Declaration of Jonathan A. Shiffman in Support of The Motion of Defendantwashington Mutual, Inc. For Summary Judgment
Declaration of Jonathan A. Shiffman in Support of The Motion of Defendantwashington Mutual, Inc. For Summary Judgment
Declaration of Jonathan A. Shiffman in Support of The Motion of Defendantwashington Mutual, Inc. For Summary Judgment
DISTRICT OF DELAWARE
x
In re Chapter 11
WASHINGTON MUTUAL, INC., et al., Case No. 08-12229 (MFW)
Debtors. (Jointly Administered)
x
Adversary Proceeding
BROADBILL INVESTMENT CORP.,
Case No. 10-50911 (MFW)
Plaintiff,
v.
Defendant.
- - - - - - - - - - - - - - - - - - - - - - - - - - - -x
NANTAHALA CAPITAL PARTNERS, LP, and :
BLACKWELL CAPITAL PARTNERS, LLC, :
Intervenor-Plaintiffs,
v.
Defendant-in-Intervention.
x
penalty of perjury that the following is true and correct to the best of my knowledge,
attorneys for defendant Washington Mutual, Inc. ("WMI"), and attach herewith true and
correct copies of documents in support of WMI's motion, dated October 29, 2010, for an
US ACTIVE:143542 I CO \ 05179831.0003
order, pursuant to Rule 56 of the Federal Rules of Civil Procedure, as incorporated herein
pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, granting summary
Partners, LP, and Blackwell Capital Partners, LLC, on behalf of themselves and all others
similarly situated.
article by Leonard Bierman et al., On the Wealth Effects of the Supervisory Goodwill
article by Patrick McGeehan, Market Place; The Savings and Loan Debacle May Be
Long Gone, But the Market Consequences Refuse to Die, N.Y. Times, April 2,
2002.
article by Deborah Adamson, GlenFed Parent Announces Earnings Up, Trading Plan,
10. Attached hereto as Exhibit I is a true and correct copy of that certain
Agreement and Plan of Merger, dated July 6, 1994, by and between Anchor Bancorp, Inc.
and Dirne Bancorp, Inc., without annexes.
11. Attached hereto as Exhibit J, and filed under seal, is a true and correct
copy of that certain presentation by Salomon Smith Barney, titled Project: Holy Graul:
Goodwill Lawsuit Claim Structuring Alternatives in the Context of a Merger, dated
12. Attached hereto as Exhibit K, and filed under seal, is a true and correct
copy of that certain presentation by Salomon Brothers, titled Goodwill Claim
Allocation: A Solution to Unlocking Value for Target Management, dated October 28,
1997.
13. Attached hereto as Exhibit L is a true and correct copy of that certain
Agreement and Plan of Merger, dated July 27, 1996, by and among First Nationwide
Holdings Inc., CalFed Bancorp, Inc., and California Federal Bank, F.S.B.
14. Attached hereto as Exhibit M is a true and correct copy of that certain
Registration Statement (Form S-4), filed by Coast Federal Litigation Contingent Payment
Rights Trust on January 13, 1998.
15. Attached hereto as Exhibit N is a true and correct copy of that certain
report by Charlotte A. Chamberlain & Donald D. Destino, Jefferies & Co. Inc., Equity
US_ACTIVE:143542100105179831.0003 3
Research Report an Golden State Bancorp Litigation Tracking Warrants, dated May 5,
1998.
16. Attached hereto as Exhibit 0 is a true and correct copy of that certain
Warrant Agreement, dated May 4, 1998, between Golden State Bancorp, Inc. and
ChaseMellon Shareholder Services L.L.C.
17. Attached hereto as Exhibit P is a true and correct copy of that certain
Warrant Agreement, dated December 21, 2000, between Dirne Bancorp, Inc., EquiServe
Trust Company, N.A., and EquiServe Limited Partnership.
18. Attached hereto as Exhibit Q is a true and correct copy of that certain
Agreement and Plan of Merger, dated June 25, 2001, by and between Washington
Mutual, Inc. and Dirne Bancorp, Inc.
19. Attached hereto as Exhibit R is a true and correct copy of that certain
Amended and Restated Warrant Agreement, dated March 11, 2003, between Washington
Mutual, Inc. and Mellon Investor Services LLC.
20. Attached hereto as Exhibit S is a true and correct copy of that certain
Amended Judgment of the United States Court of Federal Claims granting recovery to
Plaintiff Anchor Savings Bank, FSB, dated July 17, 2008.
21. Attached hereto as Exhibit T is a true and correct copy of that certain
Notice of Appeal filed by Defendant United States in the United States Court of Federal
Claims, dated September 8, 2008.
22. Attached hereto as Exhibit U is a true and correct copy of that certain
Notice of Cross-Appeal filed by Plaintiff Anchor Savings Bank, FSB in the United States
Court of Federal Claims, dated September 22, 2008.
US_ACTIVE:143542100105179831.0003 4
23. Attached hereto as Exhibit V is a true and correct copy of that certain
Purchase and Assumption Agreement, Whole Bank, dated September 25, 2008, between
the Federal Deposit Insurance Corporation and JP Morgan Chase Bank, N.A.
24. Attached hereto as Exhibit W is a true and correct copy of that certain
Motion to Dismiss filed by the Defendant United States in the United States Court of
25. Attached hereto as Exhibit X is a true and correct copy of that certain
Savings Bank, FSB in the United States Court of Federal Claims, dated September 2,
2010.
26. Attached hereto as Exhibit Y is a true and correct copy of that certain
Reply to Plaintiff Anchor Savings Bank, FSB's Response, filed by Defendant United
States in the United States Court of Federal Claims, dated October 4, 2010.
27. Attached hereto as Exhibit Z is a true and correct copy of that certain
Motion for Leave to file a Sur-reply to Defendant United States' Reply, filed by Plaintiff
Anchor Savings Bank, FSB in the United States Court of Federal Claims, dated
US ACTIVE:143542100\05179831.0003 5
28. Attached hereto as Exhibit AA, and filed under seal, is a true and correct
copy of that certain fetter frorn Dirne Bancorp, Inc. to the Securities and Exchange
US ACTIVE:43542100\05 179831.0003 6
3/1/99 J. Fin. Res. (abstract) 69
1999 WLNR 2777371
March 1999
We provide evidence on the potential wealth effects of the 1996 U.S. Supreme Court decision that the U.S. govern-
ment had violated contractual obligations when, in 1989, it passed legislation prohibiting savings and loan associa-
tions from counting "supervisory goodwill" as capital. The Supreme Court decision produced large wealth gains
for the savings and loan plaintiffs, as did prior court decisions in favor of these savings and loans. However, little
evidence exists to suggest negative market responses to important events surrounding the 1989 legislation.
Reprinted by permission of the publisher.
I. INTRODUCTION
On July 1, 1996, the U.S. Supreme Court in a 7-2 decision (U.S. v. Winstar) ruled that the U.S. government had vio-
lated contractual obligations through the 1989 passage of the Financial Institutions Reform, Recovery, and En-
forcement Act (FIRREA). FIRREA mandated new regulatory capital accounting for depository institutions (espe-
cially relevant to savings and loans (SLAs)) and provided for the rapid phase-out of "supervisory goodwill" as a
component of capital. As a result, numerous thrifts became undercapitalized. Many of these thrifts were closed,
while others resorted to massive portfolio changes designed to shrink their balance sheets and to restore adequate
capital.(FN1)
The Supreme Court decision culminated a series of lawsuits involving both surviving and defunct institutions. Esti-
mates of the damages due from the U.S. government to the harmed institutions range from $10 billion to $20 billion (
Wall St. Journal (WSJ), July 2, 1996, pp. A3, A4), though the exact determination of the magnitude of these dam-
ages is to be established in separate court decisions. The ultimate settlement of these cases creates the situation in
which the Federal Deposit Insurance Corporation (FDIC) as successor to the failed institutions becomes a plaintiff
against the U.S. government, itself represented by attorneys from the FDIC. Indeed, the American Banker (
August 19, 1996) reports that "at the FDIC, the situation is so sensitive that the agency has segregated the attorneys
working at opposite ends of the litigation to avoid any conflicts of interest" (p. 3).
We document that the U.S. Supreme Court ruling had substantial, positive effects on the market value of the SLAs
involved in the case. In contrast, we observe no negative market value effects of the FIRREA-mandated change in
accounting regulations. The Supreme Court decision, thus, may have produced a windfall for the plaintiffs.
reduced the market value of the SLAs' principal asset--fixed-rate, single family mortgage loans--and thus created
negative spreads in their borrowing and lending activities. In an attempt to avoid payouts from the deposit insurance
fund, the Federal Home Loan Bank Board engaged in questionable practices that eventually contributed to even
greater losses to the deposit insurance fund. These included the creation of supervisory goodwill as well as lower
capital requirements and reduced liquidity requirements.
Supervisory goodwill arose when an acquiring firm (in this case, a strong SLA) bought another firm (in this case, a
failing or failed SLA) and paid more than the value of the assets of the seller. The creation of goodwill is common in
mergers and acquisitions, which are accounted for as a purchase rather than a pooling (usually cash rather than stock
transactions). In these cases, the difference between what the strong SLA paid for the failed SLA and the value of
the assets of the weak SLA is called "supervisory goodwill." Goodwill is thus an intangible asset and is often re-
ferred to as a "paper" asset. When the transaction was consummated, the healthy SLAs were allowed to count the
regulatorily created (supervisory) goodwill as capital. The term supervisory goodwill could just as well be
referred to as "supervisory capital."(FN2) In the case of Glendale Federal Bank, for example, over $700 million
in supervisory goodwill was created in 1981 when it acquired an ailing Florida SLA.
Merger transactions creating supervisory goodwill were attractive to strong SLAs for several reasons. Expansionary-
minded SLAs could not generally make interstate acquisitions of healthy SLAs. Thus, for example, Glendale, a Cali-
fornia-based thrift, could only expand into the rapidly growing Florida market through acquisition of a failing or
failed institution. In the expansion process, the acquiring SLAs were also potentially able to capture the value of
underpriced deposit insurance. In addition, accounting rules in effect at the time under "regulatory accounting prin-
ciples" (RAP) generally resulted in the acquisitions' increasing the reported profit of the acquirer. The increment to
reported profit stemmed from the longer period permitted for the amortization of the goodwill (generally forty
years) than was used to accrete into income (generally eight years) the difference between the purchase price of the
mortgages acquired and their (higher) maturity value. As a result, acquiring thrifts were able to reduce the
government's burden in dealing with insolvent institutions and at the same time increase their own reported profits.
While supervisory goodwill was attractive to acquiring thrifts and to the thrift regulators, its economic (i.e., cash-
flow) significance was limited. Indeed, there were no direct cash-flow consequences of supervisory goodwill acqui-
sitions. Publicly reported profits were higher, but profits as reported under tax accounting, and therefore cash
flow, did not necessarily change.
More than 100 transactions were consummated during the 1980s in which supervisory goodwill was created.
But late in the decade the interest rate risk problem for thrifts became a credit risk problem, with thousands of
failing institutions. As a result, the then insuring agency for SLAs, the Federal Savings and Loan Insurance
Corporation, itself became insolvent and the thrift crisis could be ignored no longer.
Angered by the cost of dealing with the problem (over $500 billion by some estimates),(FN3) Congress in 1989
passed FIRREA. This legislation provided the initial funding ($50 billion) to deal with the thrift problem, abolished
the existing regulatory structure, and mandated the adoption of Generally Accepted Accounting Principles (
GAAP) to replace the RAP (Spong (1994)). Most important for the 1996 Supreme Court decision, FIRREA
required that existing goodwill be written off within a short transition period (and that new goodwill created could
not count as capital). As a result, numerous SLAs that were solvent before FIRREA became insolvent shortly after
the legislation was passed.(FN4)
LEGAL BACKGROUND
After the enactment of FIRREA in 1989, various financial institutions brought legal actions against the federal gov-
ernment for breach of contract. These parties argued that FIRREA's provisions (which prescribed strict new mini-
mum capital requirements for SLAs and severely restricted the use of supervisory goodwill) abrogated their agree-
ments with the Federal Home Loan Bank Board. As discussed above, the agreement had permitted the acquiring (
healthy) SLAs to use supervisory goodwill in meeting their capital requirements. The supervisory goodwill SLAs
In two consolidated cases, the U.S. Court of Claims in 1992 held the government liable for breach of contract.(
FN5) The cases were appealed, however, to a panel of judges of the U.S. Court of Appeals for the Federal
Circuit, which in 1993 reversed the holding of the Court of Claims.(FN6) The aggrieved parties, though, then
sought a rehearing of the case before all the judges of the appeals court sitting "en banc." In 1995 the full Federal
Appeals Court reversed the panel decision and affirmed the decisions of the Court of Claims regarding
government liability.(FN7) Because of the importance of the issue and the controversy surrounding it, the U.S.
Supreme Court agreed to hear the federal government's appeal of the Federal Circuit's decisions, and on July 1, 1996,
issued its opinion in the case.
The U.S. Supreme Court in U.S. v. Winstar Corp.,(FN8) upheld the 1995 ruling of the full Federal Appeals Court.
Writing for the court, Justice David Souter upheld the Federal Circuit's conclusion that the federal government had
expressly contracted to permit the thrifts to use supervisory goodwill in computing their regulatory capital. Indeed,
Justice Souter asserted that it would have been "madness" for healthy thrifts to enter into mergers of the kind involv-
ing the aggrieved parties without securing such a clear promise. Since express contractual agreements existed, the
federal government was held liable for breaches of contract since it could not successfully advance any meaningful
defenses for its actions. Thus, the U.S. Supreme Court held that it would not view attempts by the U.S.
government to abrogate its contracts with private business lightly.
A separate set of SLAs was selected as a control group. This group consisted of SLAs that were similar in size to
those in the supervisory goodwill sample but were not involved in the court case. Given the relatively small
number of publicly traded SLAs, a firm-by-firm match was not possible. Nevertheless, our expectation is that these
control group SLAs would not have experienced any response to the events involving the supervisory goodwill
case. Table 1, Panel B provides a list of the control group.
METHODOLOGY
We study the market response to a series of announcements pertaining to the progress of the supervisory goodwill
court cases and to the earlier passage of FIRREA. We use the WSJ to determine our event dates. Given the uncer-
tainty of the timing of the release of the relevant information, we establish a two-day event window: day 0 is the
date of the newspaper article (i.e., the event day), while day -1 is the prior day. In each case, a search of the
WSJ was conducted to determine whether there were contaminating news events for each firm in the sample for a
period of [plus or minus] 5 business days from the event date. No contaminants were found for the two samples.
We estimate the two-day abnormal returns with a single-index market model methodology as originally proposed by
Fama, Fisher, Jenser, and Roll (1969), with the S&P 500 as the market index. The sample period used for estimating
the parameters of the market model is 255 trading days, spanning from day -280 through day -26. Therefore, the
estimation period excludes the two-day event windows, (-1,0). The estimated parameters from the market model are
used to calculate the abnormal returns during the two-day event windows.
In addition, we address two potential biases in statistical tests of abnormal returns: (1) event-induced variance and
heteroskedasticity in the firm return residuals; and (2) event date and industry clustering, which may produce de-
pendence (correlation) between the return residuals of different firms when conditioned on the same event. We
control for the existence of event-induced variance and heteroskedasticity with the approach suggested by
Boehmer, Musumeci, and Poulsen (1991). We address event date and industry clustering by using a control group of
SLAs not directly affected by the various court decisions.(FN10) Finally, we conduct nonparametric sign tests.
Following Lummer and McConnell (1989), the sign tests for sample returns are conditioned on the events.
Focusing initially on market reactions to judicial decisions, we note a large and statistically significant 5.69 percent
two-day mean abnormal return (2.55 percent median) for the SLA plaintiffs in response to the U.S. Supreme Court
decision. However, we observe no statistically significant abnormal return for the control group. The abnormal re-
turns for the supervisory goodwill SLAs are statistically significant at the 1 percent level, with 83 percent of the
sample experiencing positive abnormal returns (also significant at the 1 percent level). We also observe large
positive abnormal returns for the August 30, 1995 (event 4) reversal by the U.S. Appeals court of a lower court
decision against the plaintiff SLAs. The supervisory goodwill SLAs experienced a 9.08 percent mean (8.51 percent
median) abnormal two-day return in response to the appeals court decision, while the nonsupervisory goodwill
SLAs experienced a statistically significant, though much smaller (2.12 percent mean), positive abnormal return.
However, much of the positive abnormal return experienced by the supervisory goodwill SLAs was reversed in
response to the January 19, 1996 (event 3) announcement that the U.S. Supreme Court had agreed to hear the case.
The supervisory goodwill SLAs experienced a negative (5.07 percent mean) two-day abnormal return, as contrasted
with no market response for the nonsupervisory goodwill SLAs. Market participants on January 19, 1996, were
apparently weighing the possibility that the Supreme Court would rule in favor of the government, a possibility that
proved groundless on July 1, 1996.
We seek further insight into the magnitudes of the abnormal returns for each of the supervisory goodwill SLAs in
our sample by examining the 10-K's the organizations filed with the Securities and Exchange Commission. How-
ever, the search did not provide information useful for statistical analysis. Many of the SLAs involved in the court
case did not provide any information about the case in the footnotes to their 10-K's. Moreover, much of the informa-
tion provided was incomplete. For example, Glendale Federal reported in its 1995 10-K (Item 3. Legal Proceedings)
that it filed a claim on January 18, 1993, for $1.38 billion in damages. It did not, however, indicate the original
amount of the supervisory goodwill.
We also estimate the total dollar wealth change for the supervisory goodwill SLAs to compare the market's
perception of the ultimate wealth transfer from the U.S. government to the supervisory goodwill SLAs with the
$10 billion to $20 billion estimate reported in the financial press. We make such estimates by taking the abnormal
returns for each supervisory goodwill SLA and multiplying that number by the market value of equity for each
SLA as of May 31, 1996. The base date is chosen to minimize the possible stock price run-up in anticipation of a
favorable Supreme Court decision. Dollar wealth changes are estimated for three event periods: (-1,0), (0,+1), and (
0,+2). In each case, the estimated dollar wealth changes were substantially less than those reported in the press.
The aggregate dollar wealth changes estimated through multiplying the abnormal returns by the base equity capitali-
zation range from $533 million for the (-1,0) event period (the same period reported in Tables 2 and 3) to $420
million for the (0,+1) event period and to $482 million for the (0,+2) event period. There are several possible
explanations for these much lower amounts than those reported in the financial press.(FN11) One possible
explanation, of course, is that some, perhaps a large amount, of the anticipated benefits to the SLAs was captured
before these event
periods. To the extent that the price movements were associated with the event dates in Table 2, it appears there was
some market adjustment before the Supreme Court decision. However, none of the abnormal returns reported in
Table 2 suggest dollar wealth changes that even approach those reported in the press. Even if the dollar wealth
changes associated with the Supreme Court decision are tripled or quadrupled, they would not approach the $10
billion to $20 billion estimated by the press.
The small amount of the dollar wealth gains may also reflect factors associated with the judicial process. While the
Supreme Court ruled the U.S. government was liable for breach of contract, it left it up to the lower courts on a case-
by-case basis to determine the dollar amount of the monetary damages. Thus, there remained considerable uncer-
tainty as to the magnitude and the timing of any damage awards received by the SLAs. In addition, the SLAs would
have to incur litigation costs to press their cases to fruition, costs that would reduce the net benefits from the
favorable Supreme Court decision.
The control group of nonsupervisory goodwill SLAs, as expected, experienced no reaction to the July 1, 1996, Su-
preme Court decision. This group experienced a statistically insignificant 0.29 percent two-day mean abnormal
return (-0.35 percent median), with only 43 percent of the sample having positive abnormal returns. No statistically
significant abnormal returns were observed for this group for the other event dates, except for event 4 on August 30,
1995. On that date, the nonsupervisory goodwill SLAs experienced a statistically significant mean abnormal
return of 2.12 percent (1.27 percent median), with 71 percent of the SLAs having positive abnormal returns.
Although a review of the financial press did not reveal any events around that date that might have affected the
entire industry, this 2.12 percent positive excess return suggests the 9.08 percent positive excess return for that date
for the supervisory goodwill SLAs may be overstated.
We explore the effects of each of the FIRREA events using three samples. The first sample consists of SLAs that
were plaintiffs in the U.S. Supreme Court case, that were publicly traded at the time of FIRREA, and that failed after
FIRREA. We refer to this group as failed supervisory goodwill SLAs. This set is not included in Table 1 since these
SLAs were not publicly traded at the time of the Supreme Court decision. This sample consists of City Federal Sav-
ings, Far West Financial, North Carolina Federal, Perpetual Financial, and Philadelphia Savings. The second sample
consists of SLAs that also were plaintiffs in the U.S. Supreme Court case but did not fail. We refer to this group as
surviving supervisory goodwill SLAs. They include Ahmanson, Ambase, California Fed, Charter One, Coast Sav-
ings, Dime Bancorp, First Union, Glendale Federal, Standard Federal, and Sterling Financial. The third group con-
sists of publicly traded SLAs that were not involved in the supervisory goodwill controversy. These include
Collective Bancorp, Commercial Federal, First Federal, First Hawaiian, Golden West, Peoples Bank of
Bridgeport, St. Paul Bancorp, TCF Corp., Washington Federal, and Washington Mutual.
These events are of particular interest since they provide evidence on whether (and to what degree) the capital re-
quirements associated with FIRREA did in fact harm the supervisory goodwill SLAs. The evidence reported in
Table 3 provides little support for a negative market response to the two events relevant to the capital
requirements change. Indication by the Treasury Secretary on April 6, 1989, that he would recommend a
presidential veto if Congress weakened the tough capital standards in the proposed legislation produced no
statistically significant market
reaction (event 3) for the failed supervisory goodwill SLAs, it did produce a positive response for the surviving su-
pervisory goodwill SLAs. This event provides no evidence of a negative market response to FIRREA for the super-
visory goodwill SLAs. The vote by the House banking committee on April 28, 1989 (event 2) to toughen capital
standards also did not produce any negative response for either of the supervisory goodwill SLAs sample. This
event did, however, produce positive abnormal returns for the control SLAs, a result consistent with the prior
research evidence. Rejection on May 25, 1989 (event 1) by the House judicial panel of an attempt to ease capital
standards produced no market response for the supervisory goodwill SLAs or for the control SLAs, but it did
produce a positive market response for the failed supervisory goodwill SLAs.
We also explore the market reaction to other FIRREA events that did not specifically relate to the change in capital
requirements. These additional event date cumulative abnormal returns (CARs) produced no evidence of a negative
market response for the supervisory goodwill SLAs. In fact, the CARs were generally statistically insignificant
and in some cases were positive. These market responses are consistent with the evidence provided by Sundaram,
Rangan, and Davidson (1992), who not only find positive market responses, but find responses that were more
positive for low-capital SLAs.
The lack of a negative response to FIRREA for any of the supervisory goodwill SLAs has important implications for
understanding the weath effects of the 1996 Supreme Court decision. In short, we cannot document any statistically
significant negative effect on the supervisory goodwill SLAs due to the provisions of FIRREA. This finding may
stem from the overall positive effects of FIRREA on the industry that may dwarf the potentially negative effects of
the supervisory goodwill component of the legislation. Indeed, to the extent that supervisory goodwill was a paper
transaction without significant cash-flow consequence, its removal may have limited implications for shareholder
wealth. This may be particularly true since FIRREA did not eliminate the market expansion benefits to the acquirer
that came with these mergers. In any case, these findings make it difficult to argue that FIRREA produced monetary
harm to these institutions.
In contrast to this substantial positive market reaction to the U.S. Supreme Court's decision, we fail to find any nega-
tive effect on the supervisory goodwill SLAs of the events leading to passage of FIRREA. It may be that the marked
did not perceive any harm inflicted on the supervisory goodwill SLAs caused by the passing of FIRREA. Our find-
ings also may reflect the nature of our sample or the combined influences of FIRREA on the entire industry as
well as the specific SLAs.
Added material
Leonard Bierman, Donald R. Fraser, and Asghar Zardkoohi Texas A&M Univer-
sity
We appreciate the insightful comments of the reviewer, which contributed to significant improvements in the
paper. We also appreciate the helpful comments of Darius Miller. Naturally, all remaining errors are the
responsibility of the authors. Asghar Zardkoohi would like to thank the Private Enterprise Research Center at Texas
A&M University for providing financial support for this proj ect.
Notes: This table gives mean and median abnormal returns and percent positive for the savings and loans (SLAs)
directly involved in the July 1, 1996, U.S. Supreme Court decision (referred to as the supervisory goodwill SLAs)
and for a control group of SLAs not involved in the decision (referred to as the nonsupervisory goodwill SLAs). The
returns are given for a (0,-1) event period. The event dates reflect the events relevant to the evolution of the U.S.
Supreme Court case.
FOOTNOTE
*** Significant at the 1 percent level.
Notes: This table gives the mean and median abnormal returns and percent positive for three groups of savings and
loans (SLAs) for event dates associated with the 1989 passage of the Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA). The groups include the SLAs that were plaintiffs in the U.S. Supreme Court
decision but that failed after FIRREA, the SLAs that were plaintiffs in the U.S. Supreme Court decision and that
survived after FIRREA, and a control group of SLAs that were not involved in the U.S. Supreme Court case.
FOOTNOTE
* Significant at the 10 percent level.
FOOTNOTES
1 The U.S. General Accounting Office reported that 300 SLAs (of 2,285) held supervisory goodwill as of March
1991. These institutions, which composed 50.1 percent of the industry's assets, reported $4.7 billion in supervisory
goodwill (General Accounting Office, October 15, 1991).
2 In an analysis of supervisory goodwill provided to the House Banking, Finance, and Urban Affairs Committee, the
General Accounting Office offered the following definition of supervisory goodwill:
The Office of Thrift Supervision (OTS) defines supervisory goodwill as goodwill resulting from the acquisition,
merger, consolidation, purchase of assets, or other business combination that occurred on or before April 12,
1989 of: 1) A thirft where the fair market value of assets was less than the fair market value of liabilities at the
acquisition date; or 2) A problem institution (OTS Regulation 567.1 (ee)). The supervisory goodwill that OTS
allows a thrift to count toward its capital adequacy is called qualifying supervisory goodwill. Qualifying
supervisory goodwill is of interest to regulators because it is a component of an institution's core capital. It
should be noted that the total amount of supervisory goodwill in the industry exceeds the amount of qualifying
supervisory goodwill. However, we cannot determine what this excess amount is because supervisory goodwill is
not reported in the industry's quarterly financial report separately from other intangible assets. (U.S. General
Accounting Office, May 26, 1992)
3 A 1996 report by the U.S. General Accounting Office placed the cost of the SLA debacle at $480.9 billion. This
does not include the potential $10 billion to $20 billion cost as the result of the Supreme Court decision on supervi-
sory goodwill (Dow Jones News, July 12, 1996).
4 Over 30 percent of SLAs that closed in 1991 held supervisory goodwill (GAO, May 21, 1992).
5 Winstar Corp. v. U.S., 25 Cl. Ct. 541 (1992); Statesman Sav. Holding Corp. v. U.S., 26 Cl. Ct. 904 (1992).
7 Winstar Corp. v. U.S., 64 F.3d 1531 (Fed. Cir. 1995) (en banc).
9 A third sample was also developed that consisted of firms who were federal contractors and/or members of trade
associations that entered the case as "friends of the court." These firms were composed primarily of defense and
other large federal contractors. Preliminary empirical analysis revealed no evidence of a market response for these
firms. While these results are not reported in the paper, they are available upon request.
10 We also performed tests using Brown and Warner's (1985) portfolio time series standard errors methodology and
Zellner's (1962) seemingly unrelated regression model. These results are not materially different from those
reported in the paper and are available upon request.
11 Potential benefits from the claims settlements would, of course, be shared with all claimants and would not ac-
crue solely to shareholders.
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COMPANY: MERITOR SAVINGS BANK ; WASHINGTON MUTUAL INC; COMMERCIAL FEDERAL CORP;
~ ~ ~ H
DIME BANCORP INC; WINSTAR COMMUNICATIONS INC; FEDERAL DEPOSIT INSURANCE CORP;
~ ~ ~ ~
NEWS SUBJECT: (Corporate Financial Data (1XO59); Legal (1LE33); Business Lawsuits & Settlements (1BU19);
Judicial (1JU36); Liability (1LI55); Financially Distressed Companies (1FI85); Banking Risk (1BA09);
Economics & Trade (1EC26); Economic Indicators (1EC19))
INDUSTRY: (Insurance Regulatory (1IN40); Mortgage Banking (1MO85); Retail Banking Services (1RE38);
Banking (1BA20); Aerospace & Defense (1AE96); Bank Operations (1BA31); Financial Services (1FI37); Defense (
1DE43); Financial Services Regulatory (1FI03); Insurance Liability (1IN26); Insurance Industry Legal Issues (
1IN64); Military Forces (1MI37); Financial Services Convergence (1FI45); Aerospace & Defense Regulatory (
1AE25); Insurance Losses (1IN47); Insurance (1IN97); Consumer Finance (1CO55))
REGION: (North America (1NO39); Texas (1TE14); Hawaii (1HA58); California (1CA98); Americas (1AM92);
USA (1US73); Florida (1FL79))
Language: EN
FEDERAL CIRCUIT; FEDERAL CIRCUIT WHICH; FEDERAL DEPOSIT INSURANCE CORP; FEDERAL
HOME LOAN BANK BOARD; FEDERAL RESERVE BANK; FEDERAL SAVINGS; FEDERAL SAVINGS
AND LOAN INSURANCE CORP; FINANCE; FINANCIAL COAST SAVINGS DIME BANCORP; FINANCIAL
INSTITUTIONS REFORM; FIRREA; FOOTNOTE* SIGNIFICANT; FOOTNOTE*** SIGNIFICANT; GAAP;
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; GLENDALE; GLENDALE FEDERAL; GLENDALE
FEDERAL BANK; GOLDEN WEST FINANCIAL LEADER FINANCIAL CORP; GROUP SECURITY CAPI-
TAL CORP; HAWAIIAN INC; HOLDING CORP; HOUSE; HOUSE BANKING FINANCE; HOUSE JUDICIAL;
II; III; IV; LOANS COLLECTIVE BANCORPORATION COMMERCIAL FEDERAL; LUMMER; MCCON-
NELL; MERITOR SAVINGS BANK; METHODOLOGYSAMPLEWE; NONSUPERVISORY GOODWILL
SAVINGS; OFFICE OF THRIFT SUPERVISION; OTS; PANEL A SUPERVISORY GOODWILL SAVINGS;
PAUL BANCORP; PAUL BANCORP INC; PEOPLES BANK OF BRIDGEPORT; PRIVATE ENTERPRISE RE-
SEARCH CENTER; SAMPLE; SAVINGS BANK STANDARD FEDERAL STERLING FINANCIALPANEL;
SECURITIES AND EXCHANGE COMMISSION; SLA; SLAS; STANDARD FEDERAL; SUPREME COURT;
TABLE; US APPEALS; US COURT OF APPEALS; US COURT OF CLAIMS; US SUPREME COURT; UNION;
UNION GLENDALE FEDERAL LONG ISLAND; URBAN AFFAIRS COMMITTEE; WASHINGTON FED-
ERAL WASHINGTON MUTUAL; WASHINGTON MUTUAL; WINSTAR CORP; WSJ) (Added; and A.
Poulsen; and H. Tehranian; and J. McConnell; and J. Warner; and R. Roll; Asghar Zardkoohi; Asghar Zardkoohi
Texas; Brown; Charter; Cornett; David Souter; Donald R. Fraser; Expansionary; Fama; Fisher, M. Jensen; Focusing;
Journal; LEGAL BACKGROUNDAfter; LEGAL BACKGROUNDECONOMIC; Leonard Bierman; METHOD-
OLOGYWe; Rangan; REFERENCESBoehmer, E., J. Musumeci; Souter; Spong; Sundaram, S., N. Rangan; Tehra-
nian; Texas; V. SUMMARY; Winstar; Zellner) (Goodwill in business (Accounting); Savings and loan associations (
Accounting); Accounting (Laws and regulations)) (Feature Article)
April 2, 2002
Section: C
THE MARKETS: Market Place; The savings and loan debacle may be long gone, but the market consequences re-
fuse to die.
Patrick McGeehan
Shares of long-gone savings banks have sprung to life as investors speculate that federal government will have
to pay dearly for mishandling savings and loan crisis of 1980's; investors have bid up stocks of savings banks that were
acquired years ago; shares of one, formerly known as Benjamin Franklin Savings and Loan Association of Portland,
Ore, jumped more than 40 percent in last week to close at $12.10; shares of savings and loan based in
Philadelphia and known as Meritor Savings Bank sat at about $1.60 all year, until they jumped as high as $2.52
last week on hopes favorable ruling was imminent; US Court of Federal Claims disappoints Franklin shareholders
when it releases long-awaited decision and denies their claims of lost profit and restitution (M)
IN a stock-market remake of "Night of the Living Dead," shares of long-gone savings banks have sprung to life as
investors speculate that the federal government will have to pay dearly for mishandling the savings and loan crisis of
the 1980's.
Thrilled by a recent federal court award of $132 million to the owner of one savings and loan and perched on the
edges of their seats waiting for more, investors have bid up stocks of savings banks that were acquired years ago.
Shares of one, formerly known as the Benj. Franklin Savings and Loan Association of Portland, Ore., jumped more
than 40 percent in the last week to close yesterday at $12.10 in electronic trading.
Shares of a savings and loan based in Philadelphia and known as Meritor Savings Bank had sat at about $1.60 all
year, until they jumped as high as $2.52 last week on hopes a favorable ruling was imminent. Yesterday, they
closed at $2.35 a share in electronic trading.
But the moral of this story may be that investors should not play with dead things. The United States Court of
Federal Claims disappointed Franklin shareholders late yesterday when it released a long-awaited decision and
denied their claims of lost profit and restitution.
The judge, Loren A. Smith, said that the shareholders were entitled to recover the lost value of the Franklin fran-
chise. That amount, the judge said, was $30 million to $47 million -- a fraction of the $944 million the plaintiffs
sought.
When the government seized the Franklin S.& L. in 1990, it had about 7.7 million shares outstanding. A $47 million
award, if it were received today, would amount to only about $6 a share, well short of the prices of recent trades.
But out of any award would come litigation costs of $3.5 million, legal fees and, possibly a large tax payment to the
Internal Revenue Service.
"It's hard to know what shareholders will get," said Don S. Willner, a Portland lawyer for the Franklin plaintiffs. "It's
possible they will get nothing. It's very disappointing to us."
Mr. Willner said he would recommend to his clients that they appeal the decision, but he estimated that would drag
the 12-year-old matter out for another 18 months.
If the plaintiffs do not appeal, the government might. It has appealed other decisions in a large group of lawsuits
over what was known as "supervisory good will." The cases, about 120 in all, stem from the handling by federal
bank regulators of the savings and loan crisis.
When soaring interest rates pushed the industry to the brink of bankruptcy in the early 1980's, regulators encouraged
healthier institutions to buy failing ones. To make the purchases palatable, the regulators allowed the buyers to book
some of the purchase price as "supervisory good will," a balance sheet asset that could be paid down gradually.
But in 1989, Congress passed a law, the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
known as Firrea, that wiped away the supervisory good will and left some savings and loans like Franklin
insolvent. The government sold the assets of Franklin to Bank of America, leaving shareholders with apparently
worthless stock certificates.
Managers and owners of many institutions, whether seized or surviving, sued over what they decried as an unfair
rewriting of the rules. Through most of the 1990's, those suits produced little more than legal briefs and bills as gov-
ernment lawyers argued that no damage had been done to the savings and loans.
But lately, the tide appeared to be turning as judges started to favor the institutions' arguments. The big shift came in
April 1999, when Judge Smith ruled that Glendale Federal Bank, which was a large California savings and loan was
entitled to $909 million in restitution and damages from the federal government.
On March 22, another judge in the Court of Federal Claims, Bohdan A. Futey, decided that James Fail, the owner of
Bluebonnet Savings Bank, a Dallas-based savings and loan, was entitled to $132 million. That ruling ignited
buying last week of shares of nonexistent institutions, including Franklin and Meritor.
Whether and how the buyers of those shares, which are not listed and trade only electronically through a few
dealers, would ever recover any value is not clear to analysts who follow S.& L. stocks.
"Those are kind of ghost securities," said Charlotte A. Chamberlain, an analyst at Jefferies & Company in Los An-
geles. "That's a very, very tenuous piece of equity to hold."
Some big savings and loans, including Glendale and a New York institution, the Dime Savings Bank, sold warrants
that hold a claim on any awards they might receive from litigation over supervisory good will. Ms. Chamberlain
once recommended buying some of them, but she no longer does. She said yesterday's decision was not good news
for the litigation-tracking warrants.
"Ultimately though, I just think that the preponderance of sentiment is in favor of the government, and the likelihood
of any of these thrifts ever getting anything is de minimis," said Ms. Chamberlain, a former savings and loan
execu-
In any of these cases, a victory can seem Pyrrhic. Judge Smith said the Franklin shareholders should recover the
market value of its stock the day before the Firrea legislation was enacted. By then, the stocks of many
institutions had already sunk.
Even Mr. Willner, the lawyer for Franklin shareholders, wondered why people had been buying the shares in recent
years.
"Normally speaking, people determine the value of a stock by the company's earnings and prospects," he said. "Here
we had no earnings and no prospects, except for this lawsuit. All the people who were buying and selling the stock
were trying to guess what the judge would do, which is an unusual way to determine value."
NEWS SUBJECT: (Legal (1LE33); Business Management (1BU42); Government Litigation (1GO18); Sales &
Marketing (1 MA51); Market Data (1 MA 11); Economics & Trade (1 EC26))
INDUSTRY: (U.S. Thrift Industry (1US02); Investment Management (1IN34); Securities Investment (1SE57); Sav-
ings (1SA62); Banking (1BA20); Financial Services (1FI37); Financial Services Regulatory (1FI03); Stocks
(1 EQ09))
REGION: (Pennsylvania (1PE71); Americas (1AM92); North America (1NO39); USA (1US73); Oregon (1OR01))
Language: EN
OTHER INDEXING: (Mcgeehan, Patrick) (BENJ; BENJAMIN FRANKLIN SAVINGS; BLUEBONNET SAV-
INGS BANK; CONGRESS; COURT OF FEDERAL CLAIMS; DIME SAVINGS BANK; FEDERAL CLAIMS;
FRANKLIN; FRANKLIN SAVINGS; GLENDALE; GLENDALE FEDERAL BANK; INTERNAL REVENUE;
JEFFERIES CO; LOAN ASSOCIATION; MERITOR; MERITOR SAVINGS BANK) (Bohdan A. Futey; Chamber-
lain; Charlotte A. Chamberlain; James Fail; Loren A. Smith; S. Willner; Smith; Ultimately; Willner) (Banks and
Banking; Suits and Litigation; Decisions and Verdicts; Market Place (Times Column); Prices (Fares, Fees and
Rates); Savings and Loan Associations; Stocks and Bonds; Banks and Banking)
COMPANY TERMS: MERITOR SAVINGS BANK; BENJAMIN FRANKLIN SAVINGS AND LOAN ASSN
Section: BUSINESS
The parent company of Glendale Federal Bank reported a sharp rise in quarterly earnings Tuesday and a plan for the
distribution of separately traded warrants, making it easier for investors to ascertain the market value of the thrift.
Golden State Bancorp reported a net income of $28.5 million, or 40 cents a share, for the first fiscal quarter of
1998 compared with a net loss of $20 million (50 cents) for the like period a year ago.
GSB's results include several one-time charges such as litigation fees. Without them, Golden State's operating
income was $31.2 million (44 cents), a 121 percent increase from a year ago.
That beat the average estimate of six analysts surveyed by IBES International Inc. of 37 cents a share.The com-
pany's stock price closed at 33-5/8 on Tuesday, up 1-7/8.
O
̏ ver the past several years, Glendale Federal Bank has made significant progress," said Stephen J. Trafton,
chairman and CEO of Golden State Bancorp.
For example, he said the thrift's interest rate spread - the difference between what it pays to depositors and
charges on loans - is now the second highest among the largest thrifts in the West. In 1995, it was the second worst.
The company also announced Tuesday that it would distribute ̏ litigation tracking warrants," which give
shareholders the right to receive Golden State common stock equal in value to 85 percent of any net-after-tax pro-
ceeds from the thrift's pending goodwill lawsuit against the government.
The warrants will be separately traded. The goodwill litigation is worth about $4 to $7 a share, Trafton said in a
conference call with reporters.
He said separating the trading of the warrants from the thrift's stock makes it easier to value the company.
Analysts said that also could help any potential buyer of the Glendale thrift; Trafton said it would help whether
Glendale Federal is a buyer or seller, declining to say whether Glendale Federal Bank is either.
Caren Mayer, an analyst at NationsBanc Montgomery Securities in San Francisco, said the warrants make it
easier for the thrift to be taken over since it separates the company's legal claims against the government from the
company's core business.
Ȉ t certainly removes a major stumbling block" in the event of an acquisition, said Charlotte Chamberlain, vice
president in equity research at Jefferies & Co. in Los Angeles. N̏ ow we can value it on its earnings and franchise."
10/29/97 DAILYNEWCA B1 Page 2
Chamberlain said current shareholders are benefiting from Trafton's leadership, since he's good at maximizing
shareholder value. First-quarter earnings show the firm hit a h
̏ ome run," she said
First quarter 1998, which ended Sept. 30, shows an increase in net interest income of 19 percent to $106.2 million
while the provision for loan losses - funds set aside for bad loans - dropped 58 percent to $3.1 million.
Nonperforming assets dropped 25 percent to $190 million Sept. 30 from a year ago.
The distribution of warrants stems from a $1.5 billion lawsuit filed by Glendale Federal Bank against the U.S.
government for changing accounting rules affecting a paper asset called supervisory goodwill.
In 1981, Glendale Federal agreed to take over a failed Florida thrift. It was allowed to offset bad loans with an
equal amount of supervisory goodwill, then write them off over the next 40 years. But in 1989, Congress ruled that
the write-offs had to be taken in the next five years.
In 1989, Glendale Federal had $565 million in supervisory goodwill. It said it was forced to decrease its assets by
more than $10 billion to comply with capital requirements. After laying off 2,500 people in 1991, the thrift sold non-
essential businesses, dropped problem assets and raised $451 million from private investors to stay in business.
The thrift is suing to get the $565 million, plus an additional $1 billion it claims it could have earned in lost assets.
COMPANY: GOLDEN STATE BANCORP INC; GLENDALE FEDERAL BANK FEDERAL SAVINGS BK
INDUSTRY: (Banking (1BA20); U.S. Thrift Industry (1US02); Financial Services (1FI37))
Language: EN
EDITION: Valley
FORM 8-K
CURRENT REPORT
We are filing this Current Report on Form 8-K to provide updates to (i) the status of our litigation against the government arising from contracts entered into by Anchor
Savings FSB and the government and (ii) the description of the Litigation Tracking Warrants tm that are exercisable for shares of our common stock in the event that we recover
damages from the government as a result of this litigation. The warrants were originally issued by Dime Bancorp, Inc., which had acquired Anchor Savings' holding
company, to its stockholders in December 2000. As a result of our acquisition ofDime Bancorp in January 2002, we assumed Dime's rights under the litigation and obligations
under thewarrants.
Our litigation against the United States government involves complex factual and legal issues over which the parties disagree. The following summary is not a full
description of those issues and addresses only developments through the date of this report. The record ofproceedings before the Claims Court consists of hundreds ofpages of
procedural filings, which may be examined at the Office of the Clerk of the Court located at 717 Madison Place, N.W. in Washington, D. C. In addition, thousands ofpages of
depositions have been taken and thousands more documents have been made available through discovery by us, the government, and thirdparties.
In this section, references to 'we', 'us', 'our' and 'ours'also refer to Anchor Savings and Dime in addition to Washington Mutual, since they are our predecessors in this
litigation whose rights Washington Mutual has assumed.
Introduction
On January 13, 1995, Anchor Savings Bank FSB fi(ed a (awsuit in the United States Court of Federa( C(aims captioned Anchor Savings Bank FSB v. United States,
No. 95-39C, a((eging breach of contract and taking of property without compensation by the government in contravention of the Fifth Amendment to the United States
Constitution. The Dime Savings Bank of New York, FSB assumed Anchor Savings' (awsuit upon the consummation of the merger ofAnchor Savings and its ho(ding
company, Anchor Bancorp, Inc., with Dime Savings and Dime Bancorp, respective(y, on January 13, 1995.
In January 2002, Dime Savings and Dime Bancorp merged into Washington Mutua( Bank, FA and Washington Mutua(, Inc., respective(y. As a resu(t of these mergers, we
assumed Dime's rights under the (itigation against the government.
Our c(aims arose from Anchor Savings' acquisition between 1982 and 1985 of eight fai(ing savings and (oan institutions, the deposits of which were insured by the Federa(
Savings and Loan Insurance Corporation, a government agency that provided deposit insurance to savings and (oans ("FSLIC"). Anchor acquired four institutions with some direct
financia( assistance from the FSLIC (co((ective(y the "assisted mergers"), and acquired the other four institutions without direct financia( assistance (co((ective(y the "unassisted
mergers"). A(( of
1
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the acquisitions were considered "supervisory" cases by the FSLIC, which means that they were arranged by the FSLIC. In acquiring the institutions, Anchor Savings assumed (
iabi(ities determined to exceed the assets it acquired by over $650 mi((ion in the aggregate at the dates of the respective acquisitions. The difference between the fair va(ues of
the assets acquired and the (iabi(ities assumed in the transactions were recorded on Anchor Savings' books as an intangib(e asset ca((ed goodwi((.
At the time of these acquisitions, the FSLIC had agreed that Anchor Savings cou(d inc(ude in its regu(atory capita( this goodwi((, amortizab(e over a number of years, as we(
( as certain FSLIC contributions and certain capita( instruments. Without those agreements, Anchor Savings wou(d not have made the acquisitions.
When the Financia( Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was enacted, Anchor sti(( had over $500 mi((ion of regu(atory capita( from
supervisory acquisitions on its books, inc(uding the supervisory goodwi(( and other capita( enhancements described above. A(so, Anchor Savings had more than 20 years to
amortize the remaining supervisory goodwi(( under its agreements with the FSLIC. FIRREA required the remaining supervisory goodwi(( to be e(iminated immediate(y for
purposes of ca(cu(ating tangib(e capita( and to be phased out through December 31, 1994 for other regu(atory capita( purposes. In addition, unti( the formation of Anchor
Bancorp as the ho(ding company for Anchor Savings in 1991, FIRREA-mandated capita( requirements impacted the $157 mi((ion associated with preferred stock that Anchor
Savings issued to the FSLIC as a resu(t of one of the acquisitions. The e(imination of the supervisory goodwi(( and other components of regu(atory capita( damaged Anchor
Savings by creating severe (imitations on its activities and requiring the sa(e of va(uab(e assets under (iquidation-(ike circumstances.
Our (awsuit is one of approximate(y 115 (awsuits brought in the C(aims Court with contractua( fact patterns simi(ar to that of a 1996 decision by the United States
Supreme Court, known as the Winstar case, in which the Supreme Court he(d that the government was (iab(e for breach of contract. Fo((owing the Supreme Court's decision, a(
( of the Winstar-re(ated cases, inc(uding our case, were assigned to Judge Smith of the C(aims Court. Judge Smith issued an omnibus case management order that has
contro((ed the
proceedings in all of these cases. On October 16, 2002, our case was re-assigned to Judge Block.
Under the omnibus order, we moved for partia( summary judgment as to the existence of contracts between Anchor Savings and the government with respect to the eight
supervisory acquisitions and the inconsistency of the government's actions with respect to those contracts. The government disputed the existence of these contracts and
cross-moved for summary judgment. The government a(so submitted a fi(ing acknow(edging that it is not aware of any affirmative defenses it has against us. Initia( briefing on
these motions was comp(eted onAugust 1, 1997.
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We conducted discovery between Apri( 1, 1998 and Ju(y 31, 1999. In September 1999, the government fi(ed supp(ementa( papers in supportof its pending summary
judgment motion, at which time the government again requested entryof summary judgment on (iabi(ity in its favor. We responded to these fi(ings in ear(y November 1999. On
October 29, 1999, we fi(ed our experts' reports re(ating to our damage c(aims with the government. On March 16, 2000, the government fi(ed the reports of its experts. On
December 21, 2001, we submitted supp(ements to some of our expert reports.
In a series of ru(ings issued between Apri( 30, 2002 and September 10, 2002, the C(aims Court found that a contract existed between Anchor Savings and the government
with respect to the assisted mergers, and that the government had breached those contracts by the imp(ementation of FIRREA. The C(aims Court a(so found, however, that no
contract had been formed with respect to the unassisted mergers, and dismissed our c(aims with respect to the unassisted mergers. In addition, the C(aims Court dismissed our c(
aims for taking of property without just compensation. At this time, we have decided not to appea( the C(aims Court's orders dismissing the c(aims re(ated to the unassisted
mergers and dismissing the takings c(aims. However, we maintain the right to appea( those orders after the C(aims Court enters a fina( judgment disposing of a(( the c(aims in the
case.
On September 25, 2002, the C(aims Court issued an order setting a schedu(e for supp(ementa( expert discovery. Pursuant to this order, on October 10, 2002, we submitted
supp(ementa( expert reports that revised Anchor Savings' damages c(aims in (ight of the C(aims Court's order dismissing the c(aims re(ated to the unassisted mergers. The
government fi(ed its own supp(ementa( expert reports on January 23, 2003. We comp(eted depositions of the government's experts on March 10, 2003. The parties wi(( next
propose to the C(aims Court a schedu(e for briefing the summary judgment motion regarding our damages c(aims that the government expects to fi(e. The court has not yet
schedu(ed a tria( date.
We expect to present evidence on two a(ternative damage theories at tria( to determine the amount of our damages.
The first theory, known as "expectancy" damages, is intended to p(ace the injured party in as good a position as it wou(d have been in had the breaching party fu((y
performed the contract. Expectancy damages may inc(ude the amount of any monetary benefits that the injured party is ab(e to prove it (ost, but wou(d have received in the
absence of the breach, p(us any other (osses caused by the breach of the contract, (ess any costs or (osses avoided by the injured party as a direct resu(t of the breach.
The second theory, known as "re(iance" damages, is intended to restore the injured party to the position it wou(d have been in if the contract had not been made. Re(iance
damages are genera((y measured by the injured party's investment (ess the net benefit rea(ized from the cost of performance of the contract, p(us additiona( expenses incurred as
a resu(t of the breach.
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We have the burden of proving the amount of our expectancy damages, or the cost of our performance as a basis for re(iance damages, by a preponderance of the evidence.
Damages are usua((y (imited to those that area foreseeab(e resu(t of the breach and require proof of the fact of damage with reasonab(e certainty. Since neither the contracts
between Anchor Savings and the government nor any statute provides for payment of prejudgment interest, prejudgment interest is not recoverab(e, either for the period from
the date of the breach through the date of entry of judgment by the C(aims Court or upon a judgment of the C(aims Court pending appea(. If the Federa( Circuit affirms a
judgment by the C(aims Court, we cou(d receive interest at a statutori(y specified rate on the judgment from the time of the Federa( Circuit decision through any subsequent
appea(s to the date of payment.
Damages Theories We No Longer Intend to Pursue
In the expert reports submitted in October 1999, we advanced an additiona(, a(ternate c(aim for $782 mi((ion, under a restitution theory of damages. "Restitution" is intended
to restore to the injured party any benefits conferred on the breaching party. The injured party's restitution interest is ordinari(y measured by the reasonab(e va(ue of the benefits
conferred by its performance of the contract on the breaching party, (ess any benefits received by the injured party through the breaching party's partia( performance up to the
date of the breach. Anchor Savings' restitution c(aim was based on a contention that the (iquidation costs avoided by the FSLIC as a resu(t ofAnchor Savings' acquisitions of fai(
ing federa((y insured thrifts were a benefit that Anchor Savings had conferred on the government. However, in its decision in G(enda(e Federa( Bank, FSB v. United States,
Docket Nos. 99-5103, 99-5113, the United States Court of Appea(s for the Federa( Circuit rejected the type of restitution c(aim that Anchor Savings intended to pursue. As a
consequence, we have determined to withdraw Anchor Savings' c(aim for damages under the restitution theory.
Expectancy Damages
Our principa( expectancy damages c(aim is for (ost profits by Anchor Savings. Fo((owing the adoption of FIRREA in 1989 and the resu(ting reductions ofAnchor Savings'
regu(atory capita( due to the e(imination of the contractua( supervisory goodwi((, FSLIC contribution, and preferred stock from its supervisory acquisitions, Anchor Savings was
transformed from an institution that substantia((y exceeded its regu(atory capita( requirements to one that was significant(y undercapita(ized. Because Anchor Savings was unab(
e to obtain any materia( infusion of externa( capita(, it had no choice but to restructure and divest itse(f of significant va(uab(e assets. Whi(e these strategies were required to
remedy the noncomp(iance with regu(atory capita( requirements caused by FIRREA and avoid c(osure of Anchor Savings, they
Source: WASHINGTON MUTUAL, INC, 84, March 12, 2003 Powered by Morningstar®Document Researchs"'
a(so had the effect of significant(y reducing Anchor Savings' (ong-term earnings. We c(aim that the government's breach forced the sa(e ofAnchor Savings' mortgage conduit
subsidiary, Residentia( Funding Corporation, and the curtai(ment ofAnchor Savings' remaining mortgage banking business, and forced the sa(e of (arge portions ofAnchor
Savings' branch franchise. We have c(aimed expectancy damages tota(ing approximate(y $969 mi((ion. The (ost profits c(aim is not affected by the C(aims Court's ru(ings against
Anchor Savings regarding the unassisted mergers.
In December 2001 we submitted a supp(ementa( expert report asserting an a(ternative expectancy c(aim for $220 mi((ion, based on the cash va(ue to Anchor Savings of the
supervisory goodwi(( it (ost as regu(atory capita( as a resu(t of the government's breach. This ana(ysis, which represents the amount of cash the government wou(d have had to
pay to enab(e Anchor Savings to return to its pre-breach regu(atory capita( position, and thereby restore its abi(ity to (everage that capita( and earn profits from it, is simi(ar to
the ana(ysis that was adopted by Judge Margo(is of the C(aims Courtin G(ass v. United States, Docket No. 92-428C. (The C(aims Court's decision in G(ass was overturned on
other grounds by the Federa( Circuit, which did not ru(e on the va(idity of the damages ca(cu(ation in that case one way or another.) As a resu(t of the C(aims Court's (iabi(ity ru(
ings in our case, we have adjusted this ca(cu(ation to e(iminate the supervisory goodwi(( created by the unassisted mergers, resu(ting in a revised c(aim under the G(ass mode( of
$200 mi((ion.
These expectancy c(aims are presented in the a(ternative, meaning that we may recover damages under one of the theories but not both of them. We have a(so c(aimed an
additiona( $11 mi((ion in "wounded bank" damages or costs, which, if awarded by the C(aims Court, wou(d be added to an award based on either of the theories described above.
Reliance Damages
As an a(ternative to the expectancy c(aims, we have submitted a c(aim for re(iance damages. We cou(d recover either expectancy or re(iance damages, but not both. The
initia( re(iance c(aim of $541 mi((ion that we submitted in October 1999 was simi(ar to the restitution c(aim, in that it asserted that Anchor's investment in the thrifts that it acquired
pursuant to contracts with the government cou(d be measured by the excess (iabi(ities Anchor assumed as a resu(t of the acquisitions. A simi(ar c(aim was rejected by the C(
aims Court in the G(enda(e remand proceedings, based on the ana(ysis of the Federa( Circuit in that case. According(y, in October 2002 we submitted a revised re(iance c(aim in
the amount of $329 mi((ion (inc(uding $11 mi((ion in "wounded bank" damages).
The government contends that we were not damaged by the government's breach because FIRREA did not cause Anchor Savings to shrink or otherwise se(( assets. The
government contends that the (ost profits we are c(aiming are specu(ative and therefore not a((owab(e.
5
Source: WASHINGTON MUTUAL, INC, 84, March 12, 2003 Powered by Morningstar®Document Researchs"'
The government a(so contends that FIRREA did not constrain Anchor Savings' abi(ity to (everage capita( or a(ternative(y that the abi(ity to (everage capita( had no va(ue.
The government has argued that the breach benefited Anchor Savings in prompting it to exit from high-risk (ending activities in which it was engaged prior to the breach. The
government further contends that the breach forced Anchor Savings to address core business prob(ems.
The government has a(so argued that the principa( assumptions under(ying our c(aim for past and future (ost profits, which are that Anchor Savings wou(d not have so(d
Residentia( Funding or portions of its branch franchise absent the government's breach, are inva(id because, among other things:
• retention of Residentia( Funding imp(ied a degree of interest rate risk that wou(d have been unacceptab(e to Anchor Savings' management, board of directors and
regu(ators,
• Anchor Savings wou(d not have been ab(e to provide Residentia( Funding with sufficient (ow interest funds to ensure the successfu( operation of Residentia( Funding's
business,
• Anchor Savings (acked a business and cu(tura( fit with Residentia( Funding, and
• the poor strategic fit of the so(d branches warranted the sa(es even absent the breach.
The government has further argued that Anchor Savings cou(d have avoided the sa(e of Residentia( Funding, for examp(e, by forming a ho(ding company or a(tering the
mix of (oans Residentia( Funding purchased. A(ternative(y, the government has argued that Anchor Savings wou(d have had to se(( Residentia( Funding due to non-breaching
provisions of FIRREA and that the sa(es of Residentia( Funding and the Anchor Savings branches were at fair market va(ue, thus prec(uding any damage c(aim.
In addition, the government has argued that we are not entit(ed to damages based on our re(iance c(aim because the benefits Anchor Savings derived exceeded any cost that
Anchor Savings incurred. We a(so anticipate that the government wi(( assert that the re(iance damages sought by Anchor Savings are too specu(ative and that they do not ref(
ect actua( (osses incurred by Anchor Savings as a resu(t of the assisted mergers.
We continue to be(ieve that our c(aims are meritorious, that it is one of the more significant cases before the C(aims Court and that we are entit(ed to nonover(apping
damages under any of the theories asserted. However, we are unable to predict the ultimate outcome of our lawsuit and can give no assurance of whether we will receive a
damage award,or as to the amount or timing if any award is ultimately received.
After entry of judgment, either party may appea( a portion or a(( of the decision to the United States Court ofAppea(s for the Federa( Circuit. Fo((owing the decision of
the Federa( Circuit, the unsuccessfu( party may petition for a rehearing en banc by the entire Federa(
Source: WASHINGTON MUTUAL, INC, 84, March 12, 2003 Powered by Morningstar®Document Researchs"'
Circuit. Assuming such a request for rehearing is denied, any proceedings in the Federa( Circuit wou(d be expected to take approximate(y one year. Appea( from the fina( decision
of the Federa( Circuit cou(d be made to the Supreme Court, a(though the Supreme Court cou(d decide not to hear the case. We cannotpredict the amount or the timing of receipt
of a damage award, if any is received, or the timing or success of any appeal that may be made by either party following an entry ofjudgment.
DESCRIPTION OF THE LTWS
Introduction
Dime distributed a Litigation Tracking Warrant (an "LTW" ) for each share of its common stock outstanding on December 22, 2000 to each of its stockho(ders on that date.
The LTWs trade on the Nasdaq Nationa( Market under the symbo( "DIMEZ." As origina((y issued by Dime, the LTWs entit(ed LTW ho(ders to purchase shares of Dime
common stock at a price adjusted according to the adjusted amount, if any, actua((y recovered in the (itigation against the government. In January 2002, Dime Savings and Dime
Bancorp merged into Washington Mutua( Bank and Washington Mutua(, Inc., respective(y. As a resu(t of these mergers, we assumed the rights under the (itigation against the
government, and the LTWs are now exercisab(e for shares of our common stock.
The fo((owing is a summary of some of the provisions of a warrant agreement, origina((y entered into by Dime with EquiServe Trust Company, N.A. and EquiServe Limited
Partnership, as warrant agent, as amended and restated by Washington Mutua( and Me((on Investor Services, as the current warrant agent. This summary does not purport to be
comp(ete and is qua(ified in its entirety by reference to the amended and restated warrant agreement and the form of warrant certificate, which are fi(ed as an exhibit to this
report.
Under the terms of the origina( warrant agreement entered into by Dime and the Equiserve entities, some of the terms of the LTWs were automatica((y amended as a resu(t
of our merger with Dime. Among other things, the manner in which the origina( "adjusted stock price" is ca(cu(ated has changed and there is no (onger an exercise price for the
LTWs. The changes brought about by our merger with Dime are ref(ected in the description be(ow and in the amended and restated warrant agreement between Washington Mutua(
and Me((on Investor Services.
Determination of the Number of Shares of Our Common Stock Issuab/e Upon Exercise of an LTW
The LTWs entit(e LTW ho(ders to purchase shares of our common stock having an aggregate merger adjusted stock price equa( to a portion of the proceeds, if any, we
recover as a resu(t of our (itigation against the government. We exp(ain these terms be(ow.
7
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
Once we receive a(( of our damages (if any) payab(e by the government from our (itigation against them, determine the "adjusted (itigation recovery" and receive a((
regu(atory approva(s to issue shares of our common stock to the LTW ho(ders, LTW ho(ders wi(( be entit(ed to purchase shares of our common stock according to the fo((owing
formu(a:
To determine the amount of the adjusted (itigation recovery, we wi(( app(y the fo((owing formu(a:
Adjusted = 85% !
l
Amount Litigation Taxes
Litigation Recovered and LTW
Recovery Expenses
where:
• "Amount Recovered" equa(s the tota( amount of any cash payment and the fair market va(ue of any property we actua((y receive as damages pursuant to a fina(,
nonappea(ab(e judgment in or fina( sett(ement of our (itigation against the government, inc(uding any postjudgment interest we actua((y receive on any
payment,
• "Litigation and LTW Expenses" equa( the tota( expenses we incur, both before and after the date of this document, in pursuing our (itigation and obtaining a(( damages
payments, p(us our tota( expenses incurred in connection with the creation, issuance and trading of the LTWs inc(uding (ega(, financia( advisory and accounting fees,
printing and registration costs and the fees and expenses of the warrant agent, and
• "Taxes" equa(, regard(ess of the actua( amount of taxes imposed with respect to the damages recovery, the product of (i) the amount of damages recovered (ess the
expenses in the (itigation and LTW issuance described in the preceding c(auses and (ii) the combined highest federa(, New York State and New York City income
tax rates app(icab(e to financia( institutions in the year (or years) in which the amount of the damages (in who(e or in part) is fixed or determinab(e (after taking into
account the effect of the deductibi(ity of such taxes for federa( and state income tax purposes); for 2003, this combined rate is 46.05%.
8
Source: WASHINGTON MUTUAL, INC, 84, March 12, 2003 Powered by Morningstar®Document Researchs"'
For examp(e, if we recover $200 mi((ion in damages in our (itigation and the expenses in the (itigation and LTWs are $26 mi((ion, then taxes (using 2003's effective tax
rate) are approximate(y $80 mi((ion, and the resu(ting adjusted (itigation recovery wou(d equa( approximate(y $80 mi((ion.
Adjusted
Litigation = 85% X ($200,000,000 - $26,000,000 - $80,127,000) = $79,792,500
Recovery
Our determination of the amounts to be deducted from the amount of damages recovered and the amount of the adjusted (itigation recovery wi(( be fina(, conc(usive and
binding on the LTW ho(ders.
When we receive a recovery of damages, we wi(( determine the merger adjusted stock price of a share of our common stock on the 30th ca(endar day before the date on
which we receive the tota( amount of the recovery. For purposes of ca(cu(ating the merger adjusted stock price, the 30th ca(endar day before the tota( amount of recovery has
been received is the "determination date." If the 30 th ca(endar day before the tota( amount of recovery has been received is a day on which the NYSE is c(osed for business, then
the determination date wi(( be the next succeeding day on which the NYSE is open for business.
The "merger adjusted stock price" of a share of our common stock on this determination date wi(( equa(:
where:
• "30-day Running Average Price" equa(s the average of the dai(y c(osing prices of our common stock for the thirty consecutive trading days ending on and inc(uding the
determination date, and
• "Dime Exchange Ratio" equa(s 1.1232, which is the "Exchange Ratio" as defined in the merger agreement entered into by Washington Mutua( and Dime when we
acquired Dime in January 2002.
Source: WASHINGTON MUTUAL, INC, 84, March 12, 2003 Powered by Morningstar®Document Researchs"'
For examp(e, if the 30-day Running Average Price of our common stock were $40.00, then the Merger Adjusted Stock Price wou(d equa( $44.928.
Samp/e Ca/cu/ation
In this examp(e, the adjusted (itigation recovery is $80 mi((ion and the 30-day running average price is $40.00. The merger adjusted stock price of our common stock on the
occurrence of the trigger is therefore $44.928. As a resu(t, in this examp(e, the number of shares of our common stock issuab(e upon exercise of each LTW wou(d be 0.0158:
To determine an approximate tota( va(ue of the LTWs upon exercise, you wou(d mu(tip(y the number of shares you receive (one) by the 30-day running average price
($40.00) and add the amount of cash you receive ($23.20), which tota(s $63.20 (1 x $40.00 + $23.20 = $63.20). As a resu(t, the approximate va(ue of 100 LTWs wou(d be $63.20,
or approximate(y $0.63 per LTW. The actua( va(ue of the LTWs upon exercise wi(( depend on the market price of our common stock on the day the LTWs are exercised, which
wi(( (ike(y be different than the 30-day running average price and the price on the date (if any) that the shares acquired upon exercise of the LTWs are so(d, if not so(d on the date
of exercise. You should keep in mind that the LTWs may not trade at prices reflecting the eventual amount we recover in our litigation or the eventual value per LTW.
However, if the adjusted (itigation recovery was zero, you wou(d not be entit(ed to purchase any shares of our common stock and the LTWs wou(d expire without va(ue.
The amounts used in the examples in this section are for illustration purposes only, and we do not make any representations regarding the outcome of our litigation against
the government, the expenses and taxes that we will incur as a result of the litigation or its resolution, or our future stock price.
10
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Item 7. Financia( Statements and Exhibits (
c) Eahibits
Eahibit
Number Descriution
.1 2003 Amended and Restated Warrant Agreement, dated March 11, 2003, by and between Washington Mutua(, Inc.
and Me((on Investor Services LLC
11
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has du(y caused this report to be signed on its beha(f by the undersigned, thereto du(y
authorized.
EXHIBIT INDEX
Exhibit
Number Descriution
.1 2003 Amended and Restated Warrant Agreement, dated March 11, 2003, by and between Washington Mutua(, Inc.
and Me((on Investor Services LLC
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
Exhibit 4.1
WARRANT AGREEMENT
Dated as of
between
and
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
TABLE OF CONTENTS
Page
ARTICLE I Defined Terms...................................................... ..............................1
........
..............................1
ARTICLE 1.1 Definitions ....................................................... ..............................9
.
1.2 Other Definitions...................................
..............................5
...............
2.1 Issuance of Warrant Certificates..................................
..............................5
.
2.2
II Warrant Form Cera tndicate
if Da
sti.n.g..
..
..
.......
..
..
..
..
.....
..
..
..
..
.......
..
..
..
.......
..
..
..
..
.....
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..
..
..
.......
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..
.......
.
..............................5
2.3
....... Execution and Countersignature....................................
..............................6
2.9
. Certificate Register..............................................
..............................6
.
2.5 Transfer and Exchange.............................................. ..............................7
2.6 ReplacementCertificates...........................................
..............................9
2.7
. Cancellation......................................................
..............................9
.
2.8 Purchase of Warrants by the Company ............................... ..............................9
.
III Exercise Terms..........................................................
ARTICLE ..............................9
.
Price ..........................
3.1 Number of Warrant Shares; Exercise ..............................9
3.2 Exercise Period.................................................... .
.............................10
3.3
. Expiration.........................................................
.............................10
.
3.9 Manner of Exercise.................................................. .............................11
3.5 Issuance of Warrant Shares........................................
.............................11
3.6
.. Fractional Warrant Shares.........................................
.............................12
3.7
.. Reservation of Warrant Shares.....................................
.............................12
3.8
.. Compliance with Law................................................
.............................12
.
3.9 Holders Not Entitled to Interest................................. ............................... 13
.
IV Adjustments ............................................................
ARTICLE ............................... 13
.
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5.3 Compensation and Reimbursement ......................................
5.9 Indemnification ....................................................
. .............................17 .
5.5 Warrant Agent May Hold Company Securities .......................... ............................17 ..
. ...........................17 ...
5.6 Change of Warrant Agent ......................................... ..........................18 ....
.... .........................18
5.7 Merger or Consolidation or Change of Name of Warrant Agent .........
ARTICLE VI Rights of Holders ....................................................... .
............................... 19
.
6.1 Holders not Stockholders ............................................ .............................19
6.2 Claims by Holders ..................................................
.............................19
.
6.3 Control of Litigation ............................................... .............................19
6.9 Determination of Values ............................................. .............................20
ii
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
THIS 2003 AMENDED AND RESTATED WARRANT AGREEMENT, dated as of
March 11, 2003 (this "Agreement"), between Washington Mutual, Inc (the "
Company"), successor by merger to DIME BANCORP, INC., a Delaware corporation ("
Dime") and Mellon Investor Services LLC, a New Jersey limited liability
company (the "Warrant Agent"), successor to EQUISERVE TRUST COMPANY, N.A. and
EQUISERVE LIMITED PARTNERSHIP, as Warrant Agent ("Equiserve"), amends and
restates the Warrant Agreement, dated as of December 21, 2000, between Dime and
Equiserve, as previously amended and restated by the parties hereto.
RECITALS
ARTICLE I
Defined Terms
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connection with the creation, issuance and trading of the Warrants, including,
without limitation, legal, financial advisory and accounting fees, the fees and
expenses of the Warrant Agent and printing and registration costs (whether
incurred before or after the date hereof) and (iii) an amount equal to the
Amount Recovered, less the expenses described in the preceding clauses (i) and (
ii), multiplied by the combined highest federal, New York State and New York
City income tax rates applicable to financial institutions in the year (or
years) in which the amount of the damages (in whole or in part) is fixed or
determinable (after taking into account the effect of the deductibility of such
taxes for federal and state income tax purposes).
"Adjusted Stock Price" means the average of the daily Closing
Prices of a share of Common Stock for the thirty consecutive Trading Days ending
on and including the Determination Date; provided, that if the context in which
this defined term is used is with respect to securities other than shares of
Common Stock, then "Adjusted Stock Price" means the average of the daily Closing
Prices of a unit of such securities for the thirty consecutive Trading Days
ending on and including the Determination Date minus the Exercise Price
determined for such securities in the manner described in Section 9.3; and
provided, further that if the context in which this defined term is used is with
respect to property other than publicly traded securities, then "Adjusted Stock
Price" means the Fair Market Value of the amount of such property distributable
in respect of one share of Common Stock.
"Amount Recovered" means the aggregate amount of any cash
payment and the Fair Market Value of any property or assets actually received by
the Bank pursuant to a final, nonappealable judgment in or final settlement of
the Litigation (including any post-judgment interest actually received by the
Bank on any Amount Recovered).
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
reported closing bid and asked prices regular way (with any relevant due bills
attached) of a share of Common Stock, in each case on the NYSE Composite Tape (
or any successor composite tape reporting transactions on national securities
exchanges), or, if the Common Stock is not listed or admitted to trading on the
NYSE, on the principal national securities exchange on which the Common Stock is
listed or admitted to trading (which will be the national securities exchange on
which the greatest number of shares of Common Stock has been traded during the
five consecutive Trading Days ending on and including the Determination Date),
or, if not listed or admitted to trading on any national securities exchange,
the average of the closing bid and asked prices regular way (with any relevant
due bills attached) of a share of Common Stock on the over-the-counter market on
the day in question as reported by NASDAQ, or a similar generally accepted
reporting service, or if not so available as determined in good faith by the
Board, on the basis of such relevant factors as it in good faith considers
appropriate.
"Combination" means an event in which the Company consolidates
with, merges with or into, or sells all or substantially all its property and
assets to another Person.
"NYSE" means the stock exchange operated by The New York Stock
Exchange, Inc.
3
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
"Officer" means the Chief Executive Officer, the President
any Senior Executive Vice President or any Executive Vice President of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Trading Day" means a date on which the NYSE or NASDAQ (or any
successor thereto) is open for the transaction of business.
Defined in
Term Section
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"Registrar "...................................................... 3.7(a)
"Successor Company "............................................... 9.2(b)
"Successor Warrant Agent" ......................................... 5.6
"Termination Date" ................................................ 3.3
"Termination Notice "............................................... 3.3
"Transfer Agent" .................................................. 3.5
"Warrant" ................................. ........................ Recitals
"Warrant Agent" ........................... ........................ Recitals
"Warrant Certificate "............................................. 2.1(a)
"Warrant Exercise Period "......................................... 3.2(b)
ARTICLE II
Warrant Certificates
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will be registered on the records of the Warrant Agent on behalf of beneficial
owners of Warrants and in the name of the Depository Trust Company ("DTC") or a
nominee of DTC, duly executed by the Company and countersigned by the Warrant
Agent as hereinafter provided. The number of Warrants represented by Global
Warrants may from time to time be increased or decreased by adjustments made on
the records of the Warrant Agent and DTC or its nominee as hereinafter provided.
Except as provided in Section 2.5, owners of beneficial interests in a Global
Warrant will not be entitled to receive physical delivery of Certificated
Warrants.
(c) Book-Entry Provisions. Members of, or participants
in, DTC ("Agent Members") will have no rights under this Agreement with respect
to any Global Warrant held on their behalf with DTC or by the Warrant Agent or
under such Global Warrant, and DTC may be treated by the Company, the Warrant
Agent and any agent of the Company or the Warrant Agent as the absolute owner of
such Global Warrant for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein will prevent the Company, the Warrant Agent or any agent of the
Company or the Warrant Agent from giving effect to any written certification,
proxy or other authorization furnished by DTC or impair, as between DTC and its
Agent Members, the operation of customary practices of DTC governing the
exercise of the rights of a holder of a beneficial interest in any Global
Warrant.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
transfer and exchange which the Company may examine upon reasonable written
notice. The Certificate Register will show the names and addresses of the
respective Holders and the date and number of Warrants evidenced on the face of
each of the Warrant Certificates. The Company and the Warrant Agent may deem and
treat the Person in whose name a Warrant Certificate is registered as the
absolute owner of such Warrant Certificate and neither the Company nor the
Warrant Agent will be affected by any notice to the contrary.
2.5 Transfer and Exchange.
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(iii) the Company, in its sole discretion, notifies
the Warrant Agent in writing that it elects to cause
the issuance of Certificated Warrants under this
Agreement;
then, the Company will execute, and the Warrant Agent, upon receipt of a written
order of the Company signed by an Officer requesting the delivery of
Certificated Warrants to the holders of beneficial interests in the Global
Warrant, will countersign and deliver Certificated Warrants equal to the number
of Warrants represented by Global Warrants, in exchange for such Global
Warrants. Certificated Warrants issued in exchange for a beneficial interest in
a Global Warrant will be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, will instruct the Warrant Agent in writing. The
Warrant Agent is hereby instructed to deliver such Certificated Warrants to the
Persons in whose names such Warrants are so registered in accordance with the
written instructions of DTC.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
cover any tax or other governmental charge that may
be imposed in connection with any registration of
transfer or exchange of Warrant Certificates. The
Warrant Agent shall have no duty or obligation under
this Section 25 unless and until it is satisfied tat
all such taxes and/or changes have been paid in full.
2.6 Replacement Certificates. If a mutilated Warrant
Certificate is surrendered to the Warrant Agent or if the Holder of a Warrant
Certificate claims that the Warrant Certificate has been lost, destroyed or
wrongfully taken, the Company will issue and the Warrant Agent will countersign
a replacement Warrant Certificate. If required by the Warrant Agent or the
Company, such Holder will furnish an indemnity bond or other instrument
sufficient in the judgment of the Company and the Warrant Agent to protect the
Company and the Warrant Agent from any loss which either of them may suffer if a
Warrant Certificate is replaced. The Company and the Warrant Agent may charge
the Holder for their expenses in replacing a Warrant Certificate.
2.7 Cancellation. (a) In the event the Company will purchase
or otherwise acquire Certificated Warrants, the same will thereupon be delivered
to the Warrant Agent for cancellation.
(b) The Warrant Agent and no one else will cancel and destroy
all Warrant Certificates surrendered for transfer, exchange, replacement,
exercise or cancellation and deliver a certificate of such destruction to the
Company unless the Company directs the Warrant Agent to deliver canceled Warrant
Certificates to the Company. The Company may not issue new Warrant Certificates
to replace Warrant Certificates to the extent they evidence Warrants that have
been exercised or Warrants that the Company has purchased or otherwise acquired.
ARTICLE III
Exercise Terms
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such calculations made pursuant to this Section 3.1 unless and until it has
received written notice thereof, and the Warrant Agent shall have no duty or
obligation to inquire as to whether any such calculation is accurate.
3.2 Exercise Period. (a) The Company will provide written
notice, as described below (the "Exercise Notice") to each Holder and the
Warrant Agent, of the occurrence of the Trigger not more than 15 calendar days
after the occurrence thereof. If the Amount Recovered is payable by the United
States government in installments, the Trigger will not be deemed to have
occurred until the Bank receives the last installment of the Amount Recovered.
The Exercise Notice will be dated the date it is first sent to Holders and the
Warrant Agent and will be provided by means of a press release to one or more
national news services and by mailing such notice first class, postage prepaid,
to each Holder at such Holder's address as it appears on the Certificate
Register; provided, however, that neither the failure to give such notice by
mail to any particular Holder or the Warrant Agent nor any defect therein will
affect the validity of the Exercise Notice or the expiration of all Warrants on
the Close of Business on the last day of the Warrant Exercise Period with
respect to the other Holders. The Exercise Notice will contain the following
information:
(b) Subject to the terms and conditions set forth herein, each
Warrant will be exercisable at any time or from time to time during the 60-day
period commencing on the date on which the Exercise Notice is first sent to
Holders and the Warrant Agent pursuant to Section 3.2(a) (the "Warrant Exercise
Period").
10
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
national news services and by mailing such notice first class, postage prepaid
to each Holder at such Holder's address as it appears on the Certificate
Register. The Termination Notice will state the following:
(i) that the Termination Date has occurred or the Warrant
Exercise Period has expired, as the case may be, and
The Warrants will terminate and become void as provided herein notwithstanding
the Company's failure to give the Termination Notice. The Warrant Agent shall
not be deemed to have knowledge the Termination Date has occurred , the Warrant
Exercise Period has expired or the outstanding Warrants have terminated unless
and until it shall have received written notice thereof.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
3.6 Fractional Warrant Shares. The Company will not issue
fractional Warrant Shares. If any fraction of a Warrant Share would, except for
this Section 3.6, be issuable, the Company will pay an amount in cash equal to
(a) the sum of (i) the Adjusted Stock Price and (ii) the Exercise Price (if any)
per whole Warrant Share that would have been received), multiplied by (b) such
fraction. Such cash amount will be rounded to the nearest whole cent.
3.7 Reservation of Warrant Shares. (a) The Company will use
its best efforts to at all times keep reserved and available out of its
authorized and unissued shares of Common Stock or shares of Common Stock held in
its treasury a number of shares of Common Stock sufficient to provide for the
exercise in full of all Warrants then outstanding or reserved for issuance
pursuant to Section 2.1. The registrar for the Common Stock (the "Registrar")
will at all times until the Termination Date, or the time at which all Warrants
have been exercised or canceled, reserve such number of authorized shares as
will be required for such purpose. The Company will keep a copy of this
Agreement on file with the Registrar. The Company will supply such Registrar
with duly executed stock certificates for such purpose and will itself provide
or otherwise make available any cash which may be payable as provided in Section
3.6. The Company will furnish to such Registrar a copy of all notices of
adjustments and certificates related thereto transmitted to each Holder.
12
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
law or applicable governing rule or regulation of any national securities
exchange or stock market, registration with or approval of any governmental
authority, or listing on any such national securities exchange or stock market
before such shares may be issued upon exercise, the Company will cause such
shares to be duly registered or approved by such governmental authority or
listed on the relevant national securities exchange or stock market.
3.9 Holders Not Entitled to Interest. Notwithstanding anything
to the contrary, Holders will not be entitled to receive any interest or
additional shares of our common stock for any period, including, without
limitation, the period of time between the date on which the Bank receives the
Amount Recovered (in full or in part) and the date on which the Warrants become
exercisable.
ARTICLE IV
Adjustments
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
(c) In the event of a Combination where consideration is
payable to holders of Common Stock in exchange for their shares solely in cash,
the Holders will have the right to receive upon exercise of each Warrant cash in
an amount equal to the Adjusted Litigation Recovery divided by the Maximum
Number of Warrants, less the Exercise Price (if any). In case of any Combination
described in this Section 4.2(c), the surviving or acquiring Person will
promptly after the occurrence of the Trigger deposit with the Warrant Agent the
funds necessary to pay to the Holders of the Warrants the amounts to which they
are entitled as described above. After such funds and the surrendered Warrant
Certificates are received, the Warrant Agent is hereby instructed to make
payment to the Holders by delivering a check in such amount as is appropriate to
such Person or Persons as it may be directed in writing by the Holders
surrendering such Warrants. No interest will accrue to the Holders or the
surviving or acquiring Person on such funds.
(d) The Company hereby represents and warrants that any
Successor Company will enter into, and the Company will provide, an agreement
with the Warrant Agent confirming the Holders' rights pursuant to this Section
4.2 and providing for adjustments, which will be as nearly equivalent as may be
practicable to the adjustments provided for in this Article IV.
4.3 Exercise Price Adjustment. In case of any
reclassification, redesignation or reorganization described in Section 4.1 or
any Combination described in Section 4.2, the Exercise Price of one Warrant
after such reclassification, redesignation, reorganization or Combination will
equal (i) if the Warrants are exercisable into stock only or stock and any cash
or property other than cash which is received instead of any fractional share of
stock, the per share par value (if any) of such stock multiplied by the number
of shares of such stock into which one Warrant is exercisable and (ii) if the
Warrants are exercisable for cash or property only, $0.01. The Exercise Price
may be adjusted, to the extent permitted by law, in such manner, if any, and at
such time, as the Board may determine in good faith to be equitable in the
circumstances. The Warrant Agent shall not be deemed to have knowledge of any
such adjustment of the Exercise Price unless and until it has received written
notice thereof.
14
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
specify the expected date that such issuance or event is to take place and the
expected date of participation therein by the holders of Common Stock and will
briefly indicate the effect of such action on the Common Stock and on the number
and kind of any other shares of stock and on other securities or property, if
any, and the number of shares of Common Stock and other securities or property,
if any, purchasable upon exercise of each Warrant and the Exercise Price after
giving effect to any adjustment which will be required as a result of such
action.
4.6 Adjustment to Warrant Certificate. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article IV, and Warrant Certificates issued after such adjustment may have the
same terms and conditions as are stated in any Warrant Certificates issued prior
to the adjustment. The Company, however, may at any time in its sole discretion
make any change in the form of Warrant Certificate that it may deem appropriate
to give effect to such adjustments, which do not affect the rights, duties or
responsibilities of the Warrant Agent and that does not affect the substance of
the Warrant Certificate, and any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
ARTICLE V
Warrant Agent
15
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
have any liability or responsibility in respect of the legality, validity or
enforceability of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
will it be responsible or liable for any breach by the Company of any covenant
or condition contained in this Agreement or in any Warrant Certificate; nor will
it be responsible or liable for the making of any change in the number of shares
of Common Stock required under the provisions of Article IV or responsible for
the manner, method or amount of any such change or the ascertaining of the
existence of any facts that would require any such adjustment or change; nor
will it by any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any shares of Common Stock to be issued
pursuant to this Agreement or any Warrant Certificate or as to whether any
shares of Common Stock will, when issued, be validly issued, fully paid and
nonassessable. The Warrant Agent will not be responsible or liable for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company. The
Warrant Agent will not incur any liability or responsibility to the Company or
to any Warrant Holder for any action taken, suffered or omitted, in reliance on
any notice, resolution, waiver, consent, order, instruction, certificate, or
other paper, document or instrument reasonably believed by the Warrant Agent to
be genuine and to have been signed, sent or presented by the proper party or
parties. Anything to the contrary notwithstanding, in no event shall the Warrant
Agent be liable for special, punitive, indirect, consequential or incidental
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Warrant Agent has been advised of the likelihood of such
loss or damage. Any liability of the Warrant Agent under this Agreement will be
limited to the amount of fees paid by the Company to the Warrant Agent. The
provisions provided in this Section shall survive to termination of this
Agreement and the resignation or removal of the Warrant Agent hereunder.
(d) Litigation. The Warrant Agent will be under no
obligation to institute any action, suit or legal proceeding or take any other
action likely to involve expense unless the Company or one or more Holders of
Warrants will furnish the Warrant Agent with security and indemnity satisfactory
to the Warrant Agent for any costs and expenses which may be incurred. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding relative thereto, and
any such action, suit or proceeding instituted by the Warrant Agent will be
brought in its name as Warrant Agent and any recovery of judgment, except for
judgments relating to claims of indemnification and compensation due the Warrant
Agent hereunder, will be for the ratable benefit of the Holders of the Warrants,
as their respective rights or interests may appear. The Warrant Agent will
promptly notify the Company in writing of any claim made or action, suit or
proceeding instituted against it arising out of or in connection with this
Agreement.
(e) Instructions from the Company. The Warrant Agent is
hereby authorized and directed to accept written instructions, orders or other
communications, with respect to the performance of its duties hereunder from an
Officer, and to apply to any such Officer for advice or instructions in
connection with the Warrant Agent's duties, and it will not be liable for or in
respect of any action taken, suffered or omitted by it in good faith in
accordance with the instructions of any such Officer.
16
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
(f) Agents. The Warrant Agent may execute and exercise
any of the rights and powers hereby vested in it or perform any of its duty or
obligation hereunder either itself or by or through its attorneys or agents and
the Warrant Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agent or for any loss to the
Company, any Holder, or any other Person, resulting from such act, default,
neglect or misconduct, absent gross negligence or willful misconduct, as each is
finally determined b a court of competent jurisdiction, in the selection and in
the continued employment of any such attorney or agent.
(g) Other Acts. The Company will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further acts, instruments and assurances as may reasonably be
required by the Warrant Agent in order to enable it to carry out or perform its
duties under this Agreement.
(h) Agreement as Source of Duties. The Warrant Agent will
act hereunder solely as agent of the Company in a ministerial capacity, and its
duties will be determined solely by the expressed provisions hereof.
17
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Warrant Agent may buy, sell or deal in any of the Warrants or other securities
of the Company or its affiliates or have a pecuniary interest in any transaction
in which the Company or its affiliates may be interested, or contract with or
lend money to the Company or its affiliates or otherwise act as fully and freely
as though it were not the Warrant Agent under this Agreement. Nothing herein
will preclude the Company and its affiliates from engaging the Warrant Agent in
any other capacity.
5.6 Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement upon 30 calendar days' prior
notice in writing mailed, by registered or certified mail, to the Company. The
Company may remove the Warrant Agent or any successor warrant agent upon 60
calendar days' prior notice in writing, mailed to the Warrant Agent or successor
warrant agent, as the case may be, by registered or certified mail.
Notwithstanding the foregoing, if the Warrant Agent becomes incapable of acting
or is adjudged a bankrupt or insolvent or a receiver of the Warrant Agent or its
property is appointed or any public officer takes control of the Warrant Agent
or its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Company may remove the Warrant Agent immediately. If the
Warrant Agent resigns or is removed or otherwise becomes incapable of acting,
the Company will appoint a successor to the Warrant Agent (the "Successor
Warrant Agent") and will, within 30 calendar days following such appointment,
give notice thereof in writing to each registered Holder of the Warrant
Certificates. If the Company fails to make such appointment within a period of
30 calendar days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent, then the Company agrees to perform the duties of
the Warrant Agent hereunder until a Successor Warrant Agent is appointed. After
appointment, the Successor Warrant Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent will
deliver and transfer to the Successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for this purpose. Failure to give any notice provided for
in this Section, however, or any defect therein will not affect the legality or
validity of the resignation or removal of the Warrant Agent or the appointment
of the Successor Warrant Agent, as the case may be.
5.7 Merger or Consolidation or Change of Name of Warrant
Agent. Any Person into which the Warrant Agent or any Successor Warrant Agent
may be merged or with which it may be consolidated, or any Person resulting from
any merger or consolidation to which the Warrant Agent or any Successor Warrant
Agent shall be a party, or any Person succeeding to the business of the Warrant
Agent or any Successor Warrant Agent, shall be the successor to the Warrant
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In case at the time such
Successor Warrant Agent shall succeed to the agency created by this Agreement,
any of the Warrant Certificates shall have been countersigned but not delivered,
any such Successor Warrant Agent may adopt the countersignature of the
predecessor Warrant Agent and deliver such Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, any Successor Warrant Agent may countersign such
Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the Successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
in this Agreement.
18
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
ARTICLE VI
Rights of Holders
6.1 Holders not Stockholders. No Holder, as such, will be
entitled to vote or to receive dividends or otherwise will be deemed to be the
holder of shares of Common Stock for any purpose, nor will anything contained
herein or in any Warrant Certificate be construed to confer upon any Holder, as
such, any of the rights of a stockholder of the Company or any right to vote
upon or give or withhold consent to any action of the Company (whether upon any
reorganization, issuance of securities, reclassification or conversion of Common
Stock, consolidation, merger, sale, lease, conveyance or otherwise), receive
notice of meetings or other action affecting stockholders (except for notices
expressly provided for in this Agreement) or receive dividends or subscription
rights, unless and until such Warrant Certificate will have been surrendered for
exercise as provided in this Agreement, payment in respect of such exercise will
have been received by the Warrant Agent, and shares of Common Stock will have
become issuable thereunder and such person will have been deemed to have become
a holder of record of such shares. No Holder will, upon the exercise of
Warrants, be entitled to any dividends if the record date with respect to
payment of such dividends will be a date prior to the date such shares of Common
Stock became issuable upon the exercise of such Warrants.
6.2 Claims by Holders. All rights of action in respect of the
Warrants will be vested in the respective Holders; provided, however, that no
Holder will have the right to enforce, institute or maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, the
Warrants, unless (a) such Holder has previously given written notice to the
Company of the substance of such dispute, and the Holders of at least 25% of the
issued and outstanding Warrants have given written notice to the Company of
their support for the institution of such proceeding to resolve such dispute,
(b) such Holder has previously given written notice to the Warrant Agent of the
substance of such dispute and of the support for the institution of such
proceeding and (c) the Warrant Agent has not instituted appropriate proceedings
with respect to such dispute within 30 days following the date of such written
notice to the Warrant Agent, it being understood and intended that the Warrant
Agent has no obligation to institute proceedings and that no one or more Holders
will have the right in any manner whatsoever to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any rights of the Holders,
except in the manner described in this Section 6.2 for the equal and ratable
benefit of all Holders. Except as described above, no Holder will have the right
to enforce, institute or maintain any suit, action or proceeding to enforce, or
otherwise act in respect of, the Warrants.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
6.4 Determination of Values. The determination of the Board of
the Adjusted Litigation Recovery, the number of shares of Common Stock issuable
upon exercise of a Warrant and the Exercise Price will be final, conclusive and
binding upon the Holders.
ARTICLE VII
Miscellaneous
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
(a) If to the Company:
Fay L. Chapman
Senior Executive Vice President
Washington Mutual, Inc.
1201 Third Avenue, WMT 1601
Seattle, WA 98101
Telecopy: (206) 961-5739
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
7.7 Counterparts and Facsimile. For the convenience of the
parties hereto, this Agreement may be executed in any number of separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement. Executed
signature pages to this Agreement may be delivered by facsimile and such
facsimiles will be deemed as sufficient as if actual signature pages had been
delivered.
7.8 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and will not be deemed to limit or otherwise affect any of the
provisions hereof.
22
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
23
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
EXHIBIT A
No.
~~~~~
Certificate for ~~~~~~~~Litigation Tracking Warrants to
Purchase Shares of Common Stock
of Washington Mutual, Inc.
THIS CERTIFIES THAT, ~~~~~~~~~, or registered assigns, is the registered holder
of the number of Litigation Tracking Warrants set forth above (the "Warrants").
Each Warrant entitles the holder thereof (the "Holder"), at its option and
subject to the provisions contained herein and in the Warrant Agreement referred
to below, to purchase from Washington Mutual, Inc. (the "Company"), successor by
merger to DIME BANCORP, INC., a Delaware corporation ("Dime"), the number of
shares of Common Stock ("Warrant Shares"), no par value per share, of the
Company (the "Common Stock") equal to the Adjusted Litigation Recovery divided
by the product of (1) the Adjusted Stock Price, multiplied by (2) the Maximum
Number of Warrants, multiplied by (3) the Dime Exchange Ratio (1.1232), at an
exercise price per Warrant equal to the number of shares of Common Stock for
which one Warrant is exercisable multiplied by the Exercise Price, if any. This
Warrant Certificate will terminate and become void on the earliest of (i) the
Close of Business on the last day of the Warrant Exercise Period, (ii) the Close
of Business on the date the Litigation has been disposed of in a manner such
that no shares of Common Stock or other securities or property will be issuable
under the terms of the Warrants and (iii) the time and date such Warrant is
exercised.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions
contained in a 2003 Amended and Restated Warrant Agreement dated as of March 11,
2003 as such agreement may be amended from time to time (the "Warrant
Agreement"), between the Company, as successor to Dime, and Mellon Investor
Services LLC, as successor to EquiServe Trust Company, N.A. and EquiServe
Limited Partnership, as warrant agent (in such capacity, the "Warrant Agent",
which term includes any successor Warrant Agent under the Warrant Agreement), to
all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full statement of the respective rights, limitations of
rights, duties and obligations of the Company, the Warrant Agent and the Holders
of the Warrants. Capitalized terms used but not defined herein will have the
meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant
Agreement may be obtained for inspection by the Holder hereof upon written
request to the Warrant Agent.
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part by surrender of this Warrant Certificate with the
form of election to purchase Warrant Shares attached hereto duly executed and
with the simultaneous payment of the Exercise Price in cash (subject to
adjustment) to the Warrant Agent for the account of the Company at the office of
the Warrant Agent. Payment of the Exercise Price will be made by certified or
official bank check or personal check payable to the order of the Company or by
wire transfer of funds to an account designated by the Company for such purpose.
No fractional Warrant Shares will be issued upon the exercise of any Warrant,
but the Company will pay cash in lieu of a fractional share as provided in the
Warrant Agreement.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, each Warrant will be exercisable at any time from
and from time to time during the Warrant Exercise Period only and will not be
exercisable after the expiration of the Warrant Exercise Period.
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
The Warrants do not entitle any holder hereof to any of the rights of a
holder of any Common Stock or Preferred Stock of the Company.
This Warrant Certificate will not be valid or obligatory for any
purpose until it will have been countersigned by the Warrant Agent.
WASHINGTON MUTUAL, INC.
By
[SEALI
Attest:
Secretary
DATED:
Countersigned:
[~~~~~~~~~~~~~~~l
as Warrant Agent,
by~~~~~~~~~~~~~~~~~
Authorized Signatory
A-3
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
EXHIBIT B
(Signature of Owner)*
(Street Address)
* The signature must correspond with the name as written upon the face
of the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, and must be guaranteed by a national bank or
trust company or by a member firm of any national securities exchange.
B-1
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
Securities and/or check to be issued to:
Name:
S t r e e t A d d r e s s :
Name:
Social security or Federal tax identification number:
S t r e e t A d d r e s s :
B-2
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
EXHIBIT C
The following exchanges of a part of this Global Warrant for definitive Warrants
have been made:
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF WARRANTS
The Transferor has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants. The Warrant Agent and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby.
by
Date:
C-1
Source: WASHINGTON MUTUAL, INC, &K, March 12, 2003 Powered by Morningstar®Document Researchs"'
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IN THE ,UNITED STATES COURT OF FEDERAL CLAIMS
COMPLAINT
WANLMNDoc106447.7 3
8. In the case of the four Supervisory Acquisitions
effected by Anchor between March 31, 1983 and August 15, 1984,
the FSLIC provided no financial assistance but, again, Anchor, in
reliance on the contractual commitment of the government, agreed
to assume liabilities far in excess of the assets it received.
In each acquisition, the government and Anchor agreed that the
was required to and did determine that the cost of the resolution
was less than the cost that would have been incurred by the FSLIC
had it liquidated the failing institution (12 U.S.C.
that date, the FSLIC assistance more nearly equalled the deficit
WANIAINDocAk447.7
20. The United States, however, has repudiated and
breached its fundamental contractual commitments concerning the
approval of and requirement to include Anchor's goodwill for
extended periods and the ICC in calculating its regulatory
capital. As a result of FIRREA, the FIRREA regulations, and
government conduct following FIRREA, tho United StatAg now
requires contrary to the contractual commitments lt made to
Anchor, and contrary to GAAP -- that the goodwill created from
Anchor acquisitions not be counted as an asset for regulatory
capital purposes. In addition, the Cumulative Preferred Stock,
into which the ICC was ultimately converted when Anchor became a
stock-type savings bank in 1987, was not eligible for inclusion
in either core or tangible capital for regulatory purposes after
FIRREA.
WANIAINDoc1064417.7 9
regulatory capital requirements, while as a direct result of
appiicable provisions immediately after its passage and the
promulgation of regulations thereunder which repudiated the
government's promises to Anchor, Anchor was at least $329 million
below its minimum regulatory capital requirements. In order to
avoid being closed by the government and to achieve capital
JURISDICTION
28. This court has jurisdiction over the subject
matter of this action under 28 U.S.C. § 1491(a).
THE PARTIES
29. Anchor is a federally-chartered savings bank, with
its home office in Hewlett, New York. Anchor commenced
operations in 1868 as a New York state-chartered mutual savings
bank, and converted in 1980 to a federally-chartered mutual
savings bank. Pursuant to the approval of the Federal Home Loan
Bank Board ("FHLBB"), Anchor converted from mutual to stock form
on or about April 1, 1987. Anchor's business is, and at all
times relevant to this action has been, primarily devoted to the
financing of single-family residential housing. As of March 31,
1989, Anchor held approximately $5.8 billion in mortgage loans
and mortgage-backed securities secured by residential loans, and
had provided approximately $7 billion in residential mortgage
loans since 1983.
WAMAINDoc106447.7 12
1983, a federally-chartered savings and loan association based in
Georgia. Tri-City's deposit accounts were insured by the FSLIC.
officer and agent of the United States. Under FIRREA, OTS and
its Director are designated as the successor to FHLBB for
purposes relevant to this action and the OTS and its Director are
designated as the successor to the FSLIC for certain purposes
relevant to this action.
FIRREA
44. FIRREA required the Director of the OTS to "
promulgate final regulations" within 90 days after FIRREA's
enactment to establish three new capital requirements. (FIRREA
Section 301, Section 5(t)(1) of the Home Owners' Loan Act of
1933, as amended ("HOLA"), 12 U.S.C. § 1464(t)(1)). The new
STATEMENT OF FACTS
Factual Background
The Thrift Industry and the Thrift Crisis
47. The thrift industry (composed of savings and loan
associations and savings banks) in the United States has, since
the Great Depression, been a subsidized legislative creation to
facilitate home ownership. The thrift industry has been subject
to comprehensive regulatory control.
the 7 cases resolved during the first five months of the year,
the FSLIC provided assistance equal to the shortfall in the
failed institutions' assets so that, on acquisition, the assets
acquired were roughly equal to the liabilities assumed by the
acquiring institution. During the first five months of 1981, the
FSLIC incurred a total cash outlay of approximately $932.8
institution.
"(iii) is an insured
institution which, when severe
financial conditions exist which
threaten the stability of a
significant number of insured
institutions, or of insured
institutions possessing significant
financial resources, is determined
by the Corporation, in its sole
discretion, to require assistance
Li. ut,4-I 7 7 25
supervision staff efforts were successful in
resolving a large proportion of cases of
projected insolvency without FSLIC
assistance. In rough terms, for every
problem institution merged in 1982 with FSLIC
assistance, Live more problem institutions
disappeared through supervisory mergers
without the need for FSLIC assistance.
In order to facilitate the significant
pace of industry consolidation and
restructuring and the timely resolution of
individual supervisory problems, a number of
merger and other approval authorities were
delegated to the Federal Home Loan Banks
during 1982. While increasing fiexibility in
the supervisory process, there delegations
added new responsibilities for coordination
of national supervisory activities.
1982 FHLBB Annual Report, 30.
66. When it became apparent that an institution was
likely to fail in the absence of supervisory intervention, FHLBB
personnel would contact representatives of stronger savings
institutions in the proximity of the failing institution to
explore the possibility of an unassisted supervisory merger. In
order to induce would-be acquirors to assume the liabilities (and
problem assets) of the failing institution, the FHLBB often
entered into agreements as to the future application of
regulatory provisions which would operate to the detriment of the
acquiror unless adjustments were made. These arrangements were
has survived despite the economic hardships of the 1980's and the
government's repudiation of the FSLIC's promises. Anchor
WAMAINDoc:10f447.7 35
Commissioner's Order noted that Suburban had, as of June 30, a
negative net worth and deposits of $1.746 billion. The
Commissioner's Order, at page 2, further noted that the FHLBB had
held "two separate rounds of bidding in an effort to find a
viable and cost effective solution." Despite an effort to
fashion a solution involving institutions within the state of New
Jersey, the Commissioner became "convinced that the solution
proposed by the Federal Home Loan Bank Board must be implemented
to safeguard the depositors of this institution and to assure
continued public trust in the thrift industry in New Jersey as a
whole." (A copy of the New Jersey Commissioner's order is
appended as Exhibit IC and incorporated herein by this reference
as though set forth in full.)
forth in full.)
Sun Federal
104. Similarly, on or about December 31, 1985 Anchor
acquired Sun Federal, another failing thrift, with the assistance
of FSLIC.
Standard Federal
108. On or about March 21, 1983 Anchor acquired.
Standard Federal, another failing thrift.
Tri-City
112. On or about July 1, 1983, Anchor acquired Tri-
City, another failing thrift, in a Supervisory Acquisition
without financial assistance from the FSLIC.
Heritage
116. Similarly, on or about September 30, 1983 Anchor
acquired Heritage, another failing thrift, in a supervisory
acquisition without financial assistance from the FSLIC.
United
120. Similarly, on or about August 15, 1984 Anchor
acquired United, another failing thrift in a Supervisory
Acquisition, without financial assistance from the FSLIC.
,
1\1 A I Doc n64-4 7 50
"secondary capital . . . ." (12 C.F.R. S 3.4 (1990)) The OTS
made no such determination and reserved no such authority.
COUNT II
Restitution for Frustration of Purpose
152. Plaintiff Anchor repeats and realleges here all
allegations set forth in paragraphs 1 through 151 above.
COUNT III
Damages for Breach of Contract
157. Plaintiff Anchor repeats and realleges here all
allegations set forth in paragraphs 1 through 156 above.
COUNT IV
Compensation for Taking of Property Rights
161. Plaintiff Anchor repeats and realleges here all
diiegat ons set forth in paragraphs 1 through 160 above.
COUNT VI
Damaltes for Deprivation of Property Without Due Process
169. Plaintiff Anchor repeats and realleges here all
allegations set forth in paragraphs 1 through 168 above.
COUNT VII
Damages for Retroactive Application of
Law in Violation of Due Process
173. Plaintiff Anchor repeats and realleges here all
allegations set forth in paragraphs 1 through 172 above.
Anchor;
On Count V, for damages in the amount to be proved by
Anchor;
Respectfully submitted,
P er . in, II
JONES, DAY, REAVIS & POGUE
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
(202) 879-3939
Counsel of Record for Plaintiff
Anchor Savings Bank, FSB
Of Counsel:
C. Thomas Long
George T. Manning
JONES, DAY, REAVIS & POGUE
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
(202) 879-3939
by and between
and
1
•
TABLB OF CONTENTS
RECITALS .............................................. 1
A. Dirne ..............................................1
B . A n c h o r ......................................... 1
C. The Merger ...................................... 1
D. The Alternative Merger .......................... 1
E. The Surviving Parent 2
F. The Bank Merger ................................ 2
G. The Stock Option Agreements .................... 2
H. Intention of the Parties ........................ 2
I. Approvals ........................................3
ARTICLE I
The Merger; The Alternative Merger;
Consent Solicitation; Effective Time; Closing
1.1 The Merger ........................................ 3
1.2 The Alternative Merger; Consent Solicitation 3
1.3 Effective Time .................................... 5
1.4 Closing ........................................... 6
ARTICLE II
Governing Documents of the
Surviving Parent, the Surviving Subsidiary
and the Surviving Bank
ARTICLE III
Directors and Officers of the
Surviving Parent, the Surviving Subsidiary
and the Surviving Bank
3.1 Directors of the Surviving Parent 7
3.2 Officers of the Surviving Parent and
the Surviving Bank ............................. 9
3.3 Directors of the Surviving Subsidiary
and the Surviving Bank ......................... 10
3.4 Survival of Article III ................................................................................... 10
ARTICLE IV
Conversion or Cancellation of Shares
ARTICLE V
Representations and Warranties
ARTICLE VI
Covenants
6.1 Conduct of Business Pending the Effective Time 33
6.2 Dividende 36
6.3 Acquisition Proposals 36
6.4 Stockholder Approvals; Election of Directors 37
6.5 Filings; Other Actions 38
6.6 Information Supplied 39
6.7 Accountants' Letters 40
6.8 Access 40
6.9 Notification of Certain Matters 41
6.10 Publicity 41
6.11 Options, Warrants and Benefit Plans 41
(a) Options 41
(b) Benefit Plans 42
(c) Qualification of Benefit Plans 43
6.12 Expenses 43
6.13 Indemnification; Directors' and Officers
Insurance 44
6.14 Antitakeover Provisions 45
6.15 Affiliate Agreements 45
6.16 Stock Exchange Listing 46
6.17 Efforts to Consummate 46
6.18 Reports 46
6.19 Accounting and Tax Treatment 46
6.20 Bank Merger 46
6.21 Lincoln Acquisition 47
ARTICLE VII
Conditions
7.1 Conditions to Each Party's Obligation to Effect
the Merger 47
(a) Stockholder Approval 47
(b) Governmental and Regulatory Consents • . • 47
(c) Third Party Consents 48
(d) Litigation 48
(e) Registration Statement 48
(f) Blue Sky Approvals 48
(g) Listing 48
.27
Page
ARTICLE IX
Miscellaneous
9.1 Survival ......................................... 54
9.2 Modification or Amendment ........................ 54
9.3 Waiver of Conditions ............................. 54
9.4 Counterparts ..................................... 54
9.5 Governing Law .................................... 55
9.6 Notices ........... . . . . .. ......... 55
9.7 Satire Agreement, Etc. . . . ...... . . . .. 56
9.8 Definition of nsubsidiaryn; Covenants with Respect
to Subsidiaries ............................... 56
9.9 Captions ......................................... 57
9.10 Severabiiity .................................... 57
9.11 Na Third Party Beneficiaries ..................... 57
ANNEXES
Form of Agreement and Plan of Merger
1. by and between Dime Bank and Anchor Bank
•
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•
1
Location of
Term Definition
Acquisition Proposal 6 3
Affiliates 6 15
Agreement ........................................ Preamble
Alternative Merger ............................... Recital D
Anchor ........................................... Preamble
A n c h o r B a n k . . . . . . . . . . . . . . . ........... Recital F
Anchor Common Stock ............................... Recital B
Anchor Exchange Ratio 4 1(b)
Anchor Indenture . . . ..... . ........ . 1.2
Anchor Meeting 6 4
Anchor Option 6 11(a)
Anchor Preferred Stock ........................... Recital B
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Employees 5 1(p)
Employment Agreement 3 2(d)
Environmental Law 5 1(q)
ERISA 5 1(p)
ERISA Affiliate 5 1(p)
Exception Shares 4 1(a)
Exchange Agent 4 2(a)
Exchange Act 5 1(f)
FDIA .............................................. Recital F
FDIC 5 1(c)
FDIC Warrant 5 1(d)
FHLB 5 1(g)
Financial Statements 5 1(g)
Former Anchor Employees 6 11(b)
Former Dime Employees 6 11(b)
Governmental Entity 5 1(f)
Hazardous Substances 5 1(q)
HOLA .............................................. Recital A
Indemnified Parties 6 13
Internal Revenue Code ............................. Recital H
Joint Proxy Statement 6 5
Liens 5 1(d)
Lincoln .......................................... Recital F
Lincoln Acquisition ............................... Recital F
Lincoln Agreement ................................. Recital F
Material Adverse Effect 5 3(b)
Merger ........................................... Recital C
NASD 5 1(f)
New Certificate 4 1(c)
New Conimon Stock 4 1(a)
NYSE 4 2(c)
Old Certificate 4 1(c)
Old Shares 4 1(c)
OTS ............................................... Recital F
PCBs 5 1(q)
Pension Plan 5 1(p)
Person 6 1(c)
Plans 5 1(p)
Registration Statement 6 5
Regulatory Approvals ............................. Recital I
Reports 5 1(g)
Representatives 6 8
SEC 5 1(g)
Securities Act 5 1 (f)
Securities Laws 5 1(g)
Stock Option Agreements ........................... Recital G
Subject Property 5 1(q)
subsidiary 9 8(a)
Surviving Bank ................................... Recital F
Surviving Parent ................................. Recital E
Surviving Subsidiary ............................. Recital D
Tax 5 1(m)
-vii-
AGREEMENT AND PLAN OF MERGER, dated as of the 6th
day of July, 1994 (this "Agreement"), by and between Anchor
Bancorp, Inc. ("Anchor") and Dirne Bancorp, Inc. ("Dime").
RECITALS
A. Dime. Dime has been duly incorporated and is
an existing corporation in good standing under the laws of
the State of Delaware, with its principal executive offices
located in New York, New York. As of the date hereof, Dime
has 200,000,000 authorized shares of common stock, par value
$0.01 per share ("Dirne Common Stock"), of which not more
than 56,585,002 shares are outstanding as of the date
hereof, and 40,000,000 authorized shares of preferred stock,
par value $0.01 per share (Mime Preferred Stock"), none of
which is outstanding as of the date hereof (no other class
or series of capital stock being authorized). Dime is a
savings and loan holding company registered under the Home
Owners' Loan Act of 1933, as amended ("HOLAn).
B. Anchor. Anchor has been duly incorporated and
is an existing corporation in good standing under the laws
of the State of Delaware, with its principal executive
offices located in Hewlett, New York. As of the date
hereof, Anchor has 75,000,000 authorized shares of common
stock, par value $0.01 per share ("Anchor Common Stock"), of
which not more than 23,473,329 shares are outstanding as of
the date hereof, and 3,140,000 authorized shares of pre-
ferred stock, par value $1.00 per share ("Anchor Preferred
Stock"), none of which is outstanding as of the date hereof
(no other class or series of capital stock being
authorized). Anchor is a savings and loan holding company
registered under HOLA.
C. The Merger. At the Effective Time (as defined
in Section 1.3), the parties to this Agreement intend to
effect the merger (the "Merger") of Anchor with and into
Dime, with Dime the surviving corporation of the Merger.
D. The Alternative Merger. Under the circum-
stances set forth in Section 1.2 and as an alternative to
the Merger, at the Effective Time the parties to this
Agreement intend to effect the business combination trans-
action contemplated hereby through the simultaneous merger
(collectively, the "Alternative Merger") of (a) Anchor with
and into a Delaware corporation that would be organized as a
wholly owned subsidiary of Dime ("Dime-Sub"), with Dime-Sub
the surviving corporation (the "Surviving Subsidiary") of
euch merger and (b) a Delaware corporation that would be
organized as a wholly owned subsidiary of Anchor ("
Anchor-Sub") with and into Dime, with Dime the surviving
corporation of such merger.
E. The eurviving Parent. At and after the
Effective Time, Dirne, as the surviving parent corporation in
the Merger or the Alternative Merger (in the event that it
is consummated in lieu of the Merger) is referred to herein
as the "Surviving Parent".
F. The Bank Merger. Anchor Savings Bank FSB, a
federal savings bank and a wholly owned subsidiary of Anchor
("Anchor Bank"), has entered into a Stock Purchase Agree-
ment, dated March 4, 1994 (the "Lincoln Agreement"), among
Anchor Bank, Anthony M. Frank, as trustee, and Lincoln
Savings Bank, FSB ("Lincoln"), pursuant to which Anchor Bank
will acquire all of the outstanding capital stock of Lincoln
and Lincoln will merge with and into Anchor Bank (the
Lincoln Acquisition").
At or after the Effective Time, Dirne and Anchor
intend that the Surviving Parent will cause Anchor Bank to
merge or consolidate with The Dirne Savings Bank of New York,
FSB, a wholly owned federal savings bank subsidiary of Dirne
("Dirne Bank"). Such merger or consolidation is referred to
herein as the "Bank Merger". The Bank Merger shall be
effected pursuant to an agreement and plan of merger in
substantially the form of Annex 1 to this Agreement and is
subject, among other conditions set forth therein, to the
prior approval (including any requisite waiting periods, the
"Bank Merger Approvals") of the Office of Thrift Supervision
(the "OTS") under Sections 5(d)(3) and 18(c) of the Federal
Deposit Insurance Act, as amended (the "FDIA"). The surviv-
ing federal savings bank in the Bank Merger is referred to
herein as the "Surviving Bank".
-2-
interests" under generally accepted accounting principles
and (ii) (a) in the case of the Merger and the portion of
the Alternative Merger involving the Merger of Anchor into
Dirne-Sub, shall qualify as a tax free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") and (b) in the case of
the portion of the Alternative Merger involving the merger
0 of Anchor-Sub into Dirne, shall not result in recognition of
gain or lose by holders of Dirne Common Stock.
I. Approvals. The Boards of Directors of Dirne
and Anchor (at meetings duly called and held) have deter-
mined that this Agreement and the transactions contemplated
hereby are in the best interests of Dirne and Anchor,
respectively, and their respective stockholders and have
approved this Agreement and the Stock Option Agreements.
Consummation of the Merger or the Alternative Merger is
subject to (i) the prior approval of the stockholders of
each of Dirne and Anchor, (ii) the prior approval of the OTS
under Section 10(e) of HOLA and (iii) the Bank Merger
Approvals (items (ii) and (iii), collectively, the "Regula-
tory Approvals"), among other conditions specified herein.
NOW, TEEREFORE, in consideration of the premises,
and of the representations, warranties, covenants and agree-
ments set forth herein, the parties hereto agree as follows:
ARTICLE I
-3-
time to time, the Anchor Indenture"), between Anchor and
Chemical Bank, as trustee, subject to the terms and condi-
tions of this Agreement and in lieu of the Merger, at the
Effective Time, Dime and Anchor-Sub and Anchor and Dime-Sub
each shall consummate the mergers constituting the Alterna-
tive Merger. As a result, the Surviving Subsidiary shall
become a wholly owned subsidiary of the Surviving Parent,
and the Surviving Parent and the Surviving Subsidiary each
ehall continue to be governed by the laws of the State of
Delaware; the separate corporate existence of each of Anchor
and Anchor-Sub shall cease. The mergers constituting the
Alternative Merger each shall have the effects specified in
the DGCL.
(b) In addition to its other covenants and agree-
ments herein, Anchor agrees that promptly after the date of
this Agreement it ehall solicit and use reasonable efforts
to obtain consents from the holdere of its 8.9375% Senior
Notes due 2003 outstanding under the Anchor Indenture, seek-
ing a modification of its covenants in Sections 1008 and
1013(a)(2) of the Anchor Indenture that would permit consum-
mation of the Merger and the Bank Merger without resulting
in a Default or Event of Default (each as defined) there-
under. The terms of such solicitation, including the form
of the modification solicited and any consideration offered
therefor, shall be as agreed upon between Dime and Anchor,
the agreement of each not to be unreasonably withheld.
(c) As sonn as practicable following a determina-
tion pursuant to Section 1.2(a) to pursue the Alternative
Merger, but in any event prior to the Effective Time if the
Alternative Merger is to be consummated in lieu of the
Merger, (i) Dime agrees to take any and all action necessary
duly to organize Dime-Sub and to cause Dime-Sub to become a
party to this Agreement, to be evidenced by the execution by
Dime-Sub of a supplement to this Agreement, in substantially
the form of Annex 3, and delivery thereof to each of Dime
and Anchor and (ii) Anchor agrees to take any and all action
necessary duly to organize Anchor-Sub and to cause
Anchor-Sub to become a Party to this Agreement, to be
evidenced by the execution by Anchor-Sub of a supplement to
this Agreement, in substantially the form of Annex 3, and
•
(d) If (i) the parties shall have determined that
the Alternative Merger is to be consummated but that the
structure of the Alternative Merger involving a merger of
Anchor with and into Dime-Sub would result in the failure of
one or more conditions set forth in Article VII,
(ii) restructuring the Alternative Merger so that lt instead
would involve the merger of Dime-Sub with and into Anchor
would result in the satisfaction of such condition or condi-
tions and (iii) either party so requests, then the parties
shall enter into an amendment to this Agreement (as contem-
plated by Section 9.2(b)) providing for consummation of the
Alternative Merger by way of (x) the merger of Dime-Sub with
and into Anchor and (y) the merger of Anchor-Sub with and
into Dime.
1.3 Effective Time. (a) Subject to the terms
and conditions of this Agreement, the parties to this Agree-
ment will cause a certificate or certificates of merger to
be executed, acknowledged and filed with the Secretary of
State of the State of Delaware as provided in Section 251 of
the DGCL (collectively, the "Certificate of Merger"). The
Merger (or, in the event the Alternative Merger is to be
consummated in lieu of the Merger, the Alternative Merger)
shall become effective at such time as the Certificate of
Merger has been filed with the Secretary of State of the
State of Delaware in accordance with the provisions of
Section 251 of the DGCL, or at such other time as may be
specified in the Certificate of Merger in accordance with
applicable law. The date and time when the Merger or the
Alternative Merger, as the case may be, shall become
•
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11)
ARTICZB II
Governing Documents of the
Surviving Parent, the Surviving
Subsidiary and the Surviving Bank
2.1 Certificate of Incorporation of the Burviving
Parent. At the Effective Time, the certificate of incorpo-
ration of Dime, as then in effect, shall by virtue of the
Merger or the Alternative Merger, as the case may be, be
amended and restated to read as oet f orth in Annex 4; such
certificate of incorporation, as so amended and restated,
shall be the certificate of incorporation of the Surviving
Parent (the "Certificate of Incorporation"), until duly
amended in accordance with the terms thereof and the DGCL.
-6-
certificate of incorporation of the Surviving Subsidiary and
1 the DGCL.
2.5 Charter and By-laws of Dime Bank, Anchor Bank
and the Surviving Bank. In the event Dime and Anchor elect
not, or are unable, to cause the Bank Merger to occur at or
promptly after the Effective Time, prior to the Effective
Time, Dirne and Anchor shall consult as to what amendments,
if any, should be made in the federal stock charter or by-
laws of Dime Bank or Anchor Bank and shall cause such
amendments therein as Dime and Anchor shall mutually agree
upon to becoxne effective by not later than the Effective
Time; provided, however, that the section of each of Dime
Bank's and Anchor Bank's by-laws dealing with the duties of
officers shall in any event be amended to read as set forth
in Exhibit A to Annex 1 hereto at or prior to the Effective
Time. Irrespective of whether Dirne and Anchor elect to
cause the Bank Merger to occur at or promptly after the
Effective Time, prior to the Effective Time Dime and Anchor
shall consult concerning, and agree upon, the terms and
provisions of the charter and by-laws for the Surviving
Bank; provided, however, that the section in the by-laws of
the Surviving Bank describing the duties of officers of the
Surviving Bank at the Effective Time shall in any event be
as set forth in Exhibit A to änkmäl hereto.
ARTICLE III
Directors and ()Moers
of the Surviving Parent, the
Surviving Subsidiary
and the Surviving Bank
3.1 Directors of the Surviving Parent. It is the
intention of Dirne and Anchor and their reapective Boards of
Directors that, until the third anniversary of the Closing
Date, the Board of Directors of the Surviving Parent (and
each of the committees thereof) shall consist of an equal
number of persons serving an the Boards of Directors of Dime
and Anchor, respectively, immediately prior to the Effective
Time, and that the size of the Board of Directors of the
Surviving Parent shall be reduced over time during euch
period to no more than sixteen directors. In order to
effectuate this intention, the following provisions shall,
to the greatest extent practicable, apply with respect to
the Board of Directors of the Surviving Parent:
(a) At the Effective Time, but subject to the
following sentence, the Board of Directors of the
Surviving Parent shall consist of an even number of
directors, not exceeding 24, who shall consist of an
-7-
equal number of (i) persons serving as directors of
Dirne (each, a *Dirne-Related Director") and (ii) persons
serving as directors of Anchor (each, an "Anchor-
Related Director"), in each case immediately prior to
the Effective Time. Each of Dirne and Anchor shall take
such steps as are necessary to assure that they have an
identical number of directors (but not more than 12
each) immediately prior to the Effective Time. If at
any time during the three year period following the
Effective Time any of the persons who becomes a
director of the Surviving Parent at the Effective Time
shall for any reason cease to serve as a director or
shall not stand for reelection as a director, it is the
intention of Dirne and Anchor and their respective
Boards of Directors that another director will volun-
tarily resign or not stand for reelection (as the case
may be) so as to assure that at all times one-half of
the persons serving as directors of the Surviving
Parent are Dirne-Related Directors and one-half are
Anchor-Related Directors. To the extent practicable,
each class of directors shall contain an equal number
of Dirne-Related Directors and Anchor-Related Directors.
-8-
Incorporation and the By-law . Prior to the Effective
Time, Messre. Parsons and Large shall reasonably agree
as to the initial members of each committee (including
the Executive Committee) of the Board of Directors of
the Surviving Parent. Bach of such committees
(including the Executive Committee) shall have an even
number of members, and at the Effective Time and for
three years thereafter, unless otherwise agreed by both
Mr. Parsons and Mr. Large, one-half of the members of
each such committee shall consist of Dime-Related
Directors and the other half shall consist of Anchor-
Related Directors. After the Effective Time,
Messrs. Parsons and Large shall consult with each other
with respect to any vacancies on, or members to be
added to, such committees.
(d) The provisione of this Section 3.1, insofar
•
as they assign particular duties or responsibilities to
Mr. Parsons or Mt. Large, shall continue in effect only
for so long as Miesere. Parsons and Large both shall
nerve in the capacities referred to in Sections 3.2(a)
and (b) with respect to the Surviving Parent.
3.2 Officers of the Surviving Parent and the
$urvivirlg Bank. (a) Mr. Parsons ahall be Chairman of the
Board and Chief Executive Officer of the Surviving Parent
and shall have the non-executive office of Chairman of the
Board of the Surviving Bank.
•
(b) Mt. Large shall be the President and Chief
Operating Officer of the Surviving Parent and President and
Chief Executive Officer of the Surviving Bank.
(c) Mr. Parsons and Mr. Large will be Co-Chairmen
of the Executive Committee of the Boards of Directors of the
Surviving Parent and the Surviving Bank. In addition, if
the Board of Directors of the Surviving Parent shall have a
Nominating Committee, then neither Mr. Parsons nor Mr. Large
ahall be a member thereof unless both of them are members,
in which case they shall act as Co-Chairmen of the Nominat-
ing Coninittee.
(d) Concurrently with, or immediately prior to,
execution of this Agreement, (i) Dime entered into an
employment agreement with Mx. Parsons in substantially the
form of änneäfi and (ii) Anchor Bank entered into an
employment agreement with Mr. Large (guaranteed by Anchor)
in substantially the form of Annex 7 (each of the agreements
in (i) and (ii), an "Employment Agreementn).
(e) During the terms of their respective Employ-
ment Agreements, Mr. Parsons and Mr. Large shall have the
•
-9-
respective powers, and perform the respective duties, set
forth in each of their respective Employment Agreements,
with the duties of their offices as described in the By-laws
or in Exhibit A to Annex 1, as the case may be. Any modifi-
cation or amendment of either of such Employment Agreements
at any time during their respective terms from and alter the
Effective Time shall require the affirmative vote of three-
quarters of the Board of Directors of the Surviving Parent.
3.3 rvivin an• he
Surviving Bank. At the Lffective Time, it is the Intention
of the parties that the rnembership of the Board of Directors
of each of the Surviving Subsidiary (in the event that the
Alternative Merger is consummated) and the Surviving Bank,
to the extent lawful, shall be identical to the membership
of the Board of Directors of the Surviving Parent. There-
after, unless otherwise approved by the Board of Directors
of the Surviving Parent at a meeting where there are an
equal number of Dime-Related Directors and Anchor-Related
Directors present, the Board of Directors of the Surviving
Subsidiary, if any, and the Surviving Bank shall include an
equal number of Dime-Related Directors and Anchor-Related
Directors.
3.4 Survival of` Article III. The provisions of
this Article III shall survive the Effective Time and remain
in effect until the third anniversary of the Closing Date
terminating thereafter. This Section 3.4 shall not affect
the term of either Employment Agreement.
ARTICLE IV
Convereion or Cancellation of Sharee
•
shall be cancelled and retired and shall cease to
exist, and each holder of a certificate (an "Old Cer-
tificate') formerly representing the Old Shares shall
thereafter cease to have any rights with respect to
Buch shares, except the right to receive, without
interest, upon exchange of such Old Certificate in
accordance with Section 4.2, a certificate representing
the shares of New Common Stock (a "New Certificate")
and any payment to which euch holder is entitled
pursuant to this Article IV.
(d) If the Alternative Merger is consummated in
lieu of the Merger, then, in addition to the foregoing
(i) each issued and outstanding share of common stock,
par value $0.01 per share (the "Dime-Sub Common
Stock"), of Dirne-Sub shall remain outstanding and
unchanged and (ii) each issued and outstanding share of
common stock, par value $0.01 ("Anchor-Sub Common
Stock"), of Anchor-Sub shall be converted at the
• Effective Time into the right to receive $0.01 in cash.
4.2 N C
cates. (a) Appoin iCent qf Exchange Agent. From and a er
the Effective Time until the end of the six-month period
following the Effective Time, the Surviving Parent shall make
available or cause to be made available to an exchange agent (
which may be the Surviving Bank) appointed prior to the
Effective Time by Dime.and Anchor jointly on behalf of the
Surviving Parent (the "Exchange Agent") New Certificates and
cash in amounts sufficient to allow the Exchange Agent to
make all deliveries of New Certificates and payments that may
be required in exchange for Old Certificates pursuant to this
Article iV. At the end of such six-month period, any such New
Certificates and cash remaining in the possession of the
Exchange Agent (together with any dividends or earnings in
respect thereof) shall be returned to the Surviving Parent.
Any former holdere of Old Shares who have not theretofore
exchanged their Old Certificates for New Certificates and cash
pursuant to this Article IV shall thereafter be entitled to
look exclusively to the Surviving Parent and only ae general
creditors thereof for the shares of New Common Stock and any
cash to which they become entitled upon exchange of their Old
Certificates pursuant to this Article IV. Notwithatanding the
foregoing, neither the Exchange Agent nor any party hereto
shall be liable to any former holder of Old Shares for any
amount property delivered to a public official pursuant to
applicable abandoned property, escheat or eimilar laws.
-13-
(f) No Liability. In the event that any Old
Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claim-
ing such Old Certificate to be lost, stolen or destroyed
and, if required by the Surviving Parent, the posting by
such person of a bond in euch reasonable amount as the Sur-
viving Parent may direct as indemnity against any Claim that
may be made against it with respect to such Old Certificate,
the Surviving Parent shall, in exchange for such lost,
stolen or destroyed Old Certificate, issue or cause to be
issued the shares of New Common Stock and pay or cause to be
paid the amounts, if any, deliverable in respect thereof
pursuant to this Article IV.
ARTICLE V
Representationa and warranties
-14-
applicable FDIC coverage limitations. Each of its sub-
sidiaries is either a federal savings bank or a corpo-
ration, and is duly organized, and to the extent
applicable validly existing, and in good standing under
the laws of the jurisdiction in which such subsidiary
is incorporated or organized, and is duly qualified to
do business and in good standing in each jurisdiction
where the property owned, leased or operated, or the
business conducted, by such subsidiary requires such
qualification. Each of its subsidiaries has the requi-
site corporate power and authority to own or lease its
properties and assets and to carry on its business as
it is now being conducted.
(d) Capital Stock. (i) In the case of the
representations and warranties made by Dirne: As of the
date of this Agreement, there were outstanding under
the stock option and other plans identified in para-
graph 5.1(d) of Dime's Disclosure Letter (the "Dirne
Stock Plans"), options or rights to acquire not more
than an aggregate of 3,158,384 shares of Dirne Common
Stock (subject to adjustment on the terms set forth in
the Dirne Stock Plans). As of the date of this Agree-
ment, Dirne has no shares of Dirne Common Stock reserved
for issuance, other than 18,098,686 shares for issuance
under the Dirne Stock Plans and the Dirne Stock Option,
and has no shares of Dirne Preferred Stock reserved for
issuance. All the outstanding shares of Dirne Common
Stock have been duly authorized and validly issued and
are fully paid and nonassessable. All the outstanding
shares of capital stock of each of Dime's subsidiaries
owned by Dirne or a subsidiary of Dirne have been duly
authorized and validly issued and are fully paid and
nonassessable, and, except in the case of 100,000
issued and outstanding shares of 1034% Noncumulative
Preferred Stock of Dirne Bank ("Dirne Bank Preferred
Stock"), owned by Dirne or a subsidiary of Dirne free and
clear of all liens, pledges, security interests,
claims, proxies, preemptive or subscriptive rights or
other encumbrances or restrictions of any kind (
collectively, "Liens"). Except as set forth above (
including in Recital or in the Dirne Stock Option
Agreement and except for Dirne Common Stock issued after
the date hereof pursuant to the terms of options or
plans referred to above and the issuance of notes in
exchange for outstanding shares of Dirne Bank Preferred
Stock as described in Section 6.1(e), there are no
shares of capital stock of Dirne authorized, issued or
outstanding and there are no preemptive rights or any
outstanding subscriptions, options, warrants, rights,
convertible securities or other agreernents or commit-
ments of Dirne or any of its subsidiaries of any
-15-
11) character relating to the issued or unissued capital
stock or other securities of Dime or any of its
subsidiaries (including, without limitation, those
relating to the issuance, aale, purchase, redemption,
conversion, exchange, redemption, voting or transfer
thereof). The shares of New Common Stock to be issued
in the Merger or the Alternative Merger, when so issued
in accordance with this Agreement, will be duly author-
ized, validly issued, fully paid and nonassessable and
not subject to any preemptive rights or other Liens
(other than restrictions on certain transfers to be set
forth in the Certificate of Incorporation). Other than
pursuant to the Anchor Stock Option Agreement, as of
the date hereof, neither Dime nor any of its subsidi-
aries beneficially owns, directly or indirectly, or is
party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or
disposing of, any shares of Anchor Common Stock that
are, or if owned would be, Exception Shares.
(ii) In the case of the representations and
warranties made by Anchor: As of the date of this
Agreement, there were outstanding (A) under the stock
option and other plans listed in Section 5.1(d) of
• Anchor's Disclosure Letter (the 'Anchor Stock Plans"),
options or rights'to acquire not more than an aggregate
of 1,077,668 shares of Anchor Common Stock (subject to
adjustment on the terms set forth in the Anchor Stock
Plans) and (B) a warrant, held by the FDIC, to acquire
an aggregate of 4,750,000 shares of Anchor Common Stock
(subject to adjustment as provided therein) (the "FDIC
Warrant"). As of the date of this Agreement, Anchor
has no shares of Anchor Common Stock reserved for
issuance, other than 6,694,110 shares for issuance
under the Anchor Stock Plans and the Anchor Stock
Option and 4,750,000 shares for issuance upon the
exercise of the FDIC Warrant, and has no shares of
Anchor Preferred Stock reserved for issuance. All the
outstanding shares of Anchor Common Stock have been
duly authorized and validly issued and are fully paid
and nonassessable. All the outstanding shares of
capital stock of each of Anchor's subsidiaries owned by
Anchor or a subsidiary of Anchor have been duly
authorized and validly issued and are fully paid and
nonassessable and owned by Anchor or a subsidiary of
Anchor free and clear of all Liens. Except as set
forth above (including in Recital B) or in the Anchor
Stock Option Agreement and except for Anchor Common
Stock issued after the date hereof pursuant to the
terms of the FDIC Warrant or the options, securities or
piano referred to above, there are no shares of capital
stock of Anchor authorized, issued or outstanding, and
-16-
•
there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of Anchor
or any of its subsidiaries of any character relating to
the issued or unissued capital stock or other securi-
ties of Anchor or any of its subsidiaries (including,
without limitation, those relating to the issuance,
aale, purchase, redemption, conversion, exchange,
registration, voting or transfer thereof). Other than
pursuant to the Dirne Stock Option Agreement, as of the
date hereof, neither Anchor nor any of its subsidiaries
beneficially owns, directly or indirectly, or is party
to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of,
any shares of Dirne Common Stock that are, or if owned
would be, Exception Shares.
(e) Vorparate Authority. (i) It has the requi-
site corporate power and authority and has taken all
corporate action neceesary in order to execute and
deliver this Agreement and, subject only to the
adoption by the holders of the outstanding shares of
Dirne Common Stock or Anchor Common Stock, as the case
may be, of the agreement of merger contained in this
Agreement insofar as required by Section 251 of the
DGCL, to consummate the transactions contemplated
hereby. This Agreement is a valid and legally binding
agreement of it enforceable in accordance with the
terms hereof.
(ii) Its Board of Directors (at a meeting duly
called and held) has by requisite vote (A) authorized
and approved this Agreement, the Stock Option Agree-
ments and the transactions, including the Merger and
the Alternative Merger, contemplated hereby and
thereby, (B) directed that the agreement of merger (as
auch term is used in Section 251 of the DGCL) contained
in this Agreement be submitted for consideration to,
and adoption by, its stockholders in accordance with
Section 251 of the DGCL and (C) (x) in the case of the
representations and warranties of Dirne, approved the
execution of the Dirne Stock Option Agreement and
authorized and approved the Merger and the Alternative
Merger (prior to the execution by Dirne of this Agree-
ment and prior to the date of execution of the Dirne
Stock Option Agreement) in accordance with Section 203
of the DGCL or (y) in the case of the representations
and warranties of Anchor, duly opted-out of coverage of
Section 203 of the DGCL in its certificate of
incorporation.
-17-
1
(f) F N. Vio ti•ns
(i) Other than the Regulatory Approvals and as provided
in Section 1.3, and other than as required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, the Securities Exchange Act of 1934, as
amended (including the rules and regulations there-
under, the "Exchange Act"), the Securities Act of 1933,
1 as amended (including the rules and regulations there-
under, the "Securities Act"), state securities and "
Blue Sky" laws and the rules of the NYSE or the
National Association of Securities Dealers, Inc. (the
"NASD"), no notices, reports or other filings are
required to be made by it with, nor are any consents,
registrations, approvals, permits or authorizations
required to be obtained by it from, any governmental or
regulatory authority, agency, court, commission or
other entity, domestic or foreign ("Governmental
Entity"), in connection with the execution, delivery or
• performance of this Agreement by it and the consumma-
tion by it of the transactions contemplated hereby and
thereby.
(ii) The execution, delivery and performance of
this Agreement does not and will not, and the consumma-
• tion by it of any of the transactions contemplated
hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its certificate of
incorporation or by-laws, or the comparable governing
instruments of any of its subsidiaries, or (B) a breach
or violation of, or a default under, or the accelera-
•
-18-
(B) the OTS, (C) the FDIC, (D) the Federal Home Loan
Bank of New York (the "FHLB"), (E) any other applicable
federal or state banking, insurance, securities, or
other regulatory authorities or (F) the NYSE or the
NASD, as the case may be, and, as of their respective
dates (and, in the case of reports or statements filed
prior to the date hereof, without giving effect to any
amendments or modifications filed after the date of
this Agreement), each such report or statement, includ-
ing the financial statements and exhibits thereto,
complied (or will comply, in the case of reports or
statemente filed after the date of this Agreement) as
to form in all material respects with all applicable
statutes, rules and regulations.
(ii) It has delivered to the other of Dime or
Anchor each registration statement, offering circular,
report, definitive proxy statement or information
statement under the Securities Act, the Exchange Act,
12 C.F.R. Parts 563b, 563d and 563g and state securi-
ties and "Blue Sky" lawe (collectively, the "Securities
Laws") filed, used or circulated by it (and in the case
of Dime for periods prior to May 25, 1994, by Dime
Bank) with respect to periods since January 1, 1992
through the date of this Agreement and will promptly
deliver each such registration statement, offering
circular, report, definitive proxy statement or
information statement filed, used or circulated after
the date hereof (collectively, its "Reports"), each in
the form (including exhibits and any amendments
thereto) filed with the SEC or the OTS (or if not so
filed, in the form used or circulated), including,
without limitation, (A) with respect to Dirne, Düne
Eank's Annual Report on Form 10-K for the year ended
December 31, 1993 and ite Quarterly Report on Form 10-Q
for the period ended March 31, 1994 and (B) with
respect to Anchor, its Annual Report on Form 10-X for
the year ended June 30, 1993 and its Quarterly Reports
an Form 10-0 for the periods ended September 30, 1993,
December 31, 1993 and March 31, 1994.
(iii) As of their respective dates (and without
giving effect to any amendments er modifications filed
after the date of this Agreement), each of the Reports,
including the financial statements, exhibits and sched-
ulee thereto, filed, used or circulated prior to the
date hereof complied (and each of the Reports filed
after the date of this Agreement, will comply) in all
material respects with the applicable Securities Laws
and did not (or in the case of reports, statements, or
circulars filed after the date of this Agreement, will
not) contain any untrue statement of a material fact er
-19-
omit to state a material fact requ red to be stated
therein or necessary to make the statements made
therein, in the light of the circumstances under which
they were made, not misleading.
(iv) Each of its (and in the case of Dime for
periods prior to May 25, 1994, Dime Bank's) consoli-
dated balance sheets included in or incorporated by
reference into its Reports, including the related notes
and schedules, fairly presents (or, in the case of
Reports prepared after the date of this Agreement, will
fairly present) the consolidated financial position of
it and its subsidiaries as of the date of euch balance
sheet and each of the consolidated statements of
income, cash flows and stockholders' equity included in
or incorporated by reference into its Reports, includ-
ing any related notes and schedules, fairly presents (
or, in the case of Reports prepared after the date of
this Agreement, will fairly present) the consolidated
results of operations, retained earnings and cash
flows, as the case may be, of it and its subsidiaries
for the periods set forth therein (subject, in the case
of unaudited statements, to normal year-end audit
adjustments), in each case in accordance with generally
accepted accounting principles consistently applied
during the periods involved, except as may be noted
therein. Collectively, its foregoing consolidated
balance sheets, statements of income, cash flows and
stockholders' equity are referred to as its "Financial
Statements".
-21-
(ii) has all permits, licenses, certificates
of authority, orders, and approvals of, and has
made all filings, applications, and registrations
with, federal, state, local, and foreign govern-
mental or regulatory bodies that are required in
order to permit it or such subsidiary to carry an
its business as it is presently conducted;
-22-
FHLB and the FDIC) or the supervision or regulation of
it or any of its subsidiaries and neither it nor any of
its subsidiaries has been advised by any such Govern-
mental Entity that such Governmental Entity is contem-
plating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such
order, decree, agreement, memorandum of understanding,
commitment letter or similar submission.
(m) Taxes. (i) The term "Tax" includes any tax
or similar governmental charge, impost or levy (includ-
ing, without limitation, income taxes, Franchise taxes,
transfer taxes or fees, stamp taxes, sales taxes, use
taxes, excise taxes, ad valorem taxes, withholding
taxes, employee withholding taxes, worker's compensa-
tion, payroll taxes, unemployment insurance, social
security, minimum taxes or windfall profits taxes),
together with any related liabilities, penalties,
fines, additions to tax or interest, irnposed by the
United States or any state, county, provincial, local
or foreign government or subdivision or agency thereof.
-24-
compensation, pension, reti ement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option
plans, all material employment or severance contracts
and all other material employee benefit plans that
covers employees or former employees of it and its sub-
sidiaries (its "Compensation Plans"). True and com-
plete copies of the Compensation Plans (and, as appli-
cable, copies of summary plan descriptions, govern-
mental filings (on Form 5500 series or otherwise),
actuarial reports and reports under Financial Account-
ing Standards Board Statement No. 106 relating thereto)
and all other benefit plans, contracts or arrangements
(regardless of whether they are funded or unfunded or
foreign or domestic) covering current or former
employees or directors of it or its subsidiaries (its
"Employees"), inclüding, but not limited to, "employee
benefit plane" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all amendments thereto, have
been made available to the other party.
-25-
formerly maintained by any of them, or the single-
employer plan of any entity which is coneidered one
employer with it under Section 4001 of ERISA or Sec-
tion 414 of the Internal Revenue Code (an "ERISA Affil-
iate"). It and its subsidiaries and ERISA Affiliates
have not incurred and do not expect to incur any
material withdrawal liability with respect to a multi-
employer plan under Subtitle E of Title IV of ERISA (
regardless of whether based an contributions of an
ERISA Affiliate), nor has it or any of its subsidiaries
or ERISA Affiliates been notified by any multiemployer
plan to which it or any of its subsidiaries or ERISA
Affiliates is contributing, or may be obligated to
contribute, that euch multiemployer plan is currently
in reorganization or insolvency under and within the
meaning of Section 4241 or 4245 of ERISA or that such
multiemployer plan intends to terminate or has been
terminated under Section 4041A of ERISA. No notice of
a "reportable event", within the meaning of Sec-
tion 4043 of ERISA, for which the 30-day reporting
requirement has not been waived, has been required to
be filed for any of its Pension Plans or by any of its
ERISA Affiliates within the 12-month period ending an
the date hereof. Neither it, its subsidiaries nor any
of their reepective ERISA Affiliates has incurred or is
aware of any facts that are reasonably likely to result
in any liability pursuant to Sectione 4069 or 4204 of
ERISA.
(iv) All material contributions required to be
made by it and its subsidiaries under the terms of any
of its Plans have been timely made or have been
reflected an its balance sheet. Neither any of its
Pension Plans nor any single-employer plan of any of
its ERISA Affiliates has an "accumulated funding
deficiencyw (whether or not waived) within the meaning
of Section 412 of the Internal Revenue Code or Sec-
tion 302 of ERISA. None of it, its subsidiaries or its
ERISA Affiliates has provided, or is required to pro-
vide, security to any Pension Plan or to any single-
employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code,
Section 412(f)(3) of the Code or Sectione 306, 307 or
4204 of ERISA.
(v) Under each of its and its ERISA Affiliates'
Pension Plans which is a single-employer plan, as of
the last day of the most recent plan year ended prior
to the date of this Agreement, the actuarially deter-
mined present value of all "benefit liabilitiesw,
within the meaning of Section 4001(a)(16) of ERISA (as
determined an the basis of the actuarial assumptions
-26-
contained in the Pension Plan's most recent actuarial
valuation), did not exceed the then current value of
the assets of such Pension Plan, and to the knowledge
of its executive officers, there has been no change in
the financial condition of such Pension Plan since the
last day of the most recent plan year which reasonably
could be expected to change such conclusion. There
would be no withdrawal liability of it and its
subsidiaries under each Benefit Plan which is a multi-
employer plan to which lt, its subsidiaries or its
ERISA Affiliates has contributed during the preceding
12 months, if such withdrawal liability were determined
as if a "complete withdrawal", within the meaning of
Section 4203 of ERISA, had occurred as of the date
hereof.
(vi) Except as disclosed in its Reports, neither it
nor its subsidiaries have any obligations for
retiree health and life benefits.
(vii) There are no restrictions an the rights of it
or its subsidiaries to amend or terminate any Plan
without incurring any liability thereunder in addition
to normal liabilities for benefits.
(viii) Except as disclosed in its Reports or as pro-
vided in this Agreement, the transactions contemplated
by this Agreement and the Stock Option Agreements will
not result in the vesting or acceleration of any
amounts under any Compensation Plan, any material
increase in benefits under any Compensation Plan or
payment of any severance or eimilar compensation under
any Compensation Plan.
(q) Environmental Mattere. (i) For purposes of
this Section 5.1(q), the following terms shall have the
indicated meaning:
"Business" ans the business conducted by it
and its subsidiaries.
"Environmental Law" meane any federal, state,
local or foreign law, regulation, agency policy,
order, decree, judgment or judicial opinion or any
agreement with any Government Entity, presently in
effect or hereinafter adopted relating to (A) the
manufacture, generation, transport, use, treat-
ment, storage, recycling, disposal, release,
threatened release or presence of Hazardous Sub-
stances or (B) the preservation, restoration or
protection of the environment, natural resources
or human health.
-27-
"Hazardous Substances" means substances which
0 are: (A) listed, classified or regulated pursuant
to any Environmental Law; (B) any petroleum prod-
ucts or by-products, asbestos containing material,
polychlorinated biphenyls ("PCBs"), radioactive
materials or radon gas; or (C) any other matter to
which exposure is prohibited, limited or regulated
0 by any government authority or Environmental Law.
"Subject Property" means (A) all real
property at which the businesses of it or any of
its subsidiaries have been conducted, all property
in which it or any of its subsidiaries holde a
0 security or other interest (including, without
limitation, a fiduciary interest), and, where
required by the context, includes any such
property where under any Environmental Law it or
any of its subsidiaries constitutes the owner or
Operator of such property, but only with respect
to such property, (B) any facility in which it or
any of its subsidiaries participates in the manage-
ment, including, where required by the context,
participating in the management of the owner or
operator of such property, and (C) all other real
property which for purposes of any Environmental
Law it or any of its subsidiaries otherwise could
be deemed to be an owner or operator or otherwise
control.
(ii) To the knowledge of its executive
officers, it and each of its subsidiaries and the
Subject Property are, and have been, in compliance with
all Environmental Laws and there are no circumstances
that with the passage of time or the giving of notice
would be reasonably likely to result in noncompliance.
(iii) To the knowledge of its executive
officers, there are no pending or threatened
actions, investigations, notices of non-compliance,
information requests or notices of potential responsi-
bility or proceedings involving it or any of its
subsidiaries or any Subject Property relating to:
(A) an asserted liability of it or any of
its subsidiaries or any prior owner, occupier or
user of Subject Property under any Environmental
Law or the terms and conditions of any permit,
license, authority, settlement, agreement, decree
or other obligation arising under any Environmen-
tal Law;
-28-
(B) the handling, storage, use, transporta-
tion, removal or disposal Of Hazardous Substances;
(C) the actual or threatened discharge,
release or emission of Hazardous Substances from,
on or under or within Subject Property into the
air, water, surface water, ground water, land
surface or subsurface strata; or
•
(t) Brokers and Finders. None of it, its subsid-
iaries or any of their officers, directors or employees
has employed any broker or finder or incurred any
lia-
bility for any brokerage fees, commissions or finder's
fees in connection with the transactions conternplated
herein, except that Anchor has retained Salomon
Brothers Inc as its financial advisor and Dime has
retained Bankers Trust Company and Merrill Lynch & Co.
as its financial advisors, the arrangements with which
have been disclosed in writing to the other party prior
to the date hereof.
(u) Pincoln Agreement . In the case of the
,
-30-
5.2 Additional Representations and Warranties in
the Event of the Alternative Merger. (a) In the event that
the Alternative Merger is consummated in lieu of the Merger
pursuant to Section 1.2 and subject to Section 5.3, upon the
execution and delivery by Dime-Sub of the supplement to this
Agreement referred to in Section 1.2, Dirne and Dime-Sub
shall be deemed hereby to represent and warrant to Anchor
that:
(i) Corporate Organization and Oualification.
Dime-Sub is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware and a wholly owned subsidiary of
Dirne. Dirne-Sub has made available to Anchor a complete
and correct copy of its certificate of incorporation
and by-laws, each as amended to date and in full force
and effect.
Capital Stock of Dime-Sub. Dime-Sub has 1,
000 authorized shares of Dime-Sub Common Stock, of
which 100 shares are outstanding (there being no other
class of capital stock authorized). All such outstand-
ing shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(iii) Corporate Authority. Dirne-Sub has the requi-
site corporate power and authority and has taken all
corporate action necessary (including the receipt of
any requisite vote by Dirne as the sole stockholder of
Dirne-Sub) in order to execute, deliver and perform this
Agreement and to consummate the transactions contem-
plated hereby. This Agreement is a valid and legally
binding agreement of Dirne-Sub enforceable in accordance
with its terms.
(b) In the event that the Alternative Merger is
consummated in lieu of the Merger pursuant to Section 1.2
and subject to Section 5.3, upon the execution and delivery
by Anchor-Sub of the supplement to this Agreement referred
to in Section 1.2, Anchor and Anchor-Sub shall be deemed
hereby to represent and warrant to Dirne that:
(i) Corporate Organization and Oualification.
Anchor-Sub is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware and a wholly owned subsidiary of
Anchor. Anchor-Sub has made available to Anchor a
complete and correct copy of its certificate of
incorporation and by-laws, each as amended to date and
in full force and effect.
-31-
(ii) Capital Stock of Anchor-Sub. Anchor-Sub has
1,000 authorized shares of Anchor-Sub Common Stock, of
which 100 shares are outstanding (there being no other
class of capital stock authorized). All euch outstand-
ing shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(iii) Corporate Authority. Anchor-Sub has the
requisite corporate power and authority and has taken
all corporate action necessary (including the receipt
of any requisite vote by Anchor as the sole stockholder
of Anchor-Sub) in order to execute, deliver and perform
this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and
legally binding agreement of Anchor-Sub enforceable in
accordance with its teere.
5.3 Exceptions to Representatiqps and warranties.
(a) On or prior to the date hereof, Dime has delivered to
Anchor and Anchor has delivered to Dime a letter (as the
case may be, its "Disclosure Letter") setting forth, among
other things, exceptions to any or all of its representa-
tions and warranties in Section 5.1; providej, that each
exception set forth in a Disclosure Letter shall be deemed
discloaed for purposes of all representations and warranties
if euch exception is contained in a section of the Disclo-
Bure Letter corresponding to a paragraph in Section 5.1 of
any such representation and warranty; and provided furjher,
that (i) no such exception is required to be set forth in a
Disclosure Letter if its absence would not result in the
related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.3(b)
and (ii) the mere inclusion of an exception in a Disclosure
Letter shall not be deemed an admission by a party that euch
exception represents a material fact, event or circumstance
or would result in a Material Adverse Effect. In the case
of Anchor, the paragraphs of its Disclosure Letter shall be
deemed to include the Lincoln Agreement and the correspond-
ing paragraphs of the related Schedule of Lincoln delivered
by Anchor to Dirne pursuant to Section 5.1(u).
-32-
As used in this Agreement, the term "Material
Adverse Effect" means an effect which (i) is materially
adverse to the business, financial condition, results of
operations or prospects of Dime or Anchor (after giving pro
forma effect to the Lincoln Acquisition as if it had been
consumrnated prior to the date on or as of which a
representation or warranty is made or deemed made) or on the
Surviving Parent, as the context may dictate, and its sub-
sidiaries taken as a whole, (ii) significantly and adversely
affects the ability of Dime or Anchor, as the context may
dictate, to consummate the transactions contemplated hereby
by May 31, 1995 or to perform its material obligations
hereunder or (iii) enables any person to prevent the consum-
mation by May 31, 1995 of the transactions contemplated
hereby; provided, however, that any effect resulting from
(A) actions or omissions of Dime or Anchor taken with the
prior consent of the other party in contemplation of the
transactions provided for herein or (B) circumstances
affecting the thrift industry in the Greater New York
metropolitan area generally shall be deemed not to be a
Material Adverse Effect.
ARTICLE VI
Covenants
-34-
or stock of any other Person not in the ordinary and
usual course of business.
(e) Other than (i) in the ordinary course of
business consistent with past practice, (ii) with
respect to Anchor, indebtedness, assumptions, guaran-
tees, endorsements or accommodations of Lincoln
acquired as a result of the consummation of the Lincoln
Acquisition (which shall not include debt incurred to
finance the Lincoln Acquisition) or (iii) with respect
to Dime, the issuance of notes pursuant to the terms of
the Indenture to be entered into (in substantially the
form contained in Dime's Reports and provided to Anchor
prior to the date hereof) between Dime and a trustee
thereunder, in exchange for outstanding shares of Dirne
Bank Preferred Stock in accordance with the terms and
conditions thereof (which exchange Anchor understands
Dime intends to effect in connection with its recent
corporate reorganization as soon as practicable and, in
any event, regardless of whether the Merger or the
Alternative Merger shall be consummated), it will not
incur or permit any of its subsidiaries to incur any
indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become respon-
•
sible for the obligations of any other Person or make
any loan or advance.
•
(g) Except as provided in Section 6.1(j) and as
may be required to satisfy contractual obligations
existing as of the date hereof and the requirements of
applicable law, neither it nor any of its subsidiaries
will establish, adopt, enter into or make any new, or
amend any existing, collective bargaining, bonus,
•
Section 16(b) of the Exchange Act in accordance with
the provisions of SEC Rule 16b-3, as amended, (ii) with
respect to Dirne, is intended to reflect the reorganiza-
tion of Dirne Bank an May 25, 1994 or (iii) as set forth
in paragraph 6.1 of its Disolosure Letter.
6.2 Dividende. Bach of Dime and Anchor agrees
• that, from and after the date hereof until the Effective
Time, (a) direct and indirect wholly owned subsidiaries of
each of Dime and Anchor may (to the extent legally and
contractually permitted to do so), but shall not be obli-
gated to, declare and pay dividends in cash, stock or other
property and (b) Dime Bank will pay such cash dividends in
respect of the Dime Bank Preferred Stock as are provided for
by the express terms of the Dime Bank Preferred Stock as in
effect on the date hereof. Unless Dime and Anchor otherwise
agree in writing, none of Dirne, Anchor or their respective
subsidiaries will declare or pay any dividend or distribu-
tion on shares of their capital stock, whether payable in
cash, stock or other property, other than those dividends
expressly permitted by the immediately preceding sentence.
-36-
•
6.3 Acquisition Proposals. Each of Dirne and
Anchor agrees that neither it nor any of its subsidiaries
nor any of its respective officers and directors or the
officers and directors of its subsidiaries shall, and it
shall direct and use all reasonable efforts to cause its
employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer
with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or any
substantial part of the assets or any equity securities of, *
it or any of its subsidiaries (other than (but without in
any manner limiting the covenants contained in Sec-
tione 6.1(c)(i) and (ii)), (i) non-performing assets or
(ii) securities of a subsidiary formed for the sole purpose
of holding for sale such assets, in either case which are
otherwise permitted to be sold hereunder) (any such proposal
or offer being hereinafter referred to as an "Acquisition
Proposal') or engage in any negotiations concerning, or
provide any confidential information or data to, or have any
discussions with, any such person relating to an Acquisition
Proposal; provided, however, that the Board of Directors of
Dirne or Anchor, an behalf of Dirne or Anchor, respectively,
may furnish or cause to be furnished information and may
participate in such discussions and negotiations directly or
through its representatives if such Board of Directors,
after having consulted with and considered the written
advice of outside counsel, has determined that the failure
to provide such information or participate in such negotia-
tions and discussions would cause the members of such Board
of Directors to breach their fiduciary duties established
under the DGCL. Anchor will notify Dirne, and Dirne will
notify Anchor, immediately if any such inquiries or pro-
posale are received by, any such information is requested
fromm, or any such negotiations or discussions are sought to
be initiated or continued with, it.
6.4 Stockholder Approvals: Election of Directors.
Each of Dirne and Anchor agrees to take, in accordance with
applicable law and its respective certificate of incorpora-
tion and by-laws, all action necessary to convene a meeting
of holdere of Dirne Common Stock (the 'Dirne Meeting") and
Anchor Common Stock (the "Anchor Meeting"), respectively, as
promptly as practicable after the Registration Statement (as
defined in Section 6.5) is declared effective to consider
and vote upon the adoption of the agreement of merger (
within the meaning of Section 251 of the DGCL) contained in
this Agreement. Subject to the next succeeding sentence,
(i) the Board of Directors of each of Dirne and Anchor will
recommend such adoption, and each of Dirne and Anchor will
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take all reasonable lawful action to solicit such adoption
by its respective stockholdere and (ii) the Nominating
Committee of the Board of Directors of Dime will nominate
the members of Anchor's Board of Directors for, and Dime's
Board of Directors will take all reasonable and lawful
action necessary for, the election of such persons as
directors of Surviving Parent prior to or at the Effective
Time. The Board of Directors of Dime or Anchor, acting on
behalf of Dime or Anchor, respectively, may fail to make
such a recommendation, or withdraw, modify or change any
such recommendation if and only if such Board of Directors,
after having consulted with and considered the written
advice of outside counsel, has determined that the making of
such recommendation, or the failure so to withdraw, modify
or change its recommendation, would constitute a breach of
the fiduciary duties of such directors established under the
DGCL.
6.5 Filiggsl OthQr Actipns. (a) Bach of Dirne
and Anchor agrees to cooperate in the preparation of a
registration statement on Form S-4 to be filed by Dime with
the SEC in connection with the issuance of New Common Stock
in the Merger or the Alternative Merger (including the joint
proxy etatement and prospectus and other proxy solicitation
materiale of Dime and Anchor constituting a part thereof
(the "Joint Proxy Statement"), the "Registration Statement"
). Dime agrees to use all reasonable efforts to cause the
Registration Statement to be declared effective under the
Securities Act as promptly as practicable after filing
thereof. Dime also agrees to use all reasonable efforts to
obtain all necessary state securities law or "Blue Sky"
permits and approvals required to carry out the transactions
contemplated by this Agreement, and Anchor agrees to furnish
all information concerning Anchor and the holdere of Anchor
capital stock as may be reasonably requested in connection
with any such action.
(b) Bach of Dirne and Anchor agrees to cooperate
with the other and, subject to the terms and conditions set
forth in this Agreement, use reasonable efforts to prepare
and file all necessary documentation, to effect all neces-
sary applications, notices, petitions, filings and other
documents, and to obtain all necessary permits, consents,
ordere, approvals and authorizations of, or any exemption
by, all third parties and Governmental Entities necessary or
advisable to consunmate the transactions contemplated by
this Agreement, including without limitation the Regulatory
Approvals. Bach of Dime and Anchor ehall have the right to
review in advance, and to the extent practicable each will
consult with the other, in each case subject to applicable
laws relating to the exchange of information, with respect
to all the information relating to the other party, and any
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of their respective subsidiaries, which appear in any filing
made with, or written materials submitted to, any third
party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to
act reasonably and as promptly as practicable. Each party
hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all permits, con-
sente, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate
the transactions contemplated by this Agreement and each
party will keep the other party apprised of the status of
matters relating to completion of the transactions contem-
plated hereby.
(c) Bach party agrees, upon request, to furnish
the other parties with all information concerning itself,
its subsidiaries, directors, officers and stockholdere and
such other mattere as may be reasonably necessary or advis-
able in connection with the Registration Statement or Joint
Proxy Statement or any other statement, filing, notice or
application made by or an behalf of such other party or any
of its subsidiaries to any Governmental Entity in connection
with the Merger, the Alternative Merger, the Bank Merger and
the other transactions contemplated by this Agreement.
(d) Each of Dime and Anchor agrees to consult and
cooperate with the other in effecting actions and measures
for the purpose of ensuring the orderly consummation of the
transactions contemplated hereby and the efficient conduct
of the combined businesses of Dime and Anchor following the
Merger or the Alternative Merger, as the case may be.
Without limiting the foregoing, each of Dime and Anchor
agrees, to the extent consistent with applicable law, to
consult and cooperate with the other in (i) developing a
joint business plan for periods beginning at the Effective
Time and (ii) taking reasonable steps in an effort to enable
the Surviving Parent to achieve the objectives stated in
such joint business plan.
6.6 Information Supplied. Bach of Anchor and
Dirne agrees, as to itself and its subsidiaries, that none of
the information supplied or to be supplied by it for inclu-
sion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement and
each amendment and supplement thereto, if any, become effec-
tive under the Securities Act, contain any untrue statement
of a material fact or mit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Joint Proxy
Statement and any amendment or supplement thereto will, at
the date of mailing to stockholdere and at the times of the
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•
meetings of stockholders of Dime and Anchor to be held in
connection with this Agreement, contain any statement which,
in the light of the circumstances under which such statement
is made, will be false or misleading with respect to any
material fact, or which will omit to state any material fact
necessary in order to make the statements therein not false
or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any
amendment or supplement thereto. Neither the Joint Proxy
Statement nor the Registration Statement shall be filed,
and, prior to the termination of this Agreement, no amend-
ment or supplement to the Joint Proxy Statement or the
Registration Statement shall be filed, by Dime or Anchor
without consultation with the other party and its counsel.
6.7 Accountants' Retters. Bach of Dime and
Anchor agrees to use all reasonable efforts to cause to be
delivered to the other party, and auch other party's
directors and officers who sign the Registration Statement,
a letter of KPMG Peat Marwick, independent auditors, dated
(i) the date an which the Registration Statement shall
become effective and (ii) a date shortly prior to the
Closing Date, and addressed to euch other party, and such
directors and officers, in form and substance customary for "
camfort" letters delivered by independent accountants in
connection with registration statements similar to the
Registration Statement.
6.8 Access. Upon reasonable notice, each party
agrees to (and shall cause each of its subsidiaries to)
afford the other party's officers, employees, counsel,
accountants and other authorized representatives ("Represen-
tatives") access, during normal business hours throughout
the period until the Closing Date, to its properties, books,
contracts and records and, during such period, shall (and
shall cause each of its subsidiaries to) furnish promptly to
the other party all information concerning its business,
properties and personnel as may reasonably be requested;
provided, that no investigation pursuant to this Section 6.8
shall affect or be deemed to modify any representation or
warranty made by the party furnishing such information.
Bach party will not, and will cause its respective Repre-
sentatives not to, use any information obtained pursuant to
this Section 6.8 for any purpose unrelated to the consumma-
tion of the transactions contemplated by this Agreement.
Subject to the requirements of applicable law, pending
consummation of the transactions herein contemplated, each
party conducting an investigation hereunder will keep
confidential, and will cause its Representatives to keep
confidential, all information and documents obtained from
the other party pursuant to this Section 6.8 or during the
investigation leading up to the execution of this Agreement.
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The agreements between Dime Bank and Anchor regarding the
confidentiality of euch information in effect at the date
hereof (the "Confidentiality Agreements") shall continue and
survive in full force and effect until the Effective Time
or, in the event this Agreement is terminated, shall
continue in accordance with the terme thereof. Upon any
termination of this Agreement, each party will collect and
deliver to the other party all nonpublic documents obtained
by it or any of its Representatives and then in their
possession and any copies thereof and destroy or cause to be
destroyed all notes, memoranda or other documents in the
possession of it or of its Representatives containing or
reflecting any nonpublic information obtained from the other
party, except to the extent that any euch information may be
embodied in minutes of the meetings of such party's Board of
Directors or in filings, reports or submissions to or with
any Governmental Entity.
6.9 Notification of Certain Matters. Each of
Dime and Anchor will give prompt notice to the other of any
fact, event or circumstance known to its executive officers
that (i) is reasonably likely to result in any Material
Adverse Effect, would cause or constitute a material
breach of any of the representations, warranties, covenants
or agreements of euch party contained herein or (iii) is
reasonably likely to result in the failure of a condition to
consummation set forth in Article VII to be satisfied on or
prior to May 31, 1995.
6.10 Publicity. The initial press release relat-
ing hereto will be a joint press release and thereafter
Anchor and Dime shall consult with each other prior to
issuing any press releases or otherwise making public state-
ments with respect to the transactions contemplated hereby
and prior to making any filings with any Governmental Entity
or with the NYSE or the NASD with respect thereto.
6.11 Optione. Warrants and Benefit Plans.
(a) Opt,ions. At the Effective Time, by virtue of the
Merger or the Alternative Merger, as the case may be, and
without any action on the part of any holder of an option or
warrant, each option or warrant granted by Dime or Anchor
to purchase shares of Dime Common Stock (any such option or
warrant to purchase shares of Dime Common Stock being
referred to as a "Dirne Option') or Anchor Common Stock (any
auch option or warrant to purchase shares of Anchor Coxnmon
Stock being referred to as an "Anchor Option"), respec-
tively, that is outstanding and unexercised immediately
prior thereto (excluding any auch option or warrant the
holder of which is then entitled to receive cash in satis-
faction thereof under the terme of such option or warrant)
shall be converted into an option or warrant, as the case
-41-
may be, to purchase shares of New Conunon Stock an the same
terms and conditions as are in effect immediately prior to
the Effective Time, adjusted as set forth below in the case
of each Anchor Option. }Zach such Anchor Option that is
converted shall be converted into an option or warrant, as
the case may be, to purchase such number of shares of New
Common Stock at an exercise price determined as provided
below (and otherwise having the same duration and other
terms as the original Anchor Option):
(i) the number of shares of New Conunon Stock
to be subject to the new option or warrant shall be
equal to the product of (A) the number of shares of
Anchor Common Stock purchasable upon exercise of the
original Anchor Option and (B) the Exchange Ratio, the
product being rounded, if necessary, up or down, to the
nearest whole share; and
(ii) the exercise price per share of New
Conunon Stock under the new option or warrant shall be
equal to (1) the exercise price per share of Anchor
Common Stock under the original Anchor Option divided
by (B) the Exchange Ratio, rounded, if necessary, up or
down to the nearest cent.
With respect to any Anchor Options that are "incentive stock
options" (as defined in Section 422 of the Internal Revenue
Code), the foregoing adjustments shall be effected in a
manner consistent with Section 424(a) of the Internal
Revenue Code.
(b) ßenefit Plans. At or as promptly as practi-
cable following the Effective Time, the Surviving Parent and
its subsidiaries will adopt employee benefit plane
without limitation, severance plane) covering persons
who become and remain employees of the Surviving Parent or
its subsidiaries and who were immediately prior to the
Effective Time employees of Dirne or its subsidiaries (the "
Former Dime Employees") or employees of Anchor or its
subsidiaries (the "Former Anchor Employees") or will amend
exieting plane to provide coverage for Former Dime Employees
and Former Anchor Employees. It is the intention of the
parties that, to the extent practicable and except as other-
wise determined by Dime and Anchor prior to the Effective
Time or by the Surviving Parent to be in the best interests
of the Surviving Parent and its subsidiaries: (i) the
employee benefit plans of the Surviving Parent and its
subsidiaries shall be structured to result in similarly
eituated Former Dirne Employees and Farmer Anchor Employees
having substantially equivalent benefits, in the aggregate,
and (ii) until such plane as are intended to be adopted or
amended in light of the preceding provision are so adopted
-42-
or amended, Former Dime Employees and Former Anchor
Employees shall continue to be provided with employee
benefits that, in the aggregate, provide a similar level of
benefits to that provided to Former Dime Employees as a
group or Former Anchor Employees as a group, respectively,
prior to the Effective Time. Each of Dime and Anchor agrees
that if the Surviving Parent establishes or continues
employee benefit plane (including severance plane) under
which an employee's benefit depends, in whole or in part, on
length of service with Dime or Anchor prior to the Effective
Time, credit will be given, to the extent reasonably
practicable, for service credited under similar plans of
Dime or Anchor or any subsidiary of either, provided that
such crediting of service does not result in duplication of
benefits. It is the express understanding and Intention of
the parties that no Former Dime Employee or Former Anchor
Employee or other person ehall be deemed to be a third party
beneficiary, or have or acquire any right to enforce the
provisions, of this Section 6.11(b), and that nothing in
this Agreement ehall be deemed to constitute a Plan or an
amendment to a Plan.
(c) Oualification of Benefit Plans. Each of Dime
and Anchor agrees, with respect to any Pension Plans main-
tained by them or any of their subsidiaries (deeming, for
this purpose, Lincoln to be a subsidiary of Anchor) with
respect to which the "remedial amendment period" described
in Section 1.401(b)-1(c) of the regulations under the
Internal Revenue Code (relating to amendments to reflect,
among other things, the provisions of the Tax Reform Act of
1986 that became effective after 1988) ende prior to the
Closing Date, that to the extent a determination letter with
respect to the qualification of such Pension Plan or Plans
under the Internal Revenue Code reflecting such amendments
has not been obtained, an application for such a letter
shall be filed with the Internal Revenue Service an or
before the last day of such remedial amendment period.
6.12 Exnenses. Each of the parties shall bear
and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial
or other consultante, investment bankers, accountants and
counsel, except that Dime and Anchor each shall bear and pay
one-half of the following expenses: (i) the costs (
excluding the fees and disbursements of counsel, financial
advisors and accountants) incurred in connection with the
preparation (including copying and printing) of the Regis-
tration Statement and applications to Governmental Entities
for the approval of the Merger and/or the Alternative Merger
and (ii) all listing, filing or registration fees,
including, without limitation, fees paid for filing the
-43-
•
Registration Statement with the SEC and fees paid for
filings with Governmental Entities.
6.13 Indemnification: Directors' and Officers'
Insi1rance. (a) Bach of Dime and Anchor agrees that from
and after the Effective Time, the Surviving Parent will
indemnify and hold harmless each present and former director
and officer of Dime, Anchor and their respective subsidi-
aries, determined as of the Effective Time (the "Indemnified
Parties"), against any costs or expenses (including reason-
able attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costa") incurred in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the
Effective Tinte, to the fullest extent that Dime, Anchor or
such subsidiary would have been permitted under Delaware law
and the certificate of incorporation or by-laws of Dirne,
Anchor or such subsidiary in effect an the date hereof to
indemnify such person (and the Surviving Parent shall also
advance expenses as incurred to the fullest extent permitted
under applicable law; provided, that the person to whom
expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is
not entitled to indemnification).
(b) To the extent that paragraph (a) shall not
serve to indemnify and hold harmless an Indemnified Party,
for a period of six years after the Effective Time, each of
Dirne and Anchor agrees that the Surviving Parent shall,
subject to the terms set forth herein, indemnify and hold
harmless, to the fullest extent permitted under applicable
law (and the Surviving Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable
law, provide, that the person to whom expenses are advanced
provides an undertaking to repay such advances if lt is
ultimately determined that such person Je not entitled to
indemnification), each Indemnified Party against any Costa
incurred in connection with any claim, action, suit, pro-
ceeding or investigation, whether civil, criminal, adminis-
trative or investigative, arising out of or pertaining to
the transactions contemplated by this Agreement. In the
event any claim or claims are asserted or made within euch
six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until final disposi-
tion of any and all such claims.
(c) Any Indemnified Party wishing to claim indem-
nification under Section 6.13(a) or (b), upon learning of
any such claim, action, suit, proceeding or investigation,
-44-
shall promptly notify the Surviving Parent thereof, but the
failure to so notify shall not relieve the Surviving Parent
of any liability it may have to such Indemnified Party if
such failure does not materially prejudice the Surviving
Parent. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after
-45-
•
(b) As soon as practicable after the date of the
Dirne Meeting or Anchor Meeting, as applicable, Dirne shall
identify to Anchor and Anchor shall identify to Dirne all
persona who were, at the time of the Dirne Meeting or the
Anchor Meeting, possible Affiliates of Dirne and Anchor,
respectively, and who were not previously identified in
accordance with Section 6.15(a). Bach of Dirne and Anchor
shall use all reasonable efforts to obtain a written
agreement in the form of Annex 8 from each person who is so
identified and shall deliver copies of euch written agree-
mente to the other party as soon as practicable.
6.16 Stock Exchange Listinq. Dirne agrees to use
all reasonable efforts to cause to be listed an the NYSE,
subject to official notice of issuance, the shares of New
Common Stock to be issued in the Merger or the Alternative
Merger.
6.17 Dfforts to Consummate. Subject to the terms
and conditions of this Agreement, each of Dirne and Anchor
agrees to use reasonable efforts to take, or cause to be
taken, all actione, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make
effective, as soon as practicable after the date of this
Agreement, the transactions contemplated hereby, including,
without limitation, using reasonable efforts to lift or
rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate
the transactions contemplated hereby.
6.18 Reports. Each of Dirne and Anchor agrees to
file, and to cause its respective subsidiaries to file, all
reports required to be filed with all Governmental Entities
pursuant to the Securities Laws or Federal or state banking
laws between the date of this Agreement and the Effective
Time, and to deliver to the other party copies of all such
reports promptly after the same are filed.
6.19 Accounting and Tax Treatment. Neither Dirne
nor Anchor will take, cause or to the best of its ability
permit to be taken any action that would adversely affect
the qualification of the Merger or the Alternative Merger
for pooling-of-interests accounting treatment or the quali-
fication of the Merger and the portion of the Alternative
Merger involving the merger of Anchor into Dime-Sub as a
nreorganization" within the meaning of Section 368 of the
Internat Revenue Code; provided, that nothing in this
Section 6.19 shall preclude either party from exercising its
respective rights under the Stock Option Agreements.
6.20 Dank Merger. Unless otherwise agreed by the
parties, Dirne and Anchor will take all action necessary and
-46-
•
appropriate to cause the Bank Merger to occur simultaneously
with er, if the Bank Merger cannot be effected simultane-
ously, as promptly as practicable after the Effective Time.
Notwithstanding anything to the contrary in this Section 6.
20, Dirne and Anchor may cause the Bank Merger to occur an
such later date as may be agreed in writing.
6.21 Lincoln Acguisition. Anchor shall not, and
shall cause Anchor Bank not to, agree to any amendment,
modification or supplement of the Lincoln Agreement, or
waive any condition to its obligations thereunder, which
amendment, modification, supplement er waiver would be
adverse to the interests of the Surviving Parent without the
prior consent of Dime (which consent shall not be unreason-
ably withheld).
ARTICLE VII
• Conditions
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force and effect and all waiting periods required by
law ehall have expired; provided, however, that none of
the preceding shall be deemed obtained or made if it
shall be conditioned or restricted in a manner that
would result in a Material Adverse Effect on the
Surviving Parent.
(c) Third Party Consenta. All consents or appro-
vals of all persons (other than Governmental Entities)
required for or in connection with the execution,
delivery and performance of this Agreement and the
consummation of the Merger or the Alternative Merger,
as the case may be, shall have been obtained and ehall
be in full force and effect, unless the failure to
obtain any auch consent or approval is not reasonably
likely to have, individually or in the aggregate, a
Material Adverse Effect on the Surviving Parent.
(d) Litigation. No United States or state court
or other Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or
entered any statute, rufe, regulation, judgment,
decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and pro-
hibits consummation of the transactions contemplated by
this Agreement.
(e) Registration Statement. The Registration
Statement shall have become effective under the Securi-
ties Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(f) Blue_Sky Approvals. All permits and other
authorizations under the Securities Laws (other than
that referred to in Section 7.1(e)) and other authori-
zations necessary to consummate the transactions con-
templated hereby and to issue the shares of New Common
Stock to be issued in the Merger (or the Alternative
Merger in the event it is to be consummated in lieu of
the Merger) shall have been received and be in full
force and effect.
(g) Listing. The shares of New Common Stock to
be issued in the Merger or the Alternative Merger shall
have been approved for listing on the NYSE, subject to
official notice of issuance.
(h) Accountants' Pooling Letter. Bach of Dirne
and Anchor ehall have received a letter, dated as of
the Effective Time, fror KPMG Peat Marwick, independent
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auditors, to the effect that the Merger (or the
Alternative Merger in the event it is to be consummated
in lieu of the Merger) will qualify for pooling-of-
interests accounting treatment under Accounting Princi-
ples Board Opinion No. 16 and SEC Accounting Series
Releases 130 and 135, as amended, if consummated in
accordance with this Agreement.
(i) Employment Agreements. Unless Mr. Parsons or
Mr. Large is unable or unwilling to serve in the capa-
city or capacities described therein, the Employment
Agreement for Mr. Parsons and Mr. Large, respectively,
shall be in full force and effect and, in the rase of
the Employment Agreement for Mr. Large, such Employment
Agreement or the related guarantee by Anchor shall have
been assumed by the Surviving Parent.
7.2 Conditions to Obligation of Anchor. The
obligation of Anchor to consummate the Merger (or the Alter-
native Merger in the event it is to be consummated in lieu
of the Merger) is also subject to the fulfillment or written
waiver by Anchor prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. The repre-
,
•
it is to be consummated in lieu of the Merger), when
issued in accordance with the terms hereof, will be
duly authorized, validly issued, fully paid and
nonassessable.
(d) Opinion of Tax Counsel. Anchor shall have
received an opinion of Sullivan & Cromwell, special
counsel to Anchor, dated the Closing Date, to the
effect that (i) the Merger (or the portion of the
Alternative Merger involving the merger of Anchor into
Dime-Sub in the event the Alternative Merger is to be
consummated in lieu of the Merger) is a "reorganiza-
tion" within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger
(or the portion of the Alternative Merger involving the
merger of Anchor into Dime-Sub) of Old Shares for
shares of New Common Stock will not result in the
recognition of income, gain or loss to Dime, Anchor or
the stockholdere of Anchor (except to the extent of any
cash paid in lieu of fractional shares or any state and
local transfer taxes paid an behalf of a stockholder),
(iii) the adjusted tax basis of whole shares of New
Common Stock received by holders of Anchor Common Stock
who exchange shares of Anchor Common Stock in the
Merger (or the portion of the Alternative Merger
involving the merger of Anchor into Dime-Sub) will be
the same as the adjusted tax basis of the shares of
Anchor Common Stock surrendered therefor (reduced by
any amount allocable to a fractional ehare interest for
which cash is received), (iv) the holding period of the
shares of the New Common Stock received in the Merger
(or the portion of the Alternative Merger involving the
merger of Anchor into Dime-Sub) will include the period
during which the shares of Anchor Common Stock
exchanged therefor were held, provided such shares of
Anchor Common Stock were held as capital assets at the
Effective Time and (v) the Bank Merger is a "reorgani-
zation" within the meaning of Section 368(a) of the
Internal Revenue Code and no income, gain or lass will
be recognized in the Bank Merger by Dime Bank, Anchor
Bank, Dime or Anchor.
(e) Accountants' Letters. Anchor and its
directors and officers who sign the Registration
Statement shall have received the letters referred to
in Section 6.7 frorn KPMG Peat Marwick, as Dirneis
independent auditors.
7.3 Conditions to Obligation of Dime. The obli-
gation of Dime to consummate the Merger (or the Alternative
Merger in the event it is to be consummated in lieu of the
Merger) is also subject to the fulfillment or written waiver
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by Dime prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. The repre-
sentations and warranties of Anchor (and Anchor-Sub, if
applicable) set forth in this Agreement shall be true
and correct (subject to Section 5.3) as of the date of
this Agreement and as of the Closing Date as though
made on and as of the Closing Date (except that
representations and warranties that by their terms
speak as of the date of this Agreement or some other
date shall be true and correct as of such date) and
Dime shall have received a certificate, dated the
Closing Date, signed on behalf of Anchor by the Chief
Executive Officer and the Chief Financial Officer of
Anchor to such effect.
ARTICLE VIII
Termination
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•
breaching party from liability for any breach directly or
indirectly giving rise to such termination.
ARTICLE IX
Mio cellaneoun
and
H. Rodgin Cohen, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telecopy: (212) 558-3588
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(b) If to Dime:
and
Michael L. Ryan, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopy: (212) 225-3999
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EXHIBIT L
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 27TH DAY OF JULY, 1996
BY AND AMONG
FIRST NATIONWIDE HOLDINGS INC
CAL FED BANCORP INC
AND
CALIFORNIA FEDERAL BANK, F.S.B
RECITALS:
(j) Taxes.
(i) Except as set forth in Section 3.3(j) of
the Company Disclosure Letter: (A) all material Tax
Returns required to be filed by or on behalf of the
Company or any of its Subsidiaries have been timely
filed or requests for extensions have been timely
filed and any such extension shall have been granted
and not have expired, and all such filed returns are
complete and accurate in all material respects; (B)
all Taxes shown on such Tax Returns have been paid
in full or adequate provision has been made for any
such Taxes in the financial statements of the Company
and its Subsidiaries (in accordance with GAAP); (C)
there is no audit examination, deficiency assessment, or
refund litigation currently pending with respect to
any Taxes of the Company or any of its Subsidiaries;
(D) all Taxes due with respect to completed and
settled examinations or concluded litigation relating
to the Company or any of its Subsidiaries have been
paid in full or adequate provision has been made for
any such amounts in the financial statements of the
Company and its Subsidiaries (in accordance with
GAAP); (E) no extensions or waivers of statutes of
limitations have been given by or requested with
respect to any Taxes of the Company or any of its
Subsidiaries; and (F) there are no material liens for
Taxes upon the assets or property of any of the
Company or its Subsidiaries except for statutory liens
for current Taxes not yet due.
(ii) As used in this Plan, (A) the term "Tax"
or "Taxes" means taxes and other impost, levies,
assessments, duties, fees or charges imposed or
required to be collected by any federal, state,
county, local, municipal, territorial or foreign
governmental authority or subdivision thereof,
including, without limitation, income, excise, gross
receipts, ad valorem, profits, gains, property,
sales, transfer, use, payroll, employment,
severance, withholding, duties, intangible,
franchise, personal property, and other taxes,
charges, levies or like assessments, together with
all penalties and additions to tax and interest
thereon, and (B) the term "Tax Return" shall mean
any return, report, information return or other
document (including elections, declarations,
disclosures, schedules, estimates, and other returns
or supporting documents) with respect to Taxes.
(k) Absence of Claims; Undisclosed Liabilities.
(m) Agreements.
(i) Except for the Option Agreement, the
Company and its Subsidiaries are not bound by any
material contract (as defined in Item 601(b)(10) of
Regulation S-K) to be performed after the date
hereof that has not been filed with, or incorporated
by reference in the Company Reports. Except as
disclosed in the Company Reports filed prior to the
date of this Plan or in Section 3.3(m)(i) of the
Company's Disclosure Letter, neither the Company nor
any of its Subsidiaries is a party to an oral or
written (A) consulting agreement (including data
processing, software programming and licensing
contracts) involving the payment of more than $250,
000 per annum, in the case of any such agreement
with an individual, or $250,000 per annum, in the
case of any other such agreement,
(B) agreement with any executive officer or other
key employee of the Company or any of its
Subsidiaries the benefits of which are contingent,
or the terms of which are materially altered or any
payments or rights are accelerated, upon the
occurrence of a transaction involving the Company or
any of its Subsidiaries of the nature contemplated
by this Plan or the Option Agreement and which
provides for the payment of more than $150,000,
(C) agreement with respect to any executive officer
of the Company or any of its Subsidiaries providing
any term of employment or compensation guarantee
extending for a period longer than one year and for
the payment of more than $100,000 per annum,
(D) agreement or plan, including any stock option
plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated
by this Plan or the Option Agreement or the value of
any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by
this Plan or the Option Agreement or (E) except as
set forth in Section 3.3(m)(i)(E) of the Company's
Disclosure Letter, agreement containing covenants
that limit the ability of the Company or any of its
Subsidiaries to compete in any line of business or
with any person, or that involve any restriction on
the geographic area in which, or method by which,
the Company (including any successor thereof) or any
of its Subsidiaries may carry on its business (other
than as may be required by law or any regulatory
agency). Each contract, arrangement, commitment or
understanding with an aggregate annual payment by
the Company or the Bank of $250,000 or more, whether
or not set forth in Section 3.3(m)(i) of the
Company's Disclosure Letter, is referred to herein
as a "Material Company Contract". The Company has
previously delivered to Acquiror true and correct
copies of each Material Company Contract.
(ii) Except as set forth in Section 3(m)(ii) of
the Company's Disclosure Letter, (A) each Material
Company Contract is a valid and binding obligation
of the Company or one of its Subsidiaries and is in
full force and effect, (B) the Company and each of
its Subsidiaries have in all material respects
performed all obligations required to be performed
by it to date under each Material Company Contract, (
C) no event or condition exists which constitutes
or, after notice or lapse of time or both, would
constitute a material default on the part of the
Company or any of its Subsidiaries under any such
Material Company Contract, except where such
default, individually or in the aggregate, would not
have or be reasonably likely to have a Material
Adverse Effect on the Company and (D) no other party
to such Material Company Contract is, to the best
knowledge of the Company, in default in any respect
thereunder.
Attention:
Carl B. Webb
President and Chief Operating Officer
Annex 1
WITNESSETH:
By:
Name:
Title:
By:
Name:
Title:
Annex 2
[Form of Supplement to the Plan]
SUPPLEMENT, dated as of the ____ day of ,
199__ (this "Supplement"), to the Agreement and Plan of
Merger, dated as of the 27th day of July, 1996 (the "
Plan"), by and among First Nationwide Holdings Inc., a
Delaware corporation (the "Acquiror") Cal Fed Bancorp
Inc., a Delaware corporation (the "Company") and
California Federal Bank, a Federal Savings Bank.
By:
Name:
Title:
Annex 3
Annex 4
Annex 5
Annex 6
Matters to be Covered in Opinion of
In-house Counsel to Acquiror
subject to standard exceptions and qualifications
The execution, delivery and performance by the
Acquiror of the Plan and the consummation by the Acquiror
of the transactions contemplated thereby will not result
in or constitute a violation of or a default under
(i) the Certificate of Incorporation or By-Laws or
similar organizational documents of the Acquiror or any
of its Subsidiaries, or (ii) any judgment, decree or
order to which the Acquiror or any of its Subsidiaries is
subject, or any note, bond, indenture, loan agreement or
other agreement or instrument to which the Acquiror or
any of its Subsidiaries is a party, in each case, which
is set forth on the attached list as one of such
documents which is material to the business or financial
condition of the Acquiror and its Subsidiaries taken as a
whole.
Annex 4.21(a)
Certificate Governing the Rights of Holders of the
Participation Interests
THE CONTINGENT LITIGATION RECOVERY PARTICIPATION
INTERESTS ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE
PARTICIPATION INTERESTS ARE BEING DISTRIBUTED PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
STATUTES, AND HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR APPLICABLE STATE
SECURITIES AGENCIES. THE RECOVERY PAYMENT MAY BE SUBJECT
TO APPLICABLE CAPITAL DISTRIBUTION REGULATIONS.
[Form of Contingent Litigation Recovery Participation
Interest]
No. PC- Participation Interests
Interest Agent
By:
Authorized Signature
ASSIGNMENT
To be executed by the registered holder if such
holder desires to transfer the Participation Interest
FOR VALUE RECEIVED
hereby sells,
assigns and transfers unto
(Please print name and address of transferee)
Dated:
Signature
Signature Guaranteed:
NOTICE
Annex 4.21(b)
1 If applicable.
Interest Agent
By:
Authorized Signature
ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Secondary Participation
Interest.)
FOR VALUE RECEIVED
hereby sells,
assigns and transfers unto
(Please print name and address of transferee)
♦ Grand Prize -- $1.9 Billion GSB’s damage claims originate from its charge that the US Government
breached a contract with Glendale Federal Bank through regulatory actions prescribed by FIRREA, the
Financial Institutions Reform Recovery and Enforcement Act of 1989. A recent ruling in a similar case
suggests that damages stemming from lost profit claims continue to accumulate until a final decision is
reached. Applying that ruling could increase Glendale’s ultimate payoff beyond their current $1.9 billion
claim.
♦ So Far, So Good Last September, Chief US Court of Claims Judge Loren Smith unsealed a transcript of a
meeting attended by attorneys for both plaintiff, Glendale, and defense, the US Department of Justice.
During that meeting Judge Smith told both sides that Glendale had an exceedingly strong and convincing
case. Further, he said that he was inclined to grant plaintiffs the full $1.9 billion they sought. A similar meeting
is scheduled for early this month, but public disclosure of the proceedings is unlikely.
♦ When Issued May 5 The GSBZV’s will start trading on a when issued basis on May 5 and the GSBNZ’s
will trade regular way on June 1, 1998. Shares of GSB common will continue to trade on the NYSE with due
bills (reflecting the sellers’ obligation to deliver the GSBNZ’s ), from May 7 until June 1.
♦ $7 Current Value; $11 Terminal Value Based on the trading prices of the CalFed litigation securities (
CALGZ- $21, NR); (CALGL- $24 7/8, NR) and Coast litigation securities (CCPRZ– $16 5/8,NR) the
GSBZV’s should start trading around $7. We have based our valuation of the GSBZV’s on a probability
adjusted net present value calculation. Based on our assumption of $1.9 billion in ultimate damages payable
two years from now, we arrive at a $11 per share nominal value, payable in GSB common shares.
Table 1: Expected Terminal Value of GSBNZs ($MM except per share amounts)
Gross Proceeds $1,200 $1,500 $1,900
Less: Deductible Expenses (50) (50) (50)
CALGZ Current Market Price and Implied GSB Goodwill Per Share $21.00 $6.00
Implied Risk Adjusted Present Value of Goodwill Case (MM) $420.0 $605.6
Implied Non-Risk Adjusted Value of CalFed's Award - PreTax (MM) $1,317.2 $1,493.9
CCPRZ Current Market Price and Implied GSB Goodwill Per Share $16.63 $7.94
Implied Non-Risk Adjusted Value of CalFed's Award - PreTax (MM) $1,087.1 $2,003.8
Glendale has the strongest and farthest advanced supervisory goodwill litigation case against the US Government
claiming $1.9 billion in goodwill, lost profits and direct costs stemming from their re-capitalization. The
GSBNZ’s should be the most liquid of the securities reflecting expected damage awards from “supervisory
goodwill” lawsuits.
GSB’s claim comes from Glendale’s purchase of Broward Federal in 1981. The Supreme Court has upheld
Glendale’s complaint that the US Government breached its promise that goodwill created in the purchase
would not be deducted from capital for the computation of minimum acceptable regulatory net worth. In 1989,
Congress passed the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) which abolished
supervisory goodwill. Subsequently 120 other groups of investors sued, also claiming similar beach of contract.
Although we expect Judge Loren Smith to award the full amount, the ultimate payment to GSB could be much
higher, or zero, depending on whether the ruling is appealed and the legal theory of damages that the court
ultimately accepts. The earliest pay out is probably close to year end. However, if the case is appealed there
could be up to a two year delay and the Appellate Court could totally reverse the Court of Claims award.
Golden State’s GSBNZ’s represent the right to receive Golden State Bancorp common stock equal in value to
85% of the after-tax, after expense proceeds (if any) from the Company’s pending goodwill lawsuit against the
Federal Government. The number of common shares for which GSBNZ’s will be exercisable will be determined
by the average closing price of GSB stock over the 30 days prior to the receipt of final judgment in the
lawsuit. The distribution of the GSBNZ’s will be tax free to both Golden State Bancorp and its security holders.
Table 1 outlines the possible terminal values of the GSBNZ’s given different final judgment scenarios.
While still publicly traded companies, California Federal and Cost Savings issued securities granting owners a
claim on any cash damage award from their breach of contract goodwill suits against the US Government. The
analysis presented in Tables 2 and 3 estimate market valuations for CalFed’s damages of $2.72 for every dollar of
supervisory goodwill the thrift possessed when FIRREA was passed. Similarly, the analysis suggests that the
market values Coast Savings’ case at $3.64 for each dollar of supervisory goodwill.
The analysis is based on two critical assumptions. First, cash will be distributed or will start to accrue interest in
three years for both CalFed and Coast, following a damage award by the US Court of Claims and affirmation in
the US Court of Appeals. Second, the market applies a 25% discount rate to the potential award. Applying
CalFed’s $2.72 multiplier to GSB’s $550 million in supervisory goodwill and assuming that Glendale receives a
final favorable ruling in two years, we arrive at the per share market value of $6.00 for the GSBNZ’s.
Applying Coast’s $3.64 multiplier to GSB’s supervisory goodwill implies a current per share market value of
$7.94 for GSB’s case. The inflated value may be a consequence of market perception that the Government will
settle with Coast well before our estimate of three years. We think a Coast settlement prior to a final decision for
Glendale is unlikely.
We estimate that the GSBNZ’s have a current discounted value of $7 and should be purchased below this level.
The $11 terminal pay-out on the GSBNZ’s is substantially different from the CALGZ’s, CALGL’s and CCPRZ’
s. If an award is made, the CalFed and Coast securities pay in cash while the GSBNZ’s are exercisable ultimately
in GSB common shares. Although a tax liability accrues when the CalFed and Coast securities are
distributed, tax on GSBNZ’s is deferred. Conceptually, exercise of GSBNZ’s is an above-book-value,
secondary offering that should significantly increase GSB’s equity base. Further, unlike a merger in which the
acquisition is made in shares, there is no identified earning asset associated with the GSBNZ’s. Therefore, the
accretiveness of the litigation proceeds depends on the investment alternatives available to management at the
time the damage award is paid.
We think a partial share buy back is possible giving investors a cash option that incurs a tax liability or
alternatively retaining shares and deferring taxes. However, by issuing GSB shares rather than distributing cash,
management increases tangible book value and can buy additional banks, thrifts or mortgage banks.
At the time FIRREA was passed, Glendale had about $550 million of supervisory goodwill on its balance
sheet. In September 1997, Chief Judge Loren Smith unsealed a transcript of a meeting attended by attorneys for
both plaintiff, Glendale, and defense, the US Department of Justice. During that meeting Judge Smith told both
sides that Glendale had an exceedingly strong and convincing case. Further he said that he was inclined to
grant plaintiffs the full $1.9 billion they sought. Since that meeting, lawyers for the defense have been in the process
of presenting their case. We understand from discussions with consultants attending the trial, that experts for the
defense have not been persuasive in their arguments that Glendale was not damaged by the breach.
The ultimate payment could be higher than the $1.9 billion claimed according to a recent ruling from Judge
Christine Miller. In her opinion, damages resulting from lost profits in an ongoing firm, continue to build from
the event of the breach until a final decision is reached. The $1.9 billion was calculated from the passage of
FIRREA until the start of the damages trial in February 1997. Under Judge Miller’s theory, we think GSB could
be awarded another $200 to $300 million. On the other hand, the award could be zero if the Federal Court of
Appeals chooses to reverse the award of the US Court of Claims. The Supreme Court has already ruled in
Glendale’s favor on liability and appeal at that level on the damage portion of the case is very unlikely.
All that remains in arguing the case before Judge Smith are written briefs and final arguments, scheduled for early
July. Previously Judge Smith said that he expects to take three months to deliver a ruling. Assuming August is
used for vacation, the ruling could come out by late fall. Again, however, an appeal by the defense could end
up in a reversal of the award or delay the ultimate payment by up to two years.
WARRANT AGREEMENT
Dated as of
, 1)98
between
Warrants Eor
Common Stock of
Golden State Bancorp Inc.
TABLE OF CONTENTS
Page
ARTICLE 1.
Defined Terms
SECTION 1.1 1
Definitions
SECTION 1.2 4
Other Definitions
ARTICLE 2.
Warrant Certificates
Adjustments
SECTION 4.1 Reclassifications, Redesignations or
Reorganizations of Common Stock 14
SECTION 4.2 Combination 14
SECTION 4.3 Exercise Price Adjustment 15
PACE
W tTNNSSETH:
ARTICLE 1.
Defined Terms
which this defined term is unad is with respect to property other than
securities, then "Adjusted Market Value" means the Fair Market Value of such
pröperty, minus $1.00.
"Dusiness Day" a day other than a Saturday, Sunday or other day on which
commercial banks in New York City arm authorized or required by law to dose.
lose of Business" on any given date shall mean 5:00 P.M., New York City
time, on such date; provided, however, that if such date is not a Business Day
lt shall mean 5:00 P.M., New York City tire, on the next succeeding Business
Day.
"Clos(ng Price" on any day shall mean the closing sale price regular way (
with any relevant due bills attached) of a share of Common Stocken such day, or
in case no such sale takes place an such day, the average of the reported
closing bid and asked prices regular way (with any relevant due bilis attached)
of a share of Common Stock, in mach esse on the New York Stock Exchange
Consolidated Tape (er any successor composite tape reporting transactions on
national securities exchanges), er, if the Common Stock is not listed or
admitted to trading on the NYSE, an the priacipal national securities exchange
on which the Common Stock is listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of shares of Common
Stock has been traded durinq the live consecutive Trading Dates ending un and
includinq the Determination Date), er, if not listed or admitted to trading an
any national securities exchange, the average of the closing bid and asked
prices reqular way (with any relevant due bilis attached) of a share of Common
Stock on the over-the-counter market on the day in guestion as reported by
Nasdag, or a similar generally accepted reporting service, or if not so
available as determined in good faith by the Board of Directors of the Company,
en the basis oE such relevant factors as lt in good faith considers appropriate.
"Nasdag" shall mean the stock market operated by the National Association
of Securities Dealers, Inc.
"NYSE" shall mean the stock exchange operated by New York Stock Exchange,
Inc.
"Officer" means the Chairman, the Vice Chairman, the Chief Executive
Officer, the President, the Chief Financial Officer, the Secretary or any Vice
President of the Company.
"Payment" means the aggregate amount of any cash payment and the Fair
Market Julie of any property or assets actually rE.o-ived by the Bank pursuant to
a Einal, nonappealable judgment in er final sett.-ment of the Litigation (
including any post-judgment interest actually received by the Banken any
payment).
"Person" means any individual, corporation, partnership, joint venture,
iimited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"SEC" means the Securities and Exchange Commission. "
Securities Act" means the Securities Act of 1933.
"Trading Date" means a date on which the NYSE or Nasdaq (er any successor
thereto) is open tor the transaction of business.
"Warrant Share," means the shares Oommon Stock of the Company received,
or issued and received, as the case may be, upon exercise of the Warrants.
SECTION 1.2 Other Definitions.
Defined in
Term Section
ARTICLE 2.
Warrant Certificates
practicable atter the Record Pate, the Company will prepare and execute, the
Warrant Agent will countersign, and the Company will send or sause to be sent (
and the Warrant Agent will, if requested, send) by Eirst-class, insured,
poste-prepaid mail, Co each record holder of Common Stock es of the bluse of
Business an the Record Date, at the address of such holder shown an the records
oE the Company, one or more Warrant Certificates, in substantially the form of
Exhibit A hereto (a "Warrant Certificate"), evidencing one Warrant (subject Co
adjustment es provided herein) for each share of Common Stock so held.
(c) At any time and from time to time pricr to the occurrence ot the
Triggering Event, the Company may cause the Warrant Agent to issue, in
accordance with the provisions of this Article 2, Warrants to hoiders of (i)
shares of the Company's Noncumulative Convertible Preferred Stock, Series A (the "
Preferred Stock"); (ii) common stock purchase warrants (the "Five-Year
Warrants") issued under the Warrant Agreement, dated February 23, 1993, by and
between the Company and ChaseMellon Shareholder Services L.L.C. (es successor Co
Chemical Trust Company of California), es Warrant Agent; (iii) common stock
purchase warrants (the "Seven-Year Warrants") issued under the Warrant
Agreement, dated August 15, 1993, by and between the Company and ChaseMellon
Shareholder Services L.L.C. (as successor Co Chemical Trust Company of
California), es Warrant Agent; and (iv) stock options of the Company and its
subsidiaries (the "Stock Options", and together with the Preferred Stock, the
Five-Year Warrants, the Seven-Year Warrants and the Stock Options, the "
Convertible Securities") that were outstanding on the Record Date, who in any
such Oase exercise or convert such Convertible Securities into shares of Common
Stock and Warrants in accordance with the terms and conditions ot such
Convertible Securities.
(d) The maximum number of Warrants that may be issued hereunder is
, of which are available for issuance under Section 2.1(e)
hereof and are available for issuance under Section 2.1(c) hereof.
The Company will not
ssue any Warrants or securities substantially similar to the Warrants other
than in accordance with this Section 2.1.
JECTION 2.2 Form and Dating. The Warrant Certificates shall be
(b) Global Warrant. The Warrants may be issued in the form oe one or
more fully registered global certificates with the global securities legend set
forth in Exhibit A hereto (the "Global Warrant"), which shall be deposited on
behalf of beneficial owners of Warrants with the Warrant Agent, as custodian for
the Depository Trust Corporation ("DTC") (or with such other custodian as DTC
may direct), and registered in the name of DTC or a nominee of DTC, duly
executed by the Company and countersigned by the Warrant Agent as hereinafter
provided. The number of Warrants represented by Global Warrants may from time
to time be increased or decreased by adjustments made on the records of the
Warrant Agent and DTC or its nominee as hereinafter provided. Except as
provided in Section 2.5, owners of beneficial interests in a Global Warrant will
not be entitled to receive physical delivery of Certificated Warrants.
(c) Book-Entry Provisions. Members of, or participants in, DTC
("Agent Members") shall have no rights under this Agreement with respect to any
Global Warrant held on their behalf by DTC or by the Warrant Agent as the
custodian of DTC or under such Global Warrant, and DTC may be treated by the
Company, the Warrant Agent and any agent of the Company or the Warrant Agent as
the absolute owner of such Global Warrant for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Warrant Agent or any agent of the Company or the Warrant Agent from giving
effect to any written certification, proxy or other authorization furnished by
DTC or impair, as between DTC and its Agent Members, the Operation of customary
practices of DTC governing the exercise of the rights of a holder of a
beneficial interest in any Global Warrant.
Global Warrant to be issued hereunder, one Officer shall sign, and the Company's S'
ecretary or any of its Assistant Secretaries shall attest, such Global Warrant. The
Warrant Agent, upon the written order of the Company signed by an Officer, shall
countersign any Global Warrant certificate by manual or facsimile signature,
and such Global Warrant shall be deposited in accordance with Section 2.2 hereof.
(b) 4ith to all other Warrants, an Officer shall sign, and
Company's :' ary iny of its Assistant Secretaries shall attest, the
fant Cert : ..r the Company by manual or facsimile signature. I.e an
aer ah se t ire is on a Warrint Certificate na langer holds that office
ft the t sle the Warrant Agent conters,gns the Warrant Certificate, the Warrant
te ca..1 heve)the:ess. A 4arrant shall not be valid until an authorized
signatory o the Warrant Agent manually countersigns the Warrant Certificate.
The Sig::,1.L.9 shall be conclusive eviience that the Warrant Certificate has been
countersigned under this Agreement.
11) DTC n o t i f i e s t h e C o m p a n y t h a t D T C i s u n w i l l i n g o r u n a b l e t o
continue as depository for Global Warrants and a successor depository for
Global Warrants is not appointed by the Company within 90 calendar days
alter delivery of such notice;
then, the Company will execute, and the Warrant Agent, upon receipt of a written
order of the Company signed by an Officer requesting the delivery of
Certificated Warrants to the holders of beneficial interests in the Global
Warrant, will countersign and deliver Certificated Warrants equal to the number
of Warrants represented by Global Warrants, in exchange for such Global
Warrants. Certificated Warrants issued in exchange for a beneficial interest in
a Global Warrant shall be registered in such names and in such authorized
dehominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Warrant Agent. The Warrant Agent
shall deliver such Certificated Warrants to the Persons in whose names such
W a r r a n t s a r e s o r e g i s t e r e d i n a c c o r d a n c e w i t h t h e i n s t r u c t i o n s o f DTC.
(ii) All Certificated Warrants and Global Warrants issued upon any
registration of trancfer or exchange of Certificated Warrants shall be the valid
obligations ut the Company, entitled to the same benefits under this Agreement
as the Certificated WI:rants or Global Warrants surrendered upon such
regintration of t xriof.r.r exchange.
Certificates are ready for delivery, the Company may prepare and the Warrant
Agent shall countersign temporary Warrant Certificates. Temporary Warrant
Certificates shall be substantially in the form of definitive Warrant
Certificates bot may have variations that the Company considers appropriate for
temporary Warrant Certificates. Without unreasonable delay, the Company shall
prepare and the Warrant Agent shall countersign definitive Warrant Certificates
and deliver them in exchange for temporary Warrant Certificates.
2 CTION 2.3 Cancellation. (a) in the event the Cumpany shall
purchase or otherwise acquire Certificated Warrants, the same shall the]edpon be
delivered to the Warrant Agent for cancellation.
(b) The Warrant Agent and no one else shall cancel and destroy all
Warrant Certificates surrendered for transfer, exchange, replacement, exercise
r ncellation and deliver a certificate of such destruction to the Company
Jn:ess the Company directs the Warrant Agent to deliver canceled Warrant ert:
'icates to the Company. The Company may not issue new Warrant Certificates to
replace Warrant Certificates to the extent they evidence Warrants which have been
exercised or Warrants which the Company has purchased or otherwise acguired.
ARTICLE 3.
Exercise Terms
SECTION 3.2 Exercise Period. (a) The Company will provide notice,
(b) Subject to the terms and conditions set forth herein, each
Warrant shall be exercisable at any time or from time to time during the sixty-
lov persd commencing an the date an which the Exercise Notice is first sent to
:jeEs porsuant to Section 3.2(a) (the "Warrant Exercise Period").
void es of the earlier of (i) the Bluse of Business an the last day of the
Warrant Exercise Period, (ii) the Close of Business an the date the Litiqation
has been disposed of in a manner such that no shares of Common Stock or other
cecurities or property will be issuable under the term of the Warrants (the "
Termination Date") or (iii) the time and date such Warrant is exercised. The
Company will provide notice, as described below (the "Termination Notice"), of
the occurrence of the Termination Date or the expiration of the Warrant Exercise
Eeriod rat more than 60 calendar days after the occurrence thereof. The .•,
rminnt:on Notice shall be dated the date it is first sent to Holders and shall
ved by means of e press release to a national news service and by
auch notice first class, postage prepaid, to each Holder at such
:ler's address es it appears an the Certificate Register. The Termination
shall state the followingo
The Warrants shall terminate and become void as provided herein notwithstanding
the Company's failure to give the Termination Notice.
SECTION 3.4 Manner of Exercise. Warrants may be exercised upan (i)
surrender to the Warrant Agent of the Warrant Certificates, together with the
form of election to purchase Common Stock an the reverse thereof properly
completed and validly executed by the Holder thereof and (ii) payment to the
Warrant Agent, for the account of the Company, of the Exercise Price. Such
payment shall be made by certified or official bank check or personal check
payable to the order of the Company. Subject to Section 3.2, the Warrants shall
be exercisable at the election of the Holders thereof either in fall at any time
or from time to time in part and in the event that a Warrant Certificate is
surrendered for exercise in respect of less than all the Warrant Shares
purchasable an such exercise at any time prior to the Expiration Date a new
Warrant Certificate exercisable for the remaining Warrant Shares will be issued.
The Warrant Agent shall countersign and deliver the required
12
dew Warrant Certificates, and the Company, at the Warrant Agent', request, shall
supply the Warrant Agent with Warrant Certificates duly signed on behalf of the
Company for such purpose. The Warrant Agent shall account promptly to the
Company with respect to all Warrants exercised and concurrently pay to the
Company all moneys received by the Warrant Agent for the purchase of shares of
Common Stock through the exercise of such Warrants.
the surrender oE Warrant Certificates and payment of the Exercise Price, as set
rorth in Section 3.4, the Company shall issue and cause the Warrant Agent or, if
appointed, a transfer agent for the Common Stock ("Transfer Agent") to
countersign and deliver to or upon the written arder of the Holder and in such
name or names as the Holder may designate, a certificate or certificates for the
number oE fall Warrant Shares so purchased upon the exercise of such Warrants or
dther securities or property to which it is entitled, registered or otherwise to
the Person or Persons entitled to receive the same, together with cash as
provided in Section 3.6 in respect of any fractional Warrant Shares otherwise
issuable upon such exercise. uch certificate or certificates shall be deemed
to have been issued and any Person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the date
of the surrender of such Warrant Certificates and payment of the Exercise Price.
use its best efforts to at all times keep reserved out of its authorized shares
of Common Stock or shares of Common Stock held in its treasury and unissued a
number of shares of Common Stock sufficient to provide for the exercise in full
of all Warrants then outstanding or reserved for issuance pursuant to Section
2.1. The registrar for the Common Stock (the "Registrar") shall at all times
until the Termination Date, or the time at which all Warrants have been
exercised or cancelled, reserve such number of authorized shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
Eile with the Transfer Agent. The Company will supply such Transfer Agent with
duly executed stock certificates for such purpose and will itself provide or
otherwise make available any cash which may be payable as provided in Section
3.6. The Company will furnish to such Transfer Agent a copy of all notices of
adjustments and certificates related thereto transmitted to each Holder.
(b) If, upon the Triggering Event, the number of shares of Common
Stock authorized but not issued plus the number of shares of Common Stock held
in the Company's
13
g1 he "Number
)•;reeme7a...)
, . )
EI ff7.•:.:2mon .lack •1 he mber of
rs for
q the nunber of aut,6 g..(res ot k in an
-
• the,. Number of Shortf ,) n auch a .,t, the
)»call be automatic,. 60 cileh r days
e-,ther (a) the ten.:er -eiled to i.( .e (i)
or (b) the 1.,te of the • :e in the
number hares of Common Stock to in olause (. )bove.
ARTICLE 4,
Adjustments
Cummdn Stock. (a) ihe event that at any time or from time to time after
(b) The proportion and type of capital stock of the Company that the
Holders shall have the right to receive in the circumstance set forth in the
preceding sentence will be in the same proportion and type es one share of
Common Stock was exchanged for or converted into as a result of such
reclassification, redesignation or reorganization. Such adjustment shall become
effective immedlately after the effective date of such reclassification,
redesignation or reorganization. In the event of the occurrence of more than
one of the foregoing, such adjustments shall be made successively.
in the event of a Combination, the Holders shall have the right to receive upon
exercise of the Warrants the number of shares of capital stock or other
securities or an amount of property equal to the Adjusted Litigation Recovery
divided by [86,000,000] [the number of Warrants issued or reserved for issuance
on the Record Date] divided by the aggregate Adjusted Market Value of the
capital stock, other securities or property that one share of Common Stock was
exchanged for or converted into as a result of such Combination.
. ;ent the Funds eeJary to pay to the Holders of the Warrants the
• which they ire ( AJled an oon.ribed above. After such Funds and the
es WIrrant Cert: sel, the Warrant Agent shall make
. the Holders by ie. Fring d gegk in such amount as js a :cpriate to
E
1 . 'in or (ersons as it .y be dio.ecied in writing by the .•
.1riendeting such Warrants.
(d) Th- npany shall provide that the surviving or aequiiing Person
(the "Successcr 'hany") in such Combination will enter into an agreement with
the Warrant Siest .im rming the Holders rights pursuant to this Section 4.2
and provicLng • :r EiJustments, which shall be as neariy equivalent as may be
practicable to tue adjustments provided for in this Article 4.
redesignation or reorganization such that one share of its class of Common Stock
was converted into a one share of class A common stock and two shares of class B
common stock, then, alter giving effect to such event, the Holders shall have
the right to receive upon exercise of one Warrant shares of class A common stock
and class 9 common stock equal to the Adjusted Litigation Recovery divided by [
26,100,000) [the number of Warrants issued or reserved for issuance on the '-
cord Date) divided by the sogregste Adjusted Market Value of one share of
class A common stock and two shares of class B common stock. Accordingly,
pursuant to Section 4.1(b), if the Adjusted Litigation Recovery were $500
million and the Adjusted Market Value of 0ne share of class A common stock and
two shares oE class 3 common stock were 530, then one Warrant would be
exercisable for 0.0646 of a share of class A common stock and 0.1292 of a share
of class 9 common stock. The Exercise Price of one Warrant would be the par
value of the dass A common stock multiplied by 0.0646, plus the par value of
the class 9 common stock muitiplied by 0.1292.
Certificate need not be changed because of any adjustment made pursuant to this
Article 4, and Warrant Certificates issued after such adjustment may have the
same terms and conditions as are stated in any Warrant Certificates issued prior
to the adjustment. The Company, however, may at any time in its sole discretion
make any change in the form oE
17
Company hereby appoints the Warrant Agent to act as agent of the Company as set
forth in this Agreement. The Warrant Agent hereby accepts the appointment as
agent of the Company and agrees to perform that agency upon the terms and
conditions herein set Eorth, by all of which the Company and the Warrant
Holders, by their acceptance thereof, shall be bound.
The Warrant Agent shall be liebte hereunder only for its own
negligence, bad faith or willful misconduct. The Warrant Agent shall not be
liable for or by reason of any of the statements of fact or recitals contained
in this Agreement or in the Warrant Certificates (except its countersignature on
the Warrant Certificates and such statements or recitals as described the
Warrant Agent or action taken or to be taken by It) or be required to verify the
same, bot all such statements and recitals are and shall be deemed to have been
made by the Company only. The Warrant Agent shall not have any liability or
responsibillty in respect of the legality, validity or enforceability of this
Agreement or the execution and delivery hereof (except the die execution hereof
bv the Warrant Agent) or in respect of the validi.ty or execution of any Warrant
Certificate (except its countersignature thereof); nor shall it be responsible
or nable for any breach by the Company of any covenant or condition contained
tn this Agreement or in any Warrant Certificate; nor shall it be responsible or
liable for the making of any change in the number of shares of Common Stock
required under the provisions of Article IV or responsible for the manner,
nethod or amount of any such change or the ascertaining of the existente of any
tacts that would require any such adjustment or change; nor shall it by any act
hereunder be deemed to make any representation or warranty es to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Warrant Certificate or as to whether any shares of
Common Stock will, when issued, by validly issued, fully paid and nonassessable.
The Warrant Agent will not be responsible or liable for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be ccmplied with by the Company. The Warrant Agent
will not incur any liability or responsibility to the Company or to any Warrant
Holder for any action taken, or any failure to teke action, in reliance en any
notice, resolution, waiver, consent, order, certificate, er other paper,
document er instrument reasonably believed by the Warrant Agent to be genuine
and to have been signed, sent or presented by the proper party or parties.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, provided reasonable care has been
exercised in the selection and in the continued employment of any such attorney,
agent or employee.
The Warrant Agent will act hereunder solely es agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may du or refrain from so doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
Jection 5.2 Right to Consult Counsel. The Warrant Agent may at any
time consult with legal counsel satisfactory to it (who may be Legal counsel for
the Company) and the opinion of such counsel shall be full and complete
authorization and protection to the Warrant Agent es to any action taken,
suffered or omitted by it in good faith in accordance with such opinion;
provided, however, that the Warrant Agent shall have exercised reasonable care
Agent and any stockholder, director, officer or empioyee of the Warrant Agent
may buy, seit or deal in any of the Warrants or other securities of the Company
or its affiliates or have a pecuniary interest in any transaction in which the
Company or its affiliates may be interested, or contract with or lend money Co
the Company cr its affiliates er otherwise ect as fully and freely es though it
viere not the Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
ether legal entity.
Bettion 5.5 Chande of Warrant Agent. The Warrant Agent may resign
and be discharged from its duties under this Agreement upon 90 calendar days'
prior notice in writing mailed, by registered or certified mail, Co the Company.
The Company may remove the Warrant Agent or any successor warrant agent upon 60
calendar days' prior notice in writing, mailed to the Warrant Agent or successor
warrant agent, es the Oase may be, by registered or certified mail. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
aeting, the Company shall appoint e successor to the Warrant Agent and shall,
within 30 calendar days following such appointment, give notice thereof in
writing Co each registered holder of the Warrant Certificates. If the Company
shall feil to make such appointment within e period of 30 calendar days after
giving notice of such removal or after it has been notified in writing of such
resignation or Incapacity by the resigning or incapacitated Warrant Agent, then
the Company agrees to perform the duties of the Warrant Agent hereunder until a
successor warrant agent is appointed. After appointment the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named es Warrant Agent without further ect or deed;
tut the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property et the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for this purpose. Failure
to give any notice provided for in this lection, however, of any defect therein
shall not affect the legality or validity of the resignation of removal of the
Warrant Agent or the appointment of the successor warrant agent, as the rase may
be.
20
ARTICLE 6.
Miscellaneous
the Company shall promptly deliver to the Warrant Agent and the Holders its
annual o-port to stockholders and such other information as is provided to any
hdlierd •' eluity securities of the Company in their capacity as holders of such•
sei "-
SECTION 6.2 Persons ltenefitting. Nothing in this Agreement is
(ntended or 2hall be construed to confer upon any Person other than the •Company,
the Warrant Agent and the Holders any right, remedy or Claim under or by reason
of this agreement or any part hereof.
(b) The Bank will retain sole and exclusive control of the Litigation
and will retain 1006 of any recovery from the Litigation. The Holders will not
have any right to control or manage the course or disposition of the Litigation
ar the proceeds of any recovery therefrom.
SECTION 6.4 Purchase of Warrants by the Company. The Company shell
hereto without the consent of any Holder for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective provision contained herein or
making any other provisions with respect to matters or questions arising under this
Agreement es the Company and the Warrant Agent may deem necessary or desirable;
provided, however, that
rE ?ANWCF::) Mr;
21
1
• t versely rights Eiders. Any riet. lt
-rent mott that han .n adverng Dn the -st.;
-
(ne writt nnod of the ders of a majot.:-/ of
ne ( r7 .nts. The n ng:t cf each r . ier atfected sha.
1 n:ernt pursuant to wh ch the Exercise Pr.e would be
mer T 4arrant Shatgi purchasable upön exercine of Warrants
W o U r de mtcoe (nther than pursuant t adjustments pr v:r6d s 1-rein). In
.minind wnener Cor Holders of the .-nitred number co aarriaaa Lave
• ncurred in anv direction, waiver dr c Warrants owned by the Company or
any Person oirectly or indirectly aontt ling or controlaed by dr under
moect or indirect common control with the ndany shall be disregarded and
Eeemed not to be outstanding, except that,
,
:r the purpose of determining
whether the Warrant Agent shall be protected in relying on any such direction,
waiver or consent, only Warrants which the Warrant Agent knows are so owned
shall be so dlsregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shell be cönsidered in any such determination.
IECTION 6.9 Counterparts. The parties may sign any number of copies
of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement. Une signed copy is enough to prove this
Agreement.
of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 6.11 Severability. The provisions of this Agreement are
By:
Name:
Title:
CHASEMELLON SHAREHOLDER
SERVICES L.L.C., as Warrant
Agent,
By:
Name:
Title:
T A TO
WARRALT .l.ASE. MENT
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein. )/1/
All shares of Common Stock issuable by the Company upon the exercise
of the Warrants shall, upon such issue, be duly and validly issued and fully
paid and non-assessable.
The Warrants du not entitle any holder hereof to any of the rights of
a shareholder of the Company.
By
[SEAL]
Attest:
Secretary
PATED:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
as Warrant Agent,
by
Authorized Signatory
] TO
A YENT
Pate:
/I/
(Signature of Owner)
!Street Address)
/1/ The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, and must be guaranteed by a national
bank or trust company or by a member firm of any national securities
exchange.
2
Securities and/or check to be issued to:
Please insert social security or identifying nurnber:
Name:
Street Address:
Street Address:
Re: Warrants to Rurc,(.:e Ccmmon Stock (the "Warrants") of Golden State Bancorp
Inc. rhe "Company")
Tld Trinsferor has requested the Warrant Agent by written order to ekchange
or register the transfer of a Warrant or Warrants. The Warrant Agent and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby.
by
Date:
EXHIBIT 5.1
AD OF MAYER, BROWN & PLATTi
APRIL 3, 1997
You have requested this opinion in connection with the offering (the "
Offering") by Golden State Bancorp Inc., a Delaware corporation (the "
Company"), of shares of its common stock, par value $1.00 per share (the "
Ccmmon Stock"). Capitalized terms used bot not otherwise defined herein shell
have the meanings ascribed to them in the Registration Statement (es defined
below).
In connection with your request, you have provided us with and we have
reviewed: (1) the Company's Certificate of Incorporation, as amended through
the date hereof, (ii) the Company's Bylaws, es amended through the date
hereof, (iii) the Registration Statement on Form 3-4, es filed with the
lecurities and Exchange Commission on April 3, 1997 (the "Registration
Statement"), including the form of proxy statement/prospectus to be used in
•
:nnection with the Offering (the "Prospectus") and (iv) resolutions of the
of Directors of the Company concerning the Offering.
libject to (i) the effectiveness of the Registration Statement under the
Securities Act of 1933, (ii) the due execution, registration and deliverv of
the certificates evidencing the Common Stock and (iii) the Board of Directors
having taken all necessary action to approve the specific Germs of the Common
Stock to be issued, we are of the opinion that the Common Stock to be issued
by the Company will, when issued and paid for in the manner provided in the
Registration Statement, be legally issued, fully paid and non-assessable.
,, '
9.1
[nr , 5 CRUTCHER ii
Ar:- 3, 1999
_no.
ist StaEe Street
• iands, ,Ialifornia 92373
Re: Pederal (ncome Tax Canseguences of Merger
With Golden State Hancurp Inc.
Gentlemen:
in rendering nur opinion we have examined (i) the Agreement, inciuding all
oxhibits thereto; (ii) the description of the Merger and reiated transactions
set forth in the OTS Application an Form H-(e)3 filed in connection with the
Merger; (iii) the description of the Merger and related transactions set forth
in the Proxy Statement-Prospectus an Form S-4 filed with the Securities and
Exchange Commission in connection with the Merger (the "Registration
Statement"); and (iv) written representations provided by the management oE
RedFed and of Golden State concerninq certain facts underlying and relating to
the Merger transaction (the "Representations"). The opinions expressed herein
are conditioned an the initial and continuing accuracy of the facts, information
and representations set forth in the foregoing documents. We have assumed that
any representation or statement made "to the best of knowledge" or similarly ,
m):Jed is correct without such gualification. As to all matters in which a
or entity making a representation has represented that such person or
entity either does not have or is not aware of any plan or intention, we have
assumed that there is in fact no such plan or intention.
:•:;))st •an.-
• .;e. 3
will re An: Iiin of lass egual to the difference between such cash and the
hasis such fractional shares;
The foregoing opinions represent our best legal judgment, but you should be
aware of the fact that opinions of counsel have no binding effect an ur official
status of any 'Kind with respect to the Internal Revenue Service or any court
considering the issues. Dxcept as to matters set torth expressly herein, we are
giving no opinion as to any other tax cunseguences related to the Merger,
whether under federal, state, local or foreiqn law. Se hereby scnsent to the
filing of this opinion as an exhibit to the OTS Application on Form H-(e)3 filed
in connection with the Merger. We further sonsent to the filing of this opinion
as an exhibit to the Registration Statement and to all references to this Firm
Ander the headinq "Sertain Federal Income Fax Conseguences" in the Registration
Statement.
April 3, 1998
ard 05 0: :rs
Financial rporation:
consent to inGoiporation by reference in the Registration Statement (in
ii l-4 of Golden State Bancorp Inc. (Registration Statement) of nur report
a, arh 17, 1998, with respect to the consolidated statements of financial
om : ,n of CENFED Financial Corporation and subsidiaries es of December 31,
(.A 1996, and ihe related consolidated statements of cperations,
5ocko1 ,,ers equity and cash flows for the years then ended, and to the
,
ren5e to :Jur srm under the heading "Experts" in the Proxy Statement-
:
otis with•ct to CENFED Financial Corporation and subsidiaries.
Dallas, Texas
April 2, 1998
1:Xii1BIT 99.1
.:ng all prior proxies, the undersigned, e stockholder of REDFED BANCORP '
INC. (the "Company"), hereby appoints Stanley C. Weisser, Robert G. Wiens,
Dosdl,s R. McAdem, and William T. Hardy, jr., and euch of them, attorneys and
agents of the undersigned, with full power of substitution, to vote all shares
of the Common Stock, per value 6.01 per share ("Common Stock"), of the
undersigned of the Company et the Annual Meeting of Stockholders of the
Company to he held at the Company' s offices located et 300 East State Street,
Redlands, California 92373 im May 26, 1998 at 10:00 a.m., local time, and et
any adjournment thereof, es fuily and effectively es the undersigned could do
if personally present and voting, hereby approving, ratifying and confirming
all that seid attorneys and agents or their substitutes may lawfully do in
place of the undersigned es indicated on the reverse. The undersigned
acknowledges receipt of the Notice of Annual Meeting of Stockholders of the
Company called for the date indicated herein and the Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") relating to such
meeting prior to the signing of this Proxy.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS WHICH MAY PROPERLY COME 3EFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
INSTP.UCTICNS: For all nominees listed, except votes withheld from the tollowing
nominees:
GTE: If the Merger Agreement (as defined below) and the transactions
templated thereby shall be approved by the stockholders of the Company, the
:pany's Board of Directors will serve until the consummation of the
:nsactions contemplated by the Merger Agreement (as described in the
gpany's Proxy Statement/Prospectus dated April 21, 1999), at which time the
,arate corporate existence of the Company will cease to exist and
cansequently the Company's Board of Directors will be simultaneously dissolved
by Operation of Iaw.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENCLOSED ENVELOPE.
Signature
Date
Signature
Date
Plaintiff,
v. No. 95-39C
(Judge Block)
UNITED STATES,
Defendant.
Notice is hereby given that defendant, the United States, appeals to the United States
Court of Appeals for the Federal Circuit from the amended judgment in No. 95-39C, entered on
July 17, 2008, including (but not Iimited to): (1) the amended judgment in No. 95-39C, entered
on July 17, 2008; (2) the judgment in No. 95-39C, entered on June 27, 2008; (3) the order in No.
95-39C, entered on July 16, 2008; (4) the unpublished opinion and order in No. 95-39C, entered
on June 27, 2008; and (5) the opinion and order in No. 95-39C, entered on March 14, 2008.
Respectfully submitted,
MICHAEL F. HERTZ
Deputy Assistant Attorney General
JEA DAVIDSON
KENNETH M. DINTZ
Assistant Director
ODOR
A orney
Of Counsel: o mercial Litigation Branch
SCOTT D. AUSTIN Civil Division
BRIAN A. MIZOGUCHI U.S. Department of Justice
Senior Trial Counsels Classification Unit, 8th Floor
DELISA M. SANCHEZ Washington, D.C. 20530
Trial Attorney Telephone: (202) 616-2382
Facsimile: (202) 514-8640
I hereby certify under penalty of perjury that on this th day of September 2008, I caused
to be served by United States mail, first-class, and facsimile a copy of this "DEFENDANT'S
NOTICE OF APPEAL," to the following: