAGE> 27
EXHIBIT A
[Form of Warrant Certificate]
No. W-_______________ ____________Warrants
WARRANT TO PURCHASE COMMON STOCK OF
BANK UNITED OF TEXAS FSB
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN THE WARRANT AGREEMENT REFERENCED BELOW.
Bank United of Texas FSB, a federally-chartered savings bank
(hereinafter called the "Association"), for value received, hereby certifies
that the Federal Deposit Insurance Corporation, as Manager of the FSLIC
Resolution Fund (the "FDIC Manager"), or registered assigns, is the owner of
the number of Warrants set forth above, each of which represents the right,
initially to purchase that whole number of shares of Common Stock, per value
$0.01 (One Cent) per share, of the Association (hereinafter called the "Common
Stock") at the price of $0.01 (One Cent) per share (the "Warrant Price"),
subject to the terms and conditions hereof and of the Warrant Agreement
hereafter referred to, each such purchase to be made, and to be deemed
effective for the purpose of determining the date of exercise, only upon
surrender hereof to the Association at its principal office in Houston, Texas,
with the form of Election to Exercise attached hereto duly filled in and
signed, and upon payment in full to the Association of the Warrant Price (i) in
cash or (ii) by certified or official bank check, all as provided in the
Warrant Agreement hereafter referred to and upon compliance with and subject to
the conditions set forth herein and in the Warrant Agreement hereafter referred
to.
The Warrant Certificate is issued under and in accordance with the
Warrant Agreement dated as of December 30, 1988, as amended by the First
Amendment to Warrant Agreement dated as of December 28, 1993 (as so amended,
herein called the "Warrant Agreement"), by and between the Association and the
FDIC Manager and is subject to the terms and provisions of the Warrant
Agreement which terms and provisions are hereby incorporated by reference
herein and made a part hereof. Each holder of this Warrant Certificate consents
to all of the terms contained in the Warrant Agreement by acceptance hereof. A
copy of the Warrant Agreement is available for inspection by the registered
holder hereof at the principal office of the Association in Houston, Texas.
The Warrant Agreement and each Warrant Certificate, including this
Warrant Certificate, shall be deemed a contract made under the laws of Texas
and for all purposes shall be construed in accordance with the laws of Texas.
<PAGE> 28
IN WITNESS WHEREOF, the Association has caused this Warrant
Certificate to be duly executed under its corporate seal
Dated: December 28, 1993
BANK UNITED OF TEXAS FSB
[Corporate Seal]
By:
---------------------
ATTEST:
- ----------------------------
-2-
<PAGE> 29
EXHIBIT B
ELECTION TO EXERCISE
(To be executed upon exercise of Warrant)
TO: BANK UNITED OF TEXAS FSB
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant Certificate for, and to purchase
thereunder, shares of Common Stock, as provided for therein, and tenders
herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ .
Please issue a certificate or certificates for such shares of Common
Stock in the name of, and pay any cash for any fractional share to:
PLEASE INSERT SOCIAL Name
SECURITY OR OTHER ---------------------------------------
IDENTIFYING NUMBER (Please print name and address)
OR ASSIGNEE
Address
- ------------------------ -----------------------------------
Signature
- ------------------------ ----------------------------------
NOTE: The above signature should
correspond exactly with the name
on the face of this Warrant
Certificate or with the name or
assignee appearing in the
assignment form below.
Signature guarantee:
--------------------------------------------
AND, if said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in
the name of said undersigned for the balance remaining of the shares
purchasable thereunder.
Dated: , 19
------------------- ---
<PAGE> 1
EXHIBIT 10.4
REGULATORY
CAPITAL MAINTENANCE AGREEMENT
THIS AGREEMENT, dated December 30, 1988, entered into by and among USAT
HOLDINGS INC., a Delaware corporation ("ACQUIRER"); UNITED SAVINGS ASSOCIATION
OF TEXAS FSB, Houston, Texas ("ACQUIRING ASSOCIATION"); HYPERION HOLDINGS INC.
("HOLDINGS"), and HYPERION PARTNERS LP., ("PARTNERS", collectively, the
"INVESTORS"); and the Federal Savings and Loan Insurance Corporation, a
corporate instrumentality of the United States ("FSLIC" or "CORPORATION").
RECITALS
A. THE INVESTORS own 100 percent of the outstanding voting securities
of the ACQUIRER and control the ACQUIRER.
B. By Resolution No. 88-1534 dated December 30, 1988, the CORPORATION
was appointed Receiver for the CLOSED ASSOCIATION. By Resolution No. 88-1535
dated December 30, 1988, the Bank Board has authorized the ACQUIRING ASSOCIATION
to acquire substantially all of the assets and assume the secured, deposit, and
certain tax liabilities of the CLOSED ASSOCIATION from the Receiver pursuant to
the Acquisition Agreement.
<PAGE> 2
2
By Resolution No. 88-1535, dated December 30, 1988, the Bank Board has
authorized the purchase of all of the ACQUIRING ASSOCIATION's stock by the
ACQUIRER.
C. The ACQUIRER has agreed to purchase all of the shares of common
stock to be initially issued by the ACQUIRING ASSOCIATION, and the ACQUIRING
ASSOCIATION, pursuant to the Acquisition Agreement, will succeed to certain
obligations, duties and liabilities of the CLOSED ASSOCIATION and will acquire
substantially all of the assets and property of every kind and character
belonging to the CLOSED ASSOCIATION ("Acquisition").
D. The CORPORATION has decided, pursuant to Section 406(f)(1)-(4) of
the National Housing Act, as amended ("NHA"), 12 U.S.C. Section 1729(f)(1)-(4)
(1982), to provide financial assistance and indemnification in connection with
the Acquisition. Such financial assistance and indemnification is set forth in
the Assistance Agreement.
E. A condition to the Bank Board's approval of the acquisition of
control of the CLOSED ASSOCIATION by the ACQUIRER is that the ACQUIRER, the
ACQUIRING ASSOCIATION, and the INVESTORS enter into an agreement in the form of
this Agreement, pursuant to which the CORPORATION will receive certain
assurances and rights with respect to maintenance of the regulatory capital of
the ACQUIRING ASSOCIATION.
F. In consideration of the mutual promises contained herein, the
parties enter into the following Agreement.
<PAGE> 3
3
AGREEMENT
Section 1. Definitions. For purposes of this Agreement, the following
terms have the indicated meanings:
(a) "ACQUIRER": USAT Holding Inc., a Delaware corporation.
(b) "ACQUIRING ASSOCIATION": United Savings Association of Texas FSB,
Houston, Texas, a federally-chartered stock savings bank.
(c) "Acquisition Agreement": The Acquisition Agreement of even date
herewith between the Receiver and the ACQUIRING ASSOCIATION.
(d) "Assistance Agreement": The Assistance Agreement of even date herewith
among the ACQUIRER, the ACQUIRING ASSOCIATION and the CORPORATION.
(e) "Bank Board": The Federal Home Loan Bank Board.
(f) "Capital Plan Level": The level at which the ACQUIRING ASSOCIATION is
required to maintain its Regulatory Capital pursuant to paragraph one of the
forbearance letter dated December 30, 1988 in respect to the ACQUIRING
ASSOCIATION.
(g) "CLOSED ASSOCIATION": United Savings Association of Texas, Houston,
Texas.
(h) "Control": Control, as that term is used in Part 574 of the Insurance
Regulations.
<PAGE> 4
4
(i) "Extraordinary Acquiring Association Transaction": Any merger of the
ACQUIRING ASSOCIATION with and into another entity or merger of another entity
with and into the ACQUIRING ASSOCIATION, any consolidation of the ACQUIRING
ASSOCIATION, any disposition of all or substantially all of the assets of the
ACQUIRING ASSOCIATION, or any similar extraordinary transaction involving the
ACQUIRING ASSOCIATION.
(j) "FSLIC" or "CORPORATION": The Federal Savings and Loan Insurance
Corporation, in its capacity as a corporate instrumentality of the United
States.
(k) "FSLIC Director": The Executive Director of the FSLIC.
(l) "Insurance Regulations": Part 574 of the Regulations for the Federal
Savings and Loan Insurance Corporation, 12 C.F.R. Part 574 (1988).
(m) "INVESTORS": Hyperion Partners LP and Hyperion Holdings Inc.
(n) "Net Assets": Total Assets minus FSLIC Notes and assets subject to
capital loss coverage by the FSLIC.
(o) "P.S.A.": The Principal Supervisory Agent of the Bank Board, Dallas,
Texas or the P.S.A.'s designee.
(p) "Receiver": The FSLIC in its capacity as receiver for the CLOSED
ASSOCIATION.
(q) "Regulatory Activities Director": The Executive Director of the Office
of Regulatory Activities (formerly the Office of Regulatory Policy, Oversight
and Supervision) of the Bank Board.
<PAGE> 5
5
(r) "Regulatory Capital": Regulatory Capital, as that term is defined in
Section 563.13 of the Regulatory Capital Regulation.
(s) "Regulatory Capital Regulation": Section 563.13(b) of the Insurance
Regulations, 12 C.F.R. Section 563.13(b) (1988), or any successor regulation, as
now or hereafter in effect.
(t) "Regulatory Capital Trigger Level": An amount equal to 1.50 % of the
Net Assets until the earlier of (i) the inclusion of the Subordinated Debentures
as Regulatory Capital, or (ii) one year; after which it will be 2.0 % of Net
Assets.
(u) "Subordinated Debentures": The subordinated debentures in the
aggregate amount of $110 million approved in accordance with this transaction.
(v) "Total Assets": Total assets as represented on the ACQUIRING
ASSOCIATION's quarterly report to the Bank Board.
(w) "Total Liabilities": Total liabilities, as that term is defined in
Section 563.13(b)(1)(i) of the Regulatory Capital Regulation.
The form of any capital infusion required to maintain the ACQUIRING
ASSOCIATION's Regulatory Capital at the Required Regulatory Capital Level must
be acceptable to the P.S.A.
Section 2. Computation of Required Regulatory Capital Level. For purposes
of this Agreement, any determination of the Required Regulatory Capital Level
shall be as calculated by the FSLIC or the P.S.A., in accordance with applicable
regulations, standards and procedures generally applicable to institutions
supervised by the P.S.A.
<PAGE> 6
6
Section 3. Waiver of Assistance. The ACQUIRER and the ACQUIRING
ASSOCIATION hereby waive any right to any assistance for which the ACQUIRING
ASSOCIATION may qualify pursuant to Sections 406(f)(5) and (6) of the NHA,
12 U.S.C Sections 1729(f)(5) and (6) (1982), as in effect now or as
reenacted or amended in the future, and any regulations of the CORPORATION
issued thereunder, or any successor statute or regulations, as now or hereafter
in effect.
Section 4. Covenants of the ACQUIRER, the ACQUIRING ASSOCIATION, and the
INVESTORS. Unless the CORPORATION consents or otherwise agrees, in either case
in writing:
(a) The INVESTORS shall own not less than a majority of the outstanding
voting power of the ACQUIRER, provided that in determining the outstanding
voting power of the ACQUIRER, any stock options, warrants, or other instruments
or obligations convertible into voting securities of the ACQUIRER or which, upon
the occurrence of one or more events, may acquire any voting rights with respect
to the ACQUIRER, shall be included in such determination;
(b) The ACQUIRER shall retain ownership of 100 percent of the voting
securities of the ACQUIRING ASSOCIATION (excluding voting securities acquired
through exercise of the warrants issued to the Corporation pursuant to the
Warrant Agreement), shall not pledge, sell, assign, give, transfer, exchange or
otherwise encumber such securities except to the Corporation, and shall not
cause or permit any Extraordinary Acquiring Association Transaction;
<PAGE> 7
7
(c) The ACQUIRING ASSOCIATION shall not, and neither the ACQUIRER nor the
INVESTORS shall cause the ACQUIRING ASSOCIATION to, directly or indirectly,
through one or more transactions, issue any voting securities, stock options,
warrants or other instruments or obligations convertible into voting securities
of the ACQUIRING ASSOCIATION or which, upon the occurrence of one or more
events, may acquire any voting rights with respect to the ACQUIRING ASSOCIATION,
to any person or entity other than the ACQUIRER (excluding the warrant issued to
the Corporation and voting securities issued upon exercise thereof);
(d) The ACQUIRING ASSOCIATION shall not, and neither the ACQUIRER nor any
of the INVESTORS shall cause the ACQUIRING ASSOCIATION to, declare or pay a
dividend or prepay subordinated indebtedness in any fiscal year:
(1) that would cause the ACQUIRED ASSOCIATION's regulatory capital to
be less than the lesser of:
(A) its fully phased-in capital requirement as determined pursuant
to section 563.13 of the Rules and Regulations for the FSLIC, or any successor
regulation, or
(B) a level of regulatory capital to total liabilities equal to
.50% above the Capital Plan levels set forth in paragraph one of the forbearance
letter issued to the ACQUIRING ASSOCIATION by the Bank Board, or
(2) that exceeds 50 percent of the ACQUIRING ASSOCIATION's net income
for the fiscal year as reflected on the ACQUIRING ASSOCIATION's quarterly
financial reports to the Bank Board, without the prior written consent of the
P.S.A and the
<PAGE> 8
8
concurrence of the Regulatory Activities Director, provided that any dividends
or prepayments permitted under these limitations may be deferred and paid in a
subsequent year, but in no event may the ACQUIRING ASSOCIATION pay dividends or
make prepayments that would reduce its regulatory capital below the Required
Regulatory Capital Level.
(e) The ACQUIRING ASSOCIATION shall not, and neither the ACQUIRER nor the
INVESTOR shall cause the ACQUIRING ASSOCIATION to, execute any transaction that
would convert or have the effect of converting the ACQUIRING ASSOCIATION to a
state chartered stock or mutual institution;
(f) The ACQUIRING ASSOCIATION's bylaws shall provide that the shareholder
holding the Irrevocable Proxy has the right to remove any or all of the
directors of the ACQUIRING ASSOCIATION, with or without cause; and
(g) Each instrument or certificate evidencing shares of voting securities
of the ACQUIRING ASSOCIATION owned by the ACQUIRER shall be stamped or imprinted
with a legend in the following form:
"The securities represented by this certificate (a) may not be
sold, transferred, pledged, assigned or otherwise disposed of or
encumbered except in compliance with the restrictions contained in
a Regulatory Capital Maintenance Agreement dated as of December
30, 1988 among the Association and the parties named therein (a
copy of which Agreement is available for inspection at the
principal offices of the Association), (b) are subject to an
irrevocable
<PAGE> 9
9
proxy as set forth in such Agreement, and (c) are subject to
certain other terms, provisions, options and rights, including a
prohibition on pledges and other restrictions on transfer included
in such Agreement and the possibility of forfeiture."
In the event of a violation of any of the covenants set forth in this Section 4,
the CORPORATION shall have the right to proceed as set forth in Section 6 as if
the ACQUIRING ASSOCIATION's Regulatory Capital had, as of the date of such
violation, fallen below the level specified in Section 6. The ACQUIRER shall
have the same right to cure any violation of any covenant as is specified in
Section 6 with regard to any regulatory capital deficiency.
Section 5. Irrevocable Proxy and Delivery of Stock Certificate.
Concurrently with the execution of this Agreement, the ACQUIRER shall execute an
irrevocable proxy in the form attached hereto as Exhibit A ("Irrevocable
Proxy"), and deliver the Irrevocable Proxy to the Secretary to the Bank Board
("Secretary"), along with the certificate representing all of the shares of the
voting stock of the ACQUIRING ASSOCIATION, properly endorsed for transfer or
accompanied by fully endorsed stock powers. Such delivery is for the purpose of
effecting the terms of this Agreement, in particular Section 6 hereof. The
Secretary shall hold the Irrevocable Proxy and such certificate on behalf of the
FSLIC Director. If additional voting securities are issued to the ACQUIRER after
the execution of this Agreement, the ACQUIRER promptly shall deliver to the
Secretary the certificate(s) representing such shares, properly endorsed for
transfer or accompanied by fully endorsed stock powers. Until such time as
<PAGE> 10
10
the CORPORATION invokes its rights under Section 6, subject to the other
provisions of this Agreement, all rights related to the voting securities of the
ACQUIRING ASSOCIATION owned by the ACQUIRER shall be retained by the ACQUIRER.
Section 6. CORPORATION's Voting and Disposition Rights. If the ACQUIRING
ASSOCIATION's Regulatory Capital, calculated without regard to any assistance
for which the ACQUIRING ASSOCIATION may qualify pursuant to Sections
406(f)(5) and (6) of the NHA, 12 U.S.C. Sections 1729(f)(5) and (6)
(1982), as in effect now or as reenacted or amended in the future, and any
regulations of the CORPORATION promulgated thereunder, or any successor statute
or regulations, as now or hereafter in effect, shall, at the end of any month,
fall below the Regulatory Capital Trigger Level, and such deficiency has not
been eliminated by the date of the filing of the ACQUIRING ASSOCIATION's Monthly
Report for such month with the Bank Board, the CORPORATION, acting through the
P.S.A., the FSLIC Director or the Regulatory Activities Director, shall have the
right to send a notice ("Notice") to the ACQUIRER that the FSLIC Director is
invoking the provisions of this Section 6; provided that no rights shall arise
under this Agreement to the extent caused by a default on FSLIC notes and other
financial obligations of the FSLIC under the Assistance Agreement. The ACQUIRER
shall have 30 days from the date of receipt of the Notice in which to cure such
deficiency. If the deficiency
<PAGE> 11
11
referred to in the first sentence of this Section 6 is not eliminated within
such 30-day period, the FSLIC Director, with the concurrence of the Office of
General Counsel of the Bank Board, shall have the absolute right, in its sole
discretion, to:
(a) vote pursuant to the Irrevocable Proxy all voting securities of the
ACQUIRING ASSOCIATION, including, without limitation, the exercise of such
voting power:
(1) in favor of, and causing the taking of such steps as may be
necessary to consummate, an Extraordinary Acquiring Association Transaction or
the sale of any or all of the ACQUIRING ASSOCIATION'S voting securities, even if
no value is received in respect of the voting securities or net assets of the
ACQUIRING ASSOCIATION; and/or
(2) to cause the removal of the board of directors of the ACQUIRING
ASSOCIATION; and/or
(3) to cause the ACQUIRING ASSOCIATION to issue to the CORPORATION or
another party or parties designated by the CORPORATION, in its sole discretion,
for nominal or no consideration, voting securities representing a majority of
the voting power of the ACQUIRING ASSOCIATION after such issuance; and/or
(b) dispose of any or all of the voting securities of the ACQUIRING
ASSOCIATION, even if no value is received in respect of such securities. In the
event of any such transaction or disposition, the ACQUIRER shall be entitled to
the consideration paid in respect of the voting securities of the ACQUIRING
ASSOCIATION less the CORPORATION's costs associated with the
<PAGE> 12
12
transaction or disposition including, without limitation, any financial
assistance provided by the CORPORATION in connection with such transaction or
disposition, and less the cost of any financial assistance provided by the
CORPORATION in connection with the Acquisition that has not been repaid to the
CORPORATION.
Section 7. Duration of Agreement. Section 4(d) of this Agreement is
perpetual in duration. All other provisions of this Agreement shall terminate
ten (10) years from the date hereof.
Section 8. Specific Performance. The ACQUIRER, the ACQUIRING ASSOCIATION,
and the INVESTORS acknowledge and agree that the rights reserved to the
CORPORATION, the FSLIC Director and the Regulatory Activities Director hereunder
are of a special, unique, unusual and extraordinary character, which gives them
a peculiar value, the loss of which cannot be adequately or reasonably
compensated for in damages in an action at law, and the breach by the ACQUIRER,
the ACQUIRING ASSOCIATION, or the INVESTOR of any of the provisions hereof will
cause the CORPORATION irreparable injury and damage. In such event, the
CORPORATION, the FSLIC Director and the Regulatory Activities Director shall be
immediately entitled, as a matter of right, to require of the defaulting party
specific performance of all of the acts and undertakings required hereunder of
such party, including the obtaining of all requisite authorizations to execute
or perform this Agreement and to obtain injunctive and other equitable relief in
any court of competent jurisdiction (including, without limitation, the United
States District Court for the District of Columbia) to prevent the violation or
<PAGE> 13
13
threatened violation of any of the provisions hereof. Neither this provision nor
any exercise by the CORPORATION, the FSLIC Director or the Regulatory Activities
Director of rights to equitable relief or specific performance herein granted
shall constitute a waiver of any other rights which it may have to damage or
otherwise.
Section 9. Notices. (a) Any notices or other communication required or
permitted under this Agreement, unless otherwise specifically provided for,
shall be deemed given when delivered if delivered personally or by U.S. Express
Mail or commercial overnight courier service, or three business days after
posting if sent by first class mail, postage prepaid, to a party at its address
set forth below or at such other address as the party shall furnish in writing:
<PAGE> 14
14
If to the ACQUIRER or the INVESTORS:
If to the ACQUIRING ASSOCIATION:
Mr. Lawrence Connell
President
United Savings Association
of Texas FSB
__________________________
Houston, Texas ___________
If to the CORPORATION:
Federal Savings and Loan Insurance Corporation
Attn: Director, Financial Assistance Division
801 17th Street, N.W.
Washington, DC 20552
If to the P.S.A.:
Principal Supervisory Agent of the FSLIC
Federal Home Loan Bank of Dallas
500 E. John Carpenter Freeway
P.O. Box 619026
Dallas, Texas 75261-9026
<PAGE> 15
15
(b) Unless otherwise specifically provided for, if this Agreement requires
that notice be given within a certain period of time, notice shall be deemed
given as of the date of posting.
Section 10. Rights and Forbearances. The rights, powers, and remedies
given to the parties by this Agreement shall be in addition to all rights,
powers, and remedies given by any applicable statute or rule of law. Any
forbearance, failure, or delay by any party in exercising or partially
exercising any such right, power, or remedy shall not preclude its further
exercise.
Section 11. Governing Law. To the extent that Federal law does not
control, this Agreement and the parties' rights and obligations under it shall
be governed by the law of Texas. Nothing in this Agreement shall require any
unlawful action or inaction by any party.
Section 12. Entire Agreement, Severability.
(a) This Agreement, together with any interpretation or understanding
agreed to in writing by the parties, constitutes the entire agreement among the
parties and supersedes all prior agreements and understandings of the parties in
connection with the subject matter hereof.
(b) If any provision of this Agreement is invalid or unenforceable, all of
the remaining provisions of this Agreement shall nevertheless remain in full
force and effect and shall be binding upon the CORPORATION, the ACQUIRER, the
ACQUIRING ASSOCIATION, and the INVESTOR.
<PAGE> 16
16
Section 13. Counterparts, Modifications, Headings.
(a) This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument, and any party may execute this Agreement or the Irrevocable Proxy by
signing any such counterpart.
(b) No amendment or modification of this Agreement shall be binding unless
executed in writing by all the parties or their successors.
(c) Section headings are not to be considered part of this Agreement, are
solely for convenience of reference, and shall not affect the meaning or
interpretation of this Agreement or any of its provisions.
Section 14. Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective transferees, successors, assigns, heirs, administrators,
executors, and trustees.
<PAGE> 17
17
IN WITNESS WHEREOF, the parties have executed this Agreement or caused is
to be executed on their behalf by their duly authorized officers of agents.
FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
By: /s/ Nancy Magina
------------------------------
ATTEST: /s/ Wendy Robin Sneff Its: Designee, Executive Director
-----------------------
Assistant Secretary
USAT HOLDINGS INC.
By: /s/ Scott A. Shay
------------------------------
ATTEST: /s/ Salvatore A. Ranieri Scott A. Shay
------------------------ Its: Vice President
Salvatore A. Ranieri
Secretary
UNITED SAVINGS ASSOCIATION
OF TEXAS FSB
By: /s/ Lewis S. Ranieri
------------------------------
ATTEST: /s/ John J. Kendrick Lewis S. Ranieri
----------------------- Its: Chairman and CEO
John J. Kendrick
Secretary
HYPERION HOLDINGS INC.
By: /s/ Scott A. Shay
------------------------------
ATTEST: /s/ Salvatore A. Ranieri Scott A. Shay
------------------------ Its: Vice President
Salvatore A. Ranieri
Secretary
HYPERION PARTNERS LP
By: Hyperion Ventures LP,
Sole General Partner
By: LSR Hyperion Corp.,
A General Partner
WITNESS: /s/ Salvatore A. Ranieri By: /s/ Lewis S. Ranieri
------------------------ ------------------------------
Salvatore A. Ranieri Lewis S. Ranieri
Its: President
<PAGE> 18
19
EXHIBIT A
IRREVOCABLE PROXY
The undersigned agrees to and does hereby grant to the Executive Director
of the Federal Savings and Loan Insurance Corporation ("FSLIC Director") who may
designate another person to exercise the FSLIC Director's rights under this
proxy, an irrevocable proxy to vote, or to execute and deliver written consents
or otherwise act with respect to, all voting securities ("Stock") of United
Savings Association of Texas FSB, Houston, Texas ("Association"), now owned or
hereafter acquired by the undersigned as fully, and to the same extent and with
the same effect, as the undersigned might or could do under any applicable laws
or regulations governing the rights and powers of stockholders of a Federal
savings and loan association, in accordance with, as provided in, and for the
time period specified in, a certain Regulatory Capital Maintenance Agreement,
dated December __, 1988, among the undersigned, the Federal Savings and Loan
Insurance Corporation, the Association, HYPERION HOLDINGS INC., and HYPERION
PARTNERS LP. The undersigned hereby affirms that this proxy is given as a
condition of said Capital Maintenance Agreement and in connection with the
acquisition of the Association by the undersigned and as such is coupled with an
interest and is, therefore, irrevocable. This proxy may be
<PAGE> 19
20
exercised by the FSLIC Director, with the concurrence of the Office of the
General Counsel of the Federal Home Loan Bank Board, at any meeting of the
stockholders of the Association or in any action of such stockholders without a
meeting.
Dated this _________ day of December ____ , 1988.
USAT HOLDINGS INC.
By: _________________________
Its: ________________________
<PAGE> 20
PROMISSORY NOTE
DECEMBER 30, 1988
TWO HUNDRED, SIXTY-ONE MILLION, ONE HUNDRED THIRTY-FIVE THOUSAND DOLLARS
($261,135,000.00).
FOR VALUE RECEIVED, the undersigned, FEDERAL SAVINGS AND LOAN INSURANCE
CORPORATION ("MAKER"), hereby promises to pay to the order of UNITED SAVINGS
ASSOCIATION OF TEXAS FSB, a savings bank chartered under the laws of the United
States, and having its principal business office at 10233 Harwin, Houston, Texas
77042 ("HOLDER"), by wire transfer in immediately available funds, on or before
December 30, 1998 (as provided herein), in lawful money of the United States,
the principal sum of TWO HUNDRED, SIXTY-ONE MILLION, ONE HUNDRED THIRTY-FIVE
THOUSAND DOLLARS ($261,135,000.00) together with interest on the unpaid
principal balance of this Note outstanding from time to time from the date
hereof until this Note and all accrued interest thereon is fully paid at the
Interest Rate, as hereinafter defined (computed on the basis of the actual
number of days elapsed in a 365-day per year).
<PAGE> 21
-2-
From and after the date hereof, interest on this Note shall be paid for
each Quarter, as defined below, on the tenth day of the month following the
Quarter, commencing on April 10, 1989. A Quarter shall mean any three
consecutive calendar months, provided that the first Quarter shall be deemed to
include the period from December 30, 1988 to and including March 31, 1989 and
the last Quarter shall be deemed to include the period October 1, 1998 to
December 30, 1998. Interest hereunder due and payable for each Quarter shall be
calculated as of and shall accrue through the last day of the Quarter (each such
quarterly period shall sometimes herein be called a "Payment Period"). Interest
shall be paid by wire transfer of immediately available funds to the account of
the HOLDER at the Federal Home Loan Bank of Dallas or to such other account or
by such other means as the HOLDER and the MAKER may agree to.
The entire remaining principal balance of this note and all accrued and
unpaid interest thereon shall be due and payable on December 30, 1998.
Except for any assignment made in connection with the Holder's pledge of
this Note to secure any indebtedness, this Note shall not otherwise be
assignable or negotiable without the prior written consent of the MAKER. Subject
to the preceding sentence, the provisions of this Note shall inure to the
benefit of and be a binding obligation of any successor in interest to the
HOLDER and the MAKER, respectively.
<PAGE> 22
-3-
1. Determination of Interest Rate. As used herein, for any Payment Period
the term "Interest Rate" means the rate of interest determined through
application of the following formula: (Texas COF + 50 Basis Points). For
purposes of the formula, "Texas COF" means the average cost of funds of all
FSLIC-insured institutions whose main offices are located in Texas expressed as
a simple annualized rate of interest, as most recently reported by the Federal
Home Loan Bank of Dallas, or, if not so reported, as determined by the Federal
Home Loan Bank Board;
2. Prepayment of Principal and Interest. The MAKER may, at its option, at
any time or from time to time prepay all or any portion of the principal balance
of this Note, without premium or penalty, upon 15 days prior written notice
delivered to the HOLDER, provided that such prepayment shall be made together
with accrued and unpaid interest on the principal amount so prepaid to the date
of such prepayment.
3. Events of Default; Acceleration of Principal and Interest. If the MAKER
shall fail to pay any principal or interest when due and payable hereunder and
such failure shall continue for 15 days after written demand for such payment
has been delivered to the MAKER by the HOLDER, or if the MAKER shall fail to
observe and perform any of its convenants or agreements hereunder and such
failure shall continue for 30 days after written notice thereof has been
delivered to the MAKER by the HOLDER, there shall be an Event of Default. If an
Event of Default shall occur and be
<PAGE> 23
-4-
continuing for 5 days after the HOLDER has delivered written notice thereof to
the MAKER, the HOLDER may by further written notice delivered to the MAKER
declare the entire unpaid principal balance hereunder and all accrued and unpaid
interest thereon to be immediately due and payable, whereupon the same shall
forthwith become due and payable without any presentment or further demand or
notice of any kind, all of which are hereby expressly waived by the MAKER.
4. Replacement of a Lost, Stolen, Destroyed or Mutilated Note. Upon
receipt of evidence reasonably satisfactory to the MAKER of the loss, theft,
destruction, or mutilation of this Note and, in the case of any such loss,
theft, or destruction, upon receipt of indemnity reasonably satisfactory to the
MAKER, or, in the case of any such mutilation, upon surrender and cancellation
of this Note, the MAKER will, at the HOLDER's expense, issue and deliver to the
HOLDER, in lieu of or in exchange for such lost, stolen, destroyed, or mutilated
Note, a new note of like tenor and having a principal amount and accrued
interest thereon equal to the unpaid principal balance of this Note and the
accrued interest thereon, if any.
5. Exchange and Assignment of the Note. This Note shall be exchangeable at
any time by the HOLDER for replacement notes in such denominations as the HOLDER
may request, but in minimum denominations of $50,000,000, having an aggregate
principal amount and accured interest thereon equal to the unpaid principal
balance hereof and the accrued
<PAGE> 24
-5-
and unpaid interest thereon, if any, at the time of such exchange. Such
replacement notes shall be in substantially the form hereof. Upon the HOLDER's
request and surrender of this Note, the MAKER shall promptly effect such an
exchange and, at the HOLDER's expense, issue and deliver replacement notes to
the HOLDER. Each such replacement note shall set forth the principal amount
hereof and the accrued and unpaid interest thereon, if any.
Subject to the provisions hereof permitting a pledge to secure
indebtedness to the Federal Home Loan Bank of Dallas, the HOLDER may assign this
Note, or any notes exchanged therefor, only with the written consent of the
MAKER. Upon receipt of such consent, any such assignment shall be effected by
delivering to the MAKER by registered mail or certified mail, return receipt
requested, either a written instrument executed by the HOLDER and evidencing
such assignment or a notarized true copy or true copies of this Note or such
notes showing the HOLDER's endorsement thereof to such assignee. Upon receipt of
such a written instrument or notarized true copy or copies and as of date of
such receipt, the MAKER shall register the assignee thereunder as the registered
assign and HOLDER of the Note or notes so assigned. No assignment effected or
attempted to be effected by any other means shall be valid or binding upon the
MAKER.
The MAKER and its agents may deem and treat the HOLDER in whose name this
Note, or any note or notes exchanged therefor, is registered as of the close of
business of the
<PAGE> 25
-6-
fifteenth day next preceding the payment date for a payment of principal or
interest hereunder or thereunder, or, if such fifteenth day is not a business
day, the business day next preceding such fifteenth day, as the absolute owner
hereof or thereof for the purpose of receiving such payment.
6. Governing Law. This Note shall be governed by and construed in
accordance with the substantive laws of the State of Texas except where such
instruments are controlled by statutes, regulations, rulings or interpretations
of the Federal Government of the United States of America or any agency thereof.
7. Headings. The headings of the paragraphs of this Note are for
convenience only and do not constitute a part of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed and
sealed as of the date first above written.
ATTEST: FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
/s/ Wendy Robin Sneff By: /s/ Nancy K. Magina
- --------------------- --------------------------
Assistant Secretary Designee, Executive
Director of the FSLIC
[ILLEGIBLE]
Date: December 30, 1988
<PAGE> 1
EXHIBIT 10.5
FEDERAL STOCK CHARTER
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
HOUSTON, TEXAS
Section 1. Corporate Title. The full corporate title of the savings
bank is United Savings Association of Texas FSB.
Section 2. Office. The home office shall be located in Houston, Texas.
Section 3. Duration. The duration of the savings bank is perpetual.
Section 4. Purpose and Powers. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Federal Home Loan Bank Board ("Board"). In addition, the savings bank may make
any investment and engage
<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
FEDERAL STOCK CHARTER
BANK UNITED OF TEXAS FSB
HOUSTON, TEXAS
Section 1. Corporate Title. The full corporate title of the savings
bank is Bank United of Texas FSB.
Section 2. Office. The home office shall be located in Houston, Texas.
Section 3. Duration. The duration of the savings bank is perpetual.
Section 4. Purpose and Powers. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States of America as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision ("Office"). In addition, the savings bank
may make any investment and engage in any activity as may be specifically
authorized by action of the Office, including authorization by delegated
authority, in connection with action approving the issuance of the charter.
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the savings bank has the authority to issue is
5,000,000, all of which shall be common stock of par value of $.01 per share.
The shares may be issued from time to time as authorized by the board of
directors without the approval of its shareholders, except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the savings bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the savings bank), labor, or
services actually performed for the savings bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
savings bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the savings bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the
savings bank from the mutual to stock form of capitalization, no shares of
common stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the savings bank other than as part of a
general public offering or as qualifying shares to a director, unless the
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, except as to the cumulation of votes for the
election of directors. Subject to any provision for a liquidation account, in
the event of any liquidation, dissolution, or winding up of the savings bank,
the holders of the common stock shall be entitled, after payment or provision
for payment of all debts and liabilities of the savings bank, to receive the
remaining assets of the savings bank available for distribution, in cash or in
kind. Each share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
<PAGE> 2
Section 6. Preemptive Rights. Holders of the capital stock of the
savings bank shall not be entitled to preemptive rights with respect to any
shares of the savings bank which may be issued.
Section 7. Directors. The savings bank shall be under the direction of
a board of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than seven nor more than fifteen
except when a greater number is approved by the Office.
Section 8. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the savings
bank, then preliminarily approved by the Office, which preliminary approval may
be granted by the Office pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Office in accordance with regulatory procedures or on such other date as the
Office may specify in its preliminary approval.
BANK UNITED OF TEXAS FSB
Attest: /s/ By: /s/ Barry C. Burkholder
-------------------------------- -------------------------------
Secretary of the Savings Bank Barry C. Burkholder, President
DIRECTOR OF THE
OFFICE OF THRIFT SUPERVISION
Attest: By:
--------------------------------- -------------------------------
Secretary/Assistant Secretary to
the Office of Thrift Supervision
-2-
<PAGE> 3
SECOND AMENDMENT
TO
FEDERAL STOCK CHARTER
BANK UNITED OF TEXAS FSB
HOUSTON, TEXAS
Section 5 of the Charter is hereby amended in its entirety to read as
follows:
Section 5. Capital Stock. The total number of shares of all classes of the
capital stock which the savings bank has the authority to issue is 15,000,000,
of which 5,000,000 shall be common stock of par value of $.01 per share and of
which 10,000,000 shall be preferred stock of par value of $.01 per share. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the savings bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the savings bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the savings bank, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the savings bank which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
Except for shares issuable in connection with the conversion of the
savings bank from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the savings bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for
<PAGE> 4
the election of directors: Provided, That this restriction on voting separately
by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event
of default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the savings bank with any other corporation or
the sale, lease, or conveyance (other than by mortgage or
pledge) of properties or business in exchange for securities of
a corporation other than the savings bank if the preferred stock
is exchanged for securities of such other corporation: Provided,
That no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office, the Federal Deposit Insurance Corporation, or the
Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
Section 5 (or in any supplementary sections hereto), including
any amendment which would create or enlarge any class or series
ranking prior thereto in rights and preferences. An amendment
which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving savings
bank in a merger or consolidation for the savings bank, shall
not be considered to be such an adverse change.
A description of the different classes and series (if any) of the savings
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund, retirement fund, or
other retirement payments, if any, to which such holders are respectively
<PAGE> 5
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends out of any assets legally available
for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock in
the distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the savings bank available for distribution remaining
after: (i) Payment or provision for payment of the savings bank's debts
and liabilities; (ii) distribution or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution,
or winding up of the savings bank. Each share of common stock shall have
the same relative rights as and be identical in all respects with all the
other shares of common stock.
B. Preferred Stock. The savings bank may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary
section to the charter. All shares of the same class shall be identical
except as to the following relative rights and preferences, as to which
there may be variations between different series;
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends paid on the shares of
such series, whether dividends shall be cumulative and, if so,
from which date(s) the payments date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such
shares may be redeemed;
<PAGE> 6
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the savings bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price(s) at
which such shares may be redeemed or purchased through the
application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of
the savings bank and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange.
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other
shares of the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock
into series, and, within the limitations set forth in this section and the
remainder of this charter, fix and determine the relative rights and
preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
savings bank shall file with the Secretary to the Office a dated copy of
that supplementary section of this charter established and designating the
series and fixing and determining the relative rights and preferences
thereof.
<PAGE> 7
CORPORATE SECRETARY'S
CERTIFICATE OF RESOLUTION
I, Randolph C. Henson, do hereby certify that I am the duly elected
Corporate Secretary of Bank United of Texas FSB (the "Corporation") and that the
following is a true and correct copy of a resolution adopted by the Board of
Directors of the Corporation at a special meeting held on October 28, 1992. I
further certify that the following resolution has not been modified or rescinded
and remains in full force and affect:
RESOLVED, that Section 5 of the charter of the Bank be amended to read as
set forth in Annex A to these resolutions, such amendment to be effective
following approval thereof by the stockholder of the Bank, such amendment to be
effective when and as provided in 12 C.F.R. Section 552.4 of the regulations of
the Office of Thrift Supervision; and be it further
RESOLVED, that the officers of the Bank be, and they hereby are,
authorized to file with the Office of Thrift Supervision, pursuant to the Home
Owners' Loan Act of 1989, as amended, and the rules and regulations thereunder,
an offering circular on Form OC (or such other form as may be appropriate), in
substantially the form presented to this meeting, with such changes therein as
the officers filing the same deem appropriate, with respect to up to 3,450,000
shares of Non-Cumulative Preferred Stock of the Bank, such shares to have such
specific terms and designations as this Board may hereafter by resolution
designate; and further
RESOLVED, that the officers of the Bank be, and they hereby are,
authorized at such time as they may deem advisable, to file an application for
registration of the Preferred Stock under Section 12 of the Securities Exchange
Act of 1934, as amended, and further
RESOLVED, that the officers of the Bank be, and they hereby are,
authorized, in their discretion, with advice of counsel, to make and file or
cause to be filed with the Office of Thrift Supervision such amendments and
supplements to the foregoing Form OC and applications (including post-effective
amendments) as they may deem necessary or advisable; and further
RESOLVED, that the officers of the Bank be, and they hereby are,
authorized and empowered, at such time as they deem advisable, in connection
with the proposed issue of Preferred Stock, to fine one or more applications
with the New York Stock Exchange for listing on said Exchange of the Preferred
Stock and to make such agreements in connection therewith as may be required,
and that such officers, and any of them, be, and they hereby are, designated to
appear before the New York Stock Exchange, with authority to make such changes
in such applications and any such agreements with
<PAGE> 8
respect thereto (which agreements are hereby authorized) as may be necessary to
conform to the requirements of such Exchange for such listing; and further
RESOLVED, that Jonathon K. Heffron, Executive Vice President and General
Counsel of the Bank, be, and he hereby is, designated as the Agent for
Information, to be named in the Form OC, authorized to receive notices and
communications form the Office of Thrift Supervision in connection with the
registration under the Home Owners' Loan Act of 1989, as amended, of the
proposed Preferred Stock of the Bank, with all the powers consequent upon such
designation under the rules and regulations of the Office of Thrift Supervision;
and further
RESOLVED, that Barry C. Burkholder, Anthony J. Nocella, and Jonathon K.
Heffron, and each of them hereby is, made, constituted and appointed true and
lawful attorneys-in-fact, with authority, with respect to the Preferred Stock,
to sign and execute on behalf of the Bank and the officers thereof in their
official capacities, the Form OC and any and all amendments to the Form OC, and
the applications, to be filed wit the Office of Thrift Supervision, the
Securities and Exchange Commission or the New York Stock Exchange, which they in
their discretion, with advice of counsel, deem necessary and desirable; and
further
RESOLVED, that the officers of the Bank be, and they hereby are,
authorized, in their discretion, with advice of counsel, to execute and cause to
be filed such applications or other documents as they may deem necessary or
appropriate to qualify the Preferred Stock for sale by underwriters and dealers
under the Securities or Blue Sky Laws of any jurisdictions which they determine,
and to qualify it as legal investments for savings banks, insurance companies
and fiduciaries; and further
RESOLVED, that it is desirable and in the best interests of the Bank that
the Preferred Stock be qualified or registered for sale in various states; that
the Chairman of the Board, the President, any Vice President, the Secretary or
the Assistant Secretary hereby are authorized to determine the states in which
appropriate action shall be taken to qualify or register for sale all or such
part of the securities of the Bank as said officers may deem advisable; that
said officers are hereby authorized to perform on behalf of the Bank any and all
such acts as they may deem necessary or advisable in order to comply with the
applicable laws of any such states, and in connection therewith to execute and
file all requisite papers and documents including, but not limited to,
applications, reports, surety bonds, irrevocable consents and appointments of
attorneys for service of process; and the execution by such officer of any such
paper or document or the doing by them of any act in connection with the
foregoing matters shall conclusively establish their authority therefor from the
Bank and the approval and ratification by the Bank of the papers and documents
so executed and the action so taken; and further
<PAGE> 9
RESOLVED, that in order to effectuate the foregoing resolutions there be
deemed to be adopted any "haec verba" resolutions required by the authorities of
the various States and Provinces as counsel shall advise are necessary, the form
of such resolutions to be filed with the records of this meeting, and the
Secretary is authorized to certify the said resolutions as having been adopted
"in haec verba"; and further
RESOLVED, that the officers of the Bank, and each of them, be, and they
hereby are, authorized and directed to take all such other actions, and to
execute, for and on behalf of the Bank, all such agreements, documents and other
instruments, as may be necessary or appropriate in order to fully carry out the
intent of the foregoing resolutions, and the consummation of the transactions
contemplated thereby.
/s/ Randolph C. Henson
------------------------
Randolph C. Henson
Corporate Secretary
Dated: 10/29/92
<PAGE> 10
ANNEX A
Section 5. Capital Stock. The total number of shares of all classes of the
capital stock which the savings bank has the authority to issue is 15,000,000,
of which 5,000,000 shall be common stock of par value of $.01 per share and of
which 10,000,000 shall be preferred stock of par value of $.01 per share. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the savings bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the savings bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the savings bank, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the savings bank which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
Except for shares issuable in connection with the conversion of the
savings bank from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the savings bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: Provided, That this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
<PAGE> 11
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the savings bank with any other corporation or the sale, lease,
or conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
savings bank if the preferred stock is exchanged for securities of
such other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office, the Federal Deposit Insurance
Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving savings bank in a merger or
consolidation for the savings bank, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the savings
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund, retirement fund, or
other retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends out of any assets legally available
for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock in
the distribution of
<PAGE> 12
assets) shall be entitled to receive, in cash or in kind, the assets of
the savings bank available for distribution remaining after: (i) Payment
or provision for payment of the savings bank's debts and liabilities; (ii)
distribution or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for
distributions to holders of any class or series of stock having preference
over the common stock in the liquidation, dissolution, or winding up of
the savings bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of
common stock.
B. Preferred Stock. The savings bank may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary
section to the charter. All shares of the same class shall be identical
except as to the following relative rights and preferences, as to which
there may be variations between different series;
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends paid on the shares of
such series, whether dividends shall be cumulative and, if so,
from which date(s) the payments date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the savings bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the
<PAGE> 13
CERTIFICATE OF RESOLUTION
I, Randolph C. Henson, do hereby certify that the following is a true and
correct copy of a resolution adopted by unanimous written consent of the Board
of Directors of USAT Holdings Inc. (the "Corporation") on October 29, 1992. I
further certify that the following resolution has not been modified or rescinded
and remains in full force and affect:
WHEREAS, the Corporation is the sole shareholder of Bank United of Texas
FSB ("Bank United"); and
WHEREAS, it is deemed advisable and in the best interest of Bank United to
amend its charter;
NOW, THEREFORE, IT IS RESOLVED, that the Corporation hereby approves the
Charter of Bank United be amended as prescribed by Section 552.4(b)(5) of the
regulations of the Office of Thrift Supervision; and be it further
RESOLVED, that the second amendment to the charter of Bank United as
stated in Exhibit A attached hereto is hereby approved; and be it further
RESOLVED, that Randolph C. Henson, Secretary of Bank United, be and he
hereby is, authorized to certify the adoption of this resolution; and be it
further
RESOLVED, that the proper officers of the Corporation, acting on behalf of
the Corporation in its capacity as sole shareholder of Bank United, be and they
hereby are, authorized to take all such further action and to execute all such
instruments and documents in the name of and on behalf of the Corporation,
acting in its capacity as sole shareholder of Bank United and, under its
corporate seal or otherwise, to pay all such costs and expenses as shall be
necessary or appropriate in order to carry out the intent and accomplish the
purposes of the foregoing resolutions adopted at this time.
/s/ Randolph C. Henson
-------------------------
Randolph C. Henson
Date: 10/29/92
<PAGE> 14
SECOND AMENDMENT
TO
FEDERAL STOCK CHARTER
BANK UNITED OF TEXAS FSB
HOUSTON, TEXAS
Section 5 of the Charter is hereby amended in its entirety to read as
follows:
Section 5. Capital Stock. The total number of shares of all classes of the
capital stock which the savings bank has the authority to issue is 15,000,000,
of which 5,000,000 shall be common stock of par value of $.01 per share and of
which 10,000,000 shall be preferred stock of par value of $.01 per share. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the savings bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the savings bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the savings bank, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the savings bank which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
Except for shares issuable in connection with the conversion of the
savings bank from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the savings bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for
EXHIBIT A
<PAGE> 15
the election of directors: Provided, That this restriction on voting separately
by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the savings bank with any other corporation or the sale, lease,
or conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
savings bank if the preferred stock is exchanged for securities of
such other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office, the Federal Deposit Insurance
Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving savings bank in a merger or
consolidation for the savings bank, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the savings
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund, retirement fund, or
other retirement payments, if any, to which such holders are respectively
<PAGE> 16
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends out of any assets legally available
for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock in
the distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the savings bank available for distribution remaining
after: (i) Payment or provision for payment of the savings bank's debts
and liabilities; (ii) distribution or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution,
or winding up of the savings bank. Each share of common stock shall have
the same relative rights as and be identical in all respects with all the
other shares of common stock.
B. Preferred Stock. The savings bank may provide in supplementary
sections to its charter for one or more classes of preferred stock,
which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately
designated so as to distinguish the shares thereof from the shares
of all other series and classes. The terms of each series shall be
set forth in a supplementary section to the charter. All shares of
the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations
between different series;
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends paid on the shares
of such series, whether dividends shall be cumulative and, if
so, from which date(s) the payments date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on
which such shares may be redeemed;
<PAGE> 17
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the savings bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the savings bank and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange.
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may be
reissued as shares of the same or other series of serial
preferred stock.
Each share of each series of serial preferred stock shall have
the same relative rights as and be identical in all respects with
all the other shares of the same series.
The board of directors shall have authority to divide, by the
adoption of supplementary charter sections, any authorized class of
preferred stock into series, and, within the limitations set forth
in this section and the remainder of this charter, fix and determine
the relative rights and preferences of the shares of any series so
established.
Prior to the issuance of any preferred shares of a series
established by a supplementary charter section adopted by the board
of directors, the savings bank shall file with the Secretary to the
Office a dated copy of that supplementary section of this charter
established and designating the series and fixing and determining
the relative rights and preferences thereof.
<PAGE> 1
EXHIBIT 10.6a
AMENDMENT TO FEDERAL STOCK CHARTER
BANK UNITED OF TEXAS FSB
Section 1 of the Charter is hereby amended in its entirety to read as follows:
"Section 1. Corporate Title. The full corporate name of the savings
bank is Bank United of Texas."
<PAGE> 1
EXHIBIT 10.6b
AMENDED AND RESTATED
BYLAWS
BANK UNITED OF TEXAS FSB
HOUSTON, TEXAS
ARTICLE I - HOME OFFICES
The home office of the savings bank shall be at Houston, in the
County of Harris, in the State of Texas.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at be home office of the savings bank or at such
other place in the State in which the principal place of business of the
savings bank is located as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
savings bank for the election of directors and for the transaction of any other
business of the savings bank shall be held annually within one hundred twenty
(120) days after the end of the savings bank's fiscal year, at 10:00 a.m., CST,
or at such other date and time within such one hundred twenty (120) day period
as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at
the meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered to the home office of the savings bank addressed
to the chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall
be conducted in accordance with the most current edition of Robert's Rules of
Order unless otherwise prescribed by
1
<PAGE> 2
regulations of the Office or these bylaws. The board of directors shall
designate, when present, either the chairman of the board or president to
preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place,
day, and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 10 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the mail, addressed to the shareholder at the address as it appears on the
stock transfer books or records of the savings bank as of the record date
prescribed in Section 6 of this Article II with postage prepaid. When any
shareholder's meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 60 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of
the shareholders, the officer or agent having charge of the stock transfer
books for shares of the savings bank shall make a complete list of the
shareholders entitled to vote at such meeting, or any adjournment, arranged in
alphabetical order, with the address and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
savings bank and shall be subject to inspection by any shareholder at any time
during usual business hours for a period of 20 days prior to such meeting.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to inspection by any shareholder during the entire
time of the meeting. The original stock transfer book shall constitute PRIMA
FACIE evidence of the shareholders entitled to examine such list or transfer
books or to vote at any meeting of shareholders. In lieu of making the
shareholder list available for inspection by shareholders as provided in the
preceding paragraph, the board of directors may elect to follow the procedures
prescribed in Section 552.6(d) of the Office's regulations as now or hereafter
in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the
savings bank entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares
2
<PAGE> 3
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted a
the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or by his
duly authorized attorney in fact. Proxies solicited on behalf of the
management shall be voted as directed by the shareholder or, in the absence of
such direction, as determined by a majority of the board of directors. No
proxy shall be valid more than eleven months from the date of its execution
except for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS.
When ownership stands in the name of two or more persons, in the absence of
written directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing
in the name of another corporation may be voted by any officer, agent, or proxy
as the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by
him, without a transfer of such shares into his, name. Shares standing in the
name of a receiver may be voted by such receiver, and shares held by or under
the control of a receiver may be voted by such receiver without the transfer
into his name if authority to do so is contained in an appropriate order of the
court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
savings bank, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
-3-
<PAGE> 4
SECTION 12. CUMULATIVE VOTING. Every shareholder entitled
to vote at an election for directors shall have the right to vote, in person or
by proxy, the number of shares owned by the shareholder for as many persons as
there are directors to be elected and for whose election the shareholder has a
right to vote, or to cumulate the votes by giving one candidate as many votes
as the number of such directors to be elected multiplied by the number of
shares shall equal or by distributing such votes on the same principle among any
number of candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting
of shareholders, the board of directors may appoint any persons other than
nominees for board as inspectors of election to act at such meeting or any
adjournment. The number of inspectors shall be either one or three. Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may, or on the
request of not fewer than 10 percent of the votes represented at the meeting
shall, make such appointment at the meeting. If appointed at the meeting, the
majority of the votes present shall determine whether one or three inspectors
are to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act, the vacancy may be filed by appointment by the board
of directors in advance of the meeting or at the meeting or at the meeting by
the chairman of the board of the president.
Unless otherwise prescribed by regulations of the Office, the duties
of such inspectors shall include: determining the number of shares and the
voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote;
counting and tabulating all votes or consents; determining the result; and such
acts as may be proper to conduct the election or vote with fairness to all
shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall
act as a nominating committee for selecting the management nominees for
election as directors. Except in the case of a nominee substituted as a result
of the death or other incapacity of a management nominee, the nominating
committee shall deliver written nominations to the secretary at least 20 days
prior to the date of the annual meeting. Upon delivery, such nominations shall
be posted in a conspicuous place in each office of the savings bank. No
nominations for directors except those made by the nominating committee shall
be voted upon at the annual meeting unless other nominations by shareholders
are made in writing and delivered to the secretary of the savings bank at least
five days prior to the date of the annual meeting. Upon delivery, such
nominations shall be posted in a conspicuous place in each office of the
savings bank. Ballots bearing the names of all persons nominated by the
nominating committee and by shareholders shall be provided for use at the annul
meeting. However, if the nominating committee shall fail or refuse to act at
least 20 days prior to the annual meeting nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
4
<PAGE> 5
SECTION 15. NEW BUSINESS. Any new business to be taken up at
the annual meeting shall be stated in writing and filed with the secretary of
the savings bank at least five days before the date of the annual meeting, and
all business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action
required to be taken at a meeting of the shareholders, or any other action
which may be taken at a meeting of shareholders, may be taken without a meeting
if consent in writing, setting forth the action so taken, shall be given by all
of the shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
savings bank shall be under the direction of its board of directors. The board
of directors shall annually elect a chairman of the board and a president from
among its members and shall designate, when present, either the chairman of the
board or the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist
of eleven members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A Regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the savings
bank's normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. QUALIFICATION. Each director shall at all times be
the beneficial owner of not less than 100 shares of capital stock of the
savings bank unless the savings bank is a wholly owned subsidiary of a holding
company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the chairman of the board, the
president, or one-third of the directors. The
5
<PAGE> 6
persons authorized to call special meetings of the board of directors, may fix
any place, within the savings bank's normal lending territory, as the place for
holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all person participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
SECTION 6. NOTICE. Written notice of any special meeting
shall be given to each director at least two days prior thereto when delivered
personally or by telegram or at least five days prior thereto when delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed,
with postage prepaid if mailed or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 5 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless a greater number is prescribed by regulation of
the Office or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the home office of the savings
bank addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board
of directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 11. VACANCIES. Any vacancy occurring on the board of
directors may be filled by the affirmative vote of majority of the remaining
directors although less than a quorum of the board
6
<PAGE> 7
of directors, A director elected to fill a vacancy shall be elected to serve
until the next election of directors by the shareholders. Any directorship to
be filled by reason of an increase in the number of directors may be filled by
election by the board of directors for a term of office continuing only until
the next election of directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a
stated salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance, at each regular or special meeting of the board
of directors. Members of either standing or special committees may be allowed
such compensation for actual attendance at committee meetings as the board of
directors may determine
SECTION 13. PRESUMPTION OF ASSENT. A director of the savings
bank who is present at a meeting of the board of directors at which action on
any savings bank matter is taken shall be presumed to have assented to the
action taken unless his dissent or abstention shall be entered in the minutes
of the meeting or unless he shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the secretary of
the savings bank within five days after the date a copy of the minutes of the
meeting is received. Such right to dissent shall not apply to a director who
voted in favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders
called expressly for that purpose, any director may be removed for cause by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors, provided that directors may be removed with or without
cause if a majority of the shares then entitled to vote at an election of
directors are voted pursuant to the Irrevocable Proxy granted in connection
with that certain Regulatory Capital Maintenance Agreement entered into by the
savings bank. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution
adopted by a majority of the full board, may designate the chief executive
officer and two or more of the other directors to constitute an executive
committee. The designation of any committee pursuant to this Article IV and
the delegation of authority shall not operate to relieve the board of
directors, or any director, of any responsibility imposed by law or regulation.
7
<PAGE> 8
SECTION 2. AUTHORITY. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the savings bank, or recommending to the stockholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
savings bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the savings bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his designation
and until a successor is designated as a member of the executive committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee
may be held without notice at such times and places as the executive committee
may fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need not
state the business proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by
the affirmative vote of a majority of the members present at a meeting at which
a quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may
be filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the savings bank.
Unless otherwise specified, such resignation shall take effect upon its
receipt; the acceptance of such resignation shall not be necessary to make it
effective.
8
<PAGE> 9
SECTION 9. PROCEDURE. The executive committee shall elect
a presiding officer from its members and may fix its own rules of procedures
which shall not be inconsistent with these bylaws. It shall keep regular
minutes of its proceedings and report the same to the board of directors for
its information at the meeting held next after the proceedings shall have
occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by
resolution establish an audit, loan, or other committee composed of directors
as they may determine to be necessary or appropriate for the conduct of the
business of the savings bank and may prescribe the duties, constitution, and
procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the savings bank shall be
a president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the savings bank. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the savings bank may require. The officers shall have such
authority and perform such duties as the board of directors may from time to
time authorized or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
savings bank shall be elected annually at the first meeting of the board of
directors held as soon after each annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held
as soon thereafter as possible. Each officer shall hold office until a
successor has been duly elected and qualified or until the officer's death,
resignation, or removal in the manner hereinafter provided. Election or
appointment of an officer, employee, or agent shall not of itself create
contractual rights. The board of directors may authorize the savings bank to
enter into an employment contract with any officer in accordance with
regulations of the Office, but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with Section
3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the savings bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
9
<PAGE> 10
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall
be fixed from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of
the Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the savings bank to enter into any contract or execute
and deliver any instrument in the same of and on behalf of the savings bank.
Such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
savings bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or
confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the savings bank shall be signed by one or more officers,
employees or agents of the savings bank in such manner as shall from time to
time be determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the savings bank not otherwise
employed shall be deposited from time to time to the credit of the savings bank
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of capital stock of the savings bank shall be in such form as shall be
determined by the board of directors and approved by the Office. Such
certificates shall be signed by the chief executive officer or by any other
officer of the savings bank authorized by the board of directors, attested by
the secretary or an assistant secretary, and sealed with the corporate seal or
a facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the savings bank itself or one of its employees.
Each certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
are issued, with the number of shares and date of issue, shall be
10
<PAGE> 11
entered on the stock transfer books of the savings bank. All certificates
surrendered to the savings bank for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in the case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the savings bank as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital
stock of the savings bank shall be made only on its stock transfer books.
Authority for such transfer shall be given only by the holder of record or by
his legal representative, who shall furnish proper evidence of such authority,
or by his attorney authorized by a duly executed power of attorney and filed
with the savings bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the savings bank shall be deemed
by the savings bank to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the savings bank shall end on the 30th day of
September of each year. The savings bank shall be subject to an annual audit
as of the end of its fiscal year by independent public accountants appointed by
and responsible to the board of directors. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the savings bank's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the savings bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a savings bank seal which shall
be two concentric circles between which shall be the name of the savings bank.
The year of incorporation or an emblem may appear in the center.
11
<PAGE> 12
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the stockholders of the savings bank at any legal
meeting.
12
<PAGE> 1
EXHIBIT 10.7
TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN READY FOR DELIVERY.
NUMBER BANK SHARES
========== [LOGO] UNITED ==========
NCPA
========== ==========
10.12% NONCUMULATIVE SEE REVERSE FOR
PREFERRED STOCK, CERTAIN DEFINITIONS
SERIES A AND NOTICE
BANK UNITED OF TEXAS FSB
A FEDERAL STOCK
SAVINGS BANK
CUSIP 065414 20 3
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE REGISTERED HOLDER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF $0.01 EACH, OF THE
10.12% NONCUMULATIVE PREFERRED STOCK, SERIES A OF
BANK UNITED OF TEXAS FSB, transferable on the books of the Bank by the holder
hereof, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
Reference is hereby made to the further information concerning the
shares represented by this certificate set forth on the reverse hereof.
The securities represented by this Certificate are not savings
accounts, deposits, or other debt obligations of a bank or a savings
association and are not insured by the Federal Deposit Insurance Corporation,
the Savings Association Insurance Fund or another government agency.
This Certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
Witness, the facsimile seal of the Bank and the facsimile signatures of
its duly authorized officers.
Dated
BANK UNITED OF TEXAS FSB 1988 [SEAL]
/s/ ILLEGIBLE Countersigned and Registered:
PRESIDENT AND THE BANK OF NEW YORK,
CHIEF EXECUTIVE OFFICER Transfer Agent and Registrar,
/s/ Illegible By
SECRETARY Authorized Signature
<PAGE> 2
NOTICE
A full statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock of the
Bank or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights will be furnished by the Bank, without charge,
to any stockholder who so requests, upon application to the Transfer Agent
named on the face hereof or to the office of the Secretary of the Bank in
Houston, Texas.
This Certificate and the shares represented hereby are issued, and
shall be subject to all of the provisions of the Charter and By-Laws of the
Bank and all amendments thereto and resolutions of the Board of Directors
providing for the issue of shares of the 10.12% Noncumulative Preferred Stock,
Series A (copies of which are on file with the Transfer Agent), to all of which
the holder by acceptance hereof assents.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________ custodian ________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants ACT_________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_________________________________________________________________________shares
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Bank with full
power of substitution in the premises.
Dated__________________________
SIGNATURE:
__________________________________________________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
__________________________________________________________
The signature should be guaranteed by an eligible guarantor
institution pursuant to S.E.C. Rule 17 AD 15.
<PAGE> 1
EXHIBIT 10.7a
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
10.12% NON-CUMULATIVE PREFERRED STOCK, SERIES A
(STATED VALUE $25.00 PER SHARE)
OF
BANK UNITED OF TEXAS FSB
-------
PURSUANT TO 12 C.F.R. SECTION 552.4 - RULES AND REGULATIONS OF THE
OFFICE OF THRIFT SUPERVISION
-------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of Bank
United of Texas FSB, a federal stock savings bank (hereinafter the "Bank"), at a
special meeting duly convened and held on December 17, 1992, at which a quorum
was present and acting throughout:
"RESOLVED that pursuant to the authority expressly granted to and
vested in this Board of Directors by the Federal Stock Charter of the Bank (the
"Charter"), the Board of Directors hereby authorizes the creation of a series
of 10.12% Non-Cumulative Preferred Stock, Series A, stated value $25.00 per
share, of the Bank upon the terms and conditions set forth herein and hereby
fixes the designation and number of shares thereof and fixes the other powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof (in addition to those
set forth in the Charter which may be applicable to the 10.12% Non-Cumulative
Preferred Stock, Series A) as follows:
1. Designation and Amount; Fractional Shares. There shall be a
series of preferred stock of the Bank designated as "10.12%
Non-Cumulative Preferred Stock, Series A" and the number of shares
constituting such series shall be 3,450,000. Such series is referred to
herein as the "Series A Preferred Stock". The Series A Preferred Stock
is issuable solely in whole shares.
2. Stated Value and Issue Price. The stated value of each such
share is $25.00 and the issue price of each such share is $25.00.
3. Dividends.
(a) The holders of Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors or, to
the extent permitted by applicable law, a duly authorized committee
thereof, out of funds at the time legally available therefor, cash
dividends at a rate of 10.12% per annum ($.6325 per quarter), and no
more, which shall be non-cumulative, and which shall be payable when, as
and if declared by the Board of Directors in cash quarterly in arrears
on the last day of March, June, September and December of each year
commencing March 31, 1993 (each, a "Dividend Payment Date") (except that
if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday
or legal holiday) to holders of record as they appear upon the stock
transfer books of the Bank on such record dates, not more than sixty
days nor less than ten days preceding the payment dates for such
dividends, as are fixed by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof (each,
a "Record Date"). If the dividend otherwise payable on any Dividend
Payment Date shall not be declared and paid as aforesaid, all rights of
holders of the Series A Preferred Stock to receive such dividend shall
terminate, and such dividend shall not be accumulated or paid in any
subsequent period. For purposes hereof, the term "legal holiday" shall
mean any day on which banking institutions are authorized to close in
Houston, Texas. The Series A Preferred Stock will not participate in
dividends with the Bank's common stock (the "Common Stock").
<PAGE> 2
Holders of shares of Series A Preferred Stock called for redemption
on a redemption date between a Record Date and the corresponding Dividend
Payment Date shall not be entitled to receive the dividend payable on such
Dividend Payment Date. As used herein, (i) the term "Initial Dividend Period"
shall mean the period from and including the date of distribution to the initial
holders of the Series A Preferred Stock (the "Date of Original Issue") to and
excluding March 31, 1993, (ii) the term "Subsequent Dividend Period" shall mean
the applicable period from March 31 to and excluding the next June 30, from June
30 to and excluding the next September 30, from September 30 to and excluding
the next December 31, or from December 31 to and excluding the next March 31,
or, in each such case as to particular shares of the Series A Preferred Stock
such shorter period during which such shares of the Series A Preferred Stock are
outstanding (excluding the last day of such shorter period), and (iii) the term
"Dividend Period" shall mean the Initial Dividend Period or any Subsequent
Dividend Period, as the context requires.
(b) The amount of dividends payable on each share of the Series A
Preferred Stock for each full quarterly Dividend Period during which such share
was outstanding shall be $.6325. For the Initial Dividend Period, and for any
Subsequent Dividend Period for which the Board of Directors declares a dividend
and during which such share was not outstanding for a full quarterly Dividend
Period, the amount of dividends payable on each such share of the Series A
Preferred Stock shall be computed by multiplying $2.53 by a fraction, the
numerator of which shall be the number of days (but in no event more than 90
days with respect to any one calendar quarter) in such Dividend Period that
such share was outstanding (excluding the last such day) and the denominator of
which shall be 360. Dividends on each share of the Series A Preferred Stock
will be non-cumulative. Holders of shares of the Series A Preferred Stock shall
not be entitled to any interest, or sum of money in lieu of interest, in
respect of any dividend payment or payments on shares of the Series A Preferred
Stock declared by the Board of Directors which may be in arrears. Any dividend
payment made on shares of the Series A Preferred Stock shall first be credited
against the earliest declared but unpaid dividend with respect to shares of the
Series A Preferred Stock.
(c) No dividends or other distributions, other than dividends
payable solely in shares of the Bank's Common Stock or other capital stock of
the Bank ranking junior as to dividends and as to liquidation rights to the
Series A Preferred Stock shall be declared, paid or set apart for payment on
any shares of Common Stock or other capital stock of the Bank, when and if
issued, ranking junior as to dividends to the Series A Preferred Stock
(collectively with the Common Stock, the "Junior Dividend Stock"), unless and
until full dividends for each of the four most recent Dividend Periods (or for
all Dividend Periods, if less than four Dividend Payment Dates have accrued
from the Date of Original Issue) on the Series A Preferred Stock have been paid
in full or declared and set apart for payment prior to the date of payment of
such dividends or other distributions on Junior Dividend Stock shall have been
paid or declared and set apart for payment. If at any time any dividends on the
Series A Preferred Stock shall not have been paid or declared and set apart for
payment, the Bank shall not (except by conversion into or exchange for Junior
Dividend Stock) repurchase, redeem or otherwise acquire (including by payment
to or made available for a sinking fund for the redemption of) any shares of
Common Stock, Junior Dividend Stock or any other class or series of the Bank's
capital stock hereafter issued ranking junior as to dividends and rights upon
liquidation, dissolution or winding up of the Bank to the Series A Preferred
Stock (the "Junior Liquidating Stock"), unless and until full dividends for
each of the four most recent Dividend Periods (or for all Dividend Periods, if
less than four Dividend Payment Dates have accrued from the Date of Original
Issue) on the Series A Preferred Stock have been paid in full or declared and
set apart for payment prior to the date of such repurchase, redemption or other
acquisition of such capital stock.
(d) No full dividends shall be paid or declared and set apart for
payment on any class or series of the Corporation's capital stock hereafter
issued ranking, as to dividends, on a parity with the Series A Preferred Stock
(the "Parity Dividend Stock") for any period unless full dividends have been,
or contemporaneously are, paid or declared and set apart for such payment on
the Series A Preferred Stock for the Dividend Periods terminating on or prior
to the date of payment of such full dividends. No full dividends shall be paid
or declared and set apart for payment on the Series A Preferred Stock for
any Dividend Period unless full dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for the
dividend periods terminating on or prior to the date of payment of such full
dividends. When accrued dividends are not paid in full on the Series A
Preferred Stock and the Parity Dividend Stock, all dividends paid or declared
and set apart
<PAGE> 1
EXHIBIT 10.7(B)
20070
% NONCUMULATIVE [PICTURE OF SEE REVERSE FOR
PREFERRED STOCK, SAM HOUSTON] CERTAIN DEFINITIONS
SERIES B AND NOTICE
NCPB PAR VALUE OF $0.01 EACH CUSIP 065414
BANK UNITED OF TEXAS FSB
A FEDERAL STOCK SAVINGS BANK
THIS CERTIFIES THAT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
IS THE REGISTERED HOLDER OF
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF $0.01 EACH, OF THE
% NONCUMULATIVE PREFERRED STOCK, SERIES B OF
- ------
Bank United of Texas FSB, transferable on the books of the Bank by the holder
hereof, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
Reference is hereby made to the further information concerning the shares
represented by this certificate set forth on the reverse hereof.
The securities represented by this Certificate are not savings accounts,
deposits, or other debt obligations of a bank or a savings association and are
not insured by the Federal Deposit Insurance Corporation, the Savings
Association or any other government agency.
This Certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
Witness, the facsimile seal of the Bank and the facsimile signatures of
its duly authorized officers.
CERTIFICATE OF STOCK
Dated
/s/ Barry C. Burkholder Countersigned and Registered:
PRESIDENT AND THE BANK OF NEW YORK,
CHIEF EXECUTIVE OFFICER Transfer Agent and Registrar,
/s/ Randolph C. Henson BY
SECRETARY Authorized Signature
<PAGE> 2
BANK UNITED OF TEXAS FSB
NOTICE
A full statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock of the
Bank or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights will be furnished by the Bank, without charge,
to any stockholder who so requests, upon application to the Transfer Agent
named on the face hereof or to the office of the Secretary of the Bank in
Houston, Texas.
This Certificate and the shares represented hereby are issued, and shall
be subject to all of the provisions of the Charter and By-Laws of the Bank and
all amendments thereto and resolutions of the Board of Directors providing for
the issue of shares of the % Noncumulative Preferred Stock, Series B
(copies of which are on file with the Transfer Agent), to all of which the
holder by acceptance hereof assents.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT-as tenants by the entireties ---- -----
JT TEN -as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act
--------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ shares
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Bank with full
power of substitution in the premises.
Dated
--------------------------
SIGNATURE:
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
--------------------------------------------------------------
The signature should be guaranteed by an eligible guarantor
institution pursuant to S.E.C. Rule 17 AD 15.
<PAGE> 1
EXHIBIT 10.7c
SUPPLEMENTARY CHARTER SECTION
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES, AND RIGHTS
OF THE
9.60% NON-CUMULATIVE PREFERRED STOCK, SERIES B
(Stated Value $25.00 Per Share)
OF
BANK UNITED OF TEXAS FSB
-------------------------
Pursuant to 12 C.F.R. Section 552.4 -- Rules and
Regulations of the Office of Thrift Supervision
-------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors (the "Board of Directors") of Bank United of
Texas FSB, a federal stock savings bank (hereinafter the "Bank") and a duly
authorized Committee thereof, at special meetings duly convened and held on
July 12 and July 13, 1995, at which quorums were present and acting throughout:
"RESOLVED that pursuant to the authority expressly granted to and vested
in this Board of Directors by the Federal Stock Charter of the Bank (the
"Charter"), the Board of Directors hereby authorizes the creation of a series
of 9.60% Non-Cumulative Preferred Stock, Series B, stated value $25.00 per
share, of the Bank upon the terms and conditions set forth herein and hereby
fixes the designation and number of shares thereof and fixes the other powers.
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof (in addition to those
set forth in the Charter which may be applicable to the 9.60% Non-Cumulative
preferred Stock, Series B) as follows:
1. Designation and Amount; Fractional Shares. There shall be a
series of preferred stock of the Bank designated as "9.60% Non-Cumulative
Preferred Stock, Series B" and the number of shares constituting such series
shall be 4,600,000. Such series is referred to herein as the "Series B Preferred
Stock". The Series B Preferred Stock is issuable solely in whole shares.
2. Stated Value and Issue Price. The stated value of each such share
is $25.00 and the issue price of each such share is $25.00.
3. Dividends.
(a) The holders of Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof, out of funds
at the time legally available therefor, cash dividends at a rate of 9.60% per
annum ($.60 per quarter), and no more, which shall be non-cumulative, and which
shall be payable when, as and if declared by the Board of Directors in cash
quarterly (prorated for any partial dividend, including the Initial Dividend
Period (defined below)) in arrears on the last day of March, June, September
and December of each year commencing September 30, 1995 (each, a "Dividend
Payment Date") (except that if any such date is a Saturday, Sunday or legal
holiday, then such dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday) to holders of record as they appear upon
the stock transfer books of the Bank on such record dates, not more than sixty
days nor less than ten days preceding the payment dates for such dividends, as
are fixed by the Board of Directors or, to the extent permitted by applicable
law, a duly authorized committee thereof (each, a "Record Date"). If the
dividend otherwise payable on any Dividend Payment Date shall not be declared
and paid as aforesaid, all rights of holders of the Series B Preferred Stock to
receive such dividend shall terminate, and such dividend shall not be
accumulated or paid in any subsequent period. For purposes hereof, the term
"legal holiday" shall mean any day on which banking institutions are authorized
to close in Houston, Texas. The Series B Preferred Stock will not participate
in dividends with the Bank's common stock (the "Common Stock").
Holders of shares of Series B Preferred Stock called for
redemption on a redemption date between a Record Date and the
corresponding Dividend Payment Date shall not be entitled to receive the
dividend payable on such
<PAGE> 2
Dividend Payment Date. As used herein, (i) the term "Initial Dividend Period"
shall mean the period from and including the date of distribution to the
initial holders of the Series B Preferred Stock (the "Date of Original Issue")
to and excluding September 30, 1995, (ii) the term "Subsequent Dividend Period"
shall mean the applicable period from September 30 to and excluding the next
December 31, from December 31, to and excluding the next March 31, from March
31 to and excluding the next June 30, or from June 30 to and excluding the next
September 30, or, in each such case as to particular shares of the Series B
Preferred Stock such shorter period during which such shares of the Series B
Preferred Stock are outstanding (excluding the last day of such shorter
period), and (iii) the term "Dividend Period" shall mean the Initial Dividend
Period or any Subsequent Dividend Period, as the context requires.
(b) The amount of dividends payable on each share of the Series B
Preferred Stock for each full quarterly Dividend Period during which such share
was outstanding shall be $0.60. For the Initial Dividend Period, and for any
Subsequent Dividend Period for which the Board of Directors declares a dividend
and during which such share was not outstanding for a full quarterly Dividend
Period, the amount of dividends payable on each such share of the Series B
Preferred Stock shall be computed by multiplying $2.40 by a fraction, the
numerator of which shall be the number of days (but in no event more than 90
days with respect to any one calendar quarter) in such Dividend Period that
such share was outstanding (excluding the last such day) and the denominator of
which shall be 360. Dividends on each share of the Series B Preferred Stock
will be non-cumulative. Holders of shares of the Series B Preferred Stock shall
not be entitled to any interest, or sum of money in lieu of interest, in
respect of any dividend payment or payments on shares of the Series B Preferred
Stock declared by the Board of Directors which may be in arrears. Any dividend
payment made on shares of the Series B Preferred Stock shall first be credited
against the earliest declared but unpaid dividend with respect to shares of the
Series B Preferred Stock.
(c) No dividends or other distributions, other than dividends
payable solely in shares of the Bank's Common Stock or other capital stock of
the Bank ranking junior as to dividends and as to liquidation rights to the
Series B Preferred Stock, shall be declared, paid or set apart for payment on
any shares of Common Stock or other capital stock of the Bank, when and if
issued, ranking junior as to dividends to the Series B Preferred Stock
(collectively with the Common Stock, the "Junior Dividend Stock"), unless and
until full dividends for each of the four most recent Dividend Periods (or for
all Dividend Periods, if less than four Dividend Payment Dates have accrued
from the Date of Original Issue) on the Series B Preferred Stock have been paid
in full or declared and set apart for payment prior to the date of payment of
such dividends or other distributions on Junior Dividend Stock shall have been
paid or declared and set apart for payment. If at any time any dividends on
the Series B Preferred Stock shall not have been paid or declared and set apart
for payment, the Bank shall not (except by conversion into or exchange for
Junior Dividend Stock) repurchase, redeem or otherwise acquire (including by
payment to or made available for a sinking fund for the redemption of) any
shares of Common Stock, Junior Dividend Stock or any other class or series of
the Bank's capital stock hereafter issued ranking junior as to dividends and
rights upon liquidation, dissolution or winding up of the Bank to the Series B
Preferred Stock (the "Junior Liquidating Stock"), unless and until full
dividends for each of the four most recent Dividend Periods (or for all
Dividend Periods, if less than four Dividend Payment Dates have accrued from
the Date of Original Issue) on the Series B Preferred Stock have been paid in
full or declared and set apart for payment prior to the date of such
repurchase, redemption or other acquisition of such capital stock.
(d) No full dividends shall be paid or declared and set apart for
payment on any class or series of the Corporation's capital stock ranking, as
to dividends, on a parity with the Series B Preferred Stock (including the
Bank's 10.12% Non-Cumulative Preferred Stock, Series A (the "Series A Preferred
Stock")) (the "Parity Dividend Stock") for any period unless full dividends
have been, or contemporaneously are, paid or declared and set apart for such
payment on the Series B Preferred Stock for the Dividend Period terminating on
or prior to the date of payment of such full dividends. No full dividends
shall be paid or declared and set apart for payment on the Series B Preferred
Stock for any Dividend Period unless full dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for the dividend periods terminating on or prior to the date of
payment of such full dividends. When accrued dividends are not paid in full on
the Series B Preferred Stock and the Parity Dividend Stock, all dividends paid
or declared and set apart for payment on the Series B Preferred Stock and the
Parity Dividend Stock shall be paid or declared and set apart for payment pro
rata so that the amount of dividends paid or declared and set apart for payment
per share on the Series B Preferred Stock and the Parity Dividend Stock shall
in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the Series B Preferred Stock and the Parity Dividend
Stock bear to each other.
- 2 -
<PAGE> 3
(e) Any reference to "distribution" contained in this Section 3
shall not be deemed to include any distribution made in connection with any
liquidation, dissolution or winding up of the Bank, whether voluntary or
involuntary.
4. Liquidation Preference. In the event of a liquidation, dissolution or
winding up of the Bank, whether voluntary or involuntary, each holder of a
share of Series B Preferred Stock shall be entitled to receive out of the net
assets of the Bank available for distribution to its stockholders, an amount
equal to $25.00 per share, plus an amount equal to the dividend accrued and
unpaid from the Dividend Payment Date next preceding the date of such payment
in liquidation, without interest, and no more, before any payment shall be made
or any assets distributed to the holders of Common Stock or any other Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
holders of Series B Preferred Stock only in the event that the Bank's payments
with respect to the shares of capital stock of the Bank hereafter issued
ranking senior as to rights upon liquidation, dissolution or winding up to the
Series B Preferred Stock (the "Senior Liquidation Stock") are fully met. The
entire net assets of the Bank available for distribution after the preferences
of the Senior Liquidation Stock upon liquidation, dissolution or winding up are
fully met shall be distributed ratably among the holders of the Series B
Preferred Stock and any other class or series of the Bank's capital stock
hereafter issued having parity as to rights upon liquidation, dissolution or
winding up with the Series B Preferred Stock (including the Series A Preferred
Stock) in proportion to the respective preferential amounts to which each is
entitled (but only to the extent of such preferential amounts). After payment
in full of the preferences of the shares of the Series B Preferred Stock upon
liquidation, dissolution or winding up, the holders of such shares in their
capacity as such shall not be entitled to any further participation in any
distribution of assets by the Bank. Neither a change of control of the Bank,
nor a consolidation or merger of the Bank with or into another corporation nor
a merger of any other corporation with or into the Bank, nor a sale or transfer
of all or any part of the Bank's assets for cash, securities or other property
will be considered a liquidation, dissolution or winding up of the Bank.
5. Redemption at Option of the Bank.
(a) The Series B Preferred Stock may not be redeemed by the Bank
prior to September 30, 2000. On or after September 30, 2000, the Series B
Preferred Stock may be redeemed by the Bank, at its option on any date set by
the Board of Directors (or, to the extent permitted by applicable law, a duly
authorized committee thereof), in whole or in part, out of funds legally
available therefor, at any time or from time to time, at the following
redemption prices per share (expressed as a percentage of the $25.00
liquidation preference thereof (exclusive of accrued dividends)), if redeemed
during the 12-month period beginning September 30 of the year indicated:
<TABLE>
<CAPTION>
<S> <C>
Year Redemption Price
------ ----------------
<S> <C>
2000 105%
2001 104
2002 103
2003 102
2004 101
</TABLE>
and thereafter at $25.00 per share, plus, in each case, an amount in cash equal
to accrued and unpaid dividends thereon, if any, from the Dividend Payment
Date next preceding the date fixed for redemption, to but excluding the date
fixed for redemption (a "Redemption Date"), such sum being hereinafter referred
to as the "Redemption Price."
On and after the Redemption Date, provided that the Redemption Price (including
any accrued and unpaid dividends to the Redemption Date), has been duly paid or
provided for, dividends shall cease to accrue on the Series B Preferred Stock
called for redemption, such shares shall no longer be deemed to be outstanding,
and all rights of the holders of such shares as stockholders of the Bank shall
cease, except the right to receive the monies payable upon such redemption,
without interest thereon, upon surrender of the certificates evidencing such
shares.
(b) The Series B Preferred Stock may be redeemed at any time, at the option
of the Bank, in whole but not in part, at a redemption price equal to $25.50
per share (equal to 102% of the liquidation preference (exclusive of accrued
dividends)), plus accrued and unpaid dividends thereon from the Dividend Payment
Date next preceding the date fixed for redemption if one of the following events
(a "Significant Transaction") occurs:
- 3 -
<PAGE> 4
(i) the Bank merges or consolidates with or into
another entity, or another entity merges or consolidates with
or into the Bank, and the entity resulting from such
consolidation or merger is not an affiliate of Hyperion
Partners L.P., a Delaware limited partnership ("Hyperion");
(ii) any person or entity other than Hyperion or
an affiliate of Hyperion acquires beneficial ownership of a
majority of the Common Stock; or
(iii) the Bank sells or otherwise disposes of all
or substantially all of its assets to any person or entity
other than Hyperion or an affiliate of Hyperion.
For the avoidance of doubt, a person or entity shall not be deemed to be an
affiliate of Hyperion for this purpose unless Hyperion, directly or through one
or more majority-owned intermediaries, controls at least a majority of the
voting power of the common stock or partnership, membership or other equity
interests entitled to vote for the election of the directors or managers of
such person or entity.
Notice of redemption as a result of a Significant Transaction may be given
at any time after a definitive agreement for such a transaction has been
entered into, or after any such event has occurred, and prior to the date which
is 60 days following the date such transaction is consummated, and such
redemption may be consummated notwithstanding any subsequent abandonment or
modification of such transaction. The Series B Preferred Stock shall be
subject to redemption pursuant to this subparagraph (b) only in connection with
the first Significant Transaction to occur after the creation of the Series B
Preferred Stock.
(c) In case of the redemption of less than all of the then
outstanding shares of Series B Preferred Stock, the Bank shall designate by
lot, or in such other manner as the Board of Directors (or, to the extent
permitted by applicable law, a duly authorized committee thereof) may
determine, the shares to be redeemed, or shall effect such redemption pro rata.
(d) Not more than sixty nor less than thirty days prior to the
Redemption Date fixed by the Board of Directors, notice by first class mail,
postage prepaid, shall be given to the holders of record of shares of the
Series B Preferred Stock to be redeemed, addressed to such holders at their
last addresses as shown upon the stock transfer books of the Bank. Each such
notice of redemption shall specify the date fixed for redemption, the number of
shares of Series B Preferred Stock to be redeemed, and if less than all the
shares held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder, the Redemption Price, the place or places of
payment, that payment will be made upon presentation and surrender of the
certificates representing shares of Series B Preferred Stock, and that on and
after the Redemption Date dividends will cease to accrue on such shares.
(e) Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of shares of
Series B Preferred Stock receives such notice; and failure to give such notice
by mail, or any defect in such notice to the holders of any shares designated
for redemption shall not affect the validity of the proceedings for the
redemption of any other shares of Series B Preferred Stock. On or after
the date fixed for redemption as stated in such notice, each holder of the
shares called for redemption shall surrender the certificate evidencing such
shares to the Bank at the place designated in such notice and shall thereupon
be entitled to receive payment of the Redemption Price for each such share. If
less than all the shares evidenced by any such surrendered certificate are
redeemed, a new certificate shall be issued evidencing the unredeemed shares.
Notice having been given as aforesaid, if, on the date fixed for redemption,
funds necessary for the redemption shall be available therefor and shall have
been irrevocably deposited or set aside, then, notwithstanding that the
certificates evidencing any shares so called for redemption shall not have been
surrendered, dividends with respect to the shares so called shall cease to
accrue as of 5:00 p.m. (Houston time) on the day before the date fixed for
redemption, such shares shall no longer be deemed outstanding, the holders
thereof shall cease to be stockholders of the Bank and all rights whatsoever
with respect to the shares so called for redemption (except the right of the
holders to receive the Redemption Price for each share without interest upon
surrender of their certificates therefor) shall terminate. If funds legally
available for such purpose are not sufficient for redemption of the shares of
Series B Preferred Stock which were to be redeemed, then the certificates
evidencing such shares shall not be deemed to be surrendered, such shares shall
remain outstanding and the right of holders of shares of Series B Preferred
Stock thereafter shall continue to be only those of a holder of shares of the
Series B Preferred Stock.
(f) The shares of Series B Preferred Stock shall not be subject to
the operation of any mandatory purchase, retirement or sinking fund.
- 4 -
<PAGE> 5
6. Voting Rights
(a) The holders of Series B Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. In connection with any right to vote, each holder of Series B
Preferred Stock will have one vote for each such share held, and will not be
entitled to cumulative voting in any election of directors. Any shares of
Series B Preferred Stock held by the Bank or any entity controlled by the Bank
shall not have voting rights hereunder and shall not be counted in determining
the presence of a quorum.
(b) Whenever dividends on the Series B Preferred Stock have not
been paid for the equivalent of at least six Dividend Periods (which, prior to
the occurrence of a Significant Transaction, or any period during which, since
the date of the first Dividend Payment Date on which dividends were not paid in
full which is to be included for purposes of determining whether dividends have
not been paid for the equivalent of six Dividend Periods, there has not been
the payment of full dividends on the Series B Preferred Stock for four
consecutive Dividend Periods), (i) the number of members of the Board of
Directors shall be increased by two, effective as of the time of election of
such directors as hereinafter provided, and (ii) the holders of the Series B
Preferred Stock (voting separately as a class with all other affected classes
or series of the Parity Dividend Stock upon which like voting rights have been
conferred and are exercisable) will have the exclusive right to vote for and
elect such two additional directors of the Bank at any meeting of stockholders
of the Bank at which directors are to be elected held during the period such
dividends remain in arrears. The right of the holders of the Series B
Preferred Stock to vote for such two additional directors shall terminate when
the dividends on the Series B Preferred Stock have been declared and paid or
set apart for payment for four consecutive Dividend Periods, provided that,
once a Significant Transaction has occurred, in the event that such right to
elect two additional directors terminates at any time upon the payment or the
declaration and setting aside for payment of dividends for four consecutive
Dividend Periods, the holders of the Preferred Stock shall have the right to
vote for two additional directors beginning as of the next Dividend Payment
Date after such termination on which dividends have not been declared and paid
or set aside for payment. The term of any director elected by the holders of
the Series B Preferred Stock (and any Parity Dividend Stock) shall terminate
upon the payment of the declaration and setting aside for payment of full
dividends on the Preferred Stock for four consecutive periods.
The foregoing right of the holders of the Series B Preferred Stock with
respect to the election of two directors may be exercised at any annual meeting
of stockholders or at any special meeting of stockholders held for such
purpose. If the right to elect directors shall have accrued to the holders of
the Series B Preferred Stock more than ninety days preceding the date
established for the next annual meeting of stockholders, the President of the
Bank shall, within twenty days after the delivery to the Bank at its principal
office of a written request for a special meeting signed by the holders of at
least 10% of all outstanding shares of the Series B Preferred Stock, call a
special meeting of the holders of the Series B Preferred Stock to be held
within sixty days after the delivery of such request for the purpose of
electing such additional directors.
The holders of the Series B Preferred Stock and any Parity Dividend Stock
referred to above voting as a class shall have the right to remove without
cause at any time and replace any directors such holders shall have elected
pursuant to this Section 6.
(c) So long as the Series B Preferred Stock is outstanding, the
Bank shall not, without the affirmative vote or consent of the holders of at
least 66 2/3% of all outstanding shares of the Series B Preferred Stock voting
separately as a class, (i) amend, after or repeal any provision of the Charter
of the Bank (including any such amendment, alteration, or repeal resulting from
a merger or consolidation of the Bank), so as to affect adversely the relative
rights, preferences, qualifications, limitations or restrictions of the Series
B Preferred Stock, or (ii) create, authorize or issue, or reclassify any
authorized stock of the Bank that is senior or superior as to dividends or
liquidation to the Series B Preferred Stock, or any security convertible into
such senior security. A class vote on the part of the Series B Preferred Stock
shall, without limitation, specifically not be deemed to be required (except as
otherwise required by law or resolution of the Board of Directors) in
connection with: (a) the authorization, issuance, or increase in the authorized
amount of any shares of any other class or series of stock which ranks junior
to, or on a parity with, the Series B Preferred Stock in respect of the payment
of dividends and distributions upon liquidation, dissolution or winding up of
the Bank; or (b) the authorization, issuance or increase in the amount of any
notes, commercial paper, bonds, mortgages, debentures or other obligations of
the Bank.
- 5 -
<PAGE> 6
No vote of the Series B Preferred Stock shall be required if the
Series B Preferred Stock is to be redeemed in whole on a Redemption Date
occurring on or prior to the date of occurrence of any event otherwise
requiring a class vote by the Series B Preferred Stock.
(d) A majority of the shares of Series B Preferred Stock
outstanding and entitled to vote on any matter shall constitute a quorum.
7. Ranking. Any class or classes of stock of the Bank shall be deemed to
rank:
(a) prior to the Series B Preferred Stock, as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of Series B Preferred Stock.
(b) on a parity with the Series B Preferred Stock, as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof
are different from those of the Series B Preferred Stock, if the
holders of such class of stock and the Series B Preferred Stock shall
be entitled to the receipt of dividends or if amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation prices, without preference or priority one
over the other, and
(c) junior to the Series B Preferred Stock, as to
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such stock shall be Common Stock or if
the holders of Series B Preferred Stock shall be entitled to receipt
of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the
holders of shares of such stock.
8. Status of Acquired Shares. Shares of Series B Preferred Stock
redeemed by the Bank, or otherwise acquired by the Bank, will be restored to
the status of authorized but unissued shares of the Bank's preferred stock,
without designation as to class, and may thereafter be issued, but not as shares
of Series B Preferred Stock.
9. Conversion and Preemptive Rights. The Series B Preferred Stock is not
entitled to any conversion, preemptive or subscription rights in respect of any
securities of the Bank.
10. Severability of Provisions. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely
affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid
under applicable law."
IN WITNESS WHEREOF, the Bank has caused this Certificate to be made under
the seal of the Bank and signed by Barry C. Burkholder, its President, and
attested by Randolph C. Henson, its Secretary, this 13th day of July, 1995.
BANK UNITED OF TEXAS FSB
By: Barry C. Burkholder
------------------------------
Name: Barry C. Burkholder
Title: President
Attest:
Randolph C. Henson
- ------------------------
Name: Randolph C. Henson
Title: Secretary
- 6 -
<PAGE> 1
EXHIBIT 10.8
DATA PROCESSING AGREEMENT
by and between
SYSTEMATICS FINANCIAL SERVICES, INC.
and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
January 1, 1992
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Services ........................................................... 1
2. Term................................................................ 1
3. Responsibilities of the Parties .................................... 2
3.1 Computer Equipment .......................................... 2
3.2 Terminals/Communications Cost ............................... 2
3.3 Processing Schedule ......................................... 2
3.4 CLIENT Approval of Program Changes .......................... 2
3.5 Confidentiality of CLIENT Data .............................. 2
3.6 Delivery .................................................... 2
3.7 Supplies and Forms .......................................... 3
3.8 CLIENT's Input Data ......................................... 3
3.9 Microfilming ................................................ 3
3.10 Days of Updating ............................................ 3
3.11 Copy Machine ................................................ 3
4. Data Processing Premises and Security .............................. 3
4.1 Data Processing Premises ................................... 3
4.2 Security Standards ......................................... 3
5. Software ........................................................... 4
5.1 Additional Licensed Programs ................................ 4
5.2 Software Warranty ........................................... 4
5.3 User Manuals ................................................ 4
5.4 Third Party Software ........................................ 4
5.5 Installation of New Systems and Subsystems .................. 5
5.6 Modifications Requested by CLIENT ........................... 5
5.7 Regulatory Reporting Requirements ........................... 6
5.8 Development of Custom Software Code ......................... 6
6. Staffing; Computer Use ............................................. 6
6.1 Resident Technical Staff ................................... 6
6.2 Special Computer Use ....................................... 9
6.3 SI Account Manager.......................................... 9
7. Time of Performance................................................. 10
i
<PAGE> 3
8. Termination .................................................... 10
8.1 Right to Terminate ...................................... 10
8.2 Method of Termination ................................... 10
8.3 Data, Systems and Programs .............................. 11
8.4 Early Termination ....................................... 11
9. Transitional Cooperation ....................................... 12
9.1 Offer of Employment ..................................... 13
9.2 Transition .............................................. 13
9.3 Equipment ............................................... 13
9.4 Additional Support ...................................... 13
10. Backup, Storage, Files, and Programs ........................... 13
10.1 Files and Programs ...................................... 13
10.2 Storage ................................................. 14
10.3 Emergency Backup ........................................ 14
11. Service Bureau Customers ....................................... 14
11.1 CLIENT'S Service Bureau Customers ....................... 14
11.2 SI's Service Bureau Customers ........................... 14
12. Payment and Billing ............................................ 14
13. No Interference with Contractual Relationship .................. 14
14. No Waiver of Default .......................................... 15
15. Processing Priorities ......................................... 15
16. Mergers and Acquisitions ...................................... 15
17. Entire Agreement .............................................. 15
18. Assignment .................................................... 15
19. Confidential Agreement ........................................ 16
20. Taxes ......................................................... 16
ii
<PAGE> 4
21. Independent Contractor ........................................... 16
21.1 CLIENT Supervisory Powers ................................. 16
21.2 SI's Employees ............................................ 16
21.3 SI as an Agent ............................................ 16
22. CLIENT and SI Employees .......................................... 17
23. Notices........................................................... 17
24. Covenant of Good Faith ........................................... 17
25. Limitation of Liability .......................................... 17
26. Insurance......................................................... 17
27. Section Titles.................................................... 17
28. Informal Resolution of Disputes ..................................
29. Arbitration ......................................................
30. Counterparts...................................................... 17
31. Annual Financial Statements ...................................... 18
32. Governing Law..................................................... 18
EXHIBITS
A. Systems Installation Schedule
B. Reports
C. Charges
D. Processing Schedule
E. [Not Applicable]
F. CLIENT-Furnished Equipment and Software
G. Software License Agreement
H. CLCS Processing and Support
I. Performance Benchmarks
J. Confidentiality and Non-Disclosure Agreement
K. Transition Assistance
L. Travel and Relocation Policy
M. Severance Policy
iii
<PAGE> 5
DATA PROCESSING AGREEMENT
This is an Agreement, dated as of the 1st day of January, 1992
(hereinafter the "Effective Date"), by and between SYSTEMATICS FINANCIAL
SERVICES, INC., an Arkansas corporation, 4001 Rodney Parham Road, Little Rock,
Arkansas, 72212-2496 (formerly Systematics, Inc.) (hereinafter "SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
3200 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77027
(hereinafter "CLIENT").
In consideration of the promises, covenants and agreements of the parties
reflected herein, SI and CLIENT agree as follows:
1. SERVICES.
SI will provide to CLIENT the data processing services and products
described in this Agreement and its exhibits. Such services and products
include, but are not limited to, installation and enhancement of
SI-developed and third-party developed software systems, operation of
software systems developed by SI and third parties, programming services,
furnishing and operating computer equipment, providing information in
various media forms, and a license to use SI software systems. The
specific services provided and the applicable fees therefor are described
in more detail in this Agreement and its exhibits.
2. TERM.
The term of this Agreement is seventeen (17) months, beginning on the
Effective Date, and ending May 31, 1993 (the "Expiration Date"). At least
four (4) months prior to the Expiration Date, CLIENT will (a) select one
of the options reflected in Exhibit C to extend the term of the Agreement,
or (b) submit to SI a written notice of termination effective on the
Expiration Date.
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3. RESPONSIBILITIES OF THE PARTIES.
SI and CLIENT agree to be responsible for the following matters:
3.1 COMPUTER EQUIPMENT. Except as otherwise provided in this Agreement
(Section 2 of Exhibit C), SI will supply all CPUs, communications
controllers, DASD equipment, tape/cartridge equipment, printers and
related peripheral equipment which may be required for its operation
of the Data Center as defined in Section 4.1.
3.2 TERMINALS/COMMUNICATIONS COST. CLIENT will pay all costs of
installing and utilizing communication or telephone lines, data
sets, modems, ATMs, terminals, and terminal control units, as
required for CLIENT's on-line operations, testing and training.
CLIENT will provide the terminals and personal computers used by
SI's personnel. CLIENT will provide all personal computers used by
its personnel.
3.3 PROCESSING SCHEDULE. SI will process and update CLIENT's data in
accordance with Exhibit D.
3.4 CLIENT APPROVAL OF PROGRAM CHANGES. All changes to programs used to
process CLIENT's data affecting input, output, control, audit, or
accounting procedures of CLIENT shall be made only with the approval
of CLIENT.
3.5 CONFIDENTIALITY OF CLIENT DATA. All information concerning CLIENT,
its business or customers submitted to SI pursuant to this Agreement
shall be held in confidence by SI and shall not be disclosed. No
person or entity shall be permitted to have access to CLIENT's data
without prior the written authorization of CLIENT. All of CLIENT's
data shall be available for examination by CLIENT at any time
without notice. SI will grant access to CLIENT to the Data Center at
any time as soon as reasonably practicable following receipt of
notice from CLIENT. If SI receives any legal process requiring it to
produce CLIENT's data or that of any of its customers, SI shall
notify CLIENT promptly, and deliver copies of such orders to CLIENT,
immediately and prior to compliance with such process.
3.6 DELIVERY. CLIENT, or its designee, is responsible for delivery of
all input and output data to and from the Data Center (see Section
4.1). Subject to CLIENT's responsibility for microfilming MICR
documents prior to delivery to SI, SI is responsible for safekeeping
CLIENT's documents while in SI's possession in the Data Center. The
standard of care employed by SI in such safekeeping shall be the
higher of the standard generally employed in the data processing
industry, or the standard employed by SI in safekeeping its own
confidential documents.
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<PAGE> 7
3.7 SUPPLIES AND FORMS. SI will provide all magnetic tapes, tape
cartridges and impact printer ribbons required to perform SI's
processing responsibilities during the term of this Agreement.
CLIENT will provide all input and output forms, balance control
forms, stock paper, and any forms necessary for SI to meet the
processing requirements of CLIENT, as well as adequate storage
therefor.
3.8 CLIENT'S INPUT DATA. All magnetic tapes and MICR encoded documents,
furnished by CLIENT to SI shall be in machine readable condition,
accompanied by control totals and, if applicable, encoded batch
tickets and proof tapes with totals. CLIENT assumes all risk of loss
and expenses of reconstruction of input data, except for loss caused
by SI's negligence.
3.9 MICROFILMING. CLIENT will microfilm all MICR document input for
processing hereunder in order to permit reconstruction thereof.
Except for loss caused by SI's negligence, CLIENT bears all risk of
loss and expenses of reconstruction of MICR input data.
3.10 DAYS OF UPDATING. SI will batch process and update CLIENT's data
five days per week, Monday through Friday, in accordance with
Exhibit B and D. On-line service hours are reflected in Exhibit D.
3.11 COPY MACHINE. CLIENT will provide a copy machine for SI's use
related to systems and processing for United. SI will reimburse
CLIENT for copying related to SI's business.
4. DATA PROCESSING PREMISES AND SECURITY.
4.1 DATA PROCESSING PREMISES. CLIENT agrees to provide SI with adequate
premises, in good repair, to perform its responsibilities under this
Agreement (hereinafter the "Data Center"). Without limiting the
generality of the foregoing, CLIENT agrees to supply water, sewer,
heat, lights, telephone lines and equipment, air conditioning,
electricity (including, if desired by CLIENT, an uninterruptable
power system, battery backup and backup generator capacity), office
equipment and furniture all pursuant to the terms and conditions of
Exhibit G of the Management and Consulting Agreement. SI is not
responsible for any injury or damage to property or persons which
occurs in or around the Data Center unless it is caused by the
negligent or willful misconduct of SI. CLIENT will provide telephone
instruments and telephone service for SI to communicate with the
employees of CLIENT, CLIENT's service bureau customers, if any, and
as required by SI to operate the Data Center.
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<PAGE> 8
4.2 SECURITY STANDARDS. SI will adhere to such security standards with
respect to CLIENT's data as may reasonably be imposed by CLIENT,
including prehiring personnel investigative procedures and discharge
of personnel. CLIENT will pay the costs for any modifications or
additions to the data center which are required by such security
standards. CLIENT will reimburse SI for actual costs incurred if
adherence to security standards requested or required by CLIENT
increases SI's costs of operation.
5. SOFTWARE.
Effective on the Expiration Date (or the earlier Termination Date if this
Agreement is terminated by CLIENT pursuant to the provisions of Section
8.4), SI will grant and convey to CLIENT and CLIENT will accept a license
to use SI's proprietary application systems ("Software") under the terms
and conditions set forth in Exhibit G. However, such software license
shall be effective for only that Software installed for CLIENT's benefit
during the term of this Agreement and the previous agreements between SI
and CLIENT and its predecessors.
5.1 ADDITIONAL LICENSED PROGRAMS. The license contemplated by this
Section 5 shall also apply to all SI-developed program
modifications, enhancements, new systems or major subsystems
installed for CLIENT's benefit pursuant to this Agreement. SI will
furnish CLIENT, upon request, a current list of all Software systems
and subsystems developed and made available by SI. SI will give
CLIENT one hundred eighty (180) days' notice prior to eliminating
updates for a particular system version of any SI-developed program.
5.2 SOFTWARE WARRANTY. Each of the warranties set forth in Exhibit G, as
well as the patent and trademark indemnity provisions of Exhibit G,
shall apply to the Software, and all enhancements, modifications or
changes thereto, furnished or used pursuant to this Agreement.
5.3 USER MANUALS. Prior to the installation of each SI-developed system,
SI will deliver to CLIENT two copies of the applicable User Manuals,
and thereafter, two copies of standard updates thereto. CLIENT is
responsible for the initial personalization and for the maintenance,
reproduction and distribution of User Manuals. SI hereby consents to
the reproduction of User Manuals by CLIENT solely for the internal
use of CLIENT in accordance with this Agreement.
5.4 THIRD PARTY SOFTWARE. In accordance with Exhibit F, SI will use all
computer programs acquired by CLIENT from third parties or developed
by CLIENT without the assistance of SI exclusively to process
CLIENT's data. Additional use of such programs by SI shall require
the prior written approval of CLIENT. SI reserves the right to
review and/or test such programs, in advance of processing, to
assure compatibility with SI equipment and consistency with SI's
processing techniques. Except as set forth in Section 6.1, the
Resident Programming Staff will provide support and maintenance
services with respect to such programs. CLIENT may purchase
maintenance contracts for such
4
<PAGE> 9
programs in its discretion. CLIENT will indemnify SI and hold SI
harmless from any loss, claim, damage or expense, including
reasonable attorneys' fees, resulting from any action brought or
claim made by any third party claiming that either SI or CLIENT does
not have the right to use such software as contemplated by this
Agreement. The foregoing indemnity shall not apply to claims that SI
has failed to maintain the confidentiality of such software.
5.5 INSTALLATION OF NEW SYSTEMS AND SUBSYSTEMS. SI will install
regulatory changes, updates, new systems and subsystems using the
Resident Programming Staff. SI will present to CLIENT the features
of and estimated hours required to install such systems or
subsystems. CLIENT, at its option, may elect to install the new
system or subsystem or to continue use of the then installed
SI-developed system.
5.6 MODIFICATIONS REQUESTED BY CLIENT. If requested by CLIENT, SI agrees
to modify the SI-developed programs installed for CLIENT by SI.
Implementation of such CLIENT-authorized modifications will be
performed by the Resident Programming Staff. CLIENT understands that
modifications may require an increase in the time of performance
and/or the Resident Programming Staff to subsequently install
SI-developed updates, new systems or subsystems.
5.7 REGULATORY REPORTING REQUIREMENTS. During the term of this
Agreement, SI agrees to modify those SI-developed programs installed
for CLIENT so that such programs will comply with the mandatory data
processing output requirements specified by federal regulatory
authorities applicable to CLIENT. Program modifications necessary to
meet state and local regulatory requirements will be provided at
CLIENT's request by the Resident Programming Staff. CLIENT agrees to
make SI aware of any local or state regulatory requirements not
included in the requirements established by federal regulatory
authorities.
5.8 DEVELOPMENT OF CUSTOM SOFTWARE CODE. If CLIENT requests SI to
develop and SI develops pursuant to the Agreement custom software
code pursuant to specifications written and provided by CLIENT, SI
will not deliver the custom code so developed or any portion thereof
to any person (including other SI customers) without the prior
written consent of CLIENT. If such custom code will operate and
process data on a stand-alone basis without the use of other SI
software, CLIENT shall own the custom code; provided, however, that
CLIENT shall not refer to SI in any way in connection with any
commercial use which CLIENT shall make of such custom code. In
addition, if CLIENT makes any commercial use of such custom code,
CLIENT will indemnify SI and hold SI harmless from and against any
loss, claim, damage, or expense, including reasonable attorneys'
fees, resulting from or arising out of CLIENT's use of such custom
code and SI's use of such custom code shall be exclusively limited
to SI's processing for CLIENT. Custom code developed by SI for
CLIENT requiring the use of SI software for processing shall be
subject to the terms of Section 3.4 of Exhibit G. Notwithstanding
the foregoing, the development of any custom code for, or the
ownership thereof by, CLIENT shall not prohibit SI
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<PAGE> 10
from using the ideas embodied in the custom code, or from developing
substantially identical software, for other customers of SI. To that
end, CLIENT hereby grants to SI a worldwide, non-exclusive license
to use such custom code in developing software for SI. The parties
acknowledge that the size and scope of a particular custom software
project or the uniqueness of the ideas to be embodied therein may
make it appropriate for SI and CLIENT to negotiate different terms
and conditions for the development, ownership and/or commercial use
of the resulting custom software. SI and CLIENT agree to examine
those circumstances in good faith and on a case-by-case basis prior
to beginning the project. If a separate agreement is reached for any
such custom software development, the preceding terms and conditions
of this Section 5.8 shall not apply.
6. STAFFING; COMPUTER USE.
6.1 RESIDENT TECHNICAL STAFF. SI will provide a staffing level of
on-site programmers reflected in the table below (the "Resident
Programming Staff"). The remaining staffing level will fluctuate
during the term of this Agreement as the Resident Programming Staff
is increased or decreased pursuant to requests by CLIENT. At
CLIENT's request, SI will increase or decrease the Resident
Programming Staff, so long as the staffing level is no less than the
minimum level shown below, and may not be decreased to less than 15.
Increases in the Resident Programming Staff will be in minimum
increments of one person for a minimum term of one year from the
date of the arrival of such person(s). Such increases or decreases
in the Resident Programming Staff will result in increases or
decreases in the SI fees in accordance with Section 6.1(c) below. SI
will provide for CLIENT the opportunity to interview additions to
and replacements of the Resident Programming Staff and periodically
to evaluate their performance. SI will, in good faith, consider the
opinions expressed by CLIENT as a result of such interviews and
evaluations. In addition, if CLIENT requests the discipline or
removal of a member of the Resident Programming Staff, based upon
his or her conduct or job performance, SI will consider such request
in good faith and promptly take appropriate action. The Resident
Programming Staff included in the SI fees shown in Section 1 of
Exhibit C for the remaining months of this Agreement is:
<TABLE>
<CAPTION>
Number of
Period Programmers
------ -----------
<S> <C>
1992
January - April 22
May - June 22
July - Sept 21
October - Dec 17
1993 15
1994 - 1996 15
</TABLE>
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<PAGE> 11
SI's Resident Programming Staff shall be qualified personnel who,
based upon SI's current job classifications, will be classified as
follows:
<TABLE>
<CAPTION>
1992 1993 AND THEREAFTER
---- -------------------
<S> <C> <C>
Applications Senior
Systems Engineers
and Supervisors
E30 and E10 7 5
Applications System
Engineers
E08 and E09 11 7
Applications System
Specialist E07 4 3
-- --
22 15
</TABLE>
Changes in the actual number of the Resident Programming Staff may
necessitate a different allocation from that set out above.
SI will provide CLIENT with output from SI's Project Control System
as frequently as weekly with respect to the activities of the entire
Resident Programming Staff. Subject to the requirements of Exhibit
A, CLIENT may direct SI as to which specific projects CLIENT wishes
to implement and the relative priority of such projects. Such
directions shall include, but not be limited to, installation of
enhancements, new releases, major subsystems and regulatory changes,
plus providing program modifications an general programming duties.
SI will promptly notify the Client in the event of any terminations
or resignations. Subject to a reasonable time for replacements in
the event of resignations or terminations, which time shall not
exceed ninety (90) days, SI will maintain such staffing levels
throughout the term of this Agreement. If SI fails to fill a
position within 30 days, SI will at its election (i) provide a
temporary resource for such position, or (ii) give CLIENT a daily
credit from the 31st day to the time of replacement based on the
actual daily salary and benefits of the person who most recently
filled the vacant position, plus a reasonable margin thereon. Duties
of the Resident Programming Staff shall include, but are not limited
to, installing the systems reflected in Exhibit A, installing
program updates, installing new systems and subsystems, programming
resulting from regulatory changes, user interface, communication and
customer service, systems programming, attending education classes,
CLIENT meetings and research meetings, as well as CLIENT-requested
program modifications and general programming duties.
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(a) Project Control - The Resident Programming Staff will use a project
management system for CLIENT projects, and SI will provide CLIENT
with output from such system as frequently as weekly.
(b) Priorities - CLIENT shall have the right to establish all
programming and project priorities. Changes in priorities, however,
which require reassignment of SI Resident Programming Staff to other
responsibilities may result in an enlargement of SI's time to
complete certain tasks hereunder. Prior to the last installation
date specified in Exhibit A, CLIENT changes in priorities or
requests for additional projects may result in additional SI fees
and in an enlargement of SI's time to complete certain tasks
hereunder.
(c) Resource Change Procedure - At CLIENT's written request, SI will
increase or decrease the Resident Staff, as long as the staffing
level is not less than the minimum number set forth above. Annually,
SI and CLIENT will, on a best efforts basis, plan the Resident
Programming Staff level expected to be necessary for the following
six-months and twelve-month increments. CLIENT will provide SI with
written notice with respect to increases, extensions or decreases in
the Resident Programming Staff. SI promptly will respond to CLIENT's
request to alter the Resident Programming Staff with a quotation for
any increases or decreases in SI's fees. If CLIENT accepts SI's
quotation, SI will use its best efforts to provide Resident
Programming Staff increases promptly in accordance with CLIENT's
requests. The effective date of an SI fee increase will be the date
such SI employee becomes a full-time member of the Resident
Programming Staff. The effective date of an SI fee decrease will be
the earlier of 120 days from the date of CLIENT's written request or
the date such SI employee is no longer resident. For increases in
the Resident Staff the fee increase will be determined by reference
to the applicable salary, benefits and relocation costs, if any,
plus a reasonable margin thereon. For decreases, the monthly credit
will be determined by reference to the actual salary and benefits of
the affected person(s), plus a reasonable margin thereon. Quotations
for increases or decreases in the Resident Programming Staff will be
in minimum increments of one person for a minimum term of one year
or coterminous with this Agreement. Partial months will be prorated
on a daily basis.
(d) Temporary Non-Resident Personnel - If CLIENT does not wish to
re-order priorities to permit the Resident Programming Staff to
perform additional services, or to direct SI to increase the
Resident Programming Staff, CLIENT may request SI to provide
additional non-resident personnel on temporary basis and SI will
provide such non-resident personnel on an as-available basis. SI
will promptly respond with a quotation for such non-resident
personnel in accordance with Section 6 of Exhibit C. If CLIENT
wishes to utilize the SI personnel services
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<PAGE> 13
quoted, CLIENT will notify SI in writing, authorizing SI to provide
such services. In addition, upon compliance with the following
conditions, CLIENT may engage third parties to assist CLIENT in lieu
of SI provided temporary services:
(a) Such third party shall provide such services under the general
supervision of SI;
(b) The third party shall follow SI's programming, testing and
quality control standards;
(c) The right to use such third parties under this Section applies
to single projects on a project by project basis and if such
need continues the Resident Programming Staff shall be
increased in accordance with Section 6.1 provided, however, if
specialized systems expertise from a third party is important
to continuing support of a third party product, such third
party may be engaged by CLIENT on a continuing basis;
(d) Prior to being afforded any access to the Data Center, the
proposed third party shall have executed and delivered to SI a
non-disclosure and confidentiality agreement, in form, scope
and substance acceptable to SI, designed to assure and
preserve the confidentiality of SI's proprietary and
confidential information. A sample form of such non-disclosure
and confidentiality agreement is attached hereto as Exhibit J;
and
(e) In no event may said third party compete with SI in offering
data processing outsourcing services to financial
institutions.
6.2 SPECIAL COMPUTER USE. CLIENT may use any SI computer time which is
available in the Data Center, without additional charge, for the
exclusive purpose of the performance of non-repetitive services
requested by CLIENT, provided that CLIENT's requests for SI to
provide such non-repetitive services do not interfere with SI's
responsibilities under this Agreement. In conjunction with such
non-repetitive computer usage, SI will provide a computer operator
and CLIENT will pay SI for related overtime, if any, incurred by
such computer operator.
6.3 SI ACCOUNT MANAGER. At CLIENT's request, approved by CLIENT's
president, SI will replace its account manager assigned to CLIENT.
In such event, the parties acknowledge that pending projects may be
delayed and SI shall have a reasonable time to provide a replacement
account manager.
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<PAGE> 14
7. TIME OF PERFORMANCE.
The parties agree that timely and accurate submission of input and output
is essential to satisfactory performance under this Agreement. SI's time
of performance shall be enlarged, if and to the extent reasonably
necessary, in the event that: (a) CLIENT fails to submit input data in the
prescribed form or in accordance with the schedules set forth in Exhibit
D, (b) an act of God, malfunction of any equipment (except as caused by
the negligence or willful misconduct of SI) or other cause beyond the
control of SI prevents timely data processing hereunder, (c) special
requests by CLIENT or any governmental agency authorized to regulate or
supervise CLIENT impact SI's normal processing schedule; (d) if CLIENT
fails to provide any equipment, software, premises or performance called
for by this Agreement, and the same is necessary for SI's performance
hereunder; or (e) if requests by CLIENT's internal or external auditors or
examiners adversely affect SI's normal processing schedule. SI will notify
CLIENT of the estimated impact on its processing schedule, if any. SI will
carefully follow reasonable balancing and quality control procedures
designed to detect processing errors. SI will balance promptly to control
totals provided by CLIENT, and promptly will advise CLIENT of
out-of-balance conditions exceeding mutually established limits. In the
event of an error in processing CLIENT's data, SI will promptly notify
CLIENT and will promptly correct such error. Such correction of error
shall be without charge to CLIENT unless caused by the nature of the data
submitted by CLIENT or caused by software provided to SI by CLIENT. CLIENT
carefully will review and inspect all reports prepared by SI, will balance
promptly to the appropriate control totals and within a reasonable time
after any error or out-of-balance control totals should be detectable,
CLIENT promptly will notify SI of any erroneous processing. As used
herein, the term "promptly" is intended to be interpreted flexibly and in
light of the related circumstances. If CLIENT fails to so notify SI within
a reasonable time after any error or out-of-balance control totals should
be detectable, it shall be deemed to have waived its rights in respect of
such error and to have assumed all risks in respect thereof, including any
increase in the cost of correction to the extent that SI establishes that
the same could have been avoided by earlier detection of such error.
8. TERMINATION.
This Agreement may be terminated prior to the Expiration Date, as follows:
8.1 RIGHT TO TERMINATE. In addition to any other rights which either
party may have in law or equity, either SI or CLIENT may terminate
this Agreement if the defaulting party fails to cure any material
default hereunder within thirty (30) days of written notice from the
other party, specifying the nature and extent of any such default.
8.2 METHOD OF TERMINATION. Exercise of the right to terminate under this
Section must be accomplished by specifying in such written notice to
the defaulting party, the nature and extent of such default and
fixing a date, on the last day of a month, not less than 120 days
following the date of receipt of such notice, for cessation of
services hereunder (the "Termination Date").
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<PAGE> 15
8.3 DATA, SYSTEMS AND PROGRAMS. If this Agreement expires, or if CLIENT
terminates this Agreement as permitted hereby, all licensed systems
shall remain subject to Exhibit G. In addition, upon CLIENT's
request, SI agrees to provide to CLIENT copies of CLIENT's data
files, records and programs on magnetic media.
8.4 EARLY TERMINATION. If CLIENT elects to extend this Agreement
pursuant to either the two-year, three-year or four-year option,
then during the extended term, the following provisions will apply.
(a) Acquisition. CLIENT shall have the right to terminate the
Agreement prior to the Expiration Date upon satisfaction of
each of the following conditions:
(i) CLIENT shall have been acquired (as defined below) and
the data processing services provided by SI shall,
immediately following such termination, be consolidated
with and into the data processing operations of the
acquiring institution. CLIENT shall be deemed to have
been acquired if it shall merge with and into,
consolidate with, or sell substantially all of its
assets to, one or more financial institutions, acting in
concert.
(ii) CLIENT shall have notified SI in writing of its
intention to terminate, within six (6) months after it
is acquired, and not less than six months prior to the
proposed Termination Date.
(iii) CLIENT shall have paid SI a termination fee, which shall
accompany the Termination Notice, in the amount of 25%
of the sum of the monthly payments reflected in Section
1 of Exhibit C for the remaining term of the Agreement.
(iv) In the event of termination by CLIENT pursuant to this
Section 8.4, CLIENT agrees to pay SI the following:
(A) SI's actual cost of employee relocation expense
and SI's actual cost of severance pay (in
accordance with SI's standard severance and
relocation policy attached as Exhibits L and M)
incurred as a result of such termination for all
SI employees in the Data Center as of the
termination date who do not receive an offer of
employment from CLIENT, effective as of the
Termination Date, at comparable salary and
position in Houston, Texas or, in the case of
severance pay, an offer of employment from SI at
another SI location. In no event shall such SI
invoice exceed $350,000 in the aggregate. CLIENT
will pay SI the sum of $350,000 with
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<PAGE> 16
its termination notice and if SI's actual costs to
be reimbursed under this subsection (A) are less
than that amount, SI will refund the difference,
promptly upon determination of the amount thereof.
(B) An amount equal to SI's net book value of all SI
equipment installed in the Data Center, determined
as of and payable on the Termination Date upon
receipt of which SI will convey unencumbered title
to such equipment to CLIENT.
(v) The provisions of Sections 8.3, 9.1, 9.2, 9.4, and 9.5
will remain unchanged.
(b) Convenience. CLIENT also shall have the right to terminate the
Agreement for convenience and without cause upon satisfaction of
the following conditions:
(i) CLIENT shall have given SI a written notice, at least
six months prior to the termination date, designating
the Termination Date;
(ii) CLIENT shall have paid SI a termination fee, which shall
accompany the preceding notice, equal to 50% of the sum
of the monthly payments reflected in Section 1 of
Exhibit C for the remaining term of the Agreement.
(iii) CLIENT shall pay SI the amounts reflected in Section
8.4(a)(iv)(A) and (B) above.
(iv) The provisions of Sections 8.3, 9.1, 9.2, 9.4, and 9.5
will remain unchanged.
9. TRANSITIONAL COOPERATION.
After notice of termination and prior to the Termination Date, or for six
months prior to the Expiration Date, SI agrees that:
9.1 OFFER OF EMPLOYMENT. CLIENT may offer employment to the employees of
SI located at the Data Center pursuant to this Agreement or the
Management and Consulting Agreement.
9.2 TRANSITION. SI will give full cooperation and support to CLIENT to
assure an orderly and efficient transition to whatever method of
computer processing it may select, including but not limited to the
transition assistance reflected in Exhibit K.
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9.3 EQUIPMENT. Except as otherwise set forth in Section 8.4, if CLIENT
wishes to utilize equipment owned or leased by SI and installed in
the data center, SI will not withdraw any such equipment without
first offering to CLIENT, on a right of first refusal basis, the
right to purchase, or sublease such equipment. With respect to
equipment leased by SI, SI will allow (if and to the extent
permitted by the underlying lease) CLIENT to sublease such equipment
from SI at the exact terms, conditions and costs of the lease then
in effect. In addition, CLIENT may purchase at the Expiration Date
or Termination Date, as applicable, all but not less than all of the
equipment owned by SI and used in the data center, at a price equal
to the sum of its fair market value. Fair market value shall be
determined by inquiries to three (if available) nationally
recognized vendors of the applicable equipment. Such offer will be
made by SI at least one hundred (100) days and accepted or rejected
at least sixty (60) days prior to the Termination Date. CLIENT may,
at its option, negotiate directly with any of the owners of leased
equipment, to establish its direct contractual relationship for
equipment, and CLIENT agrees to act promptly in this regard.
9.4 ADDITIONAL SUPPORT. CLIENT shall have the option, exercisable within
ninety (90) days of delivery of a termination notice by either
party, to request up to 90 days of additional technical support from
SI subsequent to the Termination Date. CLIENT will pay for such
services at SI's then current Hourly Rates.
9.5 EXTENSION OF PROCESSING SERVICES. After notice of termination and
upon not less than one hundred twenty (120) days' prior written
notice from CLIENT, SI will extend the Termination Date one time by
not less than three nor more than six additional months (the
"Extended Period"). CLIENT shall specify the extended Termination
Date in the foregoing notice.
10. BACKUP, STORAGE, FILES AND PROGRAMS.
10.1 FILES AND PROGRAMS. SI agrees to provide and maintain adequate
backup files on magnetic media of CLIENT data and all programs
utilized to process CLIENT's data.
10.2 STORAGE. CLIENT agrees to provide off-site storage for backup data
files and programs. CLIENT agrees to pick up the backup data files
and programs from the data center, deliver them to its off-site
storage location, store them, and return them to the data center
pursuant to mutually agreed upon procedures and schedules. If
requested by CLIENT, SI shall provide CLIENT with a quarterly
listing of the names of data files and programs for verification of
the items in storage. CLIENT is solely responsible for the physical
security of such files and programs while not in SI's possession.
10.3 EMERGENCY BACKUP. CLIENT and SI agree that all arrangements between
the parties for emergency back-up and disaster recovery services are
reflected in Exhibit F to the Management and Consulting Agreement.
13
<PAGE> 18
11. SERVICE BUREAU CUSTOMERS.
11.1 CLIENT'S SERVICE BUREAU CUSTOMERS. Subject to agreement between SI
and with respect to conversion and processing charges, CLIENT may
contract with service bureau customers for existing and new
applications.
11.2 SI'S SERVICE BUREAU CUSTOMERS. SI may not process data for any third
parties at the Data Center without written permission from CLIENT.
Such permission, if granted, will be on an individual customer basis
and will be valid for the remainder of the contract term, for that
customer.
12. PAYMENT AND BILLING.
CLIENT agrees to pay SI for the services performed hereunder in accordance
with the fees set forth in this Agreement, pursuant to invoices prepared
and delivered to CLIENT. All processing fees shall be payable on the first
day of each month, for services to be rendered during that month except
for Additional Volume Fees specified in Section 3.2 of Exhibit C, laser
printer usage fees, and MICR reader/sorter usage fees, all of which shall
be reflected in the first monthly invoice after the relevant usage data is
available and payable by CLIENT promptly following receipt thereof.
13. NO INTERFERENCE WITH CONTRACTUAL RELATIONSHIP.
CLIENT warrants that, as of the date hereof, it is not subject to any
contractual obligation that would prevent CLIENT from entering into this
Agreement, and that SI's offer to provide such services in no way caused
or induced CLIENT to breach any contractual obligation.
14. NO WAIVER OF DEFAULT.
The failure of either party to exercise any right of termination hereunder
shall not constitute a waiver of the rights granted herein with respect to
any subsequent default.
15. PROCESSING PRIORITIES.
SI agrees that processing for financial institutions shall have priority
over processing for non-financial institutions, if any. In addition, if
any emergency requires a change in the processing schedule set forth in
Exhibit D, SI and CLIENT agree to negotiate in good faith to adjust the
processing schedule and related priorities in light of then prevailing
circumstances.
16. MERGERS AND ACQUISITIONS.
Upon written request by CLIENT, SI will process additional data resulting
from any merger or acquisition involving either CLIENT or any of its
service bureau customers; subject to CLIENT's payment of additional volume
fees reflected in Section 3 of Exhibit C, and subject to agreement on the
fees, if any, applicable to related
14
<PAGE> 19
conversion and testing services. CLIENT will notify SI of any such
proposed merger or acquisition as soon as reasonably practicable. In
addition, at CLIENT's request, and in lieu of the additional volume fees
reflected in Exhibit C, SI will enter into good faith negotiations with
CLIENT with respect to alternative additional volume processing charges
related to any acquisition.
17. ENTIRE AGREEMENT.
This Agreement and the exhibits hereto contain the entire agreement of the
parties and supersedes all prior agreements whether written or oral with
respect to the subject matter hereof. Expiration or termination of any
part of this Agreement shall terminate the entire Agreement except for any
portion hereof which expressly remains in force and in effect
notwithstanding such termination or expiration. In addition, termination
of this Agreement also shall result in the termination of the Management
and Consulting Agreement between the parties of even date herewith.
Modification or amendment of this Agreement or any part thereof may be
made only by written instrument executed by both parties.
18. ASSIGNMENT.
Neither party hereto shall assign, subcontract, or otherwise convey or
delegate its rights or duties hereunder to any other party without the
prior written consent of the other party to this Agreement, which consent
shall provide that it is subject to all the terms and conditions of this
Agreement. Subject to the provisions of Exhibit G, no such consent shall
be required in the event of a merger, consolidation, sale of substantially
all of the assets, or any other change of control of either party hereto,
in which event, this Agreement shall apply to, inure to the benefit of,
and be binding upon the parties hereto and upon their respective
successors in interest.
19. CONFIDENTIAL AGREEMENT.
This Agreement is a confidential agreement between SI and CLIENT. In no
event may this Agreement be reproduced or copies shown to any third
parties by either CLIENT or SI without the prior written consent of the
other party, except as may be necessary by reason of audit, legal,
accounting or regulatory requirements beyond the reasonable control of SI
or CLIENT, as the case may be, in which event SI and CLIENT agree to
exercise diligence in limiting such disclosure to the minimum necessary
under the particular circumstances.
20. TAXES.
CLIENT will pay directly or reimburse SI for all sales, use or excise
taxes, however designated, levied or based, on amounts payable pursuant to
this Agreement, including state and local privilege or excise taxes based
on gross revenues under this Agreement or taxes on services rendered or
personal property taxes on the systems licensed hereunder. CLIENT shall
not be responsible for any taxes levied on the personal property or net
income of SI.
15
<PAGE> 20
21. INDEPENDENT CONTRACTOR.
It is agreed that SI is an independent contractor and that:
21.1 CLIENT SUPERVISORY POWERS. Except as otherwise specifically set
forth in this Agreement, CLIENT has no power to supervise, give
directions or otherwise regulate SI's operations or its employees,
except as herein provided for security of CLIENT's data and
detection of errors in processing.
21.2 SI'S EMPLOYEES. Persons who process CLIENT's data are employees of
SI and SI shall be solely responsible for payment of compensation
to such personnel and for any injury to them in the course of their
employment. SI shall assume full responsibility for payment of all
federal, state and local taxes or contributions imposed or required
under unemployment insurance, social security and income tax laws
with respect to such persons.
21.3 SI AS AN AGENT. SI is not an agent of CLIENT and has no authority
to represent CLIENT as to any matters, except as authorized herein.
22. CLIENT AND SI EMPLOYEES.
Except as specifically set forth in Section 9, above, during the term
hereof, both CLIENT and SI agree not to offer employment to any employee
of the other without the prior written consent of the other.
23. NOTICES.
All notices, requests and demands, other than routine operational
communications under this Agreement, shall be in writing and shall be
deemed to have been duly given when deposited in the United States mail,
registered or certified postage prepaid, and addressed to the other party
at the address first shown above and to the attention of the president of
said party. Notice of changes of address, if any, shall be given in like
manner.
24. COVENANT OF GOOD FAITH.
SI and CLIENT agree that, in their respective dealings arising out of or
related to this Agreement, they shall act fairly and in good faith.
25. LIMITATION OF LIABILITY.
If either party shall breach any covenant, agreement or undertaking
required of it by this Agreement, the liability of such party shall be
limited to direct damages, actually incurred. Neither party shall be
liable to the other for any special or consequential damage or for any
claim or demand made by any third party.
16
<PAGE> 21
26. INSURANCE.
A schedule of SI's current insurance coverage has been furnished to CLIENT
prior to the Effective Date of this Agreement.
27. SECTION TITLES.
Section titles as to the subject matter of particular sections herein are
for convenience only and are in no way to be construed as part of this
Agreement or as a limitation of the scope of the particular sections to
which they refer.
28. INFORMAL RESOLUTION OF DISPUTES.
In the event of any dispute between the parties arising from or relating
to this Agreement or the Management and Consulting Agreement of even date
herewith (including disputes as to the validity or interpretation of any
provision of this Agreement, the performance or nonperformance by either
party of its obligations hereunder, or the amount of any charges payable
hereunder), then such disputes shall be resolved as follows:
(a) Minor Disputes. With respect to any minor dispute, upon the
written request of either party, each of the parties will appoint a
designated representative who is a senior-level manager assigned to
the data processing matters contemplated by this Agreement, whose
task it will be to endeavor to resolve such dispute. During the
five (5) day period following any written request delivered
pursuant to this subsection (a), or such other period upon which
the parties agree, the designated representatives shall meet as
often as the parties reasonably deem necessary in order to gather
and furnish to each other all information with respect to the
matter in issue which the parties believe to be appropriate and
germane in connection with its resolution. Such representatives
shall discuss the problem, and shall negotiate in good faith in an
effort to resolve the dispute without the necessity of any formal
proceeding relating to such dispute. During the course of such
negotiation, all reasonable requests made by one party to the other
for information will be honored so that each of the parties may be
fully advised of the other party's position. The specific format
for such negotiations will be left to the discretion of the
designated representatives but may include the preparation of
agreed upon statements of fact or written statements of position
furnished to the other party.
(b) Major Disputes. With respect any major dispute, or with respect
to any minor dispute which is not resolved for any reason during
the time period specified in subsection (a) above, upon the written
request of either party, the matter in dispute shall be presented
to the Systematics Area Manager and to a senior vice president of
client. These individuals shall meet in person and shall present to
each other a written summary reflecting in reasonable detail the
nature and extent of the dispute in question within five (5) days
following any written request delivered pursuant to this subsection
(b), or such other period on which the parties agree.
17
<PAGE> 22
(c) Discussions By Senior Management. If, within three (3) days
following the meeting held pursuant to subsection (b) above, or
such other period on which the parties agree, any dispute is not
resolved, or if for any reason the meeting contemplated in
subsection (b) has not been held as contemplated thereby, then the
presidents of client and Systematics shall hold an in-person
meeting within five (5) days following either (i) the expiration of
the three (3) day period described in this subsection (c), or (ii)
if no meeting is held as described in subsection (b), the
expiration of the period specified in subsection (b), or such other
period on which the parties agree. This meeting shall include a
presentation of the written descriptions of the dispute prepared as
provided in subsection (b).
(d) Location of Meetings. The in-person meetings contemplated by
subsections (b) and (c) above shall be held alternately in Houston,
Texas, and Little Rock, Arkansas, with the first such meeting, if
any, in Houston and each subsequent meeting (whether the same or
another dispute is to be resolved) held in Little Rock and Houston,
respectively.
(e) Failure to Resolve Dispute. If any dispute remains unresolved
for any reason after twenty (20) days following the initial request
for informal dispute resolution pursuant to this Section, or such
other period on which the parties agree, then either party may
continue informal efforts to resolve the dispute or, as
contemplated by the following Section, may initiate a binding
arbitration proceeding. The parties hereby waive the expiration of
any applicable statute of limitations during this informal dispute
resolution process.
(f) Additional Procedures. Notwithstanding the foregoing, if the
parties are able to resolve disputes without litigation or
arbitration and without resorting to the procedures described in
subsections (a) through (e) of this Section, they shall not be
obliged to follow such procedures.
29. ARBITRATION.
Systematics and CLIENT stipulate and agree that if they are unable to
resolve any controversy arising under this Agreement as contemplated by
Section and if such controversy is not subject to Section of this
Agreement, then such controversy, and any ancillary claims not so resolved
and not so subject, shall be submitted to mandatory and binding
arbitration at the election of either party (the "Disputing Party")
pursuant to the following conditions:
(a) Selection of Arbitrator. The Disputing Party shall notify the
American Arbitration Association ("AAA") and the other party in
writing describing in reasonable detail the nature of the dispute
(the "Dispute Notice"), and shall request that AAA furnish to the
parties a list of five (5) possible arbitrators who shall be
licensed to practice law in the United States and shall have at
least five (5) years of experience in data processing matters. Each
party shall have fifteen (15) days to reject two of the proposed
arbitrators. If one individual has not
18
<PAGE> 23
been so rejected, he or she shall serve as arbitrator; if two or
more individuals have not been so rejected, AAA shall select the
arbitrator from those individuals. In lieu of the foregoing
selection procedure, the parties may select by mutual agreement a
retired superior court judge to serve as arbitrator.
(b) Conduct of Arbitration. Arbitration will be conducted by the
arbitrator selected pursuant to subsection (a) with respect to the
dispute described in the Dispute Notice and any other disputes
related to this Agreement between the parties to this Agreement (i)
pending at the inception of such arbitration and not otherwise
being arbitrated under this Section; or (ii) arising during the
pendency of such arbitration, in accordance with the rules of AAA,
except as specifically provided otherwise in this Section. The
arbitrator will allow reasonable discovery in the forms permitted
by the Federal Rules of Civil Procedure, to the extent consistent
with the purpose of the arbitration. The arbitrator will have no
power or authority, under the rules of AAA or otherwise, to amend
or disregard any provision of this Section. The arbitration hearing
shall be limited to not more than five (5) days, with each of
client and Systematics being allocated one-half of the time for the
presentation of its case. Unless otherwise agreed to by the
parties, an arbitration hearing shall be conducted on consecutive
days.
(c) Replacement of Arbitrator. Should the arbitrator refuse or be
unable to proceed with arbitration proceedings as called for by
this Section, such arbitrator shall be replaced by an arbitrator
selected from the other four arbitrators originally proposed by AAA
and not rejected by the parties, if any, or if there are no
remaining proposed arbitrators who have not been rejected, by
repeating the process of selection described in subsection (a)
above. If an arbitrator is replaced pursuant to this subsection
(c), then a rehearing shall take place in accordance with the
provisions of this Section and the rules of AAA.
(d) Findings and Conclusions. The arbitrator rendering judgment
upon disputes between parties to this Agreement as provided in this
Section shall, after reaching judgment and award, prepare and
distribute to the parties a writing describing the findings of fact
and conclusions of law relevant to such judgment and award and
containing an opinion setting forth the reasons for the giving or
denial of any award.
(e) Place of Arbitration Hearings. Arbitration hearings
contemplated by subsection (b) shall be held in Nashville,
Tennessee or such other mutually inconvenient location selected by
the parties.
(f) Time of the Essence. The arbitrator is instructed that time is
of the essence in the arbitration proceeding, and that the
arbitrator shall have the right and authority to issue monetary
sanctions against either of the parties if, upon a showing of good
cause, that party is unreasonably delaying the proceeding. The
arbitrator shall render his or her judgment or award within fifteen
(15) days following the conclusion of the arbitration proceeding.
Recognizing the express desire of the parties for an expeditious
means of dispute resolution, the
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<PAGE> 24
arbitrator shall limit or allow the parties to expand the scope of
discovery as may be reasonable under the circumstances.
30. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one
and the same instrument.
31. ANNUAL FINANCIAL STATEMENTS.
At CLIENT's request, SI will provide to CLIENT a copy of its annual
financial statements (which may be unaudited) as well as the most recent
audited financial statements of Alltel Corporation, SI's parent company.
32. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
officers, thereunto duly authorized, on the 1st day of January, 1992.
SYSTEMATICS FINANCIAL UNITED SAVINGS
ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ J. David Frantz By: /s/ Leslie H. Green
--------------------- ------------------------
Name: J. David Frantz Name: Leslie H. Green
Title: Vice President Title: Senior Vice President
Date: 1/10/92 Date: 1/10/92
ATTESTED: ATTESTED:
By: /s/ Harold J. Fackler By: /s/ Richard L. Hare
--------------------- ------------------------
Name: Harold J. Fackler Name: Richard L. Hare
Title: Vice President Title: Vice President
Date: 1/10/92 Date: 1/10/92
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<PAGE> 25
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "A"
SYSTEMS INSTALLATION SCHEDULE
In addition to the systems currently installed for CLIENT, SI will complete the
following projects and system installations for CLIENT:
<TABLE>
<CAPTION>
PROJECT DESCRIPTION COMPLETION DATE
------------------- ---------------
<S> <C>
Convert San Jacinto Savings First quarter, 1992
deposits, loans and general ledger
Convert Houston branches to POD First/second quarter, 1992
utilizing IBM 4700 equipment
Convert Houston branches to common First/second quarter, 1992
application systems
Complete cost/benefit analysis First quarter, 1992
for platform automation
Consolidate fixed asset accounting First quarter, 1992
into M&D fixed asset system
Install CIF and combined statements Third quarter, 1992
Convert all CLIENT units to Fourth quarter, 1992
standard product set
</TABLE>
SI also will provide the necessary interfaces to existing systems. All of
the foregoing projects will be accomplished using the Resident Programming
Staff. If CLIENT requests changes in priorities, completion dates also may be
affected. CLIENT is responsible for normal user department activities, including
understanding all input, output, system features, accounting and balancing
controls, and personalization and subsequent maintenance of basic user manuals
provided by SI.
CLIENT will provide all teller terminal and platform automation hardware
and non-SI software.
A-1
<PAGE> 26
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "B"
REPORTS
1. CURRENT REPORTS.
The reports or output from the systems presently operated for CLIENT by SI
will be produced by SI during the term of this Agreement, unless such
system(s) are replaced in accordance with the terms of this Agreement or
by mutual agreement between the parties.
2. SI REPORTS.
CLIENT may select from among the reports available for each of the
Systematics application systems processed by SI on the Effective Date, as
set forth in the standard SI user documentation thereof.
3. ADDITIONAL REPORTS.
SI will add or delete from either the SI or current reports at CLIENT's
request, or to change the frequency of their preparation. If the
cumulative effect of changes in requested reports requires personnel
and/or computer equipment in excess of that required without such changes,
SI agrees to notify CLIENT and prepare a price quotation, based upon the
costs of such additional computer equipment. Upon receipt of authorization
from CLIENT in writing, SI will immediately proceed to acquire such
additional personnel and/or equipment and prepare and deliver all such
reports.
B-1
<PAGE> 27
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "C"
CHARGES
1. FEE SCHEDULE.
CLIENT will pay SI, a minimum fee of $2,981,623 payable in monthly
installments as set forth in the following table:
<TABLE>
<CAPTION>
APPLICABLE PERIOD AMOUNT OF MONTHLY PAYMENT
----------------- -------------------------
<S> <C>
Jan - May, 1992 $207,791
June, 1992 - May, 1993 $161,889
</TABLE>
As set forth in Section 2 of the Agreement, CLIENT is hereby granted an
option to extend the term of this Agreement for one, two, three or four
years after the Expiration Date. On or before January 31, 1993, CLIENT
will give SI written notice of its election to exercise one of those four
options, designating the option selected, or of its election to permit the
Agreement to expire on May 31, 1993. The monthly fees which shall be
applicable during such extensions are as follows:
MONTHLY FEE APPLICABLE UNDER
ALTERNATIVE EXTENSION OPTIONS
<TABLE>
<CAPTION>
1-YEAR 2-YEAR 3-YEAR 4-YEAR
------ ------ ------ ------
<S> <C> <C> <C> <C>
June - Sept. 1993 $166,947 $166,947 $166,947 $166,947
Oct, 1993 - May, 1994 $152,650 $149,855 $148,135 $146,737
June - Sept. 1994 $149,855 $148,135 $146,737
Oct, 1994 - May, 1995 $147,060 $144,910 $142,760
June, 1995 - Sept. 1996 $144,910 $142,760
Oct, 1995 - May, 1996 $141,900 $140,395
June - Sept, 1996 $140,395
Oct, 1996 - May, 1997 $139,750
</TABLE>
2. ADDITIONAL RESPONSIBILITIES OF THE PARTIES.
Except as otherwise provided, CLIENT and/or its service bureau customer(s)
are responsible for the operation of any of its data processing facilities
other than the Data Center. Such facilities are hereinafter termed
"remote". CLIENT and SI agree to provide or perform their respective
responsibilities as indicated in Section 2.1 through 2.4 below and
responsibilities of CLIENT's service bureau customer(s) shall be indicated
as responsibilities of CLIENT.
C-1
<PAGE> 28
<TABLE>
<CAPTION>
RESPONSIBILITY
FUNCTION CLIENT SI
-------- ------ --
<S> <C> <C>
2.1 INPUT PROCESSING.
Key entry of input (other than MICR) X
Key entry Equipment and maintenance X
(other than MICR)
Key entry of MICR rejects X
Key entry equipment and maintenance X
for MICR rejects
MICR entry computer operation X
MICR reader/sorter operation X
MICR entry reconciliation X
MICR reject reconciliation X
MICR "junk letter" key entry X
Key entry or encoding of MICR input X
Equipment and maintenance for key entry X
or encoding of MICR input
Microfilming MICR input X
Equipment and maintenance for X
microfilming MICR input
Supplies and development costs for X
microfilming MICR input
MICR reader/sorter equipment and maintenance X
MICR sorter vendor usage fees X
Personal computers used by other than SI X
Remote MICR capture/printer operations X
Remote MICR capture/printer equipment and X
maintenance
In-line microfilm equipment and operation X
</TABLE>
C-2
<PAGE> 29
<TABLE>
<CAPTION>
RESPONSIBILITY
FUNCTION CLIENT SI
-------- ------ --
<S> <C> <C>
2.2 OUTPUT PROCESSING.
MICR transit item end point separation X
MICR transit cash letter preparation X
MICR "on us" fine sort by account number X
Bursting X
Bursting equipment and maintenance X
Decollation X
Decollation equipment and maintenance X
Check signing X
Check signing equipment and maintenance X
Microfiche equipment operation X
Microfiche equipment and maintenance X
Microfiche supplies (film, chemicals, etc.) X
Reports separation by department X
Microfiche separation by department X
Delivery to courier X
Laser or page printer operations X
Laser or page printer vendor usage fees X
Laser or page printer equipment and maintenance X
Laser or page printer supplies, chemicals, etc. X
Remote printing equipment and maintenance X
Tracking inventories of paper stock and forms X
</TABLE>
2.4 PC SOFTWARE.
Except as specifically set forth herein, CLIENT will provide and maintain
all non-mainframe software.
<TABLE>
<CAPTION>
RESPONSIBILITY
FUNCTION CLIENT SI
-------- ------ --
<S> <C> <C>
2.5 CONTACT WITH SERVICE BUREAU CUSTOMERS OF CLIENT.
Inquiries regarding services provided X
Billing, collection and contractual matters X
Education and training X
</TABLE>
C-3
<PAGE> 30
2.6 PREPARATION OF DATA CENTER.
On or before February 1, 1992, CLIENT will, at its expense, alter
the Data Center (or provide an alternate data center) so that SI may
install water-cooled computer equipment. If CLIENT does not provide
such alterations (or alternate location) by February 1, 1992, then
for each month or portion thereof that the same is not available (a)
CLIENT will pay SI a fee of $10,496 per month, and (b) the
performance standards reflected in Exhibit I shall not apply.
2.7 CLCS SUPPORT.
SI will provide for CLIENT certain processing services with respect
to loan origination ("CLCS Processing") as set forth in Exhibit H.
3. ADDITIONAL VOLUME FEES.
The fees expressed in Section 1 of Exhibit C are for processing the
applications and Base Volumes of Core Accounts set forth in Sections 3.2
and 3.3 below. CLIENT will pay SI for volumes of work processed in excess
of the Base Volume of Core Accounts in accordance with this Section 3.
Increased volume may result from internal growth, mergers or acquisitions
or a combination thereof.
3.1 DEFINITIONS.
As used herein, the term "Core Accounts" shall mean the number of
accounts on the master file at month-end with respect to the
applications marked with an asterisk (*) in Section 3.2 of this
Exhibit C.
3.2 APPLICATIONS PROCESSED AND CORE ACCOUNTS.
The following applications will be processed by SI for the fees set
forth in this Exhibit C:
CORE APPLICATIONS
-----------------
* IMPACS
* Demand deposit accounting
* Overdraft checking
* SAVINGS/TIME DEPOSIT
* Savings - Regular
* Certificates of Deposit
* IRA
* Club Accounts
* Time Deposits
* INSTALLMENT CREDIT
* COMMERCIAL LOANS (Notes)
C-4
<PAGE> 31
* REAL ESTATE (Mortgage Loan Notes)
* REO SYSTEM
* GENERAL LEDGER
OTHER APPLICATIONS
------------------
ONLINE COLLECTIONS
SYNTELLECT
MONEY DESK
PIPS (ACH Processing)
THESIS
SIMS
ITEM RECONCILIATION
3.3 BASE VOLUMES AND ADDITIONAL VOLUME CHARGES.
The current volume of Core Accounts is approximately 589,000
accounts. To provide growth in account volumes without additional
volume charges, 800,000 is hereby designated as the "Base Volume of
Core Accounts". Actual volumes of Core Accounts will be measured on
the last day of each month. If actual volume is less than Base
Volume, no additional volume fee will apply; no shortfall shall be
cumulative; nor shall any credit apply to any other SI fees under
this Agreement. If the sum of Core Accounts for CLIENT and its
service bureau customers, if any, exceeds the Base Volume of Core
Accounts, CLIENT will pay SI a monthly amount based on the following
table:
<TABLE>
<CAPTION>
MONTHLY ADDITIONAL
CORE ACCOUNT VOLUME VOLUME FEE PER CORE ACCOUNT
------------------- ---------------------------
<S> <C>
Up to 800,000 No Additional Fee
800,001 - 1,040,000 $ 0.15
1,040,001 - 1,300,000 $ 0.14
1,300,001 and above $ 0.13
</TABLE>
SI and CLIENT agree that growth in the number of CLIENT Core
Accounts in excess of 800,000 Core Accounts may require a change to
an operating system other than VM/ESA. If SI believes that any such
change is appropriate, SI will provide for CLIENT a written
explanation and analysis of software and equipment alternatives and
will consult with CLIENT with a view to determining the most
desirable course of action. SI will also provide CLIENT with a fee
adjustment for the conversion and on-going operation of such new
operating system and CLIENT agrees to pay such fee.
C-5
<PAGE> 32
3.4 SOFTWARE USE.
The parties acknowledge that software utilization controlled by
CLIENT's users (such as SIMS reporting and query functions), as well as
CLIENT's selection of non-SI application systems, may result in
additional charges, which charges shall be reasonable in light of the
increased hardware and personnel resources required to support such
utilization or selection. In such event, SI will give CLIENT prior
written notice of the proposed charges so that CLIENT may analyze the
related costs and benefits, reduce the related software utilization
and/or select alternative software.
3.5 CAPACITY AND UTILIZATION REPORTING.
SI will monitor daily the capacity and utilization of its equipment
installed at the Data Center and will provide to CLIENT on a monthly
basis and at other times reasonably requested by CLIENT a written
report of the historical utilization of available equipment capacity.
Such capacity reports will reflect average and peak CPU utilization,
capacity of the CPU, channel utilization, page rates, I/O rates, and
disk storage utilization. Such capacity reports will reflect average
and peak equipment utilization and capacity in hourly increments by
day.
4. DASD CAPACITY.
If CLIENT wishes to make a material change in the length of data records or
in the amount or kinds of data available in on-line data files, SI will
provide a written quotation of the cost to CLIENT of additional DASD
capacity to support such change(s). If approved by CLIENT, SI will acquire
the additional DASD capacity and the appropriate adjustment will be made to
the fees reflected in Section 1 of this Exhibit C.
5. THESIS PROCESSING.
SI will continue to provide the THESIS processing provided for CLIENT prior
to the Effective Date of this Agreement provided that SI is using VM/ESA
operating system with VM. If SI is required to change operating systems,
SI's fee quotation for the replacement operating system will include
provision for THESIS, if required.
6. SI HOURLY RATES.
The following hourly rates are currently in effect. The SI hourly rates may
be changed by SI upon written notice to CLIENT not more often than once
during each twelve-month period following the Effective Date. SI's Hourly
Rates for programming include all related computer time required for program
testing. Overtime rates are only applicable, if and to the extent, SI will
incur overtime expense. SI fees are computed by multiplying the actual
personnel hours expended on CLIENT's project(s). In addition, CLIENT agrees
to reimburse SI for the actual expense of reasonable travel
C-6
<PAGE> 33
and lodging expense, if any, related to hourly rate based services requested
by CLIENT. SI agrees that such travel and lodging expense will be in
accordance with SI's corporate policy for travel and lodging expenses of
SI's employees. A copy of such policy is attached as Exhibit L. SI will
inform CLIENT, in advance, if overtime or travel and lodging expense is
anticipated to be incurred.
<TABLE>
<CAPTION>
Minimum
Regular Overtime Billable
Hourly Rate Hourly Rate Increment
Service Per Person Per Person Per Person
------- ---------- ---------- ----------
<S> <C> <C> <C>
Programmer $ 90.00 N/A 4 Hours
Computer Operators 15.00 22.50 N/A
</TABLE>
7. PRICE ADJUSTMENT.
The fees and charges reflected in this Agreement will be increased by three
percent (3%) effective January 1, 1993. The exercise by CLIENT of its option
to extend this Agreement by two, three or four years shall require an
agreement of the parties with respect to the effects of inflation on SI's
expenses of providing the services contemplated by this Agreement during any
such extended term. The parties agree to negotiate promptly and in good
faith a formula for the annual adjustment of such fees and expenses.
8. SYNTELLECT VOICE RESPONSE.
(a) SI will provide and maintain for CLIENT the Syntellect Voice
Response System and Turnkey CPI Voice Response Application, along
with an upgrade thereto scheduled for completion on or before
March 31, 1992. CLIENT will pay SI an additional monthly fee,
when the upgrade to support deposits is installed (scheduled for
January, 1992) in the amount of $1,505 per month.
(b) The monthly fee charged by SI for providing the existing
Syntellect equipment and services (equipment installed in May,
1990) to support the mortgage company is included in the fees in
Section 1 of this Exhibit C.
(c) CLIENT will provide all necessary telephone lines, modems or
other defined communications devices to support the installation
described herein.
C-7
<PAGE> 34
(d) Upon the expiration or termination of the Agreement, CLIENT will
purchase from SI the Syntellect Voice Response Systems described
in paragraph (a). The purchase price shall be determined by the
number of months that the Syntellect Voice Response System has
been installed (month 21 = January, 1992) in accordance with the
following schedule:
C-8
<PAGE> 35
SYNTELLECT EQUIPMENT PURCHASE SCHEDULE
<TABLE>
<CAPTION>
EXISTING EQUIPMENT ENHANCEMENT EQUIPMENT
(For Mortgage Co. Support) (For Deposits Support)
Number Months Equipment Number Months Equipment Combined
After Purchase After Purchase Equipment
Month/Year Installation Amount Installation Amount Purchase Amount
- ---------- ------------ ------ ------------ ------ ---------------
<S> <C> <C> <C> <C> <C>
January 1992 21 31,825.36 1 16,741.46 48,566.82
February 1992 22 31,131.40 2 16,376.41 47,507.81
March 1992 23 30,431.65 3 16,008.31 46,439.96
April 1992 24 29,726.07 4 15,637.15 45,363.22
May 1992 25 29,014.61 5 15,262.89 44,277.50
June 1992 26 28,297.22 6 14,885.51 43,182.73
July 1992 27 27,573.85 7 14,504.99 42,078.84
August 1992 28 26,844.46 8 14,121.30 40,965.76
September 1992 29 26,108.99 9 13,734.41 39,843.40
October 1992 30 25,367.38 10 13,344.30 38,711.68
November 1992 31 24,619.60 11 12,950.93 37,570.53
December 1992 32 23,865.59 12 12,554.29 36,419.88
January 1993 33 23,105.29 13 12,154.34 35,259.63
February 1993 34 22,338.66 14 11,751.06 34,089.72
March 1993 35 21,565.64 15 11,344.42 32,910.06
April 1993 36 20,786.18 16 10,934.39 31,720.57
May 1993 37 20,000.22 17 10,520.95 30,521.17
June 1993 38 19,207.71 18 10,104.05 29,311.76
July 1993 39 18,408.60 19 9,683.69 28,092.29
August 1993 40 17,602.83 20 9,259.82 26,862.65
September 1993 41 16,790.34 21 8,832.42 25,622.76
October 1993 42 15,971.08 22 8,401.45 24,372.53
November 1993 43 15,145.00 23 7,966.90 23,111.90
December 1993 44 14,312.03 24 7,528.72 21,840.75
January 1994 45 13,472.12 25 7,086.90 20,559.02
February 1994 46 12,625.21 26 6,641.39 19,266.60
March 1994 47 11,771.25 27 6,192.16 17,963.41
April 1994 48 10,910.16 28 5,739.20 16,649.36
May 1994 49 10,041.90 29 5,282.46 15,324.36
June 1994 50 9,166.41 30 4,821.91 13,988.32
July 1994 51 8,283.62 31 4,357.53 12,641.15
August 1994 52 7,393.47 32 3,889.27 11,282.74
September 1994 53 6,495.91 33 3,417.12 9,913.03
October 1994 54 5,590.86 34 2,941.03 8,531.89
November 1994 55 4,678.28 35 2,460.97 7,139.25
December 1994 56 3,758.09 36 1,976.91 5,735.00
January 1995 57 2,830.23 37 1,488.82 4,319.05
February 1995 58 1,894.64 38 996.66 2,891.30
March 1995 59 951.25 39 500.40 1,451.65
April 1995 60 0.00 40 0.00 0.00
</TABLE>
C-9
<PAGE> 36
(e) Upon the expiration of the Agreement and purchase (if necessary
under Section 8(d) above), SI shall be provided, at no additional
cost, a non-exclusive, non-transferable, perpetual sub-license to
use the Syntellect Voice Response System and Turnkey Voice
Response Applications upon the terms and conditions of SI's or
Syntellect's then current license agreement.
9. EQUIPMENT.
CLIENT acknowledges that the prices reflected in Exhibit C assume that
existing data processing equipment and third-party software will not require
replacement during the term hereof, as such term may be extended by CLIENT
pursuant to Section 1 of Exhibit C.
Changes in CLIENT's business requirements (but specifically excluding
increased volumes, which shall be processed by SI for the charges reflected
in Section 3.3 above), vendor changes and technology changes may result in
obsolescence, poor performance, operating software incompatibility, more
expensive maintenance or other similar impact. In such event, SI reasonably
may determine that selected portions of such hardware or software may
require replacement. If SI makes such a determination, SI will:
(a) Review with CLIENT the required changes to determine the cost and
performance impacts of the required changes, and present its
findings to CLIENT in writing; and
(b) Upon CLIENT's approval, which may not be unreasonably withheld or
delayed, amend the fee schedules to reflect the net change in the
cost of the replaced equipment or software. In determining the net
change in costs, the parties will include a 15% profit margin
thereon.
10. PRINT AND MICROFICHE CAPACITY.
SI will actively and regularly analyze Client's operations, initiate
activities with users and making recommendations designed to reduce Client's
print and microfiche capacity requirements, all so that two (2) Xerox 9700
laser printers and one Anacomp XL microfiche, currently provided by SI are
sufficient to meet Client's printing and microfiche needs under this
Agreement. Client acknowledges that resources from the Resident Programming
Staff and the Resident Client Services Staff may be required to assist users
in selecting alternatives to Client's print and microfiche requirements.
Client will establish priorities for the Resident Programming Staff and the
Resident Client Services Staff which will allow sufficient resources from
each staff to assist users in defining requirements, and researching and
selecting alternatives. Client will assist SI as follows: 1) notifying users
of the significance of the print and microfiche reduction effort; 2)
prioritizing resources to allow proper expertise to work on effort; and 3)
removing obstacles that SI incurs while working with users. If Client does
not
C-10
<PAGE> 37
implement SI's recommendations, or if notwithstanding such implementation, and
SI believes that additional printer or microfiche capacity will be required, SI
will:
(a) Review with CLIENT the additional capacity required and the estimated
cost thereof, present to CLIENT its written recommendation in respect
thereof; and
(b) Upon CLIENT's approval, which may not be unreasonably withheld or
delayed, amend the fee schedules to reflect the net change in the cost
of such additional print and/or microfiche capacity. In determining the
net change in such costs, the parties will include a 15% profit margin
thereon.
C-11
<PAGE> 38
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "D"
PROCESSING SCHEDULE
If requested by Client, SI agrees to process and update Client's data more
frequently than set forth in this Exhibit for an additional charge and upon
terms and conditions mutually agreeable to Client and SI. If requested by
Client, SI agrees to extend such on-line service hours set forth in this
Exhibit. In the event that Client requests an extension of on-line service
hours, SI will be granted relief from SI Output to Client schedules as set forth
in this Exhibit. The finalization of the initial draft of this Exhibit D will be
completed within ten (10) days following the installation by SI of the water
cooled equipment referenced in Section 2.6 of Exhibit C. In addition, SI's
account manager and CLIENT's information systems director shall have the
authority to make minor operational adjustments to the following schedules.
1. CLIENT DELIVERY SCHEDULES
1.1 CLIENT INPUT TO SI
<TABLE>
<CAPTION>
DESCRIPTION FREQUENCY TIME AVAILABLE
FOR SI PROCESSING
<S> <C> <C>
ACH Files from FED Monday/Friday 07:30
CLCS File from CPI Monday/Friday 10:00
ACH File (Dallas) Monday/Friday 14:30
released
RLIC & New Account Monday/Friday 16:30
data released
Construction Lending Monday/Friday 17:00
M & D GL input released
Wholesale GoBook Monday/Friday 17:00
released
Lock Box GoBook Monday/Friday 18:00
released
</TABLE>
D-1
<PAGE> 39
<TABLE>
<CAPTION>
DESCRIPTION FREQUENCY TIME AVAILABLE
FOR SI PROCESSING
<S> <C> <C>
Collections Maint Monday/Friday 18:00
GoBook released
Loan Servicing GoBook Monday/Friday 18:00
GoBook released
End Of Day Gobook Monday/Friday 18:00
released
Commercial Loan Monday/Friday 18:00
transactions released
Real Estate Monday/Friday 18:00
transactions released
Accounts Payable Monday/Friday 19:00
transactions released
General Ledger Monday/Friday 19:00
transactions released
Fixed Assets Monday/Friday 19:00
transactions released
FIAS (Houston) Monday/Friday 20:00
transactions released Saturday 14:00
FIAS (Dallas) Monday/Friday 20:00
transactions released Saturday 14:00
TS (Houston) Monday/Friday 20:00
transactions released Saturday 14:00
TS (Dallas) Monday/Friday 20:00
transactions released Saturday 14:00
POD (Houston) Monday/Friday 21:30
transactions verified
and released
</TABLE>
D-2
<PAGE> 40
<TABLE>
<CAPTION>
DESCRIPTION FREQUENCY TIME AVAILABLE
FOR SI PROCESSING
<S> <C> <C>
POD (Dallas) Monday/Friday 21:30
transactions verified
and released
TRANSMISSIONS RECEIVED
Commercial Loan Lock Monday/Friday 16:00
from First City
ATM transactions Monday/Friday 19:00
(Houston) MTech
ATM transactions Monday/Friday 19:00
(Dallas) MTech
ATM transactions Monday/Friday 19:00
(Dallas) ACS
POD transactions Monday/Friday 21:00
(Houston) BYSIS
POD transactions Monday/Friday 21:00
(Dallas) BYSIS
CPI/RLIC Print & Monday/Friday 24:00
Microfiche
CPI/RLIC M & D GL Monday/Friday 24:00
transactions
CPI/RLIC ACH Monday/Friday 24:00
transactions
CPI/RLIC Televoice Monday/Friday 24:00
refresh file
</TABLE>
D-3
<PAGE> 41
<TABLE>
<CAPTION>
DESCRIPTION FREQUENCY TIME AVAILABLE
FOR SI PROCESSING
TRANSMISSIONS SENT
<S> <C> <C>
ATM Refresh File Tuesday/Saturday 08:00
MTech (Houston)
ATM Refresh File Tuesday/Saturday 08:00
MTech (Dallas)
ATM Refresh File Tuesday/Saturday 08:00
ACS (Dallas)
CLCS CPI Input Data Monday/Friday 13:00
CPI End of Day GoBook Monday/Friday 18:30
</TABLE>
1.2 SI OUTPUT TO CLIENT
DEPOSITS - 8:00 a.m.
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
----------- ------ -----------
<S> <C> <C>
SSD-BADM SSR005 Savings Deposit Totals by Branch/Product
SSR006 Savings Deposit Totals by Region/Branch
SSR111E Savings Deposit Totals by Branch/Cat (Summary)
SSR112E Savings Deposit Totals by Region/Cat (Summary)
SSR122E Savings Deposit Totals by Region/Cat (B. Tave)
3SS-BADM SSR005 Savings Deposit Totals by Branch/Product
SSR006 Savings Deposit Totals by Region/Branch
SSR111E Savings Deposit Totals by Branch/Cat (Summary)
SSR112E Savings Deposit Totals by Region/Cat (Summary)
SSR122E Savings Deposit Totals by Region/Cat (B. Tave)
SSM-BADM SSR012E Savings Deposit Totals by Region/Cat (Summary)
3SSM-BADM SSR006 Savings Deposit Totals by Branch/Region
SSR011A Savings Deposit Totals by Branch/Cat (Summary)
SSR011E Savings Deposit Totals by Region/Cat (Summary)
</TABLE>
D-4
<PAGE> 42
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
----------- ------ -----------
<S> <C> <C>
3SSM-BADM SSR012E Savings Deposit Totals by Branch/Region
SSR022E Savings Deposit Totals by Branch/Cat (Summary)
SSR012F Savings Deposit Totals by Region/Cat (Summary)
ST1BSUP ST32 Processing Recap
ST22G1 2nd Level Edits
ST21WH Daily wighholding Trans
ST41R1 Large Balance Report
ST2BSUP ST41IN2 Unposted Items
ST41ING Maintenance Rejects
ST42N7 Dormant Activity
ST41N9 Lost Contact Activity
ST41INP Check Register
ST41INU Daily Tran Journal AM
ST41NW New Account Verification
ST41P9 Scheduled Transfer Journal
ST41R6 Critical Items
STP30BSP ST41NP Check Register
ST41R6 Critical Item
IM2BSUP IM41NG Significant Balance Change
IM32GLPH Processing Recap Total Page
IM32 Processing Recap
IM4100 Dormant Activity Report
IM4108 Dormant Activity Report
AMP01XMT AMEX American Express Transmission
REFM
SSM-BSUP SSR011E Savings Deposit Totals-Branch/Cat (Summary)
SSR012D Savings Deposit Totals-Region/Cat (12 Months)
SSR012E Savings Deposit Totals-Region/Cat (Summary)
3SSMBSUP SSR011E Savings Deposit Totals-Branch/Cat (Summary)
SSR012D Savings Deposit Totals-Region/Cat (12 Months)
SSR0112E Savings Deposit Totals-Region/Cat (Summary)
FI-PDEV FIIMRO01 IMPACS Log Strip Report
FISTPP01 ST Log Strip Report
</TABLE>
D-5
<PAGE> 43
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
3SS-PDEV SSR005 Dep Totals by BR/PROD
SSR006 Dep Totals by REG/BR
SSR111E Savings Deposit Totals-Branch/Category
SSR112E Savings Deposit Totals-Region/Category
SSR122E Savings Deposit Totals-Region/Category (B. Tave)
SSM-PDEV SSR005 Savings Deposit Totals Branch/Product
SSR011E Savings Deposit Totals Branch/Category
SSR012E Savings Deposit Totals Region/Category
SSR006 Savings Deposit Totals by Reg/BR
SSR012A Region Category (12 month trend)
SSR013A Region BR/Category (12 month trend)
SSR022E Region BR/Category (B. Tave)
SSM-MRKT SSR005 Savings Deposit Totals-Branch/Product
SSD-PDEV SSR005 Deposit Totals by Br/Prod
SSR006 Deposit Totals by Reg/Br
SSR111E Savings Dep Totals Br/Category (Summary)
SSR112E Savings Dep Totals Reg/Category (Summary)
SSR122E Savings Dep Totals Reg/Category (Summary)
SSD-MRKT SSR005 Savings Deposit Totals by Branch/Product
FH2ASER FIIMNSR1 Exception Item Report
IM2ASER IMAIN1 Posting Reject Journal
IM41N2 New Accounts Report
IM41P4 OD Activity Report
IM414F OD Affiliate TRLS
IM21 Entry/Edit Journal
IM25 Monetary Edit
IM31TRLS Trial Balance Total Page
IM41N7 Overdraft Report
IM41N8 Drawing on Todays Deposit
IM4103 NSF Activity Report
IM4105 Stop/Pay and Hold Maintenance
IM4106 Stop/Pay Suspects
IM41P2 File Maint Reject Journal
IM41UA Daily HiFI Violation
IM41UC Monthly HIFI Violation
</TABLE>
D-6
<PAGE> 44
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
ST2ASER ST41N2 Unposted Item
ST41N8 Overdraft Journal
ST41PW Overdraft Activity
SSD-CORP SSR112E Savings Deposit Totals-Region/Cat (Summary)
SSR122E Savings Deposit Totals-Region/Cat (B. Tave)
3SS-CORP SSR112E Savings Deposit Totals-Region/Cat (Summary)
SSR122E Savings Deposit Totals-Region/Category (B. Tave)
3SS-PDEV SSR005 Savings Deposit Totals-Branch/Product
SSR006 Savings Deposit Totals-Region Branch
SSR111E Savings Deposit Totals-Branch/Cat (Summary)
SSR112E Savings Deposit Totals-Region/Cat (Summary)
SSR122E Savings Deposit Totals-Region/Category (B. Tave)
SSD-MDAD SSR005 Savings Deposit Totals by Branch/Product
SSR006 Savings Deposit Totals by Region/Branch
SSR111E Savings Deposit Totals by Branch/Cat (Summary)
SSR12E Savings Deposit Totals by Region/Cat (Summary)
SSR122E Savings Deposit Totals by Region/Cat (Summary)
SSMDADM SSR011E Savings Deposit Totals-Branch/Cat (Summary)
SSR012E Savings Deposit Totals-Region/Cat (Summary)
3SS-MMDAD SSR011E Savings Deposit Totals-Branch/Cat (Summary)
SSR012E Savings Deposit Totals-Branch/Cat (Summary)
REAL ESTATE - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
RE32L RE Trial Balance Totals
RE41NE Posted Trans Journal
RE41PA Loans Loaded Not Activated
RE41QI Tax Disbursements Due
RE41QN Unposted Items
</TABLE>
D-7
<PAGE> 45
CONSUMER LOANS - 8:00 a.m.
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
1 Non-Seq Totals
2 Unposted Items
3 File Maint Journal
4 File Maint Rejects
8 Spec Attn Tran Jounr
17 Closed THIS Process
27 Suspect List
31 Past Due by Officer
36 Activity on Past Due
INSTALLMENT CREDIT - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
0752 01 Posting Totals
0755 02N2 Type Totals
0758 03N3 Unposted Items
0761 04 Posted Trans Journ1
0764 05 Posted Trans Journ2
0767 06N6 Maintenance Journal
0770 07N7 New Loans - THIS
0773 08N8 Paid Out - THIS PROC
0782 11NB Interbranch Transfer
0833 28NR Past Due by File
0839 30NT Activity on Past Due
0956 69Q5 Call Report
GENERAL LEDGER - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
GL030 Translator Entries
GL040 Accepted Journals
GL050 Master File Posting
GL060 Detail Report Writer
</TABLE>
D-8
<PAGE> 46
ACCOUNTS PAYABLE - 8:00 a.m.
<TABLE>
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
AP025 On-line Selection Reg
AP030 Voucher Reg Addition
AP050 Remittance Selection Control Log
AP070 Check Register
AP110 G/L Interface Report
FIXED ASSETS - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
FA050 Book Depreciation and G/L Interface Report
MONEY DESK - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
Daily Production Report
CPI - SERVICING - 8:00 a.m.
<CAPTION>
Report
RDMS Packet Number Report Name
- ----------- ------ -----------
<S> <C> <C>
250 Checks and Special Forms
251 Form RPR1
248 Form RPR2
220 Form W003
246 Form SYST
221 Form W002
201 Form LW02
238 Form RLI1
249 Form RLI3
253 Form RLI2
252 Form RLI4
</TABLE>
D-9
<PAGE> 47
1.3 CLIENT ON-LINE AVAILABILITY
<TABLE>
<CAPTION>
SYSTEM MON - FRI SATURDAY SUNDAY/HOLIDAY
------ --------- -------- --------------
From To From To
---- -- ---- --
<S> <C> <C> <C> <C> <C>
Houston Teller 0700 2000 0700 1400 None
Dallas Teller 0700 2000 0700 1400 None
Financial 0700 1900 0700 1330 None
</TABLE>
1.4 BATCH PROCESSING UPDATE FREQUENCY
SI will do a batch update of Client's files five (5) times weekly,
Monday through Friday.
D-10
<PAGE> 48
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "E"
NOT APPLICABLE
E-1
<PAGE> 49
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "F"
CLIENT-FURNISHED EQUIPMENT AND SOFTWARE
CLIENT will furnish to SI the equipment and software ("Equipment" and
"Software") described below under the following terms and conditions:
1. TERM OF AGREEMENT.
The term of this Exhibit F is the same as the term of this Agreement.
2. TAXES.
CLIENT will pay all taxes, however designated or levied or based on the
Equipment or Software or their use.
3. RISK OF LOSS; REPLACEMENT.
Except for loss or damage caused by the negligence or intentional
misconduct of SI, SI shall not be responsible for any loss or damage to
the Equipment or Software.
If any Equipment or Software furnished hereunder is damaged, destroyed
or malfunctions to the extent that the same cannot be repaired, or
CLIENT elects not to so repair then, provided such damage or
malfunction was not caused by SI as set forth above, CLIENT agrees to
acquire and install, as soon as reasonably practicable, comparable
replacement Equipment or Software.
4. CHARGES.
No charge shall be payable by SI for its use of the Equipment or
Software, solely for CLIENT and its service bureau customers, if any.
Services provided under the Agreement by SI are acknowledged by CLIENT
to be adequate consideration of CLIENT's agreement to provide such
Equipment and Software.
5. INSURANCE.
CLIENT is responsible for the cost of all fire, extended coverage and
theft insurance in an amount covering the Equipment.
F-1
<PAGE> 50
6. MAINTENANCE.
CLIENT agrees to enter into and to keep in force during the term hereof, at
CLIENT's sole cost and expense, standard maintenance agreements to keep the
Equipment in good working order, to make all necessary adjustments and
repairs thereto, and to pay all maintenance costs relative to the use of the
Equipment. CLIENT also agrees to purchase software maintenance agreements
from the vendors of each item of Software listed below.
SOFTWARE AND EQUIPMENT SCHEDULE
The following is a list of the Equipment and Software to be provided by
CLIENT to SI pursuant to the Agreement and this Exhibit F. The Termination Date,
if any, represents the date after which CLIENT is no longer obligated to provide
the same to SI.
EQUIPMENT
<TABLE>
<CAPTION>
Description Serial Termination
& Model No. Feature(s) Quantity Number Date
----------- ---------- -------- ------ ----
<S> <C> <C> <C> <C>
NONE N/A
SOFTWARE
<CAPTION>
Name and Description Name of Software Termination
of Software Owner Date
-------------------- ---------------- -----------
<S> <C> <C>
Thesis 5/31/97
McCormack & Dodge
General Ledger 5/31/97
Accounts Payable 5/31/97
Fixed Assets 5/31/97
Easytrieve Plus Pansophic, Inc. 5/31/97
4700 Financial IBM 5/31/97
Communications
</TABLE>
Notwithstanding the termination date set forth above, if any of the
foregoing systems is no longer required, CLIENT shall have no further obligation
to provide it.
F-2
<PAGE> 51
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "G"
SOFTWARE LICENSE AGREEMENT
1. PROVISION OF SOFTWARE.
1.1 This is a Software License Agreement made and entered into
contemporaneously with and for the consideration reflected in
the Data Processing Agreement (the "Agreement") effective
January 1, 1992 by an between CLIENT and SI (as those terms
are defined in the Agreement). This License Agreement will
become effective as provided in Section 5 of the Agreement.
SI will license and furnish to CLIENT the SI-developed
application systems installed for CLIENT's benefit prior to the
expiration or termination of the Agreement. Such application
systems are hereinafter referred to as the "Software".
2. DOCUMENTATION.
2.1 For each item of Software, SI shall also deliver to CLIENT a
complete set of standard operational instructions and
documentation, including, but not limited to, the Software
source code in machine readable form; a copy of SI's standard
associated control statements used for operation, development,
maintenance and use of the source code, and any other
documentation which is provided by SI to its other similar
customers. Such documentation and other materials are
hereinafter referred to as "Documentation."
2.2 Subject to the provision of Section 4, below, SI agrees to
deliver to CLIENT copies of any revisions, improvements,
enhancements, modifications and updates to the Documentation
which are produced by SI.
2.3 CLIENT may copy the Documentation provided hereunder in order
to satisfy its own internal requirements. If CLIENT requests,
SI agrees to furnish additional copies to CLIENT at SI's then
standard fee for such copies.
2.4 SI further agrees to provide CLIENT at SI's cost with one (1)
copy of the following manuals: User Audit Manual, Operations
Guide; and Programmer/Analyst Handbook. CLIENT agrees to the
following terms and conditions concerning such manuals.
G-1
<PAGE> 52
2.4.1 CLIENT agrees to keep and use such manuals only at
the Installation Site (see Section 3.1.2) and to use
such manuals only in conjunction with the use of the
Software as contemplated by the Agreement and this
License Agreement.
2.4.2 Additional copies of such manuals may be purchased
from SI at SI's then standard fee for such manuals.
3. TERM AND USE RESTRICTIONS.
3.1 This is a perpetual license. CLIENT acknowledges that the
licensed Software and all related Documentation constitute
valuable assets and trade secrets of SI and that all
information with respect thereto is confidential. The Software
is licensed to CLIENT only for use by CLIENT for itself, its
subsidiaries and affiliates.
3.2 CLIENT agrees to safeguard the licensed Software with at least
the same degree of care that it exercises with respect to its
own confidential and proprietary information, and shall take
all reasonable precautions to assure that its employees and
representatives do not sell, lease, assign, or otherwise
transfer, disclose or make available, in whole or in part, the
licensed Software or Documentation thereof to any third party
for any reason (except for employees of CLIENT, for auditing
purposes by independent certified public accountants, for
complying with applicable governmental laws, regulations or
court orders or for the limited disclosure to customers of
CLIENT of user manuals and similar information which must be
disclosed in connection with providing data processing services
by CLIENT). Before any third party may be granted access to the
Software, said third party shall execute and deliver to SI a
Non-Disclosure Agreement in the form attached as Exhibit J
hereto. In no event, however, shall any competitor of SI be
furnished with any information, directly or indirectly,
concerning the Software or the Documentation. For purposes of
this Section 3.2, a competitor of SI shall be deemed to be any
company providing facilities management (outsourcing) services
or licensing application software for financial institutions.
3.3 The licensed Software and all related Documentation and
materials may be used by CLIENT and maintained at one location,
only as set forth below (the "Installation Site") and may not
be used by CLIENT or any other person at any other location or
facility; provided, however, that CLIENT may change the
location where it uses the licensed Software upon prior written
notice to SI and delivery of a written certificate that all use
of the licensed Software shall be limited to such new location.
The Installation Site shall be as follows:
3200 Southwest Freeway
Houston, Texas 77027
G-2
<PAGE> 53
3.4 All modifications to the licensed Software developed as a result of
joint efforts by SI and CLIENT shall become the exclusive property of
SI, subject to all of the terms and conditions of this License
Agreement, including the right of CLIENT to use such modifications in
accordance herewith and including the foregoing agreements of CLIENT
with respect to disclosure of and/or access to such modifications.
Modifications to the licensed Software developed solely by CLIENT
without the participation of SI shall be considered to be part of the
Software for purposes of determining CLIENT's obligations under this
Section 3; provided, however, that CLIENT shall have the exclusive
right to use any such modifications it may develop, and SI shall have
no right to market such modifications without CLIENTS's express written
consent. If modifications developed by CLIENT without participation by
SI will operate and process data on a stand-alone basis without the use
of other SI software, CLIENT shall own such modifications; provided,
however, that CLIENT shall not refer to SI in any way in connection
with any commercial use which CLIENT shall make of such modifications.
In addition, if CLIENT makes any commercial use of any such
modification, CLIENT will indemnify SI and hold SI harmless from and
against any loss, claim, damage, or expense, including reasonable
attorneys' fees, resulting from or arising out of CLIENT's use of any
such modification. Notwithstanding the foregoing, the development of
any modifications or custom code for, or the ownership thereof by,
CLIENT shall not prohibit SI from using the ideas embodied in the
custom code, or from developing substantially identical software, for
other customers of SI. To that end, CLIENT hereby grants to SI a
worldwide, non-exclusive license to use such modifications and custom
code in developing software for SI.
3.5 CLIENT further acknowledges and agrees that, in the event of a breach
or threatened breach by CLIENT of any provision of this Section 3, SI
will have no adequate remedy in money or damages and, accordingly,
shall be entitled to appropriate injunctive relief. However, no
specification in this License Agreement of a specific legal or
equitable remedy shall be construed as a waiver or prohibition against
any other legal or equitable remedies in the event of a breach of any
provision of this Agreement.
3.6 SI retains title to the Software provided hereunder and does not convey
any rights or proprietary interest therein to CLIENT, other than the
license as specified herein.
3.7 Upon the termination by SI of this License Agreement or any licenses
granted to CLIENT hereunder, CLIENT agrees to promptly cease using and
return to SI all software involved and Documentation related thereto
and all copies thereof. Such return shall also be accompanied by a
written certificate, signed by an appropriate executive officer of
CLIENT, to the effect that all such Software, related Documentation and
copies thereof have been so returned to SI.
G-3
<PAGE> 54
3.8 SI hereby acknowledges and agrees that CLIENT shall have the
right to modify any of the Software provided to CLIENT
hereunder and may use and combine such with other programs
and/or material to form an updated work. Such modifications to
the licensed Software, either alone or in combination, shall
become part of the licensed Software and shall be subject to
all of the terms and conditions of this License Agreement,
including the right of CLIENT to use such modifications in
accordance herewith and including the agreement of CLIENT to
limit the use of, the disclosure of and/or access to, such
modifications.
3.9 CLIENT acknowledges that all PC-based Software ("Micro
Software") is released in object code only. The following
additional provisions shall be applicable to Micro Software:
(a) CLIENT may copy the Micro Software and use it on
multiple microprocessors solely for the benefit of
CLIENT and CLIENT's affiliates including, but not
limited to, CLIENT's parent holding company, its
subsidiaries and affiliates. The documentation for the
Micro Software may be similarly copied and utilized.
At CLIENT's option, additional copies may be made
either by CLIENT or by ordering the same from SI at
SI's standard rates.
(b) All other restrictions on use, copying or disclosure
of the Software licensed hereunder shall also apply to
the Micro Software and its documentation. In addition,
CLIENT may not provide data processing services using
the Micro Software to any person, firm, or corporation
(other than CLIENT's affiliates and subsidiaries)
without the prior written consent of SI and the
payment to SI of additional license fees.
(c) In consideration of the right to make and use the
additional copies granted in Section (a) above, CLIENT
agrees and acknowledges that all support for end-users
of the Micro Software will be supplied by CLIENT's
personnel, and that SI is not responsible for
providing any Micro Software support services to
end-users.
4. ENHANCEMENTS.
Within ninety (90) days of its delivery of a termination notice, as
provided in the Agreement, or within ninety (90) days preceding the
Expiration Date, as set forth in the Agreement, CLIENT may elect to
purchase program maintenance from SI for the licensed Software. All
updates, modifications and enhancements (the "Updates") to the
Software, if any, (once incorporated into any Software hereunder) shall
be deemed to be part of the license Software for all purposes
hereunder. In the absence of CLIENT's purchase of program maintenance
thereafter, SI shall not be obligated to deliver Updates or related
Documentation to CLIENT. If CLIENT exercises this
G-4
<PAGE> 55
option, CLIENT agrees to pay SI its current software maintenance
rate(s) then in effect for such system(s).
5. WARRANTIES.
5.1 SI warrants to CLIENT that: (i) SI has the right to furnish the
Software, Documentation and other materials provided to CLIENT
hereunder free of all liens, claims, encumbrances and other
restrictions; (ii) CLIENT shall quietly and peacefully possess
the Software, Documentation and other materials provided to
CLIENT hereunder, subject to and in accordance with the
provisions of this License Agreement; and (iii) CLIENT's use
and possession of the Software, Documentation and other
materials provided to CLIENT hereunder will not be interrupted
or otherwise disturbed by any entity asserting a claim under or
through SI.
5.2 SI warrants and represents that the licensed Software will
perform on an IBM or IBM-compatible computer system in the
manner described in the Documentation thereof.
5.3 EXCEPT AS PROVIDED HEREIN, ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED AND
EXCLUDED.
6. GENERAL.
6.1 Taxes. CLIENT agrees to pay all taxes levied by a duly
constituted taxing authority against or upon CLIENT's use of
the Software or arising out of this License Agreement;
exclusive, however, of taxes based on SI's income, which taxes
shall be paid by SI. CLIENT agrees to pay any tax for which it
is responsible hereunder, which may be levied on or assessed
against CLIENT directly, and, if any such tax is paid by SI, to
reimburse SI therefor, upon receipt by CLIENT of proof of
payment reasonably acceptable to CLIENT.
6.2 Patent and Copyright Infringement. SI agrees to defend and/or
handle, at its own expense, any claim or action brought by any
third party against CLIENT for actual or alleged infringement
of any patent, copyright or similar property right (including,
but not limited to, misappropriation of trade secrets) based
upon the Software or Documentation furnished hereunder by SI.
SI further agrees to indemnify and hold CLIENT harmless from
and against any and all liabilities, losses, costs, damages,
and expenses (including reasonable attorneys' fees) associated
with any such claim or action incurred by CLIENT.
(a) SI shall have the sole right to conduct the defense of
any such claim or action and all negotiations for its
settlement or compromise, unless otherwise mutually
agreed to in writing between the parties hereto.
G-5
<PAGE> 56
(b) SI agrees to give CLIENT prompt written notice of any
written threat, warning or notice of any such claim or
action against SI or any other use or any supplier or
components of the Software covered hereunder, which
could have an adverse impact on CLIENT's use of same,
provided SI knows of such claim or action.
6.3 Limitation of Liability. Except as set forth in Section 6.2, if
SI shall breach any covenant, agreement or undertaking required
of it by this License Agreement, the liability of SI to CLIENT
shall be limited to CLIENT's direct damages, actually incurred.
CLIENT acknowledges that SI is not and shall not be liable for
any special or consequential damage suffered by CLIENT nor
shall SI be liable for any claim or demand against CLIENT made
by any third party.
6.4 Material Breach. In the event of any material breach of the
Agreement or of this License Agreement by CLIENT, SI may
(reserving cumulatively all other remedies and rights under
this License Agreement in law or in equity) terminate this
License Agreement, in whole or in part, by giving ninety (90)
days' prior written notice thereof; provided, however, that
this License Agreement shall not terminate at the end of said
ninety day notice period if CLIENT has substantially cured the
breach of which it has been notified prior to the expiration of
said ninety (90) days. In the event of such a termination by SI
pursuant to this Section 6.4, CLIENT will promptly discontinue
its use of the licensed Software and related Documentation and
shall return to SI all copies thereof in its possession or
control. Such return shall also be accompanied by a written
certificate, signed by an appropriate executive officer of
CLIENT, to the effect that all such Software, related
Documentation and copies thereof has been so returned to SI. In
addition, CLIENT agrees that monetary damages will not be
sufficient to compensate SI in the event of any actual or
threatened breach by CLIENT of any restriction on CLIENT's use
of the licensed Software or Documentation provided in this
License Agreement and that, in such event, SI shall be entitled
to injunctive and other equitable relief which may be deemed
necessary or appropriate by any court of competent
jurisdiction.
6.5 Bankruptcy. Notwithstanding anything in this License Agreement
to the contrary, either party hereto shall have the right to
immediately terminate this License Agreement upon notice to the
other in the event of the other's insolvency; receivership; or
voluntary or involuntary bankruptcy; in the event of the
institution of proceedings therefor, or in the event of
assignment for the benefit of creditors; or in the event any
substantial part of the other's property is or becomes subject
to any levy, seizure, assignment or sale for or by any creditor
or governmental agency without being released or satisfied
within thirty (30) days thereafter. In the event of such a
termination by SI pursuant to this Section 6.5, CLIENT will
promptly discontinue its use of the licensed Software and
related Documentation and shall return to SI all copies thereof
in its possession or control. Such return shall also be
accompanied by a written
G-6
<PAGE> 57
certificate, signed by an appropriate executive officer of
CLIENT, to the effect that all such Software, related
Documentation and copies thereof have been so returned to SI.
Notwithstanding the foregoing, no such termination shall have
any effect upon CLIENT's obligation to pay SI any amount due
hereunder.
6.6 Notices. Any notices or other communications required or
permitted to be given or delivered under this License Agreement
shall be in writing (unless otherwise specifically provided
herein) and shall be sufficiently given if delivered personally
or mailed by first-class mail, postage prepaid,
If to CLIENT: United Savings Association of Texas FSB
3200 Southwest Freeway
Houston, Texas 77027
Attention: President
With a copy to: United Savings Association of Texas FSB
3200 Southwest Freeway
Houston, Texas 77027
Attention: Senior Vice President
Operations and Technology
If to SI: Systematics Financial Services, Inc.
4001 Rodney Parham Road
Little Rock, Arkansas
72212-2496
Attention: President
G-7
<PAGE> 58
or to such other address as either party may from time to time
designate to the other by written notice. Any such notice or
other communication shall be deemed to be given as of the date
it is personally delivered or when placed in the mails in the
manner specified.
6.7 Advertising or Publicity. Neither party shall use the name of
the other in advertising or publicity releases without securing
the prior written consent of the other.
6.8 Assignment. This License Agreement shall be binding upon the
parties and their respective permitted successors and assigns.
CLIENT may not sell, assign, convey or transfer, by operation
of law or otherwise, any of its rights or obligations hereunder
without the prior written consent of SI and any such attempted
transfer shall be void. In addition, except pursuant to a
merger, consolidation, corporate reorganization, or a sale of
all or substantially all of SI's assets, SI may not sell,
assign, convey or transfer any of its rights or obligations
hereunder without the prior written consent of CLIENT and any
such attempted transfer shall be void.
6.9 Governing Law; Jurisdiction and Venue. The validity of this
License Agreement, the construction and enforcement of its
terms, and the interpretation of the rights and duties of the
parties shall be governed by the laws of the State of Arkansas.
CLIENT and SI hereby consent and agree that jurisdiction and
venue for any claim or cause of action arising under this
Agreement with respect to the validity, construction or
enforcement hereof shall be properly and exclusively in the
state or federal courts located in Pulaski County, Arkansas,
and expressly waive any and all rights they may have or which
may hereafter arise to contest the propriety of such choice of
jurisdiction and venue.
6.10 Modification, Amendment, Supplement and Waiver. No
modification, amendment, supplement to or waiver of this
License Agreement or any of its provisions shall be binding
upon the parties hereto unless made in writing and duly signed
by both parties or the party to be charged, as appropriate
under the circumstances. A failure or delay of either party to
this License Agreement to enforce at any time any of the
provisions hereof, or to exercise any option which is herein
provided, or to require at any time performance of any of the
provisions hereof, shall in no way be construed to be a waiver
of such provision of this License Agreement.
6.11 Severability. In the event any one or more of the provisions of
this License Agreement shall for any reason be held to be
invalid, illegal or unenforceable, the remaining provisions of
this License Agreement shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a
mutually acceptable provision, which being valid, legal and
enforceable, comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provision.
G-8
<PAGE> 59
6.12 Headings. The headings in this License Agreement are for
purposes of reference only and shall not in any way limit or
affect the meaning or interpretation of any of the terms
hereof.
7. SERVICE BUREAU PROCESSING.
7.1 CLIENT agrees to pay SI a royalty fee equal to 5% of the net
amount received by CLIENT from its Service Bureau Customers
excluding, however, receipts from subsidiaries and affiliates
of CLIENT. Such receipts shall include only those receipts of
CLIENT which result from data processing services, for Service
Bureau Customers, whether based upon the number of accounts or
the number of transactions processed or on some other measure,
where such charges are directly related to CLIENT's usage of
computer systems, data communication facilities and/or data
storage devices, in combination with all or any part of the
licensed Software. Such data processing service charges do not
include any charges for (1) data processing services which do
not require execution of the licensed Software, (2) sale, lease
or maintenance of equipment, (3) transportation, delivery,
postage, media, forms and supplies, or (4) any other services
not directly related to CLIENT's use or support of the licensed
Software.
7.2 The "net amount received from Service Bureau Customers", for
purposes of this Agreement, shall be the amount received by
CLIENT from such customers, exclusive of all amounts involved
but not paid, in respect of data processing service charges,
less any cash discounts, credit or refunds deducted therefrom
in accordance with such customers' agreements with CLIENT, and
less any and all taxes paid by the CLIENT or its customers.
CLIENT shall, in its sole discretion, determine the method and
manner of pricing its services to its customers. CLIENT agrees
that it will not intentionally alter the description, or
conceal the nature, of the amounts received in respect of such
services for the purpose of reducing royalties due SI
hereunder; SI agrees that it shall bear the burden of proof
with respect to any alleged breach of the foregoing obligation.
7.3 Upon request by SI, CLIENT shall provide SI with copies of its
standard customer price schedules for data processing services
and shall identify those items upon which royalty will be
subsequently computed and paid in accordance with this
Agreement. SI agrees not to disclose such information to any
person except for the purpose of verifying royalties hereunder.
7.4 CLIENT agrees to pay all royalty amounts provided for herein on
or before the twentieth (20th) day of each month with respect
to amounts received in the preceding month.
G-9
<PAGE> 60
7.5 CLIENT also agrees to furnish SI, at the time when the
foregoing royalty payments are due, a written report specifying
in reasonable detail the net amounts received in respect of
which a royalty is due, and the calculation of the applicable
royalty fee.
7.6 CLIENT will keep books and records to establish the royalty
payments due hereunder, at a single location in the United
States, which shall be the same as the location referred to in
Article 3 above, unless changed by written notice to SI. Such
books and records shall be made available at their place of
keeping for inspection no more often than once in each calendar
year on a confidential basis during normal business hours by SI
and its representatives, solely for the purpose of verifying
royalty payments due hereunder, provided that reasonable notice
of intention to inspect is received by CLIENT. All expenses of
any such audit shall be borne by SI unless, as a result thereof
it is determined that, during any 12-month royalty period,
CLIENT has underpaid applicable royalties by the greater of
$1,000 or an amount which exceeds three percent (3%) of the
amount due with respect to such period, in which event, in
addition to any other rights or claims which SI may have
against CLIENT, CLIENT agrees to pay all reasonable expenses of
such audit.
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement
as of the day, month and year first above written, by the undersigned officers
thereunto duly authorized.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ J. David Frantz By: /s/ Leslie H. Green
---------------------------- ---------------------------
Name: J. David Frantz Name: Leslie H. Green
------------------------- ------------------------
Title: Vice President Title: Senior Vice President
------------------------ -----------------------
Date: 1/10/92 Date: 1/10/92
------------------------- -----------------------
ATTESTED: ATTESTED:
By: /s/ Harold J. Fackler By: /s/ Richard L. Hare
---------------------------- ---------------------------
Name: Harold J. Fackler Name: Richard L. Hare
------------------------- ------------------------
Title: Vice President Title: Vice President
------------------------ -----------------------
Date: 1/10/92 Date: 1/10/92
------------------------- -----------------------
G-10
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CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "H"
CLCS PROCESSING/SUPPORT
The purpose of this Exhibit H is to set forth the terms and conditions of
certain loan origination and related processing and support referred to herein
as "CLCS Processing" and "CLCS Support" respectively.
1. SERVICES.
SI will provide for CLIENT certain processing services with respect to
loan origination ("CLCS Processing"). SI will provide technical support
for this system ("CLCS Support") described in Section 4 below.
2. TERM.
The Effective Date of this Exhibit is January 1, 1992. CLIENT shall
provide SI with at least 30 days written notice of its intent to
terminate only the CLCS Support personnel and CLCS Processing services.
3. REPORTS.
SI will continue to provide the reports and output from the CLCS
application systems.
4. FEES/IMPLEMENTATION.
The fees for CLCS Support personnel and the fees for CLCS Processing
are not included in any of the fees in Exhibit C.1. CLIENT's option to
extend as described in Exhibit C.1. does not include the services
described in this Exhibit H. CLIENT agrees to pay SI for the services
in Exhibit H in accordance with Section 12 of this Agreement. CLIENT
agrees that SI will provide such CLCS processing services from
Systematics' Little Rock data center for the period of 2/1/92 through
5/30/92 prior to relocating such processing to the Data Center.
Thereafter, SI will provide CLCS Processing services in the Data Center
in accordance with Section 16 below. The fee schedule shown below is
applicable only if CLIENT provides the alterations referenced in
Section 2.6 of Exhibit C on or before 3/31/92.
The fees for both CLCS Support personnel and CLCS Processing are shown
below. The CLCS Support staff will initially include six (6) technical
personnel:
H-1
<PAGE> 62
1 E30 Programming Supervisor
1 E10 Systems Engineer
2 E08/E09 Systems Engineer
1 E27 Client Services
1 C07 Help Desk Person
The above CLCS Support staff are in addition to the Resident Programming Staff
in Section 6.1, however, (a) CLIENT agrees the minimum level of such staff will
be six (6) people during the period SI is providing CLCS Processing services and
(b) such six (6) personnel will be included in the Resident Programming Staff
with respect to the provision of Section 6.1 of this Agreement except that the
following terms and conditions will apply only with respect to those six (6)
people designated for CLCS Support:
4.1 At SI's discretion, SI will attempt to reassign any of the six
employees not required after termination of CLCS Processing to other
positions within the Data Center or other SI data center(s) or SI will
terminate such employees.
4.2 CLIENT agrees to reimburse SI only for actual expenses incurred by SI
prior to December 31, 1992, as follows:
(a) three months' severance pay for each such employee terminated,
if any, or
(b) the lesser of: actual relocation expenses in accordance with
SI's standard relocation policy, a copy of which has been
provided to CLIENT, or the maximum total severance pay which
could have been subject to reimbursement pursuant to Section
4.2(a) above for each such employee reassigned to another SI
data center, if any.
The monthly fees for CLCS Processing and CLCS Support personnel are:
<TABLE>
<CAPTION>
MONTH TOTAL MONTHLY FEE
- ----- -----------------
<S> <C>
January 1992 $84,435
February 1992 41,386
March 1992 41,386
April 1992 41,386
May 1992 and Thereafter 41,386
</TABLE>
CLIENT and SI agree to use their best efforts to provide CLCS Processing from
the Data Center as early as May 1, 1992 and CLIENT and SI agree that the best
efforts of both, as well as third parties, are required to do so. If CLCS
Processing can be provided from the Data Center by May 1, 1992 (which may be
done only if the alterations contemplated by Section 2.6 of Exhibit C are
completed on or before February 29, 1992), SI's fee for May, 1992 only will be
reduced by $40,000.
H-2
<PAGE> 63
5. INPUT.
CLIENT will transmit all input to SI via terminals in a format which is
acceptable to SI.
6. OUTPUT.
CLIENT will provide microfiche supplies (film, chemicals, etc.), and SI
will provide microfiche equipment operations and maintenance.
7. SOFTWARE.
SI will provide IBM systems software, Mantissa, and Easytrieve and will
provide maintenance on such systems. CLIENT will provide all other
applications systems and environmental software and all PC-based
software, as well as maintenance on all software provided.
8. PERSONAL COMPUTERS.
CLIENT will provide all personal computers and terminals required in
connection with SI's CLCS Processing and all related processing as well
as all required operating personnel for such PC's. CLIENT will provide
the PC's and/or terminals, if any, which are required by CLIENT or SI
for programming.
9. NETWORK.
CLIENT will provide all lines, modems, terminals and PC's required both
for the one time and on-going performance of SI's CLCS Processing.
CLIENT will also provide and pay for dial-up charges required by
members of SI's and CLIENT's staff.
10. NETWORK DIAGNOSTIC EQUIPMENT.
CLIENT will provide all network diagnostic equipment which is required
for SI's processing and the branch network systems for such processing.
11. VOICE COMMUNICATION.
CLIENT will pay for all voice communication costs related to the
services, conversions and the processing of other applications
described in this Amendment.
12. SUPPLIES.
CLIENT will provide all microfiche and related development supplies,
input and output forms, "click" charges for output printing and other
supplies necessary for SI's performance hereunder. SI will provide all
output printing from the Data Center.
H-3
<PAGE> 64
13. ADDITIONAL VOLUMES.
The fees expressed in Section 4 above are for processing the current
transaction volumes. The fees expressed in Exhibit C.1. are for
processing CLIENT's current and additional volume of Core Accounts up
to the levels specified in Exhibit C.3.3. CLIENT and SI agree that the
CLCS Processing will use capacity originally intended for the
processing of additional volume of Core Accounts. If SI incurs
additional cost as a result of increased CLCS Processing volume, or the
combined effect of both increased Core Account volume and any CLCS
Processing, CLIENT will pay SI an additional fee. Such additional SI
fee will be a reasonable additional amount determined by mutual
agreement of the parties for additional volumes of work processed. SI
fees for such additional volume will be based on the cost of additional
equipment and/or personnel expense related to such volume plus a
reasonable profit.
14. PROCESSING SCHEDULE.
The applicable processing schedule for CLCS Processing is set forth in
Attachment H-1.
15. DISASTER RECOVERY.
SI's CLCS Processing services are covered by Exhibit F to the
Management and Consulting Agreement.
16. CONVERSION TO DOS/VSE.
The CLCS Processing (currently utilizing MVS) shall be converted to
DOS/VSE for SI processing at the Data Center utilizing the staff
referenced in Section 4 above and is included in the CLCS Processing
fees specified in Section 4 of this Exhibit H.
H-4
<PAGE> 65
ATTACHMENT
H1
PROCESSING SCHEDULE
All times are Central Time
<TABLE>
<CAPTION>
ONLINE
CLCS
<S> <C>
Monday - Friday 7:00 a.m. - 9:00 p.m.
Saturday 7:00 a.m. - 2:00 p.m.
</TABLE>
Batch Inputs
CLCS tape received from CPI by 10:00 a.m. daily.
RLIC and new accounts files released for transmission 16:30 daily.
Batch Outputs
Transmission to CPI by 17:00 p.m.
Reports printed for distribution by 8:00 a.m.
H-5
<PAGE> 66
CLIENT: United Savings Association of Texas FSB
Effective Date: January 1, 1992
EXHIBIT "I"
PERFORMANCE BENCHMARKS
SI and CLIENT agree that timely and accurate submission of input and
output in accordance with Exhibit D is essential to satisfactory performance
under this Agreement. The parties acknowledge that the following is a list of
performance benchmarks which represent satisfactory performance. Without
limiting any rights or remedies which either party may have pursuant to this
Agreement, in law or in equity, if any performance is suspected, deemed, or
determined to be unacceptable, CLIENT and SI will mutually research the cause
and initiate action for correction as soon as possible.
1. ON-TIME DELIVERY - OUTPUT.
SI will maintain a monthly average of not less than 97% on-time
delivery of all of CLIENT's output reports, and not less than 99% of the
"critical reports". SI and CLIENT agree that (A) "critical reports" are
those reports that are necessary to be produced at the earliest output
delivery in order for CLIENT to effectively and safely operate CLIENT's
business and (B) not all reports are "critical reports". SI will submit
a written report to CLIENT with the results of the previous monthly
performance. Included in Schedule D is a list of the reports which
CLIENT deems to be "critical".
2. ON-TIME DELIVERY - INPUT.
SI will submit a written report to CLIENT with the results of CLIENT's
previous monthly performance in delivering input data and reports
on-time.
3. ON-LINE UPTIME.
SI will maintain a monthly average of 99% current production on-line
uptime during actual user working hours, as reflected in Schedule D,
including RJE-availability, exclusive of scheduled preventative
maintenance, as measured at the SI host computer using mutually
acceptable methods, and excluding causes beyond SI's control. SI will
submit a written report to CLIENT with the results of the previous
monthly performance. Scheduled preventive maintenance will be at times
designed to minimize or avoid disruption of data processing operations.
I-1
<PAGE> 67
4. ON-LINE RESPONSE TIME.
SI and CLIENT agree that on-line response time for users of CLIENT's
on-line terminals (herein defined as the elapsed time between the time
inquiries are "entered" at the terminal and the time that the first
character of a related response is "received" by the terminal" can be
detrimentally affected by factors or circumstances beyond the control
of either SI or CLIENT, and that CLIENT retains responsibility for
final decision regarding the use of line speeds, modems, terminal
control units, third party on-line software, and other factors which
may materially affect response times. Except as on-line response time
may be adversely affected by factors beyond SI's control, SI will
maintain a on-line response time for remote terminals for 80% of all
transactions not to exceed 3.0 seconds per transaction except that: (a)
SI and CLIENT agree that the CLCS Processing transactions will be
processed under a separate CICS environment and due to the nature of
these transactions, such transactions will not be counted in measuring
response time and (b) SI and Client acknowledge that by their nature
certain transactions require longer response time and agree that these
transactions shall not be counted in measuring response time. In
addition, SI will monitor CLIENT's on-line network, and will make
recommendations to CLIENT which are designed to assure that on-line
response time does not exceed the standard set forth above in this
paragraph 4.
In addition to the foregoing, SI will monitor the "host turn-around"
time (defined herein as the elapsed time between the time an inquiry is
received at the host computer and the time a related response is sent
by the host computer), and will maintain a monthly average "host
turn-around time" not to exceed 1.0 second. Such measurement will be
reported to CLIENT monthly through the use of CICS logs or other
mutually agreeable source.
If "on-line response time" is suspected or deemed to be unacceptable by
either CLIENT or SI, the parties will mutually research the cause for
such deficiency, including the securing of assistance from CLIENT's
communications carriers and communications equipment vendors.
5. SPECIAL TERMINATION RIGHT.
If there is a Chronic Failure by SI to achieve the foregoing
performance standard, CLIENT shall have the special right (without
further opportunity by SI to cure) as its exclusive remedy in respect
thereof to terminate this Agreement and the Management and Consulting
Agreement. As used herein, the term Chronic Failure shall mean that SI
has materially failed to achieve one or more of the foregoing standards
during six of any twelve consecutive months. Exercise of the right to
terminate shall be in the same manner as provided under Section 8.1
(without further opportunity by SI to cure) of the Data Processing
Agreement, except that the fee required to be paid under clause (ii) of
such Section 8.4(b) shall not be payable. Notwithstanding the foregoing
for each two subsequent months in which there is no failure by SI to
meet one or more of the foregoing standards, the parties agree to
disregard one previous month in which there was such a failure in
determining whether there has been a Chronic Failure. If this
I-2
<PAGE> 68
Agreement is terminated as provided herein, the provisions of Sections
8.3, 9.1, 9.2, 9.3, 9.4, and 9.5 of the Agreement will continue to
apply.
6. FACTORS BEYOND SI's CONTROL.
The foregoing performance standards shall not apply if any factor
beyond SI's control, including without limitation, the need for
replacement equipment, network equipment or additional print/microfiche
capacity (see Sections 9 and 10 of Exhibit C) contribute in any
material respect to the failure to achieve such standards.
I-3
<PAGE> 69
CLIENT: United Savings Association of Texas FSB
Effective Date: January 1, 1992
EXHIBIT "J"
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement ("Non-Disclosure Agreement") is made and
entered into by and among United Savings Association of Texas FSB ("Customer"),
SYSTEMATICS FINANCIAL SERVICES, INC. ("Systematics") and ___________________
("Consultant").
WITNESSETH:
WHEREAS, Systematics has developed and owns software packages more
specifically described in an Agreement between Systematics and Customer dated as
of October 1, 1991 ("Agreement"); and
WHEREAS, Customer has developed and uses in its business certain
confidential information (the "Customer Confidential Information") that confers
upon Customer a competitive advantage;
WHEREAS, Customer and Consultant have entered into an agreement pursuant to
which Consultant will provide programming and/or consulting services to
Customer; and
WHEREAS, Systematics is unwilling to permit Consultant to have access to the
Software, and Customer is unwilling to permit Consultant to have access to the
Customer Confidential Information, unless Consultant and Customer enter into
this Agreement to protect the confidentiality of, and Systematics' proprietary
rights to, the Software:
NOW, THEREFORE, the parties agree as follows:
In this Agreement, the following shall have the meanings shown:
1. (a) "Customer" means United Savings Association of Texas FSB, its
successors and assigns, and any of its present or future subsidiaries,
or organizations controlled by, controlling or under common control
with it.
(b) "Consultant" means __________________, _________, ___________,
its successors and assigns, and any of its present or future
subsidiaries, or organizations controlled by, controlling or under
common control with it.
J-1
<PAGE> 70
(c) "Systematics" means Systematics Financial Services, Inc.,
Little Rock, Arkansas, its successors and assigns, and any of its
present or future subsidiaries, or organizations controlled by,
controlling or under common control with it.
(d) "Customer Confidential Information" means any information
disclosed by Customer to Consultant that is identified, by markings or
otherwise, as being confidential or proprietary.
2. Customer and Consultant acknowledge that the Software and all
documentation, modifications, supplements, or alterations thereto (collectively
referred to as "Systematics Property") are owned by Systematics, that neither
legal nor equitable title to the Systematics Property passes to Customer or
Consultant under the terms of the Agreement or this Non-Disclosure Agreement,
that the Systematics Property constitutes a valuable asset and trade secret of
Systematics, and that any information with respect thereto is confidential.
Accordingly, Customer and Consultant agree as follows:
(a) Neither Customer nor Consultant shall permit the duplication,
reproduction, or copying of the Systematics Property or any information
related thereto, or otherwise make available for any purpose, whether
gratuitously or for consideration, the Systematics Property or any
part thereof or any information pertaining thereto, to any person or
entity whatsoever (other than employees of Customer or Consultant for
use by them solely for the benefit of Customer).
(b) Except as contemplated hereby, neither Customer nor Consultant
shall reveal to any person or entity, and shall require their employees
and customers not to reveal to any person or entity, any information
related to the design or programming of the Systematics Property, and
Customer and Consultant shall take appropriate action to assure that
these obligations will be fulfilled.
(c) Except as contemplated hereby, neither Customer nor Consultant
shall offer to make available to any person or entity, any modification
to the Systematics Property which may be designed by either of them.
(d) Consultant may have access to the Systematics Property for the
following purposes only:
(e) Consultant may have access to the following Systematics
Property only:
(f) Neither Consultant nor any other third party shall have any
right by virtue of this Non-Disclosure Agreement, the Agreement or any
other arrangement, whether written, oral, express or implied, to
operate, run, execute or otherwise deal with the Systematics Property
for or on behalf of the Customer, the Consultant or any other entity.
(g) Consultant may have access to the Systematics Property under
the conditions set out herein only during the following period:
J-2
<PAGE> 71
2. Customer and Consultant acknowledge that the Software and all
documentation, modifications, supplements, or alterations thereto (collectively
referred to as "Systematics Property") are owned by Systematics, that neither
legal nor equitable title to the Systematics Property passes to Customer or
Consultant under the terms of the Agreement or this Non-Disclosure Agreement,
that the Systematics Property constitutes a valuable asset and trade secret of
systematics, and that any information with respect thereto is confidential.
Accordingly, Customer and Consultant agree as follows:
(a) Neither Customer nor Consultant shall permit the duplication,
reproduction, or copying of the Systematics Property or any information
related thereto, or otherwise make available for any purpose, whether
gratuitously or for consideration, the Systematics Property or any part
thereof or any information pertaining thereto, to any person or entity
whatsoever (other than employees of Customer or Consultant for use by
them solely for the benefit of Customer).
(b) Except as contemplated hereby, neither Customer nor Consultant
shall reveal to any person or entity, and shall require their employees
and customers not to reveal to any person or entity, any information
related to the design or programming of the Systematics Property, and
Customer and Consultant shall take appropriate action to assure that
these obligations will be fulfilled.
(c) Except as contemplated hereby, neither Customer nor Consultant
shall offer to make available, or make available, to any person or
entity, any modification to the Systematics Property which may be
designed by either of them.
(d) Consultant may have access to the Systematics Property for the
following purposes, only:
------------------------------------------
(e) Consultant may have access to the following Systematics
Property, only:
------------------------------------------
(f) Neither Consultant nor any other third party shall have any
right by virtue of this Non-Disclosure Agreement, the Agreement or any
other arrangement, whether written, oral, express, or implied, to
operate, run, execute or otherwise deal with the Systematics Property
for or on behalf of the Customer, the Consultant or any other entity.
J-3
<PAGE> 72
3. Consultant acknowledges that the Customer Confidential Information
is owned by Customer; that the Customer Confidential Information constitutes a
valuable asset and trade secret of Customer; and that any information with
respect thereto is confidential. Accordingly, Consultant agrees that it will not
permit the duplication, reproduction, or copying of the Customer Confidential
Information or any part thereof or any information related thereto, or otherwise
make available for any purpose, whether gratuitously or for consideration, the
Customer Confidential Information or any part thereof or any information
pertaining thereto, to any person or entity whatsoever (other than employees of
Customer, Systematics or Consultant for use by them solely for the benefit of
Customer).
4. Customer and Consultant agree that, upon the occurrence of any
actual breach or threatened breach of the restrictions upon the use, sale,
transfer, or disclosure of the Systematics Property contained herein, monetary
damage alone may not be sufficient remedy or protection and Systematics shall be
entitled to such injunctive or other equitable relief as may be deemed proper or
necessary by a court of competent jurisdiction.
5. Consultant agrees that, upon the occurrence of any actual breach or
threatened breach of the restrictions upon the use or disclosure of the Customer
Confidential Information contained herein, monetary damage alone may not be
sufficient remedy or protection, and Customer shall be entitled to such
injunctive or other equitable relief as may be deemed proper or necessary by a
court of competent jurisdiction.
6. To the extent that Systematics shall be the prevailing party in
seeking to enforce any of its rights or remedies hereunder, Systematics shall
have the right to collect from Customer and/or Consultant, all expenses incurred
in connection with such enforcement, including but not limited to reasonable
attorney's fees incurred in connection therewith.
7. To the extent that Customer shall be the prevailing party in seeking
to enforce against Consultant any of its rights or remedies hereunder, Customer
shall have the right to collect from Consultant, all expenses incurred in
connection with such enforcement, including but not limited to reasonable
attorney's fees incurred in connection therewith.
8. Customer and Consultant hereby warrant and represent that prior to
the disclosure of any Systematics Property to Consultant, the agreement between
Customer and Consultant will contain provisions governing the non-disclosure of
proprietary information which are no less restrictive than as set forth herein
and that neither that agreement nor any other agreement or instrument to which
any of them is a party or by which any of them is bound
J-4
<PAGE> 73
contains any provision which is inconsistent with this Non-Disclosure Agreement
or which would inhibit the performance of their obligations as set forth herein.
Customer agrees that it shall be jointly and severally responsible and liable to
Systematics for the performance of Consultant of each and all of Consultant's
obligations hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the dates as indicated.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: By:
---------------------------- -------------------------------
(Authorized Signature) (Authorized Signature)
Name: Name:
------------------------- -----------------------------
(Type or Print) (Type or Print)
Title: Title:
----------------------- -----------------------------
Date: Date:
----------------------- -----------------------------
CONSULTANT:
By:
--------------------------
Name:
------------------------
(Type or Print)
Title:
------------------------
Date:
------------------------
J-5
<PAGE> 74
CLIENT: United Savings Association of Texas FSB
Effective Date: January 1, 1992
EXHIBIT "K"
TRANSITION ASSISTANCE
1. Systematics will assist CLIENT in developing a plan for the transition of
data processing operations from Systematics to CLIENT. In addition, Systematics
will provide assistance in preparing for the transition. Such assistance will
include, but shall not be limited to, the following:
(a) Freeze all noncritical software changes.
(b) Notify outside vendors of the necessary Systematics-related procedures
to be followed during the turnover phase.
(c) Review software libraries (test and production) with new operations
staff.
(d) Assist and establishing new naming conventions, if applicable.
(e) Generate a tape and computer listing of the source code for the software
to be provided to CLIENT.
(f) Deliver to CLIENT source code, technical specifications and materials,
and user documentation for the software to be provided by Systematics.
(g) Provide training assistance to the new operations staff.
2. All of the foregoing services primarily will be provided using the Resident
Programming Staff and the Resident Client Services Staff (as defined in the Data
Processing Agreement and the Management and Consulting Agreement, respectively).
K-1
<PAGE> 75
Exhibit L
Travel and Relocation Policy
L-1
<PAGE> 76
CHAPTER 9
TRAVEL AND EXPENSE
A. Introduction
The purpose of the travel policies and procedures is to describe
the services available and to outline the guidelines all Systematics
Information Services, Inc. employees should follow when traveling on
company business.
These policies and procedures are intended for the use of all
Systematics traveling employees.
The scope of the policies and procedures is to give guidance for
travel related expenses but is not intended to cover every individual
case. All items not specifically covered in these policies and
procedures should be scrutinized with the cost to the company and the
convenience to the traveler as the primary criteria for solving the
problem.
These policies and procedures are published by the Travel Manager
with the approval of the Management Committee. All suggestions for
revision should be addressed to Marilyn Key, Travel Manager, 4001
Rodney Parham, Little Rock, AR 72212.
Cost center managers are responsible for using these policies and
procedures to manage travel expenses on a conservative basis
consistent with the company's business objectives.
B. Corporate Travel Services
1. Full Service Travel Agency
Systematics Information Services, Inc. operates a full service branch
corporate travel agency at the corporate headquarters in Little Rock.
The purpose of Corporate Travel is to provide reservations and related
travel services which support Systematics' business objectives. Where
feasible, all business travel arrangements of all Systematics employees
should be made through Corporate Travel.
2. Toll-Free Number
Call Corporate Travel toll-free by dialing 1-800-462-8381. This number
is for travel-related calls only; the travel consultants will be unable
to transfer calls to other company departments. Corporate Travel hours
are 7:30 a.m. to 5:30 p.m.
3. 24 Hour Toll-Free Service Desk
Travelers requiring after-hours emergency service or travel information
when Corporate Travel is not open are provided with a toll-free 800
number accessible from anywhere within the continental United States.
This number appears on all itineraries and convenient cards are available
in Corporate Travel.
<PAGE> 77
MANAGEMENT GUIDE
- --------------------------------------------------------------------------------
The 24 hour service desk retrieves the computer record and/or
traveler profile stored at Systematics' Corporate Travel. Just
dial 1-800-888-6517 and tell the agent your "Executive Code" is
5FI. The cost of this service is $6.00 per call.
4. Traveler Profile Records
To assist in the reservation process and to ensure that your
individual requirements are met, fill out the Traveler's
Profile Form (available in Corporate Travel) and return it as
soon as possible to Corporate Travel (see Exhibit D).
This data will be entered into Corporate Travel's computer
system, thereby enabling the travel consultant to access this
information automatically.
Notify the travel consultant of changes or additions to the
profile.
5. Traveler Insurance
Each ticket issued by Corporate Travel includes an automatic
$200,000 flight insurance in addition to coverage available
from use of the VISA Corporate Card.
6. Passport/Visa Assistance
Corporate Travel will provide applications and limited
assistance in obtaining passports, foreign visas and entry
requirements needed for international travel.
C. Travel Policies and Procedures
1. Air Travel
a. Air Travel Policies
(1) General Information
All company travel arrangements should be made
through Corporate Travel.
Travelers should make travel arrangements as
far in advance as possible in order to take
advantage of lowest logical air fair (the most
economical and practical itinerary which meets
business requirements). Travelers should make
their plans wisely keeping the cost to the
company in mind. Corporate Travel will provide
current information on lowest available fees
within two hours either side of traveler's
specified arrival or departure time frames.
- --------------------------------------------------------------------------------
9-2 COMPANY CONFIDENTIAL
<PAGE> 78
In order to accumulate travel data for the company and to
standardize payment methods, payment for airline tickets will be
through the individual's Visa corporate credit card. All SI
employees who travel at least two times per year are encouraged
to obtain a corporate Visa credit card. Ask the data center/cost
center secretary for an application.
Infrequent travelers who are not issued a corporate credit card,
may ask Corporate Travel to charge tickets on the "Central
Travel Service" (CTS) number. The CTS can only be used for
airline tickets.
All travel must have prior management approval. Managers are
asked to minimize air travel for their areas of responsibility.
2. Domestic Air Travel
a) Domestic flights will be coach/economy class.
The Travel Reservations will search for the best arrangements
for every trip. They will offer the traveler the lowest fares
for every trip regardless of the request of the traveler. When
flights are chosen which are more expensive than the lowest
fare, the record will be documented.
Decisions regarding penalty fares will be left up to the
traveler or his/her manager. The trip may not be firm enough to
risk changing and paying a penalty.
b) In order to provide the most cost effective method of air
travel discount arrangements have been made between several city
pairs.
When traveling between these cities, the traveler is expected to
use the discount arrangements or other flights which are the
same price or less. Current details about these arrangements may
be obtained from the reservationists.
3. International Travel
a) International air travel may be Business class, except for
trips under five hours, which should be Coach/Economy whenever
it would result in a lower fare.
Relocating employees and families will fly Coach class.
b) If an international flight is eligible for Business class, an
employee may elect to fly Economy class and receive a financial
incentive of 30% of the difference between the ticketed price
and the Business fare for the same itinerary.
<PAGE> 79
MANAGEMENT GUIDE
- --------------------------------------------------------------------------------
To receive the incentive the employee must
request the travel itinerary be priced for
Economy and Business class. Corporate Travel
will provide the employee with a copy of the
price quotes which must not differ as to
dates, times, or flights. Tickets will be
issued in Economy class.
Upon completion of the trip, the employee must
complete a Travel Differential Form (Exhibit
G). Attach the Business Fare Quote and a copy
of the actual ticket flown to the
Travel Differential Form and have it approved
and signed by the department manager before
submitting it to accounting.
On its normal processing schedule accounting
will produce a check for the employee
withholding all appropriate taxes, etc.
c) An agreement with American Airlines gives
the company a 10% credit for every American
over-the-water segment. We may use these
credits for domestic and international travel.
(4) Negotiated Airline Fares
The company has an agreement with American
Airlines whereby discounts are provided on
round-trip flights for employees traveling
solely on American to Little Rock. The
discounts are 45% off coach fare or 5% off the
lowest fair available.
Due to the cost savings to the Company, this
program is to be utilized by all employees
attending our Little Rock training classes or
other Little Rock meetings during these time
periods unless a better fare can be obtained
on a different airline.
Other discount arrangements are also in place
for travel between various cities. These
arrangements change from time to time and
current information may be obtained from the
reservationists or the Travel Manager.
Meetings involving ten or more people at other
locations may also be eligible for discounted
fares. Managers should notify the Travel
Manager as far in advance as possible if they
are aware of scheduled meetings that might
qualify.
An international agreement with American
Airlines gives the company a 10% credit for
every American over-the-water segment. We may
use these credits for domestic and
international travel.
- --------------------------------------------------------------------------------
9-4 COMPANY CONFIDENTIAL
<PAGE> 80
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
(5) Travel for Training
A Meetings Travel Worksheet (Exhibit A) may be
filled out and faxed to Corporate Travel to
expedite your travel arrangements. The travel
consultants will book the flights according to
the requests on the worksheets and will
contact the travelers if problems are
encountered. If American's schedules or other
negotiated discounts do not accommodate the
travelers' needs, an alternate reservation
will be made.
Tickets will be sent near the departure date
to allow for any additional price reductions
as departure dates draw nearer. In any event,
the tickets will be sent by certified
mail or overnight express service
in plenty of time prior to departure.
(6) Frequent Traveler Award Programs
Do not make decisions for travel based on your
frequent traveler programs. We suggest you
join all the airline programs so that you will
get credit for every flight.
Although the company pays for the trips which
result in frequent flyer mileage and travel
awards, the traveler may use these awards for
company business or personal use at the
discretion of the employee.
(7) Leisure Travel
Corporate Travel is unable to provide leisure
or personal travel services to employees.
Please do not ask the company reservationists
to do personal travel.
Corporate Travel will book personal travel
only for the following:
When family is traveling for relocation.
When family/friends are traveling with the
Systematics corporate travelers.
When traveler is combining business and
personal travel.
b. Air Travel Procedures
(1) Making Reservations
To make reservations, call the Corporate
Travel (ext. 4900 or 1-800-462-8381).
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COMPANY CONFIDENTIAL 9-5
<PAGE> 81
MANAGEMENT GUIDE
- --------------------------------------------------------------------------------
Provide the Systematics travel consultants
with the following information to book a
reservation:
- Traveler's name
- Company name and cost center
- Travel date
- Departure city
- Arrival city
- Approximate departure/arrival time
- Return date and time
- Cost center to be billed
- Chart of Accounts number for trip
- Ticket delivery information
For employees attending Little Rock training
classes, fill out the travel worksheet
included in your training materials and return
it to Corporate Travel.
When making plans for international travel,
contact Corporate Travel and request the
international travel consultant who will
assist you in obtaining the best available
rates on any trip. Simply advise the travel
consultant of the travelers' schedule
flexibility when making reservations.
Seat assignments are reserved as available at
the time of booking and as requested by the
passenger. If a preferred seat is not
available (this will be noted on your
itinerary), please check at the gate before
boarding for a possible opening.
(2) Reservation Cancellations
Call Corporate Travel and request the
itinerary be canceled if during regular
working hours. If after hours and the
itinerary begins before regular business hours
the following day, call the 24-hour service
desk at 800-888-6517. In either case the
appropriate air, hotel and car reservations
will be canceled and the cancellation numbers
will be noted in the records.
HOTEL RESERVATIONS ARE GUARANTEED FOR LATE
ARRIVAL AND MAY REQUIRE THE TRAVELER TO CALL
THE HOTEL DIRECTLY TO AVOID BEING CHARGED FOR
THE NIGHT.
(3) Itineraries
Check over the itinerary closely to insure all
dates and information are correctly reserved.
These itineraries will be delivered with the
tickets and are also available for pick-up at
the Travel office.
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9-6 COMPANY CONFIDENTIAL
<PAGE> 82
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
(4) Ticket Delivery
Corporate headquarters travelers may pick up
tickets at Corporate Travel.
If not specified, tickets will usually be
available one or two days in advance of
departure date.
For travelers based outside of Little Rock,
tickets will be shipped to arrive one or two
days in advance of the departure date. If you
require the tickets earlier, please notify
consultant.
The cost of delivery will be paid by Corporate
Travel.
Tickets should be safeguarded at all times. Do
not leave them unattended.
Once tickets are delivered, the travelers are
responsible for checking the travel dates to
reconfirm.
(5) Prepaid Tickets (PTA's)
Prepaid Tickets (PTA's) must be picked up at
the airline counter. Corporate Travel
authorizes the airline to issue the ticket and
charge it to the company.
A PTA allows the company to pay for a ticket
for an off-site traveler, but PTA's should be
used only in emergency situations where no
other means of payment could be used.
The airlines charge a non-refundable fee of
$25.00 for each prepaid ticket.
(6) Lost Tickets
REPORT LOST TICKETS TO CORPORATE TRAVEL
IMMEDIATELY.
The airlines normally require 3-6 months to
process lost tickets and impose a $50.00
non-refundable service charge.
Lost tickets for Southwest Airlines are not
refundable.
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COMPANY CONFIDENTIAL 9-7
<PAGE> 83
MANAGEMENT GUIDE
- --------------------------------------------------------------------------------
(7) Refunds
Unused full and partial tickets should be
returned to Corporate Travel as soon as
possible for credits to be issued. Copies of
the credit card refund notices are sent to the
traveler as they are processed
Refunds take four to six weeks to process.
Always return the credit to the company if you
have been reimbursed for a refunded ticket.
(8) Voids
An unused ticket may be voided if returned to
Corporate Travel by close of business on
Friday of the week it was issued.
Voided tickets do not appear on your credit
card billing. It is to your advantage to
return unused tickets promptly whenever
possible.
2. Lodging
a. Lodging Policies
Travelers will obtain lodging at the hotel/motel which
offers reasonable facilities and rates and is
convenient to their place of business.
b. Lodging Procedures
(1) Making Reservations
To make reservations, call the Travel
Department (ext. 4900 or 1-800-462-8381). The
Systematics travel consultant will need the
following information to book a reservation:
- City and dates
- Hotel preference
- Type of room
- Notify if attending a conference.
Inform agent if the group is holding
a "block" of rooms.
All rooms are guaranteed for late arrival
which means SI is responsible for the room
charge if you do not show up or cancel the
reservation.
For employees amending Little Rock training
classes, fill out the travel worksheet
included in your training materials and return
it to the Travel Department. Hotel
accommodations will be made by the Training
Department.
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9-8 COMPANY CONFIDENTIAL
<PAGE> 84
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
When a hotel reservation is booked, the hotel
name and address will appear on the itinerary
along with a hotel employee's name or a
confirmation number.
The agents note in their reservation system
any requests made by the travelers.
If any problems are encountered with your
reservations, you should contact the Travel
Department or call the 24-hour service number
which is on your itinerary.
Please pass along to the SI travel consultants
any especially good accommodations which you
experience and let us know about the
accommodations with which you are unhappy.
(2) Reservation Cancellation
Because all rooms are guaranteed for late
arrival, SI is responsible for the room charge
if you do not show up or cancel the
reservation. If you determine that the room is
not needed, be sure to cancel directly with
the hotel, usually by 6:00 p.m. the date of
arrival or the Travel Department immediately.
This will help in avoiding "no-show" bills
from the hotel.
3. Car Rental
a. Car Rental Policies
Systematics has signed a one-year agreement effective
July 1, 1990 with Hertz Rental Car Company to provide
all our rental car requirements whenever possible.
Travel Department employees have been instructed to
book Hertz cars except in situations where unlimited
mileage is needed or if Hertz is unavailable. In these
cases, the Company with the next lowest rate will be
booked.
Rates offered by Hertz are:
<TABLE>
<S> <C> <C> <C>
A. Subcompact - $36 E. Station Wagon 8 pax - $46
B. Compact 2/4 door - $36 F. Full Size 4 door - $39
C. Mid-Size 2/4 door - $38 G. Premium - $46
D. Full Size 2 door - $39 I. Luxury - $47
</TABLE>
These rates include 100 free miles per day. Excess
mileage will be charged at the rate of $.30 per mile
driven.
These rates also include free Loss Damage Waiver
Option.
For car rentals where the car will be dropped in any
location other than the renting location, the daily
rate applies, but ALL MILES DRIVEN will be charged at
the rate of $.30 per mile.
- --------------------------------------------------------------------------------
COMPANY CONFIDENTIAL 9-9
<PAGE> 85
MANAGEMENT GUIDE
- --------------------------------------------------------------------------------
Additional surcharges for the following
cities/airports are:
Cities by Area/$5.00 Added Daily Charge
<TABLE>
<S> <C>
Atlanta, GA Moline, IL
Cleveland Area, OH New Orleans, LA
Denver, Colorado Springs, CO New York (Except Otherwise Listed)
Houston, TX San Francisco Area, CA
Kansas City, MO Seattle, WA
Minneapolis/St. Paul, MN St. Louis, MO
Cities by Area/$8.00 Added Daily Charge
Alaska cities Pittsburgh, PA
Hartford, CT
Cities by Area/$10.00 Added Daily Charge
Baltimore, Washington, DC New York Metro Tri-State Area
Boston Area, MA Philadelphia, PA
Detroit, MI
Cities by Area/$15.00 Added Daily Charge
Chicago, IL Newark, NJ
</TABLE>
Cities by Area/$18.00 Added Daily Charge
JFK/LaGuardia Airports and Borough of Manhattan
Fee waived HERTZ #1 CLUB GOLD applications are
available in the Travel Department.
b. Car Rental Procedures
(1) Making Reservations
To make reservations, call the Travel
Department (ext. 4900 or 1-800-462-8381).
Provide the following information:
- Rental city
- Drop off city (when other than rental
city)
- Dates needed
- Car Size
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9-10 COMPANY CONFIDENTIAL
<PAGE> 86
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
For employees attending Little Rock training
classes, fill out the travel worksheet
included in your training materials and return
it to the Travel Department.
When making plans for international travel,
contact the Travel Department and request the
international travel consultant.
(2) Reservation Cancellation
The following procedures should be followed
when canceling reservations:
- Call the Travel Department
immediately and request the itinerary
cancellation. The travel consultant
will cancel the appropriate air,
hotel and car reservations.
- To prevent any "no-show" penalty, the
agent will make note of the
cancellation number and add this
information into the records.
(2) Payment Procedure
Use SI Corporate American Express to pay for
all car rentals when possible.
If you do not have a corporate American
Express card, you may request direct billing.
Ask the SI Travel Consultant about this
procedure when making your reservations.
4. Company Vehicle
a. Company Vehicle Policies
Systematics, Inc. owned vehicles are to be used for
business purposes only. Their primary purpose is to
provide transportation, when needed, to and from
lodging sites, between the airport and corporate
headquarters, and for taking clients and prospective
clients to dinner and/or entertainment activities.
Systematics employees must always be the drivers of
these vehicles.
b. Company Vehicle Procedures
(1) General
Systematics employees must always be the
drivers of these vehicles. Keys for the
vehicles that have not been checked out will
remain with the respective dispatchers as
listed below. Vehicles are normally parked at
the Guest House. When a driver initially signs
for the keys, a "SI Company Vehicle Drive
Information" form (see Exhibit B) should be
provided to the dispatchers, and the
statement declaring an understanding of these
policies and procedures should be signed by
the driver. Finally, the use of the vehicle is
recorded by the driver on a "SI Company owned
Vehicle
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Log/Key Dispatch" form (see Exhibit C).
To reserve a vehicle, contact dispatchers:
1986 - 21 passenger van - Training
1985 - 17 passenger GMC van - Software Sales
(2) Driver Qualifications
All drivers must:
- Have a valid driver's license.
- Have a driving record free of D.W.I.
convictions and of all other
violations within the past 2 years.
- Agree to be the "designated" driver,
which prohibits any use of alcohol or
other performance impairing drugs
while the vehicle is signed out to
them.
- Immediately inform the Systematics
Accounting Department of an accident.
- Immediately inform the dispatcher as
to known conditions that might affect
vehicle safety or performance.
- Obey all traffic laws.
- Keep the interior of the vehicle neat
and presentable.
(3) Service and Maintenance
Building Services is responsible for the
general care and maintenance of vehicles.
Reports of mechanical problems, or charge
slips for gas, cleaning, etc. should be given
to the Building Services secretary. Direct
billing to SI has been established with Colony
West Chevron and Mr. Tidy.
D. VISA Corporate Cards
ALLTEL Corporation/Systematics Information Services, Inc. has an
agreement with First Bank Systems VISA that provides for the issuance
of a VISA Corporate Card to those employees who have traveled or are
expected to travel on company business at least twice per year. The
VISA Corporate Card should be utilized to charge all expenses while on
company business, including all airfares.
1. Personal Expenses and Personal Credit Cards
In order to capture important data related to the company's
business expenses, NO PERSONAL EXPENDITURES SHOULD BE MADE WITH
THE CARD. Fees for personal credit cards must be borne by the
individual.
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2. Permanent Expense Advance
Cardholders may, at their option, receive a one-time permanent
expense advance of $200.00 to be used for items that may not be
charged with the VISA Card. DO NOT deduct this advance
under "Advance Received" on your standard expense report. This
advance will be repaid to Systematics when the card is canceled
or employment is terminated.
The Accounting Department will not be authorized to issue
"temporary" travel advances to VISA Corporate Cardholders.
3. Billing Procedures and Expense Reporting
The cut-off date for the monthly VISA billing is the 20th of
each month. The statement will be mailed to the address you
designated on the card application. You may change your billing
address by calling 1-800-344-5696.
You may submit your travel expenses as often as you wish to the
Accounting Department. All expenses should be entered
on the Standard Employee Expense Report form and completely
documented (Exhibit E).
4. Reimbursement
Twice each month, you will receive an expense check for the
total of all expenses submitted to the Accounting
Department since the prior period's Accounts Payable
cut-off date and prior to the current period's Accounts
Payable cut-off date. Cut-off dates will be published
and distributed at the beginning of each fiscal year (Exhibit
F).
The cardholder is responsible for paying VISA the total amount
billed on his/her VISA statement before the next billing cycle.
YOU ARE REQUIRED TO MAINTAIN YOUR ACCOUNT IN A CURRENT
STATUS.
To dispute a charge, the federal government requires the
cardholder to notify First Bank Systems VISA in writing
within 60 days after the date of the first statement on which
the disputed charge occurred. First Bank System will research
the disputed charge and make any necessary adjustments. The
disputed charge amount is deducted from the cardholder's
payment due, but remains a part of the total account balance.
In the case of serious or persistent billing problems, contact
Marilyn Key at 501-220-5329 or Cathy Christian at 501-220-4684
for assistance.
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5. Past Due Accounts
Our agreement with VISA requires automatic suspension of any
cardholder account 60 days past due. A suspension will not be
eliminated until the account is paid to a current status.
Accounts past due 90 days will be canceled automatically. A
canceled card may be reinstated one time after the account is
paid in full. Thereafter, the card must remain current at all
times.
VISA will notify cardholders of past due accounts.
Reports will be sent to managers outlining the status of
accounts. Managers are expected to deal appropriately with
individual situations to ensure that VISA accounts are kept
current.
YOU ARE EXPECTED TO MAINTAIN YOUR ACCOUNT IN A CURRENT STATUS.
6. Airline Tickets
Airline tickets for non-corporate cardholders, including
candidates for employment, should be charged to the Central
Travel System. (CTS) number. This is a special number
maintained by Corporate Travel and used only for airline
tickets. When making reservations for these non-cardholders,
advise the Corporate Travel consultant that the CTS number
should be used.
It is the employee's responsibility to return all unused
airline tickets to Corporate Travel and to verify that the
credits for the unused tickets appear on his/her VISA
statement. Allow six weeks for refund processing.
7. Emergency Cash
When emergency cash is needed, the VISA Corporate Card-holder
may get a cash advance at more than 330,000 banks worldwide. A
service charge of 2.5% of the cash advance amount will be
debited to your account at the next billing. The service charge
may be expensed if the cash advance was obtained to cover
travel related expenses.
CASH ADVANCES ARE TO BE USED FOR TRAVEL EMERGENCIES ONLY.
Reports itemizing individual cash advance transactions will be
distributed to the appropriate managers monthly.
8. Travel Accident Insurance
Cardholders are covered for up to $250,000 in benefits in the
case of accidental death or dismemberment as a result of an
accident while traveling in a common carrier vehicle. This
includes planes, trains, ships, and buses. The insurance is
primary, which means that it is in addition to any other
insurance policy which is provided for the individual. The
Travel Accident Insurance program coverage is effective for any
First Banks VISA
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Corporate Cardholder, spouse and dependent children under the
age of 23, and will be activated when the cardholder purchases
an applicable travel ticket with the First Banks VISA Corporate
Card.
9. "Full Value" Primary Car Rental Insurance
The VISA corporate cardholder is entitled to Primary Auto
rental Collision/Loss Damage Insurance that will reimburse the
cardholder for up to "Full Value" of the car for damage or
theft of the rental auto not covered by the auto rental company
or the insurance or reimbursement plan provided by the company.
This coverage is effective when the VISA Corporate Card is used
to pay for the rental and the cardholder declines the C.D.W.
offered by the car rental agency. Coverage is worldwide on a
24-hour basis. Rentals up to 31 days are covered when a daily
or weekly rate is utilized. Rentals with monthly rates are not
covered.
10. Baggage Insurance
Card membership also includes $1,250 excess baggage insurance
based on full replacement value.
11. Renewal Cards
Renewal cards will be forwarded directly to the cardholders
prior to the expiration date of the old card.
12. Lost or Stolen Cards
Cardholders should immediately notify First Banks if their
cards are lost, stolen or mutilated, by calling 1-800-
344-5696. The Customer Service Representatives at the 24-hour,
toll-free number will complete a lost/stolen report and will
order a replacement card immediately.
13. Emergency Replacement Card
To obtain an emergency replacement card, the cardholder can
call the VISA Assistance Center at 1-800-VISA-911. A
replacement card will be delivered to the cardholder within 24
hours in the United States and 48 hours outside the United
States by a special courier. Please use this number only in
emergencies.
14. VISA Assistance Center
VISA maintains an emergency assistance center in over 30
countries to help travelers when they become sick, have an
accident, or need legal referral. In such an emergency, a
cardholder may call the VISA Assistance Center 24 hours a day,
7 days a week and receive a wide array of services. See the
VISA Assistance Center Toll-Free Phone Number List (Exhibit H).
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15. Change of Address
Employees are required to notify VISA in the event their
address is changed. Call 1-800-344-5696.
16. Termination of Employment
If employment is terminated for any reason, cardholders are
required to return the VISA Card to their supervisor, repay
their permanent advance, if any, and pay their account balance
in full. The supervisor must cut the VISA card in half and
return it to Corporate Travel.
17. Agreement
Upon receipt of the corporate card, employees will be required
to sign a statement acknowledging their understanding of the
use of the card.
E. Employee Business Expense Accounts
The Company will reimburse employees for reasonable business-related
travel expenses and for certain approved meals, entertainment, and
mileage expenses incurred locally. Reasonable expenses are those a
prudent traveler makes when traveling on personal business. In addition
to the expense practices discussed in this section, specific expense
guidelines for travel related to Company-sponsored classroom training
programs are presented in Chapter 10 of the Management Guide, under the
topic of "Employee Guidelines."
The Company requires that original employee expense receipts be
submitted and kept on file for all expenses. Such receipts should be
submitted with expense statements discussed below.
1. Expense Guidelines
a. Transportation and Mileage
Employees who use their personal cars for Company
business will be reimbursed at the maximum rate
allowed by the Internal Revenue Service (currently
27.5 cents per mile). Mileage reimbursements will
not be made for travel to and from work by an
employee. However, exempt employees who are called
in to work on weekends or on other than normal work
hours may be reimbursed for mileage expenses.
Approval to rent a car in connection with business
travel must be approved by a cost center manager or
above.
b. Lodging
Lodging receipts must be detailed and must indicate
any item for which a room charge is made above the
actual room rate.
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c. Meal Expenses
Employees traveling on Company business will be
reimbursed for all reasonable meal expenses.
Management and supervisory employees may also be
reimbursed for local meal expenses when official
Company business is conducted during the meal. Meal
expenses must be separated from lodging bills and
charged to account 690 since the tax law disallows
part of the deduction for meal expenses.
For meal expenses to be reimbursed, adequate
documentation must be included on and attached to the
expense report. The documentation must include a
receipt, place, breakfast, lunch, or dinner
specification, business purpose, and names, titles,
and business relationships of persons dined. (Note:
When SI employees are included, SI job title or job
code of SI employees will satisfy title requirements.
e.g. E01, E10).
Meal allowances will also be reimbursed to exempt
employees who, as a result of overtime work on a
normal work day, work two or more overtime hours. On
weekends, an exempt employee is eligible for meal
reimbursements when the employee works four hours or
more. Limits for such reimbursements will be set by
managers based on reasonable allowances for particular
locations.
d. Entertainment Expenses
These expenses should only be incurred by cost center
managers or above, with prior approval from their
immediate superior. Entertainment expenses are only
partially deductible under the tax law, so they must
be charged to account 690. Adequate documentation of
the expense must be included.
e. Laundry
These expenses are allowable only when travel exceeds
five continuous days. A receipt is required.
Reasonable laundromat expenses will be allowed without
receipts.
f. Tips
Employees are expected to "tip" when customary.
Generally, tips should not exceed 15% of the cost of a
meal or service rendered.
g. Foreign Travel
Expenses incurred in foreign currency should be
documented in the body of the expense report in the
currency used. The employee can be reimbursed in U.S.
dollars or in certain foreign currency (in countries
where SI maintains a bank account in the currency).
The summary and coding sections of the report should
be completed in the reimbursement currency. If the two
are different, the exchange rate must be shown with
supporting documentation of where the rate was
obtained.
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h. Miscellaneous Expenses
The following is a partial list of items which fall in
the allowable category;
- business postage
- telegrams
- facsimile
- telephone calls
- vehicle parking and storage
- tolls
- necessary company purchases
The following are examples of non-allowable
business expenses according to IRS rules and should
not be reimbursed:
- child care
- pet care
- purchase of luggage
- in-room movies
If you or any of your employees have questions about
other types of expenses, please contact the Accounting
Department for specific information.
NOTE:
The preceding guidelines address the expenses incurred by the
majority of Systematics' employees traveling as a part of the
normal course of business. However, there are those employees
whose responsibilities require them to travel up to 60%, and
possibly more, of their time. While the Company feels that
those jobs offer unique career opportunities, it also
acknowledges that such frequent traveling can present more
prevailing personal hardships than those experienced by the
"ordinary" business traveler.
Therefore, the Company reserves the right to make certain
exceptions to the above guidelines should it deem necessary.
Specifically, direct managers of the heavy travelers may
authorize reasonable reimbursement for:
- Laundry expenses incurred in less than five
days of travel, and
- In-room movies
In addition, managers may authorize occasional "de minimus"
awards of property or services for frequent travelers which may
be deducted by the Company for tax purposes. Examples would be
gift certificates for meals for the recipient and a guest,
tickets to sporting and cultural events (can't be season
tickets per the IRS), or luggage.
All of the above exceptions must be authorized by the
management of Systematics and are only applicable to those
employees who travel more than 60% in performing their job
responsibilities.
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2. Reports and Approvals
The Company uses one standard expense statement for the
employee expense reimbursements mentioned above - "Employee
Expense Report" (form #AC-101-0689). Twice each month, you will
receive an expense check for the total of all expenses
submitted to the Accounting Department since the prior period's
Accounts Payable cut-off date as distributed by the
Accounting Department, and prior to the current period's
Accounts Payable cut-off date. Cut-off dates will be
published and distributed at the beginning of each fiscal year
(Exhibit F).
When an employee's travel results in expenditures in more than
one currency, a separate expense report must be used for each
expenditure currency.
The following is included to provide a section-by-section
example of the proper method of completing the Employee Expense
Report. All references made to the Employee Expense Report are
cross references to the example report shown at Exhibit E.
a. Information Section
Employee Name
The employee's name should be legibly printed
in field one (1) of the expense report. The
Employee name should appear first name then
last name.
Employee Number
The employee's number, which was assigned at
time of employment, must be shown in field two
(2).
Cost Center Name/Location
The employee's "base" cost center should be
listed in field three (3). Center name and/or
department description of the employee's
"base" cost center should be reflected.
Cost Center Number
The cost center number of the employee's base
cost center should be entered in field four
(4). (Note: Dashes are not necessary.)
Date
The date reflected in field five (5) is to be
the period ending date, which is the last day
for which expenses are reported.
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Expenditure Currency
The currency in which expenses are incurred
must be listed in field six (6). All expenses
reflected on the expense report must be
reported in the same currency as shown in
field six (6).
b. Reporting Section
Date
The date that each expense is incurred should
be reflected in field/column seven (7).
Activity/Itinerary
This field/column (field/column eight (8)) is
for documenting the place employee went or the
activity in which employee was engaged. For
all business meals (whether more than $25 or
not), the name and address (city and state at
a minimum) of the restaurant must be given on
the face of the report, even it is on the
receipt. For all transportation expenses (e.g.
mileage), destination must be shown.
Business Purpose/Relationship
Field/column nine (9) is to be used to
document why the trip was made, breakfast,
lunch, or dinner specification, business
purpose, and names, titles, and business
relationship of persons dined.
Automobile - Mileage
All miles driven in excess of normal to and
from work mileage that are related to a
business trip (including local mileage) should
be recorded by trip in field/column ten (10).
If more than one trip is made in a day the
mileage for each trip must be listed
separately on the expense report.
Automobile - Total Allowance
For each line on the expense report reflecting
mileage, this field must also be completed.
The field (field/column eleven (11)) is equal
to the number of miles reflected in field
ten (10) multiplied by the current mileage
rate of $.26 per mile.
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Air Transportation
Field/column twelve (12) is used to record the
cost of air flight related to business travel.
Each trip taken must be separately reported.
However, the cost of tickets for each trip
need not be separated between cost of
traveling to and returning from destination.
Total costs of trip may be reflected on
either date of departure or date of return.
All air transportation expenses must
be supported by the actual airline ticket
passenger receipt received from the respective
airline. The invoice itinerary received from
the travel department will not satisfy
IRS regulations for support of air travel
expenses.
Car Rentals
All costs associated with the renting of a
vehicle while on business are to be reported
in field/column thirteen (13) of the expense
report. Rental fees include charges for excess
mileage over mileage limits, when applicable.
Business Meals/Entertainment - Employees Own
The costs of all meals incurred by employee
while on a business trip that do not include
anyone else are to be recorded in fields/
columns fifteen (15) and sixteen (16). Sixteen
(16) is simply for recording the actual costs
of meals (with one exception for exempt
employees - see expense guidelines section
concerning meal expenses). Fifteen (15) is
used to code the expenses shown as either
breakfast, lunch, dinner or other
(entertainment). The codes to be used are as
follows:
B - Breakfast
L - Lunch
D - Dinner
O - Other (entertainment, groceries,
etc.)
Also, name and address (city and state at a
minimum) must be provided in field/column
eight (8).
Incidentals (snacks), such as cokes or candy
bars, are not to be coded to business
meals. Instead, these items should be coded to
miscellaneous - other expenses code "F" (See
discussion of miscellaneous expenses below).
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Business Meals/Entertainment with Others
The costs of all meals of employee and others
that are business related in nature and paid
for by employee should be recorded in fields/
columns seventeen (17) and eighteen (18). The
cost of employee's own meal should be included
in the total amount shown in field/column
eighteen (18) and should not be listed
separately.
Field/column seventeen (17) is used to code
the expenses shown as either breakfast, lunch,
dinner, or other (entertainment). The codes to
be used are as follows:
B - Breakfast
L - Lunch
D - Dinner
O - Other (Entertainment)
Also, name and address (city and state at a
minimum) must be provided in field/column
eight (8).
For each business meal with others listed on
the expense report the following information
must be included in field nine (9):
Name, title, and business relationship of all
client/potential client personnel dined.
Name, title, and business relationship of all
SI personnel present besides employee
incurring/reporting the expense. (Note: SI job
title or job code of SI employee will satisfy
title requirements - e.g. E01, E10).
Business purpose of meal.
Reason additional SI employee(s) were present.
Also, for entertainment expenditures the
following information must be included in the
indicated field:
Nature of entertainment (field/column eight
(8))
Nature and duration of any business discussion
or activity (field/column nine (9))
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Miscellaneous
The amount of all miscellaneous business
expenses incurred should be recorded
separately in field/column twenty (20). For
every expense reflected in field/column twenty
(20), the expense must be coded in
field/column nineteen (19). There are six
different codes available for miscellaneous
expenses which are:
A - Tips (other than for meals and
taxis)
B - Telephone and FAX
C - Tolls and parking
D - Laundry and dry cleaning
E - Taxi (including tip)
F - Other (explain)
The nature of all items reflected as
miscellaneous must be sufficiently described
in field eight (8) to reflect the nature of
the incurred expense. Also, if a receipt is
not available for a particular miscellaneous
expense, then "Receipt not available" should
be entered after the expense description in
the Business Purpose/Relationship column.
Exchange Rate
If the currency in which expenditures were
incurred is different from the currency in
which expenses are to be reimbursed, the
exchange rate of the two currencies must be
recorded in field twenty-one (21). The
exchange rate required is the "number of
expenditure currency units per one
reimbursement currency unit".
Totals in reimbursement currency will then
equal the totals in expenditure currency
multiplied by the exchange rate.
Reason for Trip
This field (field twenty-two (22)) can only be
used if only one trip is reflected in the
expense report. (Note: Even if field
twenty-two (22) is used, the business purpose
of any reported meals and/or entertainment
must still be completed.)
c. Approval and Reporting Section
Employee Signature and Date
After completing the expense report the
employee must sign the expense report and date
his/her signature as of the date the expense
report is completed in field twenty-three
(23).
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MAIL CHECK TO:
If employee needs to have the expense
reimbursement check sent to somewhere besides
his/her base cost center, field twenty-six
(26) must be filled in with the cost center
number where the reimbursement check is to be
sent. If this field is left blank, the
reimbursement check will be sent to employee's
base cost center (shown in field four (4)).
Checks will not be sent to home addresses.
Cost Center Copy To Center Number
If reported expenses are charged to a center
other than employee's base cost center then
the cost center charged should maintain the
cost center copy of the report after approval
(see Approval Signature Section below). Field
twenty-seven (27) should be used to reflect
which cost center is maintaining the copy of
the expense report.
Funded Projects
If the expenses recorded on the expense report
are related to a funded project, this field
(field twenty-eight (28)) must be checked
"yes" and the name of the project must be
provided in this field. (This field is for
cost center use only, not intended for use by
accounting.)
Reimbursement Currency
Field twenty-nine (29) should reflect the
currency in which expenses are to be
reimbursed. The currency listed here must be
an eligible SI reimbursement currency.
Total Expense
This field (field thirty (30)) will show the
total of all expenses in the reimbursement
currency.
Advance Received
Field thirty-one (31) is to be used to reflect
any advances employee has received since the
last expense report that was filed. The
permanent expense advance available to
American Express Corporate Cardholders is not
to be shown here.
Total Due
Field thirty-two (32) is the difference
between field thirty (total expense) less
field thirty-one (advance received).
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General Ledger Coding
After reviewing an employee's expense report,
the approving cost center manager must
complete field thirty-three (33) by showing
what general ledger accounts will be used to
record the reported expenses and how much will
be posted to each account. This section must
be completed by the approving cost center
manager, or manager's designee. The general
ledger coding should be completed on the last
page of the expense report.
Approval Name and Signature
After reviewing and completing the expense
report, the approving cost center manager, or
manager's designee, must print his/her name in
field twenty four (24) and then sign and date
the report in field twenty-five (25) to
indicate his/her approval of the expense
report. Approval must be on the same page of
the expense report as the general ledger
coding, which should be the last page of the
report.
Accounting Department Use Only
Field thirty-four (34) has been reserved for
the use of the accounting department and
should not be marked or written in by employee
or approving manager.
d. Supporting Documentation of Expenses Requirements
The IRS has very strict documentation requirements
related to travel and entertainment expenses. The
following is a listing of documentation requirements
for employee expenses.
Transportation
An original invoice must be attached to the employee
expense report for all car rental fees.
For air transportation, the passenger receipt copy of
the airline ticket must be attached. The itinerary
invoice received from the travel department is not
sufficient documentation that trip was actually taken.
Lodging
An original detailed invoice from the hotel must be
attached. This invoice must breakout non-room charges
from room charges (i.e. invoice must show meals,
laundry, etc. as separate line items). An American
Express (or other credit card) receipt for payment of
a lodging bill is not sufficient documentation
of lodging expenses.
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Business Meals/Entertainment
An original receipt of all meals/entertainment
expenditures of $25.00 or more must be attached to the
employee expense report. Although a receipt of
meals/entertainment expenditures less than $25.00 is
not required, original invoices for these expenses
should be attached to the expense report also, if
available.
Miscellaneous
An original receipt for all miscellaneous expenses
(whether more or less than $25.00) should be attached
to the expense report, unless such documentation is
not readily available.
Exchange Rate
If employee is being reimbursed in a different
currency other than the currency in which expenses
were incurred, support for the exchange rate used must
be attached (e.g. exchange rate listing in Wall Street
Journal).
Advances
If an employee is reflecting a temporary travel
advance on his/her expense report, the check stub of
the advance (or of each advance if more than one
advance is being reflected on expense report) must be
attached to the expense report.
e. Expense Report Processing
All expense reports must be approved and the general
ledger coding completed by the cost center manager (or
his/her designee) before being forwarded to the
Accounting Department for payment. Only the Accounting
Department copy (including attached original invoices)
should be forwarded to Accounting.
If adequate documentation is not included on or with
the expense report the Accounts Payable Department
will return it for additional information/
documentation before reimbursement will be made.
Expense forms may be ordered from Office Services at
corporate headquarters in Little Rock.
3. Trouble Shooting - Questions and Answers
This section is designed to address the questions/problems that
often result in expense reports being returned by the
Accounting Department unprocessed to the employee.
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a. Questions Relating to Reporting Problems
Q-1. How do I document business travel?
A-1. Under "Activity/Itinerary", list the
transportation, meal, lodging, etc., relating
to the travel. Under "Reason for Trip" list
the business purpose of the trip. Use the
"Business Purpose/Relationship" column to
explain further any business meal or
entertainment during the trip, as discussed
above. List your meals while eating alone
under "Employee's Own" meals, and list meals
with others under the "With Others" column.
Business meals must be broken out separately
from lodging and coded as breakfast, lunch or
dinner. Please code all miscellaneous expenses
as described at the top of the expense report
form.
Q-2. What is the difference between the "Activity/
Itinerary" column and the "Business
Purpose/Relationship" column?
A-2. The first column is for documenting the place
you went or the activity in which you were
engaged [for example - "Travel to Dallas" or
"Lunch at (name and address of restaurant)"].
The second column is for documenting why you
made the trip or engaged in the activity (for
example - "to help client with conversion of
Real Estate system" or "entertaining Joe
Smith, V.P. of First National Bank,
prospective client, to discuss SI software
which FNB may purchase").
Q-3. Do I still need to include the name and
address of the restaurant at which I dined, if
the meal was less than $25.00?
A-3. Yes, no matter what the cost of the meal is,
the name and address (city and state at a
minimum) of the restaurant must be listed in
the Activity/Itinerary column for each meal
reported on the expense report.
Q-4. If I am on a business trip and eat lunch by
myself, is this still a business
meal?
A-4. Any meal eaten while on Company business is
considered a business meal and is a
reportable/allowable business expense. If you
eat alone you should show the cost of each
meal separately and enter the expense in the
"Business Meals/Entertainment - Employee's
Own" columns of the expense report.
Q-5. How do I document a business lunch?
A-5. List date in the "Date" column, lunch at "X"
restaurant (give name and address of
restaurant) in the "Activity/Itinerary"
column, business purpose of the meal and
names, titles, and business relationships of
persons entertained in the "Business
Purpose/Relationship" column. Under "Business
Meals-With Others", code for lunch and list
the amount
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MANAGEMENT GUIDE
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including tips. If you pay for a meal which
includes other SI staff, use the "With Others"
column for the entire bill, name the persons
included, and list their titles and reasons
for being there.
Q-6. How specific must I be in the description of
the business purpose of meals/entertainment
with others?
A-6. The description must be specific enough to
identify the nature of the topics discussed
(e.g. "Discussed software packages available
to client."). Simply using "Business Meal" as
the description is not adequate documentation.
If discussions concerned confidential
material, then "Subject matter confidential"
will be a sufficient description.
Q-7. If other SI employees' meal charges are
included in amount of "meals with others" what
documentation is needed?
A-7. When other SI staff meals are included, the
"Business Purpose/Relationship" column of the
expense report must include the name of each
SI staff present, each SI staff's title, and
the reason each staff was present. (Note: When
SI employees are included, SI job title or job
code of SI employees will satisfy title
requirements - e.g. E01, E10.) Entering the SI
staffs' names and indicating "SI employees" is
not adequate documentation.
Q-8. How do I document business entertainment?
A-8. Business entertainment requires the same
general information required for business
meals. In addition, under "Activity/Itinerary"
specify the nature of the entertainment. Under
"Business Purpose/Relationship", discuss the
nature and duration of any business discussion
or activity.
Q-9. How do I document local mileage?
A-9. List each trip separately showing the number
of miles, the destination in the
Activity/Itinerary Column and the business
reason for the local mileage in the Business
Purpose/Relationship column.
Q-10. How do I document foreign travel when foreign
currency is used?
A-10. Attach receipts in the foreign currency and
complete the body of the report in
"expenditure currency" (the currency actually
spent while traveling). The Company can
reimburse in certain foreign currencies. If
you are being reimbursed in the same currency
as the expenditure currency, complete the
totals and general ledger coding in that
currency and ignore the exchange rate column.
If you are being reimbursed in a different
currency (such as U.S. dollars), complete the
totals and general ledger coding in the
"reimbursement currency" and show the exchange
rate you are using. Attach support for the
exchange rate used.
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9-28 COMPANY CONFIDENTIAL
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TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
Q-11. When miscellaneous expenses are reported is
any other documentation required besides
coding the expenses?
A-11. Each miscellaneous expense should be described
in sufficient detail in the Activity/Itinerary
column and the Business Purpose/Relationship
column. (See also question 2 above).
Descriptions in these columns should support
the chosen coding of the expense.
Q-12. Can I be reimbursed for my spouse's meal or
other expenses when he/she accompanies me on
business?
A-12. Meals or other expenses incurred by an
employee's spouse are normally not considered
a business-related expense and cannot be
reimbursed by SI. However, in certain unusual
circumstances such expenses could be deemed
appropriate with prior approval of cost center
manager or above.
b. Questions Relating to Supporting Documentation
Problems
Q-1. Why do I have to submit supporting
documentation for my business expenses?
A-1. According to the 1988 Family Security Act,
"starting in 1989, employers must withhold on
reimbursements unless the employee (1)
adequately accounts to the employer for
his/her expenses and (2) returns any
reimbursement that exceeds those expenses."
Thus, beginning in 1989, not only will the IRS
deem inadequately-supported business expenses
of an employee as taxable income to the
employee for Federal tax withholding purposes
(which Internal Revenue Code requires), but
the IRS will also treat such expenses as
income to the employee for FICA withholding.
This treatment by the IRS will not allow full
reimbursement to an employee if the employee
does not adequately support business expenses.
Instead, the employee will receive total
expenses less federal income taxes and FICA
withholding taxes.
Q-2. What do I attach to the expense report?
A-2. Attach original receipts for all business
travel and lodging expenses, and business
receipts for all business meal and
entertainment expenses of $25.00 or more.
Q-3. What is considered adequate support for air
transportation expenses?
A-3. For all air transportation expenses listed on
the employee expense report, the actual
passenger receipt of the airline ticket
received from the airline must be attached.
The itinerary invoice received from the travel
department is not sufficient support for air
transportation.
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COMPANY CONFIDENTIAL 9-29
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Q-4. Can I use an American Express receipt for my
lodging expenses if I lost my hotel receipt?
A-4. American Express receipts cannot be used as
support for reported lodging expenses. Lodging
expenses must be documented by a detailed bill
received from the hotel that breaks out
charges between room fees, meals, laundry,
etc. If your copy of this receipt is lost you
will have to contact the appropriate hotel
location and request that another copy of your
hotel bill be sent to you, which will then be
attached to the appropriate expense report.
Also, on the copy of the hotel bill attached
to the expense report, it must be documented
why the original copy of bill was not
attached.
Q-5. Do I need receipts for miscellaneous expenses
less than $25.00?
A-5. Original receipts should be obtained for any
and all miscellaneous business expenses when
possible. If a receipt was not available for a
particular miscellaneous expense, then
"Receipt not available" should be entered
after the expense description in the Business
Purpose/Relationship column.
c. Questions Relating to Recording Problems
Q-1. How do I code business meals to the general
ledger?
A-1. Certain general ledger accounts are set up to
be used specifically for business meals and
entertainment expenses. The IRS disallows 20%
of the deduction for these items, so they must
be kept separately on the general ledger.
Business meals must be broken out separately
from lodging expenses so that they can be
classified accordingly. Unless you are
reporting meals relating to relocation, you
should use one of two meal accounts as
follows:
<TABLE>
<CAPTION>
Account Number Description Purpose
- -------------- -------------------
<S> <C>
690 Business Meals and Travel, Entertainment Meals, Entertainment
820-0100 Travel Education Meals; Training Department meals and meals when
traveling to outside seminars.
</TABLE>
All business meal and entertainment expenses,
including tips, should be coded to one of these
account numbers. An exception to this rule would be
for meals which are funded by a client. If funded
meals are separately stated on the client's bill from
us, we should not code these meals to the above
accounts. In the past,
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9-30 COMPANY CONFIDENTIAL
<PAGE> 106
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
accounts #680 or #680-0100 have been used for such
meals. These accounts or any other reasonable account
should be used.
Q-2. How do I code business entertainment expenses
on the general ledger?
A-2. Please note that any business entertainment
expenses must be posted to account 690. This
would include entertainment at night clubs,
cocktail lounges, theaters, country clubs,
dinner clubs, sporting events, and travel and
lodging for taking clients on a trip for
entertainment purposes. Please note that when
dues are paid for employees for country clubs
or dinner clubs, these dues must also be
coded to account 690. This is true whether
the expense is being paid directly by A/P or
being paid to the employee on the expense
report. Such dues should only be paid for by
the Company if the club is being used
exclusively for business entertainment.
Otherwise, the employee will have imputed
compensation to be included in the Form W-2.
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COMPANY CONFIDENTIAL 9-31
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9-32 COMPANY CONFIDENTIAL
<PAGE> 108
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
EXHIBIT A
MEETING TRAVEL WORKSHEET SAMPLE FORM
In order to take advantage of the lowest fare available, please return
worksheets to the Travel Department at Corporate at least 3 weeks prior to
travel departure date.
NAME____________________________________ EMPLOYEE NO.___________________________
COST CENTER NAME _______________________ COST CENTER NO. _______________________
BUSINESS TELEPHONE NO. _________________ HOME TELEPHONE NO. ____________________
SI CLASS NAME ______________________ CLASS NO. ______________ DATES ____________
(if applicable)
ADDRESS AND TO WHOM TICKETS SHOULD BE SENT _____________________________________
________________________________________________________________________________
________________________________________________________________________________
SEATING PREFERENCE _____________________________________________________________
LIST AIRLINE FREQUENT FLYER NUMBERS
DELTA ____________________ AMERICAN ____________________________
UNITED ___________________ TWA__________________________________
NORTHWEST ________________ OTHER _______________________________
PIEDMONT _________________ OTHER________________________________
DATE(S) FROM TO APPROXIMATE
OF TRAVEL CITY/AIRPORT CITY/AIRPORT TIME OF DEPARTURE
_________ ____________ ____________ _________________
_________ ____________ ____________ _________________
_________ ____________ ____________ _________________
_________ ____________ ____________ _________________
CREDIT CARD FOR CHARGING TICKETS AND/OR GUARANTEEING LATE ARRIVAL (SUCH AS
CORPORATE AMERICAN EXPRESS CARD).
______________________ _____________________ _________________________
CARD COMPANY CARD NUMBER EXPIRATION DATE
SPECIAL REQUESTS OR COMMENTS: _______________________________________________
________________________________________________________________________________
________________________________________________________________________________
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COMPANY CONFIDENTIAL 9-33
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9-34 COMPANY CONFIDENTIAL
<PAGE> 110
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
EXHIBIT B
SI COMPANY OWNED VEHICLE DRIVER INFORMATION SAMPLE FORM
SI COMPANY VEHICLE DRIVER INFORMATION
Name ___________________________________________________________________________
Date of Birth __________________________________________________________________
Driver's License No. ___________________________________________________________
State of Issuance ______________________________________________________________
I acknowledge that I have read the Systematics' Company Owned Vehicle
Policy and am in compliance with all requirements as stated in the policy to be
qualified as a designated driver of Systematics owned vehicles.
It is also understood that I will abide by all procedures as stated in
the policy.
___________________________________________ _____________________________
SIGNATURE DATE
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COMPANY CONFIDENTIAL 9-35
<PAGE> 111
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9-36 COMPANY CONFIDENTIAL
<PAGE> 112
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
EXHIBIT C - SYSTEMATICS COMPANY OWNED VEHICLE LOG/DISPATCH SAMPLE FORM
VEHICLE I.D. NO. __________________
<TABLE>
<CAPTION>
Purpose of Trip Maintenance
Time Time (Passengers, Requirements
Driver Date Out In Mileage Destination Employees, Clients) Fuel Levels and Others
------ ---- ---- ---- ------- ----------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
COMPANY CONFIDENTIAL 9-37
<PAGE> 113
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9-38 COMPANY CONFIDENTIAL
<PAGE> 114
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EXHIBIT D
SI TRAVELER'S PROFILE SAMPLE FORM
NAME ________________________________ EMPLOYEE NO. ___________________________
COST CENTER NAME ____________________ COST CENTER NO. ________________________
BUSINESS TELEPHONE NO. ______________ HOME TELEPHONE NO. _____________________
HOME ADDRESS ___________________________________________________________________
SEATING PREFERENCE (FLIGHTS UNDER 2 HRS. WILL BE NONSMOKING ONLY):
SMOKING ___ NONSMOKING ___ WINDOW ____ AISLE ____ OTHER ____
AIRLINE PREFERENCE
(LIST SPECIAL NUMBERS WITH AIRLINES NEXT TO APPROPRIATE AIRLINE)
AMERICAN _______________________ DELTA __________________________________
UNITED _________________________ TWA ____________________________________
NORTHWEST ______________________ OTHER __________________________________
SOUTHWEST ______________________ OTHER __________________________________
CAR RENTAL PREFERENCE AND SPECIAL NUMBERS
HERTZ # 1 ____________________________ AVIS WIZARD NUMBER _____________________
NATIONAL PRIVILEGE PROGRAM ___________ BUDGET RAPID ACTION NO. ________________
OTHER __________________________________________________________________________
CAR SIZE PREFERENCE
COMPACT ___ STANDARD ___ LUXURY ___ ECONOMY ___ INTERMEDIATE _____
PROOF HOTEL FREQUENT GUEST NUMBERS
HOTEL ________________________________ SPECIAL NUMBER _________________________
HOTEL ________________________________ SPECIAL NUMBER _________________________
CREDIT CARD FOR CHARGING TICKETS AND/OR GUARANTEEING LATE ARRIVAL
(SUCH AS CORPORATE AMERICAN EXPRESS CARD)
______________________ _____________________ _________________________
CARD COMPANY CARD NUMBER EXPIRATION DATE
SPECIAL REQUESTS OR COMMENTS: __________________________________________________
________________________________________________________________________________
PASSPORT NO.: ________________________ COUNTRY OF ISSUE: ______________________
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COMPANY CONFIDENTIAL 9-39
<PAGE> 115
MANAGEMENT GUIDE
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9-40 COMPANY CONFIDENTIAL
<PAGE> 116
Page 1 of 2
Form of Systematics, Inc.
Employee Expense Report
Company Confidential 9-41
<PAGE> 117
Page 2 of 2
Form of Systematics, Inc.
Employee Expense Report
Company Confidential 9-42
<PAGE> 118
TRAVEL AND EXPENSES
- --------------------------------------------------------------------------------
EXHIBIT F
FISCAL 1991 CUT-OFF SCHEDULE
<TABLE>
<CAPTION>
TYPE* DATE DAY AND TIME (CST)
- ---- ---- ------------------
<S> <C> <C>
A/P 1 June 13, 1990 Wednesday - 12:00 p.m.
A/P 2 June 20, 1990 Wednesday - 12:00 p.m.
A/P 1 June 27, 1990 Wednesday - 12:00 p.m.
JV June 29, 1990 Friday - 5:00 p.m.
A/P 2; June BRs July 5, 1990 Thursday - 5:00 p.m.
A/P 1 July 18, 1990 Wednesday - 12:00 p.m.
A/P 2 July 25, 1990 Wednesday - 12:00 p.m.
JV July 31, 1990 Tuesday - 5:00 p.m.
A/P2; July BRs August 3, 1990 Friday - 5:00 p.m.
A/P 1 August 15, 1990 Wednesday - 12:00 p.m.
A/P 2 August 22, 1990 Wednesday - 12:00 p.m.
A/P 1 August 29, 1990 Wednesday - 12:00 p.m.
JV August 31, 1990 Friday - 5:00 p.m.
A/P 2; August BRs September 6, 1990 Thursday - 5:00 p.m.
A/P 1 September 19, 1990 Wednesday - 12:00 p.m.
A/P 2 September 26, 1990 Wednesday - 12:00 p.m.
JV September 28, 1990 Friday - 5:00 p.m.
A/P 2; Sept. BRs October 3, 1990 Wednesday - 5:00 p.m.
A/P 1 October 10, 1990 Wednesday - 12:00 p.m.
A/P 2 October 17, 1990 Wednesday - 12:00 p.m.
A/P 1 October 24, 1990 Wednesday - 12:00 p.m.
A/P 1 October 31, 1990 Wednesday - 12:00 p.m.
JV October 31, 1990 Wednesday - 5:00 p.m.
A/P 2; Oct. BRs November 5, 1990 Monday - 5:00 p.m.
A/P 1 November 14, 1990 Wednesday - 12:00 p.m.
A/P 2 November 20, 1990 Tuesday - 12:00 p.m.
A/P 1 November 28, 1990 Wednesday - 12:00 p.m.
JV November 30, 1990 Friday - 6:00 p.m.
A/P 2: Nov. BRs December 5, 1990 Wednesday - 5:00 p.m.
A/P 1 December 12, 1990 Wednesday - 12:00 p.m.
</TABLE>
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COMPANY CONFIDENTIAL 9-43
<PAGE> 119
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<TABLE>
<CAPTION>
TYPE DATE DAY AND TIME (CST)
- ---- ---- ------------------
<S> <C> <C>
A/P 2 December 19, 1990 Wednesday - 12:00 p.m.
A/P 2; Dec. BRs January 4, 1991 Friday - 5:00 p.m.
A/P 1 January 16, 1991 Wednesday - 12:00 p.m
A/P 2 January 23, 1991 Wednesday - 12:00 p.m.
A/P 1 January 30, 1991 Wednesday - 12:00 p.m.
JV January 31, 1991 Thursday - 5:00 p.m.
A/P 2; Jan. BRs February 5, 1991 Tuesday - 5:00 p.m.
A/P 1 February 13, 1991 Wednesday - 12:00 p.m.
A/P 1 February 20, 1991 Wednesday - 12:00 p.m.
A/P 1 February 27, 1991 Wednesday - 12:00 p.m.
JV February 28, 1991 Thursday - 5:00 p.m.
A/P 2; Feb. BRs March 5, 1991 Tuesday - 5:00 p.m.
A/P 1 March 13, 1991 Wednesday - 12:00 p.m.
A/P 2 March 20, 1991 Wednesday - 12:00 p.m.
A/P 1 March 27, 1991 Wednesday - 12:00 p.m.
JV March 29, 1991 Friday - 5:00 p.m.
A/P 2; Mar. BRs April 2, 1991 Wednesday - 12:00 p.m.
A/P 1 April 10, 1991 Wednesday - 12:00 p.m.
A/P 2 April 17, 1991 Wednesday - 12:00 p.m.
A/P 1 April 24, 1991 Wednesday - 12:00 p.m.
JV April 30, 1991 Tuesday - 5:00 p.m.
A/P 2; Apr. BRs May 3, 1991 Friday - 5:00 p.m.
A/P 1 May 15, 1991 Wednesday - 12:00 p.m.
A/P 2 May 22, 1991 Wednesday - 12:00 p.m.
A/P 1 May 29, 1991 Wednesday - 12:00 p.m.
JV May 31, 1991 Friday - 5:00 p.m.
A/P 2; May BRs June 5, 1991 Wednesday - 5:00 p.m.
</TABLE>
TYPES
A/P 1 - Invoices and Check Requests Only
A/P 2 - Invoices, Check Requests and Expense Reports
BRs - Billing Registers
JV - Journal Vouchers (Intercompany Transactions Only)
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9-44 COMPANY CONFIDENTIAL
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EXHIBIT G
TRAVEL DIFFERENTIAL FORM
Employee Employee
Name ______________________ Number _________________________ Date ____________
TRAVEL ITINERARY
DEPARTURE ARRIVAL
Date Time Place Date Time Place
________ __________ _________________ ________ __________ _____________
A. Business Fare ________________________ (attach Business Fare Quote)
B. Economy Fare ________________________ (attach copy of used ticket)
C. Difference ________________________
Describe Purpose and Objective of Trip:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Employee Signature__________________________________________ Date _____________
Department Manager Approval ________________________________ Date _____________
________________________________________________________________________________
ACCOUNTING INFORMATION c.____________________
Cost Center ________________ x 30% Forward Completed Form
------- to Accounting (90-40)
Attention - Payroll
Description ________________ _____________ TRAVEL DIFFERENTIAL
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COMPANY CONFIDENTIAL 9-45
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9-46 COMPANY CONFIDENTIAL
<PAGE> 122
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EXHIBIT H
VISA Assistance Center Toll-Free Numbers
Australia 0014-800-125-440
Bahamas 1-800-847-2911
Belgium 11-8397
Bermuda 1-800-847-2911
Brazil 000-811-933-5589
Brit VI 1-800-847-2911
Canada 1-800-847-2911
Cayman I 1-800-847-2911
Denmark 8001-0277
France 19-05-90-1179
Germany 0130-81-1844
Hong Kong 800-7025
Indonesia 00800-1-933-6294
Israel 00-177-916-7805
Italy 1678-19-014
Jamaica 0-800-847-2911
Japan 0031-11-1555
Mexico 95800847-2911
Netherlands 06-022-3110
New Zealand 0800-44-3019
Norway 050-12052
Philippines 800-111-9015
Singapore 800-1544
South Korea 008-1-800-908-8212
St. Kitts/Nevis 1-800-847-2911
St. Maarten 800-1519
Sweden 020-795-675
Switzerland ###-##-####
Thailand 001-800-1-908-6624
United Kingdom 0800-89-1725
United States 1-800-VISA-911
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COMPANY CONFIDENTIAL 9-47
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9-48 COMPANY CONFIDENTIAL
<PAGE> 124
EMPLOYEE BENEFITS
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The cost of a move can be very expensive and is a significant factor in
determining who is selected for a position. Management has a
responsibility to control these costs and maintain a balance between
relocation costs and staffing requirements. This means that the manager
responsible for the relocation decision has to relate the cost of each
potential move to the value of having the employee in the new location:
priority of the job (start up, serious problem), scarcity of the skill
required, and employee performance potential.
To help control costs associated with relocation, managers should pay
close attention to the following:
a. controlling the number of moves - especially laterals between
data centers and the number of homeowners moved.
b. reducing the frequency of homeowner moves and encouraging
renting if an assignment is to be for less than two years
and/or in a risky real estate market.
c. understanding/planning housing costs and availability in new
areas.
Although employees should maintain a personal stake in real estate
decisions, managers need to help employees make better home purchase
decisions, such as avoiding quick home purchases. They should also
encourage employees who anticipate frequent relocations to rent, not
buy homes.
2. General
Managers must carefully assess and control the Company's exposure in
moving employees. For this reason all commitments to pay for employee
relocation expenses must be approved by an account manager or
equivalent level manager. In addition, certain reimbursements must be
approved by regional managers:
a. the relocation expenses for an account manager;
b. any loss of equity exceeding $5,000;
c. exceptions to the policy.
Further, an estimate of costs involved in a relocation decision must be
obtained from the Company's relocation department prior to
making any expense commitment to employees incurring real estate
expenses. (A copy of the "Authority for Relocation" form is included at
the end of this section.)
3. Allowable Moving Expenses
The following are allowable moving expenses paid for by the Company for
existing Systematics employees.
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a. Household Goods - The Company pays the direct expenses of
moving the employee's household goods to the new location. The
Relocation Manager will contact the moving Company under
contract to the Company for moving household goods. Household
goods include furniture, linen, bedding, dinnerware,
silverware, rugs, appliances, kitchen utensils, hand tools,
and clothing. Household goods do not include unusually heavy
or cumbersome hobby materials, automobiles, firewood, loose
bricks, patio stones, hazardous materials, farm equipment,
sporting or recreational equipment requiring special vans or
moving equipment beyond what is needed to move your household
goods, or animals other than household pets.
b. Automobiles - The Company will pay 15 cents per mile per car
to move up to two cars to the new location.
c. Family Expenses Enroute - The Company will pay reasonable
food and lodging expenses incurred by the employee and family
enroute to the new location. The employee will be reimbursed
for not more than one night's lodging for each 350 miles
traveled. Lodging for the night of arrival is considered a
moving expense.
d. Temporary Living Expenses - When necessary, the Company will
pay for the employee's and/or family's temporary living
expenses at the new location for up to seven days. The seven
days begin with expenses incurred after midnight of the day of
arrival at the new location.
e. House Hunting Trips - When necessary, the Company will pay for
the employee and/or spouse to travel to the new location for
the purpose of locating housing. All reasonable expenses will
be reimbursed including airfare, mileage, lodging and meals
up to seven days. If home purchase is involved, the employee
should delay the house hunting trip until the old home has
been appraised and the employee's financial situation is
known.
f. Relocation Allowance - The Company will pay relocating current
employees a one-time relocation allowance equal to 7 1/2% of
the employee's pre-move base salary up to a maximum of $3,000.
This item is treated as ordinary income and all appropriate
taxes will be withheld. This allowance will be paid by
separate check upon request by Relocation.
When a husband and wife or co-habitants work for Systematics
and both are transferred to the same new location, only one
relocation allowance will be paid. The allowance will be paid
to the employee with the greatest entitlement or to the
employees' choice if both entitlements are the same.
The relocation allowance is provided to pay for miscellaneous
out-of-pocket expenses such as: installation of appliances,
house cleaning, driver and auto licenses reissues, shipping of
a third car, telephone and telegraph charges, removal and
installation of drapery and curtain rods, babysitting fees,
utility deposits or required utility connection fees, laundry,
and dry cleaning.
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4-44 COMPANY CONFIDENTIAL
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EMPLOYEE BENEFITS
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g. Lump Sum Payment - Substitution of cash payments in lieu of
relocation expense may be made up to a maximum of $5,000. This
lump sum payment is in addition to the relocation allowance and
will be reported in the employee's gross income.
The amount of the cash payment must be based on estimates of
deductible moving expenses. Any payment above the deductible
expenses is considered taxable income, and the Company is
required to withhold all taxes from that amount. The employee
will be responsible for maintaining an itemized record of
expenses for tax purposes and for paying any additional taxes
incurred.
h. Other expenses - In certain situations it may be necessary to
reimburse employees for expenses not listed above. These could
include the cost of breaking a lease, additional temporary
living expenses at the new location, rental of U-Haul type
vehicles, etc. The account manager should thoroughly discuss
with the employee any specific assistance to be received. The
assistance agreed upon should be documented and copies
forwarded to the Relocation Department to prevent future
misunderstanding.
4. Real Estate Management Expenses
Some relocations are of greater value or urgency to the Company than
others and may require the Company to incur higher costs. Specifically,
the Company may be required to assist relocating employees with costs
associated with the disposal and acquisition of their homes. In those
cases where the account/regional manager judges the move to be of
enough importance (see Statement of Intent at the beginning of this
section), some or all of the following assistance may be offered to
employees.
a. Mortgage/Lease Payments - The Company may reimburse the
employee for mortgage or lease costs of an existing home for a
period of up to four months if there is not an equity
purchase.
b. Equity Purchase - The Company may arrange with the employee to
purchase the employee's interest in an existing home and
advance the amount of the employee's equity. In no case will
the Company's obligation exceed the appraised value of the
property.
In an equity purchase, BQFA Relocation Services, Inc. will be
notified to make arrangements to purchase the property. In
accordance with the agreement between Systematics and BQFA
Relocation Services, the employee will receive payment for any
equity in the house to be vacated in exchange for an assignment
of sales proceeds (Sales Agreement). On Company-requested
transfers, the employee will have no obligation for normal
expenses of closing and will receive full payment for the
equity. For new employees and employee-requested transfers, all
normal seller's closing costs will be estimated and the
offering price reduced by the estimated closing costs. This
benefit is only available on single-family residential property
currently serving as the employee's primary residence. The
procedures are as follows:
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(1) After determination that this benefit is to be
offered, the Relocation Manager will contact the
employee for all information pertinent to the
property. This information will include a signed
disclosure statement concerning the condition of the
house, need for repairs, upgrades.
(2) The employee may select an appraiser from a list of
local real estate appraisers provided by BQFA. That
appraiser and one chosen by the Company will be
contacted by BQFA and directed to make a written
appraisal of the property.
(3) If the two appraisals are within five percent of each
other, BQFA will average the two to determine the fair
market value. If the variance is greater than five
percent, a third appraisal will be obtained. The two
closest (that are within 5%) will be averaged to
determine the fair market value and the remaining
appraisal disregarded.
(4) A written offer will be presented to the employee and
will be valid for 30 days (720 hours) from the date
written. No counter offers or conditional offers will
be accepted.
(5) If the employee accepts the offer, acquisition closing
statements and other documents will be prepared as of
the date that the employee vacates the property or
closes on a new house, whichever is sooner. Once an
employee has accepted the offer in writing, an advance
against the equity will be provided if such an advance
is required for the purchase of a new residence or to
defray expenses incurred as a result of the move. Only
that amount of equity needed to purchase the new
residence or to defray expenses will be advanced.
Payment of any remaining equity will be deferred until
the property is sold to a new buyer.
(6) Should the employee decline or ignore the
offer, reimbursements for mortgage/lease payments,
closing costs, interest differentials may be granted
to an existing employee, but in no case will the
benefits exceed those listed here.
(7) In the case of acceptance, BQFA will arrange for
future payments and other carrying costs to be assumed
from date of closing to date of ultimate sale. As the
"Sales Agreement" will state, from this date the
employee has no liability other than to deliver clear
title and will not participate in any profit or loss
resulting from the ultimate disposition of the
property.
(8) BQFA Relocation Services, Inc. has been authorized to
approve offers to purchase a property when the sale
price would result in a loss of not more than three
months' carrying costs. If the loss will exceed three
months' carrying costs, the account manager must
approve the sale. Also, the Relocation Manager will
have the authority to approve the sale of homes within
certain parameters for list and sale prices
established by the management committee.
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c. Closing costs - The Company may reimburse standard and
reasonable realtors' fees and closing costs that employees
incur in selling their homes as part of a relocation. These
include the seller's real estate commission up to 7% and other
normal, required seller's closing costs on the old home.
d. Interest Rate Differential - The Company may partially
reimburse the employee for difference in interest costs to the
employee if the interest rate of the employee's mortgage in the
new location is higher than that on the employee's existing
mortgage. These payments will be based on the lower of the two
mortgages. The Company will pay a portion of the increase as
follows:
First 12 payments 75%
Second 12 payments 50%
Third 12 payments 25%
Payments do not continue beyond payment 36.
If there is more than one mortgage on the old property, the
principal balance and interest rate of each mortgage will be
used to determine mortgage balance and effective interest rate
to be used. If the employee takes out a second mortgage to
purchase a home in the new location, the same procedure will be
used to determine the effective rate of interest on the new
mortgage(s). The following procedure will be used to determine
the effective rate of interest.
The sum of the products of mortgage balance(s) X interest
rate(s) divided by the sum of the mortgages will be effective
interest rate. EXAMPLE:
<TABLE>
<CAPTION>
MORTGAGE BALANCE INTEREST RATE
<C> <C> <C> <C> <C> <C> <C>
1st $70,000 X 13.75 = $9625
2nd 3,500 X 15.00 = 525 10,150 = 13.8095%
------ ------ ------
73,500 10,150 73,500
</TABLE>
Mortgage balance old home = $73,500 - Effective interest rate = 13.8095%
After the differential is calculated, payments will be made to
the employee on the first of each month beginning with the
month of the first payment on the new mortgage. Once fixed,
this payment will not change for the life of the agreement
regardless of any subsequent changes in mortgage rates. All
such payments are taxable as ordinary income to the employee
and will be reported as such.
e. Loss of Equity - The Company may reimburse the employee for all
or part of any loss of equity the employee would experience as
a result of the sale of the existing home. If the loss exceeds
$5,000, reimbursement requires approval by the regional
manager. If the employee purchased the property prior to
Systematics requiring an independent appraisal of the property
at the time of purchase, the loss will be determined by
subtracting the appraised value at the time of transfer from
the purchase price. If an independent appraisal was obtained
when the employee
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purchased the property, the value will be the employee's
purchase price or 102% of the market value as established by
the independent appraisal, whichever is less.
f. Local Move - The Company may reimburse the employee for a
local move if the employee rents during the first twelve
months in the new location.
5. New Home Purchase
a. The Company requires and will pay for an independent
appraisal, full home inspection, and Radon gas test of a home
purchased by an SI employee or new hire as part of a Company
paid relocation. New construction houses and condominiums will
be appraised based on the sales of existing property, not
other new construction. The appraisal and inspections are
meant to protect both the employee and the Company from market
risk in subsequent transactions. Failure to complete the
appraisal and inspections prior to purchase of the new home
may disqualify the employee from receiving equity purchase
assistance from the Company in future relocation. If the
purchase price is over 102% of the appraisal, then the
employee would only be eligible for equity loss reimbursement
up to 102% of the appraised value in future relocations.
b. The Company may pay -- at the discretion of the Account
Manager -- certain costs associated with the purchase of a new
home. These may include the following: buyer's discount points
and loan origination fee up to a total of two percent of the
loan amount, and up to $1,500.00 of other normal, required
buyer's closing costs (excluding pre-paid items).
6. Real Estate Referrals
The Company has a contract with BQFA Relocation Services that allows
the collection of a referral fee when our employees purchase a home
through a realtor, if the realtor received the referral from BQFA.
Since this referral fee is used to reduce relocation expenses,
employees are encouraged to contact the Relocation Department prior to
contacting a realtor.
7. Salary Adjustments
Salary adjustments for current employees relocating from one area to
another are based on differences in the area pay indices. Area
differences in the cost of living are also considered and where
warranted, a temporary Area Living Differential is provided as a
supplement to base salary. Guidelines for salary adjustment procedures
may be found in the Wage and Salary Administration Manual.
8. Employee Requested Transfers
In general the Company will not pay any expenses associated with
relocations that result from a specific employee request to move for
personal reasons. However, if such moves do in fact meet legitimate
Company objectives, they may be treated as other relocations.
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9. New Employee Relocation Expenses
Employees coming to Systematics from other companies may receive
assistance for certain expenses including: Direct Moving Expenses,
House Hunting Trips, Mortgage Payments, and Equity Purchase (less
estimated closing costs) with the approval of the account manager.
10. Relocation Expense Agreement
A relocation expense agreement is required for both new hires and
existing employees when the total relocation expense exceeds $10,000.
This requirement should be included in the initial offer letter and
a copy of the relocation agreement should be attached to the
letter.
a. An employee who voluntarily leaves the Company will be expected
to reimburse the Company the full cost of relocation expenses
in accordance with the repayment schedule on the Relocation
Expense Agreement form. (A copy of the Relocation Expense
Agreement form is shown at the end of this section.) Service at
the new location will begin on the date that the employee is
placed on the payroll at that location.
b. Expenses to be repaid by the terminating employee include:
recruiting fees, house hunting trip, cost of moving household
goods, mileage allowance for moving vehicles, meals and lodging
enroute from the old to the new location, temporary living
expenses for the family, lump sum moving expense payments,
relocation allowance, duplicate mortgage payments, cost of
selling the employee's home, etc.
c. The employee will be expected to satisfy any liability to the
Company in cash on the date of termination. The Company may at
its sole discretion accept a personal note from the employee
for all or part of the amount of the liability in lieu of cash
payment. The note shall not exceed 90 days. The final check
will be withheld until such liabilities are satisfied or until
arrangements acceptable to Systematics are made to pay the
liability.
d. The Relocation Expense Agreement should be filed in the
employee's personnel record, and the employee and the
immediate supervisor should each keep a copy.
11. Income Tax Consideration
If the payment of any of the expenses described above results in
federal or state income tax liability for the employee, the amounts
paid to the employee will be adjusted so that the after-tax net yield
to the employee will satisfy the actual tax liability.
a. A complete accounting of the relocation expenses will be
furnished to the employee when the relocation is complete or at
the end of the calendar year. To compensate the employee for
the tax liability on the taxable portion of those expenses, the
Company will pay the IRS, in the employee's behalf, an
additional amount equal
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to 25% of the nondeductible portion of the reimbursement.
Additional compensation will be provided when the employee can
provide evidence that the 25% income tax addition is
insufficient to compensate for the added tax liability
resulting from the relocation. However, no additional
compensation will be provided due to loss of deductibility of
an expense caused by any act of the employee.
b. Any payments or reimbursement of expenses for employment-
related relocation, including amounts paid to a third party
for the benefit of the employee, must be included in the
employee's gross income. These amounts must be included in the
total on the employee's Form W-2 (Wage and Tax Statement).
Payments for nondeductible moving expenses are subject to
withholding of FICA and Income Taxes, while payments for
deductible expenses are not. Both of these amounts are to be
included in the "Wages, Tips, and Other Compensation" block
on the Form W-2.
c. Relocation expenses considered as income but deductible by the
employee are the following:
Reasonable expenses of moving household goods and personal
effects including the actual cost of transportation or hauling
from the old to the new residence, the cost of packing and
crating, in-transit storage and insurance.
Meals and lodging expenses incurred enroute from former to
new residence and on the day of arrival at new residence.
(Meals are only 80% deductible)
d. Reimbursements considered income but deductible within limits
include the following:
Pre-move travel, meals, and lodging expenses incurred on
house-hunting trips after the employee has accepted the new
job. When reimbursement for house hunting (including payments
to third party) and temporary living expenses exceed $1,500
combined, the amount above $1,500 becomes nondeductible taxable
income.
Travel - If an automobile is used in making the move, the
moving expense deduction is determined by either the actual
out-of-pocket expenses for gasoline, oil, repair, etc., or by a
standard mileage rate of $.09 per mile.
Temporary living expenses in new location during any thirty
consecutive days after obtaining employment. (See pre-move
expenses above.)
Qualified expenses attributable to the sale, purchase, or lease
of a residence. These are taxable only when temporary living,
house-hunting expenses, and expenses for the sale, purchase, or
lease of a residence exceed $3,000.
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- --------------------------------------------------------------------------------
e. Relocation expenses considered as taxable and not deductible by
employee include the following:
Reimbursement in excess of the limits established by IRS.
Mortgage payments (portion that exceeds interest).
Trips to the former residence by the employee pending the move
by his family to the new place of residence.
Living expenses incurred more than one day prior to the date of
departure for the new residence.
f. The following two provisions of the Internal Revenue Code limit
the availability of a moving expense deduction (both must be
met).
(1) The mileage test requires that the distance between
the employee's new principal place of work and former
residence must be 35 miles greater than the distance
between the employee's former primary place of work
and former residence.
(2) The 39-week limitation requires that the employee must
be a full-time employee in the new location for at
least 39 weeks in the 12-month period following the
beginning of work in that location. The 12-month
period is measured from the date the employee
arrives in the new work location, regardless of when
the family arrives.
The 39-week test is waived only if the employee's failure to
meet it is due to death, disability or transfer for the benefit
of the Company after obtaining full-time employment in which
the employee could reasonably have expected to meet the 39 week
requirement.
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4-52 COMPANY CONFIDENTIAL
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- --------------------------------------------------------------------------------
RELOCATION EXPENSE AGREEMENT
I, __________________________________________ having accepted a job with
Systematics, Inc. (hereafter called the Company) at
______________________________________________________ agree to remain in the
employment of the Company for a period of twelve months from the date that I am
placed on the payroll at the above location.
If I voluntarily leave the employ of the Company within that twelve month period
I further agree to repay the Company all amounts advanced to me or paid by the
Company in connection with relocating from my previous place of residence to the
location of my new employment with the Company. Repayment will be in accordance
with the schedule below. I understand that the expenses to be repaid include,
but are not limited to: recruiting fee, househunting trip, moving household
goods, mileage allowance for moving vehicles, meals and lodging enroute from
the old to the new location, temporary living expenses for the family while
waiting for household goods, lump sum moving expenses, relocation allowance, and
the cost of selling my home.
REPAYMENT SCHEDULE
<TABLE>
<CAPTION>
Termination With Service Forward Percentage of Totals to be
From Date of Employment at New Location Repaid the Company
--------------------------------------- ------------------
<S> <C> <C>
1. Less than 6 months 100%
2. At least 6 but less than 9 months 75%
3. At least 9 but less than 12 months 50%
4. At least 12 months 0%
</TABLE>
I further agree that any liability I have to the Company at the time of
termination will be satisfied by a cash payment of the total liability due on
the date of my termination. The Company may at its sole discretion accept a
personal note from me not to exceed ninety (90) days in duration for all or any
part of the amount of the liability in lieu of the cash payment. I further
authorize the Company to withhold payment of my final check until such
liabilities are satisfied.
I have read all the above provisions, and do agree to them in consideration of
the monies paid by the Company to me for the purpose of relocation from the
place of my previous residence to the place of my new employment with the
Company.
Distribution
1. Individual
2. Immediate Supervisor
3. Filed in Personnel Records
-----------------------------
Signature
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4-54 COMPANY CONFIDENTIAL
<PAGE> 136
Exhibit M
Severance Policy
<PAGE> 137
EMPLOYEE DISCIPLINE, TERMINATION AND LAYOFFS
-------------------------------------------------------------------------------
CHAPTER 7
EMPLOYEE DISCIPLINE, TERMINATION AND LAYOFFS
A. Introduction
1. Overview
Employment decisions may have individual, organizational, and
legal consequences. Managers should be aware that their
decisions may extend or reduce the company's liability. This
chapter is devoted to some important topics of management
decision making and employment - discipline, termination, and
layoff.
The chapter describes the company's general position and
provides broad guidelines for managers to use in the many
situations they may encounter in day-to-day operations. It
also presents some matters of process or procedures which
managers should follow closely. These situations are described
in the narrative as "required" actions or activities.
2. Position
The information in this chapter, and the policies and
procedures stated elsewhere in this manual are not intended to
form a contract between the company and its employees.
Employees have the right to terminate their employment at any
time, with or without cause. The company reserves its right to
do the same for any reason not specifically prohibited by law.
The company recognizes that each termination situation can
yield a unique set of circumstances. Common sense dictates
that these situations be considered and decided on their
individual facts and in the context of the surrounding
circumstances.
The company's position is intended to incorporate the
preceding concepts in any discipline, termination, or layoff
situation it encounters.
3. Authority
The administration of discipline, termination, and layoff is a
line, as opposed to a staff responsibility. In general, cost
center managers or above have authority in these areas.
However, other managers or supervisors may be formally or
informally designated this responsibility. Particular
situations, circumstances, and differences in organizational
structure may call for assignment of authority above or below
the cost center level. In these instances, senior managers
have the responsibility for delegation or assignment.
The Personnel Department may assume a monitoring role in
individual cases of discipline and termination and is
available to act in an advisory or direct support capacity
(e.g., problem situations or data center closing). The
department has the direct responsibility for structuring and
controlling the company's position and response to legal
challenges, whether actual or anticipated.
Managers should contact the Personnel Department if a
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situation appears to have the potential for legal ability or
if a notification/inquiry is received from a legally
constituted authority (e.g., court, governmental
administrative agency, etc.).
4. Intended Audience
This chapter is intended for use by management and supervisory
employees who are charged with discipline, termination, or
lay-off responsibilities. The information is not confidential
information since others may have access to the manual.
Readers outside the intended audience should understand that
the company's guidelines, policies, and procedures are always
subject to management discretion and change, and that the
information in the chapter is not intended to be binding or
limiting in its nature or scope.
5. Definitions
"Discipline" as used in this chapter refers to the progressive
discipline process which is discussed later. (Managers may
develop work rules and disciplinary actions for situations
which are not covered by this process, or are intended to
supplement the process.)
"Termination" refers to management's involuntary discharge
of an employee, with or without cause, and subject only
to the control of "required" actions or activities
described in the chapter.
"Lay-off" refers to involuntary cessation of employment due
to economic conditions, center closings, job elimination, or
other similar situations.
"Voluntary resignation" occurs when an employee voluntarily
resigns his or her employment and provides the required notice
(two weeks).
B. Discipline and Termination
1. General
The discipline and termination of non-management and
management employees are treated separately.
2. Non-Management Employees
Employees in non-management jobs should be given the
opportunity of the progressive discipline process for problems
related to poor work performance. The progressive discipline
process is mandatory unless an act(s) of misconduct justifies
terminating employment immediately.
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a. Progressive Discipline
The progressive discipline process is required prior
to any termination based solely on job performance.
It is not required when a poor job performer commits
an act that warrants immediate termination. But it
may be used in cases of misconduct that do not
warrant immediate termination.
The process is designed to inform employees of
problems and provide them with a constructive
opportunity to improve behavior at work and/or job
performance behavior. The steps in the process
are described below.
Step 1: Verbal Notification
The employee is given a verbal note in one of three
settings - an informal counseling session, a formal
performance evaluation on the employee's review date,
or an interim performance evaluation scheduled for
that purpose.
The notification should include the following
elements:
- Explanation of work and/or job
performance behaviors to be
corrected
- Clear statement of expected
improvement required
- A statement that failure to improve
at the expected level will result in
written notification and later
termination.
A written record of the session must be made. This
may be done on handwritten notes, a Performance
Improvement Form, a letter, a file memo, or
Performance Evaluation Form. The method of
documentation is entirely optional, but the record
must include summary notes describing each of the
elements. Copies may be forwarded to the employee's
personnel file.
Step 2: Written Notification
If the problem(s) continues the employee must be
given a written notification. The written
notification may be given to the employee in one of
the same settings described for verbal notification,
and may be any of the forms mentioned for verbal
notification. The elements of the written
notification should include the following:
- Review of the verbal notification
step
- Summary explanation of the
employee's failure to meet the
expected level of improvement
- A statement that failure to
demonstrate immediate and sustained
improvement will result in
termination
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- A specified time frame or improvement
period may be stated depending on
the circumstances.
The discussion with the employee in the session,
regardless of the setting, should cover all of the
elements. The manager or supervisor may include his
or her manager, or a peer level manager or
supervisor, or may conduct the sessions with the
employee alone. A copy of the written notification,
regardless of its form, must be given to the
employee. Copies must be forwarded to the terminating
manager's supervisor and to the employee's personnel
file.
Step 3: Independent Review
If the written notification step does not succeed and
a termination decision is reached, the decision must
be given an independent review. The terminating
manager's supervisor chooses the reviewer or reviews
the decision personally. The review may be conducted
by the terminating manager's immediate superior, a
peer or higher level manager, or a designated
personnel staff member. The reviewer will have the
authority to reject the proposed termination
decision. The reviewer will conduct an independent
inquiry, discuss verbally, and state the results of
the review in writing to the terminating manager.
Copies must be forwarded to appropriate cost center
and senior level managers and to the employee's
personnel file.
The purpose of this step is to provide an additional
perspective and overview of employee termination
decisions. The form, content, and method of the
review is entirely discretionary with the reviewer.
That is, the review may be entirely of records,
conducted by phone or on-site, consist of interviews
or no interviews, etc. The reviewer may use "best
judgment" as a guide in determining the review
process. The only documentation required is a written
statement of the final result. The guidance should
accomplish the stated purpose of the review and allow
the level of inquiry to fit the individual case.
The terminating manager's superior may either accept
or reject the findings of the independent review. If
the termination decision is rejected as a result of
the independent review, the terminating manager's
superior must decide whether to continue progressive
discipline or suspend the process. If the discipline
process is continued, the problems or deficiencies
discovered by the independent review must be
corrected. If continued progressive discipline steps
result in another termination decision, another
independent review must be conducted.
Step 4: Termination
If the independent review supports the termination
decision, a termination meeting should be held with
the employee. The meeting should be conducted in a
private office. Persons attending the meeting may be
the same as those discussed in the written
notification step, or may be the employee and
terminating manager alone. The steps in the process
should be recalled to the employee, and the employee
should be told that it has resulted in a termination
decision. The employee may
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- --------------------------------------------------------------------------------
or may not be given a termination letter. The
employee should be informed of final pay arrangements
and any termination benefits that apply.
Situations which may result in termination are not
always clear-cut. Managers have the discretion to
determine when to use the progressive discipline
process and when to apply automatic termination
proceedings. Sometimes problems are complex or mixed
- a poor job performer may also have committed an act
of misconduct. When managers are uncertain about a
particular situation, it is usually better to err
in favor of progressive discipline than immediate
termination of employment.
b. Justification(s) for Immediate Termination
Employees may be terminated at any time, with or
without notice, for extremely serious acts of
misconduct. Reason(s) for immediate termination
consist of severe acts or actions on the part of the
employee that constitute a material breach of
expected conduct concerning work, the company's
client, or business reputation. Although these
extreme cases should not require progressive
discipline, it is expected that managers will
exercise judgment and terminate employment
immediately only in serious circumstances.
Listed below are examples of misconduct that can
result in immediate termination. The list is not, and
is not intended to be, either limiting or inclusive.
Managers may make determinations and interpretations
based on individual circumstances and events.
- Theft, unauthorized removal, destruction,
damage, or misuse of company property
- Threats or acts of violence, coercion, or
intimidation against others
- Causing financing or reputational loss to
the company
- Disclosure or misuse of confidential or
sensitive information
- Unreported job absence(s)
- Violation of, or causing a threat to,
company security or safety
- Introduction, possession, use of, or threat
to use weapons, firearms, or explosives on
company premises
- Introduction, possession, use, attempt of
use, of or the effect of use of alcohol,
drugs, or other controlled substances on
company premises
- Engaging in activities or conduct which is
competitive with company's business or
business interests
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- Insubordination
- Refusal to work or carry out a job
assignment
- Conspiring to pirate or pirating company
information, clients, or employees
Managers may use these examples as benchmarks in
making immediate termination decisions. However, poor
job performance alone may not be considered a reason
for immediate termination of non-management
employees. In these cases, the progressive discipline
process is a required activity. Managers may also use
progressive discipline if it is felt that an act of
misconduct does not warrant immediate termination.
Before conducting the immediate termination of an
employee, the termination action should be given an
independent review. This review may be conducted by
the terminating manager's immediate superior, a peer
or higher level manager, or a designated personnel
staff member. The review is subject to the terms of
"Step 3 Independent Review" of the progressive
discipline process. Furthermore, the independent
review should be considered a "required" activity
unless the employee's act or actions at work create
threatening or unsafe conditions.
3. Management Employees
Management employees may be terminated at any time and for any
reason not prohibited by law. Management employees include
line and staff managers above the level of a working
supervisor (e.g., programming supervisor, operations
supervisor). There is no requirement for progressive
discipline, but an independent review is required prior to
termination. The conduct of the independent review for
management terminations should be the same as non-management
terminations. A termination meeting should also be conducted
with managers in the same manner as non-management employees.
The progressive discipline process may be used, but on a
completely discretionary basis. As stated previously, if
uncertainty exists about a particular situation, it is better
to err in favor of progressive discipline than automatic
termination.
If the process is used, it may be suspended at any time in
favor of a termination decision.
4. Termination Approval
Any termination or discipline proceedings may be appealed by
any employee - management or non-management. The appeal may be
made during the progressive discipline process or following
termination. The "open door" policy allows for termination
appeals and is the process employees should follow. The use of
the "open door" process is separate from the independent
review, and one may not be used in lieu of the other.
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5. Voluntary Resignations
As stated earlier, employees may resign at any time, with or
without cause. The company does require employees to provide
two weeks prior notice of resignation to qualify for certain
termination benefits such as accrued vacation pay. Such
benefits should not be offered to employees who fail to
provide the notice (unless the payment or benefit extension is
required by state or federal law). Furthermore, employees who
fail to give proper notice should not be considered eligible
for rehire.
Managers should request a letter or written statement from the
resigning employee. The letter should include the employee's
reason(s) for resignation. This kind of documentation is
helpful in unemployment claims or allegations of constructive
discharge.
Resigning employees should be allowed to work through their
two week (or longer) notice period unless the employee has
accepted a job with a competitor, would be potentially
unproductive, or for other similar reasons. In these cases,
employment may be terminated at the time notice is given.
6. Disability Terminations
Employees of the company who become totally disabled and
either resign or are terminated as a result of their inability
to return to work require special manager attention. Such
employees may retain extended medical, disability income, and
deferred compensation benefits even though they are no longer
employed by the company.
Cost center managers are responsible for notifying the
Personnel Manager of persons terminating for disability
reasons. The Personnel Manager is responsible for notifying
managers of the types of benefits for which such employees may
be eligible.
C. Management Code of Conduct
All Systematics employees should be aware that they represent the
company at all times, both during and after work hours. Furthermore,
the higher an employee's position with the company or the greater his
or her visibility as a company employee, the more likely it is that the
consequences of the employee's personal behavior will be considered a
reflection on the company.
Specifically, managers carry a higher risk that their personal behavior
may impact the business interests of the company. Employees who have a
great deal of contact with clients and prospects also carry a great
risk and must be extremely sensitive to the consequences of their
personal behavior.
The company has a business interest in any employee's personal behavior
when:
- The employee's behavior has a negative effect on his/her work
performance and/or other employees' or work group performance,
or
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- The consequences of an employee's behavior have a negative
effect on the company's reputation and public image.
The company cannot specifically outline the behaviors that may
compromise or jeopardize the business interests of the company - nor is
the company trying to impose personal moral standards on the
Systematics work group. However, the more an employee's behavior
deviates from that which the larger society views as acceptable, the
greater that employee's risk is should that behavior become known. This
includes any illegal activity, excessive use of alcohol, excessive
gambling, and inappropriate personal relationships.
If an employee's personal behavior has had a negative impact on the
company, that employee will be subject to immediate disciplinary action
which may include demotion or termination.
D. Layoffs
Systematics experiences very few situations which result in a need to
reduce its work force. There is, however, the possibility that due to
technological or contract changes, a job or jobs will be eliminated. If
such a situation arises, the following policy and procedures will be
adhered to:
1. Policy
The Company is committed to the continuation of employment
opportunities for all employees. In the event of changes in
contract status such as termination or closing or other
business conditions which adversely affect employment at any
Company location, the Company will make all reasonable efforts
to see that all employees are given an opportunity to continue
employment with the Company.
2. Procedures
In the event that a change in contract status or business
conditions results in the elimination or reduction of
employment in a Company location or business unit, the
following procedures will apply.
a. Employees will be advised of the change at the
earliest possible date. When applicable, the timing
of this notification should comply with the
provisions of the federal Worker Adjustment
Retraining and Notification Act (WARN) and any state
law requirements.
b. Local management is responsible for determining which
employees at the location desire to continue
employment and for the relocation status of those
employees. A list of those employees, the jobs they
qualify for, and their relocation preferences will be
provided to the Area Managers. Company-wide reports
including all such available personnel will be
created and distributed by the Personnel Department.
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- --------------------------------------------------------------------------------
c. Those employees who do not wish to remain with SI, or
whose inability to relocate prohibits their
remaining, will be subject to the provisions of the
general layoff policy.
d. The Personnel Department will be responsible for
coordinating efforts to secure employment for all
those who desire to remain with the Company. All
Company managers are expected to cooperate in this
effort. Provided that the qualifications of employees
who requested reassignment are at least equal to
those of other applicants, managers are expected
to give hiring preference to the employees seeking
reassignment.
e. All decisions concerning job offers to these
employees, including job assignment, rate of pay, and
related conditions of employment, will be made by the
receiving managers in a manner that is consistent
with other employment decisions of the Company, and
the provisions of the Wage and Salary Administration
Manual for transferring employees (i.e., area salary
and living differentials).
The responsibility for determining relocation
assistance to the transferring employee will
reside with the Regional Manager of the orginating
location. This determination should be made in
consultation with the receiving manager and should
be consistent with the Company's relocation policy
and guidelines. Consideration should be given to
providing a level of support that will permit
acceptance of the offer. All relocation costs
will be charged to the originating location.
f. In the event that continued employment cannot be
offered on terms acceptable to the employee, the
employee will be terminated in accordance with the
Company's layoff policy.
The terms of severance arrangements for such
employees will be comparable to those provided for
similarly situated employees at the same location.
Generally, this includes one month's pay for
employees with five years of service or less. One
additional week of severance should be extended to
employees for every whole year of service over five
years up to a maximum of three months pay. For
non-exempt employees, severance amounts are
determined exclusive of overtime or shift
differential. In addition, severance pay is
intended to include any accrued but unused vacation.
NOTE: Some circumstances associated with the closing
of or reduction of employment levels within a Company
location may require that special layoff and
severance pay arrangements be made in order for the
Company to fulfill its contract obligations. Such
arrangements are the responsibility of the Regional
Manager.
g. Managers have an additional option when handling
displaced employees. In lieu of terminating the
employee, managers may make a recommendation to the
Employee Benefit Committee, on a Leave of Absence
Request Form, to place such employee on a personal
leave of absence for a maximum of 90 calendar days.
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This alternative should only be recommended when a
manager has reasonable expectations that the employee
may be recalled to work within three months of the
layoff date. If the leave of absence is granted, the
employee will be entitled to benefit continuation and
treatment discussed under "Leaves of Absence" in
Chapter 4 of this manual. Such an employee will be
entitled to severance pay on the same basis as other
employees who are laid off. However, severance pay is
not payable until the expiration of the leave,
provided the employee has not been recalled to work.
h.. If the employee is not placed on a leave of absence,
managers should terminate the employee using the
Employee Information Profile Form and completing the
Termination Information Section. Employees who are
terminated as a result of job elimination will
receive preferential rehire consideration for one
year.
I. If reassignment and transfer possibilities do not
exist, managers should assist the displaced employees
in obtaining suitable employment outside the company.
This assistance should include:
- preparing sample resumes
- helping employees prepare individual resumes
- contacting potential employers in the area
- writing letters of reference
- paying severance pay geared to length of
service
- explaining benefits
The Personnel Department will gladly assist managers
in these duties.
j. Managers should prepare for individual meetings with
each displaced employee by reviewing the personnel
records and calling the Personnel Department to
ascertain profit sharing allocations, estimates of
unemployment compensation, and suggestions on
severance pay amounts.
k. A final termination letter should be given to each
laid off employee. Exhibit A is the introduction to a
letter that may be used in the event of termination
caused by center closings. Exhibit B is for all other
terminating employees. These letters are not intended
to cover all situations, so additions and deletions
will be made when necessary. The name and number of a
contact person in the corporate Personnel Department
should be given in case benefit questions arise.
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7-10 COMPANY CONFIDENTIAL
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Terminating Employee Benefits
The intent of this policy is to summarize for managers the types of
employee benefit treatment available to terminating and discharged
employees.
Detailed explanations of terminating employee benefits are discussed
under each topic in Chapter 4 of this manual. Health Care and Term Life
Insurance conversion options are discussed in the "Choice Comp" book.
1. Holidays
Terminating employees who have not taken the optional company
holiday prior to their discharge or notice of resignation will
forfeit that holiday.
2. Vacations
Full-time and part-time employees who have completed at least
six months of service and have voluntarily resigned with
proper notice (at least two weeks) will receive accrued
vacation benefits. Employees who do not give proper notice or
are discharged "for cause" will forfeit all accrued vacation.
Full-time employees who are terminated for inability to
perform or are laid off will be eligible for all accrued
vacation.
3. Sick Pay
Full-time employees who resign or are terminated as a result
of their inability to return to work due to a disability may
be eligible for unused sick pay benefits, with approval of the
Employee Benefit Committee. Laid off employees receive no
unused sick pay benefits.
4. Long-Term Disability Insurance
Terminating employees may not convert Long-Term Disability
Insurance; however, disabled terminating employees are
eligible for extended coverage of Long-Term Disability with
waiver of premium.
5. Health Care and Dental Care
Terminating employees are eligible for continuation of these
benefits until their effective date of termination. After that
date, benefits may be continued under COBRA if proper and
timely application is made. Terminating employees may convert
to a comprehensive major medical insurance policy by making
written application within 31 days of the termination date of
their COBRA coverage. There are no conversion options for the
Dental Care Plan.
6. Group Term Life
Terminating employees may convert all or any part of group
term life insurance they have in force at the time of
termination to an individual life insurance policy, provided
application is made within 31 days of termination.
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7. HMO's
Terminating employees who are HMO participants are eligible
for continued coverage under COBRA.
8. Tuition Refund
Terminating employees are not eligible for reimbursement under
this program if their education is completed after their
termination date.
9. Unemployment Compensation
Employees who are discharged for cause or who voluntarily
resign are generally not eligible for unemployment
compensation benefits. Employees, other than probationary
employees, are generally eligible for unemployment
compensation benefits if they are terminated due to inability
to perform or are laid off.
10. Profit Sharing Plan
All terminating employees who are participants in the Profit
Sharing Plan will receive distribution of their vested
benefit in the plan according to the plan provisions. For
explanation of these plan provisions see Chapter 04 of
this manual.
11. SI Money Maker
All terminating employees who are participants in the Money
Maker will receive distribution of their money according to
the plan provisions. Refer to the Choice Comp Handbook for an
explanation of these provisions.
12. Severance Pay
Severance pay is only available to full-time, non-probationary
employees who are terminated due to their job being eliminated
and to employees who are released as a result of their
inability to perform a job. Guidelines for severance pay are
outlined under Layoff Procedures (D2f of this section.)
F. Termination Reporting and Final Pay
1. Termination Reporting
Managers should use the Employee Information Profile Form
(EM-102-0689) to report to the Personnel Department employee
termination information. Managers should answer all questions
in the "Termination Information Section" of this form. The
"Comment Section" of this form is used to give specific
details or comments relating to the termination. Managers are
encouraged to attach additional documentation which may be
relevant to a specific employee termination situation.
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- --------------------------------------------------------------------------------
Managers are requested to forward employee
termination information immediately to the Personnel
Department so that the Personnel Department can
initiate immediate action regarding the employee's
benefits, provide assistance in reviewing final pay,
and be prepared to answer unemployment compensation
claims.
The employee's immediate supervisor is responsible
for obtaining company property in the employee's
possession (which is noted on the Employee
Information Profile Form) prior to releasing the
employee's final pay check.
Managers should refer to Chapter 5 of this manual for
a discussion of handling terminating employee records
and the types of termination reports available to
them.
2. Final Pay
Except in the most unusual circumstances, as employee who
voluntarily terminates from the company will receive his or
her final pay check on the next regular payday following
termination. In such cases, managers should use the normal
transmittal form to compensate the employee for both regular
pay due and the employee's accrued vacation pay (if any).
Employees who are discharged should receive their final
paycheck on the date they are terminated. The cost center
manager should send the Accounting Department a check request
with a detailed explanation of the amount owed the employee.
The Payroll Accountant or his designated representative will
make arrangements to send the required check to the cost
center manager.
G. Former Employee References
Recent court rulings have established that managers of companies are
liable for giving vague, subjective, misleading, and factually
incorrect job references on former employees. Managers are cautioned
that other employers requesting job references must furnish the
employee with a copy of the reference if the employee requests it.
Except in the most unusual situations, written letters of reference
will not be provided to terminating employees. Further, in providing
oral or written references to other employers, managers must be factual
and objective.
In some states employers are required to furnish terminating employees
certain work history information, at the employee's request. Such
employee requests should be forwarded to the Personnel Manager for
appropriate action.
All references on former employees who were or are involved in
litigation or charges against the company must be referred to the
Personnel Manager.
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H. Exit Interview
Earlier in this chapter under the topic "Resignations," a discussion of
terminating employee counseling was presented. Local managers are
encouraged to meet with terminating employees to ascertain if problems
leading to the employee's termination can be remedied through local
policy and practice changes.
Since employee resignations often result from a dissatisfaction with
corporate policies and practices, each terminating employee of the
company is sent a written Exit Interview Questionnaire by the chairman
of the board of Systematics. These questionnaires are sent
approximately one month following the termination of employment so that
the respondent's answers will be more objective. The chairman
circulates copies of employee responses to the appropriate managers.
Managers are encouraged to discuss important negative and positive
responses with appropriate subordinates.
A copy of the Exit Interview Questionnaire is provided as Exhibit D.
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7-14 COMPANY CONFIDENTIAL
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- --------------------------------------------------------------------------------
EXHIBIT A
Sample letter to be used for terminations caused by center closings.
NOTE TO MANAGERS: In a few cases, this letter may need to be modified to conform
to the Worker Adjustment and Retraining Notification Act (WARN). Check the laws
for your state as outlined in the Management Guide, and if you have questions,
call the Personnel Department.
Dear Employee:
As you know the (Name of the Center) is in the process of closing. Given the
preliminary planning, it is not yet possible to pinpoint the closing date.
However, Systematics will give you at least (time) notice as to what that date
will be.
Assuming that the closing occurs before (DATE), the severance period will be for
(LENGTH OF TIME IN WEEKLY INCREMENTS) and will begin on the day following the
closing. To be eligible for severance pay you must be employed by SI at this
location through the closing date (or date specified by manager) and be
terminating your employment with SI.
It is important to understand that your "effective date of termination" is the
date your benefits will cease. For example, assume that the closing date is
September 15, 1991. If you choose to take your twelve weeks severance pay in
continuous payments, you will be eligible for benefits to December 7, 1991. In
this case, your effective date of termination will be December 7, 1991. If,
however, you choose to take twelve weeks severance pay as a lump payment, you
will not be eligible for any extended benefits and your effective date of
termination will be September 15, 1991.
Unless notified otherwise, we will process your pay normally through the end of
the severance period, and you will continue to receive pay with existing
deductions via check or direct deposit. Any direct deposit cancellations must be
coordinated through the direct deposit administrator in the Personnel Department
prior to closing your accounts.
Approximately two weeks after your "effective date of termination", you will
receive from the Personnel Department information regarding all severance
benefits and the necessary papers for continuing those benefits if you wish to
do so.
In the meantime, an outline of benefits which will be in effect upon your
termination is attached. In the event of any conflict between the provisions
outlined here and those of the plan document and/or master insurance contract,
the provisions of the plan document or contract will govern. Please read the
information carefully, and if you have questions, contact me or the Personnel
Department at Corporate.
Should your address change before the end of the year, be sure to notify
Systematics in writing at:
Systematics, Inc.
Personnel Records
4001 Rodney Parham Road
Little Rock, Arkansas 72212
I appreciate your dedication and wish you the best in your future endeavors.
Sincerely,
Manager
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7-16 COMPANY CONFIDENTIAL
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EXHIBIT B
Sample letter to be used for termination not associated with center closing.
Dear Employee:
As requested, we are providing an outline of the severance benefits which will
be in effect upon your layoff.
It is important to understand that the "effective date of termination" is the
date your benefits will cease. For example, assume that your lay off date (i.e.,
last date worked) is September 15, 1991. If you choose to take your twelve weeks
severance pay in continuous payments you will be eligible for benefits to
December 7, 1991. In this case, your effective date of termination will be
December 7, 1991. If, however, you choose to take twelve weeks severance as a
lump sum, you will not be eligible for any extended benefits and your effective
date of termination in this example will be September 15, 1991.
Unless notified otherwise, we will process your pay normally through the end of
the severance period, and you will continue to receive pay with existing
deductions via check or direct deposit. Any direct deposit cancellations must be
coordinated through the direct deposit administrator in the Personnel Department
prior to closing your accounts if you are receiving continuous pay.
Approximately two weeks after your effective date of termination, you will
receive from the Personnel Department information regarding all severance
benefits and the necessary papers for continuing those benefits if you wish to
do so.
In the meantime, an outline of severance benefits which will be in effect upon
your termination is attached. In the event of any conflict between the
provisions outlined here and those of the plan document and/or master insurance
contract, the provisions of the plan document or contract will govern. Please
read the information carefully, and if you have questions, contact me or the
Personnel Department at Corporate.
Should your address change before the end of the year, be sure to notify
Systematics in writing at:
Systematics, Inc.
Personnel Records
4001 Rodney Parham Road
Little Rock, Arkansas 72212
I appreciate your dedication and wish you the best in your future endeavors.
Sincerely,
Manager
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COMPANY CONFIDENTIAL 7-17
<PAGE> 154
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7-18 COMPANY CONFIDENTIAL
<PAGE> 155
EMPLOYEE DISCIPLINE, TERMINATION AND LAYOFFS
- --------------------------------------------------------------------------------
EXHIBIT C
OUTLINE OF TERMINATION BENEFITS
HEALTH CARE/DENTAL COVERAGE
Your current health care and dental benefits will continue to your effective
date of termination. As of your effective date of termination, your health care
and/or dental benefits will be automatically stopped. (You may file claims for
health or dental for 90 days past your effective date of termination for
services provided prior to that date.) If you wish to continue your present
health and/or dental coverage, you may apply for continuation coverage under
COBRA. SI will automatically mail the necessary information and applications
related to this coverage approximately two weeks following your effective date
of termination. To exercise this option, you must reply within 60 days of
receipt of the application. If you reply within this time period, there will be
no break in your current health care and dental coverage.
CONTINUATION COVERAGE UNDER COBRA
Under COBRA continuation of benefits, you may choose to extend your health care
and/or dental coverage and receive the same benefits that you are now getting in
the SI Health Care Plan, (NAME OF HMO) and SI Dental Care Plan. To do so, you
must pay the full monthly premium (the cost you normally pay plus the amount the
company contributes as its portion of your premium) plus a 2% administrative
fee. The monthly cost for SI Health coverage is: Family - $____, Single - $____.
The cost for (NAME OF HMO) coverage is: Family - $____, Single plus 1-$____,
Single - $____. The cost for SI Dental coverage is: Family - $____,
Single - $____. All of these premium costs are current and are subject to
change annually in January.
You may continue coverage under COBRA for a period of 18 months after your
effective date of termination or until you become eligible for other group
coverage when you obtain employment with another company.
TERM LIFE, ADDITIONAL LIFE, and LONG TERM DISABILITY INSURANCE
Your term life, additional life, and long-term disability insurance coverage
will end as of your effective date of termination. However, you may, within 31
days of your effective date of termination, convert any or all of these policies
to individual policies. The carrier is Mutual Benefit Life. Information for
converting your policies will be mailed to you.
SI MONEY MAKER
Deductions for your SI Money Maker account may continue through your effective
date of termination. If the value of your Money Maker account is $3,500 or
greater after your effective date of termination, you may elect to keep your
account with SI and continue to receive earnings. You may not make further
contributions to this account after your effective date of termination. You may
also elect to take a distribution of the monies in your account at this time. If
the value of your Money Maker account is less than $3,500, the plan requires
that you take a distribution at this time. Distribution request forms will be
mailed to you automatically, approximately two weeks after your effective date
of termination. After your request for distribution is received in Personnel,
you can expect to receive your check in 60-90 days.
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Exhibit C
(continued)
PROFIT SHARING
As with the Money Maker account, you may elect to maintain your profit sharing
account with SI if the value of your account is $3,500 or greater. No further
contributions will be made to your account by the company after your effective
date of termination; however, you may still receive earnings on your account
balance. If your account is less than $3,500, you will be required to take a
distribution at this time. The value of your profit sharing account is
determined annually as of December 31 and will be based on the last plan
year-end prior to your effective date of termination. For example, if your
effective date of termination is December 15, 1991, the value of your profit
sharing account will be the same as the value on December 31, 1990.
Your vested amount is calculated based on your anniversary date. The vested
amount, therefore, may change prior to your effective date of termination.
Distribution request forms will be mailed to you approximately two weeks after
your effective date of termination. Personnel prepares distribution checks for
profit sharing monthly. After your request for distribution is received in
Personnel, you can expect to receive your check in 30-60 days.
STOCK PURCHASE PLAN
If you are currently enrolled in the stock purchase plan, your deductions may
continue to your effective date of termination. As of your effective date of
termination, SI will automatically send notice to the Trustee of this plan to
close your account, issue to you any certificates for purchased shares being
held in trust, and issue a check for any fractional shares in your account. It
will take approximately two months from your effective date of termination
before you will receive your stock certificates and check. No forms are required
for this process. As a second option, you may cancel stock prior to your
effective date of termination by completing a Choice Comp Enrollment 2 form and
checking "Cancellation". Certificates are issued approximately two months
following cancellation. Any future address changes should be reported to your
transfer agent as long as you own SI stock. Include your SS# for identification
purposes and write to:
Ameritrust Co., N.A.
Corporate Trust Department
P.O. Box 6477
Cleveland, Ohio 44101-1477
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- --------------------------------------------------------------------------------
Exhibit C
(continued)
MRP/DCP
Deductions for MRP and DCP must continue to your effective date of termination.
If this results in a positive balance in your account(s), you have 90 days to
file claims against your account(s) for services incurred up to your effective
date of termination. Any claims submitted after this time will be disallowed,
and you will forfeit any remaining balance in your account.
UNEMPLOYMENT COMPENSATION
You will be eligible to file for unemployment compensation as of your effective
date of termination.
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7-22 COMPANY CONFIDENTIAL
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EXHIBIT D
Exit Interview
Dear Former Employee:
Although you are no longer an employee of Systematics, we are very interested in
your opinions and suggestions on how to make our company a better place to work.
You need not sign this questionnaire, but please return the form to me in the
enclosed envelope.
1. Work Location_________________ 2. Department__________________________
3. Manager_______________________ 4. How long did you work?______________
5. Why did you leave our Company?____________________________________________
__________________________________________________________________________
(Please circle the appropriate answer below. To comment on any item, list the
question number and your comments on the back of this form.)
<TABLE>
<S> <C> <C> <C>
6. Did you receive adequate job instruction and training? yes no don't know
7 Was there too much "pressure" in your job? yes no don't know
8. Did you think your job was important? yes no don't know
9. Did you feel like your work was appreciated? yes no don't know
10. Were your working conditions adequate (i.e., hours of
work, tools, work atmosphere, etc.)? yes no don't know
11. Did you understand the Company's rules and policies? yes no don't know
12. Were the Company's rules and policies fair? yes no don't know
13. Do you feel the Company has a good benefit program? yes no don't know
14. Was the benefit program adequately explained to you? yes no don't know
15. Was your rate of pay adequate? yes no don't know
16. Were salary and performance evaluations fair? yes no don't know
17. Did you get along well with your co-workers? yes no don't know
18. Did you get along well with your supervisor? yes no don't know
19. Were your complaints adequately handled by your
supervisor? yes no don't know
20. Did you feel that you had a good chance for
advancement? yes no don't know
21. Was overall treatment both fair and impartial? yes no don't know
22. Do you have suggestions how we can improve our yes no don't know
products or services to our customers? yes no don't know
</TABLE>
If you could tell me exactly how you feel about the Company and how to improve
it, what would you tell me? (Please use the back of this form for your answer.)
Thank you for your cooperation.
Sincerely,
Manager
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COMPANY CONFIDENTIAL 7-23
<PAGE> 160
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7-24 COMPANY CONFIDENTIAL
<PAGE> 161
FIRST AMENDMENT TO
DATA PROCESSING AGREEMENT
This First Amendment ("First Amendment") is effective as of the 1st day
of April, 1992 ("Effective Date") and amends and supplements that certain Data
Processing Agreement effective as of the 1st day of January, 1992, (such
Agreement referred to herein as the "Agreement") by and between SYSTEMATICS
FINANCIAL SERVICES, INC. ("SYSTEMATICS") and UNITED SAVINGS ASSOCIATION OF TEXAS
("CLIENT").
W I T N E S S E T H:
WHEREAS, CLIENT desires SYSTEMATICS to provide an additional third
party software system; and
WHEREAS, SYSTEMATICS is willing to provide such software pursuant to
the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein the parties hereto agree as follows:
1. Beginning on the Effective Date of this First Amendment and
continuing until the earlier of the cessation, for any reason, of the provision
of SYSTEMATICS of data processing services under the Agreement or the
termination, for any reason, of SYSTEMATICS right to provide such software,
SYSTEMATICS shall provide such software, SYSTEMATICS shall provide for use in
CLIENT'S data center ATCHLEY SYSTEMS, INC.
(COMPLY/CTR) software.
2. In addition to all other fees and charges payable under the
Agreement, CLIENT shall pay to SYSTEMATICS a monthly maintenance fee of $600 for
providing and maintaining the software. In addition a monthly $150 usage fee
will be due for utilizing the ATCHLEY SYSTEMS, INC. (COMPLY/CTR) at the Data
Center. Such monthly fees shall be due and payable beginning in the month after
installation of the Software. All fees payable pursuant to this Section shall be
adjusted in accordance with Section 7, Exhibit C to the Agreement.
3. In addition to all other fees and charges payable under the
Agreement, CLIENT shall pay a one time installation fee of $13,000 payable
$6,500 in April 1992 and $6,5000 in May 1992. Installation fees include all
charges for installation, training and out of pocket expenses related to the
installation.
4. If CLIENT desires to terminate the agreement but desires to retain
rights to use the ATCHLEY SYSTEMS, INC. (COMPLY/CTR), CLIENT shall pay ATCHLEY
SYSTEMS, INC. the equivalent of the then current ATCHLEY SYSTEMS, INC.
(COMPLY/CTR) license fee less $100 per month for every month that the CLIENT has
utilized and paid for the Software under this First Amendment.
<PAGE> 162
5. Under this First Amendment CLIENT obtains only a non-exclusive right
to the benefits of the Software and does not obtain a license nor any other
rights. ATCHLEY SYSTEMS, INC. retains all ownership rights to the software.
6. All other terms and conditions of the Agreement not amended herein
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the Effective Date.
SYSTEMATICS FINANCIAL UNITED STATES ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ Larry L. Snaufer By: /s/ Leslie W. Green
-------------------------- ---------------------------
Name: Larry L. Snaufer Name: Leslie W. Green
------------------------ -------------------------
Title: Account Manager Title: SVP
----------------------- ------------------------
Date: 10-28-92 Date: 10-28-92
------------------------ -------------------------
ATTESTED:
By: /s/ John L. Moss By: /s/ Dorenda Edwards
-------------------------- ---------------------------
Name: John L. Moss Name: Dorenda Edwards
------------------------ -------------------------
Title: Asst. Account Manager Title: Admin. Assist.
----------------------- ------------------------
Date: 10-28-92 Date: 10-28-92
------------------------ -------------------------
<PAGE> 163
SECOND AMENDMENT TO
DATA PROCESSING AGREEMENT
The Second Amendment ("Second Amendment") is effective as of the 1st
day of September, 1992 ("Amendment Effective Date") and amends and supplements
that certain Data Processing Agreement ("Agreement") dated as of the first day
of January, 1992 by and between SYSTEMATICS FINANCIAL SERVICES, INC. ("SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT").
W I T N E S S E T H:
WHEREAS, CLIENT and SI desire to extend the term of the Agreement and
make other changes to the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Section 2, TERM, of the Agreement shall be amended in its entirety as
follows:
"2. TERM.
The term of this Agreement begins on the Effective Date and
ends August 31, 1996 (the "Expiration Date"). At least nine
(9) months prior to the Expiration Date, SI will submit to
CLIENT a written proposal for renewal of this Agreement.
CLIENT will either: (a) accept such proposal or (b) notify SI
at least one hundred (180) days prior to the Expiration Date
of its intention to terminate on the Expiration Date."
2. Section 3.2, TERMINALS/COMMUNICATIONS COST, of the Agreement shall be amended
in its entirety as follows:
"3.2 TERMINALS/COMMUNICATIONS COST. CLIENT will pay all costs of
installing and utilizing communication or telephone lines,
data sets, modems, ATMs, terminals and terminal control units,
as required for CLIENT's on-line operations, testing and
training and CLIENT agrees to pay all such ongoing
telecommunications costs to connect the Data Center with the
Technology Center (Section 4.1). Such cost shall include but
not be limited to, the related installation and maintenance
costs. CLIENT will provide the terminals and personal
computers used by SI's personnel. CLIENT will provide all
personal computers used by its personnel."
<PAGE> 164
3. Section 4.1, DATA PROCESSING PREMISES, of the Agreement shall be amended in
its entirety as follows:
"4.1 DATA PROCESSING PREMISES. CLIENT agrees to provide SI with
adequate premises, in good repair to perform its
responsibilities under this Agreement (hereinafter the "Data
Center" located at The Phoenix Tower, 3200 Southwest Freeway,
Houston, Texas 77027). Without limiting the generality of the
foregoing, CLIENT agrees to supply water, sewer, heat, lights,
telephone lines and equipment, air conditioning, electricity
(including, if desired by CLIENT, an uninterruptable power
system, battery backup and backup generator capacity), office
equipment and furniture all pursuant to the terms and
conditions of Exhibit G to the Management and Consulting
Agreement of even date herewith between the parties. SI is not
responsible for any injury or damage to property or persons
which occurs in or around the data center unless it is caused
by the negligent or willful misconduct of SI. CLIENT will
provide telephone instruments and telephone service for SI to
communicate with the employees of CLIENT, CLIENT's service
bureau customers, if any, and as required by SI to operate the
Data Center.
SI will provide remote computing services from its Little Rock
data center (hereinafter the "Technology Center" located at
4001 Rodney Parham Road, Little Rock, Arkansas, 72212-2496).
Such Technology Center will include data processing equipment
owned by SI and will be used by SI to provide data processing
services to CLIENT."
4. Section 5.4, THIRD PARTY SOFTWARE, of the Agreement shall be amended in its
entirety as follows:
"5.4 THIRD PARTY SOFTWARE. In accordance with Exhibit F, SI will
use all computer programs acquired by CLIENT from third
parties or developed by CLIENT without the assistance of SI
exclusively to process CLIENT's data. Additional use of such
programs by SI shall require prior written approval of CLIENT.
SI reserves the right to review and/or test such programs, in
advance of processing, to assure compatibility with SI's
equipment and consistency with SI's processing techniques.
Except as set forth in Section 6.1, the Resident Programming
Staff will provide support and maintenance services with
respect to such programs. CLIENT may purchase maintenance
contracts for such programs in its
2
<PAGE> 165
discretion. CLIENT will indemnify SI and hold SI harmless from
any loss, claim, damage or expense, including reasonable
attorneys' fees, resulting from any action brought or claim
made by any third party claiming that SI or CLIENT does not
have the right to use such software as contemplated by this
Agreement. The foregoing indemnity shall not apply to claims
that SI has failed to maintain the confidentiality of such
software or that SI has violated any copyright, patent, or
other protected property right of the owner of such software
except by SI using such software exclusively for CLIENT in
accordance with the terms of this Agreement. In addition,
CLIENT is responsible for the payment of all charges from
third party software vendors that may arise due to the
relocation of CLIENT's processing from the Data Center to the
Technology Center, including but not limited to, re-licensing
fees, additional license and/or maintenance fees related to or
caused by a change in site, equipment or software."
5. Section 6.2, SPECIAL COMPUTER USE, of the Agreement shall be amended in its
entirety as follows:
"6.2 SPECIAL COMPUTER USE. CLIENT may use any SI computer time
which is available in the Data Center or which has been
specifically partitioned to CLIENT in the Technology Center,
without additional charge, for the exclusive purpose of the
performance of non-repetitive services requested by CLIENT or
for use with regard to audit functions, provided that CLIENT's
requests for SI to provide such non-repetitive services do not
interfere with SI's responsibilities under this Agreement. In
conjunction with such non-repetitive computer usage, SI will
provide a computer operator and CLIENT will pay SI for related
overtime, if any, incurred by such computer operator."
6. The first sentence of Section 8.4, EARLY TERMINATION, of the Agreement shall
be amended in its entirety as follows:
"8.4 EARLY TERMINATION. If CLIENT elects to terminate this
Agreement prior to the Expiration Date, then the following
provisions will apply."
7. Section 8.4(b), Convenience, of the Agreement shall be amended in its
entirety as follows:
"(b) Convenience. CLIENT shall have a one-time right to
terminate the Agreement for
3
<PAGE> 166
convenience and without cause upon satisfaction of the
following conditions:"
8. Section 8.4(b)(i) of the Agreement shall be amended in its entirety as
follows:
"(i) CLIENT shall have given SI a written notice no
later than August 31, 1994 designating a Termination
Date of August 31, 1995 (the "Termination Date")."
9. Section 8.4(b)(ii) of the Agreement shall be amended in its entirety as
follows:
"(ii) CLIENT shall have paid SI a termination fee
which shall accompany the preceding notice equal to
20% of the sum of the monthly payments from September
1, 1995 reflected in Section 1 of Exhibit C for the
remaining term of the Agreement."
10. Section 8.4 (b)(iii) of the Agreement shall be deleted in its entirety.
11. Section 10.2, BACKUP, STORAGE, FILES AND PROGRAMS, of the Agreement shall be
amended in its entirety as follows:
"10.2 STORAGE. CLIENT agrees to provide off-site storage for backup
data files and programs. CLIENT agrees to pick up the backup
data files and programs from the data center, deliver them to
its off-site storage location, store them, and return them to
the data center pursuant to mutually agreed upon procedures
and schedules. If requested by CLIENT, SI shall provide CLIENT
with a quarterly listing of the names of data files and
programs for verification of the items in storage. CLIENT is
solely responsible for the physical security of such files and
programs while not in SI's possession.
SI agrees to provide off-site storage for backup data files
and programs maintained at the Technology Center. SI agrees to
pick up the backup data files and programs from the Technology
Center, deliver them to the off-site storage location, store
them, and return them to the Technology Center pursuant to
mutually agreed upon procedures and schedules. If requested by
CLIENT, SI shall provide CLIENT with a quarterly listing of
the names of data files and programs for verification of the
items in storage."
4
<PAGE> 167
12. Section 16, MERGERS AND ACQUISITIONS, of the Agreement shall be amended in
its entirety as follows:
"16. MERGERS AND ACQUISITIONS.
Upon written request by CLIENT, SI will process additional
data resulting from any merger or acquisition involving either
CLIENT or any of its service bureau customers; subject to
CLIENT's payment of additional volume fees reflected in
Section 3 of Exhibit C and/or Section 13 of Exhibit H, and
subject to agreement on the fees, if any, applicable to
related conversion and testing services. CLIENT will notify SI
of any such proposed merger or acquisition as soon as
reasonably practicable. In addition, at CLIENT's request, and
in lieu of the additional volume fees reflected in Exhibit C
and/or Exhibit H, SI will enter into good faith negotiations
with CLIENT with respect to alternative additional volume
processing charges related to any acquisition.
In the event CLIENT has a business opportunity and desires to
process its work in its newly acquired data processing center,
instead of utilizing the SI Technology Center, SI will,
subject to mutual agreement with respect to fees and training,
transfer processing to the acquired data processing center,
providing the then remaining contractual obligations and
related fees payable to SI will not decrease."
13. Exhibit A, SYSTEMS INSTALLATION SCHEDULE, of the Agreement shall be amended
in its entirety as follows:
"In addition to the systems currently installed for CLIENT, SI and
CLIENT will develop annually a SYSTEMS PLAN mutually agreed to that will outline
major projects and systems to be installed during the next fiscal year.
All of the projects will be accomplished using the Resident Programming
Staff. If CLIENT requests changes in priorities, completion dates also may be
affected. CLIENT is responsible for normal user department activities, including
understanding all input, output, system features, accounting and balancing
controls, and personalization and subsequent maintenance of basic user manuals
provided by SI.
CLIENT will provide all teller terminal and platform automation
hardware and non-SI software."
5
<PAGE> 168
14. Section 1, FEE SCHEDULE, of Exhibit C to the Agreement shall be amended in
its entirety as follows:
"1. FEE SCHEDULE.
CLIENT will pay SI a fee payable in monthly installments as
set forth in the following schedule:
<TABLE>
<CAPTION>
AMOUNT OF MONTHLY PAYMENT
*Compute
Applicable Period Base Utility Total
----------------- ---- ------- -----
<S> <S> <C> <C>
Jan, 1992 through May, 1992 $207,791 $ 0 $207,791
Jun, 1992 through Oct, 1992 $161,889 $ 0 $161,889
Nov, 1992 through May, 1993 161,889 17,000 178,889
Jun, 1993 through Sep, 1993 166,947 17,000 183,947
Oct, 1993 through Sep, 1994 148,135 17,000 165,135
Oct, 1994 through Sep, 1995 144,910 17,000 161,910
Oct, 1995 through Aug, 1996 141,900 17,000 158,900
</TABLE>
*It is contemplated that the conversion to the Technology Center will be
completed not later than January 31, 1993, however, the compute utility portion
of the total fee above will not go into effect until the conversion to the
Technology Center has been substantially completed. CLIENT agrees to pay a
$45,000 Compute Utility conversion fee payable in three equal $15,000
installments to be billed between October 1992 and March 1993."
15. Section 2.6, PREPARATION OF DATA CENTER, of Exhibit C to the Agreement shall
be amended in its entirety as follows:
"2.6 PREPARATION OF DATA CENTER.
On or before February 1, 1992, CLIENT will, at its expense,
alter the Data Center (or provide an alternate data center) so
that SI may install water cooled computer equipment. If CLIENT
does not provide such alteration (or alternate location by
February 1, 1992, then for each month or portion thereof that
the same is not available (a) CLIENT will pay SI, in addition
to the fees set out in Exhibit C, Section 1, above, a fee of
$10,496 per month until the conversion to the Technology
Center has been substantially completed and (b) the
performance standards reflected in Exhibit I shall not apply
until the conversion to the Technology Center has been
substantially completed."
16. Section 3.2, APPLICATIONS PROCESSED AND CORE ACCOUNTS, of Exhibit C to the
Agreement shall be amended to delete THESIS from the "Other Applications" that
SI is obligated to process.
6
<PAGE> 169
17. Section 3.3, BASE VOLUMES AND ADDITIONAL VOLUME CHARGES, of Exhibit C to the
Agreement shall be amended in its entirety as follows:
"3.3 BASE VOLUMES AND ADDITIONAL VOLUME CHARGES.
The current volume of Core Accounts is approximately 589,000
accounts. To provide growth in account volumes without
additional volume charges, 800,000 is hereby designated as the
"Base Volume of Core Accounts". Actual volumes of Core
Accounts will be measured on the last day of each month. If
actual volume is less than Base Volume, no additional volume
fee will apply; no shortfall shall be cumulative; nor shall
any credit apply to any other SI fee under this Agreement. If
the sum of Core Accounts for CLIENT and its service bureau
customers, if any, exceeds the Base Volume of Core Accounts,
CLIENT will pay SI a monthly amount based on the following
table:
<TABLE>
<CAPTION>
MONTHLY ADDITIONAL
CORE ACCOUNT VOLUME VOLUME FEE PER CORE ACCOUNT
------------------- ---------------------------
<S> <C>
Up to 800,000 No Additional Fee
800,001 - 1,040,000 $0.15
1,040,001 - 1,300,000 $0.14
1,300,001 and above $0.13
</TABLE>
In anticipation of growth in Client Core Accounts volumes, SI
and CLIENT agree to upgrade the operating system from VM/VSE
to MVS no later than eighteen months after conversion to the
Technology Center has been completed. SI and CLIENT further
agree that the upgrade will be provided to CLIENT at no
additional charge for the conversion or ongoing operation
except that CLIENT will be responsible for any third party
software upgrade costs as outlined in Section 5.4 of this
Amendment. At the time SI converts CLIENT to an MVS
environment, CLIENT agrees to convert to the Technology
Center's security system, so long as such security system
provides security that meets or exceeds financial institution
industry standards. There will be no additional charge for
CLIENT to utilize the Technology Center's security system."
18. Section 3.5, CAPACITY AND UTILIZATION REPORTING, of Exhibit C to the
Agreement shall be amended in its entirety as follows:
7
<PAGE> 170
"3.5 CAPACITY AND UTILIZATION REPORTING.
SI will monitor daily the capacity and utilization of its
equipment installed at the Data Center and the Technology
Center and will provide to CLIENT on a monthly basis and at
other times reasonably requested by CLIENT a written report of
the historical utilization of available equipment capacity.
Such capacity reports will reflect CPU utilization, direct
access storage device utilization, and magnetic tape
utilization.
19. Section 5, THESIS PROCESSING, of Exhibit C shall be deleted in its entirety
effective September 30, 1992.
20. Section 7, PRICE ADJUSTMENT, of Exhibit C to the Agreement shall be amended
in its entirety as follows:
"7. PRICE ADJUSTMENT.
The fees and charges reflected in this Agreement will be
increased by one and one-half percent (1.5%) effective January
1, 1993 and three percent (3%) annually in each January
thereafter."
21. Section 8(a) of the Agreement shall be amended in its entirety as follows:
"(a) SI will provide and maintain for CLIENT the Syntellect
Voice Response System along with upgrades thereto
scheduled for completion on or before August 31, 1992.
Beginning in the month of the installation of such Voice
Response System is complete CLIENT will pay SI, in
addition to the fees in Exhibit C.1, the amount of $2,130
per month."
22. Section 8(d) of the Agreement shall be amended in its entirety as follows:
"d. Upon the expiration or termination of the Agreement,
CLIENT will purchase from SI the Syntellect Voice
Response Systems from SI the Syntellect Voice Response
Systems described in paragraph (a). The purchase price
shall be the combined equipment purchase amount shown
below as determined by the number of months that the
Syntellect Voice Response System has been installed
(month 21 = January, 1992) in accordance with the
following schedule:
8
<PAGE> 171
SYNTELLECT EQUIPMENT PURCHASE SCHEDULE
<TABLE>
<CAPTION>
EXISTING EQUIPMENT ENHANCEMENT EQUIPMENT
(FOR MORTGAGE CO. SUPPORT) (FOR DEPOSITS SUPPORT)
NUMBER MONTHS EQUIPMENT NUMBER MONTHS EQUIPMENT COMBINED
AFTER PURCHASE AFTER PURCHASE EQUIPMENT
MONTH/YEAR INSTALLATION AMOUNT INSTALLATION AMOUNT PURCHASE AMOUNT
- ---------- ------------ ------ ------------ ------ ---------------
<S> <C> <C> <C> <C> <C>
January 1992 21 31,825.36 1 16,741.46 48,566.82
February 1992 22 31,131.40 2 16,376.41 47,507.81
March 1992 23 30,431.65 3 16,008.31 46,439.96
April 1992 24 29,726.07 4 15,637.15 45,363.22
May 1992 25 29,014.61 5 15,262.89 44,277.50
June 1992 26 28,297.22 6 14,885.51 43,182.73
July 1992 27 27,573.85 7 14,504.99 42,078.84
August 1992 28 26,844.46 8 14,121.30 40,965.76
September 1992 29 26,108.99 9 26,227.59 52,336.58
October 1992 30 25,367.38 10 25,483.10 50,850.48
November 1992 31 24,619.60 11 24,732.41 49,352.01
December 1992 32 23,865.59 12 23,975.46 47,841.05
January 1993 33 23,105.29 13 23,212.20 46,317.49
February 1993 34 22,338.66 14 22,442.59 44,781.25
March 1993 35 21,565.64 15 21,666.56 43,232.20
April 1993 36 20,786.18 16 20,884.06 41,670.24
May 1993 37 20,000.22 17 20,095.05 40,095.27
June 1993 38 19,207.71 18 19,299.45 38,507.16
July 1993 39 18,408.60 19 18,497.24 36,905.84
August 1993 40 17,602.83 20 17,688.33 35,291.16
September 1993 41 16,790.34 21 16,872.68 33,663.02
October 1993 42 15,971.08 22 16,050.23 32,021.31
November 1993 43 15,145.00 23 15,220.94 30,365.94
December 1993 44 14,312.03 24 14,384.72 28,696.75
January 1994 45 13,472.12 25 13,541.55 27,013.67
February 1994 46 12,625.21 26 12,691.35 25,316.56
March 1994 47 11,771.25 27 11,834.05 23,605.30
April 1994 48 10,910.16 28 10,969.62 21,879.78
May 1994 49 10,041.90 29 10,097.98 20,139.88
June 1994 50 9,166.41 30 9,219.08 18,385.49
July 1994 51 8,283.62 31 8,332.86 16,616.48
August 1994 52 7,393.47 32 7,439.24 14,832.71
September 1994 53 6,495.91 33 6,538.19 13,034.10
October 1994 54 5,590.86 34 5,629.62 11,220.48
November 1994 55 4,678.28 35 4,713.49 9,391.77
December 1994 56 3,758.09 36 3,789.71 7,547.80
January 1995 57 2,830.23 37 2,858.24 5,688.47
February 1995 58 1,894.64 38 1,919.01 3,813.65
March 1995 59 951.25 39 971.95 1,923.20
April 1995 60 0.00 40 0.00 0.00"
</TABLE>
9
<PAGE> 172
23. The first paragraph of Section 9, EQUIPMENT, of Exhibit C to the Agreement
shall be amended in its entirety as follows:
"CLIENT acknowledges that the prices reflected in Exhibit C
assume that existing data processing equipment and third-party
software installed in the Data Center will not require
replacement during the term hereof."
24. The "Software" schedule of the SOFTWARE AND EQUIPMENT SCHEDULE set out in
Section 6, MAINTENANCE, of Exhibit F shall be replaced with the following:
"Software
<TABLE>
<CAPTION>
Name and Description Name of Software Termination
of Software Owner Date
-------------------- ---------------- -----------
<S> <C> <C>
McCormack & Dodge General Ledger 8/31/96
Accounts Payable 8/31/96
Fixed Assets 8/31/96
Easytrieve Plus Panosophic, Inc. 8/31/96
4700 Financial
Communications IBM 8/31/96
Network Data Mover Systems Center 8/31/96
</TABLE>
Notwithstanding the termination date set forth above, if any
of the foregoing systems is no longer required, CLIENT shall have no
further obligation to provide it."
25. A new paragraph 11, AUTOMATED TELLER SUPPORT, of Exhibit C to the Agreement
shall be added as Section 11 of Exhibit C as follows:
"11. AUTOMATED TELLER MACHINE (ATM) SUPPORT
SI will provide ATM technical support specifically for the ATM
communications lines between CLIENT'S ATM vendor (Midwest
Payment Systems) and CLIENT's ATM network. Included in the
fees in Exhibit C, Section 1 is technical support Monday
through Friday, 24 hours per day (except holidays). Upon
request by CLIENT SI will provide expanded ATM technical
support for holidays, Saturdays and Sundays, 24 hours per day
except for maintenance on Sunday mornings from 1:00 a.m. to
5:00 a.m. For such additional services, CLIENT agrees to pay
SI on an hourly rate basis of eight (8) to twenty-five (25)
dollars per hour, including overtime any SI has to pay its
employees."
10
<PAGE> 173
26. A new paragraph 12, DALLAS SUPPORT, of Exhibit C to the Agreement shall be
added as Section 12 of Exhibit C as follows:
"12. DALLAS SUPPORT
SI will continue to provide operations and technical support
through 12/31/92. Such technical support:
a. consists of four people resident in Dallas,
Texas as follows:
2 - print back operators
1 - data and voice communications
technician and
1 - LAN and PC technician
b. is not included in the fees specified in Exhibit C,
Section 1 and
c. may be terminated by thirty (30) days written notice
by CLIENT and in the event of termination, CLIENT
agrees to reimburse SI as follows:
(i) three months' severance pay for each such
employee terminated, if any, or
(ii) the lesser of: actual relocation expenses in
accordance with SI's standard relocation
policy, a copy of which has been provided to
CLIENT, or the maximum total severance pay
which could have been subject to
reimbursement pursuant to 12.c.(i) above for
each such employee reassigned to another SI
data center, if any.
At SI's discretion, SI will attempt to reassign any of the
four employees not required after termination of the Agreement
to other positions within the Data Center or other
SI data center(s) or SI will terminate such employees.
In addition to the fees in Exhibit C.1, CLIENT agrees to
continue to pay SI in accordance with this Agreement through
8/31/92 and from 9/1/92 through 12/31/92 at the rate of
$15,500 per month."
27. Section 1, SERVICES, of Exhibit H to the Agreement shall be amended in its
entirety as follows:
11
<PAGE> 174
"SI will provide for CLIENT certain processing services with
respect to loan origination ("CLCS Processing") from its
Little Rock Technology Center. The CLCS system will continue
to be processed under the MVS operating system. SI will
provide technical support for this system ("CLCS Support")
described in Section 4 below."
28. Section 2, TERM, of Exhibit H to the Agreement shall be amended in its
entirety as follows:
"2. TERM.
The Effective Date of this Exhibit is January 1, 1992
and the Expiration Date is December 31, 1993. CLIENT
may terminate the services to be provided pursuant to
this Exhibit only if it terminates both CLCS support
personnel and CLCS Processing Services with at least
six (6) months written notice received by SI prior to
December 31, 1993. If no notice is received, this
Agreement will become coterminous with the Agreement
and will expire on August 31, 1996."
29. Section 4, FEES/IMPLEMENTATION, of Exhibit H to the Agreement shall be
amended in its entirety as follows:
"4. FEES/IMPLEMENTATION.
The fees for CLCS Support personnel and the fees for
CLCS Processing are not included in any of the fees
in Exhibit C. CLIENT agrees to pay SI for the
services in this Exhibit H in accordance with Section
12 of this Agreement.
The fees for both CLCS Support personnel and CLCS
Processing are shown below. The CLCS Support
personnel will initially include seven (7) technical
personnel:
<TABLE>
<CAPTION>
<S> <C> <C>
1 E30 Programming Supervisor
1 E10 Systems Engineer
3 E08/E09 Systems Engineer
1 E27 CLIENT Services
1 C07 Help Desk Person
</TABLE>
The above CLCS Support personnel are in addition to
the Resident Programming Staff in Section 6.1,
however, (a) CLIENT agrees the minimum level of such
CLCS Support personnel will be six (6) people during
the period SI is providing CLCS Processing services.
Such CLCS Support personnel will be governed by the
provisions of Section 6.1 of this
12
<PAGE> 175
Agreement except that the following items and
conditions will apply only with respect to those
seven (7) people designated for CLCS support:
4.1 At SI's discretion, SI will attempt to
reassign any of the seven (7) employees not
required after termination of CLCS
Processing to other positions within the
Data Center or other SI data center(s) or SI
will terminate such employees.
4.2 CLIENT agrees to reimburse SI only for
actual expenses incurred by SI as follows:
(a) three months' severance pay for
each such employee terminated, if
any, or
(b) the lesser of: actual relocation
expenses in accordance with SI's
standard relocation policy, a copy
of which has been provided to
CLIENT, or the maximum total
severance pay which could have been
subject to reimbursement pursuant
to Section 4.2(a) above for each
such employee reassigned to another
SI data center, if any.
(c) If CLIENT provides required written
notice and elects to have CLCS
processing conclude December 31,
1993, or in the event both CLCS
Support and CLCS Processing
services are not terminated prior
to August 31, 1996, SI agrees that
CLIENT is not obligated to
reimburse SI in accordance with
either 4.2(a) or 4.2(b) of this
Exhibit H.
(d) In the event CLIENT elects to
terminate the Agreement in
accordance with Section 8.4 of the
Agreement, the CLIENT agrees to
reimburse SI in accordance with
either 4.2(a) or 4.2(b) of this
Exhibit H; such reimbursement being
in addition to those fees described
in Sections 8.4(a) or 8.4(b) of the
Agreement.
4.3 The monthly fees for CLCS Processing and CLCS Support personnel are:
<TABLE>
<S> <C>
January 1992 $84,435
February 1992 41,386
March 1992 41,386
</TABLE>
13
<PAGE> 176
<TABLE>
<S> <C>
April 1992 41,386
May 1992 41,386
June 1992 81,386
July 1992 81,386
August 1992 81,386
September 1992 81,386
October 1992 and
Thereafter 72,250 (Minimum Fee)
</TABLE>
(a) The minimum monthly fee for CLCS
Processing and CLCS Support
personnel is $72,250 per month. The
minimum monthly fee could be reduced
by $5,000 per month at any time it
is mutually determined that the
level of support of E08/E09's could
be reduced by one staff member due
to a reduced level of programming
change requests. Additional Volume
charges are described in Section 13
of this Exhibit.
4.4 The fees and charges reflected in this Agreement will
be increased by three percent (3%) effective January
1, 1994 and annually in each January thereafter."
30. Section 13, ADDITIONAL VOLUMES, of Exhibit H to the Agreement shall be
amended in its entirety as follows:
"13. ADDITIONAL VOLUMES.
The minimum fees expressed in Section 4 above are for
processing the transaction volumes as of August 31, 1992 and
anticipate the increased volume for the Commonwealth
acquisition. Such fees include the CLCS Support personnel and
the CLCS processing of the categories listed below. Volumes in
excess of those specified in any of these categories will be
charged to and paid by CLIENT at the rates shown below and
will be in addition to the minimum fees outlined in Section 4.
<TABLE>
<CAPTION>
Rate for Excess
Category Volumes of Volumes
---------------- ------- ---------------------
<S> <C> <C>
Devices Active/ 900 $35.00 per device per
Attached to the per month
CLCS System
Loans on File 75,000 $.35/Loan/Month
</TABLE>
Additional volume charges will not go into effect until January 1,
1994.
14
<PAGE> 177
31. Section 16, CONVERSION TO DOS/VSE, of Exhibit H to the Agreement shall be
deleted in its entirety.
32. This Second Amendment shall have no effect on the Release and Settlement
Agreement between the parties dated January 1, 1992 or the Indemnification
Agreement between the parties dated December 31, 1991 and such agreements shall
remain in full force and effect according to their terms.
33. All terms and conditions of the Agreement not amended herein remain in full
force and effect.
IN WITNESS WHEREOF, parties have executed this Second Amendment by
their duly authorized representatives as of the Amendment Effective Date.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: By:
-------------------------- ---------------------------
Name: J. David Frantz Name: Leslie H. Green
------------------------ -------------------------
Title: Vice President Title: Sr. Vice President
----------------------- ------------------------
Date: Date:
------------------------ -------------------------
ATTESTED:
By: By:
-------------------------- ---------------------------
Name: Larry L. Snaufer Name:
------------------------ -------------------------
Title: Account Manager Title:
----------------------- ------------------------
Date: Date:
------------------------ -------------------------
15
<PAGE> 1
EXHIBIT 10.8a
THIRD AMENDMENT TO
DATA PROCESSING AGREEMENT
The Third Amendment ("Third Amendment") is effective as of the 17th day of
December, 1993 ("Amendment Effective Date") and amends and supplements that
certain Data Processing Agreement ("Agreement") dated as of the first day of
January, 1992 by and between SYSTEMATICS FINANCIAL SERVICES, INC. ("SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT")
W I T N E S S E T H:
WHEREAS, CLIENT and SI desire to modify the term of Exhibit H to the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Section 2, TERM of Exhibit H to the Agreement shall be amended in its
entirety as follows:
"2. TERM.
The Effective Date of this Exhibit is January 1,
1992 and the Expiration Date is March 31, 1994.
CLIENT may terminate the services to be provided
pursuant to this Exhibit only if it terminates
both CLCS support personnel and CLCS Processing
Services with at least six (6) months written
notice received by SI prior to March 31, 1994. If
no notice is received, this Agreement will become
coterminous with the Agreement and will expire on
August 31, 1996."
2. Section 4.2 (c) , of Exhibit H to the Agreement shall be amended in
its entirety as follows:
"4.2 (c) If CLIENT provides required written
notice and elects to have CLCS processing
conclude September 30, 1994 or in the event
both CLCS Support and CLCS Processing
services are not terminated prior to August
31, 1996, SI agrees that CLIENT is not
obligated to reimburse SI in accordance with
either 4.2 (a) or 4.2 (b) of this Exhibit H.
3. All terms and conditions of the Agreement not amended herein remain
in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, parties have executed this Third Amendment by their
DULY authorized representatives as of the Amendment Effective Date.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/Larry Snaufer By: /s/Leslie H. Green
---------------------- ---------------------
Name: Larry Snaufer Name: Les Green
---------------------- ---------------------
Title: Vice President Title: Sr. Vice President
---------------------- ---------------------
Date: 12/29/93 Date: 12/29/93
---------------------- ---------------------
ATTESTED:
By: /s/Verne Vander Schoor By: /s/Rick Hare
---------------------- ---------------------
Name: Verne Vander Schoor Name: Rick Hare
---------------------- ---------------------
Title: Account Manager Title: Vice President
---------------------- ---------------------
Date: 12/29/93 Date: 12/29/93
---------------------- ---------------------
<PAGE> 1
EXHIBIT 10.8b
FOURTH AMENDMENT TO
DATA PROCESSING AGREEMENT
The Fourth Amendment ("Fourth Amendment") is effective as of the 28th day
of March, 1994 ("Amendment Effective Date") and amends and supplements that
certain Data Processing Agreement ("Agreement") dated as of the first day of
January, 1992 by and between SYSTEMATICS FINANCIAL SERVICES, INC.
(SI") and UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT").
W I T N E S S E T H:
WHEREAS, CLIENT and SI desire to modify the term of Exhibit H to the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Section 2, TERM, of Exhibit H to the Agreement shall be amended in its
entirety as follows:
"2. TERM.
The Effective Date of this Exhibit is January 1, 1992
and the Expiration Date is December 31, 1994. CLIENT
may terminate the services to be provided pursuant to
this Exhibit only if it terminates both CLCS support
personnel and CLCS Processing Services with at least
six (6) months written notice received by SI prior to
June 30, 1994. If no notice is received, this
Agreement will become coterminous with the Agreement
and will expire on August 31, 1996."
2. Section 4.2 (c), of Exhibit H to the Agreement shall be amended in its
entirety as follows:
"4.2 (c) If CLIENT provides required written notice and
elects to have CLCS processing conclude December 31,
1994 or in the event both CLCS Support and CLCS
Processing services are not terminated prior to
August 31, 1996, SI agrees that CLIENT is not
obligated to reimburse SI in accordance with either
4.2(a) or 4.2(b) of this Exhibit H.
3. All terms and conditions of the Agreement not amended herein remain
in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, parties have executed this Fourth Amendment by their
duly authorized representatives as of the Amendment Effective Date.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES OF TEXAS FSB
By: /s/Larry Snaufer By: /s/Leslie H. Green
----------------------- ------------------
Name: Larry Snaufer Name: Les Green
----------------------- ------------------
Title: Vice President Title: Sr. Vice President
----------------------- ------------------
Date: 3/29/94 Date: 3/29/94
----------------------- ------------------
ATTESTED:
By: /s/Verne Vauder Schoor By: /s/Richard Hare
----------------------- ------------------
Name: Verne Vander Schoor Name: Richard Hare
----------------------- ------------------
Title: Account Manager Title: Vice President
----------------------- ------------------
Date: 3/29194 Date: 3/29/94
----------------------- ------------------
<PAGE> 1
Exhibit 10.8c
FIFTH AMENDMENT TO
DATA PROCESSING AGREEMENT
This Fifth Amendment ("Fifth Amendment") is effective as of the 1st day of
April, 1994 ("Amendment Effective Date") and amends and supplements that
certain Data Processing Agreement ("Agreement") dated as of the first day of
January, 1992 by and between SYSTEMATICS FINANCIAL SERVICES, INC. ("SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT").
WITNESSETH:
WHEREAS, the parties desire to create final financial incentive to induce
the achieving of the performance standards set out in the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Exhibit I to the Agreement shall be amended to add the following
Section:
"7. COMPENSATION FOR SI'S FAILURE TO ACHIEVE PERFORMANCE STANDARDS.
Subject to the limitations set out above in the event SI fails
to achieve the performance standards set forth herein, SI
agrees to compensate CLIENT in accordance with Section 7.2
below.
7.1 MEASUREMENT PROCESS.
On or before the fifth business day of each month, SI shall
provide CLIENT with a written report showing the online
availability of the teller, financial and CLCS systems for
the immediately preceding month. In the event the average
availability of those systems for a particular month does not
meet or exceed the performance standard of 99%, then for each
event causing downtime during any such particular month,
CLIENT and SI management will use their best efforts to
jointly assign a classification which will be used in the
calculation of the compensation to be paid to CLIENT pursuant
to Section 7.2 below. In addition, any and all events
regardless of online availability which caused a business
interruption to CLIENT will be reviewed and classified
regardless of online availability and regardless of whether
the performance standard of 99% has been met or exceeded. In
the event agreement cannot be reached in regard to
classifying an Event, the classification of such Event shall
be subject to Section 28, Informal Resolution of Disputes,
and/or Section 29, Arbitration, of the Agreement. Each Event
causing unscheduled downtime or a business interruption for
any particular month will be classified based on the
following criteria:
<PAGE> 2
Class A Event: An event that was caused due to a standard
policy, practice, process or procedure being by-passed or a
lack of sound business or technical judgement on the part of
an SI employee that results in significant impact to the
clients business or customers. Significant shall be defined
as an event that causes the systems to be down during peak
business hours ("peak business hours" for purposes of this
Section 7.1 shall be 7:00 a.m. to 7:00 p.m. Central Standard
Time), that has an impact on Bank customers, or that causes a
material business interruption to the Client.
Class B Event: An event that was caused due to a standard
policy, practice, process or procedure being by-passed or a
lack of sound business or technical judgement on the part of
an SI employee that results in minor impact to the Client's
business or customers. Minor shall be defined as an event
that causes the systems to be down during scheduled hours of
operation but does not result in an impact on the Bank's
customers or an event that does not cause a business
interruption to the Client.
Class C Event: A class C event will have occurred when two
(2) Class B events have occurred during the same calendar
month.
Class D Event: System failures or outages caused
by conditions beyond SI's control or other events which are
mutually agreed to shall be classified as Class D events.
Class E Event: An event that does not fall into any of the
other classes of events. These events will be classified at
the time of occurrence upon mutual agreement.
7.2 INCENTIVE PAYMENTS CALCULATIONS.
The amount due to CLIENT as a result of SI's failure to
achieve such performance standards will be calculated monthly
and accumulated and credited on a calendar quarter basis.
The calculation will be made as follows:
- Only Class A and Class C Events will be used for
calculation purposes.
- The first Class A or Class C Event that occurs in
each particular calendar quarter will not be included
in the calculation.
- At the end of each quarter all Class A and Class C
events which are included in the calculation will be
accumulated.
-2-
<PAGE> 3
7.3 CALCULATION AMOUNT.
The amount which SI shall pay CLIENT for the second and all
subsequent Class A or Class C Events during a particular
calendar quarter is $16,000 per Event. SI will credit
CLIENT's next invoice by such amount. In no event shall the
total amount for any particular calendar quarter exceed 15%
of the total Base Charges for the corresponding calendar
quarter as outlined in Section 1 of Exhibit C to the
Agreement, Section 4.3 of Exhibit H to the Agreement, as
amended and Section 1 of Exhibit D to the Management and
Consulting Services Agreement, as amended.
7.4 TERM.
The term of this Fifth Amendment shall begin upon the
Amendment Effective Date and continue until June 30, 1994 and
will automatically renew for three (3) additional three month
periods unless the parties mutually agree to amend and/or
terminate this Fifth Amendment. In no event shall this Fifth
Amendment extend beyond March 31, 1995."
2. All terms and conditions of the Agreement not amended herein shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment by
their duly authorized officers as of the Amendment Effective Date.
SYSTEMATICS FINANCIAL BANK UNITED OF TEXAS, FSB
SERVICES, INC.
By: /s/ LARRY L. SNAUFER By: /s/ LESLIE H. GREEN
-------------------------- ------------------------
Name: Larry L. Snaufer Name: Leslie H. Green
-------------------------- ------------------------
Senior Vice Presidents
Title: Vice President Operations Title: Operations & Technology
-------------------------- -------------------------
Date: June 6, 1994 Date: June 6, 1994
-------------------------- -------------------------
<PAGE> 1
EXHIBIT 10.8d
SIXTH AMENDMENT TO
DATA PROCESSING AGREEMENT
The Sixth Amendment ("Sixth Amendment") is effective as of the 26th day of
February, 1996 ("Amendment Effective Date") and amends and supplements that
certain Data Processing Agreement ("Agreement") dated as of the first day of
January, 1992 by and between SYSTEMATICS FINANCIAL SERVICES, INC. ("SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT").
W I T N E S S E T H :
WHEREAS, CLIENT and SI desire to extend the term of the Agreement and make
other changes to the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and convenants
contained herein, the parties agree as follows:
1. Section 2, TERM, of the Agreement shall be amended in its entirety as
follows:
"2. TERM.
The term of this Agreement begins on the Effective Date and
ends September 30, 1996 (the "Expiration Date"). At least
nine (9) months prior to the Expiration Date, SI will submit
to CLIENT a written proposal for renewal of this Agreement.
CLIENT will either: (a) accept such proposal or (b) notify SI
at least one hundred eighty (180) days prior to the
Expiration Date of its intention to terminate on the
Expiration Date."
Bank United of Texas, FSB ALLTEL Information Services, Inc.
By: /s/ JONATHAN K. HEFFRON By: /s/ LARRY L. SNAUFER
----------------------- ---------------------
Name: Jonathan K. Heffron Name: Larry L. Snaufer
----------------------- --------------------
Title: EVP & COO Title: Vice President
----------------------- --------------------
Date: 2/28/96 Date: 2/28/96
----------------------- --------------------
<PAGE> 1
EXHIBIT 10.9
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
by and between
SYSTEMATICS FINANCIAL SERVICES, INC.
and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
JANUARY 1, 1992
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Services .......................................................1
2. Term ...........................................................1
3 General Management .............................................2
3.1 Personnel Management ...........................2
3.2 Other Management Services ......................2
3.3 Insurance ......................................2
3.4 Management Steering Committee ..................2
3.5 Management Audit Conference ....................2
3.6 Audit ..........................................3
3.7 Confidentiality of CLIENT Information ..........3
3.8 Client Service .................................3
3.9 Network Management Services ....................3
4. Data Processing Premises and Security ..........................3
4.1 Data Processing Premises .......................3
4.2 Security Standards .............................3
5. Education ......................................................4
6. Time of Performance ............................................4
7. Termination ....................................................4
7.1 Right to Terminate .............................4
7.2 Method of Termination ..........................5
7.3 Termination of Data Processing Agreement .......5
8. Transitional Cooperation .......................................5
9. Disaster Recovery ..............................................6
10. Payment and Billing ............................................6
11. No Waiver of Default ...........................................6
12. Entire Agreement ...............................................6
i
<PAGE> 3
13. Assignment .....................................................6
14. Confidential Agreement .........................................7
15. Taxes ..........................................................7
16. Independent Contractor .........................................7
16.1 CLIENT Supervisory Powers ......................7
16.2 SI's Employees .................................7
16.3 SI as an Agent .................................7
17. CLIENT and SI Employees ........................................8
18. Notices ........................................................8
19. Covenant of Good Faith .........................................8
20. CLIENT Staff ...................................................8
21. Limitation of Liability ........................................8
22. Section Titles .................................................8
23. Counterparts ...................................................8
24. Annual Financial Statements ....................................9
25. Governing Law ..................................................9
26. Resolution of Disputes ........................................10
ii
<PAGE> 4
EXHIBITS
A. Client Services
B. Telecommunications Network Management
C. Education and Training
D. Charges
E. Indemnification
F. Disaster Recovery Agreement
G. Premises Lease Agreement
H. Communications Services
iii
<PAGE> 5
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
This is an Agreement, dated as of the 1st day of January, 1992 (hereinafter
the "Effective Date"), by and between SYSTEMATICS FINANCIAL SERVICES, INC.,
(formerly Systematics, Inc.) an Arkansas corporation, 4001 Rodney Parham Road,
Little Rock, Arkansas, 72212-2496 (hereinafter "SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
3200 Southwest Freeway
Houston, Texas 77027
(hereinafter "CLIENT").
In consideration of the promises, covenants and agreements of the parties
reflected herein, SI and CLIENT agree as follows:
1. SERVICES.
SI will provide to CLIENT the general management, training,
telecommunications network management, communications services, and client
services described in this Agreement and its exhibits.
2. TERM.
The term of this Agreement is seventeen (17) months, beginning on the
Effective Date reflected above, and ending May 31, 1993 (the "Expiration
Date"). At least four (4) months prior to the Expiration Date, CLIENT will
select one of the options contained in Exhibit D to extend the Agreement or
will submit to SI a written notice of its election to allow the Agreement to
expire. This Agreement may not be extended unless and to the extent CLIENT
contemporaneously elects to extend the DP Agreement.
1
<PAGE> 6
3. General Management.
3.1 PERSONNEL MANAGEMENT. SI will provide recruiting, staffing supervision,
evaluation, discipline and other management services with respect to its
personnel assigned to CLIENT projects pursuant to this Agreement and
pursuant to the Data Processing Agreement of even date herewith (the
"Data Processing Agreement").
3.2 OTHER MANAGEMENT SERVICES. SI also will provide, at CLIENT's request,
analysis, pricing and recommendations with respect to hardware and
software for CLIENT.
3.3 INSURANCE. SI shall provide workers compensation insurance with respect
to all of its employees assigned to CLIENT projects, whether pursuant to
this Agreement or the Date Processing Agreement, and shall use diligence
to assure that all of its agents performing work with respect to this
Agreement and the Data Processing Agreement are covered by workers
compensation insurance. SI shall provide insurance in adequate amounts
for all the property it owns or leases located in CLIENT's premises. SI
will provide insurance covering damages to CLIENT and third persons, or
the property of same, resulting from all negligent acts of the employees
and agents of SI and from the existence, operation or malfunctioning of
property owned or leased by SI and located at CLIENT's premises.
3.4 MANAGEMENT STEERING COMMITTEE. SI and CLIENT agree that effective
planning and communication are necessary to provide direction for SI's
management and CLIENT pursuant to this Agreement and the Data Processing
Agreement. SI and CLIENT will work to promote a free and open exchange of
information between SI's management and CLIENT's management and user
departments. A management steering committee will be established to
facilitate such planning and to encourage a periodic review of priorities
and long term objectives. SI's account manager and programming manager
shall be non-voting members of such committee. CLIENT personnel who shall
be members of such committee shall be selected by CLIENT and include such
senior management personnel as CLIENT deems appropriate from time to
time. The management steering committee shall meet as deemed appropriate
by CLIENT.
3.5 MANAGEMENT AUDIT CONFERENCE. Following any audit or examination, CLIENT
will conduct (in the case of an internal audit), or instruct its external
auditors or examiners to conduct an exit conference with SI and, at such
time, and as soon as available thereafter, to provide SI with a copy of
the applicable portions of each report regarding SI or SI's services
(whether draft or final) prepared as a result of such audit or
examination. CLIENT also agrees to provide and to instruct its external
auditors to provide to SI a copy of the portions of each written report
containing comments concerning SI or the services performed by SI
pursuant to this Agreement or the Data Processing Agreement.
2
<PAGE> 7
3.6 AUDIT. SI will cooperate fully with CLIENT or its designee in connection
with CLIENT's audit functions or with regard to examinations by
regulatory authorities. CLIENT acknowledges that SI is not responsible
for providing audit services or for auditing CLIENT's records or
information.
3.7 CONFIDENTIALITY OF CLIENT INFORMATION. All information concerning CLIENT,
its business or customers submitted to SI pursuant to this Agreement
shall be held in confidence by SI and shall not be disclosed. No person
or entity shall be permitted to have access to CLIENT's information
without the prior written authorization of CLIENT. All of CLIENT's
information shall be available for examination by CLIENT, at any time
without notice. SI will grant access to CLIENT to the Data Center (as
defined in the Data Processing Agreement) as soon as reasonably
practicable following receipt of notice from CLIENT. If SI receives any
legal process requiring it to produce CLIENT's information or that of any
of its customers, SI shall notify CLIENT promptly, and deliver copies of
such orders to CLIENT, immediately and prior to compliance with such
process.
3.8 CLIENT SERVICE. SI will provide the resident staff of client service
personnel reflected in Exhibit A to this Agreement.
3.9 NETWORK MANAGEMENT SERVICES. SI will provide management services with
respect to CLIENT's telecommunications network as set forth in more
detail in Exhibit B to this Agreement.
4. DATA PROCESSING PREMISES AND SECURITY.
4.1 DATA PROCESSING PREMISES. CLIENT agrees to provide SI with adequate
premises, in good repair, to perform its responsibilities under this
Agreement (hereinafter the "Data Center") and under the Data Processing
Agreement. Without limiting the generality of the foregoing, CLIENT
agrees to supply water, sewer, heat, lights, telephone lines and
equipment, air conditioning, electricity (including, if desired by
CLIENT, an uninterruptable power system, battery backup and backup
generator capacity), office equipment and furniture all pursuant to the
terms and conditions of Exhibit G attached hereto and incorporated herein
by reference. SI is not responsible for any injury or damage to property
or persons which occurs in or around the Data Center unless it is caused
by the negligent or willful misconduct of SI. CLIENT will provide
telephone instruments and telephone service for SI to communicate with
the employees of CLIENT, CLIENT's service bureau customers, if any, and
as required by SI to operate the Data Center.
4.2 SECURITY STANDARDS. SI will adhere to such security standards with
respect to CLIENT's data as may reasonably be imposed by CLIENT,
including prehiring personnel investigative procedures and discharge of
personnel. CLIENT will pay the costs for any modifications or additions
to the data center which are required by such security standards. CLIENT
will reimburse SI for actual costs
3
<PAGE> 8
incurred if adherence to security standards requested or required by
CLIENT increases SI's costs of operation.
5. EDUCATION.
SI will make available to CLIENT personnel SI's standard application software
training courses, which are generally held in Little Rock, Arkansas, in
accordance with SI's Education and Training Department schedule, a current
copy of which will be provided to CLIENT upon request. CLIENT personnel may
attend such courses, and any other standard courses generally offered by SI
to its other customers, upon payment of SI's then current published course
fee, subject to normal space availability requirements and compliance with
SI's standard registration and enrollment deadlines and procedures. CLIENT
will pay all of its travel and lodging expenses while attending SI courses.
6. TIME OF PERFORMANCE.
The parties agree that timely and accurate submission of input and output is
essential to satisfactory performance under this Agreement. SI's time of
performance shall be enlarged, if and to the extent reasonably necessary, in
the event that: (a) an act of God, malfunction of any equipment (except as
caused by the negligence or willful misconduct of SI) or other cause beyond
the control of SI prevents timely data processing hereunder, (b) special
requests by CLIENT or any governmental agency authorized to regulate or
supervise CLIENT impact SI's schedule; (c) if CLIENT fails to provide any
equipment, premises or performance called for by this Agreement, and the same
is necessary for SI's performance hereunder; or (d) if requests by CLIENT's
internal or external auditors or examiners adversely affect SI's normal
processing schedule. SI will notify CLIENT of the estimated impact on its
processing schedule, if any. SI will carefully follow reasonable balancing
and quality control procedures designed to detect processing errors. SI will
balance promptly to control totals provided by CLIENT, and promptly will
advise CLIENT of out-of-balance conditions exceeding mutually established
limits. In the event of an error in processing CLIENT's data, SI will
promptly notify CLIENT and will promptly correct such error. Such correction
of error shall be without charge to CLIENT unless caused by the nature of the
data submitted by CLIENT or caused by software provided to SI by CLIENT.
CLIENT carefully will review and inspect all reports prepared by SI, and
within a reasonable time after any error or out-of-balance control totals
should be detectable, CLIENT promptly will notify SI of any error. As used
herein, the term "promptly" is intended to be interpreted flexibly and in
light of the related circumstances. If CLIENT fails to so notify SI within a
reasonable time after any error or out-of-balance control totals should be
detectable, it shall be deemed to have waived its rights in respect of such
error and to have assumed all risks in respect thereof, including any
increase in the cost of correction to the extent that SI establishes that the
same could have been avoided by earlier detection of such error.
4
<PAGE> 9
7. TERMINATION.
This Agreement may be terminated prior to the Expiration Date, as follows:
7.1 RIGHT TO TERMINATE. In addition to any other rights which either party
may have in law or equity, either SI or CLIENT may terminate this
Agreement if the defaulting party fails to cure any material default
hereunder within thirty (30) days of written notice from the other party,
specifying the nature and extent of any such default.
7.2 METHOD OF TERMINATION. Exercise of the right to terminate under this
Section must be accomplished by specifying in such written notice to the
defaulting party, the nature and extent of such default and fixing a
date, on the last day of a month, not less than 120 days following the
date of receipt of such notice, for cessation of services hereunder (the
"Termination Date").
7.3 TERMINATION OF DATA PROCESSING AGREEMENT. This Agreement and the Data
Processing Agreement are intended to be co-terminus. If the Data
Processing Agreement is terminated by either party, this Agreement shall
simultaneously terminate. If this Agreement is terminated by CLIENT
pursuant to Section 8.4 of the Data Processing Agreement, CLIENT agrees
to pay SI an early termination fee for termination of this Agreement
which fee shall accompany CLIENT's notice of termination of this
Agreement or the Data Processing Agreement, whichever is first. The
amount of the termination fee payable pursuant to this Agreement shall be
determined as follows:
(a) If the termination is pursuant to section 8.4(a), Acquisition, the
fee shall be 25 % of the sum of the monthly payments reflected in
Section 1 of Exhibit D for the remaining term of the Agreement, plus
the relocation and severance expense as set forth and subject to the
limitations reflected in Section 8.4(a)(iv)(a) of the Data
Processing Agreement.
(b) If the termination is for convenience pursuant to section 8.4(b) of
the Data Processing Agreement, the fee shall be 50% of the sum of
the monthly payments reflected in Section 1 of Exhibit D for the
remaining term of the Agreement, plus the relocation and severance
expense as set forth and subject to the limitations reflected in
Section 8.4(a)(iv)(A) of the Data Processing Agreement.
8. TRANSITIONAL COOPERATION.
After notice of termination and prior to the Termination Date, or for six
months prior to the Expiration Date, SI agrees that it will give full
cooperation and support to CLIENT to provide greater assurance of an orderly
and efficient transition to whatever method CLIENT may select to acquire the
types of services contemplated by this Agreement. The scope of such
transitional assistance is more fully described in Exhibit K to the Data
Processing Agreement.
5
<PAGE> 10
9. DISASTER RECOVERY.
Disaster recovery arrangements are provided under separate agreement
attached as Exhibit F. The monthly fees for disaster recovery services are
included in Exhibit D. Such arrangements are designed to deal with
circumstances which are expected to cause any substantial portion of the
capabilities of the data center to be unavailable for a consecutive period
exceeding 24 hours. All of the parties' arrangements for emergency backup,
if any, also are reflected in Exhibit F.
10. PAYMENT AND BILLING.
CLIENT agrees to pay SI for the services performed hereunder in accordance
with the fees set forth in this Agreement, pursuant to invoices prepared and
delivered to CLIENT. All fees shall be payable on the first day of each
month, for services to be rendered during that month.
11. NO WAIVER OF DEFAULT.
The failure of either party to exercise any right of termination hereunder
shall not constitute a waiver of the rights granted herein with respect to
any subsequent default.
12. ENTIRE AGREEMENT.
This Agreement and the exhibits hereto contain the entire agreement of the
parties and supersedes all prior agreements whether written or oral with
respect to the subject matter hereof. Expiration or termination of any part
of this Agreement shall terminate the entire Agreement except for any
portion hereof which expressly remains in force and in effect
notwithstanding such termination or expiration. In addition, a termination
of this Agreement shall also result in the termination of the Data
Processing Agreement between the parties of even date herewith. The various
provisions of this Agreement which contain the parties' agreements to
indemnify each other and to maintain the confidentiality of confidential
information shall remain in force notwithstanding a termination or
expiration of this Agreement. Modification or amendment of this Agreement or
any part thereof may be made only by written instrument executed by both
parties.
13. ASSIGNMENT.
Neither party hereto shall assign, subcontract, or otherwise convey or
delegate its rights or duties hereunder to any other party without the prior
written consent of the other party to this Agreement, which consent shall
provide that it is subject to all the terms and conditions of this
Agreement. No such consent shall be required in the event of a merger,
consolidation, sale of substantially all of the assets, or any other change
of control of either party hereto, in which event, this Agreement shall
apply to, inure to the benefit of, and be binding upon the parties hereto
and upon their respective successors in interest.
6
<PAGE> 11
14. CONFIDENTIAL AGREEMENT.
This Agreement is a confidential agreement between SI and CLIENT. In no
event may this Agreement be reproduced or copies shown to any third parties
by either CLIENT or SI without the prior written consent of the other party,
except as may be necessary by reason of audit, legal, accounting or
regulatory requirements beyond the reasonable control of SI or CLIENT, as
the case may be, in which event SI and CLIENT agree to exercise diligence in
limiting such disclosure to the minimum necessary under the particular
circumstances.
15. TAXES.
CLIENT will pay directly or reimburse SI for all sales, use or excise taxes,
however designated, levied or based, on amounts payable pursuant to this
Agreement, including state and local privilege or excise taxes based on
gross revenues under this Agreement or taxes on services rendered or
personal property taxes on the systems licensed hereunder. CLIENT shall not
be responsible for any taxes levied on the personal property or net income
of SI. The parties intend that this contract shall be exempt from the
provisions of Texas state sales taxes. If requested by CLIENT, SI will use
diligence to seek and obtain a ruling or opinion from appropriate Texas
authorities exempting the charges under this Agreement from the application
of Texas state sales taxes. In addition, CLIENT will indemnify SI and hold
SI harmless from any such sales taxes as more specifically set forth in
Exhibit E.
16. INDEPENDENT CONTRACTOR.
It is agreed that SI is an independent contractor and that:
16.1 CLIENT SUPERVISORY POWERS. Except as otherwise specifically set forth
in this Agreement, CLIENT has no power to supervise, give directions or
otherwise regulate SI's operations or its employees, except as herein
provided for security of CLIENT's data and detection of errors in
processing.
16.2 SI's EMPLOYEES. Persons who provide services to CLIENT are employees of
SI and SI shall be solely responsible for payment of compensation to
such personnel and for any injury to them in the course of their
employment. SI shall assume full responsibility for payment of all
federal, state and local taxes or contributions imposed or required
under unemployment insurance, social security and income tax laws with
respect to such persons.
16.3 SI AS AN AGENT. SI is not an agent of CLIENT and has no authority to
represent CLIENT as to any matters, except as authorized herein.
7
<PAGE> 12
17. CLIENT AND SI EMPLOYEES.
During the term of this Agreement, and except as set forth in the Data
Processing Agreement, CLIENT and SI agree not to offer employment to any
employee of the other without the prior written consent of the other.
18. NOTICES.
All notices, requests and demands, other than routine operational
communications under this Agreement, shall be in writing and shall be deemed
to have been duly given when deposited in the United States mail, registered
or certified postage prepaid, and addressed to the other party at the
address first shown above and to the attention of the president of said
party. Notice of changes of address, if any, shall be given in like manner.
19. COVENANT OF GOOD FAITH.
SI and CLIENT agree that, in their respective dealings arising out of or
related to this Agreement, they shall act fairly and in good faith.
20. CLIENT STAFF.
CLIENT agrees to provide such user department and management resources as
may be necessary to establish and effectively communicate to SI its
priorities for the services to be provided under this Agreement as the same
may change from time to time.
21. LIMITATION OF LIABILITY.
If either party shall breach any covenant, agreement or undertaking required
of it by this Agreement, the liability of such party shall be limited to
direct damages, actually incurred. Neither party shall be liable to the
other for any special or consequential damage or for any claim or demand
made by any third party.
22. SECTION TITLES.
Section titles as to the subject matter of particular sections herein are
for convenience only and are in no way to be construed as part of this
Agreement or as a limitation of the scope of the particular sections to
which they refer.
23. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the
same instrument.
8
<PAGE> 13
24. ANNUAL FINANCIAL STATEMENTS.
At CLIENT's request, SI will provide to CLIENT a copy of its annual
financial statements (which may be unaudited) as well as the most recent
audited financial statements of Alltel Corporation, SI's parent company.
25. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
26. RESOLUTION OF DISPUTES.
SI and CLIENT agree that disputes arising under this Agreement shall be
resolved in the manner set forth in Sections 28 and 29, governing informal
resolution of disputes and arbitration, respectively, of the Data Processing
Agreement of even date herewith.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
officers, thereunto duly authorized, on the 1st day of January, 1992.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ J. David Frantz By: /s/ Leslie H. Green
------------------------- -------------------------
Name: J. David Frantz Name: Leslie H. Green
----------------------- -----------------------
Title: Vice President Title: Senior Vice President
---------------------- ----------------------
Date: 1/10/92 Date: 1/10/92
----------------------- -----------------------
ATTESTED: ATTESTED:
By: /s/ Harold J. Fackler By: /s/ Richard L. Hare
------------------------- --------------------------
Name: Harold J. Fackler Name: Richard L. Hare
----------------------- ------------------------
Title: Vice President Title: Vice President
---------------------- -----------------------
Date: 1/10/92 Date: 1/10/92
----------------------- ------------------------
9
<PAGE> 14
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "A"
CLIENT SERVICES
1. RESIDENT CLIENT SERVICES STAFF. SI will provide a staffing level of on-site
client services staff reflected in the table below (the "Resident Client
Services Staff"). The remaining staffing level will fluctuate during the
term of this Agreement as the Resident Client Services Staff is increased
or decreased pursuant to requests by CLIENT. At CLIENT's request, SI will
increase or decrease the Resident Client Services Staff, so long as the
staffing level is no less than the minimum level shown below, and may not
be decreased to less than 3. Increases in the Resident Client Services
Staff will be in minimum increments of one person for a minimum term of one
year from the date of the arrival of such person(s). Such increases or
decreases in the Resident Client Services Staff will result in increases or
decreases in the SI fees in accordance with Section 1.c below. SI will
provide for CLIENT the opportunity to interview additions to and
replacements of the Resident Client Services Staff and periodically to
evaluate their performance. SI will, in good faith, consider the opinions
expressed by CLIENT as a result of such interviews and evaluations. In
addition, if CLIENT requests the discipline or removal of a member of the
Resident Client Services Staff, based upon his or her conduct or job
performance, SI will consider such request in good faith and promptly take
appropriate action. The Resident Client Services Staff included in the SI
fees shown in Section 1 of Exhibit D for the remaining months of this
Agreement is:
<TABLE>
<CAPTION>
Number of
Period Client Services
------ ---------------
<S> <C>
1992
January - April 8
May - September 7
October - December 5
1993 5
1994 - 1996 3
</TABLE>
SI's Client Service Personnel shall be qualified personnel
who, based upon SI's current job classification, will be
classified as follows:
A-1
<PAGE> 15
<TABLE>
<CAPTION>
1992 1993 and Thereafter
---- -------------------
<S> <C> <C>
Client Services Supervisor E31
E31 2 2
Senior Client Service Specialist
E28 and E29 5 2
Client Services Specialist
E27 1 1
- -
8 5
</TABLE>
Any change to the number of the Resident Client Services Staff as indicated
above may necessitate a different allocation than that set out above.
SI will provide CLIENT with output from SI's Project Control System as
frequently as weekly with respect to the activities of the entire Resident
Client Services Staff. Subject to the requirements of Exhibit A of the Data
Processing Agreement, CLIENT may direct SI as to which specific projects CLIENT
wishes to implement and the relative priority of such projects. Such directions
shall include, but not be limited to, installation of enhancements, new
releases, major subsystems and regulatory changes.
Subject to a reasonable time for replacements in the event of resignations or
terminations, which time shall not exceed ninety (90) days, SI will maintain
such staffing levels throughout the term of this Agreement. If SI fails to fill
a position within 30 days, SI will at its election (i) provide a temporary
resource for such position, or (ii) give CLIENT a daily credit from the 31st day
to the time of replacement based on the actual daily salary and benefits of the
person who most recently filled the vacant position, plus a reasonable margin
thereon. The Resident Client Services Staff shall serve as an interface between
the data processing personnel provided by SI pursuant to the Data Processing
Agreement and Client's user personnel.
(a) Project Control - The Resident Client Services Staff will use a project
management system for CLIENT projects, and SI will provide CLIENT with
output from such system as frequently as weekly.
(b) Priorities - CLIENT shall have the right to establish all project
priorities. Changes in priorities, however, which require reassignment of
SI Resident Client Services Staff to other responsibilities may result in
an enlargement of SI's time to complete certain tasks hereunder. Prior to
the last installation date specified in Exhibit A of the Data Processing
Agreement, CLIENT changes in priorities or requests for additional
projects may result in additional SI fees and in an enlargement of SI's
time to complete certain tasks hereunder.
A-2
<PAGE> 16
(c) Resource Change Procedure - At CLIENT's written request, SI will increase
or decrease the Resident Client Services Staff, as long as the staffing
level is not less than the minimum number set forth above. Annually, SI and
CLIENT will, on a best efforts basis, plan the Resident Client Services
Staff level expected to be necessary for the following six-months and
twelve-month increments. CLIENT will provide SI with written notice with
respect to increases, extensions or decreases in the Resident Client
Services Staff. SI will promptly respond to CLIENT's request to alter the
Resident Client Services Staff with a quotation for any increases or
decreases in SI's fees. If CLIENT accepts SI's quotation, SI will use its
best efforts to provide Resident Client Services Staff increases promptly
in accordance with CLIENT's requests. The effective date of an SI fee
increase will be the date such SI employee becomes a full-time member of
the Resident Client Services Staff. The effective date of an SI fee
decrease will be the earlier of 120 days from the date of CLIENT's written
request or the date such SI employee is no longer resident. For increases
in the Resident Client Services Staff the fee increase will be determined
by reference to the applicable salary, benefits and relocation costs, if
any, plus a reasonable margin thereon. For decreases, the monthly credit
will be determined by reference to the actual salary and benefits of the
affected person(s), plus a reasonable margin thereon. Quotations for
increases or decreases in the Resident Client Services Staff will be in
minimum increments of one person for a minimum term of one year or
coterminous with this Agreement. Partial months will be prorated on a daily
basis.
A-3
<PAGE> 17
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "B"
TELECOMMUNICATIONS NETWORK MANAGEMENT
RESPONSIBILITY
UNCTION CLIENT SI
Network management X
Network monitoring X
Determination of problem X
Report problem to appropriate vendor X
Report problem to end users X
Operate diagnostic equipment X
Diagnostic equipment and maintenance X
Remote equipment and maintenance X
Long distance telephone (voice and data lines) X
B-1
<PAGE> 18
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "C"
EDUCATION AND TRAINING
In connection with the projects and installations scheduled pursuant to
Exhibit A of the Data Processing Agreement, and other projects, as appropriate,
utilizing the Resident Programming Staff and the resident customer services
representatives, SI will provide initial training services for CLIENT's key
personnel, who will train CLIENT's user department personnel.
C-1
<PAGE> 19
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "D"
CHARGES
1. FEE SCHEDULE.
CLIENT will pay SI, a minimum fee of $3,940,144 payable in monthly
installments as set forth in the following table:
<TABLE>
<CAPTION>
Applicable Period Amount of Monthly Payment
----------------- -------------------------
<S> <C>
Jan - May, 1992 $274,724
June, 1992- May, 1993 $213,877
</TABLE>
As set forth in Section 2 of the Agreement, CLIENT is hereby granted an
option to extend the term of this Agreement for one, two, three or four years
after the Expiration Date. On or before January 31, 1993, CLIENT will give SI
written notice of its election to exercise one of those four options,
designating the option selected, or of its election to permit the Agreement
to expire May 31, 1993. The monthly fees which shall be applicable during
such extensions are as follows:
<TABLE>
<CAPTION>
Monthly Fee Applicable Under
Alternative Extension Options
-----------------------------
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
June- Sept. 1993 $220,583 $220,583 $220,583 $220,583
Oct, 1993- May, 1994 $201,630 $197,925 $195,645 $193,793
June - Sept. 1994 $197,925 $195,645 $193,793
Oct, 1994- May, 1995 $194,220 $191,370 $188,520
June, 1995- Sept. 1996 $191,370 $188,520
Oct, 1995- May, 1996 $187,380 $185,385
June - Sept, 1996 $185,385
Oct, 1996- May, 1997 $184,530
</TABLE>
D-1
<PAGE> 20
2. PRICE ADJUSTMENT.
The fees and charges reflected in this Agreement will be increased by three
percent (3%) effective January 1, 1993. The exercise by CLIENT of its option
to extend this Agreement by two, three or four years shall require an
agreement of the parties with respect to the effects of inflation on SI's
expenses of providing the services contemplated by this Agreement during any
such extended term. The parties agree to negotiate promptly and in good faith
a formula for the annual adjustment of such fees and expenses.
D-2
<PAGE> 21
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "E"
Indemnification
The terms and conditions of the parties' agreement with respect to
indemnification are set forth in an indemnification agreement dated December __,
1991, and are incorporated herein by reference.
E-1
<PAGE> 22
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "F"
DISASTER RECOVERY AGREEMENT
This is a Disaster Recovery Agreement (the "Agreement") made and entered
into contemporaneously with the Management and Consulting Agreement (the
"Management Agreement"), dated as of January 1, 1992, between Systematics
Financial Services, Inc., an Arkansas corporation, 4001 Rodney Parham Road,
Little Rock, Arkansas, 72212-2496 (hereinafter "SI") and
UNITED SAVINGS ASSOCIATION OF TEXAS, FSB
3200 Southwest Freeway
Houston, Texas 77024
(hereinafter "CLIENT").
WHEREAS, SI maintains a computer disaster recovery facility for use by
Subscribing Clients in the event of a Disaster (see definitions, below); and
WHEREAS, CLIENT wishes to have access to such computer disaster recovery
facility in the event of a Disaster;
NOW THEREFORE, in consideration of the payments to be made and services to
be performed hereunder, the parties agree as follows:
1. DEFINITIONS. The terms and phrases listed below shall have the indicated
special meanings when used in this Agreement:
"DISASTER RECOVERY FACILITY" -- The Computer Equipment described in
Attachment 2 and located at SI's corporate headquarters.
"DATA CENTER" -- CLIENT's IBM-based or IBM-compatible computer facility
located at:
3200 Southwest Freeway
Houston, Texas 77027
F-1
<PAGE> 23
"DISASTER" - Any interruption in the availability or accessibility of the
Data Center, resulting from causes beyond CLIENT's control and reasonably
expected to last more than twenty-four (24) continuous hours.
"MULTIPLE DISASTER" - Disasters experienced by two or more Subscribing
Clients at times when such Subscribing Clients would be entitled to use the
Disaster Recovery Facility at the same time.
"SHELL FACILITY" - Preconditioned space suitable for the installation of
CLIENT's computer equipment, located at 409 Shall Street, Little Rock,
Arkansas.
"SUBSCRIBING CLIENT" - Any person, firm or corporation which has entered
into a Disaster Recovery Agreement with SI for use of the Disaster Recovery
Facility.
2. TERM.
The term of this Agreement shall begin on January 1, 1992 (the "Effective
Date") and shall be coterminous with the Management Agreement and any options
to extend which are exercised by CLIENT.
3. DISASTER RECOVERY FACILITY.
3.10 ACCESS. Upon declaration of a Disaster, CLIENT may use the Disaster
Recovery Facility under the appropriate class of service, upon at least
six hours notice to SI, for a period of up to six (6) consecutive weeks
(the "Recovery Period"). Thereafter, continued use of the Disaster
Recovery Facility, may be permitted except that another Subscribing
Client who experiences a Disaster after CLIENT's Recovery Period shall
be granted priority access to and use of the facility.
3.20 SI COMPUTER EQUIPMENT. SI will purchase and maintain in force
maintenance agreements for the equipment described in Attachment 2.
3.30 SI COMPUTER EQUIPMENT CHANGE. SI may change its IBM compatible computer
equipment configuration at any time upon ninety (90) days prior written
notice to CLIENT; provided, however, that no such notice shall be
required if any such change does not adversely affect the usefulness to
CLIENT of the changed configuration as a Disaster Recovery Facility. If
such a change in SI's equipment configuration results in the Disaster
Recovery Facility becoming materially unusable to CLIENT for disaster
recovery, SI promptly will notify CLIENT, and CLIENT may terminate this
Agreement in accordance with Paragraph 10 herein, but without further
payment of the portion of the monthly fees allocable to disaster
recovery, and without payment of any termination fee.
F-2
<PAGE> 24
3.40 MULTIPLE DISASTERS. In order to reduce the possibility of a Multiple
Disaster, SI will exercise due care and discretion in contracting with
new clients to avoid geographic concentrations that would unduly
increase exposure. When a new contract is contemplated that would result
in a perceived exposure due to a geographic concentration and/or client
size, SI will perform an analysis of said exposure for review by SI
management prior to execution of the proposed contract. In addition, no
agreement will be signed with a prospective client who is currently
experiencing a Disaster.
If a Multiple Disaster occurs, more than one Subscribing Client may be
granted access to the Disaster Recovery Facility. SI will exercise its
best efforts to coordinate the activities of these Subscribing Clients.
3.50 COMPUTER EQUIPMENT COMPATIBILITY ASSURANCE. CLIENT will appoint a
Disaster Recovery Coordinator who will maintain records of CLIENT
computer equipment sufficient to identify any differences which could
affect successful processing, and will promptly notify SI of any change
which may do so. The Disaster Recovery Coordinator will maintain
documentation for resolution of such differences in the event of a
Disaster.
CLIENT agrees to conduct a test annually in the Disaster Recovery
Facility. Each test should be an analysis of compatibility consisting of
CLIENT's operating system, applications, and communications software
sufficient to achieve the pre-established mutually agreeable objectives.
The test should be planned for completion within the test time
allocation specified in Attachment 2, although extra time may be
authorized by SI if unforeseen problems occur and there is a reasonable
expectation of solution within the time extension. CLIENT will submit
the request for an annual test to SI using forms and procedures
established. SI will schedule the test on a mutually agreeable date.
Data Center personnel will conduct the test with the assistance of SI
staff, as necessary.
3.60 NON-DISASTER USE. The Disaster Recovery Facility will be used by SI for
development and internal accounting, and for testing of other
Subscribing Clients. During any Recovery Period, a Subscribing Client
who has declared a Disaster shall take priority over all such use and
may preempt CLIENTs' test and use of associated services.
4. DISASTER RECOVERY PLAN.
CLIENT agrees to develop or acquire, and to maintain, a specific, written
plan for dealing with its data processing needs during a Disaster (the
"Disaster Recovery Plan"). A current copy of the Disaster Recovery Plan shall
be maintained by CLIENT at its operating facility, at an offsite backup
location, at the Data Center, and at SI's Disaster Recovery Facility.
F-3
<PAGE> 25
5. SI AND CLIENT RELATIONSHIP.
5.10 CLIENT PERSONNEL. CLIENT agrees that trained personnel, with appropriate
levels of authority shall be temporarily located at the Disaster
Recovery Facility during all Recovery Period processing to perform the
following functions:
a) Cash letter and return items signature and approval (may require bank
officer);
b) Coordinator/liaison between SI and all CLIENT user departments; and
c) All proof department operations.
In addition, to the extent that CLIENT has responsibility under the FM
Agreement, CLIENT agrees to provide the necessary supplies and personnel
(at the Disaster Recovery Facility or at CLIENT's facility, as required)
to perform the following: balancing, key entry, input delivery, output
pickup and distribution, data capture, COM (microfilm/microfiche),
bursting and decollation.
5.20 TRAVEL AND LIVING EXPENSES. CLIENT will pay all travel and living
expenses incurred by either CLIENT or SI for temporary relocation of
personnel as a result of a Disaster and/or testing.
5.30 ADDITIONAL SERVICES. If Client requests services related to Disaster
Recovery which are in addition to those covered by this Agreement, and
if SI has resources available to provide such services, SI promptly will
prepare a price quotation based upon (a) the rates reflected in Section
6 of Exhibit C to the Data Processing Agreement, if applicable, or SI's
other published rates for such services, or (b) if the services are not
covered by said Exhibit C or other published prices, the prevailing
prices for such services then offered by SI to its other similarly
situated customers.
5.40 PROCESSING FREQUENCY. This Agreement does not guarantee that all
applications will be processed as frequently during the Recovery Period
as they are processed under the FM Agreement. The applications processed
will be consistent with the priorities set forth in the Disaster
Recovery Plan.
5.50 TIME OF PERFORMANCE. SI will use diligence to provide the data
processing services set forth in the Data Processing Agreement at the
times required therein. CLIENT acknowledges, however, that the
circumstances of a Disaster are likely to adversely impact SI's time of
performance and that the provisions of Section 7 of the Data Processing
Agreement shall continue to be applicable during the Recovery Period.
F-4
<PAGE> 26
6. SERVICE LEVELS.
6.10 BASIC COVERAGE. The basic coverage under this Agreement provides for
access to the Disaster Recovery Facility under the Class of Service
indicated in Attachment 1.
6.20 PLANNING SERVICE. Planning services, to assist CLIENT in fulfilling the
requirement for a Disaster Recovery Plan under Section 4 of this
Agreement, are provided under the terms and conditions of Attachment 3.
6.30 SHELL FACILITY. Access to and use of the Shell Facility are provided
under the terms and conditions of Attachment 4.
6.40 ONLINE. Availability of local terminals at the Disaster Recovery
Facility is provided as shown in Attachment 2. Backup of CLIENT's online
circuits, if any, is provided under the terms and conditions of the
Addendum for Dial-up Analog Kits, the Addendum for Multiplexer Service
or the Addendum for Switched T1 Access.
6.50 REMOTE TERMINAL CLUSTER. Availability of a remote terminal cluster, if
any, is provided under the terms and conditions of the Addendum For
Remote Terminal Cluster.
6.60 READER-SORTER EQUIPMENT. Backup of CLIENT reader-sorter equipment, if
any, is provided under the terms and conditions of the Addendum For
Reader-Sorter Support.
6.70 PROOF BACKUP. Backup for CLIENT single-pocket proof equipment, if any,
is provided under the terms and conditions of the Addendum For Proof
Backup.
7. FEES.
7.10 PARTICIPATION FEES. CLIENT will pay the applicable monthly participation
fees for the Class of Service indicated in Attachment 1.
7.20 CLIENT COMPUTER EQUIPMENT CHANGE. Upon the installation or
deinstallation of any computer equipment at CLIENT's data center which
changes CLIENT's Class of Service, SI will notify CLIENT at least thirty
days prior to such installation or deinstallation, and CLIENT agrees to
pay the participation fees (whether higher or lower) at the new Class of
Service rate. If CLIENT's requirements exceed the capacity of or are
incompatible with the subscribed Class of Service, CLIENT will notify
SI. SI and CLIENT will then have ninety (90) days in which to resolve
the capacity or incompatibility situation, which solution may include an
agreement with a third party. If, after ninety (90) days from CLIENT's
notice to SI, SI and CLIENT have not agreed upon a mutually satisfactory
solution, either party may terminate this Agreement.
F-5
<PAGE> 27
7.30 FACILITY ACCESS FEE. CLIENT agrees to notify SI verbally and in writing
of its declaration of a Disaster, and such notice shall require payment
of the Facility Access Fee set forth in Attachment 1.
7.40 FACILITY USAGE FEE. During the Recovery Period, CLIENT will also pay
the hourly Facility Usage Fee described in Attachment 1.
7.50 MISCELLANEOUS FEES. CLIENT will pay for miscellaneous SI services used
during the Recovery Period at the rates then charged to other
similarly-situated SI clients.
8. PAYMENT AND BILLING.
CLIENT agrees to pay the Participation Fee monthly in advance. Other
applicable fees will be invoiced at least monthly. CLIENT agrees to pay all
such fees within thirty days of the respective dates of such invoices.
9. LOCATION CHANGE.
CLIENT may change the location of the Data Center upon prior written notice
to SI.
10. CLIENT Termination.
CLIENT may terminate this Agreement as set forth in Section 3.30 without any
fee, and without further payment of the portion of the monthly fee allocable
to disaster recovery, if any change in the SI Computer Equipment results in
the Disaster Recovery Facility becoming materially unusable to CLIENT for
disaster recovery purposes. CLIENT must notify SI in writing within thirty
(30) days of SI's announcement of the equipment change. Termination is
subject to the actual installation of such equipment and effective as of
such equipment change installation date. In recognition of the long-term
rates provided herein, if CLIENT terminates this Agreement for any reason
other than that provided in this paragraph 10, a termination fee will apply.
Such fee shall be equal to the number of months remaining in the current
five year term, times 20% of the Total Monthly Participation Fee then in
effect.
11. SECURITY AND CONFIDENTIALITY.
CLIENT agrees to observe SI's security procedures while using the Disaster
Recovery Facility. SI and CLIENT each agree to take such steps and exercise
such precautions to protect the proprietary or confidential information of
the other as each exercises in protecting its own most valuable proprietary
or confidential information. SI and CLIENT each agree to indemnify the other
and hold the other harmless from and against any loss, claim, damage or
expense (including attorneys' fees) resulting from or arising out of any
unauthorized use or disclosure of the confidential or proprietary
information of the other.
F-6
<PAGE> 28
12. SHARED USE.
CLIENT acknowledges that SI is not liable for any loss, claim, damage or
expense directly or indirectly resulting from the shared use of the Disaster
Recovery Facility and related services in the event of a Multiple Disaster,
except to the extent that such loss, claim, damage or expense was caused by
SI's negligence or willful misconduct.
13. DISCLAIMER OF MERCHANTABILITY.
ALL REPRESENTATIONS AND WARRANTIES OF SI ARE EXPRESSLY SET FORTH HEREIN. ALL
OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE DISASTER RECOVERY FACILITY AND RELATED SERVICES OR THEIR USE,
ARE HEREBY DISCLAIMED.
14. FORCES BEYOND SI CONTROL.
SI shall use reasonable and diligent efforts to make the Disaster Recovery
Facility and related services available and operational at all times, and in
so doing shall take reasonable steps to safeguard against events which could
adversely impact the use thereof.
SI is not liable to CLIENT or any other person for claims or damages which
result from any failure beyond SI's control including but not limited to,
acts of God, the public enemy, acts of any federal, state or local
government, fires, floods, tornadoes, earthquakes or other weather related
disasters, war, strikes, unavailability of computer equipment replacement
parts, disruption of communication service and utility outages.
15. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
F-7
<PAGE> 29
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
officers, hereunto duly authorized, on the date(s) set forth below.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ J. David Frantz By: /s/ Leslie H. Green
------------------------- -------------------------
Name: J. David Frantz Name: Leslie H. Green
----------------------- -----------------------
Title: Vice President Title: Senior Vice President
---------------------- ----------------------
Date: 1/10/92 Date: 1/10/92
----------------------- -----------------------
ATTESTED: ATTESTED:
By: /s/ Harold J. Fackler By: /s/ Richard L. Hare
------------------------- --------------------------
Name: Harold J. Fackler Name: Richard L. Hare
----------------------- ------------------------
Title: Vice President Title: Vice President
---------------------- -----------------------
Date: 1/10/92 Date: 1/10/92
----------------------- ------------------------
F-8
<PAGE> 30
ATTACHMENT 1
FEE SCHEDULE
CLIENT's CLASS OF SERVICE is determined by the CPU size (in MIPS) in the Data
Center. The services provided hereunder are indicated below under Class of
Service. Total Monthly Participation Fees are computed below and are included in
the monthly fees shown in Exhibit C.
<TABLE>
<CAPTION>
CLASS OF SERVICE
------------------------------------------------
"AA" "AAA" "4A" "7A"
4.1-8.0 8.1-11.0 11.1-13.0 23.0
MIPS MIPS MIPS MIPS
------------------------------------------------
<S> <C> <C> <C> <C> <C>
I. PARTICIPATION FEES:
Basic Service includes: $4200. 6.000
------ ----- ------ ------
Planning Service
Shell Facility
On-Line Processing:
Dialup Analog Kits NA NA
------ ----- ------ ------
Multiplexer Service NA NA
------ ----- ------ ------
Switched T1 Access $1200. $1200.
------ ----- ------ ------
Remote Terminal Cluster $165. 165.
------ ----- ------ ------
Additional DASD (Disk) $ 300. NA
------ ----- ------ ------
Cartridge Tape Drives $ 60. 60.
------ ----- ------ ------
Proof Equipment NA NA
------ ----- ------ ------
Reader-Sorter ( ) NA NA
------ ----- ------ ------
Primary 3890 Support NA NA
------ ----- ------ ------
Secondary 3890 Support NA NA
------ ----- ------ ------
TOTAL MONTHLY
PARTICIPATION FEE $5925. $7425.
------ ----- ------ ------
TOTAL MONTHLY
PARTICIPATION FEE
DISCOUNTED 10% $5332. $6682.
------ ----- ------ ------
(Note: The above fees are
included in Section 1
of Exhibit C)
II. FACILITY ACCESS FEE: $15,000 $25,000 $25,000 $25,000
</TABLE>
F-9
<PAGE> 31
III. FACILITY USAGE FEE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Disaster Recovery
Facility (Clock Hour) $300.00 $500.00 $500.00 $500.00
IBM 3890 (Clock Hour) $150.00 $150.00 $150.00 $150.00
IBM 3892 (Clock Hour) $ 50.00 $ 50.00 $ 50.00 $ 50.00
IBM 1419 (Clock Hour) $ 50.00 $ 50.00 $ 50.00 $ 50.00
IBM 3694 (Clock Hour) $ 50.00 $ 50.00 $ 50.00 $ 50.00
Lundy MRS-90 (Clock Hour) $ 50.00 $ 50.00 $ 50.00 $ 50.00
Shell Facility
(Sq. Ft./Day) $ .15 $ .15 $ .15 $ .15
Proof Equipment (Mach/Hr) $10.00 $10.00 $10.00 $ 10.00
</TABLE>
F-10
<PAGE> 32
ATTACHMENT 2
COMPUTER EQUIPMENT LIST
CLASS OF SERVICE "7A" 23.0 MIPS
Quantity IBM Type-Model Description
- -------- --------------- -----------
1 3090-200 Processor or Equivalent
12 3178-C30 Terminals (Local)
80 Volumes 3380 Single Density Disk Drives
(or equivalent)
2 Drives 3420-8 Tape Drives (1600/6250 BPI)
8 Drives 3480 Tape Cartridges
1 3725 Communications Controller
2 4245-20 Printer (2000 LPM)
14 Hours Test Time Fourteen Wall-Clock Hours (Non-cumulative)
F-11
<PAGE> 33
ATTACHMENT 3
PLANNING SERVICES
Attachment to the Disaster Recovery Agreement between Systematics Financial
Services, Inc. ("SI") and the CLIENT whose name appears on page F-1 hereof.
1. SI RESPONSIBILITIES.
SI agrees to provide CLIENT with four (4) copies of the hard copy version of
SI's generic disaster recovery plan (the "Plan"), as well as the version on IBM
PC-compatible diskettes, along with the required software for the WordPerfect
word processing package necessary to utilize the diskette-based Plan. SI also
agrees to provide CLIENT with updates to the Plan as they are developed. SI will
offer a three-day Disaster Recovery Planning Workshop (the "Workshop") on a
monthly basis, to assist CLIENT planners in contingency planning techniques. SI
will also supply a single copy of a required third-party textbook at no
additional charge. CLIENT may send no more than four (4) people to any given
Workshop. SI will publish a list, at the beginning of each calendar year, of
projected dates for the proposed Workshops, but reserves the right to cancel or
reschedule workshops as appropriate.
2. CLIENT RESPONSIBILITIES.
CLIENT agrees to customize the Plan to fulfill CLIENT's own requirements and
to incorporate appropriate updates that SI may supply from time to time. CLIENT
also agrees to exercise its best effort in taking advantage of planning
Workshops and other planning aids as appropriate to CLIENT's requirements.
CLIENT acknowledges that familiarity with the WordPerfect word processing
package is required to enhance CLIENT's productivity in the Workshop and agrees
that at least one of CLIENT's prospective attendees will have acquired
satisfactory expertise prior to the Workshop. CLIENT furthermore acknowledges
that the Plan is confidential and proprietary material and will be returned to
SI upon expiration of this contract.
3. FEES.
Fees for the services provided by SI under this Addendum are included in the
Monthly Participation Fees set out in Attachment 1.
WORDPERFECT is a registered trademark of WordPerfect Corporation.
F-12
<PAGE> 34
ATTACHMENT 4
SHELL FACILITY
Attachment to the Disaster Recovery Agreement between Systematics Financial
Services, Inc. ("SI") and the CLIENT whose name appears on page F-1 hereof.
1. SI DISASTER RECOVERY SHELL FACILITY.
1.10 ACCESS AND UTILIZATION. Upon declaration of a Disaster, CLIENT will have
access to the Shell Facility for a period of up to nine (9) months (the
"Extended Recovery Period"). In the event of a Multiple Disaster, more
than one Subscribing CLIENT may be granted access to the Shell Facility
pursuant to Section 3.40 of the Agreement. SI may utilize the facility
if a Disaster occurs in any of its own data centers.
1.20 COMPUTER EQUIPMENT. No computer equipment will be installed prior to the
Recovery Period. The party who owned the equipment in the Data Center
will be responsible for procurement, shipment and installation of all
required equipment following the declaration of a Disaster.
1.30 SPECIFICATIONS. The Shell Facility consists of 17,500 sq. ft. of space,
including 4,500 sq. ft. of raised floor area. Air conditioning capacity
is 600,000 BTU/HR, electrical capacity is 160KVA. There are 200
telephone pairs into the building, with 20 pairs active. The remaining
non-raised floor area consists of office and storage space for CLIENT
use.
2. CLIENT PERSONNEL.
CLIENT agrees that trained personnel of CLIENT, with appropriate levels of
authority shall be temporarily located at the Shell Facility during the
Extended Recovery Period to perform all CLIENT operations functions. An SI
representative will be present while CLIENT personnel are occupying the Shell
Facility. To the extent that they are available, qualified SI personnel may
be assigned to augment CLIENT's staff at the rates referenced in Section 5.30
of the Agreement.
3. TERMINATION.
SI may terminate this Addendum, without the termination of the Agreement and
other attachments, addenda or schedules, upon ninety (90) days prior written
notice to CLIENT. Should this service be supplanted by another form of
service which is useful to CLIENT, CLIENT will be afforded priority to
subscribe to the new service.
F-13
<PAGE> 35
ADDENDUM
FOR
REMOTE TERMINAL CLUSTER
Addendum to the Disaster Recovery Agreement between Systematics Financial
Services, Inc., ("SI") and the CLIENT whose name appears on page F-1 hereof.
1. SI RESPONSIBILITIES.
SI agrees to make available within approximately one to three days after
CLIENT's declaration of a disaster, the equipment listed below (or compatible
equivalents) for use by CLIENT.
Quantity Manufacturer/Type Description
-------- ----------------- -----------
1 IBM/3274 Remote Controller
31 IBM/3178 Terminals
1 IBM/4234 Printer
2 Paradyne/9600 Bps Modems with dial
backup to SI
Computer Center
2. CLIENT RESPONSIBILITIES.
CLIENT will make arrangements in advance, for the potential location of this
equipment, and will document such arrangements in CLIENT's Disaster Recovery
Plan and will, furthermore, advise SI of these arrangements and of any
changes that may occur. CLIENT agrees to pay the prices that are current at
that time to purchase all such equipment and bear all shipping, installation,
and telephone usage charges. CLIENT also agrees to provide all other
hardware, cables and communications interfaces and any software required to
utilize this service.
3. FEES.
Fees for the services provided by SI under this Addendum are included in the
Monthly Participation Fees set out in Attachment 1.
F-14
<PAGE> 36
ADDENDUM
FOR
DIALUP ANALOG KITS
Addendum to the Disaster Recovery Agreement between Systematics Financial
Services, Inc., ("SI") and the CLIENT whose name appears on page F-1 hereof.
1. RESPONSIBILITIES OF THE PARTIES.
SI will provide up to eleven (11) dial backup kits utilizing AT&T 2048 series
modems, and a sufficient number of dial telephone lines to accommodate the
kits provided. CLIENT agrees to provide all other hardware, including
compatible modems, communications links and any necessary software to utilize
this service. SI will ship the kits to CLIENT's designated locations as soon
as possible after CLIENT declares a Disaster. CLIENT agrees to pay the prices
that are current at that time to purchase all such equipment and to bear all
shipping, installation, and telephone usage charges. CLIENT also acknowledges
that response times may be greater than those experienced during normal
operations.
2. LOCATION OF ALTERNATE CONTROL POINT ("ACP").
CLIENT will provide a location for the installation of dial backup equipment
for each designated circuit. At each location, an ACP will be installed,
along with a corresponding dial telephone circuit, for each CLIENT circuit to
be backed up. CLIENT will notify SI in writing of ACP locations and of any
changes as they occur.
3. TESTING.
SI hereby grants CLIENT usage of one of the kits for up to one week annually
for on-line testing, and an additional two (2) hours of non-chargeable test
time, in conjunction with other tests of CLIENT's disaster recovery
requirements. SI will air-ship the on-line backup kit to CLIENT during the
week prior to the test. CLIENT will install the kit per SI instructions and
pay all shipping, installation, and telephone usage charges. CLIENT will
return air-ship the kit to SI Disaster Recovery on the first work day
following the test. Additional test time will be chargeable at the rates
shown in Attachment 1.
4. FEES.
Fees for the services provided by SI under this Addendum are included in the
Monthly Participation Fees set out in Attachment 1.
F-15
<PAGE> 37
ADDENDUM
FOR
SWITCHED T1 ACCESS
Addendum effective January 1, 1991, to the Disaster Recovery Agreement
between Systematics Financial Services, Inc., ("SI") and the CLIENT whose name
appears on page F-1 hereof.
1. RESPONSIBILITIES OF THE PARTIES.
SI will provide access to a channel bank for up to twenty-four (24) channels
along with access to one (1) AT&T Accunet* Reserved T1.5 Service ("Switched
T1"), at the Disaster Recovery Facility ("DRF"). CLIENT agrees to provide all
other hardware, including control modems, communications links and any
necessary software to utilize this service. CLIENT also acknowledges that
response times may be greater than those experienced during normal
operations.
2. POINT OF PRESENCE.
CLIENT will be responsible for acquiring all T1 links from CLIENT's local and
long-distance carriers required to establish the link from the CLIENT's local
Point of Presence to the AT&T Point of Presence for Switched T1, servicing
the DRF.
3. TESTING.
SI hereby grants CLIENT usage of the channel bank for annual on-line testing,
and an additional four (4) hours of non-chargeable test time, in conjunction
with other tests of CLIENT's disaster recovery requirements.
4. FEES.
Fees for the services provided by SI under this Addendum are included in the
Monthly Participation Fees set out in Attachment 1. CLIENT agrees to bear
all costs involved in shipping any required equipment to the DRF or to the
CLIENT location for annual testing and in an actual disaster. CLIENT also
agrees to bear all costs associated with establishing access to Switched T1,
as well as usage charges, during annual testing and in an actual disaster.
* Registered trademark of AT&T
F-16
<PAGE> 38
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "G"
PREMISES LEASE AGREEMENT
This Lease Agreement is Exhibit G to that certain Management and Consulting
Agreement dated January 1, 1992 (the "Agreement") by and between SYSTEMATICS
FINANCIAL SERVICES, INC. ("SI") and UNITED SAVINGS ASSOCIATION OF TEXAS FSB
("CLIENT").
W-I-T-N-E-S-S-E-T-H
WHEREAS, SI has entered into agreements with CLIENT whereby SI shall perform
certain management, consulting and data processing services for CLIENT; and
WHEREAS, it is CLIENT's desire that such services be performed on premises
under SI's control, but for servicing advantages, as near as possible to
CLIENT's offices;
NOW, THEREFORE, in consideration of the mutual covenants herein exchanged,
CLIENT leases to SI and SI hires from CLIENT the premises described in Exhibit
G-1, attached hereto and incorporated herein, hereinafter designated as
"premises", upon the terms and conditions hereinafter set forth.
1. TERM OF USE.
The term of this Lease shall commence on the Effective Date of the Agreement
and shall terminate on the earlier of the Expiration Date or the Termination
Date of the Agreement, such term to be extended in accordance with any
extension of the term of the Agreement; provided, however, if such Agreement
is terminated, this Lease shall simultaneously terminate. It is further
provided that, if CLIENT shall choose to provide SI with other premises,
CLIENT will pay for all costs related to the movement of the premises and
will provide facilities of comparable size and quality under the terms and
conditions as herein provided.
2. USE OF PREMISES.
SI shall use and occupy the premises solely for performing the functions set
forth in this Agreement and the Data Processing Agreement.
G-1
<PAGE> 39
3. SERVICES.
CLIENT shall supply the premises and bear the cost of water, sewage, heat,
lights, air conditioning, humidity control for computer room and other
electric power as required to operate DATA PROCESSING equipment on the
premises, pursuant to agreements. CLIENT shall supply janitorial services
for the premises and removal of waste materials. CLIENT shall also provide
parking space for use by SI personnel on the same terms or basis as is made
available by CLIENT for its own nonexecutive employees.
4. ALTERATIONS OF PREMISES.
CLIENT may make alternations at its cost to the premises. SI at its cost and
with the consent of CLIENT, which shall not be unreasonably withheld, may
make other alterations to the premises necessary for said use. Such
alterations shall be completed and maintained in good workmanlike condition
and shall be free and clear of all liens and encumbrances arising from such
work or installation of any equipment attached to the premises. Such
alterations or equipment attached to the premises by SI shall become the
property of CLIENT and shall remain and be surrendered with the premises, or
CLIENT may request SI to restore the premises to its original condition at
SI's cost, at the expiration of the term, expiration of the underlying lease
or relocation of the premises, or any extension of this lease or any earlier
termination thereof.
5. REPAIRS.
CLIENT shall keep the premises in good repair, at its cost except all damage
or injury to the premises or to its fixtures and equipment, or to the
building which the same form a part, due to negligence, omission, acts or
improper conduct of SI, its employees, visitors or licensees, shall be
repaired or replaced promptly by SI, at its cost, to the satisfaction of
CLIENT.
6. EXPANSION OF PREMISES.
CLIENT agrees to expand the premises, or relocate SI to suitable premises,
to the extent reasonably necessary to permit SI to properly perform under
the Management and Consulting Agreement and under the Data Processing
Agreement if the need for such expanded premises is caused by increases in
the nature or volume of services performed by SI pursuant to such
agreements. If the need for such expanded premises is caused by the volume
of service bureau work performed for SI's customers to the benefit of
CLIENT, CLIENT agrees to take reasonable steps to locate and lease to SI,
upon mutually agreeable terms and conditions, such expanded premises as may
reasonably be required. If the need for expanded premises results from a
combination of the two causes herein described, the responsibilities of the
parties hereunder shall be equitably prorated.
G-2
<PAGE> 40
7. DESTRUCTION: FIRE OR OTHER CAUSE.
If the premises are either partially damaged or rendered wholly untenantable
by fire or other cause, without the fault or neglect of SI or SI's
employees, agent, visitors or licensees, CLIENT shall have the option, to be
exercised at its discretion, to repair the damages at its expense or provide
SI with other premises of comparable size and quality. If CLIENT chooses to
provide SI with other premises, CLIENT, within ninety (90) days after such
fire or other cause, shall give SI notice in writing of such decision, and
thereupon the terms of this Lease shall expire by a lapse or time upon the
thirtieth (30th) day after such notice is given, and SI shall vacate the
premises and surrender the same to CLIENT. In such event, during the period
when the premises are untenantable, CLIENT shall pay for SI's moving to and
form other premises and all occupancy costs incurred in utilization of other
premises, including any interim premises.
8. PROPERTY LOSS.
SI and its agents and employees shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow, or leaks from any part of said
building, or from the pipes, appliances or plumbing works or from the roof,
street or subsurface, or from any other place or any other cause of
whatsoever nature, unless caused by or due to the negligence of SI, its
agents or employees.
9. REQUIREMENTS OF LAW AND FIRE INSURANCE POLICIES.
SI shall, at its own expense, comply with all laws, orders and regulations
of federal, state, county and municipal authorities, or any direction of any
public officer or officers pursuant to law, which shall impose any duty upon
SI with respect to use or occupation of the premises. The expenses
occasioned by any changes in such laws, orders and regulations shall be
borne by CLIENT. SI shall not do or permit to be done any act or thing upon
said premises, which will invalidate or be in conflict with fire insurance
policies covering the building in which the premises form a part, or raise
the costs of coverages thereunder, and shall not do or permit to be done any
act or thing upon said premises which shall or might subject CLIENT to any
liability or responsibility or injury to any person or persons or to
property by any reason of business or operation being carried on said
premises, or for any other reason.
10. ACCESS TO PREMISES.
SI shall permit CLIENT to erect, use and maintain, pipes and conduit in and
through the demised premises. CLIENT's agents and representatives, who have
been authorized in writing by a properly designated officer of CLIENT, shall
have the right to enter the premises at all times to examine the same and to
make such decorations, repairs, alterations and improvements or additions as
CLIENT may deem necessary or desirable, and CLIENT shall be allowed to take
all material into and upon said
G-3
<PAGE> 41
premises and may be required therefor without same constituting an eviction
of SI in whole or in part, unless any of the foregoing action by CLIENT
materially interferes with SI's ability to perform pursuant to the Data
Processing Agreement.
11. CONDEMNATION OR RELOCATION.
In the event any portion of the premises shall be taken by any public
authority in eminent domain proceedings, or pursuant to any agreement in
lieu thereof, so as to materially prevent performance by SI under said Data
Processing Agreement, or in the event CLIENT directs SI to relocate, CLIENT
shall provide and lease to SI under terms and conditions as herein provided,
quarters of similar size and quality and, in addition, CLIENT shall pay all
moving expenses, including but not limited to, the deinstallation and
installation of any equipment used by SI in this data center incurred by SI.
All damages awarded in any such proceedings or agreement in lieu thereof,
shall belong to and be the property of CLIENT, whether such damages shall be
awarded as compensation for the taking of or diminution in value to the
leasehold interest of SI hereunder or the interest of CLIENT in the
premises; provided, however, that SI's right to receive compensation or
damage for its fixtures and personal property installed by SI in said
premises shall not in any manner be affected hereby.
12. PUBLIC LIABILITY INSURANCE.
SI agrees, during the term hereof, to indemnify and save CLIENT harmless
against and from any and all liability from injury or death to person or
damage to property occasioned by reason of any accident arising out of SI's
use of the demised premises and not due to the fault or neglect of CLIENT.
SI agrees to procure, at its own expense, public liability insurance with
respect to the demised premises for the benefit of SI and including the
contingent interest of CLIENT in the amount of not less than $1,000,000 for
injury or death resulting from any casualty, and $1,000,000 for damage to
property, and to keep such insurance in force during the term hereof and to
deliver a Certificate of Insurance to CLIENT showing such coverage. If SI
shall maintain any insurance required hereunder under a blanket policy, SI
shall have sufficiently complied with the terms hereof by furnishing CLIENT
with a certificate or certificates for the same.
13. DEFAULT; WAIVER.
If SI defaults in fulfilling any of the covenants, terms or conditions of
this Lease, CLIENT, in addition to other rights or remedies it may have,
shall, after thirty (30) days' notice, have the right of reentry and remove
all persons and property from the premises. Such property may be removed and
stored at any other place in the building in which the demised premises are
situated, or in any other place, for the account of, and at the expense and
risk of SI. SI hereby waives all claims for damages which may be caused by
the reentry of CLIENT and taking possession of the demised premises or
removing or storing the property as herein provided, and will save CLIENT
harmless from any loss, cost or damages occasioned thereby, and no such
reentry shall be
G-4
<PAGE> 42
considered or construed to be a forced entry. No waiver by either party
hereto of any breach of any of the terms of this lease shall be deemed to be
a waiver of any other subsequent breach.
14. SUBORDINATION.
This Lease is subject and subordinate to all underlying leases and to all
mortgages which now or hereafter affect such leases or the real property of
which demised premises from a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof.
15. ASSIGNMENT.
SI, for itself, its successors and assigns, expressly covenants that it
shall not assign, mortgage or encumber this Agreement, nor sublet or suffer
or permit the demised premises or any part thereof to be used by others,
without the prior written consent of CLIENT.
16. FURNITURE.
CLIENT shall install in the premises for SI's use during the term of this
Lease and any extensions thereof, such office furniture and office equipment
as set forth in Exhibit G-2, attached hereto and made a part hereof, and any
additional furniture and equipment as may reasonably be required by SI
during the term of the Management and Consulting Agreement and the Data
Processing Agreement between the parties hereto. Should the need for any
such additional furniture or equipment arise, SI agrees to prepare a
reasonably detailed proposal for the acquisition of the same, along with
SI's reasons for needing such equipment, and SI and CLIENT agree to
cooperate with each other in the selection and acquisition of such furniture
or equipment, if any.
17. REDELIVERY.
Upon the expiration or other termination of the term of this Lease, SI shall
quit and surrender to CLIENT the demised premises, broom cleaned, in good
order and condition, ordinary wear excepted, and SI shall remove all of its
property.
18. QUIET ENJOYMENT.
CLIENT agrees that, upon SI's performing all the terms and conditions
herein, SI may peacefully and quietly enjoy the premises hereby leased for
the term and any extension thereof.
G-5
<PAGE> 43
19. NOTICES.
Any notice or communication which CLIENT may desire or be required to give
to SI, shall be deemed sufficiently given or rendered if in writing and
delivered to SI at the premises. Any notice by SI to CLIENT shall be in
writing and delivered to CLIENT at its Main Office.
20. PARAGRAPH TITLE.
The paragraph titles are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease,
nor the intent of any provision thereof.
21. SUCCESSORS IN INTEREST.
This Agreement shall apply to, inure to the benefit of and be binding upon
the parties hereto and upon their respective successors in interest and
legal representatives.
G-6
<PAGE> 44
EXHIBIT G-1
DESCRIPTION OF PREMISES
The premises referred to in the foregoing Lease Agreement are as follows:
Approximately 25,000 square feet on the 18th floor of 3200 Southwest
Freeway, Houston, Texas 77027.
G-7
<PAGE> 45
EXHIBIT G-2
DESCRIPTION OF PERSONALTY
CLIENT will provide the furniture, fixtures and office equipment pursuant to
the foregoing Lease Agreement which is currently being used by SI, as well as
all additions or replacements which may be necessary from time to time. Within
30 days following the execution of this Agreement, CLIENT will conduct a
physical inventory of such furniture, fixtures, and office equipment provided by
CLIENT and such inventory will be incorporated in this Exhibit. SI will assist
CLIENT with this initial inventory upon request. CLIENT will conduct subsequent
inventories on an annual basis which will reflect additions and deletions in the
prior period and such updated inventory will also be incorporated in this
Exhibit.
G-8
<PAGE> 46
CLIENT: UNITED SAVINGS ASSOCIATION OF TEXAS FSB
Effective Date: January 1, 1992
EXHIBIT "H"
COMMUNICATIONS SERVICES
1. SERVICES.
SI agrees to manage and staff a communications department for CLIENT.
2. RESPONSIBILITIES OF THE PARTIES.
2.1 In operating CLIENT's communications department, SI agrees to:
(a) Maintain an accurate inventory of all data communication equipment
used by CLIENT.
(b) Provide written recommendations to CLIENT for changes in the data
communication equipment and software including feasibility studies,
vendor evaluation and cost benefit analysis. SI will prepare, at the
request of CLIENT, comparative analysis of computer hardware that
CLIENT may consider using in the future, i.e., ATM's personal
computers, teller terminals and documentation preparation equipment
and software.
(c) Maintain and control the system by monitoring and recording the data
necessary to determine proper operation. Notification of system
problems will be directed to CLIENT's regional branch manager's
office.
(d) Monitor CLIENT on-line network during the hours reflected in Exhibit
D of the Data Processing Agreement and report on a monthly basis the
status and availability of the network in a format mutually
satisfactory.
(e) Support CLIENT's in-branch and home office personnel to assist with
problem resolution not requiring external technical expertise. This
support would involve training by SI personnel, at CLIENT's facility
at 3200 Southwest Freeway, Houston, Texas 77027, in the proper use
of equipment including trouble shooting problems.
H-1
<PAGE> 47
(f) If equipment failures require vendor servicing, SI will coordinate
the arrangements for servicing of all branches. Branches outside of
Regions I, II, III, and IV will be instructed to place and follow-up
on all necessary service calls.
2.2 CLIENT agrees to reimburse, and to provide a prompt and reasonable
procedure to authorize reimbursement of expenses incurred by SI while
performing the duties specified in this Exhibit. Expenses for shipping
of equipment, installation of electrical and other functions requiring
resources external to those of SI at CLIENT's facility will be billed
directly to CLIENT. In conjunction with CLIENT's purchasing procedures,
CLIENT will have the right to review and approve all charges.
2.3 SI agrees to make available information that will allow CLIENT to
maintain a complete inventory list of all hardware currently used in
CLIENT's on-line network.
CLIENT agrees to notify SI at least thirty (30) days in advance of all
equipment changes.
2.4 In the event CLIENT elects to expand the communications network for any
reason, SI and CLIENT will negotiate in good faith changes that may be
required in staffing.
H-2
<PAGE> 48
FIRST AMENDMENT TO
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
This First Amendment ("First Amendment") is effective as of the 18th
day of March, 1992 ("Effective Date") and amends and supplements that certain
Management and Consulting Services Agreement ("Agreement") dated January 1, 1992
by and between UNITED SAVINGS ASSOCIATION OF TEXAS FSB ("CLIENT") and
SYSTEMATICS FINANCIAL SERVICES, INC. ("SI").
W I T N E S S E T H:
WHEREAS, CLIENT and SI desire to amend the terms and conditions of the
management audit conference provided for under the Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants of the parties reflected herein and in the Agreement, SI and CLIENT
agree as follows:
1. Section 3.5, Management Audit Conference, of the Agreement shall be
amended in its entirety as follows:
"3.5 MANAGEMENT AUDIT CONFERENCE. SI agrees to fully cooperate
with CLIENT or its designee in connection with CLIENT's audit
functions or with regard to examinations by regulatory
authorities. Promptly following an internal audit, CLIENT
will conduct an exit conference with SI management. Promptly
following an external audit, CLIENT will instruct its
external auditors to conduct an exit conference with SI
management. At such time, or as soon as available thereafter,
CLIENT will provide SI with a copy of the report, or
applicable portions of each report, or detailed exceptions
regarding SI, SI's services, or comments concerning SI or the
services performed by SI pursuant to this Agreement or the
Data Processing Agreement, prepared as a result of such
audits or examinations. In the case of an examination by
regulatory authorities, CLIENT will request that the
examiners of such regulatory authorities conduct an exit
conference with SI management. SI and Client understand that
such regulatory authorities are under no duty or obligation
to conduct an exit conference with SI management or to
provide SI with any reports of examination or other
confidential information. CLIENT acknowledges that SI is
<PAGE> 49
not responsible for providing audit services or for auditing
CLIENT'S records or data."
2. All terms and conditions of the Agreement not amended herein remain
in full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed and delivered by the undersigned officers thereunto duly authorized as
of the Effective Date.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ Raymond J. Oblinger By: /s/ Leslie H. Green
------------------------------ ----------------------------------
Name: Raymond J. Oblinger Name: Leslie H. Green
---------------------------- --------------------------------
Title: Senior Vice President Title: Senior Vice President
---------------------------- --------------------------------
Date: March 20, 1992 Date: March 19, 1992
---------------------------- --------------------------------
ATTESTED: ATTESTED:
By: /s/ Harold J. Fackler By: /s/ Jonathon K. Heffron
------------------------------ ----------------------------------
Name: Harold J. Fackler Name: Jonathon K. Heffron
---------------------------- -------------------------------
Title: Vice President Title: General Counsel
---------------------------- --------------------------------
Date: March 20, 1992 Date: March 19, 1992
---------------------------- --------------------------------
<PAGE> 50
SECOND AMENDMENT TO
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
This Second Amendment ("Second Amendment") is effective as of the 1st
day of September, 1992 ("Amendment Effective Date") and amends and supplement
that certain Management and Consulting Services Agreement ("Agreement") dated
January 1, 1992 by and between UNITED SAVINGS ASSOCIATION OF TEXAS FSB
("CLIENT") and SYSTEMATICS FINANCIAL SERVICES, INC. ("SI").
W I T N E S S E T H:
WHEREAS, CLIENT and SI desire to extend the term of the Agreement and
make other changes to the Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants of the parties reflected herein and in the Agreement, SI and CLIENT
agree as follows:
1. Section 2, TERM, of the Agreement shall be amended in its
entirety as follows:
"2. TERM.
The term of this Agreement begins on the Effective Date and
ends August 31, 1996 (the "Expiration Date"). At least nine
(9) months prior to the Expiration Date, SI will submit to
CLIENT a written proposal for renewal of this Agreement.
CLIENT will either: (a) accept such proposal or (b) notify SI
at least one hundred eighty (180) days prior to the
Expiration Date of its intention to terminate on the
Expiration Date."
2. Section 3.6 AUDIT, of the Agreement shall be amended in its
entirety as follows:
"3.6 AUDIT. SI will cooperate fully with CLIENT or its designee in
connection with CLIENT'S audit functions or with regard to
examinations by regulatory authorities. CLIENT acknowledges
that SI is not responsible for providing audit services or
for auditing CLIENT'S records or information.
The Technology Center (Section 4.1) will provide an annual
audit of its operations at the Technology Center by an
independent accounting firm. A copy of the related audit
report will be furnished to CLIENT. Should client request an
audit by an independent accounting firm and/or CLIENT'S
<PAGE> 51
internal group it will be at the CLIENT'S expense.
2. Section 4.1 DATA PROCESSING PREMISES, of the Agreement shall be
amended in its entirety as follows:
"4.1 DATA PROCESSING PREMISES. CLIENT agrees to provide SI with
adequate premises, in good repair to perform its
responsibilities under this Agreement (hereinafter the "Data
Center" located at The Phoenix Tower, 3200 Southwest Freeway,
Houston, Texas, 77027). Without limiting the generality of
the foregoing, CLIENT agrees to supply water, sewer, heat,
lights, telephone lines and equipment, air conditioning,
electricity (including, if desired by CLIENT, an
uninterruptable power system, battery backup and backup
generator capacity), office equipment and furniture all
pursuant to the terms and conditions of Exhibit G to the
Management and Consulting Agreement of even date herewith
between the parties. SI is not responsible for any injury or
damage to property or persons which occurs in or around the
data center unless it is caused by the negligent or willful
misconduct of SI. CLIENT will provide telephone instruments
and telephone service for SI to communicate with the
employees of CLIENT, CLIENT'S service bureau customers, if
any, and as required by SI to operate the Data Center.
SI will provide remote computing services from its Little
Rock data center (hereinafter the "Technology Center" located
at 4001 Rodney Parham Road, Little Rock, AR 72212-2496). Such
Technology Center will include data processing equipment
owned by SI and will be used by SI to provide data processing
services to CLIENT."
3. Section 7.3(b) of the Agreement shall be amended in its entirety
as follows:
"7.3 b. If the termination is for convenience pursuant to
section 8.4(b) of the Data Processing Agreement, the fee
shall be 20% of the sum of the monthly payments from
September 1, 1995 reflected in Section 1 of Exhibit D
for the remaining term of the Agreement.
4. Section 1, FEE SCHEDULE, of Exhibit D to the Agreement shall be
amended in its entirety as follows:
2
<PAGE> 52
"1. FEE SCHEDULE.
CLIENT will pay SI a fee payable in monthly installments as set
forth in the following schedule:
<TABLE>
<CAPTION>
Amount of
Applicable Period Monthly Payment
----------------- ---------------
<S> <C>
Jan, 1992 through May, 1992 $274,724
Jun, 1992 through Aug, 1992 $213,877
Sep, 1992 through May, 1993 $213,877
Jun, 1993 through Sep, 1993 $220,583
Oct, 1993 through Sep, 1994 $195,645
Oct, 1994 through Sep, 1995 $191,370
Oct, 1995 through Aug, 1996 $187,380"
</TABLE>
5. Section 2, PRICE ADJUSTMENT, of Exhibit D to the Agreement shall
be amended in its entirety as follows:
"2. PRICE ADJUSTMENT.
The fees and charges reflected in this Agreement will be
increased by one and one-half percent (1.5%) effective January
1, 1993 and three percent (3%) annually in January
thereafter."
6. This Second Amendment shall have no effect on the Release and
Settlement Agreement between the parties dated January 1, 1992 or the
Indemnification Agreement between the parties dated December 31, 1991 and such
agreements shall remain in full force and effect according to their terms.
7. All terms and conditions of the Agreement not amended herein
remain in full force and effect.
3
<PAGE> 53
IN WITNESS WHEREOF, parties executed this Second Amendment by their
duly authorized representatives as of the Amendment Effective Date.
SYSTEMATICS FINANCIAL UNITED SAVINGS ASSOCIATION
SERVICES, INC. OF TEXAS FSB
By: /s/ J. David Frantz By: /s/ Leslie H. Green
---------------------------- -----------------------------
Name: J. David Frantz Name: Leslie H. Green
------------------------- --------------------------
Title: Vice President Title: Senior Vice President
------------------------- --------------------------
Date: March 20, 1992 Date: March 19, 1992
------------------------- --------------------------
ATTESTED:
By: /s/ Larry L. Snaufer By: /s/ Richard L. Hace
---------------------------- -----------------------------
Name: Larry L. Snaufer Name:
------------------------- --------------------------
Title: Account Manager Title:
------------------------- --------------------------
Date: Date:
------------------------- --------------------------
4
<PAGE> 1
EXHIBIT 10.10
THE PHOENIX TOWER
OFFICE BUILDING LEASE
HOMART DEVELOPMENT CO. (with its successors, called "Landlord") and UNITED
SAVINGS ASSOCIATION OF TEXAS FSB (with its successors, called "Tenant"), in
consideration of their mutual covenants and agreements in this Lease, agree as
follows, all as of April 1, 1989.
1. SUMMARY AND DEFINITIONS. The following definitions apply in this Lease:
(a) Term: Ten (10) years, beginning on April 1, 1989 ("Commencement
Date") and ending on March 31, 1999 ("Termination Date").
(b) Base Rent: During the first five (5) years of the Term (April 1,
1989 through March 31, 1994), the Base Rent shall be $1,619,310.00 per annum
($11.00 per square foot per annum) payable in equal monthly installments of
$134,942.50. During the second five (5) years of the Term (April 1, 1994 to
March 31, 1999), the Base Rent shall be $2,649,780.00 per annum ($18.00 per
square foot per annum) payable in equal monthly installments of $220,815.00.
(c) Permitted Use: General office purposes.
(d) Exhibits and Riders: Exhibits A, B, C, D, and E and Riders 1, 2, 3,
4, 5, 6, 7 and 8, attached hereto, all a part of this Lease.
(e) Premises: The space on floors 14, 16, 17, 18, 19 and 20 of the
Building shown as Premises on Exhibit A. Premises does not include any
mechanical, electrical, telephone and similar rooms which service the Building;
janitor closets; elevator, pipe, and other vertical shafts and ducts; flues;
stairwells (except any stairwells exclusively serving the Premises); area above
acoustical ceiling; and areas not shown on Exhibit A as part of the Premises.
The rentable area of the Premises is stipulated to be 147,210 square feet. If
additional space is subsequently added to the Premises, the rentable area of the
Premises will be calculated as described in Rider 6 to this Lease.
(f) Building: The office tower known as The Phoenix Tower, at 3200
Southwest Freeway, Houston, Texas, with a stipulated total rentable area of
618,578 square feet; together with the land described in Exhibit B, on which
said building is situated, and with the building(s), parking facilities, and all
other structures, improvements, fixtures and appurtenances from time to time on,
appurtenant to or servicing that land and the building.
(g) Security Deposit: None.
(h) Parking Area: Space for the parking of 540 vehicles, all as
provided in Exhibit E to this Lease.
(i) Brokers: Coldwell Banker Commercial Real Estate Services as
Landlord's broker, and H.S. Miller Co./Grubb & Ellis as Tenant's broker.
(j) Tenant's Share: The rentable area of the Premises divided by 95% of
the rentable area of the Building or the yearly average rentable area of the
Building leased to tenants in the Building, whichever is greater, each measured
in accordance with the standards published by the Building Owners and Managers
Association International, publication ANSI Z65.1980 in the event of any
material change thereto. Such change must be based on a physical change and not
a change caused by remeasurement. Absent such change, the agreed-upon rentable
areas of the Premises and the Building shall be as stated above, and Tenant's
Share shall be 25.05%. For any year in which either of such areas materially
changes, Tenant's Share and excess Operating Costs shall be based on the average
rentable area during such year.
(k) Excess Operating Costs: For any calendar year, the amount by which
Operating Costs for that year exceed the 1989 Operating Costs. If the rentable
<PAGE> 2
area of the Building in that year differs from the rentable areas of the
Building in 1989, then the 1989 Operating Costs shall be appropriately adjusted.
The Operating Costs for 1989 and all other years shall be subject to the
provisions of Section 4(b)(v) of this Lease. On or before May 1, 1990, Landlord
shall furnish to Tenant evidence indicating the appropriateness of the
adjustment made pursuant to Section 4(b)(v).
(l) Operating Costs: See Sections 4(b)(i) and (ii).
(m) Additional Rent: See Section 4(b).
(n) Employees: Employees, agents, partners, officers, licensees,
invitees, contractors or guests.
(o) Alterations: Alterations, improvements or additions (including
fixtures) in or to the Premises.
(p) Assignment: See Section 10.
(q) Assignee: See Section 10.
(r) Guarantor: Any Guarantor of the obligations to this Lease. There is
no Guarantor of United Savings Association of Texas FSB's obligations under this
Lease.
(s) Mortgage: Any mortgage or deed of trust covering any part of the
Building or any interest in Landlord.
(t) Mortgagee: Any holder of a Mortgage.
(u) Event of Default: See Section 22(a).
(v) Affiliate: Any party, directly or indirectly, through one or more
intermediaries controlled by, in control of or under common control with Tenant.
The terms "control" and "controlled" shall mean either the direct or indirect
ownership of thirty-three percent (33%) or more of such party.
(w) Prevailing Market Rate: The rate at which a willing landlord and a
willing tenant would agree to lease comparable space in the first class office
buildings in the Greenway Plaza and Galleria areas of Houston, Texas, which rate
shall take into account all economic and non-economic factors, including but not
limited to: the credit-worthiness of such tenant, the quality and reputation of
the management of the building, the amount of space the tenant then occupies,
the amount of space being offered for lease, the location within the building of
such offered space, the quality and finish of the offered space as it then
exists or the finish allowance with which to improve the existing condition of
the space, the age and quality of the building, lease term, scheduled or actual
commencement date, add-on factor, availability of parking (but not the rate
charged for same) and lease inducements such as name identification, rental
abatement, moving expenses, and lease assumption allowances, if any. Landlord
shall have the right to configure the rental rate in the manner it reasonably
determines (e.g., base rent with rental abatement or construction allowances,
etc...), provided that such rate is equivalent to the "Prevailing Market Rate".
2. DEMISE. Landlord leases the Premises to Tenant for the Term, and Tenant
takes the same, all upon and subject to the terms and conditions of this Lease.
3. EXISTING PREMISES/NEW SPACE.
(a) Existing Premises. Notwithstanding anything in this Lease to the
contrary, it is understood that Tenant currently occupies floors 17, 18, 19 and
20 of the Premises (for purposes of this Section 3 only, the "Existing
Premises"), that the Existing Premises is being accepted by Tenant in an AS IS
condition and that this Lease and the terms and conditions contained in this
Lease with respect to the Existing Premises shall commence as of April 1, 1989.
Tenant represents
- 2 -
<PAGE> 3
and warrants to Landlord that the Existing Premises are suitable for Tenant's
purposes; that the Building and every part of it, including the Existing
Premises, is in good and satisfactory condition; and that Tenant waives any
defects therein. Landlord represents and warrants to Tenant that it has no
actual knowledge of any defects (excluding normal wear and tear) in the Existing
Premises.
(b) New Space. Notwithstanding anything in this Lease to the contrary,
it is understood that: (i) floors 14 and 16 of the Premises (for purposes of
this Section 3 only, the "New Space") are not currently occupied by Tenant, (ii)
the New Space will be constructed in accordance with Exhibit C of this Lease,
(iii) this Lease and the terms and conditions of this Lease with respect to the
New Space shall commence on the earlier to occur of: (A) July 24, 1989, unless
deferred pursuant to Paragraph 6 of Exhibit C or (B) Tenant's occupancy of all
or any part of the New Space (for purposes of this Section 3 only, the "New
Space Commencement Date"), and (iv) the "Term" with respect to the New Space
shall begin on the New Space Commencement Date and expire on the Termination
Date.
(c) Terms in Effect Prior to New Space Commencement Date.
Notwithstanding anything in this Lease to the contrary, the following terms and
conditions shall apply:
(i) Premises. Prior to the New Space Commencement Date, the
term "Premises" shall mean only floors 17, 18, 19 and 20 of the
Building as shown as Premises on Exhibit A attached hereto. Such area
shall have an agreed rentable area of 98,582 square feet. On and after
the New Space Commencement Date, the term "Premises" shall have the
meaning assigned to it in Section 1(e).
(ii) Base Rent. Prior to the New Space Commencement Date, Base
Rent shall be $1,084,402.00 per annum ($11.00 per square foot per
annum) payable in equal monthly installments of $90,366.83. On and
after the New Space Commencement Date, Base Rent shall be as set forth
in Section 1(b). Notwithstanding the preceding sentence to the
contrary, prior to July 24, 1989, if Tenant occupies part but not all
of the New Space, the Base Rent shall be proportionally abated based on
the percentage of rentable square feet of the New Space that is not
occupied.
(iii) Parking Area. Prior to the New Space Commencement Date,
399 parking spaces shall be provided in connection with this Lease --
374 unassigned spaces, 12 assigned spaces and 13 "Pool Car Spaces" (as
defined in Exhibit E). On and after the New Space Commencement Date,
the number of parking spaces provided in connection with this Lease and
the compliment of unassigned, assigned and Pool Car Spaces shall be as
set forth in Exhibit E.
(iv) Tenant's Share. Prior to the New Space Commencement Date,
the Tenant's Share shall be 16.78%. On and after the New Space
Commencement Date, Tenant's Share shall be as set forth in Section
1(j).
4. RENT. Tenant will pay the following to Landlord as rent, for the Term:
(a) Base Rent. Base Rent, due in advance on the first day of each
calendar month (prorated, for any partial month, based on a 30-day month).
(b) Additional Rent. Tenant's Share of Excess Operating Costs for each
calendar year. This amount ("Additional Rent") will be calculated as follows:
(i) "Operating Costs" as the term is used herein, shall
consist of all reasonable operating costs and expenses of the Building
which shall be computed on the accrual basis and shall consist of all
expenditures to maintain all facilities in the operation of the
Building. "Operating Costs" as used herein shall mean all expenses,
costs and disbursements (but not replacements of capital investment
items, except as set forth in Section 4(b)(ii)(A) below, or specific
costs billed to specific tenants) of every kind and nature relating to
or incurred or paid in connection with the ownership and operation of
the Building, including, but not limited to, the following:
- 3 -
<PAGE> 4
(A) Reasonable wages and salaries of all persons
(exclusive of Landlord's executive personnel above the level
of Building Manager) engaged in the operation, repair,
replacement, maintenance and security of the Building, its
common areas, including taxes, insurance and benefits relating
thereto; provided, however, that if during the Term of this
Lease the personnel are working on other projects being
periodically developed or managed or operated by Landlord as
well as the Building, their wages, salaries and related
expenses shall be appropriately allocated among all such
projects and only that portion of such expense reasonably
allocable to this project shall be included herein.
(B) All supplies and materials used in the operation
and maintenance of the Building.
(C) Cost of all utilities for the Building, including
the cost of water and power for heating, lighting, air
conditioning and ventilating (excluding those costs billed to
specific tenants).
(D) Cost of maintenance and service agreements for
the Building and the equipment therein, including, but not
limited to, security service, window cleaning, elevator
maintenance and janitorial service.
(E) Cost of all insurance relating to the Building,
including, but not limited to, the cost of casualty insurance,
rental abatement insurance and liability insurance applicable
to the Building and Landlord's personal property used in
connection therewith and located in the Building; provided,
however, if such insurance is provided in the form of master
policies, then only an equitable portion of the premiums
therefore shall be included herein.
(F) All taxes and governmental charges, whether or
not directly paid by Landlord, whether federal, state, county
or municipal, and whether they be by taxing districts or
authorities presently taxing the Building or by others
subsequently created or otherwise, and any other taxes and
assessments attributable to the Building or its operation,
excluding, however, federal and state taxes on income, death
taxes, franchise taxes, transfer taxes or any taxes imposed or
measured on or by the income of Landlord from the operation of
the Building; provided, however, that if at any time during
the Term of this Lease, the present method of taxation or
assessment shall be so changed that the whole or any part of
the taxes, assessments, levies, impositions or charges now
levied, assessed or imposes on real estate and the
improvements thereof shall be discontinued and as a substitute
therefor, or in lieu of an addition thereto, taxes,
assessments, levies, impositions or charges shall be levied,
assessed and/or imposed wholly or partially as a capital levy
or otherwise on the rents received from the Building or the
rents reserved herein or any part thereof, then such
substitute or additional taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or
imposed, shall be deemed to be included within Operating Costs
to the extent that such substitute or additional tax would be
payable if the Building were the only property of the Landlord
subject to such tax. It is agreed that Tenant will be
responsible for ad valorem taxes on its personal property and
on the value of the leasehold improvements in the Premises to
the extent that the same exceed Building standard allowances
(and if the taxing authorities do not separately assess
Tenant's leasehold improvements, Landlord may make a
reasonable allocation of the ad valorem taxes assessed on the
Building to give effect to this sentence).
(G) Cost of repairs and general maintenance
(excluding repairs and general maintenance paid by proceeds of
insurance or by Tenant or third parties).
(H) A management fee incurred by Landlord for the
management of the Building. Prior to April 1, 1994, such fee
shall not exceed three
- 4 -
<PAGE> 5
percent (3%) of all gross rentals of the Building. On and
after April 1, 1994 and continuing until March 31, 1999, such
fee shall not exceed the lesser of: (i) similar fees charged
in connection with the operation of buildings of like size,
character and quality, or (ii) four percent (4%) of all gross
rentals of the Building. On and after April 1, 1999, such fee
shall not exceed similar fees charged in connection with the
operation of buildings of like size, character and quality.
No single item of the Operating Costs shall be included as an operating
cost more than once, and once an item of the Operating Costs has been
charged to Tenant, it shall not be charged to Tenant as another expense
under any other provision of this Lease.
(ii) The following items shall not be included in or
considered as "Operating Costs":
(A) The cost of any improvements, repairs,
alterations, additions, changes, replacements, equipment,
tools and other items which under generally accepted
accounting principles are required to be classified as capital
expenditures, (whether incurred directly or through a lease or
service contract or otherwise) other than amortization of the
cost of capital (and the installation thereof) items which are
reasonably expected to reduce operating costs for the benefit
of all of the Building's tenants or which may be required by
any governmental authority (all of such costs, including
interest costs, shall be amortized over the reasonable life of
the capital items, with a reasonable life and amortization
schedule being determined by Landlord according to generally
accepted accounting principles).
(B) Depreciation of the Building, and all equipment,
fixtures, improvements and facilities used in connection
therewith, except as provided in (A) above.
(C) Advertising, promotional expenses, leasing
commissions, attorneys fees, costs and disbursements and other
expenses incurred in connection with negotiations with tenants
or prospective tenants or other occupants of the Building.
(D) Any property taxes, assessments, or other
governmental charges to the extent that Landlord is reimbursed
for same by any tenant of the Building (excluding
reimbursements paid through additional rent payments).
(E) The cost of repairs or other work occasioned by
any casualty which is covered by insurance, but only to the
extent of the insurance proceeds received by Landlord net of
deductibles and cost of adjustment.
(F) The cost of renovating or otherwise improving or
decorating, painting or redecorating space in the Building
which is or normally would be occupied by tenants, except in
connection with general maintenance of the Building.
(G) Landlord's costs of electricity and other
services sold or provided to tenants in the Building and for
which Landlord is reimbursed by such tenants as a separate
additional charge or rental over and above the base rent or
additional rent payments payable under the lease with such
tenant.
(H) Expenses incurred in connection with services or
other benefits which are nonbuilding standard but are provided
to other tenants or occupants of the Building.
(I) Costs (including but not limited to penalties,
fines and associated legal expenses) incurred due to violation
by Landlord of the
- 5 -
<PAGE> 6
terms and conditions of any lease or rental arrangement
covering space in the Building.
(J) Overhead and profit increment paid to
subsidiaries, partners or other affiliates of Landlord and
salaries and associated costs of Landlord's employees for
services on or to the Building, to the extent only that the
cost of such services exceeds competitive costs of such
services were they not so rendered by a subsidiary or other
affiliate of Landlord.
(K) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by Landlord.
(L) All items and services for which tenants
reimburse Landlord, but only to the extent Landlord is
reimbursed for same.
(M) The costs incurred related to maintaining
Landlord's existence, either as a corporation, partnership or
other entity.
(N) The costs incurred in connection with correcting
defects in the construction of the Building or in the Building
equipment (except that conditions resulting from ordinary wear
and tear and use shall not be deemed defects for the purposes
of this category).
(O) Interest on debt or amortization payments on any
mortgage or mortgages or rental payments under any ground or
underlying leases (except to the extent that same may be made
to pay insurance and taxes).
(P) Interest and penalties due to late payment of
taxes, utility bills and other such costs.
(Q) Salaries or other compensation paid to executive
employees of Landlord above the grade of building manager.
(R) The cost of any repairs occasioned by eminent
domain to the extent that such costs are reimbursed to
Landlord by governmental authorities in eminent domain
proceedings.
(S) The cost of any artwork such as sculpture or
paintings used to decorate the Building.
(T) Costs (including but not limited to penalties,
fines and associated legal expenses) incurred due to the
violation by Landlord of any applicable federal, state and/or
local governmental laws, codes and similar regulations that
would not have been incurred but for such violations by
Landlord.
(U) Costs (including but not limited to associated
legal expenses) incurred due to violation by any tenant of the
terms and conditions of any lease or rental arrangement
covering space in the Building (except to the extent that
such costs are incurred in connection with non-monetary
defaults, the cure of which is reasonably expected to benefit
tenants in the Building; provided that Landlord has first used
good faith efforts to recoup such costs from the defaulting
tenant).
(iii) Landlord may require payments (on the first day of each
month) which, by the end of each year, will total Landlord's estimate
of Additional Rent for the year. By the following April 1, or as soon
thereafter as practical, Landlord will furnish to Tenant a statement of
Operating Costs and Additional Rent for such year together with the
applicable information required by the form attached as Rider 7, and
any amounts owing or overpaid on Additional Rent for that year shall
within thirty (30) days be paid by Tenant to Landlord, or refunded or
credited by Landlord to Tenant, as the case may be. If the Term
commences on a day other than the first day of the month or calendar
year, or terminates on a day other than the last day of the month or
- 6 -
<PAGE> 7
calendar year, then Tenant shall be required to pay only a prorata
portion of the installments and adjustments of rent due for such month
or year. This obligation shall survive termination or expiration of
this Lease.
(iv) Tenant shall have the right to call for an audit of the
books and records relating to the operations of the Building to verify
that any statement of Operating Costs and Additional Rent by Landlord
is in compliance with Section 4 of this Lease. Such audit shall be
conducted during normal business hours by a certified public accountant
or accounting firm mutually acceptable to Landlord and Tenant, provided
that Tenant and the persons conducting such audit execute a
confidentiality statement provided by Landlord. Such confidentiality
statement shall provide that neither Tenant or the persons conducting
such audit shall reveal to anyone other than Landlord any of the
following: the results of such audit or any information contained in
the books and records reviewed in connection with such audit. Such
audit shall be conducted at Tenant's sole cost and expense; provided,
that in the event that such audit discloses errors in Landlord's
statements in excess of three percent (3%) of Operating Costs, Landlord
shall be responsible for the reasonable cost of such audit. The amount
due from Tenant shall be appropriately adjusted pursuant to the results
of such audit. Landlord shall have the right to challenge the results
of any such audit.
(v) In the event the Building is less than ninety-five percent
(95%) occupied during any year of the Term, an adjustment shall be made
in computing certain components of the Operating Costs for such year as
though the Building had been ninety-five percent (95%) occupied during
the year and as though ninety-five percent (95%) of the rentable area
of the Building had been provided with the Building services described
in Section 5. Such "gross up" adjustment shall be made to components of
the Operating Costs that fluctuate proportionally with the occupancy
level of the Building. The following components of the Operating Costs
shall be conclusively deemed to fluctuate proportionally with the
occupancy level of the Building: janitorial services, janitorial
supplies, trash hauling, building maintenance, utilities (including
without limitation, water, sewer and electricity). The following
components of the Operating Costs shall be conclusively deemed not to
fluctuate proportionally with the occupancy level of the Building:
property taxes and assessments, amortized capital improvement costs,
insurance and insurance premiums, pest control, landscaping services,
security services, and costs associated with the operation or
maintenance of the parking area. As to all other components of the
Operating Costs, Landlord shall be entitled to include any or all of
them in the "gross up" adjustment if the Landlord reasonably determines
that such inclusion is appropriate based on the relationship of such
component to the occupancy level of the Building.
5. SERVICES PROVIDED BY LANDLORD.
(a) Services Provided. Landlord will furnish for the occupied portion
of the Premises the following services, all at Landlord's costs and expense
except as stated in this Lease:
(i) Air conditioning (heating or cooling as required by the
seasons) Monday-Friday from 7:00 a.m. to 6:00 p.m., and on Saturdays
from 7:00 a.m. to 1:00 p.m. (except on holidays), in temperatures and
amounts which, in Landlord's reasonable judgment, are reasonably
required for comfortable occupancy under normal business operations.
(If Tenant requires air conditioning during other hours, Landlord will
furnish the same for the areas specified in a written request of Tenant
delivered to the Building manager before noon on the preceding business
day. The charge for such service, prior to April 1, 1994, shall be
$35.00 per hour per air handler. The charge for such service on and
after April 1, 1994 and continuing until March 31, 1999, shall be
determined by Landlord from time to time based upon, but not to exceed,
Landlord's cost to provide such service. Tenant shall pay Landlord upon
receipt of Landlord's invoice for such service. HVAC to the Premises
shall be supplied on a seasonal basis in accordance with the schedule
attached as
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Rider No. 4 to this Lease, subject to normal tolerances from design
conditions.);
(ii) Toilet facilities, water for lavatory and toilet
purposes, cold water for drinking and hot water (at prevailing
temperatures prescribed by applicable law) for lavatory purposes, all
at points of supply provided for general use of tenants in the Building
through fixtures installed by Landlord or by Tenant with Landlord's
consent;
(iii) Janitor service to the Premises on business days and
other cleaning services as Landlord determines to be reasonably
required and in accordance with the schedule attached as Rider No. 5 to
this Lease;
(iv) The full complement of passenger elevators for access to
and from the floor(s) on which the Premises are located (Landlord may
limit the number of elevators operating outside normal business hours
or during the periods of testing and repair, subject to the provisions
of Section 5(b)) and freight elevator service only when scheduled
through the manager of the Building;
(v) Electric lighting for all public areas and special service
areas of the Building as Landlord determines to be reasonable and
standard (but not less than that which is currently provided),
including replacement of Building standard light bulbs and tubes;
(vi) Equipment and personnel to limit access to the Building
after normal business hours. (However, Landlord shall have no
responsibility to prevent, and shall not be liable to Tenant for, and
shall be indemnified by Tenant against, liability or loss to Tenant and
Tenant's Employees arising out of losses due to theft, burglary, or
damage or injury to persons or property caused by persons gaining
access to the Building or the Premises and Tenant hereby releases
Landlord from all liability relating thereto.); and
(vii) Continuous electrical service to the Premises (except
during periods of repair and testing, subject to the provisions of
Section 5(b)), including providing and installing all Building standard
replacement lighting tubes and bulbs. If Tenant uses more electrical
power than Landlord considers reasonable or normal for office use,
Tenant will pay Landlord on a monthly basis the cost of such excess
power consumed by Tenant which cost shall not exceed the amount charged
to Landlord for same by the utility supplying electricity. Consumption
will be determined, at Landlord's election, either (A) by a survey
performed by a reputable consultant selected by Landlord, or (B)
through a separate meter or submeter installed, maintained and read by
Landlord at Tenant's cost. For Section 5(a)(vii) only, "month" and
"monthly" mean any billing period used by the utility supplying
electricity. All installations of electrical fixtures, appliances and
equipment within the Premises shall be subject to Landlord's approval.
Such approval shall not be unreasonably withheld unless such
installations may affect the electrical, mechanical or plumbing systems
of the Building or the structural components of the Building. If such
installations affect the temperature or humidity otherwise maintained,
Landlord may at Tenant's cost install supplemental air conditioning
units (which costs shall include the additional electrical consumptions
of such units and costs associated with the removal of any additional
heat load). Tenant's use of electricity will never exceed Tenant's
share of the capacity of existing feeders to the Building or of the
risers, wiring installations and transformers serving the floors
containing the Premises. The design capacity allocated to Tenant shall
be 4.3 watts per rentable square foot (demand) of riser and floor panel
electrical capacity averaged over the floor being serviced, with an
approximate 1.5 watts and 2.8 watts split between power and lighting.
Any risers or wiring necessary to meet Tenant's electrical
requirements in excess of such design capacity will be installed by
Landlord on Tenant's written request, at Tenant's sole cost and expense
(to be paid in advance), only if in Landlord's sole belief they are
necessary and will not cause damage to the Building or a dangerous
condition, or entail excessive or unreasonable alterations, repairs or
expense or disturb other occupants.
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<PAGE> 9
(b) Landlord's Obligations. Landlord's obligation to furnish service is
subject to the rules and regulations of applicable utilities and of any
governmental authority. Landlord does not warrant that the services provided for
in Section 5 will be free from any irregularity or stoppage. Landlord shall use
due diligence to correct the same, but no such condition or event will create
any; liability for Landlord, or constitute an eviction, actual or constructive,
of Tenant, or cause any abatement of the rent payable under this Lease or
relieve Tenant from any of its obligations under this Lease.
(c) Abatement of Rent. Notwithstanding anything contained in Section 5
of this Lease to the contrary, in the event of a failure of Landlord to provide
any of the services described in Section 5 of this Lease, which failure (i) is
the result of conditions within Landlord's control, (ii) renders the Premises
untenantable (i.e. Tenant cannot reasonably conduct its business therein), and
(iii) continues for more than five (5) consecutive business days after notice to
Landlord, then until such services are restored or the Premises are otherwise
rendered tenantable again, all rentals under this Lease shall (a) abate in the
event the entire Premises is affected or (b) be reduced proportionally based
upon to the portion of the rentable area of the Premises affected as compared to
the rentable area of the entire Premises. For purposes of this paragraph only,
it is agreed that a sustained, severe and substantial variation from the HVAC
design conditions set forth in Rider No. 4 may unreasonably interfere with the
conduct of Tenant's business.
6. SIGNAGE. In addition to the signage rights granted to Tenant which are
described in Rider No. 6, as long as Tenant occupies the Premises, Tenant shall
have the right to listings on the computerized Building directory located in the
ninth floor sky lobby of the Building, the number of which shall not exceed one
line per 3,000 rentable square feet of the Premises.
7. USE OF PREMISES.
(a) Permitted Use. Tenant will use and occupy the Premises only for the
Permitted Use, using and maintaining them in a clean, careful, safe, sanitary
and proper manner. Subject to the provisions of Section 7(c), Tenant may
maintain in the Premises (for use solely by Tenant and its Employees): lunch
rooms (including vending machines), cafeterias, coffee bars, lounges, kitchens
for the foregoing (provided that the foregoing eating facilities are not used
for commercial purposes), computer equipment, and any other facility or
equipment useful in the normal conduct of Tenant's business which is not
inconsistent with use of the Premises as a business office.
(b) Liability for Misuse. Subject to the provisions of Section 14,
Tenant will pay for any damage (excluding normal wear and tear) to the Premises
or to any other part of the Building caused by any negligence or willful act or
any misuse or abuse by Tenant or any of its Employees (excluding invitees and
guests).
(c) Limitation on Use. Tenant will not cause anywhere in the Building,
or permit in the Premises: (i) any activity or thing contrary to applicable law,
ordinance, regulation or insurance regulation (however, Tenant shall not be
required hereby to make any alteration or addition to the Building or to any
building standard leasehold improvements in the Premises unless such is required
because of Tenant's use of the Premises); or which is in any way immoral or
extra hazardous or could jeopardize the coverage of normal insurance policies or
increase their cost; (ii) waste or nuisance, defacing or injury of the Building,
or any activity causing odors perceptible outside the Premises; (iii) retail
sales, purchases or gifts of any merchandise, or storage therefor; (iv) cooking
or heating food (except in microwave ovens approved by Underwriters Laboratories
for residential use and used solely for Tenant's Employees); or (v) overloading
of the floors or the structural or mechanical systems of the Building. Tenant
will conduct its business and occupy the Premises and shall not create any
nuisance or interfere with, annoy, or disturb any other tenants in the Building
or the Landlord in its management thereof, and shall not injure the reputation
of the
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<PAGE> 10
Building. Tenant shall not erect or place any item (including but not limited to
signs) in, upon, or visible from the exterior or the common areas of the
Building.
(d) Excluded Uses. No portion of the Premises hall be used for (i) a
travel agency or (ii) the retail or discount sale of stocks or bonds if such
activities constitute fifteen percent (15%) or more of the revenue generated by
the business activities conducted in the Premises.
(e) Exclusive Use. Landlord covenants that all other leases for space
in the Building that are executed after the date hereof shall prohibit the use
of any portion of said leased premises for a savings and loan association,
federal or state chartered lending institution, national or state banking
institution or federal savings bank. Notwithstanding the preceding sentence to
the contrary, leases executed with Centeq Investments Company, Pacific First
Mortgage Corporation, Principal Mutual Life Insurance Co. or Sears Mortgage
Corporation, or any of the successors thereto or affiliates thereof, shall be
exceptions to the preceding sentence. This covenant and the restrictions imposed
pursuant hereto shall become null and void on the date on which any substantial
portion of the Premises is no longer occupied by United Savings Association of
Texas FSB or by an Assignee operating a savings and loan association, federal
or state chartered lending institution, national or state banking institution or
federal savings bank in the Premises.
8. ALTERATIONS, REPAIR AND MAINTENANCE.
(a) Tenant's Maintenance Obligations. Tenant will maintain the Premises
in good and usable condition, normal wear and tear excepted, and promptly make,
at its expense, all necessary non-structural repairs and replacements to the
Premises and perform and pay for the operation, maintenance and repair of
fixtures and of supplemental air conditioning units. Tenant will immediately pay
the cost of repair and replacement due to damage or injury to the Building by
Tenant or its Employees (excluding invitees or guests).
(b) Approval of Tenant Alterations. Tenant will not make or permit
Alterations without Landlord's prior written consent. Such consent shall not be
unreasonably withheld unless the structural components or the mechanical,
electrical or plumbing systems of the Building may be affected by such
Alterations.
(c) Tenant Alterations. Alterations will be performed, if Landlord
elects, by Landlord or a contractor designated by Landlord, at Tenant's cost and
expense. If the Alterations are estimated to cost in excess of $100,000.00,
Landlord shall solicit competitive bids from three (3) contractors, two (2)
selected by Tenant and approved by Landlord and one (1) selected by Landlord.
All Alterations will immediately be Landlord's property and a part of the
Building without compensation to Tenant but subject to Tenant's rights
hereunder, and Tenant will promptly notify Landlord of the value thereof for
insurance purposes. Subject to the provisions of Section 12, Tenant will hold
Landlord and its Employees forever harmless against any and all claims, expenses
(including taxes) and liabilities of every kind which may arise out of or in any
way be connected with any work performed by or on behalf of Tenant. Alterations,
repairs and replacements by Tenant shall be in accordance with all applicable
laws, rules and ordinances and the requirements of any insurance carrier, and be
of a quality and class at least equal to the original work, performed in a good
and workmanlike manner with good grades of materials. Landlord shall have the
opportunity to inspect this work.
(d) Landlord's Obligations. Landlord shall maintain and promptly repair
the structural components of the Building, common area improvements and the
mechanical, electrical and plumbing systems of the Building. Landlord shall
perform routine inspections of the Building to determine what repairs, if any,
are needed.
9. LIENS PROHIBITED. Tenant will not permit any lien on any part of the Building
allegedly resulting from any work or materials furnished or obligations incurred
by or for Tenant. If any such lien is filed, Tenant will promptly (i)
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<PAGE> 11
discharge any such lien of record or (ii) if such lien is filed in connection
with a disputed matter, Tenant may instead procure and maintain a bond around
such lien to Landlord's satisfaction. Tenant agrees to indemnify Landlord for
any damages or costs sustained by Landlord which are caused by the existence of
any such lien placed on any part of the Building by, through, or under Tenant.
Neither this Lease nor any request or consent of Landlord to the labor,
materials or obligations, is a consent to such a lien.
10. ASSIGNMENT; SUBLETTING. Except as expressly permitted hereby, Tenant may not
assign, transfer, or encumber this Lease or any estate or interest therein, or
permit the same to occur, or sublet or grant any right of occupancy for any part
of the Premises, or permit such occupancy by any parties other than Tenant and
its Employees. (The foregoing, and any changes in the terms thereof, are
collectively called an "Assignment", and the other party thereto the
"Assignee".) Any prohibited Assignment is voidable by Landlord.
(a) Conditions of Assignment. Landlord's consent to an Assignment shall
not be unreasonably withheld, but shall be effective only if in writing. An
Assignment will be approved by Landlord if:
(i) The proposed Assignee is a respectable creditworthy party
and Tenant shall have provided Landlord with proof thereof. Whether or
not a proposed Assignee is "creditworthy" shall be based upon an
analysis which examines the proposed Assignee's (A) ability to perform
under this Lease, (B) history of paying its debts as they become due,
and (C) prospective ability to pay its debts as they become due.
(ii) The nature and character of the proposed Assignee, its
business and activities and intended use of the Premises are in
Landlord's reasonable judgment (A) consistent with the standards of the
Building and the floor or floors on which the Premises are located, and
(B) do not violate any exclusive use provision or provision restricting
permissible types of occupants under any then existing leases.
(iii) The form and substance of the proposed sublease or
instrument of assignment is acceptable to Landlord (which acceptance by
Landlord shall not be unreasonably withheld) and is expressly subject
to all of the terms and provisions of this Lease and to any matters to
which this Lease is subject.
(iv) The proposed occupancy would not increase the office
cleaning requirements or impose an extra burden upon the services to be
supplied by Landlord to Tenant hereunder.
Consent by Landlord to any Assignment shall not be a waiver of Landlord's
rights as to any subsequent Assignments. Any approved sublease shall be
expressly subject to the terms and conditions of this Lease. In the event of any
Assignment, the assigning Tenant and any Guarantor will remain fully
responsible and liable for all of Tenant's obligations under this Lease, and the
Assignee will automatically be jointly and severally liable to the extent of the
Assigned portion of the Premises. Upon an Event of Default, as hereinafter
defined, while an Assignment is in effect, Landlord may collect directly from
the Assignee all sums becoming due to Tenant under the Assignment and apply this
amount against any sums due Landlord by Tenant, and Tenant authorizes and
directs any Assignee to make payments directly to Landlord upon notice from
Landlord. No direct collection by Landlord from any Assignee shall constitute a
novation or release of Tenant or any Guarantor, a consent to the Assignment or a
waiver of the covenant prohibiting Assignments.
(b) Assignments to Affiliates Permitted. Tenant shall have the right to
assign the Lease or may sublet the Premises or any part thereof if such
Assignment is to an Affiliate of the Tenant. Tenant shall provide the Landlord a
copy of the Assignment on or before the commencement date thereof.
(c) Request to Assign or Sublet. With any request for consent to an
Assignment, Tenant will submit a copy of the Assignment to Landlord and notify
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<PAGE> 12
Landlord of the proposed commencement date of the Assignment, the name of the
proposed Assignee (accompanied by evidence of the nature, character, and
financial condition of Assignee and its business), and all terms and conditions
(including rental) of or relating to the Assignment.
(d) Excess Rent. With respect to an Assignment of all or any part of
the initial Premises or any additional Premises that Tenant builds out and
occupies for a period of not less than one year, if the consideration Tenant
receives for such Assignment exceeds the rent payable under this Lease for the
same period and portion of the Premises, the "Profit"shall be immediately due
and payable by Tenant to Landlord as additional rent under this Lease. The term
"Profit" when utilized in this Section 10(d) shall mean the difference between
(i) any and all rentals received pursuant to any Assignment together with other
consideration paid or to be paid by an Assignee, and (ii) reasonable brokerage
commissions and construction costs incurred as a result of the Assignment which
generates the consideration specified in (i) above; provided that such amounts
are actually paid by Tenant, all of which shall be evidenced by cancelled checks
and invoices for same. With respect to an Assignment of all or any part of any
additional Premises that Tenant has not built out and occupied for a period of
one year or more, if the consideration Tenant receives for such Assignment
exceeds the rent payable under this Lease for the same period and portion of the
Premises, all of the excess shall be immediately due and payable by Tenant to
Landlord as additional rent under this Lease.
(e) Change of Control. Tenant will notify Landlord of any change in
control of Tenant or any Guarantor, or any sale of more than half its assets
outside the ordinary course of business. Concurrently, Tenant will submit
current financial statements; provided, however, that so long as Tenant is a
savings and loan association, Tenant shall only be required to submit the most
current public financial statements.
(f) Conveyance by Landlord. Landlord may transfer, assign and convey
any part of or interest in the Building or any of its rights under this Lease.
If Landlord assigns its rights under this Lease, no further liability or
obligation shall thereafter accrue against Landlord under this Lease, and Tenant
will attorn and look solely to Landlord's successor in interest for performance
of this Lease.
11. LANDLORD'S LIABILITY. Tenant will protect its property and Employees, and
insure the same, to its own satisfaction, and accordingly waives any claim
against Landlord, its affiliates and managing agent and their respective
Employees for loss or damage to any property, injury to any person, or injury to
Tenant's business from any cause. This waiver shall not apply in the event of
claims attributable to the willful misconduct, negligence or gross negligence of
Landlord, except for the following type of loss: (i) damage to any property
other than normal office furniture, fixtures, computers and other equipment and
(ii) incidental or consequential damages including business loss. Subject to the
foregoing, Tenant for itself and its Employees, assumes all risk of damage to
property, proximate or remote; all personal property on the Premises is at
Tenant's risk only, and Landlord shall not be liable for any damage to or theft
of such property.
12. INDEMNIFICATION.
(a) Tenant's Indemnification. Tenant will indemnify and hold and save
Landlord, its affiliates and managing agent and their respective Employees
harmless from all fines, suits, losses, costs, expenses, liabilities, claims,
demands, actions, damages and judgments (for purposes of this Section 12 only,
"Liabilities") suffered by, recovered from or asserted against the indemnitee,
of every kind and character brought by third parties, resulting from any breach,
violation or nonperformance by Tenant of any provision of this Lease; or from
injury or damage to person or property incident to, arising out of, or caused
(approximately or remotely, in whole or part) by any act, omission, negligence
or misconduct by; Tenant or its Employees (excluding invitees and guests), or in
any other way from their occupancy or use of the Premises. Tenant agrees that
the indemnity contained herein shall not be applicable if the Liabilities
suffered are caused in whole or in part by the negligence of Landlord or its
Employees except for the
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following type of loss: (i) damage to property other than normal office
furnishings, fixtures, computers and other equipment, and (ii) incidental or
consequential damages and to business loss. If any such proceeding is brought
against Landlord or its Employees, Tenant will retain counsel reasonably
satisfactory to Landlord to defend Landlord or its Employees (as the case may
be) at Tenant's sole cost and expense. All such costs and expenses, including
reasonable attorneys' fees and court costs, shall be a demand obligation owing
by Tenant to Landlord. Tenant's obligations under this Section shall survive the
termination or expiration of this Lease, but shall be subject to Section 14 of
this Lease.
(b) Landlord's Indemnification. Landlord will indemnify and hold and
save Tenant harmless from all liabilities suffered by, recovered from or
asserted against Tenant, of every kind and character for injury or damage to
person or normal office property incident to, arising out of, or caused
(proximately or remotely, in whole or part) by any act, omission, negligence
or misconduct by Landlord or its Employees (excluding invitees and guests). This
indemnity shall not apply to the following type of loss: (i) damage to property
other than normal office furnishings, fixtures, computers and other equipment,
and (ii) incidental or consequential damages and to business loss. If any such
proceeding is brought against Tenant, Landlord will retain counsel reasonably
satisfactory to Tenant to defend Tenant at Landlord's sole cost and expense. All
such costs and expenses, including reasonable attorneys' fees and court costs,
shall be a demand obligation owing by Landlord to Tenant. Landlord's obligations
under this Section 12(b) shall survive the termination or expiration of this
Lease. The rights of Tenant under this Section 12(b) shall not be waived by
Section 11 of this Lease, but shall be subject to Section 14 of this Lease.
13. INSURANCE.
(a) Tenant's Insurance Requirements. Tenant will maintain as a minimum
the following insurance during the entire Term:
(i) comprehensive general liability insurance with combined
single limits not less than $2,000,000, for personal injury or death
and property damage occurring in or about or related to the use of the
Premises.
(ii) "all risk" insurance for the full replacement cost of all
Tenant's property on the Premises and all fixtures. Unless this Lease
is terminated upon damage or destruction, the proceeds of such
insurance will be used to restore the foregoing.
All policies required hereunder will be issued by carriers rated A VI
or better by the then current Best's Key Rating Guide and authorized to do
business in the State of Texas. The policies shall name Landlord as an
additional insured, with primary coverage non-contributing to any insurance
Landlord may carry, and shall provide that coverage cannot be cancelled or
materially changed except upon 30 days prior written notice to Landlord. Tenant
shall furnish Landlord promptly on request with certificates of insurance
evidencing the required coverage. Notwithstanding the foregoing provisions of
Section 13(a), so long as United Savings Association of Texas FSB is the Tenant
pursuant to this Lease (and thereafter if approved by Landlord), United Savings
Association of Texas FSB shall be entitled at its option to self insure against
$1,000,000.00 of casualties required to be covered by insurance as set out in
Section 13(a)(ii), provided that Tenant notifies Landlord of its election to do
so, and in such event Tenant shall be deemed to have taken out such insurance
coverage and this Lease shall be construed accordingly.
(b) Landlord's Insurance Requirements. Landlord will maintain as a
minimum the following insurance during the entire Term:
(i) comprehensive general liability insurance with combined
single limits not less than $2,000,000.00, for personal injury or death
and property damage occurring in or about or related to the use of the
common areas of the Building.
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(ii) "all risk" insurance for 80% of the full replacement cost
of the improvements located on the property described in Exhibit "B".
Landlord reserves the right to self insure against the casualties
required to be covered by Section 13(b)(ii) as long as Landlord has a net worth
of $100,000,000.00.
14. NO SUBROGATION OR RECOVERY. If either party suffers a loss of or damage to
property in the Premises, in the Building, or related to this Lease, which is
covered by valid insurance policies (or would be covered by policies which are
required hereunder or which would be required but for any specific provisions
for self-insurance), that party waives any claim by way of subrogation or direct
recovery therefor which it may have against the other party or its Employees
(excluding contractors), regardless of whether negligence or fault of the latter
party or its Employees (excluding contractors) may have caused the loss or
damage. Each party will have its appropriate insurance policies properly
endorsed, if necessary, to prevent any invalidation of insurance coverage
required hereunder due to these mutual waivers.
15. FIRE AND CASUALTY. If the Premises or any part thereof is damaged by fire or
other casualty, Tenant will promptly notify Landlord.
(a) Cancellation of Lease; Restoration of Building. If the Building or
the Premises is damaged by fire or other casualty to the extent that substantial
alteration or reconstruction is required in Landlord's sole opinion, or if any
Mortgagee requires that the insurance proceeds payable as a result of the fire
or other casualty be applied against the mortgage debt, Landlord may terminate
this Lease by notifying Tenant within sixty (60) days after the later of the
date the damage occurs, or the date Landlord is so notified by its Mortgagee,
in which event the rent under this Lease will be abated as of the date of the
fire or other casualty. If this Lease is not terminated, then within
seventy-five (75) days after the fire or other casualty, or such greater period
as may be reasonably necessary, Landlord will commence to repair and restore the
Premises and any portion of the Building required for access to the Premises,
and will diligently complete the same, but Landlord is not required: (i) to
expend more for such repair of the Premises than the net insurance proceeds
(after any payment required under any Mortgage) reasonably allocable to the
Premises, or (ii) to rebuild, repair or replace any of Tenant's furniture or
furnishings or of fixtures and equipment removable by Tenant under the
provisions of this Lease. Notwithstanding the foregoing to the contrary, if the
Premises and/or Tenant's Parking Spaces (as defined in Exhibit E) is rendered
untenantable by fire or other casualty, and if the same is not rendered
tenantable within one hundred and twenty (120) days after the date of such fire
or casualty, this Lease may be terminated by Tenant as of the date of such fire
or casualty by giving Landlord written notice no later than one hundred and
fifty (150) days after the date of such fire or casualty. If Landlord requests
additional time to render the Premises and/or Tenant's Parking Spaces
tenantable, Tenant shall either grant such extension or terminate this Lease
within ten (10) days after Tenant receives such extension request.
(b) Casualty Loss During Last Year of Lease. If the Premises or the
Building is damaged by fire or other casualty during the last twelve (12)
months of the Term, whether or not the damage requires substantial repair and
reconstruction, Landlord may cancel this Lease as of the date of the fire or
casualty by notice to Tenant within thirty (30) days thereafter. Such
cancellation shall be voidable if Tenant exercises its right, if any, to extend
this Lease pursuant to Rider No.1 within five (5) days of its receipt of such
cancellation notice.
(c) Abatement of Rent. Landlord will allow Tenant a proportional
abatement of rent based upon the percentage of rentable square feet of the
Premises that is unfit for occupancy due to fire or other casualty. Except as
expressly provided to the contrary in this Lease, this Lease will not terminate,
and Tenant will not be entitled to damages or to any abatement of rent or other
charges, as a result of a fire or other casualty, repair or restoration.
16. CONDEMNATION. If all or substantially all of the Building or of the Premises
is taken for any public or quasi-public use under any governmental law,
ordinance
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or regulation or by right of eminent domain or is sold to the condemning
authority in lieu of condemnation, then this Lease will terminate when physical
possession is taken by the condemning authority. If a lesser but material
portion of the Building is thus taken or sold (whether or not the Premises are
affected thereby), Landlord may terminate this Lease by notice to Tenant within
sixty (60) days after the taking or sale, in which event this Lease will
terminate when physical possession is taken by the condemning authority. If more
than ten percent (10%) but less than substantially all of the Premises is thus
taken or sold, Landlord within one hundred and twenty (120) days after the
taking or sale shall provide to Tenant substitute space in the Building, in the
approximate square footage amount of the portion of the Premises taken or sold,
provided such space is available. If the Lease is not terminated, rent payable
will be reduced by the amount allocable to any portion of the Premises so taken
or sold, and Landlord, at its sole expense, will restore the affected portion of
the Building to substantially its former condition as far as feasible, but not
beyond the work done by Landlord in originally constructing the affected portion
of the Building and installing tenant improvements in the Premises. However,
Landlord need not spend more for such restoration of the Premises than the
Premises' allocable share of the net compensation or damages received by
Landlord for the part of the Building taken. Landlord will be entitled to
receive all of the compensation awarded upon a taking of any part of or all of
the Building, including any award for any unexpired term of this Lease; Tenant
may seek an award in separate proceedings for its personal property, trade
fixtures, moving expenses and good will.
17. LANDLORD'S ACCESS. Upon prior written or telephonic notice to Tenant,
Landlord may enter any part of the Premises at all reasonable hours (or, in any
emergency or suspected emergency, without notice at any hour) to (i) inspect;
test, clean, or make repairs, alterations and additions to the Building or the
Premises as Landlord believes appropriate, or (ii) provide any service which
Landlord is now or hereafter obligated to furnish to tenants of the Building, or
(iii) show the Premises to prospective lenders, purchasers or (during the last
twelve (12) months of the Term), tenants and, if they are vacated, to prepare
them for reoccupancy. Landlord will minimize as far as practical the disruptive
effect of Landlord's entry on Tenant's business. Rent will not abate because of
Landlord's entry.
18. SURRENDER OF PREMISES. As soon as its right to possession ends, Tenant will
surrender the Premises to Landlord in as good repair and condition as when
Tenant first occupied, except for reasonable wear and tear and for damage or
destruction by fire or other casualty, and will concurrently deliver to Landlord
all keys to the Premises, and restore any locks which it has changed to the
system which existed at the commencement of the Term. If possession is not
immediately surrendered, Landlord may enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
them, or any part thereof, without incurring any civil or criminal liability.
(a) Leasehold Improvements and Fixtures. Upon surrendering the
Premises, Tenant will remove any parts specified by Landlord of the
existing construction, initial construction, Alterations and personal
property in or upon the Premises; provided, however, that Tenant shall
not be required to remove any of the existing construction (except the
hurricane protection system) or any of the initial construction if at
the time Landlord approved the initial construction, Landlord did not
notify Tenant that it reserved the right to require Tenant to remove
same upon surrender of the Premises. Except where Landlord requires
removal, Tenant (if it is not in default) may elect whether to remove
each item of moveable office furniture and equipment in the Premises
not attached to the Building, but all initial construction and
Alterations will remain without compensation to Tenant. All removals by
Tenant will be accomplished in a good and workmanlike manner so as not
to damage any portion of the Building, and Tenant will promptly repair
and restore all damage done. If Tenant does not so remove any property;
which it has the right or duty to remove, Landlord may immediately
either claim it as abandoned property, or remove, store and dispose of
it in any manner Landlord may choose, at Tenant's cost and without
liability to Tenant or any other party.
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(b) Holding Over. If Tenant does not surrender the Premises as
required, this creates a tenancy at sufferance only, on all terms of
this Lease except that Tenant will have no right to renew extend or
expand, and the monthly rental will be one hundred fifty percent (150%)
of the total amount payable (disregarding abatements or credits) by
Tenant under this Lease (including without limitation parking rental)
during the last full calendar month before holding over. Nothing other
than a written agreement (executed by both parties) will create any
other relationship, notwithstanding any course of dealing. Tenant is
liable for all damage Landlord suffers from such holding over, and will
indemnify Landlord against any claims resulting from delay by Landlord
in delivering possession of the Premises to other parties.
19. TENANT'S PROPERTY; TAXES. Tenant is liable for all taxes levied or assessed
against personal property or fixtures in the Premises or due to the use thereof,
and will pay Landlord on demand any taxes levied or assessed against Landlord
allocable to such property or use. Notwithstanding the preceding sentence to the
contrary, Tenant shall be entitled to challenge any such taxes, provided Tenant
complies with all applicable laws and regulations to prevent any liens against
such property, and if any liens are placed thereon, Tenant shall promptly remove
such liens or bond around same to Landlord's reasonable satisfaction.
20. LIEN AND SECURITY INTEREST. This Lease constitutes a security agreement
under the Uniform Commercial Code of Texas. In addition to the statutory
landlord's lien and to secure its obligations, Tenant grants Landlord a security
interest in and an express contractual lien upon all furniture, fixtures and
equipment of Tenant in the Premises at any time, and on all proceeds therefrom.
This property may not be removed from the Premises without Landlord's consent
until all sums then due to Landlord have been paid and all Tenant's obligations
have been fully complied with and performed. On an Event of Default by Tenant,
Landlord may enter the Premises and take possession of any furniture, fixtures
and/or equipment there without liability for trespass or conversion, and sell
the same, with or without having the property at the sale, after notifying
Tenant of the time and place of public sale or of the time after which private
sale is to be made, at which sale Landlord or its assigns may purchase the same.
Any requirement of reasonable notice shall be met if given as provided in this
Lease at least five (5) days before the day of sale. Any sale shall be
considered a public sale conducted in a commercially reasonable manner if held
in the Premises after the time, place and method of sale and a general
description of the types of property to be sold have been advertised in a
newspaper published or circulated in Harris County, Texas for five (5)
consecutive days prior to the sale. The proceeds from any disposition less all
expenses connected with taking possession, holding and selling of the property
(including reasonable attorneys' fees and other expenses), will be credited
against the indebtedness secured by the security interest granted in this
section. At Landlord's request, Tenant will execute and deliver to Landlord a
financing statement sufficient to perfect this security interest; Landlord may
file a copy of the relevant portions of this Lease as a financing statement.
Nothing in this Section 20 should be construed as giving Landlord a lien on or
security interest in any of Tenant's files, workpapers, records, charts, film,
microfiche, accounting records, computer records or other records or materials
relating to Tenant's business or any other items that are exempt by any
applicable regulations or statutes specifically governing federal savings banks
and savings and loan associations.
21. SECURITY DEPOSIT. Not applicable.
22. DEFAULT AND REMEDIES.
(a) Events of Default. It shall be an "Event of Default" if:
(i) Tenant fails to make a timely payment of Base Rent,
Additional Rent or any other amount owed by Tenant under this Lease
when and as the same shall become due and payable; provided, however,
that Tenant has failed to cure such default within five (5) business
days after Landlord provides notice of same to Tenant; provided
further, however, that if Landlord four
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(4) times in a calendar year gives notice to Tenant of Tenant's failure
to timely pay prior to the time Tenant cures the default described in
such notice, Landlord's obligation to give notice to Tenant shall end
and thereafter failure to timely pay shall be an automatic Event of
Default.
(ii) Tenant fails to comply with any other obligation under
this Lease and does not cure such failure as soon as reasonably
practicable and in any event within thirty (30) days after notice. If
the nature of the default is such that a cure cannot be completed
within thirty (30) days, provided that the default does not create a
hazard, jeopardize insurance coverage or materially and adversely
affect other occupants of the Building, such thirty (30) day period
shall be extended, provided that Tenant promptly commences and
diligently pursues such cure to completion.
(iii) Tenant or any Guarantor becomes insolvent, makes a
transfer in fraud of creditors or an assignment for the benefit of
creditors, admits in writing its inability to pay its debts as they
become due, or files a petition under any section or chapter of the
United States Bankruptcy Code or any similar law or statute; or an
order for relief is entered with respect to Tenant or any Guarantor in
any bankruptcy, reorganization or insolvency proceedings; or a pleading
seeking such an order is not discharged or denied within sixty (60)
days after its filing; or a receiver or trustee is appointed for all or
substantially all assets of Tenant or any Guarantor or of the Premises
or any of Tenant's property located thereon in any proceeding brought
by Tenant or any Guarantor, or any receiver or trustee is appointed in
any proceeding brought against Tenant or any Guarantor and not
discharged within sixty (60) days after appointment or Tenant or the
Guarantor does not contest such appointment; or any part of Tenant's
estate under this Lease is taken by process of law in any action
against Tenant.
(b) Remedies. On any Event of Default, Landlord may terminate
this Lease by notice to Tenant, or continue this Lease in full force and effect,
and/or perform Tenant's obligations on Tenant's behalf and at Tenant's expense.
(i) If and when this Lease is so terminated, all rights of
Tenant and those claiming under it will terminate, as if this Lease had
expired by lapse of time. Landlord may immediately recover from Tenant
all accrued, unpaid sums, plus interest and late charges, if in
arrears, under the terms of this Lease up to the date of termination,
and any amounts owing under Sections 18 and 22(b)(iii). In addition,
Tenant will immediately pay Landlord the excess, if any, of (A) the
present value of all amounts which would have become due under this
Lease for the remainder of the Term, over (B) the present value of any
net amounts which Tenant establishes Landlord can reasonably expect to
recover by reletting the Premises for the remainder of the Term, taking
into consideration the cost of such reletting, including remodeling,
the availability of acceptable tenants and other market conditions
affecting leasing. Such present value shall be calculated at a discount
rate which is the lesser of (A) the maximum rate allowed by law, or (B)
the rate commonly called the prime or base rate announced by Texas
Commerce Bank, N.A. (or its successor, but if there is no successor
which announces a prime or base rate, then by a national bank selected
by Landlord) at the time of such termination.
(ii) Until the Lease is so terminated, Landlord may terminate
Tenant's right of possession and, on Tenant's behalf and at Tenant's
expense and in Landlord's sole discretion, may sublet any of the
Premises (and, on expiration or termination of the sublease, may
re-sublet), for all or part of the remainder of the Term, on whatever
terms and conditions Landlord in its sole discretion deems advisable.
Against the rents and sums due from Tenant to Landlord during the
remainder of the Term, credit will be given Tenant in the net amount of
rent received from the new tenant after deduction by Landlord for: (1)
the costs incurred by Landlord in reletting the Premises (including,
without limitation, repair and remodeling costs, brokerage fees,
reasonable legal fees and the like); and (2) all accrued sums, plus
interest and late charges if in arrears, under the terms of this Lease.
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<PAGE> 18
(iii) Upon an Event of Default or when Tenant is no longer
entitled to possession, Landlord may enter the Premises and dispose of
Tenant's property as herein provided, without any civil or criminal
liability, and may perform Tenant's obligations hereunder on Tenant's
behalf. Tenant will reimburse Landlord on demand for Landlord's
reasonable attorneys' fees and other expenses in doing so, and Landlord
shall not be liable for any damages resulting to Tenant, whether or not
caused by Landlord's negligence or gross negligence. This subsection
22(b)(iii) survives expiration or termination of the Lease.
(c) Continuing Liability. No repossession, re-entering or reletting of
the Premises or any part thereof by Landlord relieves Tenant or any Guarantor of
its liabilities and obligations under this Lease.
(d) Remedies Cumulative. All rights and remedies of Landlord under this
Lease will be nonexclusive of and in addition to any other remedies available to
Landlord at law or in equity.
(e) No Exemplary or Punitive Damages. In no event shall Tenant or
Landlord be subject to any exemplary or punitive damages arising out of failure
to perform as agreed in this Lease.
(f) No Waiver. Landlord's failure to insist on strict compliance with
any term hereof or to exercise any right or remedy, does not waive the same.
Waiver or any agreement regarding any breach does not affect any subsequent or
other breach, unless so stated. A receipt by Landlord of any rent with knowledge
of the breach of any covenant or agreement contained in this Lease shall not be
a waiver of the breach, and no waiver by Landlord of any violation or provision
of this Lease shall be effective unless expressed in writing and signed by
Landlord. Payment by Tenant or receipt by Landlord of a lesser amount than due
under this Lease may be applied to such of Tenant's obligations as Landlord
elects. No endorsement or statement on any check, and no accompanying letter,
shall make the same an accord and satisfaction, and Landlord may accept any
check or payment without prejudice to Landlord's right to recover the balance of
the rent or pursue any other remedy provided in this Lease.
23. ATTORNEYS' FEES. If either party prevails in any litigation between the
parties arising under this Lease or the relationship it creates, the
non-prevailing party will on demand pay or reimburse the prevailing party's
reasonable attorneys' fees, costs and expenses.
24. WAIVER BY TENANT. Except as otherwise set forth in this Lease, Tenant waives
and surrenders any right and privilege which it may now or hereafter have (i) to
redeem the Premises or to have a continuance of this Lease after termination of
the Lease, Tenant's right of occupancy or the Term, (ii) for exemption of
property; from liability for debt or for distress for rent, and (iii) relating
to notice, demand or delay relating to any of Landlord's remedies or rights.
Tenant waives jury trial of any matters relating to the prevention of damage to
the structural components or the mechanical, electrical or plumbing systems of
the Building.
25. SUBORDINATION.
(a) This Lease and all rights of Tenant under this Lease are subject
and subordinate to any of the following, and any modifications thereof, which
may now or hereafter affect any portion of the Building: (i) any Mortgage, (ii)
any ground or underlying lease covering any part of the Building, (iii) any
applicable laws, rules, statutes and ordinances of any governmental authority
having jurisdiction, and (iv) all utility easements and agreements. On sale by
foreclosure of a Mortgage or sale in lieu of foreclosure, Tenant will attorn to
the purchaser if requested by such purchaser, and recognize the purchaser as the
Landlord under this Lease. These provisions are self-operative and no further
instrument is required to effect them; however, upon demand from time to time,
Tenant shall execute, acknowledge and deliver to Landlord any instruments and
certificates necessary or proper to evidence such subordination and/or
attornment or, if Landlord so elects, to render any of the foregoing subordinate
to this Lease or to any
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<PAGE> 19
or all rights of Tenant hereunder. Tenant further waives the provisions of any
current or future statute or rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligation of Tenant hereunder in the event of any such
foreclosure proceeding or sale, and agrees that this Lease shall not be affected
in any way whatsoever by any such proceeding or sale unless the Mortgagee, or
the purchaser, shall declare otherwise.
(b) Notwithstanding anything to the contrary in Section 25(a), in the
event Tenant shall be required to subordinate this Lease and the rights of
Tenant hereunder to any Mortgages pursuant to any foreclosure proceedings, such
subordination shall be on the express condition and shall include a binding
attornment and non-disturbance agreement on the part of such Mortgagee for the
benefit of Tenant providing that so long as Tenant is not in default in the
payment of rental or any other monies due under this Lease, or in the
performance of any of the terms, conditions, covenants, clauses, or agreements
on its part to be performed under this Lease. No default under such Mortgage and
no proceeding to foreclose the same, exercise of any power of sale thereunder,
or exercise of any other remedy provided for therein, will disturb Tenant's
possession of the Premises under this Lease, and the leasehold interest of
Tenant and Tenant's rights, privileges and benefits under this Lease will not be
cut off or otherwise be adversely affected thereby.
26. LANDLORD DEFAULT AND NOTICE TO MORTGAGEE. If Landlord neglects or fails to
comply with any of its obligations contained in this Lease, and such default
continues for a period of thirty (30) days after Tenant provides written notice
to Landlord (and any Mortgagee whose name and address have been provided to
Tenant) of the specific circumstances giving rise to such default (provided,
however, that if the nature of such default is such that a cure cannot be
completed within thirty (30) days, such thirty (30) day period shall be extended
a reasonable time to complete such cure, as long as Landlord promptly commences
and diligently pursues such cure to completion), then, Tenant shall have the
right, but not the obligation, to cure such default and invoice Landlord for the
reasonable costs incurred in connection with such cure. Landlord shall promptly
notify Tenant of any dispute it may have regarding Tenant's invoice. If Landlord
does not notify Tenant within forty-five (45) days after receiving the invoice,
it is conclusively deemed to have agreed to the invoice and all underlying facts
concerning the appropriateness of the charges set forth therein. Tenant shall
not sue Landlord for damages or exercise its right to terminate, if any, unless
(i) it gives written notice to Landlord and any Mortgagee whose name and address
have been furnished to Tenant, and (ii) thirty (30) days for remedying the act
or omission giving rise to such suit has elapsed following the giving of the
notice, without the same being remedied; provided that, if the nature of the
default is such that a cure can not be completed within thirty (30) days, such
thirty (30) period shall be extended, and provided that a cure is promptly
commenced and diligently pursued to completion. During that time Landlord shall
not be considered in default, and Landlord and/or any Mortgagee and/or their
Employees may enter the Premises and do therein whatever may be necessary to
remedy the act or omission. All rights and remedies of Tenant under this Lease
will be nonexclusive of and in addition to any other remedies available to
Tenant at law or in equity, except as limited by the provisions of this Lease.
27. RULES AND REGULATIONS. Tenant and its Employees shall comply with the Rules
and Regulations (as changed from time to time as therein provided) attached as
Exhibit D. Landlord shall enforce such rules and regulations in a reasonably
uniform and non-discriminatory manner.
28. ESTOPPEL CERTIFICATE. Promptly upon not less than ten (10) days' prior
request, Tenant will from time to time execute and deliver to Landlord a
certification in writing as to such matters as may reasonably be requested
including, without limitation, that Tenant consents to the assignment of this
Lease and its rents, that (except as may be specified in said certificate), this
Lease is unmodified and in full effect, that rent has been paid to and only to
the end of the current month, and that to the knowledge of the signer of the
certificate (after due investigation) no default exists under this Lease.
Notwithstanding the
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preceding sentence, Tenant shall only be required to certify to truthful
statements, thus any certification shall be modified by Tenant to correctly set
forth any specific exceptions Tenant may have. Any such certification delivered
may be relied upon by Landlord and by any actual or prospective purchaser or
mortgagee of any part of the Building or of any interest in Landlord.
29. NO PERSONAL LIABILITY. Any liability of Landlord and its Employees to Tenant
and its Employees under this Lease, or arising from the relationship under it,
is limited to the interest of Landlord in the Building and Landlord and its
Employees shall not be personally liable for any deficiency. Notwithstanding the
foregoing, if the "net value" of the Building is less than $5,000,000.00, then
the liability of Landlord (i.e., Homart Development Co. during its ownership of
the Building, a future landlord of the Building during its ownership of the
Building) under this Lease shall be limited to $5,000,000.00 and there shall be
no personal liability for any deficiency. When used in the preceding sentence,
the term "net value" shall mean: the amount, if any, by which the fair market
value of the Building exceeds the aggregate amount of all Mortgages and
encumbrances affecting the Building. This clause does not limit or deny any
remedies which do not involve personal liability, including without limitation,
Tenant's right to seek injunctive relief of specific performance for the failure
of Landlord to perform as agreed in this Lease. If Landlord wrongfully
withholds, denies or delays any consent which Tenant is required to obtain,
Tenant may seek specific performance but shall not be entitled to damages
therefor unless Landlord in withholding its approval has acted arbitrarily and
in bad faith. Landlord's review, supervision, inspections, comments or approval
regarding any aspect of work to be done by or for Tenant (under the Construction
Agreement, as an Alteration or otherwise) are solely for Landlord's protection
and, except as expressly provided in writing, create no warranties or duties to
Tenant or to third parties.
30. PAYMENTS AND NOTICES.
(a) Payments. All payments required to be made by Tenant to Landlord
are to be paid to Landlord, without prior demand except as may be specified and
without any setoff, deduction or counterclaim whatsoever, in legal tender of the
United States of America at the address set forth on the invoice or, if no
invoice is submitted or no address is set forth, at the address for Landlord set
forth on this Lease or at any other address as Landlord may specify from time to
time by written notice delivered in accordance with this Section.
(b) Notices. All notices given hereunder shall be in writing and shall
be considered properly given if mailed by first class United States Mail,
postage prepaid, registered or certified with return receipt requested, or by
delivering same in person to the intended addressee, or by telecopy. All notices
shall be effective upon receipt at the address set forth on this Lease or at
such other address as the parties may specify from time to time by written
notice delivered in accordance with this Section 30; except that any notice
mailed as above provided shall be effective upon its deposit in the custody of
the U.S. Postal Service if such notice is returned undelivered to the sender.
31. RIGHTS RESERVED BY LANDLORD. Subject to the provisions of this Lease to the
contrary, in addition to other rights retained or reserved, Landlord reserves
the following rights, exercisable without notice and without liability to Tenant
and without effecting an eviction, constructive or actual, or in any way
diminishing Tenant's obligations: (a) to change the name or street address of
the Building or any part of it; (b) to install, affix and maintain, modify or
remove any and all signs on the exterior and interior of the Building; (c) to
designate and approve, prior to installation, all types of interior and exterior
window treatments, and to control all internal lighting that may be visible from
the exterior of the Building; (d) the exclusive right to designate, limit,
restrict and control any service in or to the Building; (e) to keep, and to use
in appropriate instances, keys to all doors within and into the Premises (no
locks shall be changed or added without the prior written consent of Landlord);
(f) to decorate and make repairs, alterations, additions, changes or
improvements whether structural or otherwise (specifically including, without
limitation, those in conjunction with Landlord's construction of additional
buildings) in and about any part of the Building, and
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to enter the Premises for these purposes and, during such work, to temporarily
close doors, entryways, public space and corridors in the Building, to interrupt
or temporarily suspend Building Services and facilities and to change the
arrangement and location of entrances or passageways, windows, doors and
doorways, corridors, elevators, stairs, toilets, or other public parts of the
Building; (g) to approve the weight, size and location of safes and other heavy
equipment and articles in and about the Premises and the Building, and to
require all such items and furniture to be moved into and out of the Building
and Premises only at times and in manner as Landlord directs (movement of
Tenant's property are entirely at the risk and responsibility of Tenant, and
Landlord reserves the right to require permits before allowing any property to
be moved into or out of the Building); (h) to have access for Landlord and other
tenants of the Building to any mail chutes located on the Premises according to
the rules of the United States Postal Service; and (i) to take all reasonable
measures Landlord considers advisable for the security of the Building and its
occupants.
32. BROKERS. Landlord shall pay all commissions due and owing the Brokers
pursuant to Landlord's separate written agreement with the Brokers in connection
with this Lease. Landlord will indemnify Tenant and hold Tenant harmless from
and against any costs, expenses or liability for commissions or other
compensation or charges claimed by any other broker or agent claiming to
represent Landlord with respect to this Lease. Tenant warrants that it has had
no dealing with any broker or agent other than the Brokers in connection with
the negotiation or execution of this Lease, and Tenant will indemnify Landlord
and hold Landlord harmless from and against any and all costs, expenses or
liability for commissions or other compensation or charges claimed by any
other broker or agent with respect to this Lease.
33. SUBSTITUTION SPACE. Not applicable.
34. MISCELLANEOUS PROVISIONS.
(a) Covenant of Quiet Enjoyment. Provided Tenant keeps and fulfills all
of the terms, covenants, agreements and conditions to be paid or performed by
it, at all times during the Term, Tenant shall enjoy peaceable and quiet
possession of the Premises without any unreasonable disturbance from Landlord or
from any other person claiming by, through or under Landlord, but not otherwise,
subject to the terms of this Lease and to any Mortgages, ground leases or other
matters to which this Lease is subject and subordinate.
(b) Employees. Where either party agrees not to do a particular thing,
it also agrees not to permit its Employees to do so. Where either party waives
rights against the other party, it also waives the rights against the other
party's Employees. That waiver shall be considered a waiver on behalf of the
party making it, of all that party's Employees, and of anyone claiming under any
of them, including insurers and creditors.
(c) Landlord's Costs. Where Tenant is required to pay or reimburse
Landlord for the costs of any item, the costs shall be the reasonable and
customary charge established by Landlord from time to time, including a
reasonable allocation of Landlord's overhead, administrative and related costs
associated with the ownership and operation of the Building. Failure to pay any
reimbursable cost shall be treated as a failure to pay rent.
(d) Late Payments. If any sums due hereunder are not paid within five
(5) days after they are due and payable, Tenant shall also pay a late charge of
one hundred dollars ($100.00), plus interest from the date due at eighteen
percent (18%) per annum, compounded monthly (but not more in total than the
maximum amount permitted by law).
(e) Invoices. Tenant will promptly notify Landlord of any dispute it
may have regarding Landlord's invoices. If Tenant does not notify Landlord
within forty-five (45) days after receiving the invoice, it is conclusively
deemed to have agreed to the invoice and all underlying facts.
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(f) Business Days and Hours; Holidays. The term "business days" means
Monday through Friday (except for holidays). The term "normal business hours"
means 7:00 a.m. to 6:00 p.m. on business days. The term "holidays" means those
days designated by the government of the United States as the holidays for New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and such other holidays as may be designated in the Rules and
Regulations.
(g) Severability. Every covenant and obligation contained in this
Lease, including the obligation to pay rent, is and shall be construed to be a
separate and independent covenant and obligation and not as a condition. If any
term or provision of this Lease or its application to any person or circumstance
is invalid and unenforceable to any extent, the remainder of this Lease, as well
as such term or provision as otherwise applied, shall not be affected thereby.
(h) No Merger of Estates. There shall be no merger of this Lease of the
leasehold estate hereby created with the fee estate in the Premises or any part
thereof by reason of the fact that the same person may acquire or hold, directly
or indirectly, any interest in this Lease or the leasehold estate created as
well as any interest in the fee estate in the Premises.
(i) Force Majeure. When a period of time is herein prescribed for
action to be taken by Landlord, Landlord shall not be liable or responsible
for, and there is excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or other cause of any kind
whatsoever which is beyond the control of Landlord. Subject to the preceding
sentence, time is of the essence of every part of this Lease.
(j) Interpretation of Lease. No amendment or modification of this Lease
is binding or valid unless expressed in writing and executed by both parties.
Tenant represents, warrants and covenants that any financial statements
heretofore or hereafter provided to Landlord in connection with this Lease are
accurate and not materially misleading. The headings in this Lease are for
convenience only and shall not affect the meaning of the text. Words of any
gender include any other gender, and words in the singular number include the
plural, unless the context otherwise requires. The term "hereunder" or similar
terms refers to this Lease as a whole. If any context in which any defined term
is used clearly conflicts with the definition thereof, said context shall
control only for that use, and clearly related uses, of such term.
(k) Joint and Several Liability. If there is more than one Tenant or
any Guarantor, the obligation imposed upon such parties are joint and several
obligations of each of them, and Landlord need not first proceed against any of
them before proceeding against the others, nor shall any Guarantor be released
from its guarantee for any reason whatsoever, including, without limitation, any
amendment of this Lease, any forbearance by Landlord or waiver of any of
Landlord's rights, the failure to give any Tenant or Guarantor any notices, or
the release of any party liable for the payment of Tenant's obligations.
(l) Governing law. Texas law governs this Lease. Except as specifically
provided, neither party may record this Lease or a copy or memorandum thereof.
The submission of this Lease to Tenant is not an offer, nor does Tenant have
any rights unless and until each party executes a copy of this Lease and
deliveries the same to the other. All covenants, agreements, terms and
conditions to be observed and performed by the parties are binding upon their
respective heirs, personal representatives, successors and assigns.
(m) Moving Allowance. Landlord shall pay all reasonable relocation
costs incurred by Tenant in connection with Tenant's relocation of its current
offices to the Premises, not to exceed $243,140 [$5.00 per rentable square foot
based upon 48,628 rentable square feet on floors 14 & 16]. Tenant will present
to Landlord a reimbursement request for all such relocation costs, together with
copies of all invoices associated with such relocation costs within thirty (30)
days after Tenant occupies floors 14 and 16. The phrase "relocation costs" does
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not include the purchase, lease or refurbishment of office furniture, art or
other decorative items.
(n) Refurbishment Allowance. Landlord shall pay all reasonable
refurbishment costs incurred by Tenant in connection with Tenant's refurbishment
of floors 14, 16, 17, 18, 19 & 20 on and after April 1, 1994, not to exceed
$368,025.00 [$2.50 per rentable square foot based upon 147,210 rentable square
feet]. Tenant will present to Landlord a reimbursement request for all such
refurbishment costs, together with copies of all invoices associated with such
refurbishment costs.
(o) Credit and Substitution. Tenant shall have the right to apply any
credit or unused portion of the Finish Allowance described in Section 2 of
Exhibit C toward (i) the Architectural Allowance (as defined in Exhibit C), (ii)
the Engineering Allowance (as defined in Exhibit C); (iii) the Moving Allowance
(as provided in Section 34(m) of this Lease), (iv) the Refurbishment Allowance
(as provided in Section 34(n) of this Lease) and/or (v) Base Rent.
(p) Delivery and Removal of Equipment. Tenant shall have the right to
take into and out of the Building any of its equipment, provided that the use of
the loading dock and freight elevator are scheduled with Landlord. Landlord
reserves the right to require any party removing equipment from the Building to
present identification and evidence of authorization, the form of which shall be
agreed upon in advance by Landlord and Tenant. Notwithstanding any dispossession
or eviction of Tenant in connection with an Event of Default, Tenant shall have
access to the Premises (subject to the preceding two sentences) for removing
files, work papers, records, charts, films, accounting, computer or other
records or other materials relating to the conduct of its business, providing
however, Tenant shall repair at its sole cost and expense any damage to the
Premises caused by such remove.
(q) Supplemental Security. Subject to landlord's approval, which
approval shall not be unreasonably withheld, Tenant, at Tenant's sole cost and
expense, shall have the right to install supplemental security equipment in the
Premises and to maintain and repair such security equipment. Such supplemental
security must comply with all applicable laws, ordinances and regulations,
including without limitation, code requirements regarding fire access and exits.
All work necessary to coordinate and integrate such supplemental security with
the Building's life safety system shall be performed by Landlord at Tenant's
sole cost and expense.
(r) ATM Machine. Tenant shall have a one time only right of first
refusal to install an automatic teller machine to be located either on the first
or ninth floor of the Building in a location mutually satisfactory to Landlord
and Tenant. Tenant may exercise its right of first refusal hereunder by either
(i) sua sponte giving notice to Landlord, or (ii) giving notice to Landlord
within thirty (30) days of Tenant's receipt of written notice that Landlord
desires to execute a lease for space on the first or ninth floor of the Building
for the installation of an automatic teller machine. Tenant's rights under this
Section 34(r) shall terminate if Tenant fails to exercise its right of first
refusal on or before the expiration of the thirty (30) day period referenced
above. Once Tenant's right of first refusal is exercised, Tenant and Landlord
shall promptly enter into a separate lease for space in the Building for such
automatic teller machine pursuant to terms and conditions negotiated at that
time.
(s) Confidentiality. Tenant and Landlord agree that either party will
reveal the terms and conditions of this Lease or any inducements provided by
Landlord in connection herewith, except as required (i) in the normal course of
such party's business, (ii) in connection with an Assignment of this Lease,
(iii) in connection with a potential sale of the Building, (iv) by a Mortgagee
or potential Mortgagee, (v) in connection with applicable legal and
financial reporting requirements, and/or (vi) by court order.
- 23 -
<PAGE> 24
THIS LEASE IS THE ENTIRE AGREEMENT BETWEEN THE PARTIES CONCERNING THE SUBJECT
MATTER, SUPERSEDING ANY PRIOR AGREEMENTS AND WITHOUT ANY IMPLIED AGREEMENTS,
WARRANTIES OR UNDERSTANDINGS.
IN WITNESS WHEREOF, this Lease is hereby executed in multiple originals
as of the date first above stated.
TENANT: LANDLORD:
UNITED SAVINGS ASSOCIATION HOMART DEVELOPMENT CO.
OF TEXAS FSB
By: /s/ Larry Connell By: /s/ Thomas A. White
------------------------------ --------------------------------
Name: Larry Connell Name: Thomas A. White
Title: President Title: Senior Vice President
Tenant's Address: Landlord's Address:
United Savings Association Homart Development Co.
of Texas FSB 55 West Monroe
3200 Southwest Freeway Suite 3100
Suite 2000 Chicago, Illinois 60603
Houston, Texas 77027 Attention: Senior Vice
President, Office Building
and Multi-use Development
Copy to:
Homart Development Co.
55 West Monroe
Suite 3100
Chicago, Illinois 60603
Attention: General Counsel
Homart Development Co.
3200 Southwest Freeway
Houston, Texas 77027
Attention: Project Manager
- 24 -
<PAGE> 25
LIST OF EXHIBITS
AND
RIDERS
- --------------------------------------------------------------------------------
Exhibit A - Premises
Exhibit B - Property Description
Exhibit C - Construction Agreement
Exhibit D - Rules and Regulations
Exhibit E - Parking
Rider No. 1 - Option to Extend
Rider No. 2 - Right of First Refusal
Rider No. 3 - Option to Expand
Rider No. 4 - HVAC
Rider No. 5 - Janitorial Services
Rider No. 6 - Calculation of Rentable Area
Rider No. 7 - Statement of Operating Costs
Rider No. 8 - Signage
<PAGE> 26
EXHIBIT A
PREMISES
- --------------------------------------------------------------------------------
Premises - Floors 14, 16, 17, 18, 19 and 20
<PAGE> 27
[UNITED SAVINGS FLOOR 14 CHART]
A-2
<PAGE> 28
[UNITED SAVINGS FLOOR 16 CHART]
A-3
<PAGE> 29
[UNITED SAVINGS FLOOR 17 CHART]
A-4
<PAGE> 30
[UNITED SAVINGS FLOOR 18 CHART]
A-5
<PAGE> 31
[UNITED SAVINGS FLOOR 19 CHART]
A-6
<PAGE> 32
[UNITED SAVINGS FLOOR 20 CHART]
A-7
<PAGE> 33
EXHIBIT B
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
A field note description of 2.1840 acres (95,134 square feet) of land
out of Lot 8 of the Sydnor Addition in the A. C. Reynolds Survey, Abstract No.
61, Harris County, Texas, said 2.1840 acre tract of land being more particularly
described by metes and bounds as follows: (all bearings refer to that certain
30,416 square foot tract of land described in Volume 6327, Page 144 of the Deed
Records of Harris County, Texas):
BEGINNING at "X" set in concrete at the Southwest corner of a
66,983 square foot tract of land as described in Volume 6327, Page 156
of the Deed Records of Harris County, Texas, said point also being in
the North Line of U.S. Highway No. 59 (Southwest Freeway, 360 feet
wide):
THENCE, N. 12 deg. 19' 00" W, 370.00 feet to an "X" set in
concrete for the Northwest corner of the herein described tract;
THENCE, N. 77 deg. 41' 00" E, 256.35 feet to an "X" set in
concrete for the Northeast corner of the herein described tract in the
West right-of-way line of Buffalo Speedway (107 feet wide) and being a
point on the arc of a curve to the right;
THENCE, Southeasterly, along the West right-of-way line of
said Buffalo Speedway and along the arc of said curve to the right
having a radius of 5,672.65 feet, a central angle of 03 deg. 18' 11",
and a long chord bearing S. 12 deg. 55' 29" E, 326.99 feet, a total arc
distance of 327.04 feet to an "X" set in concrete for corner;
THENCE, S. 33 deg. 17' 35" W, along a cutback line, 61.50 feet
to a 5/8-inch iron rod set for corner on the North right-of-way line of
the aforementioned Southwest Freeway;
THENCE, S. 77 deg. 41' 00" W, along the North right-of-way
line of said Southwest Freeway, 215.87 feet to the POINT OF BEGINNING
and containing 2.1840 acres of land, more or less.
B-1
<PAGE> 34
EXHIBIT C
CONSTRUCTION AGREEMENT
- --------------------------------------------------------------------------------
1. Landlord has constructed floors 14 and 16 (the "New Space") to
"shell condition" meaning that the outside walls, bare finished concrete floors,
standard core toilets, variable air volume boxes, and main heating, ventilating
and air conditioning ducts within the ceiling grid in the New Space are
substantially completed, the ceiling grid is hung and the ceiling tiles are
stacked on the floor, and shall do the following work ("Building Standard Work")
in the New Space in Landlord's standard manner, according to the plans and
specifications agreed upon by the parties hereto as provided below:
(a) Supply and install Landlord's Building Standard partitions
with resilient base.
(b) Supply and install Landlord's Building Standard entrance
door frames, doors and hardware, consisting of locksets, closer and
hinges, for openings. These frames shall be ceiling height where
applicable, and the doors shall be stained ash solid core.
(c) Supply and install Landlord's Building Standard interior
doors, frames and hardware, consisting of latchsets and hinges, for
openings. These frames shall be ceiling height where applicable, and
the doors shall be solid core.
(d) Install Landlord's Building Standard suspended acoustical
ceiling throughout.
(e) Supply and install Landlord's Building Standard
fluorescent lighting fixtures.
(f) Supply and install Landlord's Building Standard duplex
electrical wall outlets.
(g) Supply and install Landlord's Building Standard wall
switches.
(h) Supply and install Landlord's Building Standard telephone
wall outlets.
(i) Supply and install Landlord's Building Standard carpeting
in all portions of rentable area (except for storage and service areas,
which will be Landlord's Building Standard VCT) in Landlord's Building
Standard colors, as selected by Tenant.
(j) Paint all Building Standard partitions in Landlord's
Building Standard colors, as selected by Tenant, with a limit of one
color per room.
(k) Supply and install Landlord's Building Standard window
coverings on all exterior windows.
(l) Supply and install, if not previously installed,
Landlord's Building Standard heating, ventilating and air conditioning
flexduct extensions and connections for variable volume boxes or mixing
boxes to supply diffusers in the Building Standard suspended ceiling.
(m) Supply and install, if not previously installed,
Landlord's Building Standard sprinkler system.
(n) Supply and install Building Standard entry plaque on the
main entry door to the Premises.
C-1
<PAGE> 35
2. Landlord shall perform, at Tenant's request, and upon submission by
Tenant of the necessary plans and specifications, the Building Standard Work and
any additional or non-standard work in the New Space (collectively the "Work"),
subject to the terms and conditions of this Agreement. Notwithstanding anything
in this Exhibit C to the contrary, to the extent the cost of the Work exceeds
$15.00 per rentable square foot of the New Space (the "Finish Allowance"), the
Work shall be performed at Tenant's sole cost and expense. The amount of the
cost and expense for any additional or non-standard work requested by Tenant in
excess of the Finish Allowance shall be agreed to by Landlord and Tenant prior
to commencement of construction of the improvements to the New Space. Tenant
shall pay one-half of such amount to Landlord prior to commencement of
construction of such improvements, and shall pay the remaining one-half of such
amount to Landlord upon the earlier to occur of (i) Tenant's occupancy of the
New Space, or (ii) Substantial Completion.
3. (a) Tenant shall utilize a space planner of Tenant's own selection
to prepare the space plans and an architect of Tenant's own selection to prepare
the architectural drawings and construction documents. To the extent that the
costs incurred in connection with such space plans, architectural drawings and
construction documents exceeds $.35 per square foot of rentable area of the New
Space (the "Architectural Allowance"), such costs shall be paid by Tenant. All
space plans, architectural drawings and construction documents prepared by
Tenant's space planner or architect shall be subject to review by Landlord, at
Tenant's sole expense, to verify that additional or non-standard work is
compatible with all other construction, as well as the electrical and mechanical
systems, with the Building, and that it complies with all applicable codes,
laws, rules and regulations, but such review and any approval are not a warranty
and Landlord shall not be liable therefore. The cost of Landlord's review of the
space plans, architectural drawings and construction documents initially
submitted by Tenant shall be $85.00 per hour, not to exceed $500.00. The cost of
Landlord's review of any revised space plans, architectural drawings or
construction documents shall be $85.00 per hour.
(b) The mechanical, electrical and plumbing construction documents
shall be prepared by Day Brown Rice, Inc. To the extent that the cost incurred
in connection with such mechanical, electrical and plumbing construction
documents exceeds $.17 per square foot of rentable area of the New Space (the
"Engineering Allowance"), such costs shall be paid by Tenant upon receipt of an
invoice for same from Landlord.
(c) Tenant shall also pay to Landlord an additional charge of
thirteen percent (13%) on the work exceeding $11.50 per rentable square foot of
the New Space to cover coordination, supervision, overhead and related expenses
allowable to such work.
(d) Tenant shall furnish to Landlord a full set of construction
drawings on or before April 21, 1989.
(e) All drawings, space plans, plans and specifications are
expressly subject to Landlord's prior written approval.
(f) Competitive bids shall be solicited from the following three (3)
contractors: (i) Innerspace Construction, Inc., (ii) Hubor Construction, and
(iii) Roban Construction. The contract for the Work shall be awarded to the
lowest bidder who submits a bid during the two (2) week period following
simultaneous issuance of bidding instructions to the contractors described
above.
4. Failure by Tenant to pay any amounts due hereunder shall have the
same effect under the Lease as the failure to pay rent, and this failure or the
failure by Tenant to perform any of its other obligations hereunder shall
constitute an Event of Default under Section 22(a) of the Lease, entitling
Landlord to all of its remedies under the Lease as well as remedies otherwise
available to Landlord.
C-2
<PAGE> 36
5. The Work shall be deemed "Substantially Complete" when all Work has
been performed pursuant to the terms of this Exhibit C except for minor or
insubstantial details of construction, mechanical adjustment and/or decoration,
the non-completion of which does not materially interfere with the intended
normal use and safe occupancy of the New Space. Landlord will routinely update
Tenant with its good faith estimate of the date on which the Work will be
Substantially Complete.
6. The date July 24, 1989 provided in Section 3(b) of the Lease shall
be deferred until the Work is Substantially Complete; provided, however, that if
Landlord is delayed in substantially completing the Work as a result of:
(a) Tenant's failure to furnish timely information or drawings,
plans and specifications in accordance with Paragraph 3 of the Exhibit C;
(b) Tenant's request for materials, finishes or installations other
than or in excess of Landlord's Building Standard (provided that Landlord
notifies Tenant in writing that such materials, finishes or installations are in
Landlord's good faith opinion "long lead time items");
(c) Tenant's changes in any drawings, plans and specifications;
(d) The performance of any other work in the New Space by any
person, firm or corporation employed by or on behalf of Tenant, or any failure
to complete or delay in completion of such work; or
(e) Any other act or omission of Tenant;
(all of which shall be deemed to be delays caused by Tenant), then the July 24,
1989 date shall be deferred only until the date on which the Work would have
been Substantially Complete but for such delays (i.e., such date shall only be
deferred to the extent that delays caused by Tenant actually cause delay in
Substantial Completion). Deferral of the July 24, 1989 date shall be in full
settlement of all claims that Tenant might otherwise have against Landlord by
reason of the New Space not being ready for occupancy by Tenant as of July 24,
1989, and such delay shall not entitle Tenant to rescind or terminate the Lease.
7. Landlord, subject to the following terms and conditions, and in
Landlord's sole discretion and upon request by Tenant, may grant to Tenant and
Tenant's agents a license to enter the New Space prior to the New Space
Commencement Date in order that Tenant may do other work required by Tenant to
make the New Space ready for Tenant's use and occupancy.
(a) Tenant shall give Landlord not less than five (5) days'
prior written notice of the request to have such access to the New
Space, which notice must contain or be accompanied by: (i) a
description and schedule for the work to be performed by those persons
and entities for whom and which such early access is being requested;
(ii) the names and addresses of all contractors, subcontractors and
material suppliers for whom and which such access is being requested;
(iii) the approximate number of individuals, itemized by trade, who
shall be present in the New Space; (iv) copies of all contracts
pertaining to the performance of the work for which such early access
is being requested; (v) copies of all plans and specifications
pertaining to the work for which such early access is being requested;
(vi) copies of all licenses and permits required in connection with the
performance of the work for which such access is being requested; (vii)
certificates of insurance and instruments of indemnifications against
all claims, costs, expenses, damages, suits, fines, penalties, actions,
causes of action and liabilities which may arise in connection with
such work; and (viii) assurances of the availability of funds
sufficient to pay for all such work, if such assurances are requested
by Landlord. Each of the foregoing shall be subject to Landlord's
approval, which approval shall not be arbitrarily withheld.
C-3
<PAGE> 37
(b) Such early access is subject to scheduling by Landlord.
(c) Tenant's agents, contractors, workers, mechanics,
suppliers, and invitees must work in harmony and not interfere with
Landlord and Landlord's agents in doing work in the New Space and any
additional work in the New Space, Landlord's work in other premises and
in common areas of the Building or the general operation of the
Building. If at any time such entry shall cause or threaten to cause
disharmony or interference, including labor disharmony, Landlord may
withdraw its license upon twenty-four (24) hours prior written notice
to Tenant.
(d) In the event that Landlord's work in the New Space and
Tenant's work in the New Space (pursuant to the license granted herein)
progresses simultaneously, Landlord shall not be liable for any injury
to person or damage to property of Tenant, or of Tenant's employees,
licensees or invitees, from any cause whatsoever occurring upon or
about the New Space, and Tenant shall indemnify and save Landlord
harmless from any and all liability and claims arising out of or
connected with any such injury or damage.
(e) Tenant agrees that it is liable to Landlord for any damage
to the New Space or any portion of the Work caused by Tenant or any of
Tenant's employees, agents, contractors, workers or suppliers.
8. All work and materials furnished are Landlord's property and will be
considered part of the Building, subject to Tenant's rights to use the same
under the Lease.
9. By taking possession of the New Space, Tenant shall conclusively
evidence that (subject only to matters noted in any punchlist which Tenant may
concurrently deliver to Landlord) the New Space is fully completed and is
suitable for Tenant's purposes; that the Building and every part of it,
including the New Space, is in good and satisfactory condition; and that Tenant
waives any defects therein; provided that possession of the New Space shall not
be deemed to be acceptance of any latent defects if Tenant provides Landlord
with notice of same within sixty (60) days after the New Space Commencement
Date. Landlord shall assign to Tenant all warranties which Landlord has received
covering the quality of the construction of the leasehold improvements and the
material and equipment installed in the New Space.
10. This Agreement is binding upon and inures to the benefit of
Landlord and Tenant, and their respective heirs, personal representatives,
successors and assigns.
Executed as of April 1, 1989.
HOMART DEVELOPMENT CO.
By: /s/ Thomas A. White
-----------------------------------
Name: Thomas A. White
Title: Senior Vice President
LANDLORD
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
By: /s/ Larry Connell
-----------------------------------
Name: Larry Connell
Title: President
TENANT
C-4
<PAGE> 38
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, entrances, halls, corridors, elevators and stairways of the
Building shall not be obstructed or used as a waiting or lounging place by
Tenants, and their agents, servants, employees, invitees, licensees and
visitors. All entrance doors leading from any leased premises to the hallways
are to be kept closed at all times. Tenant shall not place nor permit any
obstructions, garbage, refuse, merchandise or displays in the outside areas
immediately adjoining leased premises.
2. Landlord reserves the right to refuse admittance to the Building between the
hours of 6:00 P.M. and 7:00 A.M. Monday through Saturday, and from 1:00 P.M.
Saturday to 7:00 A.M. Monday, to any person not producing a valid security card
issued by Building security. Upon Tenant's written request, Landlord will issue
a security card to each person identified in such request. In case of invasion,
riot, public excitement or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same. Landlord shall in
no case be liable for damages for the admission or exclusion of any person to or
from the Building. Landlord has the right to evacuate the Building in the event
of an emergency or catastrophe.
3. Two door keys for doors to leased premises shall be furnished at the
commencement of a lease by Landlord. All duplicate keys shall be purchased only
from the Landlord. Tenant shall not alter any lock, or install new or additional
locks or bolts, on any door without the prior written approval of Landlord,
which approval shall not be unreasonably withheld. In the event such alteration
or installation is approved by Landlord, the Tenant making such alteration or
installation shall supply Landlord with a key for any such lock or bolt. Each
Tenant, upon the expiration or termination of its tenancy, shall deliver to the
Landlord all keys in Tenant's possession for all locks, bolts, cabinets, safes
or vaults, or the means of opening any lockable device.
4. In order that the Building may be kept in a state of cleanliness, each Tenant
shall, during the term of each respective lease, permit Landlord's employees (or
Landlord's agent's employees) to take care of and clean the demised premises and
Tenants shall not employ any person(s) other than Landlord's employees (or
Landlord's agent's employees) for such purpose. No tenant shall cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness of the demised premises. Tenants
shall see that (1) the doors are securely locked, and (2) all water faucets and
other utilities are shut off (so as to prevent waste or damage), each day before
leaving the demised premises. In the event Tenant must dispose of creates,
boxes, etc. which shall not fit into office waste paper baskets, Tenant shall
notify Landlord and it shall be the responsibility of Landlord to dispose of
same. In no event shall Tenant set such items in the public hallways or other
areas of the Building, excepting Tenant's own leased premises, for disposal.
5. All deliveries (excluding letters and small packages), including intracompany
deliveries, must be made via service entrance and service elevators. Landlord
reserves the right to prescribe the date, time, routing method and conditions
that any large items of personal property, equipment, trade fixtures,
merchandise and other similar items shall be delivered to or removed from the
Building. No iron safe or other heavy or bulky object shall be
delivered to or removed from the Building, except by experienced safe men,
movers or riggers approved in writing by Landlord. All damage done to the
Building by the delivery or removal of such items, or by reason of their
presence in the Building, shall be paid to Landlord upon demand by the Tenant
by, through or under whom such damage was done. The Tenant is to assume all
D-1
<PAGE> 39
risks as to the damage to articles moved and injury to persons or public engaged
or not engaged in such movement, including equipment, property and personnel of
Landlord if damaged or injured as a result of acts in connection with carrying
out this service for Tenant from the time of entering the property to completion
of work; and Landlord shall not be liable for acts of any person engaged in, or
any damage or loss to any of said property or persons resulting from, any act in
connection with such service performed for Tenant. There shall not be used in
any space, or in the public halls of the Building, either by Tenant or by
jobbers or others, in the delivery or receipt of merchandise, any handtrucks,
except those equipped with rubber tires. Landlord retains the right to prescribe
the weight and position of safes or other heavy equipment.
6. To ensure orderly operation of the Building, no ice, water, foodstuffs,
towels, newspapers, etc. shall be delivered to any leased area except by persons
appointed or approved by Landlord in writing, which approval shall not be
unreasonably withheld.
7. The toilet-rooms, toilets, urinals, wash bowls and water apparatus shall not
be used for any purpose other than for those for which they were constructed or
installed, and no sweepings, rubbish, chemicals, or other unsuitable substances
shall be thrown or placed therein. The expense of any breakage, stoppage or
damage resulting from violation(s) of this rule shall be borne by the Tenant by
whom, or by whose agents, servants, employees, invitees, licensees or visitors,
such breakage, stoppage or damage shall have been caused.
8. No sign, light, name placard, poster, advertisement or notice visible from
the exterior of any demised premises, shall be placed, inscribed, painted or
affixed by any Tenant on any part of the Building without the prior written
approval of Landlord. All signs or lettering on doors, or otherwise, approved by
Landlord shall be inscribed, painted or affixed at the sole cost and expense of
the Tenant, by a person approved by Landlord. A directory containing the names
of all Tenants of the Building shall be provided by Landlord at an appropriate
place on the ninth floor of the Building.
9. No signaling, telegraphic or telephonic instruments or devices, or other
wires, instruments or devices, shall be installed in connection with any demised
premises without the prior written approval of Landlord, which approval shall
not be unreasonably withheld unless same may affect the structural components of
the Building or the mechanical, electrical or plumbing systems of the Building.
Such installations, and the boring or cutting for wires, shall be made at the
sole cost and expense of the Tenant and under the control and direction of
Landlord. Landlord retains in all cases the right to require (1) the
installation and use of such electrical protecting devices that prevents the
transmissions of excessive current of electricity into or through the Building,
(2) the changing of wires and of their installation and arrangement underground
or otherwise as Landlord may direct, and (3) compliance on the part of all using
or seeking access to such wires with such rules as Landlord may establish
relating thereto. All such wires used by Tenants must be clearly tagged at the
distribution boards and junction box and elsewhere in the Building, with (1) the
number of the demised premises to which said wires lead, (2) the purpose for
which said wires are used, and (3) the name of the company operating same.
10. Tenants, their agents, servants, employees, invitees, licensees, or visitors
shall not:
(a) enter into or upon the roof of the Building or any storage,
electrical or telephone closet, or heating, ventilation,
air-conditioning, mechanical or elevator machinery housing
areas.
(b) use any additional method of heating or air-conditioning.
(c) sweep or throw any dirt or other substance into the stairways,
elevator shafts, corridors to or from the Building.
D-2
<PAGE> 40
(d) bring in or keep in or about the leased premises any vehicles,
bicycles, motorcycles or animals of any kind.
(e) install any radio or television antennas or any other device
or item on the roof, exterior walls, windows or window sills
of the Building.
(f) deposit any trash, refuse, cigarettes, or other substance of
any kind within or out of the Building, except in the refuse
containers provided therefor.
(g) be permitted to operate any device that may produce an odor,
cause music, vibrations or air waves to be heard or felt
outside the Tenant's leased premises, or which may emit
electrical waves that shall impair radio, television or any
other form of communication system.
11. If Tenant desires signal, communication, alarm or other utility or service
connection installed or changed, the same shall be made at the expense of
Tenant, with approval and under direction of Landlord.
12. No canvassing, soliciting, distribution of hand bills or other written
material shall be permitted in the Building.
13. Tenant shall give Landlord prompt notice of all accidents to or defects in
air-conditioning equipment, plumbing, electrical facilities or any part of
appurtenances of the Tenant's leased premises.
14. If the leased premises of any Tenant becomes infested with vermin and such
infestation is caused by Tenant's use of its premises, such Tenant, at its sole
cost and expense shall cause its leased premises to be treated by a professional
exterminator from time to time to the satisfaction of the Landlord.
15. Tenant shall not use the name of the Building (except in Tenant's address)
or use pictures or illustrations of the Building in advertising, notices,
correspondence, or other publicity, without the prior written consent of
Landlord. Tenant shall not represent itself as being associated with Landlord.
16. Tenant shall not waste electricity or water and agrees to cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air-conditioning system, and shall not adjust any controls.
17. Tenant assumes full responsibility for protecting its space from theft,
robbery, and pilferage, which includes keeping doors locked and other means of
entry to the space closed and secure.
18. Tenant shall not install and operate machinery or any mechanical devices of
a nature not directly related to Tenant's ordinary use of the Tenant's leased
premises without the written permission of the Landlord.
19. No person or contractor not employed by Landlord shall be used to perform
window washing, cleaning, decorating, repair or other work in the leased
premises without the express written consent of Landlord. Except for placement
of customary office decorations, no hooks, nails, or screws shall be driven into
or inserted in any part of the Building except by Building maintenance
personnel.
20. Tenant shall comply with parking rules and regulations as may be posted and
distributed from time to time.
21. Tenant shall use its best efforts to prohibit picketing or other union
activities involving its employees in the Building except in those locations and
subject to time and other limitations as to which Landlord may give prior
written consent.
D-3
<PAGE> 1
EXHIBIT 10.10a
NOVEMBER 1, 1994
SECOND AMENDMENT TO
LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE is made of this 14th day of November, 1994, by
and between HD DELAWARE PROPERTIES, INC., a Delaware corporation ("Landlord"),
and BANK UNITED OF TEXAS FSB ("Tenant").
W I T N E S S E T H:
WHEREAS, United Savings Association of Texas FSB ("United") has heretofore
entered into that certain Office Building Lease dated as of April 1, 1989 (the
"Lease"), as amended by that certain First Amendment to Lease dated as of
January 31, 1990 (the "First Amendment"), by and between Homart Development Co.,
a Delaware corporation ("HDC"), as landlord, and United, as tenant, for premises
(the "Premises") consisting of one hundred seventy-two thousand one hundred
eighty seven (172,187) rentable square feet on the thirteenth (13th), fourteenth
(14th), sixteenth (16th), seventeenth (17th), eighteenth (18th), nineteenth (19)
and twentieth (20th) floors of that certain office building known as Phoenix
Tower, located at 3200 Southwest Freeway, Houston, Texas (the "Building"); and
WHEREAS, HDC has heretofore assigned all of HDC's right, title and interest in
and to the Lease to Landlord and Landlord has agreed to assume any and all
obligations and rights of HDC thereunder; and
WHEREAS, United theretofore assigned all of United's right, title and interest
in and to the Lease to Tenant and Tenant has agreed to assume any and all
obligations and rights of United thereunder; and
WHEREAS, the parties hereto now desire to amend the Lease to expand the size of
the Premises as leased and modify certain other provisions as set forth herein
but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Defined Terms
For purposes of this Second Amendment to Lease (the "Second Amendment"), the
term "Lease" shall mean the Lease as modified by the First Amendment.
Capitalized terms and other defined items used herein but not defined herein
shall have the meanings ascribed to them in the Lease. In the event any of the
terms of the Lease conflict with the terms of this Second Amendment, the terms
of this Second Amendment shall control.
2. Expansion of Premises
Commencing on December 1, 1994 (the "Effective Date"), the Premises shall
consist of the space currently occupied by Tenant on the thirteenth (13th),
fourteenth (14th), sixteenth (16th), seventeenth (17th), eighteenth (18th),
nineteenth (19th) and twentieth (20th) floors of the Building and an additional
two thousand two hundred sixty-one (2,261) rentable square feet on the ninth
(9th) floor of the Building as shown on Exhibit A attached hereto and
incorporated herein (such additional space being referred to herein as the
"Expansion Space"), such that the total rentable square footage of the Premises
shall be one hundred seventy-four thousand four hundred forty-eight (174,448)
rentable square feet.
3. Base Rent
Commencing on the Effective Date and continuing to and including the Termination
Date, Base Rent shall be Three Million One Hundred Twenty-Eight Thousand Five
Hundred Seventy-Eight and 12/100 Dollars ($3,128,578.12) per annum (based on
$18.00 per rentable square foot of the Premises excluding the Expansion Space
per annum and $12.92 per rentable square foot of the Expansion Space per annum),
payable in equal monthly installments of Two Hundred Sixty Thousand Seven
Hundred Fourteen and 84/100 Dollars ($260,714.84), all such Base Rent payable in
accordance with the provisions set forth in the Lease.
4. Additional Rent
(a) Commencing on the Effective Date and continuing to and including
the Termination Date, for purposes of calculating Additional Rent payable by
Tenant pursuant to Section 4(b) of the Lease, separate calculations will be made
for (i) the portion of Additional Rent attributable to the Expansion Space and
(ii) the portion of Additional Rent attributable to the remainder of the
Premises excluding the Expansion Space, and Additional Rent for the entire
Premises shall be the sum of the results of such calculations.
(b) For the purposes of calculating the portion of Additional Rent
attributable to the Expansion Space, Excess Operating Costs shall be as defined
in Paragraph 1(k) of the Lease with the word "1994" substituted for the word
"1989" wherever the letter appears in said paragraph and the word "1995"
substituted for the word "1990" where it appears in the sixth line thereof, and
Tenant's Share shall be thirty-nine hundredths percent (0.39%), subject to
adjustment as set forth in Paragraph 1(k) of the Lease.
(c) For the purposes of calculating the portion of Additional Rent for
the remainder of the Premises excluding the Expansion Space, Excess Operating
Expenses and Tenant's Share shall be determined as set forth in the Lease prior
to the modification thereof as contained in this Second Amendment.
<PAGE> 2
NOVEMBER 1, 1994
5. Tenant Improvements
Landlord shall construct the Expansion Space in accordance with Exhibit C
attached hereto and made a part hereof.
6. Parking
Commencing on the Effective Date and continuing to and including the Termination
Date, Landlord shall provide Tenant with an additional seven (7) unassigned
parking spaces at such rates and upon such terms and conditions as are set forth
in the Lease.
7. Brokerage Commissions
Landlord and Tenant hereby represent and warrant to each other that no
commission is due and payable to any broker or other leasing agent in connection
with this Second Amendment as a result of its own dealings with any such broker
or leasing agent, and Landlord and Tenant hereby agree to indemnify and hold
each other harmless from and against all loss, damage, cost and expense
(including reasonable attorneys' fees) suffered by the other party as a result
of a breach of the foregoing representation and warranty.
8. Full Force and Effect
Except as amended hereby, all terms and conditions of the Lease shall remain in
full force and effect throughout the duration of the Term. The Lease, as
amended herein, constitutes the entire Agreement between the parties hereto and
no further modification of the Lease shall be binding unless evidenced by an
agreement in writing signed by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Sixth
Amendment as of the day and year first above written.
LANDLORD: TENANT:
HD DELAWARE PROPERTIES, INC., BANK UNITED OF TEXAS FSB
a Delaware corporation
By: /s/ Gilbert A. Fell By: /s/ John Grzywa
----------------------------- --------------------------------
Name: Gilbert A. Fell Name: John Grzywa
----------------------------- --------------------------------
Its: Vice President Its: Senior Vice President
----------------------------- --------------------------------
<PAGE> 3
NOVEMBER 1, 1994
EXHIBIT C
CONSTRUCTION AGREEMENT
1. Landlord shall, at Landlord's cost and expense, complete any
standard or non-standard work (the "Work") in the Expansion Space in accordance
with the drawings, plans and specifications set forth in Paragraph 2 hereof
(including all engineering, space planning, demolition and construction required
in connection therewith), subject to the terms and conditions of this Agreement.
2. (a) Landlord shall complete the Work in accordance with drawings,
plans and specifications prepared by Gensler and Associates, dated
October 19, 1994 with revisions by Tenant and including October 26,
1994.
(b) If Tenant desires any additional work to be performed in the
Expansion Space, Tenant shall cause drawings and plans and
specifications for such work to be drawn either by arranging therefor
with Landlord's architect or engineer.
(c) Tenant shall submit any drawings and plans and specifications
required by subparagraph (b) hereof on or before October 26, 1994.
(d) All drawings, space plans, plans and specifications are
expressly subject to Landlord's prior written approval. Any approval by
Landlord or Landlord's architects or engineers of any of Tenant's
drawings, plans and specifications which are prepared in connection
with construction of improvements in the Expansion Space shall in no
way bind Landlord or constitute a representation or warranty of
Landlord as to the adequacy or sufficiency of such drawings, plans and
applications, or the improvement to which they relate, for any use,
purposes, or condition, but this approval shall merely be the consent
of the Landlord to Tenant's construction of improvements in the
Expansion Space in accordance with such drawings, plans and
specifications.
3. Failure by Tenant to pay any amounts due hereunder shall have the
same effect under the Lease as failure to pay rent, and this failure or the
failure by Tenant to perform any of its other obligations hereunder shall
constitute an Event of Default under the Lease, entitling Landlord to all of its
remedies under the Lease as well as remedies otherwise available to Landlord.
4. Notwithstanding the Effective Date provided in the Second Amendment,
Tenant's obligations for the payment of rent thereunder as to the Expansion
Space shall not commence until Landlord has substantially completed all work to
be performed by Landlord as set forth herein as to the Expansion Space;
provided, however, that if Landlord is delayed in substantially completing such
work as a result of:
(a) Tenant's changes in any drawings, plans or specifications; or
(b) The performance of any other work in the Expansion Space by any
person, firm or corporation employed by or on behalf of Tenant, or any
failure to complete or delay in completion of such work; or
(c) Any other act or omission of Tenant;
all of which shall be deemed to be delays caused by Tenant ("Tenant Delays"),
then the Effective Date shall be deferred only until the date on which Landlord
would have substantially completed the performance of the Work but for such
Tenant Delays. Deferral of the Effective Date shall be in full settlement of all
claims that Tenant might otherwise have against Landlord by reason of the
Expansion Space not being ready for occupancy by Tenant as of the Effective Date
provided in the Lease.
5. Landlord, subject to the following terms and conditions, and upon
request by Tenant, shall grant to Tenant and Tenant's agents a license to enter
the Expansion Space prior to the Effective Date in order that Tenant may do
other work required by Tenant to make the Expansion Space ready for Tenant's
use and occupancy:
(a) Tenant shall give Landlord not less than five (5) days' prior
written notice of the request to have such access to the Expansion
Space, which notice must contain or be accompanied by: (i) a
description and schedule for the work to be performed by those persons
and entities for whom and which such early access is being requested;
(ii) the names and addresses of all contractors, subcontractors and
material suppliers for whom and which such access is being requested;
(iii) the approximate number of individuals, itemized by trade, who
shall be present in the Expansion Space; (iv) copies of all contracts
pertaining to the performance of the work for which such early access
is being requested; (v) copies of all plans and specifications
pertaining to the work for which such access is being requested; (vi)
copies of all licenses and permits required in connection with the
performance of the work for which such access is being requested; (vii)
certificates of insurance and instruments of indemnification against
all claims, costs, expenses, damages, suits, fines, penalties, actions,
causes of action and liabilities which may arise in connection with
such work; and (viii) assurances of the availability of funds
sufficient to pay for all such work, if such assurances are requested
by Landlord. Each of the foregoing shall be subject to Landlord's
approval, which approval shall not be arbitrarily withheld.
Notwithstanding the foregoing, in the event that Tenant requests said
license for the purpose of installation of equipment and cabling for
telephone, computer or security systems, one (1) day's prior telephone
notice shall be required and the requirements of subparagraphs (iii),
(iv), (v), (vi) and (vii) hereinabove shall be waived.
(b) Such early access is subject to scheduling by Landlord.
C-1
<PAGE> 4
NOVEMBER 1, 1994
(c) Tenant's agents, contractors, workers, mechanics, suppliers, and
invitees must work in harmony and not interfere with Landlord and
Landlord's agents in doing Work in the Expansion Space and any
additional work in the Expansion Space, Landlord's work in other
premises and in common areas of the Building or the general operation
of the Building. If at any time such entry shall cause or threaten to
cause disharmony or interference, including labor disharmony, Landlord
may withdraw its license upon twenty-four (24) hours prior written
notice to Tenant.
(d) In the event that Landlord's Work in the Expansion Space and
Tenant's work in the Expansion Space (pursuant to the license granted
herein) progresses simultaneously, Landlord shall not be liable for any
injury to person or damage to property of Tenant, or of Tenant's
employees, licensees or invitees, from any cause whatsoever occurring
upon or about the Expansion Space, and Tenant shall indemnify and save
Landlord harmless from any and all liability and claims arising out of
or connected with any such injury or damage.
(e) Tenant agrees that it is liable to Landlord for any damage to
the Expansion Space or any portion of the work in the Expansion Space
caused by Tenant or any of Tenant's employees, agents, contractors,
workers or suppliers.
6. All work and materials furnished or paid for by Landlord or its
contractors is Landlord's property and will be considered part of the Building.
On substantial completion of the Expansion Space portion of the Work, Landlord
shall tender the Expansion Space to Tenant. Tenant's taking possession of the
Expansion Space shall indicate Tenant's acceptance thereof in all respects, and
upon such acceptance, the Expansion Space shall be deemed a part of the Premises
for all purposes under the Lease.
C-2
<PAGE> 5
NOVEMBER 1, 1994
EXHIBIT A
FLOOR PLAN OF EXPANSION SPACE
[INSERT FIGURE]
[THE PHOENIX TOWER, SUITE 950 FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.10b
THIRD AMENDMENT TO
LEASE AGREEMENT
This THIRD AMENDMENT TO LEASE AGREEMENT (this "Third Amendment") is
executed as of the 8th day of January, 1996 (the "Amendment Date") by and
between HMS Office, L.P., a Delaware limited partnership ("Landlord") and Bank
United of Texas FSB ("Tenant").
RECITALS:
1. Tenant's predecessor in interest, United Savings Associated of Texas
FSB entered into that certain Office Building Lease (the "Original Lease") dated
as of April 1, 1989 with Landlord's predecessor in interest, Homart Development
Co., for certain premises in the office building known as Phoenix Tower (the
"Building"). The Original Lease has previously been amended by a First Amendment
dated as of January 31, 1990 and by a Second Amendment dated as of November 14,
1994 (the Original Lease, as so amended, is called herein the "Lease").
2. Landlord and Tenant are, respectively, the current owners of the
interest of the Landlord and Tenant under the Lease.
3. All capitalized terms that are used but not defined in this Third
Amendment shall have the meanings given to them in the Lease.
4. Tenant has requested an expansion of Tenant's Premises and Landlord
has agreed to such expansion, subject to and in consideration of the terms and
conditions of this Third Amendment.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration to each party, the receipt and sufficiency of which
are hereby acknowledged, Landlord and Tenant agree as follows;
1. Incorporation of Recitals. The Recitals to this Third Amendment are
hereby incorporated into this Third Amendment and made a part hereof.
2. Expansion Premises. Commencing on January 1, 1996 (the "Expansion
Premises Commencement Date"), Landlord shall lease to Tenant and Tenant shall
lease from Landlord the 1,108 stipulated square feet of rentable area on Level
9 of the Building identified as Suite 960 on Exhibit A attached hereto (the
"Expansion Premises").
<PAGE> 2
3. As Is. Tenant accepts the Expansion Premises in their existing "as
is" condition, with all faults. Landlord makes no representation or warranty
whatsoever with respect to the condition of the Expansion Premises or their
suitability for Tenant's purposes. Landlord is not required to perform any
demolition or construction work or provide any allowances or other monetary
contribution to readying the Expansion Premises for Tenant's occupancy. Tenant
shall be solely responsible for readying the Expansion Premises for Tenant's
occupancy and use. Landlord shall have the right to approve any construction
plans for work desired by Tenant, as well as the contractors and subcontractors
that will perform construction work, prior to the commencement of construction.
All of Tenant's contractors and subcontractors shall abide by Landlord's rules
and regulations of the Building pertaining to tenant contractors. Without
limiting Tenant's other obligations with respect to its initial occupancy of
the Expansion Premises, Tenant shall install Tenant's card-reader at the
entrance to the Expansion Premises.
4. Term. The term of the lease for the Expansion Premises shall
commence on the Expansion Premises Commencement Date and shall end with the
expiration or earlier termination of the Lease.
5. Rent. The Base Rent for the Expansion Premises shall be $13.00 per
square foot of rentable area of the Expansion Premises per lease year of the
Term commencing on the Expansion Premises Commencement Date, regardless of when
the Expansion Premises will be ready for Tenant's occupancy.
6. Expense Stop. For the Expansion Premises only, without affecting
that applicable to the remainder of the Premises, the expense stop for purposes
of calculating Tenant's Excess Operating Costs for the Expansion Premises shall
be $7.00 per square foot of rentable area of the Expansion Premises.
7. Rental Abatement. Provided no Event of Default by Tenant then
exists, Tenant shall receive an abatement of Base Rent through March 31, 1996.
8. Total Premises. Upon the addition of the Expansion Premises on the
Expansion Premises Commencement Date, the Premises shall be 175,556 stipulated
square feet of rentable area.
9. No Additional Parking. Tenant's number of parking spaces is not
changed by this Third Amendment.
10. No Tenant Brokers. Tenant has not engaged a broker in connection
with this transaction. Landlord has not engaged any broker in connection with
this transaction except for Landlord representative for the Building, Hines
Interests Limited Partnership. Each of Landlord and Tenant shall indemnify,
defend and hold harmless the other against any claim brought by any broker or
agent claiming by, through or under the indemnifying party.
-2-
<PAGE> 3
11. Full Force and Effect. Except as expressly amended hereby, the
Lease is unchanged and remains in full force and effect and is ratified by each
of Landlord and Tenant. Any further amendment or modification of the Lease
shall only be effective if embodied in a written agreement executed by both
parties.
EXECUTED to be effective as of the Amendment Date.
LANDLORD:
HMS OFFICE, L.P.
By: Hines Office Company, L.L.C.
By: /s/ TOM OWENS
--------------------------
Name: Tom Owens, Manager
--------------------------
Title:
--------------------------
TENANT:
BANK UNITED OF TEXAS FSB
By: /s/ John Grzywa
--------------------------
Name: JOHN F. GRZYWA
--------------------------
Title: Senior Vice President
--------------------------
ATTACHMENTS
Exhibit A - Level 9 Floor Plan showing Expansion Premises (Suite 960)
-3-
<PAGE> 4
Phoenix Tower
Level 9
31,627 S.F. NRA
26,557 S.F. NUA
1.18 FACTOR
1.21 FACTOR
[MAP]
<PAGE> 1
EXHIBIT 10.11
3800 BUFFALO SPEEDWAY
LEASE AGREEMENT
by and between
GREENWAY PLAZA, LTD.
and
UNITED SAVINGS ASSOCIATION OF THE SOUTHWEST FSB
Executed November 20, 1990
<PAGE> 2
LEASE BRIEF
<TABLE>
<CAPTION>
<S> <C> <C>
REAL ESTATE BROKERS: Rollie Andre and Dan Bellow
Henry S. Miller/Grubb & Ellis ................................. 626-8888
LANDLORD: Greenway Plaza, Ltd., A Texas Limited Partnership
LANDLORD CONTACT: Neil Tofsky, Senterra Development ............................. 965-2900
MANAGING AGENT: Senterra Development Corporation
BUILDING MANAGER: Syndy Tuttle .................................................. 965-2234
MARKETING AGENT: Senterra Development Corporation
LEASING AGENT: Mike Cannon ................................................... 965-2900
ARCHITECT: EDI Architectural Interiors &
Harry Gendel Architects ....................................... 622-2223
LANDLORD'S ATTORNEY: Bill Ryan, Senterra Development ............................... 965-2900
TENANT'S ATTORNEY: Johnethan K. Heffron .......................................... 963-6958
LEASED PREMISES: 79,533 Square Feet, NRA
LEASE TERM: 98 Months, Commencing On February 1, 1991 and
Expiring on March 31, 1999
BASE RENTAL:
</TABLE>
<TABLE>
<CAPTION>
FROM TO MONTHLY BASE RENTAL
- ---- -- -------------------
<S> <C> <C>
February 1, 1991 July 31, 1991 $42,832.00
August 1, 1991 December 31, 1992 $53,022.00
January 1, 1993 December 31, 1994 $66,277.50
January 1, 1995 December 31, 1996 $72,905.25
January 1, 1997 December 31, 1997 $79,533.00
January 1, 1998 March 31, 1999 $99,416.25
</TABLE>
<PAGE> 3
LEASE BRIEF
PAGE -2-
EXPENSE STOP: $6.25 Per Square Foot, NRA
ARCHITECTURAL ALLOWANCE: $39,766.50
TENANT IMPROVEMENT ALLOWANCE: Premises tendered in "as is" condition,
plus $397,665.00
MOVING ALLOWANCE: $119,299.50
PARKING: 320 monthly parking permits, 15 of which are
reserved.
PARKING RATES:
<TABLE>
<CAPTION>
MONTHS OVER TERM UNRESERVED SPACES RESERVED SPACES
---------------- ----------------- ---------------
<S> <C> <C>
1-30 -0- -0-
31-60 $25.00/Space/Month $50.00/Space/Month
61-98 $35.00/Space/Month $50.00/Space/Month
</TABLE>
RENEWAL OPTION: One five (5) year Renewal Option. Notice to be
given, in writing, no earlier than fifteen
(15) months nor later than twelve (12) months
prior to Lease Expiration. Such Renewal Option
shall be at the then "Prevailing Market Rate".
PREFERENTIAL RIGHTS: Covers the entire 1st floor, and is
subordinate only to Sanus Corp. Health Systems
(Tenant). No less than twenty-four (24)
calendar months must remain on the Primary
Term. Leasing shall be upon terms and
conditions set forth in the applicable
availability notice, but not to exceed the
prevailing Building rental rate in effect on
the date of availability.
<PAGE> 4
TABLE OF CONTENTS
PAGE
ARTICLE 1 PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 4 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 5 SERVICES TO BE PROVIDED BY LANDLORD . . . . . . . . . . . . . 2
ARTICLE 6 REPAIR & MAINTENANCE . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 7 FIRE OR OTHER CASUALTY . . . . . . . . . . . . . . . . . . . 5
ARTICLE 8 COMPLIANCE WITH LAWS & USAGE . . . . . . . . . . . . . . . . 5
ARTICLE 9 LIABILITY & INDEMNIFICATION . . . . . . . . . . . . . . . . . 6
ARTICLE 10 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 11 NO SUBROGATION OR RECOVERY . . . . . . . . . . . . . . . . . 7
ARTICLE 12 ADDITIONS & FIXTURES . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 13 ASSIGNMENT & SUBLETTING . . . . . . . . . . . . . . . . . . . 7
ARTICLE 14 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 15 OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 16 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 17 ACCESS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 18 DEFAULT & REMEDIES . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 19 ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 20 LANDLORD DEFAULT & NOTICE TO MORTGAGEE . . . . . . . . . . . 15
ARTICLE 21 NONWAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 22 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 23 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 24 LANDLORD'S MORTGAGEE . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 25 CONDITION OF PREMISES & LANDLORD'S CONTRIBUTION . . . . . . . 16
ARTICLE 26 SPACE PLANNING SERVICES . . . . . . . . . . . . . . . . . . . 16
ARTICLE 27 MOVING ALLOWANCE . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 28 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 29 VISITOR PARKING . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE> 5
TABLE OF CONTENTS (cont.)
ARTICLE 30 BUILDING IDENTIFICATION . . . . . . . . . . . . . . . . . . 17
ARTICLE 31 BUILDING RENOVATION . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 32 RENEWAL OPTION . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 33 PREFERENTIAL RIGHT TO LEASE . . . . . . . . . . . . . . . . 19
ARTICLE 34 ASBESTOS . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 35 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 36 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 37 STAIRWELL LICENSE . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 38 ENTIRE AGREEMENT & BINDING EFFECT . . . . . . . . . . . . . 21
EXHIBIT "A" METES & BOUNDS DESCRIPTION
EXHIBIT "B" FLOOR PLANS
EXHIBIT "B-1" FLOOR PLANS
EXHIBIT "B-2" FLOOR PLANS
EXHIBIT "C" HVAC CRITERIA CONDITIONS
EXHIBIT "D" CLEANING SPECIFICATIONS
EXHIBIT "E" RULES & REGULATIONS
EXHIBIT "F" ACCOUNT DESCRIPTION
EXHIBIT "G" PROJECT SCHEDULE AGREEMENT
EXHIBIT "H" SITE PLAN
EXHIBIT "I" SIGNAGE
EXHIBIT "J" REFURBISHMENT
EXHIBIT "K" PREFERENTIAL RIGHT AREA
EXHIBIT "L" STAIRWELL USE
<PAGE> 6
LEASE CONTRACT
This Lease Contract (the "Lease") is entered into between GREENWAY PLAZA, LTD.,
a Texas limited partnership, ("Landlord"), and UNITED SAVINGS ASSOCIATION OF THE
SOUTHWEST FSB, a federally chartered savings bank ("Tenant").
1. PREMISES
A. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
approximately 79,533 square feet of "Rentable Area" (as hereinafter
defined) being comprised of the entirety of the fourth (4th) and fifth
(5th) floors (each floor being comprised of 32,124 square feet of Rentable
Area), and 15,285 square feet of Rentable Area on the third (3rd) floor of
3800 Buffalo Speedway, (the "Building") located on the land described in
Exhibit "A" (the "Land") in Houston, Harris County, Texas. The area leased
in the Building is hereinafter called "Leased Premises" and is shown
outlined and hatched on Exhibits "B", "B-1" and "B-2". The Land, the
Building, together with landscaping, driveways, sidewalks, service areas,
all other improvements, and the 3800 Buffalo Speedway Garage and the
surface parking lot adjacent to the Building ("Parking Garage") are
hereafter collectively called the "Project".
B. On each floor of the Building on which space rentable to tenants is or
will be leased to one tenant, the Rentable Area for such floor ("Single
Tenant Floor") shall be the entire area bounded by the interior of the
exterior walls of the Building on such floor less the area contained
within the Building stairs, vertical ducts, elevator shafts, flues, vents,
stacks, and pipe shafts. All the area on any Single Tenant Floor that is
used for elevator lobbies, corridors, special stairways, restroom,
mechanical rooms, electrical rooms, and telephone closets; all vertical
penetrations that are included for the special use by Tenant, and columns
and other structural portions of the Building shall be included within the
Rentable Area of the Single Tenant Floor.
C. On each floor of the Building on which space rentable to tenants is or
will be leased to more than one tenant ("Multi-tenant Floor"), the
Rentable Area attributable to each such lease shall be the total of (1)
the area bounded by the interior of the exterior wall or walls of the
Building bounding such leased premises, the exterior of all walls
separating such leased premises from any public corridors or other public
areas on such floor and the center line of all walls separating such
leased premises from other areas leased or to be leased to other tenants
on the Multi-tenant Floor, and (2) a pro rata portion of the area covered
by the elevator lobbies, corridors, restrooms, mechanical rooms,
electrical rooms, telephone closets, columns and other structural portions
of the Building situated on the Multi-tenant Floor. The Rentable Area for
the entire Building shall be deemed to be 148,422 square feet for the
purposes of this Lease.
2. TERM
The term of this Lease shall commence February 1, 1991, or on the
"Commencement Date" referred to below, whichever date is later, and shall expire
on March 31, 1999, unless extended or unless sooner terminated in accordance
with the other provisions of this Lease. The Commencement Date shall be the date
upon which Landlord has substantially completed the work to be done by Landlord
in accordance with the Project Schedule attached hereto. The work shall be
deemed to be substantially completed when same shall have been completed to the
extent that Tenant, upon taking occupancy shall be able to conduct its business
in a reasonable manner, even though adjustments or corrections may be necessary
and minor incomplete items remain to be completed, the non-completion of which
does not materially interfere with the intended normal use and safe occupancy of
the Leased Premises. Landlord will routinely update Tenant with its good faith
estimate of the date on which the work will be substantially complete. When the
Leased Premises are occupied by Tenant, Landlord and Tenant will, at the request
of either, execute a memorandum specifying the Commencement Date of the term of
this Lease.
3. RENT
As "Base Rental" for the lease and use of the Leased Premises, Tenant will
pay Landlord or Landlords assigns, at the Building office or post office address
of Landlord, without demand and without deduction, abatement or setoff (except
as otherwise expressly provided for herein) the sums set forth in the following
rent schedule:
<PAGE> 7
<TABLE>
<CAPTION>
FROM TO MONTHLY BASE RENTAL
---- -- -------------------
<S> <C> <C>
February 1, 1991 July 31, 1991 $42,832.00
August 1, 1991 December 31, 1992 $53,022.00
January 1, 1993 December 31, 1994 $66,277.50
January 1, 1995 December 31, 1996 $72,905.25
January 1, 1997 December 31, 1997 $79,533.00
January 1, 1998 March 31, 1999 $99,416.25
</TABLE>
The foregoing amounts shall be due and payable on the first day of each calendar
month monthly in advance, for each and every month in the term of this Lease, in
lawful money of the United States. Partial months shall be pro rated. The terms
"rent" or "rental" shall mean Base Rental and all other sums to be paid to
Landlord by Tenant under the provisions of this Lease.
4. USE
A. Tenant will occupy and use the Leased Premises only as a business office,
using and maintaining them in a clean, careful, safe, sanitary and proper
manner. Tenant may maintain in the Leased Premises (for use solely by
Tenant and its employees): lunch rooms (including vending machines),
cafeterias, coffee bars, lounges, kitchens for the foregoing (provided
that the foregoing eating facilities are not used for commercial
purposes), computer equipment, and any other facility or equipment useful
in the normal conduct of Tenant's business which is not inconsistent with
use of the Leased Premises as a business office. Except for the use of
microwave ovens, no other cooking shall be permitted in the Leased
Premises.
B. Landlord covenants that all other leases for space in the Building that
are executed after the date hereof shall prohibit the use of any portion
of said leased premises for a savings and loan association, federal or
state chartered lending institution, national or state banking institution
or federal savings banks, or mortgage company or any other financial
services business or entity (hereinafter collectively called "Bank"). Bank
shall not be deemed to include such companies whose primary role or
function does not include the performance of banking related services
(e.g. credit union for specific company's employees, etc.). This covenant
and the restrictions imposed pursuant hereto shall become null and void on
the date on which (i) less than 50% of the Leased Premises is occupied by
Tenant, or (ii) less than 50% of the Leased Premises is occupied by a
permitted assignee which is also a Bank, or (iii) the Leased Premises is
occupied by a permitted assignee which is not a Bank.
5. SERVICES TO BE PROVIDED BY LANDLORD
A. Landlord will furnish for the occupied portion of the Leased Premises the
following services, all at Landlord's costs and expense, except as stated
in this Lease:
(1) Air conditioning (heating or cooling as required by the seasons)
Monday through Friday from 7:00 a.m. to 6:00 p.m., and on Saturdays
from 7:00 a.m. to 1:00 p.m. (except on holidays), in temperatures and
amounts which, in Landlord's reasonable judgment, are reasonably
required for comfortable occupancy under normal business operations.
If Tenant requires air conditioning during other hours, Landlord will
furnish the same for the areas specified in a written request of
Tenant delivered to the Building manager before noon on the preceding
business day. The current charge for such service is $25.00 per hour
per floor. The charge for such services shall be determined by
Landlord from time to time based upon, but not to exceed, Landlord's
cost to provide such service. Tenant shall pay Landlord upon receipt
of Landlord's invoice for such service. HVAC to the Leased Premises
shall be supplied on a seasonal basis in accordance with the schedule
attached as Exhibit "C" to the Lease, subject to normal tolerances
from design conditions;
(2) Toilet facilities, water for lavatory and toilet purposes, cold water
for drinking and hot water (at prevailing temperatures prescribed by
applicable law) for lavatory purposes, all at points of supply
provided for general use of tenants in the Building through fixtures
installed by Landlord or by Tenant with Landlord's consent;
(3) Janitor service to the Leased Premises on business days and other
cleaning services as Landlord determines to be reasonably required and
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<PAGE> 8
in accordance with the schedule attached as Exhibit "D" to this Lease;
Tenant shall pay Landlord for any cleaning costs in excess of those
shown on Exhibit D.
(4) Passenger elevators for access to and from the floor(s) on which the
Leased Premises are located. Landlord may limit the number of
elevators operating outside normal business hours or during periods of
testing and repair;
(5) Electric lighting for all public areas and special service areas of
the Building as Landlord determines to be reasonable and standard,
including replacement of Building standard light bulbs and tubes;
(6) Equipment to limit access to the Building after normal business hours.
However, Landlord shall have no responsibility to prevent, and shall
not be liable to Tenant for, and shall be indemnified by Tenant
against, liability or loss to Tenant and Tenant's employees arising
out of losses due to the theft, burglary, or damage or injury to
persons or property caused by persons gaining access to the Building
or the Leased Premises and Tenant hereby releases Landlord from all
liability relating thereto; and
(7) Continuous electrical service to the Leased Premises, including
providing and installing all Building standard replacement lighting
tubes and bulbs. If Tenant uses more electrical power than Landlord
considers reasonable or normal for office use, Tenant will pay
Landlord on a monthly basis the cost of such excess power consumed by
Tenant which cost shall not exceed the amount charged to Landlord for
same by the utility supplying electricity. Consumption will be
determined, at Landlord's election, either (a) by a survey performed
by a reputable consultant selected by Landlord, or (b) through a
separate meter or submeter installed, maintained and read by Landlord
at Tenant's cost. For Paragraph 5.A.(7) only, "month" and "monthly"
mean any billing period used by the utility supplying electricity. All
installations of electrical fixtures, appliances and equipment within
the Leased Premises shall be subject to Landlord's approval. Such
approval shall not be unreasonably withheld unless such installations
may affect the electrical, mechanical or plumbing systems of the
Building or the structural components of the Building. If such
installations affect the temperature or humidity otherwise maintained,
Landlord may, at Tenant's cost install supplemental air conditioning
units (which costs shall include the additional electrical
consumptions of such units and costs associated with the removal of
any additional heat load). Tenant's use of electricity will never
exceed Tenant's share of the capacity of existing feeders to the
Building or of the risers, wiring installations and transformers
serving the floors containing the Leased Premises. The design capacity
allocated to the Tenant shall be 4.5 watts per rentable square foot
(connected) of riser and floor panel electrical capacity averaged over
the floor being serviced, with approximately 1.5 watts (120/208V) and
3.0 watts (277V) split between power and lighting. Any risers or
wiring necessary to meet Tenant's electrical requirements in excess of
such design capacity will be installed by Landlord on Tenant's written
request, at Tenant's sole cost and expense (to be paid in advance),
only if in Landlord's sole belief they are necessary and will not
cause damage to the Building or a dangerous condition, or entail
expensive or unreasonable alterations, repairs or expense or disturb
other occupants.
(8) Pest control, to the extent that such service is from time to time
customarily provided by operators of first class multiple tenancy
office buildings in Houston, Texas; it being understood that Landlord
does not hereby represent, warrant, or guarantee to Tenant that such
service will be adequate to prevent fully the presence of pests in the
Building.
B. If any of the services described in Paragraph 5.A.(1), (4) or (7) or any
of the machinery or equipment in the Project should cease to function
properly, break down or be intentionally turned off for testing or
maintenance purposes, Tenant shall have no claim for abatement or
reduction of rent or damages (provided Landlord is using diligent efforts
to restore the services and to promptly repair the equipment or machinery,
as set forth below), nor shall Tenant be relieved of its obligations under
this Lease, nor shall such condition be construed as an eviction of
Tenant; provided, however, if:
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<PAGE> 9
(1) Any of the above-described conditions occur;
(2) Such condition materially interferes with or prevents Tenant from
using all or a portion of the Leased Premises for the purpose of
office space; and
(3) Such condition exists for five (5) consecutive days after Tenant
provides written notice of the condition to Landlord if such condition
is the fault of Landlord or ten (10) consecutive days after Tenant
provides written notice of the condition to Landlord if such condition
is not the fault of Landlord,
then the rent shall abate as to that portion of the Leased Premises that
is rendered untenantable for the purpose of office space. The abatement
shall commence upon the expiration of the five (5) day period or the ten
(10) day period, as the case may be, and continue for so long as the
condition exists. If the condition continues for sixty (60) consecutive
days in the case where such condition is the fault of Landlord or ninety
(90) consecutive days in the case where such condition is not the fault of
Landlord, Tenant shall have the right to terminate this Lease upon written
notice to Landlord given after the expiration of the sixty (60) day period
or the ninety (90) day period, as the case may be, but before the date the
condition ceases, in which event Tenant will be relieved of all
obligations arising after the date Tenant vacates the Leased Premises.
Landlord agrees to use diligent efforts to restore the services described
in Paragraph 5. and to promptly repair said equipment or machinery, and to
provide reasonable notice prior to turning off any equipment or machinery
for testing or maintenance purposes.
C. If, however, Landlord fails or ceases to provide the services specified in
Paragraphs 5.A.(1), (4) or (7) resulting from Landlord's inability or
unwillingness to pay the cost of furnishing such services or to pay the
cost of making repairs to machinery or equipment or to pay the cost of
removing a cause of such cessation or failure, then after written demand
made by Tenant upon Landlord or its designee in accordance with Paragraph
20. hereof. Tenant at its option shall have the right to provide such
services to the Leased Premises through contracting for same or through
payment to Landlord's contractors for same. Within thirty (30) days
following receipt from Tenant of a bill or invoice, Landlord shall
reimburse Tenant for all reasonable and necessary costs incurred by Tenant
for providing such services unless Landlord can prove that such costs are
excessive.
D. Should Tenant desire any additional services beyond those described in
Paragraph 5.A. or rendition of any of such services outside the normal
times they are provided by Landlord, Landlord may (at Landlord's option),
with reasonable prior request from Tenant, furnish such services and
Tenant agrees to pay Landlord charges as may be agreed on between Landlord
and Tenant, but in on event a charge less than Landlord's actual cost plus
overhead (such overhead not to exceed 15%) for the additional services
provided. It is agreed that the cost to Landlord of such additional
services shall be excluded from the "Basic Cost", as defined in Paragraph
15.
6. REPAIR AND MAINTENANCE
A. Landlord will, at its own cost and expense, except as may be provided
elsewhere herein, make necessary repairs of damage to the Building's
corridors, lobby, structural members, and equipment used to provide the
services referred to in Paragraph 5.A. unless the damage is caused by
negligent or tortious acts or omissions of Tenant, its agents, customers,
employees or invitees, in which event Tenant will bear the cost of
repairs. Tenant will promptly give Landlord written notice of any damage
requiring repair by Landlord.
B. Tenant will not injure the Leased Premises, Building or any other part of
the Project and will maintain the Leased Premises in a clean, attractive
condition and in good repair, except for damage to be repaired by
Landlord, as provided above. Upon expiration or termination of this Lease,
Tenant will surrender the Leased Premises to Landlord in the same
condition in which it existed at the commencement of the Lease, excepting
only ordinary wear and tear, damage arising from any cause not required to
be repaired by Tenant, and alterations or additions permitted to remain
under Paragraph 12B.
C. This Paragraph 6 shall not apply in the case of damage or destruction by
fire or other casualty which is covered by insurance maintained by
Landlord on the
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<PAGE> 10
Building (as to which Paragraph 7 shall apply), or damage resulting from
an eminent domain taking (as to which Paragraph 16 shall apply).
7. FIRE OR OTHER CASUALTY
A. If the Leased Premises or any part thereof is damaged by fire or other
casualty, Tenant will promptly notify Landlord. If the Building or Leased
Premises is damaged by fire or other casualty to the extent that
substantial alteration or reconstruction is required in Landlord's sole
opinion, or if any Mortgagee requires that the insurance proceeds payable
as a result of the fire or other casualty be applied against the mortgage
debt, Landlord may terminate this Lease by notifying Tenant within sixty
(60) days after the later of the date the damage occurs, or the date
Landlord is so notified by its Mortgagee, in which event the rent under
this Lease will be abated as of the date of the fire or other casualty. If
this Lease is not terminated, then within seventy-five (75) days after the
fire or other casualty, or such greater period as may be reasonably
necessary, Landlord will commence to repair and restore the Leased
Premises and any portion of the Building required for access to the Leased
Premises, and will diligently complete the same, but Landlord is not
required: (1) to expend more for such repair of the Leased Premises than
the net insurance proceeds (after any payment required under any mortgage)
reasonably allocable to the Leased Premises, or (2) to rebuild, repair or
replace any of Tenant's furniture or furnishings or of fixtures and
equipment removable by Tenant under the provisions of this Lease.
Notwithstanding the foregoing to the contrary, if the Leased Premises
and/or the parking areas for which Tenant has been furnished parking
permits ("parking areas") are rendered untenantable by fire or other
casualty, and if the same are not rendered untenantable may not be
exercised if Landlord makes available alternate parking areas within Phase
I of Greenway Plaza. If Landlord requests additional time to render the
Leased Premises and/or parking areas tenantable, Tenant shall either grant
such extension or terminate this Lease within ten (10) days after Tenant
receives such extension request.
B. If the Leased Premises or the Building is damaged by fire or other
casualty during the last twelve (12) months of the term, whether or not
the damage requires substantial repair and reconstruction, Landlord may
cancel this Lease as of the date of the fire or casualty by notice to
Tenant within thirty (30) days thereafter. Subject to the provisions of
Paragraph 7.A. such cancellation shall be voidable if Tenant exercises its
right, if any, to extend this Lease pursuant to Paragraph 32 within five
(5) days of its receipt of such cancellation notice.
C. Landlord will allow Tenant a proportional abatement of rent based upon the
percentage of rentable square feet of the Leased Premises that is unfit
for occupancy due to fire or other casualty. Except as expressly provided
to the contrary in this Lease, this Lease will not terminate, and Tenant
will not be entitled to damages or to any abatement of rent or other
charges, as a result of a fire or other casualty, repair or restoration.
8. COMPLIANCE WITH LAWS AND USAGE
Tenant, at its own expense, will comply with all federal, state, municipal
and other laws, ordinances, rules and regulations applicable to the Leased
Premises and the business conducted therein by Tenant (including, without
limitation, any temperature control restrictions); will comply with rules and
regulations attached as Exhibit "E" as from time to time amended by Landlord
(which amendments shall be commercially reasonable and to the extent that the
rules and regulations are now or as amended are inconsistent with the terms and
conditions of this Lease, the terms and conditions of this Lease shall govern to
the exclusion of the rules and regulations); and will not commit or permit waste
in the Leased Premises or Building. Tenant will not commit any act which is a
nuisance or annoyance to Landlord or to other tenants, or which might, in the
exclusive judgment of Landlord, appreciably damage Landlord's goodwill or
reputation, or tend to injure or depreciate the Project; will not engage in any
activity which would cause Landlord's fire and extended coverage insurance to be
canceled or the rate therefor to be increased (or, at Landlord's option, will
pay any such increase); and will not paint, erect or display any sign,
advertisement, placard or lettering which is visible in the corridors or lobby
of the Building or from the exterior of the Building without Landlord's prior
written approval.
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<PAGE> 11
9. LIABILITY AND INDEMNIFICATION
A. Tenant hereby agrees to indemnify and hold Landlord harmless from all
liens, claims, actions, demands, costs, expenses and liability
whatsoever, including reasonable attorneys' fees, arising during the term
out of (1) Tenant's negligence, willful misconduct or wrongful failure
to act, or that of Tenant's agents, employees or representatives or (2)
injury or death, or property damage, occurring in the Leased Premises.
Such indemnity and hold harmless on the part of Tenant expressly shall
not apply where the alleged claim is based, in whole or in part, on the
negligence, willful misconduct or wrongful failure to act, or other
tortious conduct of Landlord, its employees, contractors, agents or
representatives, or Landlord's breach of this Lease.
B. Landlord hereby agrees to indemnify and hold Tenant harmless from all
liens, claims, actions, demands, costs, expenses and liability
whatsoever, including reasonable attorneys' fees, arising during the term
out of (1) Landlord's negligence, willful misconduct or wrongful failure
to act, or that of Landlord's agents, employees or representatives or (2)
injury or death, or property damage, in the Building (other than the
Leased Premises) or the Garage. Such indemnity and hold harmless on the
part of Landlord expressly shall not apply where the alleged claim is
based, in whole or in part, on the negligence, willful misconduct or
wrongful failure to act, or other tortious conduct of Tenant, its
employees, contractors, agents or representatives, or Tenant's breach of
this Lease.
C. Except for Landlord's negligence, willful misconduct or wrongful failure
to act, or other tortious conduct on the part of Landlord, its employees,
contractors, agents or representatives, or Landlord's breach of this
Lease, Landlord shall not be liable for any damage or liability of any
kind, or for consequential loss or damage, from any cause whatsoever by
reason of the use, occupancy or enjoyment of the Leased Premises by
Tenant or any person therein or holding under Tenant, or by or through
the acts or omissions of other tenants of the Building.
10. INSURANCE
A. Tenant will maintain as a minimum the following insurance during the
entire term:
(1) Comprehensive general liability insurance with combined single limits
not less than $2,000,000 for personal injury or death and property
damage occurring in or about or related to the use of the Leased
Premises.
(2) "All Risk" insurance for the full replacement cost of all Tenant's
property on the Leased Premises and all fixtures. Unless this Lease
is terminated upon damage or destruction, the proceeds of such
insurance will be used to restore the foregoing.
All policies required hereunder will be issued by carriers rated A VI or
better by the then current Best's Key Rating Guide and authorized to do business
in the State of Texas. The policies shall name Landlord as an additional
insured, with primary coverage non-contributing to any insurance Landlord may
carry, and shall provide that coverage cannot be canceled or materially changed
except upon reasonable notice to Landlord. Tenant shall furnish Landlord
promptly on request with certificates of insurance evidencing the required
coverage. Not withstanding the foregoing provisions of Paragraph 10.A., so long
as United Savings Association of the Southwest FSB, a federally chartered
savings bank, is the Tenant pursuant to this Lease (and thereafter if approved
by Landlord), United Savings Association of the Southwest FSB, a federally
chartered savings bank, shall be entitled at its option to self insure against
$1,000,000 of casualties required to be covered by insurance as set our in
Paragraph 10.A. (2), provided that Tenant notifies Landlord of its election to
do so, and in such event Tenant shall be deemed to have taken out such insurance
coverage and this Lease shall be construed accordingly.
B. Landlord will maintain as a minimum following insurance during the entire
term:
(1) Comprehensive general liability insurance with combined single limits
not less than $2,000,000 for personal injury or death and property
damage occurring in or about or related to the use of the common
areas of the Building.
(2) "All Risk" insurance of 80% of the full replacement cost of the
improvements located on the property.
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Landlord reserves the right to self insure against the casualties required
to be covered by Paragraph 10.B.(2) as long as the Landlord has a net worth of
$100,000,000.
11. NO SUBROGATION OR RECOVERY
If either party suffers a loss of or damage to property in the Leased
Premises, in the Building or related to this Lease, which is covered by valid
insurance policies (or would be covered by policies which are required hereunder
or which would be required but for any specific provisions for self-insurance),
that party waives any claim by way of subrogation or direct recovery therefor
which it may have against the other party or its employees (excluding
contractors), regarding of whether negligence or fault of the latter party or
its employees (excluding contractors) may have caused the loss or damage. Each
party will have its appropriate insurance policies properly endorsed, if
necessary, to prevent any invalidation of insurance coverage required hereunder
due to these mutual waivers.
12. ADDITIONS AND FIXTURES
A. Tenant shall make no alteration, improvement, repair or replacement to
the Leased Premises (including, without limitation, any mechanical,
electrical or plumbing systems located within or serving the Leased
Premises) without the prior written consent of Landlord. If Landlord's
prior written consent is granted, the work shall be at Tenant's expense
but by workmen of Landlord or by workmen approved in advance in writing
by Landlord, and in a manner and at times satisfactory to and approved in
advance in writing by Landlord. Landlord's consent shall be conditioned
upon those furnishing labor or materials for Tenant's job working in
harmony and not interfering with any labor utilized by Landlord or its
contractors or by any other tenant or other tenant's contractors. If
those furnishing labor or materials for Tenant's work cause disharmony or
interference. Landlord's consent may be withdrawn immediately upon notice
to Tenant.
B. Tenant may remove its trade fixtures, supplies, movable office furniture
and equipment not permanently attached to the Building provided: (1)
removal is made prior to the expiration or termination of this Lease; (2)
Tenant is not in default of any obligation or covenant under this Lease
at the time of removal; and (3) Tenant promptly repairs all damage caused
by removal. All other property at the Leased Premises and any alteration
or addition to the Leased Premises (including wall-to-wall carpeting,
paneling or other wall covering) and any other article permanently
attached or affixed to the floor, wall or ceiling of the Leased Premises
shall remain upon and be surrendered with the Leased Premises at the
expiration or termination of this Lease. Tenant hereby waiving all rights
to any payment or compensation therefor.
C. If any property not belonging to Landlord remains at the Leased Premises
after the expiration of the term of this Lease, Tenant hereby authorizes
Landlord to dispose of the property as Landlord may desire without
liability to Tenant if the property belongs to Tenant. If the property
does not belong to Tenant, Tenant agrees to indemnify and hold Landlord
harmless from all suits, actions, liability, loss, damages and expenses
in connection with any removal, exercise of dominion over and/or
disposition of such property by Landlord.
13. ASSIGNMENT AND SUBLETTING
Except as expressly permitted hereby, Tenant may not assign, transfer, or
encumber this Lease or any estate or interest therein, or permit the same to
occur, or sublet or grant any right of occupancy for any part of the Leased
Premises, or permit such occupancy by any parties other than Tenant and its
employees. The foregoing, and any changes in the terms thereof, are collectively
called an "Assignment", the other party thereto the "Assignee". Any prohibited
Assignment is voidable by Landlord.
A. Landlord's consent to an Assignment shall not be unreasonably withheld,
but shall be effective only if in writing. An Assignment will be approved
by Landlord if:
(1) The proposed Assignee is a respectable creditworthy party and Tenant
shall have provided Landlord with proof thereof. Whether or not a
proposed Assignee is "creditworthy" shall be based upon an analysis
which examines the proposed Assignee's (a) ability to perform under
this Lease, (b) history of paying its debts as they become due, and
(c) prospective ability to pay its debts as they become due.
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<PAGE> 13
(2) The nature and character of the proposed Assignee, its business and
activities and intended use of the Leased Premises are in Landlord's
reasonable judgment (a) consistent with the standards of the Building
and the floor or floors on which the Leased Premises are located, and
(b) do not violate any exclusive use provision or provision
restricting permissible types of occupants under any then existing
leases.
(3) The form and substance of the proposed sublease or instrument of
assignment is acceptable to Landlord (which acceptance by Landlord
shall not be unreasonably withheld) and is expressly subject to all
of the terms and provisions of this Lease and to any matters to which
this Lease is subject.
(4) The proposed occupancy would not increase the office cleaning
requirements or impose an extra burden upon the services to be
supplied by Landlord to Tenant hereunder.
Consent by Landlord to any Assignment shall not be a waiver of Landlord's
rights as to any subsequent Assignments. Any approved sublease shall be
expressly subject to the terms and conditions of this Lease. In the event of any
Assignment, the assigning tenant will remain fully responsible and liable for
all of Tenant's obligations under this Lease, and the Assignee will
automatically be jointly and severally liable to the extent of the Assigned
portion of the Leased Premises. Upon an Event of Default, as hereinafter
defined, while an Assignment is in effect, Landlord may collect directly from
the Assignee all sums becoming due to Tenant under the Assignment and apply this
amount against any sums due Landlord by Tenant, and Tenant authorizes and
directs any Assignee to make payments directly to Landlord upon notice from
Landlord. No direct collection by Landlord from any Assignee shall constitute a
novation or release of Tenant, a consent to the Assignment or a waiver of the
covenant prohibiting Assignments.
B. Tenant shall have the right to assign the Lease or may sublet the Leased
Premises or any part thereof, without the prior written consent of
Landlord, if such Assignment is to an Affiliate of the Tenant. As used in
this Lease, the term "Affiliates" shall mean and refer to any person or
entity controlling, controlled by, or under common control with another
such person or entity. "Control" as used herein shall mean the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such controlled person or
entity; ownership, directly or indirectly, of more than fifty percent
(50%) of the voting securities of, or possession of the right to vote, in
the ordinary direction of its affairs, more than fifty percent (50%) of
the voting interest in any person or entity shall be presumed to
constitute such control. Tenant shall provide the Landlord a copy of the
Assignment on or before the commencement date thereof.
C. With any request for consent to an Assignment, Tenant will submit a copy
of the Assignment to Landlord and notify Landlord of the proposed
commencement date of the Assignment, the name of the proposed Assignee
(accompanied by evidence of the nature, character, and financial
condition of Assignee and its business), an all terms and conditions
(including rental) of or relating to the Assignment. Landlord shall then
have the right (but no obligation), as of the effective date of the
requested transaction to terminate this Lease for the portion of the
Leased Premises to which Landlord has been requested to permit such
transaction, except for any transaction with an Affiliate referred to in
Paragraph 13.B. above. If Landlord elects to terminate this Lease for
that portion of the Leased Premises, then the rent and other charges
payable shall be proportionately reduced.
D. With respect to an Assignment of all or any part of the initial Leased
Premises or any additional Leased Premises that Tenant builds out and
occupies for a period of not less than one year, if the consideration
Tenant receives for such Assignment exceeds the rent payable under this
Lease for the same period and portion of the Leased Premises, the
"Profit" shall be immediately due and payable by Tenant to Landlord as
additional rent under this Lease. The term "Profit" when utilized in this
Paragraph 13.D. shall mean the difference between (1) any and all rentals
received pursuant to any Assignment together with other consideration
paid or to be paid by an Assignee, and (2) reasonable brokerage
commissions and Building standard construction costs incurred as a result
of the Assignment which generates the consideration specified in (1)
above; provided that such amounts are actually paid by Tenant, all of
which shall be evidenced by canceled checks and invoices for same. With
respect to an Assignment of all or any part of any additional Leased
Premises that Tenant has not built out and occupied for a period of one
year or more, if the consideration Tenant receives
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for such Assignment exceeds the rent payable under this Lease for the
same period and portion of the Leased Premises, all of the excess shall
be immediately due and payable by Tenant to Landlord as additional rent
under this Lease.
14. SUBORDINATION
Tenant accepts this Lease subject and subordinate to any mortgage or deed of
trust, presently existing or hereafter placed upon the Project, and to any
renewals, modifications and extensions thereof. Tenant agrees that any such
mortgagee and/or beneficiary of any deed of trust ("Landlord's Mortgagee") shall
have the right at any time to subordinate such mortgage or deed of trust, to
this Lease on terms and conditions Landlord's Mortgagee may deem appropriate in
its discretion. Upon demand Tenant agrees to execute instruments subordinating
this Lease as Landlord or Landlord's Mortgagee may request. Withing sixty (60)
days from the commencement of the term of this Lease, Landlord agrees to use
best efforts to obtain from Landlord's Mortgagee an agreement in writing
("nondisturbance agreement") for the benefit of Tenant in a form satisfactory to
Landlord's Mortgagee that the exercise of such prior rights shall not interrupt
or disturb the Tenant's use, possession and enjoyment of the Leased Premises so
long as Tenant shall comply with all of its duties and obligations as set forth
in this Lease, provided that Landlord is not exposed to any cost, expense or
risk in obtaining such nondisturbance agreement.
15. OPERATING COSTS
A. The Base Rental provided for herein includes a stipulated component
applicable to Basic Cost (as hereinafter defined) equal to $6.25 per
square foot of Rentable Area contained within the Leased Premises and
within other portions of the Building during the calendar year in which
the term of this Lease commences. Such amount is herein called the
"Estimated Basic Cost Allowance".
B. The term "Basic Cost" shall mean the operating expenses of the Project,
which shall be computed on the accrual basis. All operating expenses
shall be determined in accordance with generally accepted accounting
principles which shall be consistently applied. The term "operating
expenses" shall mean all expenses, costs and disbursements (but not costs
of replacement of capital investment items, nor specific costs especially
billed to and paid by specific tenants nor rental commissions) of every
kind and nature which Landlord shall pay or become obligated to pay
because of, or in connection with, the ownership and operation of the
Project including, but not limited to, the following:
(1) Reasonable wages and salaries of all persons (exclusive of Landlord's
executive personnel above the level of Building Manager) engaged in
operation, repair, replacement, maintenance and security of the
Project, and its common areas, including taxes, insurance and
benefits relating thereto; provided, however, that if during the term
of this Lease the personnel are working on other projects being
periodically developed, managed, or operated by Landlord as well as
the Project, their wages, salaries and related expense shall be
appropriately allocated among all such projects and only that portion
of such expense reasonably allocable to the project shall be included
herein.
(2) All supplies and materials used in the operation and maintenance of
the Project.
(3) Cost of all utilities for the Project, including the cost of water
and power for heating, lighting, air conditioning and ventilating
(excluding those costs billed to specific tenants).
(4) Cost of maintenance and service agreements for the Project and the
equipment therein, including but not limited to, security service,
window cleaning, elevator maintenance and janitorial service.
(5) Cost of all insurance relating to the Project, including but not
limited to, the cost of casualty insurance, rental abatement
insurance and liability insurance applicable to the Project and
Landlord's personal property used in connection therewith and located
in the Project; provided, however, if such insurance is provided in
the form of master policies, then only an equitable portion of the
premiums therefor shall be included herein.
(6) All taxes and governmental charges, whether or not directly paid by
Landlord, whether federal, state, county or municipal, and whether
they be by taxing districts or authorities presently taxing the
Project or by others subsequently created or otherwise, and any other
taxes and
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assessments attributable to the Project or its operation excluding,
however, federal and state taxes on income, death taxes, franchise
taxes, transfer taxes or any taxes imposed or measured on or by the
income of Landlord from the operation of the Project; provided,
however, that if at any time during the term of this Lease the
present method of taxation or assessment shall be so changed that the
whole or any part of the taxes, assessments, levies, impositions or
charges now levied, assessed or imposed on real estate and the
improvements thereof shall be discontinued, and as a substitute
therefor or in lieu of an addition thereto, taxes, assessments,
levies, impositions or charges shall be levied, assessed and/or
imposed wholly or partially as a capital levy or otherwise on the
rents received from the Project or the rents reserved herein or any
part thereof, then such substitute or additional taxes, assessments,
levies, impositions or charges to the extent so levied, assessed or
imposed, shall be deemed to be included within Basic Cost to the
extent that such substitute or additional tax would be payable if the
Project were the only property of the Landlord subject to such tax.
It is agreed that Tenant will be responsible for ad valorem taxes on
its personal property and on the value of the leasehold improvements
in the Leased Premises, to the extent that the same exceed Building
standard allowances and if the taxing authorities do not separately
assess Tenant's leasehold improvements, Landlord may make a
reasonable allocation of the ad valorem taxes assessed on the Project
to give effect to this sentence.
(7) Cost of repairs and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance by Tenant or by
third parties).
(8) Management fees relating to the management of the Project not to
exceed three percent (3%) of the Base Rental income. Base Rental
means the monthly Base Rental as described on Page 2, Paragraph 3,
and Basic Cost increases.
No single item of the Basic Cost shall be included as a Basic Cost more
than once, and once an item of the Basic Cost has been charged to Tenant,
it shall not be charged to Tenant as another expense under any other
provision of this Lease.
C. The following items shall be excluded from the Basic Cost of Landlord's
operation of the Project:
(1) The cost of any improvements, repairs, alterations, additions,
change, replacements, equipment, tools and other items which under
generally accepted accounting principles are required to be
classified as capital expenditures (whether incurred directly or
through a lease, service contractor or otherwise), other than
amortization of the cost of capital items (and the installation
thereof) which are reasonably expected to reduce Basic Cost for the
benefit of all the Building's tenants or which may be required by any
governmental authority. All of such costs, including interest costs,
shall be amortized over the reasonable life of the capital items,
with a reasonable life and amortization schedule being determined by
Landlord according to generally accepted accounting principles.
(2) Depreciation of the Project and all equipment, fixtures, improvements
and facilities used in connection therewith, except as provided in
(1) above.
(3) Advertising, promotional expenses, leasing commissions, attorneys'
fees, costs and disbursements and other expenses incurred in
connection with negotiations with tenants, prospective tenants or
other occupants of the Building.
(4) Any property taxes, assessments or other governmental charges to the
extent that Landlord is reimbursed for same by any tenant of the
Building (excluding reimbursements paid through additional rent
payments).
(5) The cost of repairs or other work occasioned by any casualty which is
covered by insurance, but only to the extent of the insurance
proceeds received by Landlord net of deductibles and cost of
adjustment.
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(6) The cost of renovating or otherwise improving, decorating, painting
or redecorating space in the Building which is, or normally would
be, occupied by tenants, except in connection with general
maintenance of the Project.
(7) Landlord's cost of electricity and other services sold or provided
to tenants in the Building and for which Landlord is reimbursed by
such tenants as a separate additional charge or rental over and
above the Base Rental or additional rent payments payable under the
Lease with such tenant.
(8) Expenses incurred in connection with services or other benefits
which are non-Building standard, but are provided to other tenants
or occupants of the Building.
(9) Costs (including but not limited to penalties, fines and associated
legal expenses) incurred due to violation by Landlord of the terms
and conditions of any lease or rental arrangement covering space in
the Project.
(10) Overhead and profit increment paid to subsidiaries, partners or
other affiliates of Landlord and salaries and associated costs of
Landlord's employees for services on or to the Project, to the
extent only that the cost of such services exceeds competitive costs
of such services were they not so rendered by a subsidiary or other
affiliate of Landlord.
(11) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord.
(12) All items and services for which tenants reimburse Landlord, but
only to the extent Landlord is reimbursed for same.
(13) The costs incurred related to maintaining Landlord's existence,
either as a corporation, partnership or other entity.
(14) The costs incurred in connection with correcting defects in the
construction of the Project or in the Project equipment (except that
conditions resulting from ordinary wear and tear and use shall not
be deemed defects for the purposes of this category).
(15) Interest on debt or amortization payments on any mortgage, mortgages
or rental payments under any ground or underlying leases (except to
the extent that same may be made to pay insurance and taxes).
(16) Interest and penalties due to late payment of taxes, utility bills
and other such costs.
(17) Salaries or other compensation paid to executive employees of
Landlord above the grade of Building Manager.
(18) The cost of any repairs occasioned by eminent domain to the extent
that such costs are reimbursed to Landlord by governmental
authorities in eminent domain proceedings.
(19) The cost of any artwork, such as sculptures or paintings, used to
decorate the Project.
(20) Costs (including but not limited to penalties, fines and associated
legal expenses) incurred due to the violation by Landlord of any
applicable federal, state and/or local governmental laws, codes and
similar regulations that would not have been incurred but for such
violations by Landlord.
(21) Costs (including but not limited to associated legal expenses)
incurred due to violation by any tenant of the terms and conditions
of any lease or rental arrangement covering space in the Project
(except to the extent that such costs are incurred in connection
with non-monetary defaults, the cure of which is reasonably expected
to benefit tenants in the Project; provided that Landlord has first
used good faith efforts to recoup such costs from the defaulting
tenant).
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D. At the end of each calendar year, all or any portion of which falls
within the Lease term, Landlord shall compute the Per Square Foot Basic
Cost (calculated as hereinafter stated) for such calendar year or portion
thereof. The Estimated Basic Cost Allowance shall then be subtracted from
the Per Square Foot Basic Cost for the applicable year, and the remainder
shall be multiplied by the number of square feet of Rentable Area of the
Leased Premises, as set forth in Paragraph 1 of this Lease, the product
of such multiplication being herein called the "Escalation Payment."
Tenant shall thereupon be obligated to pay the landlord such Escalation
Payment as additional rent within thirty (30) days after Landlord shall
have submitted to Tenant a bill or invoice therefor.
E. The "Per Square Foot Basic Cost" shall be computed by dividing the Basic
Cost for the Project, as adjusted by Paragraph 15.I., for the applicable
calendar year (or portion thereof) by the number of square feet of
Rentable Area in the Building.
F. After Landlord shall have submitted to Tenant a bill or invoice for the
first Escalation Payment due under this Paragraph, Landlord may
thereafter submit to Tenant a bill or invoice each month for one-twelfth
(1/12th) of such last previous Escalation Payment or for one-twelfth
(1/12th) of such greater amount as may be later estimated by Landlord to
be due by Tenant under this Paragraph as the Escalation Payment for the
then current year. The amount of the first bill or invoice shall be
determined by multiplying the monthly amount due by the number of
calendar months of the then current year which shall have commenced as of
the date of the bill or invoice. In the event of such billing or
invoicing procedure by Landlord, then Tenant shall be bound and obligated
to pay such indicated amounts contemporaneously with each required
payment of rental hereunder, on the first day of each calendar month,
monthly in advance, for each and every month in the term of this Lease,
in lawful money of the United States.
G. Once each calendar year, Landlord shall perform such computations as are
necessary to determine the Escalation Payment properly payable by Tenant
under this paragraph 15, together with the applicable information
required by the form attached hereto and made a part hereof as Exhibit
"F". If Tenant shall have overpaid pursuant to the monthly estimates
referred to in Paragraph 15.F., Landlord shall refund to Tenant the
amount of the excess, but if Tenant shall have underpaid, Landlord shall
invoice Tenant for the amount of the underpayment and such underpayment
shall be due within thirty (30) days.
H. Within sixty (60) days from the rendition of any such statement, Tenant
may question the amount and propriety of any item appearing or excluded
therefrom. Landlord agrees that it will maintain complete and accurate
records of all costs and expenses which shall be paid or incurred by it
in connection with the operation of the Project. Tenant, at its expense,
shall have the right at all reasonable times to audit Landlord's books
and records relating to this Lease for any year for which additional
rental payments become due, insofar as such books and records pertain to
costs involved in rent escalation. Such audit shall be conducted during
normal business hours by a certified public accountant or accounting firm
mutually acceptable to Landlord and Tenant, provided that Tenant and the
persons conducting such audit execute a confidentiality statement
provided by Landlord. Such confidentiality statement shall provide that
neither Tenant or the persons conducting such audit shall reveal to
anyone other than Landlord any of the following: the results of such
audit or any information contained in the books and records reviewed in
connection with such audit.
I. Each calendar year an adjustment shall be made in computing the Basic
Cost for such year so that the Basic Cost shall be computed for such year
as though the Building had been 95% occupied during the entirety of such
year and as though 95% of the Building had been provided with Building
standard services during the entirety of such year. If the occupancy
level in the Building for any calendar year equals or exceeds 95% there
shall be no such upward adjustment, but actual costs shall be used to
determine Basic Cost for such year. Such upward adjustment shall be made
to components of the Basic Cost that fluctuate with the occupancy level
of the Building including, without limitation: janitorial services,
janitorial supplies, trash hauling, Project maintenance, utilities
(including without limitation: water, sewer and electricity) and
management fees. The following components of the Basic Cost shall be
conclusively deemed not to fluctuate with the occupancy level of the
Building: property taxes and assessments, amortized capital improvement
costs, insurance and insurance premiums, pest control, landscaping
services, security services, and costs associated with the operation or
maintenance of the parking area. As to all other
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components of the Basic Cost, Landlord shall be entitled to include any
or all of them in the upward adjustment if Landlord reasonably determines
that such inclusion is appropriate based on the relationship of such
component to the occupancy level of the Building.
16. EMINENT DOMAIN
If a substantial and significant part of the Project is taken by eminent
domain such that Tenant's occupancy is impaired, Landlord may elect to terminate
this Lease. If the Lease is not terminated, and the taking involved a portion of
the Leased Premises, rental shall be reduced in proportion to the area of the
Leased Premises taken and Landlord shall repair any damage to the Leased
Premises resulting from such taking. All sums awarded or agreed upon between
Landlord and the condemning authority for the taking of the interest of Landlord
or Tenant, whether as damages or as compensation, will be the property of
Landlord without prejudice, however, to claims of Tenant against the condemning
authority on account of the unamortized cost of leasehold improvements paid for
by Tenant taken by the condemning authority. If this Lease should be terminated
under this Paragraph 16, rental shall be payable up to the date that possession
is taken by the condemning authority, and Landlord will refund to Tenant any
prepaid unaccrued rent less any sum then owing by Tenant to Landlord.
17. ACCESS BY LANDLORD
Landlord, its agents and employees shall have access to and the right to
enter upon the Leased Premises at any reasonable time to examine its condition,
to make any repairs or alterations required to be made by Landlord, to show the
Leased Premises to prospective purchasers or tenants and for any other purpose
deemed reasonable by Landlord.
18. DEFAULT AND REMEDIES
A. It shall be an "Event of Default" if:
(1) Tenant fails to make a timely payment of Base Rental, additional rent
or any other amount owed by Tenant under this lease when and as the
same shall become due and payable; provided, however, that Tenant has
failed to cure such default within five (5) business days after
Landlord provides notice of same to Tenant.
(2) Tenant fails to comply with any other obligation under this Lease and
does not cure such failure as soon as reasonably practicable and in
any event within thirty (30) days after notice. If the nature of the
default is such that a cure cannot be completed within thirty (30)
days, provided that the default does not create a hazard, jeopardize
insurance coverage or materially and adversely affect other occupants
of the Building, such thirty (30) day period shall be extended,
provided that Tenant promptly commences and diligently pursues such
cure to completion.
(3) Tenant abandons or vacates fifty percent (50%) or more of the Leased
Premises, while failing to pay Base Rental and other payments when
due. However, if Tenant does abandon or vacate 50% or more of the
Leased Premises even though Tenant is current on rental payments
hereunder at the time of the abandonment or vacating, Landlord shall
have the right to recapture all or any portion of the abandoned or
vacated portion of the Leased Premises. In the event Landlord does
recapture any of such space, Tenant shall thereafter be relieved of
its covenants, duties and obligations for that portion of the Leased
Premises recaptured by Landlord.
(4) Tenant becomes insolvent, makes a transfer in fraud of creditors or
an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, or files a petition
under any section or chapter of the United States Bankruptcy Code or
any similar law or statute; or an order for relief is entered with
respect to Tenant in any bankruptcy, reorganization or insolvency
proceedings; or a pleading seeking such an order is not discharged or
denied within sixty (60) days after its filing; or a receiver or
trustee is appointed for all or substantially all assets of Tenant or
of the Leased Premises or any of Tenant's property located thereon in
any proceeding brought by Tenant, or any receiver or trustee is
appointed in any proceeding brought against Tenant and not discharged
within sixty (60) days after appointment or Tenant does not contest
such appointment; or any part of Tenant's estate under this lease is
taken by process of law in any action against Tenant.
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B. On any Event of Default, Landlord may terminate this Lease by notice to
Tenant, or continue this Lease in full force and effect, and/or perform
Tenant's obligations on Tenant's behalf and at Tenant's expense.
(1) If and when this Lease is so terminated, all rights of Tenant and
those claiming under it will terminate, as if this Lease had expired
by lapse of time. Landlord may immediately recover from Tenant all
accrued, unpaid sums, plus interest and late charges, if in arrears,
under the terms of this Lease up to the date of termination. In
addition, Tenant will immediately pay Landlord the excess, if any, of
(a) the present value of all amounts which would have become due
under this lease for the remainder of the term, over (b) the present
value of any net amounts which Tenant establishes Landlord can
reasonably expect to recover by reletting the Leased Premises for the
remainder of the term, taking into consideration the cost of such
reletting, including remodeling, the availability of acceptable
tenants and other market conditions affecting leasing. Such present
value shall be calculated at a discount rate which is the lesser of
(a) the maximum rate allowed by law, or (b) the rate commonly called
the prime or base rate announced by Texas Commerce Bank, N.A. (or its
successor, but if there is no successor which announces a prime or
base rate, then by a national rate selected by Landlord) at the time
of such termination.
(2) Until the Lease is so terminated, Landlord may terminate Tenant's
right of possession and, on Tenant's behalf and at Tenant's expense
may sublet any of the Leased Premises (and, on expiration or
termination of the sublease, may re-sublet), for all or part of the
remainder of the term, on whatever terms and conditions Landlord in
its sole discretion deems advisable. Against the rents and sums due
from Tenant to Landlord during the remainder of the term, credit will
be given Tenant in the net amount of rent received from the new
tenant after deduction by Landlord for: (1) the costs incurred by
Landlord in reletting the Leased Premises (including, without
limitation, repair and remodeling costs, brokerage fees, reasonably
legal fees and the like); and (2) all accrued sums, plus interest and
late charges if in arrears under the terms of this Lease.
(3) Upon any Event of Default or when Tenant is no longer entitled to
possession, Landlord may enter the Leased Premises and dispose of
Tenant's property as herein provided, without any civil or criminal
liability, and may perform Tenant's obligations hereunder on Tenant's
behalf. Tenant will reimburse Landlord on demand for Landlord's
reasonably attorneys' fees and other expenses in doing so, and
Landlord shall not be liable for any damages resulting to Tenant,
whether or not caused by landlord's negligence or gross negligence.
This Paragraph 18.B(3) survives expiration or termination of the
Lease.
C. No repossession, re-entering or reletting of the Leased Premises or any
part thereof by Landlord relieves Tenant of its liabilities and
obligations under this Lease.
D. All rights and remedies of Landlord under this Lease will be nonexclusive
of and in addition to any other remedies available to Landlord at law or
in equity.
E. In no event shall Tenant or Landlord be subject to any exemplary or
punitive damages arising out of failure to perform as agreed in this
Lease.
F. Landlord's failure to insist on strict compliance with any term hereof or
to exercise any right or remedy, does not waive the same. Waiver or any
agreement regarding any breach does not affect any subsequent or other
breach, unless so stated. A receipt by Landlord of any rent with
knowledge of the breach of any covenant or agreement contained in this
Lease shall not be a waiver of the breach, and no waiver by Landlord of
any violation or provision of this Lease shall be effective unless
expressed in writing and signed by landlord. Payment by Tenant or receipt
by landlord of a lesser amount than due under this Lease may be applied
to such of Tenant's obligations as Landlord elects. No endorsement or
statement on any check, and no accompanying letter, shall make the same
an accord and satisfaction, and Landlord may accept any check or payment
without prejudice to Landlord's right to recover the balance of the rent
or pursue any other remedy provided in this Lease.
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G. Past due rent shall bear interest from date due until paid at the lesser
of eighteen percent (18%) per annum or the maximum non-usurious interest
rate permitted by law.
H. In the event of termination or repossession of the Leased Premises for an
Event of Default, Landlord shall use reasonable efforts to relet the
Leased Premises, or any portion thereof, and to collect rental after
reletting; however, it is understood that Landlord maintains the right to
lease any other vacant space within the Project prior to being obligated
to relet the Leased Premises. In the event of reletting, Landlord may
relet the whole or any portion of the Leased Premises for any period, to
any tenant, and for any use and purpose.
19. ATTORNEYS' FEES
If either party prevails in any litigation between the parties arising under
this Lease or the relationship it creates, the non-prevailing party will on
demand pay or reimburse the prevailing party's reasonable attorney's fees, costs
and expenses.
20. LANDLORD DEFAULT AND NOTICE TO MORTGAGEE
If Landlord neglects or fails to comply with any of its obligations
contained in this Lease, and such default continues for a period of thirty (30)
days after Tenant provides written notice to Landlord (any Mortgagees whose name
and address have been provided to Tenant) of the specific circumstances giving
rise to such default (provided, however, that if the nature of such default is
such that a cure cannot be completed within thirty (30) days, such thirty (30)
day period shall be extended a reasonable time to complete such cure, as long as
Landlord promptly commences and diligently pursues such cure to completion).
Tenant shall not sue Landlord for damages or exercise its right to terminate, if
any, unless (1) it gives written notice to Landlord and any Mortgagee whose name
and address have been furnished to Tenant, and (2) thirty (30) days for
remedying the act or omission giving rise to such suit has elapsed following the
giving of the notice, without the same being remedied; provided that, if the
nature of the default is such that a cure cannot be completed within thirty (30)
days, such thirty (30) day period shall be extended, and provided that a cure is
promptly commenced and diligently pursued to completion. During that time
Landlord shall not be considered in default, and Landlord and/or any Mortgagee
and/or their employees may enter the Leased Premises and do therein whatever may
be necessary to remedy the act or omission. All rights and remedies of Tenant
under this Lease will be nonexclusive of and in addition to any other remedies
available to Tenant at law or in equity, except as limited by the provisions of
this Lease.
21. NONWAIVER
Neither acceptance of rent by Landlord nor payment of rent by Tenant, nor
failure by Landlord or Tenant to complain of any default of the other party
shall constitute a waiver of any of Landlord's or Tenant's rights hereunder.
Waiver by Landlord or Tenant of any right for any default of the other party
shall not constitute a waiver of any right for either a subsequent default of
the same obligation or any other default.
22. HOLDING OVER
If Tenant remains in possession of the Leased Premises after the expiration
of the term of this Lease without Landlord and Tenant executing a new lease,
then Tenant shall be deemed to be occupying the Leased Premises as a
tenant-at-sufferance, subject to all the covenants and obligations of this
Lease and at a daily rental of two times the per day rental provided hereunder,
computed on the basis of a thirty (30) day month. Notwithstanding provisions to
the contrary applicable during the original term or any extension term of this
Lease, Landlord shall have the right to terminate the tenancy at sufferance
immediately upon deliver of notice to Tenant.
23. NOTICE
Any notice which may or shall be given under the terms of this Lease shall
be in writing and shall be either delivered by hand or sent by United States
Certified Mail, postage prepaid, if for Landlord to the Building office; or if
for Tenant, to the Leased Premises with a copy to the General Counsel of Tenant,
located at 3200 Southwest Freeway, 16th Floor, Houston, Texas 77027. Such
addresses may be changed from time to time by either party by giving notice as
provided above. Notice shall be deemed given when delivered (if delivered by
hand), or when post marked (if sent by mail).
24. LANDLORD'S MORTGAGE
At any time the Project is subject to a mortgage and/or deed of trust, and
Tenant gives notice to Landlord alleging default by Landlord, Tenant will also
simultaneously give a copy of such notice to each Landlord's Mortgagee (provided
Landlord or Landlord's Mortgagee shall
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have advised Tenant of the name and address of Landlord's Mortgagee) and each
Landlord's Mortgagee shall have the right (but no obligation) to cure such
default during the period that is permitted to Landlord, plus an additional
period of thirty (30) days. Tenant will accept curative action (if any) taken by
Landlord's Mortgagee with the same effect as if such action had been taken by
Landlord, Tenant will, at such time or times as Landlord may request, sign a
certificate stating whether this Lease is in full force and effect; whether any
amendments or modifications exist; whether there are any defaults hereunder; and
such other information and agreements as may reasonably requested.
25. CONDITION OF PREMISES
AND LANDLORD'S CONTRIBUTION
A. Landlord will tender the Leased Premises in an "as-is" condition;
however, Landlord will contribute the sum of $5.00 per square foot of
Rentable Area towards Tenant's cost of supplying and installing permanent
leasehold improvements in the Leased Premises in accordance with the
Project Schedule attached hereto and made a part hereof as Exhibit "G".
Payments by Landlord shall be made directly to the general contractor
performing the work.
B. If Tenant's cost referred to in paragraph A above exceeds $5.00 per
square foot of Rentable Area, Landlord shall advance to Tenant the amount
of such excess, if Tenant so requests, in an amount not to exceed $8.50
per square foot of Rentable Area. Tenant's decision to use this "Special
Leasehold Allowance" must be made within thirty (30) days following
execution of this Lease. Landlord and Tenant will enter into an amendment
of this Lease specifying the amount of the Special Leasehold Allowance,
the repayment of such amount as additional rent and the revisions to be
made to the rent schedule in Paragraph 3. hereof. The amount of the
Special Leasehold Allowance plus interest thereon at the rate of twelve
percent (12%) per annum shall be repaid by Tenant, as additional rent, in
equal monthly installments for each month of the original term of the
Lease commencing with the first payment due thereunder. Payments of the
Special Leasehold Allowance by Landlord shall be made directly to the
general contractor performing the work.
26. SPACE PLANNING SERVICES
Tenant shall provide full space planning services, including construction
drawings for all leasehold improvements including MEP. drawings. Landlord will
contribute the sum of $.50 per square foot of Rentable Area toward Tenant's
cost of preparation of said drawings. Such reimbursement will be made by
Landlord within thirty (30) days following receipt of an invoice from Tenant
itemizing in reasonable detail such costs.
27. MOVING ALLOWANCE
Landlord will reimburse Tenant for all reasonable costs or expenses incurred
by Tenant in moving from its present location to the Leased Premises. Such costs
and expenses are to include the physical move, telephone installation,
stationery costs, and other related items. Such reimbursement shall not exceed
the sum of $1.50 per square foot of Rentable Area and will be made by Landlord
within thirty (30) days following receipt of an invoice from Tenant itemizing in
reasonable detail such costs and expenses.
28. PARKING
A. Landlord shall make available to Tenant three hundred twenty (320)
monthly parking permits, which will entitle the holders thereof to entry
into the parking areas located at the 3800 Buffalo Speedway Garage, the
Greenway East Garage, the rooftop of the Greenway East Garage or the
surface parking lot adjacent to the Building. Fifteen (15) of said 320
parking permits shall be for areas designated by Landlord as reserved in
the 3800 Buffalo Speedway Garage.
B. Landlord may specify parking areas for Tenant's remaining 305 parking
permits in unreserved areas determined by Landlord. At least 225 of said
parking permits will be for areas in either the 3800 Buffalo Speedway
Garage or the Greenway East Garage, and Landlord shall use reasonable
efforts to insure that the remaining 80 permits will be in the Greenway
East Garage. Landlord shall have the right, at any time and from time to
time to change the designation of the remaining parking permits.
C. There shall be no charge to Tenant for parking permits during the first
thirty (30) months of the term of this Lease. Tenant agrees to pay
Landlord the sum of $25.00 per parking permit, per month, plus applicable
taxes for all permits in areas designated as unreserved beginning with
the thirty-first (31st) month of the
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<PAGE> 22
term of this Lease through the sixtieth (60th) month and the sum of
$35.00 per parking permit, per month, plus applicable taxes for all
permits in areas designated as unreserved from the sixty-first (61st)
month through the remainder of the original term of the Lease. Tenant
will pay the sum of $50.00 per parking permit, per month, plus applicable
taxes for all permits in areas designated as reserved beginning with the
thirty-first (31st) month of the term of this Lease through the remainder
of the original term of the Lease.
D. The driver of each car shall have so-called "in-and-out" privileges.
Landlord shall not be responsible for any loss or damage to any car or
property therein or for injuries (fatal or non-fatal) to persons
occurring within the parking areas or garages, except to the extent of
its own negligence or that of its own agents or employees in the scope of
their employment.
29. VISITOR PARKING
Landlord will provide during the original term of the Lease, ten (10)
visitor parking spaces for Tenant's customers adjacent to the Building, as shown
on Exhibit "H" attached hereto and made a part hereof, at no cost to Tenant. It
shall be the sole responsibility of Tenant to insure that said ten (10) parking
spaces are used for their intended purpose.
30. BUILDING IDENTIFICATION
So long as Tenant occupies at least 79,533 square feet of Rentable Area in
the Building, at Tenant's option, the name of the Building shall contain a word
or words identifying Tenant, accompanied by the word "Building" or other noun
connotating an edifice as may be mutually agreed upon by Landlord and Tenant.
Additionally, so long as Tenant maintains the aforesaid occupancy level,
Tenant's name shall be displayed in a manner to comply with the requirements of
the Richmond/Weslayan Scenic District of the City of Houston and the graphics
program of Greenway Plaza. Landlord has approved the signage as depicted on
Exhibit "I" attached hereto and made a part hereof. Landlord, or its contractor,
will perform said work at Tenant's sole expense. Upon expiration of this Lease,
Tenant shall pay for the removal of such signage. Said right is
non-transferrable to any other entity without prior written consent of Landlord,
which consent shall not be unreasonably withheld. The provisions of the
preceding sentence shall not apply if Tenant's name is changed as a result of
any merger, consolidation or corporate reorganization by Tenant.
31. BUILDING RENOVATION
A. Landlord at its sole cost and expense, shall refurbish the existing
lobby, entryways and vestibules on the B-1 and B-2 levels of the
Building. Landlord will determine the style and quality of such
refurbishments in its sole discretion. Work by Landlord shall commence on
or before a date which is four (4) months from the date of execution of
this Lease and shall be completed in a timely manner in accordance with
all applicable building ordinances and codes. With regard to said
Building renovation, the work and extent of refurbishment shall be
described in Exhibit "J" attached hereto and made a part hereof.
B. Landlord at its sole cost and expense, shall return the restrooms on the
third (3rd) , fourth (4th) and fifth (5th) floors to their original
configuration; however, Landlord shall extend the women's restroom on the
third (3rd) floor (as shown on Exhibit J) to include two (2) additional
water closets. Additionally, Landlord, at its sole cost and expense,
shall refurbish all of the above mentioned restrooms in a style and
quality determined solely by Landlord. Landlord will provide improvements
in the restrooms in accordance with Exhibit J.
32. RENEWAL OPTION
A. Subject to the condition that Tenant shall not at such time be in default
beyond the applicable grace period of any of the terms or provisions of
this Lease, Tenant shall have the option to renew this Lease subject to
all of the same terms, covenants and conditions for a period of five (5)
years commencing on the day after the last day of the original term of
this Lease, except that the rental rate shall be at the Prevailing Market
Rate (as hereinafter defined). The term "Prevailing Market Rate", as used
herein, shall be the rental rate charged for comparable space considering
leasehold improvement allowances, expense stops and base years used for
escalation purposes and parking charges in other comparable office
buildings in the Greenway Plaza area and the Galleria area of Houston,
Texas.
B. In order to exercise such renewal option, Tenant shall advise Landlord in
writing of its intention to renew no earlier than fifteen (15) months nor
later than twelve
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<PAGE> 23
(12) months prior to the end of the original term of this Lease. Within
fifteen (15) days thereafter, Landlord shall advise Tenant in writing of
the Prevailing Market Rate applicable during the renewal term. Within
thirty (30) days after Tenant has received such rental information from
Landlord, Tenant shall give Landlord written notice of the exercise of
its option, and in such notice advise Landlord if Tenant accepts the
Prevailing Market Rate proposed by Landlord or disputes the Prevailing
Market Rate and elects to have the Prevailing Market Rate determined by
arbitration pursuant to this Paragraph 32. Failure of Tenant to give such
notice within such thirty (30) day period shall cause such option to be
void and of no further force and effect.
C. Within fifteen (15) days from the date of Tenant's notice to Landlord
advising Landlord of the exercise of its option to renew, and if Tenant
disputes the Prevailing Market Rate as outlined in Paragraph 32.B above,
Landlord and Tenant will attempt to agree on one arbitrator who will
determine the Prevailing Market Rate. If they are able to agree on the
arbitrator, then that person shall proceed to make the determination. If
they are unable to agree on the arbitrator within fifteen (15) days after
first attempting to do so, then either party may submit the dispute with
respect thereto to arbitration by the giving of written notice to the
other party, which notice shall state the name and address of an
arbitrator appointed by the first party. Within ten (10) days after the
giving of such notice, the other party shall appoint a second arbitrator
and notify the first party of the name and address of the second
arbitrator. Coincident with the appointment of each arbitrator, the
arbitrator shall be given a written statement of the issue submitted to
it and the text of the definition of Prevailing Market Rate as set forth
in Paragraph 32.A. hereof. If the party entitled to do so fails to timely
appoint the second arbitrator, the first arbitrator shall proceed to
resolve the issue. If the second arbitrator is appointed, the two
arbitrators shall meet within ten (10) days after the appointment of the
second arbitrator and attempt to resolve the issue. If, within thirty
(30) days thereafter, they have not agreed upon the resolution of the
issue, they shall appoint a third arbitrator. If the two arbitrators are
unable to agree upon a third arbitrator within ten (10) days after the
expiration of the aforesaid thirty (30) day time period, the third
arbitrator shall be selected by Landlord and Tenant jointly or, if within
a period of fifteen (15) days after first attempting to do so, Landlord
and Tenant are unable to agree upon the identity of the third arbitrator,
then either Landlord or Tenant on behalf of both may request that the
United States District Judge for the Southern District of Texas, Houston
Division (in his individual, but not judicial, capacity), who is then
senior in service, appoint the third arbitrator. The third arbitrator,
regardless of whether appointed by the two arbitrators or by Landlord and
Tenant jointly, or by the act of the said District Judge, shall be fully
empowered to act hereunder as if originally appointed as one of the first
two arbitrators by Landlord and Tenant. The arbitrator or arbitrators, as
the case may be, shall then resolve the issue submitted. The decision of
the arbitrator or arbitrators shall be given within a period of thirty
(30) days after the appointment of the first arbitrator (if no other
arbitrator is appointed), the second arbitrator (if only two arbitrators
are appointed and they agree on the resolution of the issue) or the third
arbitrator (if three arbitrators are appointed). The decision of the
single arbitrator (if no other arbitrator is appointed), or the decision
in which any two arbitrators shall have concurred or, if there are three
arbitrators and no two arbitrators can concur, then the average of the
two closest mathematical determinations shall constitute the decision and
shall be final, binding and conclusive on Landlord and Tenant. Any final,
binding and conclusive decision of the arbitrator or arbitrators shall be
nonappealable and enforceable in any court having jurisdiction. If any
arbitrator shall fail, refuse or become unable to act, a new arbitrator
shall be appointed in its place by the party which appointed it or, if
the arbitrator was the third arbitrator so appointed, by following the
same method as was originally followed with respect to the appointment of
the third arbitrator. All hearings and proceedings held by the
arbitrators shall take place in Houston, Texas.
D. Landlord shall pay the fees and expenses of each arbitrator appointed by
it hereunder, and Tenant shall pay the fees and expenses of each
arbitrator appointed by it hereunder. Landlord and Tenant shall share
equally the fees and expenses of each third arbitrator appointed
hereunder.
E. No person shall be appointed or, if appointed, qualified to act as an
arbitrator under this Paragraph 32, unless the person is (1) qualified to
evaluate, and shall have been actively engaged for not less than ten (10)
years immediately preceding the arbitrator's appointment in the
evaluation of high rise office buildings in Houston, Texas, (2) a member
of the American Institute of Real Estate Appraisers, or any successor
association or body of comparable standing if such
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<PAGE> 24
Institute is not then in existence, or a qualified leasing agent and
broker and (3) not associated with, by business relationship or
otherwise, either party hereto or any Affiliate of either party hereto
and is likely to render an impartial decision on the issue to be
resolved.
33. PREFERENTIAL RIGHT TO LEASE
If at any time or times during the original term of this Lease space on the
first (1st) floor of the Building becomes available for direct lease by Landlord
to a third party and no less than twenty-four (24) full calendar months remain
in the original term of this Lease, Landlord shall not enter into a lease of
such space, except with Sanus Corp. Health Systems ("Sanus") to whom Landlord
has granted expansion and preferential rights on portions of such space which
portions are designated as Sanus Expansion Option #1 and Sanus Expansion Option
#2 on Exhibit "K" attached hereto and made a part hereof, or Tenant, except upon
compliance with the following procedures:
A. Each time any such space on said floor becomes available for direct lease
and Sanus shall have declined or failed to exercise its expansion or
preferential rights in favor of Sanus with respect to such space,
Landlord shall give written notice to Tenant of such fact at least thirty
(30) days before the space becomes available, said notice to set out the
amount and location of the space and the date of availability. Tenant
shall then have a period of ten (10) working days from receipt of such
notice from Landlord within which to elect to include such space under
this Lease. The rental rate for such space shall be at the prevailing
Building rental rate in effect on the date of availability.
B. In the event Tenant elects to lease such space, an amendment of this
Lease shall be executed by Landlord and Tenant no later than twenty (20)
days after Landlord shall have submitted to Tenant copies of such
amendment for execution purposes. The lease term for such space shall
commence upon the date of availability as set out in Landlord's written
notice or such later date as is mutually agreed upon between Landlord and
Tenant, but in no event shall the lease term for such space commence
later than sixty (60) days from the date of availability, and shall
continue for the then unexpired current term (original term or renewal
term, as the case may be) of this Lease.
C. Any additional space leased by Tenant under this Paragraph 33, shall be
tendered by Landlord and accepted by Tenant in an "as-is" condition.
Landlord stipulates that any additional space tendered in "as-is"
condition shall have been improved with at least Building standard
quality improvements, but not necessarily in Building standard
quantities.
D. In the event Tenant elected to lease space under the provisions of this
Paragraph 33, and Sanus elects to exercise its expansion option on such
space following Tenant's occupancy thereof, Tenant covenants and agrees
to vacate such space within sixty (60) days following receipt of written
request to do so from Landlord.
34. ASBESTOS
A. Landlord advises Tenant that, based on studies prepared by Law
Engineering Company, asbestos-containing materials are present in (1)
roofing felt flashing, (2) the mastic glue which reinforces the pipe
elbow outer wrap in the penthouse mechanical room, and (3) the mastic
glue which reinforces the pipe elbow outer wrap in the mechanical rooms.
Landlord shall, at Landlord's sole cost and expense, remove (or cause to
be removed) all such mastic glue in the mechanical rooms of the third
(3rd), fourth (4th) and fifth (5th) floors prior to the occupancy of any
portion of the Leased Premises by Tenant in accordance with all
applicable laws and shall certify such removal to Tenant in writing.
B. Landlord has complied, in all material respects, with the provisions of
all federal, state and local laws, ordinances and regulations pertaining
to health and the environment (the "Environmental Laws") in its ownership
and operation of the Leased Premises. Landlord's operation of the Leased
Premises will be conducted throughout the Lease term in substantial
compliance with all Environmental Laws. Landlord will be responsible for
all costs and expenses incurred during the Lease term in complying with
Environmental Laws which relate to the Leased Premises that (i) arise out
of conditions existing at the commencement of the Lease term, or (ii)
occur at any time during or subsequent to the Lease term, other than
those resulting from the acts or omissions of Tenant or Tenant's agents,
contractors, employees or invitees.
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<PAGE> 25
35. MISCELLANEOUS
A. Provided Tenant complies with its covenants, duties and obligations
hereunder, Tenant shall quietly have, hold and enjoy the Leased Premises
subject to the terms and provisions of this Lease.
B. In any circumstance where Landlord is permitted to enter the Leased
Premises, no such entry shall constitute an eviction or disturbance of
Tenant's use and possession of the Leased Premises; be a breach by
Landlord of any of its obligations; render Landlord liable for damages;
entitle Tenant to be relieved from any of its obligations, nor grant
Tenant any right of setoff, recoupment or other remedy. In connection
with any such entry incident to performance of repairs, replacements,
maintenance or construction, all of the aforesaid provisions shall be
applicable notwithstanding that Landlord may elect to take building
materials in, to or upon the Leased Premises.
C. Tenant will not assert any claim or counterclaim against Landlord of
whatever nature or description in any legal proceeding unless during the
pendency of the proceeding Tenant pays to Landlord or into the registry
of the court all rent due under this Lease.
D. The remedies of Landlord shall be cumulative and no remedy, whether
exercised by Landlord or not, shall be deemed to be in exclusion of any
other. Except as may be otherwise provided in this Lease, granting of
consent is within the sole discretion of the party whose consent is
required and withholding of such consent need not be reasonable or based
on good cause.
E. Where Tenant is required to pay any sum or do any act at a particular
indicated time or within an indicated period, it is understood that time
is of the essence.
F. The doctrine of independent covenants shall apply in all matters relating
to this Lease including, without limitation, the obligation of Landlord
to perform Landlord's covenants under this Lease, as well as the
obligation of Tenant to pay rent and perform Tenant's other covenants
under this Lease. Landlord has made no warranties to Tenant that the
Leased Premises are suitable for Tenant's intended commercial purpose.
Tenant waives and relinquishes any right to assert, either as a claim or
as a defense, that Landlord is bound to perform or is liable for the
nonperformance of any covenant, warranty or duty not expressly set forth
in this Lease, unless such waiver or relinquishment is prohibited by law.
G. Under no circumstances whatsoever shall Landlord or Tenant ever be
liable to the other for consequential damages or special damages.
H. All monetary obligations of Landlord and Tenant (including, without
limitation, any monetary obligation of Landlord or Tenant for damages for
any breach of their respective covenants, duties or obligations) are
performable exclusively in Houston, Harris County, Texas.
I. If any provision of this Lease shall ever be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any
other provision of the Lease, but such other provisions shall continue in
full force and effect.
J. The term "Landlord" shall mean only the owner, for the time being of the
Building, and in the event of the transfer by such owner of its interest,
Landlord shall thereupon be released and discharged from all covenants
and obligations of the Landlord thereafter accruing, but such covenants
and obligations shall be binding during the Lease term upon each new
owner for the duration of such owner's ownership. All liability of
Landlord for damages for breach of any covenant, duty or obligation of
Landlord hereunder shall be satisfied only out of the interest of
Landlord in the Building existing at the time of the occurrences of the
event giving rise to such liability, which for purposes of this Lease
shall be deemed to be not less than $2,000,000.00.
36. FORCE MAJEURE
Whenever a period of time is herein prescribed for the taking of any action
by either party hereto, such party shall not be liable or responsible for, and
there shall be excluded from the computation of such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, or any act, omission, delay, or
neglect of the other party or any of such other party's employees or agents, or
any other cause whatsoever beyond the control of such party.
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<PAGE> 26
37. STAIRWELL LICENSE
Landlord and Tenant will enter into a Letter Agreement authorizing Tenant's
employees to use the stairwells in 3800 Buffalo Speedway for access between any
contiguous floors of the Building occupied by Tenant. Such Agreement shall be in
the form of Exhibit "L" attached hereto and made a part hereof.
38. ENTIRE AGREEMENT AND BINDING EFFECT
This Lease and any attached exhibits signed or initialed by the parties
constitute the entire agreement between Landlord and Tenant. No prior written or
prior or contemporaneous oral promises or representations shall be binding. This
Lease shall not be amended, except by written instrumentation signed by Landlord
and Tenant; no agent or employee of Landlord or Tenant has authority to orally
modify this Lease. Paragraph captions are for convenience only, and neither
limit nor amplify the provisions of this Lease. The provisions of this Lease
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the parties, but this provision shall
in no way alter the restriction herein in connection with assignment and
subletting by Tenant. The submission of this Lease by Landlord for examination
does not constitute a reservation of or option for the Leased Premises and this
Lease shall become effective only upon execution by all parties and delivery by
Landlord to Tenant.
DATED this 20th day of November 1990
GREENWAY PLAZA, LTD., by its managing
partner, J/K-G/P #1, LTD., by its sole
general partner, J/K Holdings, Inc.
By /s/ Douglas W. Schnitzer
--------------------------------------
Douglas W. Schnitzer, President
LANDLORD
UNITED SAVINGS ASSOCIATION OF
THE SOUTHWEST FSB
By /s/ Kenneth H. Thorn
--------------------------------------
Kenneth H. Thorn, President
UnitSav TENANT
21
<PAGE> 27
METES AND BOUNDS DESCRIPTION
33.431 Acres
Greenway Plaza, Phase I
Being a tract or parcel of land containing 33.431 acres out of the A.C. Reynolds
League, Abstract 61, Harris County, Texas, with said tract including all of
Greenway Plaza, Section 1, of record per the map recorded in Volume 127, Page
71, Harris County Map Records, and being more particularly described by metes
and bounds as follows, basing all bearings and distances on an unrecorded plat
entitled Composite Map of Greenway Plaza, prepared by Turner, Collie and Braden,
Inc., dated May 1971, revised September 10, 1972, July 19 and August 3, 1973:
COMMENCING at the southwest corner of the intersection of Richmond Avenue (120
feet wide) and Buffalo Speedway (100 feet wide), said intersection being a point
on a curve to the left;
THENCE, 509.49 feet southwesterly along the arc of said curve and the southerly
right-of-way line of said Richmond Avenue (Delta Avenue = 6 degrees 53'23",
Radius = 4237.18 feet, Chord = South 79 degrees 26'34" West, 509.21 feet) to the
northwest corner of the tract of land conveyed to Texas Investment Builders
Company per the deed recorded in Volume 5044, Page 560, Harris County Deed
Records and the POINT OF BEGINNING of the tract herein described;
THENCE, South 09 degrees 53'00" East, along the westerly line of said Texas
Investment Builders Company tract, and the westerly line of an additional tract
conveyed to said Texas Investment Builders Company per the deed recorded in
Volume 6164, Page 422 of said Deed Records a distance of 224.00 feet to the
southwest corner of last mentioned deed;
THENCE, North 80 degrees 07'00" East, 250.00 feet along the southerly line of
said deed recorded in Volume 6164, Page 422, to an intersect with the westerly
line of the tract of land conveyed to Greenway Bank and Trust per the deed
recorded in Volume 6051, Page 610 of said Deed Records;
THENCE, South 09 degrees 53'00" East along the westerly line of said Greenway
Bank and Trust tract and the tract conveyed to Buffalo Tower Company per the
deed recorded in Volume 6652, Page 369 of said Deed Records, at 115.41 feet pass
the common corner to said tracts, a total distance of 323.25 feet to the
southwest corner of said Buffalo Tower Company tract;
THENCE, along the southerly boundary of said tract recorded in Volume 6652, Page
69 the following four courses:
North 80 degrees 07'00" East, 163.22 feet;
North 74 degrees 22'39" East, 100.00 feet;
North 80 degrees 07'00" East, 54.00 feet;
North 32 degrees 20'38" East, 13.37 feet to an intersect with the
westerly right-of-way line of said Buffalo Speedway, said intersect
being a point on a non-tangent curve to the right;
THENCE, 358.32 feet southeasterly along the arc of said curve and westerly
right-of-way line of Buffalo Speedway (Delta Angle = 03 degrees 36'53", Radius =
5679.65 feet, Chord = South 13 degrees 59'45" East, 358.26 feet) to the
northeasterly corner of the tract conveyed to The First City National Bank,
trustee, per the deed recorded in Volume 6327, Page 156 of said Deed Records;
THENCE, departing said Buffalo Speedway right-of-way, South 80 degrees 07'00"
West, 262.89 feet to the northwest corner of said First City National Bank
tract;
THENCE, South 09 degrees 53'00" East, 370.00 feet to the southwest corner of
said First City National Bank tract and an intersect with the northerly
right-of-way line of U.S. 59, Southwest Freeway (varying width);
EXHIBIT A
Page 1 of 2
<PAGE> 28
THENCE, South 80 degrees 07'00" West, 781.45 feet along the northerly line of
said Freeway to the beginning of a tangent curve to the right;
THENCE, 514.43 feet westerly along the arc of said curve and northerly Freeway
right-of-way line (Delta Angle = 05 degrees 10'22", Radius = 5698.09 feet, Chord
= South _?2 degrees 42'11" West, 514.26 feet) to an intersect with the southerly
cut-back corner of the easterly right-of-way line of Edloe Street (varying
width);
THENCE, North 47 degrees 18'03" West, 20.33 feet along said cut-back and
easterly right-of-way line of Edloe Street;
THENCE, continuing along said Edloe Street right-of-way line, North 00 degrees
02'00' East, 1149.87 feet to an intersect with the southerly right-of-way line
of said Richmond Avenue, said intersect being a point on a non-tangent curve to
the left;
THENCE, 381.81 feet easterly along the arc of said curve and Richmond Avenue
right-of-way line (Delta Angle = 05 degrees 38'18", Radius = 3879.72 feet, Chord
= North 74 degrees 34'09" East, 381.64 feet);
THENCE, continuing along said Richmond Avenue right-of-way line and tangent to
said curve, North 71 degrees 45'00" East, 79.75 feet to the beginning of a
tangent curve to the right;
THENCE, 314.16 feet easterly along the arc of said curve and Richmond Avenue
right-of-way line (Delta Angle = 04 degrees 14'53", Radius = 4237.18 feet, Chord
= North 73 degrees 52'26" East, 314.08 feet) to the POINT OF BEGINNING,
containing a computed area of 33.431 acres of land.
Compiled by:
SURVCON, INC.
Houston, Texas [STATE SEAL]
Job #5044-005
December 1978
Page 2 of 2
<PAGE> 29
[FLOOR PLAN]
APPROXIMATELY 15,285 RENTABLE SQUARE FEET
EXHIBIT "B"
<PAGE> 30
[FLOOR PLAN]
APPROXIMATELY 32,124 RENTABLE SQUARE FEET
EXHIBIT "B-1"
<PAGE> 31
[FLOOR PLAN]
APPROXIMATELY 32,124 RENTABLE SQUARE FEET
EXHIBIT "B-2"
<PAGE> 32
EXHIBIT "C"
HVAC CRITERIA CONDITIONS
- --------------------------------------------------------------------------------
1. Outside design conditions are as follows: Dry Bulb
degree F
Summer Outside Air Temperature 97
Winter Outside Air Temperature 15
2. Cooling inside design conditions are as follows: Dry Bulb
degree F
Inside Temperatures (Offices & Lobbies) 72-78*
3. Heating inside design conditions are as follows: Dry Bulb
degree F
Inside Temperatures (Offices & Lobbies) 70-75
* Interior air conditioning loads based on the following Base Building criteria:
1. 150 square feet/person
2. Power = 0.5 watts/square foot
3. Lighting (fluorescent w/heat extract) = 2.0 watts/square foot
<PAGE> 33
GREENWAY PLAZA Janitorial Cleaning Specifications
General Offices and Corridors (Daily)
1. Empty and clean all ash trays.
2. Empty and clean all waste baskets.
3. Clean all cigarette urns.
4. Sweep and dust clean composition floors with treated mops.
5. Dust all desks, tables, files and horizontal surfaces.
6. Dust all desk accessories (including phones) and replace in proper
position.
7. Vacuum all carpets thoroughly.
8. Damp mop any spillage.
9. Remove trash to designated areas.
10. Spot clean woodwork and doors to remove fingerprints.
11. Clean drinking fountains.
12. Spot clean interior glass doors and glass partitions daily and damp
wipe weekly.
General Offices and Corridors (Monthly)
1. Dust all cabinets, files and chairs.
2. Dust all paneling with appropriate cleaning products.
3. Dust picture frames.
4. Damp wipe and polish dry marble in tenant elevator lobbies.
General Offices and Corridors (Quarterly)
1. High dust tops of doors and partitions, high ledges, high files,
ventilating and air conditioning outlets and return air grills.
2. Dust Blinds.
Entrance Lobby Areas
1. Sweep or vacuum all floors daily with proper equipment.
2. Buff all floors once a week and refinish commensurate with traffic.
3. Dust and polish directory boards daily.
4. Spot clean entrance door glass and side lights daily and wash weekly.
5. Empty and clean ash trays and sand urns daily.
6. Scrub and polish drinking fountains daily.
7. Spot clean walls daily to remove finger marks and smudges.
8. Remove any spillage daily.
Elevators and Escalators
1. Vacuum elevator carpet daily.
2. Clean exterior and interior doors and trim nightly.
3. Clean cabs nightly.
4. Wash elevator walls monthly as required.
5. Dust and polish control and dispatch panels nightly.
6. Dust ceiling grills monthly.
7. Dust escalator skirts nightly and polish monthly.
8. Clean steps daily.
9. Keep hand rails cleaned and treated as required.
Stairwells
1. Empty and wipe out all waste paper containers.
2. Spot clean walls as required.
3. Police all stairwells regularly.
Restrooms (Daily)
1. Empty and wipe out all waste paper containers.
2. Polish all mirrors.
3. Clean all laboratory fixtures.
4. Sinks, toilet bowls and urinals to be kept free of scale at all times.
5. Wash and sanitize underside and tops of toilet seats, toilet fixtures
and compartments.
6. Refill soap, towel and tissue containers (building stock).
7. Wipe down walls around laboratories.
8. Mop all laboratory floors.
9. Fill floor drains where installed.
10. Dust all horizontal surfaces.
11. Empty, clean and disinfect sanitary napkin dispensers.
Restrooms (Monthly)
1. Wash down ceramic tile walls and toilet compartments partitions.
2. Perform high dusting.
3. Brush down vents.
General Floor Services
1. Machine scrub and wash all composition floors once each month.
2. Buff all floors once each month.
3. Buff halls (public areas only) once each week.
Window Cleaning Services
1. Clean all windows inside and outside as necessary above main floor, but
in no event less than one (1) time per year interior and two (2) times
per year exterior.
2. Wash all lobby glass inside once every other month and outside once
per month.
Day Maid Services
Landlord to provide day maid services for the Building as customarily provided
by operators of first class multiple tenancy office buildings in Houston, Texas.
<PAGE> 34
EXHIBIT "E"
GREENWAY PLAZA, LTD.
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, elevators, shopping
malls, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress
to and egress from their respective premises. The halls, passages, exits,
entrances, elevators, escalators and stairways are not for the use of the
general public, and Landlord shall in all cases retain the right to control
and prevent access hereto of all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom
any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenants and no employee,
agent or invitee of any tenant shall go upon the roof of the Building. The
two (2) emergency stairwells located on each floor of the Building shall
not be obstructed by tenants or used by tenants or tenants' agents,
servants, employees, invitees or contractors or the public in general for
any reason or purpose except as an escape route in the event of an
emergency.
2. No sign, placard, picture, name, advertisement or notice, visible from the
exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the
prior written consent of Landlord, and Landlord shall have the right to
remove any such sign, placard, picture, name advertisement or notice at the
expense of the tenant responsible for same and without notice to such
tenant. If Landlord shall have given such consent at any time, such consent
shall be deemed to relate only to the particular sign, placard, picture,
name, advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to each and every other sign,
placard, picture, name advertisement or notice. All provided signs or
lettering shall be printed, painted, affixed or inscribed at the expense of
the tenant by a person approved by Landlord.
3. The premises shall not be used for the storage of merchandise or for
lodging. No cooking, other than for warming purposes, shall be done or
permitted by any tenant in the Building, except that the preparation of
coffee, tea, hot chocolate and similar items for tenants and their
employees shall be permitted.
4. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the premises, unless otherwise agreed
to by Landlord in writing. Except with the written consent of Landlord, no
person or persons other than those approved by Landlord shall be permitted
to enter the Building for the purpose of cleaning the same. No tenant shall
cause any unnecessary labor by reason of such tenant's carelessness or
indifference in the preservation of good order and cleanliness. Landlord
shall in no way be responsible to any tenant for any loss of property on
the premises, or for any damage done to the furniture or other effects of
any tenant by the janitor or any other employee or any other person.
Janitor service shall be in accordance with Exhibit "D" of the Lease.
Janitor services will not be furnished on nights when rooms are occupied
after 9:30 P.M.
5. No animals, or birds, or bicycles shall be allowed in the offices, halls,
corridors, elevators or elsewhere in the Building.
6. Landlord will furnish each tenant with two keys free of charge. Landlord
may make a reasonable charge for any additional keys. No tenant shall have
any keys made except by Landlord. No
1
<PAGE> 35
tenant shall alter any lock or install a new or additional lock or any bolt
on any door of its premises without prior written consent of Landlord. If
Landlord shall give its consent, the tenant shall in each case furnish
Landlord with a key for any such lock. Each tenant upon the termination of
its tenancy, shall deliver to Landlord all keys to doors in the Building
which shall have been furnished to tenant.
7. No safes, electronic equipment or other objects larger or heavier than that
which the freight elevators of the Building are limited to carry shall be
brought into or installed on any premises without Landlord's prior written
approval. The moving of such equipment shall occur only between such hours
as may be designated by, and only upon previous notice to, the manager of
the Building. No freight, furniture or bulky matter of any description
shall be received into the Building or carried into the elevators, except
during hours and in a manner approved by Landlord. Landlord shall have the
right to prescribe the weight, size and position of all safes and other
heavy equipment brought into the Building. Safes or other heavy objects
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as is necessary to properly distribute the weight. Landlord will
not be responsible for loss of or damage to any such safe or property from
any cause, and all damage done to the Building by moving or maintaining
such safe or other property shall be repaired at the expense of the tenant.
8. No tenant shall use or keep in, on or about the premises of the Building
any kerosene, gasoline or inflammable or combustible fluid or material, or
use any method of heating or air conditioning other than that supplied by
Landlord. No tenant shall use, keep or permit to be used or kept any foul
or noxious gas or substance in, on or about the premises, or permit or
suffer the premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors and/or vibrations, or interfere in any way with other tenants
or those having business therein.
9. Standard practices of the building trades at the time of construction
incorporated into the Building materials containing various quantities of
asbestos (primarily spray on fire proofing). All repairs, renovations,
alterations or installations (including, without limitation, electrical and
communication systems) must be conducted in accordance with and pursuant to
OSHA and EPA guidelines and Landlord's standard Building guidelines. All of
such work, including, but not limited to, such major improvements as
remodeling and something as minor as adding electrical outlets or painting,
must be coordinated through the Building Office and approved by Landlord
prior to work beginning. Upon completion of such work, the tenant will be
required to furnish Landlord with a certification that the completed work
was done in accordance with these rules and regulations as they may be
amended from time to time.
10. In accordance with and pursuant to OSHA and EPA guidelines regarding
asbestos containing material, no tenant shall cause to be open any part of
the ceilings in the Building without having first received written
permission from the landlord. It is the intent of this policy to prevent
any ceiling from being opened in leased space while occupied or in the
public areas of the Building during business hours, and includes any action
or penetration which would break the plane of the ceiling surface, no
matter how slight.
11. For all construction work, ranging from such major improvements as
remodeling to something as minor as adding electrical outlets or painting,
please contact the Building Office. All requests for such work must first
go through the Landlord for approval prior to authorization to begin work.
All repairs, renovations, alteration or installations (including, without
limitations, electrical and communications systems) effected by any tenant
will be conducted in accordance with and pursuant to OSHA and EPA
guidelines and Landlord's standard building guidelines. Upon completion of
such work, the tenant will be required to furnish the Landlord with a
certificate certifying that the completed work has been made in accordance
with these rules and regulations as they may be amended from time to time.
2
<PAGE> 36
12. Landlord reserves the right to exclude from the Building between the hours
of 7:00 P.M. and 7:00 A.M. and at all hours on Sundays, legal holidays and
after 1:00 P.M. on Saturdays all persons who do not present a pass to the
Building signed by Landlord. Landlord will furnish passes to persons for
whom any tenant requests the same in writing. Each tenant shall be
responsible for all persons for whom it requests passes and shall be liable
to Landlord for all acts of such persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In the case of invasion, mob,
riot, public excitement, or other circumstances rendering such action
advisable in Landlord's opinion, Landlord reserves the right to prevent
access to the Building during the continuance of the same by such actions
as Landlord may deem appropriate, including closing and locking doors.
13. The directory board of the Building will be provided for the display of the
name and location of tenants only, and Landlord reserves the right to
exclude any other names therefrom. Any additional name which Tenant shall
desire to place upon said directory board over and above the allowance set
forth in the Lease Contract must first be approved by Landlord, and if so
approved, a charge will be made therefor.
14. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in,
or used in connection with any window of the Building without the prior
written consent of Landlord. In any event, with the prior written consent
of Landlord, said above items shall be installed inboard of Landlord's
standard window covering and shall in no way be visible from the exterior
of the Building.
15. No tenant shall obtain for use in the premises, ice, drinking water, food,
beverage, towel or other similar services, or accept barbering or
bootblacking services in the premises, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord, except as
otherwise set forth in the Lease Contract.
16. At any party where alcoholic beverages are to be consumed on the premises,
Tenant is required to have two off-duty policemen attend the party. One
policeman should remain in the suite during the party, and one should
position himself near the proper elevator bank.
17. Tenant shall see that the doors of its premises are closed and securely
locked and must observe strict care and caution that all water faucets,
water apparatus and utilities are shut off before Tenant or Tenant's
employees leave the premises, so as to prevent waste or damage. On
multiple-tenancy floors, all tenants shall keep the door or doors to the
Building corridors closed at all times except for ingress and egress.
18. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed. No foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose
employees, agents or invitees, shall have caused it.
19. Except with the prior written consent of Landlord, no tenant shall sell or
permit the sale of newspapers, magazines, periodicals, theater tickets or
any other goods of merchandise in or on the premises, nor shall any tenant
carry on, or permit or allow any employee or other person to carry on, the
business of stenography, typewriting or any similar business in or from the
premises for the services or accommodation of occupants of any other
portion of the Building.
20. No tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building.
3
<PAGE> 37
21. No hand trucks or dollies, except those equipped with rubber tires and side
guards, shall be used in any space or in public halls of the Building by
any Tenant. No other vehicles of any kind shall be brought into the
Building or kept in or about any premises by any tenant, their employees,
agents or invitees.
22. Each tenant shall store all its trash and garbage within its premises. No
material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage in the City
of Houston, without being in violation of any law or ordinance governing
such disposal. All garbage and refuse disposal shall be made only through
entryways and elevators provided for such purposes and at such times as
Landlord shall designate.
23. Canvassing, soliciting, and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
24. The requirements of the tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any
work or do anything outside of their regular duties unless under special
instructions from Landlord.
25. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all of the tenants of the
Building.
26. These Rules and Regulations are in addition to and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the
Building.
27. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation of
good order therein.
UnitRule
4
<PAGE> 38
EXHIBIT "F"
Page 1 of 2
G/L ACCOUNT
NUMBER ACCOUNT DESCRIPTION
- --------------------------------------------------------------------------------
CONTRACT CLEANING
83200 Contract Cleaning
SPECIAL CLEANING
81510 Window Cleaning - Tower
81520 Window Cleaning - Lobby
81530 High Pressure Cleaning
83105 Cleaning/Janitorial
83115 Related Salary Exp.
83310 Special Cleaning - Lobby
83330 Special Cleaning - Skywalk
(Does not apply for 3800 Buffalo
Speedway)
83340 Special Cleaning - Docks
83410 Special Clng. - Marble
83420 Special Cleaning - Carpet
83500 Special Clng. - Vacated Spaces
83700 Cleaning Supplies
83900 Other Special Cleaning
VARIABLE UTILITIES
80100 Electricity
80300 HVAC
80400 Water and Sewer
UTILITY INCOME
68200 Utility Income - HVAC
68300 Utility Income - Non-HVAC
82100 HVAC Service Cont
82110 Utilities - Fixed
82150 Utility R&M - Fans
82170 Energy Savings
82180 Master Calibration
82190 Other HVAC R&M
82210 Utility Supplies - HVAC Filters
82240 Utility Supplies - Diesel Fuel
ELEVATORS
81600 Contract Elevator
81610 Elevator - Afterhour
81620 Elevator - Preventative
81630 Elevator - Permit
81640 Elevator/Escalator Repairs
81650 Elevator/Escalator Supplies
81690 Elevator/Escalator - Other
GENERAL AND ADMINISTRATIVE
81104 Maintenance Salaries
81114 Related Salary Ex-Maint.
81202 Engineering Salaries
81212 Related Salary Ex-Engineering
81303 Parking & Garage Salaries
81313 Related Salary Ex-Parking
81710 Trash Removal
81800 Extermination
81920 Skywalk Rights
(Does not apply for 3800 Buffalo
Speedway)
82220 Utility Supplies Bulbs
82300 Common Area Maint
82310 Metal Refinishing
82321 Electric Repairs
82322 Electric Supplies
82330 Carpet/Flooring/Ceiling R&M
82340 Restroom Repairs
82341 Plumbing Repairs
82342 Plumbing Supplies
82350 Carpentry and Hardware
82360 Window/Glass/Canopy-Repair/Supply
82370 Masonry/Plaster/Tile/Marble Repair
82385 Waterproofing
82390 Painting/Decoration
82410 Fire Alarm/Safety
82610 Beepers/Pagers/Radios
82710 Uniforms
82720 Paper/Restroom Supplies
82730 Lockshop Supplies
82790 General Building
82810 Equipment Rental
82820 Contract Bldg. Eq
82830 Bldg Equip R&M - Non-Contract
82840 Auto/Truck Repair
5
<PAGE> 39
EXHIBIT "F"
Page 2 of 2
G/L ACCOUNT
NUMBER ACCOUNT DESCRIPTION
- --------------------------------------------------------------------------------
82900 Other Building Repairs
84108 Security Salaries
84118 Related Salary Ex-Security
84120 Contract Security
84190 Other Security
84506 Landscaping Salaries
84516 Related Salary Ex-Landscaping
84610 Landscape Contracts
84620 Indoor Plant Services
84630 Landscape Supplies
84640 Irrigation Supplies
84690 Other Landscaping
86101 General & Administration
86111 Related Salary Ex-G&A
86200 Other Salaries
86210 Related Salary Ex-Other
86310 Temporary Help
86320 Employment Agency
86330 Employee Auto Allowance
86340 Employee Parking
86350 Employee Relocation
86365 Employee Training
86410 Operations Office
86510 Office Equipment Rental
86520 Office Equipment Contract R&M
86540 Furn/Fixture Cost
86610 Data Processing Equip. Rental
86620 Data Processing Equip. R&M
86630 Leased Data Lines
86690 Other Data Communication Costs
86710 Telephone
86720 Postage
86730 Messenger/Deliver
86740 Photocopying and Duplicating
86790 Other Office Cost
86810 Office Supplies
86820 Maps and Photos
86910 Petty Cash (Over)
86990 Miscellaneous Esc
87200 Directory and Signs
87320 Conference Registration Fees
87330 Dues and Subscriptions
87410 Entertainment
87420 Travel
MANAGEMENT FEES
85100 Management fees
INSURANCE
85000 Insurance
TAXES
85500 Taxes
85600 Personal Property Taxes
NOTE:
Whenever expenses are incurred relating to several buildings within
Greenway Plaza, a fair and reasonable proration of these expenses shall
be determined for each building.
<PAGE> 40
EXHIBIT "G"
Page 1 of 3
PROJECT SCHEDULE AGREEMENT
Greenway Plaza, Ltd., a Texas limited partnership (hereinafter called
"Landlord") and United Savings Association of the Southwest FSB, a National
Banking Association, (hereinafter called "Tenant") are executing simultaneously
with this Project Schedule Agreement a written Lease Contract ("Lease") covering
approximately 79,533 square feet of Rentable Area, being comprised of the
entirety of the fourth (4th) and fifth (5th) floors (each floor being comprised
of 32,124 square feet of Rentable Area), and 15,285 square feet of Rentable Area
on the third (3rd) floor ("Leased Premises"), in the building known as the 3800
Buffalo Speedway ("Building"), as more particularly described in said Lease.
(a) Tenant agrees to prepare all finished and detailed
architectural, mechanical, electrical and plumbing drawings
and specifications, and to submit said drawings to Landlord
for pricing on or before November 27, 1990. Drawings shall be
prepared by Tenant's architect, EDI Architectural Interiors
and Harry Gendel Architects. In the event that Tenant does not
deliver said drawings by said date, Tenant agrees that any
such delay shall be a "Tenant Delay". Each calendar day of
such delay will correspond to one day of Tenant Delay.
(b) Upon receipt of Tenant's approved drawings and specifications,
Landlord agrees to promptly price the cost of constructing the
leasehold improvements in accordance with said plans and
specifications by submitting said plans to a minimum of two
(2) general contractors, one (1) of whom shall be Innerspace,
and by December 4, 1990, to furnish said written price
estimates to Tenant.
(c) Upon receipt of Landlord's written price estimates for the
leasehold improvements, Tenant agrees to promptly review said
price estimates, to complete negotiations with Landlord for
any price changes or adjustments therein, and by December 11,
1990, to return said price estimates and drawings with written
approval to Landlord along with complete and final
architectural and MEP working drawings to be issued for
construction. In the event that said approved price estimates
and drawings are not delivered to Landlord within seven (7)
calendar day period, Tenant agrees that any such delay shall
be a Tenant Delay. Each calendar day of such delay will
correspond to one day of Tenant Delay.
(d) Prior to completion of final Tenant architectural and MEP
drawings, Tenant, through Tenant's architect and engineer,
will prepare and produce "unit pricing" specifications and
drawings and submit these to Landlord no later than November
12, 1990. Landlord will solicit bids from Innerspace and at
least one (1) other qualified contractor on a unit price
basis. Such bids will be due back to Landlord no later than
November 19, 1990. Landlord will review the bids and provide a
written summary with contractor recommendation to Tenant no
later than November 21, 1990. Tenant shall review bid summary
with Landlord and together will agree to award a contract to a
general contractor no later than November 23, 1990. Demolition
of the existing leasehold improvements will commence no later
than three (3) calendar days after
<PAGE> 41
EXHIBIT "G"
Page 2 of 3
a general contractor is selected and contract awarded.
Construction of the new leasehold improvements will start
within three (3) calendar days after Landlord has received
from Tenant the complete "Issued For Construction"
architectural and MEP drawings.
(e) Tenant shall pay to Landlord additional rent for the purpose
of reimbursing Landlord for additional expenses which may be
incurred by Landlord, such as rescheduling, overtime, etc.
resulting from a Tenant Delay. Upon delivery of the final
approved price estimates and approved drawings and
specifications to Landlord by Tenant, the total number of days
of Tenant Delay shall be computed. The additional rent due
shall be one (1) day's rent (based upon a thirty (30) day
month) for each day of Tenant Delay or each day by which
construction was delayed by Tenant Delay. Such additional rent
shall be paid by Tenant to Landlord within thirty (30) days
after receipt by Tenant of Landlord's invoices therefor.
(f) Tenant agrees to pay Landlord the actual cost of all such work
in excess of the amounts specified in Paragraphs 25.A. and
25.B. of the Lease Contract within forty-five (45) days of
receipt of each progress billing. Tenant shall pay Senterra
Development Corporation a construction management fee equal to
four percent (4%) of the actual cost of all work within thirty
(30) days of receipt of invoice. All past due amounts will
bear interest from the date due until paid at the greatest
applicable nonusurious interest rate permitted by law. If no
usury statue shall apply, past due amount shall bear interest
at a rate of two percent (2%) over prime per annum. Tenant
agrees that any amounts billed under this Paragraph (f) shall
be deemed payable as additional rent pursuant to the terms of
the lease. Construction management as provided by Senterra
Development Corporation shall include but not be limited to
the following:
* Hiring of all contractors
* Coordinating Tenant's architect, engineer and other
design team members
* Conducting all construction meetings
* Coordinating the 3800 Buffalo Speedway Building Manager's
interface with the construction supervisors and other
appropriate people
* Process all field orders and change orders
* Supervising the Punch List process
* Providing one (1) Project Manager, Mr. Don Kaiser, from
job beginning to job completion , with Mr. George Stacy
as back-up
<PAGE> 42
EXHIBIT "G"
Page 3 of 3
* Coordinating the site activities of all Tenant
contractors (telephone, computer, etc.)
* Coordinating with Tenant's movers and Tenant to
facilitate a successful move-in
* Coordinating building access and elevator requirements
for Tenant's move-in, to be confirmed in writing from
Senterra after receipt of detailed move-in schedule from
Tenant
AGREED AND ACCEPTED this the 20th day of November, 1990, as
evidenced by execution below in multiple originals by Tenant and Landlord.
GREENWAY PLAZA, LTD., by its managing
partner, J/K - G/P #1, LTD., by its sole general
partner, J/K Holdings, Inc.
By: /s/ Douglas W. Schnitzer
-------------------------------------
Douglas W. Schnitzer, President
LANDLORD
UNITED SAVINGS ASSOCIATION OF
THE SOUTHWEST FSB
By: /s/ Kenneth H. Thorn
------------------------------------
Kenneth H. Thorn, President
TENANT
File 2494
<PAGE> 43
EXHIBIT "H"
GREENWAY PLAZA MASTER PLAN
[MAP]
<PAGE> 44
EXHIBIT "I"
Page 1 of 3
COMMONWEALTH-UNITED MORTGAGE
[BUILDING]
<PAGE> 45
EXHIBIT "I"
Page 2 of 3
3800 BUFFALO SPEEDWAY
COMMONWEALTH-UNITED MORTGAGE
[SIGN]
<PAGE> 46
EXHIBIT "I"
Page 3 of 3
COMMONWEALTH-UNITED MORTGAGE
[BUILDING]
<PAGE> 47
EXHIBIT "J"
Page 1 of 5
3800 BUFFALO SPEEDWAY BUILDING
Building Lobby/Garage Lobbies
FINISH MATERIALS SCHEDULE
1. Gray marble wall panels, column cladding
2. Gray marble floor pavers
3. Beige stone planter cladding with gray marble accent inlays
4. Broadloom carpet
5. Landscaping
6. Accent light fixtures
7. Ceramic paver tiles
8. Painted bollards, columns
<PAGE> 48
EXHIBIT "J" Page 2 of 5
[ATRIUM]
<PAGE> 49
EXHIBIT "J"
Page 3 of 5
[PICTURE]
<PAGE> 50
EXHIBIT "J"
Page 4 of 5
[ENTRANCE TO BUILDING]
<PAGE> 51
EXHIBIT "J"
Page 5 of 5
3800 BUFFALO SPEEDWAY BUILDING
Restroom Refurbishment
1. Electrostatically paint all stalls
2. Replace damaged or stained toilets or urinals
3. Provide wall treatment (vinyl or zolatone)
4. Replace faucets and fixtures
5. Install furrdown and lights above mirror
6. Replace broken or chipped mirrors
7. Replace any broken floor tiles as required
8. Paint ceiling
9. Third (3rd) floor women's restroom to be extended as shown below:
[FLOOR PLAN]
<PAGE> 52
EXHIBIT "K"
[SANUS EXPANSION OPTION #1]
[SANUS EXPANSION OPTION #2]
[FLOOR PLAN]
<PAGE> 53
EXHIBIT "L"
__________________________, 1990
Untied Savings Association of the Southwest FSB
3800 Buffalo Speedway
Houston, Texas 77098
Attention:
Re: Stairwell Use at 3800 Buffalo Speedway, Houston, Texas 77098
Gentlemen:
Greenway Plaza, Ltd. ("Landlord") under Lease Contract dated November 20, 1990
(the "Lease") agrees to permit employees of United Savings Association of the
Southwest FSB to use the stairwells in the building known as 3800 Buffalo
Speedway for access between floors three (3), four (4) and five (5) upon the
following conditions:
(1) Except in the case of an emergency, only the direct employees
of the above named company are permitted to use the
stairwells.
(2) No smoking, eating or drinking in the stairwells.
(3) Proper shoes must be worn at all times when using the stairs.
(4) No loitering or congregating in the stairwells or the
landings.
(5) Any damage to property or injury to persons in the stairwells
shall be reported to the supervisor and the building manager's
office at once.
(6) The stairwells shall not be used for the movement or
transporting of any goods and materials including but not
limited to furniture, boxes or supplies.
(7) The entry doors to the stairwells shall be closed and latched
at all times. Tampering with locks and latches is prohibited.
(8) No signs, placards, notices, pictures or displays of any type
are permitted in the stairwells or on the entry doors without
the prior written approval of Landlord.
(9) Any burned out or damaged lights in the stairwells shall be
promptly reported to the building manager's office.
(10) No remodeling, alteration or improvement to the stairwells is
to be undertakes without Landlord's prior written consent.
<PAGE> 54
(11) Paragraph 9 of the Lease shall apply to the stairwells in
addition to the "Leased Premises".
(12) Landlord reserves the right to withdraw permission to use the
stairwells at any time by delivery of notice as provided in
the Lease. Landlord agrees not to exercise this right in an
arbitrary or capricious manner.
Yours truly,
GREENWAY PLAZA, LTD., by its managing
partner, J/K - G/P #1, LTD., by its sole general
partner, J/K Holdings, Inc.
By: /s/ Douglas W. Schnitzer
--------------------------------
Douglas W. Schnitzer, President
LANDLORD
ACCEPTED:
UNITED SAVINGS ASSOCIATION OF
THE SOUTHWEST FSB
By: /s/ Kenneth H. Thorn
--------------------------------
Kenneth H. Thorn, President
<PAGE> 1
EXHIBIT 10.12
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
UNITED SAVINGS ASSOCIATION OF THE SOUTHWEST FSB
Phoenix Tower
3200 Southwest Freeway
Houston, Texas 77027
March 18, 1991
Mr. Barry C. Burkholder
560 Oak Street
Winnetka, IL 60093
Dear Mr. Burkholder:
We write to set forth our agreement with respect to your employment as
President and Chief Executive Officer of United Savings Association of Texas
FSB, ("USAT") and United Savings Association of the Southwest FSB, ("USAS")
(collectively the "Company") both Federally chartered stock savings banks. Your
employment hereunder shall commence on a date (the "Commencement Date") selected
by you, which date shall not be later than April 8, 1991. The Commencement Date
shall be deemed to be the date of this Agreement for all purposes of this
Agreement except for paragraph 14, which shall become effective upon your
signing of this Agreement.
1. The Company hereby agrees to employ you, and you hereby agree to be
employed by the Company, on the terms and conditions hereinafter set forth. You
will serve as the Company's President and Chief Executive Officer. You will
render such services and perform such duties for the Company and its direct and
indirect subsidiaries (collectively, with the Company, the "USAT Group")
consistent with your position as the President and Chief Executive Officer as
the Board of Directors may from time to time determine and assign to you. You
agree to serve as a member of the Board of Directors of the Company. You will,
in addition, hold such offices, directorships and other positions with the USAT
Group to which you may from time to time be elected or appointed. Your authority
shall be subject at all times to the direction and control of the Board of
Directors of the Company and to the Board's discretion to determine the policies
of the USAT Group. You agree to serve the USAT Group faithfully, diligently and
to the best of your ability, and you shall devote your full working time, energy
and skills exclusively to the business and affairs of the USAT Group and to the
promotion and advancement of its interests. During your employment hereunder,
you shall not render services, whether or not compensated, to any person or
entity other than the USAT Group, as an employee, independent contractor or
otherwise. You agree that you will not participate in any
<PAGE> 2
activity detrimental to the best interests of the USAT Group and that you will
not interfere in any way with the USAT Group's pursuit of its business
interests.
2. As full compensation for all of your services (including services as
officer and director within the USAT Group and as a director of the Company),
during your employment hereunder you shall receive the following:
(a) a base salary at the rate of three hundred fifty thousand dollars
($350,000.00) until the first anniversary of the Commencement Date and three
hundred seventy-five thousand dollars ($375,000.00) annually during the
remainder of this Agreement, payable in accordance with the Company's normal
payroll practices;
(b) a bonus in the amount of fifty thousand dollars ($50,000.00),
payable on the Company's next normal payroll date following the Commencement
Date; and
(c) (1.) a formula based bonus that will equal the bonus amounts,
shown in Exhibit I attached, reflecting the after tax return on assets for
varying asset sizes;
(2.) so long as this Agreement is in effect and you are employed
and performing your obligations under it, your bonus for the first full year of
your employment shall be no less than seventy-five thousand dollars
($75,000.00), not including the bonus provided in paragraph 2(b) above, and no
less than fifty thousand dollars ($50,000.00) for your second year of
employment; and
(3.) the Board of Directors has the right, but no obligation, to
authorize the payments of any additional bonus or other compensation in its sole
discretion. Each year the Board of Directors will use their best efforts to work
out standards and objectives to help guide and gauge your performance for the
upcoming year and critique your performance for the past year. For the balance
of calendar year 1991, your primary goals and objectives shall be: to bring
costs under tighter control and increase the profitability of the Company; to
improve the management team performance; to develop consumer strategy and to
build quality consumer service capability; to upgrade systems and internal
control; to improve the management structure for the administration of "covered
assets" and the Assistance Agreement; and to improve staff morale and quality.
3. In the event of a sale or other disposition (other than to an affiliate
of the Company in connection with an internal reorganization including, but not
limited to, a merger between USAS and USAT) of (i) all or substantially all of
the assets of the Company or (ii) all or substantially all of the outstanding
capital stock of the Company (hereinafter, a "Sale of the Company"), provided
that you are then in substantial compliance with all of your obligations under
this Agreement, you shall receive an amount equal to your vested portion of two
percent (2%) of the amount,
<PAGE> 3
if any, by which (x) the net proceeds of such Sale, plus any dividends paid
after the Commencement Date (taking into account the date paid and the value of
money calculated on the same basis as in clause (C) below in this paragraph),
received by USAT Holdings Inc., a Delaware corporation, the current holder of
all of the outstanding capital stock of the Company ("USAT Holdings"), in
respect of its common stock of the Company exceeds (y) the sum of (A) the
percentage of the sale of the Company that USAT Holdings Inc. receives times the
net book value of the Company on March 31, 1991, (B) any contributions to the
capital of the Company made by USAT Holdings after March 31, 1991 and (C) the
amount representing a twelve percent (12%) cumulative return on the sum of (A)
and (B) above, calculated on a compounded, semi-annual (corporate
bond-equivalent) basis, and on the basis of a 360-day year comprised of twelve
30-day months. Such amount shall be determined and calculated by the Board of
Directors of USAT Holdings, in its good faith discretion. Such amount shall be
paid by USAT Holdings, and the Company shall have no obligation with respect to
the payment of such amount. In the event the net proceeds of a Sale of the
Company consist of any combination of cash, notes, securities or other property,
you shall receive such cash, notes, securities or other property in the same
proportion as that received by USAT Holdings. The right to receive amounts under
this paragraph shall vest in five equal installments on each of the first five
anniversaries of the Commencement Date, provided that you have been continuously
employed by the Company through such anniversary date; and provided further that
if you have been continuously employed by the Company through the fourth
anniversary of the Commencement Date, the fifth installment shall vest over the
fifth year, on a daily basis, so that on any day during the fifth year, the
portion of the fifth installment that will have vested will equal the product of
(i) the fifth installment and (ii) a fraction, the numerator of which is the
number of days you have been continuously employed by the Company after the
fourth anniversary date of the Commencement Date (not to exceed 365) and the
denominator of which is 365. In the event a Sale of the Company shall occur
during the term of this Agreement and you have been continuously employed by the
Company at the time of such Sale, you shall receive the full amount set forth
above as if all five installments had fully vested prior to such Sale. In the
event a Sale of the Company shall occur after termination of your employment
with the Company, you shall receive the amounts set forth above that vested
prior to such termination, unless your employment was terminated by the Company
for cause or voluntarily by you, before the fifth anniversary of the
Commencement Date, in either of which cases you shall not be entitled to any
payment under this paragraph. Nothing in this Agreement shall be construed to
require or create any obligation on the part of the Company or USAT Holdings to
cause, or use any efforts to cause, a Sale of the Company.
4. (a) Your employment hereunder shall commence on the Commencement Date
and shall end on the earliest of the following dates: (i) the third anniversary
of the Commencement Date or, if the term of this Agreement is renewed as
provided below, the last day of the renewal term, (ii) the date of your
3
<PAGE> 4
death, (iii) if, in the reasonable opinion of the Company's Board of Directors,
you shall be unable to perform any duties hereunder by reason of physical or
mental disability for a period of three (3) consecutive months, or a period of
more than 180 days in the aggregate in any eighteen-month period, the date on
which the Company shall elect to terminate your employment, (iv) the date on
which the Company shall elect to terminate your employment for "cause" (as
defined below), (v) the date on which the Company shall elect to terminate your
employment without cause pursuant to subparagraph (c) below, and (vi) the date
on which a Sale of the Company occurs or the Company distributes its assets to
its stockholders upon liquidation of the Company. The term of your employment
hereunder shall be automatically renewed on the third anniversary of the
Commencement Date for two successive one-year terms thereafter (through the
fifth anniversary of the Commencement Date), unless the Company gives written
notice of nonrenewal to you at least thirty (30) days prior to the end of the
then current term. Any such nonrenewal shall be treated as a termination of your
employment without cause pursuant to paragraph 4(c) below unless cause then
exists and the Company specifies in its notice to you that the nonrenewal is for
cause, in which case such nonrenewal shall be treated as a termination of your
employment for cause pursuant to paragraph 4(b) below.
(b) Except for purposes of paragraph 13, for purposes of this
Agreement "cause" means your personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties including, without limitation, the legitimate
directions of the Board of Directors consistent with your position as President
and Chief Executive Officer, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order, or material breach of any provision of this Agreement. Without limiting
the foregoing, drunkenness or abuse of any controlled substance or excessive
absenteeism not related to illness shall constitute a material breach of this
Agreement. To the extent that you unintentionally violate this Agreement or
written policies, standards and regulations of the Company, such violation shall
not, by itself, constitute "cause" under this paragraph unless (i) it results in
material harm to the Company or other member of the USAT Group; or (ii) if
curable, it shall continue uncured for five business days after written notice
thereof from the Company to you; or (iii) it recurs after you have received
actual notice of the same or substantially similar violation; or (iv) it is part
of a pattern of violations evidencing a disregard of your duties and obligations
under this Agreement and as the President and Chief Executive Officer.
Notwithstanding anything else in this Agreement, in the event your employment is
terminated for cause, or in the event you voluntarily leave the employ of the
Company before the fifth anniversary of the Commencement Date, you shall forfeit
all rights to any compensation or benefits hereunder for any period after such
termination, whether or not such rights have previously vested, including rights
that previously vested under paragraph 3.
4
<PAGE> 5
(c) Notwithstanding anything else herein, the Company may terminate
your employment at any time without cause. In the event your employment is
terminated without cause, you shall continue to have any right under paragraph 3
that became vested prior to such termination and shall receive severance
payments as provided in paragraph 5, but shall have no other rights to any
compensation or benefits hereunder for any period after such termination.
(d) In the event your employment terminates pursuant to clause (i)
(other than a termination treated as a termination for "cause" pursuant to the
last sentence of subparagraph (a) above), (ii), (iii) or (vi) of subparagraph
(a) above, you (or your heirs or legal representatives) shall continue to have
any right under paragraph 3 that became vested prior to such termination, but
shall have no other rights to any compensation or benefits hereunder for any
period after such termination.
5. In the event your employment is terminated by the Company without cause
prior to the fifth anniversary of the Commencement Date, you shall receive a
severance payment equal to (x) if your employment is terminated prior to the
fourth anniversary of the Commencement Date, the sum of three hundred
seventy-five thousand dollars ($375,000) and the bonus, if any, payable under
paragraph 2(c) above, payable over one year, (y) if your employment is
terminated after the fourth anniversary and prior to the fifth anniversary of
the Commencement Date, an amount equal to the sum of the (1) product of (i)
three hundred seventy-five thousand dollars ($375,000) and (ii) a fraction, the
numerator of which is the number of days from the date your employment is
terminated to the fifth anniversary of the Commencement Date (the "Payment
Period"), and the denominator of which is 365 and (2) the bonus, if any,
required by paragraph 2(c) above, payable over the Payment Period, and (z) if
your employment is terminated prior to the first anniversary of the Commencement
Date, a lump sum of fifty thousand dollars ($50,000) in addition to the amount
specified in, and paid in accordance with, clause (x) of this paragraph 5. The
severance payment shall be paid in the same manner as your base salary.
6. During your employment hereunder, the Company shall provide you with
such additional benefits, in the form of life, disability and health insurance,
or other benefits as are granted to the Company's employees generally. The
current benefits package is described in the booklets and materials sent under
cover of a letter dated March 7, 1991 from Salvatore Ranieri to Thomas Desmond.
During your employment hereunder, the Company shall also make available to you
the perquisites listed on Exhibit 2. These benefits shall terminate upon
termination of your employment, as provided in paragraph 4.
7. During your employment hereunder, the Company will reimburse you for
reasonable, ordinary and necessary travel and other expenses incident to your
5
<PAGE> 6
rendering of services hereunder, in conformity with the Company's regular
policies from time to time in effect regarding reimbursement of expenses.
Payments to you for such expenses will be made upon presentation of expense
vouchers in such detail as the Company may from time to time reasonably require.
8. You shall maintain your residence in Houston, Texas or its environs
during the term of your employment. You acknowledge and agree that awareness of
and involvement in community affairs and social activities in the geographic
area serviced by the Company are instrumental to the effective performance of
your duties under this Agreement.
9. During your employment, without the prior written consent of the Board
of Directors of the Company, you shall not, directly or indirectly: (i) enter
into any other business affiliation or enterprise, including, without
limitation, the establishment of a proprietorship or the participation in a
partnership or joint venture or (ii) acquire any equity interest in a
corporation, except equity interests that are publicly traded. You represent and
warrant that, as of the Commencement Date, you are not engaged in any such
business affiliation and do not own any such equity interests.
10. The Company may, in its discretion and for its benefit, insure you
against disability or death under policies which are payable to such persons as
the Company shall designate. You agree to cooperate in such physical
examinations and to supply such information as the Company shall reasonably
require in connection with obtaining and continuing such insurance. You have
advised us that you have no reason to believe that your life is not insurable at
rates now prevailing for healthy men of your age:
11. You acknowledge that, in the course of your employment, you will be
occupying a position of trust and confidence with the Company and other members
of the USAT Group. You agree that all information pertaining to the prior,
current or future business of the Company or of the other members of the USAT
Group (excluding (i) publicly available information (in substantially the form
in which it is publicly available) unless such information is publicly available
by reason of unauthorized disclosure and (ii) information of a general nature
not pertaining exclusively to the Company or any other member of the USAT Group
which would be generally acquired in similar employment with another company)
constitutes valuable and confidential assets of the Company and of the other
members of the USAT Group to which you will have access solely as a result of
your position with the Company. You acknowledge that your agreement to comply
with this paragraph 11 is a material inducement to the Company to enter into
this Agreement.
(a) You shall never use, divulge, furnish or make accessible to any
third person or organization, other than in the regular course of the Company's
6
<PAGE> 7
business, any confidential or proprietary information concerning the Company or
any other member of the USAT Group or its businesses, including, without
limitation, confidential methods of operation and organization, marketing
techniques and plans, computer software or financial information, and you shall
not disparage or deprecate the Company or any other member of the USAT Group or
their businesses or affairs or any individual connected with the Company or any
other member of the USAT Group.
(b) During your employment with the Company or any other member of
the USAT Group and, in addition, for a period of one year following the
termination of your employment with the Company and any other member of the USAT
Group, you shall not, directly or indirectly, individually or on behalf of other
persons, (i) engage or be interested (whether as owner, partner, lender,
consultant, employee, agent, supplier, distributor or otherwise) in any
business, activity or enterprise in the State of Texas or within fifty (50)
miles of any city outside of the State of Texas in which the Company or any
other member of the USAT Group was doing branch-based banking business at the
time your employment terminated, which is competitive with any aspect of the
business being conducted by the Company or any other member of the USAT Group,
(ii) employ or otherwise engage, or offer to employ or otherwise engage, any
person who has been an employee or agent of the Company or any other member of
the USAT Group at any time during the last year of your employment, (iii) except
on behalf of the Company or any other member of the USAT Group, solicit, aid or
induce any person who has been an employee or agent of the Company or any other
member of the USAT Group at any time during your employment to leave his
employment with the Company or any other member of the USAT Group in order to
accept employment with another person or entity or (iv) except on behalf of the
Company, solicit any business from any person or entity that has been a customer
of the Company or any other member of the USAT Group at any time during the last
two years of your employment by the Company or any other member of the USAT
Group. The provisions of clause (i) of this paragraph 11(b) shall not apply to
you (x) if your employment hereunder terminates upon a Sale of the Company
pursuant to paragraph 4(a)(vi) or (y) if your employment hereunder is terminated
by the Company without cause pursuant to paragraph 4(a)(v) and you thereafter
give the Company 30 days' prior written notice of your intention to compete with
the Company, in which case the severance payments under paragraph 5 of this
Agreement shall cease as of the date of such notice.
(c) You agree that inasmuch as your breach or attempted or threatened
breach of any provision contained in this paragraph 11 would result in immediate
and irreparable injury to the Company or another member of the USAT Group for
which the Company and the other members of the USAT Group will not have an
adequate remedy at law, the Company shall be entitled, in addition to all other
remedies, to a temporary and permanent injunction and/or a decree for specific
performance of the terms of this paragraph 11, without the necessity of showing
any actual damage or posting bond or furnishing other security.
7
<PAGE> 8
(d) The provisions of this paragraph 11 shall survive the termination
or expiration of this Agreement (without regard to the reasons therefor), and
are in addition to and independent of any agreements or covenants contained in
any other agreement and to any rights the Company may have at law or in equity.
12. You hereby represent and warrant to the Company that you have
full legal authority to enter into this Agreement and to perform your
obligations hereunder, that you have no obligation to any other person or entity
that would affect or conflict with any of your obligations hereunder, and that
the complete performance of your obligations hereunder will not violate, result
in a breach of, or constitute a default under, any law, regulation, order or
decree of any governmental or judicial body or any contract by which you are
bound. You further represent and warrant that you are an officer in good
standing and with a clear record at Citicorp. There are no disagreements or
disputes between you and those to whom you report.
13. This Agreement is subject to, and expressly incorporates, all the
rules and regulations governing Federal stock savings banks whether now or
hereafter in effect (the "Rules and Regulations"), in particular 12 C.F.R.
Section 563.39, which requires, among other things, that this Agreement include
the following provisions:
(a) The Company's Board of Directors may terminate your
employment at any time, but any termination by the Company's Board of Directors
other than termination for cause, shall not prejudice your rights to
compensation or other benefits under this Agreement. You shall have no right to
receive compensation or other benefits for any period after termination for
cause. Termination for cause shall include termination because of your personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the contract.
(b) If you are suspended and/or temporarily prohibited from
participating in the conduct of the Company's affairs by a notice served under
section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1818(e)(3) and (g)(1)), the Company's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Company may in its discretion
(i) pay you all or part of the compensation withheld while its obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.
(c) If you are removed and/or permanently prohibited from
participating in the conduct of the Company's affairs by an order issued under
section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1818(e)(3) and (g)(1)), all obligations of the Company under this Agreement
shall terminate as of
8
<PAGE> 9
the effective date of the order, but the vested rights of the contracting
parties shall not be affected (except to the extent they would otherwise be
under the terms of this Agreement).
(d) If the Company is in default (as defined in section 3(x)(1)
of the Federal Deposit Insurance Act), all obligations under this Agreement
shall terminate as of the date of default, but this paragraph 13(d) shall not
affect any vested rights of the contracting parties (except to the extent they
would otherwise be under the terms of this Agreement).
(e) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Company, (i) by the Director of the Office of
Thrift Supervision ("Director") and ("OTS") at the time the Federal Deposit
Insurance Corporation ("FDIC") or Resolution Trust Corporation ("RTC") enters an
agreement to provide assistance to or on behalf of the Company under the
authority contained in 13(c) of the Federal Deposit Insurance Act; or (ii) by
the Director, at the time the Director or his or her designee approves a
supervisory merger to resolve problems related to operation of the Company or
when the Company is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action (except to the extent they would otherwise be
under the terms of this Agreement).
14. You acknowledge and agree that if you voluntarily terminate this
Agreement, you will cause substantial harm to the Company. Accordingly, if you
voluntarily terminate this Agreement without the consent of the Board of
Directors of the Company before the first anniversary of the Commencement Date,
you shall return to the Company the bonus paid to you under paragraph 2(b) above
plus interest at the lesser of the rate of twelve percent (12%) per annum and
the maximum annual rate permitted by law, and you shall reimburse the Company
for any portion of the fee paid by the Company to Seiden Associates, Inc. with
respect to your employment that was not reimbursed by Seiden Associates, Inc. In
addition, because you acknowledge that the other damages that would be suffered
by the Company are not readily ascertainable and that fifty thousand dollars
($50,000.00) is an amount which is reasonable in light of the anticipated or
actual harm to the Company, you shall also pay that amount to the Company. You
further acknowledge and agree that the rights created under this paragraph are
in addition to and independent of any other rights that the Company may have
under other paragraphs of this Agreement or at law or in equity.
15. Any notice or other communication required or permitted to be
given hereunder shall be deemed to have been duly given when personally
delivered or when sent by certified mail, return receipt requested, postage
prepaid, as follows:
9
<PAGE> 10
If to the Company:
United Savings Association of Texas FSB
Phoenix Tower
3200 Southwest Freeway
Houston, Texas 77027
Attn: General Counsel
with a copy to:
USAT Holdings Inc.
c/o Ranieri Wilson & Co., Inc.
520 Madison Avenue
New York, New York 10022
Attn: Salvatore A. Ranieri, Esq.
If to you, at your address as set forth above, with a copy to any
person you may specify by written notice to the Company. Either party may change
its or his address for the purpose of this paragraph by written notice similarly
given.
16. If any clause or provision of this Agreement shall be held to be
invalid or unenforceable, such clause or provision shall be construed and
enforced as if it had been more narrowly drawn so as not to be invalid or
unenforceable, and such invalidity or unenforceability shall not affect or
render invalid or unenforceable any other provision of this Agreement.
17. This Agreement sets forth the parties' final and entire
agreement, and supersedes any and all prior understandings, with respect to its
subject matter. This Agreement shall be of force and effect only if signed below
by all parties. This Agreement shall inure to the benefit of and be binding upon
the Company, its successors and assigns, and upon you, your heirs,
administrators and legal representatives, but no right or obligation hereunder
may be assigned or delegated, except by the Company to an entity that succeeds
to or acquires all or substantially all of the Company's assets, whether by
purchase, merger, consolidation or otherwise. No failure or delay by either
party in exercising any right, option, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof, or the exercise of any other
right, option, power or privilege. This Agreement can only be changed, waived
or terminated by a writing signed by both you and the Company and shall be
governed by the internal law of the State of New York (without reference to its
rules as to conflicts of laws). Any dispute, controversy or claim arising out of
or relating to this Agreement shall be settled by arbitration in New York City
in accordance with the rules, then obtaining, of the American Arbitration
Association, and judgment upon
10
<PAGE> 11
any such arbitration award may be entered in the Supreme Court of the State of
New York or in any other court having jurisdiction thereof.
18. If at any time prior to the fifth anniversary of the Commencement
Date you shall terminate your employment within sixty days after you have been,
and because you have been, Constructively Discharged (as defined below), you
shall not be deemed to have voluntarily left the employ of the Company and such
termination of employment shall for all purposes under this Agreement be treated
as termination of your employment by the Company without cause pursuant to
paragraph 4(c) above. For purposes of this paragraph 18, you shall be
"Constructively Discharged" upon the occurrence of any one of the following
events: (a) you are not re-elected or are removed from the positions of
President and Chief Executive Officer or director of the Company, other than as
a result of your election or appointment to positions of superior scope or
responsibility, or other than for cause as described in paragraph 4(b) above or
reasons described in paragraph 13 above; (b) the Company deliberately strips you
of the authority of President and Chief Executive Officer by materially changing
your material duties, responsibilities, and working conditions in such a way
that a reasonable person would conclude that you have been effectively removed
from the positions of President and Chief Executive Officer; (c) the continued
and willful failure by the Company (other than for administrative or other
reasons under your control as President and Chief Executive Officer of the
Company) to pay compensation or provide material benefits in accordance with
this Agreement and such failure is not cured by the Company within ten business
days after you have provided written notice of such failure to the Board of
Directors of the Company; (d) the continued and willful failure of USAT Holdings
to pay any monies due to you under paragraph 3 of this Agreement and such
failure is not cured by USAT Holdings within ten business days after you have
provided written notice of such failure to the Board of Directors of USAT
Holdings; or (e) the Company commits a material breach of any other material
obligation under this Agreement that causes you material harm and such breach is
not cured or remedied, including, but not limited to, by monetary recompense,
within a reasonable time after you provide written notice of such failure to the
Company's Board of Directors.
19. The Company agrees to indemnify you to the fullest extent required or
permitted for any officer, director, or employee under the Company's articles of
incorporation and by-laws, as in effect from time to time, and Section 121 of
Part 545 of Title 12, Code of Federal Regulations, and to include you as one of
the persons covered under any insurance policy of the type described in said
section 545.121 (if such policy is obtained and in effect) obtained by the
Company to cover officers and directors of the Company.
20. You understand that your appointment and election and this Agreement
are subject to review by regulatory agencies and approval or no supervisory
objection from those agencies and that your appointment and election and this
Agreement are
11
<PAGE> 12
of no force and effect unless and until such regulatory approval or no
supervisory objection is obtained. Furthermore, you understand that you must
complete various forms and provide detailed personal and financial information
to those regulatory agencies. The Company agrees to use its best efforts, and
you agree to use your best efforts, to obtain the necessary regulatory responses
to effectuate your appointment and election and this Agreement.
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to us a copy of this
letter.
UNITED SAVINGS ASSOCIATION OF
TEXAS FSB
By: /s/
---------------------------
Dated: 3/21/91
------------------------
UNITED SAVINGS ASSOCIATION
OF THE SOUTHWEST FSB
By: /s/
---------------------------
Dated: 3/21/91
------------------------
ACCEPTED AND AGREED TO
/s/ Barry C. Burkholder
- -----------------------
Barry C. Burkholder
Dated: MARCH 18, 1991
-----------------
ACCEPTED AND AGREED TO
AS TO PARAGRAPH 3:
USAT HOLDINGS INC.
By: /s/
--------------------
Dated: Mar. 21, 1991
-----------------
V.P. & Sec.
12
<PAGE> 13
EXHIBIT 1
Total Bonus
<TABLE>
<CAPTION>
Asset Size
4,000,001- 5,000,001- 6,000,001- 7,000,001- 8,000,001- 9,000,001-
ROA 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000
- --- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
65 0 0 0 0 0 0
66 7,500 9,000 10,500 12,000 13,500 15,000
67 15,000 18,000 21,000 24,000 27,000 30,000
68 22,500 27,000 31,500 36,000 40,500 45,000
69 30,000 36,000 42,000 48,000 54,000 60,000
70 37,500 45,000 52,500 60,000 67,500 75,000
71 45,000 54,000 63,000 72,000 81,000 90,000
72 52,500 63,000 73,500 84,000 94,500 105,000
73 60,000 72,000 84,000 96,000 108,000 120,000
74 67,500 81,000 94,500 108,000 121,500 135,000
75 75,000 90,000 105,000 120,000 135,000 150,000
76 82,500 99,000 115,500 132,000 148,500 165,000
77 90,000 108,000 126,000 144,000 162,000 180,000
78 97,500 117,000 136,500 156,000 175,500 195,000
79 105,000 126,000 147,000 168,000 189,000 210,000
80 112,500 135,000 157,500 180,000 202,500 225,000
81 120,000 144,000 168,000 192,000 216,000 240,000
82 127,500 153,000 178,500 204,000 229,500 255,000
83 135,000 162,000 189,000 216,000 243,000 270,000
84 142,500 171,000 199,500 228,000 256,500 285,000
85 150,000 180,000 210,000 240,000 270,000 300,000
86 157,500 189,000 220,500 252,000 283,500 315,000
87 165,000 198,000 231,000 264,000 297,000 330,000
88 172,500 207,000 241,500 276,000 310,500 345,000
89 180,000 216,000 252,000 288,000 324,000 360,000
90 187,500 225,000 262,500 300,000 337,500 375,000
91 195,000 234,000 273,000 312,000 351,000 390,000
92 202,500 243,000 283,500 324,000 364,500 405,000
93 210,000 252,000 294,000 336,000 378,000 420,000
94 217,500 261,000 304,500 348,000 391,500 435,000
95 225,000 270,000 315,000 360,000 405,000 450,000
96 232,500 279,000 325,500 372,000 418,500 465,000
97 240,000 288,000 336,000 384,000 432,000 480,000
98 247,500 297,000 346,500 396,000 445,500 495,000
99 255,000 306,000 357,000 408,000 459,000 510,000
100 262,500 315,000 367,500 420,000 472,500 525,000
101 270,000 324,000 378,000 432,000 486,000 540,000
102 277,500 333,000 388,500 444,000 499,500 555,000
103 285,000 342,000 399,000 456,000 513,000 570,000
104 292,500 351,000 409,500 468,000 526,500 585,000
105 300,000 360,000 420,000 480,000 540,000 600,000
106 307,500 369,000 430,500 492,000 553,500 615,000
107 315,000 378,000 441,000 504,000 567,000 630,000
108 322,500 387,000 451,500 516,000 580,500 645,000
109 330,000 396,000 462,000 528,000 594,000 660,000
110 337,500 405,000 472,500 540,000 607,500 675,000
</TABLE>
<PAGE> 14
Exhibit 2
To Employment Agreement between
United Savings Association of Texas FSB and
Barry C. Burkholder
Perquisites
1. Automobile allowance of $1,000 per month.
2. Dues for membership in one country club and one luncheon club plus
aggregate initiation fee not to exceed twenty-five thousand dollars
($25,000).
3. Reimbursement for out-of-pocket costs of relocating to Houston (excluding
any loss on the sale of current home, if any) in accordance with the
Company's relocation policy for senior management including gross-up for
any federal, state or local income taxes actually paid on account of such
reimbursement.
4. Allowance for living expenses in Houston until relocated in an amount not
to exceed three thousand five hundred dollars ($ 3,500) per month up to a
maximum of eight months.
5. Reimbursement of coach class round trip tickets between Houston and
Chicago for you to visit your wife or your wife to visit you one time per
week, up to a maximum of six months.
<PAGE> 15
[UNITED SAVINGS ASSOCIATION OF TEXAS FSB LETTERHEAD]
March 26, 1991
Mr. Barry C. Burkholder
560 Oak Street
Winnetka, Illinois 60093
Dear Mr. Burkholder:
Pursuant to paragraph 17 of the letter agreement dated March 18, 1991, between
you and United Savings Association of Texas FSB and United Savings Association
of the Southwest FSB (The "Agreement"), this letter confirms that your
employment shall commence on April 10, 1991. This date is designated the
"Commencement Date" as defined in The Agreement, and supersedes the statement in
the introductory paragraph that the Commencement Date "shall not be later than
April 8, 1991." No other terms or conditions of The Agreement are affected by
the change in Commencement Date.
Four copies of this letter are provided for your signature. Please return all
four signed copies to us; we will provide a full executed copy to you and one to
your attorney.
Sincerely,
/s/ KJ Hartnett
- ---------------
Karen J. Hartnett
Senior Vice President
Human Resources
United Savings Association of Texas, FSB Accepted and agreed to:
By: /s/
-------------------------------
/s/ Barry C. Burkholder
------------------------------
Date: 4/3/91 Barry C. Burkholder
-----------------------------
United Savings of the Southwest, FSB Accepted and agreed to by
USAT Holdings, Inc;
By: /s/ /s/
------------------------------- ------------------------------
Dated: 4/3/91 4/4/91
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.12a
[BANK UNITED LETTERHEAD]
April 11, 1996
Mr. Barry C. Burkholder
President and Chief Executive Officer
Bank United of Texas FSB
3200 Southwest Freeway, Suite 1600
Houston, Texas 77027
Dear Mr. Burkholder:
This letter agreement, which shall have an effective date of April 10, 1996,
amends and extends that certain employment contract (the "Contract") dated
March 18, 1991, between you and United Savings Association of Texas FSB, now
known as Bank United of Texas FSB (the "Company"), and United Savings
Association of the Southwest FSB, a predecessor by merger to United Saving
Association of Texas FSB.
In consideration of the Company's extension of the term of the Contract
provided for in this amendment agreement, and in further consideration of the
various covenants set forth in the Contract, you and the Company, by the
execution of this amendment agreement, agree that the Contract is amended as
follows:
1 . Paragraphs 2.(c)(1.) and 2.(c)(2.) are deleted, and Paragraph
2.(c)(3.) is amended in its entirety to read as follows:
"2.(c)(3.) an annual bonus the amount of which shall be
determined by the Board of Directors, in its sole and absolute
discretion, taking into consideration such matters as the
Company's actual financial performance as compared to its
budgeted financial performance, your performance in
implementing new business initiatives approved by the Board of
Directors, your performance in improving the financial
performance of the Company's Mortgage Banking Division, the
Company's actual financial performance compared to the
financial performance of comparable financial institutions,
and your total compensation as compared to the total
compensation of chief executive officers of comparable
financial institutions.
2. Exhibit 1 to the Contract is deleted in its entirety.
<PAGE> 2
Barry C. Burkholder
April 11, 1996
Page 2
3. Paragraph 4(a)(i) of the Contract is amended in its entirety to read
as follows:
"4(a)(i) The first anniversary of the effective date of this
amendment agreement.
4. All provisions of the Contract not expressly amended by this amendment
agreement shall remain in full force and effect.
Please sign and return a counterpart of this amendment agreement to indicate
your agreement with the terms herein.
BANK UNITED OF TEXAS FSB ACCEPTED AND AGREED TO AS TO
PARAGRAPH 3 OF THE AGREEMENT:
By: /s/ JONATHAN K. HEFFRON USAT HOLDINGS, INC.
------------------------
Name: Jonathan K. Heffron
------------------------
Title: Chief Operating Officer By: /s/ LEWIS S. RANIERI
------------------------ ----------------------
Date: 4/22/96 Name: Lewis S. Ranieri
------------------------ ----------------------
Title: Chairman, President
----------------------
Date: As of 4/11/96
----------------------
ACCEPTED AND AGREED TO:
By: /s/ BARRY C. BURKHOLDER
--------------------------
Barry C. Burkholder
7
<PAGE> 1
EXHIBIT 10.13
[UNITED SAVINGS ASSOCIATION OF TEXAS FSB LETTERHEAD]
April 4, 1990
Anthony J. Nocella
711 Gawain Road
Plymouth Meeting, PA 19462
Dear Tony,
United Savings Association of Texas FSB has extended the following offer of
employment to you:
* Title: Executive Vice President/Director and Chief Financial Officer
Responsible for ALCO, Money Desk, Mortgage Banking, Financial
Planning, Mergers and Acquisitions, Wholesale Origination and Sale
and Development of Treasury Products
* Annual Base Salary: $300,000
* Car Allowance: $600 per month
* Incentive Bonus Plan (based on performance)
* Participant in the Company's Key Executive Bonus Plan (.5 of 1%)
* Relocation Expenses (see attached)
* 4 weeks Annual Vacation
* Membership in One Luncheon Club and One Country Club (initiation fee up to
$5,000 and monthly dues)
<PAGE> 2
Anthony J. Nocella
April 4, 1990
Page 2
* Start Date: On or before June 30, 1990
* Up to 24 months of salary to decline during the first 18 months of
employment to up to 6 months of salary, for term of employment, for
dismissal for other than cause. "Cause" shall include the matters set
forth in 12 CFR 563.3916.
Example: If termination occurs after 10 months of employment, you will
receive bi-monthly severance payments in amounts equal to your then
current salary for up to 14 months or until you found comparable
employment excluding self employment consulting fees, which ever comes
first.
Two signed copies are enclosed. Please keep one for your records, sign the other
in the space provided and return to Human Resources for your personnel file.
No doubt, you will make a tremendous contribution to United Savings. In return,
I believe you will find a challenging and rewarding career here. I look forward
to you joining the Association.
Sincerely,
/s/ Kenneth H. Thorn
- --------------------
Kenneth H. Thorn
President
AGREED AND ACCEPTED this 6th Day of April 1990
/s/ Anthony J. Nocella
- ----------------------
Anthony J. Nocella
KT: hbw
<PAGE> 3
RELOCATION PACKAGE
* Transportation of household goods
* Shipment of one automobile
* Two home finding trips for yourself and spouse and children
* Closing cost on sale of existing home
* Closing cost on purchase of new home
<PAGE> 1
EXHIBIT 10.14
[UNITED SAVINGS ASSOCIATION OF THE SOUTHWEST LETTERHEAD]
June 18, 1990
Mr. George R. Bender
7082 Ayrshire Lane
Boca Raton, Florida 33496
Dear George:
Please find listed below an offer of employment from United Savings Association
of the Southwest FSB.
Title: Executive Vice President of United Savings Association of the
Southwest FSB
- Responsible for the Mortgage Banking Department of United
Savings Association of the Southwest FSB
- Reporting to the President
* Annual Base Salary: $200,000
* Starting Bonus equal to $769.20 per work day until your approval is
received from the Office of Thrift Supervision ("OTS")
* Car Allowance: $600/month
* Incentive Bonus Plan based on earnings of the Mortgage Banking Department
(the details are to be determined). The minimum payment for the first year
of employment shall be $100,000
* Relocation Expenses (see attached details)
* Monthly Memberships Dues for one Luncheon Club and one Country Club
In addition, you will receive twelve months severance should your employment be
terminated during the first year for other than cause. "Cause" shall include the
matters set forth in 12 CFR 563.39 (b).
<PAGE> 2
George R. Bender
June 18, 1990
Page 2
Since the OTS' Policy statement requires a 30 day notice prior to the effective
date of hiring, United Savings Association of the Southwest FSB will be
precluded from paying any of your salary or benefits prior to receipt of this
approval. In addition, should the OTS not approve your employment we will be
required to withdraw this offer. Attached for your review is a copy of the OTS
policy statement labeled TB45 which provides guides to the application of
section 914 of FIRREA.
Two signed copies are enclosed. Please keep one for your records, sign the other
in the space provided and return to me for your personnel file.
Thank you again for your patience in this matter. I look forward to you joining
the Association.
/s/ Kenneth H. Thorn
- --------------------
Kenneth H. Thorn
President
AGREED AND ACCEPTED this Day of 1990
------- -------
- --------------------
George R. Bender
KHT: hbw
<PAGE> 3
RELOCATION EXPENSES
* Transportation of household goods
* Shipment of one automobile
* Temporary living expenses for family (30 days)
* Expenses for two trips to Houston to locate a house
* Closing costs at old and new home
* Temporary living expenses for employee, if necessary, before the family
relocates
<PAGE> 4
INCENTIVE BONUS PLAN
CALCULATION: 2.86% of Economic Value (as defined below) above $6 million
up to $20 million. 1.0% of Economic Value thereafter. The
incentive bonus will be calculated annually based on the
fiscal year ended September 30. The calculation of the first
bonus will begin on the closing date of the Commonwealth
acquisition and will cover the period ended September 30,
1990. One half of the incentive compensation will be paid as
soon as preliminary financials are prepared and the
remaining 50% will be paid after audited financials are
completed.
ECONOMIC VALUE: Calculated as follows: i) Pretax Income (as defined below)
plus (ii) value of new servicing produced during the year
and retained at end of year based on loans closed during the
year less (iii) excess servicing revenues less (iv) revenues
from sales of servicing created in other years. The value of
servicing created will be determined by the Board of
Directors in its good faith discretion.
PRETAX INCOME: Pretax Income will be based on the overall mortgage banking
operation. The mortgage banking operation's cost of funds
will be based on the institutions' actual all-in cost of
funds. On FHLB advances, the cost of funds will include all
fees paid to FHLB and all direct costs of administering the
line of credit. On internal funding, the cost of funds will
be the institutions' average cost of funds including
premiums paid to SAIF and allocated branch expenses which
will not exceed 85 basis points. All expenses from other
departments will be based on direct costs only including an
allocable share of services provided by other departments
such as legal and accounting. Pretax income will exclude (i)
the value of escrows associated with the servicing portfolio
(ii) 50% of the revenue on the new servicing created or
purchased and (iii) revenue from United's Covered Asset
mortgage servicing subsidiary.
<PAGE> 1
EXHIBIT 10.15
[UNITED SAVINGS ASSOCIATION OF TEXAS FSB LETTERHEAD]
April 6, 1990
Jonathon K. Heffron
235 Darling Road
Keene, New Hampshire 03431
Dear Jonathon,
Please find listed below the revised offer of employment from United Savings
Association of Texas:
* Title: Executive Vice President, General Counsel
- Responsible for the Legal, Compliance and Assistance Agreement
Groups
- Reporting to the President
* Annual Base Salary: $200,000
* Starting Bonus equal to $769.20 per work day beginning April 9, 1990 until
the your first day of employment on the United Savings payroll
* Car Allowance: $600/month
* Incentive Bonus Plan (based on earnings)
* Participant in the Company's Key Executive Bonus Plan
* Relocation Expenses (see attached details)
* Monthly Membership Dues for One Luncheon Club and One Country Club
In addition, you will receive twelve months severance should your employment be
terminated during the first year for other than cause. "Cause" shall include the
matters set forth in 12 CFR 563.39(b).
<PAGE> 2
Jonathon K. Heffron
April 6, 1990
Page 2
Two signed copies are enclosed. Please keep one for your records, sign the other
in the space provided and return to Human Resources for your personnel file.
Thank you again for your patience in this matter. I look forward to you joining
the Association.
Sincerely,
/s/ Kenneth H. Thorn
- --------------------
Kenneth H. Thorn
President
AGREED AND ACCEPTED this 11th Day of April 1990
---- -----
/s/ Jonathon K. Heffron
- -----------------------
Jonathon K. Heffron
KHT:hbw
<PAGE> 3
RELOCATION EXPENSES
* Transportation of household goods
* Shipment of one automobile
* Temporary living expenses for family (30 days)
* Expenses for two trips to Houston to locate a house
* Closing costs at old and new home
* Temporary living expenses for employee, if necessary, before the family
relocates
<PAGE> 1
EXHIBIT 10.16
[UNITED SAVINGS LETTERHEAD]
May 10, 1991
Mr. Leslie H. Green
764 Colony Circle
Pittsburgh, Pennsylvania 15243
Dear Mr. Green:
We write to set forth our agreement with respect to your employment
with United Savings Association of Texas FSB (the "Company"). The terms and
conditions of this letter shall be effective as of the date you actually began
employment with the Company (the "Commencement Date"), which shall be no later
than June 3, 1991.
1. Your title will be Senior Vice President of the Company. You
will act as the Director of Systems and Operations. You will
have such other duties as the President or the Board of
Directors of the Company (the "Board") may assign to you
from time to time. Any additional assignments will be
consistent with your position as Director of Systems and
Operations. Your authority shall be subject at all times to
the direction of the President and the Board.
2. Of course, you shall use your best professional efforts,
skills, and abilities in the performance of your services and
you shall not take part in activities detrimental to the best
interests of the Company. You agree to faithfully and
diligently contribute to maintaining and improving the
performance and the professional reputation of the Company.
Because of the importance and sensitivity of your role in the
Company, your position with the Company shall require your
full-time business and professional time, attention, and
energies. Given your position of trust and confidence, you
shall treat as confidential and shall not, without prior
written authorization from the President or the Board,
directly or indirectly disclose to any person, firm,
association, or corporation or use for your own benefit or
gain any confidential, privileged, or secret information
relating to the business of the Company, whether during
the period of your employment with the Company or thereafter.
<PAGE> 2
3. As full compensation for your services to be rendered
hereunder and in consideration of your representations and
covenants set forth herein, you shall receive:
(a) For the twelve months following the date you actually
begin your employment with the Company (the
"Commencement Date"), you will be paid a salary
according to the Company's normal payroll practices
at an annual rate of One Hundred Fifty Five Thousand
dollars ($155,000.00). After the first anniversary of
the Commencement Date, your salary will be set by the
President and the Board.
4. It is anticipated that the Company will set up a discretionary
incentive bonus pool. Any payment to you out of that pool
would be in the sole discretion of the Company.
5. The Company will provide you with such additional non-salary
benefits, such as life, disability, and health insurance as
are granted to the Company's employees generally.
6. Your employment will be on an at-will basis. If the Company
terminates your employment without cause prior to the first
anniversary of the Commencement Date, you shall receive the
base salary provided for in paragraph 3(a) accrued to the
date of such termination plus nine (9) months salary at the
annual rate set forth in paragraph 3(a) payable to you on the
normal payroll distribution dates of the Company. You shall
have no other rights to any compensation or benefits hereunder.
7. If you are terminated for cause (cause shall mean any reason
that is not arbitrary, capricious, unjustified, or
discriminatory) or for any of the matters or reasons set forth
in 12 C.F.R. Section 563.39(b) (copy attached) or if you
voluntarily resign prior to the first anniversary of the
Commencement Date, you shall receive the base salary provided
for in paragraph 3(a) accrued to the date of such termination
or resignation. You shall have no other rights to any
compensation or benefits hereunder.
8. Any controversy, claim, or dispute arising out of or relating
to this agreement or your employment with the Company shall be
resolved solely and exclusively by binding arbitration before,
and in accordance with, the commercial rules, then obtaining,
of the American Arbitration Association located in Houston,
Texas, and judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The
laws of the State of Texas govern this agreement and your
employment relationship with the Company.
<PAGE> 3
9. So long as you are employed hereunder, you will be provided
the following relocation assistance:
(a) Shipment of your personal household goods from
Pittsburgh to Houston, including packing/unpacking
services and full replacement value insurance
coverage;
(b) Shipment of one automobile, if necessary;
(c) Temporary living in a corporate apartment for up to 90
days;
(d) Up to six return trips to Pittsburgh during the
90 days temporary living period, with a total cost not
to exceed $4,000;
(e) Reasonable and customary closing costs on the sale
of your personal residence in Pittsburgh and the
purchase of your personal residence in Houston
(items reimbursed include realtors' fees (maximum 6%)
on the sale of your residence, but exclude escrow,
tax, and insurance costs);
(f) Reasonable travel costs for you and your spouse
incurred in connection with your final move to
Houston;
(g) A tax equalization payment (not to exceed $5,000),
calculated in the discretion of the Company, on the
amount of relocation assistance payments made to you
or on your behalf in excess of IRS deductible limits;
and
(h) If you are unsuccessful in selling your personal
residence in Pittsburgh after 4 months from the
Commencement Date, the Company will arrange for a
third-party purchase of your residence at the
appraised market value accepted by the Company.
10. In the event you are terminated for cause or if you voluntarily resign
prior to the first anniversary of the Commencement Date, you will be
obligated to reimburse the Company for the payments made to you or on
your behalf as provided for in paragraph 9.
11. This agreement constitutes the entire agreement between you and the
Company. It is not effective unless signed by both parties in the
spaces indicated below and it can be modified only in a writing signed
by both parties.
<PAGE> 4
We are delighted that you have chosen to join us and help us build the
Company into a premier financial institution.
Sincerely,
UNITED SAVINGS ASSOCIATION OF TEXAS FSB
By: /s/ BARRY C. BURKHOLDER
-----------------------------------
Barry C. Burkholder
President and CEO
Accepted and Agreed
By: /s/ LESLIE H. GREEN
-----------------------------
Leslie H. Green
Date: May 15, 1991
----------------------------
cc: Karen Hartnett
<PAGE> 1
EXHIBIT 10.17
===============================================================================
UNITED SAVINGS INCENTIVE/BONUS PLANS PLAN NUMBER: 1
PLAN NAME: MANAGEMENT INCENTIVE PLAN PAGE: 1 of 2
DATE: 4/20/92
APPROVALS: LEGAL: [ILLEGIBLE]
----------------------------------------
HUMAN RESOURCES: [ILLEGIBLE]
------------------------------
EXECUTIVE: [ILLEGIBLE]
-----------------------------------
===============================================================================
PURPOSE:
To provide incentives to executive management and key managers to
achieve corporate financial goals.
ELIGIBILITY:
Participants are nominated by executive management and approved by the
President and CEO. There are two levels of participation: Tier A for
executive management and Tier B for key managers.
Tier A includes executives who are direct reports to the president and
CEO. Tier B includes key managers in the organization who typically
report to Tier A.
Employees eligible for other incentive/commission plans are not
eligible for the Management Incentive Plan.
PAYMENT FREQUENCY:
Payments are made annually, and will typically be between October 1 and
December 31 of each year.
PLAN DESIGN:
Performance Period - October 1 to September 30
Performance Measures - ROA, ROE and Net Income as budgeted and approved
by the Board of Directors.
In addition, the company must be in compliance
with capital requirements as of fiscal year end
and on the date payments are made. Furthermore,
the institution cannot be designated as a
problem association as defined by applicable
regulations.
Target Award Levels - Tier A: 0% to 25% of base salary
Tier B: 0% to 15% of base salary
<PAGE> 2
===============================================================================
UNITED SAVINGS INCENTIVE/BONUS PLANS Plan Number: 1
Plan Name: Management Incentive Plan Page: 2 of 2
Date: 4/20/92
===============================================================================
Award Pool Funding - Award pool is calculated based on the sum of the
aggregate salaries of the Tier A participants
multiplied by the appropriate percentage, plus the
average salary of Tier B participants multiplied by
the appropriate percentage multiplied by 25 (Note:
It is assumed that 25 of approximately 36 Tier B
participants will receive awards).
For Fiscal Year 1992, the pool is approximately
$630,000 if budgeted ROA, ROE and net income are
achieved. For Fiscal Year 1992 the pool will be
funded at 50% if ROA, ROE and 90% of budgeted net
income targets are achieved.
For Fiscal Year 1992, if budgeted targets are
exceeded, the President will seek an appropriate
bonus funding level from the Board of Directors.
The funding of the award pool is at the discretion
of the Board of Directors.
INDIVIDUAL AWARD DETERMINATION:
Managers recommend awards at year-end based on the individual's
contribution to the business plan and the achievement of
personal goals.
Participants must be actively employed at the time payment is made
to receive an incentive payment.
Employees do not accrue any bonus rights under the provisions of this
plan.
PAYMENT APPROVAL PROCESS:
Tier A awards are approved by the Board of Directors.
Tier B awards are approved by the President and CEO.
<PAGE> 1
Exhibit 10.18
[EQUITABLE CAPITAL LETTERHEAD]
January 5, 1990
Re: USAT Holdings Inc.
Class C Common Stock
Hyperion Partners L.P.
c/o Ranieri Wilson & Co., Inc.
520 Madison Avenue
New York, New York 10022
Attention: Mr. Lewis S. Ranieri,
President, LSR Hyperion Corp.
Dear Sirs:
Equitable Capital Partners, L.P. and Equitable Capital Partners
(Retirement Fund), L.P. (the "Funds"), together with other affiliates of
Equitable Capital Management Corporation ("Equitable Capital"), delivered to
USAT Holdings Inc. (the "Company") a Stock Purchase Agreement dated as of
August 1, 1989 to acquire shares of Class C Common Stock of the Company. In
accordance with such Stock Purchase Agreement, this is to confirm that Hyperion
Partners L.P. (the "Sponsor"), as a member of the investor group which includes
the Funds, will, upon completion of the acquisition, provide significant
managerial assistance to the Company by having one or more employees of
entities that are partners of its general partners or of Ranieri Wilson & Co.,
Inc. or affiliated entities, with financial or management expertise, serve as
members of the Company's Board of Directors. The Sponsor shall act according to
its independent judgment and not under the direction or control of Equitable
Capital. Nothing contained in this letter shall require any employee of the
Sponsor who is a member of the Board of Directors of the Company to act in a
manner contrary to applicable law.
<PAGE> 2
4
The Sponsor will make such reports to Equitable Capital as may be
reasonably requested by Equitable Capital in its capacity as managing general
partner of the Funds, regarding the nature and the extent of the managerial
assistance provided by the Sponsor to the Company on behalf of itself and the
Funds. In addition, the Sponsor will notify Equitable Capital prior to any
change in the nature and extent of its managerial assistance to the Company.
In addition, the Sponsor's obligations under this letter shall cease
when the Funds shall no longer hold any securities of the Company, upon the
consummation of an initial public offering of any securities of the Company or
the sale or merger of the Company into a public company.
Very truly yours,
EQUITABLE CAPITAL PARTNERS, L.P.
By Equitable Capital Management
Corporation
Managing General Partner
By: /s/ William Gobbo, Jr.
-------------------------------
Title: Managing Director
EQUITABLE CAPITAL PARTNERS,
(RETIREMENT FUND), L.P.
By Equitable Capital Management
Corporation
Managing General Partner
By: /s/ William Gobbo, Jr.
-------------------------------
Title: Managing Director
Hyperion Partners L.P.
hereby agrees to the matters
contained in this letter.
By: Hyperion Ventures L.P.,
the General Partner
By: SAS Hyperion Corp.,
a General Partner
/s/ Scott A. Shay
- -------------------------------
Name: Scott A. Shay
Title: President
<PAGE> 1
EXHIBIT 10.22
BANK UNITED OF TEXAS FSB
SUPPLEMENTAL EXECUTIVE SAVINGS PLAN
EFFECTIVE AUGUST 1, 1995
(As Amended on December 1, 1995)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Status of Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Administrator . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Annual Deferral Agreement . . . . . . . . . . . . . . . . . . . 1
2.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . 1
2.6 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Bonus Deferral Amount . . . . . . . . . . . . . . . . . . . . . 2
2.8 Change of Control . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.13 Compensation Deferral Amount . . . . . . . . . . . . . . . . . . 3
2.14 Credited Income . . . . . . . . . . . . . . . . . . . . . . . . 3
2.15 Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . 3
2.16 Deferral Payment Date . . . . . . . . . . . . . . . . . . . . . 3
2.17 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.18 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . 3
2.19 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.20 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.21 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.22 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.23 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . 4
3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV. DEFERRAL AMOUNTS, DEFERRAL ELECTIONS . . . . . . . . . . . . . . 5
4.1 Types of Deferral Amounts . . . . . . . . . . . . . . . . . . . 5
</TABLE>
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<TABLE>
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4.2 Compensation Deferral Election . . . . . . . . . . . . . . . . . 5
4.3 Bonus Deferral Election . . . . . . . . . . . . . . . . . . . . 5
4.4 Deferral Elections . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Time of Payment of Deferral Amounts. . . . . . . . . . . . . . . 6
5.2 Form of Payment of Deferral Amounts. . . . . . . . . . . . . . . 6
5.3 Distribution for Unforseen Emergency . . . . . . . . . . . . . 6
5.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Minimum Distributions . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI. ACCOUNTS; CREDITED INCOME. . . . . . . . . . . . . . . . . . . . 7
6.1 Participant Accounts . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Crediting of Assumed Income. . . . . . . . . . . . . . . . . . . 8
6.3 Nature of Account Entries . . . . . . . . . . . . . . . . . . . 8
6.4 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.5 Account Statements . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VII. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . 8
7.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Rules; Claims for Benefits . . . . . . . . . . . . . . . . . . . 9
7.3 Finality of Determinations . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII. FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.1 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX. AMENDMENT; TERMINATION; MERGER . . . . . . . . . . . . . . . . . 10
9.1 Amendment and Termination . . . . . . . . . . . . . . . . . . . 10
9.2 Change of Control . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Automatic Payment . . . . . . . . . . . . . . . . . . . . . . . 11
9.4 Receipt and Release . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE X. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 11
10.2 Effect on Other Plans . . . . . . . . . . . . . . . . . . . . . 12
10.3 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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10.4 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.5 Plan Not an Employment Contract . . . . . . . . . . . . . . . . . 12
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.7 Gender, Tense and Headings . . . . . . . . . . . . . . . . . . . 13
10.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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ARTICLE I. INTRODUCTION
1.1 PURPOSE OF PLAN. The Company has adopted the Plan set forth herein to
provide a means by which selected Eligible Employees may elect to defer
receipt of designated percentages or amounts of their Compensation and/or
Bonuses.
1.2 STATUS OF PLAN. The Plan is "a plan which is unfunded and is maintained by
an employer primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees" within
the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be
interpreted and administered in a manner appropriate to such plans.
ARTICLE II. DEFINITIONS
Wherever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 ACCOUNT means the recordkeeping account or accounts that are maintained
under the name of a Participant to account for any Compensation Deferral
Amounts, Bonus Deferral Amounts, and any Credited Income thereon, which
may be credited to such accounts from time-to-time.
(a) COMPENSATION DEFERRAL ACCOUNT means a separate recordkeeping
subaccount maintained to account for a Participant's
Compensation Deferral Amounts plus Credited Income thereon.
(b) BONUS DEFERRAL ACCOUNT means a separate recordkeeping
subaccount maintained to account for a Participant's Bonus
Deferral Amounts, plus Credited Income thereon.
2.2 ADMINISTRATOR means the Company as the Plan Administrator for purposes of
ERISA.
2.3 ANNUAL DEFERRAL AGREEMENT means an instrument in form satisfactory to the
Committee used by Participants and administered by the Committee to
designate Deferral Amounts on a Plan Year basis.
2.4 BENEFICIARY means the person, persons, or trust designated by a
Participant as provided in Section 10.1.
2.5 BOARD OF DIRECTORS means the Board of Directors of the Company.
<PAGE> 6
2.6 BONUS means any management incentive, override, or other bonus award that
an Eligible Employee may become eligible to receive from the Company, and
that may be otherwise paid on a quarterly or less frequent basis.
2.7 BONUS DEFERRAL AMOUNT means that portion, in whole percentage or dollar
terms, of an Eligible Employee's Bonus that he or she has elected to
defer, as provided in Section 4.3.
2.8 CHANGE OF CONTROL A "Change in Control" shall be deemed to have occurred
on the earliest of the following dates:
(a) The date any entity (other than the Company's direct or indirect
parent corporations or entities ("Company's Parent") as of the
Effective Date) or person (including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 regardless
of whether the Company is publicly traded) shall have become the
beneficial owner of, or shall have obtained voting control over,
thirty percent (30%) or more of the outstanding common shares of
the Company;
(b) The date the shareholders of the Company or the Company's Parent
approve a definitive agreement (i) to merge or consolidate the
Company or the Company's Parent with or into another corporation,
in which the Company or the Company's Parent is not the continuing
or surviving corporation or pursuant to which any common shares of
the Company or the Company's Parent would be converted into cash,
securities or other property of another corporation, other than a
merger of the Company or the Company's Parent in which holders of
common shares immediately prior to the merger have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before, or
(ii) to sell or otherwise dispose of substantially all the assets
of the Company or the Company's Parent;
(c) The date that Hyperion Partners L.P. shall, for any reason, cease
to control directly or indirectly fifty percent (50%) or more of
the voting shares of the Company; or
(d) Any other date on which the Board of Directors determines, in its
sole and absolute discretion, that a Change of Control for
purposes of the Plan has occurred.
2.9 CODE means the Internal Revenue Code of 1986, as amended from time to
time. Reference to any section or subsection of the Code includes
reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.
2.10 COMMITTEE means the committee of Employees selected by the Board of
Directors to oversee the day-to-day administration of the Plan and to make
determinations, as more fully set forth in Article VII.
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2.11 COMPANY means Bank United of Texas FSB.
2.12 COMPENSATION means any base salary, commission, override, incentive,
cumulative draw, non-cumulative draw, guaranteed base commission, or
another form of compensation that is paid through the Company's normal
payroll cycle on a frequency that is greater than quarterly.
2.13 COMPENSATION DEFERRAL AMOUNT means that portion, in whole percentage or
dollar terms, of an Eligible Employee's Compensation that he or she has
elected to defer, as provided in Section 4.2.
2.14 CREDITED INCOME means the assumed earnings credited to a Participant's
Account, as provided in Section 6.2.
2.15 DEFERRAL AMOUNTS means either Compensation Deferral Amounts or Bonus
Deferral Amounts, or both as more fully described in Article IV.
2.16 DEFERRAL PAYMENT DATE means the payment date, as specified by a
Participant on the Participant's Annual Deferral Agreement, on which he or
she elects to have paid the amount which was deferred pursuant to such
Annual Deferral Agreement.
2.17 EFFECTIVE DATE means August 1, 1995, the date as of which the Plan first
becomes effective.
2.18 ELIGIBLE EMPLOYEE means, on the Effective Date or on any Entry Date
thereafter, each employee of the Company who is designated as eligible to
participate in the Plan by the Committee in its sole and absolute
discretion.
2.19 ENTRY DATE means the first day of each Plan Year.
2.20 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any action or subsection of ERISA
includes reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or
subsection.
2.21 PARTICIPANT means an Eligible Employee who has elected, under the terms
and conditions of the Plan, to enter into an Annual Deferral Agreement to
defer his or her receipt of all or a portion of his or her Compensation or
Bonus for the Plan Year.
2.22 PLAN means the Bank United of Texas FSB Supplemental Executive Savings
Plan as set forth herein, and as it may be amended from time to time.
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2.23 PLAN YEAR means the 12-month period beginning each January 1 and ending
December 31 of such year; provided, however, the first Plan Year shall be
a short year commencing on August 1, 1995 and ending December 31, 1995.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. The Committee shall provide each Eligible Employee with
notice of his or her status as an Eligible Employee, so as to permit such
Eligible Employee the opportunity to make the elections provided for under
Article IV. Such notice shall be given at such time and in such manner as
the Committee may determine from time to time, and shall advise the
Eligible Employee of the time and manner for filing his or her Annual
Deferral Agreement.
The Committee shall have the sole and absolute authority and discretion,
on a Plan Year basis, to determine the select group of management or
highly compensated employees who are Eligible Employees.
3.2 PARTICIPATION.
(a) IN GENERAL. An Eligible Employee shall become a Participant as of
the first day of the Plan Year immediately following the year
during which the Committee receives his or her Annual Deferral
Agreement pursuant to Article IV, except for the first Plan Year
in which Eligible Employees may become Participants as of August
1, 1995 provided that their Annual Deferral Agreements are
received before such date.
(b) CESSATION OF STATUS AS ELIGIBLE EMPLOYEE. If an Eligible Employee
with an Annual Deferral Agreement in effect for a particular Plan
Year ceases to be an Eligible Employee during such Plan Year, his
or her election with respect to a Compensation Amount shall
terminate effective as of the close of the payroll period during
which he or she ceases to be an Eligible Employee. Such Employee's
election with respect to his or her Bonus Deferral Amount shall
terminate as of the first day on which he or she no longer
qualifies as an Eligible Employee. The provisions in the preceding
two sentences relate only to the discontinuance of Annual Deferral
Agreement elections for the remainder of the Plan Year in which
the Employee terminates employment or otherwise ceases to be an
Eligible Employee. Amounts credited to such Participant's Accounts
under any deferral election prior to its discontinuance shall be
payable pursuant to the terms of the Annual Deferral Agreement.
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<PAGE> 9
ARTICLE IV. DEFERRAL AMOUNTS, DEFERRAL ELECTIONS
4.1 TYPES OF DEFERRAL AMOUNTS. There are two types of Deferral Amounts that
are applicable to a Participant under the Plan; Compensation Deferral
Amounts as described in Section 4.2, and Bonus Deferral Amounts as
described in Section 4.3.
4.2 COMPENSATION DEFERRAL ELECTION.
(a) COMPENSATION DEFERRAL AMOUNT. An Eligible Employee may elect to
defer up to twenty percent (20%), in whole percentage or dollar
terms, of his or her Compensation.
(b) ELECTION OF COMPENSATION DEFERRAL AMOUNT. To make an effective
deferral election of a Compensation Deferral Amount for a Plan
Year, the Eligible Employee must file an Annual Deferral Agreement
with the Committee in accord with such rules as are set by the
Committee, before the first day of the Plan Year. Each such
election shall be made with respect to a specific Plan Year and
all payroll periods applicable to the Eligible Employee which
begin within such Plan Year. A deferral election filed for a Plan
Year shall only be effective for such Plan Year.
4.3 BONUS DEFERRAL ELECTION
(a) BONUS DEFERRAL AMOUNT. An Eligible Employee may elect to defer up
to one hundred percent (100%), in whole percentage or dollar
terms, of any Bonus he or she may be awarded by the Company.
(b) ELECTION OF BONUS DEFERRAL AMOUNT. To make an effective deferral
election of a Bonus Deferral Amount for a Plan Year, the Eligible
Employee must file an Annual Deferral Agreement with the
Committee. Each such election shall be made with respect to all
Bonuses earned and payable to the Eligible Employee within such
Plan Year. The Eligible Employee must file the appropriate Annual
Deferral Agreement with the Committee in accord with such rules as
are set by the Committee, but in no event later than the last
business day immediately preceding the Plan Year for which the
election is effective. Any deferral election filed for a Plan Year
shall only be effective for such Plan Year.
4.4 DEFERRAL ELECTIONS. All Compensation Deferral Amount and Bonus Deferral
Amount elections, as provided under Sections 4.2 and 4.3, respectively,
shall be made on such Annual Deferral Agreements as are prescribed by the
Committee. Each election form shall specify the nature of the Deferral
Amount, in whole percentage or dollar terms, the Beneficiary or
Beneficiaries to receive any death benefit applicable to the subject
amount, as provided in Section 5.4 and the Deferral Payment Date on which
payment is to be made
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<PAGE> 10
by the Company with respect to such Deferral Amount. Except as otherwise
provided in Section 4.2. and 4.3, all such Compensation Deferral Amount
and Bonus Deferral Amount elections shall become irrevocable for the
subject Plan Year once the Plan Year has commenced. An Eligible Employee
may change or revoke his or her Compensation Deferral election under
Section 4.2 and/or his or her Bonus Deferral election under Section 4.3
pursuant to such rules as are set by the Committee, but in no event may
any such election be amended or revoked after the last business day
immediately preceding the Plan Year for which the election is effective.
Only Eligible Employees designated by the Committee for a particular Plan
Year may file Annual Deferral Agreements for that Plan Year.
ARTICLE V. PAYMENT OF BENEFITS
5.1 TIME OF PAYMENT OF DEFERRAL AMOUNTS. On each Annual Deferral Agreement
filed by a Participant, such Participant shall specify the Deferral
Payment Date on which benefit payments under the Plan are to be made with
respect to the Deferral Amount covered by such Annual Deferral Agreement.
Additionally, on such Agreement, the Participant may elect to have
payments made on the earlier of a specific Deferral Payment Date or 60
days following the date on which he or she terminates employment with the
Company and its related entities. Additionally, on such Agreement, the
Participant may elect that in all events payment shall be made 60 days
following the date on which he or she terminates employment with the
Company and its related entities. If for any reason the Eligible Employee
fails to make an effective Deferral Payment Date designation, his or her
Deferral Payment Date for the amount that is the subject of the Annual
Deferral Agreement shall be 60 days following the date on which the
Eligible Employee terminates employment with the Company and related
entities.
5.2 FORM OF PAYMENT OF DEFERRAL AMOUNTS. The form of payment for all Deferral
Amounts shall be a single lump sum payment.
5.3 DISTRIBUTION FOR UNFORSEEN EMERGENCY. If a Participant suffers an
unforseen emergency, as defined below, the Committee, in its sole and
absolute discretion, may pay to the Participant only that portion, if any,
of amounts credited to his or her Account which the Committee determines
is necessary to satisfy the emergency need, including any amount necessary
to pay any federal, state or local taxes reasonably anticipated to result
from the distribution. A Participant requesting an emergency payment shall
apply for the payment in writing in a form approved by the Committee and
shall provide such information as the Committee may require.
For purposes of this section, "unforeseen emergency" means an
unforeseeable emergency and severe financial hardship to the Participant
resulting from a sudden and unexpected
6
<PAGE> 11
illness or accident of the Participant or of a dependent (as defined in
Section 152(a) of the Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. The circumstances that will constitute an unforeseen
emergency will depend upon the facts of each case, but a financial
emergency shall not be deemed to exist to the extent that such hardship is
or may be relieved:
(a) Through reimbursement or compensation by insurance or otherwise;
(b) By liquidation of to the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship; or
(c) By cessation of elective deferrals under this Plan or by cessation
of elective deferrals under the Company's 401(k) plan.
By way of example, the need to send a Participant's child to college or
the desire to purchase a home would not be considered an unforseen
emergency.
Withdrawals of amounts because of an unforseen emergency shall only be
permitted to the extent reasonably needed to satisfy the emergency need.
The Committee, in its discretion, shall determine whether an unforeseen
emergency has occurred and the amount needed to satisfy the emergency need
including any applicable taxes on the distribution.
5.4 DEATH BENEFITS. If a Participant shall die with a balance credited to his
or her Account, such balance shall be paid to his or her applicable
designated Beneficiary or Beneficiaries as provided in Section 10.1. Such
payment shall be made within 60 days following the death of the
Participant, or the notification of the death of the Participant.
5.5 WITHHOLDING OF TAXES. The Company shall have the right to deduct from all
payments made under the Plan any federal, state, or local taxes required
by law to be withheld with respect to such payments.
5.6 MINIMUM DISTRIBUTIONS. If a Participant's employment with the Company has
terminated, and if such Participant's total account balance is less than
$5,000, the Committee will direct the Company to automatically distribute
the entire balance to the Participant.
ARTICLE VI. ACCOUNTS; CREDITED INCOME
6.1 PARTICIPANT ACCOUNTS. The Committee shall maintain, or cause to be
maintained, bookkeeping Accounts for each Participant for the purpose of
accounting for the Participant's beneficial interest under the Plan. The
establishment and maintenance of
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separate Accounts for each Participant shall not be construed as giving
any person an interest in assets of the Company or a right to payment
other than as provided hereunder. Benefits payable hereunder shall
constitute an unsecured general obligation of the Company and each
Participant shall be a general unsecured creditor with respect thereto.
6.2 CREDITING OF ASSUMED INCOME. Each month during the term of the Plan, the
Committee shall credit Accounts with Credited Income at the rate of return
equal to the simple average of the posted interest rates for certificates
of deposit whose payment term is 9, 10, 11, 12, 13, 14, or 15 months on
the first day of the calendar month. Such rate shall be established on a
monthly basis by the Committee and will apply to all Deferral Amounts
credited to an Account in that calendar month.
6.3 NATURE OF ACCOUNT ENTRIES. The establishment and maintenance of
Participants' Accounts shall be merely bookkeeping entries and shall not
be construed as giving any person an interest in any specific assets of
the Company or of any subsidiary or affiliate of the Company, or a secured
right to payment, other than as specifically provided herein. Benefits
payable pursuant to the Plan shall constitute an unsecured general
obligation of the Company until actually paid.
6.4 VESTING. A Participant shall have a fully vested and non-forfeitable
beneficial interest in the balance standing to the credit of all his or
her Accounts as of any relevant date, subject to the conditions and
limitations on the payment of amounts credited to such Accounts as
provided hereunder.
6.5 ACCOUNT STATEMENTS. The Committee shall provide each Participant with a
statement of the status of his or her Accounts, including all amounts then
credited thereto. The Committee shall provide such statement annually or
at other such intervals as the Committee may determine from time to time,
and such statement shall be in such format as determined by the Committee.
ARTICLE VII. ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATION. The Plan shall be administered by a Committee of persons
appointed by the Board of Directors; provided, however, that such
Committee may not consist solely of one person. A majority of the members
of the Committee shall constitute a quorum, and the acts of a majority of
the members present, or acts approved in writing by a majority of the
members without a meeting, shall be the acts of the Committee. The
Committee shall have that authority which is expressly stated in the Plan
as vested in the Committee. The Committee shall also have the
discretionary authority to make rules to administer and interpret the
Plan, to decide questions arising under the Plan, and to take
8
<PAGE> 13
such other action as it deems to be appropriate in its discretion to carry
out the purposes of the Plan.
The Committee shall also have the sole and absolute control and authority
to determine rights and benefits, and all claims, demands, and actions of
any Eligible Employee, Participant, Beneficiary, deceased Participant, or
other person having or claiming to have any interest under the Plan. The
Committee shall have sole and absolute discretion to construe and
construct the Plan and to decide all matters arising under the Plan.
Subject to Section 7.2, the Committee's decision shall be final,
conclusive, and binding on all Participants and any person claiming under
or through any Participant. Any individual serving as a member of the
Committee who is also a Participant will not vote or act on any matter
relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information
furnished by a Participant, Beneficiary or the Company. The Committee may
also appoint or engage such agents as it deems to be appropriate, and may
delegate any of its powers or duties hereunder to any person or entity as
it deems appropriate.
To enable the Committee to perform its functions, the Company shall supply
full and timely information to the Committee on all matters relating to
the Compensation of Participants, their employment, retirement, death,
termination of employment, and such other pertinent facts as the Committee
may require.
7.2 RULES; CLAIMS FOR BENEFITS. The Committee shall adopt and establish such
rules and regulations with respect to the administration of the Plan as it
deems necessary or appropriate. In the event that a Participant or a
Beneficiary claims any right hereunder, he or she may submit such
information to the Committee as he or she deems to be necessary or
appropriate. The Committee and the claimant shall in good faith attempt to
resolve the claim in an expeditious and informal manner. If the Committee
and the claimant fail to resolve the claim, a written notice of such
failure shall be furnished to the claimant within ninety (90) days after
the claim is filed with the Committee. Such notice shall refer, if
appropriate, to pertinent provisions of the Plan, shall set forth in
writing the reasons for denial of the claim. If the claim is denied, in
whole or on part, the claimant shall also be notified in writing that a
review procedure is available under the Plan.
Within ninety (90) days after receiving the written notice of the
Committee's failure to resolve the claim, the claimant may request in
writing, and shall be entitled to one, de novo review meeting with the
Committee. The claimant may submit a written statement of his or her claim
and the reason for requesting a review of the claim. Such statement may
be submitted in addition to, or in lieu of, the review meeting. If the
claimant does not request a review meeting within ninety (90) days after
receiving written notice of the Committee's failure to resolve the claim
to his or her satisfaction, the claimant shall be deemed to have accepted
the Committee's written disposition.
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A decision on review of the claim by the Committee shall be made within
sixty (60) days after review, and a written copy of such decision shall be
delivered to the claimant. If special circumstances require an extension of
the ordinary period, the Committee shall also notify the claimant. In any
event, if a claim is not determined within one hundred twenty (120) days
after submission for review, the Committee's decision shall remain
unchanged. To the extent required by law, completion of the claims
procedures described in this Article VII shall be a mandatory precondition
that must be complied with prior to the commencement of a legal or
equitable action by a person claiming rights under the Plan. The Committee
and the claimant may by mutual agreement waive these procedures as a
mandatory condition to such action. In no event shall the claims procedure
set forth in this Article VII be applied to circumvent or have the effect
of modifying either the manner of payment or the time of commencement of
payment under the terms of the Plan.
7.3 FINALITY OF DETERMINATIONS. Except as provided by law, all determinations
of the Reviewer to any matter arising under the Plan, including questions
of construction and interpretation, shall be final, binding and conclusive
upon all interested persons and entities.
ARTICLE VIII. FUNDING
8.1 FUNDING. All amounts due under the Plan shall be paid in cash from the
general assets of the Company. No participant shall have any right, title,
or interest whatsoever in or to any investment reserves, accounts, or
funds that the Company may purchase, establish, or accumulate to aid in
providing benefits hereunder. Participants and Beneficiaries shall not
acquire any interest under the Plan greater than that of unsecured general
creditors of the Company.
ARTICLE IX. AMENDMENT; TERMINATION; MERGER
9.1 AMENDMENT AND TERMINATION. The Board of Directors or Committee may amend,
modify, or terminate the Plan at any time, but in no event shall any such
amendment, modification, or termination result in a reduction in any
Participant's Accounts or postpone the time of payment hereunder unless
the Participant or Beneficiary who suffers such a reduction or
postponement by reason of such proposed amendment, modification, or
termination, consents thereto in writing. Notwithstanding the foregoing
sentence, the right to terminate the Plan, amend the definition of
Eligible Employee, or amend Article IV of the Plan shall be the exclusive
right of the Board of Directors. Subject to the previous provisions of
this paragraph, all amendments shall be made by an instrument in writing
which has been executed on the Employer's behalf by action of the
Committee or by a
10
<PAGE> 15
duly adopted resolution of the Board of Directors, effective as of the
date specified therein including a retroactive effective date if
applicable.
In the event of a termination of the Plan, no further deferral elections
may be made under the Plan and amounts that are then payable, or which may
become payable under the Plan, shall be paid as scheduled in accordance
with the provisions of the Plan, or shall be accelerated at the sole
discretion of the Board of Directors.
9.2 CHANGE OF CONTROL. In the event of a Change of Control, the Board of
Directors may, at its option, terminate the Plan, and, upon such
termination, all benefits due under the Plan shall be paid within 30 days.
If the Board of Directors does not terminate the Plan upon a Change of
Control, all benefits hereunder shall become immediately due and payable
if the Participant voluntarily or involuntarily terminates employment on
or before the second anniversary of such Change in Control, and each
Participant shall have the right to receive his or her benefits hereunder
in a single lump sum payment within 30 days of his or her termination
date.
9.3 AUTOMATIC PAYMENT. Notwithstanding any provision herein to the contrary,
if it has been finally determined that amounts credited to a Participant's
Account are currently includable in the taxable income of the Participant
or his or her Beneficiary, such funds shall be immediately distributed to
such Participant or Beneficiary upon written request made to the
Committee. For purposes of this Section, a final determination shall
occur when a decision is determined by the highest court which could
otherwise render a decision (or the Participant or Beneficiary and the
Internal Revenue Service have reached a final agreement) in this regard.
9.4 RECEIPT AND RELEASE. Any payment to any Participant or Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof,
be in full satisfaction of all claims against the Company or the Committee
under the Plan, and the Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a
receipt and release to such effect. If any Participant or Beneficiary is
determined by the Committee to be incompetent by reason of physical or
mental disability (including minority) to give a valid receipt and
release, the Committee may cause the payment becoming due to such person
to be made to another person for his or her benefit without responsibility
on the part of the Committee or the Company to follow the application of
such funds.
ARTICLE X. GENERAL PROVISIONS
10.1 BENEFICIARY DESIGNATION. A Participant shall designate a Beneficiary or
Beneficiaries who, upon his or her death, are to receive payments that
otherwise would have been paid
11
<PAGE> 16
to him or her under the Plan. All Beneficiary designations shall be in
writing and on a form prescribed by the Committee for such purpose, and
any such designation shall be effective only if and when delivered to the
Committee during the lifetime of the Participant. A Participant may from
time to time during his or her lifetime change a designated Beneficiary by
filing a new Beneficiary designation form with the Committee. In the event
a designated Beneficiary predeceases the Participant, the designation of
such Beneficiary shall be void. If a designated Beneficiary dies after the
Participant, but before all death benefit payments relating to such
Beneficiary have been paid, the remainder of such death benefit payments
shall be continued to such Beneficiary's estate, unless the Participant
had designated on the applicable Beneficiary designation form a contingent
Beneficiary. In the event a Participant should fail to designate a
Beneficiary or Beneficiaries with respect to any death benefit payments,
or if for any reason such designation shall be ineffective, in whole or in
part, any payment that otherwise would have been paid to such Participant
shall be paid to his or her estate and in such event, his or her estate
shall be his or her Beneficiary with respect to such payments.
10.2 EFFECT ON OTHER PLANS. Deferred Amounts shall not be considered as part of
a Participant's taxable compensation at the time of deferral, to the
extent required under the Code and the terms of the Company's 401(k) Plan,
but such Deferred Amounts shall be taken into account under all other
employee benefit plans maintained by the Company in the year in which such
amounts would have been payable in the absence of a deferral election
hereunder; provided, however, that such deferred amounts shall not be
taken into account to the extent that their inclusion would jeopardize the
tax-qualified status of the plan to which they relate or contravene
applicable provisions of the Code.
10.3 NONTRANSFERABILITY. No right or interest of any Participant in the Plan
shall be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, or be subject to payment
of debts of any Participant or Beneficiary by execution, levy,
garnishment, attachment, pledge, bankruptcy, or in any other manner.
Notwithstanding the foregoing, upon receipt of a copy of a decree from a
court of competent jurisdiction that finally declares a Participant's
spouse as having property rights to a portion of the amounts credited to
such Participant's Account, the Committee shall segregate such portion
from the Participant's Account and pay that portion to or for the benefit
of the spouse as directed by the court order.
10.4 COMMUNICATIONS. No communication which relates to the Plan shall be
binding on any person or entity until it is received by such person or
entity.
10.5 PLAN NOT AN EMPLOYMENT CONTRACT. The Plan is not an employment contract.
It does not give any person the right to be continued in employment, and
all Eligible Employees and other employees remain subject to change of
salary, transfer, change of job, discipline, layoff, discharge, or any
other change of employment status to the same extent as if the Plan did
not exist.
12
<PAGE> 17
10.6 SEVERABILITY. If any provision of the Plan is ruled for any reason to be
invalid, illegal, or unenforceable, such invalidity, illegality or
unenforceability shall not affect the other provisions hereof and the Plan
shall be enforced to the maximum extent permitted; moreover, the invalid,
illegal or unenforceable provision may be conformed or severed by the
Committee to the extent necessary to create a valid, legal and enforceable
provision.
10.7 GENDER, TENSE AND HEADINGS. Whenever the context requires, words of the
masculine gender used herein shall include the feminine, and words used in
the singular shall include the plural. The words "hereof", "hereunder",
"herein," and similar compounds of the word "here", refer to the entire
Plan and not to any particular term or provision of the Plan. Headings of
Articles and Sections, as used herein, are inserted solely for convenience
and reference and shall not affect the meaning, interpretation or scope of
the Plan.
10.8 APPLICABLE LAW. The Plan shall be governed and construed in accordance
with the laws of the State of Texas without regard to its conflicts of law
principles, except to the extent such laws are preempted by any applicable
Federal law.
IN WITNESS WHEREOF, this Plan is hereby executed this 12 day of December,
1995 by a duly authorized officer of the Company, to be effective as of August
1, 1995.
<TABLE>
<S> <C>
ATTEST: BANK UNITED OF TEXAS FSB:
By: /s/ JOHN A. RITCHIE By: /s/ BARRY C. BURKHOLDER
--------------------- -------------------------
Name: John A. Ritchie Name: Barry C. Burkholder
------------------- -----------------------
Title: V.P. Compensation & Benefits Title: President/CEO
------------------------------ ----------------------
</TABLE>
13
<PAGE> 1
EXHIBIT 10.23
BANK UNITED OF TEXAS FSB
DIRECTORS SUPPLEMENTAL SAVINGS PLAN
Effective August 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Annual Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.6 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.7 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Compensation Deferral Amount . . . . . . . . . . . . . . . . . . . . . . . . 2
2.12 Credited Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13 Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.14 Deferral Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.15 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.16 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.17 Outside Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.18 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.19 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.20 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV. DEFERRAL AMOUNTS, DEFERRAL ELECTIONS . . . . . . . . . . . . . . . . . . . . . 4
4.1 Compensation Deferral Election . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Deferral Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Time of Payment of Deferral Amounts . . . . . . . . . . . . . . . . . . . . 5
5.2 Form of Payment of Deferral Amounts . . . . . . . . . . . . . . . . . . . . 5
5.3 Distribution for Unforseen Emergency . . . . . . . . . . . . . . . . . . . . 5
5.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.5 Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI. ACCOUNTS; CREDITED INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Participant Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Crediting of Assumed Income . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Nature of Account Entries . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 Account Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Rules; Claims for Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3 Finality of Determinations . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.4 Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII. FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX. AMENDMENT; TERMINATION; MERGER . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.2 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.3 Automatic Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.4 Receipt and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 Effect on Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.3 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.4 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.5 Plan Not a Service Contract . . . . . . . . . . . . . . . . . . . . . . . . 11
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.7 Gender, Tense and Headings . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
ii
<PAGE> 4
ARTICLE I. PURPOSE
The Company has adopted the Plan set forth herein to provide a means by
which its Outside Directors may elect to defer receipt of designated
percentages or amounts of their Compensation from the Company. The Plan does
not cover any employees and thus is not subject to the Employee Retirement
Income Security Act of 1974.
ARTICLE II. DEFINITIONS
Wherever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 ACCOUNT means the recordkeeping account or accounts that are maintained
under the name of a Participant to account for any Deferral Amounts and
any Credited Income thereon, which may be credited to such accounts from
time-to-time.
2.2 ADMINISTRATOR means the Company as the Plan Administrator.
2.3 ANNUAL DEFERRAL AGREEMENT means an instrument in form satisfactory to the
Committee used by Participants and administered by the Committee to
designate Deferral Amounts on a Plan Year basis.
2.4 BENEFICIARY means the person, persons, or trust designated by a
Participant as provided in Section 10.1.
2.5 BOARD OF DIRECTORS means the Board of Directors of the Company.
2.6 CHANGE OF CONTROL A "Change in Control" shall be deemed to have occurred
on the earliest of the following dates:
(a) The date any entity (other than the Company's direct or indirect
parent corporations or entities ("Company's Parent") as of the
Effective Date) or person (including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934
regardless of whether the Company is publicly traded) shall have
become the beneficial owner of, or shall have obtained voting
control over, thirty percent (30%) or more of the outstanding
common shares of the Company;
(b) The date the shareholders of the Company or the Company's Parent
approve a definitive agreement (i) to merge or consolidate the
Company or the Company's Parent with or into another corporation,
in which the Company or the Company's Parent is not the
continuing or surviving corporation or pursuant to which any
common shares of the Company or
<PAGE> 5
the Company's Parent would be converted into cash, securities or
other property of another corporation, other than a merger of the
Company or the Company's Parent in which holders of common shares
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger as immediately before, or (ii) to
sell or otherwise dispose of substantially all the assets of the
Company or the Company's Parent;
(c) The date that Hyperion Partners L.P. shall, for any reason, cease
to control directly or indirectly fifty percent (50%) or more of
the voting shares of the Company; or
(d) Any other date on which the Board of Directors determines, in its
sole and absolute discretion, that a Change of Control for
purposes of the Plan has occurred.
2.7 CODE means the Internal Revenue Code of 1986, as amended from time to
time. Reference to any section or subsection of the Code includes
reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.
2.8 COMMITTEE means the committee of individuals selected by the Board of
Directors to oversee the day-to-day administration of the Plan and to
make determinations, as more fully set forth in Article VII.
2.9 COMPANY means Bank United of Texas FSB.
2.10 COMPENSATION means any directors' fees and meeting fees payable by the
Company that are earned by the Outside Director during a Plan Year.
2.11 COMPENSATION DEFERRAL AMOUNT means that portion, in whole percentage or
dollar terms, of an Outside Director's Compensation that he or she has
elected to defer, as provided in Section 4.1.
2.12 CREDITED INCOME means the assumed earnings credited to a Participant's
Account, as provided in Section 6.2.
2.13 DEFERRAL AMOUNTS means either Compensation Deferral Amounts as more fully
described in Article IV.
2.14 DEFERRAL PAYMENT DATE means the payment date, as specified by a
Participant on the Participant's Annual Deferral Agreement, on which he
or she elects to have paid the amount which was deferred pursuant to such
Annual Deferral Agreement. Deferral amounts may not be deferred to a
Deferral Payment Date
2
<PAGE> 6
which is less than one full Plan Year from the year of deferral unless
otherwise authorized by the Committee.
2.15 EFFECTIVE DATE means August 1, 1995, the date as of which the Plan first
becomes effective.
2.16 ENTRY DATE means the first day of each Plan Year.
2.17 OUTSIDE DIRECTOR means a current member of the Board of Directors who is
not an employee of the Company or any entity affiliated with the Company
pursuant to Sections 414(b) and 414(c) of the Code, except that in
applying such Code sections, 50 percent shall be substituted for 80
percent. The Outside Directors are considered independent contractors for
tax purposes.
2.18 PARTICIPANT means an Outside Director who has elected, under the terms
and conditions of the Plan, to enter into an Annual Deferral Agreement to
defer his or her receipt of all or a portion of his or her Compensation
for the Plan Year.
2.19 PLAN means the Bank United of Texas FSB Directors Supplemental Savings
Plan as set forth herein, and as it may be amended from time to time.
2.20 PLAN YEAR means the 12-month period beginning each January 1 and ending
December 31 of such year; provided, however, the first Plan Year shall be
a short year commencing on August 1, 1995 and ending December 31, 1995.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. The Committee shall provide each Outside Director the
opportunity to make the elections provided for under Article IV. Such
notice shall be given at such time and in such manner as the Committee
may determine from time to time, and shall advise the Outside Director of
the time and manner for filing his or her Annual Deferral Agreement.
3.2 PARTICIPATION.
(a) IN GENERAL. An Outside Director shall become a Participant as of
the first day of the Plan Year immediately following the year
during which the Committee receives his or her Annual Deferral
Agreement pursuant to Article IV (for the first Plan Year,
Outside Directors may become Participants as of August 1, 1995),
provided that their Annual Deferral Agreements are received
before such date.
3
<PAGE> 7
(b) CESSATION OF STATUS AS OUTSIDE DIRECTOR. If an Outside Director
with an Annual Deferral Agreement in effect for a particular Plan
Year ceases to be an Outside Director during such Plan Year, his
or her election with respect to a Deferral Amount shall terminate
effective for Compensation earned after the date on which he or
she ceases to be an Outside Director. The provisions in the
immediately preceding sentence relate only to the discontinuance
of Deferral Amounts for the remainder of the Plan Year in which
the Outside Director ceases to be an Outside Director. Amount
credited to such Participant's Account under any deferral
election prior to its discontinuance shall be payable pursuant to
the terms of the Annual Deferral Agreement.
ARTICLE IV. DEFERRAL AMOUNTS, DEFERRAL ELECTIONS
4.1 COMPENSATION DEFERRAL ELECTION.
(a) COMPENSATION DEFERRAL AMOUNT. An Outside Director may elect to
defer up to one hundred percent (100%), in whole percentage or
dollar terms, of his or her Compensation.
(b) ELECTION OF COMPENSATION DEFERRAL AMOUNT. To make an effective
deferral election of a Compensation Deferral Amount for a Plan
Year, the Outside Director must file an Annual Deferral Agreement
with the Committee in accord with such rules as are set by the
Committee, but in no event later than the last business day
immediately preceding the Plan Year for which the election is
effective. Each such election shall be made with respect to a
specific Plan Year and all Compensation applicable to the Outside
Director which is earned within such Plan Year. A deferral
election filed for a Plan Year shall only be effective for such
Plan Year. As prescribed by the Committee on the Annual Deferral
Agreement form, the Outside Director may make separate deferral
elections with respect to his or her directors' fees and meeting
fees which comprise his Compensation for the Plan Year.
4.2 DEFERRAL ELECTIONS. All Deferral Amount elections, as provided under
Section 4.1, shall be made on such Annual Deferral Agreements as are
prescribed by the Committee. Each election form shall specify the nature
of the Deferral Amount, in whole percentage or dollar terms, the
Beneficiary or Beneficiaries to receive any death benefit applicable to
the subject amount, as provided in Section 5.4 and the Deferral Payment
Date on which payment is to be made by the Company with respect to such
Deferral Amount. All such Deferral Amount elections shall become
irrevocable for the subject Plan Year once the Plan Year has commenced.
An Outside Director may change or revoke his or
4
<PAGE> 8
her Compensation Deferral election under Section 4.1 pursuant to such
rules as are set by the Committee, but in no event may any such election
be amended or revoked after the last business day immediately preceding
the Plan Year for which the election is effective.
ARTICLE V. PAYMENT OF BENEFITS
5.1 TIME OF PAYMENT OF DEFERRAL AMOUNTS. On each Annual Deferral Agreement
filed by a Participant, such Participant shall specify the Deferral
Payment Date on which benefit payments under the Plan are to be made with
respect to the Deferral Amount covered by such Annual Deferral Agreement,
provided that such date is not in the Plan Year which immediately follows
the year of deferral. Notwithstanding the immediately preceding sentence,
in the event that the Participant ceases to be an Outside Director for
whatever reason, the Deferral Payment Date shall be such date (as
determined by the Committee) which is within 60 days following the date
that the Participant ceased to be an Outside Director.
5.2 FORM OF PAYMENT OF DEFERRAL AMOUNTS. The form of payment for all Deferral
Amounts shall be a single lump sum payment.
5.3 DISTRIBUTION FOR UNFORSEEN EMERGENCY. If a Participant suffers an
unforseen emergency, as defined below, the Committee, in its sole and
absolute discretion, may pay to the Participant only that portion, if
any, of amounts credited to his or her Account which the Committee
determines is necessary to satisfy the emergency need, including any
amount necessary to pay any federal, state or local taxes reasonably
anticipated to result from the distribution. A Participant requesting an
emergency payment shall apply for the payment in writing in a form
approved by the Committee and shall provide such information as the
Committee may require.
For purposes of this section, "unforeseen emergency" means an
unforeseeable emergency and severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Section 152(a) of the Code)
of the Participant, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseen emergency will depend
upon the facts of each case, but a financial emergency shall not be
deemed to exist to the extent that such hardship is or may be relieved:
(a) Through reimbursement or compensation by insurance or otherwise;
5
<PAGE> 9
(b) By liquidation of to the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship; or
(c) By cessation of Deferral Amounts under this Plan.
By way of example, the need to send a Participant's child to college or
the desire to purchase a home would not be considered an unforeseen
emergency.
Withdrawals of amounts because of an unforeseen emergency shall only be
permitted to the extent reasonably needed to satisfy the emergency need.
The Committee, in its discretion, shall determine whether an unforeseen
emergency has occurred and the amount needed to satisfy the emergency
need including any applicable taxes on the distribution.
5.4 DEATH BENEFITS. If a Participant should die with a balance credited to
his or her Account, such balance shall be paid to his or her applicable
designated Beneficiary or Beneficiaries as provided in Section 10.1. Such
payment shall be made within 60 days following the death of the
Participant, or the notification to the Committee regarding the death of
the Participant.
5.5 WITHHOLDING OF TAXES. The Company shall have the right to deduct from any
payment made under the Plan any federal, state, or local taxes which are
required by law to be withheld by the Company with respect to such
payment.
ARTICLE VI. ACCOUNTS; CREDITED INCOME
6.1 PARTICIPANT ACCOUNTS. The Committee shall maintain, or cause to be
maintained, a bookkeeping Account for each Participant for the purpose of
accounting for the Participant's beneficial interest under the Plan. The
establishment and maintenance of a separate Account for each Participant
shall not be construed as giving any person an interest in assets of the
Company or a right to payment other than as provided hereunder. Benefits
payable hereunder shall constitute an unsecured general obligation of the
Company and each Participant shall be a general unsecured creditor with
respect thereto.
6.2 CREDITING OF ASSUMED INCOME. Each month during the term of the Plan, the
Committee shall credit Accounts with Credited Income at the rate of
return equal to the rate paid by the Company for a one year certificate
of deposit. Such rate shall be established on a monthly basis by the
Committee and will apply to all Deferral Amounts credited to an Account
in that calendar month.
6
<PAGE> 10
6.3 NATURE OF ACCOUNT ENTRIES. The establishment and maintenance of
Participants' Accounts shall be merely bookkeeping entries and shall not
be construed as giving any person an interest in any specific assets of
the Company or of any subsidiary or affiliate of the Company, or a
secured right to payment, other than as specifically provided herein.
Benefits payable pursuant to the Plan shall constitute an unsecured
general obligation of the Company until actually paid.
6.4 VESTING. A Participant shall have a fully vested and non-forfeitable
beneficial interest in the balance standing to the credit of his or her
Account as of any relevant date, subject to the conditions and
limitations on the payment of amounts credited to such Account as
provided hereunder.
6.5 ACCOUNT STATEMENTS. The Committee shall provide each Participant with a
statement of the status of his or her Account, including all amounts then
credited thereto. The Committee shall provide such statement annually or
at other such intervals as the Committee may determine from time to time,
and such statement shall be in such format as determined by the
Committee.
ARTICLE VII. ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATION. The Plan shall be administered by the committee of
individuals who have been appointed by the Board of Directors to serve in
such capacity pursuant to the Bank United of Texas FSB Supplemental
Executive Savings Plan, unless otherwise determined by the Board of
Directors in a duly adopted resolution. A majority of the members of the
Committee shall constitute a quorum, and the acts of a majority of the
members present, or acts approved in writing by a majority of the members
without a meeting, shall be the acts of the Committee. The Committee
shall have that authority which is expressly stated in the Plan as vested
in the Committee. The Committee shall also have the discretionary
authority to make rules to administer and interpret the Plan, to decide
questions arising under the Plan, and to take such other action as it
deems to be appropriate in its discretion to carry out the purposes of
the Plan.
The Committee shall also have the sole and absolute control and authority
to determine rights and benefits, and all claims, demands, and actions of
any Outside Director, Participant, Beneficiary, deceased Participant, or
other person having or claiming to have any interest under the Plan. The
Committee shall have sole and absolute discretion to construe and
construct the Plan and to decide all matters arising under the Plan.
Subject to Section 7.2, the Committee's decision shall be final,
conclusive, and binding on all Participants and any person claiming under
or through any Participant. Any individual serving as a member of the
Committee who is also a Participant will not vote or act on any matter
relating solely to himself or herself. When making a
7
<PAGE> 11
determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant, Beneficiary or the Company. The
Committee may also appoint or engage such agents as it deems to be
appropriate, and may delegate any of its powers or duties hereunder to
any person or entity as it deems appropriate.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters
relating to the Compensation of Participants, their employment,
retirement, death and such other pertinent facts as the Committee may
require.
7.2 RULES; CLAIMS FOR BENEFITS. The Committee shall adopt and establish such
rules and regulations with respect to the administration of the Plan as
it deems necessary or appropriate. In the event that a Participant or a
Beneficiary claims any right hereunder, he or she may submit such
information to the Committee as he or she deems to be necessary or
appropriate or as the Committee may reasonably require. The Committee and
the claimant shall in good faith attempt to resolve the claim in an
expeditious and informal manner. If the Committee and the claimant fail
to resolve the claim, a written notice of such failure shall be furnished
to the claimant.
7.3 FINALITY OF DETERMINATIONS. All determinations of the Committee to any
matter arising under the Plan, including questions of construction and
interpretation, shall be final, binding and conclusive upon all
interested persons and entities.
7.4 MEDIATION AND ARBITRATION. In the event of any controversy or claim,
whether based on contract, tort, statute, or other legal or equitable
theory, arising out of or related to this Plan (hereinafter called
"dispute"), and if the dispute cannot be resolved between the parties
within 30 days (unless otherwise agreed by the parties), the dispute
shall be submitted to mediation before a mediator mutually selected by
the parties. If the parties are unable to agree upon a mediator, then the
mediator shall be appointed by the American Arbitration Association
("AAA"). In any event, the mediation shall take place within thirty (30)
days of the date that a party gives the other party written notice of its
desire to mediate the dispute.
If not resolved by mediation, the dispute shall be resolved by
arbitration pursuant to this section and in accordance with the then
current rules and supervision of the AAA. The arbitration shall be held
before a single arbitrator. The arbitrator's decision and award shall be
final and binding and may be entered in any court having jurisdiction
thereof. In order to prevent irreparable harm, the arbitrator may grant
temporary or permanent injunctive or other equitable relief for the
protection of property rights.
8
<PAGE> 12
Issues of arbitrability shall be determined in accordance with the
federal substantive and procedural laws relating to arbitration; all
other aspects of the Agreement shall be interpreted in accordance with,
and the arbitrator shall apply and be bound to follow, the substantive
laws of the State of Texas. Each party shall bear its own attorney's fees
associated with negotiation, mediation, and arbitration, and other costs
and expenses shall be borne as provided by the rules of the AAA. If court
proceedings to stay litigation or compel arbitration are necessary, the
party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses, and attorney's fees which are reasonably
incurred by the other party.
Neither a party, witness, or the arbitrator may disclose the facts of the
underlying dispute or the contents or results of any negotiation,
mediation, or arbitration hereunder without prior written consent of all
parties, unless and then only to the extent required to enforce or
challenge the negotiated agreement or the arbitration award, as required
by law, or as necessary for financial and tax reports and audits.
No party may bring a claim or action, regardless of form, arising out of
or related to this Plan more than one year after the cause of action
accrues, unless the injured party cannot reasonably discover the basic
facts supporting the claim within one year.
The venue for any mediation or arbitration shall be in Harris County,
Texas, unless otherwise mutually agreed by the parties. If any part of
this section is held to be unenforceable, it shall be severed and shall
not affect either the duties to mediate and arbitrate hereunder or any
other part of this section.
ARTICLE VIII. FUNDING
All amounts due under the Plan shall be paid in cash from the general
assets of the Company. No participant shall have any right, title, or interest
whatsoever in or to any investment reserves, accounts, or funds that the Company
may purchase, establish, or accumulate to aid in providing benefits hereunder.
Participants and Beneficiaries shall not acquire any interest under the Plan
greater than that of unsecured general creditors of the Company.
ARTICLE IX. AMENDMENT; TERMINATION; MERGER
9.1 AMENDMENT AND TERMINATION. The Board of Directors may amend, modify, or
terminate the Plan at any time, but in no event shall any such amendment,
modification, or termination result in a reduction in any Participant's
Account or postpone the time of payment hereunder unless the Participant
or Beneficiary
9
<PAGE> 13
who suffers such a reduction or postponement by reason of such proposed
amendment, modification, or termination, consents thereto in writing. An
Outside Director shall abstain on any matter relating solely to himself
or herself. All amendments shall be made by a duly adopted resolution of
the Board of Directors, effective as of the date specified therein
including a retroactive effective date if applicable.
In the event of a termination of the Plan, no further deferral elections
may be made under the Plan and amounts that are then payable, or which
may become payable under the Plan, shall be (a) paid as scheduled in
accordance with the provisions of the Plan, or (b) shall be accelerated
at the sole discretion of the Board of Directors with the Outside
Directors who are Participants abstaining from such vote.
9.2 CHANGE OF CONTROL. In the event of a Change of Control, the Board of
Directors, at its option, may terminate the Plan. Upon any such
termination, all benefits due under the Plan shall be paid in full within
30 days.
9.3 AUTOMATIC PAYMENT. Notwithstanding any provision herein to the contrary,
if it has been finally determined that amounts credited to a
Participant's Account are currently includable in the taxable income of
the Participant or his or her Beneficiary, such funds shall be
immediately distributed to such Participant or Beneficiary upon written
request made to the Committee. For purposes of this Section, a final
determination shall occur when a decision is determined by the highest
court which could otherwise render a decision in this regard (or the
Participant or Beneficiary and the Internal Revenue Service have reached
a final agreement).
9.4 RECEIPT AND RELEASE. Any payment to any Participant or Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof,
be in full satisfaction of all claims against the Company or the
Committee under the Plan, and the Committee may require such Participant
or Beneficiary, as a condition precedent to such payment, to execute a
receipt and release to such effect. If any Participant or Beneficiary is
determined by the Committee to be incompetent by reason of physical or
mental disability to give a valid receipt and release, the Committee may
cause the payment becoming due to such person to be made to another
person for his or her benefit without responsibility on the part of the
Committee or the Company to follow the application of such funds.
10
<PAGE> 14
ARTICLE X. GENERAL PROVISIONS
10.1 BENEFICIARY DESIGNATION. A Participant shall designate a Beneficiary or
Beneficiaries who, upon his or her death, are to receive payments that
otherwise would have been paid to him or her under the Plan. All
Beneficiary designations shall be in writing and on a form prescribed by
the Committee for such purpose, and any such designation shall be
effective only if and when delivered to the Committee during the lifetime
of the Participant. A Participant may from time to time during his or
her lifetime change a designated Beneficiary by filing a new Beneficiary
designation form with the Committee. In the event a designated
Beneficiary predeceases the Participant, the designation of such
Beneficiary shall be void. If a designated Beneficiary dies after the
Participant, but before all death benefit payments relating to such
Beneficiary have been paid, the remainder of such death benefit payments
shall be continued to such Beneficiary's estate, unless the Participant
had designated on the applicable Beneficiary designation form a
contingent Beneficiary. In the event a Participant should fail to
designate a Beneficiary or Beneficiaries with respect to any death
benefit payments, or if for any reason such designation shall be
ineffective, in whole or in part, any payment that otherwise would have
been paid to such Participant shall be paid to his or her estate and, in
such event, his or her estate shall be his or her Beneficiary with
respect to such payments.
10.2 EFFECT ON OTHER PLANS. Deferred Amounts shall not be considered as part
of a Participant's taxable compensation at the time of deferral, to the
extent permitted under the Code.
10.3 NONTRANSFERABILITY. No right or interest of any Participant in the Plan
shall be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, or be subject to payment
of debts of any Participant or Beneficiary by execution, levy,
garnishment, attachment, pledge, bankruptcy, or in any other manner.
Notwithstanding the foregoing, upon receipt of a copy of a decree from a
court of competent jurisdiction that finally declares a Participant's
spouse as having property rights to a portion of the amounts credited to
such Participant's Account, the Committee shall segregate such portion
from the Participant's Account and pay that portion to or for the benefit
of the spouse as directed by the court order.
10.4 COMMUNICATIONS. No communication which relates to the Plan shall be
binding on any person or entity until it is received by such person or
entity.
10.5 PLAN NOT A SERVICE CONTRACT. The Plan is not a personal service contract.
It does not give any Outside Director the right to continue to serve as
an Outside Director or in any other capacity for the Company.
11
<PAGE> 15
10.6 SEVERABILITY. If any provision of the Plan is ruled for any reason to be
invalid, illegal, or unenforceable, such invalidity, illegality or
unenforceability shall not affect the other provisions hereof and the
Plan shall be enforced to the maximum extent permitted; moreover, the
invalid, illegal or unenforceable provision may be conformed or severed
by the Committee to the extent necessary to create a valid, legal and
enforceable provision.
10.7 GENDER, TENSE AND HEADINGS. Whenever the context requires, words of the
masculine gender used herein shall include the feminine, and words used
in the singular shall include the plural. The words "hereof",
"hereunder", "herein," and similar compounds of the word "here", refer to
the entire Plan and not to any particular term or provision of the Plan.
Headings of Articles and Sections, as used herein, are inserted solely
for convenience and reference and shall not affect the meaning,
interpretation or scope of the Plan.
10.8 APPLICABLE LAW. The Plan shall be governed and construed in accordance
with the laws of the State of Texas without regard to its conflicts of
law principles.
IN WITNESS WHEREOF, this Plan is hereby executed this 10th day of August,
1995 by a duly authorized officer of the Company, to be effective as of
August 1, 1995.
<TABLE>
<S> <C>
ATTEST: BANK UNITED OF TEXAS FSB:
By: /s/ JOYCE E. ERFURDT By: /s/ BARRY C. BURKHOLDER
----------------------- -------------------------
Name: Joyce E. Erfurdt Name: Barry C. Burkholder
---------------------- -----------------------
Title: Executive Assistant Title: President & CEO
--------------------- ----------------------
</TABLE>
12
<PAGE> 1
EXHIBIT 99.3
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
GALVESTON DIVISION
- ----------------------------------------------
)
BANK UNITED OF TEXAS FSB, )
a federal stock )
savings bank, ) United States District Courts
3200 Southwest Freeway ) Southern District of Texas
Suite 1600 ) FILED
Houston, Texas 77027, ) August 3 - 1993
) Jesse E. Clark, Clerk
USAT HOLDINGS INC., a Delaware )
corporation, )
520 Madison Avenue ) Civil Action
10th Floor ) No. G-93--461
New York, New York 10022, ) JURY
)
HYPERION HOLDINGS INC., a Delaware )
corporation, )
520 Madison Avenue )
10th Floor )
New York, New York 10022, )
and )
)
HYPERION PARTNERS L.P., a Delaware )
limited partnership, )
520 Madison Avenue )
10th Floor )
New York, New York 10022, )
)
Plaintiffs, )
)
V. )
)
FEDERAL DEPOSIT INSURANCE CORPORATION, in its )
own capacity, as successor to the )
Federal Savings and Loan Insurance )
Corporation, and as manager of the )
FSLIC Resolution Fund, )
550 17th Street, N.W. )
Washington, D.C. 20429, )
)
)
<PAGE> 2
FSLIC RESOLUTION FUND )
c/o Federal Deposit )
Insurance Corporation )
550 17th Street, N.W. )
Washington, D.C. 20429, )
)
RESOLUTION TRUST CORPORATION, )
801 17th Street, N.W. )
Washington, D.C. 20434, )
)
THRIFT DEPOSITOR PROTECTION )
OVERSIGHT BOARD, )
1777 F Street, N.W. )
Washington, D.C. 20232, and )
)
DIRECTOR, OFFICE OF THRIFT )
SUPERVISION, in his own official )
capacity and as successor to the )
Federal Home Loan Bank Board, )
1700 G Street, N.W. )
Washington, D.C. 20552, )
)
Defendants. )
)
)
)
)
- ------------------------------------------
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<PAGE> 3
COMPLAINT
Table of Contents
<TABLE>
<CAPTION>
Paragraph Page
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<S> <C> <C>
THE NATURE OF THIS ACTION 1 6
PARTIES 2-10 7
JURISDICTION AND VENUE 11-12 11
FACTS 13-152 12
A. FACTUAL BACKGROUND 12
(1) The Regulatory Response To The Thrift 13-31 12
Crisis
(2) The Southwest Plan 32-39 22
(3) The FSLIC-Assisted Acquisition Of Old 40-62 29
United By Plaintiff United
(4) The Enactment Of FIRREA 63-74 43
B. DEFENDANTS' ACTIONABLE CONDUCT 75-152 48
(1) Failure To Honor The Capital And 79-84 51
Accounting Forbearances In Setting
Standards For Determining Plaintiff
United's Capital Adequacy
(2) Failure To Adhere To The Subordinated 85-90 53
Debt Resolution So As To Count
Subordinated Debt As A Component Of
Plaintiff United's Regulatory Capital
(3) Arbitrary Downward Adjustment To The 91-93 56
Value Of Covered Assets
(4) Threatened Downward Adjustment To The 94-99 57
Amount Of Reimbursable Goodwill
Previously Determined In Accordance With
The Assistance Agreement
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Paragraph Page
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<S> <C> <C> <C>
(5) Failure To Approve Requests For Asset 100-102 60
Dispositions
(6) Failure To Pay Reimbursable Goodwill On 103-106 61
A Quarterly Basis
(7) Failure To Pay Guaranteed Yield On The 107-113 63
Full Book Value Of Loans That Became
Covered Assets During The Two Year Post-
Effective Date Period
(8) Failure To Treat Accrued But Uncollected 114-116 66
Interest At The Effective Date As A
Covered Asset For Purposes Of Yield
Maintenance
(9) Failure To Pay Yield Maintenance On The 117-118 68
Covered Asset Consisting Of The Interest
Accrued During The 90-Day Period Prior
To Coverage On One-To-Four Family
Residential Loans
(10) Threatened Refusal To Pay Guaranteed 119-123 69
Yield On Cash Balances In Covered
Subsidiaries
(11) Failure To Treat Federal Home Loan Bank 124-128 72
of Dallas Stock As A Covered Asset
(12) Disputes Concerning The Scope And 129-132 73
Duration Of Tax Benefit Sharing
(13) Threatened Amendment Of The Receiver- 133-134 75
ship Income Tax Returns For Old United
(14) Refusal To Approve Transfer Of Mortgage 135-138 75
Servicing Rights
(15) Failure To Follow Quarterly Accounting 139-140 76
With Respect To Liquidated Covered
Assets
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Paragraph Page
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<S> <C> <C>
(16) Failure To Pay Guaranteed Yield Due As A 141-143 77
Result Of Old United's Book Value Errors
(17) Demands For Retroactive Effective Dates 144-145 78
For Covered Asset Writedowns
(18) Additional Breaches Of And Disputes 146 78
Under The Assistance Agreement
(19) Repudiation Of Deductibility Of Tax Losses 147-150 79
And Threatened Refusal To Make Contract
Payments In Lieu Thereof
(20) Unfounded Claims Regarding Warrants 151-152 80
Issued To The FSLIC
CLAIMS AND RELIEF REQUESTED
COUNT I Forbearances And Subordinated Debt 153-158 81
--Declaratory Relief And Specific Performance, Or
--Equitable Modification Of Contract, Or
--Damages
COUNT II Breaches Of And Disputes Under 159-162 86
The Assistance Agreement
--Declaratory Relief And Specific Performance, And
--Damages
COUNT III Payments In Lieu Of Tax Benefits 163-169 90
--Declaratory Relief And Specific Performance, Or
--Equitable Modification Of Contract, Or
--Damages
COUNT IV Warrants 170-171 95
--Declaratory Relief
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Paragraph Page
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<S> <C> <C> <C>
COUNT V Taking 172-173 96
-- Injunctive Relief, Or
-- Award Of Just Compensation
JURY DEMAND 174 98
</TABLE>
* * *
For their Complaint against defendants Federal Deposit Insurance
Corporation, FSLIC Resolution Fund, Resolution Trust Corporation, Thrift
Depositor Protection Oversight Board, and Director of the Office of Thrift
Supervision, plaintiffs Bank United of Texas FSB, USAT Holdings Inc., Hyperion
Holdings Inc., and Hyperion Partners L.P. allege as follows:
THE NATURE OF THIS ACTION
1. This action is made necessary by the persistent failure of
agencies of the United States Government to honor their contractual obligations
to plaintiffs. The obligations arise from plaintiffs' acquisition of a
hopelessly insolvent savings and loan institution in 1988, an acquisition that
relieved the Federal Savings and Loan Insurance Corporation ("FSLIC") of the
staggering costs and burdens of taking over and managing or liquidating the
institution. The FSLIC actively solicited buyers for the insolvent enterprise,
and in the weeks preceding the acquisition plaintiffs and the FSLIC negotiated
the terms of a complex and unique transaction. Among the terms hammered out
among the parties were various forms of governmental assistance and protection
necessary to make the acquisition economically and legally viable. Induced by
the FSLIC's promises, which are embodied in elaborate agreements and
resolutions, plaintiffs took on the failed institution's multiple problem
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<PAGE> 7
million in new capital, and turned the institution around. Having received the
benefit of plaintiffs' endeavors, defendants, the FSLIC's successors, have
consistently failed to live up to their end of the bargain. Defendants have
flatly reneged on several commitments that were central features of the
transaction and have imposed or threatened to impose, through their control
over the continuing payment of promised assistance, wholly unsupportable
interpretations of the acquisition agreements in their favor. Plaintiffs are
therefore seeking judicial relief.
PARTIES
2. Plaintiff Bank United of Texas FSB ("United") is a Federal
stock savings bank chartered on December 30, 1988 by the Federal Home Loan Bank
Board ("FHLBB") in conjunction with a thrift acquisition assisted by the FSLIC.
On that day, United acquired from the FSLIC substantially all of the assets and
assumed the deposit liabilities and certain tax liabilities of United Savings
Association of Texas ("Old United"), an insolvent thrift institution in
receivership. United's acquisition of Old United was solicited, approved, and
assisted by the FSLIC and the FSLIC's operating head, the FHLBB, an independent
agency of the United States. United's principal place of business is in
Houston, Texas.
3. Plaintiff Hyperion Partners L.P. ("Hyperion Partners") is a
Delaware limited partnership formed in March 1988 and has its principal place
of business in New York, New York. Hyperion Ventures L.P. (Delaware) is its
sole general partner, and Hyperion Partners' limited partners include The
Prudential Insurance Company of America, American Home Assurance Company,
Ameritech Pension Trust, The Equitable Life Assurance Society of America,
Houston Firemen's Relief and Retirement Fund, Westinghouse Electric
Corporation,
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<PAGE> 8
Sun Life Insurance Company of America, and Masco Capital Corp. The business of
Hyperion Partners is to seek investments and opportunities in the financial
services, housing, and real estate industries and to assist in developing the
businesses in which it acquires an interest. Hyperion Partners and certain of
its limited partners and affiliates have invested over $221 million in United.
4. Plaintiff Hyperion Holdings Inc. ("Hyperion Holdings") is a
Delaware corporation incorporated on December 19, 1988 and has its principal
place of business in New York, New York. Hyperion Holdings owns all of the
voting stock of USAT Holdings Inc., which is the direct parent of United.
Hyperion Holdings holds approximately 84 percent of USAT Holdings Inc.'s
outstanding capital stock of all classes, with the remainder being held by The
Equitable Life Insurance Society of the United States, Equitable Deal Flow
Fund, L.P., Equitable Capital Partners (Retirement Fund), L.P., Equitable
Capital Partners, L.P., Ameritech Pension Trust, and The Prudential Insurance
Company of America.
5. Plaintiff USAT Holdings Inc. ("USAT Holdings") is a Delaware
corporation incorporated on December 19, 1988 and has its principal place of
business in New York, New York. In addition to investing in United, USAT
Holdings' acquired the businesses of three other failed thrift institutions
through its 100% stock ownership of United Savings Association of the Southwest
FSB ("United Southwest"), which was merged into United on September 30, 1991.
6. Defendant Federal Deposit Insurance Corporation ("FDIC") is an
agency of the United States established under the Federal Deposit Insurance
Act. Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, Pub. L. No.101-73, 103 Stat. 183
-8-
<PAGE> 9
(1989) ("FIRREA"), the FDIC is the successor to the deposit insurance
activities formerly carried out with respect to thrift institutions by the
FSLIC, which was abolished by Section 401 of FIRREA. See FIRREA Sections
201(a), 205, 401, 402, 103 Stat. 183, 187-88, 194-95, 354-60. The FDIC also
succeeded the FSLIC as conservator or receiver with respect to any thrift the
accounts of which were insured by the FSLIC prior to FIRREA and for which the
FSLIC was appointed conservator or receiver prior to January 1, 1989. 12
U.S.C.A. Section 182la(5) (West Supp. 1993). The FDIC thus succeeded the FSLIC
as receiver of Old United. In addition, the FDIC is the manager of the FSLIC
Resolution Fund, which was established by Section 215 of FIRREA as the
transferee of certain assets and liabilities of the FSLIC. See 103 Stat.183,
252-54. Following passage of FIRREA and in light of the FDIC's resulting role as
manager of the FSLIC Resolution Fund, the FDIC's Division of FSLIC Operations
assumed responsibility for administering the assistance and certain other of the
agreements entered into between the FSLIC and acquirors of troubled thrifts. In
January 1991, the administration of the assistance agreements was transferred to
defendant Resolution Trust Corporation, along with personnel of the FDIC's
Division of FSLIC Operations who at various times have been "transferred" or
"seconded" to defendant Resolution Trust Corporation under provisions of FIRREA
directing that the Resolution Trust Corporation was to "have no employees"
(since amended to allow only a chief executive officer), but was to utilize FDIC
personnel. In October 1992, the administration of the contractual agreements
was reassigned to the Division of Resolutions within the FDIC. For purposes of
this Complaint, the actions of various governmental personnel with respect to
administering the assistance agreement are generally referred to as "defendant
FDIC" even though liability may attach to defendant Resolution Trust
Corporation,
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<PAGE> 10
or defendant FDIC, or defendant Thrift Depositor Protection Oversight Board in
light of the integrated nature of their operations.
7. Defendant FSLIC Resolution Fund was established by Section 215
of FIRREA as the transferee of certain assets and liabilities of the FSLIC. See
103 Stat. 183, 252-254.
8. Defendant Resolution Trust Corporation ("RTC") is an
instrumentality of the United States established by Section 501(a) of
FIRREA, 103 Stat. 183, 369. The RTC is an agency of the United States when
acting in its corporate capacity. Id. FIRREA directed the RTC, among other
things, to "review and analyze" certain agreements entered into by the FSLIC
with respect to the acquisition of insolvent institutions, 103 Stat. 183, 373,
and to "manage and resolve" troubled thrift cases for which a conservator or
receiver is appointed between January 1, 1989 and August 9, 1992, 103 Stat. 183,
369, the latter date subsequently extended to September 30, 1993 by the
Resolution Trust Corporation Refinancing, Restructuring, and Improvements Act of
1991 ("RTC Refinancing Act"), Pub. L. No. 102-233, 105 Stat. 1761-62 (1991).
9. Defendant Thrift Depositor Protection Oversight Board
("Oversight Board") is an instrumentality and agency of the United States
established as of February 1, 1992 by Title III of the RTC Refinancing Act
(known as the Resolution Trust Corporation Thrift Depositor), Protection Reform
Act of 1991 ("RTC Reform Act")). See RTC Financing Act Sections 301-318, 105
Stat. 1761, 1767-1773. This Oversight Board is the successor to the Resolution
Trust Corporation Oversight Board established by Section 501(a) of FIRREA, 103
Stat. 183, 364. Under the RTC Reform Act, the Oversight Board oversees and is
accountable for the RTC. In particular, the Oversight Board is by statute
responsible for reviewing "overall strategies,
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<PAGE> 11
policies and goals" established by the RTC, including the RTC's review of
certain agreements entered into by the FSLIC with respect to the acquisition of
insolvent institutions, as well as items the Oversight Board deems to involve
substantial issues of public policy. 12 U.S.C.A. Section 1441a(a)(6) (West
Supp.1993).
10. Defendant Director of the Office of Thrift Supervision
("Director) is the head of the Office of Thrift Supervision ("OTS"), an office
in the United States Department of the Treasury established by Section 301 of
FIRREA. Under FIRREA, the Director is the successor to certain of the powers,
rights and obligations of the FHLBB, which was abolished by Section 401(a) of
FIRREA. See FIRREA, Sections 201(b), 301, 401(a), 103 Stat. 183, 188, 278-80,
354. In particular, the Director is responsible for administering the regulatory
commitments made by the FHLBB as part of the terms and conditions of
FSLIC-assisted acquisitions of troubled thrifts. Under FIRREA, the Director is
charged with regulating and supervising all federally insured savings
associations, functions formerly carried out by the FHLBB and the FSLIC.
JURISDICTION AND VENUE
11. This Court has jurisdiction over the subject matter of this
action pursuant to 28 U.S.C. Sections 1331, 1361, and 1367; 5 U.S.C. Sections
702 and 706; and 12 U.S.C. Sections 1441a(a)(2), 1441a(a)(11), 1441a(b)(1)(B),
1441a(l)(1), 1462a(E)(1), 1464(d)(1)(A), 1819(a) Fourth, 1819(b)(2),
1821a(a)(1) and 1821a(a)(2)(A); and the Fifth Amendment to the United States
Constitution. This Court is also respectfully referred to 12 U.S.C.A. Sections
1725(c)(4) and 1730(k)(1)(B) (repealed, but private rights thereunder preserved
by FIRREA Section 401(f)(1) (appearing at 12 U.S.C.A. Section 1437 Note)).
Declaratory judgment is proper under 28 U.S.C. Sections 2201 and 2202.
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<PAGE> 12
12. Venue is proper in this district under 12 U.S.C. Sections
1464(d)(1) and 1819 and 28 U.S.C. Section 1391(e).
FACTS
A. FACTUAL BACKGROUND
(1) The Regulatory Response To The Thrift Crisis
13. This case arises out of the response of Congress and the
responsible federal agencies to the severe crisis in the savings and loan
industry in the 1980s. The magnitude of insolvencies among federally-insured
savings and loan associations and savings banks (hereafter collectively
"thrifts") made it impossible for the FSLIC to simply close down the failed
thrifts and pay off their depositors from FSLIC's deposit insurance fund.
Moreover, the FSLIC was incapable of handling the enormous task of managing the
assets of the large number of failed institutions. Under Congress' direction
and close oversight, and with broad contracting authority conferred by statute,
the FSLIC turned to private managers and investors to take on the burdens
Congress and the FSLIC were unwilling or unable to shoulder. The result was a
host of individually-negotiated commercial transactions between the FSLIC and
private entities like plaintiffs, who could be induced to enter into what would
otherwise be extremely unattractive investments only by strong, binding
government commitments.
14. The thrift industry crisis had its beginnings in the late
1970s and early 1980s. As a result of unprecedentedly high interest rates, a
large number of thrifts suffered grave financial losses. The steep increase in
interest rates pushed the thrift industry's cost of obtaining and retaining
deposits significantly above the rate of return on the long-term, fixed-rate
mortgages
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in thrifts' portfolios. The inevitable consequence was serious and increasing
operating losses, which depleted thrifts' capital and threatened their
viability.
15. The deposit accounts of many of the troubled thrifts,
including those chartered by State as well as Federal authority, were insured
by the FSLIC. The potential collapse of numerous thrifts and the attendant
drain on the FSLIC's insurance fund were therefore of great concern to the
FSLIC and its supervising agency, the FHLBB. In March 1982, the chairman of the
FHLBB advised a Congressional committee that the thrift industry was
"undergoing a severe financial crisis" that "threaten[ed] the survival" of the
industry.
16. From its establishment in 1934 until the effective date of
FIRREA in 1989, the FSLIC had authority under the National Housing Act, ch.
479, 48 Stat. 1246 (1934) ("National Housing Act"), to act as receiver or
conservator of insolvent thrifts and to pay off their deposit obligations to
the limits of the FSLIC's insurance coverage. See National Housing Act Section
406, 48 Stat. 1246, 1260. In 1935, the FSLIC's powers were expanded to permit it
to act to prevent the insolvency of a troubled thrift by, in its discretion,
making loans to, purchasing the assets of, or making contributions to the
troubled institution. See Act of May 28, 1935, ch. 76, 49 Stat. 293, 299
(1935). In 1978, the FSLIC's assistance authority expanded still further.
Specifically, Section 406(f) of the National Housing Act was amended to
authorize the FSLIC to "facilitate" the merger or acquisition of a failing
thrift, and to that end the FSLIC was empowered to "guarantee" the new owner
"against loss by reason of its merging or consolidating with or assuming the
liabilities and purchasing the assets of such insured institution in or in
danger of default" (hereinafter referred to as "the FSLIC's
guarantee-against-loss powers"). See Financial Institutions Regulatory and
Interest Rate Control Act of 1978. Pub. L. No. 95-630, 92 Stat.
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<PAGE> 14
3641, 3647 (1978) ("FIRA"). Congress authorized the FSLIC to provide such
guarantees "upon such terms and conditions as the Corporation [FSLIC] may
determine," provided, with certain exceptions, that the cost of providing the
guarantee against loss did not exceed the cost of liquidating the troubled
institution.
17. The breadth of the thrift industry's financial problems in the
early 1980s rendered sole resort to receiverships or conservatorships, which
could have become overwhelming in number, impracticable. Pursuing liquidation
of the increasing number of troubled thrifts could have depleted the FSLIC's
insurance fund. To avoid such administrative burdens and the exhaustion of its
insurance fund, the FSLIC aggressively encouraged the managements of troubled
thrifts to find healthy thrifts or other investors willing to acquire or merge
with the troubled institutions, provide new capital, and turn the institutions
around. Encouraging private investors to recapitalize the thrift industry saved
the FSLIC billions of dollars by eliminating the need to immediately pay off
insured depositors of failed thrifts. In many cases, however, the
deteriorating financial condition of the troubled thrifts made a purely private
rescue economically infeasible.
18. As the thrift crisis of the early 1980s deepened, the FSLIC
made use of its guarantee-against-loss powers to facilitate private sector
acquisitions of an increasing number of troubled thrifts in order to reduce or
avoid the burden and expense of receiverships/conservatorships and
liquidations. Such acquisitions are called "assisted" acquisitions. However,
it soon became apparent that the FSLIC insurance fund was insufficient to
support the levels of cash and loan assistance that the FSLIC was committing to
assisted
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<PAGE> 15
transactions. Indeed, the FSLIC itself projected that then-current levels of
expenditures would deplete the insurance fund by April 1982.
19. The FSLIC and the FHLBB were thus forced to develop ways to
facilitate mergers that involved less expense to the government. One method
relied primarily on the "purchase method" of accounting under generally
accepted accounting principles ("GAAP"). Under the purchase method of
accounting, the assets (for example, loans) and liabilities (for example,
deposits) of the institution being acquired are "marked-to-market," that is,
their book values are adjusted to reflect their fair market values at the time
of acquisition. Then, to the extent that the acquisition cost (principally the
liabilities assumed) exceeds the fair market value of the assets acquired, the
acquiring institution records an intangible, nonearning asset of "goodwill" to
be amortized on a straight-line basis over a period of up to forty years. The
FSLIC permitted such goodwill to count as a component of regulatory capital for
purposes of its regulatory capital requirements. This treatment enabled the
FSLIC to avoid having to contribute a tangible asset to the transaction, such
as cash, in order for the acquiror to emerge from the transaction with
sufficient capital to meet regulatory requirements. The purchase method of
accounting was required for supervisory acquisitions by the Financial
Accounting Standards Board in Financial Accounting Standards Bulletin No. 72,
issued in 1982.
20. On October 15, 1982, the Garn-St Germain Depository
Institutions Act of 1982, Pub. L. No. 97-320, 96 Stat. 1469 (1982) ("Garn-St
Germain"), was enacted, partially in response to the thrift crisis. Garn-St
Germain strengthened still further the FSLIC's guarantee-against-loss powers to
"facilitate" mergers and acquisitions of troubled thrifts under Section 406(f)
of the National Housing Act. The FSLIC was empowered to provide assistance to
facilitate the
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<PAGE> 16
merger or acquisition of an insured thrift when "severe financial conditions
exist which threaten the stability of a significant number of insured
institutions or of insured institutions possessing significant resources" and
assistance would "lessen the risk to the Corporation. [FSLIC]." See Garn-St
Germain, Section 122, 96 Stat. 1469, 1480-81 (originally codified with respect
to the FSLIC at 12 U.S.C.A. Sections 1729(f)(1)(C) and 1729(f)(2)(B)(iii) (West
1989); the FDIC's similar ongoing powers are codified at 12 U.S.C.A. Sections
1823(c)(1)(C) and 1823(c)(2)(B)(iii) (West 1989)). Congress also reaffirmed in
Garn-St Germain the FSLIC's authority "to enter into and enforce covenants and
agreements that it determines to be necessary to protect its financial
interests." See Garn-St Germain, Section 122, 96 Stat.1469, 1481 (originally
codified with respect to FSLIC at 12 U.S.C.A. Section 1729(f)(4)(B) (West
1989); the FDIC's similar ongoing powers are codified at 12 U.S.C.A. Section
1823(c)(5) (West Supp.1993)).
21. In Garn-St Germain, Congress also granted statutory authority
(preempting any state restrictions) for "emergency thrift acquisitions" of an
interstate or cross-industry nature (i.e., acquisitions of thrifts by bank
holding companies or banks) by adding a new Section 408(m) to the National
Housing Act, which transactions were also made eligible for Section 406(f)
assistance. See Garn-St Germain, Section 123, 96 Stat. 1469, 1483 (originally
codified with respect to the FSLIC at 12 U.S.C.A. Section 1730a(m) (West 1989);
now codified with respect to the FDIC at 12 U.S.C.A. Section 1823(k) (West
1989 and Supp.1993) pursuant to FIRREA, Section 217, 103 Stat. 183, 258). The
FSLIC was empowered to bring about such emergency thrift acquisitions "on such
terms as the Corporation [FSLIC) shall provide" whenever certain severe
financial conditions existed and the FSLIC determined that such an acquisition
"would lessen the risk to the Corporation [FSLIC]." See Garn-St Germain,
Section 123, 96 Stat. 1469, 1483 (originally codified
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<PAGE> 17
with respect to the FSLIC at 12 U.S.C.A. Section 1730a(m)(1)(A)(i)-(ii) (West
1989); now codified with respect to the FDIC at 12 U.S.C.A. Section
1823(k)(1)(A)(i)-(ii) (West 1989) pursuant to FIRREA, Section 217, 103
Stat. 183, 258). To consummate emergency thrift acquisitions, the FSLIC was
expressly authorized to "solicit such offers or proposals as are practicable
from any prospective purchasers" deemed "qualified and capable," was required
to "give consideration to the need to minimize the cost of financial
assistance," and was authorized to effectuate such acquisitions "on such terms
as [FSLIC] shall provide." See Garn-St Germain, Section 123, 96 Stat. 1469,
1483-1484 (originally codified with respect to the FSLIC at 12 U.S.C.A.
Sections 1730a(m)(1)(A)(ii), 1730a(m)(2), 1730a(m)(3)(B) (West 1989); now
codified with respect to the FDIC at 12 U.S.C.A. Sections 1823(k)(1)(A)(ii) and
1823(k)(2) (West 1989), pursuant to FIRREA, Section 217, 103 Stat. 183, 258-259,
with other provisions in the Federal Deposit Insurance Act now relating to the
cost of financial assistance).
22. Under Garn-St Germain, federally chartered thrifts were also
given liberalized powers, including expanded powers to make commercial loans
subject to a phase-in schedule. See Garn-St Germain, Section 325, 96 Stat. 1469,
1500 (now codified at 12 U.S.C.A. Section 1464(c)(2)(A) (West Supp.1993)
pursuant to FIRREA, Section 301, 103 Stat. 183, 286). Previously required
loan-to-value ratios for thrift residential real property loans were eliminated
and federal associations were allowed to increase their nonresidential real
estate lending from 20 percent to 40 percent of assets. See Garn-St Germain
Section 322, 96 Stat. 1469, 1499 (now codified at 12 U.S.C.A. Sections
1464(c)(1)(B) and 1464(c)(2)(B) (West Supp. 1993) pursuant to FIRREA, Section
301, 103 Stat. 183, 284, 286).
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<PAGE> 18
23. As the decade progressed, major sectors of the thrift industry
were facing a new threat, namely, widespread deterioration of asset quality
(for example, increasing numbers of nonperforming commercial loans and other
types of credit) such that the financial health of many thrifts was once again
jeopardized. The FSLIC continued to address and resolve large numbers of
problem thrifts, seventy-seven in 1982 and fifty-three in 1983, and the cases
became increasingly more complex. The FSLIC insurance fund continued to be
depleted at a rapid rate, even considering the cost-saving use of purchase
method accounting for assisted acquisitions.
24. In 1985, the FHLBB levied special insurance premiums on
insured institutions totaling more than $1 billion. Even with that infusion,
the insurance fund's reserves decreased more than $1 billion to $4.6 billion,
following thirty-five problem thrift resolutions. Twenty-five of those cases
involved assisted acquisitions.
25. In 1986, the FSLIC insurance fund declined, by some reports,
to a negative $6.3 billion. The thrift industry continued to deteriorate, with
approximately one-fifth of all thrift institutions posting losses. The FSLIC
resolved thirty-seven problem thrifts in 1986, including twenty-seven assisted
acquisitions.
26. The financial condition of the thrift industry and of the
FSLIC insurance fund both continued to worsen in 1987. By the end of the year,
the industry had reported an overall net loss of $6.8 billion. The reserves in
the insurance fund had decreased to a negative $13.7 billion. Although Congress
gave authority to the FSLIC to recapitalize the insurance fund through the sale
of bonds in the Competitive Equality Banking Act of 1987, Pub. L. No.100-866,
101 Stat. 552 (1987) ("CEBA"), the fund still incurred operating losses in 1987
of $8.6 billion. The FSLIC resolved forty-eight problem thrifts, involving
thirty-one assisted
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<PAGE> 19
acquisitions. There remained 259 problem institutions in the FSLIC's case load,
estimated to cost $17.4 billion to resolve. The General Accounting Office
estimated that another 300 thrifts, holding assets of $88 billion, were
insolvent under GAAP.
27. In 1988, the FSLIC insurance fund suffered a net loss of $66
billion, and its deficit rose to $75 billion. Thrift industry losses rose to
$13 billion as the FSLIC's problems continued to snowball. The FSLIC needed to
close hundreds of insolvent thrifts that continued to lose money, but it could
not afford the costs that would have resulted from such closings, that is,
payments on deposit insurance and the high costs of managing and disposing of
the troubled assets in such institutions. In the later words of defendant RTC,
"the FSLIC was without the financial resources to efficiently absorb the
losses and asset-carry needs it was facing. In short, it could not pursue a
liquidation strategy where appropriate." RTC, Report to the Oversight Board of
the Resolution Trust Corporation and The Congress on the 1988/89 Federal
Savings and Loan Insurance Corporation Assistance Agreements, September 18,
1990, Vol. I (hereafter "RTC Report"), p. 3. The FSLIC's need to attract
private capital to its thrift resolutions was acute. Therefore, the FSLIC
increasingly sought, through use of Garn-St Germain and prior authority,
including its guarantee-against-loss powers, to induce acquirors to invest
private capital in troubled thrifts by offering acquisition terms and
conditions that turned such thrifts into acceptable investments while
minimizing the FSLIC's commitment of cash or other forms of tangible financial
assistance.
28. The regulatory forbearance was a principal type of acquisition
term that the FSLIC used instead of tangible financial assistance to induce
prospective acquirors to proceed with acquisitions that required substantial
capital infusions and assumption of liabilities and
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troubled assets. In the context of assisted acquisitions of troubled thrifts,
regulatory forbearances are bargained-for commitments governing the future
regulatory treatment of the assets and liabilities of the failed institutions
acquired by new institutions. At the time of acquisition, troubled thrifts are
virtually always far out of compliance with federal regulatory standards, and
forbearances allow acquirors a specified period of time to overcome regulatory
problems inherited from the acquired institution. Such commitments can have a
pivotal effect on the projected economics of a proposed acquisition, both by
relaxing prevailing regulatory treatment that would otherwise make the
acquisition financially unattractive, if not impossible, and by providing
protection against post-acquisition changes in regulatory treatment that could
make the acquisition unprofitable after the acquiror has invested in the
troubled thrift. For those cases where the troubled thrift was state-chartered
and operated under a state statute that was more liberal with respect to
investments than the federal scheme, as was the case with Old United,
regulatory forbearances were essential to allow the federally-chartered
acquiror to receive assets from the troubled, state-chartered thrift that would
otherwise be unlawful for a federally-chartered institution to hold.
29. Typically, the regulatory problems for which forbearances were
granted could have been resolved by a payment of additional monies from the
FSLIC insurance fund, for example to raise capital to minimum standards or to
cover expenses and losses on liquidating assets that a federally-chartered
institution could not otherwise hold. Regulatory forbearances were, from the
government's point of view, "non-cash" acquisition terms, because they avoided
expenditures from the fund that otherwise would have been necessary to induce
acquisitions of troubled thrifts by investors. Such forbearances, which were an
integral part of the FSLIC's
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guarantee-against-loss powers, enabled the FSLIC to leave certain problems of
troubled thrifts unresolved and thus to transfer to acquirors the burden of
solving the problems over time under a forbearance regime. Although non-cash
terms to the FSLIC, forbearances were of overwhelming financial importance to
acquirors and had significant "cash" impacts on the acquirors' investment,
permitting, for example, significantly greater leveraging of an acquiror's
capital investment. The acquirors of these troubled thrifts were not only being
asked to take on massive portfolios of troubled assets; they were also assuming
all deposit liabilities of the failing institutions. Forbearances were
therefore critical items in the negotiations between the FSLIC and prospective
acquirors, as prospective acquirors sought to be "guaranteed" "against loss by
reason of... merging or consolidating with or assuming the liabilities and
purchasing the assets of such insured institution in or in danger of default."
Garn-St Germain, Section 122, 96 Stat. 1469, 1480-1481 (originally codified with
respect to the FSLIC at 12 U.S.C.A. Section 1729(f)(2)(A)(iii) (West 1989); the
FDIC's similar ongoing powers are codified at 12 U.S.C.A. Section
1823(c)(2)(A)(iii) (West 1989)). Had the FSLIC not used forbearances, it would
have had to use cash in order to induce prospective acquirors to commit to the
transaction.
30. Negotiations over regulatory forbearances became so prevalent
that the FHLBB issued a policy statement in 1986 to guide the negotiators.
FHLBB, Office of Examinations and Supervision, "Requests for Forbearances and
Exceptions to Filing Requirements Regarding Supervisory Institutions," SP-37a,
March 7, 1986, at 1. The policy statement acknowledged: "The basic purpose in
granting forbearances is to give realistic incentives to potential acquirors of
problem institutions." Id., p. 2.
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31. Congress was aware that the FSLIC was using forbearances as a
tool to deal with the thrift crisis. For example, in passing CEBA, Congress
directed the FHLBB to prescribe regulations providing that certain federally-
chartered thrifts with a net worth of less than 0.5 percent may "be allowed to
continue to operate and be eligible for capital forbearance" if certain
conditions were met, while those with net worth of 0.5 percent or more may "be
allowed to continue to operate and be eligible for capital forbearance" if
certain other conditions were met. CEBA, Section 404, 101 Stat. 552, 609-611
(repealed by FIRREA, Section 301, 103 Stat. 183, 277-354). CEBA provided similar
authority to the FSLIC for state-chartered thrifts. CEBA, Section 416, 101
Stat. 552, 611-613 (repealed by FIRREA, Section 407, 103 Stat. 183, 363).
Furthermore, in CEBA Congress legislatively recognized and extended certain
forbearances provided by the FSLIC to acquirors in emergency thrift
acquisitions under Section 408(m) of the National Housing Act for a five-year
period if certain conditions were met. CEBA, Section 414, 101 Stat. 552, 621-22
(originally codified at 12 U.S.C.A. Section 1730a(m)(1)(A)(iv) (West 1989)
(repealed by FIRREA, Section 407, 103 Stat. 183, 363). It was the policy of the
government of the United States, administratively and congressionally, to
provide forbearances to the acquirors of thrifts in appropriate circumstances.
(2) The Southwest Plan
32. In February 1988, the FHLBB, rather than using a liquidation
strategy that it was without funds to support, approved the Southwest Plan,
designed to save the depositors of troubled thrifts in the Southwest through
inducing the infusion of new capital from private entities. The plan focused on
the State of Texas, where almost one half of all thrift institutions were
insolvent at the end of 1987. Special teams of government personnel were formed
to
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"market" groups of insolvent institutions to private investors through
FSLIC-assisted mergers and acquisitions. The resulting acquisition documents
reflect that both sides negotiated for protection against certain risks, the
size and nature of which were not precisely ascertainable at the time.
33. Southwest Plan transactions followed a general pattern,
although each transaction was separately negotiated and unique. The FSLIC
required acquirors to assume undesirable, high-cost deposit liabilities of
troubled thrifts, such as brokered certificates of deposit, which were large
deposits that thrifts had acquired through brokers in return for a high rate of
interest. This compulsory assumption of high-cost deposit liabilities
represented a policy decision of the FSLIC not to try to unwind such brokered
transactions and high-yield certificate of deposit agreements; instead,
brokerage firms and purchasers of high-yield certificates of deposit were
protected, and acquirors were put under the burden of assuming such high-cost
deposits.
34. The FSLIC also typically executed a long-term promissory note
to the acquiring institution to fill the insolvent thrift's capital "hole," the
amount by which the thrift's liabilities exceeded the book value of its assets.
While this note technically solved the matter of insolvency, it did not make
the thrift healthy. There remained the problem of assets the book value of
which was greatly impaired.
35. In order to avoid the negative impact of dumping assets on the
already fragile Texas/Southwest economy, and on the national economy, the FSLIC
created incentives for acquirors to hold such assets and manage them. Acquirors
were required to take all of the failed thrift's assets, irrespective of
quality and whether performing or nonperforming. To
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address the problem created by such a mixture of good and bad assets, by
agreement between the FSLIC and the acquiror the assets of the failed thrift
were divided between "covered assets" and all other assets. In general,
performing residential mortgage loans were not covered assets, although they
were marked to their current market value. In most cases, the bulk of a failed
thrift's assets were troubled assets, including low quality and nonperforming
commercial loans, equity interests in real estate developments, and the like;
in cases where the failed thrift had a state rather than a federal charter,
some of the assets could not be legally held by the new federally chartered
acquiring institution. Such troubled assets became covered assets. In
accordance with an "assistance agreement" signed by the FSLIC and the acquiror,
the acquiror was guaranteed a minimum yield on covered assets during the period
they were held and was protected from capital loss on their disposition. The
minimum yield was set high enough to give the acquiror income to cover funding
costs (that is, the deposit or other liabilities assumed, usually high-yield
and brokered certificates of deposit) as well as operating costs, including the
management of the covered asset portfolio. Any gains achieved from the sale or
other disposition of covered assets were shared between the FSLIC and the
acquiror. In short, the acquiror had to take over the insolvent thrift's bad
assets and assume the burden of managing and disposing of them.
36. As part of the economic inducement for a potential acquiror to
bid on a troubled thrift, the FHLBB and the FSLIC touted tax benefits available
to the acquiring entity, stating in its formal offering circular entitled
"Purchasing an Insolvent Savings Institution Through the Federal Savings and
Loan Insurance Corporation (Revised, September 1988)":
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<PAGE> 25
"There are several potential federal income tax advantages to
purchasing a troubled institution.... Depending on the
structuring of an offer, the tax effect may have substantial
impact in covering the cost of the transaction to both FSLIC
and the acquiror. The FSLIC prefers to share in the tax
benefits with an acquiror as a way to assure a mutually
acceptable assistance package."
Of the several tax benefits touted in the offering circular, one was "BUILT IN
LOSSES," defined by the circular as follows:
"A built in loss is an 'Economic Loss' (i.e. a decline in the
fair market value of an asset) which has occurred prior to the
acquisition but has not yet been recognized for tax purposes.
In a change in ownership to which Internal Revenue code
section 382 applies, net unrealized built in losses are
treated as if they were net operating loss carry forwards and
are subject to the same limitations. Thus if an acquisition
meets the terms of section 382(l)(5) in which the net
operating losses carryover without limitation, then the net
unrealized built in losses may also be recognized in future
periods without limitation.... The amount of net unrealized
built in losses is determined as follows:
NET Unrealized Built In Loss =
FAIR MARKET VALUE OF ASSETS -
AGGREGATE ADJUSTED BASIS OF ASSETS."
In short, when the FSLIC sought out potential acquirors, it specifically
invoked the deductibility for tax purposes of the difference between the tax
basis and the fair market value resulting from the sale of troubled thrift
assets acquired in an assisted transaction. The offering circular also touted
the "TAX-FREE NATURE of FSLIC ASSISTANCE," stating:
"All FSLIC assistance payments, including FSLIC notes and the
interest thereon, are tax exempt to domestic savings and loan
institutions if made pursuant to section 406(f) of the
National Housing Act. These payments are covered by Internal
Revenue Code 597. Consequently, where the acquiror is in a tax
paying position these payments may be made in a net of tax
basis. (This provision is due to expire on 12/31/88.)"
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In the FHLBB's and FSLIC's "Information and Instructions For the Preparation
and Submission of Proposals For the Acquisition of One or More Savings
Institutions in the Southwest," the tax benefits were explicitly set out as
follows:
"10. In general, the Internal Revenue Code of 1986
presently contains three provisions that provide
favorable Federal income tax consequences to a
taxpayer that acquires a savings and loan institution
in an FSLIC-assisted transaction. First, most
FSLIC-assisted acquisitions will qualify as a
tax-free reorganization under section 368(a)(1)(G) of
the Code. Because of this the tax basis of the assets
of the acquired institution will carry over to the
acquiror and permit the acquiror to recognize a tax
loss upon the disposition of an acquired asset which
has a tax basis greater than its fair market value.
Second, section 382 of the code generally will permit
any net operating loss carryover of the acquired
institution to be utilized by the acquiring
institution to offset post-acquisition taxable
income. Third, section 597 of the Code provides that
FSLIC assistance payments received by a savings and
loan institution are not includible in income and do
not require a reduction in the basis of other assets.
These consequences often occur under state income tax
laws as well.
"11. These provisions have the effect of permitting an
acquiring institution to realize tax benefits
attributable to a particular item even though FSLIC
assistance is received with respect to such item.
For example, if the acquiror receives coverage for
capital losses incurred on the disposition of
identified assets of the acquired institution, the
acquiror is entitled to deduct such loss for federal
income tax purposes, notwithstanding that it is
reimbursed for the loss by the FSLIC, and that the
FSLIC payment is tax free. Similarly, if payments are
made by the FSLIC to an acquiror pursuant to a yield
guarantee, such assistance need not be reported as
taxable income by the acquiror.
"12 These provisions were intended to aid the FSLIC by
reducing the amount of FSLIC assistance that should
be required by an acquiring institution for a
particular cost, expense or loss by the amount of the
tax benefit obtained
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by the acquiring institution with respect to such
cost, expense or loss. This reduction in required
assistance can be realized by the FSLIC in one of two
ways: (1) Assistance amounts to be paid by FSLIC
to the acquiring institution can be reduced by the
amount of the tax benefit available to the acquiring
institution with respect to the item for which
assistance is being paid. For example, if capital
loss or undisclosed liability coverage is required,
and the combined marginal federal and state income
tax rate is 40%, FSLIC can pay 60% of any loss or
liability incurred and the acquiring institution can
recover the remaining 40% of the loss or liability
through a deduction of the loss or liability on its
tax returns. (2) Assistance amounts can be paid in
full by FSLIC to the acquiring institution and the
acquiring institution can return to FSLIC the
allocable tax benefit when it is realized by the
filing of income tax returns. Thus, under this method
in the above example, FSLIC will pay 100% of the loss
or liability and the acquiring institution will pay
the tax benefit to FSLIC when the tax returns
recognizing such benefit are filed. In taking account
of tax benefits, FSLIC prefers to use method (1) but
will consider method (2).
"13. Since most assisted acquisitions will quali[f]y as a
tax-free reorganization under section 368(a)(1)(G) of
the Internal Revenue Code, the net operating loss
carryover of the acquired institution may be usable
by the acquiring institution. FSLIC would expect the
acquiring institution to agree to share any benefit
received from the utilization of such loss carryover
as it is realized. This is especially true in cases
where assistance in the form of a contribution for
negative net worth is requested.
"14. Proposals should state (a) the combined federal and
state income tax rates which are applicable; (b)
whether FSLIC assistance payments may be reduced by
available tax benefits when paid by FSLIC (method (1)
above), or whether FSLIC will be required to pay 100%
of the assisted item and receive the tax savings when
realized (method (2) above), and (c) the percentage
of net operating loss carryover which will be
returned to FSLIC when realized."
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37. Because the resulting thrift institution that would emerge
from a Southwest Plan transaction typically had severe regulatory problems,
acquirors were forced to negotiate for and obtain regulatory forbearances.
These were necessary if the government was to "guarantee" the acquirors
"against loss by reason of... assuming the liabilities and purchasing the
assets of such insured institution...," 96 Stat. 1469, 1480-1481 (originally
codified with respect to the FSLIC at 12 U.S.C.A. Section 1729(f)(2)(A)(iii)
(West 1989); the FDIC's similar ongoing powers are codified at 12 U.S.C.A.
Section 1823(c)(2)(A)(iii) (West 1989)), and thereby minimize government
expenditure and maximize the investment induced into the thrift industry from
private sources. Each transaction incorporated its own unique set of
forbearances, because the number and scope of forbearances on which the parties
could agree were the subject of independent negotiations on each deal. As
defendant RTC noted in its report to Congress, the regulatory forbearances,
along with the promised tax benefits, were a form of "indirect" assistance to
acquirors, and "[t]his indirect assistance was sometimes as important to the
acquirors as direct FSLIC financial assistance." RTC Report, p. 38.
38. During the time that the FSLIC was negotiating Southwest Plan
transactions, defendant FDIC was facilitating the acquisition of troubled
commercial banking institutions. Instead of issuing promissory notes, the FDIC
frequently paid cash to cover a troubled bank's capital deficit or otherwise to
relieve acquirors of certain liabilities, because the FDIC's insurance fund had
not (at that time) become as stressed as the FSLIC's fund. It has been
estimated that the FDIC in 1988 paid to the acquiror of the troubled bank
subsidiaries of First Republic Bank Corporation, "two-thirds of the total
amount of cash assistance provided by the FSLIC during the same time period
for the 13 largest thrift transactions in the much-criticized
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'mega-transactions' of the Southwest Plan." U.S. Representative Charles E.
Schumer, Report on FDIC Bailouts of First Republic and MCORP Banks, January
1991, p.2 (emphasis in original). The FDIC also used a covered asset approach
but referred to such assets as "pooled assets" and paid the acquiror's actual
management costs plus certain incentive fees, instead of providing a minimum
yield. Thus, the FDIC, like the FSLIC, resolved troubled institution cases by
offering significant, bargained-for inducements to potential acquirors.
39. In its 1990 Report to Congress, defendant RTC laid out
categories of FSLIC-assisted acquisitions, including a category for the largest
transactions, labelled "Mega Transactions." See RTC Report, p. 51. Defendant
RTC reported that the size and the burdens of such transactions would "make it
difficult for the acquiror to easily accept any major changes in the assistance
terms." Id. The FSLIC-assisted acquisitions were premised on the proposition
that the acquiring entity should be no worse off than if it had invested in
the purchase of a normal, healthy thrift institution, with the acquiror taking
the normal risks for the future based on a normal, healthy thrift's assets and
liabilities and future operations, but with the government continuing to bear
the abnormal risks from the covered assets, One of the "Mega Transactions"
listed on page 56 of the RTC Report is plaintiffs' acquisition of Old United
under the Southwest Plan.
(3) The FSLIC-Assisted Acquisition Of Old United by
Plaintiff United
40. Old United was a savings and loan association chartered by the
State of Texas. Old United's accounts were insured by the FSLIC.
41. On information and belief, beginning in the mid-1980s, if not
earlier, Old United adopted and the FSLIC permitted an aggressive funding and
investment philosophy. To obtain
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funds, Old United started to rely on expensive wholesale sources, such as
negotiated-rate and brokered certificates of deposit, that obligated Old United
to pay very high interest rates. Old United increased its use of such deposits
from $48,932,352 at year-end 1984 to $1,184,009,931 at the end of the fourth
quarter of 1988. In turn, Old United sought to cover such high-interest
liabilities by investing in high-yield assets, such as junk bonds (book values
totaling $494,277,565 at December 30, 1988), many of which had maturities
corresponding to its high-yield certificates of deposit. Old United also
invested in numerous high-risk activities permitted to a Texas chartered
thrift, such as land development loans (10 percent of Old United's assets at
September 30, 1988), equity investments in real estate projects (58 projects at
December 30, 1988), equity security arbitrage activities, and service
corporation activities. Old United also emphasized arbitrage of mortgaged-back
securities ("MBS") over the traditional thrift function of making loans to home
buyers. The book value of the MBS portfolio of Old United and its subsidiaries
grew to over $2.1 billion by December 30, 1988.
42. The foregoing activities, coupled with lending problems and
other practices that resulted in a decrease in interest-earning assets and in
large-scale delinquency and foreclosure problems, caused Old United to
experience severe financial difficulties. It failed to maintain minimum capital
standards as of September 30, 1987, and it reached a negative capital position
under GAAP by June 30, 1988. Old United experienced net losses of $216.7
million for the first nine months of 1988. By the fall of 1988, it was
insolvent. According to Old United's financial statements, its $4.4 billion in
assets were exceeded by $4.7 billion in liabilities. Old United attempted, but
failed, to attract private capital on its own.
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43. In late 1988, FSLIC officials involved in carrying out the
Southwest Plan began to market a package of troubled thrifts that included Old
United. Plaintiff Hyperion Partners, which had pursued earlier packages of
troubled thrifts that the FSLIC had marketed under the Southwest Plan and
otherwise and which had considered, but rejected, a direct investment in Old
United, expressed interest. Later, the FSLIC split Old United from the rest of
the package being marketed, thereby reducing the number of branches included in
the proposed acquisition and making the acquisition much less attractive.
Nevertheless, over the ensuing weeks Hyperion Partners engaged in intensive
negotiations with various FSLIC and FHLBB representatives over the terms for
acquiring Old United standing alone, including the amount of capital Hyperion
Partners would contribute and the forms of direct and indirect assistance
needed from the FSLIC and the FHLBB to make the acquisition acceptable to
plaintiffs. The lead negotiator for the FSLIC until the final drafting of the
documents was a senior official of the Federal Home Loan Bank of San Francisco,
Michael Patriarca.
44. By the end of December 1988, the terms and conditions of the
highly complex transaction had been hammered out. As detailed in the
succeeding paragraphs of this Complaint, plaintiff Hyperion Partners and its
affiliates agreed to invest $90 million of equity in United and cause the
issuance of $110 million in subordinated debt that would constitute new
capital for regulatory purposes under the terms of the master agreement with
the FSLIC and the FHLBB, evidenced by FHLBB Resolutions and six contractual
documents listed in paragraphs 45 and 46 hereof. In the exercise of its
guarantee-against-loss powers, the FSLIC executed a long-term promissory note
for approximately $261,135,000, which was later adjusted upward to
$309,543,826, agreed to covered asset treatment for certain assets acquired
from Old
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United, agreed (through the FHLBB) to numerous regulatory forbearances for
United, and agreed to the sharing of tax benefits with United. The FSLIC
determined that such a transaction with plaintiffs would cost the government
over $100 million less than liquidating Old United.
45. The transaction was structured to occur in one day, on
December 30, 1988. In a series of resolutions, the FHLBB appointed the FSLIC
receiver for Old United, chartered plaintiff United as a new federal stock
savings bank, approved plaintiffs' acquisition and the written agreements and
associated documents, including the specific regulatory forbearance regime to
govern regulation of United as negotiated to induce the acquisition, and took
certain related actions. FHLBB Resolutions Nos. 88-1534 through 88-1539
(December 30, 1988); No. 88-1535 reissued as No. 89-1384 on May 2, 1989 (the
"FHLBB Resolutions"). In the FHLBB Resolutions, the FHLBB specifically
determined that (1) Old United was not a going concern and "could continue as a
going concern only with financial assistance from the FSLIC"; (2) Old United
"cannot be sold to an independent third party without financial assistance from
the FSLIC"; (3) the proceeds of liquidating Old United "would be insufficient
to satisfy the Association's [Old United's] secured and deposit liabilities,
and subordinated claims of governmental units for unpaid taxes"; (4)
plaintiffs' acquisition was "the most desirable alternative, consistent with
Bank Board [FHLBB] and FSLIC policy, to the liquidation" of Old United and was
"necessary to prevent the probable failure" of Old United; (5) plaintiffs'
acquisition was "in the public interest and in the best interests of the
Association [Old United], its savers, and the Corporation [FSLIC]"; and (6) the
requirements of Sections 406(f) and 408(m) of the National Housing Act were
satisfied.
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46. The contractual documents were executed, and the acquisition
was closed, on the same day. There were six written agreements:
(a) an Acquisition Agreement between the FSLIC, as
Receiver for Old United, and plaintiff United ("Acquisition
Agreement");
(b) an Assistance Agreement among the FSLIC and all four
plaintiffs ("Assistance Agreement");
(c) a Regulatory Capital Maintenance Agreement among the
FSLIC and all four plaintiffs ("Regulatory Capital Agreement");
(d) an Agreement for Operating Policies between the FSLIC
and plaintiff United ("Operating Agreement");
(e) a Warrant Agreement between the FSLIC and plaintiff
United ("Warrant Agreement"); and
(f) a Forbearance Agreement, approved on December 30,
1988 and issued on February 15, 1989 (John F. Ghizzoni, Assistant
Secretary of the FHLBB to Lewis S. Ranieri; "Forbearance Agreement").
47. The Acquisition Agreement sets forth the terms of plaintiff
United's acquisition of substantially all of Old United's assets from the FSLIC
as receiver and plaintiff United's assumption of Old United's secured, deposit,
and certain tax liabilities. The Acquisition Agreement is expressly conditioned
upon execution of the Assistance Agreement.
48. The Assistance Agreement sets forth the mutual, interdependent
commitments of plaintiffs and the FSLIC respecting the acquisition. The
provisions are elaborate. The principal ones are described below.
(a) A condition of the FSLIC's "obligations" under the
Assistance Agreement was plaintiffs' investment of $90 million in cash in
plaintiff United as equity and their commitment to cause the issuance of $110
million in subordinated debentures as additional
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<PAGE> 34
regulatory capital for plaintiff United upon receipt of Old United's final
audited financial statements. (Section 2(b)).
(b) A condition of plaintiffs' obligations was receipt of
a "regulatory forbearance and waiver letter" from the FHLBB and certified
copies of the FHLBB Resolutions. (Section 2(c)).
(c) The FSLIC promised to deliver a promissory note in
the amount of Old United's capital deficit, estimated on December 30, 1988 to
be approximately $261 million. (Section 6(a)).
(d) The Assistance Agreement defines the coverage of
Covered Assets and sets forth provisions governing their management and
disposition, the protections afforded to plaintiffs against capital loss on
such assets, and the Guaranteed Yield on such assets. (e.g., Sections 12-14).
Plaintiffs also acquired over $1 billion of assets from Old United that were
not Covered Assets and hence were not protected by FSLIC assistance.
(e) The Assistance Agreement specifies certain tax
benefit items to be shared with the FSLIC and requires United to pay a
guaranteed minimum irrespective of United's savings from the specified items.
(Section 9). Under Section 9(f), if tax deductions are subsequently
disallowed, "an appropriate amount" shall be debited to Special Reserve Account
I ("SRA I") to the benefit of plaintiff United.
(f) The Assistance Agreement's term is ten years, subject
to termination on grounds specified in the Agreement, including the appointment
of a receiver for plaintiff United. Unless specifically provided otherwise, the
terms of the Agreement do not survive
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termination. None of the parties is permitted to terminate the Agreement
unilaterally. (Section 24).
(g) "All the terms and provisions of this [Assistance]
Agreement shall be binding upon and inure to the benefit of the parties and
their respective transferees, successors, and assigns......" (Section 29).
(h) The parties committed themselves to continued cooperation
under the Assistance Agreement (Section 31):
"It is the purpose of this agreement to provide a means by
which the depositors of the ACQUIRED ASSOCIATION [Old United]
may be protected against losses, the thrift and financing
needs of the community in which the ACQUIRED ASSOCIATION's
offices are located may be served, the ACQUIRING ASSOCIATION
[plaintiff United] may receive the benefits and assume the
risks contracted for, and expense to the CORPORATION [FSLIC)
may be reduced. The parties therefore agree that they shall in
good faith, and with their best efforts, cooperate with one
another to carry out the purposes of this Agreement as
described in this section."
49. One part of the transaction that could not be precisely
calculated at the time of acquisition concerned the amount of "Reimbursable
Goodwill." Under the Assistance Agreement, the FSLIC agreed to reimburse
United, on an amortized basis, for the difference as of December 30, 1988
between (1) the fair market value of certain noncovered assets (such as
performing one-to-four family residential mortgages) acquired from Old United
and (2) the higher book value of the assets as shown on Old United's books as
of that date. The total amount of such reimbursements constitutes Reimbursable
Goodwill. The fair market value of United's assets, expressed as a percentage
of their book value, is referred to as "the Mark," and the process of fair
market valuation of the assets is referred to as a "mark-to-market." The
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<PAGE> 36
higher the fair market value as a percentage of book value (i.e., the higher
the Mark), the lower the Reimbursable Goodwill, and hence the lower the
reimbursements due to United under the Assistance Agreement. Reimbursement for
goodwill reflected in the mark-to-market valuation is made by debiting SRA I
pursuant to Assistance Agreement Section 3(a)(13).
50. The Warrant Agreement gives the FSLIC the opportunity to
purchase up to 158,823 shares of plaintiff United's stock on or before December
29, 2004. The Warrant Agreement provided the FSLIC with the right to share in
the success of plaintiff United without taking the risk of failure shouldered
by plaintiffs.
51. On December 30, 1988, the FHLBB also approved the issuance of
the Forbearance Agreement that had been negotiated with plaintiffs. The
regulatory commitments contained in the Forbearance Agreement are an integral
part of the deal, as the other December 30, 1988 agreements demonstrate. For
example, Recital D of the Assistance Agreement states:
"A condition of the obligation of the parties to consummate
the Transaction (defined below [as the acquisition of Old
United and related transactions]) is that the CORPORATION
[FSLIC], the ACQUIRING ASSOCIATION [plaintiff United], and the
ACQUIRERS [all four plaintiffs] enter into an agreement in the
form of this Agreement, pursuant to which the CORPORATION will
provide financial assistance and indemnification to the
ACQUIRING ASSOCIATION and the ACQUIRERS, and that certain
forbearances be granted in a separate forbearance letter."
This condition is set forth in Section 2(c)(1)(B) of the Assistance Agreement:
"The obligations of the ACQUIRING ASSOCIATION and the ACQUIRERS
under this Agreement are conditioned upon the following:
"(1) The receipt by ACQUIRING ASSOCIATION of the
following:
. . .
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<PAGE> 37
"(B) A regulatory forbearance and waiver
letter from the Bank Board [FHLBB] with respect to
the ACQUIRING ASSOCIATION acceptable to the sole
shareholder of the ACQUIRING ASSOCIATION...."
Because the Forbearance Agreement is set forth in a separate document, to avoid
any ambiguity the merger clause of the Assistance Agreement (Section 27(a))
provides:
"This Agreement and the other agreements entered into
by the ACQUIRING ASSOCIATION pursuant hereto,
together with any interpretation or understanding
agreed to in writing by the parties, constitutes the
entire agreement between the parties and supersedes
all prior agreements and understandings of the
parties in connection with it, excepting only the
Acquisition Agreement and any resolutions or letters
concerning the Transaction of this Agreement issued
by the Bank Board or the CORPORATION in connection
with the approval of the Transaction and this
Agreement...."
52. The Forbearance Agreement contains fifteen separately numbered
regulatory commitments. These government forbearance commitments related to
past actions of the failed thrift that continued to impact the new institution.
Of pertinence here to the subsequent actions of the FSLIC's successor agencies
are the first forbearance (the "Capital Forbearance") and the seventh
forbearance (the "Accounting Forbearance").
53. The Capital Forbearance provides:
"The FSLIC will forbear, for a period of ten years following
the date of consummation of the acquisition ("Effective
Date"), from exercising its authority to take action under
Section 563.13 of the Rules and Regulations for FSLIC Insured
Institutions ("Insurance Regulations"), for any failure of the
Resulting Institution to meet the regulatory capital
requirements of Section 563.13 of the Insurance Regulations,
or any successor regulation, arising solely from: (1)(a)
operating losses on the assets of the Acquired Institution
acquired on the Effective Date ("Acquired Assets") to the
extent such operating losses are not covered by FSLIC
assistance; (b) capital losses sustained by the Resulting
Institution upon disposition of Acquired Assets, to the extent
such capital losses
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<PAGE> 38
are not covered by FSLIC assistance; (c) the assumption of the
liabilities of the Acquired Institution as of the Effective
Date; (d) any increase in the contingency component
attributable to the assets of the Acquired Institution
existing at the Effective Date; or (2) the Resulting
Institution's assumption of the Acquired Institution's
regulatory capital deficiency as of the Effective Date;
provided that, the Resulting Institution maintains a ratio of
regulatory capital to total liabilities at a level no less
than the lesser of (1) 1.50% ("percentage floor") during the
first eighteen months following the Effective Date, provided
that this percentage floor shall increase to 2.0% immediately
upon the inclusion of subordinated debentures as regulatory
capital, and shall increase by.50% at the end of years two
through ten, after which it shall be the fully phased-in
regulatory capital level set forth in Section 563.13 of the
Insurance Regulations, or any successor regulation ("Capital
Plan"), or (2) the fully phased-in regulatory capital
requirement set forth in Section 563.13 of the Insurance
Regulations, or any successor regulation.
"The Resulting Institution shall be permitted to pay cash
dividends on its outstanding common stock and to pre-pay
subordinated indebtedness in an amount up to 50% percent of
net income for a fiscal year, and any dividends and
prepayments so permitted may be deferred and paid in a
subsequent year, provided that the Resulting Institution's
level of regulatory capital, following the payment of such
dividends, is no less than the lesser of (1) its fully
phased-in capital requirement as determined pursuant to
Section 563.13 of the Insurance Regulations, or any successor
regulation, or (2) a level of regulatory capital to total
liabilities equal to.50% above the Capital Plan levels set
forth in the preceding paragraph."
This Capital Forbearance establishes a regulatory capital standard for
plaintiff United that supersedes the then-existing regulations and "any
successor regulation" for a period of ten years. Under the Capital
Forbearance's standard, plaintiff United's compliance with regulatory capital
requirements cannot suffer by reason of losses incurred on assets acquired from
Old United which were not Covered Assets under the Assistance Agreement
(capital loss protection was provided separately for Covered Assets under the
Assistance Agreement) or by reason of Old United's capital deficiency.
Instead, the Capital Forbearance establishes specific ratios as to the
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<PAGE> 39
minimum capital requirements applicable to plaintiff United for regulatory
purposes, including the payment of dividends. Under these specific regulatory
ratios, supervisory goodwill is not deducted from capital.
54. The provisions of the Capital Forbearance are expressly
incorporated into the Regulatory Capital Agreement. In addition, the Assistance
Agreement explicitly establishes in Section 21 the overriding effect of the
Capital Forbearance:
"Except as otherwise provided herein, any computations made for
purposes of this Agreement shall be governed by generally
accepted accounting principles as applied in the savings and
loan industry, except that where such principles conflict with
the terms of the Agreement, applicable regulations, or any
resolution or action of the Bank Board approving or relating to
the Transaction or to this Agreement, then this Agreement, such
regulations, or such resolution or action shall govern. In the
case of any ambiguity in the interpretation or construction of
any provision of this Agreement, such ambiguity shall be
resolved in a manner consistent with such regulations and the
Bank Board's resolution or action relating to the Transaction
or to this Agreement. If there is a conflict between such
regulations and the Bank Board's resolution or action relating
to the Transaction or to this Agreement, the Bank Board's
resolution or action shall govern...."
55. The Capital Forbearance also expressly contemplates that the
$110 million of subordinated debt issued by plaintiff United will qualify as
regulatory capital for the term of the Capital Forbearance. Separate
confirmation of that regulatory qualification is contained in the FHLBB
Resolution approving the acquisition:
"RESOLVED FURTHER, That any subordinated debt issued pursuant
to the Application to Include Subordinated Debt as Regulatory
Capital and the Capital Note Commitment Agreement to provide
financing to New Federal [plaintiff United) that meets the
requirements of 12 C.F.R. Section 563.8-1(d) (1988), as in
force on December 31, 1988, up to $110.000,000 principal
amount, shall be
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<PAGE> 40
included in regulatory capital under 12 C.F.R. Section 561.13
or any successor regulations thereto."
FHLBB Resolution No. 88-1535P, December 30, 1988, pp. 39-40, reissued in FHLBB
Resolution No. 89-1384, May 2, 1989, p. 37 (hereafter "Subordinated Debt
Resolution"). Under Section 21 of the Assistance Agreement, the Subordinated
Debt Resolution, as well as the Forbearance Agreement, constitute part of the
consideration plaintiffs bargained for in the Assistance Agreement.
56. The Capital Forbearance's protection of United from adverse
action under regulatory capital requirements by reason of Old United's capital
deficit is supplemented by the Accounting Forbearance, which provides in
pertinent part:
"The acquisition of the Acquired Institution and related
transactions will be accounted for in accordance with
generally accepted accounting principles ("GAAP"), except
that for regulatory accounting purposes, the following shall
apply:
"A. For purposes of reporting to the Board, the
value of any unidentifiable intangible assets
resulting from accounting for the acquisition
of the Acquired Institution, in accordance
with the purchase method, may be amortized by
the Resulting Institution over a period not
to exceed twenty five years by the straight
line method."
The Accounting Forbearance, in prescribing a twenty-five year period over which
supervisory goodwill is amortized from the books of United, determines the
amount of supervisory goodwill that United can count as regulatory capital for
purposes of determining compliance with its specific regulatory ratios.
57. Neither the Capital Forbearance nor the Accounting Forbearance
permits any party to rescind the forbearance unilaterally for any reason.
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58. The Assistance Agreement between the FSLIC and plaintiffs
expressly contemplated that the transaction would entail significant income tax
benefits and defined the specific tax benefit items to be shared with the FSLIC,
requiring United to credit the FSLIC with "one-third (1/3) of the sum of the
Federal Net Tax Benefits (as defined and calculated in accordance with Section
9(b)) and the State Net Tax Benefits (as defined and calculated in accordance
with Section 9(c))... if any, realized by the Acquiring Association. In no
event is United to credit the FSLIC with less than the following guaranteed
amounts of tax benefits:
<TABLE>
<CAPTION>
"Fiscal Year Guaranteed Amount
------------ -----------------
<C> <C>
1 500,000
2 1,000,000
3 1,700,000
4 2,800,000
5 4,000,000."
</TABLE>
59. The Acquisition Agreement, the Assistance Agreement, the
Regulatory Capital Agreement, the Operating Agreement, the Warrant Agreement,
the FHLBB Resolutions, and the Forbearance Agreement are all valid,
statutorily-authorized acts of the FSLIC and the FHLBB and are all binding on
the FSLIC, the FHLBB and their successors, including defendants. The FSLIC and
the FHLBB had no right unilaterally to rescind, modify, or fail to perform the
Capital Forbearance, the Accounting Forbearance, the Subordinated Debt
Resolution, or the other agreements, and the FSLIC's and the FHLBB's successors
also have no such right.
60. At the time of the acquisition, Old United had only 19 retail
branches, located principally in the Houston area, with approximately $3.3
billion in deposits, much of which consisted of brokered or other non-customer
certificates of deposit. Old United had a small retail franchise and limited
loan origination capacity. Of approximately $5 billion in total assets
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acquired from Old United, Covered Assets accounted for $3.4 billion, or a full
67 percent. Since the acquisition, plaintiff United has grown to 62 retail
branches concentrated in the Houston and Dallas/Fort Worth metropolitan areas.
United's employment has grown from about 600 to in excess of 3,000 full-time
employees. United has become a significant originator of home mortgage loans,
both in Texas and elsewhere across the United States, with total 1992 home
mortgage originations in excess of $6.7 billion. United has established a
strong base of retail deposits, and it has reduced Covered Assets by over 85
percent. Covered Assets now amount to less than seven percent of total assets.
United is now one of the largest independent providers of financial services
headquartered in Texas, with total assets in excess of $8 billion. United has
been the most active participant in the Affordable Housing Program of the
Federal Home Loan Bank's Dallas District, which includes the States of Texas,
Louisiana, Arkansas, Mississippi, and New Mexico. United has assiduously
pursued its stated purpose of serving the communities in which its operations
are located with traditional savings and mortgage loan products, as evidenced
by its recent "Outstanding" rating by the OTS with respect to the Community
Reinvestment Act.
61. Plaintiffs have restructured and revitalized the operation
they acquired, returning to traditional home financing in the troubled and
uncertain Houston market and making sharp reductions in the exotic, high-risk
investments that the FSLIC had required United to take from Old United. As a
result of additional capital, the income plaintiff United earned and retained,
and the significant reductions of the institution's assets and liabilities,
plaintiff United's capital ratios are high.
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62. Since the acquisition, United has reduced its inherited
portfolio of high risk investments. It has managed Covered Assets for the
government prudently and in compliance with the terms of the Assistance
Agreement, and has disposed of many such assets at values exceeding government
estimates. Its operations have been stable, and United at no time has posed any
danger to the FSLIC, defendants, or taxpayers. Plaintiffs have diligently and
timely performed all of their obligations to defendants.
(4) The Enactment Of FIRREA
63. In February 1989, during the opening weeks of the Bush
Administration, the President announced a plan for addressing the ongoing
thrift crisis. Shortly thereafter, legislation was introduced in Congress that
ultimately became FIRREA, enacted on August 9, 1989.
64. FIRREA effected significant changes in the administration of
the thrift regulatory scheme. Central to these changes were the abolition of
the FSLIC and the FHLBB and the establishment of (1) defendant FSLIC Resolution
Fund (managed by defendant FDIC) as the successor to the FSLIC's assets and
liabilities, (2) defendant Director as the successor to the FHLBB, (3)
defendant RTC to continue to carry out for an interim period the resolution of
troubled thrifts with such powers then reverting to the FDIC, and (4) defendant
Oversight Board's predecessor to oversee and be responsible for the RTC.
Defendant FDIC also assumed the FSLIC's deposit insurance function with respect
to thrifts and its receivership roles with respect to certain thrifts, such as
its receivership role for Old United.
65. Following the enactment of FIRREA, plaintiffs no longer dealt
with the FSLIC and the FHLBB, which had ceased to exist. Instead, on matters
pertaining to the Assistance
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Agreement, plaintiffs began to deal with the Division of FSLIC Operations of
defendant FDIC, and on matters pertaining to the Forbearance Agreement,
plaintiffs began to deal with defendant Director. Defendant FSLIC Resolution
Fund succeeded to the FSLIC's obligations under the Assistance Agreement,
including the Subordinated Debt Resolution and the Forbearance Agreement.
66. FIRREA originally provided that "unless the Oversight Board
exercises its authority under subsection (m) of this section, the [RTC]
Corporation itself shall have no employees." FIRREA, Section 501(a), 103 Stat.
183, 371. Instead, FIRREA provided that the FDIC was to serve as exclusive
manager and "perform all responsibilities of the [RTC] unless removed pursuant
to subsection (m) of this section." FIRREA, Section 501(a), 103 Stat. 369. No
such exercise of authority by the Oversight Board and removal of the FDIC
pursuant to subsection (m) ever occurred. Defendant FDIC thus supplied and
continues to supply personnel to perform the functions of defendant RTC, which
now has one employee, to wit, a Chief Executive Officer, pursuant to changes in
the law pursuant to the RTC Financing Act.
67. From August 9, 1989 through January 15, 1991, personnel of the
Division of FSLIC Operations of defendant FDIC carried out the responsibilities
of the FDIC as manager of the FSLIC Resolution Fund, the assets and liabilities
of which include the Assistance Agreement, including the Subordinated Debt
Resolution and the Forbearance Agreement. On January 16, 1991, defendants FDIC
and RTC agreed to reassign to the RTC the FDIC's Division of FSLIC Operations,
with the defendants' stated purpose being "to better position the RTC to
restructure FSLIC cases" pursuant to the renegotiation authority of FIRREA
Section 501(a). Defendant RTC, by resolution bearing Seal No. 0002957, dated
February 5, 1991,
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<PAGE> 45
authorized implementation of a five-step plan to restructure the 1988 deals and
specifically authorized the
"employees of Division of FSLIC Operations by then assigned
to the RTC to continue to operate under the FDIC's delegations
of authority to the employees of Division of FSLIC Operations
except that (1) the authorities previously delegated to the
FDIC Committee on Liquidations, Loans and Purchases of Assets
to approve any recommendation of Division of FSLIC Operations
were delegated instead to the RTC Senior Committee on
Management and Disposition of Assets ("RTC Senior Committee"),
and (2) the authorities previously delegated to the Division
of FSLIC Operations Direction (or designee) were delegated
instead to the RTC Deputy Executive Director for Resolutions
and Operations, FSLIC Operations, and Capital Markets (or
designee)."
Defendant FDIC by resolution adopted September 24, 1991, specifically "adopts
and ratifies RTC Board Resolution bearing Seal No. 002957, dated February 5,
1991, insofar as that Resolution concerns management of the FSLIC Resolution
Fund, and establishes the RTC Senior Committee as a special committee of the
FDIC for these purposes." The same FDIC resolution went on to state that the
"FDIC adopts and ratifies any other previous action of the RTC Board pertaining
to management of the FSLIC Resolution Fund." Finally, that same FDIC resolution
went on to state that
"the Board of Directors of the FDIC delegates authority to the
Deputy Executive Director, RTC, the Associate Director,
Division of FSLIC Operations (or the designee of either of
them), with the concurrence of the FDIC General Counsel (or
designee) or the RTC General Counsel (or designee), to
execute, on behalf of the FDIC as manager of the FSLIC
Resolution Fund, any termination agreement, contract
modification, or other renegotiation document relating to the
FSLIC Cases negotiated and approved by the RTC pursuant to its
statutory authority."
Further resolutions of defendants RTC and FDIC may also exist pertaining to the
transfer, delegation and mixing of authority and functions that statutorily are
separate.
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68. According to a Press Release of defendant FDIC dated October
28, 1992, and by a letter of defendant FDIC to plaintiff United dated October
28, 1992, defendants RTC and FDIC re-assigned to the FDIC's Division of
Resolutions the responsibility for the assistance agreements, effective October
18, 1992.
69. FIRREA contains numerous provisions to assure continuity with
respect to the treatment of thrift institutions, as reflected in paragraphs 70
through 74 below.
70. Section 401(f) of FIRREA provides that the abolition of the
FSLIC "shall not affect the validity of any right, duty, or obligation of the
United States, the Federal Savings and Loan Insurance Corporation, or any other
person" arising under Title IV of the National Housing Act. FIRREA, Section 401
(f), 103 Stat. 183, 356.
71. Section 401(g) of FIRREA provides as follows:
"(g) SAVINGS PROVISIONS RELATING TO FHLBB. -
(1) EXISTING RIGHTS, DUTIES, AND OBLIGATIONS
NOT AFFECTED. -
Subsection (a) shall not affect the validity of any
right, duty, or obligation of the United States, the
Federal Home Loan Bank Board, or any other person,
which -
(A) arises under or pursuant to the Federal
Home Loan Bank Act, the Home Owners' Loan
Act of 1933, or any other provision of law
applicable with respect to such Board (other
than title IV of the National Housing Act);
and
(B) existed on the day before the date of
the enactment of this Act.
(2) CONTINUATION OF SUITS. -
(A) IN GENERAL - No action or other
proceeding commenced by or against the
Federal Home Loan Bank Board, or any Federal
home loan bank with respect to any function
of the Board which was delegated to employees
of such bank, shall abate by reason of the
enactment of this Act, except that the
appropriate successor to the interests of
such Board shall be substituted for the
Board or the Federal home loan bank as a
party to any such action or proceeding."
FIRREA, Section 401(g), 103 Stat. 183, 356-357.
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72. Section 401(h) of FIRREA provides as follows:
"(h) CONTINUATION OF ORDERS, RESOLUTIONS, DETERMINATIONS, AND
REGULATIONS. - Subject to section 402, all orders,
resolutions, determinations, and regulations, which -
(1) have been issued, made, prescribed, or
allowed to become effective by the Federal Savings
and Loan Insurance Corporation or the Federal Home
Loan Bank Board (including orders, resolutions,
determinations, and regulations which relate to the
conduct of conservatorships and receiverships), or by
a court of competent jurisdiction, in the performance
of functions which are transferred by this Act; and
(2) are in effect on the date this Act takes
effect, shall continue in effect according to the
terms of such orders, resolutions, determinations,
and regulations and shall be enforceable by or
against the Director of the Office of Thrift
Supervision, the Federal Deposit Insurance
Corporation, the Federal Housing Finance Board, or
the Resolution Trust Corporation, as the case may be,
until modified, terminated, set aside, or superseded
in accordance with applicable law by the Director of
the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation, the Federal Housing Finance
Board, or the Resolution Trust Corporation, as the
case may be, by any court of competent jurisdiction,
or by operation of law."
FIRREA, Section 401(h), 103 Stat. 183, 357.
73. Section 215 of FIRREA added a new Section 11A to the Federal
Deposit Insurance Act, providing for the establishment of a new fund, the FSLIC
Resolution Fund, to which the assets and liabilities of the FSLIC were
transferred. FIRREA, Section 215, 103 Stat. 183, 253-254 (current version at 12
U.S.C.A. Section 1821a (West Supp. 1993)). This provision was amended in 1991
to make clear that effective August 10, 1989, defendant FDIC succeeded the
FSLIC as conservator or receiver of depository institutions such as Old United,
and that when acting as conservator or receiver with respect to any such
institution, the FDIC "shall have all rights and powers that the FDIC otherwise
has as a conservator or receiver under this chapter," such "chapter" including
the guarantee-against-loss provisions of Section 13 of the Federal Deposit
Insurance Act. See Federal Deposit Insurance Corporation Improvements Act of
1991, Pub. L. No.102-242, 105 Stat. 2236, 2285-2286; 12 U.S.C.A. Section
1821a(4). The conservatorship
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and receivership powers in the Federal Deposit Insurance Act include
not only enumerated express powers, but also incidental powers and
"any other power conferred on or any duty (which is related to the
exercise of such power) imposed on a conservator or receiver for any
Federal depository institution under any other provision of law." 12
U.S.C.A. Sections 1821(d)(2)(A) - (I), 1821(d)(2)(J), and
1821(c)(2)(B) (West Supp. 1993).
74. In enacting FIRREA Congress preserved fully the
guarantee-against-loss powers. Before FIRREA, the FDIC had
guarantee-against-loss powers with respect to insured banks that were
equivalent to the FSLIC's guarantee-against-loss powers with respect to
thrifts. Garn-St Germain, Section 111, 96 Stat. 1469-70. After FIRREA, the FDIC
continued to have the same powers, but with respect to "insured depository
institutions," that is, both banks and thrifts. 12 U.S.C.A. Section
1823(c)(2)(A)(iii)-(iv) (West 1989).
B. DEFENDANTS' ACTIONABLE CONDUCT
75. FIRREA, enacted only eight months after plaintiffs acquired
Old United from the FSLIC, marked a turning point for plaintiffs. What had been
a carefully negotiated and cooperative effort among the plaintiffs, the FSLIC,
and the FHLBB to establish, on an economically sound basis, a revived thrift
institution in Texas became a constant struggle, as the successors to the FSLIC
and FHLBB persistently undermined and reneged on promises that were the
foundation of plaintiffs' plans and investment. While, plaintiffs were being
held strictly to their undertakings, the specific regulatory and tax-benefit
commitments made to plaintiffs abruptly fell by the wayside, without any offer
to provide compensating adjustments. Plaintiffs' new contracting parties
dropped any pretense of a cooperative pursuit of the original purposes of the
transaction and turned instead to an uncooperative pursuit of their own
advantage at
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plaintiffs' expense. Plaintiffs thus found themselves locked in a contractual
relationship, stripped of the incentives that induced their agreement, with new
parties willing to disregard their contractual obligations and possessing the
power of the "purse string" over the terms of promised continuing assistance.
76. Defendants' relentless pursuit of their own advantage to
plaintiffs' detriment has been manifested in many ways. Where a strained
interpretation of the language of the Assistance Agreement, taken out of
context and divorced from the purposes of the transaction, has been seen to
benefit defendants, such an interpretation has been insisted upon or even
unilaterally imposed. Where it has been to defendants' advantage to delay
needed approvals, approvals have been delayed. Where an approval previously
granted has proved inconvenient to defendants, the prior approval has been
disregarded. Where defendants have found themselves competing with United in
attempting to dispose of thrift assets, United's requests to follow the same
efficient disposition techniques as have been adopted by defendants have been
denied. When it appeared that allowing the Assistance Agreement to be
administered by defendant RTC would create maximum leverage against plaintiffs,
given the RTC's statutory mandate to renegotiate aggressively to the
government's advantage, defendant RTC was assigned that responsibility. When
defendants discovered they could undercut plaintiffs' income tax position and
enhance their own by amending the years-old tax returns of Old United in
receivership, defendants threatened to amend the returns and reap the benefits
under the Assistance Agreement. In the course of dealing with United about the
numerous problems caused by defendants' uncooperative attitude, no tactic has
seemed beyond the pale for defendants, including take-it-or-sue ultimatums,
threats of retaliation, unfounded accusations of improper conduct, and the
adoption of frivolous positions apparently designed, at least in
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part, to preserve defendants' position in unrelated transactions governed by
materially different contracts. In short, plaintiffs' contract rights have
been trampled.
77. Plaintiffs' post-FIRREA problems with defendants fall into
five categories (totaling twenty separate issues set forth in subheadings (1)
through (20) below). First, defendant Director has refused, on the purported
basis of FIRREA, to perform his obligations as to capital adequacy standards as
set forth in the Capital Forbearance and the Accounting Forbearance. Second,
defendant Director has refused, on the purported basis of FIRREA, to qualify
plaintiff United's subordinated debt as regulatory capital as required under
the Capital Forbearance and the Subordinated Debt Resolution. Third, defendant
FDIC has breached and threatened to breach the Assistance Agreement on a wide
variety of matters, causing financial harm to plaintiff United and creating
uncertainty regarding plaintiffs' rights. Fourth, the United States Secretary
of the Treasury has announced that the government will not recognize or allow
the tax benefits advertised by the FSLIC, relied upon by plaintiffs, and
incorporated in the Old United transaction, thereby repudiating those tax
benefits, and defendant FDIC has indicated a refusal to comply with the
Assistance Agreement requirement that equivalent payments be made in lieu
thereof when the Internal Revenue Service disallows United's deductions. Fifth,
defendant FDIC has asserted unfounded rights under the Warrant Agreement and
the Assistance Agreement to dividends and to percentages of the shares of
plaintiff United that are subject to the defendants' warrants.
78. Defendants have taken numerous steps that have adversely
affected the earnings of plaintiff United from the asset side of its balance
sheet. Other actions of defendants have affected plaintiff United's ability to
leverage its capital. Through this all, plaintiff United has received no relief
in terms of the liability side of its balance sheet, that is, the deposit
liabilities
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which it was required to assume from Old United. This is unjust, given the
integrated nature of the complex bargain that was struck in 1988.
(1) Failure To Honor The Capital And Accounting
Forbearances In Setting Standards For Determining
Plaintiff United's Capital Adequacy
79. Section 301 of FIRREA amended the capital adequacy standards
for thrifts, fromwhich United had expressly been relieved for ten years under
the terms of the Capital Forbearance and the written agreements. A new Section
5(t) was added to the Home Owners' Loan Act of 1933 ("HOLA"):
"(t) CAPITAL STANDARDS. --
"(1) IN GENERAL. --
"(A) REQUIREMENT FOR STANDARDS TO BE PRESCRIBED. -
The Director shall, by regulation, prescribe and
maintain uniformly applicable capital standards for
savings associations. Those standards shall
include --
"(i) a leverage limit;
"(ii) a tangible capital requirement; and
"(iii) a risk-based capital requirement.
"(B) COMPLIANCE. -- A savings association is not
in compliance with capital standards for purposes of
this subsection unless it complies with all capital
standards prescribed under this paragraph.
"(C) STRINGENCY. -- The Standards prescribed under
this paragraph shall be no less stringent than the
capital standards applicable to national banks.
"(D) DEADLINE FOR REGULATIONS. -- The Director
shall promulgate final regulations under this
paragraph not later than 90 days after the date
of enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, and those
regulations shall become effective not later than 120
days after the date of enactment.
"(2) CONTENT OF STANDARDS. --
"(A) LEVERAGE LIMIT. -- The leverage limit
prescribed under paragraph (1) shall require a
savings association to maintain core capital in an
amount not less than 3 percent of the savings
association's total assets.
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"(B) TANGIBLE CAPITAL REQUIREMENT. -- The
tangible capital requirement prescribed under
paragraph (1) shall require a savings association to
maintain tangible capital in an amount no less than
1.5 percent of the savings association's total
assets.
"(C) RISK-BASED CAPITAL REQUIREMENT.
-- Notwithstanding paragraph (1)(C), the risk-based
capital requirement prescribed under paragraph (1)
may deviate from the risk-based capital standards
applicable to national banks to reflect interest-rate
risk or other risks, but such deviations shall not,
in the aggregate, result in materially lower levels
of capital being required of savings associations
under the risk-based capital requirement than would
be required under the risk-based capital standards
applicable to national banks...."
FIRREA, Section 301, 103 Stat. 183, 303-04; 12 U.S.C.A. Section 1464(t) (West
Supp. 1993).
80. Section 301 of FIRREA also changed the general definition of
regulatory capital to exclude supervisory goodwill, subject to a transitional
rule that provides for its inclusion in decreasing amounts over five years.
FIRREA, Section 301, 101 Stat. 183, 304, 310; 12 U.S.C.A. Sections 1464(t)(3)
and (t)(9) (West Supp. 1993). The amortization period for supervisory goodwill
is limited to twenty years. FIRREA, Section 301, 101 Stat. 183, 310; 12 U.S.C.A.
Section 1464(t)(9)(B) (West Supp. 1993).
81. Section 301 also sets forth severe sanctions for failure to
comply with the new capital standards, including prohibitions on asset growth,
the imposition of "capital directives" that may include restrictions on the
payment of dividends and compensation, and the risk that the institution may be
found to be operating in an "unsafe and unsound" manner by the OTS, subjecting
the institution to a conservatorship or receivership proceeding or the removal
of officers and directors. FIRREA, Section 301, 103 Stat. 183, 307-309; 12
U.S.C.A. Section 1464(t)(6) and (7) (West Supp. 1993).
82. On November 8, 1989, defendant Director published new minimum
capital regulations. 54 Fed. Reg. 46845 (Nov. 8, 1989) ("OTS Capital
Regulation"). The OTS Capital
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Regulation, which became effective on December 7, 1989, implements the capital
adequacy standards of FIRREA.12 C.F.R. 567.10. In addition, the OTS Capital
Regulation prescribes additional consequences for thrifts that do not meet
minimum capital requirements.
83. On January 9, 1990, the Director issued Thrift Bulletin 38-2,
which announced:
"The Office of Thrift Supervision is applying the new capital
standards to all savings associations, including those
associations that have been operating under previously granted
capital and accounting forbearances. Section 5(t) of HOLA as
amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) eliminates these
forbearances. All savings associations presently operating
with these forbearances, therefore, should eliminate them in
determining whether or not they comply with the new minimum
regulatory capital standards."
On May 24, 1991, the Director issued Thrift Bulletin 38-2a, which rescinds
Thrift Bulletin 38-2 but republishes the language quoted above.
84. Following the issuance of the Thrift Bulletin 38-2, and now
Thrift Bulletin 38-2a, the Director has refused to adhere to the Capital
Forbearance and the Accounting Forbearance and has measured plaintiff United's
capital adequacy under the differing, more stringent requirements of the OTS
Capital Regulation. This ongoing breach and repudiation of obligations under
the Capital Forbearance and the Accounting Forbearance have caused severe and
continuing damage to plaintiffs.
(2) Failure To Adhere To The Subordinated Debt Resolution
So As To Count Subordinated Debt As A Component Of
Plaintiff United's Regulatory Capital
85. In connection with the Assistance Agreement, at the cost of
$1.4 million in commitment fees plaintiff United committed to issue $110
million of subordinated debt to enhance regulatory capital. Plaintiffs deferred
issuing the $110 million in subordinated debt until receipt of the final
audited financial statements of Old United. In the spring of 1989.
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however, prior to issuing the subordinated debt, plaintiffs became concerned
that there might be legislative proposals to limit or eliminate the use of
subordinated debt as qualifying regulatory capital for thrifts. Plaintiffs were
unsure whether such proposals would be adopted and, if adopted, whether an
attempt would be made to apply them to United to render the proposed
subordinated debt issue useless for regulatory capital purposes, despite the
Capital Forbearance and the Subordinated Debt Resolution.
86. In light of this uncertainty, plaintiffs contacted the
Chairman of the FHLBB and the Deputy Director of the FSLIC for guidance. Both
advised plaintiffs that plaintiff United was bound by the Assistance Agreement
to issue the subordinated debt. Accordingly, in May 1989, at considerable
expense and on unfavorable terms, $110 million of subordinated debt was issued,
and the proceeds were placed in plaintiff United.
87. As added by FIRREA, new Sections 5(t)(9) & (10) of HOLA
specify definitions to be used in applying the capital standards of Section
5(t), quoted above:
"(9) DEFINITIONS. -- For purposes of this subsection -
"(A) CORE CAPITAL. -- Unless the Director prescribes
a more stringent definition, the term 'core capital' means
core capital as defined by the Comptroller of the Currency for
national banks, less any unidentifiable intangible assets,
plus any purchased mortgage servicing rights excluded from the
Comptroller's definition of capital but included in
calculating the core capital of savings associations pursuant
to paragraph (4).
* * *
"(C) TANGIBLE CAPITAL. -- The term 'tangible capital'
means core capital minus any intangible assets (as intangible
assets are defined by the Comptroller of the Currency for
national banks).
"(D) TOTAL ASSETS. -- The term 'total assets' means
total assets (as total assets are defined by the Comptroller
of the Currency for national banks) adjusted in the same
manner as total assets would be adjusted in determining
compliance with the
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leverage limit applicable to national banks if the savings
association were a national bank.
"(10) USE OF COMPTROLLER'S DEFINITIONS. --
"(A) IN GENERAL. -- The standards prescribed under
paragraph (1) shall include all relevant substantive
definitions established by the Comptroller of the Currency for
national banks.
"(B) SPECIAL RULE. -- If the Comptroller of the
Currency has not made effective regulations defining core
capital or establishing a risk-based capital standard, the
Director shall use the definition and standard contained in
the Comptroller's most recently published final regulations."
FIRREA, 301, 103 Stat. 183, 310; 12 U.S.C.A. Section 1464(t)(9) (West Supp.
1993).
88. The OTS Capital Regulation sets forth OTS's definitions of
"core capital" (used in applying FIRREA's leverage standard), "tangible
capital" (used in applying FIRREA's tangible capital standard), and
"supplementary capital" (used with "core capital" in applying FIRREA's
risk-based capital standard). The OTS Capital Regulation excludes subordinated
debt of the type issued by plaintiff United from "core capital" and "tangible
capital" and limits the use of such debt as "supplementary capital." Further,
the OTS Capital Regulation sets forth a more burdensome ratio of capital to
total assets than required under United's Capital Forbearance. Consequently,
the OTS Capital Regulation's definitions deprive plaintiff United of the
benefits and protections of the Capital Forbearance and Subordinated Debt
Resolution.
89. After the enactment of FIRREA and before the promulgation of
the OTS Capital Regulation, plaintiffs asked defendant Director to confirm that
plaintiff United's subordinated debt would count fully as regulatory capital in
defendant Director's new regulations. Plaintiffs' request was not honored, and
after the promulgation of the OTS Capital Regulation the OTS excluded the
subordinated debt from calculations of plaintiff United's core capital and
tangible capital.
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90. As a result of defendant Director's failure to provide
plaintiff United the benefit of the Capital Forbearance and to treat the
subordinated debt as capital for purposes of the OTS Capital Regulation,
plaintiff United's issuance of the subordinated debt was rendered meaningless
for purposes of compliance with regulatory capital standards. This ongoing
breach and repudiation of obligations under the Capital Forbearance and
Subordinated Debt Resolution have caused severe and continuing damage to
plaintiffs.
(3) Arbitrary Downward Adjustment To The Value Of Covered
Assets
91. On June 26, 1991, defendant FDIC ordered plaintiff United to
decrease the book value of a substantial portion of plaintiff United's Covered
Assets by a total of approximately $231,019,892, on or before June 30, 1991.
Defendant FDIC gave no business or policy reason for directing the write-down
of some assets and not others, and defendant FDIC gave no reason for the amount
of the write-down. When plaintiff United objected to an earlier directed
write-down in the value of two other Covered Assets, defendant FDIC had
responded, by letter dated April 2, 1991, that Assistance Agreement Section
4(a) provides discretion to direct partial or complete write-downs with "no
limiting language" on that ability.
92. The immediate effect on plaintiff United of directed
write-downs in the value of Covered Assets is to decrease income from yield
maintenance. In addition, because the amount of the write-down is in essence
reimbursed in cash, plaintiff United has received through December 30, 1992,
$316,244,325 in cash under circumstances where there was no realistic ability
to invest that money at returns equal to yield maintenance levels. It was a
fundamental aspect of the assistance transaction that plaintiff United
bargained for and obtained yield maintenance on Covered Assets as compensation
for the FSLIC's requirement that plaintiff United also assume certain high-cost
liabilities of Old United, such as high-yield certificates of
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deposit. In addition, Guaranteed Yield was intended to serve as partial
reimbursement to United of the costs incurred in managing Covered Assets.
Defendant FDIC's unilateral action in decreasing plaintiff United's yield
maintenance income harms plaintiff United's ability to support its high-cost
liabilities, reduces income from Covered Asset management without any
corresponding decrease in costs, injects substantial uncertainty into United's
ability to make business assumptions and long-range plans, injects excess
liquidity, and makes interest rate management more difficult.
93. Assistance Agreement Section 31 requires that the parties
"shall in good faith, and with their best efforts, cooperate with one another
to carry out the purposes of this Agreement as described in this section."
Those purposes are: (1) to protect the depositors of Old United against losses;
(2) to serve the thrift and financing needs of the community; (3) to ensure
that plaintiff United "may receive the benefits and assume the risks contracted
for"; and (4) to reduce the FSLIC's expense. Defendant FDIC's directed
write-downs serve only the fourth purpose and impair the third. Defendant FDIC
has breached its contractual obligations, including its obligations under
Section 31 of the Assistance Agreement.
(4) Threatened Downward Adjustment To The Amount Of
Reimbursable Goodwill Previously Determined In
Accordance With The Assistance Agreement
94. The sole method specified in the Assistance Agreement for
establishing the amount of Reimbursable Goodwill is "an audit performed at the
Acquiring Association's [United's] expense in accordance with generally
accepted auditing standards and generally accepted accounting principles and
approved by the Corporation [FSLIC]..." (Section 3(a)(13)). United was entitled
under the Assistance Agreement to conduct its own mark-to-market valuation, but
retained a third party, Shearson Lehman Hutton Inc. ("Shearson"), to perform
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the valuation. The required audit of the mark-to-market valuation was then
conducted at United's expense by Deloitte Haskins & Sells ("Deloitte") in
accordance with generally accepted auditing standards ("GAAS") and GAAP. In
addition, Shearson's valuation was independently confirmed by two other
investment banking firms.
95. Shearson's conclusion was that the Mark was 76.301 percent; in
other words, the fair market value of the pertinent noncovered assets as of
December 30, 1988 was 76.301 percent of such assets' book value on that date.
In dollar terms, this Mark meant that the noncovered assets had a fair market
value that was $159,785,309.54 less than their book value on December 30, 1988.
Because this amount of goodwill is to be reimbursed to United over time without
interest, its present value as of December 30, 1988 was only $128,545,254.80,
which is the amount of Reimbursable Goodwill booked on United's financial
statements.
96. Because United's Reimbursable Goodwill was determined in
strict accordance with the sole requirements for such a determination that are
set forth in the Assistance Agreement, defendant FDIC, as the successor of the
FSLIC and the manager of the FSLIC Resolution Fund, was obligated to approve
United's determination. The Assistance Agreement provides no basis for a
disapproval of United's determination.
97. In any event, defendant FDIC has in fact approved United's
determination of Reimbursable Goodwill. For example, on November 17, 1989,
defendant FDIC approved United's determination of Reimbursable Goodwill in
response to United's Specific Request SW #25-89-557.
98. Despite United's clear compliance with the Assistance
Agreement in establishing the amount of Reimbursable Goodwill, and despite
defendant FDIC's approval of United's determination, since 1991 defendant FDIC
has threatened to require United to make a
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significant upward adjustment to the Mark, thereby reducing Reimbursable
Goodwill by over $40 million. The basis of these threats is a new and separate
mark-to-market valuation performed by a contractor retained by defendant FDIC.
By its plain terms, the Assistance Agreement does not permit the determination
of Reimbursable Goodwill to be based on work performed by defendant FDIC's
contractors. Nowhere in the Assistance Agreement, a complex document carefully
negotiated by both sides, did the FSLIC provide for its own subsequent
retention of another investment banking firm to recalculate a "mark," should
the FSLIC decide at some point in the future that it was unhappy with the
calculation by plaintiff United's independent financial advisors and auditors.
Defendant FDIC's current interpretation would replace the objective standard
clearly contracted for (goodwill to be derived from an audit in accordance with
GAAS and GAAP) with a subjective standard and would give the FDIC unfettered
discretion to accept or reject the goodwill determination at any time. If the
FSLIC had wanted an additional goodwill determination, as a comparison to the
determination specified in the Assistance Agreement and made at plaintiff
United's expense, it could have contracted for such a provision, but it did not
do so. Even if defendant FDIC were authorized under the Assistance Agreement to
determine Reimbursable Goodwill based on the work of an FDIC contractor, the
mark-to-market valuation of defendant FDIC's contractor in this instance is so
seriously flawed, factually and in terms of methodology, that the valuation
must be rejected.
99. United's determination of Reimbursable Goodwill was performed
in accordance with the Assistance Agreement and hence is binding on defendant
FDIC. Moreover, defendant FDIC's approval of United's determination is binding
on defendant FDIC. Even if defendant FDIC were free to adjust United's
determination, the basis for defendant FDIC's threatened
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adjustment is deficient. For these reasons, defendant FDIC's threats to require
a downward adjustment to United's determination of Reimbursable Goodwill are
contrary to United's contractual rights.
(5) Failure To Approve Requests For Assets Dispositions
100. Under the terms of the Assistance Agreement, plaintiff United
is required to use its best efforts to minimize losses and maximize gains with
respect to Covered Assets. To that end, plaintiff United has sought permission
to sell Covered Assets pursuant to asset sale requests submitted to defendant
FDIC. Under the Assistance Agreement, any such asset sale request is deemed
approved unless the FDIC disapproves it within 30 days. In Specific Requests SW
#25-92-096 and SW #25-92-087, plaintiff United requested approvals to accept
sales contracts on certain commercial real estate properties. Such requests
were unreasonably denied by defendant FDIC. In March 1992, United sought
approval through Specific Request SW #25-92-165 to auction approximately
fifty-three Covered Asset properties. This request also was unreasonably denied
by defendant FDIC. In October 1992, plaintiff United unsuccessfully sought
approval, through Specific Request SW #25-92-588, to purchase certain Covered
Assets involving commercial, consumer, and residential loans. This request was
improperly denied by defendant FDIC "pending outcome of renegotiations."
Defendant FDIC has thus succeeded in denying to plaintiff United the same types
of efficient asset disposition techniques that defendant FDIC, which
effectively competes with plaintiff United in thrift asset sales, has adopted
for itself.
101. Under the terminal mark provisions of Section 4(e) of the
Assistance Agreement, if plaintiff United has used its best efforts to dispose
of a Covered Asset but the asset still remains on plaintiff United's books at
the end of the applicable term of Covered Asset
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coverage, the FDIC may approve, to the benefit of United, a write-down of the
Covered Asset from book value to fair value. Representatives of the FDIC, while
refusing to permit the sales requested under Specific Requests SW #27-92-096,
SW #25-92-087, SW #25-92-165, and SW #25-92-588, have nevertheless threatened
to apply the terminal mark provisions in a manner adverse to plaintiff United
by refusing to permit reasonable write-downs of remaining assets at the end of
Covered Asset coverage.
102. By refusing to approve asset sales and thus forcing plaintiff
United to retain Covered Assets on its books, yet threatening to deny deserved
relief in the form of write-downs to fair market value at the end of Covered
Asset coverage, defendants FDIC and RTC have failed to honor their contractual
obligations, including their obligations under Section 31 of the Assistance
Agreement, thus causing injury and monetary damage to plaintiffs.
(6) Failure To Pay Reimbursable Goodwill On A Quarterly
Basis
103. Under the terms of the Assistance Agreement, United is
entitled to reimbursement from defendant FDIC for Reimbursable Goodwill in
installments over a period of several years. On December 30, 1988, the
"Effective Date" of United's acquisition of Old United's assets, United
established a memorandum account, SRA I, as required under Assistance Agreement
Section 3, for the purpose of accounting for, among other things, Reimbursable
Goodwill. Pursuant to Section 3(a)(13) of the Assistance Agreement, United must
charge the allocable expense for the amortization of Reimbursable Goodwill to
SRA I. Pursuant to Section 16(a)(1) of the Assistance Agreement, United must
prepare quarterly reports showing the debits and credits made to SRA I during
the quarter, as well as the balance of this account as of the end of each
quarter. United must provide these quarterly reports to defendant FDIC within
45 days following the end of each quarter. Within 30 days after
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defendant FDIC's receipt of each quarterly report, Assistance Agreement Section
6(a)(2)(A) obligates defendant FDIC either (i) to reimburse United in cash for
the net debit balance in SRA 1, or (ii) subject to certain limits, to carry the
balance of SRA I over to the next quarter and treat the debit balance in SRA I
as a Covered Asset for yield maintenance purposes.
104. The Assistance Agreement provides for the payment by defendant
FDIC of Reimbursable Goodwill on a quarterly basis, and defendant FDIC
subsequently confirmed this fact. On November 15, 1989, plaintiff United
submitted to defendant FDIC through its agent Specific Request SW #25-89-557,
which requested, among other things, quarterly reimbursements for Reimbursable
Goodwill for the first three quarters of 1989. This request was approved by
defendant FDIC on November 17, 1989.
105. The Assistance Agreement itself also clearly contemplates that
Reimbursable Goodwill will be allocated to SRA I and will be reimbursed on a
quarterly basis, inasmuch as all of the reports and reimbursements associated
with SRA I are done on a quarterly basis in accordance with Sections 16(a)(1)
and 6(a)(2)(A) of the Assistance Agreement. Furthermore, the course of
performance by the parties subsequent to the signing of the Assistance
Agreement evidences their intent to make quarterly payments for Reimbursable
Goodwill; both parties to the Assistance Agreement have operated on the basis
of quarterly accounting and reimbursement for Reimbursable Goodwill for over
three years. In addition, GAAP requires that goodwill be amortized evenly
throughout the year, and not simply be taken each year as a single
point-in-time charge.
106. Despite the clear evidence of the intent of the parties, and
the fact that defendant FDIC has agreed that quarterly reimbursement of
Reimbursable Goodwill is appropriate under the terms of the Assistance
Agreement since 1989, defendant FDIC has refused to reimburse
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quarterly for Reimbursable Goodwill, asserting instead that Reimbursable
Goodwill should be reimbursed only once each year, thereby causing damage to
plaintiffs.
(7) Failure To Pay Guaranteed Yield On The Full Book
Value Of Loans that Became Covered Assets During, The
Two Year Post Effective Date Period
107. Contrary to the express terms of the Assistance Agreement,
defendant FDIC currently asserts that the book value for an Effective Date
Performing Loan Covered Asset is the Mark-to-Market Value. Defendant FDIC's
interpretation of the Assistance Agreement is erroneous, and its refusal to pay
Guaranteed Yield on the full book value on loans that became Covered Assets
during the two-year period is a breach of the Agreement. Pursuant to Sections
1(q)(1) and 1(q)(6) of the Assistance Agreement, one-to-four family residential
loans acquired by United from Old United that were nonperforming on the
Effective Date became Covered Assets. These Covered Assets were purchased by
United at "Book Value," which according to the terms of Assistance Agreement
Section 1(n)(1)(A) is defined as the book value reflected on the books of Old
United. These Covered Assets were not adjusted downward to market value as of
the Effective Date. The Guaranteed Yield, which is determined in accordance
with Sections 1(z) and 1(aa) of the Assistance Agreement, is therefore applied
to each of these Covered Assets at the Old United book value, not at a lower
Effective Date market value.
108. One-to-four family residential loans that were performing
according to their original terms on the Effective Date ("Effective Date
Performing Loans") were noncovered assets pursuant to Assistance Agreement
Section 1(q)(6)(B) and were marked down to fair market value as of December 30,
1988, in accordance with purchase accounting requirements under GAAP
accounting. United does not receive a Guaranteed Yield on noncovered assets;
instead it receives a yield from the principal and interest payments being made
by the individual
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borrowers and is reimbursed by defendant FDIC over a period of several years
for the difference between book value as carried on the books of Old United and
the market value of these performing loans as of the Effective Date.
109. A certain number of the Effective Date Performing Loans
became nonperforming subsequent to the effective date of December 30,
1988. Assistance Agreement Sections 1(q)(1) and 1(q)(6)(B) provide that an
Effective Date Performing Loan that becomes nonperforming within two years of
the Effective Date becomes a Covered Asset ("Effective Date Performing Loan
Covered Asset"). As soon as the loan became a Covered Asset, it was entitled to
Guaranteed Yield treatment.
110. Section 1(aa) (Guaranteed Yield Amount), Section 1(j) (Average
Book Value), and Section 1(z) (Guaranteed Rate) of the Assistance Agreement
spell out in detail the procedure for calculating the Guaranteed Yield for each
Covered Asset. Essentially, the Guaranteed Yield amount for a given Covered
Asset is a function of the "Book Value" for that Covered Asset and the
Guaranteed Rate for that category of Covered Asset.
111. The "Book Value" used in calculating the Guaranteed Yield
Amount for the Effective Date Performing Loan Covered Assets is the book value
of the loan as carried on the books of Old United immediately prior to the
Effective Date ("Old United Book Value"), not the lower Effective Date Market
Value ("Mark-to-Market Value") that was assigned to it as a noncovered asset.
Section 1(n)(1)(A) of the Assistance Agreement governs the determination of the
Book Value for the Effective Date Performing Loan Covered Assets and provides:
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"(1) the Book Value of any asset shall be determined as
follows:
(A) with respect to any Covered Asset reflected on the
Books and Records [of Old United as of immediately prior to
the Effective Date], the book value of the asset (before
deduction for any specific valuation allowance, loan loss,
credit loss or other loss reserve) as so reflected or as
adjusted by the Initial Audit."
The Initial Audit referred to in Section 1(n)(1)(A) was an audit conducted by
the FSLIC to determine Old United's negative capital as of the Effective Date
and had no effect on the calculation of the Book Value of these Effective Date
Performing Loan Covered Assets. There was no adjustment of such assets in the
Initial Audit by virtue of Section 5 of the Assistance Agreement, which
specifically precluded a reevaluation of Old United assets as part of the
Initial Audit. Therefore, the "Book Value" of any Effective Date Performing
Loan Covered Asset, for purposes of Section 1(n)(1)(A), is its Old United Book
Value.
112. Assistance Agreement Section 1(n)(3)(D) precludes the use of
a Mark-to-Market Value for determining "Book Value" as that term is used in the
Assistance Agreement and provides as follows:
"(3) The following shall not be included in the
determination of Book Value:
* * *
(D) With respect to any Covered Asset reflected
on the Books and Records [of Old United as of
immediately prior to the Effective Date], any
adjustments to the value of such Covered Asset made
solely as a result of the purchase accounting
adjustments under generally accepted accounting
principles made as a result of the Transaction."
This provision specifically precludes the possibility of any downward
adjustment of "Book Value" to reflect a Mark-to-Market Value calculated solely
as a result of the purchase accounting adjustments under GAAP.
113. United expressly and appropriately relied on Guaranteed Yield
treatment for the Old United Book Value, as opposed to the Mark-to-Market
Value, for the Effective Date
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Performing Loan Covered Assets when it calculated Reimbursable Goodwill as
provided in Assistance Agreement Section 3(a)(13). The Shearson valuation dated
March 21, 1989, which was audited by Deloitte, expressly stated that "the
prices [for Effective Date Performing Loans that became Covered Assets] were
adjusted upwards to reflect... the two year... 'cover' for loans which are 90+
days delinquent...." This upward adjustment resulted in a lower calculation of
Reimbursable Goodwill than would have otherwise been computed. This audit was
presented to and approved by defendant FDIC. There is no basis in the
Assistance Agreement for defendant FDIC now to withdraw its approval of the
audit and its approval of the interpretation contained in the audit concerning
the calculation of the Book Value of the Effective Date Performing Loan Covered
Assets. There would also be no basis for defendant FDIC to adjust further the
amount of Reimbursable Goodwill to account for the treatment of Effective Date
Performing Loan Covered Assets required by the Assistance Agreement.
(8) Failure To Treat Accrued But Uncollected Interest At
The Effective Date As A Covered Asset For Purposes Of
Yield Maintenance
114. Defendant FDIC has breached and is continuing to breach the
Assistance Agreement by refusing to treat accrued but uncollected interest at
the Effective Date as a Covered Asset. Under the terms of Acquisition Agreement
Section 2, United acquired accrued but uncollected interest on both performing
and nonperforming loans on the books of Old United on the Effective Date ("Old
United Accrued Interest"). Under the terms of Assistance Agreement Section
1(q)(1), the Old United Accrued Interest is a Covered Asset, inasmuch as
Assistance Agreement Section 1(q)(1) defines "Covered Asset" to be "[a]ll
assets acquired by the Acquiring Association pursuant to the Acquisition
Agreement... except for the assets
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specifically excluded from coverage under Section 1(q)(6). . .," and Old United
Accrued Interest is not specifically excluded from coverage under Section
l(q)(6).
115. The Assistance Agreement provides for only two types of
assets: (1) Covered Assets, for which capital loss coverage and yield
maintenance is provided, and (2) noncovered assets, for which neither capital
loss coverage nor yield maintenance is provided, but which are assumed to be
earning a current yield because they were marked-to-market when acquired.
Capital loss coverage is provided for Old United Accrued Interest under the
express terms of Section 3(a)(10) of the Assistance Agreement, which deals with
"Uncollected Interest and Late Charges Accrued Prior to the Effective Date." If
the Old United Accrued Interest were not a Covered Asset, it would become a
special, third type of asset for which capital loss coverage is provided, but
for which yield maintenance is not provided; such a result would be
inconsistent with the overall scheme of the Assistance Agreement. Nowhere in
the Assistance Agreement is United required to "purchase" an asset by assuming
high-interest-rate liabilities, without provision for some sort of yield
maintenance. Such a result would also be inconsistent with the basic
transaction, under which United acquired the high-interest-rate liabilities of
Old United only because of provisions in the Assistance Agreement guaranteeing
an adequate matching return through, among other things, (a) capital loss
coverage and yield maintenance or (b) Reimbursable Goodwill.
116. Defendant FDIC in a document dated January 10, 1991
specifically admits that ". . .accrued and uncollected interest is not
specifically excluded from [the] definition of a Covered Asset" and conceded
that Assistance Agreement Section 3(a)(10) "allows the Association to charge as
a debit to SRA 1, any uncollected interest which was accrued prior to the
Effective Date." Defendant FDIC has asserted, however, that accrued but
uncollected
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interest at the effective date is not a Covered Asset because of two theories,
namely (a) that Section 3(2)(10) itself provides special treatment, and (b)
that Section 1(n)(3)(a) excludes accrued but uncollected interest from Book
Value for purposes of the equation under which the Guaranteed Yield amount is
calculated. Defendant FDIC's theory by which it attempts unilaterally to alter
the plain meaning of the Assistance Agreement is incorrect because Section
3(a)(10) must be read in conjunction with Section 3(c)(3) as merely addressing
the proper accounting entries at different times, with Section 3(a)(10)
directing a debit to SRA I for uncollected interest on the Effective Date, and
Section 3(c)(3) directing a debit to SRA II for uncollected interest after the
Effective Date. Defendant FDIC's second theory is also incorrect because the
function of Section 1(n)(3)(A) is merely to prevent the uncollected interest
from being counted twice; when the uncollected interest is itself a Covered
Asset on which yield maintenance is paid, defendant FDIC should not pay twice
through its inclusion in the equation for calculation of the Guaranteed Yield
amount. Defendant FDIC's failure to treat accrued but uncollected interest on
the Effective Date as a Covered Asset under the Assistance Agreement is a
continuing breach of the Assistance Agreement injuring plaintiffs.
(9) Failure To Pay Yield Maintenance On The Covered Asset
Consisting Of The Interest Accrued During The 90-Day
Period Prior To Coverage On One-To-Four Family
Residential Loans
117. Pursuant to Assistance Agreement Section 1(q)(6)(B),
one-to-four family residential loans that were performing according to their
original terms on the Effective Date ("Effective Date Performing Loans") were
noncovered assets. Assistance Agreement Sections 1(q)(1) and 1(q)(6)(B)
further provide, however, that Effective Date Performing Loans that became
"contractually delinquent 90 days or more at any time within two years of the
Effective Date" would go from the noncovered asset category to the Covered
Asset category.
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On the 91st day, immediately after 90 days of delinquency, an Effective Date
Performing Loan becomes a Covered Asset ("Effective Date Performing Loan
Covered Asset").
118. Because of the practical difficulty of retroactively adjusting
the Book Value of the Effective Date Performing Loans to include the 90 days of
accrued but unpaid interest, United requested, in Specific Request SW #25-89-5
to debit SRA II for the 90 days accrued but unpaid interest. The FDIC approved
the Specific Request, and United debited SRA II for the appropriate amount. In
a letter dated June 18, 1991 defendant FDIC purported to rescind its approval
of Specific Request SW #25-89-5 by taking the erroneous position that the 90
days accrued but unpaid interest was neither a component of the Book Value of
the Effective Date Performing Loan Covered Assets nor an item on which
Guaranteed Yield would be paid and by threatening to require retroactive
adjustments to amounts previously paid to United.
(10) Threatened Refusal To Pay Guaranteed Yield On Cash
Balances In Covered Subsidiaries
119. At the insistence of the FSLIC, and pursuant to the
Acquisition Agreement, United acquired the stock of two subsidiaries of Old
United, namely, United MBS Corporation and United Financial Corporation. Both
subsidiaries had significant amounts of cash on hand, which the FSLIC insisted
be kept in the subsidiaries. Defendant FDIC refused to approve United's
proposed solutions to this issue. In addition, the FDIC has threatened to
adjust retroactively approximately $10 million from plaintiff United as a
retroactive recapture of Guaranteed Yield payments on the value of the cash
balances in the subsidiaries, the stock of which became Covered Assets under
the Assistance Agreement. Furthermore, defendant FDIC continues to refuse
approvals of plaintiff United's prudent management requests concerning these
matters within the 30-day time period specified in the Assistance Agreement.
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120. Section 1(g)(1) specifically made the stock of these
subsidiaries Covered Assets, defining them as:
"all assets acquired by the ACQUIRING ASSOCIATION pursuant to
Acquisition Agreement (including investments in Subsidiaries but
excluding any asset owned by a Subsidiary or other entity), except for
assets specifically excluded from coverage under Section 1(q)(6)."
Section 1(q)(6) excludes "any cash in the Books and Records of the Acquired
Association as of the Effective Date," but does not exclude cash on hand in the
subsidiaries being acquired.
121. The parties to the Assistance Agreement contemplated that
these subsidiaries would be managed by United, which had and continues to have
an obligation to manage the assets, including cash, and liabilities of the
subsidiaries in a prudent fashion. The Assistance Agreement Section 17(a)
specifies the "Management Standard" for these Covered Assets as follows:
"Management Standard. Subject to the provisions of this
Agreement, the ACQUIRING ASSOCIATION shall administer and deal
with all Covered Assets and liabilities assumed pursuant to
the Acquisition Agreement by employing the higher of the
standard of prudent business practice used by the ACQUIRING
ASSOCIATION in administering its assets and liabilities not
acquired from the ACQUIRED ASSOCIATION or the standard
employed in the savings and loan industry generally in
administering similar assets and liabilities. Subject to the
provisions of this Agreement, the ACQUIRING ASSOCIATION will
use its best efforts to minimize losses and maximize gains and
recoveries in the best interest of both the ACQUIRING
ASSOCIATION, its stockholders and the CORPORATION."
At all times material hereto, contrary to defendant FDIC's assertions, United
has fully complied with the management standard set forth in Assistance
Agreement Section 17 in its management of United MBS Corporation and United
Financial Corporation and its Equity, Land, and Venture Capital units
(hereinafter collectively the "Covered Asset Subsidiaries"). In breach of the
Assistance Agreement and without authority from the Assistance Agreement or
elsewhere to do so, defendant FDIC by letter on RTC stationery dated June 6,
1991, (1) threatened to
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adjust retroactively the Special Reserve Accounts so as to reverse Guaranteed
Yield and actual yield for the United MBS Corporation subsidiary of United in
the amount of $1,686,000 and for the Equity, Land, and Venture Capital units of
United Financial Corporation in the amount of $4,031,000, (2) threatened
prospectively to require adjustments, effective January 1, 1991, so as to
exclude from the Book Value of the United Financial Corporation Land unit all
cash in excess of $2.8 million, and from the Book Value of United Financial
Corporation Venture Capital all unit cash in excess of zero dollars, and (3)
unreasonably failed to approve Specific Request SW # 25-91-0001-00.
122. Without regard to whether United has met the Assistance
Agreement Section 17 management standard in regard to cash balances in the
Covered Asset subsidiaries, defendant FDIC has no authority under the
Assistance Agreement either (a) to make the retroactive adjustments it mandated
in the June 6, 1991 letter or (b) to mandate prospective cash levels in any
subsidiary. The Assistance Agreement in Section 17 expressly limits the
remedies for any material breach of the covenant to comply with the management
standard of Section 17(a) when it states that any material failures to comply
"shall result in the disallowance of related Debits to Special
Reserve Account I, the disallowance of any adjustment of a related
contribution or payment by the CORPORATION, the disallowance of the
deduction of an expense in calculating Actual Yield, and the
disallowances of the addition to Book Value of any expense that would
otherwise be properly capitalizable pursuant to Section 1(n)(2)(A),
until in the CORPORATION's judgment such materials failure of
compliance is cured or the CORPORATION otherwise permits...."
Defendant FDIC's threatened retroactive adjustments affect only SRA II. There
are no "debits to Special Reserve Account I," nor is there any "disallowance of
the deduction of an expense in calculating actual yield," nor any "disallowance
of the addition to Book Value of any expense that would otherwise be cognizable
pursuant to Section 1(n)(2)(A)."
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123. The special provisions of Assistance Agreement Section 17(d)
relating to significant subsidiaries of United, while requiring the approval of
defendant FDIC for certain transactions of the subsidiaries, do not grant to
defendant FDIC any right to dictate the level of cash balances in any
subsidiary. Moreover, Section 17(d)(2) provides as to any violation of Section
17(e)(1) that the "sole remedy" of defendant FDIC
"shall be to prohibit increases to Book Value of properly capitalized
expenses pursuant to Section 1(n)(2)(A) or deduction of expenses in
calculating Actual Yield and any or all Debits to Special Reserve
Account I that relate to such asset or liability of the ACQUIRING
ASSOCIATION's Investment in the Significant Subsidiary until such time
as the ACQUIRING ASSOCIATION has corrected such violation."
This remedy does not authorize any of the retroactive or prospective actions
threatened in defendant FDIC's June 6, 1991 letter improperly threatening to
dictate such cash balances.
(11) Failure To Treat Federal Home Loan Bank Of Dallas
Stock As A Covered Asset
124. On the Effective Date, Old United held Federal Home Loan Bank
of Dallas stock ("FHLB Stock") valued at $42,069,873. United acquired Old
United's FHLB Stock as part of the purchase of assets from Old United under the
Acquisition Agreement.
125. The FHLBB formally approved the transfer of the FHLB Stock
from Old United to United in FHLBB Resolutions 88-1534 and 88-1535 dated
December 30, 1988. In Resolution No. 88-1535, the Federal Home Loan Bank Board
stated:
"Resolved Further, That the transfer to [United] of the stock in the
Bank of [Old United] is approved, effective as of the Effective Date,
and that upon such transfer, [Old United's] membership in the Bank
shall cease . . ." (emphasis added).
126. Under the terms of the Assistance Agreement, the FHLB stock is
a Covered Asset. Section 1(q) of the Assistance Agreement defines "Covered
Asset" to include "all assets acquired by [United]" except for "assets
specifically excluded from coverage under Section 1(q)(6)."
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Section 1(q)(6) does not exclude FHLB stock from being a Covered Asset. In
direct contradiction to the FHLBB Resolution, defendant FDIC has taken the
position that FHLB Stock is not a Covered Asset, that the Old United FHLB Stock
went out of existence and that new FHLB Stock was issued to United. In a
position statement sent to all Southwest Plan Institutions dated December 4,
1990, defendant FDIC asserted that "FHLB Stock held by the Acquiring
Association cannot be a Covered Asset because it was not an asset of the
Acquired Association immediately preceding the Effective Date of the
Transaction." Defendant FDIC has insisted that United credit its SRA I account
for all yield maintenance paid since December 30, 1988 for the FHLB Stock.
127. The FHLBB Stock of Old United was never cancelled and reissued
to United. The FHLBB Stock was transferred to United as part of the
Transaction. The FHLBB Resolutions and the FHLBB quarterly capital stock
statements dated September 30, 1988, December 31, 1988, and March 31, 1989
reflect no change in the name, docket number, or account number on the FHLB
Stock account.
128. Defendant FDIC itself recognized the FHLB Stock as a Covered
Asset from December 30, 1988 through May 18, 1990. Defendant FDIC's new
interpretation has no basis in the Assistance Agreement, is contrary to the
treatment of Old United's FHLBB Stock by the FHLBB itself, is contrary to the
fact of the actual transfer, and is contrary to the understanding of, and
course of dealings between, the parties for almost one and a half years.
(12) Disputes Concerning the Scope and Duration of
Tax Benefit Sharing
129. Pursuant to Section 9 of the Assistance Agreement, United
agreed to pay the FSLIC, through credits to SRA I, one third of the tax savings
realized on certain specified "Tax
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Benefit Items" as reported on United's federal and state income tax returns.
The Tax Benefit Items that trigger United's obligations are defined in Section
9(a) of the Assistance Agreement.
130. Defendant FDIC has asserted broad, convoluted interpretations
of the Tax Benefit Items subject to United's obligation to share tax savings.
Defendant FDIC's interpretations, which are wholly unwarranted by the language
of the Assistance Agreement, would significantly expand United's obligations
both retroactively and prospectively and have created harmful uncertainty about
the parties' contractual rights. For example, defendant FDIC has incorrectly
claimed that (1) tax losses on the sale of assets that were marked-to-market
create tax benefit sharing obligations due to United's receipt of Reimbursable
Goodwill; (2) any additional tax losses attributable to United's use of
acquired assets' tax basis inherited from Old United also create tax benefit
sharing obligations; and (3) United must share savings arising from its bad
debt deductions to the extent the deductions are higher because of Covered
Asset losses and Old United's bad debt history. Defendant FDIC has advised
United that defendant FDIC intends to unilaterally credit to itself the full
amount of one of these disputed items.
131. Defendant FDIC has also asserted that United's tax benefit
sharing obligations survive the termination of the Assistance Agreement in
1998. Unlike other assistance agreements negotiated by the FSLIC with other
parties, the Assistance Agreement does not provide for the continuation of
United's tax sharing obligations for periods after the termination. Defendant
FDIC's unsupported interpretation of the Assistance Agreement in this regard
would significantly expand United's potential obligations and has created
harmful uncertainty about the parties' contractual rights.
132. Defendant FDIC is seeking, long after the negotiation and
execution of the Assistance Agreement, to read into the Agreement rights to tax
benefit sharing that the FSLIC
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did not bargain for or obtain. The uncertainty and disruptions caused by
defendant FDIC's revisionist interpretations are causing continuing injury to
plaintiffs.
(13) Threatened Amendment Of The Receivership Income Tax
Returns For Old United
133. Defendant FDIC has notified United that the FDIC has
unilaterally decided to file amended receivership income tax returns for Old
United's last taxable year before its acquisition by United. Such an amendment
will necessarily affect the tax position of United, both retrospectively and
prospectively, and hence will affect United's tax benefit sharing obligations
under Section 9 of the Assistance Agreement. The threatened amendment will
inevitably require greater tax benefit sharing liabilities and outlays by
United and is wholly unauthorized by the Assistance Agreement.
134. Defendant FDIC's threat to amend the receivership income
tax returns for Old United breaches defendant FDIC's contractual obligations,
including its obligations under Section 31 of the Assistance Agreement, which
bar defendant FDIC from reaping any one-sided benefits from any such amendment.
(14) Refusal To Approve Transfer Of Mortgage Servicing
Rights
135. One of Old United's subsidiaries, United Capital Mortgage
Corporation ("UCMC"), provided mortgage servicing on various types of loans.
Part of the servicing was owned by Old United, which permitted UCMC to act as a
subservicer; the remainder of the servicing was owned by UCMC. United became
the parent of UCMC pursuant to the acquisition of Old United.
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136. Section 17(d)(1) of the Assistance Agreement lists actions
that United may not cause a "Significant Subsidiary" like UCMC to take without
the prior written consent of the FSLIC. Under Section 17(d)(1)(A), there is an
exception to the requirement of prior written consent, which provides that UCMC
may transfer mortgage servicing "by way of dividend, distribution or otherwise"
to United. This exception grants United the contractual right to obtain from
UCMC, by any form of transfer acceptable to United, mortgage servicing rights
owned by UCMC.
137. Defendant FDIC, contrary to Section 17(d)(1)(A), has refused
to allow United to cause UCMC to transfer to United the mortgage servicing
rights owned by UCMC, taking the position that United must pay "value" for any
such rights transferred.
138. Defendant FDIC has also refused to allow United to obtain the
return of UCMC's servicing that is owned by United, again asserting that United
must pay "value" for the return of the servicing United owns. There is no basis
in the Assistance Agreement for imposing such a requirement.
(15) Failure To Follow Quarterly Accounting With Respect
To Liquidated Covered Assets
139. When United sells or otherwise liquidates a Covered Asset,
Guaranteed Yield is no longer due on the portion of the asset's book value that
has been recouped through the proceeds of the liquidation. Accordingly, United
has consistently reduced the book value of liquidated Covered Assets by the
amount of the net proceeds received. The book value of liquidated Covered
Assets in excess of liquidation proceeds remains a Covered Asset on which
Guaranteed Yield is due; United has consistently not written off this excess
until the end of the quarter during which the liquidation occurred.
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140. Defendant FDIC approved in writing United's treatment of
liquidated Covered Assets, but then unilaterally reversed its position and
retroactively adjusted SRA I to recoup past debits for Guaranteed Yield. The
basis of defendant FDIC's action is apparently its refusal to follow quarterly
accounting for purposes of computing Guaranteed Yield. Defendant FDIC's
retroactive adjustment is unsupported by the Assistance Agreement.
(16) Failure To Pay Guaranteed Yield Due As A Result Of
Old United's Book Value Errors
141. Old United incorrectly determined and reported the values of
certain assets that United acquired as Covered Assets. Old United's erroneously
high valuations of these assets reduced the amount of the FSLIC's long-term
promissory note to United covering Old United's negative capital.
142. Defendant FDIC has refused to pay Guaranteed Yield on the
excess of Old United's erroneous valuations over a proper value. The basis for
defendant FDIC's refusal is Section 3(a)(6) of the Assistance Agreement, which
pertains to assets determined by United to be "nonexistent" or "permanently
missing." According to defendant FDIC, because the excess value assigned to
these assets by Old United is "nonexistent" or "permanently missing," no
Guaranteed Yield should be paid on the excess.
143. Under the plain language of the Assistance Agreement, the
assets that Old United overvalued are not "nonexistent" or "permanently
missing," and the Assistance Agreement requires that Guaranteed Yield be paid
on the basis of Old United's reported values. There is no basis for defendant
FDIC's refusal to pay Guaranteed Yield.
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(17) Demands For Retroactive Effective Dates For Covered
Asset Write-Downs
144. Under Section 4(b) of the Assistance Agreement, United may
request approval to write down the value of a Covered Asset. Such a voluntary
write-down has a number of functions under the Assistance Agreement. One of the
effects of such a write-down is to reduce Guaranteed Yield from and after the
date of the write-down.
145. As a condition to approvals of several requested write-downs,
defendant FDIC has directed that the write-down be made effective
retroactively, usually to the date six months after December 30, 1988, and
required retroactive adjustments to Guaranteed Yield amounts previously debited
to United for periods after the retroactive effective date. There is no basis
in the Assistance Agreement for imposing such retroactive write-downs or such
retroactive Guaranteed Yield adjustments.
(18) Additional Breaches Of And Disputes Under The
Assistance Agreement
146. Certain other disputes with defendant FDIC have arisen under
the Assistance Agreement, for which plaintiffs seek relief. As a result of some
of these disputes, defendant FDIC has taken action, such as reducing payments
due to United, in violation of plaintiffs' rights under the Assistance
Agreement. As to other disputes, defendant FDIC has threatened to take
unilateral actions that would violate plaintiffs' rights under the Assistance
Agreement.
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(19) Repudiation Of Deductibility Of Tax Losses And
Threatened Refusal To Make Contract Payments In Lieu
Thereof
147. On March 4, 1991, the Secretary of the Treasury, Nicholas F.
Brady, formally transmitted to the Congress of the United States a "Report on
Tax Issues Relating to the 1988/89 Federal Savings and Loan Insurance
Corporation Assisted Transactions" (hereinafter "Treasury Report"). The
Secretary of the Treasury recognized that:
"Material provided by FSLIC to prospective acquirers
explicitly indicated that such losses would be deductible,
although the same material indicated that the economic
benefits of such deductions would flow to FSLIC and not the
acquirers. Under these circumstances, acquirers in the
1988/89 transactions regard the deductibility of covered
losses as part of the consideration they received in
connection with the acquisition of the troubled financial
institutions involved in those transactions. We are
cognizant that denying institutions deductions for losses and
expenses that are reimbursed by the FDIC will be perceived by
some as a repudiation of the government's agreements."
The Secretary of the Treasury also acknowledged:
"Although the IRS has never taken a published position
allowing these losses, it has issued at least one technical
advice memorandum holding that the covered losses and expenses
are deductible. In addition, IRS personnel apparently conveyed
informally both to FSLIC and to potential acquirers that
covered losses and expenses would be deductible."
The Secretary of the Treasury further acknowledged:
"Acquirers of troubled thrifts also take comfort from a
statement by the Joint Committee on Taxation suggesting that
such losses are deductible, even though that statement was
made in February 1989 and therefore obviously not relied upon
by taxpayers. See Staff of the Joint Committee on Taxation,
Current Tax Rules Relating to Financially Troubled Savings and
Loan Associations 38-39 (February 16, 1989)."
The Secretary of the Treasury recognized, moreover, that certain acquirors of
troubled thrifts obtained private letter rulings confirming deductibility,
which the Treasury Report implies will
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continue to be honored by the Internal Revenue Service of the United States
Treasury Department for those favored persons.
148. Notwithstanding these points as conceded in the Treasury
Report, the Secretary of the Treasury formally announced to the Congress:
"Nonetheless, the Treasury Department has concluded that
assisted institutions should not be allowed to deduct losses
and expenses that are reimbursed by the FDIC."
149. United has continued to file its federal income tax returns on
the basis of the exclusion of government assistance payments from income and
the deductibility of covered losses and expenses. United has also continued to
make the tax benefit payments to defendant FDIC as contemplated by the
Assistance Agreement. Thus far, the Internal Revenue Service has not audited
United's tax returns and has not disallowed the deductions, despite the
Secretary of the Treasury's announcement.
150. According to Assistance Agreement Section 9(f), plaintiff
United is to receive credit for an "appropriate amount" if tax deductions are
disallowed, as the Secretary of the Treasury's announcement indicates is
likely. Accordingly, plaintiff United requested confirmation of defendant
FDIC's performance under this provision, but defendant FDIC has indicated that
it will not honor this provision.
(20) Unfounded Claims Regarding Warrants Issued To The
FSLIC
151. Pursuant to the Warrant Agreement, United issued warrants to
the FSLIC to purchase up to 158,823 shares of the common stock of United on or
before December 29, 2004.
152. Defendant FDIC has challenged issuances of common stock by
United to USAT Holdings, United's parent, for which USAT Holdings has received
in total 2,699,725 shares in return for capital contributions of $221,685,999.
United's Board of Directors acted properly
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in each instance when it issued shares to USAT Holdings. Defendant FDIC has no
basis, under the Warrant Agreement or otherwise, for challenging the prior
actions of United's Board of Directors. Plaintiff USAT Holdings has made other
contributions of value to plaintiff United for which shares have not but could
have been issued and which should be valued in determining the value of the
defendant FDIC's warrants. Defendant FDIC also has no basis, under the Warrant
Agreement or otherwise, for claiming that issuance of common stock by plaintiff
United in return for capital contributions to plaintiff United, whenever and
however made, entitles defendant FDIC to additional warrants or additional
compensation in any form whatever.
CLAIMS AND RELIEF REQUESTED
COUNT I
[Claims Related to Issues (1) and (2)]
(1) Forbearances
(2) Subordinated Debt
153. Plaintiffs incorporate herein the allegations contained in
paragraphs 1 through 90 of this Complaint.
154. Defendant Director has incorrectly interpreted FIRREA as
requiring him to act contrary to the FSLIC's and the FHLBB's obligations under
the Capital Forbearance, the Accounting Forbearance, and the Subordinated Debt
Resolution. Accordingly, defendant Director's failures to perform in accordance
with the Capital Forbearance, the Accounting Forbearance and the Subordinated
Debt Resolution constitute breaches of contract for which recovery may be
obtained from defendant FSLIC Resolution Fund.
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155. Defendant Director's violations of the Capital Forbearance,
the Accounting Forbearance, and the Subordinated Debt Resolution have caused,
and continue to cause, plaintiffs irreparable injury, for example: (1)
uncertainty regarding the capital adequacy standards applicable to plaintiff
United, which has interfered with the efficient operation of that enterprise;
(2) the improper application of the more stringent capital adequacy standards
of FIRREA, which could subject plaintiff United to heightened risks of severe
administrative sanctions for capital deficiency that are unwarranted under the
Capital Forbearance and the Accounting Forbearance; (3) causing plaintiff USAT
Holdings to issue $110 million of senior debt for exchange with the
subordinated debt of plaintiff United, which was unwarranted under the
Subordinated Debt Resolution; and (4) forcing plaintiff United to comply with
the more stringent capital requirements, which has significantly limited
plaintiff United's growth and profitability, to the severe detriment of
plaintiffs.
156. Defendant Director's violations of the Capital Forbearance,
the Accounting Forbearance, and the Subordinated Debt Resolution have also
deprived the plaintiffs of the benefits of the bargained-for assistance
transaction, including the ability to leverage assets against capital as
originally bargained for, injuring plaintiffs and causing them incidental and
consequential damages as well.
157. Alternatively, if FIRREA is a supervening event that prevents
performance by defendant Director of the terms of the Capital Forbearance, the
Accounting Forbearance, and the Subordinated Debt Resolution, Assistance
Agreement Section 31 continues in force. Section 31 requires that the parties
shall "in good faith, and with their best efforts, cooperate with one another
to carry out the purposes of this Agreement as described in this section,"
including the express purpose "to provide a means by which... the Acquiring
Association may
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receive the benefits and assume the risks contracted for." Moreover, even after
FIRREA, the same statutory scheme remains in place, in that all of the FSLIC's
powers under Section 406(f) of the National Housing Act remain in force for its
successor, the FDIC, so that defendant FDIC is still "guaranteeing" an acquiror
"against loss by reason of its... assuming the liabilities and purchasing the
assets of [an) insured institution...." Accordingly, if FIRREA is interpreted
to prevent defendant Director's compliance with the Capital Forbearance, the
Accounting Forbearance, and the Subordinated Debt Resolution, plaintiffs are
entitled both under the Assistance Agreement and in equity to an equitable
modification of the Assistance Agreement to put the plaintiffs in as good a
position as they would have occupied if the FSLIC and the FHLBB had utilized
terms other than the Capital Forbearance, the Accounting Forbearance, and the
Subordinated Debt Resolution under Section 406(f) of the National Housing Act
to guarantee plaintiffs against loss by reason of plaintiffs' assuming the
liabilities and purchasing the assets of Old United.
158. In any event, plaintiffs are entitled to damages from
defendant FSLIC Resolution Fund for all injuries they have sustained, including
incidental and consequential damages, for defendant Director's failures to
comply with the terms of the Capital Forbearance, the Accounting Forbearance,
and the Subordinated Debt Resolution.
WHEREFORE, plaintiffs request, in the alternative, that the Court
A. If the Court holds that FIRREA does not compel
defendant Director's nonperformance of his
obligations under the Capital Forbearance, the
Accounting Forbearance, and the Subordinated Debt
Resolution,
(1) declare that FIRREA does not compel defendant
Director's nonperformance of his obligations under the Capital Forbearance, the
Accounting Forbearance,
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and the Subordinated Debt Resolution, and that the Capital Forbearance, the
Accounting Forbearance, and the Subordinated Debt Resolution remain in full
force and effect and are contractually binding on defendants and specifically
enforceable by plaintiffs;
(2) enjoin each of the defendants from dishonoring the
Capital Forbearance, the Accounting Forbearance, and the Subordinated Debt
Resolution, and from taking any action contrary thereto;
(3) award plaintiffs damages, including incidental and
consequential damages, from defendant FSLIC Resolution Fund for the injuries
suffered by plaintiffs from the breaches of the Capital Forbearance, the
Accounting Forbearance, and the Subordinated Debt Resolution;
(4) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(5) grant such further relief as the Court may deem appropriate;
Or, In the Alternative
B. If the Court holds that FIRREA does compel defendant
Director's nonperformance of his obligations under the
terms of the Capital Forbearance, the Accounting
Forbearance, and the Subordinated Debt Resolution,
(1) declare that FIRREA did not abolish the contractual
liabilities of the FSLIC and its successors flowing from the prior exercise of
the FSLIC's guarantee-against-loss powers previously appearing in Section 406(f)
of the National Housing Act, 12 U.S.C.A. Section 1729(f)(iii) and (iv), and now
appearing at Section 13(c)(2)(A)(iii) and (iv) of the FDIC Act, 12 U.S.C.A.
Section 1823(c)(2)(A) (1989), under which the FSLIC was and its successors are
authorized to "facilitate" an acquisition such as that made by plaintiffs and to
"guarantee" the new owner
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"against loss by reason of its merging or consolidating with or assuming the
liabilities and purchasing the assets of such insured institution... ";
(2) declare the continuing obligation of defendant FDIC
under Section 31 of the Assistance Agreement "in good faith, and with [its]
best efforts," to cooperate with plaintiffs in carrying out the purpose of this
agreement "to provide a means by which" plaintiffs "may receive the benefits
and assume the risks contracted for";
(3) equitably modify the Assistance Agreement, in light
of the supervening inability of defendant Director to perform in compliance
with the terms of the Capital Forbearance, the Accounting Forbearance, and the
Subordinated Debt Resolution because of FIRREA, to put plaintiffs in as good a
position as they would have occupied had the FSLIC and the FHLBB utilized other
measures, such as monetary payments, under Section 406(f) of the National
Housing Act rather than utilizing the Capital Forbearance, the Accounting
Forbearance, and the Subordinated Debt Resolution, to "guarantee" plaintiff
United "against loss by reason of its... assuming the liabilities and
purchasing the assets" of Old United;
(4) award plaintiffs their costs, "experts' fees, and
attorneys' fees; and
(5) grant such further relief as the Court may deem
appropriate;
Or, In the Alternative
C. If the Court holds that FIRREA does compel defendant
Director's nonperformance of his obligations under
the Capital Forbearance, the Accounting Forbearance,
and the Subordinated Debt Resolution and if the Court
declines equitably to modify the Assistance
Agreement as requested in (B) above,
(1) award plaintiffs damages, including incidental and
consequential damages, from defendant FSLIC Resolution Fund resulting from
nonperformance of the Capital Forbearance, the Accounting Forbearance, and the
Subordinated Debt Resolution;
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(2) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(3) grant such further relief as the Court may deem
appropriate.
COUNT II
[Claims Related to Issues (3) through (18)]
(3) Arbitrary Downward Adjustment To Value Of
Covered Assets
(4) Threatened Downward Adjustment To The Amount Of
Reimbursable Goodwill Previously Determined In
Accordance With The Assistance Agreement
(5) Failure To Approve Requests For Asset
Dispositions
(6) Failure To Pay Reimbursable Goodwill On A
Quarterly Basis
(7) Failure To Pay Guaranteed Yield On The Full Book
Value Of Loans That Became Covered Assets During
The Two Year Post Effective Dated Period
(8) Failure To Treat Accrued But Uncollected Interest
At The Effective Date As A Covered Asset For
Purposes Of Yield Maintenance
(9) Failure To Pay Yield Maintenance On The Covered
Asset Consisting Of The Interest Accrued During
The 90-Day Period Prior To Coverage On
One-To-Four Family Residential Loans
(10) Threatened Refusal To Pay, Guaranteed Yield On
Cash Balances In Covered Subsidiaries
(11) Failure To Treat Federal Home Loan Bank Board
Stock As A Covered Asset
(12) Disputes Concerning the Scope and Duration of Tax
Benefit Sharing
(13) Threatened Amendment of the Receivership Income
Tax Returns for Old United
(14) Refusal To Approve Transfer Of Mortgage Servicing
Rights
(15) Failure To Follow Quarterly Accounting With
Respect To Liquidated Covered Assets
(16) Failure To Pay Guaranteed Yield Due As A Result
Of Old United's Book Value Errors
(17) Demands For Retroactive Effective Dates For
Covered Asset WriteDowns
(18) Additional Breaches Of And Disputes Under The
Assistance Agreement
159. Plaintiffs incorporate herein the allegations contained in
paragraphs 1 through 78 and paragraphs 91 through 146 of this Complaint.
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160. Defendants RTC and FDIC have committed and have threatened to
commit breaches of contract as set forth in paragraphs 91 though 146 herein.
161. Defendants' breaches and threatened breaches as set forth in
paragraphs 91 through 146 herein have irreparably injured, are irreparably
injuring plaintiffs, and have created unnecessary uncertainty regarding
plaintiffs' contractual rights.
162. Defendant FDIC's breaches as set forth in paragraphs 91
through 146 herein have deprived plaintiffs of the benefits of the
bargained-for assistance transaction, causing plaintiffs incidental and
consequential damages as well.
WHEREFORE, plaintiffs respectfully request that the Court
(1) declare that
(i) defendant FDIC's downward adjustments in the
value of Covered Assets are not authorized by
the Assistance Agreement and are in breach of
the contract;
(ii) plaintiff United's determination of
Reimbursable Goodwill is in accordance with
the Assistance Agreement and therefore is
binding on defendant FDIC; that defendant
FDIC's prior approval of plaintiff United's
determination of Reimbursable Goodwill is
binding on defendant FDIC; and that in any
event defendant FDIC may not order plaintiff
United to adjust the previously approved
amount of Reimbursable Goodwill based on a
flawed study of an FDIC contractor;
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(iii) plaintiffs' Specific Requests SW #25-92-096,
SW #25-92-087, SW #25-92-165 and SW #25-
92-588 for asset sales are reasonable and
must be approved by defendant FDIC;
(iv) defendant FDIC's threats concerning its use
of the terminal mark provisions of Section
4(e) of the Assistance Agreement to the
detriment of plaintiff United are improper,
(V) defendants' interpretations of the contract
as set forth in paragraphs 103 through 146 of
the Complaint are incorrect, and that
(a) Reimbursable Goodwill must be paid
quarterly;
(b) Guaranteed Yield must be paid on the
full book value of loans that became
Covered Assets during the two-year
post-effective period;
(c) accrued but uncollected interest at
the effective date must be treated
as a Covered Asset for purposes of
yield maintenance;
(d) interest accrued during the 90-day
period prior to coverage on
one-to-four family residential loans
must be treated as a Covered Asset
and yield maintenance paid thereon;
(e) Guaranteed Yield must be paid on
cash balances in Covered
Subsidiaries;
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(f) Federal Home Loan Bank Board Stock
must be treated as a Covered Asset;
(g) Tax Benefit Items do not include
Reimbursable Goodwill amortization,
the difference between the market
value and the tax basis of Old
United assets, or any other items
not specified in Section 9(a) of the
Assistance Agreement;
(h) United has no obligation to make tax
benefit sharing payments with
respect to periods after the
termination of the Assistance
Agreement;
(i) defendant FDIC may not unilaterally
benefit itself at plaintiffs'
expense by amending the receivership
income tax returns of Old United;
(j) United may cause UCMC to transfer to
United mortgage servicing owned by
United or UCMC without defendant
FDIC's approval or payment to UCMC;
(k) the excess of the book value of a
Covered Asset over the proceeds of
the Asset's liquidation remains a
Covered Asset until the end of the
quarter in which the liquidation
occurred;
(l) Guaranteed Yield must be paid on
Covered Assets in accordance with
the valuations reported by Old
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United, even if the valuations are
later determined to be erroneous; and
(m) approval of requested write-downs
may not be conditioned on
retroactive effective dates;
(2) enjoin defendants from taking any actions contrary to
the interpretations declared by the Court in (1) above, order specific
enforcement of the sections of the Assistance Agreement involved, and require
defendants to honor their obligations under the Assistance Agreement, including
specifically Section 31 thereof,
(3) award plaintiffs damages due to such breaches by
defendants set forth in paragraphs 91 through 146 as cannot be completely cured
by retroactive specific performance;
(4) award plaintiffs the incidental and consequential
damages to which they are entitled;
(5) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(6) grant such further relief as the Court may deem
appropriate.
COUNT III
[Claims Related to Issue (19)]
(19) Repudiation Of Tax Deductibility Of Losses And
Threatened Refusal To Make Contract Payments
In Lieu Thereof
163. Plaintiffs incorporate herein the allegations contained in
paragraphs 1 through 78 and paragraphs 147 through 150 of this Complaint.
164. The tax benefits for acquirors that the FSLIC advertised with
respect to the Old United were material assumptions of the plaintiffs and the
FSLIC in negotiating the financial aspects of the Old United transaction,
including the amount of the FSLIC's promissory note,
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the plaintiffs' capital contributions, and the payment and reimbursement
schedules in the Assistance Agreement.
165. The United States Secretary of the Treasury has declared to
Congress the determination of the Treasury Department that "assisted
institutions should not be allowed to deduct losses and expenses that are
reimbursed by the FDIC." That position will eliminate most of the tax benefits
that the plaintiffs and the FSLIC used in their calculations. The disallowance
of such benefits in accordance with the Secretary of the Treasury's statement
to the United States Congress reveals the mutual mistake of fact by both the
plaintiffs and the FSLIC that renders their writings unreflective of their
agreement.
166. The repudiation by the Secretary of the Treasury of the
deductibility of losses and expenses reimbursed by the FDIC, as detailed in
paragraphs 147 through 150 of this Complaint, threatens plaintiffs with
deprivation of the benefit of their bargain. Upon disallowance of such
deductions, Section 9(f) of the Assistance Agreement entities plaintiff United
to receive debits to its benefit for an "appropriate amount" equal to the
monetary benefit to plaintiffs of the disallowed deductions. Defendant FDIC has
refused to recognize any obligation to debit plaintiff United with such an
"appropriate amount" when the Internal Revenue Service disallows the deductions
taken by United in accordance with the Secretary of the Treasury's statement.
Defendant FDIC's refusal to make appropriate adjustment for disallowed
deductions breaches Assistance Agreement Section 9(f) and defendant FDIC's
obligations under Assistance Agreement Section 31 to "in good faith, and with
their best efforts, cooperate... to carry out the purposes of this Agreement as
described in this section." One of the Section's stated purposes is that
plaintiffs "receive the benefits and assume the risks contacted for" in this
assisted transaction where defendants utilized powers under Section 406(f) of
the National
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Housing Act, which authority continues to exist in the FDIC in the virtually
identical language in 12 U.S.C.A. Section 1823(c)(2)(A)(iii) and (iv) (West
1989), to "guarantee" plaintiffs "against loss by reason of its... assuming the
liabilities and purchasing the assets of Old United.
167. When the Internal Revenue Service disallows United's
deductions in accordance with the Secretary of the Treasury's indication to
Congress, under Section 9(f) of the Assistance Agreement plaintiffs are
entitled to receive from defendant FDIC an "appropriate amount" equal to
plaintiffs' monetary benefit if tax deductibility of losses and expenses
reimbursed by the FDIC had occurred as contemplated in the Assistance
Agreement. Alternatively, plaintiffs are entitled to obtain an equitable
modification of the Assistance Agreement based on the parties' mutual mistake
of fact in their articulation of the terms that were used in the Assistance
Agreement to "guarantee" plaintiffs "against loss by reason of its... assuming
the liabilities and purchasing the assets of" Old United.
168. In the further alternative, based on defendant FDIC's
indication that it will not provide appropriate relief under Assistance
Agreement Section 9(f) in lieu of the tax benefits contemplated, and if
equitable modification of the Assistance Agreement is not ordered, plaintiffs
are entitled to damages, including incidental and consequential damages, for
the injuries sustained by them by virtue of the failure of defendant FDIC to
accord plaintiffs payments in lieu of tax benefits touted by the FSLIC and
promised to plaintiffs to induce the plaintiffs to enter into the Old United
transaction.
169. Furthermore, the "guaranteed amounts" of payments to the FSLIC
for tax benefit sharing that were agreed to in Section 9 of the Assistance
Agreement were based on the assumption by all parties that losses and expenses
reimbursed by the FDIC were tax deductible. The disallowance of such deductions
in accordance with the Secretary of the Treasury's
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statement reveals the mutual mistake of fact by both the plaintiffs and the
FSLIC in setting the guaranteed amounts and plaintiff United's making payments
there under to defendant FDIC. In the absence of this mutual mistake, the
guaranteed amounts would not have been agreed to, and the payments would not
have been made.
WHEREFORE, plaintiffs respectfully request that the Court
A. If the Court holds that Section 9 of the Assistance
Agreement expressly provides for an appropriate
payment in lieu of tax deductibility of losses:
(1) declare that Assistance Agreement Section 9(f)
requires the payment by defendant FDIC to plaintiff United of an appropriate
amount equivalent to the benefits plaintiff United would have received if the
tax deductibility of losses and expenses reimbursed by the defendant FDIC had
been allowed, at the time that the Internal Revenue Service disallows United's
deductions;
(2) order the on-going specific performance by defendant
FDIC of the Assistance Agreement Section 9(f)'s provision for payment of an
"appropriate amount" in lieu of the tax deductibility of losses and expenses
reimbursed by the FDIC;
(3) enjoin the defendants from taking any action contrary
to the interpretation of the Assistance Agreement declared in (1) above;
(4) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(5) such further relief as the Court may deem
appropriate;
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Or, In the Alternative
B. If the Court holds that Section 9 of the Assistance
Agreement does not expressly provide for an
appropriate payment in lieu of tax deductibility of
losses:
(1) declare that the disallowances of deductions for
losses and expenses reimbursed by the FDIC reveals that the guaranteed amounts
agreed to in Section 9 of the Assistance Agreement are the product of a mutual
mistake of fact;
(2) in light of the mutual mistake of fact by the parties
in the articulation of the terms, equitably modify the Assistance Agreement to
put plaintiffs in as good a position as they would have occupied had the
defendants utilized measures other than those outlined in Section 9(f) of the
Assistance Agreement to guarantee plaintiff United against loss by reason of
its assuming the liabilities and purchasing the assets of Old United, pursuant
to Section 406(b) of the National Housing Act;
(3) declare that FIRREA did not abolish the contractual
liabilities of the FSLIC and its successors flowing from the prior exercise of
the FSLIC's guarantee-against-loss powers previously appearing in Section
406(f) of the National Housing Act, 12 U.S.C.A. Section 1729(f)(iii) and (iv),
and now appearing at Section 13(c)(2)(A)(iii) and (iv) of the FDIC Act, 12
U.S.C. Section 1823(c)(2)(A) (West 1989), under which the FSLIC was and its
successors are authorized to "facilitate" an acquisition such as that made by
plaintiffs and to "guarantee" the new owner "against loss by reason of its
merging or consolidating with or assuming the liabilities and purchasing the
assets of such insured institution... ";
(4) declare the continuing obligation of defendant FDIC
under Section 31 of the Assistance Agreement "in good faith, and with their
best efforts" to cooperate with plaintiffs
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in carrying out the purpose of the agreement "to provide a means by which"
plaintiffs "may receive the benefits and assume the risks contracted for";
(5) award to plaintiffs their costs, experts' fees, and
attorneys' fees; and
(6) grant such further relief as the Court may deem
appropriate;
Or, In the Alternative
C. If the Court holds that Section 9 of the Assistance
Agreement does not expressly provide for an
appropriate payment in lieu of tax deductibility of
losses, and refuses equitable modification:
(1) award plaintiffs damages, including incidental and
consequential damages, caused by defendant FDIC's failure to provide payments
in lieu of the tax benefits touted by the FSLIC to induce plaintiffs to enter
into the Old United acquisition;
(2) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(3) grant such further relief as the Court may deem
appropriate.
COUNT IV
[Claims Related to Issue (20)]
(20) Claims Regarding Warrants
170. Plaintiffs incorporate herein the allegations contained in
paragraphs 1 through 78 and paragraphs 151 and 152 of this Complaint.
171. Defendant FDIC's baseless challenges to United's issuances of
common stock to USAT Holdings have created unnecessary uncertainty about the
percentage of outstanding United common stock represented by the warrants
issued under the Warrant Agreement. This uncertainty has a highly disruptive
effect on the ability of plaintiffs to capitalize United properly and to chart
its future.
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WHEREFORE, plaintiffs request that the Court
(1) declare that defendant FDIC has no rights under the
Warrant Agreement or otherwise that have been violated by United's issuances of
common stock to USAT Holdings;
(2) declare the percentage of plaintiff United's common
stock represented by the warrants issued under the Warrant Agreement, based on
plaintiff USAT Holdings' contributions of capital to plaintiff United;
(3) declare that defendant FDIC is not entitled to any
anti-dilution adjustment under the Warrant Agreement or otherwise from any
issuance of common stock by plaintiff United in exchange for a contribution of
capital to plaintiff United;
(4) award plaintiffs their costs, experts' fees, and
attorneys' fees; and
(5) grant such further relief as the Court may deem
appropriate.
COUNT V
[Alternative to Counts I through IV]
[Taking Without Just Compensation]
172. Plaintiffs incorporate herein the allegations contained in
paragraphs 1 through 171 of this Complaint.
173. If, contrary to plaintiffs' position taken in Counts I through
IV, FIRREA is held to have abrogated the Capital Forbearance, the Accounting
Forbearance and the Subordinated Debt Resolution, and to have authorized
defendants' conduct toward plaintiffs and defendants' conduct in regard to the
Assistance Agreement, or any of them, without relief to plaintiffs by way of
specific performance, by way of equitable modification of the Assistance
Agreement or by way of damages, then the enactment of FIRREA constitutes a
taking of plaintiffs' property
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without just compensation or provision therefor under the United States
Constitution. Plaintiffs are therefore entitled either to an injunction against
enforcement of FIRREA as unconstitutional or an award of just compensation
under the Fifth Amendment to the United States Constitution for the taking of
plaintiffs' property.
WHEREFORE, plaintiffs respectfully request, in the alternative to
Counts I through IV above, that this Court either
(1) enjoin enforcement of FIRREA in the particulars set
forth in this Complaint on ground of its unconstitutionality,
or
(2) award just compensation for the taking of plaintiffs'
property by virtue of the enactment of FIRREA, in the exercise of this Court's
supplemental jurisdiction;
(3) award plaintiffs their costs, experts' fees, and
attorneys' fees;
and
(4) grant such further relief as the Court may deem
appropriate.
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JURY DEMAND
174. Plaintiffs demand a trial by jury.
Respectfully submitted,
/s/ HARRY M. REASONER
----------------------------------
Harry M. Reasoner
Attorney-in-Charge
S.D. Texas No. 538
Ky P. Ewing, Jr.
Unified D.C. Bar No. 41285
John D. Taurman
S.D. Texas No. 10426
VINSON & ELKINS, L.L.P.
3300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
(713) 758-2222
John S. McEldowney
GREER, HERZ & ADAMS
One Moody Plaza
Galveston, Texas 77550-7998
(409) 765-5525
Attorneys for the Plaintiffs
Date: August 3, 1993
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