UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5920
BANKERS TRUST NEW YORK CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-6180473
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
130 Liberty Street
New York, New York 10006
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
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 registrant's
classes of common stock as of October 31, 1997: Common Stock, $1 par value,
97,961,940 shares.
<PAGE> 1
BANKERS TRUST NEW YORK CORPORATION
September 30, 1997 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended September 30, 1997 and 1996 2
Nine Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheet
At September 30, 1997 and December 31, 1996 4
Consolidated Statement of Changes in Stockholders'
Equity
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Schedule of Net Interest Revenue
Three Months and Nine Months Ended
September 30, 1997 and 1996 7
In the opinion of management, all material adjustments
necessary for a fair presentation of the financial position
and results of operations for the interim periods presented
have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three
months and nine months ended September 30, 1997 are not
necessarily indicative of the results of operations for the
full year or any other interim period.
The merger of Alex. Brown Incorporated and Bankers Trust
New York Corporation was completed on September 1, 1997. The
merger was accounted for as a pooling of interests and all
periods presented have been restated as if Alex. Brown
Incorporated and Bankers Trust New York Corporation had always
been combined.
The financial statements included in this Form 10-Q should
be read with reference to the supplemental consolidated financial
statements as filed on Form 8-K dated September 1, 1997, as well
as the historical consolidated financial statements of Alex. Brown
Incorporated and Bankers Trust New York Corporation, included in
their Annual Reports on Form 10-K for the fiscal year ended
December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 6. Exhibits and Reports on Form 8-K 39
SIGNATURE 40
<PAGE> 2
PART I. FINANCIAL INFORMATION
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $1,789 $1,704 $ 85
Interest expense 1,474 1,434 40
Net interest revenue 315 270 45
Provision for credit losses 10 - 10
Net interest revenue after provision
for credit losses 305 270 35
NONINTEREST REVENUE
Trading 387 252 135
Fiduciary and funds management 277 216 61
Corporate finance fees 305 193 112
Other fees and commissions 158 130 28
Net revenue from equity investment transactions 73 79 (6)
Securities available for sale gains 18 11 7
Insurance premiums 76 52 24
Other 171 56 115
Total noninterest revenue 1,465 989 476
NONINTEREST EXPENSES
Salaries and commissions 333 295 38
Incentive compensation and employee benefits 543 273 270
Agency and other professional service fees 105 73 32
Communication and data services 58 63 (5)
Occupancy, net 45 43 2
Furniture and equipment 55 46 9
Travel and entertainment 36 27 9
Provision for policyholder benefits 90 66 24
Other 97 78 19
Restructuring charges 57 - 57
Total noninterest expenses 1,419 964 455
Income before income taxes 351 295 56
Income taxes 105 93 12
NET INCOME $ 246 $ 202 $ 44
NET INCOME APPLICABLE TO COMMON STOCK* $ 235 $ 194 $ 41
Cash dividends declared per common share $1.00 $1.00 $-
EARNINGS PER COMMON SHARE:
PRIMARY $2.25 $1.85 $.40
FULLY DILUTED $2.16 $1.80 $.36
<FN>
* Amounts shown are used to calculate primary earnings per common share.
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 3
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $5,200 $4,822 $378
Interest expense 4,214 4,052 162
Net interest revenue 986 770 216
Provision for credit losses 10 5 5
Net interest revenue after provision
for credit losses 976 765 211
NONINTEREST REVENUE
Trading 1,013 746 267
Fiduciary and funds management 769 633 136
Corporate finance fees 789 651 138
Other fees and commissions 445 407 38
Net revenue from equity investment transactions 129 182 (53)
Securities available for sale gains 100 51 49
Insurance premiums 203 177 26
Other 277 202 75
Total noninterest revenue 3,725 3,049 676
NONINTEREST EXPENSES
Salaries and commissions 941 841 100
Incentive compensation and employee benefits 1,362 898 464
Agency and other professional service fees 296 236 60
Communication and data services 173 177 (4)
Occupancy, net 132 128 4
Furniture and equipment 163 135 28
Travel and entertainment 101 77 24
Provision for policyholder benefits 231 216 15
Other 292 247 45
Restructuring charges 57 - 57
Total noninterest expenses 3,748 2,955 793
Income before income taxes 953 859 94
Income taxes 294 277 17
NET INCOME $ 659 $ 582 $ 77
NET INCOME APPLICABLE TO COMMON STOCK* $ 622 $ 545 $ 77
Cash dividends declared per common share $3.00 $3.00 $-
EARNINGS PER COMMON SHARE:
PRIMARY $6.00 $5.30 $.70
FULLY DILUTED $5.80 $5.13 $.67
<FN>
* Amounts shown are used to calculate primary earnings per common share.
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 4
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
September 30, December 31,
1997* 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,625 $ 1,568
Interest-bearing deposits with banks 2,522 2,210
Federal funds sold 2,241 1,684
Securities purchased under resale
agreements 24,902 18,002
Securities borrowed 16,138 17,005
Trading assets:
Government securities 11,650 16,849
Corporate debt securities 9,362 8,033
Equity securities 8,010 6,089
Swaps, options and other derivatives 13,720 11,410
Other trading assets 9,833 6,748
Total trading assets 52,575 49,129
Securities available for sale 7,577 7,920
Loans, net of allowance for credit losses
of $759 at September 30, 1997 and $773
at December 31, 1996 20,544 15,107
Customer receivables 1,711 1,529
Accounts receivable and accrued interest 3,977 3,077
Other assets 6,275 5,547
Total $140,087 $122,778
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,134 $ 2,600
Foreign offices 1,294 1,013
Interest-bearing deposits
Domestic offices 20,490 9,928
Foreign offices 22,161 16,774
Total deposits 46,079 30,315
Trading liabilities:
Securities sold, not yet purchased
Government securities 6,724 7,668
Equity securities 5,445 4,174
Other trading liabilities 407 334
Swaps, options and other derivatives 13,517 11,585
Total trading liabilities 26,093 23,761
Securities loaned and securities sold under
repurchase agreements 20,158 23,454
Other short-term borrowings 19,329 19,409
Accounts payable and accrued expenses 6,255 4,837
Other liabilities, including allowance for
credit losses of $213 at September 30, 1997
and $200 at December 31, 1996 3,998 2,836
Long-term debt not included in risk-based capital 7,655 8,732
Long-term debt included in risk-based capital 2,918 2,576
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,471 730
Total liabilities 133,956 116,650
PREFERRED STOCK OF SUBSIDIARY - 250
STOCKHOLDERS' EQUITY
Preferred stock 703 810
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued: 1997, 105,362,258;
1996, 103,624,555 shares 105 104
Capital surplus 1,541 1,437
Retained earnings 4,176 3,988
Common stock in treasury, at cost:
1997, 5,756,621 shares;
1996, 4,435,226 shares (545) (372)
Other stockholders' equity 151 (89)
Total stockholders' equity 6,131 5,878
Total $140,087 $122,778
<FN>
* Unaudited
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 5
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 810 $ 865
Preferred stock issued - 1
Preferred stock redeemed (100) -
Preferred stock repurchased (7) (50)
Balance, September 30 703 816
COMMON STOCK
Balance, January 1 104 103
Issuance of common stock 1 1
Balance, September 30 105 104
CAPITAL SURPLUS
Balance, January 1 1,437 1,386
Issuance of common stock 59 15
Repurchase and retirement of common stock (6) (16)
Common stock distributed under employee
benefit plans 51 21
Preferred stock repurchased - 6
Balance, September 30 1,541 1,412
RETAINED EARNINGS
Balance, January 1 3,988 3,702
Net income 659 582
Cash dividends declared
Preferred stock (38) (44)
Common stock (268) (252)
Treasury stock distributed under
employee benefit plans (165) (38)
Treasury stock associated with acquisition - (7)
Balance, September 30 4,176 3,943
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (372) (336)
Purchases of stock (563) (250)
Restricted stock granted (cancelled), net (9) 35
Treasury stock distributed under employee benefit plans 399 168
Treasury stock associated with acquisition - 210
Balance, September 30 (545) (173)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 526 233
Deferred stock awards granted, net 167 67
Deferred stock distributed (18) (1)
Balance, September 30 675 299
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (308) (151)
Deferred stock awards (granted), net (168) (66)
Restricted stock (granted) cancelled, net 8 (36)
Amortization of deferred compensation, net 215 121
Balance, September 30 (253) (132)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (364) (348)
Translation adjustments 48 (40)
Income taxes applicable to translation adjustments (41) 24
Balance, September 30 (357) (364)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 57 19
Change in unrealized net gains, after applicable
income taxes and minority interest 29 6
Balance, September 30 86 25
TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $6,131 $5,930
</TABLE>
<PAGE> 6
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 659 $ 582
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 10 5
Provision for policyholder benefits 231 216
Restructuring charges 57 -
Deferred income taxes (133) 162
Depreciation and other amortization
and accretion 308 117
Other, net 55 (66)
Earnings adjusted for noncash charges and credits 1,187 1,016
Net change in:
Trading assets (3,153) (526)
Trading liabilities 2,730 (851)
Receivables and payables from securities
transactions (253) 2,328
Customer receivables (22) (166)
Other operating assets and liabilities, net 183 (1,002)
Securities available for sale gains (100) (51)
Net cash provided by operating activities 572 748
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (365) (2,118)
Federal funds sold (557) (2)
Securities purchased under resale agreements (6,899) (8,768)
Securities borrowed 868 (4,078)
Loans (5,694) (2,423)
Securities available for sale:
Purchases (4,317) (4,161)
Maturities and other redemptions 2,437 2,327
Sales 874 501
Acquisitions of premises and equipment (184) (144)
Other, net 729 153
Net cash used in investing activities (13,108) (18,713)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits 15,682 2,860
Securities loaned and securities sold under
repurchase agreements (3,220) 9,264
Other short-term borrowings 496 3,041
Issuances of long-term debt* 5,474 2,553
Repayments of long-term debt (4,876) (859)
Issuances of common stock 42 16
Repurchase and retirement of common stock - (16)
Redemptions of preferred stock of subsidiary (250) -
Redemptions and repurchases of preferred stock (107) (44)
Purchases of treasury stock (563) (250)
Cash dividends paid (285) (293)
Other, net 248 138
Net cash provided by financing activities 12,641 16,410
Net effect of exchange rate changes on cash (48) 22
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 57 (1,533)
Cash and due from banks, beginning of period 1,568 2,399
Cash and due from banks, end of period $ 1,625 $ 866
Interest paid $3,729 $4,088
Income taxes paid, net $170 $248
Noncash investing activities $90 $269
Noncash financing activities:
Conversion of debt to preferred stock $- $1
<FN>
* Includes $741 million at September 30, 1997, related to mandatorily
redeemable capital securities of subsidiary trusts holding solely
junior subordinated deferrable interest debentures included in
risk-based capital ("trust preferred capital securities").
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 7
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 106 $ 59 $ 253 $ 142
Federal funds sold 86 33 196 92
Securities purchased under
resale agreements 339 371 983 841
Securities borrowed 173 226 532 697
Trading assets 568 596 1,817 1,888
Securities available for sale
Taxable 108 115 314 315
Exempt from federal income taxes 7 4 23 16
Loans 369 270 985 743
Customer receivables 33 30 97 88
Total interest revenue 1,789 1,704 5,200 4,822
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 250 95 596 267
Foreign offices 301 244 810 707
Trading liabilities 94 202 371 663
Securities loaned and securities sold under
repurchase agreements 343 454 1,016 1,173
Other short-term borrowings 305 294 872 809
Long-term debt 151 145 465 433
Mandatorily redeemable capital
securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures
included in risk-based capital 30 - 84 -
Total interest expense 1,474 1,434 4,214 4,052
NET INTEREST REVENUE $ 315 $ 270 $ 986 $ 770
</TABLE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Bankers Trust New York Corporation (the "Parent Company") and
subsidiaries (collectively, the "Corporation", or the "Firm") earned $246
million for the three months ended September 30, 1997, or $2.16 fully
diluted earnings per share. In the third quarter of 1996, the Corporation
earned $202 million, or $1.80 fully diluted earnings per share.
For the first nine months of 1997, the Corporation earned $659
million, or $5.80 fully diluted earnings per share. For the first nine
months of 1996, the Corporation earned $582 million, or $5.13 fully diluted
earnings per share.
THE MERGER
On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was
merged into a wholly-owned subsidiary of Bankers Trust New York Corporation
(the "Merger"). In conjunction with the Merger, each share of Alex. Brown
common stock then outstanding was converted into 0.83 shares of Bankers
Trust New York Corporation's common stock. The Merger was treated as a tax
free exchange.
The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling of interests. The
pooling of interests method of accounting requires the restatement of all
periods presented as if Alex. Brown and Bankers Trust New York Corporation
had always been combined. The consolidated statement of changes in
stockholders' equity reflects the accounts of the Corporation as if the
additional common stock had been issued during all the periods presented.
The consolidated financial statements should be read in conjunction
with the Corporation's supplemental consolidated financial statements and
notes thereto for the year ended 1996 included in the Corporation's Current
Report on Form 8-K dated September 1, 1997 and filed on September 9, 1997
(the "Form 8-K"), as well as the historical consolidated financial
statements of Alex. Brown Incorporated and Bankers Trust New York
Corporation, included in their Annual Reports on Form 10-K for the fiscal
year ended December 31, 1996.
The combined and separate results of operations for Bankers Trust New
York Corporation and Alex. Brown Incorporated during the periods preceding
the Merger were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
<S> <C> <C>
Total Revenues*
Bankers Trust New York Corporation $1,059 $3,058
Alex. Brown Incorporated 200 756
Combined $1,259 $3,814
Net Income
Bankers Trust New York Corporation $ 176 $ 465
Alex. Brown Incorporated 26 117
Combined $ 202 $ 582
<FN>
* Net interest revenue after provision for credit losses plus noninterest
revenue.
</TABLE>
<PAGE> 9
ORGANIZATIONAL UNIT RESULTS
Organizational Unit business results are determined based on the
Corporation's internal management accounting process, which allocates
revenue and expenses among the organizational units. Because the
Corporation's business is diverse in nature and its operations are
integrated, it is impractical to segregate respective contributions of the
organizational units with precision. As a result, estimates and judgments
have been made to apportion revenue and expense items. In addition, certain
revenue and expenses have been segregated and reported in Corporate/Other
because, in the opinion of management, they could not be reasonably
allocated or because their contributions to a particular organizational
unit would be distortive. The internal management accounting process,
unlike financial accounting in accordance with generally accepted
accounting principles, is based on the way management views its business
and is not necessarily comparable with similar information disclosed by
other financial institutions. In order to provide comparability from one
period to the next, the Corporation will generally restate this analysis to
conform with material changes in the allocation process and/or significant
changes in organizational structure.
The following tables present results by Organizational Unit:
<TABLE>
<CAPTION> Total Non- Pretax Net
Three Months Ended September 30, 1997 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 625 $ 335 $ 290 $204
Risk Management Services 117 101 16 11
Trading & Sales 128 86 42 30
Private Client Services Group 174 145 29 20
Global Institutional Services 241 211 30 21
Australia/New Zealand 136 113 23 17
Asia 8 34 (26) (19)
Latin America 203 144 59 42
Corporate/Other 138 250 (112) (80)
Total $1,770 $1,419 $ 351 $246
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Three Months Ended September 30, 1996 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 344 $195 $149 $102
Risk Management Services 75 66 9 6
Trading & Sales 105 64 41 28
Private Client Services Group 142 123 19 13
Global Institutional Services 211 183 28 19
Australia/New Zealand 144 86 58 40
Asia 30 24 6 4
Latin America 123 95 28 19
Corporate/Other 85 128 (43) (29)
Total $1,259 $964 $295 $202
</TABLE>
<PAGE> 10
ORGANIZATIONAL UNIT RESULTS (continued)
<TABLE>
<CAPTION>
Total Non- Pretax Net
Nine Months Ended September 30, 1997 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $1,533 $ 882 $ 651 $ 452
Risk Management Services 329 287 42 29
Trading & Sales 436 249 187 129
Private Client Services Group 482 394 88 61
Global Institutional Services 679 609 70 48
Australia/New Zealand 418 308 110 77
Asia 59 93 (34) (25)
Latin America 518 371 147 103
Corporate/Other 247 555 (308) (215)
Total $4,701 $3,748 $ 953 $ 659
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Nine Months Ended September 30, 1996 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $1,174 $ 634 $ 540 $ 366
Risk Management Services 177 198 (21) (14)
Trading & Sales 288 189 99 67
Private Client Services Group 454 372 82 55
Global Institutional Services 619 540 79 53
Australia/New Zealand 372 228 144 98
Asia 98 76 22 15
Latin America 425 321 104 70
Corporate/Other 207 397 (190) (128)
Total $3,814 $2,955 $ 859 $ 582
</TABLE>
Changes in Organizational Structure
Results of Alex. Brown are included primarily in Investment Banking
and Private Client Services Group. The Private Client Services Group also
includes the results of the Corporation's historical private banking and
active domestic equity management businesses. The quantitative and indexed
investment management business, previously included in Investment
Management, is now included in Global Institutional Services. All active
international and global investment activities are included in
Australia/New Zealand. The results by organizational units have been
restated to conform to the new presentation.
Organizational Unit Results
The Investment Banking business contributed net income of $204 million
in the third quarter of 1997, up $102 million from a year ago. Net income
for the first nine months of 1997 was $452 million compared to $366 million
for the first nine months of 1996. The increase from the prior year
periods reflected higher revenues from corporate finance activities in
addition to higher revenues from private equity investments. In addition,
real estate investment banking activities contributed strong corporate
finance revenues as compared to the prior year periods.
Risk Management Services recorded net income of $11 million in the
third quarter of 1997, up $5 million from the third quarter of 1996.
Compared to the prior year period, revenues from new derivatives
transactions and Eastern Europe activities improved. Net income for the
first nine months of 1997 was $29 million compared with a net loss of $14
million in the prior year period. The first nine months of 1996 reflected
losses incurred in the commodity derivatives books when copper prices
dropped sharply. Beginning in 1997, the responsibility for managing the
metals and mining commodities book was transferred to Australia/NZ.
<PAGE> 11
ORGANIZATIONAL UNIT RESULTS (continued)
Trading & Sales contributed $30 million of net income in the third
quarter of 1997, up $2 million from the 1996 third quarter. Net income was
$129 million for the first nine months of 1997 versus $67 million in the
year ago period. The year-to-date improvement was largely due to strong
arbitrage activities as compared to the first nine months of 1996.
The Corporation's Private Client Services Group business reported net
income of $20 million for the current quarter, up $7 million from the 1996
comparable period. All major business lines in Private Client Services
Group improved as compared to the prior year period. For the first nine
months of 1997, net income was $61 million compared to $55 million in the
prior year period.
Global Institutional Services contributed $21 million of net income in
the third quarter of 1997, up $2 million from the 1996 third quarter.
Revenues of $241 million were up $30 million from the third quarter of 1996
primarily due to the acquisition of NationsBank's institutional trust
business. The current quarter also reflected improved results from
investment management and securities lending activities as compared to the
third quarter of 1996. Net income for the first nine months of 1997 was
$48 million compared to $53 million for the first nine months of 1996. The
year-over-year decrease was primarily due to increased personnel-related
costs as a result of higher staff levels.
Net income of the Australia/NZ business was $17 million in the third
quarter of 1997, down $23 million from the third quarter of 1996. The
decline in net income from the prior year period was mainly attributable to
lower trading revenue partly offset by improved revenues from fiduciary and
funds management. In addition, personnel-related costs increased as a
result of higher staff levels. At September 30, 1997, assets under
management in Australia/NZ's investment management business were
approximately $45 billion, compared to $34 billion at September 30, 1996.
Net income was $77 million for the first nine months of 1997 versus $98
million in the year ago period. The year-over-year decrease was primarily
due to increased personnel-related costs as a result of higher staff
levels.
Asia net loss was $19 million in the third quarter of 1997, compared
to net income of $4 million in the third quarter of 1996. As a result of
continuing economic instability and heightened credit concerns in Southeast
Asia, the Corporation has recognized a decline in value for certain
investments in the region and has taken other credit-related charges. For
the first nine months of 1997, the net loss was $25 million compared to net
income of $15 million in the prior year period. The decrease from the
prior year period resulted from the losses incurred in Southeast Asia.
Latin America net income was $42 million in the third quarter of 1997,
up $23 million from the third quarter of 1996. The current quarter
included the remaining gain resulting from the completion of the final
stage in the sale of 50 percent of the Corporation's stake in a Chilean
insurance company. Net income for the first nine months of 1997 was $103
million compared with net income of $70 million in the prior year period.
The first nine months of 1997 included the total gain in the sale of 50
percent of the Corporation's stake in a Chilean insurance company.
Corporate/Other net loss was $80 million in the third quarter of 1997,
compared with a net loss of $29 million in the third quarter of 1996.
During the current quarter, the Corporation recognized $57 million in pre-
tax restructuring charges and $42 million in other integration costs,
offset partly by the pre-tax gain of $73 million on the sale of 280 Park
Avenue, a midtown Manhattan office building. The prior year period
included an after-tax gain of $18 million on the sale of its subsidiary,
Golden American Life Insurance Company. For the first nine months of 1997,
the net loss was $215 million compared to a net loss of $128 million in the
prior year period. In addition to the items recognized in the third
quarter of 1997, the first nine months of 1997 included the effects of
increased incentive compensation and employee benefits and consulting
expenses associated with several strategic and infrastructure improvement
projects.
<PAGE> 12
REVENUE
Net Interest Revenue
The table below presents net interest revenue, average balances and
average rates. The tax equivalent adjustment is made to present the
revenue and yields on certain assets, primarily tax-exempt securities and
loans, as if such revenue were taxable.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 315 $ 270 $ 986 $ 770
Tax equivalent adjustment 7 4 20 12
Fully taxable basis $ 322 $ 274 $ 1,006 $ 782
AVERAGE BALANCES (in millions)
Interest-earning assets $105,676 $100,401 $101,961 $93,799
Interest-bearing liabilities 102,225 91,993 97,768 87,819
Earning assets financed by
noninterest-bearing funds $ 3,451 $ 8,408 $ 4,193 $ 5,980
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.74% 6.77% 6.84% 6.88%
Cost of interest-bearing liabilities 5.72 6.20 5.76 6.16
Interest rate spread 1.02 .57 1.08 .72
Contribution of noninterest-bearing
funds .19 .52 .24 .39
Net interest margin 1.21% 1.09% 1.32% 1.11%
</TABLE>
Net interest revenue for the third quarter of 1997 totaled $315
million, up $45 million, or 17 percent, from the third quarter of 1996.
The $45 million increase in net interest revenue was primarily due to a $28
million increase in trading-related net interest revenue, which totaled
$105 million for the third quarter of 1997. Nontrading-related net
interest revenue totaled $210 million for the third quarter of 1997 versus
$193 million for the comparable period in 1996.
Net interest revenue was $986 million for the first nine months of
1997, up $216 million, or 28 percent from the first nine months of 1996.
The $216 million increase in net interest revenue was primarily due to a
$203 million increase in trading-related net interest revenue, which
totaled $395 million for the first nine months of 1997. Nontrading-related
net interest revenue totaled $591 million for the first nine months of 1997
versus $578 million for the comparable period in 1996.
<PAGE> 13
REVENUE (continued)
In the third quarter of 1997, the interest rate spread was 1.02
percent compared to .57 percent in the prior year period. Net interest
margin increased to 1.21 percent from 1.09 percent. The yield on interest-
earning assets declined by 3 basis points and the cost of interest-bearing
liabilities declined by 48 basis points. Average interest-earning assets
totaled $105.7 billion for the third quarter of 1997, up $5.3 billion from
the same period in 1996. The increase was primarily attributable to growth
in the loan portfolio. Average interest-bearing liabilities totaled $102.2
billion for the third quarter of 1997, up $10.2 billion from the same
period in 1996. The increase was primarily attributable to a rise in
interest-bearing deposits.
Trading Revenue
The Firm's trading and risk management businesses include significant
activities in interest rate instruments and related derivatives. These
activities can periodically shift revenue between trading and net interest,
depending on a variety of factors, including risk management strategies.
Therefore, the Corporation views trading revenue and trading-related net
interest revenue together.
Combined trading revenue and trading-related net interest revenue for
the third quarter of 1997 totaled $492 million, up $163 million from the
third quarter of 1996. Combined trading revenue and trading-related net
interest revenue for the first nine months of 1997 was $1.408 billion, up
$470 million from the $938 million reported in the first nine months of
1996.
<PAGE> 14
REVENUE (continued)
The table below presents the Corporation's trading revenue and trading-
related net interest revenue by major category of market risk. These
categories are based on management's view of the predominant underlying
risk exposure of each of the Firm's trading positions.
<TABLE>
<CAPTION>
Trading-
Related
Net
Trading Interest
(in millions) Revenue Revenue Total
<S> <C> <C> <C>
Quarter ended September 30, 1997
Interest rate risk $170 $121 $291
Foreign exchange risk 119 - 119
Equity and commodity risk 98 (16) 82
Total $387 $105 $492
Quarter ended September 30, 1996
Interest rate risk $143 $ 90 $233
Foreign exchange risk 31 - 31
Equity and commodity risk 78 (13) 65
Total $252 $ 77 $329
Nine Months ended September 30, 1997
Interest rate risk $ 522 $431 $ 953
Foreign exchange risk 205 - 205
Equity and commodity risk 286 (36) 250
Total $1,013 $395 $1,408
Nine Months ended September 30, 1996
Interest rate risk $393 $222 $615
Foreign exchange risk 111 - 111
Equity and commodity risk 242 (30) 212
Total $746 $192 $938
</TABLE>
Third Quarter 1997 vs. Third Quarter 1996
Interest Rate Risk - The increase in revenue was primarily due to
strong results in the bond market and arbitrage trading, as well as
increased activity in Europe and Asia partly offset by decreased revenues
in Australia and New Zealand.
Foreign Exchange Risk - Foreign exchange revenue increased from the
same period last year principally due to strong arbitrage and derivative
trading revenues and increased activity in Asia.
Equity and Commodity Risk - Trading revenue increased from the same
period last year primarily due to strong equity arbitrage trading.
<PAGE> 15
REVENUE (continued)
Nine Months 1997 vs. Nine Months 1996
Interest Rate Risk - The increase in revenue was principally due to
strong results in the bond market, arbitrage trading, increased flow of
client trading services and increased revenue from proprietary trading
activities and improved performance in Asia.
Foreign Exchange Risk - Foreign exchange risk revenue increased
compared to the same period last year principally due to improved revenue
from proprietary and customer activities and arbitrage and derivative
trading results.
Equity and Commodity Risk - The increase in total trading revenue as
compared to the same period last year is principally due to strong trading
in energy and commodity derivatives and equity arbitrage in the first nine
months of 1997 and nonrecurring losses in commodity derivatives in the
first nine months of 1996.
Noninterest Revenue (Excluding Trading)
Third Quarter 1997 vs. Third Quarter 1996
Fiduciary and funds management revenue was $277 million in the third
quarter of 1997, up $61 million from the prior year period. Funds
management, client processing services and global private banking
commissions contributed to this increase.
Corporate finance fees of $305 million increased 58 percent from the
$193 million earned in the third quarter of 1996, primarily due to higher
fees for arranging and underwriting bond and equity financings, higher loan
syndication fees and increased merger and acquisition fees.
Other noninterest revenue totaled $171 million in the current quarter,
compared to $56 million in the third quarter of 1996. The current quarter
included a pre-tax gain of $73 million on the sale of 280 Park Avenue, a
midtown Manhattan office building. The current quarter also included the
remaining gain resulting from the completion of the final stage in the sale
of 50 percent of the Corporation's stake in a Chilean insurance company.
The prior year quarter included a gain on the sale of Golden American Life
Insurance Company, an indirect wholly-owned subsidiary acquired in
satisfaction of debt in 1992.
<PAGE> 16
REVENUE (continued)
Nine Months 1997 vs. Nine Months 1996
Fiduciary and funds management fees of $769 million increased $136
million from the first nine months of 1996. Funds management, global
private banking commissions and client processing services contributed to
this increase.
Corporate finance fees totaled $789 million for the first nine months
of 1997, up $138 million from the prior year period, primarily due to
higher fees for arranging financings, merger and acquisition fees and loan
syndication fees, partially offset by lower securities underwriting and
management fees.
The Corporation's private equity investment activities largely
contributed to the changes in securities available for sale gains (up $49
million) and net revenue from equity investment transactions (down $53
million).
Other noninterest revenue totaled $277 million for the first nine
months of 1997, compared to $202 million in the prior year period. The
current period included a pre-tax gain of $73 million on the sale of 280
Park Avenue, a midtown Manhattan office building and the total gain in the
sale of 50 percent of the Corporation's stake in a Chilean insurance
company. The prior year period included a gain on the sale of Golden
American Life Insurance Company, an indirect wholly-owned subsidiary
acquired in satisfaction of debt in 1992 and a gain on the sale of
Compensa, which was the smaller of the Corporation's Chilean insurance
subsidiaries.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses is determined based upon management's
evaluation as to the amount needed to maintain the allowance for credit
losses at a level considered appropriate in relation to the risk of losses
inherent in the portfolio.
A $10 million provision for credit losses was recorded for the current
quarter versus none for the prior year's third quarter. Net charge-offs
for the third quarter were $11 million, compared with $5 million a year
ago. The provision for credit losses amounted to $10 million for the first
nine months of 1997, compared with $5 million for the prior year comparable
period. Net charge-offs for the first nine months of 1997 were $28
million, compared with $30 million for the comparable 1996 period.
In accordance with the American Institute of Certified Public
Accountants Banks and Savings Institutions Audit and Accounting Guide, the
Corporation has allocated its total allowance for credit losses as follows:
$759 million as a reduction of loans, and $213 million as other liabilities
related to other credit-related items. The Corporation continues to believe
that the total allowance for credit losses is available for credit losses
in its entire portfolio, which is comprised of loans, credit-related
commitments, derivatives and other financial instruments. Due to a
multitude of complex and changing factors that are collectively weighed in
determining the adequacy of the allowance for credit losses, management
expects that the allocation of the total allowance for credit losses may be
adjusted as risk factors change. Prior period amounts have not been
restated.
<PAGE> 17
PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued)
The provision for credit losses and the other changes in the allowance
for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
Allowance for credit losses 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Balance, beginning of period $973 $972 $973 $992
Net charge-offs
Charge-offs 30 19 66 68
Recoveries 19 14 38 38
Total net charge-offs(1) 11 5 28 30
Provision for credit losses 10 - 10 5
Allowance related to acquisition
of an affiliate - - 17 -
Balance, end of period(2) $972 $967 $972 $967
(1) Components of Net Charge-offs:
Secured by real estate $(1) $(1) $ - $ -
Real estate related - (1) - 3
Highly leveraged 7 (5) 23 18
Other 5 14 6 15
Refinancing country - (2) (1) (6)
Total $11 $ 5 $28 $30
(2) Allocation:
Loans $759
Other Liabilities 213
Balance, end of period $972
</TABLE>
The allowance for credit losses that has been allocated to loans, was
$759 million at September 30, 1997 compared to $773 million at December 31,
1996. This allowance was equal to 255 percent and 171 percent of total
cash basis loans at September 30, 1997 and December 31, 1996, respectively.
These ratios were computed using the amounts that were allocated to loans.
Impaired loans under SFAS 114, which consisted of total cash basis
loans and renegotiated loans, were $335 million and $489 million at
September 30, 1997 and December 31, 1996, respectively. Included in these
amounts were $142 million and $227 million of loans which required a
valuation allowance of $35 million and $57 million at those same dates,
respectively.
<PAGE> 18
EXPENSES
Third Quarter 1997 vs. Third Quarter 1996
Total noninterest expenses of $1.419 billion increased by $455
million, or 47 percent, from the third quarter of 1996. Included in
noninterest expenses were restructuring charges of $57 million associated
with the Merger, such as severance, lease terminations and direct costs of
completing the Merger, and other integration costs of $42 million.
Salaries and commissions expense increased $38 million, or 13 percent,
principally due to a 5 percent increase in the average number of employees,
annual pay increases and higher broker commission revenue. Incentive
compensation and employee benefits, the largest component of noninterest
expenses, increased $270 million due to higher profitability and the
increase in the average number of employees.
Nine Months 1997 vs. Nine Months 1996
Total noninterest expenses of $3.748 billion increased by $793 million
from the first nine months of 1996. Salaries and commissions expense
increased $100 million, or 12 percent, due to an increase in the average
number of employees and to annual pay increases. Incentive compensation and
employee benefits increased $464 million due to higher profitability and an
increase in the average number of employees. Also included in noninterest
expenses were restructuring charges and other integration costs as
previously mentioned.
INCOME TAXES
Income tax expense for the third quarter of 1997 amounted to $105
million, compared with $93 million for the third quarter of 1996. For the
first nine months of 1997, income tax expense was $294 million compared
with $277 million in the first nine months of 1996. The effective tax rate
was 30 percent for the current quarter, 31 percent for the nine months
ended September 30, 1997 and 32 percent for the prior year quarter and nine
months ended September 30, 1996.
EARNINGS PER COMMON SHARE
Primary earnings per common share amounts were computed by subtracting
from earnings the dividend requirements on preferred stock to arrive at net
income applicable to common stock ("net income applicable to common stock")
and dividing this amount by the average number of common and common
equivalent shares outstanding during the period. Fully diluted earnings per
share amounts were calculated by adjusting net income applicable to common
stock for interest expense on the convertible subordinated debentures and
dividing this amount by the average number of common and common equivalent
shares outstanding during the period.
<PAGE> 19
EARNINGS PER COMMON SHARE (continued)
For primary earnings per share, the average number of common and
common equivalent shares outstanding was the sum of the average number of
shares of common stock outstanding and the incremental number of shares
issuable under outstanding stock options and deferred stock awards that had
a dilutive effect as computed under the treasury stock method. Fully
diluted earnings per share further assumes the conversion into common stock
of convertible subordinated debentures, if dilutive. Under the treasury
stock method, the number of incremental shares is determined by assuming
the issuance of the outstanding stock options and deferred stock awards
reduced by the number of shares assumed to be repurchased from the issuance
proceeds, using the market price of the Parent Company's common stock. For
primary earnings per share, this market price is the average market price
for the period, while for fully diluted earnings per share, it is the
period-end market price, if it is higher than the average market price.
The earnings applicable to common stock and the number of shares used
for primary and fully diluted earnings per share were as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income applicable to
common stock -
primary $ 235 $ 194 $ 622 $ 545
Net income applicable to
common stock -
assuming full dilution 235 195 625 546
Average number of common
shares outstanding 97.714 99.665 97.348 98.275
Average common and common
equivalent shares
outstanding - primary 104.358 104.787 103.698 102.782
Average common and common
equivalent shares
outstanding assuming full dilution 108.914 108.380 107.702 106.426
</TABLE>
<PAGE> 20
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance sheet. Since
quarter-end balances can be distorted by one-day fluctuations, an analysis
of changes in the quarterly averages is provided to give a better
indication of balance sheet trends.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(in millions)
3rd Qtr 2nd Qtr 4th Qtr
1997 1997 1996
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 4,682 $ 4,329 $ 3,546
Federal funds sold 6,040 4,313 2,018
Securities purchased under resale
agreements 24,242 23,433 22,401
Securities borrowed 13,405 14,527 15,850
Trading assets 29,402 28,039 31,613
Securities available for sale
Taxable 6,156 6,571 6,777
Exempt from federal income taxes 1,149 1,136 1,077
Total securities available for sale 7,305 7,707 7,854
Loans
Domestic offices 9,693 8,952 8,226
Foreign offices 9,344 9,302 7,032
Total loans 19,037 18,254 15,258
Customer receivables 1,563 1,587 1,517
Total interest-earning assets 105,676 102,189 100,057
Noninterest-earning
Cash and due from banks 1,567 1,600 1,394
Noninterest-earning trading assets 22,978 20,193 17,699
All other assets 10,512 9,210 8,671
Allowance for credit losses (753) (770) (988)
Total $139,980 $132,422 $126,833
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $ 18,908 $ 14,690 $ 8,738
Foreign offices 21,536 20,218 18,812
Total interest-bearing deposits 40,444 34,908 27,550
Trading liabilities 6,289 4,630 9,746
Securities loaned and securities sold
under repurchase agreements 22,963 25,554 26,173
Other short-term borrowings 20,447 20,854 18,950
Long-term debt 10,611 11,269 11,372
Mandatorily redeemable capital securities
of subsidiary trusts holding solely junior
subordinated deferrable interest debentures 1,471 1,470 165
Total interest-bearing liabilities 102,225 98,685 93,956
Noninterest-bearing
Noninterest-bearing deposits 3,168 3,003 3,518
Noninterest-bearing trading liabilities 18,743 16,258 15,725
All other liabilities 9,775 8,595 7,428
Total liabilities 133,911 126,541 120,627
PREFERRED STOCK OF SUBSIDIARY - - 250
STOCKHOLDERS' EQUITY
Preferred stock 703 704 815
Common stockholders' equity 5,366 5,177 5,141
Total stockholders' equity 6,069 5,881 5,956
Total $139,980 $132,422 $126,833
</TABLE>
<PAGE> 21
BALANCE SHEET ANALYSIS (continued)
Securities Available for Sale
The fair value, amortized cost and gross unrealized holding gains and
losses for the Corporation's securities available for sale are as follows.
<TABLE>
<CAPTION> September 30, June 30, December 31,
(in millions) 1997 1997 1996
<S> <C> <C> <C>
Fair value $7,577 $7,478 $7,920
Amortized cost 7,414 7,334 7,755
Excess of fair value over
amortized cost * $ 163 $ 144 $ 165
* Components:
Unrealized gains $240 $ 195 $ 245
Unrealized losses (77) (51) (80)
$163 $ 144 $ 165
</TABLE>
Long-term Debt
The larger of long-term debt issuances and maturities/redemptions
which occurred during the third quarter of 1997 are as follows (in
millions):
<TABLE>
<CAPTION>
Face Amount
Maturities/
Issuances Redemptions
<S> <C> <C>
Parent Company
5.78% Senior European Medium Term Notes due August 2000 $300
5.84% Senior European Medium Term Notes due July 2002 $300
Bankers Trust Company
Redeemable Preference Securities due September 2000 to
March 2004 $2,427
5.79% Redeemable Preference Securities due November 2000 $808
</TABLE>
<PAGE> 22
TRADING DERIVATIVES
The Corporation actively manages trading positions in a variety of
derivative contracts. Many of the Corporation's trading positions are
established as a result of providing derivative products to meet customers'
demands. To anticipate customer demand for such transactions, the
Corporation also carries an inventory of capital markets instruments and
maintains its access to market liquidity by quoting bid and offer prices
to, and trading with, other market makers. These two activities are
essential to provide customers with capital market products at competitive
prices. All positions are reported at fair value and changes in fair values
are reflected in trading revenue as they occur.
The following tables reflect the gross fair values and balance sheet
amounts of trading derivative financial instruments:
<TABLE>
<CAPTION>
At September 30, Average During
1997 3rd Qtr. 1997
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 18,121 $(16,928) $ 16,625 $(15,277)
Interest Rate Contracts
Forwards 41 (42) 46 (53)
Options purchased 1,085 1,118
Options written (1,236) (1,261)
Foreign Exchange Rate Contracts
Spot and Forwards 12,457 (12,816) 14,382 (14,565)
Options purchased 1,096 1,162
Options written (1,003) (1,108)
Equity-related contracts 3,817 (4,426) 3,524 (4,380)
Commodity-related and other contracts 719 (789) 629 (663)
Exchange-Traded Options
Interest Rate 3 (2) 5 (4)
Equity 426 (320) 336 (207)
Total Gross Fair Values 37,765 (37,562) 37,827 (37,518)
Impact of Netting Agreements (24,045) 24,045 (23,963) 23,963
$ 13,720(1) $ 13,864
$(13,517)(1) $(13,555)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
<PAGE> 23
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, Average During
1996 4th Qtr.1996
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 16,582 $(15,394) $ 16,258 $(15,498)
Interest Rate Contracts
Forwards 84 (86) 53 (50)
Options purchased 1,149 1,183
Options written (1,252) (1,313)
Foreign Exchange Rate Contracts
Spot and Forwards 9,855 (10,935) 8,642 (9,893)
Options purchased 917 1,143
Options written (953) (1,104)
Equity-related contracts 2,696 (2,941) 2,389 (2,426)
Commodity-related and other contracts 679 (690) 747 (712)
Exchange-Traded Options
Interest Rate 10 (12) 11 (15)
Foreign exchange - - - (6)
Equity 251 (135) 244 (115)
Total Gross Fair Values 32,223 (32,398) 30,670 (31,132)
Impact of Netting Agreements (20,813) 20,813 (19,580) 19,580
$11,410(1) $ 11,090
$(11,585)(1) $(11,552)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
END-USER DERIVATIVES
The Corporation, as an end user, utilizes various types of derivative
products (principally interest rate swaps) to manage the interest rate,
currency and other market risks associated with certain liabilities and
assets such as interest-bearing deposits, short-term borrowings and long-
term debt, as well as securities available for sale, loans, investments in
non-marketable equity instruments and net investments in foreign entities.
Revenue or expense pertaining to management of interest rate exposure is
predominantly recognized over the life of the contract as an adjustment to
interest revenue or expense.
Total net end-user derivative unrealized gains were $98 million at
September 30, 1997 compared with an unrealized gain of $54 million at
December 31, 1996. The $44 million increase during the first nine months
of 1997 was primarily due to a decrease in interest rates.
<PAGE> 24
END-USER DERIVATIVES (continued)
The following tables provide the gross unrealized gains and losses for
end-user derivatives. Gross unrealized gains and losses for hedges of
securities available for sale are recognized in the financial statements
with the offset as an adjustment to securities valuation allowance in
stockholders' equity. Gross unrealized gains and losses for hedges of
loans, other assets, interest-bearing deposits, other short-term
borrowings, long-term debt, and net investments in foreign subsidiaries are
not yet recognized in the financial statements.
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
Sept 30, 1997 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 1 $ - $ - $ 76 $ 7 $ 278 $ - $ 362
Unrealized (Loss) - (10) - (24) (8) (84) - (126)
Pay Variable Net 1 (10) - 52 (1) 194 - 236
Pay Fixed
Unrealized Gain 3 - - 26 11 5 - 45
Unrealized
(Loss) (38) - - (12) (43) (72) - (165)
Pay Fixed Net (35) - - 14 (32) (67) - (120)
Total Unrealized
Gain 4 - - 102 18 283 - 407
Total Unrealized
(Loss) (38) (10) - (36) (51) (156) - (291)
Total Net $(34) $(10) $ - $ 66 $(33) $ 127 $ - $ 116
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - (1) - - - (1)
Net $ - $ - $ - $(1) $ - $ - $ - $(1)
Currency Swaps and Forwards
Unrealized Gain $10 $1 $ 1 $10 $ 8 $ 34 $ 31 $ 95
Unrealized (Loss) - - - (1) (3) (62) (41) (107)
Net $10 $1 $ 1 $ 9 $ 5 $ (28) $(10) $(12)
Other Contracts (2)
Unrealized Gain $ 3 $1 $ - $ - $ - $ - $ - $ 4
Unrealized (Loss) (8) - (1) - - - (9)
Net $(5) $1 $(1) $ - $ - $ - $ - $ (5)
Total Unrealized
Gain $ 17 $ 2 $ 1 $112 $ 26 $ 317 $ 31 $ 506
Total Unrealized
(Loss) (46) (10) (1) (38) (54) (218) (41) (408)
Total Net $(29) $(8) $ - $ 74 $(28) $ 99 $(10) $ 98
<FN>
(1) Includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
</TABLE>
<PAGE> 25
END-USER DERIVATIVES (continued)
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
Dec 31, 1996 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 1 $ - $ - $ 62 $ 7 $ 198 $ - $ 268
Unrealized (Loss) - (14) - (23) (6) (93) - (136)
Pay Variable Net 1 (14) - 39 1 105 - 132
Pay Fixed
Unrealized Gain 3 - - 13 - 1 - 17
Unrealized
(Loss) (50) (9) - (45) (1) (28) - (133)
Pay Fixed Net (47) (9) - (32) (1) (27) - (116)
Total Unrealized
Gain 4 - - 75 7 199 - 285
Total Unrealized
(Loss) (50) (23) - (68) (7) (121) - (269)
Total Net $(46) $(23) $ - $ 7 $ - $ 78 $ - $ 16
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ 1 $ - $ - $ - $ 1
Unrealized (Loss) - - - (1) - - - (1)
Net $ - $ - $ - $ - $ - $ - $ - $ -
Currency Swaps and Forwards
Unrealized Gain $ - $ - $ 1 $ 27 $ - $ 53 $ 42 $ 123
Unrealized (Loss) - - - (3) - (18) (41) (62)
Net $ - $ - $ 1 $ 24 $ - $ 35 $ 1 $ 61
Other Contracts (2)
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized
(Loss) (19) - (4) - - - - (23)
Net $(19) $ - $(4) $ - $ - $ - $ - $ (23)
Total Unrealized
Gain $ 4 $ - $ 1 $103 $ 7 $ 252 $ 42 $ 409
Total Unrealized
(Loss) (69) (23) (4) (72) (7) (139) (41) (355)
Total Net $(65) $(23) $(3) $ 31 $ - $ 113 $ 1 $ 54
<FN>
(1) Includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
</TABLE>
<PAGE> 26
END-USER DERIVATIVES (continued)
For pay variable and pay fixed interest rate swaps entered into as an
end user, the weighted average receive rate and pay rate (interest rates
were based on the weighted averages of both U.S. and non-U.S. currencies)
by maturity and corresponding notional amounts were as follows ($ in
millions):
<TABLE>
<CAPTION>
At September 30, 1997
Notional
Amount Paying Variable Paying Fixed
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $19,542 5.73% 5.68% $1,533 5.79% 5.98% $21,075
1998-1999 30,461 5.97 5.74 4,813 5.20 5.87 35,274
2000-2001 5,037 5.93 5.55 1,352 3.68 5.12 6,389
2002 and
thereafter 8,571 6.65 5.60 1,014 5.87 7.01 9,585
Total $63,611 $8,712 $72,323
</TABLE>
All rates were those in effect at September 30, 1997. Variable rates
are primarily based on LIBOR and may change significantly, affecting future
cash flows.
<TABLE>
<CAPTION>
At December 31, 1996
Notional
Amount Paying Variable Paying Fixed
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $33,275 5.59% 5.52% $4,056 5.23% 5.71% $37,331
1998-1999 7,957 5.96 5.52 2,095 4.82 5.82 10,052
2000-2001 3,614 6.84 5.63 867 4.11 5.67 4,481
2002 and
thereafter 5,579 6.79 5.65 932 5.61 7.14 6,511
Total $50,425 $7,950 $58,375
</TABLE>
All rates were those in effect at December 31, 1996. Variable rates
are primarily based on LIBOR and may change significantly, affecting future
cash flows.
<PAGE> 27
REGULATORY CAPITAL
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking
agencies. The Federal Reserve Board's ("FRB") risk-based capital guidelines
addressing the capital adequacy of bank holding companies and banks
(collectively, "banking organizations") include a definition of capital and
a framework for calculating risk-weighted assets. In addition, these
guidelines specify minimum risk-based capital ratios to be maintained by
banking organizations. The FRB also has a minimum Leverage ratio which is
used as a supplement to the risk-based capital ratios in evaluating the
capital adequacy of banking organizations. See pages 19 and 83 of Exhibit
99.1 of the Form 8-K dated for a detailed discussion of these guidelines
and regulations.
In 1996, the FRB and the other U.S. federal banking agencies jointly
issued an amendment to the capital adequacy guidelines to incorporate a
measure for market risk ("the market risk amendment"). Essentially, this
amendment changes the calculation of risk-weighted assets in the trading
accounts, and includes the positions and capital of the Corporation's
Section 20 subsidiary, BT Alex. Brown Incorporated in the combined credit
risk and market risk capital calculation of the Corporation. In all other
respects (including the exclusion of the positions and capital of the
international insurance entities), the current capital adequacy guidelines
remain unchanged.
All banking organizations with significant trading activity must adopt
this amendment by January 1, 1998. Banking organizations may choose to
adopt early during 1997, with prior approval from their primary federal
regulator. See page 22 of Exhibit 99.1 of the Form 8-K for further
detailed discussion on the market risk amendment.
The Corporation adopted the market risk amendment as of March 31, 1997
and was the first banking organization to adopt such amendment.
Based on their respective regulatory capital ratios as of September
30, 1997, both the Corporation and Bankers Trust Company ("BTCo") are well
capitalized, as defined in the regulations issued by the FRB and the other
federal bank regulatory agencies setting forth the general capital
requirements mandated by FDICIA, as applicable.
<PAGE> 28
REGULATORY CAPITAL (continued)
The Corporation's and BTCo's ratios are presented in the table below.
The ratios for December 31, 1996 have not been restated for the adoption of
the market risk amendment.
<TABLE>
<CAPTION>
FRB
Minimum To Be Well
Actual Actual for Capitalized
as of as of Capital Under
September 30,December 31, Adequacy Regulatory
1997 1996 Purposes Guidelines
<S> <C> <C> <C> <C>
Tier 1 Capital
Corporation 8.4% 9.3% 4.0% 6.0%
BTCo 8.7% 9.3% 4.0% 6.0%
Total Capital
Corporation 13.6% 13.8% 8.0% 10.0%
BTCo 12.1% 12.9% 8.0% 10.0%
Leverage
Corporation 4.9% 5.9% 3.0%(1) 3.0%(1)
BTCo 5.3% 5.3% 3.0%(1) 5.0%
<FN>
(1) These minimum levels for the Leverage ratio may be set 100 to 200 basis
points higher depending upon other regulatory criteria.
</TABLE>
<PAGE> 29
REGULATORY CAPITAL (continued)
The following are the essential components of the Corporation's and
BTCo's risk-based capital ratios. The December 31, 1996 balances have not
been restated for the adoption of the market risk amendment.
<TABLE>
<CAPTION>
Actual as of Actual as of
September 30, December 31,
(in millions) 1997 1996
<S> <C> <C>
Corporation
Tier 1 Capital $ 6,745 $ 5,690
Tier 2 Capital 3,681 2,734
Tier 3 Capital 408 -
Total Capital $10,834 $ 8,424
Total risk-weighted assets $79,951 $61,213
BTCo
Tier 1 Capital $5,576 $ 4,869
Tier 2 Capital 2,200 1,900
Total Capital $7,776 $ 6,769
Total risk-weighted assets $64,024 $52,484
</TABLE>
Comparing September 30, 1997 to December 31, 1996, the Corporation's
Tier 1 Capital and Total Capital ratios declined 90 basis points and 20
basis points, respectively. These declines were primarily due to an
increase in risk-weighted assets of $19 billion, offset by an increase to
Tier 1 and Total Capital of $1 billion and $2 billion, respectively.
With the adoption of the market risk amendment, the Corporation's
Leverage ratio decreased 100 basis points as BT Alex.
Brown Incorporated's average assets and capital were included in this
calculation at September 30, 1997.
BTCo's Tier 1 Capital and Total Capital ratios decreased by 60 basis
points and 80 basis points, respectively, as a result of a $12 billion
increase in risk-weighted assets, partially offset by an increase to Tier 1
and Total Capital of $700 million and $1.0 billion, respectively. BTCo's
Leverage ratio was unchanged as the increase in the quarterly average
assets was offset by the increase in Tier 1 Capital.
<PAGE> 30
LIQUIDITY
Liquidity is the ability to have funds available at all times to meet
the commitments of the Corporation. The Corporation has a formal process
for managing global liquidity for the Firm as a whole and for each of its
significant subsidiaries. Management's guiding policy is to maintain
conservative levels of liquidity designed to ensure that the Firm has the
ability to meet its obligations under all reasonably foreseeable
circumstances. Management maintains appropriate asset liquidity and
actively manages liability/capital levels, maturities and diversification.
The fundamental objective is to ensure that, even in the event of a
complete loss of access to the liability markets, the Corporation will be
able to continue to fund those assets that cannot be liquidated in a timely
manner.
Most of the Corporation's assets are highly liquid and of high credit
quality. The Corporation maintains excess liquidity through its base of
liquid assets. Liquid assets consist of cash and due from banks, interest-
bearing deposits with banks, federal funds sold, securities purchased under
resale agreements, securities borrowed, trading assets, and securities
available for sale. Securities purchased under resale agreements and
securities borrowed are virtually all short-term in nature and are
collateralized with U.S. government or other marketable securities, or cash
equivalents. Trading assets are marked to market daily and primarily
consist of swaps, options and other derivative contracts, foreign
government securities, corporate debt securities, U.S. government and
agency securities, and equity securities. The Corporation's liquid assets
amounted to $107.6 billion as of September 30, 1997, $101.1 billion as of
June 30, 1997, and $97.5 billion as of December 31, 1996, which equaled 76
percent, 76 percent, and 79 percent of gross total assets at those dates
respectively.
<PAGE> 31
LIQUIDITY (continued)
Cash Flows
The following comments apply to the consolidated statement of cash
flows, which appears on page 6.
Cash and due from banks increased by $57 million during the first nine
months of 1997 as the sum of the net cash provided by financing activities
and operating activities exceeded the net cash used in investing
activities. The $12.6 billion of net cash provided by financing activities
was primarily the result of cash inflows from the net change in deposits
($15.7 billion) and issuances of long-term debt ($5.5 billion), partially
offset by repayments of long-term debt ($4.9 billion) and cash outflows
from the net change in securities loaned and securities sold under
repurchase agreements ($3.2 billion). The $572 million of net cash
provided by operating activities was largely the result of cash inflows
from the net change in trading liabilities ($2.7 billion) and earnings
adjusted for noncash charges and credits ($1.2 billion), offset in part by
cash outflows from the net change in trading assets ($3.2 billion). Within
the investing activities category, the $13.1 billion of net cash used was
primarily the result of cash outflows from the net change in securities
purchased under resale agreements ($6.9 billion) and loans ($5.7 billion),
as well as purchases of securities available for sale ($4.3 billion). This
was partly offset by cash inflows from maturities and other redemptions of
securities available for sale ($2.4 billion).
Cash and due from banks decreased by $1.5 billion during the first
nine months of 1996 as the net cash used in investing activities exceeded
the sum of the net cash provided by financing activities and net cash
provided by operating activities. Within the investing activities
category, cash outflows from the net changes in securities purchased under
resale agreements ($8.8 billion), securities borrowed ($4.1 billion), loans
($2.4 billion), interest-bearing deposits with banks ($2.1 billion) and
purchases of securities available for sale ($4.2 billion), were partially
offset by cash inflows from maturities and other redemptions of securities
available for sale ($2.3 billion). The $16.4 billion of net cash provided
by financing activities was largely the result of cash inflows from the net
changes in securities loaned and securities sold under repurchase
agreements ($9.3 billion), other short-term borrowings ($3.0 billion),
deposits ($2.9 billion) and issuances of long-term debt ($2.6 billion).
The $748 million of net cash provided by operating activities primarily
resulted from cash inflows from the net change in receivables and payables
from securities transactions ($2.3 billion), partly offset by cash outflows
from net changes in other operating assets and liabilities, net ($1.0
billion) and trading liabilities ($851 million).
<PAGE> 32
LIQUIDITY (continued)
Interest Rate Sensitivity
Condensed interest rate sensitivity data for the Corporation at
September 30, 1997 is presented in the table below. For purposes of this
presentation, the interest-earning/bearing components of trading assets and
trading liabilities are assumed to reprice within three months.
The interest rate gaps reported in the table arise when assets are
funded with liabilities having different repricing intervals, after
considering the effect of off-balance sheet hedging instruments. Since
these gaps are actively managed and change daily as adjustments are made in
interest rate views and market outlook, positions at the end of any period
may not be reflective of the Corporation's interest rate view in subsequent
periods. Active management dictates that longer-term economic views are
balanced against prospects of short-term interest rate changes in all
repricing intervals.
<TABLE>
<CAPTION>
By Repricing Interval
Non-
interest-
(in billions) Within 1 - 5 After bearing
September 30, 1997 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 99.6 $ 3.0 $ 3.6 $ 33.9 $ 140.1
Liabilities and preferred
stock (91.0) (5.9) (5.1) (32.7) (134.7)
Common stockholders' equity - - - (5.4) (5.4)
Effect of off-balance sheet
hedging instruments (14.1) 8.8 5.3 - -
Interest rate
sensitivity gap $ (5.5) $ 5.9 $ 3.8 $ (4.2) $ -
</TABLE>
<PAGE> 33
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real
estate and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $ 81 $ 117
Secured by real estate 108 233
Total domestic 189 350
International
Commercial and industrial 65 57
Secured by real estate 32 39
Financial institutions - 4
Other 12 2
Total international 109 102
Total cash basis loans $298 $ 452
Ratio of cash basis loans to total gross loans 1.4% 2.9%
Ratio of allowance for credit losses to cash
basis loans (1) 255% 171%
RENEGOTIATED LOANS
Secured by real estate $37 $37
Total renegotiated loans $37 $37
OTHER REAL ESTATE $190 $213
OTHER NONPERFORMING ASSETS
Assets acquired in credit workouts $5 $10
Total other nonperforming assets $5 $10
Loans 90 days or more past due and still
accruing interest $- $-
<FN>
(1) Ratio was computed using the allowance for credit losses that had been
allocated to loans of $759 million and $773 million at September 30, 1997 and
December 31, 1996, respectively.
</TABLE>
<PAGE> 34
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first nine months of 1997 follows (in millions).
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1996 $ 452
Net transfers to cash basis loans 87
Net paydowns (113)
Charge-offs (66)
Transfers to other real estate (10)
Other (52)
Balance, September 30, 1997 $ 298
</TABLE>
The Corporation's total cash basis loans amounted to $298 million at
September 30, 1997, down $154 million, or 34 percent, from December 31,
1996.
This decline is primarily attributable to decreases in loans secured
by real estate ($132 million) and highly leveraged loans ($61 million).
Within cash basis loans, loans secured by real estate were $140 million and
$272 million at September 30, 1997 and December 31, 1996, respectively.
Commercial and industrial loans to highly leveraged borrowers were $56
million and $117 million at September 30, 1997 and December 31, 1996,
respectively.
The following table sets forth the approximate effect on interest
revenue of cash basis loans and renegotiated loans. This disclosure
reflects the interest on loans which were carried on the balance sheet and
classified as either cash basis or renegotiated at September 30 of each
year. The rates used in determining the gross amount of interest which
would have been recorded at the original rate were not necessarily
representative of current market rates.
<PAGE> 35
NONPERFORMING ASSETS (continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in millions) 1997 1996
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $14 $31
Less, interest, net of reversals, recognized
in interest revenue 3 5
Reduction of interest revenue 11 26
International Loans
Gross amount of interest that would have
been recorded at original rate 4 8
Less, interest, net of reversals, recognized
in interest revenue - -
Reduction of interest revenue 4 8
Total reduction of interest revenue $15 $34
</TABLE>
HIGHLY LEVERAGED TRANSACTIONS
Amounts included in the table and discussion which follow generally
reflect the definition that the Corporation uses in order to monitor the
extent of its exposure to highly leveraged transactions ("HLTs"). See page
41 of Exhibit 99.1 to the Form 8-K for a detailed discussion of the
definition.
<TABLE>
<CAPTION>
Highly Leveraged Transactions
September 30, December 31,
(in millions) 1997 1996
<S> <C> <C>
Loans
Senior debt $2,110 $1,587
Subordinated debt 53 76
Total loans $2,163 $1,663
Unfunded commitments
Commitments to lend $1,128 $ 875
Letters of credit 181 128
Total unfunded commitments $1,309 $1,003
Equity investments $ 834 $ 665
Commitments to invest $ 698 $ 425
</TABLE>
<PAGE> 36
HIGHLY LEVERAGED TRANSACTIONS (continued)
The Corporation's outstanding loans were to 163 separate borrowers in
47 separate industry groups at September 30, 1997, compared to 127 separate
borrowers in 43 separate industry groups at December 31, 1996. The food,
wholesale and retail group at 29 percent was the only industry
concentration which exceeded 10 percent of total HLT loans outstanding at
September 30, 1997.
In addition to the amounts shown in the table above, at September 30,
1997, the Corporation had issued commitment letters which had been
accepted, subject to documentation and certain other conditions, of $530
million (which were in various stages of syndication) and had additional
HLTs in various stages of discussion and negotiation.
During the first nine months of 1997, the Corporation originated $4.0
billion of HLT commitments. It should be noted that the Corporation's
loans and commitments in connection with HLTs fluctuate as new loans and
commitments are made and as loans and commitments are syndicated,
participated or paid.
All loans and commitments to finance HLTs are reviewed and approved by
senior credit officers of the Corporation. In addition to a strict
transactional and credit approval process, the portfolio of leveraged loans
and commitments is actively monitored and managed to minimize risk through
diversification among borrowers and industries. As part of this strategy,
sell and hold targets are regularly updated in connection with market
opportunities and the addition of new HLTs. Retention by the Corporation
after syndication and sales of loan participations has typically been less
than $50 million, and the average outstanding per borrower for the
portfolio at September 30, 1997 was less than $14 million. However, at
September 30, 1997, the Corporation had total exposure (loans outstanding
plus unfunded commitments) in excess of $50 million to 10 separate highly
leveraged borrowers.
At September 30, 1997, $56 million of the HLT loan portfolio was on a
cash basis. In addition, $4 million of the equity investments in HLT
companies represented assets acquired in credit workouts, which are
reported as other nonperforming assets. Net charge-offs of $23 million of
HLT loans were recorded in the first nine months of 1997. In addition, the
Corporation recorded a net gain of $74 million in connection with the sales
and/or write-offs of certain equity investments in highly leveraged
companies during the first nine months of 1997.
Generally, fees (typically 2 to 4 percent of the principal amount
committed) and interest charged (typically LIBOR plus 1.5 to 3 percent) on
HLT loans are higher than on other credits. The Corporation does not
account for revenue or expenses from HLTs separately from its other
corporate lending activities. However, it is estimated that transaction
fees recognized for lending activities relating to HLTs were approximately
$108 million during the first nine months of 1997 and that as of September
30, 1997, approximately $14 million of fees were deferred and will be
recognized as future revenue.
<PAGE> 37
ACCOUNTING DEVELOPMENTS
In February, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
establishes standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 replaces the presentation of primary EPS with basic
EPS and fully diluted EPS with diluted EPS. Basic EPS excludes dilution
and is calculated by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS.
SFAS No. 128 is effective for financial statement periods ending after
December 15, 1997, and requires restatement of all prior period EPS data.
The adoption of SFAS No. 128 is not expected to have a material impact on
the Corporation's fully diluted EPS computations.
RECENT DEVELOPMENTS
On October 20, 1997, the Corporation and Metropolitan Life Insurance
Company ("MetLife") announced that they have entered into an agreement
whereby MetLife will acquire the Corporation's defined contribution
recordkeeping and participant services businesses. The transaction is
expected to close by year-end, and the Corporation expects to recognize a
gain on the sale in the fourth quarter.
<PAGE> 38
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders was held on August 13, 1997.
(b) The following are the voting results on the matter which was
submitted to the stockholders:
<TABLE>
<CAPTION>
For Against Withheld
<S> <C> <C> <C>
Resolutions
To approve the issuance of up
to 25,957,061 shares of Bankers
Trust New York Corporation
common stock and associated
purchase rights pursuant to
the merger of Alex. Brown
Incorporated with and into a
wholly-owned subsidiary of
Bankers Trust New York
Corporation. 58,702,969 533,806 293,001
</TABLE>
The text of the matters referred to under this Item 4 is set forth in
the Proxy Statement/Prospectus dated July 11, 1997 previously filed with
the Commission and incorporated herein by reference.
<PAGE> 39
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(v) - The Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instru-
ments defining the rights of security holders
issued by Bankers Trust New York Corporation or its
subsidiaries.
(10) Material Contracts
iii(A) Management Contracts and Compensation Plans
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(b) Reports on Form 8-K - Bankers Trust New York Corporation filed
five reports on Form 8-K during the quarter ended September 30,
1997.
- The report dated July 17, 1997, and amended by the Form 8-K/A
filed on July 18, 1997 filed the Corporation's Press Release
dated July 17, 1997, which announced earnings for the quarter
ending June 30, 1997.
- The report dated August 14, 1997 and filed on August 20, 1997
reported that Bankers Trust Company, a wholly owned subsidiary of
Bankers Trust New York Corporation had entered into an agreement
to sell the office building located at 280 Park Avenue for
$321 million, and is expected to recognize a gain of
approximately $75 million. In addition, the report filed a press
release which announced that the Corporation and Bankers Trust
Company had elected four directors to its board, and filed the
Corporation's opinion of counsel delivered in connection with
the issuance of the Corporation's 7.15% Subordinated Notes due
August 14, 2012.
- The report dated September 1, 1997 and filed on September 4,
1997, announced that on September 1, 1997, Alex. Brown
Incorporated merged into BT Alex Brown Holdings Incorporated,
a wholly owned subsidiary of Bankers Trust New York Corporation,
and filed year-end historical Alex. Brown Incorporated financial
information as well as certain Pro Forma Combined Financial
Statements.
- The report dated September 1, 1997 and filed on September 9,
1997, filed certain 1996 year-end and 1997 quarterly supplemental
financial information restating the Corporation's historical
consolidated financial statements to reflect the Merger.
- The report dated September 1, 1997 and filed on September 12,
1997, filed 1997 first and second quarter historical Alex. Brown
Incorporated financial information.
<PAGE> 40
SIGNATURE
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, on November 14, 1997.
BANKERS TRUST NEW YORK CORPORATION
BY: /S/ RONALD HASSEN
RONALD HASSEN
Senior Vice President
(Principal Accounting Officer)
BANKERS TRUST NEW YORK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
EXHIBIT INDEX
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
(v) - Long-Term Debt Indentures (a)
(10) Material Contracts
iii (a) Management Contracts and Compensation Plans
(1) Employment agreement with Alvin B. Krongard
(2) Employment agreement with Mayo A. Shattuck III
(3) Split-Dollar Insurance Agreement
(4) Alex. Brown Incorporated 1991 Equity Incentive Plan
(12) Statement re Computation of Ratios
(a) - Computation of Consolidated Ratios of
Earnings to Fixed Charges
(b) - Computation of Consolidated Ratios of
Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
(27) Financial Data Schedule
[FN]
(a) The Corporation hereby agrees to furnish to the Commission, upon
request, a copy of any instruments defining the rights of holders of long-term
debt issued by Bankers Trust New York Corporation or its subsidiaries.
EXHIBIT 10(iii)(A)(1)
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED AGREEMENT by and between Bankers
Trust New York Corporation, a New York corporation (the
"Company") and Alvin B. Krongard (the "Executive"), dated as of
the 21st day of April, 1997.
1. Employment Period. Subject to the consummation of
the transactions contemplated by the Agreement and Plan of Merger
among the Company, Merger Sub and Alex. Brown Incorporated, a
Maryland corporation ("Pathfinder") dated as of April 6, 1997
(the "Merger Agreement"), the Company hereby agrees to employ the
Executive, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the closing date of the
transactions contemplated by the Merger Agreement (the
"Commencement Date") and ending on December 31, 1999 (the
"Employment Period").
2. Terms of Employment. (a) Position and Duties.
(i) During the Employment Period, the Executive shall serve as a
Vice Chairman of the Board of Directors of the Company, reporting
directly to the Chief Executive Officer of the Company. The
Executive's office shall be located in Baltimore, Maryland. The
Company agrees to nominate the Executive to serve as a member of
its board of directors following the Commencement Date.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote full attention and time
during normal business hours to the business and affairs of the
Company and to use the Executive's reasonable best efforts to
perform such responsibilities in a professional manner. It shall
not be a violation of this Agreement for the executive to (A)
serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Commencement
Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Commencement Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the
Company.
<PAGE>
(b) Compensation. (i) Base Salary. Until such
time as the long-term incentives described in Section 2(b)(iii)
below are fully vested, the Executive shall receive an annual
base salary ("Annual Base Salary") of $350,000 payable in cash.
The Annual Base Salary shall be paid no less frequently than in
equal monthly installments.
(ii) Annual Bonus. For calendar year 1997,
the Executive will receive the Executive's current salary plus a
bonus on a basis consistent with Pathfinder's past practices.
Until such time as the long-term incentives described in Section
2(b)(iii) below are fully vested, in addition to Annual Base
Salary, the Executive shall be awarded an annual bonus (the
"Annual Bonus") which is consistent with Company practice and
policy with respect to its investment banking division but which
for calendar years 1998 and 1999 will not be less than $3,500,000
(the "Minimum Bonus"), payable in the same ratio of cash and
equity incentives as peer executives of the Company.
(iii) Long-Term Incentives. Upon
commencement of the Employment Period, the Executive shall
receive a grant of 60,000 Company stock options (the "Initial
Grant") and additional grants of 60,000 stock options in calendar
years 1998 and 1999 (the "Additional Grants"), in each case with
an exercise price equal to the Fair Market Value of the stock
subject thereto on the date of grant (collectively, the "Stock
Options"). The Initial Grant shall vest and become exercisable
one-third on the first anniversary of the date of grant, an
additional one-third on the second anniversary of the date of
grant and a final one-third on the third anniversary of the date
of grant. The Additional Grants shall vest and become
exercisable on the first anniversary of the date of grant. For
purposes this Section 2(b)(iii), the "Fair Market Value" of the
Company's common stock shall be the average closing price of the
Company's common stock on the New York Stock Exchange for the
five trading days prior to the date of grant. The Stock Options
shall provide that if the Company shall terminate the Executive's
employment other than for Cause during or after the Employment
Period, including by reason of the Executive's death or
Disability, or the Executive shall terminate employment for Good
Reason during or after the Employment Period, such Stock Options
shall become immediately vested. The Executive shall also be
granted 75,000 PEP units in each of calendar years 1998 and 1999
pursuant to the Company's Partnership Equity Plan (the "PEP
Units"). The Company agrees to consider the participation of the
Executive in incentive compensation plans applicable to peer
executives, with such participation being in the Company's sole
discretion.
<PAGE>
(iv) Savings and Retirement Plans. During
the Employment Period, the Executive shall be eligible to
participate in all savings and retirement plans, practices,
policies and programs to the extent applicable generally to other
peer executives of the Company and its affiliated companies,
provided that the Executive's participation in the Company's
qualified retirement plan may be delayed until the effectiveness
of the Company's cash balance pension plan. For purposes of all
such plans, the Company shall credit the Executive with full
credit for all service credited under the Pathfinder Retirement
Savings Plan (including service with Pathfinder prior to the
Commencement Date) for purposes of eligibility to participate and
receive benefits and vesting but not for benefit accruals in any
Company retirement plan.
(v) Welfare and Other Benefit Plans. During
the Employment Period, the Executive and/or the Executive's
family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare, fringe, change
of control protection, vacation and other similar benefit plans,
practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies. For
purposes of all such plans, the Company shall credit the
Executive with full credit for all service credited under the
corresponding Pathfinder benefit plans for purposes of
eligibility to participate and receive benefits but not for
purposes of vesting benefit accruals. With respect to the
Company's welfare benefit plans, the Company shall cause any such
plan to waive any pre-existing condition exclusions and actively-
at-work requirements thereunder with respect to the Executive and
his eligible dependents and shall ensure that any covered
expenses incurred on or before the Commencement Date shall be
taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions
after the Commencement Date to the extent that such expenses are
taken into account for the benefit of peer executives of the
Company.
(vi) Expenses. During the Employment Period,
the Executive shall be entitled to receive prompt reimbursement
for all reasonable business expenses incurred by the Executive,
in accordance with the policies of the Company.
(vii) Indemnity. The Executive shall be
indemnified by the Company against claims arising in connection
with the Executive's status as an employee, officer, director or
agent of the Company in accordance with the Company's indemnity
policies for its senior executives, subject to applicable law.
<PAGE>
3. Termination of Employment. (a) Death or
Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance
with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall have the meaning set forth in
the Company's Long-Term Disability Plan.
(b) Cause. The Company may terminate the
Executive's employment during the Employment Period for Cause.
For purposes of this Agreement, "Cause" shall mean:
(i) intentional gross misconduct by the
Executive damaging in a material way to the Company, or
(ii) a material breach of this Agreement,
after the Company has given the Executive notice thereof and a
reasonable opportunity to cure.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean a material breach by the
Company of this Agreement after the Executive has given the
Company notice of the breach and a reasonable opportunity to
cure.
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
<PAGE>
(e) Date of Termination. "Date of Termination"
means (i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive for Good Reason, the date
of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which
the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may
be.
4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause. If, during the
Employment Period, the Company shall terminate the Executive's
employment other than for Cause, including by reason of the
Executive's death or Disability, or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive
in a lump sum in cash within 30 days after the Date of
Termination the aggregate of the amounts set forth in clauses A
and B below:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Minimum Bonus and
(y) a fraction (the"Proration Fraction"), the numerator of which is the
number of days in the current calendar year through the
Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) to the extent
not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
("Accrued Obligations"); and
B. the amount equal to the product of
(1) the number of years (including fractions thereof)
remaining from the Date of Termination until December
31, 1999 and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Minimum Bonus, which
amount shall be discounted to present value at
the applicable federal rate, as defined in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended; and
(ii) the Stock Options and PEP Units shall
become immediately vested;
<PAGE>
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive any other amounts or benefits required to
be paid or provided or which the Executive is entitled to
receive under any plan, program, policy or practice
or contract or agreement of the Company and its affiliated
companies, excluding any severance plan or policy except
to the extent that such plan or policy provides, in
accordance with its terms, benefits with a value in
excess of the benefits payable to the Executive under this
Section 4 (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause or the
Executive terminates employment without Good Reason during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive (x) Accrued Obligations less the amount determined
under Section 4(a)(i)A(2) hereof, and (y) Other Benefits, in each
case to the extent theretofore unpaid.
5. Arbitration. The Company and the Executive
agree that any disputes with respect to this Agreement shall be
subject to binding arbitration in New York City in accordance
with the rules of the American Arbitration Association. The
proceedings and the results of such arbitration shall be treated
as confidential information subject to Section 6(a) hereof. The
Company agrees to pay for the costs of arbitration and shall
reimburse the Executive for his reasonable attorney's fees
provided that the Executive prevails on at least one material
issue in the arbitration.
6. Confidential Information/Noncompetition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be
required by law or legal process (provided the Company has been
given notice of and opportunity to challenge or limit the scope
of disclosure purportedly so required), communicate or divulge
any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) While employed by the Company, the
Executive shall comply with the rules and policies of the
Company, including without limitation the Company's Rules for
Business Conduct and compliance policies. After termination of
the Executive's employment with the Company, the Executive shall
comply with those aspects of such rules and policies which apply
to conduct after termination of employment.
(c) Until December 31, 1999, the Executive
will not directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control
of, or be connected as an officer, employee, partner, director or
otherwise with, or have any financial interest in, any business
which is in competition with the investment banking, corporate
finance, corporate advisory, asset management or M&A business
conducted by Pathfinder or the Company or any of its affiliates
in any geographic area where such business is being conducted
during such period. Ownership, for personal investment purposes
only, of not to exceed 2% of the voting stock of any publicly
held corporation shall not constitute a violation hereof.
(d) While employed by the Company or any of
its affiliates or Pathfinder and for one year after the
Executive's termination of employment, the Executive will not,
directly or indirectly, solicit for employment by other than the
Company any person employed by the Company or its affiliates or
Pathfinder at the effective time of the Merger (as defined in the
Merger Agreement) (the "Merger"), nor will the Executive,
directly or indirectly, solicit for employment by other than the
Company any person known by him to be employed at the time by
Pathfinder or the Company or its affiliates.
(e) The provisions of Section 6(c) and (d)
shall remain in full force and effect until the expiration of the
period specified herein notwithstanding the earlier termination
of the Executive's employment hereunder.
7. Specific Performance. The Executive
acknowledges that a violation on his part of any of the covenants
contained in Section 6 hereof would cause immeasurable and
irreparable damage to the Company. Accordingly, the Executive
agrees that the Company shall be entitled to injunctive relief in
any court of competent jurisdiction for any actual or threatened
violation of any such covenant in addition to any other remedies
it may have. The Executive agrees that in the event that any
arbitrator or court of competent jurisdiction shall finally hold
that any provision of Section 6 hereof is void or constitutes an
unreasonable restriction against the Executive, the provisions of
such Section 6 shall not be rendered void but shall apply to such
extent as such arbitrator or court may determine constitutes a
reasonable restriction under the circumstances.
<PAGE>
8. Successors. (a) This Agreement is
personal to the Executive and without the prior written consent
of the Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and
assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
not-withstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
the Executive whether pursuant to this Agreement or otherwise,
and determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
(b) Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by KPMG
Peat Marwick (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as
is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 9, shall be
paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be
<PAGE>
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-
Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith
in order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an aftertax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute
<PAGE>
such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such
claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Miscellaneous. (a) This Agreement shall
be governed by and construed in accordance with the laws of the
State of New York, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
c/o Alex Brown Incorporated
135 E. Baltimore Street
Baltimore, Maryland 21202
<PAGE>
If to the Company:
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others, other
than claims for a breach of Section 6 of this Agreement. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not
the Executive obtains other employment.
(d) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(e) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(f) On and after the Commencement Date, this
Agreement shall supersede any other agreement between the parties
or between Pathfinder and the Executive with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto
set the Executive's hand and, pursuant to the authorization from
its Board of Directors, the Company has caused these presents to
be executed in its name on its behalf, all as of the day and year
first above written.
/S/ ALVIN B. KRONGARD
ALVIN B. KRONGARD
BANKERS TRUST NEW YORK CORPORATION
By /S/ MARK BIELER
MARK BIELER
EXHIBIT 10(iii)(A)(2)
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED AGREEMENT by and between
Bankers Trust New York Corporation, a New York corporation (the
"Company") and Mayo A. Shattuck III (the "Executive"), dated as
of the 29th day of April, 1997.
1. Employment Period. Subject to the
consummation of the transactions contemplated by the Agreement
and Plan of Merger among the Company, Merger Sub and Alex. Brown
Incorporated, a Maryland corporation ("Pathfinder") dated as of
April 6, 1997 (the "Merger Agreement"), the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and
conditions of this Agreement, for the period commencing on the
closing date of the transactions contemplated by the Merger
Agreement (the "Commencement Date") and ending on December 31,
1999 (the "Employment Period").
2 Terms of Employment. (a) Position and Duties.
(i) During the Employment Period, the Executive shall
serve as a Vice Chairman of the Company and its co-head of
investment banking, reporting directly to the Chief Executive
Officer of the Company. The Executive's office shall be located
in Baltimore, Maryland.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote full
attention and time during normal business hours to the business
and affairs of the Company and to use the Executive's reasonable
best efforts to perform such responsibilities in a professional
manner. It shall not be a violation of this Agreement for the
executive to (A) serve on corporate, civic or charitable boards
or committees, (B) deliver lectures, fulfill speaking engagements
or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the
Executive prior to the Commencement Date, the continued conduct
of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Commencement Date
shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. Until
such time as the long-term incentives described in Section 2(b)-
(iii) below are fully vested, the Executive shall receive an
annual base salary ("Annual Base Salary") of $350,000 payable in
cash. The Annual Base Salary shall be paid no less frequently
than in equal monthly installments.
(ii) Annual Bonus. For calendar year
1997, the Executive will receive the Executive's current salary
plus a bonus on a basis consistent with Pathfinder's past
practices. Until such time as the long-term incentives described
in Section 2(b)(iii) below are fully vested, in addition to
Annual Base Salary, the Executive will be awarded an annual bonus
(the "Annual Bonus") which is consistent with Company practice
and policy with respect to its investment banking division but
which for calendar year 1998 and 1999 will not be less than
$3,500,000 (the "Minimum Bonus"), payable in the same ratio of
cash and equity incentives as peer executives of the Company.
(iii) Long-Term Incentives. Upon
commencement of the Employment Period, the Executive shall
receive a grant of 80,000 Company stock options (the "Initial
Grant") and additional grants of 60,000 stock options in calendar
years 1998 and 1999 (the "Additional Grants"), in each case with
an exercise price equal to the Fair Market Value of the stock
subject thereto on the date of grant (collectively, the "Stock
Options"). The Initial Grant shall vest and become exercisable
one-third on the first anniversary of the date of grant, an
additional one-third on the second anniversary of the date of
grant and a final one-third on the third anniversary of the date
of grant. The Additional Grants shall vest and become
exercisable on the first anniversary of the date of grant. For
purposes this Section 2(b)(iii), the "Fair Market Value" of the
Company's common stock shall be the average closing price of the
Company's common stock on the New York Stock Exchange for the
five trading days prior to the date of grant. The Stock Options
shall provide that if the Company shall terminate the Executive's
employment other than for Cause during or after the Employment
Period, including by reason of the Executive's death or
Disability, or the Executive shall terminate employment for Good
Reason during or after the Employment Period, such Stock Options
shall become immediately vested. The Executive shall also be
granted 75,000 PEP units in each of calendar years 1998 and 1999
pursuant to the Company's Partnership Equity Plan (the "PEP
Units"). The Company agrees to consider the participation of the
Executive in incentive compensation plans applicable to peer
executives, with such participation being in the Company's sole
discretion.
(iv) Savings and Retirement Plans.
During the Employment Period, the Executive shall be eligible to
participate in all savings and retirement plans, practices,
policies and programs to the extent applicable generally to other
peer executives of the Company and its affiliated companies,
provided that the Executive's participation in the Company's
qualified retirement plan may be delayed until the effectiveness
of the Company's cash balance pension plan. For purposes of all
such plans, the Company shall credit the Executive with full
credit for all service credited
<PAGE>
under the Pathfinder Retirement Savings Plan (including service
with Pathfinder prior to the Commencement Date) for purposes of
eligibility to participate and receive benefits and vesting but
not for benefit accruals in any Company retirement plan.
(v) Welfare and Other Benefit Plans.
During the Employment Period, the Executive and/or the
Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare,
fringe, change of control protection, vacation and other similar
benefit plans, practices, policies and programs provided by the
Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee
life, group life, accidental death and travel accident insurance
plans and programs) to the extent applicable generally to other
peer executives of the Company and its affiliated companies. For
purposes of all such plans, the Company shall credit the
Executive with full credit for all service credited under the
corresponding Pathfinder benefit plans for purposes of
eligibility to participate and receive benefits but not for
purposes of vesting benefit accruals. With respect to the
Company's welfare benefit plans, the Company shall cause any such
plan to waive any pre-existing condition exclusions and actively-
at-work requirements thereunder with respect to the Executive and
his eligible dependents and shall ensure that any covered
expenses incurred on or before the Commencement Date shall be
taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions
after the Commencement Date to the extent that such expenses are
taken into account for the benefit of peer executives of the
Company.
(vi) Expenses. During the Employment
Period, the Executive shall be entitled to receive prompt
reimbursement for all reasonable business expenses incurred by
the Executive, in accordance with the policies of the Company.
(vii) Indemnity. The Executive shall be
indemnified by the Company against claims arising in connection
with the Executive's status as an employee, officer, director or
agent of the Company in accordance with the Company's indemnity
policies for its senior executives, subject to applicable law.
3. Termination of Employment. (a) Death or
Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance
with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall have the meaning set forth in
the Company's Long-Term Disability Plan.
<PAGE>
(b) Cause. The Company may terminate the
Executive's employment during the Employment Period for Cause.
For purposes of this Agreement, "Cause" shall mean:
(i) intentional gross misconduct by the
Executive damaging in a material way to the Company, or
(ii) a material breach of this Agreement,
after the Company has given the Executive notice thereof and a
reasonable opportunity to cure.
(c) Good Reason. The Executive's employment
may be terminated by the Executive for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean a material breach by
the Company of this Agreement after the Executive has given the
Company notice of the breach and a reasonable opportunity to
cure.
(d) Notice of Termination. Any termination by
the Company for Cause, or by the Executive for Good Reason, shall
be communicated by Notice of Termination to the other party
hereto given in accordance with Section 10(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of
Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall
be the date of death of the Executive or the Disability Effective
Date, as the case may be.
<PAGE>
4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause. If, during the
Employment Period, the Company shall terminate the Executive's
employment other than for Cause, including by reason of the
Executive's death or Disability, or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in
a lump sum in cash within 30 days after the Date of Termination
the aggregate of the amounts set forth in clauses A and B below:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Minimum Bonus and
(y) a fraction (the "Proration Fraction"), the numerator of which
is the number of days in the current calendar year through the
Date of Termination, and the denominator of which is 365 and (3)
any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of
(1) the number of years (including fractions thereof) remaining
from the Date of Termination until December 31, 1999 and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Minimum
Bonus, which amount shall be discounted to present value at the
applicable federal rate, as defined in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended; and
(ii) the Stock Options and PEP Units shall
become immediately vested;
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive any other amounts or benefits required to be paid or
provided or which the Executive is entitled to receive under any
plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies, excluding any severance
plan or policy except to the extent that such plan or policy
provides, in accordance with its terms, benefits with a value in
excess of the benefits payable to the Executive under this
Section 4 (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause or the
Executive terminates employment without Good Reason during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive (x) Accrued Obligations less the amount determined
under Section 4(a)(i)A(2) hereof, and (y) Other Benefits, in each
case to the extent theretofore unpaid.
<PAGE>
5. Arbitration. The Company and the Executive
agree that any disputes with respect to this Agreement shall be
subject to binding arbitration in New York City in accordance
with the rules of the American Arbitration Association. The
proceedings and the results of such arbitration shall be treated
as confidential information subject to Section 6(a) hereof. The
Company agrees to pay for the costs of arbitration and shall
reimburse the Executive for his reasonable attorney's fees
provided that the Executive prevails on at least one material
issue in the arbitration.
6. Confidential Information/Noncompetition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be
required by law or legal process (provided the Company has been
given notice of and opportunity to challenge or limit the scope
of disclosure purportedly so required), communicate or divulge
any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) While employed by the Company, the
Executive shall comply with the rules and policies of the
Company, including without limitation the Company's Rules for
Business Conduct and compliance policies. After termination of
the Executive's employment with the Company, the Executive shall
comply with those aspects of such rules and policies which apply
to conduct after termination of employment.
(c) Until December 31, 1999, the Executive
will not directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control
of, or be connected as an officer, employee, partner, director or
otherwise with, or have any financial interest in, any business
which is in competition with the investment banking, corporate
finance, corporate advisory, asset management or M&A business
conducted by Pathfinder or the Company or any of its affiliates
in any geographic area where such business is being conducted
during such period. Ownership, for personal investment purposes
only, of not to exceed 2% of the voting stock of any publicly
held corporation shall not constitute a violation hereof.
(d) While employed by the Company or any of
its affiliates or Pathfinder and for one year after the
Executive's termination of employment, the Executive will not,
directly or indirectly, solicit for employment by other than the
Company any person employed by the Company or its affiliates or
Pathfinder at the effective time of the Merger (as defined in the
Merger Agreement) (the "Merger"), nor will the Executive,
directly or indirectly, solicit for employment by other than the
Company any person known by him to be employed at the time by
Pathfinder or the Company or its affiliates.
<PAGE>
(e) The provisions of Section 6(c) and (d)
shall remain in full force and effect until the expiration of the
period specified herein notwithstanding the earlier termination
of the Executive's employment hereunder.
7. Specific Performance. The Executive
acknowledges that a violation on his part of any of the covenants
contained in Section 6 hereof would cause immeasurable and
irreparable damage to the Company. Accordingly, the Executive
agrees that the Company shall be entitled to injunctive relief in
any court of competent jurisdiction for any actual or threatened
violation of any such covenant in addition to any other remedies
it may have. The Executive agrees that in the event that any
arbitrator or court of competent jurisdiction shall finally hold
that any provision of Section 6 hereof is void or constitutes an
unreasonable restriction against the Executive, the provisions of
such Section 6 shall not be rendered void but shall apply to such
extent as such arbitrator or court may determine constitutes a
reasonable restriction under the circumstances.
8. Successors. (a) This Agreement is
personal to the Executive and without the prior written consent
of the Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and
assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
not-withstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
the Executive whether pursuant to this Agreement or otherwise,
and determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in
<PAGE>
an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
(b) Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by KPMG
Peat Marwick (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as
is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 9, shall be
paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section
9(c) and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-
Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30 day period following
the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
<PAGE>
(iii) cooperate with the Company in good faith
in order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
<PAGE>
10. Miscellaneous. (a) This Agreement shall
be governed by and construed in accordance with the laws of the
State of New York, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
c/o Alex. Brown Incorporated
135 E. Baltimore Street
Baltimore, Maryland 21202
If to the Company:
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others, other
than claims for a breach of Section 6 of this Agreement. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not
the Executive obtains other employment.
(d) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(e) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
<PAGE>
(f) On and after the Commencement Date, this
Agreement shall supersede any other agreement between the parties
or between Pathfinder and the Executive with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto
set the Executive's hand and, pursuant to the authorization from
its Board of Directors, the Company has caused these presents to
be executed in its name on its behalf, all as of the day and year
first above written.
/S/ MAYO A. SHATTUCK III
MAYO A. SHATTUCK III
BANKERS TRUST NEW YORK CORPORATION
By /S/ MARK BIELER
MARK BIELER
EXHIBIT 10(iii)(A)(3)
On September 1, 1997, Alex. Brown Incorporated was acquired by
Bankers Trust New York Corporation (the "Corporation") and the
Corporation assumed the obligations under the following
Agreement.
SPLIT-DOLLAR INSURANCE AGREEMENT
This Agreement is made as of this _____ day of
_______________________ between Alex. Brown & Sons Incorporated,
a Maryland corporation with offices at 135 East Baltimore Street,
Baltimore, Maryland 21202 (the "Corporation"), and
___________________________________ (the "Employee").
WHEREAS the Corporation and the Employee wish to become co-owners
of one or more life insurance policies on the Employee's life
(the "Policies") to be issued hereunder by Confederation Life
Insurance Company or such other insurance company as shall be
mutually determined by the Corporation and the Employee
("Insurer").
NOW, THEREFORE in consideration of the premises and the mutual
covenants contained herein and other good and valuable
consideration had and received, the parties agree as follows:
ARTICLE I.
Acquisition of Insurance
A. The Corporation and the Employee have applied to Insurer for
a limited payment whole life policy on the Employee's life
(hereinafter called "Initial Policy") in an amount sufficient to
provide a death benefit equal to $600,000 (the "Target Benefit").
B. The Corporation and the Employee acknowledge that the
Corporation shall have the right, for such reasons as the
Corporation deems appropriate, in its sole discretion, to elect
not to pay any premiums due on any of the Policies. The Employee
agrees that neither the Employee, any beneficiary designated by
the Employee, nor the Employee's estate will have any claim
against the Corporation or any Insurer (including CLIC) as a
consequence of any exercise by the Corporation of its
aforementioned right.
C. The Corporation and the Employee will use reasonable efforts
to cause the aforementioned Policies to be issued. When issued,
(i) the policy number; (ii) the issue date; and (iii) the face
amount of the policy will be recorded on Schedule A, attached
hereto. All such Policies will then be subject to the terms of
this Agreement.
<PAGE>
ARTICLE II.
Ownership of Insurance and Designation of Beneficiary
If the proceeds of the Policies shall become payable by
reason of the Employee's death, it is agreed that the Insurer
will pay the policy proceeds in the following manner:
A. The Target Benefit of the Policies' proceeds will be paid to
the beneficiary designated by the Employee pursuant to the
Insurer's Designation of Beneficiary and Ownership Rights form.
B. The remainder of the Policies' proceeds shall be paid to the
Corporation.
While the Employee is living, the Employee shall have the
right to change and successively change the beneficiary(ies)
designated under paragraph A above by executing a new beneficiary
designation form in use by the Insurer from time to time. While
the Employee is living, the Corporation, its successors or
assigns, alone shall have the right to change and successively
change the beneficiary designated under subparagraph B above.
The Corporation and the Employee agree to take whatever steps are
necessary, including filing documents requested by the Insurer,
to effectuate the intent of this Agreement.
ARTICLE III.
Payment of Premiums on Policy
A. Subject to Article I, paragraph B, the Corporation will pay
the full amount of each annual premium due pursuant to the terms
of the Policies on the date each such premium is due through the
anticipated pay period for each policy. If dividends and paid-up
whole life insurance additions are insufficient to cover premiums
due after the anticipated pay period, premiums may be paid
pursuant to Article IV.
B. The Employee agrees that the Employee will pay to the
Corporation, as the Employee's share of the first five annual
premiums paid by the Corporation, an amount as indicated on
Schedule B, attached hereto. Following payment of the first five
annual premiums due on each policy, the Corporation and the
Employee shall authorize the Insurer to apply current and
accumulated policy dividends, as well as the value of any
Increasing Whole Life Rider forming part of the Policies, to pay
the entire annual premium to the Insurer due for each year
thereafter.
<PAGE>
ARTICLE IV.
Dividends and Policy Loans
A. At the option of the Corporation, any dividends declared by
the Insurer on any Policies issued hereunder may be applied
either (i) to purchase additional paid up insurance on the life
of the Employee, or (ii) to reduce that portion of the premiums
owed by the Corporation on any Policies with respect to which
such dividend is declared or on any other Policies issued on the
Employee's life pursuant to this Agreement. In addition, the
Corporation shall have the right at any time to surrender
existing paid-up dividend whole life insurance additions in order
to reduce premiums on any Policies issued hereunder.
B. The Employee hereby consents to and agrees that the
Corporation, without notice to the Employee, may obtain policy
loans in any amount which shall not exceed the amount of the "net
premium outlay" as defined in Article V, paragraph A. Such loans
may be obtained from the Insurer or from others. The Employee
will execute and deliver any documents reasonably required by any
lender to evidence such loans. Interest on any such loans paid
by the Corporation shall be recovered by the Corporation as if
such interest (including compounded interest) was part of the
"net premium outlay" as defined in Article V, paragraph A.
The decision as to whether or not to obtain policy loans is
at the sole option of the Corporation. Nothing in this section
shall limit the Corporation's right pursuant to Article I,
paragraph B, to let the Policies be cancelled for failure to pay
premiums.
ARTICLE V.
Recovery by Corporation of its Premium Outlay
A. For purposes of this Agreement, "net premium outlay" means
the sum of the total annual premiums paid by the Corporation on
any Policies issued hereunder plus any interest (including
compounded interest) paid by the Corporation on account of loans
obtained for the purpose of paying premiums beyond the
anticipated pay period, less amounts paid by the Employee
pursuant to Article III.
B. If any Policies issued hereunder are cancelled during the
Employee's lifetime for any reason within five (5) years from the
date hereof, then, except as provided in Article XI, the entire
cash surrender value accrued under any such Policies shall be
paid to the Corporation in satisfaction of the amount of the
Corporation's net premium outlay even if the amount of such cash
surrender value exceeds said premium outlay. If the cash
surrender value paid to the Corporation is less than the
Corporation's net premium outlay, the Employee shall have no
obligation to repay such deficit amount to the Corporation.
<PAGE>
C. If any Policies issued hereunder are cancelled for any
reason during the Employee's lifetime after the expiration of
five (5) years from the date hereof, the Insurer will pay the
Corporation the entire cash surrender value within thirty (30)
days. Only that portion of the cash surrender value of any such
Policies which equals the Corporation's net premium outlay with
respect to such Policies shall be retained by the Corporation.
Any cash surrender value in excess of the Corporation's net
premium outlay shall be paid to the Employee by the Corporation
as agent for the Insurer. If the cash surrender value paid to
the Corporation is less than the Corporation's net premium
outlay, the Employee shall have no obligation to repay such
deficit amount to the Corporation.
ARTICLE VI.
Additional Policy Benefits
Upon mutual consent, the Corporation and the Employee may agree
upon additional policy benefits and agree as to the manner in
which the premiums for such benefits shall be paid.
ARTICLE VII.
Maryland Law to Govern
This Agreement shall be subject to and shall be construed under
the laws of the State of Maryland without giving effect to
principles of conflict of laws.
ARTICLE VIII.
Employee Agrees Not To Take Certain Action
The Employee shall take no action with respect to the Policies
which would in any way compromise or jeopardize the Corporation's
rights described in the Agreement, including, without limitation,
the Corporation's right to be repaid the Policies' premium
amounts paid by the Corporation toward premiums on the Policies.
ARTICLE IX.
Death Claims
When the Employee dies, death benefits will be paid as outlined
in Article II hereof.
<PAGE>
ARTICLE X.
Termination of Agreement
This Agreement shall terminate on written notice given by either
party to the other.
ARTICLE XI.
Disposition of Policy on Termination of Agreement
If this Agreement is terminated, the Corporation shall notify the
Insurer and such notification shall serve as a cancellation of
the Policies described in Article V, unless prior to such
notification the Employee repays to the Corporation the amount of
its net premium outlay, in which case the Corporation agrees to
cooperate with the Employee to cause the Employee to become the
sole owner of the Policies and to have the Corporation withdraw
from any aspect of the Policies. If any such Policies are
encumbered by policy loans when the net premium outlay is being
repaid, the Corporation shall either remove the encumbrance or
reduce the amount to be paid by the Employee to the Corporation
by the amount of the indebtedness, which indebtedness shall be
assumed and become the obligation of the Employee.
ARTICLE XII.
Terms of Policy to Control
The Insurer shall be fully discharged from any and all liability
under the terms of any Policies issued by it hereunder, upon
payment or other performance of its obligations in accordance
with the terms of such Policies.
ARTICLE XIII.
Miscellaneous
A. This Agreement shall not be modified or amended except by a
writing signed by the Corporation and the Employee. This
Agreement shall be binding upon the heirs, administrators or
executors and the successors and assigns of each party to this
Agreement.
B. The parties shall execute and deliver any additional
documents which are required to give full force and effect to the
transactions contemplated hereunder.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date first above written.
By:
Employee
Alex. Brown & Sons Incorporated
By:
EXHIBIT 10(iii)(A)(4)
On September 1, 1997, Alex. Brown Incorporated was acquired by
Bankers Trust New York Corporation (the "Corporation") and the
Corporation assumed the obligations under the following Plan.
ALEX. BROWN INCORPORATED 1991 EQUITY INCENTIVE PLAN
Section I. Purpose
The purpose of the Alex. Brown Incorporated 1991 Equity Incentive
Plan (the "Plan") is to attract and retain key employees, to
provide an incentive for them to assist the Company achieve long-
range performance goals, and to enable such key employees to
participate in the long-term growth of the Company.
Section 2. Definitions
"Affiliate" means any business entity in which the Company owns
directly or indirectly 50% or more of the total combined voting
power or has a significant financial interest as determined by
the Committee.
"Award" means any Option, Stock Appreciation Right, Performance
Share, Restricted Stock, Other Stock-Based Award or Stock Unit
awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time and any successor to such Code.
"Committee" means a committee of not less than three members of
the Board appointed by the Board to administer the Plan, each of
whom is a "disinterested person" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, or any successor
provision, as applicable to the Plan at the time of
determination.
"Common Stock" or "Stock" means the Common Stock, $.10 par value,
of the Company.
"Company" means Alex. Brown Incorporated.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner and to the extent determined by the
Committee, to receive amounts due or exercise rights of the
Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
"Fair Market Value" means, with respect to Common Stock or any
other property, the fair market value of such property as
determined by the Committee in good faith or in the manner
established by the Committee from time to time.
<PAGE>
"Incentive Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 which is
intended to meet the requirements of Section 422 of the Code or
any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 which is
not intended to be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.
"Other Stock-Based Award" means Awards, other than Options, Stock
Appreciation Rights, Performance Shares, Restricted Stock or
Stock Units, having a Common Stock element and awarded to a
Participant under Section 10.
"Participant" means a person selected by the Committee to receive
an Award under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected
by the Committee during which performance is measured for the
purpose of determining the extent to which an award of
Performance Shares, or any other Award requiring measurement of
performance, has been earned.
"Performance Shares" mean shares of Common Stock which may be
earned by the achievement of performance goals awarded to a
Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period during which any Award may
be forfeited to the Company pursuant to the terms and conditions
of such Award.
"Restricted Stock" means shares of Common Stock subject to
forfeiture awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any
excess in value of shares of Common Stock over the exercise price
awarded to a Participant under Section 7.
"Stock Unit" means an award of Common Stock or units that are
valued in whole or in part by reference to, or otherwise based
on, the value of Common Stock, awarded to a Participant under
Section 11.
Section 3. Administration
The Plan shall be administered by the Committee. The Committee
shall have authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider
advisable, and to interpret the provisions of the Plan. The
Committee's decisions shall be final and binding. To the extent
permitted by applicable law, the Committee may delegate to one or
more executive officers
<PAGE>
of the Company the power to make Awards to Participants who are
not Reporting Persons and all determinations under the Plan with
respect thereto, provided that the Committee shall fix the
maximum amount of such Awards for the group and a maximum for any
one Participant.
Section 4. Eligibility
All employees of the Company or any Affiliate capable, in the
sole judgment of the Committee, of contributing significantly to
the successful performance of the Company, other than a person
who has irrevocably elected not to be eligible, are eligible to
be Participants in the Plan. Incentive Stock Options may be
awarded only to persons eligible to receive such Options under
the Code.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), Awards may be
made under the Plan in each calendar year during any part of
which the Plan is effective in respect of a maximum of seven and
one-half percent (7.5%) of the total shares of Common Stock
outstanding on the first day of such year, provided that the
maximum number of shares of Common Stock in respect of which
Awards may be granted for 1991 is 350,000. If any Award in
respect of shares of Common Stock expires or is terminated
unexercised or is forfeited for any reason or settled in a manner
that results in fewer shares outstanding than were initially
awarded, including without limitation the surrender of shares in
payment of the Award or any tax obligation thereon, the shares
subject to such Award, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for
award under the Plan. Common Stock issued through the assumption
or substitution of outstanding grants from any acquired company
shall not reduce the shares available for Awards under the Plan.
(b) In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, creation of a class of
equity securities, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock at a
price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Committee,
subject, in the case of Incentive Stock Options, to any
limitation required under the Code, shall equitably adjust any or
all of (i) the number and kind of shares in respect of which
Awards may be made under the Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the award,
exercise or conversion price with respect to any of the foregoing,
and if considered appropriate, the Committee may make provisions
for a cash payment with respect to an outstanding Award, provided
that the number of shares subject to any Award shall always be a
whole number.
<PAGE>
(c) Notwithstanding any other provision of the Plan, no more
than 1,000,000 shares of Common Stock shall be cumulatively
available for the award of Incentive Stock Options; provided that
to the extent an Incentive Stock Option expires or is terminated
unexercised or is forfeited for any reason the shares which were
subject to such option may again be awarded as Incentive Stock
Options.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Committee may
award Incentive Stock Options and Nonstatutory Stock Options and
determine the number of shares to be covered by each Option, the
option price therefor and the conditions and limitations
applicable to the exercise of the Option. The terms and
conditions of Incentive Stock Options shall be subject to and
comply with Section 422 of the Code, or any successor provision,
and any regulations thereunder.
(b) The Committee shall establish the option price at the time
each Option is awarded, which price shall not be less than 100%
of the Fair Market Value of the Common Stock on the date of award
with respect to Incentive Stock Options and not less than 50% of
the Fair Market Value of the Common Stock on the date of award
with respect to Nonstatutory Stock Options.
(c) Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may specify in the
applicable Award or thereafter. The Committee may impose such
conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is
received by the Company. Such payment may be made in whole or in
part in cash or, to the extent permitted by the Committee at or
after the award of the Option, by delivery of a note or shares of
Common Stock owned by the optionee, including Restricted Stock
valued at its Fair Market Value on the date of delivery, or such
other lawful consideration as the Committee may determine.
(e) The Committee may provide for the automatic award of an
Option upon the delivery of shares to the Company in payment of
an Option for up to the number of shares so delivered.
Section 7. Stock Appreciation Rights
(a) Subject to the provisions of the Plan, the Committee may
award SARs in tandem with an Option (at or after the award of the
Option), or alone and unrelated to an Option. SARs in tandem
with an Option shall terminate to the extent that the tandem
Option is exercised. SARs shall have an
<PAGE>
exercise price of not less than 50% of the Fair Market Value of
the Common Stock on the date of award, or in the case of SARs in
tandem with Options, the exercise price of the related Option.
(b) An SAR related to an Option which can only be exercised
during limited periods following a change in control of the
Company, may entitle the Participant to receive an amount based
upon the highest price paid or offered for Common Stock in any
transaction relating to the change in control or paid during the
thirty-day period immediately preceding the occurrence of the
change in control in any transaction reported in the market in
which the Common Stock is normally traded.
Section 8. Performance Shares
(a) Subject to the provisions of the Plan, the Committee may
award Performance Shares and determine the number of such shares
for each Performance Cycle and the duration of each Performance
Cycle. There may be more than one Performance Cycle in existence
at any one time, and the duration of Performance Cycles may
differ from each other. The payment value of Performance Shares
shall be equal to the Fair Market Value of the Common Stock on
the date the Performance Shares are earned or, in the discretion
of the Committee, on the date the Committee determines that the
Performance Shares have been earned.
(b) The Committee shall establish performance goals for each
Cycle, for the purposes of determining the extent to which
Performance Shares awarded for such Cycle are earned and of
accomplishing such objectives the Committee may from time to time
select. During any Cycle, the Committee may adjust the
performance goals for such Cycle as it deems equitable in
recognition of unusual or nonrecurring events affecting the
Company, changes in applicable tax laws or accounting principles,
or such other factors as the Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle,
the Committee shall determine the number of Performance Shares
which have been earned on the basis of performance in relation to
the established performance goals. The payment values of earned
Performance shares shall be distributed to the Participant or, if
the Participant has died, to the participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee
shall determine, at or after the time of award, whether payment
values will be settled in whole or in part in cash or other
property, including Common Stock or Awards.
Section 9. Restricted Stock
(a) Subject to the provisions of the Plan, the Committee may
award shares of Restricted Stock and determine the duration of the
Restricted Period, and the conditions under which, the shares
may be forfeited to the Company and the other terms and
conditions of such Awards. Shares of Restricted Stock shall be
issued for no cash consideration or such minimum consideration as
may be required by applicable law.
<PAGE>
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted
by the Committee, during the Restricted Period. Shares of
Restricted Stock shall be evidenced in such manner as the
Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Committee,
deposited by the Participant, together with a stock power
endorsed in blank, with the Company. At the expiration of the
Restricted Period, the Company shall deliver such certificates to
the Participant or if Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Other Stock-Based Awards
(a) Subject to the provisions of the Plan, the Committee may
make other awards of Common Stock and other awards that are
valued in whole or in part by reference to, or are otherwise
based on, Common Stock, including, without limitation,
convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based
Awards may be granted either alone or in addition to or in tandem
with Options, SARs, Performance Shares, Restricted Stock or Stock
Units granted under the Plan and/or cash awards made outside of
the Plan.
(b) The Committee may establish performance goals, which may be
based on performance goals related to book value, subsidiary
performance or such other criteria as the Committee may
establish, Restricted Periods, Performance Cycles, conversion
prices (provided no conversion price shall be less than 50% of
the Fair Market Value of the Common Stock on the date of award of
any Other Stock-Based Award), maturities and security, if any,
for any Other Stock-Based Award. Other Stock-Based Awards may be
sold to Participants at the face value thereof or any discount
therefrom (up to 50%) or awarded for no consideration or minimum
consideration as may be required by applicable law.
Section 11. Stock Units
(a) Subject to the provisions of the Plan, the Committee may
award Stock Units subject to such terms, restrictions,
conditions, performance goals, Restricted Periods, vesting
requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock
Unit Award shall be issued for no cash consideration or such
minimum consideration as may be required by applicable law.
<PAGE>
Section 12. General Provisions Applicable to Awards
(a) Transferability of Awards and Holding Period. No
Participant shall have the right to assign any Award or the right
to receive any Award or any other right or interest under the
Plan, contingent or otherwise, or to cause or permit any
encumbrance, pledge or charge of any nature to be imposed on any
such Award or right to receive any Award or any such right or
interest other than by will or the laws of descent and
distribution. Awards shall be exercisable or convertible (as the
case may be) during the Participant's lifetime only by the
Participant or the Participant's guardian or legal
representative.
(b) Documentation. Each Award under the Plan shall be evidenced
by a writing delivered to the Participant specifying the terms
and conditions thereof and containing such other terms and
conditions not inconsistent with the provisions of the Plan as
the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone,
in addition to or in relation to any other type of Award. The
terms of each type of Award need not be identical, and the
Committee need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the
Committee at the time of award or at any time thereafter.
(d) Settlement. The Committee shall determine whether Awards
are settled in whole or in part in cash, Common Stock, other
securities of the Company, Awards or other property. The
Committee may permit a Participant to defer all or any portion of
a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on
amounts denominated in Common Stock.
(e) Dividends and Cash Awards. In the discretion of the
Committee, any Award under the Plan may provide the Participant
with (i) dividends or dividend equivalents payable currently or
deferred with or without interest, and (ii) cash payments in lieu
of or in addition to an Award.
(f) Termination of Employment. The Committee shall determine
the effect on an Award of the disability, death, retirement or
other termination of employment of a Participant and the extent
to which, and the period during which, the Participant's legal
representative, guardian or Designated Beneficiary may receive
payment of an Award or exercise rights thereunder.
<PAGE>
(g) Change in Control. In order to preserve a Participant's
rights under an Award in the event of a change in control of the
Company, the Committee in its discretion may, at the time an
Award is made or at any time thereafter, take one or more of the
following actions: (i) provide for the acceleration of any time
period relating to the exercise or realization of the Award,
(ii) provide for the purchase of the Award upon the Participant's
request for an amount of cash or other property that could have
been received upon the exercise or realization of the Award had
the Award been currently exercisable or payable, (iii) adjust the
terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be
assumed, or new rights substituted therefor, by another entity,
or (v) make such other provision as the Committee may consider
equitable and in the best interests of the Company.
(h) Loans. The Committee may authorize the making of loans or
cash payments to Participants in connection with any Award under
the Plan, which may be secured by any security, including Common
Stock, underlying or related to such Award (provided that such
Loan shall not exceed the Fair Market Value of the security
subject to such Award), and which may be forgiven upon such terms
and conditions as the Committee may establish at the time of such
loan or at any time thereafter.
(i) Withholding. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any
taxes required by law to be withheld in respect of Awards under
the Plan no later than the date of the event creating the tax
liability. In the Committee's discretion, such tax obligations
may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value on the date of
delivery. The Company and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the Participant.
(j) Foreign Nationals. Awards may be made to Participants who
are foreign nationals or employed outside the United States on
such terms and conditions different from those specified in the
Plan as the Committee considers necessary or advisable to achieve
the purposes of the Plan or comply with applicable laws.
(k) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award, including, without limitation,
substituting therefor another Award of the same or a different
type, changing the option price, date of exercise or realization,
modifying performance goals, Restricted Periods, Performance
Cycles, or vesting requirements, and converting an Incentive
Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the
Committee determines that the action, taking into account any
related action, would not materially and adversely affect the
Participant's interest in the Award.
<PAGE>
Section 13. Miscellaneous
(a) No Right to Employment. No person shall have any claim or
right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued
employment. The Company expressly reserves the right at any time
to dismiss a Participant free from any liability or claim under
the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall
have any rights as a stockholder with respect to any shares of
Common Stock to be distributed under the Plan until he or she
becomes the holder thereof. A Participant to whom Common Stock
is awarded shall be considered the holder of the Stock at the
time of the Award except as otherwise provided in the applicable
Award.
(c) Effective Date. Subject to the approval of the shareholders
of the Company, the Plan shall be effective as of January 10,
1991. Prior to such approval, Awards may be made under the Plan
expressly subject to such approval.
(d) Term of Plan. No Award shall be granted pursuant to the
Plan on or after the tenth anniversary of the date of stockholder
approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
(e) Applicability to Other Plans. Subject to stockholder
approval of the Plan, no further stock options shall be granted
under the Alex. Brown Incorporated 1986, 1987 and 1990 Stock
Option Plans and no further restricted stock grants shall be made
under the Alex. Brown Incorporated 1987 Restricted Stock Plan.
Existing and outstanding stock options and restricted stock
awards under such plans shall remain in effect pursuant to the
terms of the agreements governing such options and grants and
shall continue to be governed by such plans to the extent
applicable.
(f) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided
that no amendment shall be made without stockholder approval if
such approval is necessary to comply with any applicable tax or
regulatory requirement, including any requirement for exemptive
relief under Section 16(b) of the Securities Exchange Act of
1934, or any successor provision.
(g) Governing Law. The provisions of the Plan shall be governed
by and interpreted in accordance with the laws of the State of
Maryland.
<PAGE>
Federal Income Tax Consequences of the Alex. Brown Incorporated
1991 Equity Incentive Plan as Proposed to be Amended
Incentive Stock Options. An optionee will not recognize taxable
income upon the grant or exercise of an ISO under the 1991 Equity
Incentive Plan. If no disposition of shares issued to an
optionee pursuant to the exercise of an ISO is made by the
optionee within two years from the date of grant or within one
year from the transfer of such shares to the optionee, then (a)
upon sale of such shares, any amount realized in excess of the
option price (the amount paid for the shares) will be taxed to
the optionee as a long-term capital gain and any loss sustained
will be a long-term capital loss and (b) no deduction will be
allowed to the Company for Federal income tax purposes. The
exercise of ISOs will give rise to a positive adjustment to
alternative minimum taxable income that may result in alternative
minimum tax liability for the optionee. If an SAR is granted
with respect to an outstanding ISO, the ISO may be disqualified
and converted to a nonstatutory stock option.
If shares of Common Stock acquired upon the exercise of an ISO
are disposed of prior to the expiration of the two-year and one-
year holding periods described above (a "disqualifying
disposition") generally (a) the optionee will recognize ordinary
income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on a sale of such
shares) over the option price thereof, and (b) the Company will
be entitled to deduct such amount, subject to applicable
withholding requirements. Any further gain realized will be
taxed as short-term or long-term capital gain and will not result
in any deduction by the Company. Special rules apply where the
optionee is subject to Section 16(b) of the Exchange Act or where
all or a portion of the exercise price of the ISO is paid by
tendering shares of Common Stock. A disqualifying disposition
will reverse the alternative minimum taxable income adjustment
associated with the exercise of the ISO.
Nonstatutory Stock Options. No income is recognized by the
optionee at the time the option is granted. Generally, (a) at
exercise, ordinary income is recognized by the optionee in an
amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise, and the
Company receives a tax deduction for the same amount, subject to
applicable withholding requirements, and (b) at disposition,
appreciation or depreciation after the date of exercise is
treated as either short-term or long-term capital gain or loss
depending on how long the shares have been held.
Generally, persons subject to Section 16(b) of the Exchange Act
are not taxed until the later of (i) six months after grant of
the option or (ii) exercise of the option, with the excess of the
fair market value of the stock at such time over the option price
being taxed as ordinary income; the holding period for
determining whether subsequent gain or loss will be a short-term
or long-term capital gain or loss begins at the time of ordinary
income recognition.
<PAGE>
However, if exercise occurs within six months of the date of
grant of the option, an optionee may elect under Section 83(b) of
the Code, within 30 days after exercise, to be taxed at the time
of exercise, in which case his or her holding period for capital-
gain purposes will begin upon exercise.
Stock Appreciation Rights. A grantee will not recognize taxable
income upon the grant of an SAR. On the exercise of an SAR, in
general, (a) any cash received and the fair market value on the
exercise date of any shares received will constitute ordinary
income to the grantee at the time of exercise, and (b) the
Company will be entitled to deduct such amount, subject to
applicable withholding requirements. If a grantee who is subject
to the restrictions of Section 16(b) of the Exchange Act receives
shares by reason of the exercise of an SAR, (other than SARs
subject to certain limitations specified in Rule 16b-3 under the
Exchange Act), compensation income is recognized at the time of
the lapse of such restrictions (but no later than six months
after exercise) with the amount measured by the fair market value
of the shares at that time unless the grantee elects under
Section 83(b) of the Code, within 30 days after exercise, to be
taxed at the time of exercise.
Performance Shares. The fair market value of any shares received
as payment in respect of performance shares, less any amount paid
by the grantee, will constitute ordinary income to the grantee in
the year in which paid, and the Company will generally be
entitled to deduct such amount, subject to applicable withholding
requirements.
Restricted Stock. A grantee normally will not recognize taxable
income upon a grant of restricted stock, and the Company will not
be entitled to a deduction, until termination of the
restrictions. Upon termination of the restrictions, in general,
(a) the grantee will recognize ordinary income in an amount equal
to the fair market value of the shares at that time less any
amount paid by the grantee, and (b) the Company will be entitled
to deduct such amount, subject to applicable withholding
requirements. However, if a grantee elects under Section 83(b)
of the Code, within 30 days after receipt of the stock, the
grantee's recognition of income and the Companys deduction is
determined at the time the restricted stock is granted.
Stock Units. In general, (a) the grantee must recognize ordinary
income equal to the fair market value of the shares received in
connection with a stock unit award, less any amount paid by the
grantee, at the time the shares become transferable or are not
subject to a substantial risk of forfeiture, whichever occurs
earlier, and (b) the Company will be entitled to a deduction in
the same amount and at the same time as the grantee recognizes
income. However, a grantee may elect under Section 83(b) of the
Code, within 30 days after receipt of the shares, to be taxed at
the time of receipt of the shares, in which case the grantee's
recognition of income and the Company's deduction is determined
at the time the shares are received.
<PAGE>
Other Stock-Based Awards. In general, (a) the grantee must
recognize ordinary income equal to the amount of any cash
received and the fair market value of any shares or other
property received in connection with other stock-based awards,
less any amount paid by the grantee, at the time of receipt, in
the case of cash, and, in the case of shares or other property,
at the time that such shares or other property become
transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier, and (b) the Company will be
entitled to a deduction in the same amount and at the same time
that the grantee recognizes income. However, a grantee may elect
under Section 83(b) of the Code, within 30 days after receipt of
the shares or other property, to be taxed at the time of receipt,
in which case the grantee's recognition of income and the
Company's deduction will be determined at the time the shares or
other property are received.
An employee will not recognize taxable income or loss upon the
conversion of debentures into shares of the Company's Common
Stock. The employee's tax basis in the shares will be equal to
the tax basis of the debentures converted for such shares and the
holding period of the shares will include the holding period of
the debentures. The employee will have capital gain or loss upon
the sale, of the shares acquired pursuant to the conversion of
the debentures. The Company will have no tax deduction relating
to the conversion of debentures or any subsequent sale of the
shares of the Company's Common Stock.
Loan Forgiveness. An employee will have ordinary income upon
forgiveness of a loan, or any portion thereof, and the Company
will generally be entitled to a deduction equal to the income
recognized by the employee, subject to applicable withholding
requirements.
<PAGE>
<TABLE>
EXHIBIT 12(a)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<CAPTION>
Nine Months
Ended
____ Year Ended December 31, Sept. 30,
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effects
of accounting
changes $ 1,001 $1,698 $ 987 $ 469 $ 1,131 $ 953
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,115 3,168 3,911 5,138 5,483 4,243
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 40 30 45 28 30 (113)
4. Earnings including
interest on deposits 4,076 4,836 4,853 5,579 6,584 5,309
5. Less: Interest on
deposits 1,119 1,013 965 1,360 1,355 1,406
6. Earnings excluding
interest on deposits $2,957 $3,823 $3,888 $4,219 $5,229 $3,903
Fixed Charges:
7. Interest Expense $3,083 $3,137 $3,880 $5,105 $5,451 $4,214
8. Estimated interest
component of net
rental expense 32 31 31 33 32 26
9. Amortization of debt
issuance expense - - - - - 3
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,115 3,168 3,911 5,138 5,483 4,243
11. Add: Capitalized
interest - - - - - _____-
12. Total fixed charges 3,115 3,168 3,911 5,138 5,483 4,243
13. Less: Interest on
deposits
(Line 5) 1,119 1,013 965 1,360 1,355 1,406
14. Fixed charges excluding
interest on deposits $1,996 $2,155 $2,946 $3,778 $4,128 $ 2,837
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.31 1.53 1.24 1.09 1.20 1.25
Excluding interest on
deposits
(Line 6/Line 14) 1.48 1.77 1.32 1.12 1.27 1.38
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(dollars in millions)
<CAPTION>
Nine
Months Ended
Year Ended December 31, Sept 30,
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effect
of accounting
changes $ 1,001 $1,698 $ 987 $ 469 $ 1,131 $ 953
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,115 3,168 3,911 5,138 5,483 4,243
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 40 30 45 28 30 ___(113)
4. Earnings including
interest on deposits 4,076 4,836 4,853 5,579 6,584 5,309
5. Less: Interest on
deposits 1,119 1,013 965 1,360 1,355 ___1,406
6. Earnings excluding
interest on deposits$2,957 $3,823 $3,888 $4,219 $5,229 $3,903
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 30 $ 23 $ 28 $ 51 $ 51 $37
8. Ratio of income from
continuing operations
before income taxes to
income from continuing
operations after income
taxes 144% 147% 144% 151% 148% 145%
9. Preferred stock dividend
requirements on a pretax
basis $ 43 $ 34 $ 40 $ 77 $ 75 $ 54
Fixed Charges:
10. Interest Expense $3,083 $3,137 $3,880 $5,105 $5,451 $4,214
11. Estimated interest
component of net
rental expense 32 31 31 33 32 26
12. Amortization of debt
issuance expense - - - - - 3
13. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,115 3,168 3,911 5,138 5,483 4,243
14. Add: Capitalized
interest - - - - - -
15. Total fixed charges 3,115 3,168 3,911 5,138 5,483 4,243
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 43 34 40 77 75 54
<PAGE>
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 3,158 3,202 3,951 5,215 5,558 4,297
18. Less: Interest on
deposits
(Line 5) 1,119 1,013 965 1,360 1,355 1,406
19. Combined fixed charges
and preferred stock
dividend requirements
on a pretax basis
excluding interest on
deposits $2,039 $2,189 $2,986 $3,855 $4,203 $2,891
Consolidated Ratios of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividend Requirements:
Including interest on
deposits
(Line 4/Line 17) 1.29 1.51 1.23 1.07 1.18 1.24
Excluding interest on
deposits
(Line 6/Line 19) 1.45 1.75 1.30 1.09 1.24 1.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW
YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT
SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,625
<INT-BEARING-DEPOSITS> 2,522
<FED-FUNDS-SOLD> 2,241
<TRADING-ASSETS> 52,575
<INVESTMENTS-HELD-FOR-SALE> 7,577
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,303
<ALLOWANCE> 759
<TOTAL-ASSETS> 140,087
<DEPOSITS> 46,079
<SHORT-TERM> 39,487<F1>
<LIABILITIES-OTHER> 9,551<F2>
<LONG-TERM> 12,044
0
703
<COMMON> 105
<OTHER-SE> 5,323
<TOTAL-LIABILITIES-AND-EQUITY> 140,087
<INTEREST-LOAN> 985
<INTEREST-INVEST> 337
<INTEREST-OTHER> 2,061<F3>
<INTEREST-TOTAL> 5,200
<INTEREST-DEPOSIT> 1,406
<INTEREST-EXPENSE> 4,214
<INTEREST-INCOME-NET> 986
<LOAN-LOSSES> 10
<SECURITIES-GAINS> 100
<EXPENSE-OTHER> 3,748
<INCOME-PRETAX> 953
<INCOME-PRE-EXTRAORDINARY> 953
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 659
<EPS-PRIMARY> 6.00
<EPS-DILUTED> 5.80
<YIELD-ACTUAL> 1.32
<LOANS-NON> 298
<LOANS-PAST> 0
<LOANS-TROUBLED> 37
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 973
<CHARGE-OFFS> 66
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 972<F4>
<ALLOWANCE-DOMESTIC> 117
<ALLOWANCE-FOREIGN> 206
<ALLOWANCE-UNALLOCATED> 436
<FN>
<F1>Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 20,158
Other short-term borrowings 19,329
Total 39,487
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 6,255
Other liabilities 3,296
Total 9,551
<F3>Other interest income includes the following:
Interest-bearing deposits with banks 253
Federal funds sold 196
Securities purchased under repurchase agreements 983
Securities borrowed 532
Customer receivables 97
Total 2,061
<F4>The Corporation has allocated its total allowance for credit losses as
follows: 759 as a reduction of loans and 213 as other liabilities related to
all other credit-related items.
</FN>
</TABLE>
