Fill and Sign the Business Organizations Code Chapter 21 for Profit Corporations Form

AMENDMENT TO ARTICLES OF INCORPORATION Description of the Amendment The proposed amendment to the Association's Articles of Incorporation (the "Amendment") is set forth in Exhibit A to this Proxy Statement. The following description of the Amendment is a summary only, and is qualified in its entirety by reference to such Exhibit. The Amendment would make dividends on the Series A Preferred Stock noncumulative rather than cumulative. As a result, upon the effectiveness of the Amendment, holders of shares of Series A Preferred Stock would be entitled to receive dividends only as, if and when declared by the Board of Directors of the Association out of funds legally available therefor. Thus, in contrast to the present terms of the Series A Preferred Stock, such holders would have no right to receive dividends in respect of any dividend period, and the Association would have no obligation to pay dividends that formerly accrued for such periods. For the Amendment to become effective, it must be approved by the California Savings and Loan Commissioner (the "California Commissioner") and the Office of Thrift Supervision (the "OTS") and must be filed with the California Secretary of State. On March 5 and April 12, 1990, the Association filed applications regarding the Amendment and the post-Amendment Series A Preferred Stock with the OTS and the California Commissioner, respectively. Although the Association has not received any communication from these agencies regarding the status of the applications, the Association believes that regulatory approval for the Amendment will be obtained as necessary. Nonetheless, there can be no assurance that such regulatory approvals will be obtained. Principal Reasons for the Amendment The purpose of the Amendment is to cause the Series A Preferred Stock to be includable as core capital and tangible capital for regulatory capital compliance purposes. Primarily as a result of the Association's $591.1 million net loss for the year ended December 31, 1989, the Association at December 31, 1989 failed to meet each of the three capital standards under FIRREA. Under FIRREA and the capital regulations promulgated by the OTS thereunder (the "Capital Regulations"), the Association is required to maintain (i) "tangible capital" equal to at least 1.5% of adjusted total asset s, (ii) "core capital" equal to at least 3.0% of adjusted total assets and (iii) "total capital" initiall y equal to 6.4%, increasing to 8.0% on December 31, 1992, of total risk-weighted assets (the "risk-based capital requirement"). The 1989 net loss primarily resulted from (i) increased credit deterioration in the Association's portfolio of noninvestment-grade corporate debt securities (i.e., debt securities not rated in one of the top four rating categories by a nationally recognized statistical rating organization) and mandatorily redeemabl e preferred stock (together, "corporate debt securities"), as reflected by an increase in the allowance for credit losses of $465.6 million; (ii) the substantial decline in the high-yield securities market, as reflected in lowe r-of-cost-or- market (“LOCOM”) adjustments of $389.5 million; (iii) a net loss on real estate operations of $61.6 million, primarily reflecting the weakening of the Southern California office lease market; and (iv) a decrease in ne t interest income from 1988 levels of $37.5 million, primarily reflecting the increased cost of hinds during the first half of 1989 and a substantial increase in nonaccrual assets. The Association's tangible capital and core capital were equal to total stockholders' equity at December 3 1, 1989, which was $77.6 million. The Association's ratios of stockholders' equity, tangible capital and core capital to adjusted total assets at that date were 0.8%, resulting in shortfalls of $61.2 million from the 1.5% minimum tangible capital requirement of $138.8 million and $200.0 million from the 3.0% minimum core capital requirement of $277.6 million. The Association's total capital aggregated $123.8 million at December 31, 1989, resulting in a $365.5 million shortfall from the current requirement of 6.4% of total risk-weighted assets, or $489.3 million. See Note 2 of Notes to Consolidated Financial Statements in the Association's Annual Report on Form 10-K for the year ended December 31, 1989 (the "1989 10-K") for additional regulatory capital information, including reconciliation at Der-ember 31, 1989 of stockholders' equity (calculated in accordance with generally acce pted accounting principles (" GAAP") to tangible capital and core capital and of core capital to total capita l. Any savings association not in compliance with the Capital Regulations is required to submit a capital restoration plan ("capital plan"), acceptable to the Director of the OTS (the "DOTS"). A noncomplying savings association is also subject to other restrictions, including a prohibition on accepting brokered deposits (including renewals or rollovers) in the absence of a waiver. Ile DOTS may also treat a failure to maintain required capital as an unsafe and unsound practice, which could constitute grounds for termination by the Federal Deposit Insurance Corporation ("FDIC") of deposit insurance for deposits received by the institution engaged in the unsafe and unsound practice (existing deposits, less subsequent withdrawals, remain insured for between six months and two years). Prior to terminating insurance, the FDIC may temporarily suspend deposit insurance for any savings association that has no tangible capital (deposits in existence on the date of the temporary order, less subsequent withdrawals, remain insured). In addition, the OTS has announced that it intends to propose a regulation that would provide for the OTS takeover of any savings institution when its tangible capital falls below 1% of assets. Finally, a conservator or receiver may be appointed for an association if, among other things, (i) such association fails to maintain required capital, (ii) such association has its c apital plan rejected by the OTS, (iii) such association fails to remain in compliance with an OTS approved capi tal plan or (iv) the DOTS determines that such association (A) is in an unsafe or unsound condition to transact business, including having substantially insufficient capital or otherwise, or (B) has incurred or is likely to incur losses that will deplete all or substantially all of its capital and there is no reasonable prospect for the savings association's capital to be replenished without federal assistance. In the event of a receivership or conservatorship, stockholders would lose all or substantially all of their investment in the Association. The DOTS may also require a savings association to meet more stringent capital standards than those under the Capital Regulations on a case-by-case basis. The Association submitted its 1990 Business and Capital Plan (such plan, as revised, being the "Plan") to the OTS on January 8, 1990. On March 6, 1990, the Association, in response to certain regulatory suggestions and to reflect certain developments since the date the Plan was originally filed, filed a revi sed Plan with the OTS. The Plan is founded on a business strategy that contemplates a phased divestiture of the Association's corporate debt securities portfolio through open market sales and redemptions that will be completed by the end of the five-year divestiture period required under FIRREA. The Plan contemplates such divestiture shall be consummated at the carrying value of such securities at February 28, 1990 (which value in the aggregate was equal to market value at such date) and, therefore, no gain or loss will be recognized by the Association. In addition, it assumes that the Association's equity securities portfolio is substantially diveste d within the next three years. The revised Plan indicates that the Association would achieve capital compl iance with all capital requirements by the first quarter of 1994. The foregoing timetables represented the Association's best estimate, based on information available to it and market conditions at that time, of the time period during which it could dispose of such portfolios without adversely impacting the high-yield market and, therefore, the proceeds to be received by the Association from such disposition. Management believes that the disposition of such portfolios in the open market over a shorter period of time may adversely impact the Association's ability to achieve capita l compliance by reducing substantially its proceeds from such disposition. Although disposition over the five- year time frame may enable the Association to participate in any recovery from the current depressed market price levels for high-yield debt securities, it does lengthen the Association's exposure to future LOCOM adjustments and credit risk. Although the Association presented the Plan to the OTS because it involved the fewest regulatory exceptions or waivers and the least complexity in dealing with financial markets, the Association bel ieves that an alternative strategy, to which it is presently devoting substantial resources, may constitute a preferable means of achieving full compliance with the capital requirements. This alternative strategy would i nvolve the one-time divestiture of substantially all of the Association's corporate debt securities portfolio in a structured financing transaction that the Association might help finance. The Association has also discussed with its regulators variations on the Plan and the structured financing alternative. The Association has presented this alternative in considerable detail to the OTS and the FDIC, and is continuing discussions with them. The alternative strategy would require numerous regulatory waivers, exemptions and approvals. Consummation of a one-time divestiture transaction on the terms presently contemplated would likely carry negative im plications for the Association's net interest income in the periods immediately following such transaction, due to the long-term nature of the Association's high-cost liabilities, and would preclude the Association from being in compliance with the qualified thrift lender test, which would result in certain adverse consequences to the Association's ability to borrow to meet future liquidity needs. Under either disposition strategy, it will be necessary during most of 1990 to operate under the phased divestiture model due to the time required to obtain regulatory waivers and approvals and to market a structured financing transaction to outside investors. As indicated in the Plan, the Association's primary future business will be investment in residential mortgages, both through direct lending and through investment in mortgage-backed securities. The Association anticipates that such activities would be primarily funded with (i) deposits gathered through its branch system and telemarketing operations and (ii) net proceeds from sales of its corporate debt and equity securities and real estate. In addition to disposing of the corporate debt securities portfolio, equity investments and other high risk-weight assets, the Plan also contains such other capital compliance steps as (i) reducing the Association's overall asset size, (ii) increasing capital by realizing gains on disposition of equity securities, (iii) reduci ng general and administrative expenses, and (iv) exchanging existing convertible subordinated debt for equity. While the timely filing of the Plan does not place the Association in compliance with the OTS capit al standards, it does mean that the Association is in compliance with FERREA's requirements to file a capi tal plan, and, therefore, not currently subject to certain enforcement sanctions solely for failure to meet the statutory capital standards. A savings association that has been granted an exemption and is operating in compliance with an approved capital plan is also not in compliance with the statutory capital require ments. So long as it complies with its plan, however, the association is treated as if it were in compliance with such standards for the purposes only of not imposing penalties and other sanctions for failing to meet such standards. There is, however, no limit on the OTS's authority to take any appropriate action with respect to any unsafe or unsound practice or condition of the Association, other than the failure to comply with the statutory capital standards. There can be no assurance that the OTS will approve the Plan. If the Plan (or the Plan's request for capital exemption or exception) is not approved by the OTS, the Association will be subject to a variety of supervisory and enforcement sanctions, including being prohibited from increasing its assets or making any capital distributions and being subject to any other orders (such as orders to increase capital) or restrictions (such as restrictions on lending, investments, operational expenditures, new deposits and/or interest rates paid on deposits) imposed by the OTS in its notice of disapproval or otherwise. Many of these restrictions already apply to the Association. By approving a plan, exemption or exception, the DOTS does not approve contemplated actions or transactions for which separate applications, notices or filings are required. Accordingly, even if the OTS were to approve the Plan, the Association would still be required to obtain separate approvals for aspects of such Plan requiring separate approval, such as continuing to accept brokered deposits and the alternative structured disposition transaction. Although the Association believes that the Plan affords a feasible means for it to achieve capital compliance, there can be no assurance that the Plan will be accepted by the OTS, that it will be acce pted without substantial modifications and/or operating restrictions, or that, even if accepted, the Association wil l be able to comply with the provisions of the Plan. Furthermore, there can be no assurance that any of the assumptions in the Plan will occur. Many of the assumptions underlying the Plan, e.g., the amount of the gains ultimately to be realized on disposition of the Association's equity and equity equivalent securities portfol io, are subject to external events not within the control of the Association, and the failure of such assumptions to occur as projected may have a material adverse effect on the Association's ability to comply with the Pla n or to otherwise achieve capital compliance. The consequences for failure to have the Plan accepted or to compl y with the Plan are severe, and such nonacceptance and noncompliance, as well as the failure of some or all of the Plan's assumptions to occur, would likely have a significant adverse impact on the Association's business and financial position.The high-yield securities market continued to decline during the first two months of 1990. During the two month period ended February 28, 1990, the Association recorded additional net losses of approximately $198 million, resulting primarily from LOCOM adjustments aggregating $210.6 million. These losses resulted in a stockholders' deficit of $120.7 million at such date, thereby rendering the Association insolvent under GAAP. Under OTS Regulatory Bulletin 3a-1, a savings association that has become insolvent between the date of filing of a capital plan and the date of its approval or rejection by the OTS is prohibited from making any new loans or investments without the prior approval of the OTS District Director. Insolvency is one of the grounds in which the DOTS can appoint a conservator or receiver for a state-chartered association such as the Association. In February 1990, the Association voluntarily limited its lending activity to residential loans not exceeding $500,000 per loan. Such restriction, however, would likely have been required under the loans-to- one-borrower rules and Regulatory Bulletin 3 a-1. Shortly thereafter, the Association filed an application with the OTS seeking higher lending limits. By a letter dated March 30, 1990, the OTS responded by granting the Association authority to (i) originate or purchase new loans or investments not to exceed $500,000 in the aggregate to any one borrower that carry a risk weight of 50% or less under the risk-based capital regulations and (ii) grow to the extent of net interest credited, effective March 31, 1990. The Association’s tangible capital at February 28,1990 was a deficit of $120.7 million, resulting in a $246.8 million shortfall from the 1.5% minimum tangible capital requirement of $126.1 million. The Association’s core capital shortfall at that date amounted to $372.9 million from the 3% minimum core capit al requirement of $252.2 million. If the Association does not realize sufficient income from gains on sales of assets, and without a significant recovery in market price levels for corporate debt securities from those existing at February 28,1990, the Association will continue to be out of compliance with a tangible, core and risk-based capital requirements, and could be placed in conservatorship of receivership by the OTS. For a further description of applicable capital requirements, see “Item 1. Business-Regulation-Capital Regulations” and Note 2 of Notes to the Consolidated Financial Statements, both in the 1989 10-K Pursuant to regulations promulgated by the OTS, non-cumulative perpetual preferred stock may be included as tangible capital and as core capital. While cumulative preferred stock, such as Series A Preferred Stock, ma y be included as a risk-based capital, it generally may not be included as tangible capital or core capi tal. As of December 31,1989, the Association included the Series A Preferred Stock as core capital and as tangible capital on the basis of the irrevocable proxies described below. However, the Association has determined that it should seek a formal amendment to the Series A Preferred Stock to make dividends on such preferred stock non-cumulative in order to ensure that it may continue to include the Series A Preferred Stock in its core and tangible capital. If the Association did not include the Series A Preferred Stock in its core and tangible capita l at December 31, 1989, these amounts would have been decreased by approximately $8.5 million, which would have resulted in tangible and core capital of $69.1 million (0.7% of adjusted total assets) and a corresponding increase in tangible and core capital shortfall. Because the Association has been including the Series A Preferred Stock in tangible and care capital, neither the Amendment nor the Spiegel proxies described below were included as part of the plan, nor were they required by the OTS Regional Office in San Francisco. Enactment of the amendment does not materially improve the Association’s compliance with its required capital standards. Such compliance depends on successful consummation of the Plan, as described above. The Association has already commenced implementation of several steps in the plan, including selling approximately $575 million in high-yield corporate debt securities between August 1989 and February 1990, and reducing significantly general expenses in the fourth quarter of 1990. Effects of the AmendmentAt the time the Amendment becomes effective, each share of Series A Preferred Stock then held by a stockholder will automatically become non cumulative. Stockholders need not exchange their current Series A Preferred Stock certificates, and such certificates shall represent the same number of shares of non cumulative Series A Preferred Stock, and all rights, privileges and preferences attendant thereto. After the Amendment becomes effective, holders of the Series A Preferred Stock will have no right to dividends not declared or paid, as they do presently. However, the dividend rate on the Series A Preferred Stock ($.01 per share per annum) is nominal. Moreover, as described in the Association's Current Report on Form 8-K dated November 20, 1989, the OTS has prohibited the Association from paying any dividends or capital distributions without the prior approval of the OTS. The Association has complied with such restrictions and it is highly unlikely that the Association will be permitted in the future to pay any dividends i n respect of either its Common Stock or Series A Preferred Stock until the OTS approves the Plan and the Association achieves compliance with all applicable capital standards, as to the likelihood a nd timing of which there can be no assurance. Furthermore, the Association is also prohibited under indentures in respect of certain of its indebtedness from paying any dividends or capital distributions due to the extent of its net loss during the past year. There were no dividends in respect of the Series A Preferred Stock that had accrued and were unpaid at the date of this Proxy Statement. Consistent with the OTS restriction on dividends and other stockholder distributions described above, the Board of Directors voted in March 1990 not to declare the 1990 annual dividend on the Series A Preferred. The last Series A Preferred Stock dividend was paid on May 1, 1989. The Association has filed an amendment to its listing application in respect of the Series A Preferred Stock with the New York Stock Exchange (the "NYSE") and the Pacific Stock Exchange (the "PSE") so that such stock may continue to be listed on the NYSE and the PSE. Although the Association believes that such amendments to the listing applications will be approved, in the event that the Series A Preferred Stock does not continue to be listed on the NYSE and the PSE, the Association intends to have the Series A Preferred Stock included for quotation in the National Association of Securities Dealers Automated Quotations System. Enactment of the Amendment Assured Approval of the Amendment will require the affirmative vote of a majority of the number of votes that may be cast by the outstanding shares of Common Stock and the Series A Preferred Stock entitled to be cast at the Annual Meeting and voting together as a class (each share of Series A Preferred Stock has ten votes, and each share of Common Stock has one vote on matters coming before stockholders of the Association). Approval of the Amendment will also require the separate approval of a majority of the outstanding shares of Series A Preferred Stock entitled to be voted at the Annual Meeting. Thomas Spiegel, former Chairman of the Board and Chief Executive Officer of the Association, Abraham Spiegel, current Chairman of the Board, and Rita Spiegel, daughter of Abraham Spiegel and sister of Thomas Spiegel, have granted to the Association irrevocable proxies (the "Spiegel Proxies") authorizing certain officers of the Association to vote the shares represented by such proxies (2,841,549 shares of Common Stock and 6,330,523 Series A Preferred Stock, representing 63.1% of the number of votes that may be cast by the Common Stock and the Series A Preferred Stock, voting together as a class, and 74.7% of the shares of the Series A Preferred Stock outstanding at the Record Date) in favor of the Amendment, thereby assuring its enactment without any other votes being cast in favor of the Amendment. It should be noted that the personal interests of the Spiegel family, who own 89.1% of the shares of Series A Preferred Stock presently outstanding, would be affected by the approval of the Amendment; nonetheless they have, as noted above, granted the Spiegel Proxies in favor of the Amendment so that the Series A Preferred Stock may continue to be included in computing the Association's core and tangible capital. The Board of Directors recommends that stockholders vote "FOR" the proposed Amendment. EXHIBIT A AMENDMENT OF ARTICLES OF INCORPORATION OF COLUMBIA SAVINGS AND LOAN ASSOCIATION Certificate of Determination of Series A Cumulative Convertible Preferred Stock Section 1. Dividends (a) Non-Accrual of Dividends. The holders of outstanding Series A Preferred Stock shall be entitled to receive out of any funds legally available therefor, dividends in cash at the rate of one cent ($0.01) per share per annum, before any dividend is paid on Common shares. The right to such dividends on Series A Convertible Preferred Stock shall not be cumulative, and no right shall accrue to holders of Series A Preferred Stock by reason of the fact that dividends on said shares are not declared or paid in any prior year, nor shall any undeclared or unpaid dividend bear or accrue interest. (b) Payment of Dividends. When and as declared by the Board of Directors of this Corporation (the "Board of Directors") and to the extent permitted by applicable law, dividends as provided in Section l(a) may be payable annually on the first day of May of each year that any Series A Preferred Stock shall be outstanding, to holders of record of Series A Preferred Stock as of the first business day of April of each year or otherwise as the Board of Directors may from time to time determine. (c) Other Dividends (i) No dividend (other than dividends payable in the Common Stock, par value $1.00 per share, of this Corporation (the "Common Stock") or other distribution shall be paid, or declared and set apart for payment, on the shares of the Common Stock, nor shall any shares of the Common Stock be purchased, redeemed or otherwise acquired for value by this Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof, at any time during which this Corporation has failed to make an annual dividend payment to the extent permitted by Section l(b) of this Certificate of Determination and until such dividend is fully paid or declared and set apart for payment. (ii) Subject to the provisions of Section l(c)(i) of this Certificate of Determination, holders of Common Stock and Series A Preferred Stock shall be entitled to receive such other dividends and distributions as may be declared thereon by the Board of Directors from time to time out of assets or funds of this Corporation legally available therefor. Section 2. Liquidation (a) Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of this Corporation, the assets of this Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, shall be distributed as follows: (i) first, there shall be distributed to the holders of the Series A Preferred Stock then outstanding an amount equal to $1.00 per share plus all dividends declared and unpaid thereon to the date payment is made available to such holders; (ii) second, there shall be distributed to the holders of then outstanding Common Stock an amount per share of Common Stock equal to (A) $1.00 multiplied by (B) a fraction, the numerator of which shall be the number of shares of Series A Preferred Stock then outstanding, and the denominator of which shall be the number of shares of "Adjusted Stock" then deemed to be outstanding (as determined pursuant to Section 4 of the Certificate of Determination); and (iii) third, the remaining assets shall be distributed among the holders of outstanding Common Stock, ratably per share of Common Stock outstanding or deemed to be outstanding (for the purposes of determining amounts to be distributed to holders of the Series A Preferred Stock pursuant to this Section 2(a)(iii), the distribution shall be based upon the number of shares of Adjusted Stock then deemed to be outstanding with each share of Adjusted Stock for purposes of this Section 2(a)(iii) constituting one share of Common Stock which is "deemed to be outstanding").(b) Partial Payment. If upon liquidation, dissolution or winding up of the affairs of this Corporation, the assets of this Corporation available for distribution to its stockholders shall be insufficient to pay to the holders of Series A Preferred Stock the full amount to which they shall be entitled in accordance with Section 2(a)(i) of this Certificate of Determination, the holders of Series A Preferred Stock shall share ratably in the assets of this Corporation available for distribution. (c) Sale of Assets. For purposes of this Section 2, a liquidation, dissolution or winding up of the affairs of this Corporation shall not be deemed to be occasioned by or to include this Corporation's sale of all or substantially all of its assets or any consolidation or merger to this Association is a party .