<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13094
DIME BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3197414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
589 FIFTH AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
(212) 326-6170 NOT APPLICABLE
(Registrant's telephone number, (Former name, former address
including area code) and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No _______
--------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.01 par value 102,569,418
- ----------------------------- --------------------------------------
Class Outstanding shares as of July 31, 1997
<PAGE>
DIME BANCORP, INC.
June 30, 1997
Form 10-Q
Index
<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<S> <C>
Consolidated Statements of Financial Condition
as of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the three
months and six months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1997 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
Signatures 36
</TABLE>
From time to time, Dime Bancorp, Inc. (the "Holding Company" and, together
with its subsidiaries, the "Company") may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and markets, and similar matters, which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"planned," and "estimated." The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in such forward-
looking statements. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include interest
rate movements, competition from both financial and non-financial institutions,
changes in applicable laws and regulations, the timing and occurrence (or non-
occurrence) of transactions and events that may be subject to circumstances
beyond the Company's control, and general economic conditions.
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 163,450 $ 158,753
Money market investments 35,824 25,764
Loans held for sale 228,487 115,325
Securities available for sale 3,166,733 2,589,572
Securities held to maturity (estimated
fair value of $3,939,578 and $4,279,937
at June 30, 1997 and December 31,
1996, respectively) 4,015,006 4,363,971
Federal Home Loan Bank of New York stock
Loans receivable, net: 272,176 266,244
Residential real estate 8,416,911 8,074,905
Commercial and multifamily real estate 2,415,241 1,885,733
Consumer 711,291 734,281
Business 50,680 43,138
Allowance for loan losses (101,026) (106,495)
- --------------------------------------------------------------------
Total loans receivable, net 11,493,097 10,631,562
- --------------------------------------------------------------------
Other real estate owned, net 23,937 53,255
Accrued interest receivable 118,016 106,041
Premises and equipment, net 113,174 103,541
Mortgage servicing assets 122,131 127,745
Deferred tax asset, net 156,052 183,672
Other assets 179,093 144,663
- --------------------------------------------------------------------
Total assets $20,087,176 $18,870,108
====================================================================
LIABILITIES
Deposits $13,335,199 $12,856,739
Securities sold under agreements to
repurchase 4,265,905 3,550,234
Federal Home Loan Bank of New York
advances 688,218 925,139
Senior notes 197,693 197,584
Guaranteed preferred beneficial
interests in Corporation's junior
subordinated deferrable interest
debentures 196,477 --
Other borrowed funds 151,991 142,234
Other liabilities 192,405 175,841
- --------------------------------------------------------------------
Total liabilities 19,027,888 17,847,771
- --------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share
(200,000,000 shares authorized;
108,262,216 shares issued at June 30, 1997
and December 31, 1996) 1,083 1,083
Additional paid-in capital 914,386 914,386
Retained earnings 212,737 158,956
Treasury stock, at cost (4,543,167
shares at June 30, 1997 and 3,518,297
shares at December 31, 1996) (70,428) (51,498)
Net unrealized gain on securities
available for sale, net of taxes 2,237 22
Unearned compensation (727) (612)
- --------------------------------------------------------------------
Total stockholders' equity 1,059,288 1,022,337
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $20,087,176 $18,870,108
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Residential real estate loans $150,915 $137,463 $298,019 $271,036
Commercial and multifamily real estate
loans 48,629 38,858 88,463 78,895
Consumer loans 15,270 16,024 31,001 32,640
Business loans 1,105 736 2,076 1,473
Mortgage-backed securities 109,307 124,384 216,958 261,754
Other securities 5,696 8,667 11,251 17,087
Money market investments 8,046 6,683 16,071 13,458
- ---------------------------------------------------------------------------------
Total interest income 338,968 332,815 663,839 676,343
- ---------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 138,912 130,714 272,087 263,511
Borrowed funds 80,959 88,023 155,382 184,419
- ---------------------------------------------------------------------------------
Total interest expense 219,871 218,737 427,469 447,930
- ---------------------------------------------------------------------------------
Net interest income 119,097 114,078 236,370 228,413
Provision for loan losses 23,000 10,250 33,000 20,750
- ---------------------------------------------------------------------------------
Net interest income after provision for
loan losses 96,097 103,828 203,370 207,663
- ---------------------------------------------------------------------------------
NON-INTEREST INCOME
Loan servicing fees, net 10,221 8,843 20,138 18,737
Banking service fees 7,388 6,480 14,156 13,186
Securities and insurance brokerage fees 5,767 5,633 11,818 10,307
Net gains (losses) on sales activities 2,050 (1,906) 4,133 (1,445)
Other 3,810 4,438 6,596 6,271
- ---------------------------------------------------------------------------------
Total non-interest income 29,236 23,488 56,841 47,056
- ---------------------------------------------------------------------------------
NON-INTEREST EXPENSE
General and administrative expense:
Compensation and employee benefits 34,474 31,815 69,215 65,791
Occupancy and equipment, net 13,561 13,434 26,896 26,209
Other 25,655 25,584 49,960 49,027
- ---------------------------------------------------------------------------------
Total general and administrative expense 73,690 70,833 146,071 141,027
Other real estate owned expense, net 1,581 2,159 4,633 4,652
Amortization of mortgage servicing
assets 5,267 4,796 10,469 10,221
Restructuring and merger-related expense -- -- -- 3,504
- ---------------------------------------------------------------------------------
Total non-interest expense 80,538 77,788 161,173 159,404
- ---------------------------------------------------------------------------------
Income before income tax expense 44,795 49,528 99,038 95,315
Income tax expense 17,023 20,539 38,350 39,271
- ---------------------------------------------------------------------------------
Net income $ 27,772 $ 28,989 $ 60,688 $ 56,044
=================================================================================
Primary and fully diluted earnings per
common share $ 0.26 $ 0.27 $ 0.57 $ 0.51
=================================================================================
Primary average common shares
outstanding 106,031 109,100 106,342 109,560
Fully diluted average common shares
outstanding 106,125 109,221 106,397 109,709
=================================================================================
Cash dividend declared per common share $ 0.04 $ -- $ 0.04 $ --
=================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997
- -------------------------------------------------------
<S> <C>
COMMON STOCK
Balance at beginning of period $ 1,083
- -------------------------------------------------------
Balance at end of period 1,083
- -------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period 914,386
- -------------------------------------------------------
Balance at end of period 914,386
- -------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 158,956
Net income 60,688
Cash dividend declared on common stock
($0.04 per share) (4,169)
Treasury stock issued under employee
benefit plans (2,738)
- -------------------------------------------------------
Balance at end of period 212,737
- -------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of period (51,498)
Treasury stock purchased (27,482)
Treasury stock issued under employee
benefit plans 8,552
- -------------------------------------------------------
Balance at end of period (70,428)
- -------------------------------------------------------
NET UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE, NET OF TAXES
Balance at beginning of period 22
Net change in estimated fair value of
securities available for sale, net of
taxes 2,215
- -------------------------------------------------------
Balance at end of period 2,237
- -------------------------------------------------------
UNEARNED COMPENSATION
Balance at beginning of period (612)
Restricted stock activity (334)
Unearned compensation amortized to
expense 219
- -------------------------------------------------------
Balance at end of period (727)
- -------------------------------------------------------
Total stockholders' equity $1,059,288
- -------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial
statements.
5
<PAGE>
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60,688 $ 56,044
Adjustments to reconcile net income to
net cash provided
by operating activities:
Provisions for loan and other real
estate owned losses 35,014 22,630
Depreciation and amortization of
premises and equipment 8,618 7,814
Other amortization and accretion,
net 27,481 30,906
Provision for deferred income tax
expense 28,991 29,710
Net securities (gains) losses (3,692) 1,836
Net increase in loans held for sale (113,162) (16,853)
Other, net 21,746 4,121
- -------------------------------------------------------------------
Net cash provided by operating
activities 65,684 136,208
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for
sale (1,164,313) (1,094,646)
Purchases of securities held to maturity (75,935) (256)
Proceeds from sales of securities 350,044 1,007,125
available for sale
Proceeds from maturities of securities
available for sale and held to maturity 696,080 1,110,762
Loans receivable originated and
purchased, net of principal payments (398,852) (366,514)
Acquisition of BFS Bankorp, Inc., net
of cash and cash equivalents acquired (85,529) --
Repurchases of assets sold with recourse (10,525) (14,167)
Proceeds from bulk sales of
non-performing assets 93,063 --
Proceeds from sales of other real
estate owned 24,258 25,791
Other, net (42,782) (29,318)
- -------------------------------------------------------------------
Net cash (used) provided by investing
activities (614,491) 638,777
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 31,174 89,384
Net decrease in borrowings with
original maturities of three months or
less (95,551) (162,616)
Proceeds from issuance of guaranteed
preferred beneficial interests in
Corporation's junior subordinated
deferrable interest debentures 196,474 --
Proceeds from other borrowings 727,875 565,000
Repayment of other borrowings (270,202) (1,286,767)
Proceeds from issuance of common and
treasury stock 5,445 1,360
Purchases of treasury stock (27,482) (25,466)
Payment of dividend on common stock (4,169) --
Other -- (1,913)
- -------------------------------------------------------------------
Net cash provided (used) by financing
activities 563,564 (821,018)
- -------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 14,757 (46,033)
Cash and cash equivalents at beginning
of period 184,517 235,356
- -------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 199,274 $ 189,323
===================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits and borrowed
funds $ 401,890 $ 446,634
Net income tax payments (refunds) 339 (7,145)
SUPPLEMENTAL NON-CASH INVESTING
INFORMATION
Loans receivable transferred to other
real estate owned $ 9,425 $ 26,582
In connection with the acquisition of
BFS Bankorp, Inc.:
Fair value of assets acquired 636,763 --
Cash paid 93,325 --
Fair value of liabilities assumed 582,739 --
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Holding Company reflect all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
Company's financial condition as of the dates indicated and results of
operations and cash flows for the periods shown. The unaudited consolidated
financial statements presented herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Holding
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain amounts in the prior period consolidated financial statements have been
reclassified to conform with the presentation for the current period. The
results for the three months and six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
NOTE 2 -- ACQUISITION OF BFS BANKORP, INC.
As of the close of business on April 30, 1997, the Company acquired BFS
Bankorp, Inc. ("BFS Bankorp") and its wholly-owned subsidiary, Bankers Federal
Savings FSB ("Bankers Federal" and, together with BFS Bankorp, "BFS"), for $93.3
million in cash (the "BFS Acquisition"). At that time, BFS Bankorp was
liquidated and Bankers Federal was merged with and into The Dime Savings Bank of
New York, FSB ("the Bank"). The purchase price was funded from the normal cash
flows of the Company. Because the BFS Acquisition was accounted for under the
purchase method of accounting, its impact is only reflected in the Company's
consolidated financial statements beginning on May 1, 1997.
Net assets acquired in, and goodwill arising from, the BFS Acquisition
(after giving effect to purchase accounting adjustments, certain of which are
subject to refinement) amounted to $54.0 million and $39.3 million,
respectively. Such net assets included loans receivable, net, of $577.2 million
and deposits of $447.1 million. Goodwill associated with the BFS Acquisition is
being amortized over a 15 year period using the straight-line method.
NOTE 3 -- ISSUANCE OF CAPITAL SECURITIES, SERIES A AND JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES, SERIES A
On May 6, 1997, Dime Capital Trust I ("Dime Capital"), a Delaware statutory
business trust that was formed by the Holding Company, issued $200.0 million of
9.33% Capital Securities, Series A (the "Series A Capital Securities"),
representing preferred beneficial interests in Dime Capital, in an underwritten
public offering and $6.2 million of beneficial interests represented by its
common securities to the Holding Company. In connection therewith, Dime Capital
purchased $206.2 million of 9.33% Junior Subordinated Deferrable Interest
Debentures, Series A, due May 6, 2027 (the "Series A Subordinated Debentures")
issued by the Holding Company. The Series A Subordinated Debentures, which are,
and will be, the sole assets of Dime Capital, are subordinate and junior in
right of payment to all present and future senior indebtedness of the Holding
Company. Dime Capital's obligations under the Series A Capital Securities are
fully and unconditionally guaranteed by the Holding Company to the extent
provided for under the terms of the indenture pursuant to which the Series A
Subordinated Debentures were issued, the Series A Subordinated Debentures, and
the related guarantee agreement, expense agreement, and trust agreement. The
Series A Capital Securities are subject to mandatory redemption, in whole or in
part, upon the repayment of the Series A Subordinated Debentures at their stated
maturity or earlier redemption. Distributions on the Series A Capital Securities
are reflected as interest expense in the Company's Consolidated Statements of
Income.
NOTE 4 -- BULK SALES OF CERTAIN NON-PERFORMING ASSETS
During May 1997, the Company sold approximately $126 million of its non-
performing residential real estate assets in bulk sales (the "NPA Sales"). Such
assets were comprised of approximately $113 million of non-accrual loans and
approximately $13 million of other real estate owned ("ORE"). In connection with
the NPA Sales, a pre-tax charge of $14.6 million was recognized during the
second quarter of 1997.
7
<PAGE>
NOTE 5 -- PENDING ACQUISITION OF NORTH AMERICAN MORTGAGE COMPANY ("NAMC") AND
RELATED MATTERS
The Company entered into a definitive agreement (the "NAMC Merger
Agreement"), dated as of June 22, 1997 (and amended and restated as of July 31,
1997) to acquire NAMC, a mortgage banking company headquartered in Santa Rosa,
California (the "NAMC Acquisition"). Under the terms of the NAMC Merger
Agreement, each share of NAMC's common stock outstanding immediately prior to
the closing of the NAMC Acquisition will be converted, subject to certain
adjustments, into 1.37 shares (the "Exchange Ratio") of the Holding Company's
common stock ("Common Stock") and each outstanding option issued by NAMC to
acquire NAMC's common stock will be converted, after giving effect to the
Exchange Ratio, into an option to purchase Common Stock. At June 30, 1997, NAMC
had approximately 14.0 million shares of its common stock outstanding. In
addition, at that date, outstanding options issued by NAMC to acquire its common
stock amounted to approximately 1.5 million. The NAMC Acquisition, which will be
accounted for under the purchase method of accounting, is currently expected to
be consummated during the fourth quarter of 1997. The NAMC Acquisition is
subject to the satisfaction of certain conditions, including approval by NAMC's
stockholders. NAMC currently operates 104 loan origination offices in 30 states
and, at June 30, 1997, serviced $12.7 billion of loans for others.
In connection with the announcement of the NAMC Acquisition, the Holding
Company announced a program to repurchase up to approximately 6.9 million shares
of Common Stock. Such repurchases will be made over time at prevailing prices in
the open market or in privately-negotiated transactions.
NOTE 6 -- RECENT ACCOUNTING DEVELOPMENTS
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
The Company, as of January 1, 1997, adopted the portions of Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), that
became effective as of that date. Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125," had amended SFAS 125 to delay, until January 1, 1998, the effective
date of certain provisions of SFAS 125 relating to collateral, repurchase
agreements, dollar-rolls, securities lending, and similar transactions. SFAS 125
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. Under
this approach, an entity, subsequent to a transfer of financial assets, must
recognize the financial and servicing assets it controls and the liabilities it
has incurred, derecognize financial assets when control has been surrendered,
and derecognize liabilities when extinguished.
The Company's adoption, on January 1, 1997, of the effective portions of
SFAS 125 did not have, and is not expected to have, a material impact on its
consolidated financial statements. In addition, the provisions of SFAS 125 that
are required to be adopted by the Company on January 1, 1998 are not expected to
have a material impact on its consolidated financial statements.
Pursuant to SFAS 125, the Company's capitalized excess servicing and
mortgage servicing rights were combined, effective as of January 1, 1997, as
mortgage servicing assets in its Consolidated Statements of Financial Condition.
Prior period balances have been reclassified to reflect this change. In the
Company's Consolidated Statements of Income, prior to the adoption of SFAS 125,
amortization of capitalized excess servicing was reflected as a component of
"Loan servicing fees, net," whereas amortization of mortgage servicing rights
was reported as "Amortization of mortgage servicing rights." Such amortization,
effective with the adoption of SFAS 125, has been combined and reclassified in
the Company's Consolidated Statements of Income to "Amortization of mortgage
servicing assets."
Accounting for Earnings per Share
In February 1997, the Financial Accounting Standards Board ( the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128, which supersedes Accounting Principles Board Opinion No.
15, "Earnings per Share," establishes standards for computing, presenting and
disclosing earnings per share.
8
<PAGE>
SFAS 128 requires the presentation of basic earnings per share and, for
entities with complex capital structures, diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997. Earlier application of SFAS 128 is not permitted and
all prior-period earnings per share data must be restated upon its adoption.
The Company's basic and diluted earnings per share, as computed pursuant to
SFAS 128, for the three- and six-month periods ended June 30, 1997 are set forth
in the following table.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
----------------------------
1997 1996 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.27 $0.28 $0.58 $0.55
Diluted earnings per share 0.26 0.27 0.57 0.51
========================================================
</TABLE>
Disclosure of Information about Capital Structure
The FASB issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129") in February
1997. SFAS 129 supersedes specific disclosure requirements of Accounting
Principles Board Opinions No. 10, "Omnibus Opinion-1966," and No. 15, "Earnings
Per Share," and Statement of Financial Accounting Standards No. 47, "Disclosure
of Long-Term Obligations," and consolidates them in SFAS 129 for ease of
retrieval and for greater visibility to non-public entities. SFAS 129 is
effective for financial statements issued for periods ending after December 15,
1997.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. It does not address issues of recognition or measurement
for comprehensive income and its components. SFAS 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Under the requirements of
SFAS 130, an enterprise must classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for fiscal years beginning after December 15, 1997 and requires
reclassification of financial statements for earlier periods provided for
comparative purposes.
Disclosures about Segments of an Enterprise and Related Information
The FASB, in June 1997, issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements, requires that selected information about operating segments be
reported in interim financial statements issued to shareholders, and establishes
standards for related disclosures about an enterprise's products and services,
geographic areas, and major customers. As defined in SFAS 131, operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the enterprise's chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business," and amends Statement of
Financial Accounting Standards No. 94, "Consolidation of All Majority-
9
<PAGE>
Owned Subsidiaries." SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.
10
<PAGE>
DIME BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $27.8 million, or $0.26 per fully diluted
common share, for the second quarter of 1997, as compared with net income of
$29.0 million, or $0.27 per fully diluted common share, for the second quarter
of 1996. For the six months ended June 30, 1997, net income amounted to $60.7
million, or $0.57 per fully diluted common share, up $4.6 million, or 8.3%, from
the $56.0 million, or $0.51 per fully diluted common share, reported for the
comparable period in 1996. Net income levels for the 1997 periods were adversely
impacted by special provisions for loan and ORE losses totaling $14.6 million
(or approximately $0.09 per fully diluted common share on an after-tax basis)
associated with the sales, during May 1997, of approximately $126 million of
non-performing assets in the NPA Sales, the effects of which were partially
offset by the benefits derived from the BFS Acquisition.
The Company's results of operations for the three- and six-month periods
ended June 30, 1997, as compared with the corresponding periods in 1996, were
favorably affected by increases in net interest income of $5.0 million and $8.0
million, respectively, together with growth in non-interest income of $5.7
million and $9.8 million, respectively. The increase in net income for the six
months ended June 30, 1997, as compared with the corresponding period one year
ago, also reflects the recognition, during the 1996 period, of restructuring and
merger-related expense in the amount of $3.5 million associated with the merger,
in January 1995, of Anchor Bancorp, Inc. and its savings bank subsidiary, Anchor
Savings Bank FSB ("Anchor Savings"), with and into the Holding Company and the
Bank, respectively (the "Anchor Merger"). In addition, the changes in the
Company's results of operations in the 1997 periods from the 1996 periods also
reflect increases in general and administrative ("G&A") expense of $2.9 million
and $5.0 million for the second quarter and first six months of 1997, as
compared with the respective prior year periods
The Company's annualized return on average stockholders' equity was 10.67%
for the second quarter of 1997, as compared with 11.72% for the second quarter
of 1996, and 11.66% for the first six months of 1997, as compared with 11.32%
for the corresponding year ago period. The Company's annualized return on
average assets was 0.56% and 0.62% for the three- and six-month periods ended
June 30, 1997, as compared with 0.59% and 0.56% for the second quarter and first
six months of 1996, respectively.
In addition to the consummation of the NPA Sales and the BFS Acquisition,
the second quarter of 1997 was marked by the announcement of the pending NAMC
Acquisition, the declaration and payment of a cash dividend on the Common Stock
of $0.04 per share, and the issuance of the $200.0 million in principal amount
of Series A Capital Securities.
RESULTS OF OPERATIONS
Net Interest Income
The Company's net interest income amounted to $119.1 million for the second
quarter of 1997, an increase of $5.0 million, or 4.4%, as compared with the
second quarter of 1996. For the six-month period ended June 30, 1997, net
interest income amounted to $236.4 million, up $8.0 million, or 3.5%, relative
to the same period one year ago. These increases reflect, in part, the BFS
Acquisition and the reinvestment of the proceeds from the NPA Sales, which more
than offset the impact of the issuance of the Series A Capital Securities. The
Company's net interest margin increased to 2.52% for each of the three- and six-
month periods ended June 30, 1997 from 2.39% and 2.37% for the second quarter
and first six months of 1996, respectively. Contributing to the higher net
interest margin levels were favorable changes in the mix of both interest-
earning assets and interest-bearing liabilities.
The yields on average interest-earning assets for the three- and six-month
periods ended June 30, 1997 of 7.15% and 7.10%, respectively, were up from the
comparable periods in 1996 by 18 basis points and 8 basis points, respectively.
These improvements were attributable to, among other factors, growth in average
loans, coupled with
11
<PAGE>
a reduction in the average balance of mortgage-backed securities ("MBS"), which
in general provide a lower yield than the Company's loans. For the second
quarter and first six months of 1997, as compared with the corresponding periods
in 1996, average loans rose $1.2 billion, or 11.3%, and $1.0 billion, or 9.7%,
respectively, while average MBS declined $1.2 billion, or 14.8%, and $1.5
billion, or 18.1%, respectively. Overall, total average interest-earning assets
decreased $138.0 million for the second quarter of 1997 and $586.8 million for
the first six months of 1997, as compared with the corresponding periods one
year ago.
The cost of the Company's average interest-bearing liabilities was 4.73% for
the 1997 second quarter, up 5 basis points from the 1996 second quarter, and
4.70% for the six months ended June 30, 1997, a decline of 4 basis points as
compared with the corresponding period in 1996. While the cost of average
interest-bearing liabilities during each of the 1997 periods, as compared with
the 1996 periods, was unfavorably affected by somewhat higher short-term
interest rates, it was favorably impacted by growth in average deposits as a
percentage of total average interest-bearing liabilities and a shift in the mix
of borrowed funds from Federal Home Loan Bank of New York ("FHLBNY") advances to
relatively lower costing securities sold under agreements to repurchase. For the
three- and six-month periods ended June 30, 1997, as compared with the same
periods one year ago, average deposits rose $521.4 million and $389.0 million,
respectively, while average borrowed funds declined $664.6 million and $1.0
billion, respectively. Average deposits represented 71.0% and 71.1% of total
average interest-bearing liabilities for the three- and six-month periods ended
June 30, 1997, respectively, up from 67.7% and 66.8% during the respective prior
year periods.
12
<PAGE>
The following tables set forth, for the periods indicated, the Company's
consolidated average statement of financial condition, net interest income, the
average yield on interest-earning assets, and the average cost of interest-
bearing liabilities. Average balances are computed on a daily basis. Non-accrual
loans are included in average loan balances in the tables below.
<TABLE>
<CAPTION>
=================================================================================================================
Three Months Ended June 30,
-------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans:
Residential real estate $ 8,372,476 $150,915 7.21% $ 7,667,511 $137,463 7.17%
Commercial and multifamily real
estate 2,263,548 48,629 8.59 1,817,481 38,858 8.55
Consumer 711,018 15,270 8.61 718,162 16,024 8.97
Business 47,647 1,105 9.30 32,879 736 9.01
----------------------------------------------------------------------------------------------------------------
Total loans 11,394,689 215,919 7.58 10,236,033 193,081 7.55
MBS 6,618,557 109,307 6.61 7,769,279 124,384 6.40
Other securities 366,117 5,696 6.24 579,763 8,667 6.00
Money market investments 575,002 8,046 5.54 507,332 6,683 5.21
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 18,954,365 338,968 7.15 19,092,407 332,815 6.97
Other assets 791,871 706,941
- -----------------------------------------------------------------------------------------------------------------
Total assets $19,746,236 $19,799,348
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Demand $ 1,236,047 2,143 0.70 $ 1,108,924 1,962 0.71
Savings 2,503,437 15,504 2.48 2,611,096 16,328 2.52
Money market 1,966,423 18,324 3.74 2,109,065 20,477 3.90
Time 7,470,223 102,941 5.53 6,825,628 91,947 5.42
- -----------------------------------------------------------------------------------------------------------------
Total deposits 13,176,130 138,912 4.23 12,654,713 130,714 4.15
- -----------------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 3,935,503 56,128 5.64 2,440,071 32,935 5.34
FHLBNY advances 971,673 14,491 5.90 3,228,701 47,184 5.78
Other 465,939 10,340 8.87 368,916 7,904 8.57
- -----------------------------------------------------------------------------------------------------------------
Total borrowed funds 5,373,115 80,959 5.97 6,037,688 88,023 5.77
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 18,549,245 219,871 4.73 18,692,401 218,737 4.68
Other liabilities 155,765 117,518
Stockholders' equity 1,041,226 989,429
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $19,746,236 $19,799,348
- -----------------------------------------------------------------------------------------------------------------
Net interest income $119,097 $114,078
- -----------------------------------------------------------------------------------------------------------------
Interest rate spread 2.42 2.29
- -----------------------------------------------------------------------------------------------------------------
Net interest margin 2.52 2.39
=================================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
Six Months Ended June 30,
-------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans:
Residential real estate $ 8,299,013 $298,019 7.18% $ 7,557,863 $271,036 7.17%
Commercial and multifamily real
estate 2,070,440 88,463 8.55 1,830,072 78,895 8.62
Consumer 723,574 31,001 8.63 733,426 32,640 8.95
Business 44,811 2,076 9.34 33,120 1,473 8.94
----------------------------------------------------------------------------------------------------------------
Total loans 11,137,838 419,559 7.54 10,154,481 384,044 7.57
MBS 6,601,816 216,958 6.57 8,061,645 261,754 6.49
Other securities 361,098 11,251 6.27 558,641 17,087 6.14
Money market investments 594,241 16,071 5.38 507,005 13,458 5.25
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 18,694,993 663,839 7.10 19,281,772 676,343 7.02
Other assets 774,429 717,679
- -----------------------------------------------------------------------------------------------------------------
Total assets $19,469,422 $19,999,451
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Demand $ 1,182,868 4,041 0.69 $ 1,082,130 4,171 0.78
Savings 2,474,579 30,496 2.49 2,632,553 32,911 2.51
Money market 1,982,437 36,831 3.75 2,124,242 40,994 3.88
Time 7,357,743 200,719 5.50 6,769,689 185,435 5.51
- -----------------------------------------------------------------------------------------------------------------
Total deposits 12,997,627 272,087 4.22 12,608,614 263,511 4.20
- -----------------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 3,815,774 107,178 5.59 1,961,300 53,317 5.38
FHLBNY advances 1,053,113 30,504 5.76 3,939,162 115,217 5.79
Other 402,482 17,700 8.79 372,148 15,885 8.54
- -----------------------------------------------------------------------------------------------------------------
Total borrowed funds 5,271,369 155,382 5.87 6,272,610 184,419 5.82
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 18,268,996 427,469 4.70 18,881,224 447,930 4.74
Other liabilities 159,766 128,306
Stockholders' equity 1,040,660 989,921
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $19,469,422 $19,999,451
- -----------------------------------------------------------------------------------------------------------------
Net interest income $236,370 $228,413
- -----------------------------------------------------------------------------------------------------------------
Interest rate spread 2.40 2.28
- -----------------------------------------------------------------------------------------------------------------
Net interest margin 2.52 2.37
=================================================================================================================
</TABLE>
14
<PAGE>
The following table sets forth, for the periods indicated, the changes in
interest income and interest expense for each major component of interest-
earning assets and interest-bearing liabilities and the amounts attributable to
changes in average balances (volume) and average interest rates (rate). The
changes in interest income and interest expense attributable to changes in both
volume and rate have been allocated proportionately to the changes due to volume
and the changes due to rate.
<TABLE>
<CAPTION>
======================================================================================================
Three Months Ended Six Months Ended
June 30, 1997 versus 1996 June 30, 1997 versus 1996
--------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
--------------------------------------------------------------
Due To Due To
------------------- ---------------------
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans:
Residential real estate $ 12,703 $ 749 $ 13,452 $ 26,614 $ 369 $ 26,983
Commercial and multifamily real
estate 9,582 189 9,771 10,276 (708) 9,568
Consumer (159) (595) (754) (436) (1,203) (1,639)
Business 343 26 369 543 60 603
- ------------------------------------------------------------------------------------------------------
Total loans 22,469 369 22,838 36,997 (1,482) 35,515
- ------------------------------------------------------------------------------------------------------
MBS (18,902) 3,825 (15,077) (47,939) 3,143 (44,796)
Other securities (3,318) 347 (2,971) (6,185) 349 (5,836)
Money market investments 919 444 1,363 2,340 273 2,613
- ------------------------------------------------------------------------------------------------------
Total interest income 1,168 4,985 6,153 (14,787) 2,283 (12,504)
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Demand 222 (41) 181 371 (501) (130)
Savings (670) (154) (824) (1,967) (448) (2,415)
Money market (1,356) (797) (2,153) (2,689) (1,474) (4,163)
Time 8,876 2,118 10,994 16,175 (891) 15,284
- ------------------------------------------------------------------------------------------------------
Total deposits 7,072 1,126 8,198 11,890 (3,314) 8,576
- ------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 20,999 2,194 23,193 51,727 2,134 53,861
FHLBNY advances (33,272) 579 (32,693) (83,136) (1,577) (84,713)
Other 2,144 292 2,436 1,322 493 1,815
- ------------------------------------------------------------------------------------------------------
Total borrowed funds (10,129) 3,065 (7,064) (30,087) 1,050 (29,037)
- ------------------------------------------------------------------------------------------------------
Total interest expense (3,057) 4,191 1,134 (18,197) (2,264) (20,461)
- ------------------------------------------------------------------------------------------------------
Net interest income $ 4,225 $ 794 $ 5,019 $ 3,410 $ 4,547 $ 7,957
======================================================================================================
</TABLE>
Provision for Loan Losses
The Company's provision for loan losses, which is predicated upon the
Company's assessment of the adequacy of its allowance for loan losses (see
"Management of Credit Risk -- Allowance for Loan Losses"), amounted to $23.0
million for the second quarter of 1997 and $33.0 million for the first six
months of 1997. This compares with $10.3 million and $20.8 million for the
three- and six-month periods ended June 30, 1996, respectively. The increases in
the 1997 periods, as compared with the 1996 periods, were substantially
attributable to a $14.0 million special provision for loan losses recognized
during the three months ended June 30, 1997 in connection with the NPA Sales
(see Note 4 of Notes to Consolidated Financial Statements).
15
<PAGE>
Non-Interest Income
General. The following table sets forth the components of the Company's non-
interest income for the three months and six months ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
=================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan servicing fees, net $10,221 $ 8,843 $20,138 $18,737
Banking service fees 7,388 6,480 14,156 13,186
Securities and insurance brokerage fees 5,767 5,633 11,818 10,307
Net gains (losses) on sales activities 2,050 (1,906) 4,133 (1,445)
Other 3,810 4,438 6,596 6,271
- ---------------------------------------------------------------------------------
Total non-interest income $29,236 $23,488 $56,841 $47,056
=================================================================================
</TABLE>
Loan Servicing Fees, Net. Loan servicing fees, net, of $10.2 million for the
second quarter of 1997 and $20.1 million for the first six months of 1997 rose
from the comparable prior year periods by 15.6% and 7.5%, respectively. These
increases resulted principally from growth in the portfolio of loans serviced
for others, the balance of which amounted to $10.8 billion at June 30, 1997, an
increase of $1.6 billion, or 17.4%, from one year earlier. Partially offsetting
the impact of the growth in the loan servicing portfolio were declines in the
average loan servicing fee rate, which were primarily due to additions to the
servicing portfolio of loans with servicing fee rates lower than the portfolio
average, coupled with principal reductions on seasoned loans with servicing fee
rates higher than the portfolio average.
Banking Service Fees. Banking service fees amounted to $7.4 million for the
second quarter of 1997, an increase of $0.9 million, or 14.0%, from the same
quarter one year ago. For the six months ended June 30, 1997, banking service
fees amounted to $14.2 million, representing growth of $1.0 million, or 7.4%, as
compared with the corresponding 1996 period. These improvements reflect volume
increases in certain underlying transactions, together with changes in the
Company's fee structure.
Securities and Insurance Brokerage Fees. Securities and insurance brokerage
fees were $5.8 million for the second quarter of 1997 and $11.8 million for the
six months ended June 30, 1997, up from $5.6 million and $10.3 million for the
three- and six-month periods ended June 30, 1996, respectively. Fees from
securities brokerage activities amounted to $5.4 million for the second quarter
of 1997, a $0.3 million, or 5.1%, increase from the second quarter of 1996, and
$10.9 million for the first six months of 1997, an increase of $1.4 million, or
14.1%, as compared with the same period in 1996. These increases were largely
driven by higher levels of annuity sales. Insurance-related fee income declined
$0.1 million for the second quarter of 1997 from the second quarter of 1996, but
increased $0.2 million for the first six months of 1997 from the comparable
prior year period.
Net Gains (Losses) on Sales Activities. The Company recognized net gains on
sales activities of $2.1 million and $4.1 million for the second quarter and
first six months of 1997, respectively, as compared with net losses of $1.9
million and $1.4 million for the respective prior year periods. Net gains on
securities transactions amounted to $1.7 million for the 1997 second quarter and
$3.7 million for the first six months of 1997. In comparison, the Company
recognized net losses on securities transactions of $1.2 million and $1.8
million during the three- and six-month periods ended June 30, 1996,
respectively. The net losses on securities transactions during the 1996 periods
included losses of $1.2 million associated with the other than temporary
impairment in value of certain MBS (see "Management of Credit Risk -- MBS"). The
Company recognized net gains on loan sales in connection with its mortgage
banking activities of $0.9 million for the 1997 second quarter, as compared with
net losses of $0.4 million in the prior year quarter, and net gains on loan
sales of $1.7 million for the first six months of 1997, up from net gains of
$1.5 million for the comparable 1996 period.
Other Non-Interest Income. Other non-interest income was $3.8 million and
$6.6 million for the three- and six-month periods ended June 30, 1997,
respectively, as compared with $4.4 million and $6.3 million for the respective
year earlier periods. Loan-related fee income, which is a principal component of
other non-interest income, amounted to $2.9 million for the second quarter of
1997, relatively unchanged from the comparable prior year quarter, and $5.0
million for the first six months of 1997, up $0.2 million from the corresponding
period in
16
<PAGE>
1996. Other non-interest income for the first six months of 1997 also included
interest income of $0.6 million on federal income tax refunds recognized during
the first quarter of the year, as well as $0.7 million of income recorded during
the second quarter of 1997 in connection with the resolution of certain legal
proceedings. Other non-interest income during the first six months of 1996
included $1.0 million of income associated with the settlement of certain
litigation during the first quarter of that year.
Non-Interest Expense
General. The following table sets forth the components of the Company's non-
interest expense for the three months and six months ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
(In thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G&A expense:
Compensation and employee benefits $34,474 $31,815 $ 69,215 $ 65,791
Occupancy and equipment, net 13,561 13,434 26,896 26,209
Other 25,655 25,584 49,960 49,027
- --------------------------------------------------------------------------------
Total G&A expense 73,690 70,833 146,071 141,027
ORE expense, net 1,581 2,159 4,633 4,652
Amortization of mortgage servicing
assets 5,267 4,796 10,469 10,221
Restructuring and merger-related expense -- -- -- 3,504
- --------------------------------------------------------------------------------
Total non-interest expense $80,538 $77,788 $161,173 $159,404
================================================================================
</TABLE>
G&A Expense. G&A expense amounted to $73.7 million for the second quarter of
1997, an increase of $2.9 million, or 4.0%, from the second quarter of 1996. For
the six months ended June 30, 1997, G&A expense was $146.1 million, an increase
of $5.0 million, or 3.6%, as compared with the year-earlier period. Factors
contributing to the higher G&A expense levels included the ongoing expansion of
the Company's mortgage banking operations and other lending activities, the BFS
Acquisition, and the implementation of certain other strategic initiatives.
Compensation and employee benefits expense totaled $34.5 million for the
second quarter of 1997 and $69.2 million for the six months ended June 30, 1997,
representing increases of $2.7 million, or 8.4%, and $3.4 million, or 5.2%, as
compared with the corresponding periods in 1996. The growth in the expense
levels was largely attributable to the Company's expansion of its lending
operations, the BFS Acquisition, higher commission- and incentive-based
compensation levels, and normal merit increases. The Company's full-time
equivalent employee complement was 3,011 at June 30, 1997, up from 2,903 one
year earlier and 2,872 at December 31, 1996.
Occupancy and equipment expense, net, amounted to $13.6 million for the
second quarter of 1997, up $0.1 million from the comparable quarter of 1996.
For the six months ended June 30, 1997, occupancy and equipment expense, net,
was $26.9 million, an increase of $0.7 million as compared with the
corresponding year-earlier period. These increases reflect, in part, the BFS
Acquisition, the continuing enhancement of the Company's technological
capabilities, and costs incurred in support of the ongoing expansion of certain
of the Company's business activities, the effects of which were partially offset
by a variety of factors.
Other G&A expense was $25.7 million and $50.0 million for the second quarter
and first six months of 1997, respectively, as compared with $25.6 million and
$49.0 million for the three- and six-month periods ended June 30, 1996,
respectively. The increases in the 1997 periods, as compared with the 1996
periods, were due to numerous factors, including the absorption of BFS's
operations, the amortization of goodwill associated with the BFS Acquisition,
business expansion efforts, and various other strategic initiatives. These
factors were partially offset by reduced marketing costs, primarily due to lower
television advertising levels, and declines in federal deposit insurance
premiums as a result of the enactment of the Deposit Insurance Funds Act of
1996.
ORE Expense, Net. ORE expense, net, which is impacted by a variety of
factors, including the level and type of properties owned and general economic
conditions, was $1.6 million for the second quarter of 1997, a decline of $0.6
million, or 26.8%, from the comparable quarter in 1996. For the six months
ended June 30, 1997, ORE expense, net, was $4.6 million, virtually unchanged
from the corresponding period in 1996. The levels of
17
<PAGE>
ORE expense, net, for the 1997 periods benefited from a reduced level of ORE,
primarily as a result of the sales of approximately $13 million of residential
ORE during the 1997 second quarter in connection with the NPA Sales, the effects
of which were partially offset by a $0.6 million special provision for loss
associated with the NPA Sales recorded during the second quarter of 1997.
The following table presents the significant components of the Company's ORE
expense, net, for the three months and six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
=================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating expense, net of rental income $ 987 $1,693 $2,862 $ 3,802
Provision for losses /(1)/ 733 990 2,014 1,880
Net gains on sales (139) (524) (243) (1,030)
- ---------------------------------------------------------------------------------
Total ORE expense, net $1,581 $2,159 $4,633 $ 4,652
=================================================================================
</TABLE>
(1) The three- and six-month periods ended June 30, 1997 include a $0.6 million
provision for losses associated with the NPA Sales.
Amortization of Mortgage Servicing Assets. Amortization of mortgage
servicing assets amounted to $5.3 million for the first quarter of 1997 and
$10.5 million for the first six months of 1997, up $0.5 million and $0.2 million
from the respective periods during 1996. These increases principally reflect the
higher level of mortgage servicing assets during the 1997 periods, as compared
with the 1996 periods.
Restructuring and Merger-Related Expense. Restructuring and other expense
associated with the Anchor Merger totaled $3.5 million for the six months ended
June 30, 1996, all of which was incurred during the first quarter of that year.
No such expense was incurred during the first six months of 1997. The expense
incurred during the first quarter of 1996 was principally associated with staff
reductions, the final phase of the conversion of the Bank's retail banking
computer system, and certain computer data center costs.
Income Tax Expense
Income tax expense amounted to $17.0 million and $38.4 million for the
three- and six-month periods ended June 30, 1997, respectively. In comparison,
income tax expense for the second quarter and first six months of 1996 was $20.5
million and $39.3 million, respectively. The declines in income tax expense
reflect the net impact of changes in pre-tax income, reductions in the Company's
effective income tax rates in the 1997 periods as compared with the 1996 periods
as a result of various tax planning strategies, and favorable settlements of
local income tax issues which reduced income tax expense for the three months
and six months ended June 30, 1996 by $0.6 million and $1.3 million,
respectively.
The Company's effective income tax rate was 38.0% for the second quarter of
1997, down from 41.5% for the second quarter of 1996. For the six months ended
June 30, 1997 and 1996, the Company's effective income tax rates were 38.7% and
41.2%, respectively.
MANAGEMENT OF INTEREST RATE RISK
General
The Company manages its interest rate risk through strategies designed to
maintain acceptable levels of interest rate exposure throughout a range of
interest rate environments. These strategies are intended not only to protect
the Company from significant long-term declines in net interest income as a
result of certain changes in the interest rate environment, but also to mitigate
the negative effect of certain interest rate changes upon the Company's mortgage
banking operating results. The Company seeks to contain its interest rate risk
within a band that it believes is manageable and prudent given its capital and
income generating capacity. As a component of its interest rate risk management
process, the Company employs various derivative financial instruments (see
"Derivative Financial Instruments").
18
<PAGE>
The Company's sensitivity to interest rates is driven primarily by the
mismatch between the term to maturity or repricing of its interest-earning
assets and that of its interest-bearing liabilities. In general, the Company's
interest-bearing liabilities reprice or mature, on average, sooner than its
interest-earning assets.
The Company is also exposed to interest rate risk arising from the "option
risk" embedded in many of the Company's interest-earning assets. For example,
mortgages and the mortgages underlying MBS may contain prepayment options,
interim and lifetime interest rate caps and other such features driven or
otherwise influenced by changes in interest rates. Prepayment option risk
affects mortgage-related assets in both rising and falling interest rate
environments as the financial incentive to refinance a mortgage loan is directly
related to the level of the existing interest rate on the loan relative to
current market interest rates.
Extension risk on mortgage-related assets is the risk that the duration of
such assets may increase as a result of declining prepayments due to rising
interest rates. Certain mortgage-related assets are more sensitive to changes in
interest rates than others, resulting in a higher risk profile. Because the
Company's interest-bearing liabilities are not similarly affected, the Company's
overall duration gap generally increases as interest rates rise. In addition, in
a rising interest rate environment, adjustable-rate assets may reach interim or
lifetime interest rate caps, thereby limiting the amount of upward adjustment,
which effectively lengthens the duration of such assets.
Lower interest rate environments may also present interest rate exposure. In
general, lower interest rate environments tend to accelerate prepayment rates,
which both shorten the duration of mortgage-related assets and accelerate the
amortization of any premiums paid in the acquisition of these assets. The
recognition of premiums over a shorter than expected term causes yields on the
related assets to decline from anticipated levels. The Company is also exposed
to interest rate risk resulting from the change in the shape of the yield curve
(i.e., flattening, steepening and inversion; also called "yield curve twist
risk") and to differing indices upon which the yield on the Company's interest-
earning assets and the cost of its interest-bearing liabilities are based
("basis risk").
In evaluating and managing its interest rate risk, the Company employs
simulation models to help assess its interest rate risk exposure and the impact,
and probability of occurrence, of alternate interest rate scenarios, which
consider the effects of adjustable-rate loan indices, periodic and lifetime
interest rate adjustment caps, estimated loan prepayments, anticipated deposit
retention rates, and other dynamics of the Company's portfolios of interest-
earning assets and interest-bearing liabilities. Moreover, in order to reduce
its sensitivity to interest rate risk, the Company's investment strategy has
emphasized adjustable-rate loans and securities and fixed-rate medium-term
securities.
The measurement of differences (or "gaps") between the Company's interest-
earning assets and interest-bearing liabilities that mature or reprice within a
given period of time is one indication of the Company's sensitivity to changes
in interest rates. A negative gap generally indicates that, in a period of
rising interest rates, deposit and borrowing costs will increase more rapidly
than the yield on loans and securities and, therefore, reduce net interest
income. The opposite effect will generally occur in a declining interest rate
environment. Although the Company has a large portfolio of adjustable-rate
assets, the protection afforded by such assets in the event of substantial rises
in interest rates for extended time periods is limited due to interest rate
reset delays, periodic and lifetime interest rate caps, payment caps and the
fact that indices used to reprice a portion of the Company's adjustable-rate
assets lag changes in market rates. Moreover, in declining interest rate
environments or certain shifts in the shape of the yield curve, these assets may
prepay at significantly faster rates than otherwise anticipated. It should also
be noted that the Company's gap measurement reflects broad judgmental
assumptions with regard to repricing intervals for certain assets and
liabilities.
The following table reflects the repricing or maturity of the Company's
interest-earning assets, interest-bearing liabilities and related derivative
financial instruments at June 30, 1997 and December 31, 1996. The amount of each
asset, liability or derivative financial instrument is included in the table at
the earlier of the next repricing date or maturity. Prepayment assumptions for
loans and MBS utilized in preparing the table are based upon industry standards
as well as the Company's experience and estimates. Non-performing loans have
been included in the "Over One Through Three Years" category. For the purposes
of determining its gap position, the Company, prior to 1997, had assigned its
demand deposits and money market deposits to the "One Year or Less" category and
spread its savings accounts ratably over a 20-year period. Effective in 1997,
the Company modified its
19
<PAGE>
interest rate sensitivity assumptions so that its demand deposits, money market
deposits and savings accounts are now allocated to the various repricing
intervals in the table based on the Company's experience and estimates. In
addition, the Company, prior to 1997, had reported its cumulative gap as a
percentage of total interest-earning assets. Effective in 1997, the Company is
reporting its cumulative gap as a percentage of total assets. Information in the
table below for December 31, 1996 has been restated to reflect the changes
discussed above.
<TABLE>
<CAPTION>
================================================================================
Over One
Through Over
One Year Three Three
(Dollars in millions) or Less Years Years Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997:
Interest-earning assets:
Loans $ 5,463 $3,321 $3,039 $11,823
MBS 5,614 1,072 405 7,091
Other 44 13 341 398
- --------------------------------------------------------------------------------
Total interest-earning assets 11,121 4,406 3,785 19,312
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 7,756 2,560 3,019 13,335
Borrowed funds 4,966 238 296 5,500
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 12,722 2,798 3,315 18,835
- --------------------------------------------------------------------------------
Impact of derivative financial
instruments 1,203 (681) (522) --
-------------------------------------------------------------------------------
Periodic gap $ (398) $ 927 $ (52) $ 477
- --------------------------------------------------------------------------------
Cumulative gap $ (398) $ 529 $ 477
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (2.0)% 2.6% 2.4%
- --------------------------------------------------------------------------------
December 31, 1996:
Interest-earning assets:
Loans $ 5,238 $2,948 $2,667 $10,853
MBS 5,167 883 813 6,863
Other 39 16 328 383
- --------------------------------------------------------------------------------
Total interest-earning assets 10,444 3,847 3,808 18,099
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 7,194 2,682 2,981 12,857
Borrowed funds 4,489 186 140 4,815
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 11,683 2,868 3,121 17,672
- --------------------------------------------------------------------------------
Impact of derivative financial 620 (346) (274) --
instruments
------------------------------------------------------------------------------
Periodic gap $ (619) $ 633 $ 413 $ 427
- --------------------------------------------------------------------------------
Cumulative gap $ (619) $ 14 $ 427
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (3.3)% --% 2.3%
================================================================================
</TABLE>
Derivative Financial Instruments
The Company utilizes a variety of derivative financial instruments as part
of its overall asset/liability management strategy and to manage certain risks
associated with its mortgage banking activities. Derivative financial
instruments are not currently used by the Company for trading activity purposes.
With the exception of interest rate floors hedging certain mortgage servicing
assets, the derivative financial instruments utilized by the Company provide
protection from rising interest rates. While the hedging activities engaged in
by the Company have served to mitigate the effects of unfavorable interest rate
changes, the Company continues to be susceptible to interest rate risk.
The derivative financial instruments used by the Company, though chosen to
remedy specific risk conditions, may, under certain circumstances, behave in a
manner that is inconsistent with their intended purpose. Thus, such instruments
possess market risk in their own right. The Company has established internal
policies that define the extent of historical correlation between a proposed
hedge and the item to be hedged prior to the use of a derivative financial
instrument as a hedge. The potential exists, however, that this relationship, or
"basis," may change due to extraordinary circumstances. The Company, also by
policy, monitors these relationships at regular intervals to ensure that such
correlation is maintained. The Company cannot guarantee that such relationships,
as have been historically observed, will continue.
20
<PAGE>
The following table summarizes, by category of asset or liability being
hedged, the notional amount and estimated fair value of derivative financial
instruments used by the Company for asset/liability management purposes at June
30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
=========================================================================================
June 30, 1997 December 31, 1996
------------------------ ---------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps hedging:
Residential real estate loans
receivable $1,037,121 $ 1,480 $ 438,432 $ 414
Commercial and multifamily real
estate loans receivable 330,713 (2,991) 221,784 (3,408)
MBS held to maturity 67,122 (227) -- --
Securities sold under agreements to
repurchase 430,000 593 420,000 1,241
FHLBNY advances -- -- 30,000 (690)
- -----------------------------------------------------------------------------------------
Total interest rate swaps 1,864,956 (1,145) 1,110,216 (2,443)
- -----------------------------------------------------------------------------------------
Interest rate caps hedging:
Residential real estate loans
receivable 377,249 154 424,484 527
MBS available for sale 170,771 70 192,153 239
MBS held to maturity 228,213 93 256,787 319
Securities sold under agreements to
repurchase 361,000 3,013 361,000 4,647
- -----------------------------------------------------------------------------------------
Total interest rate caps 1,137,233 3,330 1,234,424 5,732
- -----------------------------------------------------------------------------------------
Options hedging residential real estate
loans receivable 40,000 362 -- --
Interest rate futures hedging
commercial and multifamily
real estate loans receivable 13,200 60 -- --
- -----------------------------------------------------------------------------------------
Total $3,055,389 $ 2,607 $2,344,640 $ 3,289
=========================================================================================
</TABLE>
The table that follows sets forth the contractual maturities of the
Company's interest rate swap agreements outstanding at June 30, 1997, as well as
the related weighted average interest rates receivable and payable at that date.
Variable-rates in the table are assumed to remain constant at their June 30,
1997 levels. All of the Company's outstanding interest rate swaps at June 30,
1997 provide for it to be a fixed-rate payer and a variable-rate receiver based
on short-term London Interbank Offered Rates ("LIBOR").
<TABLE>
<CAPTION>
================================================================================
Weighted Average
----------------------------
Notional Variable-Rate Fixed-Rate
(Dollars in thousands) Amount Receivable Payable
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maturing in the year ending December 31:
1997 $ 495,062 5.75% 5.45%
1998 394,495 5.69 6.28
1999 341,645 5.71 6.39
2000 139,664 5.70 6.43
2001 275,781 5.69 6.47
Thereafter 218,309 5.69 6.64
- --------------------------------------------------------------------------------
Total $1,864,956 5.71% 6.16%
================================================================================
</TABLE>
Under each of its outstanding interest rate cap agreements at June 30, 1997,
the Company, in return for a premium paid to the counterparty at inception,
receives cash payments from the counterparty at specified dates in the amount by
which a specified market interest rate is higher than a designated cap interest
rate, as applied to the notional amount of the agreement. The Company, at June
30, 1997, had outstanding interest rate cap agreements with a notional amount of
$766.2 million that were entered into in order to hedge the periodic and
lifetime interest rate caps embedded in certain of its adjustable-rate
residential real estate loans and MBS. Each such agreement is amortizing in
nature and provides for the Company to receive cash payments from the
counterparty when the weekly average yield of the one-year constant maturity
Treasury Index ("CMT") rises above a specified cap interest rate. At June 30,
1997, the one-year CMT was 5.67% and the weighted average specified cap interest
rate on these agreements was 8.00%. In addition, at June 30, 1997, the Company
had interest rate cap agreements outstanding with a notional amount of $361.0
million that were entered into for the purpose of locking-in maximum interest
costs on certain of its securities sold under agreements to repurchase. These
interest rate cap agreements, the notional amounts of which do not change during
their term, provide for the Company to receive cash payments when the one-month
LIBOR, which was 5.69% at June 30, 1997, rises above a specified cap interest
rate. At June
21
<PAGE>
30, 1997, the weighted average specified cap interest rate on these agreements
was 7.04%. Unamortized premiums on the Company's outstanding interest rate cap
agreements amounted to $9.5 million at June 30, 1997.
The following table sets forth the contractual maturities of the Company's
interest rate cap agreements outstanding at June 30, 1997. Certain of the
amounts set forth in the table are subject to change in the event that specified
cap interest rates exceed the specified interest rates.
<TABLE>
<CAPTION>
====================================================
Notional
(In thousands) Amount
- ----------------------------------------------------
<S> <C>
Maturing in the year ending December 31:
1997 $ 127,842
1998 439,399
1999 373,992
2001 196,000
- ----------------------------------------------------
Total $1,137,233
====================================================
</TABLE>
The Company's use of derivative financial instruments for asset/liability
management purposes resulted in reductions of net interest income for the
three- and six-month periods ended June 30, 1997 of $4.6 million and $9.5
million, respectively, as compared with reductions of net interest income during
the comparable periods in 1996 of $3.9 million and $7.4 million, respectively.
With regard to its mortgage banking activities, the Company uses forward
contracts and options to hedge risks associated with its loan sales activities.
In addition, the Company utilizes interest rate floor agreements to minimize the
impact of the potential loss of net future servicing revenues associated with
certain of its mortgage servicing assets as a result of an increase in loan
prepayments, which is generally triggered by declining interest rates.
The following table summarizes, at June 30, 1997 and December 31, 1996, the
notional amount and estimated fair value of derivative financial instruments
used by the Company in connection with its mortgage banking activities.
<TABLE>
<CAPTION>
=======================================================================
June 30, 1997 December 31, 1996
-------------------------------------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair value Amount Fair value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward contracts $ 334,539 $(2,154) $ 136,770 $575
Options 147,500 (120) 40,000 64
Interest rate floors 892,198 13 996,498 77
- -----------------------------------------------------------------------
Total $1,374,237 $(2,261) $1,173,268 $716
=======================================================================
</TABLE>
Under each of its interest rate floor agreements, the Company, in return for
a premium paid to the counterparty at inception, receives cash payments from the
counterparty when either the five- or ten-year CMT, which were 6.40% and 6.51%,
respectively, at June 30, 1997, declines below a designated floor interest rate.
At June 30, 1997, interest rate floor agreements with a notional amount of
$161.8 million were indexed to the five-year CMT and had a weighted average
designated floor interest rate of 5.30%, and $730.4 million were indexed to the
ten-year CMT and had a weighted average designated floor interest rate of 5.54%.
The Company's interest rate floor agreements outstanding at June 30, 1997
terminate at various dates from August 1998 through October 1999. At June 30,
1997, unamortized premiums on the Company's outstanding interest rate floor
agreements amounted to $0.5 million.
MANAGEMENT OF CREDIT RISK
General
The Company's major exposure to credit risk results from the possibility
that it will not recover amounts due from borrowers or issuers of securities.
The Company also is subject to credit risk in connection with its utilization of
derivative financial instruments. The Company has a process of credit risk
controls and management procedures by which it monitors and manages its level of
credit risk.
22
<PAGE>
Non-Performing Assets
The Company's non-performing assets consist of non-accrual loans and ORE,
net. Loans modified in a troubled debt restructuring ("TDR") that have
demonstrated a sufficient payment history to warrant return to performing status
are not included within non-accrual loans (see "Loans Modified in a TDR").
The Company generally has pursued a loan-by-loan/property-by-property
disposition strategy with respect to its non-performing assets, while also
considering the appropriateness of alternate disposition strategies, including
bulk sales of non-performing assets. During the second quarter of 1997, the
Company sold approximately $126 million of its non-performing residential real
estate assets in the NPA Sales. As a result, non-performing assets, which
amounted to $127.1 million at June 30, 1997 (including $9.3 million resulting
from the BFS Acquisition), declined $117.8 million, or 48.1%, since year-end
1996. At June 30, 1997, non-performing assets represented 0.63% of total assets
and non-accrual loans represented 0.89% of loans receivable, down from 1.30% and
1.78%, respectively, at December 31, 1996. Although the NPA Sales substantially
reduced the Company's non-performing residential real estate assets, certain
residential real estate loans will continue to enter non-performing status and,
due to the generally significant amount of time necessary to resolve loans that
become non-performing, new non-performing loans initially may exceed exits from
the existing portfolio. Accordingly, non-performing residential real estate
assets may increase in the near term.
The following table presents the components of the Company's non-performing
assets at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
=================================================================
June 30, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Non-accrual loans:
Residential real estate $ 65,092 $163,791
Commercial and multifamily real estate 31,728 21,047
Consumer 5,952 6,645
Business 369 107
- -----------------------------------------------------------------
Total non-accrual loans 103,141 191,590
- -----------------------------------------------------------------
ORE, net:
Residential real estate 10,338 36,182
Commercial and multifamily real estate 16,059 20,367
Allowance for losses (2,460) (3,294)
- -----------------------------------------------------------------
Total ORE, net 23,937 53,255
- -----------------------------------------------------------------
Total non-performing assets $127,078 $244,845
=================================================================
</TABLE>
During the first six months of 1997, the Company expanded its lending
activities and product mix and anticipates that such expansion efforts will
continue. The Company intends to continue to monitor closely the effects of
these efforts on the overall risk profile of its loan portfolio, which the
Company expects will continue to change over time.
The level of loans delinquent less than 90 days may, to some degree, be a
leading indicator of future levels of non-performing assets. The following table
sets forth, at June 30, 1997, such delinquent loans of the Company, net of those
already in non-performing status.
<TABLE>
<CAPTION>
=====================================================================
Delinquency Period
--------------------
30 - 59 60 - 89
(In thousands) Days Days Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Residential real estate loans $ 36,462 $ 16,097 $52,559
Commercial and multifamily real estate 5,517 1,812 7,329
loans
Consumer loans 4,304 1,265 5,569
Business loans 51 -- 51
- ---------------------------------------------------------------------
Total $ 46,334 $ 19,174 $65,508
=====================================================================
</TABLE>
23
<PAGE>
Loans Modified in a TDR
When borrowers encounter financial hardship but are able to demonstrate to
the Company's satisfaction an ability and willingness to resume regular monthly
payments, the Company may provide them with an opportunity to restructure the
terms of their loans. These arrangements, which are negotiated individually,
generally provide for interest rates that are lower than those initially
contracted for, but which may be higher or lower than current market interest
rates for loans with comparable risk, and may, in some instances, include a
reduction in the principal amount of the loan. The Company evaluates the costs
associated with any particular restructuring arrangement and may enter into such
an arrangement if it believes it is economically beneficial for the Company to
do so.
The following table sets forth, at June 30, 1997 and December 31, 1996, the
Company's loans that have been modified in a TDR, excluding those classified as
non-accrual loans.
<TABLE>
<CAPTION>
================================================================
June 30, December 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Residential real estate loans $ 39,239 $ 42,684
Commercial and multifamily real estate 149,544 170,323
loans
- ----------------------------------------------------------------
Total $188,783 $213,007
================================================================
</TABLE>
Impaired Loans
The table below sets forth information regarding the Company's impaired
loans at June 30, 1997 and December 31, 1996. The Company considers a loan
impaired when, based upon current information and events, it is probable that it
will be unable to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement.
<TABLE>
<CAPTION>
================================================================================================================
June 30, 1997 December 31, 1996
----------------------------------- -----------------------------------
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate loans:
With a related allowance $ 1,599 $ (100) $ 1,499 $ 3,290 $ (206) $ 3,084
Without a related allowance 3,680 -- 3,680 11,322 -- 11,322
- ----------------------------------------------------------------------------------------------------------------
Total residential real estate loans 5,279 (100) 5,179 14,612 (206) 14,406
- ----------------------------------------------------------------------------------------------------------------
Commercial and multifamily real estate
loans:
With a related allowance 32,486 (4,334) 28,152 39,388 (3,919) 35,469
Without a related allowance 6,572 -- 6,572 8,752 -- 8,752
- ----------------------------------------------------------------------------------------------------------------
Total commercial and multifamily real
estate loans 39,058 (4,334) 34,724 48,140 (3,919) 44,221
- ----------------------------------------------------------------------------------------------------------------
Business loans with a related allowance 369 (142) 227 107 (53) 54
- ----------------------------------------------------------------------------------------------------------------
Total impaired loans $44,706 $(4,576) $40,130 $62,859 $(4,178) $58,681
================================================================================================================
</TABLE>
Allowance for Loan Losses
The Company's allowance for loan losses is intended to be maintained at a
level sufficient to absorb all estimable and probable losses inherent in the
loans receivable portfolio. In determining the appropriate level of the
allowance for loan losses and, accordingly, the level of the provision for loan
losses, the Company reviews its loans receivable portfolio on at least a
quarterly basis, taking into account the size, composition and risk profile of
the portfolio, including delinquency levels, historical loss experience, cure
rates on delinquent loans, economic conditions and other pertinent factors, such
as assumptions and projections of future conditions. While the Company believes
that the allowance for loan losses is adequate, additions to the allowance for
loan losses may be necessary in the event of future adverse changes in economic
and other conditions that the Company is unable to predict.
24
<PAGE>
The following table sets forth the activity in the Company's allowance for
loan losses for the three months and six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
===================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
(In thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $103,223 $127,193 $106,495 $128,295
Provision charged to operations /(1)/ 23,000 10,250 33,000 20,750
Allowance for loan losses acquired in
the BFS Acquisition 13,249 -- 13,249 --
Charge-offs:
Residential real estate loans /(2)/ (39,520) (10,572) (51,228) (20,439)
Commercial and multifamily real (237) (3,224) (2,655) (5,729)
estate loans
Consumer loans (1,131) (1,238) (2,212) (2,683)
Business loans -- -- -- (8)
- -----------------------------------------------------------------------------------
Total charge-offs (40,888) (15,034) (56,095) (28,859)
- -----------------------------------------------------------------------------------
Recoveries:
Residential real estate loans 861 1,617 2,108 2,788
Commercial and multifamily real
estate loans 1,039 180 1,193 492
Consumer loans 525 690 1,005 1,364
Business loans 17 6 71 72
- -----------------------------------------------------------------------------------
Total recoveries 2,442 2,493 4,377 4,716
- -----------------------------------------------------------------------------------
Net charge-offs (38,446) (12,541) (51,718) (24,143)
- -----------------------------------------------------------------------------------
Balance at end of period $101,026 $124,902 $101,026 $124,902
===================================================================================
</TABLE>
(1) The three- and six-month periods ended June 30, 1997 include a provision of
$14.0 million associated with the NPA Sales.
(2) The three- and six-month periods ended June 30, 1997 include charge-offs of
$35.8 million associated with the NPA Sales.
At June 30, 1997, the allowance for loan losses represented 0.87% of loans
receivable, down from 0.99% at the end of 1996 and 1.23% at June 30, 1996. The
allowance for loan losses was 97.9% of non-accrual loans at the end of June
1997, up from 55.6% and 51.1% at December 31, 1996 and June 30, 1996,
respectively.
Loans Sold with Recourse
In the past, the Company sold certain residential and multifamily real
estate loans with limited recourse. At June 30, 1997, the balance of loans sold
with recourse amounted to $701.1 million, down from $751.5 million at December
31, 1996. The Company's related maximum potential recourse exposure was
approximately $185 million at June 30, 1997, as compared with approximately $196
million at the end of 1996. Of the loans sold with recourse at June 30, 1997,
$9.0 million were delinquent 90 days or more. During the first six months of
1997, the Company repurchased loans sold with recourse totaling $9.7 million.
MBS
In general, the Company's MBS carry a significantly lower credit risk than
its loans receivable. Of the $7.1 billion aggregate carrying value of the
Company's MBS available for sale and held to maturity at June 30, 1997,
approximately 31% were issued by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Government National Mortgage Association ("GNMA") and the Federal
National Mortgage Association ("FNMA"). The Company's privately-issued MBS,
which have been issued by entities other than FHLMC, GNMA and FNMA, have
generally been underwritten by large investment banking firms, with the timely
payment of principal and interest on these securities supported ("credit
enhanced") in varying degrees by either insurance issued by a financial
guarantee insurer, letters of credit or subordination techniques. Privately-
issued MBS are subject to certain credit-related risks normally not associated
with MBS issued by FHLMC, GNMA and FNMA, including the limited loss protection
generally provided by the various forms of credit enhancements, as losses in
excess of certain levels are not protected. Furthermore, the credit enhancement
itself is subject to the creditworthiness of the provider. Thus, in the event
that a provider of a credit enhancement does not fulfill its obligations, the
MBS holder could be subject to risk of loss similar to a purchaser of a whole
loan pool.
During 1996 and 1995, the Company recognized losses of $4.7 million and $3.3
million, respectively, associated with the other than temporary impairment in
value of certain privately-issued MBS. No such losses were incurred during the
first six months of 1997. The losses in 1996 and 1995 were necessitated by the
erosion in the
25
<PAGE>
underlying credit enhancements, coupled with the Company's projections of
estimated future losses on the securities. No assurance can be given that future
losses on these securities, the carrying value of which amounted to
approximately $83 million at June 30, 1997, will not be incurred. While
substantially all of the $4.9 billion of privately-issued MBS held by the
Company at June 30, 1997 were rated "AA" or better by one or more of the
nationally recognized securities rating agencies, no assurance can be given that
such ratings will be maintained, and the Company cannot predict whether losses
will or will not be recognized on any such securities.
Derivative Financial Instruments
The credit risk from the Company's derivative financial instruments arises
from the possible default by a counterparty on its contractual obligations. The
level of credit risk associated with derivative financial instruments depends on
a variety of factors, including the estimated fair value of the instrument, the
collateral maintained, the use of master netting arrangements, and the ability
of the counterparty to comply with its contractual obligations. The Company has
established policies and procedures limiting its credit exposure to
counterparties of derivative financial instrument agreements, which include
consideration of credit ratings on a continuous basis, collateral requirements
and exposure to any one counterparty, among other issues. In addition, as deemed
necessary, the Company may enter into master netting agreements, under which it
may offset payable and receivable positions, to the extent they exist, with the
same counterparty in the event of default. There were no past due amounts
related to the Company's derivative financial instruments at June 30, 1997 or
December 31, 1996.
In connection with its use of derivative financial instruments, to the
extent a counterparty defaults, the Company would be subject to an economic loss
that corresponds to the cost to replace the agreement. With respect to interest
rate swaps, an added element of credit risk is introduced when there exists a
mismatch in the frequency of payment exchanges (i.e., the Company makes a
payment on a quarterly basis but receives a payment on a different payment
frequency). For interest rate floors, interest rate caps and over-the-counter
option agreements, the Company is also subject to credit risk to the extent
contractual payments required under the agreements have not been received.
LOAN PRODUCTION
The Company's total loan production amounted to $1.2 billion during the
second quarter of 1997, up from $812.7 million in the immediately preceding
quarter and up from $863.9 million in the second quarter of 1996. For the first
six months of 1997, total loan production was $2.0 billion, representing growth
of $154.4 million as compared with the corresponding period in 1996.
Residential real estate loan production of $997.3 million for the second
quarter of 1997 increased $359.7 million, or 56.4%, as compared with the first
quarter of the year and increased $290.5 million, or 41.1%, as compared with the
second quarter of 1996. These increases largely reflect the impact of the
Company's recent restructuring of its mortgage banking operations. As part of
this restructuring, the Company increased its number of approved brokers and
correspondents to 844 and 150, respectively, at June 30, 1997 from 451 and 26,
respectively, at year-end 1996. For the first six months of 1997, the Company
produced $1.6 billion of residential real estate loans, up slightly from the
comparable period in 1996.
Total commercial and multifamily real estate loan production of $85.4
million for the second quarter of 1997, was up 22.8% from the comparable quarter
of 1996. For the first six months of 1997, total commercial and multifamily real
estate loan production was $147.6 million, an increase of 46.9% as compared with
the same period one year ago.
Consumer loan originations increased to $121.0 million and $221.2 million
for the three- and six-month periods ended June 30, 1997 from $81.5 million and
$154.8 million during the respective periods in 1996, primarily attributable to
increased production of home equity loans. During the second quarter and first
six months of 1997, originations of home equity loans increased $39.3 million,
or 87.7%, and $66.2 million, or 84.2%, as compared with the respective prior
year periods.
26
<PAGE>
The Company has also experienced growth in its business loan production
levels, which increased $9.0 million and $17.6 million during the three- and
six-month periods ended June 30, 1997, as compared with the corresponding year-
earlier periods.
The following table summarizes the Company's loan production, both for
portfolio and for sale in the secondary market, for the three months and six
months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
======================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
(In thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential real estate loan production:
Originated $ 765,236 $685,453 $1,296,316 $1,459,245
Purchased 232,102 21,369 338,667 152,485
- --------------------------------------------------------------------------------------
Total residential real estate loan
production 997,338 706,822 1,634,983 1,611,730
- --------------------------------------------------------------------------------------
Commercial and multifamily real estate
loans originated:
Commercial real estate loans 32,532 26,349 80,055 39,839
Multifamily real estate loans 52,837 43,170 67,590 60,667
- --------------------------------------------------------------------------------------
Total commercial and multifamily real
estate loans originated 85,369 69,519 147,645 100,506
- --------------------------------------------------------------------------------------
Consumer loans originated:
Home equity loans 84,138 44,832 144,758 78,585
Other consumer loans 36,867 36,620 76,424 76,206
- --------------------------------------------------------------------------------------
Total consumer loans originated 121,005 81,452 221,182 154,791
- --------------------------------------------------------------------------------------
Business loans originated 15,108 6,118 27,747 10,149
- --------------------------------------------------------------------------------------
Total loan production $1,218,820 $863,911 $2,031,557 $1,877,176
======================================================================================
</TABLE>
FINANCIAL CONDITION
General
The Company's total assets amounted to $20.1 billion at June 30, 1997, an
increase of $1.2 billion, or 6.4%, from December 31, 1996. This growth
reflected, among other factors, the BFS Acquisition and the investment of the
proceeds from the issuance of the Series A Capital Securities.
Securities
The Company's securities available for sale amounted to $3.2 billion at June
30, 1997, an increase of $577.2 million, or 22.3%, since December 31, 1996.
Purchases of securities available for sale during the six months ended June 30,
1997 amounted to $1.2 billion, all of which were MBS. Sales of securities
available for sale during the first six months of 1997 totaled $347.4 million,
including $340.5 million of MBS.
Securities held to maturity by the Company, which amounted to $4.0 billion
at June 30, 1997, declined $349.0 million, or 8.0%, during the first six months
of 1997. The Company purchased $75.9 million of securities held to maturity
during the six months ended June 30, 1997, substantially all of which were MBS.
27
<PAGE>
The following table summarizes the amortized cost and estimated fair value
of securities available for sale and securities held to maturity at June 30,
1997 and December 31, 1996.
<TABLE>
<CAPTION>
========================================================================================
June 30, 1997 December 31, 1996
------------------------------------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Debt securities:
MBS:
Pass-through securities:
Privately-issued $1,074,576 $1,065,384 $1,232,276 $1,228,264
FNMA 1,568,032 1,577,128 916,452 919,346
FHLMC 236,356 238,981 165,540 167,073
GNMA 193,885 197,171 185,166 187,006
Interest-only 1,709 1,162 1,850 1,291
- ----------------------------------------------------------------------------------------
Total MBS 3,074,558 3,079,826 2,501,284 2,502,980
- ----------------------------------------------------------------------------------------
U.S. government and federal agency 25,503 25,467 18,117 17,969
State and municipal 43,012 42,030 44,322 43,307
Domestic corporate 10,765 10,656 15,467 15,328
- ----------------------------------------------------------------------------------------
Total debt securities 3,153,838 3,157,979 2,579,190 2,579,584
- ----------------------------------------------------------------------------------------
Equity securities 8,968 8,754 10,343 9,988
- ----------------------------------------------------------------------------------------
Total securities available for sale $3,162,806 $3,166,733 $2,589,533 $2,589,572
========================================================================================
Securities Held to Maturity:
MBS:
Pass-through securities:
Privately-issued $2,280,290 $2,231,670 $2,520,013 $2,464,840
FHLMC 38,884 39,551 44,711 44,942
Collateralized mortgage obligations:
Privately-issued 1,573,405 1,548,196 1,670,983 1,644,120
FNMA 94,390 93,387 94,412 93,649
FHLMC 24,095 23,750 30,089 29,648
- ----------------------------------------------------------------------------------------
Total MBS 4,011,064 3,936,554 4,360,208 4,277,199
- ----------------------------------------------------------------------------------------
Other debt securities 3,942 3,024 3,763 2,738
- ----------------------------------------------------------------------------------------
Total securities held to maturity $4,015,006 $3,939,578 $4,363,971 $4,279,937
========================================================================================
</TABLE>
Loans Receivable
The Company's total loans receivable, exclusive of the allowance for loan
losses, amounted to $11.6 billion at June 30, 1997, up 8.0% from $10.7 billion
at the end of 1996. Contributing to this increase was the impact of the BFS
Acquisition, in connection with which the Company acquired approximately $590
million of loans. A significant component of the Company's current operating
strategy is to seek continuing growth in its loans receivable portfolio.
Residential real estate loans, which consist of one-to-four family first
mortgage loans and cooperative apartment loans, represented 72.6% of the loans
receivable portfolio at June 30, 1997. This segment of the loans receivable
portfolio rose $342.0 million as compared with the level at December 31, 1996
and amounted to $8.4 billion at June 30, 1997. Total residential real estate
loan production for portfolio totaled $1.0 billion during the first six months
of 1997.
The Company's commercial and multifamily real estate loans receivable
portfolio amounted to $2.4 billion at June 30, 1997, which represents growth,
primarily due to the BFS Acquisition, of $529.5 million, or 28.1%, as compared
with the level at the end of 1996. At June 30, 1997, commercial and multifamily
real estate loans represented 20.8% of the total loans receivable portfolio, as
compared with 17.6% of the total loans receivable portfolio at December 31,
1996.
The Company's consumer loans receivable portfolio of $711.3 million at June
30, 1997 decreased $23.0 million from year-end 1996, largely due to the
repurchase of the Company's portfolio of third-party originated automobile loans
by the seller. However, home equity loans rose $23.9 million since December 31,
1996 and
28
<PAGE>
amounted to $562.0 million at June 30, 1997. Home equity loans represented
approximately 79% of the consumer loans receivable portfolio at that date, up
from approximately 73% at the end of 1996. The Company's efforts to expand its
home equity loan portfolio continue to be impacted by a high level of principal
repayments. At June 30, 1997, unused home equity lines of credit amounted to
approximately $385 million.
The Company's business loans receivable amounted to $50.0 million at June
30, 1997. This represents a 17.5% increase from the $43.1 million outstanding at
December 31, 1996.
Deposits
At June 30, 1997, the Bank operated 91 branches, comprised of 90 branches in
the greater New York metropolitan area and one branch in Florida. The Company
experienced deposit growth of $478.5 million, or 3.7%, since December 31, 1996,
largely due to the BFS Acquisition. In connection with this acquisition, the
Company acquired five New York City branches and $447.1 million of deposits. At
June 30, 1997, approximately 66% of the Bank's deposits were assessable by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC")
and approximately 34% of its deposits were assessable by the Savings Association
Insurance Fund of the FDIC, in each case insured up to applicable limits.
The following table sets forth a summary of the Company's deposits at June
30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
===========================================================================
June 30, 1997 December 31, 1996
---------------------------------------------------
Percentage Percentage
(Dollars in thousands) Amount of Total Amount of Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand $ 1,264,283 9.5% $ 1,130,863 8.8%
Savings 2,528,559 19.0 2,460,367 19.1
Money market 1,942,830 14.5 2,007,448 15.6
Time 7,599,527 57.0 7,258,061 56.5
- ---------------------------------------------------------------------------
Total deposits $13,335,199 100.0% $12,856,739 100.0%
===========================================================================
</TABLE>
Borrowed Funds
The Company's total borrowed funds were $5.5 billion at June 30, 1997, an
increase of $685.1 million, or 14.2%, from the level at December 31, 1996. This
increase reflects the funding of the Company's asset growth, including through
the BFS Acquisition, together with the issuance of the Series A Capital
Securities.
The following table summarizes the Company's total borrowed funds at June
30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
===========================================================================================
June 30, 1997 December 31, 1996
---------------------------------------------------
Percentage Percentage
(Dollars in thousands) Amount of Total Amount of Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under agreements to
repurchase $4,265,905 77.5% $3,550,234 73.7%
FHLBNY advances 688,218 12.5 925,139 19.2
Senior notes 197,693 3.6 197,584 4.1
Series A Capital Securities 196,477 3.6 -- --
Other 151,991 2.8 142,234 3.0
- -------------------------------------------------------------------------------------------
Total borrowed funds $5,500,284 100.0% $4,815,191 100.0%
===========================================================================================
</TABLE>
Securities sold under agreements to repurchase are subject to various risks,
including those relating to the financial strength of the counterparty to the
transaction and the difference between the carrying value of the securities sold
and the amount of funds obtained. The Company monitors the risks associated with
its securities sold under agreements to repurchase on an ongoing basis.
During the second quarter of 1997, Dime Capital, in an underwritten public
offering, issued $200.0 million in principal amount of Series A Capital
Securities, representing preferred beneficial interests in Dime Capital. For a
further discussion of the Series A Capital Securities, see Note 3 of Notes to
Consolidated Financial Statements.
29
<PAGE>
Stockholders' Equity
Stockholders' equity amounted to $1.1 billion at June 30, 1997, an increase
of $37.0 million from December 31, 1996. Although the Company recorded net
income of $60.7 million during the six months ended June 30, 1997, growth in
stockholders' equity was limited principally by the $27.5 million cost of
1,655,200 shares of Common Stock repurchased during the period in connection
with a repurchase program announced during the 1996 fourth quarter and a cash
dividend declared in April 1997 on the Common Stock (see below). At June 30,
1997, stockholders' equity represented 5.27% of total assets and tangible
stockholders' equity represented 5.04% of total tangible assets, as compared
with 5.42% and 5.37%, respectively, at the end of 1996. The Company's book value
per common share and tangible book value per common share amounted to $10.21 and
$9.74, respectively, at June 30, 1997, as compared with $9.76 and $9.67,
respectively, at December 31, 1996.
The Common Stock repurchase program announced during the fourth quarter of
1996 was completed early in the third quarter of 1997. In total, 5,413,000
shares of Common Stock were repurchased under this program at an average cost
per share of $15.82.
In June 1997, the Holding Company, in connection with the NAMC Acquisition,
announced a program to repurchase up to approximately 6.9 million additional
shares of Common Stock. Such repurchases will be made over time at prevailing
prices in the open market or in privately-negotiated transactions.
On April 25, 1997, the Board of Directors of the Holding Company declared a
cash dividend on the Common Stock of $0.04 per share, which resulted in a $4.2
million reduction in stockholders' equity. This dividend was paid on June 16,
1997. On July 24, 1997, the Holding Company's Board of Directors declared an
additional cash dividend of $0.04 per share on the Common Stock, which is
expected to be paid on September 8, 1997 to holders of record of the Common
Stock as of the close of business on August 14, 1997.
LIQUIDITY
The liquidity position of the Company is managed pursuant to established
policies and guidelines and is monitored on a continuous basis. The Company's
liquidity management process focuses on ensuring that sufficient funds exist to
meet deposit withdrawals, loan and investment funding commitments, the repayment
of borrowed funds, and other obligations and expenditures.
The Company's sources of liquidity include principal repayments on loans and
MBS, borrowings through securities sold under agreements to repurchase and the
FHLBNY, deposits, sales of loans in connection with mortgage banking activities,
sales of securities available for sale, and net cash provided by operations.
Additionally, the Company has access to the capital markets for issuing debt or
equity securities, as well as access to the discount window of the Federal
Reserve Bank of New York, if necessary, for the purpose of borrowing to meet
temporary liquidity needs, although it has not utilized this funding source in
the past.
Excluding funds raised through the capital markets, the primary source of
funds of the Holding Company, on an unconsolidated basis, has been dividends
from the Bank, whose ability to pay dividends is subject to regulations of the
Office of Thrift Supervision ("OTS"), its primary regulator. During the first
six months of 1997, the Bank paid dividends of $64.0 million to the Holding
Company.
On May 6, 1997, Dime Capital issued $200.0 million of Series A Capital
Securities, representing preferred beneficial interests in Dime Capital, in an
underwritten public offering and $6.2 million of beneficial interests
represented by its common securities to the Holding Company. In connection
therewith, Dime Capital purchased $206.2 million of Series A Subordinated
Debentures from the Holding Company.
Pursuant to regulations promulgated by the OTS, the Bank is required to
maintain (i) a ratio of average eligible liquid assets for the month to the sum
of average net withdrawable accounts and short-term borrowings during the
preceding month of at least 5.0% and (ii) a ratio of average eligible short-term
liquid assets for the month to the sum of average net withdrawable accounts and
short-term borrowings during the preceding month of
30
<PAGE>
at least 1.0%. For the month of June 1997, the Bank's average liquidity ratio
was 5.1% and its average short-term liquidity ratio was 4.5%.
REGULATORY CAPITAL
Pursuant to OTS regulations, the Bank is required to maintain tangible
capital of at least 1.50% of adjusted total assets, leverage capital of at least
3.00% of adjusted total assets, and total risk-based capital of at least 8.00%
of risk-weighted assets (the "Capital Adequacy Regulations"). As detailed in the
table below, the Bank was in compliance with the Capital Adequacy Regulations at
June 30, 1997.
Under the prompt corrective action regulations adopted by the OTS pursuant
to the Federal Deposit Insurance Corporation Improvement Act of 1991, an
institution is considered well capitalized, the highest of five categories, if
it has a leverage capital ratio of at least 5.00%, a tier 1 risk-based capital
ratio (leverage capital to risk-weighted assets) of at least 6.00%, and a total
risk-based capital ratio of at least 10.00%, and it 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. At June 30,
1997, the Bank met the published standards for a well capitalized designation
under these regulations.
The following table sets forth the regulatory capital position of the Bank
at June 30, 1997 and December 31, 1996. The declines in the Bank's regulatory
capital ratios from year-end 1996 to June 30, 1997 reflected asset growth during
the period, due in part to the BFS Acquisition, coupled with the deduction from
regulatory capital of the goodwill arising from the BFS Acquisition.
<TABLE>
<CAPTION>
==============================================================================
Bank Regulatory Capital
---------------------------------------------------
June 30, 1997 December 31, 1996
---------------------------------------------------
(Dollars in thousands) Amount Ratio /(1)/ Amount Ratio /(1)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible capital $1,130,652 5.66% $1,139,443 6.06%
Leverage capital 1,130,652 5.66 1,139,443 6.06
Tier 1 risk-based capital 1,130,652 11.05 1,139,443 11.96
Total risk-based capital 1,231,678 12.03 1,245,938 13.08
==============================================================================
</TABLE>
(1) The tangible capital and leverage capital ratios are to adjusted total
assets of $20.0 billion and $18.8 billion at June 30, 1997 and December 31,
1996, respectively. The tier 1 risk-based capital and total risk-based
capital ratios are to total risk-weighted assets of $10.2 billion and $9.5
billion at June 30, 1997 and December 31, 1996, respectively.
31
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 13, 1995, Anchor Savings filed suit in the United States Court of
Federal Claims against the United States for breach of contract and taking of
property without compensation in contravention of the Fifth Amendment to the
United States Constitution. The action arose because the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the regulations adopted by the OTS pursuant to FIRREA deprived Anchor
Savings of the ability to include supervisory goodwill and certain other assets
for purposes of computing its regulatory capital as the Federal Savings and Loan
Insurance Corporation ("FSLIC") had agreed it could. The direct effect was to
cause Anchor Savings to go from an institution that substantially exceeded its
regulatory capital requirements to one that was critically undercapitalized upon
the effectiveness of the FIRREA-mandated capital requirements.
From 1982 to 1985, Anchor Savings had acquired eight FSLIC-insured
institutions that were in danger of failing and causing a loss to the FSLIC.
Four institutions were acquired with some financial assistance from the FSLIC
and four were unassisted "supervisory" cases. In acquiring the institutions,
Anchor Savings assumed liabilities determined to exceed the assets it acquired
by over $650 million at the dates of the respective acquisitions. The difference
between the fair values of the assets acquired and the liabilities assumed in
the transactions were recorded on Anchor Savings' books as goodwill. At the time
of these acquisitions, the FSLIC had agreed that this supervisory goodwill was
to be amortized over periods of up to 40 years. Without that agreement, Anchor
Savings would not have made the acquisitions. When the capital regulations
imposed under FIRREA became effective, Anchor Savings still had over $518
million of supervisory goodwill on its books and approximately 20 years
remaining to amortize it under the agreements with FSLIC. The FIRREA-mandated
capital requirements excluded all but approximately $124 million of Anchor
Savings' supervisory goodwill, over $42 million attributable to the FSLIC
contribution in one acquisition, and, until the formation of Anchor Bancorp,
Inc. in 1991, $157 million associated with preferred stock issued to the FSLIC
as a result of one of the acquisitions. FIRREA also required the remaining
supervisory goodwill to be eliminated by December 31, 1994 for regulatory
capital purposes. The elimination of the supervisory goodwill resulted in severe
limitations on Anchor Savings' activities and required the disposition of
valuable assets under liquidation-like circumstances, as a result of which
Anchor Savings was damaged. The complaint asks that the government make Anchor
Savings whole for the effects of the loss, which are estimated to exceed
substantially the goodwill remaining at the time FIRREA was enacted.
There are approximately 130 cases involving similar issues 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. Those
cases, referred to as the Winstar cases, were appealed to the United States
Supreme Court, which, on July 1, 1996, affirmed the decision that the government
was liable for breach of contract.
All of the Winstar-related cases, including Anchor Savings' lawsuit (which
was assumed by the Bank upon consummation of the Anchor Merger), have been
assigned to the Chief Judge of the Court of Federal Claims. The Chief Judge has
issued an Omnibus Case Management Order ("OCMO") that controls the proceedings
in all these cases, which imposes procedures and schedules different from most
cases in the Court of Federal Claims. Under the OCMO, the Bank has moved for
partial summary judgment as to the existence of a contract and the inconsistency
of the government's actions with that contract in each of the related
transactions. The government has disputed the existence of a contract in each
case and cross-moved for summary judgment. The government also submitted a
filing acknowledging that it is not aware of any affirmative defenses. Briefing
on the motions was completed on August 1, 1997, but no timetable has been set
for disposition of the Bank's motions and the government cross-motions. In
August 1997, the Court held a hearing on summary judgment motions in four other
cases. As part of that hearing, the Court heard argument on eleven issues that
the plaintiffs contend are common to many of the pending cases, including the
Bank's case. The Court indicated it would issue its order on those common issues
in early September 1997. If the Court's rulings are favorable, the Bank expects
to avail itself of a procedure to have those determinations applied in its case
as part of the determination of its pending summary judgment motions. It is not
possible to predict whether any of the Bank's partial summary judgment motions
will
32
<PAGE>
be granted or, if so, when the Chief Judge will schedule a trial on damages
and any remaining liability issues.
The Court has ordered that certain discovery proceed during the last five
months of 1997. The government is required to produce certain documents relating
to unassisted acquisitions of failing institutions effected by the Bank and five
other plaintiffs. In addition, the Court has directed that full discovery of
facts common to all pending cases be conducted. Such discovery will include
materials concerning the policies and procedures of the Federal Home Loan Bank
Board (the predecessor of the OTS) and the FSLIC during the thrift crisis of the
1980's, when the transactions that are the subject of the litigation occurred.
In addition, the common discovery will include generally applicable information
concerning the operations of the FSLIC that will be relevant under certain
damage theories.
Commencing in January 1998, the oldest 30 of the pending cases (after
excluding certain specific cases) that elect to proceed will be allowed to
commence full discovery as to liability and damages in their cases. The case-
specific discovery will continue for one year, unless extended by the Court. The
second 30 cases will start discovery in 1999, and so on. Discovery of damage
experts will follow the fact discovery in each case. Cases will not be assigned
to trial judges until after the fact discovery is completed. The Bank believes
the date on which it filed its complaint will place it about 36th among the
cases. Consequently, if six or more of the cases filed earlier elect not to
proceed at this time, the Bank will be among the cases to commence full
discovery in January 1998. Since a number of the cases filed prior to the Bank's
claim have not been actively prosecuted, the Bank believes there is a reasonable
possibility that its case will be among the first 30 to start discovery.
There have been no decisions determining damages in any of the Winstar-
related cases. The trial in the first of the Winstar-related cases to proceed to
trial on damages is expected to be concluded by the end of 1997, and the second
is scheduled to commence in January 1998. It is likely that any determination of
damages by the Court of Federal Claims will be appealed. It is impossible to
predict the measure of damages that will be upheld in cases in which liability
is found. The Company, nevertheless, believes that its claim is meritorious,
that it is one of the more significant cases before the Court, and that it is
entitled to damages, that, as noted, are estimated to exceed substantially the
goodwill remaining on Anchor Savings' books at the time FIRREA was enacted.
ITEM 2. CHANGES IN SECURITIES
As previously stated herein, on May 6, 1997, Dime Capital issued the Series
A Capital Securities in a public offering. The proceeds of this offering were
used to purchase the Series A Subordinated Debentures of the Holding Company.
The Series A Subordinated Debentures were issued pursuant to the terms of
the Junior Subordinated Indenture, dated as of May 6, 1997, between the Holding
Company and The Chase Manhattan Bank ("Chase"), as trustee (the "Indenture"). In
addition, the Holding Company is a party to a Guarantee Agreement, dated as of
May 6, 1997, with Chase, as guarantee trustee (the "Guarantee"), with respect to
Dime Capital.
Under the terms of the Indenture, the Holding Company is generally
prohibited from taking certain actions, including declaring or paying any
dividends or distributions on, or repurchasing any, Common Stock if, at the time
thereof: (i) there has occurred a default under the Indenture and the Holding
Company has not taken affirmative steps to cure such default; (ii) the Holding
Company is in default with respect to its payment of any obligations under the
Guarantee; or (iii) the Holding Company elects to defer the payment of interest
on the Series A Subordinated Debentures as allowed under the terms of the
Indenture.
33
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Holding Company's Annual Meeting of Stockholders was held on May 7, 1997
(the "Annual Meeting"). The following matters received the number of affirmative
votes, negative votes, withheld votes, abstentions, and broker non-votes set
forth below.
(a) Election of five directors:
The following individuals were duly elected as directors of the Holding
Company for three year terms:
<TABLE>
<CAPTION>
Affirmative Withheld
Votes Votes
----------- ---------
<S> <C> <C>
J. Barclay Collins II 84,710,119 1,451,645
James F. Fulton 84,641,329 1,520,435
Virginia M. Kopp 84,619,393 1,542,371
Salley Hernandez-Pinero 84,631,346 1,530,418
Lawrence J. Toal 84,724,262 1,437,502
</TABLE>
(b) The approval of the Dime Bancorp, Inc. 1997 Stock Incentive Plan for Outside
Directors was ratified after receiving 70,366,197 affirmative votes, which
was more than a majority of the shares of Common Stock represented, in
person or by proxy, at the Annual Meeting. This proposal also received
13,468,575 negative votes and 0 withheld votes, with 2,326,992 abstentions
and 0 broker non-votes.
(c) The appointment of KPMG Peat Marwick LLP as independent public accountants
was ratified after receiving 84,969,588 affirmative votes, which was more
than a majority of the shares of Common Stock represented, in person or by
proxy, at the Annual Meeting. This proposal also received 285,550 negative
votes and 0 withheld votes, with 906,626 abstentions and 0 broker non-votes.
ITEM 5. OTHER INFORMATION
During the second quarter of 1997, the Company announced that Anthony R.
Burriesci was appointed Chief Financial Officer of the Holding Company and the
Bank, effective as of July 1, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 2 -- NAMC Merger Agreement
Exhibit 3 -- By-laws of the Holding Company
Exhibit 27 -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
On April 23, 1997, the Holding Company filed with the Securities and
Exchange Commission (the "Commission") a Current Report on Form 8-K, which
reported that, on April 22, 1997, it issued a press release announcing its
preliminary financial results for the first quarter of 1997.
On April 25, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, on April 25, 1997, it
issued a press release announcing that its Board of Directors declared a
cash dividend of $0.04 per share on the Common Stock to be paid on June 16,
1997 to stockholders of record as of the close of business on May 16, 1997.
On May 9, 1997, the Holding Company filed with the Commission a Current
Report on Form 8-K, which reported that, on May 1, 1997, it had issued a
press release announcing the consummation of the BFS Acquisition.
34
<PAGE>
On June 16, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, on May 6, 1997, Dime
Capital issued the Series A Capital Securities.
On June 23, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, (i) on June 22, 1997, the
Holding Company, the Bank, and NAMC entered into a definitive agreement
providing for the acquisition of NAMC by the Holding Company (the "Original
NAMC Merger Agreement") and (ii) the Holding Company, in connection with
the NAMC Acquisition, announced, in a press release dated June 23, 1997, a
program to repurchase up to 6.9 million shares of Common Stock.
On June 27, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which attached a copy of the Original NAMC
Merger Agreement.
35
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIME BANCORP, INC.
(Registrant)
Dated: August 13,1997 By: /s/ Lawrence J. Toal
-------------- --------------------
Lawrence J. Toal
Chief Executive Officer, President
and Chief Operating Officer
Dated: August 13, 1997 By: /s/ Anthony R. Burriesci
--------------- ------------------------
Anthony R. Burriesci
Executive Vice President
and Chief Financial Officer
36
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------ -------------------------
2 NAMC Merger Agreement
3 By-laws of the Holding Company
27 Financial Data Schedule (filed electronically only)
37
<PAGE>
================================================================================
AGREEMENT AND PLAN OF COMBINATION
dated as of June 22, 1997
by and among
NORTH AMERICAN MORTGAGE COMPANY
DIME BANCORP, INC.
THE DIME SAVINGS BANK OF NEW YORK, FSB
and
47TH ST. PROPERTY CORPORATION
______________
AMENDED AND RESTATED
as of
July 31, 1997
______________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
RECITALS....................................................... 1
ARTICLE I
Certain Definitions; Interpretation............................ 1
1.01 Certain Definitions.................................. 1
1.02 Interpretation....................................... 10
ARTICLE II
The Merger..................................................... 10
2.01 The Merger........................................... 10
2.02 Reservation of Right to Revise Structure............. 11
2.03 Effective Time....................................... 11
ARTICLE III
Consideration.................................................. 11
3.01 Consideration........................................ 11
3.02 Rights as Stockholders; Stock Transfers.............. 12
3.03 Fractional Shares.................................... 12
3.04 Exchange Procedures.................................. 12
3.05 Anti-Dilution Provisions............................. 14
3.06 Options.............................................. 14
ARTICLE IV
Actions Pending the Merger..................................... 16
4.01 Forbearances of the Company.......................... 16
4.02 Forbearances of the Acquiror......................... 19
4.03 Coordination of Dividends............................ 20
ARTICLE V
Representations and Warranties................................. 20
5.01 Disclosure Schedules................................. 20
5.02 Standard............................................. 20
5.03 Representations and Warranties of the Company........ 20
5.04 Representations and Warranties of the Acquiror....... 37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VI
Covenants...................................................... 43
6.01 Reasonable Best Efforts.............................. 43
6.02 Stockholder Approvals................................ 43
6.03 Registration Statement............................... 43
6.04 Press Releases....................................... 44
6.05 Access; Information.................................. 44
6.06 Acquisition Proposals................................ 45
6.07 Affiliate Agreements................................. 46
6.08 Takeover Laws........................................ 46
6.09 No Rights Triggered.................................. 46
6.10 Rights Agreement..................................... 46
6.11 NYSE Listing......................................... 47
6.12 Regulatory Applications.............................. 47
6.13 Indemnification...................................... 47
6.14 Benefit Plans........................................ 49
6.15 Accountants' Letters................................. 50
6.16 Notification of Certain Matters...................... 50
6.17 Certain Policies of the Company...................... 50
6.18 Employee Benefits.................................... 51
6.19 Certain Payments at Effective Time................... 51
6.20 Certain Employee Agreements.......................... 52
ARTICLE VII
Conditions to Consummation of the Merger....................... 52
7.01 Conditions to Each Party's Obligation to Effect the.. 52
7.02 Conditions to Obligation of the Company.............. 53
7.03 Conditions to Obligation of the Acquiror............. 54
ARTICLE VIII
Termination.................................................... 55
8.01 Termination.......................................... 55
8.02 Effect of Termination and Abandonment................ 57
8.03 Termination Fee...................................... 57
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IX
Miscellaneous.................................................. 59
9.01 Survival............................................. 59
9.02 Waiver; Amendment.................................... 60
9.03 Counterparts......................................... 60
9.04 Governing Law........................................ 60
9.05 Expenses............................................. 60
9.06 Notices.............................................. 60
9.07 Entire Understanding; No Third Party Beneficiaries... 61
</TABLE>
EXHIBIT A Form of Amendment to Company Rights Agreement
EXHIBIT B Form of Company Affiliate Letter
-iii-
<PAGE>
AGREEMENT AND PLAN OF COMBINATION, dated as of June 22, 1997 and
amended and restated as of July 31, 1997 (this "Agreement"), by and among North
American Mortgage Company (the "Company"), Dime Bancorp, Inc. (the "Acquiror"),
The Dime Savings Bank of New York, FSB (the "Bank"), and 47th St. Property
Corporation ("Merger Sub").
RECITALS
A. The Company. The Company is a Delaware corporation, having
its principal place of business in Santa Rosa, California.
B . The Acquiror. The Acquiror is a Delaware corporation,
having its principal place of business in New York, New York.
C. The Bank. The Bank is a federal savings bank and a wholly
owned subsidiary of the Acquiror, having its principal place of business in New
York, New York.
D. Merger Sub. Merger Sub is a Delaware corporation and a
wholly owned subsidiary of the Bank. Merger Sub has engaged in no business
other than as an incident to the transactions contemplated by this Agreement.
E. Intentions of the Parties. It is the intention of the
parties to this Agreement that the business combination contemplated hereby be
treated as a "reorganization" under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
F. Board Action. The respective Boards of Directors of each of
Acquiror, the Bank and the Company have determined that it is in the best
interests of their respective companies and their stockholders to consummate the
business combination transaction provided for in this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS; INTERPRETATION
1.01 Certain Definitions. The following terms are used in this
Agreement with the meanings set forth below:
"Acquiror" has the meaning set forth in the preamble to this
Agreement.
"Acquiror Certificate" means the Amended and Restated Certificate of
Incorporation of the Acquiror.
<PAGE>
"Acquiror Common Stock" means the common stock, par value $0.01 per
share, of the Acquiror.
"Acquiror Person" has the meaning set forth in Section 8.03(b).
"Acquiror Preferred Stock" means the preferred stock, par value $1.00
per share, of the Acquiror.
"Acquiror Rights" means the rights to purchase Acquiror Stock
outstanding from time to time pursuant to the Acquiror Rights Agreement.
"Acquiror Rights Agreement" means the Stockholders Protection Rights
Agreement, dated as of October 20, 1995, between the Acquiror and the First
National Bank of Boston, as Rights Agent.
"Acquiror Stock" means, collectively, the Acquiror Common Stock and
the Acquiror Preferred Stock.
"Acquiror's SEC Documents" has the meaning set forth in Section
5.04(g).
"Acquisition Transaction" means (i) a merger or consolidation, or any
similar transaction, involving the Company or any subsidiary of it (other
than mergers, consolidations or similar transactions involving solely the
Company and/or one or more wholly-owned subsidiaries of the Company;
provided that any such transaction is not entered into in violation of the
terms of this Agreement), (ii) a purchase, lease or other acquisition of
all or any substantial part of the assets or deposits of the Company or any
subsidiary of it, or (iii) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of securities
representing 15% or more of the voting power of the Company or any
subsidiary of it.
"Agency" means the HUD, FHA, VA, FNMA, FHLMC, GNMA or a State Agency,
as applicable.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Average Closing Price" means the average of the daily last sale
prices of Acquiror Common Stock as reported on the NYSE Composite
Transactions Reporting System (as reported in The Wall Street Journal or,
if not reported therein, in another authoritative source) for the ten
consecutive NYSE full trading days (in which such shares are traded on the
NYSE) ending at the close of trading on the Determination Date.
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<PAGE>
"Bank" has the meaning set forth in the preamble to this Agreement.
"Code" has the meaning set forth in Recital D.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Affiliate" has the meaning set forth in Section 6.07.
"Company Board" means the Board of Directors of the Company.
"Company By-Laws" means the Amended and Restated By-laws of the
Company.
"Company Certificate" means the Amended and Restated Certificate of
Incorporation of the Company.
"Company Common Stock" means the common stock, par value $0.01 per
share, of the Company.
"Company Convertible Preferred Stock" means the $0.20 Series A
Convertible Preferred Stock of the Company.
"Company Meeting" has the meaning set forth in Section 6.02.
"Company Preferred Stock" means the preferred stock, par value $0.01
per share, of the Company.
"Company Rights" means the rights to purchase Company Stock
outstanding from time to time pursuant to the Company Rights Agreement.
"Company Rights Agreement" means the Shareholder Rights Agreement,
dated as of October 19, 1992, between the Company and The Bank of New York,
as Rights Agent.
"Company Stock" means, collectively, the Company Common Stock and the
Company Preferred Stock.
"Company Stock Option" means each outstanding option to purchase
shares of Company Common Stock.
"Company's SEC Documents" has the meaning set forth in Section
5.03(g).
"Compensation and Benefit Plans" has, with respect to any person, the
meaning set forth in Section 5.03(l).
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<PAGE>
"Consideration" has the meaning set forth in Section 3.01.
"Contract" means, with respect to any person, any agreement,
indenture, undertaking, debt instrument, contract, lease or other
commitment to which such person or any of its Subsidiaries is a party or by
which any of them is bound or to which any of their properties is subject.
"Costs" has the meaning set forth in Section 6.13(a).
"Determination Date" means the date of receipt of all OTS approvals
necessary to consummate the Merger.
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"DOL" means the United States Department of Labor.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the date and time at which the Merger becomes
effective.
"Environmental Laws" means any federal, state or local law,
regulation, order, decree, permit, authorization, common law or agency
requirement with force of law relating to: (a) the protection or
restoration of the environment, health or safety (in each case as relating
to the environment) or natural resources; or (b) the handling, use,
presence, disposal, release or threatened release of any Hazardous
Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has, with respect to any person, the meaning set
forth in Section 5.03(l).
"ERISA Affiliate Plan" has the meaning set forth in Section 5.03(l).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
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<PAGE>
"FDIC" means the Federal Deposit Insurance Corporation.
"Fee" has the meaning set forth in Section 8.03(a).
"Fee Termination Event" has the meaning set forth in Section 8.03(a).
"Fee Trigger Event" has the meaning set forth in Section 8.03(c).
"FHA" means the Federal Housing Administration.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FHMA" means the Farmers' Home Mortgage Administration.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Hazardous Substance" means any substance in any concentration that
is: (a) listed, classified or regulated pursuant to any Environmental Law;
(b) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (c) any other substance which is or may be the
subject of regulatory action by any Governmental Authority pursuant to any
Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"HUD" means the United States Department of Housing and Urban
Development.
"Indemnified Party" has the meaning set forth in Section 6.13(a).
"Index Group" means the group of the eighteen (18) companies listed
below, the common stock of all of which shall be publicly traded and as to
which there shall not have been, since the Starting Date and before the
Determination Date, an announcement of a proposal for the acquisition or
sale of such company. In the event that the common stock of any such
company ceases to be publicly traded or any such announcement is made with
respect to any such company, such company will be removed from the Index
Group, and the weights (which have been determined based on market
capitalization)
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<PAGE>
redistributed proportionately for purposes of determining the Index Price.
The eighteen (18) companies and the weights attributed to them are as
follows:
<TABLE>
<CAPTION>
Company Weighting Ticker
------- ---------- ------
<S> <C> <C>
Ahmanson & Company (H.F.) 14.0 AHM
Astoria Financial Corporation 2.8 ASFC
Bank United Corp. 3.5 BNKU
Commercial Federal Corporation 2.4 CFB
Charter One Financial 7.1 COFI
Coast Savings Financial 2.7 CSA
Downey Financial Corp. 1.8 DSL
Golden West Financial 12.5 GDW
Glendale Federal Bank FSB 4.2 GLN
GreenPoint Financial Corp. 9.2 GPT
Long Island Bancorp Inc. 2.6 LISB
New York Bancorp Inc. 2.7 NYB
Peoples Heritage Finl Group 3.0 PHBK
Roslyn Bancorp Inc. 2.5 RSLN
St. Paul Bancorp Inc. 2.3 SPBC
Sovereign Bancorp Inc. 3.0 SVRN
Washington Mutual Inc. 21.0 WAMU
Washington Federal Inc. 3.9 WFSL
-----
100.0%
</TABLE>
"Index Price" means, on a given date, the weighted average (weighted
in accordance with the factors listed in the definition of "Index Group")
of the closing prices on such date of the common stocks of the companies
composing the Index Group.
"Insurance Amount" has the meaning set forth in Section 6.13(b).
"Insurer" means a person who insures or guarantees all or any portion
of the risk of loss upon borrower default on any of the Loans, including,
without limitation, the FHA, the VA and any private mortgage insurer, and
providers of life, hazard, flood, disability, title or other insurance with
respect to any of the Loans or the collateral therefor.
"Investor" means (i) the FHLMC, the FNMA, the GNMA, or any other
person, as the case may be, that owns any of the Loans or any portion of a
Pool of Loans or holds beneficial title to the Loans or any portion of a
Pool of Loans, but shall not mean the holder of mortgage-backed securities
or mortgage pass-through securities except to the extent that the consent
of such holder may be required in order for the Company or any of
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<PAGE>
its Subsidiaries to continue to have servicing rights with respect to the
Loans related thereto and (ii) any person who owns servicing rights for
loans serviced or master serviced by the Company or any of its Subsidiaries
pursuant to a Loan Servicing Agreement.
"Investor Commitment" means any commitment of a person to purchase
Loans from the Company or any of its Subsidiaries.
"IRS" means the United States Internal Revenue Service.
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Listed Termination" means a termination of this Agreement (i) by the
Acquiror pursuant to Section 8.01(b) because of a knowing, intentional or
grossly negligent breach by the Company, (ii) by the Acquiror pursuant to
Section 8.01(e) or (iii) by the Company pursuant to Section 8.01(f), in
each case, unless at the time of such termination (A) the Company is
entitled to terminate this Agreement pursuant to Section 8.01(b) because of
a knowing, intentional or grossly negligent breach by the Acquiror and (B)
the Company shall have notified the Acquiror in writing of such breach.
"Loan" has the meaning set forth in Section 5.03(t).
"Loan Servicing Agreement" has the meaning set forth in Section
5.03(t).
"Material Adverse Effect" means, with respect to the Acquiror or the
Company, any effect that (i) is material and adverse to the financial
position, results of operations or business of the Acquiror and its
Subsidiaries taken as a whole, or the Company and its Subsidiaries taken as
a whole, respectively, or (ii) would materially impair the ability of
either the Acquiror or the Company to perform its obligations under this
Agreement or otherwise materially threaten or materially impede the
consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to savings associations and
their holding companies generally and (c) events or conditions generally
adversely affecting the mortgage banking industry, including general
changes in interest rates and other changes in general business or economic
conditions.
"Merger" has the meaning set forth in Section 2.01.
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<PAGE>
"Multiemployer Plan" means, with respect to any person, a
multiemployer plan within the meaning of Section 3(37) of ERISA.
"New Certificates" has the meaning set forth in Section 3.04.
"NYSE" means the New York Stock Exchange, Inc.
"Old Certificates" has the meaning set forth in Section 3.04.
"OTS" means the Office of Thrift Supervision.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has, with respect to any person, the meaning set forth
in Section 5.03(l).
"person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Pool" means a pool of Loans originated, acquired or serviced by the
Company or any of its Subsidiaries.
"Preliminary Fee Trigger Event" has the meaning set forth in Section
8.03(b).
"Previously Disclosed" means, with respect to the Company or the
Acquiror, information set forth in such party's Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03.
"Registration Statement" has the meaning set forth in Section 6.03.
"Representatives" means, with respect to any person, such person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
-8-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Securitization Instruments" has the meaning set forth in Section
5.03(t).
"Securitization Servicer" has the meaning set forth in Section
5.03(t).
"Securitization Transaction" has the meaning set forth in Section
5.03(t).
"Serviced Loans" has the meaning set forth in Section 5.03(t).
"Starting Date" means June 20, 1997.
"Starting Price" shall mean $19.00.
"State Agency" means any state agency with authority to regulate the
business of the Company, determine the investment or servicing requirements
with regard to loans originated, purchased or serviced by the Company, or
otherwise participate in or promote mortgage lending.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Takeover Laws" has the meaning set forth in Section 5.03(n).
"Taxes" means all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, goods and services,
capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority whether arising before, on or after the Effective Date.
"Tax Returns" has the meaning set forth in Section 5.03(q).
"Treasury Stock" has the meaning set forth in Section 5.03(b).
"Warehouse Loans" has the meaning set forth in Section 5.03(t).
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<PAGE>
1.02 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require the Company, the Acquiror or any of their respective
Subsidiaries or affiliates to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
ARTICLE II
THE MERGER
2.01 The Merger. (a) Subject to and upon the terms and conditions of
this Agreement, at the Effective Time, Merger Sub shall merge with and into the
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and the Company shall survive and continue to exist as a Delaware
corporation (the Company, as the surviving corporation in the Merger, sometimes
being referred to herein as the "Surviving Corporation").
(b) Effectiveness and Effects of the Merger. Subject to the
---------------------------------------
satisfaction or waiver of the conditions set forth in Article VII, the Merger
shall become effective upon the filing in the office of the Secretary of State
of the State of Delaware of a certificate of merger in accordance with Section
251 of the Delaware General Corporation Law (the "DGCL"), or at such later date
and time as may be set forth in such articles and certificate. The Merger shall
have the effects prescribed in the DGCL.
(c) Certificate of Incorporation and By-Laws. The certificate of
----------------------------------------
incorporation and by-laws of the Surviving Corporation shall be, respectively,
the certificate of incorporation of the Company, as in effect immediately prior
to the Effective Time, and the by-laws of the Company, as in effect immediately
prior to the Effective Time.
(d) Directors. At the Effective Time, the directors of the Surviving
---------
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, and such directors, together with any additional directors as
may thereafter be elected, shall hold such office until such time as their
successors shall be duly elected and qualified.
(e) Officers. At the Effective Time, the officers of the Surviving
--------
Corporation shall be the officers of Merger Sub immediately prior to the
Effective Time, together with any additional officers as may be agreed upon
prior thereto by the Acquiror and the Company or as may be appointed thereafter.
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<PAGE>
2.02 Reservation of Right to Revise Structure. At the Bank's
election, the Merger may alternatively be structured so that (i) the Company is
merged with and into Acquiror, the Bank, or any other direct or indirect wholly
owned subsidiary of Acquiror (provided, that in such event the Company makes no
representation as to whether any consents are required, or any agreements are
adversely affected, thereby) or (ii) any direct or indirect wholly owned
subsidiary of Acquiror (other than Merger Sub) is merged with and into the
Company; provided, however, that no such change shall (a) alter or change the
amount or kind of the Consideration or the treatment of the holders of Company
Stock Options, (b) adversely affect the tax treatment of the Company's
stockholders as a result of receiving the Consideration or prevent the parties
from obtaining the opinions of Simpson Thacher & Bartlett or Sullivan & Cromwell
referred to in Section 7.02(d) and 7.03(c), respectively, or (c) materially
impede or delay consummation of the transactions contemplated by this Agreement.
In the event of such an election, the parties agree to execute an appropriate
amendment to this Agreement in order to reflect such election.
2.03 Effective Time. Subject to the satisfaction or waiver of
the conditions set forth in Article VII, the parties shall cause the Merger to
become effective on the date that is (i) the fifth business day (the "Initial
Closing Date") to occur after the last of the conditions set forth in Sections
7.01, 7.02 or 7.03 shall have been satisfied or waived in accordance with the
terms of this Agreement (or, at the election of the Acquiror, on the last
business day of the month in which such day occurs; provided that, if the
Acquiror shall make such election, it shall waive the condition set forth in
Section 7.03(a) as to other than an intentional, knowing or grossly negligent
breach (so long as such condition is satisfied on the Initial Closing Date)).
ARTICLE III
CONSIDERATION
3.01 Consideration. Subject to the terms and conditions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any stockholder:
(a) Outstanding Company Common Stock. Each share, excluding Treasury
--------------------------------
Stock, of Company Common Stock, issued and outstanding immediately prior to
the Effective Time, together with the related Company Rights, shall become
and be converted into the right to receive 1.37 shares of Acquiror Common
Stock (together with the related Acquiror Rights) (subject to possible
adjustment as set forth in Sections 3.05 and 8.01(g), the "Exchange Ratio")
and the number of shares of Company Common Stock, excluding Treasury
Shares, issued and outstanding immediately prior to the Effective Time (the
"Consideration").
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<PAGE>
(b) Outstanding Merger Sub Common Stock. Each share of common stock,
-----------------------------------
par value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be unchanged and shall remain issued and
outstanding as one share of common stock of the Surviving Corporation.
(c) Treasury Shares. Each share of Company Stock held as Treasury
---------------
Stock (which includes all shares of Company Convertible Preferred Stock)
immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange
therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Company Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than the right to receive (a) any dividend or
other distribution with respect to such Company Stock with a record date
occurring prior to the Effective Time and (b) the consideration provided under
this Article III. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company or the Surviving Corporation of shares of
Company Stock.
3.03 Fractional Shares. Notwithstanding any other provision in
this Agreement, no fractional shares of Acquiror Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof, will be
issued in the Merger; instead, the Acquiror shall pay to each holder of Company
Common Stock who otherwise would be entitled to a fractional share of Acquiror
Common Stock (after taking into account all Old Certificates delivered by such
holder) an amount in cash (without interest) determined by multiplying such
fraction by the average of the last sale prices of Acquiror Common Stock, as
reported by the NYSE Composite Transactions Reporting System (as reported in The
Wall Street Journal or, if not reported therein, in another authoritative
source), for the five consecutive NYSE full trading days immediately preceding
the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective
Time, the Acquiror shall deposit, or shall cause to be deposited, with an
exchange agent appointed prior to the Effective Time by the Acquiror (the
"Exchange Agent"), as agent for the benefit of the holders of certificates
formerly representing shares of Company Common Stock ("Old Certificates"), for
exchange in accordance with this Article III, certificates representing the
shares of Acquiror Common Stock ("New Certificates") and an estimated amount of
cash (such cash and New Certificates, together with any dividends or
distributions with a record date occurring after the Effective Date with respect
thereto (without any interest on any such cash, dividends or distributions),
being hereinafter referred to as the "Exchange Fund") to be issued as
Consideration.
(b) As promptly as practicable after the Effective Date, the Surviving
Corporation shall send or cause to be sent to each former holder of record of
shares (other than Treasury Stock) of Company Common Stock immediately prior to
the Effective Time transmittal
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<PAGE>
materials for use in exchanging such stockholder's Old Certificates for Merger
Consideration. The Surviving Corporation shall cause the New Certificates into
which shares of a stockholder's Company Common Stock are converted on the
Effective Date and/or any check in respect of any fractional share interests or
dividends or distributions which such person shall be entitled to receive to be
delivered to such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Company Common Stock (or indemnity
satisfactory to the Surviving Corporation and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such stockholder; provided
that New Certificates and/or any such check shall not be issued to any Company
Affiliate unless and until such Company Affiliate has delivered an agreement
pursuant to Section 6.07. No interest will be paid on any Consideration,
including cash to be paid in lieu of fractional share interests, or in respect
of dividends or distributions which any such person shall be entitled to receive
pursuant to this Article II upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Company Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions on Acquiror Common Stock with
a record date occurring after the Effective Time shall be paid to the holder of
any unsurrendered Old Certificate representing shares of Company Common Stock
converted in the Merger into the right to receive shares of such Acquiror Common
Stock until the holder thereof shall be entitled to receive New Certificates in
exchange therefor in accordance with this Article III, and no such shares of
Company Common Stock shall be eligible to vote until the holder of Old
Certificates is entitled to receive New Certificates in accordance with this
Article III. After becoming so entitled in accordance with this Article III,
the record holder thereof also shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of Acquiror Common Stock such holder had
the right to receive upon surrender of the Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for six months after the Effective Time shall be
returned to the Acquiror. Any stockholders of the Company who have not
theretofore complied with this Article III shall thereafter look only to the
Acquiror for payment of the shares of Acquiror Common Stock, cash in lieu of any
fractional shares and unpaid dividends and distributions on the Acquiror Common
Stock deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
3.05 Anti-Dilution Provisions. Should the Acquiror change (or
establish a record date for changing) the number of shares of Acquiror Common
Stock issued and outstanding prior to the Effective Date by way of a stock
split, stock dividend, recapitalization or
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<PAGE>
similar transaction with respect to the outstanding Acquiror Common Stock and
the record date therefor shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately adjusted.
3.06 Options. (a) At the Effective Time, each Company Stock
Option shall cease to represent a right to acquire shares of Company Common
Stock and shall be converted automatically into an option to purchase shares of
Acquiror Common Stock, and Acquiror shall assume each such Company Stock Option
subject to the terms thereof; provided, however, that from and after the
Effective Time, (i) the number of shares of Acquiror Common Stock purchasable
upon exercise of such Company Stock Option shall be equal to the number of
shares of Company Common Stock that were purchasable under such Company Stock
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
and rounding to the nearest whole share, and (ii) the per share exercise price
under each such Company Stock Option shall be adjusted by dividing the per share
exercise price of each such Company Stock Option by the Exchange Ratio, and
rounding down to the nearest cent. The terms of each Company Stock Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction with respect to Acquiror Common Stock on or subsequent
to the Effective Date. Notwithstanding the foregoing, each Company Stock Option
which is intended to be an "incentive stock option" (as defined in Section 422
of the Code) shall be adjusted in accordance with the requirements of Section
424 of the Code. Accordingly, with respect to any incentive stock options,
fractional shares shall be rounded down to the nearest whole number of shares
and where necessary the per share exercise price shall be rounded down to the
nearest cent.
(b) In order to effectuate the adjustment of the Company Stock Options
provided for in the proviso to Section 3.06(a), the Company represents and
warrants to, and agrees with, the Acquiror that the Company (or as appropriate,
the Company Board) shall take all action required to be taken such that (i)
holders of Stock Options issued under the Company's Incentive Stock Option Plan
will not receive the cash payment for such Stock Options as provided in the
second sentence of Section 10 of such Plan (which shall be effected either by
resolving that this Agreement and the transactions contemplated hereby
(including the Company Meeting and any Merger) do not constitute a "Change of
Control" for purposes of such Section or by taking such other action with the
prior consent of Acquiror, provided that such other action is taken prior to the
date on which a "Change of Control" would otherwise occur in the absence of the
Company Board resolution to the contrary) and (ii) under Section 11 of the
Company's Incentive Stock Option Plan, at the Effective Time, all Company Stock
Options shall be adjusted as provided in Section 3.06(a) (and shall not be
canceled in exchange for payment as contemplated by clause (ii) of the first
sentence of that Section). Notwithstanding any other provision in this
Agreement, the Company shall be permitted to take such action or to cause such
action to be taken as may be required for each Company Stock Option (x) to fully
vest and become immediately exercisable at the Effective Time and (y) to remain
exercisable after the Effective Time for the remaining term of such Company
Stock Option, in both cases
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<PAGE>
notwithstanding the action of the Company referred to in the first sentence of
this Section 3.06(b).
(c) At or prior to the Effective Time, the Company shall take all
action necessary with respect to the Company's Incentive Stock Option Plan to
permit the assumption of the then outstanding Company Stock Options by Acquiror
pursuant to this Section. The Company shall take all action necessary,
including obtaining any required consents from optionees, to provide that
following the Effective Time no participant in the Company's Incentive Stock
Option Plan or other plans, programs or arrangements of the Company or any of
its Subsidiaries shall have any right thereunder to acquire equity securities of
the Company, the Surviving Corporation or any subsidiary thereof and to permit
Acquiror to assume the Company's Incentive Stock Option Plan. The Company shall
further take all action necessary to amend the Company's Incentive Stock Option
Plan to eliminate automatic grants or awards thereunder, if any, following the
Effective Time. At the Effective Time, Acquiror shall assume the Company's
Incentive Stock Option Plan; provided, that such assumption shall be only in
respect of the assumed Company Stock Options and that Acquiror shall have no
obligation with respect to any awards under the Company's Incentive Stock Option
Plan other than the assumed Company Stock Options or to make any additional
grants or awards under such assumed plan.
(d) The Acquiror shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Acquiror Common Stock for delivery
pursuant to the terms set forth in this Section 3.06. Subject to any applicable
limitations under the Securities Act, Acquiror shall either (i) file a
registration statement on Form S-8 (or any successor form), effective as of the
Effective Time, with respect to the shares of Acquiror Common Stock issuable
upon exercise of the Stock Options, or (ii) file any necessary amendments to the
Company's previously filed registration statement(s) on Form S-8 in order that
the Acquiror will be deemed a "successor registrant" thereunder, and, in either
event the Acquiror shall use its reasonable best efforts to maintain the
effectiveness of such registration statement(s) (and maintain the current status
of the prospectus or prospectuses relating thereto) for so long as such options
shall remain outstanding.
ARTICLE IV
ACTIONS PENDING THE MERGER
4.01 Forbearances of the Company. From the date hereof until the
earlier of the termination of this Agreement or the Effective Time, except as
expressly contemplated by this Agreement or the Disclosure Schedule, without the
prior written consent of the Acquiror, the Company will not, and will cause each
of its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of the Company and its
---------------
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent
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<PAGE>
therewith, fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed
-------------
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Company Stock or any Rights, (ii) enter into any agreement with respect to
the foregoing, or (iii) permit any additional shares of Company Stock to
become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights. Without limiting the
foregoing, the Company will not issue or agree to issue any shares of
Company Stock or Rights under the Company's 1997 Amended Incentive Stock
Option Plan or the Company's 1997 Amended Employee Stock Purchase Plan
other than pursuant to Rights Previously Disclosed and outstanding on the
date hereof.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment
---------------
any dividend, other than (A) subject to Section 4.03 hereof, regular
quarterly cash dividends on Company Common Stock in an amount not to exceed
$0.06 per share paid with record and payment dates consistent with past
practice and (B) dividends from wholly owned Subsidiaries to the Company or
another wholly owned Subsidiary of the Company, as applicable (in each case
having record and payment dates consistent with past practice), on or in
respect of, or declare or make any distribution on any shares of its
capital stock or (ii) directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into, amend,
-----------------------------------------
modify or renew any written employment, consulting, severance or similar
agreements or arrangements with any directors, officers, employees of, or
independent contractors with respect to, the Company or its Subsidiaries,
or grant any salary, wage or other increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are
required by applicable law, or (iii) to satisfy Previously Disclosed
obligations.
(e) Benefit Plans. Enter into, establish, adopt, amend or modify any
-------------
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement (or similar arrangement) related thereto, in respect of any
directors, officers, employees of, or independent contractors with respect
to, the Company or its Subsidiaries, including taking any action that
accelerates the vesting or exercisability of stock options, restricted
stock or other
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<PAGE>
compensation or benefits payable thereunder, except, in each such case, (i)
as may be required by applicable law or (ii) to satisfy Previously
Disclosed obligations.
(f) Dispositions. Except (i) pursuant to Previously Disclosed
------------
Investor Commitments existing on the date hereof or (ii) as otherwise
Previously Disclosed, (A) sell, transfer, mortgage, lease, encumber or
otherwise dispose of or discontinue any material portion of its assets,
business or properties; (B) sell, assign or otherwise transfer any rights
to service loans, other than servicing rights in respect of first mortgage
loans held by the Company or one of its Subsidiaries in its warehouse of
first mortgage loans originated by the Company or one of its Subsidiaries
(x) on a retail basis or (y) on a wholesale basis where such wholesale
loans are jumbo loans, adjustable rate mortgage loans, or other wholesale
mortgage loans registered with private investors, in each case where such
sales are in a manner consistent with past practice; or (C) except in the
ordinary course of business and in a manner consistent with past practice,
sell, transfer, lease or encumber any Loans.
(g) Acquisitions. Except (i) (A) pursuant to Previously Disclosed
------------
contractual obligations existing on the date hereof, (B) the purchase or
repurchase of mortgage loans and/or loan servicing rights, (C) short-term
investments for cash management purposes (including transactions that the
Company may enter into to utilize escrow balances), (D) pursuant to bona
fide hedging transactions, or (E) by way of foreclosures or otherwise in
satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice, or
(ii) as Previously Disclosed, neither the Company nor any of its
Subsidiaries will: (x) acquire any assets in any one transaction or a
series of related transactions for consideration in excess of $250,000 or
enter into any contract, agreement, commitment or arrangement with respect
thereto; or (y) acquire any servicing right in a "bulk" transaction.
(h) Governing Documents. Amend the Company Certificate, the Company
-------------------
By-laws or the certificate of incorporation or by-laws (or similar
governing documents) of any of the Company's Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its
------------------
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(j) Contracts. Except in the ordinary course of business consistent
---------
with past practice, enter into or terminate any material Contract or amend
or modify in any material respect any of its existing material Contracts.
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<PAGE>
(k) Claims. Settle any claim, action or proceeding, except for any
------
claim, action or proceeding involving solely money damages in an amount,
individually or in the aggregate, that is not material to the Company and
its Subsidiaries, taken as a whole.
(l) Adverse Actions. (i) Take any action reasonably likely to
---------------
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code; or (ii) knowingly take any action that
is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (B) any of the conditions to the Merger set forth in
Article VII not being satisfied or (C) a material breach of any provision
of this Agreement; except, in each case, as may be required by applicable
law.
(m) Risk Management; Loan Policies. Except as required by applicable
------------------------------
law or regulation, to comply with modifications of rules, regulations or
requirements imposed by any Agency and except (after prior consultation
with Acquiror) for changes required by the Company's or any of its
subsidiaries' traditional conduits for the sale of non-conventional loans:
(i) implement or adopt any material change in its interest rate risk
management and hedging (which term includes buying futures and forward
commitments from financial institutions) policies, procedures or practices;
(ii) fail to follow its existing policies or practices with respect to
managing its exposure to interest rate risk; (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure
to interest rate risk against loans held in the Company's pipeline; or (iv)
materially alter its methods or policies of underwriting, pricing,
originating, warehousing, selling and servicing, or buying or selling
rights to service loans.
(n) Indebtedness. Incur any indebtedness for borrowed money other
------------
than: (i) indebtedness used to fund or purchase mortgage Loans in the
ordinary course of business consistent with past practice; (ii) pursuant to
its "Warehouse Line of Credit Facility" (i.e., the Second Amended and
Restated Revolving Credit Agreement, dated as of January 23, 1996, with a
group of banks headed by The First National Bank of Chicago); and (iii)
indebtedness arising from repurchase agreements with FNMA, FHLMC and
investment banks and other financial institutions in the ordinary course of
business and consistent with past practice.
(o) Offices. Open any new branch offices, or close any existing
-------
branch office for the retail origination of mortgage loans, except for
closures where (i) the term of such lease expires in 1997 and the Company
or its Subsidiary has not renewed such lease, (ii) the Company or its
Subsidiary had previously planned to close such branch office or (iii) such
closure is in the ordinary course of business and in a manner consistent
with past practice (in the case of (i) and (ii), as Previously Disclosed).
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<PAGE>
(p) Commitments. Agree or commit to do anything that would be
-----------
precluded by clauses (a) through (o) without first obtaining the Acquiror's
consent.
4.02 Forbearances of the Acquiror. From the date hereof until
the Effective Time, except as expressly contemplated by this Agreement, without
the prior written consent of the Company, the Acquiror will not, and will cause
each of its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of the Acquiror and its
---------------
Subsidiaries other than in the ordinary and usual course; provided that
this Section 4.02(a) shall in no way affect the ability of the Acquiror or
its Subsidiaries to engage in any business, asset or deposit acquisition or
disposition, or merger, consolidation or other business combination
transaction.
(b) Adverse Actions. (i) Take any action reasonably likely to prevent
---------------
or impede the Merger from qualifying as a reorganization within the meaning
of Section 368 of the Code; or (ii) knowingly take any action that is
intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (B) any of the conditions to the Merger set forth in
Article VII not being satisfied or (C) a material breach of any provision
of this Agreement; except, in each case, as may be required by applicable
law.
(c) Dividends, Etc. Make, declare, pay or set aside for payment any
--------------
dividend (other than, subject to Section 4.03 hereof, regular quarterly
cash dividends on Acquiror Common Stock and dividends from Subsidiaries to
the Acquiror or another Subsidiary of the Acquiror), on or in respect of,
or declare or make any distribution on any shares of its capital stock.
(d) Governing Documents. Amend the Acquiror Certificate or the by-
-------------------
laws of Acquiror in a manner that would be materially adverse to the
holders of Acquiror Common Stock.
(e) Commitments. Agree or commit to do anything that would be
-----------
precluded by clauses (a) through (d) without first obtaining the Company's
consent.
4.03. Coordination of Dividends. Each of the Company and Acquiror
shall coordinate with the other regarding the declaration and payment of any
dividends in respect of the Company Common Stock and Acquiror Common Stock and
the record dates and the payment dates relating thereto, it being the intention
of the Company and Acquiror that holders of Company Common Stock shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their shares of Company Common Stock and/or any shares
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<PAGE>
of Acquiror Common Stock that any such holder receives in exchange therefor
pursuant to the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, the
Company has delivered to the Acquiror and the Acquiror (on behalf of itself, the
Bank and Merger Sub) has delivered to the Company a schedule (respectively, its
"Disclosure Schedule") setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more
representations or warranties contained in Section 5.03 or 5.04, respectively,
or to one or more of its covenants contained in Article IV; provided, that (a)
no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not result in the
related representation or warranty being deemed untrue or incorrect under the
standard established by Section 5.02, and (b) the mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty shall not be
deemed an admission by a party that such item (or any non-disclosed item or
information of comparable or greater significance) represents a material
exception or fact, event or circumstance or that such item is reasonably likely
to result in a Material Adverse Effect with respect to the Company or the
Acquiror, respectively.
5.02 Standard. No representation or warranty of the Company or
the Acquiror contained in Section 5.03 or 5.04 shall be deemed untrue or
incorrect, and no party hereto shall be deemed to have breached a representation
or warranty, as a consequence of the existence of any fact, event or
circumstance unless such fact, event or circumstance, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Section 5.03 or 5.04 has had or is
reasonably likely to have a Material Adverse Effect with respect to the Company
or the Acquiror, respectively.
5.03 Representations and Warranties of the Company. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule corresponding to the relevant paragraph below, the Company
hereby represents and warrants to the Acquiror, the Bank and Merger Sub:
(a) Organization, Standing and Authority. The Company is a
------------------------------------
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, and is duly qualified to do business and
is in good standing in all the jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be so
qualified.
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<PAGE>
(b) Company Stock. As of the date hereof, the authorized capital
-------------
stock of the Company consists solely of (i) 50,000,000 shares of Company
Common Stock, of which 13,986,899 shares are outstanding as of the date
hereof and (ii) 20,000,000 shares of Company Preferred Stock, of which
748,179 shares are outstanding (in the form of Company Convertible
Preferred Stock) as of the date hereof. As of the date hereof, 2,433,016
shares of Company Common Stock are held in treasury by the Company and
748,179 shares of Company Convertible Preferred Stock are otherwise owned
by the Company or its Subsidiaries (collectively, "Treasury Stock"). The
outstanding shares of Company Stock have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable, and subject
to no preemptive rights (and were not issued in violation of any preemptive
rights). As of the date hereof, other than the Company Rights and except
as Previously Disclosed in its Disclosure Schedule, there are no shares of
Company Stock authorized and reserved for issuance, the Company does not
have any Rights issued or outstanding with respect to Company Stock, and
the Company does not have any commitment to authorize, issue or sell any
Company Stock or Rights, except pursuant to this Agreement. Since May 29,
1997, the Company has issued no shares of Company Stock or Rights or
reserved any shares for such purposes except pursuant to Previously
Disclosed plans or commitments. The number of shares of Company Stock
which are issuable and reserved for issuance upon exercise of Company Stock
Options as of the date hereof are Previously Disclosed in the Company's
Disclosure Schedule.
(c) Subsidiaries. (i)(A) The Company has Previously Disclosed a list
------------
of all its Subsidiaries together with the jurisdiction of organization of
each such Subsidiary, (B) the Company owns, directly or indirectly, all the
issued and outstanding equity securities of each of its Subsidiaries, (C)
no equity securities of any of its Subsidiaries are or may become required
to be issued (other than to it or its Subsidiaries) by reason of any
Rights, (D) there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such Subsidiaries (other
than to it or its Subsidiaries), (E) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to
dispose of such securities (other than to it or its Subsidiaries), and (F)
all the equity securities of each such Subsidiary held by the Company or
its Subsidiaries are fully paid and nonassessable and are owned by the
Company or its Subsidiaries free and clear of any Liens.
(ii) The Company does not own beneficially, directly or indirectly,
any equity securities or similar interests of any person, or any interest
in a partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of the Company's Subsidiaries has been duly organized and
is validly existing and in good standing under the laws of the jurisdiction
of its organization, and is duly qualified to do business and in good
standing in all the jurisdictions where its
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<PAGE>
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified.
(d) Corporate Power. The Company and each of its Subsidiaries has the
---------------
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and the Company has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby.
(e) Corporate Authority. Subject in the case of this Agreement to
-------------------
adoption of the agreement of merger set forth in this Agreement by the
holders of at least a majority of the outstanding shares of Company Common
Stock entitled to vote thereon, this Agreement and the transactions
contemplated hereby have been authorized by all requisite corporate action
on the part of the Company. This Agreement is a valid and legally binding
obligation of the Company, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Filings; No Defaults. (i) No consents or approvals of,
-------------------------------
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by the Company or any of
its Subsidiaries in connection with the execution, delivery or performance
by the Company of this Agreement, or to consummate the Merger except for
(A) the filing of a notice under the HSR Act, (B) filings of applications
or notices with Previously Disclosed mortgage banking licensing or
supervisory authorities, (C) the filing with the SEC of the Proxy Statement
in definitive form, and (D) the filing of a certificate of merger with the
Secretary of State of the State of Delaware pursuant to the DGCL. As of
the date hereof, the Company is not aware of any reason why the approvals
of all Governmental Authorities necessary to permit consummation of the
transactions contemplated by this Agreement will not be received without
the imposition of a condition or requirement described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals, and expiration
of the waiting periods, referred to in the preceding paragraph and the
making of required filings under federal and state securities laws, the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby and thereby do not and will not (A)
constitute a breach or violation of, or a default under, or give rise to
any Lien, any acceleration of remedies or any right of termination under,
any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or Contract of the Company or of any of its Subsidiaries
or to which the Company or any of its Subsidiaries or properties is subject
or bound, (B) constitute a breach or violation of, or a default under, the
Company Certificate or the Company By-laws, or (C) require any
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<PAGE>
consent or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license or Contract.
(g) SEC Documents; Financial Statements. (i) The Company's Annual
-----------------------------------
Reports on Form 10-K for the fiscal years ended December 31, 1994, 1995 and
1996, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by the Company or
any of its Subsidiaries subsequent to December 31, 1994 under the
Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, in the form filed or to be filed (collectively, the "Company's SEC
Documents") with the SEC, as of the date filed, (A) complied or will comply
in all material respects as to form with the applicable requirements under
the Securities Act or the Exchange Act, as the case may be, and (B) did not
(or if amended or superseded by a filing prior to the date of this
Agreement, then as of the date of such filing) and will not 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,
in the light of the circumstances under which they were made, not
misleading; and each of the balance sheets contained in or incorporated by
reference into any such SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the financial
position of the Company and its Subsidiaries as of its date, and each of
the statements of income and changes in stockholders' equity and cash flows
or equivalent statements in such SEC Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the results
of operations, changes in stockholders' equity and changes in cash flows,
as the case may be, of the Company and its Subsidiaries for the periods to
which they relate, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1996, on a consolidated basis the Company and
its Subsidiaries have not incurred any liability other than in the ordinary
course of business consistent with past practice.
(iii) Since December 31, 1996, (A) the Company and its Subsidiaries
have conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related
to this Agreement and the transactions contemplated hereby) and (B) no
event has occurred or circumstance arisen that, individually or taken
together with all other facts, events and circumstances (described in any
paragraph of Section 5.03 or otherwise), is reasonably likely to have a
Material Adverse Effect with respect to the Company.
(iv) The Company has Previously Disclosed a list of all write-downs of
assets of the Company and its Subsidiaries since December 31, 1996,
including write-downs of
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<PAGE>
interest participations, interest-only strips, residual interest strips or
originated loan servicing rights. To the Company's knowledge, there are no
other write-downs that the Company and its Subsidiaries would be required
to make to ensure that financial statements prepared as of the end of the
month in which the Effective Date occurs fairly present the financial
condition of the Company and its Subsidiaries as of such date.
(h) Litigation. No litigation, claim or other proceeding before any
----------
court or governmental agency is pending against the Company or any of its
Subsidiaries and, to the Company's knowledge, no such litigation, claim or
other proceeding has been threatened.
(i) Compliance with Laws. The Company and each of its Subsidiaries:
--------------------
(i) in the conduct of its business, is in compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees
applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Home Mortgage Disclosure Act and all other
applicable fair lending laws and other laws relating to discriminatory
business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to
permit them to own or lease their properties and to conduct their
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to the Company's knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) has received, since December 31, 1995, no notification or
communication from any Governmental Authority (A) asserting that the
Company or any of its Subsidiaries is not in compliance with any of
the statutes, regulations, or ordinances that such Governmental
Authority enforces or (B) threatening to revoke any license,
franchise, permit, or governmental authorization (nor, to the
Company's knowledge, do any grounds for any of the foregoing exist).
(j) Material Contracts; Defaults. The Company has Previously Disclosed
----------------------------
a complete and accurate list of all material Contracts to which the Company
or any of its Subsidiaries is a party, including the following categories:
(i) any Contract that (A) is not terminable at will both
without cost or other liability to the Company or any of its
Subsidiaries and upon notice of ninety (90) days or less and (B) which
provides for fees or other payments in excess of
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<PAGE>
$150,000 per annum or in excess of $300,000 for the remaining term of
the Contract;
(ii) any Contract with a term beyond the Effective Time under
which the Company or any of its Subsidiaries created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee)
indebtedness for borrowed money (including capitalized lease
obligations);
(iii) any Contract restricting the conduct of business by the
Company or any of its Subsidiaries;
(iv) any Contract to which the Company or any of its
Subsidiaries is a party, on the one hand, and under which any
affiliate, officer, director, employee or equity holder of any of the
Company or any of its Subsidiaries, on the other hand, is a party or
beneficiary;
(v) any Contract between the Company or any of its Subsidiaries
and any insurance company which has authorized the Company or any of
its Subsidiaries to act as such insurance company's representative in
the sale, placement, writing or administration of insurance;
(vi) any Contract with respect to the employment of, or payment
to, any present or former directors, officers, employees or
consultants;
(vii) any Contract involving the purchase or sale of assets with
a book value greater than $300,000 entered into since December 31,
1996; and
(viii) any Contract with respect to a warehouse line of credit,
any Loan Servicing Agreement and any Investor Commitment.
Neither the Company nor any of its Subsidiaries nor, to the Company's
knowledge, any other party thereto is in default under any such Contract
and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
(k) Properties. Except as reserved against in the financial
----------
statements filed in its SEC Documents on or before the date hereof, the
Company and its Subsidiaries have good and marketable title, free and clear
of all Liens (other than Liens for current taxes not yet delinquent) to all
of the material properties and assets, tangible or intangible, reflected in
such financial statements as being owned by the Company and its
Subsidiaries as of the dates thereof. To the Company's knowledge, all
buildings and all fixtures, equipment, and other property and assets which
are material to its business on a
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consolidated basis and are held under leases or subleases by any of the
Company and its Subsidiaries are held under valid leases or subleases
enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to general equity principles).
(l) Employee Benefit Plans. (i) The Company's Disclosure Schedule
----------------------
contains a complete list of all bonus, vacation, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee stock
ownership, stock bonus, stock purchase, restricted stock, stock
appreciation and stock option plans, all employment or severance contracts,
all medical, dental, disability, severance, health and life plans, all
other employee benefit and fringe benefit plans, contracts or arrangements
and any "change of control" or similar provisions in any plan, contract or
arrangement maintained or contributed to by the Company or any of its
Subsidiaries for the benefit of officers, former officers, employees,
former employees, directors, former directors, independent contractors or
the beneficiaries of any of the foregoing (collectively, the Company's
"Compensation and Benefit Plans"). Neither the Company Board nor any
executive officers of the Company or any of its Subsidiaries has taken or
initiated any formal action to create any additional material Compensation
and Benefit Plan or to modify or change any existing Compensation and
Benefit Plan in any material respect.
(ii) With respect to each Compensation and Benefit Plan, if
applicable, the Company has provided, made available, or will make
available upon request, to Acquiror, true and complete copies of existing:
(A) Compensation and Benefit Plan documents and amendments thereto; (B)
trust instruments and insurance contracts; (C) two most recent Forms 5500
filed with the IRS; (D) the most recent actuarial report and financial
statement; (E) the most recent summary plan description; (F) forms filed
with the PBGC (other than for premium payments); (G) the most recent
determination letter issued by the IRS; (H) any Form 5310 or Form 5330
filed with the IRS; and (I) the most recent nondiscrimination tests
performed under ERISA and the Code (including 401(k) and 401(m) tests).
(iii) Each of the Company's Compensation and Benefit Plans has been
administered in accordance with the terms thereof and with applicable law,
including ERISA and the Code. Each of the Company's Compensation and
Benefit Plans which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS, and, except as Previously Disclosed, the
Company is not aware of any circumstances reasonably likely to result in
the revocation or denial of any such favorable determination letter.
Neither the Company nor any of its Subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to
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<PAGE>
subject the Company or any of its Subsidiaries to a tax or penalty imposed
by either Section 4975 of the Code or Section 502 of ERISA in an amount
which would be material, assuming for purposes of Section 4975 of the Code
that the taxable period of any such transaction expired as of the date
hereof. There is no pending or, to the Company's knowledge, threatened
litigation or governmental audit, examination or investigation relating to
the Company's Compensation and Benefit Plans.
(iv) No liability under Title IV of ERISA (other than contributions
and premiums required in connection therewith) has been or is reasonably
expected to be incurred by the Company or any of its Subsidiaries with
respect to any "single-employer plan" (within the meaning of Section 4001
(a)(15) of ERISA) or Multiemployer Plan currently or formerly maintained by
any of them, or the single-employer plan or Multiemployer Plan of any
entity (an "ERISA Affiliate") which currently is or formerly was considered
one employer with the Company under Section 4001(a)(14) of ERISA or Section
414(b) or (c) of the Code (an "ERISA Affiliate Plan").
(v) Except as Previously Disclosed, all contributions, premiums and
payments required to have been made under the terms of any of the Company's
Compensation and Benefit Plans or applicable law have been timely made or
reflected in the Company's SEC Documents. Neither any of the Company's
Pension Plans nor ERISA Affiliate Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. None of the Company, any of its
Subsidiaries or any ERISA Affiliate has provided, or is required to
provide, security to, nor are there any circumstances requiring imposition
of any lien on the assets of the Company or any of its Subsidiaries with
respect to, any Pension Plan or any ERISA Affiliate Plan pursuant to ERISA
or the Code. The Company's Disclosure Schedule contains a list of all of
the Company's ERISA Affiliate Plans.
(vi) Under each of the Company's Pension Plans and ERISA Affiliate
Plans, to the Company's knowledge, there has been no material adverse
change in the financial condition of any Pension Plan or ERISA Affiliate
Plan (with respect to either assets or benefits) since the last day of the
most recent plan year.
(vii) Except as Previously Disclosed, neither the Company nor any of
its Subsidiaries has any obligations under any Compensation and Benefit
Plan to provide benefits, including death or medical benefits, with respect
to any of their employees (or their spouses, beneficiaries, or dependents)
beyond the retirement or other termination of service of any such employee
other than (A) coverage mandated by Part 6 of Title I of ERISA or Section
4980B of the Code, (B) retirement or death benefits under any employee
pension benefit plan (as defined under Section 3(2) of ERISA), (C)
disability benefits under any employee welfare plan that have been fully
provided for by insurance or otherwise, or (D) benefits in the nature of
severance pay.
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<PAGE>
(viii) Except as set forth in the Company's SEC Documents or as
Previously Disclosed, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby including,
without limitation, as a result of any termination of employment prior to
or following the Effective Time, will (A) result in any increase in
compensation or any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to
any current or former director, officer or employee of the Company or any
of its Subsidiaries under any Compensation and Benefit Plan or otherwise
from the Company or any of its Subsidiaries, (B) increase any benefits
otherwise payable under any Compensation and Benefit Plan, or (C) result in
any acceleration of the time of payment or vesting of any such benefit.
(ix) The Company and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign Employees who are not
residents of the United States.
(m) Labor Matters. Neither the Company nor any of its Subsidiaries is
-------------
a party to or is bound by any collective bargaining Contract or
understanding with a labor union or labor organization, nor is the Company
or any of its Subsidiaries the subject of a proceeding asserting that it or
any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel the
Company or any such Subsidiary to bargain with any labor organization as to
wages or conditions of employment, nor is there any strike or other labor
dispute involving it or any of its Subsidiaries pending or, to the
Company's knowledge, threatened, nor is the Company aware of any activity
involving it or any of its Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in other organizational activity.
(n) Takeover Laws. The Company has taken all action required to be
-------------
taken by it in order to exempt this Agreement and the transactions
contemplated hereby from, and this Agreement and the transactions
contemplated hereby are exempt from, the requirements of any "moratorium,"
"control share," "fair price" or other antitakeover laws and regulations of
any state (collectively, "Takeover Laws"), including, without limitation
the State of Delaware, including Section 203 of the DGCL, assuming the
accuracy of the representations contained in Section 5.04(l) (without
giving effect to the knowledge qualification thereof).
(o) Company Rights Agreement. There has occurred no "Distribution
------------------------
Date" or "Stock Acquisition Date" (as defined in the Company Rights
Agreement). The Company and the Rights Agent will have, no later than the
first business day after the date hereof, duly and validly amended the
Company Rights Agreement, by executing and delivering an amendment in
substantially the form of Exhibit B.
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<PAGE>
(p) Environmental Matters. (i) The Company and each of its
---------------------
Subsidiaries has complied at all times with applicable Environmental Laws;
(ii) no property (including buildings and any other structures) currently
or formerly owned or operated by the Company or any of its Subsidiaries or
in which the Company or any of its Subsidiaries has a Lien, has been
contaminated with, or has had any release of, any Hazardous Substance
except as Previously Disclosed; (iii) neither the Company nor any of its
Subsidiaries would reasonably be expected to be ruled to be the owner or
operator under any Environmental Law of any property in which it has
currently or formerly held a Lien; (iv) neither the Company nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal
or contamination on any other third-party property; (v) neither the Company
nor any of its Subsidiaries has received any notice, demand letter, claim
or request for information alleging any violation of, or liability under,
any Environmental Law; (vi) neither the Company nor any of its Subsidiaries
is subject to any order, decree, injunction or other agreement with any
Governmental Authority or any third party relating to any Environmental
Law; (vii) the Company, which does not perform an environmental review of
the mortgaged property at the time of Loan Origination, is not aware of any
circumstances or conditions involving the Company or any of its
Subsidiaries, any currently or formerly owned or operated property, or any
Lien held by the Company or any of its Subsidiaries (including the presence
of asbestos, underground storage tanks, lead products, polychlorinated
biphenyls or gas station sites) that would reasonably be expected to result
in any claims, liability or investigations or result in any restrictions on
the ownership, use, or transfer of any property pursuant to any
Environmental Law; and (viii) the Company has delivered to the Acquiror
copies of all environmental reports, studies, sampling data,
correspondence, filings and other environmental information in its
possession or reasonably available to it relating to the Company, any of
its Subsidiaries, any currently or formerly owned or operated property or
any property in which the Company or any of its Subsidiaries has held a
Lien.
(q) Tax Matters. (i) All returns, declarations, reports, estimates,
-----------
information returns and statements required to be filed on or before the
Effective Date under federal, state, local or any foreign tax laws ("Tax
Returns") with respect to the Company or any of its Subsidiaries, have been
or will be timely filed, or requests for extensions have been timely filed
and have not expired; (ii) all Tax Returns filed by the Company are
complete and accurate; (iii) all Taxes shown to be due and payable (without
regard to whether such Taxes have been assessed) on such Tax Returns have
been paid or adequate reserves have been established for the payment of
such Taxes; and (iv) no audit or examination or refund litigation with
respect to any Tax Return is pending or, to the Company's knowledge, has
been threatened.
(r) Risk Management. All swaps, caps, floors, option agreements,
---------------
futures and forward contracts and other similar risk management
arrangements, whether entered into for the Company's own account, or for
the account of one or more of the Company's
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<PAGE>
Subsidiaries or their customers, were entered into (i) in accordance with
prudent business practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of the Company or one of its Subsidiaries, enforceable
in accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full force
and effect. Neither the Company nor its Subsidiaries, nor to the Company's
knowledge any other party thereto, is in breach of any of its obligations
under any such agreement or arrangement.
(s) Names and Trademarks. The Company (or one of its Subsidiaries)
--------------------
has the right to use the names, service-marks and trademarks Previously
Disclosed in Section 5.03(s) of its Disclosure Letter in each state of the
United States, free and clear of any Liens, and no other person has the
right to use such name in any such state.
(t) Mortgage Banking Business. (i) Licenses and Qualifications. The
-------------------------
Company (or any Subsidiary of it that services or originates Loans, as the
case may be) (A) is an approved (1) HUD mortgagee and servicer for FHA-
insured loans, (2) lender and servicer for VA-insured loans, (3)
seller/servicer of one-to-four-family first and second mortgages for FNMA
and FHLMC and (4) GNMA issuer and servicer of GNMA-guaranteed mortgage-
backed securities, (B) has all other certifications, authorizations,
licenses, permits and other approvals necessary to conduct its current
business, (C) is in good standing under all applicable federal, state and
local laws and regulations thereunder as a lender and servicer and (D) is
in good standing with all authorities and servicers for the state bond
programs in which it participates. As of the date hereof, there is no
pending or, to the Company's knowledge, threatened cancellation or
reduction of any Investor Commitment or other loan sale Contract to which
the Company or any of its Subsidiaries is a party, and the obligations of
the Company and each of its Subsidiaries under each such Contract are being
performed by the Company or such Subsidiary, as the case may be, in
accordance with its terms. The Company has no reason to believe that the
underwriting waivers from FNMA and FHLMC, under current agreements with the
Company, will be restricted or rescinded, or that the guarantee fees
payable to FNMA and FHLMC will be increased as a result of the Company's or
its Subsidiaries' credit performance, or that the Company or its
Subsidiaries will suffer a forced reduction of the master commitment amount
relating to FNMA or FHLMC purchases or swaps of loans, nor has any such
restriction, rescission, increase or reduction occurred at any time since
December 31, 1995.
(ii) Title to Loans. All loans held for the Company's account,
whether or not for future sale or delivery to an investor (the "Warehouse
Loans"), are owned by the Company free and clear of any Lien, other than
Liens in favor of the Company's lender
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<PAGE>
banks pursuant to warehouse lines of credit and forward sale commitments or
similar agreements to sell any such loans to investors in the ordinary
course, and all Warehouse Loans meet all requirements for sale to the
intended investors. Each mortgage or deed of trust securing a Warehouse
Loan has been duly recorded or submitted for recordation in due course in
the appropriate filing office in the name of the Company or one of its
Subsidiaries as mortgagee. Neither the Company nor any of its Subsidiaries
has released any security for any Warehouse Loan, except upon receipt of
reasonable consideration for such release (as documented in the applicable
Loan file), or accepted prepayment of any such Warehouse Loan which has not
been promptly applied to such Warehouse Loan.
(iii) Compliance. Each Warehouse Loan and each loan which is being
serviced by the Company or one of its Subsidiaries for the account of
others (the "Serviced Loans", and together with the Warehouse Loans, the
"Loans") was underwritten and originated, and the loan documents and loan
files maintained by the Company or its Subsidiaries with respect thereto
are being maintained by the Company or such Subsidiaries, in compliance
with all applicable laws and regulations and, if applicable, the
requirements of the Investor acquiring such Loan (or, if there is no such
Investor, in accordance with the Company's underwriting standards then in
effect) and the requirements of each Insurer of such Loan (if any) in
effect and applicable at the time such insurance was obtained. The Company
and its Subsidiaries have not done or failed to do, or caused to be done or
omitted to be done, any act, the effect of which would operate to
invalidate or materially impair (i) any approvals of any Agency or the FHA
to insure, (ii) any VA guarantee or commitment of the VA to guarantee,
(iii) any private mortgage insurance or commitment of any private mortgage
insurer to insure, (iv) any title insurance policy, (v) any hazard
insurance policy, (vi) any flood insurance policy, (vii) any fidelity bond,
direct surety bond, errors and omissions or other insurance policy required
by any Agency, Investor or Insurer, (viii) any surety or guaranty
agreement, (ix) any guaranty issued by GNMA, FNMA or FHLMC to the Company
or any of its Subsidiaries respecting mortgage backed securities issued by
the Company or any of its Subsidiaries and other like guarantees or (x) the
rights of the Company or any of its Subsidiaries under any Loan Servicing
Agreement or Investor Commitment. No Agency, Investor or Insurer has (i)
claimed that the Company or any of its Subsidiaries have violated or have
not complied on a recurring basis with the applicable underwriting
standards with respect to Loans sold by the Company or any of its
Subsidiaries to an Investor or (ii) imposed restrictions on the activities
(including commitment authority) of the Company or any of its Subsidiaries.
(iv) Loan Files. The loan documents relating to a Loan maintained in
the loan files of the Company and its Subsidiaries were in compliance with
all applicable laws and regulations at the time of the origination,
assumption or modification of such Loan, as the case may be. The loan
files maintained by the Company and its Subsidiaries contain originals (or,
where necessitated by the terms of the applicable mortgage servicing
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<PAGE>
agreements, contain true, correct and complete copies) of the documents
relating to each Loan and the information contained in such loan files with
respect to each such Loan is true, complete and accurate and in compliance
with all applicable laws and regulations. Except as set forth in the loan
documents relating to a Loan maintained in the loan files of the Company or
its Subsidiaries, the terms of the note, bond, deed of trust and mortgage
for each such Loan have not been impaired, waived, altered or modified in
any respect from the date of their origination except by a written
instrument which written instrument has been recorded, or submitted for
recordation in due course, if recordation is necessary to protect the
interests of the owner thereof. The substance of any such waiver,
alteration or modification has been communicated to and approved by (A) the
relevant Investor and Insurer (if any), to the extent required by the
relevant Investor and Insurer requirements, and (B) the title Insurer, to
the extent required by the relevant policies, and the terms of any such
waiver, alteration or modification are reflected in the loan documents.
Except as set forth in the loan documents maintained in the loan files by
the Company or its Subsidiaries, no mortgagor has been released from such
mortgagor's obligations with respect to the applicable Loan.
(v) Loan Servicing Agreements. All of the Contracts pursuant to which
the Company or any of its Subsidiaries has the right and/or obligation to
service loans (each, a "Loan Servicing Agreement") are (A) valid and
binding obligations of the Company or such Subsidiary, and to the knowledge
of the Company, of all the other parties thereto, (B) in full force and
effect, (C) enforceable in accordance with their terms (except where
enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
by general equity principles) and (D) owned by the Company or such
Subsidiary free and clear of any Lien, except pursuant to the loan and
security agreements Previously Disclosed in the Company's Disclosure
Schedule. There is no default by the Company or any of its Subsidiaries or
claim of default against the Company or any of its Subsidiaries by any
party under any such Loan Servicing Agreement, and, except for the
consummation of the transactions contemplated by this Agreement, no event
has occurred which with the passage of time or the giving of notice or both
would constitute a default by any party under any such Loan Servicing
Agreement or would result in any such mortgage servicing agreement being
terminable by any party thereto. There is no pending or, to the knowledge
of the Company, threatened cancellation of any Loan Servicing Agreement and
the obligations of the Company or any of its Subsidiaries under each Loan
Servicing Agreement are being performed by the Company or such Subsidiary
in accordance with the terms of such Agreement and applicable rules or
regulations. The Company and its Subsidiaries are not subservicers with
respect to any of the Serviced Loans.
(vi) No Recourse. None of the Company's or any of its Subsidiaries'
servicing rights are subject to recourse against the servicer, and none of
the Company or any of its Subsidiaries is subject to recourse in connection
with any Loans sold by it, in each case
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<PAGE>
for losses on liquidation of a loan, borrower defaults or repurchase
obligations upon the occurrence of non-payment or other events, other than
events entitling Investors to request a repurchase of a loan because of
alleged breaches of customary representations and warranties relating to
the origination or servicing thereof.
(vii) Escrow Account. Unless otherwise prohibited by law or an
executed escrow waiver, the Company or its Subsidiaries collect all escrows
related to the Loans, and all escrow accounts have been maintained by the
Company, its Subsidiaries and, to the Company's knowledge, all prior
servicers in accordance with the related loan documents, all applicable
laws, rules, regulations, and requirements of Investors, Insurers and
Governmental Authorities, and in accordance with the applicable Loan
Servicing Agreements. The Company has credited to the account of borrowers
all interest required to be paid on any escrow account in accordance with
applicable law and the terms of such agreements and loan documents. All
escrow, custodial, and suspense accounts related to the Loans are held in
the Company's (or Subsidiary's) name or the investor's name by the Company.
(viii) Advances. There are no servicing or other Contracts to which
the Company or any of its Subsidiaries is a party which obligates any of
them to make servicing advances for principal and interest payments with
respect to defaulted or delinquent Loans other than in a manner as provided
in standard and customary agreements with FNMA, FHLMC or GNMA. To the
extent made, any such advances are valid and subsisting amounts owing to
the Company or its Subsidiary, as the case may be, subject to the terms of
the applicable Loan Servicing Agreement.
(ix) Single Family Loans. All of the Loans are secured by single
family (i.e., one to four family) residential real property or, to the
extent that a Loan is secured by property other than a single family
residential property, such Loan is not a Warehouse Loan and has not been
sold to any person where either the Company or any of its Subsidiaries has
any recourse obligation.
(x) ARM Adjustments. With respect to each Loan for which the interest
rate is not fixed for the entire term of the loan, the Company or its
Subsidiaries, as the case may be, has, since the date it commenced
servicing such loan and, to the Company's knowledge, all prior servicers
have (A) properly and accurately entered into its system all data required
to service the loan in accordance with the related loan documents and all
regulations, (B) properly and accurately adjusted the monthly payment on
each payment adjustment date, (C) properly and accurately calculated the
amortization of principal and interest on each payment adjustment date, in
each case in compliance with all applicable laws, rules and regulations and
the related loan documents, and (D) executed and delivered any and all
necessary notices required under, and in a form that complies with,
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<PAGE>
all applicable laws, rules and regulations and the terms of the related
loan documents regarding the interest rate and payment adjustments.
(xi) Pools. Each Loan included in a Pool meets all eligibility
requirements (including, without limitation, all applicable requirements
for obtaining mortgage insurance certificates and loan guaranty
certificates) for inclusion in such Pool. All of such Pools have been
finally certified or, if required, recertified in accordance with all
applicable laws, rules and regulations, except where the time for
certification or recertification has not expired. No Pools have been
improperly certified. The loan file for each Loan included in a Pool
contains all documents and instruments necessary for the final
certification or recertification of such Pool. No Loan has been bought out
of a Pool without all required prior written approvals of the applicable
Investors. Neither the execution, delivery or performance of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will require any Pool to be recertified.
The aggregate unpaid principal balance outstanding of the Loans in each
Pool equals or exceeds the amount owing to the applicable Investors.
(xii) Securitization Transactions.
(A) The Company and each of its Subsidiaries, as servicer under
the applicable Loan Servicing Agreement, (the "Securitization
Servicer") of each outstanding transaction under which the Company or
any of its Subsidiaries have sold or pledged Loans in a
securitization, whether sold under the Securities Act or otherwise (a
"Securitization Transaction"), has complied in all material respects
with all Contracts, including the Loan Servicing Agreements, and all
conditions to be performed or satisfied by it with respect to all
agreements and arrangements pursuant to which such person is bound
under such Securitization Transaction (collectively, "Securitization
Instruments").
(B) No Securitization Servicer or, to the Company's knowledge, no
trustee or issuer with respect to any Securitization has taken any
action which would reasonably be expected to adversely affect the
characterization or tax treatment for federal, state or local income
or franchise tax purposes of the issuer or any securities issued in a
Securitization Transaction, and all required federal, state and local
tax and information returns relating to any Securitization Transaction
have been properly filed.
(C) Each representation and warranty made by the Company or any
of its Subsidiaries in each "Purchase Agreement," "Pooling and
Servicing Agreement," "Placement Agency Agreement," "Servicer's
Indemnification Agreement" and any other Securitization Instrument to
which any of them was a party in any Securitization Transaction was
true and correct in all material
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<PAGE>
respects whenever made or reaffirmed by any of them and the Company
and each of its Subsidiaries have each fully performed and carried out
each covenant and agreement made by any of them in any such
Securitization Instrument.
(D) No rating agency has downgraded, or given the Company or any
of its Subsidiaries any indication that it is considering a
downgrading of any securities issued in any Securitization
Transaction, or of its rating of any Securitization Servicer.
(xiii) Mortgage Insurance. Each Loan which is indicated in the
related loan documents to have FHA insurance is insured under the National
Housing Act or qualifies for such insurance. Each Loan which is indicated
in the related loan documents to be guaranteed by the VA is guaranteed
under the provisions of Chapter 37 of Title 38 of the United States Code to
the extent required by the applicable Investor or qualifies for such
guarantee. As to each FHA insurance certificate, each VA guarantee
certificate, and each Loan which is indicated in the related loan file to
be insured by private mortgage insurance, the Company has complied with
applicable provisions of the insurance or guarantee contract and applicable
laws and regulations, the insurance or guarantee is in full force and
effect with respect to each such Loan, and to the knowledge of the Company,
there does not exist any event or condition which, but for the passage of
time or the giving of notice or both, can result in a revocation of any
such insurance or guarantee or constitute adequate grounds for the
applicable Insurer to refuse to provide insurance or guarantee payments
thereunder.
(xiv) Taxes and Insurance. Each Loan has been covered by a policy of
hazard insurance and flood insurance, to the extent required by the Loan
Servicing Agreements relating thereto or any laws, rules, regulations or
Investor or Insurer requirements applicable to such Loan, all in a form
usual and customary in the industry and which is in full force and effect,
and all amounts due and payable under each policy have been, or will be,
paid prior to the date such payments are due; and all taxes, assessments,
ground rents or other applicable charges or fees due and payable as to each
Loan have been, or will be, paid prior to the date such payments are due.
Any and all claims under such insurance policies have been submitted and
processed in accordance with the applicable Investor's and Insurer's
requirements. Such insurance policies name the Company (or a Subsidiary of
it) and its successors and assigns as mortgagee.
(xv) Title Insurance. To the extent required by the applicable
Investor, each Loan is covered by an ALTA lender's title insurance policy
or other generally acceptable form of policy of insurance acceptable to the
relevant Investor, and each such title insurance policy is issued by an
Insurer acceptable to the applicable Investor and qualified to do business
in the jurisdiction where the collateral securing such Loan is located, and
insures the originator and its successors and assigns as to the first
priority lien of the
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mortgage in the original principal amount of the Loan (or, in the case of a
second mortgage, the second priority lien). The applicable Investor, as
assignee of the originator's rights, is an insured of such lender's title
insurance policy, and such lender's policy is in full force and effect.
Neither the Company nor, to the Company's knowledge, any prior servicer has
performed any act or omission which would impair the coverage of such
lender's policy.
(xvi) Condemnation. The Company has no notice of and has no
knowledge of any proceeding pending or threatened for the partial or total
condemnation of any of the collateral securing any of the Loans, and the
Company has no notice or knowledge that all or any part of such collateral
has been or will be condemned.
(xvii) Tape. The Company has previously delivered to the Acquiror a
tape (magnetic media) on which certain information regarding the servicing
portfolio of the Company and its Subsidiaries as of May 31, 1997 is
recorded. Such tape completely and accurately contains the list of
serviced loans as of such date. The loan characteristics recorded on such
tape have been Previously Disclosed, and the information contained on such
tape is complete and accurate.
(u) Books and Records. The books and records of the Company and its
-----------------
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of the Company and its Subsidiaries. None of the
records, systems, controls, data or information of the Company and its
Subsidiaries are recorded, stored, maintained, operated or otherwise wholly
or partly dependent on or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or its Subsidiaries
or accountants retained by the Company or its Subsidiaries.
(v) Insurance. The Company's Disclosure Schedule sets forth all of
---------
the insurance policies, binders, or bonds maintained by the Company or its
Subsidiaries ("Insurance Policies"). The Company and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts as
the management of the Company reasonably has determined to be prudent in
accordance with industry practices. All of the Insurance Policies are in
full force and effect; the Company and its Subsidiaries are not in material
default thereunder; and all claims thereunder have been filed in due and
timely fashion.
(w) No Brokers. No action has been taken by the Company that would
----------
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement,
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excluding a fee to be paid by the Company to Morgan Stanley & Co.
Incorporated in an amount and on terms Previously Disclosed.
(x) Ownership of Acquiror Common Stock. As of the date hereof,
----------------------------------
neither the Company nor, to its knowledge, any of its affiliates or
associates (as such terms are defined under the Exchange Act) (i)
beneficially owns, directly or indirectly, or (ii) is party to any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, any outstanding shares of
Acquiror Common Stock (other than shares held in a bona fide fiduciary
capacity or in satisfaction of a debt previously contracted in good faith).
(y) Disclosure. The representations and warranties contained in this
----------
Section 5.03 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
contained in this Section 5.03, in the light of the circumstances in which
they are being made, not misleading. The copies of all documents furnished
to the Acquiror, the Bank and Merger Sub hereunder are true and complete
copies of the originals thereof.
5.04 Representations and Warranties of the Acquiror. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule corresponding to the relevant paragraph below, the Acquiror
hereby represents and warrants to the Company as follows:
(a) Organization, Standing and Authority. Each of the Acquiror, the
------------------------------------
Bank and Merger Sub is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, and each
is duly qualified to do business and is in good standing in the
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified.
(b) Acquiror Stock. (i) As of the date hereof, the authorized
--------------
capital stock of the Acquiror consists solely of 200,000,000 shares of
Acquiror Common Stock, of which 103,726,095 shares were outstanding as of
May 31, 1997, and 40,000,000 shares of Acquiror Preferred Stock, of which
no shares are outstanding as of the date hereof. As of the date hereof,
other than the Acquiror Rights and except as set forth in its Disclosure
Schedule, there are no shares of Acquiror Stock authorized and reserved for
issuance, the Acquiror does not have any Rights issued or outstanding with
respect to Acquiror Stock, and the Acquiror does not have any commitment to
authorize, issue or sell any Acquiror Stock or Rights, except pursuant to
this Agreement. The number of shares of Acquiror Common Stock which are
issuable and reserved for issuance upon exercise of any employee or
director stock options to purchase shares of Acquiror Common Stock, and the
number and terms of any Rights, as of the date hereof, are Previously
Disclosed in the Acquiror's Disclosure Schedule.
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(ii) The shares of Acquiror Common Stock to be issued as
Consideration, when issued in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable.
(c) Subsidiaries. Each of the Acquiror's Significant Subsidiaries has
------------
been duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization, and is duly qualified to do
business and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified.
(d) Corporate Power. The Acquiror and each of its Significant
---------------
Subsidiaries has the corporate power and authority to carry on its business
as it is now being conducted and to own all its properties and assets; each
of the Acquiror and the Bank has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby; and Merger Sub has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby.
(e) Corporate Authority. This Agreement and the transactions
-------------------
contemplated hereby have been authorized by all requisite corporate action
on the part of Acquiror, the Bank and Merger Sub. This Agreement is a
valid and legally binding agreement of each of the Acquiror, the Bank and
Merger Sub, in each case enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Approvals; No Defaults. (i) No consents or approvals
---------------------------------
of, or filings or registrations with, any Governmental Authority or with
any third party are required to be made or obtained by the Acquiror or any
of its Subsidiaries in connection with the execution, delivery or
performance by the Acquiror, the Bank or Merger Sub of this Agreement or to
consummate the Merger except for (A) the filing of a notice under the HSR
Act, (B) the filing of applications and notices, as applicable, with the
OTS and the FDIC; (C) approval of the listing on the NYSE of the Acquiror
Common Stock to be issued in the Merger (and related Acquiror Rights); (D)
the filing and declaration of effectiveness of the Registration Statement;
(E) the filing of a certificate of merger with the Secretary of State of
the State of Delaware pursuant to the DGCL; and (F) such filings as are
required to be made or approvals as are required to be obtained under the
securities or "Blue Sky" laws of various states in connection with the
issuance of Acquiror Common Stock in the Merger. As of the date hereof,
the Acquiror is not aware of any reason why the approvals of all
Governmental Authorities necessary to permit consummation of the
transactions contemplated hereby will not be received without the
imposition of a condition or requirement described in Section 7.01(b).
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(ii) Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in the preceding paragraph
and the making of all required filings under federal and state securities
laws, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
(A) constitute a breach or violation of, or a default under, or give rise
to any Lien, any acceleration of remedies or any right of termination
under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or Contract of the Acquiror or of any of
its Subsidiaries or to which the Acquiror or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of, or
a default under, the certificate of incorporation or by-laws (or similar
governing documents) of the Acquiror or any of its Subsidiaries, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
(g) SEC Documents; Financial Statements. (i) The Acquiror's Annual
-----------------------------------
Reports on Form 10-K for the fiscal years ended December 31, 1994, 1995 and
1996, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by the Acquiror
or any of its Subsidiaries subsequent to December 31, 1994 under the
Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, in the form filed or to be filed (collectively, the "Acquiror's SEC
Documents") with the SEC, as of the date filed, (A) complied or will comply
in all material respects as to form with the applicable requirements under
the Securities Act or the Exchange Act, as the case may be, and (B) did not
(or if amended or superseded by a filing prior to the date of this
Agreement, then as of the date of such filing) and will not 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,
in the light of the circumstances under which they were made, not
misleading; and each of the balance sheets contained in or incorporated by
reference into any such SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the financial
position of the Acquiror and its Subsidiaries as of its date, and each of
the statements of income and changes in stockholders' equity and cash flows
or equivalent statements in such SEC Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the results
of operations, changes in stockholders' equity and changes in cash flows,
as the case may be, of the Acquiror and its Subsidiaries for the periods to
which they relate, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1996, on a consolidated basis the Acquiror and
its Subsidiaries have not incurred any liability other than in the ordinary
course of business consistent with past practice.
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(iii) Since December 31, 1996, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to the Acquiror.
(h) Litigation; Regulatory Action. (i) Other than as set forth in
-----------------------------
its SEC Documents filed on or before the date hereof, no litigation, claim
or other proceeding before any Governmental Authority is pending against
the Acquiror or any of its Subsidiaries and, to the Acquiror's knowledge,
no such litigation, claim or other proceeding has been threatened.
(ii) Neither the Acquiror nor any of its Subsidiaries or properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from the FDIC or
the OTS, nor has the Acquiror or any of its Subsidiaries been advised by
the FDIC or the OTS that such agency is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such
order, decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(i) Compliance with Laws. The Acquiror and each of its Subsidiaries:
--------------------
(i) in the conduct of its business, is in compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees
applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other
laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to
permit them to conduct their businesses substantially as presently
conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best of
its knowledge, no suspension or cancellation of any of them is
threatened; and
(iii) has received, since December 31, 1995, no notification or
communication from any Governmental Authority (A) asserting that the
Acquiror or any of its Subsidiaries is not in compliance with any of
the statutes, regulations or ordinances that such Governmental
Authority enforces; (B) threatening to revoke any license, franchise,
permit or governmental authorization or
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<PAGE>
(C) threatening or contemplating revocation or limitation of, or which
would have the effect of revoking or limiting, the FDIC deposit
insurance of the Bank (nor, to the Acquiror's knowledge, do any
grounds for any of the foregoing exist).
(j) No Brokers. No action has been taken by the Acquiror that would
----------
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a fee to be paid by
the Acquiror to Salomon Brothers Inc.
(k) Employee Benefit Plans. (i) Each of the Acquiror's Compensation
----------------------
and Benefit Plans has been administered in accordance with the terms
thereof and with applicable law, including ERISA and the Code. Each of the
Acquiror's Pension Plans which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
IRS, and, except as Previously Disclosed, the Acquiror is not aware of any
circumstances reasonably likely to result in the revocation or denial of
any such favorable determination letter. There is no pending or, to the
Acquiror's knowledge, threatened litigation or governmental audit,
examination or investigation relating to the Acquiror's Compensation and
Benefit Plans.
(ii) No liability under Title IV of ERISA (other than contributions
and premiums required in connection therewith) has been or is reasonably
expected to be incurred by the Acquiror or any of its Subsidiaries with
respect to any "single-employer plan" (within the meaning of Section 4001
(a)(15) of ERISA) or Multiemployer Plan currently or formerly maintained by
any of them, or the single-employer plan or Multiemployer Plan of any ERISA
Affiliate.
(iii) Except as Previously Disclosed, all contributions, premiums and
payments required to have been made under the terms of any of the
Acquiror's Compensation and Benefit Plans or applicable law have been
timely made or reflected in the Acquiror's SEC Documents. Neither any of
the Acquiror's Pension Plans nor any ERISA Affiliate Plan of the Acquiror
or any of its Subsidiaries has an "accumulated funding deficiency" (whether
or not waived) within the meaning of Section 412 of the Code or Section 302
of ERISA. None of the Acquiror, any of its Subsidiaries or any ERISA
Affiliate has provided, or is required to provide, security to, nor are
there any circumstances requiring the imposition of a lien on the assets of
the Company or any of its Subsidiaries with respect to, any Pension Plan or
to any ERISA Affiliate Plan pursuant to ERISA or the Code.
(iv) Under each of the Acquiror's Pension Plans and ERISA Affiliate
Plans, to the Acquiror's knowledge, there has been no material adverse
change in the financial condition of any Pension Plan or ERISA Affiliate
Plan (with respect to either assets or benefits) since the last day of the
most recent plan year.
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(v) Except as Previously Disclosed, neither the Acquiror nor any of
its Subsidiaries has any obligations under any Acquiror Compensation and
Benefit Plan to provide benefits, including death or medical benefits, with
respect to employees (or their spouses, beneficiaries or dependents) of it
or its Subsidiaries beyond the retirement or other termination of service
of any such employee other than (A) coverage mandated by Part 6 of Title I
of ERISA or Section 4980B of the Code, (B) retirement or death benefits
under any employee pension benefit plan (as defined under Section 3(2) of
ERISA), (C) disability benefits under any employee welfare plan that have
been fully provided for by insurance or otherwise, or (D) benefits in the
nature of severance pay.
(l) Ownership of Company Common Stock. As of the date hereof, neither
---------------------------------
the Acquiror nor, to its knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act) (i) beneficially owns
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing
of, in each case, any outstanding shares of Company Common Stock (other
than shares held in a bona fide fiduciary capacity or in satisfaction of a
debt previously contracted in good faith).
(m) Tax Matters. (i) All Tax Returns with respect to the Acquiror or
-----------
any of its Subsidiaries, have been or will be timely filed, or requests for
extensions have been timely filed and have not expired; (ii) all Tax
Returns filed by the Acquiror are complete and accurate; (iii) all Taxes
shown to be due and payable (without regard to whether such Taxes have been
assessed) on such Tax Returns have been paid or adequate reserves have been
established for the payment of such Taxes; and (iv) no audit or examination
or refund litigation with respect to any Tax Return is pending or, to the
Acquiror's knowledge, has been threatened.
(n) Disclosure. The representations and warranties contained in this
----------
Section 5.04 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
contained in this Section 5.04, in the light of the circumstances in which
they are being made, not misleading. The copies of all documents furnished
to the Company hereunder are true and complete copies of the original
thereof.
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each of the Company and the Acquiror agrees to use
its reasonable best efforts in
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good faith to take, or cause to be taken (including causing any of its
Subsidiaries to take), all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other party hereto to that end.
6.02 Stockholder Approvals. The Company agrees to take, in
accordance with applicable law, applicable stock exchange rules, the Company
Certificate and the Company By-Laws, all action necessary to convene an
appropriate meeting of stockholders of the Company to consider and vote upon the
approval and adoption of this Agreement and any other matters required to be
approved by the Company's stockholders for consummation of the Merger (including
any adjournment or postponement, the "Company Meeting") as promptly as
practicable after the Registration Statement is declared effective. Unless the
Company Board, after having consulted with and considered the written advice of
outside counsel, has determined in good faith that it is otherwise required in
order to discharge properly the directors' fiduciary duties in accordance with
Delaware law, the Company Board shall recommend such approval, and the Company
shall take all reasonable, lawful action to solicit such approval by its
stockholders.
6.03 Registration Statement. (a) The Acquiror agrees to prepare
a registration statement on Form S-4 (the "Registration Statement"), to be filed
by the Acquiror with the SEC in connection with the issuance of Acquiror Common
Stock (and related Acquiror Rights) in the Merger (including the proxy statement
and prospectus and other proxy solicitation materials of the Company
constituting a part thereof (the "Proxy Statement") and all related documents).
The Company agrees to cooperate, and to cause its Subsidiaries to cooperate,
with the Acquiror, its counsel and its accountants, in preparation of the
Registration Statement and the Proxy Statement; and, provided that the Company
and its Subsidiaries have cooperated as required above, the Acquiror agrees to
file the Proxy Statement in preliminary form with the SEC as promptly as
reasonably practicable, and to file the Registration Statement with the SEC as
soon as reasonably practicable after any SEC comments with respect to the
preliminary Proxy Statement are resolved. Each of the Company and the Acquiror
agrees to use all reasonable best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as reasonably
practicable after filing thereof. The Acquiror also agrees to use all
reasonable best efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. The Company agrees to furnish to the Acquiror all
information concerning the Company, its Subsidiaries, officers, directors and
stockholders as may be reasonably requested in connection with the foregoing.
(b) Each of the Company and the Acquiror agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration
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Statement and each amendment or supplement thereto, if any, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to stockholders and
at the time of the Company Meeting, contain any untrue statement which, at the
time and in the light of the circumstances under which such statement is made,
will be false or misleading with respect to any material fact, or which will
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Proxy Statement or any amendment or supplement thereto.
Each of the Company and the Acquiror further agrees that if it shall become
aware prior to the Effective Date of any information furnished by it that would
cause any of the statements in the Proxy Statement to be false or misleading
with respect to any material fact, or to omit to state any material fact
necessary to make the statements therein not false or misleading, to promptly
inform the other party thereof and to take the necessary steps to correct the
Proxy Statement.
(c) The Acquiror agrees to advise the Company, promptly after the
Acquiror receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the
Acquiror Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
6.04 Press Releases. Each of the Company and the Acquiror agrees
that it will not, without the prior approval of the other party, issue any press
release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by applicable law
or regulation or NYSE rules.
6.05 Access; Information. (a) Each of the Company and the
Acquiror agrees that upon reasonable notice and subject to applicable laws
relating to the exchange of information, it shall afford the other party and the
other party's officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours throughout the period
prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and to such other information as any party may reasonably request and,
during such period, it shall furnish promptly to such other party (i) a copy of
each material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (ii) all other
information concerning the business, properties and personnel of it as the other
may reasonably request.
(b) Each of the Company and the Acquiror agrees that it will not, and
will cause its representatives not to, use any information obtained pursuant to
this Section 5.05 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement.
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Subject to the requirements of law, each party will keep confidential, and will
cause its representatives to keep confidential, all information and documents
obtained pursuant to this Section 6.05 unless such information (i) was already
known to such party, (ii) becomes available to such party from other sources not
known by such party to be bound by a confidentiality obligation, (iii) is
disclosed with the prior written approval of the party to which such information
pertains or (iv) is or becomes readily ascertainable from published information
or trade sources. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or extracts
thereof containing information and data as to another party hereto to be
returned to the party which furnished the same. No investigation by either
party of the business and affairs of the other shall affect or be deemed to
modify or waive any representation, warranty, covenant or agreement in this
Agreement, or the conditions to either party's obligation to consummate the
transactions contemplated by this Agreement.
6.06 Acquisition Proposals. The Company agrees that it shall
not, and shall cause its Subsidiaries and its and its Subsidiaries' officers,
directors, agents, advisors and affiliates not to, solicit or encourage
inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person relating to, any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or any
of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement (any of the foregoing, an "Acquisition
Proposal"); provided, that, if the Company is not otherwise in violation of this
Section 6.06, the Company Board may provide information to, and may engage in
such negotiations or discussions with, a person, directly or through
representatives, if (a) the Company Board, after having consulted with and
considered the written advice of counsel, has determined in good faith that the
provision of such information or the engaging in such negotiations or discussion
is required in order to discharge properly the directors' fiduciary duties in
accordance with Delaware law and (b) the Company has received from such person a
confidentiality agreement in substantially customary form. The Company also
agrees immediately to cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than the Acquiror or the Bank, with respect to any of the
foregoing. The Company shall promptly (within 24 hours) advise the Acquiror
following the receipt by it of any Acquisition Proposal and the substance
thereof (including the identity of the person making such Acquisition Proposal),
and advise the Acquiror of any developments with respect to such Acquisition
Proposal immediately upon the occurrence thereof.
6.07 Affiliate Agreements. Not later than the 15th day prior to
the mailing of the Proxy Statement, the Company shall deliver to the Acquiror a
schedule of each person that, to the Company's knowledge, is or is reasonably
likely to be, as of the date of the Company Meeting, deemed to be an "affiliate"
of it (each, a "Company Affiliate") as that term is used in
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Rule 145 under the Securities Act or SEC Accounting Series Releases 130 and 135.
The Company agrees to use its reasonable best efforts to cause each person who
may be deemed to be a Company Affiliate to execute and deliver to the Company
and the Acquiror on or before the date of mailing of the Proxy Statement an
agreement in the form attached hereto as Exhibit B.
6.08 Takeover Laws. No party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.09 No Rights Triggered. The Company shall take all reasonable
steps necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any rights to any person (a) under the
Company Certificate or the Company By-Laws or (b) under any material agreement
to which it or any of its Subsidiaries is a party (except as expressly
contemplated by the mandatory provisions under its stock option plans, as
applicable).
6.10 Rights Agreement. The Company shall take all necessary
action (i) to render the Company Rights Agreement inapplicable to the Merger and
the other transactions contemplated by this Agreement and (ii) to ensure that
neither the Acquiror, the Bank nor Merger Sub will become an "Acquiring Person"
and that no "Stock Acquisition Date" or a "Distribution Date" (as such terms are
defined in the Rights Agreement) will occur and that the exercisability of the
Company Rights Agreement will not be triggered, in each case as a result of the
execution or delivery of this Agreement or any amendment hereto or thereto or
the consummation of the Merger, or the consummation of the other transactions
contemplated by this Agreement. Except (a) as provided in Section 5.03(o) or in
the immediately preceding sentence or (b) if the Company Board, after having
consulted with and considered the written advice of outside counsel, has
determined in good faith that it is otherwise required in order to discharge
properly the directors' fiduciary duties in accordance with Delaware law, the
Company Board shall not (i) amend the Company Rights Agreement or (ii) take any
action with respect to, or make any determination under, the Company Rights
Agreement, including the determination that the Acquiror or any of its
Subsidiaries is an "Adverse Person," a redemption of the Company Rights or any
action to facilitate an Acquisition Transaction.
6.11 NYSE Listing. The Acquiror agrees to use its reasonable
best efforts to list, prior to the Effective Date, on the NYSE, subject to
official notice of issuance, the shares of Acquiror Common Stock to be issued to
the holders of Company Common Stock in the Merger.
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6.12 Regulatory Applications. (a) The Acquiror and the Company and
their respective Subsidiaries shall cooperate and use their respective
reasonable best efforts to prepare all documentation, to effect all filings and
to obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement. Each of the Acquiror and the Company shall have
the right to review in advance, and to the extent practicable each will consult
with the other, in each case subject to applicable laws relating to the exchange
of information, with respect to, all material written information submitted to
any third party or any Governmental Authority in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the Acquiror and the Company agrees to act reasonably and as promptly as
practicable. Each of the Acquiror and the Company agrees that it will consult
with the other party hereto with respect to the obtaining of all material
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party
appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each of the Acquiror and the Company agrees, upon request, to
furnish the other party with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Governmental Authority.
6.13 Indemnification. (a) The by-laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in Article VII of the Company By-Laws, which
provisions shall not be amended, repealed or otherwise modified, for a period of
six years from the Effective Time, in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company with respect to any action, suit or
proceeding arising out of, or relating to, any actions, transactions or facts
occurring prior to the Effective Time. Following the Effective Date and for a
period of six years thereafter, the Acquiror shall indemnify, defend and hold
harmless the present and former directors and officers of the Company and its
Subsidiaries (each, an "Indemnified Party") against all costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that the Company is
permitted to indemnify its directors and officers under the laws of the State of
Delaware, the Company Certificate and the Company By-Laws as in effect on the
date hereof (and Acquiror shall, or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom
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expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification);
provided that any determination required to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under
Delaware law, the Company Certificate and the Company By-Laws shall be made by
independent counsel (which shall not be counsel that provides material services
to the Acquiror) selected by the Acquiror and reasonably acceptable to such
officer or director; and provided, further, that in the absence of applicable
Delaware judicial precedent to the contrary, such counsel, in making such
determination, shall presume such officer's or director's conduct complied with
such standard and the Acquiror shall have the burden to demonstrate that such
officer's or director's conduct failed to comply with such standard.
(b) For a period of six years from the Effective Time, the Acquiror
shall use its best efforts to provide that portion of director's and officer's
liability insurance that serves to reimburse the present and former officers and
directors of the Company or any of its Subsidiaries (determined as of the
Effective Time) with respect to claims against such directors and officers
arising from facts or events which occurred before the Effective Time, which
insurance shall contain at least the same coverage and amounts, and contain
terms and conditions no less advantageous, as that coverage currently provided
by the Company; provided, however, that in no event shall the Acquiror be
required to expend more than 200 percent of the current amount expended by the
Company (the "Insurance Amount") to maintain or procure such directors and
officers insurance coverage; provided, further, that if the Acquiror is unable
to maintain or obtain the insurance called for by this Section 6.13(b), the
Acquiror shall use its reasonable best efforts to obtain as much comparable
insurance as is available for the Insurance Amount; provided, further, that
officers and directors of the Company or any Subsidiary may be required to make
application and provide customary representations and warranties to the
Acquirer's insurance carrier for the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.13(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify the Acquiror thereof;
provided that the failure so to notify shall not affect the obligations of the
Acquiror under Section 6.13(a) unless and to the extent that the Acquiror is
actually prejudiced as a result of such failure. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Acquiror or the Surviving Corporation shall
have the right to assume the defense thereof and the Acquiror shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the Acquiror or the
Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues that raise conflicts of
interest between the Acquiror or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
the Acquiror or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that the Acquiror shall
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be obligated pursuant to this paragraph (c) to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction unless the use of one counsel
for such Indemnified Parties would present such counsel with a conflict of
interest, (ii) the Indemnified Parties will cooperate in the defense of any such
matter and (iii) the Acquiror shall not be liable for any settlement effected
without its prior written consent, which consent shall not be unreasonably
withheld; and provided, further, that the Acquiror shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
non-appealable, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
(d) If the Acquiror or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of the Acquiror shall
assume the obligations set forth in this Section 6.13.
6.14 Benefit Plans. From the Effective Time until December 31,
1998, Acquiror shall cause the Surviving Corporation and its Subsidiaries to
maintain for employees of the Company and its Subsidiaries who as of the
Effective Time become employed by the Surviving Corporation or the Acquiror or
any of their Subsidiaries (the "Covered Employees"), (a) salary and bonus
opportunities (but explicitly excluding commissions and equity grant
opportunities), (b) employee pension benefits in respect of plans intended to be
qualified under Section 401(a) of the Code, (c) employee welfare benefits and
(d) broad-based severance plans (the items covered in (a) through (d)
hereinafter referred to as "Designated Benefits"), that are no less favorable,
in the aggregate, than the Designated Benefits enjoyed by such Covered Employees
immediately prior to the Effective Time. For purposes of all employee benefit
plans, programs and arrangements maintained or contributed to by the Acquiror
and its Subsidiaries (including without limitation, the Surviving Corporation),
the Acquiror shall, or shall cause its Subsidiaries to, cause each such plan,
program or arrangement to treat the prior service with the Company and its
Subsidiaries of each Covered Employee (to the same extent such service is
recognized under analogous plans, programs or arrangements of the Company or its
Subsidiaries immediately prior to the Effective Time) as service rendered to the
Acquiror or its Subsidiaries, as the case may be, solely for purposes of
eligibility to participate and for vesting thereunder. Following the Effective
Time, the Acquiror shall cause the Surviving Corporation to cause any and all
pre-existing condition limitations (to the extent such limitations did not apply
to a pre-existing condition under the Compensation and Benefit Plans) and
eligibility waiting periods under any health plans to be waived with respect to
Covered Employees who, immediately prior to the Effective Time, participated in
a health plan and their eligible dependents. All discretionary awards and
benefits under any employee benefit plans of the Acquiror shall be subject to
the discretion of the persons or committee administering such plans. The
Acquiror shall honor, pursuant to the terms of the Company Compensation and
Benefit Plans Previously
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Disclosed, and to the extent consistent with applicable law, all employee
benefit obligations to current and former employees of the Company under such
plans.
6.15 Accountants' Letters. Each of the Company and the Acquiror
shall use its reasonable best efforts to cause to be delivered to the other
party, and such other party's directors and officers who sign the Registration
Statement, a letter of Ernest & Young LLP and KPMG Peat Marwick LLP,
respectively, independent auditors, dated (i) the date on which the Registration
Statement shall become effective and (ii) a date shortly prior to the Effective
Date, and addressed to such other party, and such directors and officers, in
form and substance customary for "comfort" letters delivered by independent
accountants in accordance with Statement of Accounting Standards No. 72.
6.16 Notification of Certain Matters. Each of the Company and
the Acquiror shall give prompt notice to the other of any fact, event or
circumstance known to it that (i) is reasonably likely, individually or taken
together with all other facts, events and circumstances known to it, to result
in any Material Adverse Effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.
6.17 Certain Policies of the Company. Upon the request of the
Acquiror, the Company shall, consistent with generally accepted accounting
principles and regulatory accounting principles, use its reasonable best efforts
to record certain accounting adjustments intended to conform the loan,
litigation and other accrual and reserve policies (including loan
classifications and levels of reserves) of the Company and its Subsidiaries so
as to reflect the policies of the Acquiror; provided, however, that the Company
shall not be obligated to record any such accounting adjustments pursuant to
this Section 6.17 (a) unless and until the Company shall be satisfied that the
conditions to the obligation of the parties to consummate the Merger will be
satisfied or waived on or before the Effective Time, and (b) in no event until
the day prior to the Effective Date. The Company's representations, warranties
and covenants contained in this Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Section 6.17.
6.18 Employee Benefits. The Company shall, with the prior
approval of the Acquiror, take any necessary or appropriate action to effect a
correction of any errors made in connection with contributions made to the
Company's Savings Plan or Retirement Plan (including, to the extent appropriate,
making any necessary corrective contributions in order to satisfy the
nondiscrimination requirements under Sections 401(k)(3) and 401(m)(2) of the
Code). With respect to any options granted under the Company's Incentive Stock
Option Plan, the Company Board shall refrain from canceling any such options and
causing cash to be paid in consideration therefor. The Company Board (or such
members of the Company Board authorized to so act), in accordance with the
Company's Incentive Stock Option Plan, shall take timely action to adopt a
resolution providing and declaring that the consummation of the Merger,
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shareholder approval of the Merger, as well as all transactions or events
contemplated thereby or related thereto, shall not constitute a "Change of
Control" for purposes of such Incentive Stock Option Plan or, with the prior
consent of the Acquiror, take such other action as shall prevent any holder of a
Stock Option from having a right to receive, pursuant to Section 10 of such
Plan, a cash payment as a result of this Agreement and the transactions
contemplated hereby; provided that such other action be taken prior to the date
on which a "Change of Control" would otherwise occur in the absence of the
Company Board resolution to the contrary. The Company shall take such action as
is reasonably necessary to provide that, after the date of this Agreement, no
employee of the Company or any of its Subsidiaries who is otherwise eligible to
participate in the Company's Senior Executive Severance Pay Plan shall be
eligible to participate in, or receive a benefit under, the Company's Severance
Pay Plan, so as to prevent any employee of the Company or any of its
subsidiaries from receiving a severance benefit under both such plans. With
respect to the Company Annual Executive Bonus Plan (the "AEBP"), the aggregate
Target Pool (as such term is defined in the AEBP) for the 1997 calendar year
Valuation Period shall not exceed $2,000,000. To the extent a change of control
(as defined in the AEBP) occurs prior to the end of such Valuation Period,
however, such Target Pool shall be pro-rated in the same ratio as the number of
months in the Valuation Period completed as of the date of such change of
control bears to 12 (provided, however, that such pro-rated amount shall be
reduced by $273,750) and the Committee thereunder shall determine the amounts to
be paid under the AEBP and the Company shall make such payments, if any, at the
Effective Time. Notwithstanding the foregoing or any provision of this
Agreement, the Company shall take such action as may be required for each
Company Stock Option to fully vest and become immediately exercisable at the
Effective Time and to remain exercisable for the remaining term of such Company
Stock Option.
6.19 Certain Payments at Effective Time. In lieu of and in
satisfaction for the amount of any cash payment which might otherwise be paid or
payable upon a termination of employment under any Termination Agreement
previously entered into by the Company or any applicable severance plan, the
Company shall pay to the individuals listed on Schedule 6.19 of the Company's
Disclosure Schedule in a cash lump sum at the Effective Time the amounts set
forth in such Schedule 6.19, less the amount of any applicable withholding. In
addition, at the Effective Time payment shall also be made in respect of
Previously Disclosed obligations in respect of stock options that were never
granted to the individual included on Schedule 6.19of the Company's Disclosure
Schedule, less the amount of any applicable withholding.
6.20 Certain Employee Agreements. The Company shall not
terminate the employment of Messrs. Terrance G. Hodel, Harold B. Bonnikson, Gary
F. Moore and Martin S. Hughes (each, an "Identified Employee") without the prior
written consent of the Acquiror (such consent not to be unreasonably withheld)
and, subject to the terms and conditions of this Agreement, shall use its
reasonable best efforts (a) to maintain the continued employment of each
Identified Employee with the Company until the Effective Date and (b) not in any
way to encourage (or permit the encouragement of) any Identified Employee to
breach or violate any
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employment agreement or other arrangement such Identified Employee may have with
the Acquiror or any Subsidiary of it.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each of the Acquiror and the Company to consummate
the Merger is subject to the fulfillment or written waiver by the Acquiror and
the Company prior to the Effective Time of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
--------------------
by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock entitled to vote thereon in
accordance with Section 251 of the DGCL, other applicable law and the
Company Certificate and the Company By-Laws.
(b) Governmental and Regulatory Consents. All approvals and
------------------------------------
authorizations of, filings and registrations with, and notifications to,
all Governmental Authorities (except to the extent that such Governmental
Authorities are acting in the capacity of Insurer or Investor) required for
the consummation of the Merger and for the prevention of any termination of
any material right, privilege, license or agreement of either the Acquiror
or the Company or their respective Subsidiaries shall have been obtained or
made and shall be in full force and effect and all waiting periods required
by law shall have expired; provided, however, that none of the preceding
shall be deemed obtained or made if it shall be subject to any condition or
restriction the effect of which would have a Material Adverse Effect on the
Acquiror (including the Company as a Subsidiary after the Merger) or on the
Surviving Corporation.
(c) Third Party Consents. All consents or approvals of all persons,
--------------------
other than Governmental Authorities (except to the extent that such
Governmental Authorities are acting in the capacity of Insurer or
Investor), required for or in connection with the execution, delivery and
performance of this Agreement and the consummation of the Merger shall have
been obtained and shall be in full force and effect, unless the failure to
obtain any such consent or approval is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the
Surviving Corporation.
(d) No Injunction. No Governmental Authority of competent
-------------
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or
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permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall have
----------------------
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(f) Blue Sky Approvals. All permits and other authorizations under
------------------
the federal and state securities laws (other than that referred to in
Section 7.01(e)) and other authorizations necessary to consummate the
transactions contemplated hereby and to issue the shares of Acquiror Common
Stock (and related Acquiror Rights) to be issued in the Merger shall have
been received and be in full force and effect.
(g) Listing. The shares of Acquiror Common Stock (and related
-------
Acquiror Rights) to be issued in the Merger shall have been approved for
listing on the NYSE, subject to official notice of issuance.
7.02 Conditions to Obligation of the Company. The obligation of
the Company to consummate the Merger is also subject to the fulfillment or
written waiver by the Company prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Acquiror set forth in this Agreement shall be true and
correct (after giving effect to the standard set forth in Section 5.02 of
this Agreement) as of the date of this Agreement and as of the Effective
Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of
this Agreement or some other date shall be true and correct only as of such
date), and the Company shall have received a certificate, dated the
Effective Date, signed on behalf of the Acquiror by the Chief Executive
Officer and the Treasurer of the Acquiror to such effect.
(b) Performance of Obligations of the Acquiror. The Acquiror, the
------------------------------------------
Bank and Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and the Company shall have received a
certificate, dated the Effective Date, signed on behalf of the Acquiror by
the Chief Executive Officer and the Treasurer of the Acquiror to such
effect.
(c) Opinion of Counsel. The Company shall have received an opinion,
------------------
dated the Effective Date, of Sullivan & Cromwell, special counsel to the
Acquiror, to the effect that the shares of Acquiror Common Stock to be
issued as Consideration, when issued in
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accordance with the terms hereof, will be duly authorized, validly issued,
fully paid and nonassessable.
(d) Tax Opinion of Company's Counsel. The Company shall have received
--------------------------------
an opinion of Simpson Thacher & Bartlett, special counsel to the Company,
to the effect that (i) the Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (ii) no gain or loss will be
recognized by stockholders of the Company who receive shares of Acquiror
Common Stock as Consideration in exchange for shares of Company Common
Stock, except that gain or loss may be recognized as to cash received in
lieu of fractional share interests.
(e) Accountants' Letters. The Company shall have received the letters
--------------------
referred to in Section 6.15 from KPMG Peat Marwick LLP, the Acquiror's
independent auditors.
7.03 Conditions to Obligation of the Acquiror. The obligation of
the Acquiror to consummate the Merger is also subject to the fulfillment or
written waiver by the Acquiror prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and
correct (after giving effect to the standard set forth in Section 5.02 of
this Agreement) as of the date of this Agreement and as of the Effective
Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of
this Agreement or some other date shall be true and correct only as of such
date) and the Acquiror shall have received a certificate, dated the
Effective Date, signed on behalf of the Company by the Chief Executive
Officer and the Treasurer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and the
Acquiror shall have received a certificate, dated the Effective Date,
signed on behalf of the Company by the Chief Executive Officer and the
Chief Financial Officer of the Company to such effect.
(c) Tax Opinion of Acquiror's Counsel. The Acquiror shall have
---------------------------------
received an opinion of Sullivan & Cromwell, special counsel to the
Acquiror, dated the Effective Date, to the effect that the Merger
constitutes a "reorganization" within the meaning of Section 368 of the
Code.
(d) Accountants' Letters. The Acquiror and its directors and officers
--------------------
who sign the Registration Statement shall have received the letters
referred to in Section 6.15 from Ernst & Young LLP, the Company's
independent auditors.
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ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the
Merger may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
--------------
mutual consent of the Acquiror and the Company, if the Board of Directors
of each so determines by vote of a majority of the members of its entire
Board.
(b) Breach. At any time prior to the Effective Time, by the Acquiror
------
or the Company, in each case if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of
either: (i) a breach by the other party of any representation or warranty
contained herein (subject to the standard set forth in Section 5.02), which
breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach; or (ii) a breach by
the other party of any of the covenants or agreements contained herein,
which breach cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach and which
breach would be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on the breaching party.
(c) Delay. At any time prior to the Effective Time, by the Acquiror
-----
or the Company, in each case if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event that
the Merger is not consummated by December 31, 1997, except to the extent
that the failure of the Merger then to be consummated arises out of or
results from the knowing action or inaction of the party seeking to
terminate pursuant to this Section 8.01(c).
(d) No Approval. By the Company or the Acquiror, in each case if its
-----------
Board of Directors so determines by a vote of a majority of the members of
its entire Board, in the event (i) the approval of any Governmental
Authority required for consummation of the Merger and the other
transactions contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority or (ii) any stockholder
approval required by Section 6.02 herein is not obtained at the Company
Meeting.
(e) Failure to Recommend, Etc. By the Acquiror, if (i) at any time
--------------------------
prior to the Company Meeting the Company Board shall have failed to make
its recommendation referred to in Section 6.02, withdrawn such
recommendation or modified or changed such recommendation in a manner
adverse to the interests of the Acquiror (whether in
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accordance with Section 6.02 or otherwise) or (ii) the Company Board
participates in (or authorizes participation in) negotiations regarding the
substantive terms of a bona fide formal Acquisition Proposal).
(f) Acceptance of an Acquisition Proposal. By the Company, if,
-------------------------------------
without breaching Section 6.06, the Company shall contemporaneously enter
into a definitive agreement with a third party providing for an Acquisition
Transaction on terms determined in good faith by the Company Board, after
consulting with and considering the written advice of the Company's outside
counsel and financial advisors, to be more favorable to the stockholders of
the Company than the Merger; provided, that the right to terminate this
Agreement under this Section 8.01(f) shall not be available to the Company
unless it delivers to the Acquiror simultaneously with such termination the
fee referred to in Section 8.03.
(g) Possible Adjustment. By the Company, if the Company Board so
-------------------
determines by a vote of a majority of the members of the entire Company
Board, at any time during the five-day period commencing with the
Determination Date, if both of the following conditions are satisfied:
(i) The Average Closing Price on the Determination Date of shares
of Acquiror Common Stock shall be less than the product of 0.80 and the
Starting Price; and
(ii) (A) The number obtained by dividing the Average Closing
Price on the Determination Date by the Starting Price (such number, the
"Acquiror Ratio") shall be less than (B) the number obtained by dividing
the Index Price on the Determination Date by the Index Price on the
Starting Date and subtracting 0.20 from the quotient in this Section
8(g)(ii)(B) (such number, the "Index Ratio");
subject, however, to the following four sentences. If the Company elects
to exercise its termination right pursuant to this Section 8.01(g), it
shall give prompt written notice to the Acquiror; provided that such notice
of election may be withdrawn at any time within the aforementioned five-day
period. During the five-day period commencing with its receipt of such
notice, the Acquiror shall have the option of adjusting the Exchange Ratio
to the lesser of (i) a number equal to a quotient (rounded to the nearest
one-thousandth), the numerator of which is the product of 0.80, the
Starting Price and the Exchange Ratio (as then in effect) and the
denominator of which is the Average Closing Price, and (ii) a number equal
to a quotient (rounded to the nearest one-thousandth), the numerator of
which is the Index Ratio multiplied by the Exchange Ratio (as then in
effect) and the denominator of which is the Acquiror Ratio. If the
Acquiror determines so to increase the Exchange Ratio within such five-day
period, it shall give prompt written notice to the Company of its
determination and the revised Exchange Ratio, whereupon no termination
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shall occur pursuant to this Section 8.01(g) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange Ratio
shall have been so modified), and any references in this Agreement to the
"Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio
as adjusted pursuant to this Section 8.01(g). If the Acquiror or any
company belonging to the Index Group declares or effects a stock dividend,
reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of the Acquiror or such
company shall be appropriately adjusted for the purposes of applying this
Section 8.01(g).
8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (a) as set forth in Sections 8.03
and 9.01 and (b) that termination will not relieve a breaching party from
liability for any willful breach of this Agreement giving rise to such
termination.
8.03 Termination Fee. (a) The Company hereby agrees to pay to
the Acquiror, and the Acquiror shall be entitled to payment of, a cash fee (the
"Fee") of $15,000,000 following the occurrence of a Fee Trigger Event; provided,
that the Acquiror's right to receive the Fee shall be discontinued if any of the
following (each, a "Fee Termination Event") occurs prior to a Fee Trigger Event:
(i) The Effective Time;
(ii) Termination of this Agreement in accordance with the provisions
hereof, if such termination occurs prior to the occurrence of a Preliminary
Fee Trigger Event, other than a Listed Termination; or
(iii) Fifteen months after termination of this Agreement, if such
termination (A) follows, or occurs at the same time as, a Preliminary Fee
Trigger Event (other than, termination by the Company pursuant to (x)
Section 8.01(b) because of a knowing, intentional or grossly negligent
breach by the Acquiror or (y) Section 8.01(g), in which case the right to
receive the Fee shall terminate at termination of this Agreement) or (B) is
a Listed Termination.
(b) The term "Preliminary Fee Trigger Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) The Company or any subsidiary of the Company, without having received
the Acquiror's prior written consent, shall have entered into an agreement
to engage in an Acquisition Transaction with any person (the term "person"
for purposes of this Section 8.03 having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the
-57-
<PAGE>
Exchange Act) other than the Acquiror or any of its Subsidiaries (each an
"Acquiror Person") or the Company Board shall have recommended that the
stockholders of the Company approve or accept any Acquisition Transaction
other than the Merger.
(ii) Any person, other than an Acquiror Person, shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 15% or
more of the outstanding shares of Company Common Stock (the term
"beneficial ownership" for purposes of this Section 8.03 having the meaning
assigned thereto in Section 13(d) of the Exchange Act);
(iii) The stockholders of the Company shall have voted and failed to
adopt this Agreement and the Merger at a meeting which has been held for
that purpose or any adjournment or postponement thereof, or such meeting
shall not have been held in violation of this Agreement or shall have been
canceled prior to termination of this Agreement, in each case, if, prior to
such meeting (or if such meeting shall not have been held or shall have
been canceled, prior to such termination), it shall have been publicly
announced that any person (other than an Acquiror Person) shall have made,
or disclosed an intention to make, a bona fide proposal to engage in an
Acquisition Transaction;
(iv) The Company Board shall have withdrawn or modified (or disclosed its
intention to withdraw or modify) in a manner adverse in any respect to the
Acquiror its recommendation referred to in Section 6.02, or the Company or
any Subsidiary of it shall have authorized, recommended, proposed (or
publicly announced its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any person other
than an Acquiror Person;
(v) Any person, other than an Acquiror Person, shall have made a bona
fide proposal to the Company or its stockholders, by public announcement or
written communication that is or becomes the subject of public disclosure,
to engage in an Acquisition Transaction;
(vi) Any person, other than an Acquiror Person, shall have filed with the
SEC a registration statement or tender offer materials with respect to a
potential exchange or tender offer that would constitute an Acquisition
Transaction (or filed a preliminary proxy statement with the SEC with
respect to a potential vote by its stockholders to approve the issuance of
shares to be offered in such an exchange offer); or
(vii) The Company shall have willfully breached any covenant or
obligation contained in this Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach the Acquiror would be
entitled to terminate this Agreement (whether immediately or after the
giving of notice or passage of time or both).
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<PAGE>
(c) The term "Fee Trigger Event" shall mean any of the following events or
transactions occurring after the date hereof:
(i) The acquisition by any person (other than an Acquiror Person) of
beneficial ownership of 25% or more of the then outstanding Company Common
Stock; or
(ii) The occurrence of the Preliminary Fee Trigger Event described in
Section 8.03(b)(i), except that the percentage referred to in clause (iii)
of the definition of "Acquisition Transaction" shall be deemed 25%.
(d) The Company shall notify the Acquiror promptly in writing of its
knowledge of the occurrence of a Preliminary Fee Trigger Event or Fee Trigger
Event; provided, however, that the giving of such notice shall not be a
condition to the right of the Acquiror to the Fee.
(e) The Fee shall be payable, without setoff, by wire transfer in
immediately available funds, to an account specified by the Acquiror, not later
than three New York City business days following the first occurrence of a Fee
Trigger Event.
ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement (other than in this Article IX) shall survive the
Effective Time or termination of this Agreement if this Agreement is terminated
prior to the Effective Time; provided, however, that if this Agreement is
terminated prior to the Effective Time, the agreements of the parties contained
in Sections 6.05(b), 8.02, 8.03 and Article IX shall survive such termination.
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of
this Agreement may be (a) waived by the party benefitted by the provision, or
(b) amended or modified at any time, by an agreement in writing between the
parties hereto approved by their respective Boards of Directors and executed in
the same manner as this Agreement, except that, after approval of the Merger by
the stockholders of the Company, no amendment may be made which under applicable
law requires further approval of such stockholders without obtaining such
required further approval.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
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<PAGE>
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
9.05 Expenses. Subject to Section 8.03, each party hereto will bear all
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing expenses and SEC registration fees
shall be shared equally between the Company and the Acquiror.
9.06 Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given (a) on the date of
delivery, if personally delivered or telecopied (with confirmation), (b) on the
first business day following the date of dispatch, if delivered by a recognized
next-day courier service, or (c) on the third business day following the date of
mailing, if mailed by registered or certified mail (return receipt requested),
in each case to such party at its address or telecopy number set forth below or
such other address or numbers as such party may specify by notice to the parties
hereto.
If to the Company, to:
President
North American Mortgage Company
3883 Airway Drive
Santa Rose, California 95403
Facsimile: (704) 542-6721
With a copy to:
James M. Cotter, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Facsimile: (212) 455-2502.
If to the Acquiror, to:
Gene C. Brooks, Esq.
Dime Bancorp, Inc.
509 Fifth Avenue
New York, New York 10017
Facsimile: (212) 386-6110
-60-
<PAGE>
With a copy to:
Mitchell S. Eitel, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588.
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement
(together with the Disclosure Schedules) represents the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
this Agreement supersedes any and all other oral or written agreements
heretofore made. Except for Section 6.13, insofar as such Section expressly
provides certain rights to the Indemnified Parties named therein, nothing in
this Agreement, expressed or implied, is intended to confer upon any person,
other than the parties hereto or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
* * *
-61-
<PAGE>
EXHIBIT A
Form of Amendment to Company Rights Agreement
---------------------------------------------
AMENDMENT, dated as of June 22, 1997 (the "Amendment"), to the Stockholder
Rights Agreement, dated as of October 19, 1992 (as amended, the "Rights
Agreement"), between North American Mortgage Company, a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking corporation, as
Rights Agent (the "Rights Agent").
WITNESSETH
WHEREAS, on October 19, 1992, the Board of Directors of the Company
authorized and declared a dividend distribution of one Right for each share of
Common Stock outstanding at the close of business on the Record Date, each Right
representing the right to purchase one one-hundredth of a share of Preferred
Stock upon the terms and conditions set forth in the Rights Agreement;
WHEREAS, the Rights remain issued and outstanding and the Rights Agreement
remains in effect with respect thereto;
WHEREAS, no Distribution Date has occurred;
WHEREAS, the Company, Dime Bancorp, Inc., a Delaware corporation ("Dime"),
and The Dime Savings Bank of New York, FSB, a federal savings bank (the "Bank"),
have entered into an Agreement and Plan of Combination (the "Combination
Agreement"), pursuant to which the Bank would acquire the assets and assume the
liabilities of the Company (or assign the right to acquire such assets and
assume such liabilities to a corporation wholly owned and controlled by the
Bank); and
WHEREAS, in connection with the approval, execution, and delivery of the
Combination Agreement, the Board of Directors of the Company has approved, in
accordance with Section 27 of the Rights Agreement, this Amendment and has
directed the appropriate officers of the Company to take all appropriate steps
to execute and deliver this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereby agree as follows:
(1) Amendment to Section 1(a)
-------------------------
The first paragraph of Section 1(a) of the Rights Agreement is hereby
amended to read in its entirety as follows:
<PAGE>
"(a) 'Acquiring Person' shall mean any Person who or which,
----------------
together with all Affiliates (as hereinafter defined) and Associates
(as hereinafter defined) of such Person, shall be the Beneficial Owner
(as hereinafter defined) of 15% or more of the shares of Common Stock,
but shall not include (i) the Company, (ii) any Subsidiary (as such
term is hereinafter defined) of the Company, (iii) any employee
benefit plan or compensation arrangement of the Company or any
Subsidiary of the Company, (iv) any Person holding shares of Common
Stock organized, appointed or established by the Company or any
Subsidiary of the Company for or pursuant to the terms of any such
employee benefit plan or compensation arrangement, or (v) until the
termination of the Combination Agreement in accordance with its terms,
Dime or any Affiliate or Associate of Dime, as a result of their
acquisition of Beneficial Ownership of shares of Common Stock by
reason of the approval, execution, or delivery of the Combination
Agreement, or by reason of the consummation of any transaction
contemplated by the Combination Agreement, so long as Dime and any
Affiliate or Associate of Dime is not the Beneficial Owner of any
shares of Common Stock other than (w) shares of Common Stock of which
Dime or any Affiliate or Associate of Dime is or becomes the
Beneficial Owner by reason of the approval, execution, or delivery of
the Combination Agreement, or by reason of the consummation of any
transaction contemplated by the Combination Agreement, (x) shares of
Common Stock Beneficially Owned by Dime or any Affiliate or Associate
of Dime on the date hereof, (y) shares of Common Stock of which Dime
or any Affiliate or Associate of Dime inadvertently becomes the
Beneficial Owner after the date hereof, provided that the number of
such shares of Common Stock does not exceed 1/2 of 1% of the shares of
Common Stock outstanding on the date hereof and that Dime or any such
Affiliate or Associate, as the case may be, divests such shares of
Common Stock as soon as practicable after it becomes aware of such
acquisition of Beneficial Ownership, and (z) shares of Common Stock
Beneficially Owned or otherwise held by Dime or any Affiliate or
Associate of Dime in fiduciary capacity or in satisfaction of debts
previously contracted in good faith (the Persons described in clauses
(i) through (v) above are referred to herein as 'Exempt Persons')."
(2) Amendment to Section 1(b)
-------------------------
Section 1(b) of the Rights Agreement is hereby amended to read in its
entirety as follows:
"(b) 'Adverse Person' shall mean any Person declared to be an
--------------
Adverse Person by the Board of Directors upon a determination of the
Board of Directors that the criteria set forth in Section 11(a)(ii)(B)
apply to such Person, provided, however, that the Board of Directors
shall not declare Dime or any Affiliate or Associate of Dime to be an
Adverse Person (i) as a result of the Combination
A-2
<PAGE>
Agreement, their acquisition of Beneficial Ownership of shares of
Common Stock by reason of the Combination Agreement, or by reason of
the consummation of any transaction contemplated by the Combination
Agreement or (ii) unless the Combination Agreement has been terminated
in accordance with its terms."
(3) Addition of Section 1(z).
------------------------
A new Section 1(z) of the Rights Agreement is inserted, to read in its
entirety as follows:
"(z) 'Dime' shall mean Dime Bancorp, Inc., a Delaware
----
corporation, and its successors."
(4) Addition of Section 1(aa).
-------------------------
A new Section 1(aa) of the Rights Agreement is inserted, to read in
its entirety as follows:
"(aa) 'Combination Agreement' shall mean the Agreement and Plan of
---------------------
Combination, dated as of June 22, 1997, by and among the Company, Dime, and
The Dime Savings Bank of New York, FSB, a federal savings bank, as the same
may be amended from time to time."
(5) Amendment of Section 7(a). The first sentence of Section 7(a) of
-------------------------
the Rights Agreement is hereby amended to read in its entirety as follows:
"(a) Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the
form of election to purchase and the certificate on the reverse side
thereof duly executed, along with a signature guarantee and such other
and further documentation as the Rights Agent may reasonably request,
to the Rights Agent at the office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate
Exercise Price of the total number of one one-hundredth of a share of
Preferred Stock (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercised,
at or prior to the earlier of (i) the close of business on December
31, 2002 (the 'Final Expiration date'), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof, (iii) the time
at which such Rights are exchanged as provided in Section 24 hereof or
(iv) the effective time of the business combination provided for in
the Combination Agreement (the earlier if (i), (ii), (iii) or (iv)
being herein referred to as the 'Expiration Date')."
A-3
<PAGE>
(6) Effectiveness. This Amendment shall be deemed to be in force and
-------------
effective immediately prior to the execution and delivery of the Combination
Agreement. Except as amended hereby, the Rights Agreement shall remain in full
force and effect and shall be otherwise unaffected hereby.
(7) Defined Terms. Unless otherwise defined herein, all capitalized
-------------
terms used but not otherwise defined herein shall have the meanings assigned
them in the Rights Agreement.
(8) Governing Law. This Amendment shall be deemed to be a contract
-------------
made under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and to be performed entirely within New York.
(9) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall for all purposes be deemed an original and all
of which shall together constitute but one and the same instrument.
* * *
A-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
NORTH AMERICAN MORTGAGE COMPANY
By:_______________________________
Name:
Title:
THE BANK OF NEW YORK, as Rights Agent
By:_______________________________
Name:
Title:
A-5
<PAGE>
EXHIBIT B
Form of Company Affiliate Letter
--------------------------------
______________, 1997
North American Mortgage Company
3833 Airway Drive
Santa Rose, California 95403
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Ladies and Gentlemen:
I have been advised that I may be deemed to be an "affiliate" of North
American Mortgage Company, a Delaware corporation (the "Company"), as that term
is defined in Rule 145 promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Securities Act").
I understand that pursuant to the terms of the Agreement and Plan of
Combination, dated as of June 22, 1997 (as amended from time to time and
including the exhibits thereto, the "Agreement"), by and among the Company, Dime
Bancorp, Inc., a Delaware corporation (the "Acquiror"), The Dime Savings Bank of
New York, FSB, a federal savings bank (the "Bank"), and 47th St. Property
Corporation ("Merger Sub"), Merger Sub plans to merge with and into the Company
(the "Merger").
I further understand that as a result of the Merger, I may receive
shares of common stock, par value $0.01 per share, of the Acquiror ("Acquiror
Common Stock") (i) in exchange for shares of common stock, par value $0.01 per
share, of the Company ("Company Common Stock") or (ii) as a result of the
exercise of Rights (as defined in the Agreement).
I have carefully read this letter and reviewed the Agreement and
discussed their requirements and other applicable limitations upon my ability to
sell, transfer, or otherwise dispose of Acquiror Common Stock and Company Common
Stock, to the extent I felt necessary, with my counsel or counsel for the
Company.
I represent, warrant and covenant with and to the Acquiror that in the
event I receive any Acquiror Common Stock as a result of the Merger:
1. I shall not make any sale, transfer, or other disposition of such Acquiror
Stock unless (i) such sale, transfer or other disposition has been
registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with the provisions of Rule
<PAGE>
145 under the Securities Act (as such rule may be amended from time to
time), or (iii) in the opinion of counsel in form and substance reasonably
satisfactory to the Acquiror, or under a "no-action" letter obtained by me
from the staff of the SEC, such sale, transfer or other disposition will
not violate or is otherwise exempt from registration under the Securities
Act.
2. I understand that the Acquiror is under no obligation to register the sale,
transfer or other disposition of shares of Acquiror Common Stock by me or
on my behalf under the Securities Act or to take any other action necessary
in order to make compliance with an exemption from such registration
available.
3. I understand that stop transfer instructions will be given to the
Acquiror's transfer agent with respect to the shares of Acquiror Common
Stock issued to me as a result of the Merger and that there will be placed
on the certificates for such shares, or any substitutions therefor, a
legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement
between the registered holder hereof and Dime Bancorp, Inc., a copy of
which agreement is on file at the principal offices of Dime Bancorp,
Inc."
4. I understand that, unless transfer by me of the Acquiror Common Stock
issued to me as a result of the Merger has been registered under the
Securities Act or such transfer is made in conformity with the provisions
of Rule 145(d) under the Securities Act, the Acquiror reserves the right,
in its sole discretion, to place the following legend on the certificates
issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 under the
Securities Act of 1933 applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933
and may not be offered, sold, pledged or otherwise transferred except
in accordance with an exemption from the registration requirements of
the Securities Act of 1933."
It is understood and agreed that the legends set forth in paragraphs (3)
and (4) above shall be removed by delivery of substitute certificates without
such legend if I shall have delivered to the Acquiror (i) a copy of a "no
action" letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to the Acquiror, to the effect that such
legend is not
B-2
<PAGE>
required for purposes of the Securities Act, or (ii) evidence or representations
satisfactory to the Acquiror that the Acquiror Common Stock represented by such
certificates is being or has been sold in conformity with the provisions of Rule
145(d).
I further understand and agree that this letter agreement shall apply to
all shares of Company Common Stock and Acquiror Common Stock that I am deemed to
beneficially own pursuant to applicable federal securities laws and I further
represent, warrant and covenant with and to the Acquiror that I will have, and
will cause each of the other parties whose shares are deemed to be beneficially
owned by me to have, all shares of Company Common Stock or Acquiror Common
Stock owned by me or such parties registered in my name or the name of such
parties, as applicable, prior to the effective date of the Merger and not in the
name of any bank, broker or dealer, nominee or clearing house.
Very truly yours,
________________________________
Name:
Accepted this _____ day of
______________, 1997.
NORTH AMERICAN MORTGAGE COMPANY
By __________________________
Name:
Title:
DIME BANCORP, INC.
By __________________________
Name:
Title:
B-3
<PAGE>
BY-LAWS
OF
DIME BANCORP, INC.
(a Delaware corporation)
----------------------
ARTICLE I
OFFICES
SECTION 1. Registered office. The registered office of the Company
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. Additional offices. The Company may also have offices and
places of business at such other places, within and outside the State of
Delaware, as the Board of Directors ("Board") may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of meetings. All annual and special meetings of
stockholders shall be held at such place, within or outside the State of
Delaware, as shall be designated from time to time by the Board and stated in
the notice of the meeting.
SECTION 2. Annual meetings. All regular meetings of the stockholders
of the Company for the election of Directors or for any other purpose shall be
held annually (i) on the fourth Friday in April if not a legal holiday (and if a
legal holiday, then on the first day following that is not a legal holiday) at
10:00 a.m.; or (ii) at such other date and time as the Board may determine.
SECTION 3. Special meetings. Special meetings of the stockholders of
the Company for any purpose or purposes may be called by the Chairman of the
Board of Directors (or, if there is no such Chairman, by the Chief Executive
Officer of the Company) with the approval of a majority of the Directors then in
office, or by the Secretary of the Company at the written request of a majority
of the Directors then in office.
SECTION 4. Conduct of meetings. The Chief Executive Officer of the
Company or, in his or her absence, the President of the Company or, in his or
her absence, such person as the Board may have designated shall call to order
any meeting of the stockholders and act as chairman of the meeting. Subject to
<PAGE>
Sections 13 and 14 of this Article II, annual and special meetings of the
stockholders shall be conducted in accordance with customary practices and
procedures as determined by the chairman of the meeting.
SECTION 5. Notice of meetings. Written notice of every meeting of
the stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than 10 nor more than 60 days before the date of
the meeting, either personally or by mail, by or at the direction of the Chief
Executive Officer, the President or the Secretary, or the Directors calling the
meeting, to each stockholder entitled to vote at such meeting or entitled to
notice of such meeting, except as otherwise provided herein, in the Certificate
of Incorporation, in a certificate of designation with respect to any series of
preferred stock or by law. If mailed, such notice shall be deemed to be
delivered when deposited in the mail, postage prepaid, addressed to the
stockholder at his or her address as it appears on the stock transfer books or
records of the Company as of the record date prescribed in Section 6 of this
Article II. When any stockholders' meeting, either annual or special, is
adjourned for 30 days or more or if a new record date is fixed, 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 the business to be transacted at such
adjourned 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
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or in order to make a determination of stockholders for any other purpose, the
Board shall fix in advance a date as the record date for any such determination
of stockholders. Such date in any case shall be not more than 60 days and, in
case of a meeting of stockholders, not less than 10 days prior to, the date on
which the particular action requiring such determination of stockholders is to
be taken. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this Section 5, such
determination shall also apply to any adjournment of such meeting unless the
Board, at its discretion, fixes a new record date for the adjourned meeting.
SECTION 7. Voting lists. (a) At least 10 days before each meeting
of the stockholders, the officer or agent having charge of the stock transfer
books for shares of the Company shall make a complete list of the stockholders
entitled to vote
2
<PAGE>
at such meeting or any adjournment thereof, arranged in alphabetical order
with the address and the number of shares held by each. This list of
stockholders shall be open to inspection by any stockholder, for any lawful
purpose germane to such meeting, at any time during usual business hours for a
period of 10 days prior to such meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence as to who are the stockholders entitled to examine such
list or transfer books or to vote at any meeting of stockholders.
(b) The Company may require any stockholder making a request for
inspection of the list of stockholders entitled to vote at a meeting to provide
a written representation as to the purpose for such request in order that the
Company may determine whether such purpose is lawful and germane to such
meeting. Such written representation shall also state that the list of stock-
holders shall not be used for any purpose other than the purpose set forth
therein.
(c) No stockholder who inspects the Company's list of stockholders
pursuant to this Section 7 or otherwise shall have the right to make copies or
prepare extracts of such list (unless and only to the extent that the Company is
required by applicable law to allow the making of such copies or the preparation
of such extracts).
SECTION 8. Quorum. A majority of the outstanding shares of the
Company entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of stockholders. If less than a majority of the outstanding
shares are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without notice other than announcement
at the meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy in accordance with (S) 212 of the Delaware General Corporation
Law.
SECTION 10. Voting. The vote upon any question brought before a
meeting of the stockholders may be a voice vote,
3
<PAGE>
unless the holders of a majority of the outstanding shares of all classes of
stock entitled to vote thereon present in person or by proxy at such meeting
shall otherwise determine. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock that has voting power present in person
or represented by proxy (for this purpose, shares abstaining and "broker non-
votes" shall be deemed to be present at such meeting) shall decide any question
properly brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation, a certificate of
designation of any series of preferred stock or these By-laws a different vote
is required, in which case such express provision shall govern and control the
decision of such question. Notwithstanding the above, in the case of any
proposal submitted to the stockholders for the purpose, as determined by the
Board of Directors, which is not required to be the sole purpose, of satisfying
any term or condition of the Securities Exchange Act of 1934, as amended, or the
Internal Revenue Code of 1986, as amended, any successors to such statutes or
any rules or regulations promulgated thereunder or any other law or regulation
applicable to the Company, the vote (and the manner of calculating such vote)
required for purposes of these By-laws with respect to such proposal shall be
the vote (and the manner of calculating such vote) required to satisfy the
applicable term or condition.
SECTION 11. Voting of shares in the name of two or more persons.
When share ownership stands in the name of two or more persons, in the absence
of written directions to the Company to the contrary from all of such owners, at
any meeting of the stockholders of the Company any one or more of such
stockholders may cast, in person or by proxy, all votes to which such owner-
ship is entitled. If an attempt is made to case 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 shares and present in person or by proxy at such
meeting, but no votes shall be case for such stock if a majority cannot agree.
SECTION 12. Voting of shares by certain holders. (a) Shares standing
in the name of a corporation may be voted by any officer, agent or proxy as the
By-laws 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 or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver without
the transfer of such shares into his or her
4
<PAGE>
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.
(b) Treasury shares of the Company's stock held by the Company shall
not be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 13. Nominations. (a) No nominations for Directors except
those made by the Board shall be voted upon at the annual meeting other than
nominations made by any stockholder entitled to vote in the election of
Directors who gives written notice of such stockholder's intent to make such
nomination or nominations, either by personal delivery or by United States mail,
postage prepaid, to the secretary of the Company:
(1) with respect to an election to be held at an annual meeting of
stockholders, not less than 60 days nor more than 90 days in
advance of (a) with respect to the 1995 annual meeting, March 22,
1995; and (b) with respect to each subsequent annual meeting, the
anniversary of the date of the notice of meeting mailed to
stockholders in connection with the previous year's annual
meeting of stockholders; and
(2) with respect to an election to be held at a special meeting of
stockholders for the election of Directors, not later than the
close of business on the seventh day following the day on which
notice of such meeting is first given to stockholders.
Each such notice of a stockholder's intent to make such nomination or
nominations shall set forth:
(1) the name and address of the stockholder who intends to make the
nomination or nominations and of the person or persons to be
nominated;
(2) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, and a statement of the
number of shares owned by such stockholder, beneficially and of
record;
(3) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons
(naming such person or
5
<PAGE>
persons) pursuant to which the nomination or nominations is or
are to be made by the stockholder;
(4) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated or intended to
be nominated by the board of Directors; and
(5) the written consent of each nominee to serve as a Director of the
Company if elected.
The presiding officer of any meeting of the stockholders may refuse to
acknowledge the nomination of any person if not made in compliance with these
By-laws. Ballots bearing the names of all the persons so nominated by the Board
and by stockholders shall be provided for use at the annual meeting.
(b) No stockholder nomination for director shall be acknowledged at a
meeting of stockholders unless the stockholder who gave written notice of his or
her intent to make such nomination is present in person or by proxy at such
meeting and makes the nomination.
SECTION 14. New business. (a) The Board or any stockholder may make
a proposal to be acted upon at an annual meeting of stockholders, provided that
any such proposal by a stockholder is made in writing and delivered either by
personal delivery or by United States mail, postage prepaid, to the secretary
of the Company not less than 60 days nor more than 90 days in advance of (i)
with respect to the 1995 annual meeting, March 22, 1995; and (ii) with respect
to each subsequent annual meeting, the anniversary of the date of the notice of
meeting mailed to stockholders in connection with the previous year's annual
meeting of stockholders.
Each such stockholder proposal must set forth:
(1) the name and address of the stockholder making the proposal;
(2) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to move such
proposal;
(3) a brief description of the proposal to be made; and
6
<PAGE>
(4) a description of any material interest (other than proportionally
as a stockholder) of such stockholder in such proposal.
(b) Any such proposal may be deemed out of order and need not be
discussed, considered, acted or voted upon or laid over for action at any
meeting of stockholders if the Chief Executive Officer (or such other officer of
the Company who shall preside at the relevant meeting of stockholders)
determines that such proposal was not delivered in compliance with these By-laws
or that such proposal deals or relates to:
(1) any action or matter that, if taken or effectuated by the
Company, would be in violation of, or contrary to, any
applicable law or regulation or would result in a breach or
violation by the Company or any contractual obligation;
(2) any action or matter that is impossible or beyond the Company's
power to take or effectuate;
(3) any action or matter that is not a proper subject for action by
the stockholders of the Company;
(4) any action or matter involving or relating to the conduct of the
ordinary business of the Company;
(5) any action or matter that is substantially duplicative of, or
counter to, any business or proposal that is to be considered at
such meeting of stockholders;
(6) any action or matter that has been rendered moot; or
(7) the redress of a personal claim or grievance against the Company
or any other person or entity, or any action or matter that is
designated to result in a benefit to the stockholder or to
further a personal interest, which benefit or interest is not
shared with the other stockholders of the Company at large.
(c) No more than two proposals from any stockholder or group of
stockholders acting as such may be discussed, considered, acted or voted upon
or laid over for action at any annual or other meeting of stockholders.
(d) No proposal from a stockholder shall be discussed, considered,
acted or voted upon or laid over for action at an annual or other meeting of
stockholders unless such stockholder
7
<PAGE>
in present in person or by proxy at such annual or other meeting of
stockholders.
(e) Proposals to be acted upon at a special meeting of the
stockholders may only be made by the Board or by the person calling such meeting
pursuant to Section 3 of this Article II.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General powers. The business and affairs of the Company
shall be under the direction of its Board of Directors which may exercise all
such powers of the Company and do all such lawful acts and things as are not by
law or by the Certificate of Incorporation directed or required to be exercised
or done by the stockholders. The Board shall annually elect a Chairman of the
Board (who shall not be an officer of the Company, unless the Board determines
otherwise) and a Chief Executive Officer and a President (each of whom shall be
officers of the Company) from among its members. The Board shall designate
the Chairman of the Board and, in his or her absence, the Chief Executive
Officer and, in his or her absence, the President to preside at its meetings in
such manner as shall be determined by the Board. Any number of such positions
may be held by the same person.
SECTION 2. Number and term. (a) The Board of Directors shall
consist of not less than seven nor more than 24 members, such number of
Directors to be determined from time to time by resolution adopted by a vote of
a majority of the Directors then in office.
(b) Except as may be otherwise provided in the Certificate of
Incorporation or a certificate of designation with respect to any series of
preferred stock, the Board 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 at each annual meeting of the stockholders.
(c) Anything to the contrary in these By-laws or any resolution
adopted by the Board of Directors regarding the age to which Directors may serve
notwithstanding, a Director who was or became a Director upon the merger of
Anchor Bancorp, Inc. with the Company (or a subsidiary thereof) shall be
eligible to serve as a Director until the annual meeting of stockholders next to
occur after his or her 75th birthday (or any subsequent birthday specified in
the Certificate of Incorporation, these By-laws or such a resolution).
8
<PAGE>
SECTION 3. Regular meetings. Regular meetings of the Board of
Directors may be held at such times and places as the Board shall from time to
time determine and no further notice shall be required to be given. By action
of the Board at any meeting, or with the written consent of the majority of the
Directors at the time in office, any regular meeting may be omitted.
SECTION 4. Special meetings. Special meetings may be called by the
Chief Executive Officer or the President on at least 24 hours' notice to each
Director, either personally or by facsimile telecommunication, mail or telegram.
Special meetings shall be called by the Chief Executive Officer, the President
or the Secretary in like manner and on like notice within 20 days after receipt
of the written request of one-third of the Directors then in office.
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 need be specified in
the notice or waiver of notice of such meeting.
The persons authorized to call special meetings of the Board may fix
any place as the place for holding any special meeting of the Board.
SECTION 5. Quorum. (a) A majority of the Directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board, 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 manner prescribed by Section 4 of this
Article III.
(b) Members of the Board or of any committee may participate in any
meeting of the Board or such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other.
SECTION 6. Manner of acting. (a) 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, unless a greater number is prescribed by law, the Certificate of
Incorporation or these By-laws.
9
<PAGE>
(b) In taking action, including, without limitation, action which may
involve or relate to a change or potential change in the control of the Company
or its subsidiaries, a Director shall be entitled to consider, without
limitation, (i) both the long-term and the short-term interests of the Company
and its stockholders and (ii) the effects that the Company's actions may have in
the short-term or in the long-term upon any of the following:
(1) the prospects for potential growth, development, productivity and
profitability of the Company and its subsidiaries;
(2) the Company's current employees;
(3) the Company's retired employees and other beneficiaries receiving
or entitled to receive retirement, welfare or similar benefits
from or pursuant to any plan sponsored, or agreement entered into,
by the Company;
(4) the Company's customers and creditors; and
(5) the ability of the Company to provide, as a going concern,
products, services, employment opportunities and employment
benefits and otherwise to contribute to the communities in which
it does business.
Nothing in this paragraph shall create any duties owed by any Director to any
person or entity to consider or afford any particular weight to any of the
foregoing or abrogate any duty of the Directors, whether statutory or recognized
by common law or court decisions.
SECTION 7. Action without a meeting. Any action required or
permitted to be taken by the Board or any committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the Board or of such committee.
SECTION 8. Resignation. Any Director may resign from the Board or
any committee at any time by sending a written notice of such resignation to the
Company addressed to the Chairman of the Board, the Chief Executive Officer or
the President. Unless otherwise specified, such resignations shall take effect
upon receipt by the Chairman or the President.
SECTION 9. Vacancies. Any vacancy occurring on the Board or any
newly created position on the Board resulting from an increase in the number of
Directors pursuant to Section 2 of this Article III shall be filled (a) by the
affirmative vote of a
10
<PAGE>
majority of the Directors then in office, although less than a quorum, or (b) by
the sole remaining Director if there is only one such Director, or (c) in the
event (and only in the event) of the failure of the directors or sole remaining
Director so to act, by the stockholders at the next annual meeting of stock-
holders. Each Director so chosen shall hold office for the remainder of the
full term expiring at the annual meeting of stockholders at which the term
expires of the class of Directors to which he or she has been elected and until
such Director's successor has been elected and has qualified. If the number of
Directors is changed, any increase or decrease shall be apportioned among the
three classes of Directors so as to make all classes as nearly equal in number
as possible. Subject to the preceding sentence, the increase or decrease may
be allocated to any class or classes the majority of the Directors then in
office selects in its discretion. No decrease in the number of Directors
constituting the board of Directors shall shorten the term of any incumbent
Director.
SECTION 10. Compensation. Directors, as such, may receive a stated
salary for their services and/or 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 or any standing or special committee. No such
salary or payment shall preclude any Director from serving the Company in any
other capacity and receiving compensation for his or her services.
SECTION 11. Removal of Directors. (a) At an annual meeting of
stockholders or a special meeting of stockholders called expressly for that
purpose, any Director may be removed for cause by a vote of the holders of 66
2/3 percent of the shares then entitled to vote at an election of Directors.
Cause for removal shall be deemed to exist only if the Director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction or
has been adjudged by a court of competent jurisdiction to be liable for gross
negligence or misconduct in the performance of such Director's duty to the
Company and such adjudication is no longer subject to direct appeal.
(b) The Board, by resolution adopted by a vote of a majority of the
Directors then in office, may remove any Director who has been removed by the
appropriate federal banking agency.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. Executive Committee. The standing committee of the Board
of Directors shall be an Executive Committee. The Executive Committee shall
consist of the Chief
11
<PAGE>
Executive Officer, the President, and the chairman of each other standing
committee of the Board established pursuant to Section 2 of Article IV of the
By-laws and an additional director taken in rotation. The term of office of
each such additional director shall be three months. The Executive Committee
shall have and may exercise, between meetings of the Board of Directors, all the
powers and authority of the Board in the management of the business and affairs
of the Company, including without limitation, the power and authority to declare
a dividend, to authorize the issuance of stock, to adopt a certificate of
ownership and merger and to indemnify directors, and may authorize the seal of
the Company to be affixed to all papers which may require it, except that the
Executive Committee shall not have such power or authority to fill vacancies on
the Board or on any committee of the Board, including the Executive Committee.
SECTION 2. Other Committees. The Board may, by resolution passed by
a majority of the entire Board, designate one or more other standing or other
committees. Initially, the other standing committees of the Board shall be an
Audit Committee, a Compensation Committee, a Community Reinvestment Act
Committee, a Credit Quality Committee, a Governance and Nominating Committee,
and an Investment Committee. Each committee shall consist of one or more of the
Directors of the Company as shall be designated by a majority of the whole Board
and shall have such lawfully delegable powers and duties as the Board may
confer. Each committee shall serve at the pleasure of the Board of Directors.
Except as may otherwise be determined by the Board, the Chief Executive Officer
will have the authority to recommend for the approval of the Board a chairman of
each committee from among the members of such committee. 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.
Except as otherwise provided by law, any committee, to the extent provided by
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Company (including the power to take any action or exercise any authority
granted to the Board under these By-laws), and may authorize the seal of the
Company to be affixed to all papers which may require it. Any committee or
committees so designated by the Board shall have such name or names as may be
determined from time to time by resolution adopted by the Board. Unless
otherwise prescribed by the Board, a majority of the members of the committee
shall constitute a quorum for the transaction of business, and the act of a
majority of the members present at a meeting at which there is a quorum shall be
the act of such committee. Each committee may prescribe its own rules for
calling and holding meetings and its method of procedure, subject to any rules
prescribed by the Board, and shall keep a written record of all actions taken by
it.
12
<PAGE>
ARTICLE V
WAIVERS OF NOTICE
SECTION 1. Waivers. Whenever any notice is required to be given by
law or under the provisions of the Certificate of Incorporation 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 of the event for which notice is
to be given, shall be deemed equivalent to such notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
ARTICLE VI
OFFICERS
SECTION 1. Positions. The officers of the Company shall be a Chief
Executive Officer, a President, a Secretary and a Treasurer, each of whom shall
be elected by the Board. The Board may also elect one or more Vice Chairmen
and/or Vice Presidents and such other officers as the business of the Company
may require. The officers shall have such authority and perform such duties as
the Board may from time to time authorize or determine. In the absence of
action by the Board, the officers shall have such powers or duties as generally
pertain to their respective offices. Any number of offices may be held by the
same person.
SECTION 2. Election and term of office. The officers of the Company
shall be elected by the Board. Each officer shall hold office until a successor
shall have been duly elected and qualified or until the officer's death,
resignation or removal in the manner provided in these By-laws.
SECTION 3. Removal. Any officer may be removed by the Board
whenever, in its judgment, the best interests of the Company will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
SECTION 5. Remuneration. The remuneration of officers shall be fixed
from time to time by the Board.
13
<PAGE>
SECTION 6. Duties of officers.
(a) The Chief Executive Officer. The Chief Executive Officer of the
Company shall be responsible for the active management, direction and
supervision of the Company, its operations, securities and obligations,
subject to the control of the Board, and shall have all the powers and perform
all the duties incidental to such office. The Chief Executive Officer shall
preside at all meetings of the stockholders. Unless otherwise determined by the
Board, the Chief Executive Officer shall have the power to vote all shares of
stock and other securities owned by the Company.
(b) The President. The President shall be the Chief Operating Officer
of the Company if so designated by the Board. The President shall also perform
such other duties as may, from time to time, be assigned to him or her by the
Board, or the Chief Executive Officer. In the absence or disability of the
Chief Executive Officer, he or she shall perform the duties of and exercise the
powers of the Chief Executive Officer.
(c) Secretary. The Secretary shall attend all meetings of the Board
and the stockholders as he or she may be requested by the Board to attend, and
record (or cause to be recorded) all votes and the minutes of all proceedings in
books to be kept for that purpose, and shall perform like duties for the
committees when required. He or she shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the Board, and shall
perform such other duties as may be prescribed by the Board, the Chief Executive
Officer, the President or the Vice Chairman, if any, under whose supervision he
or she shall act. He or she shall keep in safe custody the seal of the Company
and, when authorized by the Board, affix the seal to any instrument requiring it
and, when so affixed, it shall be attested by his or her signature or by the
signature of the Treasurer or any Assistant Secretary or Assistant Treasurer. He
or she shall keep the minutes of such meetings, and shall have such powers and
perform such duties as usually pertain to the office of Secretary. He or she
shall also perform such other duties as may from time to time be assigned to him
or her by the Board or the Chief Executive Officer.
(d) Treasurer. The Treasurer, subject to the approval of the Board
and the Chief Executive Officer, shall have the management of the cash and
securities of the Company and shall perform all acts incident to the position of
Treasurer and such other duties as may from time to time be assigned to him or
her by the Board or the Chief Executive Officer.
(e) Other Officers. All other officers shall have such powers and
perform such duties as may be assigned to them by the Board or the Chief
Executive Officer.
14
<PAGE>
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by law, and except as
otherwise prescribed by these By-laws with respect to certificates for shares,
the Board may authorize any officer, employee or agent of the Company to enter
into any contract or loan, or execute and deliver any instrument in the name of
and on behalf of the Company. Such authority may be general or confined to
specific instances.
SECTION 2. 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 Company shall be signed by one or more officers, employees or agents
of the Company in such manner as shall from time to time be determined by the
Board.
SECTION 3. Deposits. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in any of its
duly authorized depositories as the Board may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for shares. Certificates representing shares
of capital stock of the Company shall be in such form as shall be determined by
the Board. Such certificates shall be signed by the Chairman, the President or
by any other officer of the Company authorized by the Board, attested by the
Secretary or an Assistant Secretary and may, but need not, bear the seal of the
Company. 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 Company 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 entered on the
stock transfer books of the Company. All certificates surrendered to the Company
for transfer shall be cancelled and no new certificates shall be issued until
the former certificate for a like number of shares shall have been surrendered
and cancelled, except that in case of a lost or destroyed certificate, a new
certificate may be issued therefor upon such terms and indemnity to the Company
as the Board may prescribe.
15
<PAGE>
SECTION 2. Shares of stock of The Dime Savings Bank. The Board may
determine that upon any merger of The Dime Savings Bank of New York, FSB ("The
Dime") with an affiliate of The Dime, pursuant to which each share of the
capital stock of The Dime issued and outstanding or held in the treasury of The
Dime immediately prior to such merger, by virtue of such merger and without any
action on the part of the holder thereof, is converted into and becomes one
fully paid and non-assessable share of stock of the Company, each certificate
representing such shares of The Dime shall be deemed a certificate for the
appropriate number of shares of the Company, without any action on the part of
the holder thereof.
SECTION 3. Transfer of shares. Transfer of shares of capital stock
of the Company 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 or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her authorized attorney by power of attorney duly executed and filed with the
Company. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares and only upon compliance with provisions, if any,
restricting the transfer of such shares.
SECTION 4. Registered stockholders. The person in whose name shares
of capital stock stand on the books of the Company shall be deemed by the
Company to be the owner of such shares for all purposes.
SECTION 5. Transfer restriction legend. All certificates
representing common stock of the Company or other Stock (as defined in the
Certificate of Incorporation) issued prior to the Restriction Release Date (as
defined in the Certificate of Incorporation) shall bear a legend to the effect
that such Stock and any common stock or other Stock acquired prior to the
Restriction Release Date upon exercise or conversion of such Stock are subject
to the transfer restrictions set forth in paragraph C of Article IV of the
Certificate of Incorporation.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall end on December 31 of each year.
16
<PAGE>
ARTICLE X
DIVIDENDS AND RESERVE
SECTION 1. Dividends. Subject to applicable law and the terms of the
Certificate of Incorporation and any certificate of designation with respect to
a series of preferred shares, the Board may, from time to time, declare, and the
Company may pay, dividends on its outstanding shares of capital stock. Such
dividends may be paid in cash, in property, or in shares of the capital stock
of the Company.
SECTION 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Company available for dividends such sum or
sums as the Board from time to time, in its absolute discretion, believes proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Company, or for such other
purpose as the Board shall think conducive to the interest of the Company, and
the Board may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE XI
CORPORATE SEAL
The Board of Directors shall adopt a corporate seal and use the same
by causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
ARTICLE XII
AMENDMENTS
These By-laws may be amended or repealed from time to time by the
affirmative vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast at a meeting for the election of Directors at a meeting of
stockholders held for such purpose, or by a resolution adopted by a majority of
the Directors then in office.
Dated as of June 27, 1997
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIME BANCORP
INC.'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 163,450
<INT-BEARING-DEPOSITS> 4,837
<FED-FUNDS-SOLD> 30,987
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,166,733
<INVESTMENTS-CARRYING> 4,015,006
<INVESTMENTS-MARKET> 3,939,578
<LOANS> 11,822,610
<ALLOWANCE> 101,026
<TOTAL-ASSETS> 20,087,176
<DEPOSITS> 13,335,199
<SHORT-TERM> 4,309,923
<LIABILITIES-OTHER> 192,405
<LONG-TERM> 1,190,361
0
0
<COMMON> 1,083
<OTHER-SE> 1,058,205
<TOTAL-LIABILITIES-AND-EQUITY> 20,087,176
<INTEREST-LOAN> 419,559
<INTEREST-INVEST> 228,209
<INTEREST-OTHER> 16,071
<INTEREST-TOTAL> 663,839
<INTEREST-DEPOSIT> 272,087
<INTEREST-EXPENSE> 427,469
<INTEREST-INCOME-NET> 236,370
<LOAN-LOSSES> 33,000
<SECURITIES-GAINS> 3,692
<EXPENSE-OTHER> 161,173
<INCOME-PRETAX> 99,038
<INCOME-PRE-EXTRAORDINARY> 99,038
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,688
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 2.52
<LOANS-NON> 103,141
<LOANS-PAST> 0
<LOANS-TROUBLED> 188,783
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 106,495
<CHARGE-OFFS> 56,095
<RECOVERIES> 4,377
<ALLOWANCE-CLOSE> 101,026
<ALLOWANCE-DOMESTIC> 101,026
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
