<PAGE>
As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PENNFED FINANCIAL SERVICES, INC. PENNFED CAPITAL TRUST I
- ----------------------------------------- -------------------------
(Exact name of registrant as specified (Exact name of registrant as
in its charter) specified in its charter)
Delaware 22-3297339 Delaware Applied For
------------ -------------- ------------ ---------------
622 Eagle Rock Avenue 622 Eagle Rock Avenue
West Orange, New Jersey 07052 West Orange, New Jersey 07052
(973) 669-7366 (973) 669-7366
----------------------------- -----------------------------
(Address, including ZIP Code, and (Address, including ZIP Code, and
telephone number including area code, of telephone number including area
registrant's principal executive offices) code, of registrant's principal
executive offices)
Joseph L. LaMonica
President and Chief Executive Officer
PENNFED FINANCIAL SERVICES, INC.
622 Eagle Rock Avenue
West Orange, New Jersey 07052
(201) 669-7373
------------------------------------
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
James S. Fleischer, P.C. Robert C. Azarow, Esq.
Dave M. Muchnikoff, P.C. Thatcher Proffitt & Wood
Silver, Freedman & Taff, L.L.P. Two World Trade Center
1100 New York Avenue, N.W. 38/th/ Floor
Washington, D.C. 20005-3934 New York, New York 10098
(202) 414-6100 (212) 912-7400
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [_].
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box [_].
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering [_].
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_].
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [X].
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed
Proposed maximum
maximum aggregate Amount of
Title of each class Amount to be offering price offering registration
of security to be registered registered per share price fee
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<S> <C> <C> <C> <C>
__% Trust Preferred Securities, of PennFed Capital Trust I 1,380,000(1) $25.00 $34,500,000 $10,454.54
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__% Junior Subordinated Deferrable Interest Debentures of N/A
PennFed Financial Services, Inc. (2)
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PennFed Financial Services, Inc. Guarantee with respect to Trust N/A
Preferred Securities, (3)
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Total ......................................................... 1,380,000 $34,500,00
=================================================================================================================================
</TABLE>
(1) Includes up to 180,000 additional Trust Preferred Securities which may be
acquired by the Underwriter to cover over-allotments, if any.
(2) The __% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") will be purchased by PennFed Capital Trust I with
the proceeds of the sale of the Trust Preferred Securities, (the "Preferred
Securities"). No separate consideration will be received for the Junior
Subordinated Debentures distributed upon any liquidation of PennFed Capital
Trust I.
(3) No separate consideration will be received for the PennFed Financial
Services, Inc. Guarantee (the "Guarantee").
(4) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of PennFed Financial Services, Inc. under the Indenture, the
rights of holders of Preferred Securities of PennFed Capital Trust I under a
trust agreement and the rights of holders of the Preferred Securities under
the Guarantee, the Expense Agreement entered into by PennFed Financial
Services, Inc. as described herein.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PROSPECTUS DATED SEPTEMBER 18, 1997
$30,000,000
PENNFED CAPITAL TRUST I
____% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
1,200,000 PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
[PennFed Financial Services, Inc. Logo]
PENNFED FINANCIAL SERVICES, INC.
The ____% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent beneficial interests in PennFed Capital
Trust I, a trust created under the laws of the State of Delaware (the "Trust
Issuer"). PennFed Financial Services, Inc., a Delaware corporation ("PennFed"),
will be the owner of all of the beneficial interests represented by common
securities of the Trust Issuer (the "Common Securities" and, collectively with
the Preferred Securities, the "Trust Securities"). The Bank of New York is the
Property Trustee of the Trust Issuer. The Trust Issuer exists for the sole
purpose of issuing the Trust Securities and investing the proceeds from the sale
thereof in ___% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") to be issued by the Company. The Junior Subordinated
Debentures will mature on _______, 2027 (the "Stated Maturity"). The Preferred
Securities will have a preference over the Common Securities under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of the Preferred
Securities--Subordination of the Common Securities."
(Continued on the following pages)
Application has been made to list the Preferred Securities on the Nasdaq
Stock Market's National Market under the symbol "PFSBP." See "Risk Factors--
Absence of Prior Public Market for the Preferred Securities; Trading Price and
Tax Considerations."
____________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
____________________________
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR
THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Commission(l) Issuer(2)(3)
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<S> <C> <C> <C>
Per Preferred Security $ 25.00 (2) $ 25.00
Total(4) $30,000,000 (2) $30,000,000
</TABLE>
(1) The Trust Issuer and PennFed have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures of
PennFed, PennFed has agreed to pay the Underwriter, as compensation for
their arranging the investment of such proceeds in the Junior Subordinated
Debentures, $_____ per Preferred Security, or $____ in the aggregate
($_______ in the aggregate if the over-allotment option is exercised in
full). See "Underwriting."
(3) Before deducting expenses payable by PennFed, estimated to be approximately
$____.
(4) The Trust Issuer and PennFed have granted the Underwriter a 30-day option
to purchase up to 180,000 additional Preferred Securities on the same terms
and conditions set forth above solely to cover over-allotments, if any. If
this option is exercised in full, the total Price to Public and Proceeds to
Issuer will be $34,500,000. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in book-
entry form through the book-entry facilities of The Depository Trust Company on
or about _________, 1997 against payment therefor in immediately available
funds.
RYAN, BECK & CO.
The date of this Prospectus is September 18, 1997
ii
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(continued from the previous page)
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depository ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of
Preferred Securities," Preferred Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of the Preferred Securities. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from the date of
original issuance and payable quarterly in arrears on January 31, April 30, July
31 and October 31 of each year, commencing January 31, 1998, at the annual rate
of ___% of the Liquidation Amount (as defined herein) of $25 per Preferred
Security ("Distributions"). Subject to certain exceptions, PennFed has the
right to defer payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarters
with respect to each deferral period (each, an "Extension Period"), provided
that no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the rate of ___%, compounded quarterly, to the extent permitted by
applicable law), PennFed may elect to begin a new Extension Period subject to
the requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred, and PennFed will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to the capital stock of PennFed or debt securities of PennFed that
rank pari passu with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated Debentures
would continue to accrue (and the amount of Distributions to which holders of
the Preferred Securities are entitled would accumulate) at the rate of ___% per
annum, compounded quarterly, and holders of the Preferred Securities would be
required to include interest income in their gross income for United States
federal income tax purposes in advance of receipt of the cash distributions with
respect to such deferred interest payments. PennFed believes that the mere
existence of its right to defer interest payments should not cause the Preferred
Securities to be issued with original issue discount for federal income tax
purposes. However, it is possible that the Internal Revenue Service could take
the position that the likelihood of deferral was not a remote contingency within
the meaning of applicable Treasury Regulations. See "Description of the Junior
Subordinated Debentures-Right to Defer Interest Payment Obligation" and "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
iii
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PennFed and the Trust Issuer believe that, taken together, the obligations
of PennFed under the Guarantee, the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein),
constitute in the aggregate, a full, irrevocable and unconditional guarantee, on
a subordinated basis, of all of the Trust Issuer's obligations under the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures, the Expense Agreement and the Guarantee--Full
and Unconditional Guarantee." The Guarantee of PennFed (the "Guarantee")
guarantees the payment of Distributions and payments on liquidation or
redemption of the Preferred Securities, but only in each case to the extent of
funds held by the Trust Issuer, as described herein. See "Description of the
Guarantee." If PennFed does not make interest payments on the Junior
Subordinated Debentures held by the Trust Issuer, the Trust Issuer will have
insufficient funds to pay Distributions on the Preferred Securities. The
Guarantee does not cover payment of Distributions when the Trust Issuer does not
have sufficient funds to pay such Distributions. In such event, a holder of the
Preferred Securities may institute a legal proceeding directly against PennFed
to enforce payment of amounts equal to such Distributions to such holder. See
"Description of the Junior Subordinated Debentures-Enforcement of Certain Rights
by Holders of the Preferred Securities."
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or their earlier redemption. Subject to regulatory approval, if then
required under applicable capital guidelines or regulatory policies, the Junior
Subordinated Debentures are redeemable prior to their Stated Maturity at the
option of the Company (i) on or after _____________, 2002, in whole at any time
or in part from time to time, or (ii) at any time, in whole (but not in part),
upon the occurrence and continuation of a Tax Event, an Investment Company Event
or a Capital Treatment Event (each as defined herein) at a redemption price (the
"Redemption Price") equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption plus 100%
of the principal amount thereof. See "Description of the Junior Subordinated
Debentures- Redemption or Exchange."
The obligations of PennFed under the Guarantee and the Junior Subordinated
Debentures will be unsecured and are subordinate and junior in right of payment
to all Senior Indebtedness (as defined in "Description of the Junior
Subordinated Debentures--Subordination") of PennFed. At June 30, 1997, PennFed
had no outstanding Senior Indebtedness. There is no limitation on the amount of
Senior Debt, or additional subordinated debt which is pari passu with the Junior
Subordinated Debentures, which PennFed may issue. PennFed may from time to time
incur indebtedness constituting Senior Indebtedness. See "Description of the
Junior Subordinated Debentures--Subordination."
iv
<PAGE>
PennFed, as the holder of the Common Securities, will have the right at any
time to disolve the Trust Issuer. The ability of PennFed to do so may be
subject to PennFed's prior receipt of regulatory approval. In the event of the
dissolution of the Trust Issuer, after satisfaction of liabilities to creditors
of the Trust Issuer as required by applicable law, the holders of the Preferred
Securities will be entitled to receive a Liquidation Amount of $25 per Preferred
Security plus accumulated and unpaid Distributions thereon to the date of
payment, which may be in the form of a distribution of such amount in Junior
Subordinated Debentures, subject to certain exceptions. See "Description of the
Preferred Securities--Liquidation Distribution upon Termination."
- --------------------------------------------------------------------------------
PennFed will provide to the holders of the Preferred Securities annual
reports containing financial statements audited by PennFed's independent
auditors. PennFed will also furnish annual reports on Form 10-K free of charge
to holders of the Preferred Securities who so request in writing addressed to
the Secretary of PennFed.
- --------------------------------------------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. ANY OF THE FOREGOING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
v
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[MAP INDICATING PENN FEDERAL'S BRANCH OFFICES]
vi
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________________________________________________________________________________
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the underwriters' over-allotment option will not be exercised.
PENNFED FINANCIAL SERVICES, INC.
GENERAL
PennFed Financial Services, Inc. ("PennFed" and with its subsidiary, where
appropriate, the "Company"), a Delaware corporation, was organized in March 1994
for the purpose of becoming the savings and loan holding company for Penn
Federal Savings Bank ("Penn Federal" or the "Bank") in connection with the
Bank's conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank (the "Conversion"). PennFed owns all of the
outstanding stock of the Bank. All references to the Company, unless otherwise
indicated, prior to July 14, 1994 refer to the Bank and its subsidiary on a
consolidated basis. The Company's Common Stock is traded on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol "PFSB."
PennFed and the Bank are subject to comprehensive regulation, examination
and supervision by the Office of Thrift Supervision, Department of the Treasury
("OTS") and by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
a member of the Federal Home Loan Bank ("FHLB") System and its deposits are
insured up to applicable limits by the FDIC.
The Company has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Company attracts deposits from the general
public and uses such deposits, together with borrowings and other funds, to
originate and purchase one- to four-family residential mortgage loans and, to a
lesser extent, commercial and multi-family real estate and consumer loans. See
"Business -Originations, Purchases, Sales and Servicing of Loans." The Company
also invests in mortgage-backed securities secured by one- to four-family
residential mortgages, U.S. Government and agency obligations and other
permissible investments.
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms, which generally include savings, money market, and a
variety of checking accounts, as well as certificate accounts. The Company
generally solicits deposits in its primary market areas.
At June 30, 1997, the Company had total assets of $1.3 billion, deposits of
$918.2 million, borrowings of $288.2 million and stockholders' equity of $97.3
million. The Bank exceeds all applicable minimum regulatory capital
requirements. At June 30, 1997, the Bank had tangible capital, core capital and
risk-based capital ratios of 5.61%, 5.64% and 12.22%, respectively. The
1
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________________________________________________________________________________
Company's total stockholders' equity was $97.3 million at June 30, 1997 and its
stockholders' equity to total assets ratio at that date was 7.36%.
At June 30, 1997, the Company's gross loan portfolio totaled $928.9
million, including $831.8 million of one- to four-family residential first
mortgage loans, $56.8 million of commercial and multi-family real estate loans
and $40.2 million of consumer loans. In addition, on that date, the Company had
$288.5 million of mortgage-backed securities and $47.7 million of other
investment securities and FHLB of New York stock.
At June 30, 1997, the vast majority of the Company's first and second
mortgage loans (excluding mortgage-backed securities) were secured by properties
located in New Jersey. Of the loans secured by properties outside the State of
New Jersey, the majority are secured by one-to four-family loans and the balance
secured by commercial and multi-family real estate loans. See "Business-
Originations, Purchases, Sales and Servicing of Loans." The Company's revenues
are derived primarily from interest on loans, mortgage-backed securities and
investments, and income from service charges.
The Company had net income of $6.9 million and $7.8 million for the years
ended June 30, 1997 and June 30, 1996, respectively. Excluding the effect of a
one-time Savings Association Insurance Fund ("SAIF") recapitalization assessment
of approximately $3.1 million, net of taxes, the 1997 net income would have been
approximately $9.9 million.
Penn Federal, through its wholly-owned subsidiary, Penn Savings Insurance
Agency, Inc., offers insurance and uninsured annuity products to its customers.
See "Business-Subsidiary Activities."
The administrative offices of the Company are located at 622 Eagle Rock
Avenue, West Orange, New Jersey 07052-2989, and the telephone number at that
address is (973) 669-7366.
OPERATING STRATEGY
Management's primary goal continues to be to improve profitability, while
continuing to manage interest rate risk, so as to enhance stockholder value, and
to foster and maintain customer confidence. The Company's current strategies
focus on: (i) emphasizing lending secured by one-to four-family residential
mortgages, (ii) increasing the commercial and multi-family real estate and
consumer loan portfolios, (iii) maintaining asset quality, (iv) increasing
deposit balances, (v) managing the Company's exposure to interest rate risk, and
(vi) controlling non-interest expenses.
The Company is implementing these strategies as follows:
EMPHASIZING LENDING SECURED BY ONE- TO FOUR-FAMILY RESIDENTIAL FIRST
MORTGAGES. The Company has emphasized, and plans to continue to emphasize,
originating and purchasing traditional one-to four-family first mortgage loans
secured by properties in New Jersey. Correspondent loan
2
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purchases of one- to four-family mortgage loans through June 1997 have been
primarily secured by properties located throughout New Jersey with a limited
purchase of loans secured by real estate located in the Commonwealth of
Pennsylvania. The Company has approved the purchase of a limited amount of loans
secured by real estate located in the Commonwealth of Virginia and the
Commonwealth of Massachusetts through an existing correspondent relationship,
though none were purchased as of June 30, 1997. The Company originated or
purchased $337.3 million, $251.8 million and $123.3 million in one- to four-
family mortgage loans in fiscal 1997, 1996 and 1995, respectively. The Company's
interest income has been derived primarily from one- to four-family mortgage
loans on residential real estate which totaled $831.8 million or 89.55% of the
Company's gross loan portfolio at June 30, 1997.
INCREASING THE COMMERCIAL AND MULTI-FAMILY REAL ESTATE AND CONSUMER LOAN
PORTFOLIOS. In addition to one-to four-family residential first mortgage
lending, the Company plans to increase its emphasis on commercial and multi-
family real estate and consumer lending. Such loans reprice more frequently,
have shorter maturities, and/or have higher yields than one-to four-family first
mortgage loans. The Company originated $31.7 million, $23.4 million and $18.9
million of commercial and multi-family and consumer loans in fiscal 1997, 1996
and 1995, respectively. The Company has recently established a correspondent
relationship with a bank in New Jersey as part of an overall effort to increase
its commercial and multi-family real estate originations.
MAINTAINING ASSET QUALITY. The Company's loan portfolio consists primarily
of one- to four-family mortgages, which are considered to have less risk than
commercial and multi-family real estate or consumer loans.
The Company's non-performing assets consist of non-accruing loans and real
estate owned. The Company focuses on strong underwriting and collection
efforts and aggressive marketing of real estate owned properties. In addition,
the Company has occasionally restructured loans by reducing the interest rate or
deferring principal and interest payments in order to return the loan to a
performing status. As a result, non-performing assets as a percentage of total
assets was 0.48% at June 30, 1997 compared to 2.71% at June 30, 1993.
INCREASING DEPOSIT BALANCES. The Company's primary source of funds is
deposits. Deposits have increased 10%, 17% and 16% in fiscal 1997, 1996 and
1995, respectively. The Company plans to continue to emphasize deposit growth,
particularly longer term certificates of deposit, and increase its emphasis on
transaction accounts. It has recently emphasized the solicitation of deposits
from municipalities.
MANAGING THE COMPANY'S EXPOSURE TO INTEREST RATE RISK. The Company has an
asset/liability committee that meets no less than weekly to price loan and
deposit products and monthly to develop, implement and review policies to manage
interest rate risk. The Company has endeavored to manage its interest rate risk
through the pricing and diversification of its loan and deposit products,
including the focus on the origination and purchase of first mortgage loans with
shorter terms to maturity and/or with adjustable rate features, as well as the
origination of
3
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________________________________________________________________________________
commercial and multi-family real estate and consumer loans which generally have
shorter expected average lives or reprice at shorter intervals than one- to
four-family residential first mortgage products. In addition, the Company has
purchased government agency mortgage-backed securities with short to
intermediate average lives which generally do not exceed 4.5 years or which have
adjustable rate features. Furthermore, as part of its interest rate risk
strategy, the Company has emphasized longer term certificates of deposit and
utilized intermediate term borrowings. The Company has also engaged in
intermediate term interest rate swaps designed to extend the maturities of six
month certificates of deposit to three to five years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Interest Rate Sensitivity" and "-Asset/Liability Strategy."
CONTROLLING NON-INTEREST EXPENSES. Non-interest expenses are carefully
monitored, including ongoing reviews of staffing levels, supplies, facilities
and operations. Excluding the effects of the one-time SAIF recapitalization
assessment, the Company's ratio of non-interest expenses to average total assets
was 1.47% for the year ended June 30, 1997 compared to 1.84% for the prior
fiscal year. The Company's efficiency ratio, excluding the effects of the SAIF
assessment, was 43.92% for the year ended June 30, 1997 compared to 48.53% for
the prior fiscal year.
THE TRUST ISSUER
The Trust Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as depositor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee, and the Administrative Trustees named therein and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on
________ __, 1997. The trust agreement will be amended and restated in its
entirety (as so amended, the "Trust Agreement"). All of the Common Securities
will be owned by the Company. The Company will acquire Common Securities in an
aggregate Liquidation Amount equal to 3% of the total capital of the Trust
Issuer. The Trust Issuer exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the Trust
Securities to acquire Junior Subordinated Debentures issued by the Company and
(iii) engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Trust Issuer, and payments under the Junior Subordinated Debentures will be the
sole revenue of the Trust Issuer. The principal executive office of the Trust
Issuer is 622 Eagle Rock Avenue, West Orange, New Jersey 07052-2989 and its
telephone number is (973) 669-7366.
THE OFFERING
THE TRUST ISSUER........... PennFed Capital Trust I, a Delaware statutory
business trust (the "Trust Issuer").The sole
assets of the Trust Issuer will be the Junior
Subordinated Debentures.
4
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<PAGE>
_______________________________________________________________________________
SECURITIES OFFERED......... 1,200,000 shares of ___% Cumulative Trust
Preferred Securities (the "Preferred
Securities"), evidencing preferred undivided
beneficial interests in the assets of the Trust
Issuer, which will consist only of the Junior
Subordinated Debentures.
OFFERING PRICE............. $25 per Preferred Security (Liquidation Amount
$25).
DISTRIBUTIONS.............. Holders of the Preferred Securities will be
entitled to receive cumulative cash Distributions
at an annual rate of ___% of the Liquidation
Amount of $25 per Preferred Security,
accumulating from the date of original issuance
and payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year,
commencing on January 31, 1998. The distribution
rate and the distribution and other payment dates
for the Preferred Securities will correspond to
the interest rate and interest and other payment
dates on the Junior Subordinated Debentures. See
"Description of the Preferred Securities."
JUNIOR SUBORDINATED
DEBENTURES................. The Trust Issuer will invest the proceeds from
the issuance of the Trust Securities in an
equivalent amount of the Junior Subordinated
Debentures. The Junior Subordinated Debentures
will mature on ___________, 2027. The Junior
Subordinated Debentures will rank subordinate and
junior in right of payment to all Senior
Indebtedness of PennFed. At June 30, 1997,
PennFed had no outstanding Senior Indebtedness.
There is no limitation on the amount of Senior
Indebtedness, or Subordinated Debt (as defined in
"Description of Junior Subordinated Debentures-
Subordination") which is pari passu with the
Junior Subordinated Debentures, which PennFed may
issue. PennFed may from time to time, incur
indebtedness constituting Senior Indebtedness. In
addition, because PennFed is a holding company,
PennFed's obligations under the Junior
Subordinated Debentures will effectively be
subordinated to all existing and future
liabilities and obligations of its subsidiaries,
including the Bank. See "Risk Factors--
Subordination of the Guarantee and the Junior
Subordinated Debentures," "Risk Factors--Source
of Payments to Holders of Preferred Securities"
and "Description of the Junior Subordinated
Debentures--Subordination."
5
______________________________________________________________________________
<PAGE>
_______________________________________________________________________________
GUARANTEE.................. Payments of Distributions out of funds held by
the Trust Issuer, and payments on liquidation of
the Trust Issuer or the redemption of the
Preferred Securities, are guaranteed by PennFed
to the extent the Trust Issuer has funds
available therefor. PennFed and the Trust Issuer
believe that, taken together, the obligations of
PennFed under the Guarantee, the Trust Agreement,
the Junior Subordinated Debentures, the Indenture
and the Expense Agreement, constitute, in the
aggregate, a full and unconditional guarantee, on
a subordinated basis, of all of the Trust
Issuer's obligations under the Preferred
Securities. See "Description of the Guarantee"
and "Relationship Among the Preferred Securities,
the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee." The obligations of
PennFed under the Guarantee are subordinate and
junior in right of payment to all Senior
Indebtedness of PennFed. See "Risk Factors--
Subordination of the Guarantee and the Junior
Subordinated Debentures" and "Description of the
Guarantee. "
RIGHT TO DEFER
INTEREST PAYMENTS.......... So long as no event of default under the
Indenture has occurred and is continuing, PennFed
has the right under the Indenture at any time
during the term of the Junior Subordinated
Debentures to defer the payment of interest at
any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension
Period may extend beyond the Stated Maturity of
the Junior Subordinated Debentures. At the end of
such Extension Period, PennFed must pay all
interest then accrued and unpaid (together with
interest thereon at the annual rate of ___%,
compounded quarterly, to the extent permitted by
applicable law). During an Extension Period,
interest will continue to accrue and holders of
the Junior Subordinated Debentures (or holders of
the Preferred Securities, while outstanding) will
be required to accrue interest income for United
States federal income tax purposes in advance of
receipt of payment of such deferred interest. See
"Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount").
During any such Extension Period, PennFed may
not, and may not permit any subsidiary of PennFed
to, (i) declare or pay any dividends or
distributions on, or redeem, purchase,
6
_______________________________________________________________________________
<PAGE>
_______________________________________________________________________________
acquire or make a liquidation payment with
respect to, any of PennFed's capital stock (other
than (a) the reclassification of any class of
PennFed's capital stock into another class of
capital stock, (b) dividends or distributions
payable in common stock of PennFed, (c) any
declaration of a dividend in connection with the
implementation of a stockholders' rights plan,
the issuance of stock under any such plan in the
future or the redemption or repurchase of any
such rights pursuant thereto, (d) payments under
the Guarantee and (e) purchases of common stock
related to the issuance of common stock or rights
under any of PennFed's benefit plans for its
directors, officers or employees), (ii) make any
payment of principal, interest or premium, if
any, on, or repay, repurchase or redeem, any debt
securities of PennFed that rank pari passu with
or junior in right of payment to the Junior
Subordinated Debentures, or (iii) make any
guarantee payments with respect to any guarantee
by PennFed of the debt securities of any
subsidiary of PennFed if such guarantee ranks
pari passu with or junior in right of payment to
the Junior Subordinated Debentures other than
payments pursuant to the Guarantee. Prior to the
termination of any such Extension Period, PennFed
may further defer the payment of interest on the
Junior Subordinated Debentures, provided that no
Extension Period may exceed 20 consecutive
quarters or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. There is no
limitation on the number of times that PennFed
may elect to begin an Extension Period. See
"Description of the Junior Subordinated
Debentures--Right to Defer Interest Payment
Obligation" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
PennFed has no current intention of exercising
its right to defer payments of interest by
extending the interest payment period on the
Junior Subordinated Debentures. However, should
PennFed elect to exercise such right in the
future, the market price of the Preferred
Securities is likely to be adversely affected. As
a result of the existence of PennFed's right to
defer interest payments, the market price of the
Preferred Securities may be more volatile than
the market prices of other similar securities
that do not provide for such optional deferrals.
7
_______________________________________________________________________________
<PAGE>
_______________________________________________________________________________
REDEMPTION................. The Junior Subordinated Debentures are subject to
redemption prior to their Stated Maturity at the
option of PennFed (i) on or after ___________,
2002, in whole at any time or in part from time
to time, or (ii) at any time, in whole (but not
in part), within 180 days following the
occurrence and continuation of a Tax Event, an
Investment Company Event or a Capital Treatment
Event (each as defined herein) in each case at a
redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures so
redeemed, together with any accrued and unpaid
interest to the date fixed for redemption.
If the Junior Subordinated Debentures are
redeemed prior to their Stated Maturity, the
Trust Issuer must apply the proceeds of such
redemption to redeem a Like Amount (as defined
herein) of the Preferred Securities and the
Common Securities. The Preferred Securities will
be redeemed upon repayment of the Junior
Subordinated Debentures at their Stated Maturity.
See "Description of the Preferred Securities--
Redemption."
DISTRIBUTION OF THE JUNIOR
SUBORDINATED DEBENTURES
UPON LIQUIDATION OF THE
TRUST ISSUER.............. PennFed will have the right at any time to
dissolve the Trust Issuer and, after satisfaction
of creditors of the Trust Issuer, if any, as
provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the
holders of the Preferred Securities and the
Common Securities in exchange therefor upon
liquidation of the Trust Issuer. The ability of
PennFed to do so may be subject to PennFed's
prior receipt of regulatory approval.
In the event of the liquidation of the Trust
Issuer, after satisfaction of the claims of
creditors of the Trust Issuer, if any, as
provided by applicable law, the holders of the
Preferred Securities will be entitled to receive
a Liquidation Amount of $25 per Preferred
Security plus accumulated and unpaid
Distributions thereon to the date of payment,
which may be in the form of a distribution of a
Like Amount (as defined herein) of the Junior
Subordinated Debentures, subject to certain
exceptions as described herein. See "Description
of the Preferred Securities--Liquidation of the
Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders."
8
_______________________________________________________________________________
<PAGE>
________________________________________________________________________________
VOTING RIGHTS.............. Except in limited circumstances, the holders of
the Preferred Securities will have no voting
rights. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust
Agreement."
USE OF PROCEEDS............ All of the proceeds from the sale of the
Preferred Securities will be used by the Trust
Issuer to purchase Junior Subordinated
Debentures. PennFed intends that the net proceeds
from the sale of such Junior Subordinated
Debentures will be used for general corporate
purposes, including, but not limited to,
acquisitions by either the Company or the Bank
(although there presently exist no agreements or
understandings with respect to any such
acquisition), capital contributions to the Bank
to support growth and for working capital, and
the possible repurchase of shares of PennFed's
common stock, subject to acceptable market
conditions.
RISK FACTORS............... An investment in the Preferred Securities
involves substantial risks that should be
considered by prospective purchasers. In
addition, because holders of the Preferred
Securities may receive Junior Subordinated
Debentures on termination of the Trust Issuer,
and because payments on the Junior Subordinated
Debentures are the sole source of funds for
Distributions on and redemptions of the Preferred
Securities, prospective purchasers of the
Preferred Securities are also making an
investment decision with regard to the Junior
Subordinated Debentures and should carefully
review all of the information regarding the
Junior Subordinated Debentures contained herein.
See "Risk Factors" and "Description of the Junior
Subordinated Debentures. "
NASDAQ NATIONAL MARKET
SYMBOL.................... Application has been made to have the Preferred
Securities approved for listing on The Nasdaq
Stock Market's National Market under the symbol
"PFSBP."
ERISA CONSIDERATIONS....... For a discussion of certain restrictions on
purchases, see "ERISA Considerations."
9
________________________________________________________________________________
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The Summary Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company (the Bank
prior to 1995), and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
within.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- ------------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ................................. $1,321,751 $1,086,524 $868,926 $ 680,157 $581,474
Loans receivable, net ........................ 931,451 652,571 467,677 383,357 399,334
Mortgage-backed securities ................... 288,539 346,068 319,436 204,870 123,288
Investment securities ........................ 35,290 21,288 17,558 11,167 11,302
Deposits ..................................... 918,160 836,416 713,524 614,860/(1)/ 525,268
Total borrowings ............................. 288,215 146,700 50,830 15,000 10,000
Stockholders' equity.......................... 97,270 90,564 94,170 41,985 37,432
Book value per common share................... 21.83 20.50 18.17 --- ---
Tangible book value per common share.......... 18.26 16.33 14.11 --- ---
</TABLE>
(1) Includes approximately $53.8 million received and held on deposit for the
purchase of stock in the Company's initial public offering completed on
July 14, 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
1997/(1)/ 1996 1995 1994 1993
--------------------- -------- --------- --------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest and dividend income.................... $ 85,401 $68,123 $52,719 $43,045 $46,085
Total interest expense................................ 53,073 39,121 27,153 20,825 23,382
------------ ------- ------- ------- -------
Net interest and dividend income...................... 32,328 29,002 25,566 22,220 22,703
Provision for loan losses............................. 635 610 569 883 1,561
------------ ------- ------- ------- -------
Net interest income after provision for loan losses... 31,693 28,392 24,997 21,337 21,142
------------ ------- ------- ------- -------
Service charges....................................... 1,666 1,602 1,476 1,686 1,634
Net gain (loss) from real estate operations........... (181) 104 117 (541) (549)
Net gain (loss) on sales of loans..................... --- --- --- (19) 652
Net gain on sales of investment securities............ --- 94 --- --- 91
Other................................................. 298 402 532 540 35
------------ ------- ------- ------- -------
Total non-interest income............................. 1,783 2,202 2,125 1,666 1,863
------------ ------- ------- ------- -------
Total non-interest expenses........................... 22,385/(1)/ 17,642 17,561 15,556 15,688
------------ ------- ------- ------- -------
Income before taxes and cumulative effect of
change in accounting principle..................... 11,091 12,952 9,561 7,447 7,317
Income tax expense 4,205 5,111 3,921 3,005 2,647
Cumulative effect of change in accounting principle --- --- --- 111 ---
------------ ------- ------- ------- -------
Net income $ 6,886/(1)/ $ 7,841 $ 5,640 $ 4,553 $ 4,670
============ ======= ======= ======= =======
Net income per common share:
Primary $1.46/(1)/ $1.55 $1.08 $ --- $ ---
============ ======= ======= ======= =======
Fully diluted $1.44/(1)/ $1.55 $1.08 $ --- $ ---
============ ======= ======= ======= =======
</TABLE>
(1) Fiscal 1997 includes the effect of a one-time SAIF recapitalization
assessment of approximately $4.8 million, or $3.1 million net of taxes.
Excluding this non-recurring assessment, total non-interest expenses would
have been $17.6 million, net income would have been $9.9 million, primary
earnings per share would have been $2.11 and fully diluted earning per
share would have been $2.09.
10
<PAGE>
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED JUNE 30,
------------------------------------------------
1997/(1)/ 1996 1995 1994 1993
---------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets (ratio of net income to
average total assets).......................................... 0.58%/(1)/ 0.82% 0.74% 0.76% 0.80%
Return on average stockholders' equity (ratio of
net income to average stockholders' equity).................... 7.42/(1)/ 8.36 5.97 11.40 13.25
Net interest rate spread during the year......................... 2.58 2.96 3.24 3.90 4.24
Net interest margin (net interest and dividend
income to average interest-earning assets)..................... 2.83 3.22 3.58 3.95 4.24
Ratio of average interest-earning assets to average
interest-bearing liabilities................................... 105.30 105.87 109.05 101.57 100.01
Ratio of earnings to fixed charges/(2)/:
Excluding interest on deposits 1.86x 3.35x 7.28x 10.44x 7,318.00x
Including interest on deposits 1.21x 1.33x 1.35x 1.36x 1.31x
Ratio of non-interest expense to average total assets............ 1.87%/(1)/ 1.84% 2.31% 2.58% 2.70%
Efficiency ratio (non-interest expense, excluding
amortization of intangibles, to net interest and
dividend income and non-interest income excluding
gains and real estate operations).............................. 57.95/(1)/ 48.53 58.63 59.10 59.09
ASSET QUALITY RATIOS:
Non-accruing loans to total loans at end of year................. 0.59 0.95 1.18 2.55 3.48
Allowance for loan losses to non-accruing loans
at end of year................................................. 47.80 42.52 51.39 31.04 22.31
Allowance for loan losses to total loans at end of year.......... 0.28 0.40 0.61 0.79 0.78
Non-performing assets to total assets at end of year............. 0.48 0.67 0.78 1.67 2.71
Ratio of net charge-offs during the year to average loans
outstanding during the year.................................... 0.08 0.16 0.19 0.25 0.43
CAPITAL RATIOS:
Stockholders' equity to total assets at end of year.............. 7.36 8.34 10.84 6.17 6.44
Average stockholders' equity to average total assets............. 7.76 9.80 12.44 6.63 6.06
Tangible capital to tangible assets at end of year/(3)/.......... 5.61 5.92 6.29 5.55 5.55
Core capital to adjusted tangible assets at end of year/(3)/..... 5.64 5.97 6.38 5.71 5.81
Risk-based capital to risk-weighted assets at end of year/(3)/... 12.22 13.47 14.49 13.16 11.61
OTHER DATA:
Number of branch offices at end of year.......................... 17 17 17 16 16
Number of deposit accounts at end of year........................ 85,400 81,700 78,800 63,100 64,800
</TABLE>
(1) Fiscal 1997 results include the effect of a one-time SAIF recapitalization
assessment of approximately $4.8 million, or $3.1 million net of taxes.
Excluding this non-recurring assessment, return on average assets would
have been 0.83%, return on average stockholders' equity would have been
10.70%, the ratio of non-interest expense to average total assets would
have been 1.47% and the efficiency ratio would have been 43.92%.
(2) The ratio of earnings to fixed charges excluding interest on deposits is
calculated by dividing income before taxes and extraordinary items before
interest on borrowings by interest on borrowings on a pretax basis. The
ratio of earnings to fixed charges including interest on deposits is
calculated by dividing income before income taxes and extraordinary items
before interest on deposits and borrowings by interest on deposits plus
interest on borrowings on a pretax basis.
(3) Represents regulatory capital ratios for the Bank.
11
<PAGE>
RISK FACTORS
An investment in the Preferred Securities involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information contained in this Prospectus, the following factors in evaluating
the Company, its business and the Trust Issuer before purchasing the Preferred
Securities offered hereby. Prospective investors should note, in particular,
that this Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties. When used in
this Prospectus, the words "anticipate," "believe," "estimate," "may," "intend"
and "expect" and similar expressions identify certain of such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. The considerations listed below represent certain important
factors the Company believes could cause such results to differ. These
considerations are not intended to represent a complete list of the general or
specific risks that may affect the Company and the Trust Issuer. It should be
recognized that other risks, including general economic factors and expansion
strategies, may be significant, presently or in the future, and the risks set
forth below may affect the Company and the Trust Issuer to a greater extent than
indicated.
RISK FACTORS RELATING TO THE OFFERING
SUBORDINATION OF THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES
The obligations of PennFed under the Guarantee issued by PennFed for the
benefit of the holders of the Preferred Securities and under the Junior
Subordinated Debentures issued to the Trust Issuer will be unsecured and will
rank subordinate and junior in right of payment to all Senior Indebtedness of
PennFed. At June 30, 1997, PennFed had no outstanding Senior Indebtedness.
There is no limitation on the amount of Senior Indebtedness, or subordinated
debt which is pari passu with the Junior Subordinated Debentures, which PennFed
may issue. Because PennFed is a holding company, the right of PennFed to
participate in any distribution of assets of any subsidiary, including the Bank,
upon such subsidiary's liquidation or reorganization or otherwise (and thus the
ability of holders of the Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary
(including depositors in the Bank), except to the extent that PennFed may itself
be recognized as a creditor of that subsidiary. If PennFed is a creditor of a
subsidiary, the claims of PennFed would be subject to any prior security
interest in the assets of the subsidiary and any indebtedness of the subsidiary
senior to that of PennFed. Accordingly, the Junior Subordinated Debentures and
the Guarantee will be effectively subordinated to all existing and future
liabilities of PennFed's subsidiaries, including the Bank. At June 30, 1997 the
Bank had liabilities of $1.2 billion (including $918.2 million in deposits).
Only the capital stock of PennFed is currently junior in right of payment to the
Junior Subordinated Debentures to be issued to the Trust Issuer. Holders of the
Junior Subordinated Debentures will be able to look only to the assets of
PennFed for payments on the Junior Subordinated Debentures. None of the
Indenture, the
12
<PAGE>
Guarantee, the Expense Agreement or the Trust Agreement places any limitation on
the amount of secured or unsecured debt, including Senior Indebtedness, that may
be incurred by PennFed. PennFed may, from time to time, incur indebtedness
constituting Senior Indebtedness. See "Description of the Guarantee--Status of
the Guarantee" and "Description of the Junior Subordinated Debentures--
Subordination."
SOURCE OF PAYMENTS TO HOLDERS OF PREFERRED SECURITIES
As a savings and loan holding company, PennFed conducts its operations
principally through its subsidiaries and, therefore, its principal source of
cash, other than its investing and financing activities, is the receipt of
dividends from the Bank. Since PennFed is without significant assets other than
the capital stock of the Bank, the ability of PennFed to pay interest on the
principal of the Junior Subordinated Debentures to the Trust Issuer (and
consequently, the Trust Issuer's ability to pay Distributions on the Preferred
Securities and PennFed's ability to pay its obligations under the Guarantee)
will be dependent on the ability of the Bank to pay dividends to PennFed in
amounts sufficient to service PennFed's obligations. PennFed may become
obligated to make other payments with respect to securities issued by PennFed in
the future which are pari passu or have a preference over the Junior
Subordinated Debentures issued to the Trust Issuer with respect to the payment
of principal, interest or dividends. There is no restriction on the ability of
PennFed to issue, or limitations on the amount of securities which PennFed may
issue, which are pari passu or have a preference over the Junior Subordinated
Debentures issued to the Trust Issuer, nor is there any restriction on the
ability of the Bank to issue additional capital stock or incur additional
indebtedness.
There are legal limitations on the source and amount of dividends that a
savings bank such as the Bank is permitted to pay. The current OTS regulation
applicable to the payment of dividends or other capital distributions by savings
institutions imposes limits on capital distributions based on an institution's
regulatory capital levels and net income. An institution that meets or exceeds
all of its fully phased-in capital requirements (both before and after giving
effect to the distribution) and is not in need of more than normal supervision
would be a "Tier 1 association." A Tier 1 association may make capital
distributions during a calendar year of up to the greater of (i) 100% of net
income for the current calendar year plus 50% of the amount by which the lesser
of the association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year or (ii) 75% of its net income over the most
recent four quarters. At June 30, 1997, the Bank could have paid dividends
totaling approximately $16.6 million. Any additional capital distributions
would require prior regulatory approval. The Bank currently exceeds its fully
phased-in capital requirements and qualifies as a Tier 1 association under the
regulation, but there is no assurance that the Bank will continue to so qualify.
See "Regulation-Regulatory Capital Requirements."
An institution that meets the minimum regulatory capital requirements but
does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
13
<PAGE>
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no event of default under the Indenture has occurred and is
continuing, PennFed has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures, at any time or from time to
time, for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by the Trust
Issuer would also be deferred (and the amount of Distributions to which holders
of the Preferred Securities are entitled would accumulate additional
Distributions thereon at the rate of ___% per annum, compounded quarterly from
the relevant payment date for such Distributions) during any such Extension
Period. During any such Extension Period, PennFed may not, and may not permit
any subsidiary of PennFed to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of PennFed's capital stock, (other than (a) the reclassification of
PennFed's capital stock into another class of capital stock, (b) dividends or
distributions in common stock of PennFed, (c) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (d) payments under the Guarantee
and (e) purchases of common stock related to the issuance of common stock or
rights under any of PennFed's benefit plans for its directors, officers or
employees), (ii) make any payment of principal, interest or premium, if any, on
or repay, repurchase or redeem any debt securities of PennFed that rank pari
passu with or junior in interest to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by PennFed of the debt
securities of any subsidiary of PennFed if such guarantee ranks pari passu with
or junior in interest to the Junior Subordinated Debentures other than payments
pursuant to the Guarantee. Prior to the termination of any such Extension
Period, PennFed may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all interest then accrued and unpaid on the
Junior Subordinated Debentures (together with interest thereon at the annual
rate of ___%, compounded quarterly from the relevant payment date for such
interest, to the extent permitted by applicable law), PennFed may elect to begin
a new Extension Period subject to the above requirements. There is no
limitation on the number of times that PennFed may elect to begin an Extension
Period so long as no event of default under the Indenture has occurred and is
continuing. See "Description of the Preferred Securities--Distributions" and
"Description of the Junior Subordinated Debentures--Right to Defer Interest
Payment Obligation."
14
<PAGE>
If an Extension Period were to occur, a holder of the Preferred Securities
would continue to accrue income (in the form of original issue discount) for
United States federal income tax purposes in respect of its pro rata share of
the interest accruing on the Junior Subordinated Debentures held by the Trust
Issuer. As a result, a holder of the Preferred Securities would be required to
include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash and would not receive the cash
related to such income from the Trust Issuer if the holder disposed of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales or Redemption of the Preferred Securities."
PennFed has no current intention of exercising its right to defer payments
of interest on the Junior Subordinated Debentures. However, should PennFed
elect to exercise such right in the future, the market price of the Preferred
Securities would likely be adversely affected. A holder that disposed of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continued to hold its
Preferred Securities. In addition, as a result of the existence of PennFed's
right to defer interest payments, the market price of the Preferred Securities
may be more volatile than the market prices of other similar securities that are
not subject to such deferrals.
OPTIONAL REDEMPTION AFTER 2002
PennFed has the right to redeem the Junior Subordinated Debentures prior to
their stated Maturity on or after ______, 2002 in whole at one time or in part
from time to time. The exercise of such right may be subject to PennFed having
received prior regulatory approval. See "Description of the Junior Subordinated
Debentures--General."
REDEMPTION DUE TO TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT
PennFed has the right, but not the obligation, to redeem the Junior
Subordinated Debentures in whole (but not in part) within 180 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital Treatment
Event (whether occurring before or after __________, 2002), and, therefore,
cause a mandatory redemption of the Preferred Securities. The exercise of such
right may be subject to PennFed having received prior regulatory approval.
A "Tax Event" means the receipt by the Trust Issuer of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such pronouncement or
decision is announced on or after the date of issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that (i) the Trust Issuer is, or will be within 90 days of the date of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by PennFed on the Junior Subordinated Debentures is not, or within 90 days of
the date of
15
<PAGE>
such opinion will not be, deductible by PennFed, in whole or in part, for United
States federal income tax purposes or (iii) the Trust Issuer is, or will be
within 90 days of the date of such opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges. The Trust Issuer or
PennFed must request and receive an opinion with regard to such matters within a
reasonable period of time after it becomes aware of the possible occurrence of
any of the events described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, the Trust Issuer is or will be considered an "investment company"
that is required to be registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which change occurs or becomes effective
on or after the date of original issuance of the Preferred Securities.
"Capital Treatment Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change, pronouncement, action or decision
is announced on or after the date of original issuance of the Preferred
Securities, there is more than an insubstantial risk that the Preferred
Securities would not constitute Tier 1 Capital (or the then equivalent thereof)
applied as if PennFed (or its successor) were a bank holding company for
purposes of applicable capital adequacy guidelines of the Federal Reserve (or
any successor regulatory authority with jurisdiction over bank holding
companies), or any capital adequacy guidelines as then in effect and applicable
to PennFed.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as are being opined upon.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES; REDEMPTION
AND TAX CONSEQUENCES
PennFed has the right at any time to dissolve the Trust Issuer and, after
the satisfaction of liabilities to creditors of the Trust Issuer as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Preferred Securities in exchange therefor in liquidation of
the Trust Issuer. The exercise of such right may be subject to PennFed having
received prior regulatory approval. PennFed will have the right, in certain
circumstances, to redeem the Junior Subordinated Debentures in whole or in part,
in lieu of a distribution of the Junior Subordinated Debentures by the Trust
Issuer, in which event the Trust Issuer will redeem the Preferred Securities on
a pro rata basis to the same extent as the Junior Subordinated Debentures are
redeemed by PennFed. Any such distribution or redemption prior to the Stated
Maturity will be subject to prior regulatory approval if then required under
applicable capital guidelines or regulatory policies. See "Description of the
Preferred Securities--Liquidation of the Trust Issuer and
16
<PAGE>
Distribution of the Junior Subordinated Debentures to Holders" and "Description
of the Junior Subordinated Debentures--Redemption or Exchange."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust Issuer would
not be a taxable event to holders of the Preferred Securities. If, however, the
Trust Issuer were characterized as an association taxable as a corporation at
the time of the dissolution of the Trust Issuer, the distribution of the Junior
Subordinated Debentures would constitute a taxable event to holders of Preferred
Securities. Moreover, any redemption of the Preferred Securities for cash would
be a taxable event to such holders. See "Certain Federal Income Tax
Consequences--Distribution of the Junior Subordinated Debentures to Holders of
the Preferred Securities" and "--Sales or Redemption of the Preferred
Securities."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of the Trust
Issuer. The Preferred Securities or the Junior Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities
may receive Junior Subordinated Debentures as a result of the liquidation of the
Trust, and because payments on the Junior Subordinated Debentures are the sole
source of funds for Distributions and redemptions of the Preferred Securities,
prospective purchasers of Preferred Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein.
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the liquidation of the Trust Issuer, PennFed will use
its reasonable efforts to list the Junior Subordinated Debentures on the Nasdaq
Stock Market's National Market or SmallCap Market or such stock exchanges, if
any, on which the Preferred Securities are then listed.
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by the Trust Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the redemption price with respect to any Preferred
Securities called for redemption, to the extent that the Trust Issuer has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities in exchange therefor), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Trust Issuer has funds on hand available
therefor at such time, and (b) the amount of assets of the Trust Issuer
remaining available for distribution to holders of the Preferred Securities
after payment of creditors of the Trust Issuer as required by applicable law.
17
<PAGE>
If PennFed were to default on its obligation to pay amounts payable under
the Junior Subordinated Debentures, the Trust Issuer would lack funds for the
payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred
Securities may institute a legal proceeding directly against PennFed to enforce
its rights under the Guarantee without first instituting a legal proceeding
against the Trust Issuer, the Guarantee Trustee or any other person or entity.
In the event an event of default under the Indenture shall have occurred and be
continuing and such event is attributable to the failure of PennFed to pay
interest on or principal of the Junior Subordinated Debentures on the applicable
payment date, a holder of the Preferred Securities may institute a legal
proceeding directly against PennFed for enforcement of payment to such holder of
the principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder (a "Direct Action"). The exercise by PennFed of its
right, as described herein, to defer the payment of interest on the Junior
Subordinated Debentures does not constitute an event of default under the
Indenture. In connection with any Direct Action, PennFed will have a right of
set-off under the Indenture to the extent of any payment made by PennFed to such
holder of the Preferred Securities in the Direct Action. Except as described
herein, holders of the Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. The Bank of New York will act as the guarantee trustee
under the Guarantee (the "Guarantee Trustee") and will hold the Guarantee for
the benefit of the holders of the Preferred Securities. The Bank of New York
will also act as Debenture Trustee for the Junior Subordinated Debentures and as
Property Trustee, and The Bank of New York (Delaware) will act as Delaware
Trustee under the Trust Agreement. See "Description of the Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of the Preferred
Securities," "Description of the Junior Subordinated Debentures--Debenture
Events of Default" and "Description of the Guarantee." The Trust Agreement
provides that each holder of the Preferred Securities by acceptance thereof
agrees to the provisions of the Guarantee and the Indenture.
LIMITED COVENANTS
The covenants in the Indenture are limited and there are no covenants in
the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures or Preferred Securities,
respectively, in the event of a material adverse change in PennFed's financial
condition or results of operations or limits the ability of PennFed or any
subsidiary to incur or assume additional indebtedness or other obligations.
Additionally, neither the Indenture nor the Trust Agreement contains any
financial ratios or specified levels of liquidity to which PennFed must adhere.
Therefore, the provisions of these governing instruments should not be
considered a significant factor in evaluating whether PennFed will be able to or
will comply with its obligations under the Junior Subordinated Debentures or the
Guarantee.
18
<PAGE>
LIMITED VOTING RIGHTS
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Trust Issuer's rights as holder of the Junior Subordinated
Debentures and the Guarantee. Holders of the Preferred Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee, the
Delaware Trustee or the Administrative Trustees, as such voting rights are
vested exclusively in PennFed, as the holder of the Common Securities (except,
with respect to the Property Trustee and the Delaware Trustee, upon the
occurrence of certain events described herein). The Property Trustee, the
Administrative Trustees and PennFed may amend the Trust Agreement without the
consent of holders of the Preferred Securities to ensure that the Trust Issuer
will be classified for United States federal income tax purposes as a grantor
trust even if such action adversely affects the interests of such holders. See
"Description of the Preferred Securities--Voting Rights; Amendment of the Trust
Agreement" and "--Removal of the Trust Issuer Trustees."
ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES; TRADING PRICE AND
TAX CONSIDERATIONS
There is no current public market for the Preferred Securities.
Application has been made to list the Preferred Securities on the Nasdaq Stock
Market's National Market. However, one of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. PennFed has been advised that the Underwriter intends to make a
market in the Preferred Securities. However, the Underwriter is not obligated
to do so and such market making may be discontinued at any time. Therefore,
there is no assurance that an active trading market will develop for the
Preferred Securities or, if such market develops, that it will be maintained or
that the market price will equal or exceed the public offering price set forth
on the cover page of this Prospectus. Accordingly, holders of Preferred
Securities may experience difficulty reselling them or may be unable to sell
them at all. The public offering price for the Preferred Securities has been
determined through negotiations between PennFed and the Underwriter. Prices for
the Preferred Securities will be determined in the marketplace and may be
influenced by many factors, including prevailing interest rates, the liquidity
of the market for the Preferred Securities, investor perceptions of PennFed and
general industry and economic conditions.
Further, should PennFed exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities would
be likely to trade at prices that do not fully reflect the value of accrued but
unpaid interest with respect to the underlying Junior Subordinated Debentures.
In the event of such a deferral, a holder of Preferred Securities that disposed
of its Preferred Securities between record dates for payments of Distributions
(and consequently did not receive a Distribution from the Trust Issuer for the
period prior to such disposition) would nevertheless be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to the
adjusted tax basis of the Preferred Securities disposed of. Such holder would
recognize a capital loss to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) was less than its adjusted tax
basis (which would include all accrued but unpaid
19
<PAGE>
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
See "Certain Federal Income Tax Consequences--Sales or Redemption of the
Preferred Securities."
POSSIBLE TAX LAW CHANGES AFFECTING THE PREFERRED SECURITIES
Under current law, PennFed will be able to deduct interest on the Junior
Subordinated Debentures. However, there is no assurance that future legislation
will not affect the ability of the Company to deduct interest on the Junior
Subordinated Debentures. Such a change would give rise to a Tax Event. A Tax
Event would permit PennFed, upon receipt of regulatory approval if then required
under applicable capital guidelines or regulatory policies, to cause a
redemption of the Preferred Securities before, as well as after, __, 2002. See
"Description of the Junior Subordinated Debentures--Redemption or Exchange."
RISK FACTORS RELATING TO THE COMPANY
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability is dependent to a large extent on its net interest
income, which is the difference between its income on interest-earning assets
and its expense on interest-bearing liabilities. The Bank, like most financial
institutions, is affected by changes in general interest rate levels and by
other economic factors beyond its control. Interest rate risk arises in part
from mismatches (i.e., the interest sensitivity gap) between the dollar amount
of repricing or maturing assets and liabilities, and is measured in terms of the
ratio of the interest rate sensitivity gap to total assets. More assets than
liabilities repricing or maturing over a given time frame is considered asset-
sensitive and is reflected as a positive gap, and more liabilities than assets
repricing or maturing over a given time frame is considered liability-sensitive
and is reflected as a negative gap. A liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and reduce earnings in a rising interest rate environment, while an
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will reduce earnings in a falling
interest rate environment. Fluctuations in interest rates are not predictable
or controllable. At June 30, 1997, the Bank had a one year cumulative negative
gap of 7.44%. This negative one year gap position may, as noted above, have a
negative impact on earnings in a rising interest rate environment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Interest Rate Sensitivity."
There can be no assurances of the Company's ability to continue to achieve
positive net interest income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Interest Rate Sensitivity."
20
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of the Company's regulators (who have the authority to
require additional reserves), and geographic and industry loan concentration.
However, if delinquency levels were to increase as a result of adverse general
economic conditions, especially in New Jersey where the Company's exposure is
greatest, the loan loss reserve so determined by the Company may not be
adequate. Further, to the extent that the Company is successful in its strategy
of increasing its commercial and multi-family real estate and consumer loan
portfolios, the Company may determine that it is prudent to increase its
allowance for loan losses in recognition of the risks inherent in such loan
portfolios relative to the Company's one- to four-family loan portfolio. See
"Business-Commercial and Multi-Family Real Estate Lending" and "-Consumer
Lending." There can be no assurance that the allowance will be adequate to
cover loan losses or that the Company will not experience significant losses in
its loan portfolios which may require significant increases to the allowance for
loan losses in the future. At June 30, 1997, the Company's allowance for loan
losses to total loans was 0.28% and the allowance for loan losses to non-
accruing loans was 47.8%.
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination by
the OTS as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. The Bank is a member
of the FHLB of New York and is subject to certain limited regulation by the
Federal Reserve Board. As the holding company of the Bank, PennFed is also
subject to regulation and oversight by the OTS. Such regulation and supervision
governs the activities in which an institution may engage and is intended
primarily for the protection of the FDIC insurance funds and depositors.
Regulatory authorities have been granted extensive discretion in connection with
their supervisory and enforcement activities and regulations have been
implemented which have increased capital requirements, increased insurance
premiums and have resulted in increased administrative, professional and
compensation expenses. Any change in the regulatory structure or the applicable
statutes or regulations could have a material impact on the Company and the Bank
and their operations. Additional legislation and regulations may be enacted or
adopted in the future which could significantly affect the powers, authority and
operations of the Bank and the Bank's competitors which in turn could have a
material adverse effect on the Bank and its operations. See "Regulation."
21
<PAGE>
COMPOSITION OF LOAN PORTFOLIO
Most of the loans in the Company's portfolio are secured by real estate.
At June 30, 1997, approximately 97% of the Company's gross loans receivable were
secured by properties located in New Jersey. Conditions in the real estate
markets in which the collateral for the Company's mortgage loans are located
strongly influence the level of the Company's non-performing loans and its
results of operations. Real estate values are affected by, among other things,
changes in general or local economic conditions, changes in governmental rules
or policies, the availability of loans to potential purchasers, and natural
disasters. Declines in real estate markets could negatively impact the value of
the collateral securing the Company's loans and its results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Lending Activities."
As of June 30, 1997, $831.8 million, or 89.5% of the Company's gross loan
portfolio consisted of loans secured by first liens on one- to four- family
residences. At that date, $97.0 million or 10.5% of the first liens on Company's
gross loan portfolio consisted of commercial and multi-family real estate and
consumer loans. Although these assets generally were originated at loan to value
ratios of 75% or less and have higher yields than one- to four-family loans,
such loans are generally more sensitive to economic conditions, involve higher
concentrations of investment in a single borrower or project, are more dependent
on initial estimates of value, are more difficult to monitor and carry a higher
level of credit risk than do residential loans. See "Business -Commercial Multi-
family and Real Estate Lending," "-Consumer Lending," and "--Non-
Performing and Classified Assets."
COMPETITION
The Company faces substantial competition in purchasing and originating
real estate loans and in attracting deposits. The Company's competition in
originating real estate loans is principally from banks, other thrifts, mortgage
banking companies, real estate financing conduits, and small insurance
companies. In purchasing real estate loans the Company competes with other
participants in the secondary mortgage market. Many entities competing with the
Company enjoy competitive advantages over the Company relative to a potential
borrower or seller in terms of a prior business relationship, wide geographic
presence or more accessible branch office locations, the ability to offer
additional services or more favorable pricing alternatives, a lower origination
and operating cost structure, and other relevant items. The Company does not
have a significant market share of the real estate lending activities in the
areas in which it conducts operations, and increased competition in those areas
from traditional competitors or new sources could result in a decrease in the
origination or purchase of mortgage loans and could adversely affect the
Company's results of operations. In its deposit gathering activities, the
Company competes with insured depository institutions such as thrifts, credit
unions, and banks, as well as uninsured investment alternatives including money
market funds. These competitors may offer higher rates than the Company, which
could result in the Company either attracting fewer deposits or in requiring the
Company to increase the rates it pays to attract deposits. Increased deposit
competition could adversely affect the Company's ability to generate the funds
necessary for its lending operations and could adversely affect the Company's
results of operations. See "Business -- Competition."
22
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will be
invested, by the Trust Issuer in Junior Subordinated Debentures. The net
proceeds to the Company from the sale of the Junior Subordinated Debentures are
estimated to be approximately $_____ million ($____ million if the Underwriter's
over-allotment option is exercised in full after deduction of the underwriting
discount and estimated expenses), PennFed intends to use the net proceeds from
the sale of the Junior Subordinated Debentures for general corporate purposes,
including, but not limited to, acquisitions by either the Company or the Bank
(although there presently exist no agreements or understandings with respect to
any such acquisition), capital contributions to the Bank to support growth and
for working capital, and possible repurchase of shares of PennFed's common
stock, subject to acceptable market conditions.
MARKET FOR THE PREFERRED SECURITIES
Application has been made to list the Preferred Securities on the Nasdaq
Stock Market's National Market under the symbol "PFSBP." Although the
Underwriter has informed the Company that it presently intends to make a market
in the Preferred Securities, the Underwriter is not obligated to do so and any
such market making may be discontinued at any time. Accordingly, there is no
assurance that an active and liquid trading market will develop or, if
developed, that such a market will be sustained. The offering price and
distribution rate have been determined by negotiations among representatives of
the Company and the Underwriter, and the offering price of the Preferred
Securities may not be indicative of the market price following the offering. See
"Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust Issuer will be treated as a
subsidiary of the Company and, accordingly, the Trust Issuer's financial
statements will be included in the consolidated financial statements of the
Company. The Preferred Securities will be presented as a separate line item in
the consolidated statements of financial condition of the Company under the
caption "Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures" and appropriate disclosures about the Preferred
Securities will be included in the notes to the consolidated financial
statements. For financial reporting purposes, the Company will record
distributions payable on the Preferred Securities as an interest expense in the
consolidated statements of operations.
In its future financial reports, the Company will: (i) present the
Preferred Securities on the Company's statements of financial condition as a
separate line item entitled "Guaranteed Preferred Beneficial Interests in the
Company's Junior Subordinated Debentures;" (ii) include in a footnote to the
financial statements disclosure that the sole assets of the Trust Issuer are the
Junior Subordinated Debentures specifying the principal amount, interest rate
and maturity date of Junior Subordinated Debentures held; and (iii) if Staff
Accounting Bulletin No. 53 treatment is sought,
23
<PAGE>
include, in an audited footnote to the financial statements, disclosure that (a)
the Trust Issuer is wholly owned, (b) the sole assets of the Trust Issuer are
its Junior Subordinated Debentures, and (c) the obligations of the Company under
the Junior Subordinated Debentures, the Indenture, the Trust Agreement and the
Guarantee, in the aggregate, constitute a full and unconditional guarantee by
the Company of the Trust Issuer's obligations under the Preferred Securities.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, as adjusted to give effect to the consummation of
the offering of the Preferred Securities. The following data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this document.
<TABLE>
<CAPTION>
As
Actual Adjusted
---------- ------------
(In thousands)
<S> <C> <C>
Deposits.............................................................................................. $ 918,160 $ 918,160
Borrowings:
FHLB of New York advances............................................................................. 205,465 205,465
Other borrowings...................................................................................... 82,750 82,750
---------- ----------
Total deposits and borrowed funds................................................................. 1,206,375 1,206,375
---------- ----------
Guaranteed Preferred Beneficial Interests in the Company's Junior Subordinated
Debentures/(1)/................................................................................... 0 30,000
---------- ----------
Stockholders' equity:
Serial Preferred Stock $.01 par value; authorized--7,000,000 shares;
no shares issued..................................................................................
Common stock, $.01 par value, 15,000,000 shares authorized, 5,950,000 shares
issued and 4,822,124 shares outstanding at June 30, 1997 (excluding shares held
in treasury of 1,127,876 at June 30, 1997)........................................................ 60 60
Additional paid-in, capital........................................................................... 57,441 57,441
Retained earnings, partially restricted............................................................... 61,051 61,051
Reduction for Employee Stock Ownership Plan Trust debt................................................ (3,671) (3,671)
Reduction for Restricted Stock - Management Recognition Plan.......................................... (1,062) (1,062)
Treasury Stock, at cost (16,549) (16,549)
--------- -----------
Total stockholders' equity........................................................................ 97,270 97,270
--------- -----------
</TABLE>
___________________
(1) Preferred Securities of the Trust Issuer representing beneficial interests
in $30.0 million aggregate principal amount of the Junior Subordinated
Debentures issued by the Company to the Trust Issuer. The Junior
Subordinated Debentures will bear interest at the annual rate of ___% of
the principal amount thereof, payable quarterly and will mature on
_________, 2027. The Company owns all of the Common Securities of the
Trust Issuer.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.
GENERAL
In July 1994, PennFed became the savings and loan holding company of the
Bank. Currently, the results of operations of the Company are primarily those of
the Bank.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan,
securities and investment portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. Results of operations are also
affected by the Company's provision for loan losses and operating expenses.
General economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities also
significantly affect the Company's results of operations. Future changes in
applicable law, regulations or government policies may also have a material
impact on the Company.
As noted previously, the deposits of savings associations, such as the
Bank, are presently insured by the SAIF, which, along with the BIF, are the two
insurance funds administered by the FDIC. Financial institutions which were
members of the BIF, prior to September 30, 1996, experienced substantially lower
deposit insurance premiums because the BIF had achieved its required level of
reserves while the SAIF had not yet achieved its required reserves. As a result
of legislation signed into law on September 30, 1996, the SAIF recapitalization
plan provided for a one-time assessment of 0.657% of deposits which was imposed
on all SAIF insured institutions to enable the SAIF to achieve its required
level of reserves. The assessment was based on deposits as of March 31, 1995,
and the Bank's special assessment was approximately $4.8 million, or $3.1
million, net of taxes. Accordingly, this special one-time SAIF recapitalization
assessment significantly increased non-interest expenses and adversely effected
the Company's results of operations for the year ended June 30, 1997. Following
the recapitalization assessment, beginning January 1, 1997 deposit insurance
premiums decreased significantly from the 0.23% of deposits previously paid by
the Bank to 0.00% plus the assessment to be paid to the Financing Corporation
("FICO"). Such assessment for the quarterly period beginning July 1, 1997
amounted to 0.063% of deposits, on an annualized basis. See "Regulation -
Insurance of Accounts and Regulation by the FDIC."
25
<PAGE>
MANAGEMENT STRATEGY
Management's primary goal continues to be to improve profitability, while
continuing to manage interest rate risk, so as to enhance stockholder value, and
to foster and maintain customer confidence. The Company's current strategies
focus on: (i) emphasizing lending secured by one-to four-family residential
mortgages, (ii) increasing the commercial and multi-family and consumer loan
portfolios, (iii) maintaining asset quality, (iv) increasing deposit balances,
(v) managing the Company's exposure to interest rate risk, and (vi) controlling
non-interest expenses.
EMPHASIZING LENDING SECURED BY ONE- TO FOUR-FAMILY RESIDENTIAL FIRST
MORTGAGES. The Company has emphasized, and plans to continue to emphasize,
originating and purchasing traditional one-to four-family first mortgage loans
secured by properties located in New Jersey. Correspondent loan purchases of
one- to four-family mortgage loans through June 1997 have been primarily secured
by properties located throughout New Jersey with a limited purchase of loans
secured by real estate located in the Commonwealth of Pennsylvania. The Company
has approved the purchase of a limited amount of loans secured by real estate
located in the Commonwealth of Virginia and the Commonwealth of Massachusetts
through an existing correspondent relationship, though none were purchased as of
June 30, 1997. The Company originated or purchased $337.3 million, $251.8
million and $123.3 million in one- to four-family mortgage loans in fiscal 1997,
1996 and 1995, respectively. The Company's interest income has been derived
primarily from one- to four-family mortgage loans on residential real estate
which totaled $831.8 million or 89.55% of the Company's gross loan portfolio at
June 30, 1997.
INCREASING THE COMMERCIAL AND MULTI-FAMILY AND CONSUMER LOAN PORTFOLIOS.
In addition to one-to four-family residential first mortgage lending, the
Company plans to increase its emphasis on commercial and multi-family and
consumer lending. Such loans reprice more frequently, have shorter maturities,
and/or have higher yields than one-to four-family first mortgage loans. The
Company originated $31.7 million, $23.4 million and $18.9 million of commercial
and multi-family and consumer loans in fiscal 1997, 1996 and 1995, respectively.
The Company has recently established a correspondent relationship with a bank in
New Jersey as part of an overall effort to increase its commercial and multi-
family real estate originations.
MAINTAINING ASSET QUALITY. The Company's loan portfolio consists primarily
of one- to four-family mortgages, which are considered to have less risk than
commercial and multi-family real estate or consumer loans.
The Company's non-performing assets consist of non-accruing loans and real
estate owned. The Company focuses on strong underwriting and collection
efforts and aggressive marketing of real estate owned properties. In addition,
the Company has occasionally restructured loans by reducing the interest rate or
deferring principal and interest payments in order to return the loan to a
performing status. As a result, non-performing assets as a percentage of total
assets was 0.48% at June 30, 1997 compared to 2.71% at June 30, 1993.
26
<PAGE>
INCREASING DEPOSIT BALANCES. The Company's primary source of funds is
deposits. Deposits have increased 10%, 17% and 16% in fiscal 1997, 1996 and
1995, respectively. The Company plans to continue to emphasize deposit growth,
particularly longer term certificates of deposit, and increase its emphasis on
transaction accounts. It has recently emphasized the solicitation of deposits
from municipalities.
MANAGING THE COMPANY'S EXPOSURE TO INTEREST RATE RISK. The Company has an
asset/liability committee that meets no less than weekly to price loan and
deposit products and monthly to develop, implement and review policies to manage
interest rate risk. The Company has endeavored to manage its interest rate risk
through the pricing and diversification of its loan and deposit products,
including the focus on the origination and purchase of first mortgage loans with
shorter terms to maturity and/or with adjustable rate features, as well as the
origination of commercial and multi-family real estate and consumer loans which
generally have shorter expected average lives or reprice at shorter intervals
than one- to four-family residential first mortgage products. In addition, the
Company has purchased government agency mortgage-backed securities with short
to intermediate average lives which generally do not exceed 4.5 years or which
have adjustable rate features. Furthermore, as part of its interest rate risk
strategy, the Company has emphasized longer term certificates of deposit and
utilized intermediate term borrowings. The Company has also engaged in
intermediate term interest rate swaps designed to extend the maturities of six
month certificates of deposit to three to five years. See "-Interest Rate
Sensitivity" and "-Asset/Liability Strategy."
CONTROLLING NON-INTEREST EXPENSES. Non-interest expenses are carefully
monitored, including ongoing reviews of staffing levels, supplies, facilities
and operations. Excluding the effects of the one-time SAIF recapitalization
assessment, the Company's ratio of non-interest expenses to average total assets
was 1.47% for the year ended June 30, 1997 compared to 1.84% for the prior
fiscal year. The Company's efficiency ratio, excluding the effects of the SAIF
assessment, was 43.92% for the year ended June 30, 1997 compared to 48.53% for
the prior fiscal year.
INTEREST RATE SENSITIVITY
INTEREST RATE GAP. The interest rate risk inherent in assets and
liabilities may be determined by analyzing the extent to which such assets and
liabilities are "interest rate sensitive" and by measuring an institution's
interest rate sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a defined time period if it matures or reprices within
that period. The difference or mismatch between the amount of interest-earning
assets maturing or repricing within a defined period and the amount of interest-
bearing liabilities maturing or repricing within the same period is defined as
the interest rate sensitivity gap. An institution is considered to have a
negative gap if the amount of interest-bearing liabilities maturing or repricing
within a specified time period exceeds the amount of interest-earning assets
maturing or repricing within the same period. If more interest-earning assets
than interest-bearing liabilities mature or reprice within a specified period,
then the institution is considered to have a positive gap. Accordingly, in a
rising interest rate environment, in an institution with a negative gap, the
cost of its rate sensitive liabilities would theoretically rise
27
<PAGE>
at a faster pace than the yield on its rate sensitive assets, thereby
diminishing future net interest income. In a falling interest rate environment,
a negative gap would indicate that the cost of rate sensitive liabilities would
decline at a faster pace than the yield on rate sensitive assets and improve net
interest income. For an institution with a positive gap, the reverse would be
expected.
In an attempt to manage its exposure to changes in interest rates,
management closely monitors the Company's exposure to interest rate risk.
Management maintains an asset/liability committee consisting of the Chief
Executive Officer, the Chief Operating Officer, the Finance Group Executive, the
Lending Group Executive, the Retail Banking Group Executive, the Treasurer, the
Controller and the Director of Product Management/Customer Service, which meets
regularly and reviews the Company's interest rate risk position and makes
recommendations for adjusting this position. In addition, the Board reviews on a
monthly basis the Company's asset/liability position, including simulations of
the effect on the Company's capital and earnings of various interest rate
scenarios and operational strategies.
The following table provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps. Except for the
effects of prepayments and scheduled principal amortization on mortgage related
assets, the table presents principal cash flows and related weighted average
interest rates by the earlier of term to repricing or contractual term to
maturity. Callable government agency securities are assumed to be called within
one year. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by contractual maturity dates.
Residential fixed and adjustable rate loans are assumed to have annual
payment rates between 12% and 18% of the portfolio. Commercial and multi-family
real estate loans are assumed to prepay at an annualized rate between 7% and 38%
while consumer loans are assumed to prepay at a 30% rate. Fixed and adjustable
rate mortgage-backed securities, including Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs"), have annual
payment assumptions ranging from 15% to 34%. Demand loans and loans which have
no repayment schedule or stated final maturity, are assumed to be due within six
months. Loan and mortgage-backed securities balances are net of non-performing
loans and are not adjusted for unearned discounts, premiums, and deferred loan
fees.
The Company assumes, based on historical information, that $135.9 million
or 80% of savings accounts at June 30, 1997, are core deposits and are,
therefore, expected to roll-off after five years. The remaining savings accounts
are assumed to roll-off over the first eighteen months. Transaction accounts,
excluding money market accounts, are assumed to roll-off after five years. Money
market accounts are assumed to be variable accounts and are reported as
repricing within six months. No roll-off rate is applied to certificates of
deposit. Fixed maturity deposits reprice at maturity.
28
<PAGE>
<TABLE>
<CAPTION>
MATURING OR REPRICING
--------------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
1998 1999 2000 2001 2002 THEREAFTER
---------- ---------- --------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-rate mortgage loans including
one- to four-family and commercial
and multi-family.................................. $ 71,704 $ 73,395 $ 65,488 $ 57,935 $ 52,484 $ 169,452
Average interest rate............................. 7.76% 7.80% 7.80% 7.79% 7.80% 7.85%
Adjustable rate mortgage loans
including one- to four-family and
commercial and multi-family...................... $116,889 $ 47,421 $ 92,714 $ 37,422 $ 54,869 $ 44,261
Average interest rate............................. 7.67% 7.51% 7.32% 7.67% 7.48% 7.65%
Consumer loans including demand
loans............................................. $ 24,396 $ 5,967 $ 4,315 $ 3,171 $ 1,503 $ ---
Average interest rate............................. 8.47% 8.98% 8.98% 8.98% 8.98% ---%
Mortgage-backed securities......................... $107,173 $ 36,893 $ 53,710 $ 46,348 $ 14,700 $ 28,819
Average interest rate............................. 7.36% 6.99% 6.96% 6.88% 7.08% 7.08%
Investment securities and other.................... $ 47,412 $ 101 $ --- $ --- $ --- $ 190
Average interest rate............................. 7.18% 5.67% ---% ---% ---% 9.47%
Total interest-earning assets.................... $367,574 $ 163,777 $216,227 $144,876 $123,556 $ 242,722
======= ======= ======= ======= ======= =======
Savings deposits................................... $ 22,643 $ 11,321 $ --- $ --- $ --- $ ---
Average interest rate............................. 2.20% 2.20% ---% ---% ---% 2.20%
Money market and demand deposits
(transaction accounts)............................ $ 15,461 $ --- $ --- $ --- $ --- $ 66,901
Average interest rate............................. 2.10% ---% ---% ---% ---% 0.95%
Certificates of deposit............................ $395,100 $ 126,037 $ 88,755 $ 17,148 $ 36,684 $ 94
Average interest rate............................. 5.50% 5.88% 6.59% 5.90% 6.28% 6.90%
FHLB of New York advances.......................... $ 30,000 $ 55,000 $ 90,000 $ --- $ 30,000 $ 465
Average interest rate............................. 5.80% 6.09% 6.17% ---% 6.42% 7.39%
Other borrowings................................... $ 72,750 $ --- $ --- $ --- $ 10,000 $ ---
Average interest rate............................. 6.23% ---% ---% ---% 6.24% ---%
Total deposits and borrowings.................... $535,954 $ 192,358 $178,755 $ 17,148 $ 76,684 $ 203,319
======= ======= ======= ======= ======= ========
Interest rate swaps (pay fixed, receive
floating)........................................ $(70,000) $ 20,000 $ 40,000 $ --- $ 10,000 $ ---
Average pay rate.................................. ---% 6.70% 6.46% ---% 6.25% ---%
Average receive rate.............................. 5.79% ---% ---% ---% ---% ---%
Total deposits and borrowings,
including the effects of interest
rate swaps..................................... $465,954 $ 212,358 $218,755 $ 17,148 $ 86,684 $ 203,319
======= ======= ======= ======= ======= ========
Interest-earning assets less
deposits and borrowings
(interest-rate sensitivity gap)................... $(98,380) $ (48,581) $ (2,528) $127,728 $ 36,872 $ 39,403
======= ======== ======= ======= ======= ========
Cumulative interest rate
sensitivity gap.................................. $(98,380) $(146,961) $(149,489) $(21,761) $ 15,111 $54,514
======= ========= ======== ======= ======= ======
Cumulative interest-rate sensitivity
gap as a percentage of total assets at
June 30, 1997.................................... (7.44)% (11.12)% (11.31)% (1.65)% 1.14% 4.12%
===== ====== ====== ===== ==== ====
Cumulative interest-rate sensitivity
gap as a percentage of total interest-
earning assets at June 30, 1997.................. (7.82)% (11.68)% (11.88)% (1.73)% 1.20% 4.33%
===== ===== ===== ===== ==== ====
Cumulative interest-earning assets
as a percentage of cumulative
deposits and borrowings at
June 30, 1997..................................... 78.89% 78.33% 83.34% 97.62% 101.51% 104.53%
===== ===== ===== ===== ====== ======
<CAPTION>
MATURING OR REPRICING
----------------------------
YEAR ENDED JUNE 30,
----------------------------
FAIR
TOTAL VALUE
------------ --------------
<S> <C> <C>
Fixed-rate mortgage loans including
one- to four-family and commercial
and multi-family.................................. $ 490,458 $ 491,107
Average interest rate............................. 7.81%
Adjustable rate mortgage loans
including one- to four-family and
commercial and multi-family..................... $ 393,576 $ 385,059
Average interest rate............................. 7.52%
Consumer loans including demand
loans............................................ $ 39,352 $ 39,591
Average interest rate............................. 8.66%
Mortgage-backed securities......................... $ 287,643 $ 291,125
Average interest rate............................. 7.12%
Investment securities and other.................... $ 47,703 $ 47,845
Average interest rate............................. 7.18%
Total interest-earning assets.................... $1,258,732 $1,254,727
========= =========
Savings deposits................................... $ 169,823 $ 169,823
Average interest rate............................. 2.20%
Money market and demand deposits
(transaction accounts)............................ $ 82,362 $ 82,362
Average interest rate............................. 1.17%
Certificates of deposit............................ $ 663,818 $ 665,043
Average interest rate............................. 5.77%
FHLB of New York advances.......................... $ 205,465 $ 205,919
Average interest rate............................. 6.13%
Other borrowings................................... $ 82,750 $ 82,671
Average interest rate............................. 6.23%
Total deposits and borrowings.................... $1,204,218 $1,205,818
========= =========
Interest rate swaps (pay fixed, receive
floating)........................................ $ --- $ 169
=========
Average pay rate.................................. 6.50%
Average receive rate.............................. 5.79%
Total deposits and borrowings,
including the effects of interest
rate swaps....................................... $1,204,218
=========
Interest-earning assets less
deposits and borrowings
(interest-rate sensitivity gap).................. $ 54,514
=========
</TABLE>
29
<PAGE>
At June 30, 1997, the Company's total deposits and borrowings maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing within one year by $98.4 million, representing a one year negative gap
of 7.44% of total assets, compared to a one year negative gap of 13.97% of total
assets at June 30, 1996. See - "Asset/Liability Strategy." The Company's
negative gap position improved from June 30, 1996 as a result of significant
growth in medium-term funds and adjustable rate residential first and second
mortgage loan products. New loan activity was strong and residential refinance
activity remained relatively slow during the year. Second mortgage activity was
re-focused and emphasized variable and medium-term fixed rate products. As a
result of continued emphasis on generating longer term deposits, growth in two
through five year certificates of deposit far out paced activity in the shorter-
term products. Furthermore, in an effort to lengthen the maturities of interest
bearing liabilities, the Company supplemented funding needs through the use of
FHLB of New York medium-term advances and engaged in interest rate swaps.
Callable government agency securities, with final maturities of seven years or
less, but initially callable within one year and periodically thereafter, have
also been purchased to supplement loan growth. Such investments are anticipated
to be called prior to their stated final maturities.
In evaluating the Company's exposure to interest rate risk, certain
limitations inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable rate mortgages,
have features which restrict changes in interest rates in the short-term and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase. The
Company considers all of these factors in monitoring its exposure to interest
rate risk.
NET PORTFOLIO VALUE. The Company's interest rate sensitivity is regularly
monitored by management through selected interest rate risk ("IRR") measures
set forth by the OTS. The IRR measures used by the OTS include an IRR
"Exposure Measure" or "Post-Shock" NPV ratio and a "Sensitivity Measure." A
low Post-Shock NPV ratio indicates greater exposure to IRR. Greater exposure can
result from a low initial NPV ratio or high sensitivity to changes in interest
rates. The Sensitivity Measure is the decline in the NPV ratio, in basis points,
caused by a 2% increase or decrease in rates, whichever produces a larger
decline. At least quarterly, and generally monthly, management models the
change in net portfolio value ("NPV") over a variety of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. An NPV ratio, in any interest rate scenario, is
defined as the NPV in that rate scenario divided by the market value of assets
in the same scenario.
As of June 30, 1997, the Bank's internally generated initial NPV ratio was
8.15%. Following a 2% increase in interest rates, the Bank's Post-Shock NPV
ratio was 5.48%. The change in the NPV ratio, or the Bank's Sensitivity Measure
was 2.67%. NPV is also measured
30
<PAGE>
internally on a consolidated basis. As of June 30, 1997, the Company's initial
NPV ratio was 8.76%, the Post-Shock ratio was 6.12%, and the Sensitivity Measure
was 2.64%. Variances between the Bank's and the Company's NPV ratios are
attributable to balance sheet items which are adjusted during consolidation,
such as intercompany borrowings and capital.
Internally generated NPV measurements are based on simulations which
utilize institution specific assumptions and, as such, generally result in lower
levels of presumed interest rate risk (i.e., higher Post-Shock NPV ratio and
lower Sensitivity Measure) than OTS measurements indicate.
The OTS measures the Bank's (unconsolidated) IRR on a quarterly basis using
data from the quarterly Thrift Financial Reports, coupled with non-institution
specific assumptions which are based on national averages. As of June 30, 1997,
the Bank's initial NPV ratio, as measured by the OTS, was 7.23%. The Bank's
Post-Shock ratio was 4.02% and the Sensitivity Measure was 3.21%. At June 30,
1996 the Bank's initial NPV ratio was 6.95%, its Post-Shock ratio was 3.20% and
the Sensitivity Measure was 3.75%.
In addition to monitoring NPV and gap, management also monitors the
duration of assets and liabilities and the effects on net interest income
resulting from parallel and non-parallel increases or decreases in rates.
At June 30, 1997, based on its internally generated simulation models, the
Company's consolidated net interest income projected for one year forward would
decrease 11.2% from the base case, or current market, as a result of an
immediate and sustained 2% increase in interest rates.
ASSET/LIABILITY STRATEGY
The primary elements of the Company's asset/liability strategy include the
following:
1. The Company focuses on shortening the average life and duration of its
portfolio of one-to four- family mortgage loans by promoting one year adjustable
rate products, with initial fixed rate terms of 1, 3 and 5 years, 15 and 30 year
bi-weekly mortgages and fixed rate products with terms of 10, 15 and 20 years.
2. The Company is increasing its emphasis on the origination of variable
rate home equity lines and fixed rate second mortgage loans as well as variable
and fixed rate commercial and multi-family real estate loans having maturities
or terms to repricing significantly shorter than one-to four- family residential
mortgage loans.
3. During fiscal 1997, the Company purchased government agency guaranteed
investments with final maturities within seven years which are initially
callable within one year and periodically thereafter. Such investments are
expected to be called prior to their final maturities. The Company may continue
to purchase such investments, as well as government agency
31
<PAGE>
guaranteed mortgage-backed securities with an expected average life at purchase
of 4.5 years or less, as needed, in accordance with its strategic objectives.
4. The Company emphasizes the lengthening of maturities of its
liabilities through its pricing of longer-term certificates of deposit and by
utilizing intermediate term FHLB of New York advances and interest rate swaps,
subject to market conditions.
5. The Company is increasing its emphasis on transaction accounts as
such funds are lower cost alternatives to certificates of deposit and FHLB of
New York advances and strengthen customer relationships.
Approximately 75%, or $199.4 million, of the total net growth of $265.9
million experienced in one-to four- family mortgages between June 30, 1996 and
June 30, 1997 was accomplished in the adjustable rate portfolio and
approximately 97%, or $5.1 million, of the $5.2 million total net growth in the
consumer lending portfolio was attributable to growth in variable rate home
equity lines of credit. Adjustable rate commercial and multi-family real estate
loans increased approximately 42% from June 30, 1996 to $32.7 million, while
fixed rate commercial and multi-family real estate loans declined approximately
17% to $24.1 million.
Additionally, medium and long-term funds increased approximately 42.5%, or
$220.4 million, from June 30, 1996 through the use of interest rate swaps
(designed to synthetically lengthen the maturities of short-term deposits) as
well as growth in two through five year certificates of deposit, FHLB of New
York advances and other borrowings. Short-term funds (one year or less)
remained relatively constant.
Generally, the investment policy of the Company is to invest funds not
utilized in its lending activities or required for other corporate purposes
among various categories of investments and maturities based upon the Company's
asset/liability management policies. Investments generally include U.S. Treasury
and government agency securities and mortgage-backed securities.
Additionally, the Company emphasizes and promotes its savings, money market
and transaction accounts, and certificates of deposit with varying maturities
through five years, principally within its primary market areas. The balances
of savings, money market and transaction accounts, which represented
approximately 27.5%, or $252.2 million, of total deposits at June 30, 1997,
tend to be less susceptible to rapid changes in interest rates than certificates
of deposit balances.
Collectively, these strategies resulted in a narrowing of the Company's
interest rate gap and a reduction in IRR during fiscal 1997. Management will
continue to monitor and employ such strategies, as necessary, in conjunction
with its overall strategic objectives.
32
<PAGE>
ANALYSIS OF NET INTEREST INCOME. The following table sets forth certain
information relating to the Company's consolidated statements of financial
condition and the consolidated statements of income for the years ended June 30,
1997, 1996 and 1995, and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived from
average daily balances. The average balance of loans receivable includes non-
accruing loans. The yields and costs include fees which are considered
adjustments to yields.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------
1997 1996
------------------------------------- ---------------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ OUTSTANDING EARNED/
BALANCE PAID YIELD/RATE BALANCE PAID YIELD/RATE
----------- -------- ---------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
One- to four-family mortgage loans...... $ 713,260 $53,554 7.51% $457,167 $35,078 7.67%
Commercial and multi-family real estate
loans................................... 54,396 4,912 9.03 49,378 4,817 9.76
Consumer loans........................... 35,977 3,302 9.18 33,362 3,380 10.13
---------- ------- -------- -------
Total loans receivable.................. 803,633 61,768 7.69 539,907 43,275 8.02
Mortgage-backed securities............... 317,394 22,030 6.94 329,821 22,549 6.84
Investment securities and other.......... 22,611 1,603 7.09 31,264 2,299 7.35
---------- ------- -------- -------
Total interest-earning assets........... 1,143,638 $85,401 7.47 900,992 $68,123 7.56
======= =======
Non-interest earning assets.............. 53,664 56,302
---------- --------
Total assets............................ $1,197,302 $957,294
========== ========
DEPOSITS AND BORROWINGS:
Money market and demand deposits
(transaction accounts).................. $ 80,099 $ 977 1.22% $ 79,360 $ 1,371 1.73%
Savings deposits......................... 174,114 3,876 2.23 181,839 4,114 2.26
Certificates of deposit.................. 615,870 35,319 5.73 494,337 28,116 5.69
---------- ------- -------- -------
Total deposits.......................... 870,083 40,172 4.62 755,536 33,601 4.45
FHLB of New York advances................ 147,945 9,078 6.14 65,625 3,827 5.83
Other borrowings......................... 68,084 3,823 5.62 29,846 1,693 5.67
---------- ------- -------- -------
Total deposits and borrowings........... 1,086,112 $53,073 4.89 851,007 $39,121 4.60
======= =======
Other liabilities........................ 18,337 12,446
---------- --------
Total liabilities....................... 1,104,449 863,453
Stockholders' equity....................... 92,853 93,841
---------- --------
Total liabilities and stockholders'
equity................................. $1,197,302 $957,294
========== ========
Net interest income and net interest
rate spread............................... $32,328 2.58% $29,002 2.96%
======= ==== ======= ====
Net interest-earning assets and interest
margin.................................... $ 57,526 2.83% $ 49,985 3.22%
========== ===== ======== =====
Ratio of interest-earning assets to
deposits and borrowings.................. 105.30% 105.87%
====== ======
<CAPTION>
----------------------------------------------
1995
----------------------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/
BALANCE PAID YIELD/RATE
----------- -------- ----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
One- to four-family mortgage loans...... $327,888 $26,008 7.93%
Commercial and multi-family real estate
loans................................... 47,367 4,667 9.85
Consumer loans........................... 33,029 3,389 10.26
-------- -------
Total loans receivable.................. 408,284 34,064 8.34
Mortgage-backed securities............... 270,136 16,143 5.98
Investment securities and other.......... 36,189 2,512 6.94
-------- -------
Total interest-earning assets........... 714,609 $52,719 7.38
=======
Non-interest earning assets.............. 44,393
--------
Total assets............................ $759,002
========
DEPOSITS AND BORROWINGS:
Money market and demand deposits
(transaction accounts).................. $ 71,606 $ 1,311 1.83%
Savings deposits......................... 182,947 4,165 2.28
Certificates of deposit.................. 372,469 20,155 5.41
-------- -------
Total deposits.......................... 627,022 25,631 4.09
FHLB of New York advances................ 17,028 878 5.16
Other borrowings......................... 11,281 644 5.71
-------- ------- -----
Total deposits and borrowings........... 655,331 $27,153 4.14
=======
Other liabilities........................ 9,272
--------
Total liabilities....................... 664,603
Stockholders' equity....................... 94,399
--------
Total liabilities and stockholders'
equity................................. $759,002
========
Net interest income and net interest
rate spread............................... $25,566 3.24%
======= ====
Net interest-earning assets and interest
margin.................................... $ 59,278 3.58%
======== ====
Ratio of interest-earning assets to
deposits and borrowings.................. 109.05%
======
</TABLE>
33
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and deposits and borrowings have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (1) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (2) changes attributable to changes in rate
(changes in rate multiplied by prior volume), (3) changes attributable to
changes in rate/volume (changes in rate multiplied by changes in volume), and
(4) the net change.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1997 VS. 1996
----------------------------------------------------------- --------
INCREASE (DECREASE)
DUE TO
-------------------------------------------- TOTAL --------
INCREASE
VOLUME RATE RATE/VOLUME (DECREASE) VOLUME
------------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
One- to four-family mortgage loans... $19,650 $ (752) $ (422) $18,476 $10,252
Commercial and multi-family real
estate loans........................ 489 (358) (36) 95 198
Consumer loans....................... 265 (318) (25) (78) 34
------- ------- ------ ------- -------
Total loans receivable.............. 20,404 (1,428) (483) 18,493 10,484
Mortgage-backed securities........... (850) 344 (13) (519) 3,569
Investment securities and other...... (636) (83) 23 (696) (342)
------- ------- ------ ------- -------
Total interest-earning assets....... $18,918 $(1,167) $ (473) $17,278 $13,711
======= ======= ====== ======= =======
DEPOSITS AND BORROWINGS:
Money market and demand deposits
(transaction accounts).............. $ 13 $ (403) $ (4) $ (394) $ 142
Savings deposits..................... (175) (66) 3 (238) (25)
Certificates of deposit.............. 6,912 234 57 7,203 6,593
------- ------- ------ ------- -------
Total deposits...................... 6,750 (235) 56 6,571 6,710
FHLB of New York advances............ 4,801 200 250 5,251 2,508
Other borrowings..................... 2,169 (17) (22) 2,130 1,059
------- ------- ------ ------- -------
Total deposits and borrowings....... $13,720 $ (52) $ 284 $13,952 $10,277
======= ======= ====== ======= =======
Net change in net interest income.... $ 5,198 $(1,115) $( 757) $ 3,326 $ 3,434
======= ======= ====== ======= =======
<CAPTION>
-----------------------------------------------
1996 VS.1995
-----------------------------------------------
INCREASE (DECREASE)
DUE TO
----------------------------- TOTAL
INCREASE
RATE RATE/VOLUME (DECREASE)
------------- ----------- -------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
One- to four-family mortgage loans... $ (850) $(332) $ 9,070
Commercial and multi-family real
estate loans........................ (46) (2) 150
Consumer loans....................... (43) --- (9)
------ ----- -------
Total loans receivable.............. (939) (334) 9,211
Mortgage-backed securities........... 2,325 512 6,406
Investment securities and other...... 149 (20) (213)
------ ----- -------
Total interest-earning assets....... $1,535 $ 158 $15,404
====== ===== =======
DEPOSITS AND BORROWINGS:
Money market and demand deposits
(transaction accounts).............. $ (74) $ (8) $ 60
Savings deposits..................... (26) --- (51)
Certificates of deposit.............. 1,029 339 7,961
------ ----- -------
Total deposits...................... 929 331 7,970
FHLB of New York advances............ 115 326 2,949
Other borrowings..................... (4) (6) 1,049
------ ----- -------
Total deposits and borrowings....... $1,040 $ 651 $11,968
====== ===== =======
Net change in net interest income.... $ 495 $(493) $ 3,436
====== ===== =======
</TABLE>
34
<PAGE>
FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JUNE 30, 1996
Total assets increased $235.2 million, or 21.6%, to $1.322 billion at June
30, 1997 from total assets of $1.087 billion at June 30, 1996. The increase was
primarily attributable to a $278.9 million increase in net loans receivable,
particularly in the Company's one- to four-family first mortgage loan portfolio.
At June 30, 1997, net loans receivable were $931.5 million compared to $652.6
million at June 30, 1996. The increase in loans receivable was funded by retail
deposit growth, additional medium-term FHLB of New York advances and increased
other borrowings as well as principal payments on mortgage-backed securities.
Non-performing assets at June 30, 1997 totaled $6.4 million, representing
0.48% of total assets, compared to $7.3 million, or 0.67% of total assets, at
June 30, 1996. Non-accruing loans decreased to $5.5 million and the ratio of
non-accruing loans to total loans decreased to 0.59% at June 30, 1997 as
compared to $6.2 million, or 0.95% at June 30, 1996. Real estate owned
decreased to $884,000 at June 30, 1997 from $1.1 million at June 30, 1996.
Deposits increased $81.7 million to $918.2 million at June 30, 1997 from
$836.4 million at June 30, 1996. FHLB of New York advances were $205.5 million
at June 30, 1997, a $100.5 million increase from $105.0 million at June 30,
1996. In addition, at June 30, 1997 the Company had $82.8 million of other
borrowings, consisting of $72.8 million of short-term and overnight borrowings
and a $10.0 million reverse repurchase agreement maturing in December 2001.
Other borrowings at June 30, 1996 totaled $41.7 million and consisted of short-
term and overnight borrowings.
Stockholders' equity at June 30, 1997 totaled $97.3 million compared to
$90.6 million at June 30, 1996. The increase primarily reflects the net income
recorded for the year ended June 30, 1997, partially offset by the repurchase of
32,500 shares of the outstanding stock at an average price of $20.04 per share
and the declaration of dividends.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND JUNE
30, 1996
GENERAL. For the year ended June 30, 1997, net income was $6.9 million, or
$1.46 per primary share, including the effects of the one-time SAIF
recapitalization assessment. The SAIF recapitalization assessment for the
Company totaled $4.8 million, or an after-tax cost of $3.1 million, or $0.65 per
share. Excluding the effects of the SAIF assessment, net income for the year
ended June 30, 1997, of $9.9 million or $2.11 per primary share compared
favorably to net income of $7.8 million, or $1.55 per primary share, for the
year ended June 30, 1996.
35
<PAGE>
INTEREST AND DIVIDEND INCOME. Interest and dividend income for the year
ended June 30, 1997 increased to $85.4 million from $68.1 million for the year
ended June 30, 1996. The increase in the current year was due to an increase in
average interest-earning assets, primarily residential loans, partially offset
by a decrease in the average yield earned on interest-earning assets. Average
interest-earning assets were $1.1 billion for the year ended June 30, 1997
compared to $901.0 million for the comparable prior fiscal year. The average
yield on interest-earning assets decreased to 7.47% for the year ended June 30,
1997 from 7.56% for the year ended June 30, 1996.
Interest income on residential one- to four-family mortgage loans for the
year ended June 30, 1997 increased $18.5 million to $53.6 million, or 52.7% when
compared to the prior fiscal year. The increase in interest income on
residential one- to four-family mortgage loans was due to an increase of $256.1
million to $713.3 million in the average balance outstanding for the year ended
June 30, 1997 over the prior fiscal year. The increase in the average balance
on residential one- to four-family mortgage loans was partially offset by a
decrease of 0.16% in the average yield earned on this loan portfolio to 7.51%
for the year ended June 30, 1997 from the prior fiscal year.
INTEREST EXPENSE. Interest expense increased $14.0 million to $53.1 million
for the year ended June 30, 1997, from $39.1 million for fiscal 1996. The
increase was attributable to an increase in total average deposits, primarily
certificates of deposit, and borrowings coupled with an increase in the
Company's cost of funds. Average deposits and borrowings increased $235.1
million to $1.1 billion for the year ended June 30, 1997 compared to the 1996
period. The average rate paid on deposits and borrowings increased to 4.89% for
the year ended June 30, 1997 from 4.60% for the prior fiscal year.
NET INTEREST AND DIVIDEND INCOME. Net interest and dividend income for the
year ended June 30, 1997, was $32.3 million, reflecting an increase from $29.0
million recorded in the prior fiscal year. The increase reflects the Company's
growth in assets, primarily in adjustable rate residential one- to four-family
mortgage loans. The net interest rate spread and net interest margin for the
current fiscal year were 2.58% and 2.83%, respectively, a decline from 2.96%
and 3.22%, respectively, during fiscal 1996. The decline was partially
attributable to the Company's efforts to reduce its sensitivity to changes in
interest rates by extending the average life of liabilities and focusing on
adjustable rate one- to four-family mortgage loans. This resulted in the
Company paying higher rates to attract longer term deposits and initially
receiving lower yields on adjustable rate loans than would otherwise be
obtainable on fixed rate loans. Since the Company's liabilities generally
reprice more quickly than its assets, net interest rate spread and net interest
margins will likely decrease if interest rates rise.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended
June 30, 1997 was $635,000 compared to $610,000 for the prior fiscal year. The
allowance for loan losses at June 30, 1997 of $2.6 million is comparable to the
June 30, 1996 level. The allowance for loan losses as a percentage of non-
performing loans was 47.80% at June 30, 1997, compared to 42.52% at June 30,
1996. See "Business - Non-Performing and Classified Assets."
36
<PAGE>
NON-INTEREST INCOME. For the year ended June 30, 1997 non-interest income
was $1.8 million compared to $2.2 million for the prior fiscal year. The
decrease was partially attributable to a net loss from real estate operations of
$181,000 compared to a net gain from real estate operations of $104,000 for the
prior fiscal year. The decrease in net gains from real estate operations is
partially reflective of additional reserves established in accordance with
internal policies and guidelines on real estate properties currently owned by
the Company. Additionally, non-interest income for the year ended June 30, 1996
included a $94,000 gain on sale of investments available for sale and a $62,000
gain on sale of a property no longer used in operations.
NON-INTEREST EXPENSES. The Company's non-interest expenses were $22.4
million for the year ended June 30, 1997. Non-interest expenses for the year
ended June 30, 1997 included $4.8 million for the one-time SAIF recapitalization
assessment. Excluding this SAIF assessment, non-interest expenses for the year
ended June 30, 1997 would have been comparable to the $17.6 million reported for
the year ended June 30, 1996. The Company's non-interest expenses, excluding
the SAIF assessment, as a percent of average assets declined to 1.47% for the
year ended June 30, 1997 from 1.84% for the prior fiscal year.
As noted above, beginning January 1, 1997 deposit insurance premiums have
decreased significantly from the 0.23% of deposits previously paid by the Bank
to 0.063% for the FICO assessment.
INCOME TAX EXPENSE. Income tax expense for the year ended June 30, 1997 was
$4.2 million compared to $5.1 million for the prior fiscal year. Excluding the
effects of the one-time SAIF recapitalization assessment, income tax expense of
$6.0 million was recorded for fiscal 1997. The effective tax rate was 37.9% for
the year ended June 30, 1997. Excluding the effect of the one-time SAIF
recapitalization assessment, the effective tax rate was 37.5% for the year ended
June 30, 1997 compared to 39.5% for the year ended June 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE
30, 1995
GENERAL. For the year ended June 30, 1996 net income was $7.8 million, or
$1.55 per share, compared to net income of $5.6 million, or $1.08 per share, for
the year ended June 30, 1995. The results for fiscal 1995 included several
significant non-recurring charges related to the March 1995 acquisition of three
former Carteret Federal Savings Bank ("Carteret") branches and related deposits
(the "Acquisition").
INTEREST AND DIVIDEND INCOME. Interest and dividend income for the year
ended June 30, 1996 increased to $68.1 million from $52.7 million for the year
ended June 30, 1995. The increase in fiscal 1996 was due to an increase in
average interest-earning assets, primarily one- to four- family residential
loans, and to a much lesser extent, an increase in the average yield earned on
interest-earning assets. Average interest-earning assets were $901.0 million
for the year ended June 30, 1996, versus $714.6 million for the prior fiscal
year. The average yield earned on interest-earning assets increased to 7.56%
for the year ended June 30, 1996 from 7.38% for the prior fiscal year.
37
<PAGE>
Interest income on residential one- to four-family mortgage loans for the
year ended June 30, 1996 increased $9.1 million to $35.1 million, or 34.9%, when
compared to fiscal 1995. The increase in interest income on residential one- to
four-family mortgage loans was due to an increase of $129.3 million in the
average balance outstanding for fiscal 1996 over the prior fiscal year. The
increase in the average balance on residential one- to four-family mortgage
loans was partially offset by a decrease of 0.26% in the average yield earned on
this loan portfolio to 7.67% for the year ended June 30, 1996 from the
comparable prior fiscal year.
Interest income on the mortgage-backed securities portfolio increased $6.4
million to $22.5 million, or 39.7%, for the year ended June 30, 1996, as
compared to the prior fiscal year. The increase in interest income on mortgage-
backed securities reflects increases in the average balance outstanding of $59.7
million to $329.8 million for the year ended June 30, 1996 over the prior fiscal
year. In addition, the average yield earned on these securities increased 0.86%
to 6.84% for fiscal 1996 when compared to the year ended June 30, 1995.
Interest on investment securities and other interest-earning assets
decreased $214,000 for the year ended June 30, 1996 from the prior fiscal year
due to a decrease in the average balance outstanding for fiscal year 1996
partially offset by an increase in the average yield earned on these securities.
INTEREST EXPENSE. Interest expense increased to $39.1 million for the year
ended June 30, 1996 from $27.2 million for fiscal 1995. The increase was
attributable to an increase in total average deposits and borrowings coupled
with an increase in the Company's cost of funds. Average deposits and
borrowings increased $195.7 million to $851.0 million for the year ended June
30, 1996 compared to the prior fiscal year. The average rate paid on deposits
and borrowings increased to 4.60% for the year ended June 30, 1996 from 4.14%
for the prior fiscal year.
NET INTEREST AND DIVIDEND INCOME. Net interest and dividend income for the
year ended June 30, 1996 was $29.0 million, reflecting an increase from $25.6
million recorded in the prior fiscal year. The increase reflects substantial
asset growth, primarily in residential one- to four-family mortgage loans and
securities. The net interest rate spread was 2.96% for the year ended June 30,
1996 and 3.24% for the year ended June 30, 1995. Net interest margin for the
year ended June 30, 1996 was 3.22%, a decline from 3.58% during fiscal 1995.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended June 30, 1996 was $610,000 compared to $569,000 for the prior year. The
allowance for loan losses at June 30, 1996 of $2.6 million reflects a $230,000
decrease from the June 30, 1995 level. The allowance for loan losses as a
percentage of non-performing loans was 42.52% at June 30, 1996, compared to
51.39% at June 30, 1995. The decrease in the allowance ratio was primarily
attributable to the payoff of a $1.3 million troubled debt restructured
commercial real estate loan which required the utilization of approximately
$400,000 of specific reserves previously allocated to the loan.
38
<PAGE>
NON-INTEREST INCOME. For the year ended June 30, 1996 non-interest income
was $2.2 million, an increase of $77,000 when compared to the prior fiscal year.
The increase was primarily due to a $94,000 gain on sale of investments
available for sale and a $126,000 increase in income from service charges. The
fiscal 1996 net gain from real estate operations of $104,000 was comparable to
the prior fiscal year. Finally, non-interest income for the year ended June 30,
1996 included a $62,000 gain on sale of a property no longer used in operations.
For the year ended June 30, 1995, non-interest income included a $400,000
recovery from a litigation settlement, partially offset by a $200,000 loss on
disposition of computer equipment.
NON-INTEREST EXPENSES. The Company's non-interest expenses of $17.6
million for the fiscal year ended June 30, 1996 was relatively unchanged from
the prior fiscal year ended June 30, 1995. The Company's non-interest expenses
as a percent of average assets declined significantly to 1.84% for the fiscal
year ended June 30, 1996 from 2.31% for the prior fiscal year. Total non-
interest expenses for fiscal 1996 included a $1.2 million increase in
amortization of intangibles, due to the Acquisition, and a $355,000 increase in
Federal deposit insurance premiums, reflective of the growth in deposits. The
results for the prior fiscal year included $297,000 of Acquisition related
expenses, $470,000 of expenses related to the termination of the Company's
defined benefit pension plan and $300,000 of deposit servicing expenses also
relating to the Acquisition.
INCOME TAX EXPENSE. Income tax expense for the year ended June 30, 1996
was $5.1 million compared to $3.9 million for the prior fiscal year. The
effective tax rate was 39.5% for fiscal 1996 and 41.0% for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Company's primary sources of funds are deposits, principal
and interest payments on loans and mortgage-backed securities, and borrowings
from the FHLB of New York. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions and
competition. The Company has competitively set rates on deposit products for
selected terms and, when necessary, has supplemented deposits with longer term
or less expensive alternative sources of funds.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 5% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio include cash,
accrued interest receivable, certain time deposits, U.S. Treasury and Government
agencies and other securities and obligations generally having remaining
maturities of less than five years. The Company's most liquid assets are cash
and cash equivalents, short term investments and mortgage-backed securities.
The levels of these assets are dependent on the Bank's operating, financing,
lending and investing activities during any given period. At June 30, 1997 and
1996, liquidity
39
<PAGE>
eligible assets totaled $99.5 million and $128.9 million, respectively. At June
30, 1997 and 1996, the Bank's liquidity ratios were 10.36% and 15.17%,
respectively.
In the event that the Company should require funds beyond its ability to
generate them internally, additional sources of funds are available through the
use of FHLB of New York advances and reverse repurchase agreements. In addition,
the Company may access funds, if necessary, through the use of a $50.0 million
overnight line of credit and a $50.0 million one-month overnight repricing line
of credit from the FHLB of New York. The Company uses its liquid resources
principally to fund maturing certificates of deposit and deposit withdrawals, to
purchase loans and securities, to fund existing and future commitments, and to
meet operating expenses. At June 30, 1997, the Company had outstanding
commitments to extend credit which amounted to $27.1 million (including $17.4
million in available lines of credit) and commitments to purchase loans of $32.7
million. Management believes that loan repayments and other sources of funds
will be adequate to meet the Company's foreseeable liquidity needs.
In addition to cash provided by operating activities, the Company's fiscal
1997 and 1996 cash needs were principally provided by increased deposits and an
increase in advances from the FHLB of New York and other borrowings. During
fiscal 1997, the cash provided was principally used for investing activities,
which included the origination and purchase of loans. During fiscal 1996 the
cash provided was principally used for investing activities, which included the
purchase of investment and mortgage-backed securities and the origination and
purchase of loans. In addition to cash provided by operating activities, during
fiscal 1995 the cash needs of the Company were principally provided by increased
deposits, primarily from the Acquisition, and an increase in borrowings. The
cash was principally utilized for investing activities, which included the
purchase of mortgage-backed securities and loans.
Current regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets; and a tangible capital
ratio expressed as a percentage of total adjusted assets. As of June 30, 1997,
the Bank exceeded all regulatory capital requirements and qualified as a "well-
capitalized" institution. See "Regulation" and Note P -- Stockholders' Equity
and Regulatory Capital, in the Notes to Consolidated Financial Statements.
The Company initiated a quarterly cash dividend on its common stock of
$0.07 per share in the second quarter of fiscal 1997 and paid a total of $0.21
per share during the fiscal year ended June 30, 1997. The declaration and
payment of dividends are subject to, among other things, PennFed's financial
condition and results of operations, regulatory capital requirements, tax
considerations, industry standards, economic conditions, regulatory
restrictions, general business practices and other factors. The Company may not
pay dividends during an Extension Period. See "Description of the Preferred
Securities - Distributions," and "Description of the Junior Subordinated
Debentures - Restrictions on Certain Payments."
40
<PAGE>
BUSINESS
GENERAL
PennFed, a Delaware corporation, was organized in March 1994 for the
purpose of becoming the savings and loan holding company for the Bank in
connection with the Conversion. PennFed owns all of the outstanding stock of the
Bank.
PennFed and the Bank are subject to comprehensive regulation, examination
and supervision by the OTS and by the FDIC. The Bank is a member of the FHLB
System and its deposits are insured up to applicable limits by the FDIC.
The Company has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Company attracts deposits from the general
public and uses such deposits, together with borrowings and other funds, to
originate and purchase one- to four- family residential mortgage loans, and, to
a lesser extent, commercial and multi-family real estate and consumer loans. See
"-Originations, Purchases, Sales and Servicing of Loans." The Company also
invests in mortgage-backed securities secured by one- to four-family residential
mortgages, U.S. Government and agency obligations and other permissible
investments.
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms, which generally include savings, money market, and a
variety of checking accounts, as well as certificate accounts. The Company
generally solicits deposits in its primary market areas.
At June 30, 1997, the Company had total assets of $1.3 billion, deposits of
$918.2 million, borrowings of $288.2 million and stockholders' equity of $97.3
million.
At June 30, 1997, the Company's gross loan portfolio totaled $928.9
million, including $831.8 million of one- to four-family residential first
mortgage loans, $56.8 million of commercial and multi-family real estate loans
and $40.2 million of consumer loans. In addition, on that date, the Company had
$288.5 million of mortgage-backed securities and $47.7 million of other
investment securities and FHLB of New York stock.
41
<PAGE>
At June 30, 1997, the vast majority of the Company's first and second
mortgage loans (excluding mortgage-backed securities) were secured by properties
located in New Jersey. Of the loans secured by properties outside the State of
New Jersey, the majority are secured by one-to four-family loans and the balance
secured by commercial and multi-family real estate loans. See "-Originations,
Purchases, Sales and Servicing of Loans." The Company's revenues are derived
primarily from interest on loans, mortgage-backed securities and investments,
and income from service charges.
Penn Federal, through its wholly-owned subsidiary, Penn Savings Insurance
Agency, Inc., offers insurance and uninsured annuity products to its customers.
See "-Subsidiary Activities."
The administrative offices of the Company are located at 622 Eagle Rock
Avenue, West Orange, New Jersey 07052-2989, and the telephone number at that
address is (973) 669-7366.
MARKET AREA
The Company's primary market areas are comprised of the Ironbound section
of the City of Newark and surrounding urban communities, the suburban Essex
County areas and selected areas of central/southern New Jersey, which are
serviced through seventeen full service offices. Penn Federal was organized in
the Ironbound section of Newark in 1941 and the home office of the Bank remains
there. The City of Newark and immediately adjacent communities of East Newark
and Harrison are primarily urban blue collar areas with two or more family
dwellings and some manufacturing and industry. Deposits at Bank branches in
these areas comprise 35% of total Bank deposits. The suburban Essex County area
consists of communities with predominantly single family homes, and a white
collar commuter population that works in New York or Newark, or engages in local
retail trade or industry. Suburban Essex County is the Bank's largest market
area, accounting for approximately 40% of total Bank deposits at June 30, 1997.
Penn Federal's central/southern New Jersey branches, with 25% of total Bank
deposits, serve retirement populations and expanding townhouse, multi-family and
single family home developments. The Bank also purchases a significant volume
of one- to four-family residential loans secured by properties located primarily
in New Jersey. See "- Originations, Purchases, Sales and Servicing of Loans."
LENDING ACTIVITIES
General. The Company primarily originates and purchases fixed and
adjustable rate, one-to four-family first mortgage loans. The Company's general
policy is to originate and purchase such mortgages with maturities between 10
and 30 years. Adjustable rate mortgage ("ARM") loans are originated and
purchased in order to increase the percentage of loans with more frequent
repricing than fixed rate, one- to four-family mortgage loans. The Company
underwrites mortgage loans generally using Federal Home Loan Mortgage
Corporation ("FHLMC") and Fannie Mae ("FNMA") guidelines, although loan amounts
may exceed agency limits. See "-Loan Portfolio Composition" and "-One- to Four-
Family Residential Mortgage Lending."
42
<PAGE>
The Company also originates commercial and multi-family real estate loans
and consumer loans. Such loans generally reprice more frequently, have shorter
maturities, and/or have higher yields than fixed rate, one- to four-family
mortgage loans. At June 30, 1997, the Company's total net loan portfolio was
$931.5 million.
Residential and consumer loan applications may be approved by various
officers up to $1.0 million. Commercial and multi-family real estate loan
applications are initially considered and approved at various levels of
authority, depending on the amount of the loan. All commercial and multi-family
real estate loans between $500,000 and $1.0 million must be approved by the
Executive Loan Committee which consists of the President, three executive
officers and the Vice President of Commercial Lending. The approval of the
Company's Board of Directors is required for all loans above $1.0 million.
The aggregate amount of loans that the Company is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Company could have invested in any one real
estate project is the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation-Federal Regulation of Savings Associations." At June
30, 1997, the maximum amount which the Company could have lent to any one
borrower and the borrower's related entities was approximately $11.4 million.
The Company's current policy is to limit such loans to a maximum of 50% of the
regulatory limit or $3.0 million, whichever is less. At June 30, 1997, the
Company did not have any loans or series of loans to one borrower with
outstanding balances in excess of $2.8 million. See "-Commercial and Multi-
Family Real Estate Lending." At June 30, 1997, the Company's largest group of
loans to one borrower totaled $2.8 million and consisted of three commercial
real estate loans aggregating $1.9 million and one commercial real estate loan
for $894,000 for which the borrower on the three commercial real estate loans is
only a guarantor. Each loan is secured by an apartment building located in one
of the Company's primary market areas. At June 30, 1997, there was a total of
14 loans or lender relationships in excess of $1.0 million, for a total amount
of $23.6 million. At that date, $23.0 million of these were performing in
accordance with their respective repayment terms while $574,000 were 30 days
past due and $58,000 were 60 days past due. See "-Non-Performing and Classified
Assets."
43
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of the Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family/(1)/........................ $831,843 89.55% $565,924 86.68% $386,125 82.17%
Construction.................................... --- --- --- --- --- ---
Commercial and multi-family..................... 56,811 6.12 52,014 7.97 50,448 10.74
-------- ------ -------- ------ -------- ------
Total first mortgage loans.................... 888,654 95.67 617,938 94.65 436,573 92.91
-------- ------ -------- ------ -------- ------
OTHER LOANS:
Consumer Loans:
Second mortgages.............................. 23,665 2.55 23,912 3.66 21,105 4.49
Home equity lines of credit................... 14,040 1.51 8,955 1.37 9,792 2.08
Other......................................... 2,512 0.27 2,117 0.32 2,461 0.52
-------- ------ -------- ------ -------- ------
Total consumer loans........................ 40,217 4.33 34,984 5.35 33,358 7.09
-------- ------ -------- ------ -------- ------
Total loans................................. 928,871 100.00% 652,922 100.00% 469,931 100.00%
====== ====== ======
LESS:
Loans in process................................ --- --- ---
Unamortized premiums, deferred loan fees,
and other, net................................. 5,202 2,279 606
Allowance for loan losses....................... (2,622) (2,630) (2,860)
-------- -------- --------
Total loans receivable, net................... $931,451 $652,571 $467,677
======== ======== ========
<CAPTION>
----------------------------------------------------
1994 1993
------------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family/(1)/........................ $301,843 78.13% $304,838 75.70%
Construction.................................... 177 0.04 378 0.09
Commercial and multi-family..................... 49,135 12.72 53,120 13.19
-------- ------ -------- ------
Total first mortgage loans.................... 351,155 90.89 358,336 88.98
-------- ------ -------- ------
OTHER LOANS:
Consumer Loans:
Second mortgages.............................. 22,532 5.83 30,175 7.49
Home equity lines of credit................... 10,840 2.81 11,640 2.89
Other......................................... 1,825 0.47 2,568 0.64
-------- ------ -------- ------
Total consumer loans........................ 35,197 9.11 44,383 11.02
-------- ------ -------- ------
Total loans................................. 386,352 100.00% 402,719 100.00%
====== ======
LESS:
Loans in process................................ (44) (70)
Unamortized premiums, deferred loan fees,
and other, net................................. 109 (189)
Allowance for loan losses....................... (3,060) (3,126)
-------- --------
Total loans receivable, net................... $383,357 $399,334
======== ========
</TABLE>
____________
(1) One- to four-family loans include loans held for sale of $88,000, $536,000,
and $1,995,000, at June 30, 1996, 1994 and 1993, respectively. There were
no loans held for sale at June 30, 1997 and 1995.
44
<PAGE>
Loan Maturity. The following schedule sets forth the contractual maturity
of the Company's loan portfolio as of June 30, 1997. Loans that have adjustable
rates are shown as amortizing to final maturity rather than when the interest
rates are next subject to change. Loans with balloon payments are also shown as
amortizing to final maturity (i.e., when the balloon payment is due). All
balances are shown on a gross basis and, thus, include no premium or discount
adjustments. Savings account loans, included in consumer loans, which have no
stated final maturity are reported as due within one year. The table does not
reflect the effects of possible prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
AFTER TEN
AFTER ONE AFTER THREE AFTER FIVE THROUGH AFTER
ONE YEAR THROUGH THROUGH THROUGH TWENTY TWENTY
OR LESS THREE YEARS FIVE YEARS TEN YEARS YEARS YEARS TOTAL
-------- ----------- ----------- ---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family..................... $ 729 $ 3,036 $ 6,868 $28,786 $194,704 $597,720 $831,843
Commercial and multi-family............. 4,759 7,504 5,983 10,160 20,527 7,878 56,811
------ ------- ------- ------- -------- -------- --------
Total first mortgage loans............. 5,488 10,540 12,851 38,946 215,231 605,598 888,654
Consumer loans.......................... 2,315 1,894 2,431 10,308 22,518 751 40,217
------ ------- ------- ------- -------- -------- --------
Total loans, gross..................... $7,803 $12,434 $15,282 $49,254 $237,749 $606,349 $928,871
====== ======= ======= ======= ======== ======== ========
</TABLE>
Loans due after June 30, 1998 which have fixed interest rates amount to
$510.8 million, while those with adjustable rates amount to $410.3 million,
detailed as follows:
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 1998
------------------------------------------
FIXED ADJUSTABLE TOTAL
------------ --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family.......................... $468,860 $362,254 $831,114
Commercial and multi-family real estate...... 18,082 33,970 52,052
-------- -------- --------
Total first mortgage loans.................. 486,942 396,224 883,166
Consumer..................................... 23,863 14,039 37,902
-------- -------- --------
Total loans, gross.......................... $510,805 $410,263 $921,068
======== ======== ========
</TABLE>
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Company's in-house originations staff,
marketing efforts, its present customers, walk-in customers and referrals from
real estate agents, mortgage brokers and builders. The Company focuses its
lending efforts primarily on the origination of loans secured by first mortgages
on owner-occupied, one- to four-family residences. During the fiscal year ended
June 30, 1997, the Company originated $74.2 million of fixed-rate real estate
loans secured by one- to four-family residential real estate. ARM loans
originated during fiscal 1997 totaled $67.5 million. Substantially, all of the
Company's one- to four-family residential mortgage originations are secured by
properties located in the State of New Jersey.
45
<PAGE>
In addition, the Company has correspondent relationships with two other
institutions through which, during fiscal 1997, it purchased $28.6 million of
newly originated fixed and $166.9 million of newly originated adjustable rate
one- to four-family residential first mortgages, most of which are secured by
properties located in the State of New Jersey and a limited amount of which are
secured by properties located in the Commonwealth of Pennsylvania. These loans
are underwritten by the correspondent institutions using the Company's
guidelines and a portion of those loans are re-underwritten by the Bank on a
test basis. All loans purchased are supported by customary representations and
warranties provided by the correspondent institutions. At June 30, 1997, the
Company's one- to four- family residential mortgage loans totaled $831.8
million, or approximately 89.6% of the Company's gross loan portfolio. In the
event the Company is unable to maintain these two correspondent relationships,
its ability to purchase one- to four-family residential first mortgage loans
meeting its underwriting criteria could be adversely affected. See "-
Originations, Purchases, Sales and Servicing of Loans."
The Company currently originates one- to four-family residential mortgage
loans with terms of up to 30 years in amounts up to 95% of the appraised value
of the security property. The Company generally requires that private mortgage
insurance be obtained in an amount sufficient to reduce the Company's exposure
to 80% or less of the loan-to-value level.
Currently, loans are primarily originated for investment purposes and are,
therefore, being held to maturity in the Company's loan portfolio. Interest
rates charged on loans are competitively priced according to market conditions.
In underwriting one- to four-family residential real estate loans, the
Company evaluates both the borrower's ability to make monthly payments and the
value of the property securing the loan. Properties securing real estate loans
made by the Company are appraised by independent appraisers approved by the
Board of Directors. The Company requires borrowers to obtain title insurance
and fire and property insurance (including flood insurance, if necessary) in the
amount of the loan or the replacement cost, whichever is less. Real estate
loans originated and purchased by the Company generally contain a "due on sale"
clause allowing the Company to declare the unpaid principal balance due and
payable upon the sale of the security property.
Commercial and Multi-Family Real Estate Lending. The Company also engages
in commercial and multi-family real estate lending in its market areas. At June
30, 1997, the Company had $56.8 million of commercial and multi-family real
estate loans which represented 6.1% of the Company's gross loan portfolio. This
amount includes less than $300,000 of lines of credit secured by non-real estate
business assets. At June 30, 1997, the average per loan balance of the
Company's commercial and multi-family real estate loans outstanding was
$277,000.
The Company's commercial and multi-family real estate loan portfolio is
secured primarily by apartment buildings, mixed-use buildings, small office
buildings, restaurants, warehouses and strip shopping centers. Commercial and
multi-family real estate loans typically have terms that do not exceed 15 years
and have a variety of rate adjustment features and other terms. Generally, the
46
<PAGE>
loans are made in amounts up to 75% of the appraised value of the security
property. Adjustable rate commercial and multi-family real estate loans
normally provide for a margin over the U.S. Treasury security adjusted to a
constant maturity of five years, with periodic adjustments after five years, or
over the Prime Rate as reported in the Wall Street Journal. To a lesser extent,
the Company also originates commercial and multi-family real estate loans with a
margin over shorter-term U. S. Treasury securities. In underwriting these
loans, the Company analyzes the current financial condition of the borrower, the
borrower's credit history, and the reliability and predictability of the cash
flow generated by the property securing the loan. The Company usually requires
personal guarantees of the borrowers. Appraisals on properties securing
commercial real estate loans originated by the Company are performed by
independent appraisers approved by the Board of Directors. The Company has
recently established a correspondent relationship with a bank in New Jersey as
part of an overall effort to increase its commercial and multi-family real
estate originations.
Commercial and multi-family real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effect of general economic
conditions on income-producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (e.g., if leases are not obtained or renewed,
or a bankruptcy court modifies a lease term, or a major tenant is unable to
fulfill its lease obligations), the borrower's ability to repay the loan may be
impaired.
Consumer Lending. The Company offers a variety of secured consumer loans,
including home equity lines of credit, second mortgages, automobile loans and
loans secured by savings deposits. In addition, the Company offers unsecured
overdraft checking protection. The Company currently originates substantially
all of its consumer loans in its primary market areas. Since 1992, the Company
has originated consumer loans only on a direct basis, where the Company extends
credit directly to the borrower. Prior to that date, the Company purchased
second mortgages from various affiliated and unaffiliated third parties. At
June 30, 1997, the Company had $3.4 million in purchased second mortgages, of
which $541,000 were non-performing at that date. See "-Non-Performing Assets
and Classified Assets."
The Company originates adjustable rate home equity lines of credit and
fixed rate second mortgage loans generally up to $125,000. Home equity lines of
credit and second mortgage loans together with loans secured by all prior liens,
are generally limited to 75% or less of the appraised value of the property
securing the loan. Second mortgage loans have a maximum term of up to 15 years.
Home equity lines of credit may have varying terms up to 20 years. These loans
are underwritten utilizing criteria similar to the Company's first mortgage
loans. As of June 30, 1997, second mortgage loans and home equity lines of
credit amounted to $37.7 million or 4.1% of the Company's gross loan portfolio.
47
<PAGE>
At June 30, 1997, the Company's total consumer loan portfolio was $40.2
million, or 4.3% of its gross loan portfolio, of which approximately 65% were
fixed rate loans and 35% were adjustable rate loans.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Company for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral from a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS
For the fiscal year ended June 30, 1997, the Company originated $173.5
million of loans, compared to $143.0 million and $54.5 million in fiscal 1996
and 1995, respectively. Mortgage loan originations are handled by employees of
the Company. Separate origination facilities are not maintained.
During the fiscal years ended June 30, 1997, 1996 and 1995, the Company
purchased $195.5 million, $132.2 million and $87.7 million of one- to four-
family residential first mortgage loans, respectively, primarily through
correspondent relationships with other institutions. The purchased loans
represent both fixed and adjustable rate one- to four-family first mortgages
secured by properties primarily located throughout New Jersey. During fiscal
1997, a limited amount of loans secured by properties located in the
Commonwealth of Pennsylvania were purchased. All loans are purchased on a non-
recourse basis.
From time to time the Company sells one- to four-family mortgage loans,
without recourse, to FHLMC and other secondary market purchasers. The Company
sold loans in aggregate amounts of $585,000, $273,000 and $1.4 million during
the years ended June 30, 1997, 1996 and 1995, respectively.
When loans are sold, the Company may retain the responsibility for
servicing the loans. The Company receives a fee for performing these services.
The Company serviced for others one- to
48
<PAGE>
four-family mortgage loans with an aggregate outstanding principal balance of
$78.8 million, $89.2 million and $80.0 million at June 30, 1997, 1996 and 1995,
respectively. The increase in 1996 was due to the purchase of one- to four-
family residential mortgage loan servicing rights for approximately $19.9
million of loans.
The following table sets forth the activity in the Company's loan portfolio
for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loans receivable at beginning of year....... $652,571 $467,677 $383,357
PLUS:
Loans originated:
One- to four-family........................... 141,736 119,583 35,588
Commercial and multi-family real estate....... 12,225 7,477 7,147
Consumer...................................... 19,501 15,966 11,745
-------- -------- --------
Total loans originated....................... 173,462 143,026 54,480
-------- -------- --------
Loans purchased:
One- to four-family........................... 195,514 132,238 87,728
Consumer...................................... --- --- 146
-------- -------- --------
Total loans purchased........................ 195,514 132,238 87,874
-------- -------- --------
Total loans originated and purchased........ 368,976 275,264 142,354
LESS:
One- to four-family loans sold................ 585 273 1,362
Loan principal payments and other, net........ 87,821 88,557 53,978
Loans transferred to real estate owned........ 1,690 1,540 2,694
-------- -------- --------
Net loans receivable at end of year............. $931,451 $652,571 $467,677
======== ======== ========
</TABLE>
NON-PERFORMING AND CLASSIFIED ASSETS
Generally, when a borrower fails to make a required payment on a real
estate secured loan or other secured loan the Company institutes collection
procedures by mailing a delinquency notice. The customer is contacted again, by
telephone, if the delinquency is not promptly cured. In many cases,
delinquencies are cured promptly; however, if a loan secured by real estate or
other collateral has been delinquent for more than 60 days, a letter of notice
of intention to foreclose is sent and the customer is requested to make
arrangements to bring the loan current. At 90 days past due, unless satisfactory
arrangements have been made, immediate repossession commences or foreclosure
49
<PAGE>
procedures are instituted. For unsecured loans, the collection procedures are
similar; however, at 90 days past due, a reserve or charge-off is recommended
and, subsequently, a law suit is filed, if necessary.
At June 30, 1997, the Company's loans delinquent 60 to 89 days totaled $1.5
million; $1.0 million were one- to four-family mortgage loans; $348,000 were
commercial and multi-family real estate loans; and $114,000 were consumer loans.
The table below sets forth the Company's amounts and categories of non-
performing assets and restructured loans. Loans are placed on non-accrual
status when the collection of principal or interest becomes delinquent more than
90 days. There are no loans delinquent more than 90 days which are still
accruing. Real estate owned represents assets acquired in settlement of loans
and is shown net of valuation allowances. Restructured loans are all performing
in accordance with modified terms and are, therefore, considered performing.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NON-ACCRUING LOANS:
One- to four-family........................... $3,567 $4,009 $3,040 $ 5,739 $ 8,486
Construction.................................. --- --- --- 132 ---
Commercial and multi-family real estate....... 1,053 913 1,090 1,966 3,629
Consumer...................................... 865 1,264 1,435 2,021 1,896
------ ------ ------ ------- -------
Total non-accruing loans..................... 5,485 6,186 5,565 9,858 14,011
Real estate owned, net........................ 884 1,083 1,177 1,469 1,726
------ ------ ------ ------- -------
Total non-performing assets.................. 6,369 7,269 6,742 11,327 15,737
Restructured loans............................ 1,451 2,340 2,922 2,289 2,320
------ ------ ------ ------- -------
Total risk elements.......................... $7,820 $9,609 $9,664 $13,616 $18,057
====== ====== ====== ======= =======
Non-accruing loans as a percentage of total
loans...................................... 0.59% 0.95% 1.18% 2.55% 3.48%
====== ====== ====== ======= =======
Non-performing assets as a percentage of
total assets............................... 0.48% 0.67% 0.78% 1.67% 2.71%
====== ====== ====== ======= =======
Total risk elements as a percentage of total
assets...................................... 0.59% 0.88% 1.11% 2.00% 3.11%
====== ====== ====== ======= =======
</TABLE>
For the year ended June 30, 1997, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $139,000, none of which was included in interest
income during this period.
For the year ended June 30, 1997, gross interest income which would have
been recorded had the restructured loans paid in accordance with their original
terms amounted to $263,000. For the year ended June 30, 1997, the actual amount
included in interest income, which was paid in accordance with the modified loan
terms, was $210,000.
50
<PAGE>
Non-Performing Assets. Non-accruing loans at June 30, 1997 were comprised
of 47 one- to four-family loans aggregating $3.6 million, 29 second mortgage
loans aggregating $865,000 and five commercial and multi-family real estate
loans at June 30, 1997, totaling $1.1 million.
Real estate owned at June 30, 1997 included 10 one- to four-family
properties totaling $505,000, the largest of which had a net book value of
$93,000, and two commercial properties with a total net book value of $379,000.
Restructured Loans. In the normal course of business the Company has
restructured the terms of certain loans. At June 30, 1997, restructured loans
consisted of two commercial real estate loans with individual book balances of
$768,000 and $683,000. These loans have been performing in accordance with
their modified terms.
Other Loans of Concern. As of June 30, 1997, there were $3.7 million of
other loans not included in the table or discussed above where known information
about the possible credit problems of borrowers caused management to have doubts
as to the ability of the borrower to comply with present loan repayment terms
and which may result in disclosure of such loans in the future. Set forth below
is a description of other loans of concern with book values in excess of $1.0
million.
Included in other loans of concern is a loan with a book value of $1.8
million which the Company is monitoring due to periodic delinquencies. The loan
is secured by a first mortgage lien on a banquet facility in Essex County, New
Jersey, as well as personal and corporate guarantees. As of June 30, 1997, the
loan was current, and performing in accordance with its repayment terms.
Also, included in other loans of concern at June 30, 1997 are six loans to
one borrower and one loan to an affiliated party totaling $1.1 million acquired
in the 1989 acquisition of First Federal Savings and Loan Association of
Montclair. The six loans consist of one commercial real estate loan of
$454,000, four one-to four-family loans totaling $241,000 and an $88,000 line of
credit. The loan to an affiliated party consists of a commercial real estate
loan of $272,000. All of these loans are secured by properties located in New
Jersey. The commercial real estate loans are secured by mixed-use properties
consisting of retail stores and apartments located in Essex County, New Jersey.
All of these loans were originated from 1985 to 1989 with thirty year terms. At
June 30, 1997, $423,000 of these loans were performing in accordance with their
respective repayment terms while $574,000 were 30 days past due and $58,000 were
60 days past due. The Company continues to monitor these loans due to their
periodic delinquencies.
All of the other loans of concern have been considered by management in
conjunction with the analysis of the adequacy of the allowance for loan losses.
Classified Assets. Federal regulations provide for the classification of
loans and other assets such as debt and equity securities considered by the OTS
to be of lesser quality as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
51
<PAGE>
"Substandard" assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that the establishment of a specific loss reserve is
warranted.
When a savings institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings institution classifies
problem assets as "loss," it is required to either establish a specific reserve
equal to 100% of that portion of the asset so classified or to charge-off such
amount.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the assets in its portfolio to determine whether any assets require
classification in accordance with applicable regulations. On the basis of
management's review of its assets at June 30, 1997, the Bank's classified
assets, including real estate owned, totaled $8.0 million, with $7.4 million
classified as substandard and $618,000 classified as loss. Total classified
assets represent 8.2% of the Company's stockholders' equity and 0.6% of the
Company's total assets.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or estimated fair value less costs to dispose of such properties.
If fair value at the date of foreclosure is lower than the balance of the
related loan, the difference will be charged-off to the allowance for loan
losses at the time of transfer. Valuations are periodically updated by
management and if the value declines, a specific provision for losses on real
estate owned is established by a charge to operations.
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances will be the result
of periodic
52
<PAGE>
loan, property and collateral reviews and thus cannot be predicted in advance.
In addition, federal regulatory agencies, as an integral part of the examination
process, periodically review the Company's allowance for loan losses. Such
agencies may require the Company to record additions to the allowance level
based upon their assessment of the information available to them at the time of
examination.
The following table sets forth an analysis of the Company's allowance for
loan losses at, and for, the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............................... $2,630 $2,860 $3,060 $3,126 $ 3,378
Charge-offs:
One- to four-family...................................... (392) (195) (267) (489) (5)
Commercial and multi-family real estate.................. (147) (508) (223) (93) (170)
Consumer................................................. (146) (238) (279) (395) (1,745)
------ ------ ------ ------ -------
(685) (941) (769) (977) (1,920)
------ ------ ------ ------ -------
Recoveries:
One- to four-family...................................... --- --- --- 28 49
Commercial and multi-family real estate................... --- 101 --- --- ---
Consumer.................................................. 42 --- --- --- 58
------ ------ ------ ------ -------
42 101 --- 28 107
------ ------ ------ ------ -------
Net charge-offs............................................ (643) (840) (769) (949) (1,813)
Additions charged to operations............................ 635 610 569 883 1,561
------ ------ ------ ------ -------
Balance at end of year..................................... $2,622 $2,630 $2,860 $3,060 $ 3,126
====== ====== ====== ====== =======
Ratio of net charge-offs during the year to
average loans outstanding during the year................ 0.08% 0.16% 0.19% 0.25% 0.43%
====== ====== ====== ====== =======
Ratio of allowance for loan losses to total
loans at end of year..................................... 0.28% 0.40% 0.61% 0.79% 0.78%
====== ====== ====== ====== =======
Ratio of allowance for loan losses to non-
accruing loans at end of year........................... 47.80% 42.52% 51.39% 31.04% 22.31%
====== ====== ====== ====== =======
</TABLE>
53
<PAGE>
The distribution of the Company's allowance for loan losses at the dates
indicated is summarized in the following table. The portion of the allowance
allocated to each loan category does not represent the total available for
possible future losses within that category since the total allowance is
applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------------------------------------------
1996 1997 1995 1994 1993
----------------- ------------------- ------------------- ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
One-to four-family............ $1,463 89.55% $1,290 86.68% $ 657 82.17% $ 726 78.17% $ 816 75.79%
Commercial and
multi-family real estate...... 654 6.12 782 7.97 1,602 10.74 1,726 12.72 1,804 13.19
Consumer....................... 505 4.33 558 5.35 601 7.09 608 9.11 506 11.02
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total........................ $2,622 100.00% $2,630 100.00% $2,860 100.00% $3,060 100.00% $3,126 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
54
<PAGE>
INVESTMENT ACTIVITIES
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained its liquid assets
above the minimum requirements imposed by the OTS regulations and at a level
believed adequate to meet requirements of normal daily activities, repayment of
maturing debt and potential deposit outflows. As of June 30, 1997, the Bank's
liquidity ratio (liquid assets as a percentage of net withdrawable deposit
accounts and current borrowings) was 10.36%. See "Regulation-Liquidity."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and Federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's need
for liquidity, to provide collateral for borrowings and to fulfill the Company's
asset/liability management policies.
At June 30, 1997, the Company had a securities portfolio consisting
principally of U.S. government obligations and securities of various federal
agencies, including mortgage-backed securities. These investments carry a low
risk weighting for OTS risk-based capital purposes, generally satisfy OTS
liquid-asset requirements and are of relatively short duration. See
"Regulation-Regulatory Capital Requirements" and "Regulation-Liquidity."
Investment Securities. At June 30, 1997, the Company's investment
securities (including a $12.4 million investment in FHLB of New York stock)
totaled $47.7 million, or 3.6% of its total assets. It is the Company's general
policy to purchase U.S. Government securities and federal agency obligations and
other investment grade securities in accordance with its strategic objectives,
including, but not limited to, achieving growth and/or interest rate risk
measurement targets.
OTS regulations restrict investments in corporate debt and equity
securities by the Company. See "Regulation-Federal Regulation of Savings
Associations" for a discussion of additional restrictions on the Company's
investment activities.
55
<PAGE>
The following table indicates the composition of the investment securities
portfolio, excluding FHLB of New York stock, based on the final maturities of
each investment. At June 30, 1997, the weighted average life of this portfolio
was 1.0 year, based on the shorter of the remaining maturity, next repricing
date or initial call date.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------------------------------
AFTER ONE AFTER FIVE YEARS
ONE YEAR YEAR THROUGH THROUGH TOTAL INVESTMENT
OR LESS FIVE YEARS TEN YEARS SECURITIES
---------- ----------- ---------------- ---------- ------------
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE MARKET VALUE
---------- ----------- ---------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. government and agency obligations............... $4,999 $ --- $30,000 $34,999 $35,125
Obligations of states and political
subdivisions..................................... --- 101 190 291 307
------ ----- ------- ------- -------
Total investment securities.......................... $4,999 $ 101 $30,190 $35,290 $35,432
====== ===== ======= ======= =======
Weighted average yield at year end................... 7.95% 5.70% 7.44% 7.51%
====== ===== ======= =======
</TABLE>
The Company's investment securities portfolio at June 30, 1997 did not
contain securities of any issuer or tax-exempt securities with an aggregate book
value in excess of 10% of the Company's retained earnings, excluding those
issued by the U.S. Government or its agencies.
The Company's investments, including the mortgage-backed securities
portfolio, are managed in accordance with a written investment policy adopted by
the Board of Directors.
At June 30, 1997, there were no investment securities held for sale.
Mortgage-Backed Securities. The Company, from time to time, purchases
mortgage-backed securities in accordance with its strategic objectives,
including, but not limited to, achieving growth and/or interest rate risk
measurement targets. No purchases were made in fiscal 1997. At June 30, 1997,
mortgage-backed securities totaled $288.5 million, or 21.8% of the Company's
total assets, of which approximately 27% consisted of adjustable rate
securities. The type of securities purchased is based upon the Company's
asset/liability management strategy and balance sheet objectives. Most of the
mortgage-backed securities purchased by the Company over the last several years
were secured by loans with five or seven year balloon terms, 15 year fixed rate
terms or one and three year adjustable rate terms. The Company's current
investment strategy emphasizes mortgage-backed securities with high credit
quality and relatively short duration. The Company has invested primarily in
federal agency securities, principally those of the Government National Mortgage
Association ("GNMA"), FHLMC and FNMA.
56
<PAGE>
The following table indicates the composition of the mortgage-backed
securities portfolio, excluding unamortized premiums, based on the final
maturities of each security.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------------------------------------
AFTER AFTER
ONE YEAR FIVE YEARS AFTER
ONE YEAR THROUGH THROUGH TEN TOTAL
OR LESS FIVE YEARS TEN YEARS YEARS MORTGAGE-BACKED SECURITIES
----------- ----------- ----------- -------- --------------------------
BOOK BOOK BOOK BOOK BOOK MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
----------- ----------- ----------- -------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GNMA.......................................... $ -- $ -- $ 872 $ 3,121 $ 3,993 $ 4,205
FHLMC......................................... 8,580 56,943 9,097 109,408 184,028 186,350
FNMA.......................................... -- 20,928 2,829 74,927 98,684 99,632
CMOs/REMICs................................... -- -- -- 938 938 938
-------- -------- ------- -------- -------- --------
Total mortgage-backed securities.............. $ 8,580 $ 77,871 $12,798 $188,394 $287,643 $291,125
======== ======== ======= ======== ======== ========
Weighted average yield at year end............ 7.00% 6.78% 7.38% 7.26% 7.12%
======== ======== ======= ======== ========
</TABLE>
57
<PAGE>
The GNMA, FHLMC and FNMA certificates are modified pass-through mortgage-
backed securities that represent undivided interests in underlying pools of
fixed rate, or certain types of adjustable rate, single-family residential
mortgages issued by these government-sponsored entities. GNMA's guarantee to the
certificate holder of timely payments of principal and interest is backed by the
full faith and credit of the U.S. government. FNMA and FHLMC provide the
certificate holder a guarantee of timely payments of interest and scheduled
principal payments, whether or not they have been collected.
CMOs are special types of pass-through debt in which the stream of
principal and interest payments on the underlying mortgages or mortgage-backed
securities is used to create classes with different maturities and, in some
cases, amortization schedules, as well as a residual interest, with each such
class possessing different risk characteristics. REMICs are similar, except
REMICs are typically issued by a special purpose entity, such as a trust,
corporation or partnership which pools pass-through securities to create
different classes. Management believes these securities may represent
attractive alternatives relative to other investments due to the wide variety of
maturity and repayment options available through such investments. The CMOs and
REMICs acquired by the Company are not interest only or principal only or
residual interests. The Company held $938,000 of CMOs and REMICs at June 30,
1997.
The following table sets forth the Company's mortgage-backed securities
purchase and repayment activities for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1997 1996 1995
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-backed securities, net:
At beginning of year.................... $346,068 $319,436 $204,870
Securities purchased.................... --- 99,085 148,036
Less:
Principal repayments.................... 57,266 72,028 32,013
Amortization of premiums................ 263 425 1,457
-------- -------- --------
At end of year.......................... $288,539 $346,068 $319,436
======== ======== ========
</TABLE>
58
<PAGE>
The following table sets forth the composition of the Company's investment
and mortgage-backed securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ -------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
BOOK MARKET BOOK BOOK MARKET BOOK BOOK MARKET BOOK
VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- --------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. government and agency
obligations................. $ 34,999 $ 35,125 73.37% $ 20,997 $ 21,183 71.57% $ 16,987 $ 17,255 71.00%
Obligations of states and
political subdivisions...... 291 307 0.61 291 319 0.99 501 535 2.10
Other........................ --- --- --- --- --- --- 70 70 0.29
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total investment securities. 35,290 35,432 73.98 21,288 21,502 72.56 17,558 17,860 73.39
FHLB of New York stock....... 12,413 12,413 26.02 8,052 8,052 27.44 6,368 6,368 26.61
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total investment
securities and FHLB of
New York stock............. $ 47,703 $ 47,845 100.00% $ 29,340 $ 29,554 100.00% $ 23,926 $ 24,228 100.00%
======== ======== ====== ======== ======== ====== ======== ======== ======
Weighted average life of
investment securities....... 1.0 years 2.5 years 2.2 years
excluding FHLB of New York
stock/(1)/
MORTGAGE-BACKED SECURITIES:
GNMA....................... $ 3,993 $ 4,205 1.38% $ 4,904 $ 5,090 1.42% $ 6,142 $ 6,413 1.92%
FHLMC...................... 184,028 186,350 63.78 221,777 221,240 64.09 213,065 215,423 66.70
FNMA....................... 98,684 99,632 34.20 115,896 115,603 33.49 96,110 97,340 30.09
CMOs/REMICs................ 938 938 0.33 1,348 1,342 0.39 2,235 2,231 0.70
Other pass-through
securities/(2)/........... --- --- --- 984 1,056 0.28 1,161 1,161 0.36
-------- -------- ------ -------- -------- ------ -------- -------- ------
287,643 291,125 99.69 344,909 344,331 99.67 318,713 322,568 99.77
Unamortized premiums, net.... 896 --- 0.31 1,159 --- 0.33 723 --- 0.23
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total mortgage-backed
securities............... $288,539 $291,125 100.00% $346,068 $344,331 100.00% $319,436 $322,568 100.00%
======== ======== ====== ======== ======== ====== ======== ======== ======
</TABLE>
____________________________
(1) The weighted average life of investment securities is based on the shorter
of the remaining maturity, next repricing date or initial call date.
(2) Other pass-through securities is composed of an A-rated privately issued
pass-through security.
59
<PAGE>
SOURCES OF FUNDS
General. The Company's sources of funds are deposits, borrowings, payment
of principal and interest on loans and mortgage-backed securities, interest
received on or maturities of other investment securities and funds provided from
operations.
Borrowings, including FHLB of New York advances, have been used as a
supplement to deposits to fund asset growth and as a mechanism to extend the
average life of the Company's liabilities.
Deposits. The Company offers a variety of deposit accounts having a wide
range of interest rates and terms. The Company's deposits consist of savings,
money market and demand deposit accounts, as well as certificate accounts
currently ranging in terms up to 60 months. The Company solicits deposits
primarily from its market areas and relies primarily on competitive pricing
policies, advertising and customer service to attract and retain deposits. In
the latter part of fiscal 1997, the Company initiated a program to solicit
deposits from municipalities in its market areas. As of June 30, 1997,
certificates of deposit from municipalities totaled $17.1 million.
The variety of deposit accounts offered by the Company has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Company endeavors to manage the pricing of its deposits in
keeping with its asset/liability management, liquidity and profitability
objectives. In this regard, the Company has from time-to-time paid slightly
higher rates than its competitors to attract longer-term certificates of
deposit. Based on its experience, the Company believes that its savings, money
market and demand deposit accounts are relatively stable sources of deposits.
However, the ability of the Company to attract and maintain certificates of
deposit and the rates paid on these deposits has been and will continue to be
significantly affected by market conditions. At June 30, 1997, the Company had
$1.0 million of brokered deposits. See Note I - Deposits - of the Notes to
Consolidated Financial Statements.
60
<PAGE>
The flow of deposits is influenced significantly by general economic
conditions, changes in interest rates and competition. The following table sets
forth the deposit flows of the Company during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Opening balance.......................................................... $836,416 $713,524 $614,860
Net deposits (withdrawals)............................................... 47,233 93,407 (7,094)
Conversion deposits...................................................... --- --- (53,780)
Deposits acquired........................................................ --- --- 136,811
Interest credited........................................................ 34,511 29,485 22,727
-------- -------- --------
Ending balance........................................................... $918,160 $836,416 $713,524
======== ======== ========
Net increase............................................................. $ 81,744 $122,892 $ 98,664
======== ======== ========
Percent increase......................................................... 9.77% 17.22% 16.05%
======== ======== ========
</TABLE>
The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of June 30, 1997.
<TABLE>
<CAPTION>
MATURITY
------------------------------------------------------------
OVER OVER OVER
3 MONTHS 3 TO 6 6 TO 12 12
OR LESS MONTHS MONTHS MONTHS TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000..................... $109,988 $109,303 $123,226 $240,359 $582,876
Certificates of deposit of $100,000 or more.................... 27,367 12,498 12,719 28,358 80,942
-------- -------- -------- -------- --------
Total certificates of deposit.................................. $137,355 $121,801 $135,945 $268,717 $663,818
======== ======== ======== ======== ========
</TABLE>
Borrowings. Although deposits are the Company's primary source of funds,
the Company's policy has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread, when the
Company desires additional capacity to fund loan demand or to extend the life of
its liabilities.
The Company's borrowings have consisted of advances from the FHLB of New
York, and to a lesser extent, reverse repurchase agreements. FHLB of New York
advances can be made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities.
61
<PAGE>
The following table sets forth the maximum month-end balance, average
balance and weighted average cost of FHLB of New York advances and other
borrowings for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1997 1996 1995
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MAXIMUM BALANCE FOR THE YEAR ENDED:
FHLB of New York advances..................................................... $205,465 $105,000 $35,000
Other borrowings:
FHLB of New York overnight repricing line of credit......................... 46,610 46,650 16,670
FHLB of New York one-month overnight repricing line of credit............... 15,000 20,000 5,000
Reverse repurchase agreements maturing within one year...................... 30,100 10,000 5,000
Reverse repurchase agreements maturing after one year....................... 10,000 --- ---
-------- -------- -------
Total other borrowings.................................................... $101,710 $ 76,650 $26,670
======== ======== =======
AVERAGE BALANCE FOR THE YEAR ENDED:
FHLB of New York advances..................................................... $147,945 $ 65,625 $17,028
Other borrowings:
FHLB of New York overnight repricing line of credit......................... 29,537 23,101 9,991
FHLB of New York one-month overnight repricing line of credit............... 8,886 4,141 430
Reverse repurchase agreements maturing within one year...................... 24,244 2,604 860
Reverse repurchase agreements maturing after one year....................... 5,417 --- ---
-------- -------- -------
Total other borrowings.................................................... $ 68,084 $ 29,846 $11,281
======== ======== =======
BALANCE AT JUNE 30:
FHLB of New York advances..................................................... $205,465 $105,000 $35,000
Other borrowings:
FHLB of New York overnight repricing line of credit......................... 32,650 36,700 15,830
FHLB of New York one-month overnight repricing line of credit............... 10,000 5,000 ---
Reverse repurchase agreements maturing within one year...................... 30,100 --- ---
Reverse repurchase agreements maturing after one year....................... 10,000 --- ---
-------- -------- -------
Total other borrowings................................................... $ 82,750 $ 41,700 $15,830
======== ======== =======
WEIGHTED AVERAGE COST OF FUNDS FOR THE YEAR ENDED:
FHLB of New York advances..................................................... 6.14% 5.83% 5.16%
Other borrowings:
FHLB of New York overnight repricing line of credit......................... 5.47% 5.61% 5.63%
FHLB of New York one-month overnight repricing line of credit............... 5.48% 5.35% 5.63%
Reverse repurchase agreements maturing within one year...................... 5.50% 5.81% 6.19%
Reverse repurchase agreements maturing after one year....................... 6.24% --- ---
WEIGHTED AVERAGE COST OF FUNDS AT JUNE 30:
FHLB of New York advances..................................................... 6.13% 5.93% 5.86%
Other borrowings:
FHLB of New York overnight repricing line of credit......................... 6.63% 5.69% 6.63%
FHLB of New York one-month overnight repricing line of credit............... 6.38% 5.63% ---
Reverse repurchase agreements maturing within one year...................... 5.74% --- ---
Reverse repurchase agreements maturing after one year....................... 6.24% --- ---
</TABLE>
62
<PAGE>
SUBSIDIARY ACTIVITIES
As a federally chartered savings association, Penn Federal is permitted by
OTS regulations to invest up to 2% of its assets, or $26.5 million at June 30,
1997, in the stock of, or loans to, service corporation subsidiaries. As of
such date, the net book value of Penn Federal's investment in its service
corporation was $15,500. Penn Federal may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes and up to 50% of its total capital in conforming
loans to service corporations in which it owns more than 10% of the capital
stock. In addition to investments in service corporations, federal associations
are permitted to invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal association may engage in directly.
Penn Federal currently has a single service corporation, which is known as
Penn Savings Insurance Agency, Inc. ("PSIA"). PSIA offers insurance and
uninsured annuity products to the Company's customers and members of the general
public.
Penn Federal intends to form a Delaware operating subsidiary to hold and
manage its investment portfolio.
COMPETITION
The Company faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from commercial banks, other savings associations,
mortgage banking companies and credit unions making loans secured by real estate
located in the State of New Jersey. Commercial banks, credit unions and finance
companies provide vigorous competition in consumer lending. The Company
competes for real estate and other loans principally on the basis of the quality
of services it provides to borrowers, interest rates and loan fees it charges,
and the types of products offered.
The Company attracts substantially all of its deposits through its
branches, primarily from the communities in which those offices are located;
therefore, competition for those deposits is principally from commercial banks,
savings associations, credit unions and brokerage houses. The Company competes
for these deposits by offering a variety of deposit accounts at competitive
rates, quality customer service, convenient business hours and branch locations
with interbranch deposit and withdrawal privileges.
LEGAL PROCEEDINGS
The Company is involved from time to time as plaintiff or defendant in
various legal actions arising in the normal course of its business. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing the
Company in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's consolidated financial position or
results of operations.
63
<PAGE>
REGULATION
GENERAL
Penn Federal is a federally chartered savings bank, the deposits of which
are federally insured up to applicable limits. Accordingly, the Bank is subject
to comprehensive federal regulation and oversight extending to all its
operations. Penn Federal is a member of the FHLB of New York and is subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As the savings and loan holding company of
Penn Federal, PennFed is also subject to federal regulation and oversight. The
purpose of the regulation of PennFed and other holding companies is to protect
subsidiary savings associations. The Bank is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of Penn Federal are insured
by the FDIC. As a result, the FDIC has certain regulatory and examination
authority over the Bank. For purposes of the "Regulation" discussion, the terms
"savings bank," "savings association" and "savings institution" would apply to
the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Penn Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of the Bank were as of
June 1996 and May 1992, respectively.
All savings associations are subject to a semi-annual OTS assessment, based
upon the savings association's total assets and supervisory evaluation. The
Bank's OTS assessment for the fiscal year ended June 30, 1997 was $217,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Penn Federal and PennFed.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist and/or removal and prohibition
orders and to initiate injunctive actions. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the OTS.
Except under certain circumstances, public disclosure of interim and final
enforcement actions by the OTS is required.
In addition, the investment, lending and branching authority of Penn
Federal is prescribed by federal laws, and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
64
<PAGE>
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. At June 30, 1997, the Bank was in compliance with each of
these restrictions. Federal savings associations meeting the Qualified Thrift
Lender Test or comparable requirement are also generally authorized to branch
nationwide. See "-Qualified Thrift Lender Test."
The OTS, as well as the other federal banking agencies, has developed
guidelines establishing safety and soundness standards on matters such as loan
underwriting and documentation, internal controls and audit systems, asset
quality, earning standards, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. Failure to submit a plan or to comply
with an approved plan would subject the institution to further enforcement
action.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
Penn Federal's deposits are insured by the SAIF, which is administered by
the FDIC. Deposits are insured up to applicable limits by the FDIC. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the deposit
insurance funds. The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an opportunity to
take such action, and may terminate the institution's deposit insurance if it
determines that the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.
The FDIC's SAIF deposit premiums are assessed through a risk-based system
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums, based upon their level of capital
and supervisory evaluation. The current SAIF premium schedule ranges from 0.00%
to 0.27% of deposits. Under the system, institutions classified as well
capitalized (generally those institutions with a core capital ratio of at least
5% and a risk-based capital ratio of at least 10%) and considered financially
sound with only a few weaknesses pay the lowest premium, while institutions that
are less than adequately capitalized and considered to pose a substantial risk
of loss to the SAIF, pay the highest premium. Risk classification of all
insured institutions will be made by the FDIC for each semi-annual assessment
period. The Bank has been notified by the FDIC that for the semi-annual
assessment period beginning July 1, 1997, it will be assessed insurance premiums
at an annual rate of 0.00%. In addition to the SAIF assessment, the FDIC is
authorized to collect an assessment against SAIF-assessable deposits to be paid
to the Financing Corporation ("FICO"). The actual FICO assessment rate that is
applied to deposits is not tied to the FDIC risk classification and is
determined on a quarterly basis. For the quarterly period beginning July 1,
1997, the Company's FICO assessment rate is 0.063% of deposits, on an annualized
basis.
The FDIC is authorized to increase assessment rates, on a semi-annual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF
65
<PAGE>
insured deposits. In setting these increased assessments, the FDIC must seek to
restore the reserve ratio to that designated reserve level, or such higher
reserve ratio as established by the FDIC. The FDIC may also impose special
assessments on SAIF members to repay amounts borrowed from the U.S. Treasury or
for any other reason deemed necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the Bank Insurance Fund
(the "BIF") of the FDIC in order to maintain the reserve ratio of the BIF at
1.25% of BIF insured deposits. The current BIF premium schedule also ranges
from 0.00% to 0.27% of deposits. Until December 31, 1999, or such earlier date
on which the last savings association ceases to exist, the FICO rate applied to
BIF deposits must equal one-fifth the FICO assessment rate that is applied to
SAIF deposits.
Prior to September 30, 1996, financial institutions which were members of
the BIF were assessed substantially lower deposit insurance premiums because the
BIF had achieved its required level of reserves while the SAIF had not yet
achieved its required reserves. As a result of legislation signed into law on
September 30, 1996, the SAIF recapitalization plan provided for a one-time
assessment of 0.657% of deposits, which was imposed on all institutions with
SAIF-insured deposits, to enable the SAIF to achieve its required level of
reserves. The assessment was based on deposits as of March 31, 1995, and the
Bank's special assessment was approximately $4.8 million, or $3.1 million, net
of taxes. Following the recapitalization assessment, beginning January 1, 1997
deposit insurance premiums were decreased significantly from the 0.23% of
deposits previously paid by the Bank to 0.00%, plus the FICO assessment
described above.
REGULATORY CAPITAL REQUIREMENTS
Federally insured savings associations, such as Penn Federal, are required
to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. These capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS is
also authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained earnings, and certain
noncumulative perpetual preferred stock. In addition, all intangible assets,
other than certain amounts of mortgage servicing rights, must be deducted from
assets and capital for calculating compliance with the requirements. At June
30, 1997, Penn Federal had $15.9 million of intangible assets other than
qualifying mortgage servicing rights.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities
66
<PAGE>
solely as agent for its customers are "includable" subsidiaries that are
consolidated for capital purposes in proportion to the association's level of
ownership. For excludable subsidiaries, the debt and equity investments in such
subsidiaries are fully deducted from assets and capital. The Bank has one
subsidiary, Penn Savings Insurance Agency, Inc. which is an includable
subsidiary.
At June 30, 1997, Penn Federal had tangible capital of $73.5 million, or
5.61% of adjusted total assets, which is approximately $53.8 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets up to 25% of adjusted total assets. At June 30, 1997,
Penn Federal had $0.4 million of intangibles which were subject to these tests.
As a result of the prompt corrective action provisions discussed below, however,
a savings association must maintain a core capital ratio of at least 4% to be
considered adequately capitalized unless its supervisory condition is such to
allow it to maintain a 3% ratio.
At June 30, 1997, Penn Federal had core capital equal to $73.9 million, or
5.64% of adjusted total assets, which is approximately $21.5 million above the
4% ratio required to be considered adequately capitalized.
The OTS risk-based capital requirement requires savings associations to
have total capital of at least 8% of risk-weighted assets. Total capital
consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of selected items, such as certain permanent and
maturing capital instruments that do not qualify as core capital and allowances
for loan and lease losses up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital. At June 30, 1997, the Bank had no capital
instruments that qualify as supplementary capital and had $2.1 million of
allowances for loan and lease losses, all of which was included since it was
less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital, in addition to the adjustments required
for calculating core capital. Such exclusions consist of equity investments (as
defined by regulation), that portion of land loans and nonresidential
construction loans in excess of an 80% loan to value ratio and reciprocal
holdings of qualifying capital instruments. At June 30, 1997, Penn Federal had
$50,000 of such exclusions from capital and assets.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of assets. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by FNMA or FHLMC.
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On June 30, 1997, Penn Federal had total risk-based capital of $75.9
million (including $73.9 million in core capital and $2.1 million in allowable
supplementary capital) and risk-weighted assets of $621.3 million (including
$9.0 million in converted off-balance sheet assets) resulting in risk-based
capital of 12.22% of risk-weighted assets. This amount was $26.2 million above
the 8% requirement in effect on that date.
The OTS has adopted a regulation that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
OTS has indefinitely postponed the effective date of the rule. However, if
effective, this new rule should have no effect on the Bank's ability to comply
with its risk-based capital requirement.
The federal banking agencies, including the OTS, have also adopted
regulations authorizing the agencies to require a depository institution to
maintain additional total capital to account for concentration of credit risk
and the risk of non-traditional activities.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and, until such plan is approved by the
OTS, may not increase its assets, acquire another institution, establish a
branch or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions,
discussed below, that are applicable to significantly undercapitalized
associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more additional mandated specified actions and operating
restrictions, which may cover all aspects of its operations and include a forced
divestiture, merger or acquisition of the association. An association that
becomes "critically undercapitalized" (i.e., a ratio of tangible equity to total
assets of 2% or less) is subject to further mandatory restrictions on its
activities in addition to those applicable to significantly undercapitalized
associations.
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Any undercapitalized association is also subject to actions by the general
enforcement authority of the OTS and the FDIC, including the appointment of a
conservator or a receiver. The OTS is also authorized to reclassify an
association into a lower capital category and impose the restrictions applicable
to such category if the institution is engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on Penn
Federal may have a substantial adverse effect on the Bank's operations and
profitability and the market value of PennFed's common stock. Stockholders do
not have preemptive rights, and therefore, if the Company is directed by the OTS
or the FDIC to issue additional shares of common stock, such issuance may result
in the dilution in the percentage of ownership of existing stockholders.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
OTS regulations impose various restrictions or requirements on associations
with respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the association's minimum
capital requirements or the amount required to be maintained for the liquidation
account established in connection with the Conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "-Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year. However, a Tier 1 association deemed to be
in need of more than normal supervision by the OTS may be downgraded to a Tier 2
or Tier 3 association as a result of such a determination. Penn Federal meets
the requirements for a Tier 1 association and has not been notified of a need
for more than normal supervision. Tier 2 associations, which are associations
that before and after the proposed distribution meet their current minimum
capital requirements, may make capital distributions of up to 75% of net income
over the most recent four quarter period ("safe-harbor level").
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe-harbor provisions and Tier 1 associations proposing to make any
capital distribution need only
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submit written notice to the OTS 30 days prior to such distribution. As a
subsidiary of PennFed, the Bank is required to give the OTS 30 days notice prior
to declaring any dividend on its stock. The OTS may object to the distribution
during that 30-day period based on safety and soundness concerns. See "-
Regulatory Capital Requirements."
LIQUIDITY
All savings associations, including Penn Federal, are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. This liquid asset ratio requirement may
vary from time to time (between 4% and 10%) depending upon economic conditions
and savings flows of all savings associations. At the present time, the minimum
liquid asset ratio is 5%. In addition, short-term liquid assets (e.g., cash,
certain time deposits, certain bankers acceptances and short-term U.S. Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At June 30, 1997, Penn Federal was in compliance with both
requirements, with an overall liquidity ratio of 10.36% and a short-term
liquidity ratio of 2.15%. The OTS has recently issued a proposal to eliminate
the short-term liquidity requirement designed to reduce the regulatory burden on
savings associations.
ACCOUNTING
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with generally accepted
accounting principles ("GAAP"). Under the policy statement, management must
support its classification of and accounting for loans and securities (i.e.,
whether held for investment, sale or trading) with appropriate documentation.
Penn Federal is in compliance with these policy statements.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than GAAP, to require that transactions be reported in a
manner that best reflects their underlying economic substance and inherent risk
and that financial reports must incorporate any other accounting regulations or
orders prescribed by the OTS.
QUALIFIED THRIFT LENDER TEST
All savings associations, including Penn Federal, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of
its portfolio assets (as defined by regulation) in qualified thrift investments
on a monthly average for nine out of every 12 months on a rolling basis. Such
assets primarily consist of residential housing related loans and investments.
At June 30, 1997, the Bank met the test and has always met the test since its
effective date.
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Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB of New York
borrowings and is subject to national bank limits for payment of dividends. If
such association has not requalified or converted to a national bank within
three years after the failure, it must divest itself of all investments and
cease all activities not permissible for a national bank. In addition, it must
repay promptly any outstanding FHLB of New York borrowings, which may result in
prepayment penalties. If any association that fails the QTL test is controlled
by a holding company, then within one year after the failure, the holding
company must register as a bank holding company and become subject to all
restrictions on bank holding companies. See "-Holding Company Regulation."
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
CRA. The CRA requires the OTS, in connection with the examination of Penn
Federal, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Penn
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Bank may be required to devote additional funds for investment
and lending in its local community. The Bank was examined for CRA compliance in
November 1996 and received a rating of outstanding.
TRANSACTIONS WITH AFFILIATES
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to affiliates, are restricted to a percentage of the association's
capital. Affiliates of Penn Federal include PennFed and any company which is
under common control with the Bank. In addition, a savings association may not
lend to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of most affiliates. Penn Federal's subsidiary
is not deemed an affiliate; however, the OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by case basis.
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Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
HOLDING COMPANY REGULATION
PennFed is a unitary savings and loan holding company subject to regulatory
oversight by the OTS. As such, PennFed is required to register and file reports
with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over PennFed, which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association.
As a unitary savings and loan holding company, PennFed generally is not
subject to activity restrictions. If PennFed acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company and the activities of PennFed and any of its subsidiaries
(other than Penn Federal or any other SAIF-insured savings association) would
become subject to such restrictions unless such other associations each qualify
as a QTL and were acquired in a supervisory acquisition.
If Penn Federal fails the QTL test, PennFed must obtain the approval of the
OTS prior to continuing after such failure, directly or through any other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure, PennFed must register as, and will become subject to,
the restrictions applicable to bank holding companies. See "-Qualified Thrift
Lender Test." The activities authorized for a bank holding company are more
limited than are the activities authorized for a unitary or multiple savings and
loan holding company.
PennFed must obtain approval from the OTS before acquiring control of any
other SAIF-insured association. Such acquisitions are generally prohibited if
they result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
FEDERAL SECURITIES LAW
The common stock of PennFed is registered with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). PennFed is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the SEC under the
Exchange Act.
PennFed stock held by persons who are affiliates (generally executive
officers, directors and principal stockholders) of PennFed may not be resold
without registration or unless sold in
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accordance with certain resale restrictions. If PennFed meets specified current
public information requirements, each affiliate of PennFed is able to sell in
the public market, without registration, a limited number of shares in any
three-month period.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking accounts). At June 30, 1997, Penn Federal was in
compliance with these reserve requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "-Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
Penn Federal is a member of the FHLB of New York, which is one of 12
regional FHLBs that provides loans and correspondent services to its members.
Each FHLB serves as a reserve or central bank for its members within its
assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB, which are subject to the oversight of the Federal Housing
Finance Board. All borrowings from the FHLB are required to be fully secured by
sufficient collateral as determined by the FHLB.
As a member, Penn Federal is required to purchase and maintain stock in the
FHLB of New York. At June 30, 1997, the Bank had $12.4 million in FHLB of New
York stock, which was in compliance with this requirement. In past years, Penn
Federal has received substantial dividends on its FHLB of New York stock. Over
the past five fiscal years such dividends have averaged 7.42%.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have adversely affected the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB of New York stock in the
future.
For the year ended June 30, 1997, dividends paid by the FHLB of New York to
Penn Federal totaled $625,000, resulting in a 6.39% yield.
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FEDERAL AND STATE TAXATION
Savings banks that meet certain definitions, tests and other conditions
prescribed by the Internal Revenue Code are allowed to deduct, with limitations,
a bad debt deduction. This deduction is computed as a percentage of taxable
income before such deduction or based upon actual loss experience. During fiscal
1997, the Company's bad debt deduction was based upon actual loss experience.
During the fiscal years 1996 and 1995, the Company employed the percentage of
taxable income method.
On August 20, 1996 legislation was signed into law which repealed the
percentage of taxable income method for the tax bad debt deduction. This repeal
is effective for the Company's taxable year beginning July 1, 1996. In addition,
the legislation requires the Company to include in taxable income its tax bad
debt reserves in excess of its base year reserves (i.e., the balance of its bad
debt reserves as of June 30, 1988 over a six, seven, or eight year period,
depending upon the attainment of certain loan origination levels. Since the
percentage of taxable income method for tax bad debt deduction and the
corresponding increase in the tax bad debt reserve in excess of the base year
have been recorded as temporary differences pursuant to SFAS 109, this change in
the tax law had no effect on the Company's statement of operations.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax. Net operating losses can offset no more than
90% of alternative minimum taxable income.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a stockholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 1997, the Bank's Excess for tax purposes totaled
approximately $14.5 million.
PennFed files consolidated federal income tax returns with the Bank and its
subsidiary. Savings associations, such as the Bank, that file federal income tax
returns as part of a consolidated group are required by applicable Treasury
regulations to reduce their taxable income for purposes of computing the
percentage bad debt deduction for losses attributable to activities of the non-
savings association members of the consolidated group that are functionally
related to the activities of the savings association member.
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To the extent a savings association makes "non-dividend distributions,"
such distributions will be considered to have been made from the association's
tax bad debt reserves (including the base year reserve) and then from the
association's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the association's income. Non-dividend
distributions include distributions in excess of the association's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the association's current or accumulated
earnings and profits will not be so included in the association's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 34% federal corporate tax rate. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserves.
The Bank and its consolidated subsidiary have been audited by the Internal
Revenue Service ("IRS") with respect to consolidated federal income tax returns
through December 31, 1991. There were no material adjustments made to taxable
income as originally reported to the IRS. In the opinion of management, any
examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, PennFed) would not result in a
deficiency which could have a material adverse effect on the financial condition
of the Company and its consolidated subsidiaries.
New Jersey Taxation. The Bank is taxed under the New Jersey Savings
Institution Tax Act. The tax is an annual privilege tax imposed at a rate of 3%
on the net income of the Bank as reported for federal income tax purposes, with
certain modifications. PennFed is taxed under the New Jersey Corporation
Business Tax Act, and if it meets certain tests, will be taxed as an investment
company at an effective annual rate for the taxable year ended June 30, 1997 of
2.3% of New Jersey Taxable Income (as defined). If it fails to meet such tests,
it will be taxed at an annual rate of 9% of New Jersey Taxable Income. It is
anticipated, based upon representations of PennFed regarding its current and
future holdings and operations, that PennFed will be taxed as an investment
company.
Delaware Taxation. As a Delaware holding company, PennFed is exempt from
Delaware corporate income tax, but is required to file an annual report with and
pay an annual fee to the State of Delaware. PennFed is also subject to an annual
franchise tax imposed by the State of Delaware.
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MANAGEMENT
The following table sets forth the names and ages of directors and
executive officers of the Company and the Bank, as well as the positions of
officers held by such persons as of June 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
William C. Anderson 49 Chairman of the Board of the Company
Joseph L. LaMonica 47 Director, President and Chief Executive Officer
of the Company
Patrick D. McTernan 45 Director, Executive Vice President, General
Counsel and Secretary of the Company
Lucy T. Tinker 57 Executive Vice President and Chief Operating
Officer of the Company
Barbara J. Sanders 45 Senior Vice President and Lending Group
Executive of the Bank
Jeffrey J. Carfora 39 Senior Vice President and Chief Financial Officer
of the Company and Finance Group Executive
of the Bank
Barbara A. Flannery 41 Senior Vice President and Retail Banking Group
Executive of the Bank
Marvin D. Schoonover 47 Director of the Company
Amadeu L. Carvalho 68 Director of the Company
Mario Teixeira, Jr. 61 Director of the Company
</TABLE>
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Officers are elected annually by the Board of Directors. The business
experience of each executive officer and director is set forth below.
William C. Anderson - Mr. Anderson has been Chairman of the Board of the
Company since its incorporation in March 1994. Mr. Anderson is also the Chairman
of the Board and President of John Young Company, Inc., a real estate agency
located in Caldwell, New Jersey. Mr. Anderson has been a director of the Bank
since 1979.
Joseph L. LaMonica - Mr. LaMonica has been President and Chief Executive
Officer and Director of the Company since its incorporation in March 1994, and
of Penn Federal since 1988. Mr. LaMonica has served Penn Federal in various
capacities since joining the Bank in 1980. He also is a member of the Board of
Directors of the Saint James Foundation, a philanthropic organization, and
serves in an advisory capacity to the Ironbound Ambulance Squad. He currently
serves on the Board of Governors of the New Jersey Savings League. Mr. LaMonica
has been a director of the Bank since 1987.
Patrick D. McTernan - Mr. McTernan has been Executive Vice President,
General Counsel and Secretary and Director of the Company since its
incorporation. He joined Penn Federal in 1989 as Senior Vice President and
General Counsel and was promoted to Executive Vice President and General Counsel
in 1992. He also serves as corporate Secretary. Prior to his employment with the
Bank, he was a partner in the law firm of Adams and McTernan located in South
Orange, New Jersey. He is currently a member of the Legal Committee of the New
Jersey Savings League. Mr. McTernan has been a director of the Bank since 1989.
Lucy T. Tinker - Ms. Tinker is responsible for the daily operations of the
Bank. Ms. Tinker also assists President LaMonica in the development of corporate
policies and goals. Ms. Tinker joined Penn Federal in 1989 as Vice President and
Treasurer. In 1990, she was appointed Senior Vice President and Finance Group
Executive. She was appointed Executive Vice President and Chief Operating
Officer in 1993.
Barbara J. Sanders - Ms. Sanders manages the Bank's lending operations
which include commercial, residential and consumer lending, collections,
servicing and quality control. Ms. Sanders has held her current position since
1990.
Jeffrey J. Carfora - Mr. Carfora manages the Bank's finance division which
includes financial and tax accounting and reporting, strategic planning and
budgeting, and treasury and asset/liability management. Prior to joining Penn
Federal in 1993, Mr. Carfora was with Carteret Savings Bank.
Barbara A. Flannery - Ms. Flannery is responsible for the retail branch
network. Ms. Flannery has served Penn Federal in various capacities since
joining the Bank in 1980, including the management of product development,
marketing and various aspects of branch activities.
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Marvin D. Schoonover - Mr. Schoonover is a Senior Account Executive with
the EMAR Group, Inc., an insurance agency located in Livingston, New Jersey, and
is responsible for the marketing, sales and servicing of commercial property and
casualty insurance. Mr. Schoonover first joined the EMAR Group, Inc. in 1980.
Mr. Schoonover also is a licensed real estate salesperson. Mr. Schoonover has
been a director of the Bank since 1990 and of the Company since its
incorporation.
Amadeu L. Carvalho - Mr. Carvalho, retired Controller of the Singer
Company, currently is in private accounting practice in Elizabeth, New Jersey.
His practice includes tax services and business and strategic planning for small
and medium size companies. Mr. Carvalho has been a director of the Bank since
1990 and of the Company since its incorporation.
Mario Teixeira, Jr. - Mr. Teixeira has been a licensed funeral director
since 1961. He is owner and President of the Buyus Funeral Home in Newark and
owns the Bernauer Funeral Home and the Rucki Funeral Home, both located in
Newark, as well as the Shaw-Buyus Home for Services, located in Kearny, New
Jersey. In addition, Mr Teixeira is a partner in BRSB Preneed Association, a
partnership specializing in funerals. Mr. Teixeira has been a director of the
Bank since 1971 and of the Company since its incorporation.
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The following is a summary of certain terms and provisions of the Preferred
Securities. This summary of certain terms and provisions of the Preferred
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Trust Agreement. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. Unless otherwise expressly stated or the context
otherwise requires, all references to the "Company" appearing under this caption
"Description of the Preferred Securities" and under the caption "Description of
the Junior Subordinated Debentures" shall mean PennFed Financial Services, Inc.
excluding its consolidated subsidiaries.
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Trust Issuer. Distributions on such Preferred Securities
will be payable at the annual rate of ___% of the stated Liquidation Amount of
$25, payable quarterly in arrears on January 31, April 30, July 31 and October
31 of each year, to the holders of the Preferred Securities on the relevant
record dates. The record date will be the 15th day of the month in which the
relevant Distribution payment date occurs. Distributions will accumulate from
the date of the initial issuance of the Preferred Securities and are cumulative.
The first Distribution payment date for the Preferred Securities will be January
31, 1998. The amount of Distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which Distributions are payable on the Preferred Securities is not a Business
Day, then payment of the Distributions
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payable on such date will be made on the next succeeding day that is a Business
Day (and without any additional Distributions or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or a day on which the principal corporate trust
office of the Property Trustee or the Debenture Trustee is closed for business.
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral of interest, quarterly Distributions on the Preferred Securities by the
Trust Issuer will also be deferred during any such Extension Period.
Distributions to which holders of the Preferred Securities are entitled will
accumulate additional Distributions thereon at the rate per annum of ___%
thereof, compounded quarterly from the relevant payment date for such
Distributions. The term "Distributions" as used herein, shall include any such
additional Distributions. During any such Extension Period, the Company may not,
and may not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock other
than payments pursuant to the Guarantee (other than (a) the reclassification of
any class of the Company's capital stock into another class of capital stock,
(b) dividends or distributions in common stock of the Company, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans for
its directors, officers or employees), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or (iii) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures other than payments pursuant to the Guarantee.
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest on the Junior Subordinated Debentures, provided
that no Extension Period may exceed 20 consecutive quarters periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of ___%,
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period. There is no limitation on the number
of times that the Company may elect to begin an Extension Period. See
"Description of the Junior Subordinated Debentures--Right
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to Defer Interest Payment Obligation" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The revenue of the Trust Issuer available for distribution to holders of
its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust Issuer will invest the proceeds from
the issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." If the Company does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent the Trust Issuer has funds legally available
for the payment of such Distributions and cash sufficient to make such payments)
is guaranteed by the Company on a limited basis as set forth herein under
"Description of the Guarantee."
The Company has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures.
SUBORDINATION OF THE COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of the Preferred Securities and the Common Securities;
provided, however, that if on any Distribution Date or Redemption Date an event
of default under the Indenture shall have occurred and be continuing, no payment
of any Distribution on, or Redemption Price of, any of the Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of such Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions on all of the outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or, in the case of payment of the Redemption Price, the full amount of
such Redemption Price on all of the outstanding Preferred Securities then called
for redemption shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of, the Preferred Securities then due
and payable.
In the case of any event of default under the Trust Agreement resulting
from an event of default under the Indenture, the Company as holder of the
Common Securities will be deemed to have waived any right to act with respect to
any such event of default under the Trust Agreement until the effect of all such
events of default with respect to the Preferred Securities shall have been
cured, waived or otherwise eliminated. Until any such events of default under
the Trust Agreement shall have been so cured, waived or otherwise eliminated,
the Property Trustee shall act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company as holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
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REDEMPTION
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or earlier redemption as provided in the Indenture. The proceeds from
such repayment or redemption shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Preferred Securities upon not less than
30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price equal to the aggregate Liquidation Amount of
such Preferred Securities plus accumulated and unpaid Distributions thereon (the
"Redemption Price") to the date of redemption (the "Redemption Date"). For a
description of the Stated Maturity and redemption provisions of the Junior
Subordinated Debentures, see "Description of the Junior Subordinated Debentures-
General" and" --Redemption or Exchange."
The Company has the option to redeem the Junior Subordinated Debentures
prior to maturity on or after ________, 2002, in whole at any time or in part
from time to time, and thereby cause a mandatory redemption of a Like Amount of
the Preferred Securities. See "Description of the Junior Subordinated
Debentures--Redemption or Exchange." Any time that a Tax Event, an Investment
Company Event or a Capital Treatment Event (each as defined below) shall occur
and be continuing, the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of the Preferred Securities in whole (but not in part). See "Description of the
Junior Subordinated Debentures--Redemption or Exchange."
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of a Like Amount of the Junior Subordinated Debentures. Redemptions
of the Preferred Securities shall be made and the Redemption Price shall be paid
on each Redemption Date only to the extent that the Trust Issuer has funds on
hand available for the payment of such Redemption Price. See also "Description
of the Preferred Securities--Subordination of the Common Securities."
If the Trust Issuer gives a notice of redemption in respect of the
Preferred Securities, then, by 10:00 a.m., New York City time, on the Redemption
Date, to the extent funds are available, the Property Trustee will deposit
irrevocably with the DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
such Preferred Securities. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for the Preferred Securities called for
redemption shall be payable to the holders of the Preferred Securities on the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then, upon the
date of such deposit, all rights of the holders of such Preferred Securities so
called for redemption will cease, except the right of the holders of such
Preferred Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Preferred Securities will cease to be
outstanding.
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In the event that any date fixed for redemption of the Preferred Securities
is not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of the Preferred Securities called for redemption is improperly
withheld or refused and not paid either by the Trust Issuer or by the Company
pursuant to the Guarantee as described under "Description of the Guarantee,"
Distributions on such Preferred Securities will continue to accrue at the then
applicable rate, from the Redemption Date originally established by the Trust
Issuer for such Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by private
agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of the Junior Subordinated Debentures to holders of the Preferred
Securities shall be made to the applicable recordholders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
date shall be one business day prior to the relevant Redemption Date, however,
in the event the Preferred Securities do not remain in book entry form, the
relevant record date shall be the date at least 15 days prior to the Redemption
Date or liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities issued
by the Trust Issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of the Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Preferred Securities to be redeemed shall be selected not more than
60 days prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, or if the
Preferred Securities are then held in the form of a global preferred security in
accordance with DTC's customary procedures. The Property Trustee shall promptly
notify the trust registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of the Preferred Securities shall relate, in the case
of the Preferred Securities redeemed or to be redeemed only in part, to the
portion of the aggregate Liquidation Amount of the Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of the Preferred Securities to
be redeemed at its registered address. Unless the Company defaults in payment
of the Redemption Price on the Junior
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Subordinated Debentures, on and after the Redemption Date interest will cease to
accrue on the Junior Subordinated Debentures or portions thereof called for
redemption.
LIQUIDATION OF THE TRUST ISSUER AND DISTRIBUTION OF THE JUNIOR SUBORDINATED
DEBENTURES TO HOLDERS
The Company has the right at any time to dissolve the Trust Issuer and,
after satisfaction of the liabilities of creditors of the Trust Issuer as
provided by applicable law, cause Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and Common Securities in
exchange therefor upon liquidation of the Trust Issuer.
After the liquidation date fixed for any distribution of the Junior
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, and (ii) DTC or its nominee, as the
registered holder of Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution with respect to Preferred Securities held by
DTC or its nominee, (iii) any certificates representing the Preferred Securities
not held by DTC or its nominee will be deemed to represent Junior Subordinated
Debentures having a principal amount equal to the stated Liquidation Amount of
such Preferred Securities, and bearing accrued and unpaid interest in an amount
equal to the accumulated and unpaid Distributions on such series of the
Preferred Securities until such certificates are presented to the Administrative
Trustees or their agent for transfer or reissuance.
Under current United States federal income tax law and interpretations, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences--Distribution of the Junior
Subordinated Debentures to Holders of the Preferred Securities."
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust Issuer shall automatically
dissolve upon expiration of its term and shall dissolve on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
subject in certain instances to any such event remaining in effect for a period
of 90 consecutive days; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of its Preferred Securities, if the
Company, as depositor, has given written direction to the Property Trustee to
dissolve the Trust Issuer (which direction is optional and wholly within the
discretion of the Company, as depositor); (iii) redemption of all of the
Preferred Securities as described under "Description of the Preferred
Securities-Redemption;" and (iv) the entry of an order for the dissolution of
the Trust Issuer by a court of competent jurisdiction.
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If an early dissolution occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, the Trust Issuer shall be liquidated by the Trust
Issuer Trustees as expeditiously as the Trust Issuer Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust Issuer, if any, as provided by applicable law, to the holders of the
Preferred Securities a Like Amount of the Junior Subordinated Debentures, unless
such distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Trust Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of the Trust Issuer, if any, as provided by applicable
law, an amount equal to, in the case of holders of the Preferred Securities, the
aggregate of the Liquidation Amount plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust Issuer has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust Issuer on Preferred Securities shall be paid on a pro rata basis. The
Company, as the holder of the Common Securities, will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if an event of default under the Indenture has
occurred and is continuing, the Preferred Securities shall have a priority over
the Common Securities with respect to any such distributions.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
issued thereunder (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) the occurrence of an event of default under the Indenture (see
"Description of the Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default in the payment of any Distribution when it becomes due
and payable, and continuation of such default for a period of 30 days; or
(iii) default in the payment of any Redemption Price of any Preferred
Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trust Issuer Trustees in the Trust
Agreement (other than a covenant or warranty a default in the performance
of which or the breach of which is dealt with in clause (ii) or (iii)
above), and continuation of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the
defaulting Trust Issuer Trustee or Trustees by the holders of at least 25%
in aggregate Liquidation Amount of the outstanding Preferred Securities, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
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(v) the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee and the failure by the Company to
appoint a successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually known
to the Property Trustee, the Property Trustee shall transmit notice of such
Event of Default to the holders of the Preferred Securities, the Administrative
Trustees and the Company, as depositor, unless such Event of Default shall have
been cured or waived. The Company, as depositor, and the Administrative
Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under the Trust Agreement.
If an event of default under the Indenture has occurred and is continuing,
the Preferred Securities shall have a preference over the Common Securities as
described above. See "Description of the Preferred Securities--Subordination of
the Common Securities" and "--Liquidation Distribution Upon Termination". The
existence of an event of default does not entitle the holders of the Preferred
Securities to accelerate the payment thereof.
REMOVAL OF THE TRUST ISSUER TRUSTEES
Unless an event of default under the Indenture shall have occurred and be
continuing, any Trust Issuer Trustee may be removed at any time by the holder of
the Common Securities. If an event of default under the Indenture has occurred
and is continuing, the Property Trustee and the Delaware Trustee may be removed
at such time by the holders of a majority in Liquidation Amount of the
outstanding Preferred Securities. In no event will the holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of
any Trust Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act, if applicable, or of any jurisdiction in which any part of the
Trust Property (as defined in the Trust Agreement) may at the time be located,
the Company, as the holder of the Common Securities, shall have power to appoint
one or more persons either to act as a co-trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Trust Agreement. In the event an event of
default under the Indenture has occurred and is continuing, the Property Trustee
alone shall have power to make such appointment.
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MERGER OR CONSOLIDATION OF THE TRUST ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party or any entity
succeeding to all or substantially all the corporate trust business of such
Trustee, shall be the successor of such Trustee under the Trust Agreement,
provided such entity shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST ISSUER
The Trust Issuer may not merge with or into, consolidate, amalgamate, be
replaced by, convey, transfer or lease its properties and assets substantially
as an entirety to any entity or other Person, except as described below or as
otherwise described in the Trust Agreement. The Trust Issuer may, at the
request of the Company, with the consent of the Administrative Trustees and
without the consent of the holders of the Preferred Securities, the Property
Trustee or the Delaware Trustee, merge with or into, consolidate, amalgamate, be
replaced by, convey, transfer or lease its properties and assets substantially
as an entirety to, a trust organized as such under the laws of any State:
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of the Trust Issuer with respect to the Preferred Securities or (b)
substitutes for the Preferred Securities other securities having substantially
the same terms as the Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank the same as the Preferred Securities in
priority with respect to Distributions and payments upon liquidation, redemption
and otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Junior Subordinated Debentures, (iii) the Successor Securities are
registered or listed, or any Successor Securities will be registered or listed
upon notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then registered or listed
(including, if applicable, the Nasdaq Stock Market's National Market), if any,
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect, (vi) such successor entity has a
purpose substantially identical to that of the Trust Issuer, (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Company has received an opinion from independent counsel to the Trust Issuer
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust Issuer nor such successor entity will be
required to register as an investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act") and (viii) the Company or any
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permitted successor or assignee owns all of the common securities or its
equivalent of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Trust Issuer shall not,
except with the consent of holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into or be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust Issuer or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--
Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities, (i) with respect to acceptance of
appointment of a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement or (iii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Trust Issuer will be classified for United States
federal income tax purposes as a grantor trust at all times that the Preferred
Securities are outstanding or to ensure that the Trust Issuer will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (ii), such action shall not
adversely affect in any material respect the interests of any holder of the
Preferred Securities, and any such amendments of the Trust Agreement shall
become effective when notice thereof is given to the holders of the Preferred
Securities. The Trust Agreement may be amended by the Trust Issuer Trustees and
the Company with (i) the consent of holders representing not less than a
majority (based upon Liquidation Amounts) of the outstanding Preferred
Securities and (ii) receipt by the Trust Issuer Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trust Issuer Trustees in accordance with such amendment will not affect
the Trust Issuer's status as a grantor trust for United States federal income
tax purposes or the Trust Issuer's exemption from status as an "investment
company" under the Investment Company Act, provided that without the consent of
each holder of the Preferred Securities, the Trust Agreement may not be amended
to (a) change the amount or timing of any Distribution on the Preferred
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Preferred Securities as of a specified date or (b)
restrict the right of a holder of the Preferred Securities to institute suit for
the enforcement of any such payment on or after such date.
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So long as the Junior Subordinated Debentures are held by the Property
Trustee, the Trust Issuer Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee or executing any trust or power conferred on the Property Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or the Junior Subordinated Debentures, where such consent shall
be required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of the Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of the Preferred Securities. The Trust Issuer
Trustees shall not revoke any action previously authorized or approved by a vote
of the holders of the Preferred Securities except by subsequent vote of the
holders of the Preferred Securities. The Property Trustee shall notify each
holder of the Preferred Securities of any notice of default with respect to the
Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of the holders of the Preferred Securities, prior to taking any of the
foregoing actions, the Trust Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust Issuer will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of the Preferred Securities may be given
at a meeting of holders of the Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of the Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken,
to be given to each holder of record of the Preferred Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for the Trust Issuer to redeem and cancel the Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trust Issuer Trustees or
any affiliate of the Company or the Trust Issuer Trustees shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
LIQUIDATION VALUE
The amount payable on the Preferred Securities in the event of any
liquidation of the Trust Issuer is $25 per Preferred Security plus accumulated
and unpaid Distributions, which may be in the form of a distribution of such
amount in Junior Subordinated Debentures, subject to certain exceptions. See
"Description of the Preferred Securities --Liquidation Distribution Upon
Termination."
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EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Preferred Securities) and all
costs and expenses of the Trust Issuer (including costs and expenses relating to
the organization of the Trust Issuer, the fees and expenses of the Trust Issuer
Trustee and the costs and expenses relating to the operation of the Trust
Issuer) and to pay any and all taxes and all costs and expenses with respect
thereto (other than United States withholding taxes) to which the Trust Issuer
might become subject. The foregoing obligations of the Company under the
Indenture are for the benefit of, and shall be enforceable by, any person to
whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Trust Issuer or any other
person before proceeding against the Company. The Company has also agreed in
the Indenture to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole on in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon
the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests will be accomplished by entries
on the books of Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners
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or holders thereof under the Junior Subordinated Indenture. Accordingly, each
person owning a beneficial interest in such a global security must rely on the
procedures of DTC and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights of a holder of Preferred Securities under the Junior Subordinated
Indenture. The Company understands that, under DTC's existing practices, in the
event that the Company requests any action of holders, or an owner of a
beneficial interest in such a global security desires to take any action which a
holder is entitled to take under the Junior Subordinated Indenture, DTC would
authorize the Participants holding the relevant beneficial interests to take
such action, and such Participants would authorize beneficial owners owning
through such Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them. Redemption notices will
also be sent to DTC. If less than all of the Preferred Securities are being
redeemed, the Company understands that it is DTC's existing practice to
determine by lot the amount of the interest of each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trust Issuer Trustee, the Administrators, any Paying
Agent or any other agent of the Company or the Trust Issuer Trustees will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date.
Payments by Participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Company, the
Trust Issuer Trustees, the Paying Agent or any other agent of the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Trust Issuer Trustees. If DTC notifies the Company that it
is unwilling to continue as such, or if it is unable to continue or ceases to be
a clearing agency registered under the Exchange Act and a successor depository
is not appointed by the Company within ninety days after receiving such notice
or becoming aware that DTC is no longer so registered, the Company will issue
the Preferred Securities in definitive form upon registration of transfer of, or
in exchange for, such global security. In addition, the Company may at any time
and in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
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DTC has advised the Company and the Trust Issuer as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriter in
immediately available funds.
Secondary trading in preferred securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto. as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Trust Issuer, except for
the payment of any tax or other governmental charges that may
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be imposed in connection with any transfer or exchange. In the event of any
redemption, the Trust Issuer will not be required to (i) issue, register the
transfer of, or exchange any Preferred Securities during a period beginning at
the opening of business 15 days before the date of mailing of a notice of
redemption of any Preferred Securities called for redemption and ending at the
close of business on the day of such mailing; or (ii) register the transfer of
or exchange any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee will take such action as it deems advisable and in the best interests of
the holders of the Preferred Securities and will have no liability except for
its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust Issuer in such a way that the Trust Issuer
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust Issuer or the Trust
Agreement, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an Indenture (the
"Indenture") between the Company and The Bank of New York, as trustee (the
"Debenture Trustee"). The Indenture will be qualified as an Indenture under the
Trust Indenture Act. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Indenture, and
to the Trust Indenture Act. Wherever particular defined terms of the Indenture
are referred to, but not defined herein, such defined terms are incorporated
herein by reference. The form of the Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Trust
Issuer will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures.
The Junior Subordinated Debentures will bear interest at the annual rate of
______%, payable quarterly in arrears on January 31, April 30, July 31, and
October 31 of each year (each, an "Interest Payment Date"), commencing January
31, 1998, to the person in whose name each Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Trust Issuer, the Junior Subordinated Debentures
will be held in the name of the Property Trustee in trust for the benefit of the
holders of the Preferred Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of ____% thereof, compounded
quarterly from the relevant Interest Payment Date. The term "interest" as used
herein shall include quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional
Interest (as defined below), as applicable.
The Junior Subordinated Debentures will mature on ____________, 2027 (the
"Stated Maturity").
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt and Subordinated Debt
(collectively "Senior Indebtedness") of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of any subsidiary, including the Bank, upon such subsidiary's liquidation
or reorganization or otherwise, is subject to the prior claims of creditors of
that subsidiary, except to the extent that the Company may itself be recognized
as a creditor of that
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subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of the Junior Subordinated Debentures should look only
to the assets of the Company for payments on the Junior Subordinated Debentures.
The Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Debt and Subordinated Debt,
whether under the Indenture or any existing or other indenture that the Company
may enter into in the future or otherwise.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time or from
time to time during the term of the Junior Subordinated Debentures to defer the
payment of interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of each Extension Period, the
Company must pay all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest on such unpaid interest at the annual rate of
____%, compounded quarterly from the relevant Interest Payment Date, to the
extent permitted by applicable law, referred to herein as "Compounded
Interest"). During an Extension Period, interest would continue to accrue and
holders of the Junior Subordinated Debentures would be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions in common stock of the Company,
(c) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans for
its directors, officers or employees) or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures other then payments pursuant to the Guarantee;
and (iii) the Company shall not redeem, purchase or acquire less than all the
outstanding Junior Subordinated Debentures or any of the Preferred Securities.
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the rate of ____%,
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compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period subject to the above requirements. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date interest on the
Junior Subordinated Debentures would have been payable except for the election
to begin such Extension Period or (ii) the date the Administrative Trustees are
required to give notice of the record date, or the date such Distributions are
payable, to the Nasdaq Stock Market's National Market or other applicable self-
regulatory organization or to holders of the Preferred Securities as of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Debenture Trustee
shall give notice of the Company's election to begin a new Extension Period to
the holders of the Preferred Securities. There is no limitation on the number of
times that the Company may elect to begin an Extension Period.
ADDITIONAL INTEREST
If the Trust Issuer or the Property Trustee is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay such additional amounts (the "Additional Sums") on
the Junior Subordinated Debentures as shall be required so that the
Distributions payable by the Trust Issuer shall not be reduced as a result of
any such additional taxes, duties or other governmental charges.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after ____, 2002, in whole at any time or
in part from time to time, or (ii) at any time in whole (but not in part),
within 180 days following the occurrence of a Tax Event, an Investment Company
Event or a Capital Treatment Event, in each case at a redemption price equal to
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. Any such redemption prior to the Stated Maturity will be subject to
prior regulatory approval if then required.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, the Trust Issuer is or will be considered an "investment company"
that is required to be registered under the Investment Company Act, which change
becomes effective on or after the date of original issuance of the Preferred
Securities.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision
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interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities,
there is more than an insubstantial risk that the Preferred Securities would not
constitute Tier 1 Capital (or the then equivalent thereof) applied as if the
Company (or its successor) were a bank holding company for purposes of the
capital adequacy guidelines of the Federal Reserve (or any successor regulatory
authority with jurisdiction over bank holding companies), or any capital
adequacy guidelines as then in effect and applicable to the Company. There are
currently no capital adequacy guidelines applicable to savings bank holding
companies such as the Company.
The Junior Subordinated Debentures will not be subject to any sinking fund.
"Tax Event" means the receipt by the Trust Issuer of an Opinion of Counsel
to the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of issuance of the Preferred Securities under the Trust Agreement,
there is more than an insubstantial risk that (i) the Trust Issuer is, or will
be within 90 days of the date of such opinion, subject to United Stated federal
income tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Company on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Company, in whole or in part, for United States federal
income tax purposes or (iii) the Trust Issuer is, or will be within 90 days of
the date of such opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered to
the Trustee.
"Additional Interest" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust Issuer
on the outstanding Preferred Securities and Common Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust Issuer has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of the Preferred
Securities, Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of the Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities pro rata based upon the
relative Liquidation Amounts of such Preferred Securities and the proceeds of
which will be used to pay the Redemption Price of such Preferred Securities and
(ii) with respect to a distribution of the Junior Subordinated Debentures to
holders of the Preferred Securities in exchange therefor in connection with a
dissolution or liquidation of the Trust Issuer, Junior Subordinated Debentures
having a
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principal amount equal to the Liquidation Amount of the Preferred Securities of
the holder to whom such Junior Subordinated Debentures would be distributed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of the Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Company
defaults in payment of the redemption price, on and after the redemption date
interest ceases to accrue on the Junior Subordinated Debentures or portions
thereof called for redemption.
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Trust Issuer. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depository
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of Preferred
Securities -- Book Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at the
offices of any Paying Agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations. and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory
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written instrument of transfer, duly executed), at the office of the securities
registrar appointed under the Indenture or at the office of any transfer agent
designated by the Company for such purpose without service charge and upon
payment of any taxes and other governmental charges as described in the
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Indenture. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to the Junior Subordinated Debentures,
that it will not, and will not permit any subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock (other than (a) the reclassification of any class of the Company's capital
stock into another class of capital stock, (b) dividends or distributions in
common stock of the Company, (c) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, the issuance of stock
under any such plan in the future or the redemption or repurchase of any such
rights pursuant thereto, (d) payments under the Guarantee and (e) purchases of
common stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers or employees), (ii) make any
payment of principal, interest or premium, if any, on or repay or repurchase or
redeem any debt securities of the Company that rank pari passu with or junior in
interest to the Junior Subordinated Debentures other than payments pursuant to
the Guarantee or (iii) the Company shall not redeem, purchase or acquire less
than all the outstanding Junior Subordinated Debentures or any of the Preferred
Securities if at such time (i) there shall have occurred an Event of Default
under the Indenture with respect to the Junior Subordinated Debentures, (ii) if
the Junior Subordinated Debentures are held by the Trust Issuer, the Company
shall be in default with respect to its payment of any obligations under the
Guarantee relating to such Preferred Securities or (iii) the Company shall have
given notice of its selection of an Extension Period as provided in the
Indenture with respect to the Junior Subordinated Debentures
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and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, provided that any such action
does not materially adversely affect the interest of the holders of the Junior
Subordinated Debentures or the ability to qualify, or maintain the qualification
of, the Indenture under the Trust Indenture Act. The Indenture contains
provisions permitting the Company and the Debenture Trustee, with the consent of
the holders of not less than a majority in principal amount of the Junior
Subordinated Debentures affected, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures, provided that
no such modification may, without the consent of the holder of each outstanding
Subordinated Debenture so affected, (i) extend the Stated Maturity of the Junior
Subordinated Debentures, reduce the principal amount thereof or reduce the rate
or extend the time of payment of interest thereon or (ii) reduce the percentage
of principal amount of the Junior Subordinated Debentures, the holders of which
are required to consent to any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default":
(i) failure for 30 days to pay interest (including Additional
Interest or Compounded Interest, if any) on the Junior Subordinated
Debentures when due (subject to the deferral of certain due dates in the
case of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due, whether at maturity, upon declaration of acceleration
of maturity or otherwise; or
(iii) failure to observe or perform certain other covenants contained
in the Indenture for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate outstanding
principal amount of the outstanding Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
the Company, subject in certain instances to any such event remaining in
effect for a period of 60 consecutive days.
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The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures may annul such declaration and waive the default
if the default (other than the non-payment of the principal of the Junior
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Subordinated Debenture. The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of the Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on the Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. If the right to bring a Direct Action is removed, the Trust Issuer
may become subject to the reporting obligations under the Exchange Act. The
Company shall have the right under the Indenture to set-off any payment made to
such holder of the Preferred Securities by the Company in connection with a
Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures. See
"Description of the Preferred Securities--Events of Default; Notice."
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other entity or convey, transfer or lease its properties and assets
substantially as an entirety to any entity, and no entity shall consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless: (i) in the event the
Company consolidates with or merges into another entity or conveys or transfers
its properties and assets substantially as an entirety to any entity, the
successor entity is organized under the laws of the United States or any state
or the District of Columbia, and such successor entity expressly assumes the
Company's obligations on the Junior Subordinated Debentures issued under the
Indenture; (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would become
a Debenture Event of Default, shall have occurred and be continuing; and (iii)
certain other conditions as prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all of the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and the Company deposits or causes to
be deposited with the Debenture Trustee funds, in trust, for the purpose and in
an amount in the currency or currencies in which the Junior Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the Stated Maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to the Company's obligations to pay all
other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that the Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon the
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full of principal of (and premium, if
any) and interest, if any, on such Senior Indebtedness before the holders of the
Junior Subordinated Debentures, or the Property Trustee on behalf of the
holders, will be entitled to receive
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or retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any of the Junior
Subordinated Debentures, the holders of all Senior Indebtedness outstanding at
the time of such acceleration will first be entitled to receive payment in full
of all amounts due thereon (including any amounts due upon acceleration) before
the holders of the Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Indebtedness or an
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payment of which, in either case, such Person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include:
(i) any Debt of the Company which when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, and (iii) any Debt to any employee of the Company.
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"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Debentures), except that
Subordinated Debt shall not include debentures sold by the Company to the Trust.
The Indenture places no limitation on the amount of Senior Indebtedness,
that may be incurred by the Company. The Company may from time to time incur
indebtedness constituting Senior Indebtedness.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York, without
regard to conflicts of laws principles thereof.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of the Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
As described under "Description of the Preferred Securities--Liquidation of
the Trust Issuer and Distribution of the Junior Subordinated Debentures to
Holders," under certain circumstances involving the termination of the Trust
Issuer, Junior Subordinated Debentures may be distributed to the holders of the
Preferred Securities in exchange therefor upon liquidation of the Trust Issuer,
after satisfaction of liabilities to creditors of the Trust Issuer as provided
by applicable law. Any such distribution will be subject to receipt of prior
regulatory approval if then required. If the Junior Subordinated Debentures are
distributed to the holders of Preferred Securities upon the liquidation of the
Trust Issuer, the Company will use its best efforts to list the Junior
Subordinated Debentures on the Nasdaq Stock Market's National Market or such
stock exchanges, if any, on which the Preferred Securities are then listed.
There can be no assurance as to the market price of any Junior Subordinated
Debentures that may be distributed to the holders of the Preferred Securities.
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PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the offices of the Debenture Trustee in the city of
New York or at the offices of such Paying Agent or Paying Agents as the Company
may designate from time to time, except that at the option of the Company
payment of any interest may be made (i) by check mailed to the address of the
Person entitled thereto as such address shall appear in the Securities Register
or (ii) by transfer to an account maintained by the Person entitled thereto as
specified in the Securities Register, provided that proper transfer instructions
have been received by the Regular Record Date. Payment of any interest on the
Junior Subordinated Debentures will be made to the Person in whose name the
Subordinated Debenture is registered at the close of business on the Regular
Record Date for such interest, except in the case of Defaulted Interest. The
Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; however, the Company will at all times be
required to maintain a Paying Agent in each Place of Payment for the Junior
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of or
interest on the Junior Subordinated Debentures and remaining unclaimed for two
years after such principal or interest has become due and payable shall be
repaid to the Company upon written request of the Company on May 31 of each year
or (if then held in trust by the Company) will be discharged from such trust and
the holders of the Junior Subordinated Debentures shall thereafter look, as
general unsecured creditors, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent for
the Junior Subordinated Debentures. Junior Subordinated Debentures may be
presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed) at the
office of the registrar. The Company may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts; provided that the Company maintains a transfer agent
in the place of payment. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures. In the
event of any redemption, neither the Company nor the Debenture Trustee will be
required to (i) issue, register the transfer of or exchange Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before
the day of selection for redemption of Junior Subordinated Debentures and ending
at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
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DESCRIPTION OF THE GUARANTEE
A Guarantee will be executed and delivered by the Company concurrently with
the issuance of the Preferred Securities for the benefit of the holders from
time to time of such Preferred Securities (the "Guarantee"). The Bank of New
York will act as trustee ("Guarantee Trustee") under the Guarantee. This
summary of certain provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee. Wherever particular defined terms of the Guarantee
are referred to, but not defined herein, such defined terms are incorporated
herein by reference. The form of the Guarantee has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust Issuer may have or assert other
than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the Trust Issuer
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any accrued
and unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Trust Issuer has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that the Trust Issuer has funds on hand available
therefor at such time, or (iii) upon a voluntary or involuntary dissolution,
winding up or termination of the Trust Issuer (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the Liquidation Distribution, to the extent that the Trust Issuer has
funds available therefor at such time, and (b) the amount of assets of the Trust
Issuer remaining available for distribution to holders of the Preferred
Securities after satisfaction of liabilities to creditors of the Trust Issuer as
required by applicable law. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Preferred Securities or by causing the Trust
Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust Issuer's obligations under the Preferred Securities, but will apply
only to the extent that the Trust Issuer has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust Issuer, the Trust Issuer will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Debt of the Company. See "Description of the Guarantee--
Status of the Guarantee." Because the Company is a holding company, the right
of the Company to participate in any distribution of assets of any subsidiary
upon such subsidiary's liquidation or reorganization or otherwise is subject to
the prior claims of creditors of that subsidiary, except to the extent the
Company may itself be recognized as a creditor of that subsidiary. Accordingly,
the
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Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder. The
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Debt, whether under the
Indenture, any other indenture that the Company may enter into in the future, or
otherwise. The Company may from time to time to incur indebtedness constituting
Senior Indebtedness.
The Company and the Trust Issuer believe that the Company has, through the
Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the
Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Trust Issuer's obligations under the
Preferred Securities, on a subordinated basis. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Trust Issuer's obligations under the Preferred Securities. See
"Relationship Among the Preferred Securities, the Junior Subordinated
Debentures, the Expense Agreement and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other person or entity). The Guarantee will be
held for the benefit of the holders of the Preferred Securities. The Guarantee
will not be discharged except by payment of the Guarantee Payments in full to
the extent not paid by the Trust Issuer or upon distribution to the holders of
the Preferred Securities of the Junior Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of such
outstanding Preferred Securities. The manner of obtaining any such approval
will be as set forth under "Description of the Preferred Securities--Voting
Rights; Amendment of the Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
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EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payments or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in the performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of the Preferred Securities unless it is offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Guarantee Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Guarantee Trustee reasonably believes repayment
or adequate indemnity is not reasonably assured to it.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of the Trust Issuer, or (c)
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities in exchange therefor. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York, without regard to conflicts of laws principles
thereof.
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THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust Issuer
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust Issuer, other than obligations of the Trust Issuer to
pay to the holders of the Preferred Securities the amounts due such holders
pursuant to the terms of the Preferred Securities. Third party creditors of
the Trust Issuer may proceed directly against the Company under the Expense
Agreement, regardless of whether such creditors had notice of the Expense
Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES, THE EXPENSE
AGREEMENT AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company and the Trust
Issuer believe that, taken together, the Company's obligations under the Junior
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the Preferred Securities, on a subordinated basis. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Trust Issuer's obligations under the Preferred Securities. If
and to the extent that the Company does not make payments on the Junior
Subordinated Debentures, the Trust Issuer will not pay Distributions or other
amounts due on its Preferred Securities. The Guarantee does not cover payment
of Distributions when the Trust Issuer does not have sufficient funds to pay
such Distributions. In such event, the remedy of a holder of the Preferred
Securities is to institute a Direct Action against the Company for enforcement
of payment of such Distributions to such holder. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all Senior
Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Preferred Securities and Common Securities; (ii) the interest rate and
interest and
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other payment dates on the Junior Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of the Trust Issuer except the Trust Issuer's obligations to holders
of its Preferred Securities; and (iv) the Trust Agreement further provides that
the Trust Issuer will not engage in any activity that is not consistent with the
limited purposes of the Trust Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of making such payment, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES
A holder of a Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust Issuer
or any other person or entity.
A default or event of default under any Senior Debt of the Company would
not constitute a default or event of default under the Indenture. However, in
the event of payment defaults under, or acceleration of, Senior Debt of the
Company, the subordination provisions of the Indenture provide that no payments
may be made in respect of the Junior Subordinated Debentures until such Senior
Debt has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Junior Subordinated Debentures
would constitute an event of default under the Indenture.
LIMITED PURPOSE OF THE TRUST ISSUER
The Preferred Securities evidence a preferred undivided beneficial interest
in the Trust Issuer, and the Trust Issuer exists for the sole purpose of issuing
its Preferred Securities and Common Securities and investing the proceeds
thereof in Junior Subordinated Debentures. A principal difference between the
rights of a holder of a Preferred Security and a holder of a Subordinated
Debenture is that a holder of a Subordinated Debenture is entitled to receive
from the Company the principal amount of and interest accrued on Junior
Subordinated Debentures held, while a holder of the Preferred Securities is
entitled to receive Distributions from the Trust Issuer (or from the Company
under the Guarantee) if, and to the extent, the Trust Issuer has funds available
for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Trust Issuer involving the liquidation of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Trust Issuer,
if any, as provided by applicable law, the holders of the Preferred Securities
will be entitled to receive, out of assets held by the Trust Issuer, the
Liquidation
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Distribution in cash. See "Description of the Preferred Securities-Liquidation
Distribution Upon Termination." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Property Trustee, as holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest,
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed to pay for all
costs, expenses and liabilities of the Trust Issuer (other than the Trust
Issuer's obligations to the holders of its Preferred Securities), the positions
of a holder of such Preferred Securities and a holder of the Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of the Preferred
Securities. This summary addresses only the tax consequences to a person that
acquires Preferred Securities on their original issue at their original offering
price and does not address the tax consequences to persons that may be subject
to special treatment under United States federal income tax law, such as banks,
insurance companies, thrift institutions, regulated investment companies, real
estate investment trusts, employee benefit plans, tax-exempt organizations,
dealers in securities or currencies, persons that will hold Preferred Securities
as part of a position in a "straddle" or as part of a "hedging", "conversion" or
other integrated investment transaction for federal income tax purposes, persons
whose functional currency is not the United States dollar or persons that do not
hold Preferred Securities as capital assets.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Silver, Freedman & Taff, L.L.P. ("Silver Freedman"),
special tax counsel to the Company and the Trust Issuer. This summary is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of the Preferred Securities.
See "Certain Federal Income Tax Consequences--Possible Tax Law Changes." The
authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of the Preferred Securities
may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, AS WELL
AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
110
<PAGE>
CLASSIFICATION OF THE TRUST ISSUER
In the opinion of Silver Freedman, under current law, the Trust Issuer will
not be classified as an association taxable as a corporation for United States
federal income tax purposes. As a result, each beneficial owner of Preferred
Securities (a "Securityholder") will be required to include in its gross income
its pro rata share of the interest (or accrued original issue discount) with
respect to the Junior Subordinated Debentures. See "--Interest Income and
Original Issue Discount." No amount included in income with respect to the
Preferred Securities will be eligible for the dividends-received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), if the terms and
conditions of a debt instrument make the likelihood that stated interest will
not be timely paid a "remote" contingency, such contingency will be ignored in
determining whether the debt instrument is issued with original issue discount
("OID"). The Company believes that the likelihood of its exercising its option
to defer payments of interest on the Junior Subordinated Debentures is remote,
since exercising that option would prevent it from declaring dividends on any
class of its stock. Based on the foregoing, the Company intends to take the
position that the Junior Subordinated Debentures were not issued with OID and,
accordingly, a Securityholder should include in gross income only such
Securityholder's pro rata share of stated interest on the Junior Subordinated
Debentures in accordance with such Securityholder's method of tax accounting.
The Regulations have not yet been addressed in any rulings or other
published interpretations by the Internal Revenue Service (the "IRS"). In the
opinion of Silver Freedman, it is not unreasonable for the Company to take the
position that the Junior Subordinated Debentures will not be issued with OID.
However, it is possible the IRS could take the position that the likelihood of
deferral was not a remote contingency within the meaning of the Regulations.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest after treating the Junior Subordinated Debentures as issued
without OID, the Junior Subordinated Debentures would be treated as re-issued
with OID at that time, and all stated interest (and de minimis OID, if any) on
the Junior Subordinated Debentures would thereafter be treated as OID as long as
the Junior Subordinated Debentures remained outstanding. In such event, all of
a Securityholder's income with respect to the Junior Subordinated Debentures
would be accounted for as OID on an economic accrual basis regardless of such
Securityholder's method of tax accounting, and actual distributions of stated
interest would not be includable in gross income. Consequently, a
Securityholder would be required to include OID in gross income even though the
Company would not make any actual cash payments during an Extension Period.
A Securityholder that disposed of Preferred Securities prior to the record
date for the payment of Distributions following an Extension Period would
include OID in gross income but would not receive any cash related thereto from
the Trust Issuer. Any amount of OID included in
111
<PAGE>
a Securityholder's gross income (whether or not during an Extension Period)
would increase such Securityholder's tax basis in its Preferred Securities, and
the amount of Distributions not includable in gross income would reduce such
Securityholder's tax basis in its Preferred Securities.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF THE PREFERRED
SECURITIES
Under current law, a distribution by the Trust Issuer of the Junior
Subordinated Debentures as described under the caption "Description of the
Preferred Securities-Liquidation of the Trust Issuer and Distribution of the
Junior Subordinated Debentures to Holders" will be nontaxable and will result in
a Securityholder's receiving directly its pro rata share of the Junior
Subordinated Debentures previously held indirectly through the Trust Issuer,
with a holding period and aggregate tax basis equal to the holding period and
aggregate tax basis such Securityholder had in its Preferred Securities before
such distribution. A Securityholder will account for interest in respect of the
Junior Subordinated Debentures received from the Trust Issuer in the manner
described above under "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
SALES OR REDEMPTION OF THE PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of the
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized and the Securityholder's adjusted tax
basis in the Preferred Securities sold or so redeemed. Gain or loss recognized
by a Securityholder on Preferred Securities held for more than one year will
generally be taxable as long-term capital gain or loss. Pursuant to the
Taxpayer Relief Act of 1997, on or after July 29, 1997, Preferred Securities
held by an individual for more than 18 months are accorded a capital gains tax
rate of 20% (or a rate of 10%, if the individual taxpayer is in the 15% tax
bracket). On or after July 29, 1997, Preferred Securities held by an individual
for more than one year, but not more than 18 months, are accorded a capital
gains tax rate of 28%.
If the Company were to exercise its option to defer payments of interest on
the Junior Subordinated Debentures, the Preferred Securities might trade at a
price that did not fully reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. A Securityholder that
disposed of its Preferred Securities between record dates for payments of
Distributions (and consequently did not receive a Distribution from the Trust
Issuer for the period prior to such disposition) would nevertheless be required
to include in income as ordinary income accrued but unpaid interest on the
Junior Subordinated Debentures through the date of disposition and to add such
amount to its adjusted tax basis in its Preferred Securities disposed of. Such
Securityholder would recognize a capital loss on the disposition of its
Preferred Securities to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) was less than the
Securityholder's adjusted tax basis in the Preferred Securities (which would
include accrued but unpaid interest). Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for federal income
tax purposes.
112
<PAGE>
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under current United States federal income tax law: (i) payments by the
Trust Issuer or any of its paying agents to any Securityholder who or which is a
United States Alien Holder will not be subject to United States federal
withholding tax; provided, that (a) the Securityholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (b) the Securityholder is not a
controlled foreign corporation that is related to the Company through stock
ownership and (c) either (A) the Securityholder certifies to the Trust Issuer or
its agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") certifies to the
Trust Issuer or its agent, under penalties of perjury, that such statement has
been received from the Securityholder by it or by a Financial Institution
holding such security for the Securityholder and furnishes the Trust Issuer or
its agent with a copy thereof, and (ii) a United States Alien Holder of a
Preferred Security will not be subject to United States federal withholding tax
on any gain realized upon the sale or other disposition of a Preferred Security.
Proposed Treasury regulations (the "Proposed Regulations") would provide
alternative methods for satisfying the certification requirement described in
clause (i)(c) above. The Proposed Regulations also would require, in the case
of Preferred Securities held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information, including a United States taxpayer identification number. A look-
through rule would apply in the case of tiered partnerships. The Proposed
Regulations are proposed to be effective for payments made after December 31,
1997. There can be no assurance that the regulations will be adopted or as to
the provisions that they will include if and when adopted in temporary or final
form. The Trust Issuer will issue a Form 1042 or Form 1042S, where appropriate.
INFORMATION REPORTING TO SECURITYHOLDERS
Generally, income on the Preferred Securities will be reported to
Securityholders on Forms 1099-INT, which will be mailed to Securityholders by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may
be subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the Securityholder's United States federal income
tax, provided the required information is provided to the Internal Revenue
Service on a timely basis.
113
<PAGE>
ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or a "disqualified person" within
the meaning of Section 4975 of the Code with respect to many employee benefit
plans ("Plans") that are subject to ERISA. The purchase of the Preferred
Securities by a Plan that is subject to the fiduciary responsibility provisions
of ERISA or the prohibited transaction provisions of Section 4975(e)(1) of the
Code and with respect to which the Company, or any affiliate of the Company, is
a service provider (or otherwise is a party in interest or a disqualified
person) may constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code, unless the Preferred Securities are acquired pursuant
to and in accordance with an applicable exemption. Any pension or other
employee benefit plan proposing to acquire any Preferred Securities should
consult with its counsel.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated ________, 1997, among the Company, the Trust
Issuer and Ryan, Beck & Co. (the "Underwriter"), the Trust Issuer has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase from the
Trust Issuer, $30,000,000 aggregate Liquidation Amount of Preferred Securities
at the public offering price subject to the underwriting commissions set forth
on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all of the Preferred Securities offered hereby if any of such Preferred
Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Preferred Securities to the public and other dealers at
the public offering price set forth on the cover page of this Prospectus and
will share with certain dealers from its commission a concession not in excess
of $____ per Preferred Security. The Underwriter may allow, and such dealers
may reallow, a concession not in excess of $____ per Preferred Security to
certain other dealers. After the public offering, the offering price and other
selling terms may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an additional
$4,500,000 aggregate Liquidation Amount of the Preferred Securities at the
public offering price plus accrued Distributions, if any, from ________, 1997.
To the extent that the Underwriter exercises such option, the Company will be
obligated, pursuant to the option, to sell such Preferred Securities to the
Underwriter. The Underwriter may exercise such option only to cover over-
allotments made in connection with the sale of the Preferred Securities offered
hereby. If purchased, the Underwriter will offer such additional Preferred
Securities on the same terms as those on which the $30,000,000 aggregate
Liquidation Amount of the Preferred Securities are being offered.
114
<PAGE>
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $____ per Preferred Security (or $_______ ($_______ if the
over-allotment option is exercised in full) in the aggregate). The Company has
also agreed to reimburse the Underwriter for its reasonable out-of-pocket
expenses, including legal fees and expenses relating to the Offering of the
Preferred Securities.
In connection with the offering of the Preferred Securities, the
Underwriter and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Trust Issuer. In such a
case, to cover all or part of the short position, the Underwriter may exercise
the over-allotment option described above or may purchase Preferred Securities
in the open market following completion of the initial offering of the Preferred
Securities. The Underwriter also may engage in stabilizing transactions in
which it bids for, and purchases, shares of the Preferred Securities at a level
above that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities. The Underwriter also may reclaim any selling concessions allowed to
an Underwriter or dealer if the Underwriter repurchases shares distributed by
the Underwriter or dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Preferred Securities at a level above that which
might otherwise prevail in the open market. Neither the Company nor the
Underwriter makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Preferred Securities. The Underwriter is not required to engage in
any of the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Company and the Trust Issuer have been advised by the
Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the Underwriter. Application has been made by the Company to list the Preferred
Securities on the Nasdaq National Market, but one of the requirements for
listing and continuing listing is the presence of two market makers for the
Preferred Securities, and the presence of a second market maker cannot be
assured. Accordingly, no assurance can be given as to the development or
liquidity of any market for the Preferred Securities.
115
<PAGE>
The Company and the Trust Issuer have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act.
The Underwriter has in the past and may in the future perform various
services for the Company, including investment banking services, for which it
has and will receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Trust Issuer will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Trust Issuer. The validity of the Guarantee and
the Junior Subordinated Debentures will be passed upon for the Company by
Silver, Freedman & Taff, L.L.P. Certain legal matters will be passed upon for
the Underwriters by Thacher Proffitt & Wood. Certain matters relating to the
United States federal income tax considerations will be passed upon for the
Company by Silver, Freedman & Taff, L.L.P.
EXPERTS
The consolidated financial statements of the Company and subsidiary as of
June 30, 1997 and 1996 and for each of the three years in the period ended June
30, 1997 included in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
116
<PAGE>
The Company and the Trust Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company, the Trust Issuer, the Preferred Securities and the Junior Subordinated
Debentures, reference is made to the Registration Statement, including the
exhibits thereto. Any statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement are not
necessarily complete, and, in each instance, reference is made to the copy of
such document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirely by such reference. The
Registration Statement may be inspected without charge at the principal office
of the Commission in Washington, D.C., and copies of all or part of it may be
obtained from the Commission upon payment of the prescribed fees.
No separate financial statements of the Trust Issuer have been included
herein. The Company does not consider that such financial statements would be
material to holders of Preferred Securities because (i) all of the voting
securities of the Trust Issuer will be owned by the Company, a reporting company
under the Exchange Act, (ii) the Trust Issuer has no independent operations but
exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust Issuer and investing the
proceeds thereof in Junior Subordinated Debentures issued by the Company, and
(iii) the obligations of the Company described herein to provide certain
indemnities in respect of and be responsible for certain costs, expenses, debts
and liabilities of the Trust Issuer under the Indenture and pursuant to the
Trust Agreement, the guarantee issued by the Company with respect to the
Preferred Securities, the Junior Subordinated Debentures purchased by the Trust
Issuer, the related Indenture and the Expense Agreement, taken together,
constitute, in the belief of the Company and the Trust Issuer full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust Issuer is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that the Trust
Issuer will file reports, proxy statements and other information under the
Exchange Act with the Commission.
117
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PENNFED FINANCIAL SERVICES, INC.
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition at June 30, 1997 and 1996
Consolidated Statements of Income for the three years ended June 30, 1997,
1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
PennFed Financial Services, Inc. and Subsidiary
West Orange, New Jersey
We have audited the accompanying consolidated statements of financial condition
of PennFed Financial Services, Inc. and Subsidiary (the "Company") as of June
30, 1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PennFed Financial
Services, Inc. and Subsidiary as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for investments in the year ended June 30, 1995
to conform with Statement of Financial Accounting Standards No. 115.
DELOITTE & TOUCHE, LLP
PARSIPPANY, NEW JERSEY
July 31, 1997
F-2
<PAGE>
Penned Financial Services, Inc. and Subsidary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................... $ 10,729 $ 11,629
Investment securities held to maturity, at amortized cost,
market value of $35,432 and $21,502 at June 30, 1997 and 1996........................ 35,290 21,288
Mortgage-backed securities held to maturity, at amortized cost, market
value of $291,125 and $344,331 at June 30, 1997 and 1996............................. 288,539 346,068
Loans held for sale..................................................................... --- 88
Loans receivable, net of allowance for loan losses of $2,622 and
$2,630 at June 30, 1997 and 1996...................................................... 931,451 652,483
Premises and equipment, net............................................................. 16,435 16,035
Real estate owned, net.................................................................. 884 1,083
Federal Home Loan Bank of New York stock, at cost....................................... 12,413 8,052
Accrued interest receivable, net........................................................ 7,196 6,742
Goodwill and other intangible assets.................................................... 15,918 18,430
Other assets............................................................................ 2,896 4,626
---------- ----------
$1,321,751 $1,086,524
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits................................................................................ $ 918,160 $ 836,416
Federal Home Loan Bank of New York advances............................................. 205,465 105,000
Other borrowings........................................................................ 82,750 41,700
Mortgage escrow funds................................................................... 8,855 5,930
Due to banks............................................................................ 7,237 5,989
Accounts payable and other liabilities.................................................. 2,014 925
---------- ----------
Total liabilities....................................................................... 1,224,481 995,960
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE O)
Stockholders' Equity:
Serial preferred stock, $.01 par value, 7,000,000 shares authorized,
no shares issued..................................................................... --- ---
Common stock, $.01 par value, 15,000,000 shares authorized,
5,950,000 shares issued and 4,822,124 and 4,823,665 shares
outstanding at June 30, 1997 and 1996 (excluding shares held in
treasury of 1,127,876 and 1,126,335 at June 30, 1997 and 1996)...................... 60 60
Additional paid-in capital.............................................................. 57,441 57,057
Restricted stock - Management Recognition Plan.......................................... (1,062) (1,316)
Employee Stock Ownership Plan Trust debt................................................ (3,671) (4,061)
Retained earnings, partially restricted................................................. 61,051 55,172
Treasury stock, at cost, 1,127,876 and 1,126,335 shares at
June 30, 1997 and 1996................................................................ (16,549) (16,348)
Total stockholders' equity.............................................................. 97,270 90,564
---------- ----------
$1,321,751 $1,086,524
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PennFed Financial Services, Inc. and Subsidary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans................................... $ 61,768 $ 43,275 $ 34,064
Interest on federal funds sold............................... --- 1 632
Interest and dividends on investment securities.............. 1,603 2,298 1,880
Interest on mortgage-backed securities....................... 22,030 22,549 16,143
---------- ---------- ----------
85,401 68,123 52,719
---------- ---------- ----------
INTEREST EXPENSE:
Deposits..................................................... 40,172 33,601 25,631
Borrowed funds............................................... 12,901 5,520 1,522
---------- ---------- ----------
53,073 39,121 27,153
---------- ---------- ----------
Net Interest and Dividend Income Before Provision
for Loan Losses........................................... 32,328 29,002 25,566
Provision for Loan Losses.................................... 635 610 569
---------- ---------- ----------
Net Interest and Dividend Income After Provision
for Loan Losses........................................... 31,693 28,392 24,997
---------- ---------- ----------
NON-INTEREST INCOME:
Service charges.............................................. 1,666 1,602 1,476
Net gain (loss) from real estate operations.................. (181) 104 117
Net gain on sales of investment securities................... --- 94 ---
Other........................................................ 298 402 532
---------- ---------- ----------
1,783 2,202 2,125
---------- ---------- ----------
NON-INTEREST EXPENSES:
Compensation and employee benefits........................... 7,897 7,617 8,605
Net occupancy expense........................................ 1,129 1,129 1,053
Equipment.................................................... 1,580 1,580 1,568
Advertising.................................................. 326 298 273
Amortization of intangibles.................................. 2,512 2,625 1,395
Federal deposit insurance premium............................ 1,112 1,680 1,325
SAIF recapitalization assessment............................. 4,813 --- ---
Other........................................................ 3,016 2,713 3,342
---------- ---------- ----------
22,385 17,642 17,561
---------- ---------- ----------
Income Before Income Taxes................................... 11,091 12,952 9,561
Income Tax Expense........................................... 4,205 5,111 3,921
---------- ---------- ----------
Net Income................................................... $ 6,886 $ 7,841 $ 5,640
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary..................................................... 4,719,928 5,063,218 5,233,497
========== ========== ==========
Fully diluted................................................ 4,786,491 5,078,439 5,326,487
========== ========== ==========
NET INCOME PER COMMON SHARE:
Primary..................................................... $1.46 $1.55 $1.08
========== ========== ==========
Fully diluted............................................... $1.44 $1.55 $1.08
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PennFed Financial Services, Inc.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RESTRICTED EMPLOYEE UNREALIZED
STOCK- STOCK GAIN ON
SERIAL ADDITIONAL MANAGEMENT OWNERSHIP INVESTMENTS
PREFERRED COMMON PAID-IN RECOGNITION PLAN TRUST RETAINED AVAILABLE TREASURY
STOCK STOCK CAPITAL PLAN DEBT EARNINGS FOR SALE STOCK
--------- ------- -------- ----------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994......... $ --- $ --- $ --- $ --- $ --- $ 41,985 $ --- $ ---
Net proceeds from 5,950,000
shares of common stock
issued in stock conversion....... 60 56,828
Acquisition of 476,000 shares
of stock by ESOP................ (4,760)
Allocation of ESOP stock......... 337
ESOP adjustment.................. 53
Purchase of 534,000 shares of
treasury stock.................. (6,472)
Issuance of 208,845 shares of
treasury stock for MRP.......... (2,194) (292) 2,486
Amortization of MRP stock........ 440
Increase in unrealized gain on
investments available for sale.. 59
Net income for the year ended
June 30, 1995................... 5,640
---- ------ ------- ------- ------- ------- ----- ------
Balance at June 30, 1995......... --- 60 56,881 (1,754) (4,423) 47,333 59 (3,986)
Allocation of ESOP Stock......... 362
ESOP Adjustment.................. 176
Purchase of 801,860 shares of
treasury stock.................. (12,370)
Issuance of 680 shares of
treasury stock for options
exercised...................... (2) 8
Amortization of MRP stock........ 438
Decrease in unrealized gain on
investments available for sale.. (59)
Net income for the year ended
June 30, 1996................... 7,841
---- ------ ------- ------- ------- ------- ----- ------
Balance at June 30, 1996......... --- 60 57,057 (1,316) (4,061) 55,172 --- (16,348)
Allocation of ESOP stock......... 390
ESOP and MRP adjustment.......... 345
Purchase of 32,500 shares of (651)
treasury stock..................
Issuance of 1,804 shares of
treasury stock for options (20) 27
exercised and DRP..............
Issuance of 29,155 shares of
treasury stock for MRP.......... 39 (462) 423
Amortization of MRP stock........ 716
Cash dividends................... (987)
Net income for the year ended
June 30, 1997................... 6,886
---- ------ ------- ------- ------- ------- ----- ------
Balance at June 30, 1997......... $ --- $ 60 $57,441 $(1,062) $(3,671) $ 61,051 $ --- $(16,549)
==== ====== ======= ======= ======= ======= ===== ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Pennfed Financial Services, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------
1997 1996 1995
------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 6,886 $ 7,841 $ 5,640
Adjustments to reconcile net income to net cash provided by operating
activities:
Proceeds from sales of loans held for sale............................ 585 273 1,362
Originations of loans held for sale................................... (497) (361) (826)
Gain on sales of investment securities................................ --- (94) ---
Gain on sales of real estate owned.................................... (29) ( 236) (597)
Amortization of investment and mortgage-backed securities premium, net 260 415 1,268
Depreciation and amortization......................................... 1,301 1,315 1,297
Provision for losses on loans and real estate owned................... 747 618 650
Amortization of cost of stock plans................................... 1,466 978 900
Amortization of intangibles........................................... 2,512 2,625 1,395
Amortization of premiums on loans and loan fees....................... 414 371 87
Increase in accrued interest receivable, net of accrued interest
payable............................................................ (113) (835) (1,512)
(Increase) decrease in other assets................................... 1,731 (1,294) (43)
(Increase) decrease in deferred income tax asset...................... 185 (174) (261)
Increase (decrease) in accounts payable and other liabilities......... 891 (894) 866
Increase in mortgage escrow funds..................................... 2,925 1,160 946
Increase in due to banks.............................................. 1,248 2,348 468
Other, net............................................................ (2) (83) (98)
--------- --------- ---------
Net cash provided by operating activities............................. 20,510 13,973 11,542
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities..................... 16,000 6,210 13,605
Proceeds from sales of investment securities available for sale....... --- 104 ---
Purchases of investment securities held to maturity................... (30,000) (10,000) (19,746)
Net (outflow) proceeds from principal repayments of loans and loan
originations........................................................ (86,193) (55,090) (1,479)
Purchases of loans.................................................... (195,514) (132,238) (87,874)
Proceeds from principal repayments of mortgage-backed securities...... 57,266 72,028 32,013
Purchases of mortgage-backed securities............................... --- (99,085) (148,036)
Proceeds from sale of premises and equipment.......................... --- 326 ---
Purchases of premises and equipment................................... (1,701) (529) (2,159)
Proceeds from sales of real estate owned.............................. 1,806 1,868 5,008
Purchases of Federal Home Loan Bank of New York stock................. (4,361) (1,684) (1,322)
--------- --------- ---------
Net cash used in investing activities................................. (242,697) (218,090) (209,990)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of deposits, net of sale of deposits...................... --- --- 136,811
Deposit premium....................................................... --- --- (18,141)
Decrease in deposits due to conversion deposits....................... --- --- (53,780)
Net increase in deposits.............................................. 81,403 122,502 15,284
Advances from the Federal Home Loan Bank of New York and other
borrowings........................................................ 141,515 95,870 35,830
Cash dividends paid................................................... (987) --- ---
Purchases of treasury stock, net of reissuance........................ (644) (12,362) (6,472)
Net proceeds from issuance of common stock............................ --- --- 52,128
--------- --------- ---------
Net cash provided by financing activities............................. 221,287 206,010 161,660
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents.................. (900) 1,893 (36,788)
Cash and Cash Equivalents, Beginning of Year.......................... 11,629 9,736 46,524
--------- --------- ---------
Cash and Cash Equivalents, End of Year................................ $ 10,729 $ 11,629 $ 9,736
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................. $ 52,054 $ 38,731 $ 26,804
========= ========= =========
Income taxes......................................................... $ 3,504 $ 5,133 $ 4,451
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON--CASH ACTIVITIES:
Transfer of loans receivable to real estate owned, net................ $ 1,690 $ 1,540 $ 2,694
========= ========= =========
Unrealized gain on investments available for sale..................... $ --- $ (59) $ 59
========= ========= =========
Issuance of treasury stock for Management Recognition Plan............ $ 423 $ --- $ 2,486
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Pennfed Financial Services, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PennFed Financial Services, Inc. ("PennFed") was organized in March 1994 for the
purpose of becoming the savings and loan holding company for Penn Federal
Savings Bank (the "Bank") in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank (the "Conversion").
PRINCIPLES OF CONSOLIDATION --- The consolidated financial statements of PennFed
and subsidiary (together the "Company") include the accounts of PennFed and the
Bank. PennFed owns all of the outstanding stock of the Bank issued on July 14,
1994 (see Note B - Stock Conversion). All references to the Company, unless
otherwise indicated, prior to July 14, 1994, refer to the Bank and its
subsidiary on a consolidated basis. All intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant area in
the accompanying financial statements where estimates have an impact is in the
allowance for loan losses.
CASH AND CASH EQUIVALENTS --- For purposes of reporting cash flows, cash and
cash equivalents include cash and amounts due from depository institutions.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES --- In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), debt securities
classified as held to maturity are carried at amortized cost only if the
reporting entity has a positive intent and ability to hold those securities to
maturity.
The Company classifies investment securities and mortgage-backed securities as
either held to maturity or available for sale. Investment securities and
mortgage-backed securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts, since the Company has both
the ability and intent to hold the securities to maturity. Investments available
for sale are carried at market value with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity.
LOANS HELD FOR SALE --- Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Aggregate net unrealized losses are recognized in a valuation
allowance by charges to income.
LOANS RECEIVABLE --- Interest income is not accrued on loans where management
has determined that the borrowers may be unable to meet contractual principal or
interest obligations or where interest and/or principal is 90 days or more past
due. When a loan is placed on nonaccrual status, accrual of interest ceases and,
in general, uncollected past due interest (including interest applicable to
prior years, if any) is reversed and charged against current income. Therefore,
interest income is not recognized unless the financial condition and payment
record of the borrower warrant the recognition of interest income. Interest on
loans that have been restructured is generally accrued according to the
renegotiated terms.
In accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") and Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" ("SFAS 118"). The Company
accounts for impaired
F-7
<PAGE>
Pennfed Financial Services, Inc. and Subsidiary
loans, except those loans that are accounted for at fair value or at the lower
of cost or fair value, at the present value of the estimated future cash flows
of the loan discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable that all principal
and interest amounts will not be collected according to the loan contract.
Delinquent, smaller balance, homogeneous loans that are evaluated collectively
on a portfolio basis are not considered impaired under SFAS 114. The Company
generally evaluates the collectibility of consumer and one-to four-family loans
on a total portfolio basis.
ALLOWANCE FOR LOAN LOSSES --- The allowance for loan losses is established
through charges to earnings. Loan losses are charged against the allowance for
loan losses when management believes that the recovery of principal is unlikely.
If, as a result of loans charged off or increases in the size or risk
characteristics of the loan portfolio, the allowance is below the level
considered by management to be adequate to absorb future loan losses on existing
loans, the provision for loan losses is increased to the level considered
necessary to provide an adequate allowance. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the collectibility of the
loans. The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans and current economic conditions that may affect the
borrowers' ability to pay. Economic conditions may result in the necessity to
change the allowance quickly in order to react to deteriorating financial
conditions of the Company's borrowers. As a result, additional provisions on
existing loans may be required in the future if borrowers' financial conditions
deteriorate or if real estate values decline.
PREMISES AND EQUIPMENT --- Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Provisions for depreciation of
premises and equipment are computed on the straight-line method over three to
ten years for furniture and equipment and twenty-five to forty years for
buildings. Amortization of leasehold improvements is provided using the
straight-line method over the terms of the respective lease or estimated useful
life of the improvement, whichever is shorter.
REAL ESTATE OWNED --- Real estate properties acquired by foreclosure are
recorded at the lower of cost or estimated fair value less costs to dispose with
any write down charged against the allowance for loan losses. Subsequent
valuations are periodically performed by management and the carrying value is
adjusted by a charge to expense to reflect any subsequent declines in the
estimated fair value. Further declines in real estate values may result in
increased foreclosed real estate expense in the future. Routine holding costs
are charged to expense as incurred and improvements to real estate owned that
increase the fair value of the real estate are capitalized. Gains on sale of
real estate owned are generally recognized upon disposition of the property.
Losses are charged to operations as incurred.
GOODWILL --- The excess of cost over fair value of assets acquired ("goodwill")
arising from the acquisitions discussed in Note C is amortized to expense by an
accelerated method over the estimated remaining lives of long-term, interest-
bearing assets acquired (14 years) in accordance with Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions."
CORE DEPOSIT PREMIUM --- The premium resulting from the valuation of core
deposits arising from the aforementioned acquisitions is being amortized to
expense over the estimated average remaining life of the existing customer
deposit base acquired (10 years).
DUE TO BANKS --- This item represents a book overdraft relating to outstanding
checks written on the Company's Federal Home Loan Bank of New York operating
account.
INCOME TAXES --- Federal and state income taxes are based upon earnings reported
after permanent differences have been deducted. Deferred income taxes are
provided for temporary differences in the basis of assets and liabilities
between financial statement and income tax amounts.
F-8
<PAGE>
Pennfed Financial Services, Inc. and Subsidiary
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") the Company uses an asset and
liability method for financial accounting and reporting for income taxes. The
statement also requires that a deferred tax liability be recognized for any
increase in the tax bad debt reserve in excess of the reserve balance at
December 31, 1987.
EARNINGS PER SHARE --- The earnings per share computations for the years ended
June 30, 1997, 1996 and 1995 were determined by dividing net income for the
periods by the weighted average number of shares of common stock outstanding and
common stock equivalents. Stock options are regarded as common stock
equivalents and are, therefore, considered in earnings per share calculations if
dilutive. Common stock equivalents are computed using the treasury stock
method. Because earnings per share were based upon the weighted average number
of days outstanding during the period, the weighted average number of shares for
the year ended June 30, 1995 only includes shares outstanding since July 14,
1994 (the date of Conversion). The weighted average number of shares
outstanding does not include shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP"). Additionally, treasury shares are not included in the
calculation.
LOAN ORIGINATION FEES AND DISCOUNTS AND PREMIUMS --- Nonrefundable loan
origination fees net of certain direct loan origination costs are deferred. Net
deferred fees on loans held for investment are amortized into income over the
life of the related loans by use of the level-yield method. Net deferred fees on
loans originated for sale are deferred and recognized as part of the gain or
loss on sale of loans.
Discounts and premiums on investment and mortgage-backed securities and loans
purchased are recognized as income/expense over the estimated life of the asset
purchased using the level-yield method.
INTEREST RATE SWAPS --- The Company has utilized interest rate swaps as a
component of managing interest rate risk. Swap agreements are held for purposes
other than trading. The Company's swaps are considered to be matched swaps, as
they are specifically linked with a liability. Periodic net cash settlements
under swap agreements are accrued as an adjustment to interest expense over the
life of the agreements. In the event of the termination of an interest rate
swap agreement, the gain or loss would be deferred and amortized as an
adjustment to interest expense over the shorter of the remaining life of the
hedged item or the remaining contract period. In the event of liquidation of
the liability to which the interest rate swap is linked, the interest rate swap
would be recorded at its fair market value with any change in such fair market
value recorded in the period it occurs.
RECENTLY ADOPTED ACCOUNTING STANDARDS --- Effective July 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." Refer to Note M - Stock Plans for a further
discussion.
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 supersedes Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights". Under SFAS 125, after the transfer of a financial asset, the Company
recognizes the financial and servicing assets it controls and the liabilities it
has incurred. Furthermore, the Company no longer recognizes the financial
assets for which control has been surrendered and liabilities have been
extinguished. The adoption of SFAS 125 did not have an effect on the financial
condition or results of operations of the Company.
RECLASSIFICATIONS --- Certain reclassifications have been made to prior years'
financial statements to conform with current year's presentation.
B. STOCK CONVERSION
On July 14, 1994, the Bank completed the Conversion and became a wholly owned
subsidiary of PennFed, a newly formed holding company. In connection with an
initial public offering, PennFed issued 5,950,000 shares of common
F-9
<PAGE>
Penned Financial Services, Inc. and Subsidiary
stock at $10 per share ($.01 par value), increasing consolidated equity by $52.1
million, which was net of conversion expenses of approximately $2.7 million and
shares issued to the ESOP representing 8% of the shares of common stock issued.
The Bank received proceeds of $28.0 million from PennFed in exchange for all of
its common stock.
As part of the Conversion, in order to grant a priority to eligible account
holders in the event of future liquidation in accordance with Office of Thrift
Supervision ("OTS") regulations, the Company established a liquidation account
in an amount equal to $40.9 million (the retained earnings of the Bank as of
March 31, 1994). The total amount of the liquidation account will be decreased
as the balances of eligible account holders are reduced subsequent to the
Conversion. In the event of a complete liquidation of the Company, and only in
such event, eligible account holders who continue to maintain their deposit
accounts shall be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
C. BRANCH ACQUISITIONS
On March 10, 1995, the Bank acquired from the Resolution Trust Corporation
("RTC") the deposit liabilities and certain of the assets and other liabilities
of four branch offices of Carteret Federal Savings Bank, Madison, New Jersey
("Carteret"). The four Carteret branch offices were located in Caldwell,
Verona, Fairfield and Wayne, New Jersey. Immediately following the purchase,
under a pre-arranged "consortium" agreement, Atlantic Stewardship Bank of
Midland Park, New Jersey acquired from the Bank the deposit liabilities and
certain of the assets and other liabilities of the Wayne, New Jersey branch
office. In connection with this transaction, no gain or loss was recorded by
the Bank.
The Bank submitted an $18,739,000 deposit premium bid, of which $18,000,000
related to the Caldwell, Verona and Fairfield branches. In addition to the
$18,000,000 deposit premium, the Bank also capitalized $141,000 of expenses
reflecting a total deposit premium intangible asset of $18,141,000.
The Company acquired Sayreville Savings and Loan Association effective September
1982 and First Federal Savings and Loan Association of Montclair effective
September 1989. The acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to assets and liabilities
acquired based on their fair value at their date of acquisition. For each of the
years ended June 30, 1997, 1996 and 1995, the effect of the amortization of
goodwill was to reduce income before income taxes by approximately $496,000,
$609,000 and $739,000, respectively.
F-10
<PAGE>
PennFed Finanacial Services, Inc. and Subsidiary
D. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------------------- -------------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
----------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and Government Agencies:
Maturing:
Within one year..................................... $ 4,999 $ 5,055 $ 5,999 $ 6,054
After one year but within five years................ --- --- 14,998 15,129
After five years but within ten years............... 30,000 30,070 --- ---
------- ------- ------- -------
34,999 35,125 20,997 21,183
Obligations of states and political subdivisions:
Maturing:
After one year but within five years................ 101 102 101 103
After five years but within ten years............... 190 205 190 216
------- ------- ------- -------
291 307 291 319
------- ------- ------- -------
$35,290 $35,432 $21,288 $21,502
======= ======= ======= =======
</TABLE>
Gross unrealized gains of investment securities at June 30, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
U.S. Treasury and Government Agencies............................................. $ 125 $ 186
Obligations of states and political subdivisions.................................. 17 28
----- -----
$ 142 $ 214
===== =====
</TABLE>
There were no gross unrealized losses of investment securities at June 30, 1997
or 1996.
For the year ended June 30, 1996, sales of investment securities with a cost
basis of $10,000 generated gross gains of $94,000. There were no sales of
investment securities for the years ended June 30, 1997 and 1995.
E. MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1997 1996
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Government National Mortgage Association.................................... $ 3,993 $ 4,904
Federal Home Loan Mortgage Corporation...................................... 184,028 221,777
Federal National Mortgage Association....................................... 98,684 115,896
Collateralized Mortgage Obligations/REMICs.................................. 938 1,348
Private Pass-through Securities............................................. --- 984
-------- --------
287,643 344,909
Unamortized premiums, net................................................... 896 1,159
-------- --------
$288,539 $346,068
======== ========
</TABLE>
F-11
<PAGE>
PennFed Financial Services, Inc. and Subsidiary
The estimated market values of mortgage-backed securities were $291,125,000 and
$344,331,000 at June 30, 1997 and 1996, respectively. There were no sales of
mortgage-backed securities in the years ended June 30, 1997, 1996 and 1995.
The carrying value of mortgage-backed securities pledged were as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1997 1996
---------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Pledged to secure:
Federal Home Loan Bank of New York Advances................................... $ 72,004 $ ---
Other borrowings.............................................................. 41,566 ---
Interest rate swap agreements................................................. 1,789 401
Public funds on deposit....................................................... 384 482
-------- -----
$115,743 $ 883
======== =====
</TABLE>
Collateralized mortgage obligations consist primarily of fixed and adjustable
rate sequentially paying securities with short durations.
The gross unrealized gains and losses of mortgage-backed securities held at June
30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
---------------------- ------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
------------ ----------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Government National Mortgage Association............... $ 214 $ --- $ 189 $ 1
Federal Home Loan Mortgage Corporation................. 2,604 965 1,401 2,846
Federal National Mortgage Association.................. 1,225 492 967 1,513
Collateralized Mortgage Obligations/REMICs............. 3 3 3 9
Private Pass-through Securities........................ --- --- 72 ---
------ ------ ------ ------
$4,046 $1,460 $2,632 $4,369
====== ====== ====== ======
</TABLE>
F-12
<PAGE>
Pennfed Financial Services, Inc. And Subsidiary
F. LOANS RECEIVABLE, NET
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1997 1996
------------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
First Mortgage Loans:
Conventional............................................................. $824,100 $561,526
FHA insured.............................................................. 6,046 2,226
VA guaranteed............................................................ 1,697 2,172
-------- --------
Total one- to four-family................................................. 831,843 565,924
Commercial and multi-family............................................... 56,811 52,014
-------- --------
Total first mortgage loans............................................... 888,654 617,938
-------- --------
Consumer:
Second mortgages........................................................ 23,665 23,912
Home equity lines of credit............................................. 14,040 8,955
Other................................................................... 2,512 2,117
-------- --------
Total consumer loans...................................................... 40,217 34,984
-------- --------
Total loans............................................................... 928,871 652,922
-------- --------
Add (Less):
Allowance for loan losses................................................. (2,622) (2,630)
Unamortized premium....................................................... 3,610 2,036
Unearned income on consumer loans......................................... (36) (249)
Net deferred loan fees.................................................... 1,628 492
-------- --------
2,580 (351)
-------- --------
$931,451 $652,571
======== ========
</TABLE>
At June 30, 1997, there were no loans classified as held for sale. Conventional
one- to four-family mortgage loans at June 30, 1996 included $88,000 of
mortgages held for sale. At June 30, 1996, the Company had a commitment to sell
these loans.
Non-accruing loans at June 30, 1997 and 1996 were $5,485,000 and $6,186,000,
respectively, which represents 0.59% and 0.95%, respectively, of total loans
outstanding. The total interest income that would have been recorded for the
years ended June 30, 1997 and 1996, had these loans been current in accordance
with their original terms, or since the date of origination if outstanding for
only part of the year, was approximately $139,000 and $229,000, respectively.
At June 30, 1997 and 1996, impaired loans totaled $1,687,000 and $2,381,000,
respectively. The average balance of impaired loans for the years ended June
30, 1997 and 1996 was $2,255,000 and $3,755,000, respectively. All impaired
loans have a related allowance for losses, which totaled $460,000 and $617,000
at June 30, 1997 and 1996, respectively. Interest income related to impaired
loans is recognized under the cash-basis method. Interest income recognized on
impaired loans for the years ended June 30, 1997 and 1996 was $120,000 and
$190,000, respectively. Total interest income that would have been recorded for
the years ended June 30, 1997 and 1996, had these loans been current in
accordance with their loan terms, was approximately $303,000 and $315,000,
respectively.
The Company has restructured the terms of certain loans. Those loans, considered
to be troubled debt restructurings, had a balance of $1,451,000 and $2,340,000
at June 30, 1997 and 1996, respectively. The interest earned on restructured
loans that are performing in accordance with their modified terms amounted to
$210,000 and $214,000 for the years ended June 30, 1997 and 1996, respectively.
These loans would have earned $263,000 and $399,000 for the years ended June 30,
1997 and 1996, respectively, had they performed in accordance with their
original terms.
F-13
<PAGE>
Pennfed Financial Services, Inc. and Subsidiary
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------
1997 1996 1995
----------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year........................................ $2,630 $2,860 $3,060
Provisions for losses on loans.................................... 635 610 569
Recoveries........................................................ 42 101 ---
Losses charged to allowance....................................... (685) (941) (769)
------ ------ ------
Balance, end of year.............................................. $2,622 $2,630 $2,860
====== ====== ======
</TABLE>
The Company's loan portfolio consists primarily of loans secured by residential
and commercial real estate located in its market areas. Therefore, the
collectibility of these loans is dependent to a large degree on the overall
strength of the New Jersey economy, as well as the specific strength of the real
estate sector.
At June 30, 1997 and 1996, commercial and multi-family real estate loans totaled
$56,811,000 and $52,014,000, respectively. These loans are considered by
management to be of somewhat greater risk of collectibility due to their
dependency on income production. Commercial and multi-family real estate loans
collateralized by multi-family mixed use properties were $25,114,000 and
$19,639,000 at June 30, 1997 and 1996, respectively. The remaining commercial
real estate loans were collateralized by commercial properties. Additionally,
the majority of the Company's commercial and multi-family real estate loans were
collateralized by real estate in the State of New Jersey.
Loans serviced for others totaled approximately $78,781,000 and $89,170,000 at
June 30, 1997 and 1996, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors and certain charges assessed to borrowers, such as late payment fees.
In connection with these loans serviced for others, the Company held borrowers
escrow balances of $926,000 and $976,000 at June 30, 1997 and 1996,
respectively.
G. PREMISES AND EQUIPMENT, NET
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1997 1996
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Land......................................................................... $ 3,709 $ 3,340
Buildings and improvements................................................... 13,510 12,715
Leasehold improvements....................................................... 1,219 1,218
Furniture and equipment...................................................... 8,194 7,660
------- -------
26,632 24,933
Less: accumulated depreciation and amortization.............................. 10,197 8,898
------- -------
$16,435 $16,035
======= =======
</TABLE>
H. REAL ESTATE OWNED
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1997 1996
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Acquired by foreclosure or deed in lieu of foreclosure....................... $ 986 $ 1,144
Allowance for losses on real estate owned.................................... (102) (61)
------- -------
$ 884 $ 1,083
======= =======
</TABLE>
F-14
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
Results of real estate operations were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain on sales of real estate owned................................ $ 29 $ 236 $ 597
Holding costs......................................................... (98) (124) (399)
Provision for losses on real estate owned............................. (112) (8) (81)
----- ---- ----
Net gain (loss) from real estate operations........................... $( 181) $ 104 $ 117
===== ==== ====
Activity in the allowance for losses on real estate owned was as follows:
JUNE 30,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............................................ $ 61 $ 177 $ 220
Provisions charged to operations...................................... 112 8 81
Losses charged to allowance........................................... (71) (124) (124)
--- ---- ====
Balance, end of year.................................................. $102 $ 61 $ 177
=== ==== ====
</TABLE>
I. DEPOSITS
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
--------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
------------ ------------ ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-interest-bearing demand.................................. $ 31,203 $ 35,485
Interest-bearing demand...................................... 51,159 1.88% 46,645 1.93%
Savings accounts............................................. 169,823 2.22 178,035 2.28
Certificates with remaining maturities of :
One year or less............................................. 395,101 5.50 389,366 5.22
Over one to three years...................................... 214,792 6.17 99,087 5.76
Over three years to five years............................... 53,831 6.16 85,923 6.53
Over five years.............................................. 94 6.90 59 4.43
-------- --------
Total certificates........................................... 663,818 5.77 574,435 5.65
Accrued interest payable..................................... 2,157 1,816
-------- --------
$918,160 4.68% $836,416 4.48%
======== ==== ======== ====
</TABLE>
The aggregate amount of accounts with a denomination of $100,000 or more was
approximately $96,822,000 and $51,107,000 at June 30, 1997 and 1996,
respectively.
F-15
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
J. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank of New York ("FHLB of New York") advances are scheduled
to mature as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One to two years................ $ 85,000 5.99% $ 40,000 5.53%
Three to four years............. 90,000 6.17 65,000 6.17
Four to five years.............. 30,000 6.42 --- ---
Over five years................. 465 7.39 --- ---
-------- --------
$205,465 $105,000
======== ========
</TABLE>
The FHLB of New York advances are all fixed rate borrowings collateralized
either under a blanket pledge agreement by one- to four-family mortgage loans or
with mortgage-backed securities.
At June 30, 1997, the Company had available from the FHLB of New York a line of
credit for $50,000,000 which expires on May 1, 1998. The line of credit has a
variable interest rate. At June 30, 1997 and 1996, the Company had $32,650,000
and $36,700,000 of overnight borrowings under this credit line with an interest
rate of 6.63% and 5.69%, respectively. Also at June 30, 1997, the Company had
available from the FHLB of New York a one-month overnight repricing line of
credit for $50,000,000 which expires on May 1, 1998. This line of credit has a
variable interest rate. At June 30, 1997, the Company had $10,000,000 drawn
under this line of credit with an interest rate of 6.38%.
From time to time, the Company enters into sales of securities under agreements
to repurchase ("reverse repurchase agreements"). These agreements are accounted
for as financing arrangements and the obligations to repurchase securities sold
are reflected as other borrowings in the accompanying consolidated statements of
financial condition. The reverse repurchase agreements are collateralized by
mortgage-backed securities which continue to be carried as assets by the
Company, with a carrying value of $41,566,000 and a market value of $41,762,000.
At June 30, 1996, there were no reverse repurchase agreements outstanding. At
June 30, 1997, reverse repurchase agreements are scheduled to mature as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
AMOUNT RATE
------------- ------------
<S> <C> <C>
Within one year............................... $30,100,000 5.74%
After one year but within five years.......... 10,000,000 6.24%
-----------
$40,100,000 5.86%
===========
</TABLE>
The average balance of reverse repurchase agreements for the years ended June
30, 1997 and 1996 was $29,661,000 and $2,604,000, respectively.
F-16
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
K. PENSION PLAN
The Company previously had a noncontributory defined benefit pension plan (the
"Pension Plan") covering substantially all of its employees. Effective July 3,
1995, the Company terminated its Pension Plan. Service benefits ceased on May
19, 1995. In addition to the net pension expense in fiscal 1995, the Company
recognized a loss in fiscal 1995 of approximately $470,000 reflecting the
termination of the Pension Plan in accordance with Statement of Financial
Accounting Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits."
Pension expense for the year ended June 30, 1995 was $243,000, and consisted of
the following components:
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------
(IN THOUSANDS)
<S> <C>
Service cost benefits earned during the period............... $161
Interest cost on projected benefit obligations............... 101
Actual return on Pension Plan assets......................... (82)
Net amortization and deferral of unrecognized net gain....... 63
----
Net periodic pension cost.................................... $243
====
</TABLE>
L. INCENTIVE SAVINGS PLAN
The Company's employee benefits include a 401(k) Plan (the "Plan"). All
employees of the Company who work at least 1,000 hours per year and are at least
20 1/2 years old are eligible to participate in the Plan. The Plan provides for
a discretionary Company match of employee contributions. For the years ended
June 30, 1997, 1996 and 1995, expense related to the Plan was $78,000, $70,000,
and $120,000, respectively.
M. STOCK PLANS
Employee Stock Ownership Plan ("ESOP")
In connection with the Conversion, the Company established an ESOP for eligible
employees. All full-time employees are eligible to participate in the ESOP
after they attain age 21 and complete one year of service during which they work
at least 1,000 hours. Employees were credited for years of service to the
Company prior to the adoption of the ESOP for participation and vesting
purposes. The Bank's contribution is allocated among participants on the basis
of compensation. Each participant's account will be credited with cash or
shares of the Company's common stock based upon compensation earned during the
year with respect to which the contribution is made. After completing seven
years of service, a participant will be 100% vested in his/her ESOP account.
ESOP participants are entitled to receive distributions from the ESOP account
only upon termination of service, which includes retirement and death.
The ESOP borrowed $4,760,000 from PennFed and purchased 476,000 shares of common
stock issued in the Conversion. This loan is to be repaid from discretionary
contributions by the Bank to the ESOP trust. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt, assuming a ten year term and an interest rate
of 7.46%. Annual contributions to the ESOP, which are used to fund principal
and interest payments on the ESOP debt, total $692,000. At June 30, 1997 and
1996, the loan had an outstanding balance of $3,671,000 and $4,061,000 and the
ESOP had unallocated shares of 367,138 and 406,065, respectively. Based upon a
$27.25 closing price per share of common stock on June 30, 1997, the unallocated
shares had a fair value of $10,005,000. The unamortized balance of the ESOP
debt is reflected as a reduction of stockholders' equity.
For the years ended June 30, 1997 and 1996, the Bank recorded compensation
expense related to the ESOP of $740,000 and $544,000, respectively. The
compensation expense related to the ESOP includes $433,000 and $175,000,
respectively, for a valuation adjustment to reflect the increase in the average
fair value of allocated shares for the period from the time of purchase to the
allocation date. The ESOP allocated 38,927 and 36,225 shares for the years
ended June 30, 1997 and 1996, respectively, to participants in the plan.
F-17
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
Management Recognition Plan
In connection with the Conversion, the Company established a Management
Recognition Plan ("MRP") as a means of enhancing and encouraging the recruitment
and retention of directors and officers. A maximum amount of an additional 4%,
or 238,000 shares, of the shares outstanding upon Conversion may be awarded
under the plan. As of June 30, 1997, 238,000 shares of restricted stock have
been awarded under the MRP. The shares vest in equal installments generally
over a five-year period, with the final installment vesting on April 28, 1999.
For the years ended June 30, 1997 and 1996, the Company recorded expense of
$732,000 and $440,000, respectively, related to the MRP.
Stock Option Plan
In connection with the Conversion, the Company established the 1994 Stock Option
and Incentive Plan ("Option Plan"). The exercise price for the options granted
under the Option Plan cannot be less than the fair market value of the Company's
common stock on the date of the grant. The options vest in equal installments
generally over a five-year period, with the final installment vesting on April
28, 1999. Transactions during the years ended June 30, 1997, 1996 and 1995
relating to the Option Plan are as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE
----------- -------------
<S> <C> <C>
Balance, June 30, 1994.............................. ---
Granted........................................... 513,225 $10.50
Exercised......................................... ---
Expired........................................... ---
Forfeited......................................... ---
-------
Balance, June 30, 1995.............................. 513,225 10.50
Granted........................................... ---
Exercised......................................... (680) 10.50
Expired........................................... (1,300) 10.50
Forfeited......................................... (5,520) 10.50
-------
Balance, June 30, 1996.............................. 505,725 10.50
Granted........................................... 62,475 15.88
Exercised......................................... (700) 10.50
Expired........................................... ---
Forfeited......................................... (300) 10.50
-------
Balance, June 30, 1997.............................. 567,200 $10.50 to $15.88
</TABLE>
At June 30, 1997, 1996 and 1995, 339,880 options, 201,930 options and 102,645
options were exercisable, respectively.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), if fully adopted, requires companies to measure
employee stock compensation plans based on the fair value method of accounting.
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, the Company continues to apply Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its plans. In accordance with APB 25, no
compensation expense has been recognized for its stock-based compensation plans
other than for restricted stock. Proforma disclosures as if the Company fully
adopted the cost recognition requirements under SFAS 123 are presented below.
The estimated fair value of each stock option granted during fiscal 1997 is
estimated as $2.28 on the date of grant using the simple Black-Scholes option-
pricing model with the following assumptions: stock volatility of 15.91%, risk-
free interest rate of 6.50%, and an expected life of 8 years. Had compensation
cost for the fiscal 1997 grants been determined based upon the fair value at the
grant date been determined consistent with the methodology prescribed under SFAS
123, the Company's pro forma net income and primary earnings per share would
have been approximately $6.8 million and $1.44, respectively. As the SFAS 123
method of accounting has not been applied to stock options granted prior to July
1, 1996, the resulting proforma effect on net income for fiscal 1997 is not
representative of the proforma effect on net income in future years.
F-18
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
N. INCOME TAXES
Savings banks that meet certain definitions, tests and other conditions
prescribed by the Internal Revenue Code are allowed to deduct, with limitations,
a bad debt deduction. This deduction is computed as a percentage of taxable
income before such deduction or based upon actual loss experience. During fiscal
1997, the Company's bad debt deduction was based upon actual loss experience.
During the fiscal years 1996 and 1995, the Company employed the percentage of
taxable income method.
On August 20, 1996 legislation was signed into law which repealed the percentage
of taxable income method for tax bad debt deduction. This repeal is effective
for the Company's taxable year beginning July 1, 1996. In addition, the
legislation requires the Company to include in taxable income its tax bad debt
reserves in excess of its base year reserves over a six, seven, or eight year
period, depending upon the attainment of certain loan origination levels. Since
the percentage of taxable income method for tax bad debt deduction and the
corresponding increase in the tax bad debt reserve in excess of the base year
have been recorded as temporary differences pursuant to SFAS 109, this change in
the tax law had no effect on the Company's statement of operations.
The income tax provision is comprised of the following components:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision.................... $4,020 $5,285 $4,183
Deferred provision (benefit)......... 185 (174) (262)
------- ------- -------
Total income tax provision........... $4,205 $5,111 $3,921
======= ======= =======
</TABLE>
Income taxes payable is included in accounts payable and other liabilities in
the consolidated statements of financial condition at June 30, 1997. The
financial statements also include a net deferred tax asset of $97,000 that has
been recorded for the temporary differences between the tax basis and the
financial statement carrying amounts of assets and liabilities. The source of
these temporary differences and their deferred tax effect at June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses......................... $ 182 $ 214
Litigation reserves............................... 47 89
Deposit premium intangible........................ 503 279
MRP expense....................................... 229 189
Depreciation...................................... 363 245
------ ------
Total deferred tax assets.......................... 1,324 1,016
------ ------
Deferred tax liabilities:
Deferred loan fees................................ 882 271
Loan sale premiums................................ 18 21
Purchase accounting............................... 327 442
------ ------
Total deferred tax liabilities..................... 1,227 734
------ ------
Net deferred tax asset............................. $ 97 $ 282
====== ======
</TABLE>
F-19
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
A reconciliation of the statutory income tax provision to the effective income
tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision at statutory rate (35% for 1997
and 1996 and 34% for 1995)................................. $3,882 $4,533 $3,346
Amortization of intangibles................................. 174 213 259
State and local tax provision............................... 214 262 200
Tax bracket rate differential............................... --- (24) (80)
Other, net.................................................. (65) 127 196
------ ------ ------
Total income tax provision $4,205 $5,111 $3,921
====== ====== ======
</TABLE>
Pursuant to SFAS 109, the Company is not required to provide deferred taxes on
its tax loan loss reserve as of December 31, 1987. The amount of this reserve on
which no deferred taxes have been provided is approximately $16,300,000. This
reserve could be recognized as taxable income and create a current and/or
deferred tax liability using the income tax rates then in effect if one of the
following occur: (1) the Company's retained earnings represented by this reserve
are used for dividends or distributions in liquidation or for any other purpose
other than to absorb losses from bad debts, (2) the Company fails to qualify as
a Bank, as provided by the Internal Revenue Code, or (3) there is a change in
federal tax law.
O. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS --- At June 30, 1997, minimum rental commitments under all
noncancellable operating leases with initial or remaining terms of more than one
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, MINIMUM RENT
------------------------------- ----------------
(IN THOUSANDS)
<S> <C>
1998........................... $157
1999........................... 137
2000........................... 71
2001........................... 38
2002........................... 40
2003 and later................. 57
----
$500
====
</TABLE>
Rentals under long-term operating leases for certain branch offices amounted to
$169,000, $176,000 and $189,000 for the years ended June 30, 1997, 1996 and
1995, respectively. Rental income of $452,000, $481,000 and $420,000 for the
years ended June 30, 1997, 1996 and 1995, respectively, is netted against
occupancy expense in the consolidated statements of income.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK --- The Company is a party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments are not recorded on the balance sheet when either the exchange of
the underlying asset or liability has not yet occurred or the notional amounts
are used solely as a means to determine the cash flows to be exchanged. These
financial instruments are commitments to extend credit, unused lines of credit,
commitments to purchase loans and interest rate swaps. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
F-20
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
The following summarizes the notional amount of off-balance sheet financial
instruments:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit.............. $ 9,692 $28,834
Unused lines of credit.................... 17,366 10,813
Commitments to purchase loans............. 32,660 59,046
Interest rate swaps....................... 70,000 20,000
</TABLE>
Commitments to extend credit and unused lines of credit are legally binding
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments and lines of credit generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained by the Company upon
extension of credit is based on management's credit evaluation of the borrower.
Collateral held varies but may include mortgages on commercial and residential
real estate and other tangible properties.
Commitments to purchase loans represent agreements to purchase loans through
correspondent relationships established by the Company with other institutions.
The Company purchased newly originated one- to four-family residential mortgages
secured by properties located in the State of New Jersey and, to a lesser
extent, the Commonwealth of Pennsylvania. Prior to purchase, the Company
underwrites these loans in the same manner used in its own originations.
The Company periodically enters into interest rate swap agreements to help
reduce certain interest rate exposure on a portion of the short-term deposits.
Interest rate swaps are contractual agreements between two parties to exchange
interest payments at particular intervals, computed on different terms, on a
specified notional amount. The notional amounts represent the base on which
interest due each counter party is calculated and do not represent the potential
for gains or losses associated with the market risk or credit risk of such
transactions. At June 30, 1997, the Company had $70 million in notional amount
interest rate swap agreements outstanding on which the Company pays a fixed
interest rate ranging from 6.25% to 6.71% and receives a floating interest rate,
based on three-month LIBOR, from the counter parties, which are nationally
recognized investment firms. At June 30, 1997, three-month LIBOR was 5.78%.
The average balance of notional amount interest rate swap agreements in fiscal
1997 and 1996 was $52,356,000 and $658,000, respectively. Included in interest
expense for the year ended June 30, 1997 and 1996 was $459,000 and $8,000,
respectively, of expense related to interest rate swap agreements. Mortgage-
backed securities with a carrying value of $1,789,000 and $401,000 at June 30,
1997 and 1996, respectively, were pledged to secure these agreements. The
interest rate swap agreements mature between June 18, 1999 and March 21, 2002.
OTHER CONTINGENCIES --- The Company is a defendant in certain claims and legal
actions arising in the ordinary course of business. Management does not
anticipate losses on any of these claims or actions which would have a material
adverse effect on the accompanying consolidated financial statements.
P. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
During the year ended June 30, 1997, the Company repurchased 32,500 shares of
its outstanding common stock. The prices paid for the repurchased shares ranged
from $20.00 to $20.19 per share, for a total cost of $651,000. During the year
ended June 30, 1996, the Company repurchased 801,860 shares of its outstanding
common stock at prices ranging from $14.63 to $16.00 per share, for a total cost
of $12,370,000. During the year ended June 30, 1995, the Company repurchased
534,000 shares of its outstanding common stock at prices ranging from $11.63 to
$12.31 per share for a total cost of $6,472,000. On April 28, 1995, 208,845
shares were reissued to the participants of the Company's Management Recognition
Plan.
On March 21, 1996, the Board of Directors of the Company (the "Board") adopted a
Stockholder Protection Rights Plan and declared a dividend of one common share
purchase right ("Right") for each share of common stock of the Company
outstanding on April 1, 1996. Until it is announced that a person or group has
acquired 10% or more of the outstanding common stock of the Company ("Acquiring
Person") or has commenced a tender offer that could result in such person
F-21
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
or group owning 10% or more of such common stock, the Rights will initially be
redeemable for $0.01 each, will be evidenced solely by the Company's common
stock certificates, will automatically trade with the Company's common stock and
will not be exercisable. Following any such announcement, separate Rights
certificates would be distributed, with each Right entitling its holder to
purchase one share of the Company's common stock for an exercise price of $60.
Upon announcement that any person or group has become an Acquiring Person and
unless the Board acts to redeem the Rights, then ten business days after such
announcement (the "Flip-in Date"), each Right (other than Rights beneficially
owned by any Acquiring Person or transferee thereof, which Rights become void)
will entitle the holder to purchase, for the $60 exercise price, a number of
shares of the Company's common stock having an aggregate market value of $120.
In addition, if, after the Acquiring Person gains control of the Board, the
Company is involved in a merger with any person or sells more than 50% of its
assets or earning power to any person (or has entered into an agreement to do
either of the foregoing), and, in the case of a merger, an Acquiring Person will
receive different treatment than other stockholders, each Right will entitle its
holder to purchase, for the $60 exercise price, a number of shares of common
stock of such other person having an aggregate market value of $120. If any
person or group acquires between 10% and 50% of the Company's common stock, the
Board may, at its option, require the Rights to be exchanged for common stock
of the Company. The Rights generally may be redeemed by the Board for $0.01 per
Right prior to the Flip-in Date.
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements could result in certain mandatory and possible discretionary
actions by the OTS that, if undertaken, could have a direct material effect on
the Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
quantitative capital guidelines.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of tangible capital of
not less than 1.5% of tangible assets, core capital of not less than 3% of
adjusted tangible assets and risk-based capital of not less than 8% of risk-
weighted assets. As of June 30, 1997, the Bank meets all capital adequacy
requirements to which it is subject.
As of its last regulatory examination the Bank was categorized as "well
capitalized" under the prompt corrective action framework. To be considered as
"well capitalized", the Bank must maintain a core capital ratio of not less than
5% and a risk-based capital ratio of not less than 10%. There are no conditions
or events since that notification that management believes have changed the
Bank's category.
The Bank's capital amounts and ratios are presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Tangible capital.......................... $73,470 5.61% $19,658 1.50% N/A N/A
Core capital.............................. $73,907 5.64% $52,440 4.00% $65,550 5.00%
Risk-based capital........................ $75,929 12.22% $49,702 8.00% $62,127 10.00%
As of June 30, 1996
Tangible capital.......................... $63,980 5.92% $16,216 1.50% N/A N/A
Core capital.............................. $64,619 5.97% $32,451 3.00% $54,086 5.00%
Risk-based capital........................ $66,730 13.47% $39,622 8.00% $49,528 10.00%
</TABLE>
In August 1993, the OTS adopted a regulation requiring that an amount be added
to an institution's risk-based capital requirement equal to 50% of the decline
in market value of portfolio equity ("MVPE") that exceeds 2% of the
institution's assets, under a hypothetical 200 basis points shock in interest
rates. MVPE is defined as the market value of assets, less the market value of
liabilities, plus or minus the market value of off-balance sheet items. At the
present time, the OTS has indefinitely postponed the effective date of the rule.
However, if the regulation had been in effect at June 30, 1997, the Bank would
still have exceeded its risk-based capital requirement.
F-22
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
The Bank's management believes that, with respect to regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable future.
However, events beyond the control of the Bank, such as increased interest rates
or a further downturn in the economy in areas where the Bank has most of its
loans, could adversely affect future earnings and, consequently, the ability of
the Bank to meet its future minimum capital requirements.
The previous table reflects information for the Bank. Savings and loan holding
companies, such as the Company, are not subject to capital requirements for
capital adequacy purposes or for prompt corrective action requirements. Bank
holding companies, however, are subject to such capital requirements. The
following summarizes the Company's regulatory capital position under Bank
holding company requirements.
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity.............................. $ 97,270
Less: Goodwill.................................... (1,421)
Deposit premium intangible.................. (14,497)
----------
Tangible capital, and ratio to adjusted
total assets.................................... $ 81,352 6.23% $19,826 1.50%
========== ======
Add: Qualifying intangible assets................. $ 438
----------
Tier 1(core) capital, and ratio to
adjusted total assets........................... $ 81,790 6.26% $39,175 3.00% $66,088 5.00%
========== ====== ======
Tier 1 (core) capital, and ratio to risk-
weighted assets.................................. $ 81,790 13.26% $24,673 4.00% $37,010 6.00%
========== ====== ======
Less: Equity investments and
investments in real estate...................... $ (50)
Add: Allowance for loan losses.................... 2,073
----------
Total risk-based capital, and ratio to
risk-weighted assets........................... $ 83,813 13.59% $49,346 8.00% $61,683 10.00%
========== ====== ======
Total assets...................................... $1,321,751
==========
Adjusted total assets............................. $1,305,833
==========
Risk-weighted assets.............................. $ 616,827
==========
</TABLE>
Federal regulations impose certain limitations on the payment of dividends and
other capital distributions by the Bank. Under current regulations, savings
institutions, such as the Bank, that meet the fully phased-in capital
requirements, as defined, subsequent to a capital distribution are generally
permitted to make such capital distribution without OTS approval, so long as
they have not been notified of the need from more than normal supervision by the
OTS. The Bank has not been so notified and, therefore, may make capital
distributions during a calendar year equal to 100% of net income plus 50% of the
amount by which the lesser of the association's tangible, core or risk-based
capital exceeds its fully phased-in capital requirement for such capital
component, as measured at the beginning of the calendar year. At June 30, 1997,
the Bank could have paid dividends totaling approximately $16.6 million.
F-23
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
Q. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair value of the Company's financial
instruments at June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.................................... $ 10,729 $ 10,729 $ 11,629 $ 11,629
Investment securities........................................ 35,290 35,432 21,288 21,502
Mortgage-backed securities................................... 288,539 291,125 346,068 344,331
FHLB of New York stock....................................... 12,413 12,413 8,052 8,052
---------- ---------- ---------- ----------
Total cash and investments................................... 346,971 349,699 387,037 385,514
Loans held for sale.......................................... --- --- 88 88
Loans receivable, less allowance for loan losses............. 931,451 923,822 652,483 643,560
---------- ---------- ---------- ----------
Total loans.................................................. 931,451 923,822 652,571 643,648
Accrued interest receivable, net............................. 7,196 7,196 6,742 6,742
---------- ---------- ---------- ----------
Total financial assets....................................... $1,285,618 $1,280,717 $1,046,350 $1,035,904
========== ========== ========== ==========
Financial liabilities:
Deposits..................................................... $ 918,160 $ 919,385 $ 836,416 $ 837,587
FHLB of New York advances.................................... 205,465 205,919 105,000 103,856
Other borrowings............................................. 82,750 82,671 41,700 41,700
Mortgage escrow funds........................................ 8,855 8,855 5,930 5,930
Due to banks................................................. 7,237 7,237 5,989 5,989
---------- ---------- ---------- ----------
Total financial liabilities.................................. $1,222,467 $1,224,067 $ 995,035 $ 995,062
========== ========== ========== ==========
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------------------- -------------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Off-balance sheet financial instruments:
Commitments to extend credit.................................. $ 9,692 $ --- $ 28,834 $ ---
Unused lines of credit........................................ 17,366 --- 10,813 ---
Commitments to purchase loans................................. 32,660 --- 59,046 ---
Interest rate swaps........................................... 70,000 169 20,000 138
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate fair
value:
CASH AND CASH EQUIVALENTS --- For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES --- For these securities,
fair values are based on quoted market prices.
FEDERAL HOME LOAN BANK OF NEW YORK STOCK ---For this security, the carrying
amount, which is par, is a reasonable estimate of fair value. All transactions
in the capital stock of the FHLB of New York are executed at par.
LOANS HELD FOR SALE --- Fair value is based on the contractual sales price.
LOANS RECEIVABLE --- Fair values are estimated for portfolios of loans with
similar financial characteristics. The total loan portfolio is first divided
into performing, held for sale and non-performing categories. Performing loans
are then segregated into adjustable and fixed-rate interest terms. Fixed rate
loans are segmented by type, such as residential real estate mortgage, non-
residential, commercial real estate and consumer loans. Residential loans are
further segmented by maturity.
For loans, fair value is calculated by discounting scheduled future cash flows
through estimated maturity using a discount rate equivalent to the rate at which
the Company would currently make loans which are similar with regard to
collateral, maturity and type of borrower. The discounted value of the cash
flows is reduced by a credit risk adjustment based on internal loan
classifications. Based on the current
F-24
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
composition of the Company's loan portfolio, as well as both past experience and
current economic conditions and trends, future cash flows are adjusted by
prepayment assumptions which shorten the estimated remaining time to maturity
and, therefore, impact the fair market valuation.
ACCRUED INTEREST RECEIVABLE, NET --- For these short-term assets, the carrying
amount is a reasonable estimate of fair value.
DEPOSITS --- The fair value of deposits with no stated maturity, such as
savings, money market and other demand accounts, is equal to the amount payable
on demand as of June 30, 1997 and 1996. Time deposits are segregated by type and
original term. The fair value of time deposits is based on the discounted value
of contractual cash flows. The discount rate is equivalent to the rate currently
offered by the Company for deposits of similar type and maturity.
FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES --- The fair value of FHLB of New
York advances is based on the discounted value of contractual cash flows. The
discount rate is equivalent to the rate currently offered by the FHLB of New
York on borrowings of similar type and maturity.
OTHER BORROWINGS --- For these short-term borrowings, the carrying amount is a
reasonable estimate of fair value.
MORTGAGE ESCROW FUNDS AND DUE TO BANKS --- For these short-term liabilities, the
carrying amount is a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT --- No fair value is estimated for commitments to
extend credit since the fees collected on these commitments approximates the
amount of costs incurred.
UNUSED LINES OF CREDIT --- No estimated fair value is presented for unused lines
of credit because the rates associated with these lines are market rates.
COMMITMENTS TO PURCHASE LOANS --- No fair value is estimated due to the short-
term nature of these commitments.
INTEREST RATE SWAPS --- For this off-balance sheet financial instrument, fair
value represents the amount the Company would have to pay to terminate the
agreements based upon quoted market prices as provided by financial institutions
which are counter parties to the agreements.
R. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company at times has made loans to and
engaged in other financial transactions with its directors, officers and
employees. Such transactions are generally made on substantially the same terms
as those prevailing at the time for comparable transactions with others and do
not involve more than normal risk of collectibility.
The following sets forth an analysis of loans, all of which are current, to
directors, officers and employees:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year............. $3,260 $3,193
New loans granted...................... 1,178 789
Repayments/reductions.................. (568) (722)
------ ------
Balance, end of year................... $3,870 $3,260
====== ======
</TABLE>
In addition to the above amount of loans, at June 30, 1997 and 1996, there was
$33,000 and $720 of outstandings on overdraft checking lines for directors,
officers and employees, respectively.
S. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings
per share ("EPS"), simplifying the standards previously found in APB Opinion No.
15, "Earnings Per Share." The current presentation of primary EPS is replaced
with a presentation of basic EPS. Dual presentation of basic and diluted EPS
will be required on the face of the income statement as well as a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. SFAS
128 is effective for financial statements issued for
F-25
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
periods ending after December 15, 1997, including interim periods. The adoption
of SFAS 128 is not expected to have a material effect on the Company's financial
condition or results of operations.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards to reporting and display
of comprehensive income and its components. SFAS 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will be required
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of financial condition. SFAS 130 is effective for
fiscal years beginning after December 15, 1997, with reclassification of earlier
periods. The adoption of SFAS 130 is not expected to have a material effect on
the Company's financial condition or results of operations.
T. CONDENSED FINANCIAL INFORMATION OF PENNFED FINANCIAL SERVICES, INC. (PARENT
COMPANY ONLY)
The following are the condensed financial statements for PennFed, parent company
only, as of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996
and 1995 and should be read in conjunction with the Notes to Consolidated
Financial Statements. PennFed had no results of operations prior to the
Conversion on July 14, 1994 (See Note B).
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
Cash...................................... $ 27 $ 26
Intercompany overnight investment......... 8,628 8,729
------- -------
Total cash and cash equivalents......... 8,655 8,755
Investment in subsidiary bank............. 89,388 82,418
Intercompany receivable................... --- 2
------- -------
$98,043 $91,175
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities.... $ 776 $ 611
Stockholders' equity...................... 97,267 90,564
------- -------
$98,043 $91,175
======= =======
</TABLE>
F-26
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Interest income on intercompany balances............................. $ 755 $ 1,210 $ 1,305
Interest income on investment securities............................. --- --- 246
------- ------- -------
755 1,210 1,551
EXPENSES:
Other................................................................ 346 374 386
------- ------- -------
Income before undistributed net income of subsidiary bank............ 409 836 1,165
Equity in undistributed net income of subsidiary bank................ 6,625 7,310 4,894
------- ------- -------
Income before income taxes........................................... 7,034 8,146 6,059
Income tax expense................................................... 148 305 419
------- ------- -------
NET INCOME........................................................... $ 6,886 $ 7,841 $ 5,640
======= ======= =======
</TABLE>
F-27
<PAGE>
Pennfed Financial Services, Inc. And Subsidiary
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 6,886 $ 7,841 $ 5,640
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiary bank................. (6,625) (7,310) (4,894)
Amortization of investment securities discount........................ --- --- (246)
Amortization of cost of stock plans................................... 716 438 440
(Increase) decrease in other assets................................... (1) 142 (144)
Increase in other liabilities......................................... 165 212 397
------- -------- --------
Net cash provided by operating activities........................... 1,141 1,323 1,193
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiary bank.......................................... --- --- (28,000)
Proceeds from maturities of investment securities....................... --- --- 10,000
Purchase of investment securities....................................... --- --- (9,754)
ESOP loan............................................................... --- --- (4,760)
Proceeds from principal repayment on ESOP loan.......................... 390 362 337
------- -------- --------
Net cash provided by (used in) investing activities................. 390 362 (32,177)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock.......................... --- --- 56,888
Purchases of treasury stock, net of re-issuance......................... (644) (12,362) (6,472)
Payment of cash dividends............................................... (987) --- ---
------- -------- --------
Net cash provided by (used in) financing activities................. (1,631) (12,362) 50,416
------- -------- --------
Net increase (decrease) in cash and cash equivalents.................... (100) (10,677) 19,432
Cash and cash equivalents, beginning of year............................ 8,755 19,432 ---
------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.................................. $ 8,655 $ 8,755 $ 19,432
======= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes........................................................ $ 131 $ 363 $ 229
======= ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Issuance of treasury stock for MRP.................................... $ 423 $ --- $ 2,486
======= ======== ========
</TABLE>
F-28
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
U. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
1996 1997
--------------------------------- ---------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
---------------- --------------- ---------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income............................. $19,716 $20,979 $22,001 $22,705
Total interest expense............................ 11,830 12,971 13,697 14,575
------- ------- ------- -------
Net interest income............................... 7,886 8,008 8,304 8,130
Provision for loan losses......................... 175 152 154 154
Non-interest income............................... 409 405 469 500
Non-interest expenses............................. 9,235 4,381 4,403 4,366
Income tax expense (benefit)...................... (346) 1,482 1,590 1,479
------- ------- ------- -------
Net income (loss).............................. $ (769) $ 2,398 $ 2,626 $ 2,631
======= ======= ======= =======
Net income (loss) per common share:
Primary......................................... $ (0.17) $ 0.51 $ 0.55 $ 0.57
======= ======= ======= =======
Fully diluted................................... $ (0.17) $ 0.51 $ 0.55 $ 0.55
======= ======= ======= =======
QUARTER ENDED
-----------------------------------------------------------------------
1996 1997
--------------------------------- ---------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
---------------- --------------- ---------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income............................. $15,369 $16,612 $17,504 $18,638
Total interest expense............................ 8,768 9,477 10,000 10,876
------- ------- ------- -------
Net interest income............................... 6,601 7,135 7,504 7,762
Provision for loan losses......................... 110 150 150 200
Non-interest income............................... 564 584 507 547
Non-interest expenses............................. 4,337 4,411 4,537 4,357
Income tax expense................................ 1,070 1,242 1,304 1,495
------- ------- ------- -------
Net income..................................... $ 1,648 $ 1,916 $ 2,020 $ 2,257
======= ======= ======= =======
Net income per common share:
Primary......................................... $ 0.31 $ 0.37 $ 0.40 $ 0.47
======= ======= ======= =======
Fully diluted................................... $ 0.31 $ 0.37 $ 0.40 $ 0.47
======= ======= ======= =======
</TABLE>
F-29
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company, the Trust Issuer or
the Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................ 1
PennFed Financial Services, Inc.................... 1
Summary Consolidated Financial Information
and Other Data................................... 10
Risk Factors....................................... 12
Use of Proceeds.................................... 23
Market for the Preferred Securities................ 23
Accounting Treatment............................... 23
Capitalization..................................... 24
Management's Discussion and Analysis of
June 30, 1997 Operating Results and
Financial Information........................... 25
Business........................................... 41
Regulation......................................... 64
Management......................................... 76
Description of the Preferred Securities............ 78
Description of the Junior Subordinated
Debentures...................................... 93
Description of the Guarantee....................... 105
Relationship Among the Preferred Securities,
the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee...................... 108
Certain Federal Income Tax Consequences............ 110
ERISA Considerations............................... 114
Underwriting....................................... 114
Validity of Securities............................. 116
Experts............................................ 116
Available Information.............................. 116
Index to Financial Statements and Schedule......... F-1
</TABLE>
Logo
$30,000,000
PENNFED CAPITAL TRUST I
__% Trust Preferred Securities
(Liquidation Amount
$25 per Preferred Security)
Guaranteed, as Described Herein, by
PENNFED FINANCIAL SERVICES, INC.
PROSPECTUS
__________, 1997
RYAN, BECK & CO.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The expenses in connection with the offering of the securities to which
this Registration Statement relates which will be borne by PennFed Financial
Services, Inc., are as set forth below. With the exception of the Securities and
Exchange Commission ("SEC") and National Association of Securities Dealers, Inc.
filing fees, all amounts shown are estimates.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee............ $ 10,455
NASD filing fee................. $ 3,950
Nasdaq listing fee.............. $ 11,900
Trustee fees and expenses....... $ 10,000
Legal fees and expenses......... $250,000
Accounting fees and expenses.... $ 50,000
Printing and mailing expenses... $ 75,000
Blue Sky fees and expenses...... $ 10,000
Miscellaneous................... $ 10,000
TOTAL........................ $431,305
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
-----------------------------------------
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such
<PAGE>
persons are made, or threatened to be made, parties to certain proceedings by
reason of such status, against judgments, fines, settlements and expenses,
including attorneys' fees; and under certain circumstances, such persons may be
indemnified against expenses actually and reasonably incurred in connection with
the defense or settlement of a proceeding by or in the right of such other
corporation or enterprise. Indemnification is permitted where such person (i)
was acting in good faith; (ii) was acting in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation or other
corporation or enterprise, as appropriate; (iii) with respect to a criminal
proceeding, has no reasonable cause to believe his conduct was unlawful; and
(iv) was not adjudged to be liable to the corporation or other corporation or
enterprise (unless the court where the proceeding was brought determines that
such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may
be made (i) by the Board of Directors of the Holding Company by a majority vote
of a quorum consisting of directors not at the time parties to such proceeding;
or (ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
PennFed Financial Services, Inc. has purchased director and officer
liability insurance that insures directors and officers against liabilities in
connection with the performance of their duties.
Under the Trust Agreement of the Trust Issuer, PennFed Financial Services,
Inc. will agree to indemnify each of the Trustees of the Trust Issuer or any
predecessor trustee for the Trust Issuer, and to hold harmless against, any
loss, damage, claim, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties under the Trust Agreement.
<PAGE>
Item 16. Exhibits.
--------
The following is a list of Exhibits to this Registration Statement:
<TABLE>
<CAPTION>
REFERENCE TO
REGULATION PRIOR FILING
S-K OR EXHIBIT
EXHIBIT NUMBER
NUMBER DOCUMENT ATTACHED HERETO
- ---------- ------------------------------------------------ -----------------
<S> <C> <C>
1 Form of Underwriting Agreement. 1
2 Plan of acquisition, reorganization, arrangement, None
liquidation or succession.
3.1 Certificate of Incorporation of PennFed Financial *
Services, Inc.
3.2 Bylaws of PennFed Financial Services, Inc. *
4.1 Stockholder Protection Rights Agreement. ***
4.2 Form of Indenture with respect to PennFed Financial 4.2
Services, Inc.'s ____% Junior Subordinated Debentures.
4.3 Form of Specimen __% Junior Subordinated Deferrable 4.3
Interest Debenture (included as an exhibit to the Form
of Indenture filed as Exhibit 4.2).
4.4 Certificate of Trust of PennFed Capital Trust I 4.4
(included
as an exhibit to the Form of Amended and Restated Trust
Agreement filed as Exhibit 4.6).
4.5 Trust Agreement of PennFed Capital Trust I. 4.5
4.6 Form of Amended and Restated Trust Agreement 4.6
of PennFed Capital Trust I.
4.7 Form of Certificate for ___% Trust Preferred Security 4.7
of PennFed Capital Trust I (included as an exhibit to
Exhibit 4.6).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFERENCE TO
REGULATION PRIOR FILING
S-K OR EXHIBIT
EXHIBIT NUMBER
NUMBER DOCUMENT ATTACHED HERETO
- ---------- ------------------------------------------------ -----------------
<S> <C> <C>
4.8 Form of Guarantee Agreement for PennFed Capital 4.8
Trust I.
4.9 Form of Agreement as to Expenses and Liabilities 4.9
(included as an exhibit to Exhibit 4.6)
5.1 Opinion of Silver, Freedman & Taff, L.L.P. as to the *****
validity of the Guarantee and the issuance of the __%
Junior Subordinated Deferrable Interest Debentures to be
issued by PennFed Capital Trust I.
5.2 Opinion of Richards, Layton & Finger, special Delaware *****
counsel, as to the enforceability of the Trust Agreement
and Trust Preferred Securities to be issued by PennFed
Capital Trust I.
8.1 Tax Opinion of Silver, Freedman & Taff, L.L.P. *****
10 Material contracts:
(a) Employee Stock Ownership Plan *
(b) 1995 Stock Option and Incentive Plan *
(c) Management Recognition Plan *
(d) Employment Agreement with Joseph L. LaMonica **
(e) Employment Agreement with Patrick D. McTernan **
(f) Employment Agreement with Lucy T. Tinker **
11 Statement re: computation of per share earnings ****
12.1 Statements re: calculation of ratios 12.1
13 Annual Report to security holders Not applicable
15 Letter re: unaudited interim financial information Not applicable
16 Letter re: change in certifying accountant Not applicable
23.1 Consent of Deloitte & Touche, LLP 23.1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFERENCE TO
REGULATION PRIOR FILING
S-K OR EXHIBIT
EXHIBIT NUMBER
NUMBER DOCUMENT ATTACHED HERETO
- ---------- ------------------------------------------------ -----------------
<S> <C> <C>
23.2 Consent of Silver, Freedman & Taff, L.L.P. (set forth in 23.2
Exhibit 5.1 to this Registration Statement).
23.3 Consent of Richards, Layton & Finger (included in 23.3
Exhibit 5.2 to this Registration Statement).
24.1 Power of attorney (set forth on the signature page in Not applicable
Part II of this Registration Statement).
25.1 Form T-1: Statement of Eligibility of The Bank of New 25.1
York to act as trustee under the Indenture.
25.2 Form T-1: Statement of Eligibility of The Bank of New 25.2
York to act as trustee under the Amended and Restated
Trust Agreement.
25.3 Form T-1: Statement of Eligibility of The Bank of New 25.3
York to act as trustee under the Guarantee Agreement for
PennFed Capital Trust I.
26 Invitation for competitive bids. Not applicable
27 Financial Data Schedule ****
99 Additional Exhibits. Not applicable
</TABLE>
__________________
* Filed as exhibits to the Company's Registration Statement on Form S-1
under the Securities Act of 1933, filed with the Securities and Exchange
Commission on March 25, 1995 (Registration No. 33-76854). All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
** Filed as exhibits to the Company's Form 10-K under the Securities Act of
1934, filed with Securities and Exchange Commission on September 27, 1995.
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.
<PAGE>
*** Filed as an exhibit to the Company's Registration Statement on Form 8-A
under the Securities Act of 1934, filed with the Securities and Exchange
Commission on March 28, 1996. This document is hereby incorporated by
reference in accordance with Item 601 of Regulation S-K.
**** Filed as an exhibit to the Company's Form 10-K under the Security Act of
1934, filed with the Securities and Exchange Commission on September __,
1997. All of such previously filed documents are hereby incorporated by
reference in accordance with Item 601 of Regulation S-K.
***** To be filed by amendment.
<PAGE>
Item 17. Undertakings.
------------
Each of the undersigned Registrants hereby undertakes:
(a) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of Penn Federal's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants pursuant to Item 15 of this Registration Statement,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c)(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424 (b) (1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PennFed
Financial Services, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-2 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Orange, State of New Jersey on
September 18, 1997.
PENNFED FINANCIAL SERVICES, INC.
By: /s/ Joseph L. LaMonica
--------------------------------------
Joseph L. LaMonica
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, PennFed Capital
Trust I certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be filed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Orange, State of New Jersey on September 18,
1997.
PENNFED CAPITAL TRUST I
By: PENNFED FINANCIAL SERVICES, INC.,
as Depositor
By:/s/ Joseph L. LaMonica
------------------------------------
Joseph L. LaMonica
President, Chief Executive Officer
and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph L. LaMonica and Patrick D. McTernan his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement and to
file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
thereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on September 18, 1997 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ Joseph L. LaMonica By: /s/ William C. Anderson
----------------------------------------------- -------------------------------
Joseph L. LaMonica William C. Anderson
President, Chief Executive Officer and Director Chairman of the Board
(Principal Executive Officer)
Date: September 18, 1997 Date: September 18, 1997
By: /s/ Patrick D. McTernan By: /s/ Amadeu L. Carvallo
----------------------------------------------- -------------------------------
Patrick D. McTernan Amadeu L. Carvallo
Executive Vice President, General Counsel, Director
Secretary and Director
Date: September 18, 1997 Date: September 18, 1997
By: /s/ Marvin D. Schoonover By: /s/ Mario Teixeira, Jr.
----------------------------------------------- -------------------------------
Marvin D. Schoonover Mario Teixeira, Jr.
Director Director
Date: September 18, 1997 Date: September 18, 1997
By: /s/ Lucy T. Tinker By: /s/ Jeffrey J. Carfora
----------------------------------------------- -------------------------------
Lucy T. Tinker Jeffrey J. Carfora
Executive Vice President and Senior Vice President and
Chief Operating Officer Chief Financial Officer
(Principal Financial Officer) (Principal Accounting Officer)
Date: September 18, 1997 Date: September 18, 1997
</TABLE>
<PAGE>
PENN FED FINANCIAL SERVICE, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
REFERENCE TO
PRIOR FILING
OR EXHIBIT
EXHIBIT NO. DOCUMENT NUMBER
- --------------- ------------------------------------------------------- ----------------
<S> <C> <C>
1 Form of Underwriting Agreement. 1
4.2 Form of Indenture with respect to PennFed Financial 4.2
Services, Inc.'s ____% Junior Subordinated Debentures.
4.3 Form of Specimen __% Junior Subordinated Deferrable
Interest Debenture (included as an exhibit to the Form
of Indenture filed as Exhibit 4.2).
4.4 Certificate of Trust of PennFed Capital Trust I
(included as an exhibit to the Form of Amended
and Restated Trust Agreement filed as Exhibit 4.6).
4.5 Trust Agreement of PennFed Capital Trust I. 4.5
4.6 Form of Amended and Restated Trust Agreement 4.6
of PennFed Capital Trust I.
4.7 Form of Certificate for ___% Trust Preferred Security of
PennFed Capital Trust I (included as an exhibit to
Exhibit 4.6)
4.8 Form of Guarantee Agreement for PennFed Capital Trust 4.8
I.
4.9 Form of Agreement as to Expenses and Liabilities
(included as an exhibit to Exhibit 4.6)
12.1 Statements re: calculation of ratios. 12.1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFERENCE TO
PRIOR FILING
OR EXHIBIT
EXHIBIT NO. DOCUMENT NUMBER
- --------------- ------------------------------------------------------- ----------------
<S> <C> <C>
23.1 Consent of Deloitte & Touche, LLP. 23.1
25.1 Form T-1: Statement of Eligibility of The Bank of New 25.1
York to act as trustee under the Indenture.
25.2 Form T-1: Statement of Eligibility of The Bank of New 25.2
York to act as trustee under the Amended and Restated
Trust Agreement.
25.3 Form T-1: Statement of Eligibility of The Bank of New 25.3
York to act as trustee under the Guarantee Agreement for
PennFed Capital Trust I.
</TABLE>
<PAGE>
PENNFED CAPITAL TRUST I
(a Delaware business trust)
1,200,000 Preferred Securities
_____% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Preferred Security)
UNDERWRITING AGREEMENT
----------------------
________ __, 1997
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Ladies and Gentlemen:
PennFed Capital Trust I (the "Trust"), a statutory business trust
organized under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12, of the Delaware Business Code, 12 Del. C.
Section 3801 et seq.), and PennFed Financial Services, Inc., a New Jersey
corporation (the "Company"), as depositor of the Trust and as guarantor
(hereafter the Trust and the Company are referred to collectively as the
"Offerors"), hereby confirm their agreement (the "Agreement") with Ryan Beck &
Co., Inc. ("You" or the "Underwriter"), with respect to the issue and sale by
the Trust and the purchase by the Underwriter of 1,200,000 (the "Initial
Securities") of the Trust's ____% Cumulative Trust Preferred Securities (the
"Preferred Securities"). The Trust and the Company also propose to issue and
sell to the Underwriter, at the Underwriter's option, up to an additional
180,000 Preferred Securities (the "Option Securities") as set forth herein. The
term "Preferred Securities" as used herein, unless indicated otherwise, shall
mean the Initial Securities and the Option Securities.
The Preferred Securities and the Common Securities (as defined herein)
are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement dated as of ______, 1997 (the "Trust Agreement"), among the Offerors,
The Bank of New York ("Trust Company"), a New York banking corporation, as
property trustee ("Property Trustee"), and The Bank of New York
<PAGE>
(Delaware), as Delaware trustee ("Delaware Trustee"), and Lucy T. Tinker and
Jeffrey J. Carfora (the "Administrators" and, together with the Property Trustee
and the Delaware Trustee, the "Trustees") and the holders from time to time of
undivided interests in the assets of the Trust. The Preferred Securities will be
guaranteed by the Company, on a subordinated basis and subject to certain
limitations, with respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to the Guarantee Agreement
dated as of ________, 1997 (the "Guarantee Agreement"), between the Company and
the Trust Company, as guarantee trustee (the "Guarantee Trustee"). The assets of
the Trust will consist of ___% junior subordinated debentures due _______, 2027
(the "Junior Subordinated Debentures") of the Company which will be issued under
the Indenture dated as of ____ __, 1997 (the "Indenture"), between the Company
and the Trust Company, as trustee (the "Indenture Trustee"). Under certain
circumstances, the Junior Subordinated Debentures will be distributable to the
holders of undivided beneficial interests in the assets of the Trust. The entire
proceeds from the sale of the Preferred Securities will be combined with the
entire proceeds from the sale by the Trust to the Company of the Trust's common
securities (the "Common Securities"), and will be used by the Trust to purchase
an equivalent amount of the Junior Subordinated Debentures.
The initial public offering price for the Preferred Securities, the
purchase price to be paid by the Underwriter for the Preferred Securities, the
commission per Preferred Security to be paid by the Company to the Underwriters
and the rate of interest to be paid on the Preferred Securities shall be agreed
upon by the Company and the Underwriter, and such agreement shall be set forth
in a separate written instrument substantially in the form of Exhibit A hereto
(the "Price Determination Agreement"). The Price Determination Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company and the Underwriter and shall specify such applicable
information as is indicated in Exhibit A hereto. Such Price Determination
Agreement shall be executed no later than 5:30 p.m. on the first business day
following the date hereof. The offering of the Preferred Securities will be
governed by this Agreement, as supplemented by the Price Determination
Agreement. From and after the date of the execution and delivery of the Price
Determination Agreement, this Agreement shall be deemed to incorporate, and all
references herein to "this Agreement" shall be deemed to include, the Price
Determination Agreement.
The Offerors have prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (File Nos.
333-______ and 333-_________) for the registration of the Preferred Securities,
the Guarantee and the Junior Subordinated Debentures under the Securities Act of
1933, as amended (the "1933 Act"), including the related preliminary prospectus
or prospectuses, and, if such registration statement has not become effective,
the Company will prepare and file, prior to the effective date of such
registration statement, an amendment to such registration statement, including a
final prospectus. Each prospectus used before the time such registration
statement becomes effective is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and the documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, at the time
2
<PAGE>
it becomes effective, is herein called the "Registration Statement," and the
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-2 under the 1933 Act, included in the Registration
Statement at the time it becomes effective is herein called the "Prospectus"
except that, if any revised prospectus provided to the Underwriter by the
Company for use in connection with the offering of the Preferred Securities
differs from the prospectus included in the Registration Statement at the time
it becomes effective (whether or not such prospectus is required to be filed
pursuant to Rule 424(b)), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first furnished to the Underwriter for
such use.
The Company understands that the Underwriter proposes to make a public
offering of the Preferred Securities (the "Offering") as soon as possible after
the Registration Statement becomes effective. The Underwriter may assemble and
manage a selling group of broker-dealers that are members of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
solicitation of purchase orders for the Preferred Securities under the form of a
master selected dealer agreement or similar form of dealer agreement, which the
Underwriter has entered into with such broker dealers.
Section 1. Representations and Warranties.
------------------------------
(a) The Offerors jointly and severally represent and warrant to and
agree with the Underwriter that:
(i) The Company meets the requirements for use of Form S-2 under the
1933 Act and when the Registration Statement on such form shall become
effective and at the Closing Time referred to below and, with respect to
Option Securities, on the Date of Delivery referred to below, (A) the
Registration Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the 1933 Act and
the rules and regulations of the Commission under the 1933 Act (the "1933
Act Regulations"); (B) neither the Registration Statement nor any amendment
or supplement thereto will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (C) neither the Prospectus nor any
amendment or supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that none of the representations and
warranties in this Section 1(a)(i)(B) & (C) shall apply to statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Offerors by the Underwriter expressly for use
in the Registration Statement or the Prospectus, [or any information
contained in any Form T-1 which is an exhibit to the Registration
Statement.] The statements contained under the caption "Underwriting" in
the Registration Statement or the Prospectus constitute the only
information furnished to the
3
<PAGE>
Offerors in writing by the Underwriter expressly for use in the
Registration Statement or the Prospectus.
(ii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-2 under the 1933 Act, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations of the Commission thereunder (the
"1934 Act Regulations") and, when read together and with the other
information in the Prospectus, at the time the Registration Statement
becomes effective and at all times subsequent thereto up to the Closing
Time, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading, in each case after excluding
any statement that does not constitute a part of the Registration Statement
or the Prospectus pursuant to Rule 412 of the 1933 Act Regulations.
(iii) Deloitte & Touche LLP, who are reporting upon the audited
financial statements included or incorporated by reference in the
Registration Statement, are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed and delivered
by the Offerors and, when duly executed by the Underwriter, will constitute
the valid and binding agreement of the Offerors enforceable against the
Offerors in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, or reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The Guarantee Agreement, the Junior
Subordinated Debentures, the Trust Agreement and the Indenture have each
been duly authorized by the Company and when validly executed and delivered
by the Company and, in the case of the Guarantee, by the Guarantee Trustee,
in the case of the Trust Agreement, by the Trustees, and in the case of the
Indenture, by the Indenture Trustee, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
respective terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, or reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or general equitable
principles; the Junior Subordinated Debentures are entitled to the benefits
of the Indenture; and the Guarantee Agreement, the Junior Subordinated
Debentures, the Trust Agreement and the Indenture conform, in all material
respects, to the descriptions thereof in the Prospectus. The Trust
Agreement, the Guarantee Agreement, and the Indenture have been duly
qualified under the Trust Indenture Act of 1939, amended (the "TIA").
(v) The consolidated financial statements, audited and unaudited
(including the Notes thereto), included or incorporated by reference in the
Registration Statement present fairly the consolidated financial position
of the Company and its subsidiaries as of the dates
4
<PAGE>
indicated therein and the consolidated statements of income and cash flows
of the Company and its subsidiaries for the periods specified therein. Such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved, except as otherwise stated therein. The financial
statement schedules, if any, included in the Registration Statement present
fairly the information required to be stated therein. The selected
financial, pro forma and statistical data included in the Prospectus are
accurate in all material respects and present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited consolidated financial statements included or incorporated by
reference in the Registration Statement.
(vi) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware with corporate power and
authority under such laws to own, lease and operate its properties and
conduct its business as described in the Prospectus. The Company is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs, assets
or business prospects of the Company and its subsidiaries, considered as
one enterprise.
(vii) The Company is duly registered as a savings and loan holding
company under the Home Owners' Loan Act of 1936, as amended ("HOLA"); each
subsidiary of the Company that conducts business as a bank is duly
authorized to conduct such business in each jurisdiction in which such
business is currently conducted, except to the extent that the failure to
be so authorized would not have a material adverse effect on the Company
and its subsidiaries, considered as one enterprise; and the deposit
accounts of Penn Federal Savings Bank (the "Bank") are insured by the
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") up to the maximum allowable limits thereof. The
Offerors have all such power, authority, authorization, approvals and
orders as may be required to enter into this Agreement, to carry out the
provisions and conditions hereof and to issue and sell the Preferred
Securities.
(viii) The Bank is a national banking association duly organized,
validly existing and in good standing under the laws of the United States
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business; the Bank is duly qualified
to transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good standing
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise. All of the
outstanding shares
5
<PAGE>
of capital stock of the Bank have been duly authorized and validly issued
and are fully paid and non-assessable and are owned by the Company
directly, free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind.
(ix) Except for the Bank and __________________, the Company does not
have any "significant subsidiaries" as defined in Rule 1-02 of Regulation
S-X under the 1933 Act.
(x) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization"; the capital stock of the Company, and the Subordinated
Debentures conform in all material respects to the description thereof
contained or incorporated by reference in the Prospectus and such
description conforms to the rights set forth in the instruments defining
the same.
(xi) The Preferred Securities have been duly and validly authorized by
the Trust for issuance and sale to the Underwriter pursuant to this
Agreement and, when executed and authenticated in accordance with the terms
of the Trust Agreement and delivered by the Trust to the Underwriter
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued and fully paid and non-assessable. The
Trust Agreement has been duly authorized by the Trust and, when executed by
the Property Trustee and the Administrators of the Trust and delivered by
the Trust, will have been duly executed and delivered by the Trust and will
constitute the valid and legally binding instrument of the Trust,
enforceable in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting enforcement of creditors' rights generally or
by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law). The Preferred Securities
conform, in all material respects, to the statements relating thereto
contained in the Prospectus and such description conforms, in all material
respects, to the rights set forth in the instruments defining the same; the
holders of the Preferred Securities (the "Security holders") will be
entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware; and the issuance of the Preferred
Securities is not subject to the preemptive or other similar rights of any
security holder of the Company.
(xii) The Common Securities have been duly and validly authorized by
the Trust and upon delivery by the Trust to the Company against payment
therefor as described in the Prospectus, will be duly and validly issued
and fully paid undivided beneficial interests in the assets of the Trust
and will conform, in all material respects, to the description thereof
contained in the Prospectus and such description conforms, in all material
respects, to the rights set forth in the instruments defining the same; the
issuance of the Common Securities is not subject to preemptive or other
similar rights; and at the Closing Time, all of the issued and outstanding
Common Securities of the Trust will be directly owned by the Company free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
6
<PAGE>
(xiii) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware Act with the
power and authority to own, lease and operate its properties and conduct
its business as described in the Prospectus, and the Trust has conducted no
business to date, and it will conduct no business in the future that would
be inconsistent with the description of the Trust set forth in the
Prospectus; the Trust is not a party to or bound by any agreement or
instrument other than this Agreement, the Trust Agreement and the
agreements and instruments contemplated by the Trust Agreement or described
in the Prospectus; the Trust has no liabilities or obligations other than
those arising out of the transactions contemplated by this Agreement and
the Trust Agreement and described in the Prospectus; and the Trust is not a
party to or subject to any action, suit or proceeding of any nature.
(xiv) The issuance and sale of the Preferred Securities and the
Common Securities by the Trust, the compliance by the Trust with all of the
provisions of this Agreement, the purchase of the Junior Subordinated
Debentures by the Trust, and the consummation of the transactions herein
contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, loan
agreement, mortgage, deed of trust or other agreement or instrument to
which the Trust is a party or by which the Trust is bound or to which any
of the property or assets of the Trust is subject, nor will such action
result in any violation by the Trust of the provisions of the Trust
Agreement or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Trust or any of
its properties, except in any case for such conflicts, breaches, defaults
or violations that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise; and no consent, approval, authorization, order, license,
certificate, permit, registration or qualification of or with any such
court or other governmental agency or body is required to be obtained by
the Trust for the issue and sale of the Preferred Securities and the Common
Securities by the Trust, the purchase of the Junior Subordinated Debentures
by the Trust or the consummation by the Trust of the transactions
contemplated by this Agreement and the Trust Agreement, except for such
consents, approvals, authorizations, licenses, certificates, permits,
registrations or qualifications as have already been obtained, or as may be
required under the 1933 Act or the 1933 Act Regulations, 1934 Act or 1934
Act Regulations, state securities laws or under the TIA.
The issuance by the Company of the Guarantee and the Junior
Subordinated Debentures, the compliance by the Company with all of the
provisions of this Agreement, the execution, delivery and performance by
the Company of the Trust Agreement, the Junior Subordinated Debentures, the
Guarantee Agreement and the Indenture, and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, loan agreement,
mortgage, deed of trust, or other material
7
<PAGE>
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the property or assets of the Company
is subject, nor will such action result in any violation by the Company of
the provisions of the Articles of Incorporation or by-laws of the Company
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties, except in any case for such conflicts, breaches, defaults
or violations that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise; and no consent, approval, authorization, order, license,
certificate, permit, registration or qualification of or with any such
court or other governmental agency or body is required to be obtained by
the Company for the issue of the Guarantee and the Junior Subordinated
Debentures or the consummation by the Company of the other transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations, licenses, certificates, permits, registrations or
qualifications as have already been obtained, or as may be required under
the 1933 Act or the 1933 Act Regulations, 1934 Act or 1934 Act Regulations,
state securities laws or under the TIA.
(xv) The Trust is not, and after giving effect to the offering and
sale of the Preferred Securities will not be, an "investment company," or
an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xvi) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable, and none of the outstanding shares of capital stock was issued
in violation of the preemptive rights of any stockholder of the Company.
(xvii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business, (B)
any transaction entered into by the Company or any subsidiary, other than
in the ordinary course of business, that is material to the Company and its
subsidiaries, considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by the Company on its
capital stock, excluding the regular quarterly dividend paid on its common
stock. Neither the Company nor the Bank has any material liability of any
nature, contingent or otherwise, except as set forth in the Prospectus.
(xviii) Neither the Company nor the Bank is in violation of any
provision of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan
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agreement, note, lease or other agreement or instrument to which it is a
party or by which it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its subsidiaries,
considered as one enterprise.
(xix) Except as disclosed in the Prospectus, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, domestic or foreign, now pending or, to the knowledge of the
Company, threatened against the Company or the Bank that is required to be
disclosed in the Prospectus or that could reasonably be expected to result
in any material adverse change in the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and
its subsidiaries, considered as one enterprise, or that could reasonably be
expected to materially and adversely affect the properties or assets of the
Company and its subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the consummation
of the transactions contemplated in this Agreement; all pending legal or
governmental proceedings to which the Company or the Bank is a party that
are not described in the Prospectus, including ordinary routine litigation
incidental to its business, if decided in a manner adverse to the Company,
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries, considered as one enterprise.
(xx) There are no material contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described and filed as required.
(xxi) The Company and the Bank each has good and marketable title to
all properties and assets described in the Prospectus as owned by it, free
and clear of all liens, charges, encumbrances or restrictions, except such
as (A) are described in the Prospectus or (B) are neither material in
amount nor materially significant in relation to the business of the
Company and its subsidiaries, considered as one enterprise; all of the
leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company or
the Bank holds properties described in the Prospectus, are in full force
and effect, and neither the Company nor the Bank has any notice of any
material claim that has been asserted by anyone adverse to the rights of
the Company or the Bank under any of the leases or subleases mentioned
above, or affecting or questioning the rights of such corporation to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xxii) Each of the Company and the Bank owns, possesses or has
obtained all material governmental licenses, permits, certificates,
consents, orders, approvals and other authorizations necessary to own or
lease, as the case may be, and to operate its properties and
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to carry on its business as presently conducted, and neither the Company
nor the Bank has received any notice of any restriction upon, or any notice
of proceedings relating to revocation or modification of, any such
licenses, permits, certificates, consents, orders, approvals or
authorizations.
(xxiii) Except as disclosed in the Prospectus, no labor problem
exists with the employees of the Company or with employees of the Bank or,
to the best knowledge of the Company, is imminent that could, materially
adversely affect the Company and its subsidiaries, considered as one
enterprise, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or the Bank's principal
suppliers, contractors or customers that could reasonably be expected to
materially adversely affect the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
subsidiaries, considered as one enterprise.
(xxiv) There are no persons with registration or other similar rights
to have any securities of the Company registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxv) Except as disclosed in the Prospectus, the Company and the Bank
own or possess all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets or other unpatented and/or
unpatentable proprietary or confidential information systems or
procedures), trademarks, servicemarks and tradenames (collectively, "patent
and proprietary rights") currently employed by them in connection with the
business now operated by them except where the failure to so own, possess
or acquire such patent and proprietary rights would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries considered as one enterprise, and neither the Company nor the
Bank has received any notice nor is otherwise aware of any infringement of
or conflict with asserted rights of others with respect to any patent or
proprietary rights, and which infringement or conflict (if the subject of
any unfavorable decision, rule and refinement, singly or in the aggregate)
could reasonably be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs, assets or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xxvi) The Company and each subsidiary of the Company have filed all
Federal, state and local income, franchise or other tax returns required to
be filed and have made timely payments of all taxes due and payable in
respect of indicated by such returns and no material deficiency has been
asserted with respect thereto by any taxing authority.
(xxvii) The Company has filed with NASD all documents and notices
required by NASD of companies that have issued securities that are traded
in the over-the-counter market
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and quotations for which are reported by the Nasdaq National Market of the
Nasdaq Stock Market, Inc. ("Nasdaq Stock Market").
(xxviii) Neither the Trust nor the Company or any Subsidiary has
taken or will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation, under the Exchange Act or
otherwise, of the price of the Preferred Securities.
(xxix) Neither the Company nor the Bank is or has been (by virtue of
any action, omission to act, contract to which it is a party or by which it
is bound, or any occurrence or state of facts whatsoever) in violation of
any applicable Federal, state, municipal, or local statutes, laws,
ordinances, rules, regulations and/or orders issued pursuant to foreign,
federal, state, municipal, or local statutes, laws, ordinances, rules, or
regulations (including those relating to any aspect of banking, bank
holding companies, environmental protection, occupational safety and
health, and equal employment practices) heretofore or currently in effect,
except such violation that has been fully cured or satisfied without
recourse or that is not reasonably likely to have a material adverse effect
on the Company or the Bank.
(xxx) The Company and the Bank have no agreement or understanding
with any entity concerning the future acquisition by the Company or the
Bank of a controlling interest in any entity that is required by the 1933
Act or the 1933 Act Regulations to be disclosed by the Company that is not
disclosed in the Prospectus; the Company and the Bank have no agreement or
understanding with any entity concerning the future acquisition of a
controlling interest in the Company or the Bank by any entity that is
required by the 1933 Act or the 1933 Act Regulations to be disclosed by the
Company that is not disclosed in the Prospectus.
(b) Any certificate signed by any authorized officer of the Company or
the Bank and delivered to the Underwriter or to counsel for the Underwriter
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
Section 2. Sale and Delivery to the Underwriter; Closing.
---------------------------------------------
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Trust 1,200,000 Initial Securities at the purchase price and terms set forth
herein and in the Price Determination Agreement.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Trust
hereby grants an option to the Underwriter to purchase up to 180,000 Option
Securities in accordance with the terms set forth herein and in the Price
Determination Agreement. The option hereby granted will expire at 5:00 p.m. on
the 30th day after the date the Registration Statement is declared effective by
the
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Commission (or at 5:00 p.m. on the next business day if such 30th day is not a
business day) and may be exercised, on one occasion only, solely for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by you to the Company
setting forth the number of Option Securities as to which the Underwriter is
exercising the option and the time, date and place of payment and delivery for
the Option Securities. Such time and date of delivery (the "Option Closing
Date") shall be determined by the Underwriter but shall not be later than five
full business days after the date on which the notice of the exercise of the
option shall have been given, nor in any event prior to Closing Time, as
hereinafter defined, nor earlier than the second business day after the date on
which the notice of the exercise of the option shall have been given.
(b) Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the offices of Thacher Proffitt &
Wood, or at such other place as shall be agreed upon by the Company and the
Underwriter, at 9:30 a.m. on the third full business day after the effective
date of the Registration Statement, or at such other time not more than seven
full business days thereafter as you and the Company shall determine (such date
and time of payment and delivery being herein called the "Closing Time"). In
addition, in the event that any or all of the Option Securities are purchased by
the Underwriter, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of
Thacher Proffitt & Wood, or at such other place as shall be agreed upon by the
Company and the Underwriter, on the Option Closing Date as specified in the
notice from the Underwriter to the Company. Payment for the Initial Securities
and the Option Securities, if any, shall be made to the Company by wire transfer
of immediately available funds, against delivery to the Underwriter for the
account of the Underwriter of Preferred Securities to be purchased by it.
(c) The Initial Securities shall be issued in the form of one or more
fully registered global securities (the "Global Securities") in book-entry form
in such denominations and registered in the name of the nominee of The
Depository Trust Company (the "DTC") or in such names as the Underwriter may
request in writing at least two business days before the Closing Date or the
Option Closing Date, as the case may be. The Global Securities representing the
Initial Securities or the Option Securities to be purchased will be made
available in New York City for examination by the Underwriter and counsel to the
Underwriter not later than 10:00 A.M. on the business day prior to the Closing
Time or the Option Closing Date, as the case may be.
Section 3. Certain Covenants of the Offerors. Each of the Offerors
----------------------------------
covenants jointly and severally with the Underwriter as follows:
(a) The Offerors will use their best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately, and
confirm the notice in writing, (i) when the Registration Statement, or any post-
effective amendment to the Registration Statement, shall have become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission (iii) of any
request of the
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Commission to amend the Registration Statement or amend or supplement the
Prospectus or for additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Preferred
Securities or capital stock, for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes. The
Offerors will use every reasonable effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and, if any such
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Offerors will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement, if the Offerors have
elected to rely upon Rule 430A, to the Prospectus (including documents
incorporated by reference into such prospectus or to the Prospectus) of which
the Underwriter shall not have previously been advised and have previously been
furnished a copy, or to which the Underwriter or counsel for the Underwriter
shall reasonably object.
(c) The Offerors have furnished or will furnish to you as many signed
and conformed copies of the Registration Statement as originally filed and of
each amendment thereto, whether filed before or after the Registration Statement
becomes effective, copies of all exhibits and documents filed therewith
(including documents incorporated by reference into the Prospectus pursuant to
Item 12 of Form S-2 under the 1933 Act) and signed copies of all consents and
certificates of experts as you may reasonably request.
(d) The Offerors will deliver or cause to be delivered to the
Underwriter, without charge, from time to time until the effective date of the
Registration Statement, as many copies of each preliminary prospectus as the
Underwriter may reasonably request, and the Offerors hereby consent to the use
of such copies for purposes permitted by the 1933 Act. The Offerors will deliver
or cause to be delivered to the Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the Offerors have
elected to rely upon Rule 430A, as soon as practicable after the Price
Determination Agreement has been executed and delivered) and thereafter from
time to time as requested during the period when the Prospectus is required to
be delivered under the 1933 Act, such number of copies of the Prospectus (as
supplemented or amended) as the Underwriter may reasonably request.
(e) The Company will comply to the best of its ability with the 1933
Act and the 1933 Act Regulations, and the 1934 Act and the 1934 Act Regulations,
so as to permit the completion of the distribution of the Preferred Securities
as contemplated in this Agreement and in the Prospectus. If, at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Preferred Securities, any event shall occur or condition exist as a
result of which it is necessary, in the reasonable opinion of counsel for the
Underwriter or counsel for the Offerors, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
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<PAGE>
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of either such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements.
(f) The Offerors will use their best efforts, in cooperation with the
Underwriter, to qualify the Preferred Securities and the Junior Subordinated
Debentures for offering and sale under the applicable securities laws of such
states and other jurisdictions as the Underwriter may designate in writing and
to maintain such qualifications in effect for a period of not less than one year
from the effective date of the Registration Statement; provided, however, that
------------------
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. The Company will file such statements and reports as may
be required by the laws of each jurisdiction in which the Preferred Securities
have been qualified as above provided.
(g) The Company will make generally available (within the meaning of
Rule 158) as soon as practible, but not later than the Availability Date (as
defined below) to its security holders, the Underwriter and the Security holders
an earnings statement (which need not be audited) of the Company and its
subsidiary (in form complying with the provisions of Rule 158 of the 1933 Act
Regulations) covering a period of at least 12 months beginning after the
effective date of the Registration Statement. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such effective date,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(h) The Trust shall apply the proceeds from its sale of the Preferred
Securities, combined with the entire proceeds from the issuance by the Trust to
the Company of the Trust's Common Securities, to purchase an equivalent amount
of Junior Subordinated Debentures. The Company and the Bank will use the net
proceeds received by them from the sale of the Junior Subordinated Debentures in
the manner specified in the Prospectus under the caption "Use of Proceeds".
(i) The Offerors, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file promptly all documents required to be
filed with the Commission pursuant to Section 13 or 14 of the 1934 Act
subsequent to the time the Registration Statement becomes effective.
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(j) For a period of five years after the Closing Time, the Company
will furnish to the Underwriter, copies of all annual reports, quarterly reports
and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or
such other similar forms as may be designated by the Commission, and such other
documents, reports, Proxy Statements, and information as shall be furnished by
the Company to its stockholders generally.
(k) The Offerors will cause the Preferred Securities to be listed and
will file with the Nasdaq Stock Market all documents and notices required by the
Nasdaq Stock Market of companies that have issued securities that are traded in
the over-the-counter market and quotations for which are reported by the Nasdaq
Stock Market.
(l) The Company shall pay for the legal fees and related filing fees
to your counsel to prepare one or more "blue sky" surveys (each, a "Blue Sky
Survey") for use in connection with the offering of the Preferred Securities as
contemplated by the Prospectus and a copy of such Blue Sky Survey or surveys
shall be delivered to each of the Company and the Underwriter.
(m) If, at the time the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A of the
1933 Act Regulations, then the Offerors will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 424(b),
copies of an amended Prospectus, or, if required by such Rule 430A, a post-
effective amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted.
(n) The Company will, at its expense, subsequent to the issuance of
the Preferred Securities, prepare and distribute to each of the Underwriter and
counsel to the Underwriter, copies of all the documents used in connection with
the issuance of the Preferred Securities in the form of a Closing Bound Volume.
(o) The Offerors will not, prior to the Option Closing Date or thirty
(30) days after the date of this Agreement, whichever occurs first, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, or any
transaction with a related party which is required to be disclosed in the
Prospectus pursuant to Item 404 of Regulation S-K under the Securities Act,
except as contemplated by the Prospectus.
(p) During a period of ten days from the date of the Prospectus,
neither the Trust nor the Company will, without the prior written consent of the
Underwriter, directly or indirectly, offer, sell, offer to sell, or otherwise
dispose of any Preferred Securities, any other beneficial interests in the
assets of the Trust, or any preferred securities or other securities of the
Trust or the Company which are substantially similar to the Preferred
Securities, including any guarantee of such securities. The foregoing sentence
shall not apply to any of the Preferred Securities to be sold hereunder.
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Section 4. Payment of Expenses and Advisory Fee.
-------------------------------------
(a) The Company will pay and bear all costs and expenses incident to
the performance of its and the Trust's obligations under this Agreement,
including (a) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), as originally filed and as
amended, the preliminary prospectuses and the Prospectus and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriter, (b) the preparation, printing and distribution of this Agreement,
the Preferred Securities and the Blue Sky Survey, (c) the issuance and delivery
of the Preferred Securities to the Underwriter, including any transfer taxes
payable upon the sale of the Preferred Securities to the Underwriter, (d) the
fees and disbursements of the Company's counsel and accountants, (e) NASD filing
fees, (f) fees and disbursements of counsel in connection with the Blue Sky
Survey, (g) the qualification of the Preferred Securities under the applicable
securities laws in accordance with Section 3(f) and any filing fee for review of
the offering with the NASD, (h) the legal fees and expenses of the Underwriter's
counsel (such counsel's fees shall not exceed $65,000 (exclusive of out-of-
pocket expenses of counsel) and general out-of-pocket expenses of the
Underwriter not to exceed $5,000, (i) the fees and expenses of the Indenture
Trustee, including the fees and disbursements of counsel for the Indenture
Trustee, in connection with the Indenture and the Junior Subordinated
Debentures; (j) the fees and expenses of the Property Trustee and Delaware
Trustee, including the fees and disbursements of counsel for the Property
Trustee and the Delaware Trustee, in connection with the Trust Agreement and the
Certificate of Trust, and (k) all other costs incident to the performance of the
Offerors' obligations hereunder.
If (i) the Closing Time does not occur on or before August 31, 1997,
(ii) the Company abandons or terminates the Offering, or (iii) this Agreement is
terminated by the Underwriter in accordance with the provisions of Section 5 or
11(a), the Company shall reimburse the Underwriter for all its reasonable out-
of-pocket expenses, as set forth in this Section 4, including the reasonable
fees and disbursements of counsel for the Underwriter.
Section 5. Conditions of Underwriter's Obligations. The obligations
---------------------------------------
of the Underwriter to purchase and pay for the Preferred Securities that it has
agreed to purchase pursuant to this Agreement are subject to the accuracy, of
the representations and warranties of the Offerors contained herein or in
certificates of the officers or trustees of the Offerors or any subsidiary
delivered pursuant to the provisions hereof to the execution of the Price
Determination Agreement no later than 5:30 p.m. on the first business day
following the date hereof, or at such later time as you may agree in writing (in
your sole discretion), to the performance by the Offerors of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date of this Agreement or, with your consent, at a later
time and date not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time or on such later date as you
may agree to in writing; at the Closing Time no stop order suspending the
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effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to the Underwriter's knowledge or the knowledge of the Offerors
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter. If the Offerors have elected to
rely upon Rule 430A, a prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received:
(i) The favorable opinion, dated as of Closing Time, of Silver,
Freedman & Taff, L.L.P, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriter, substantially in
the form set forth in Exhibit B.
(ii) The favorable opinion, dated as of Closing Time, of Richards,
Layton & Finger, special Delaware counsel for the Offerors, in form and
substance satisfactory to counsel for the Underwriter, substantially in the
form set forth in Exhibit C.
(iii) The favorable opinion, dated as of Closing Time,
of_____________, counsel for the Indenture Trustee and the Delaware
Trustee, in form and substance satisfactory to counsel for the Underwriter,
substantially in the form set forth in Exhibit D.
(iv) The favorable opinion, dated as of Closing Time, of Thacher
Proffitt & Wood, counsel for the Underwriter, in form and substance
satisfactory to the Underwriter.
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the federal law of the United
States, upon opinions of other counsel, who shall be counsel satisfactory to
counsel for the Underwriter (the Underwriter agrees and acknowledges that
Silver, Freedman & Taff, L.L.P., and Thacher Proffitt & Wood will rely on the
opinion of Richards, Layton & Finger with respect to matters of Delaware law),
in which case the opinion shall state that counsel believes that you and your
counsel are entitled to so rely. Such counsel may also state that, insofar as
such opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company, the Bank and the Trust and
certificates of public officials.
(c) At the Closing Time and again at the Option Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, the Offerors shall have complied in all material respects with Rule
430A (if they shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to
17
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement,
any material adverse change in the condition (financial or otherwise), earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise, whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Offerors, threatened against
the Company or any subsidiary or the Trust that would be required to be set
forth in the Prospectus other than as set forth therein and no proceedings shall
be pending or, to the knowledge of the Offerors, threatened against the Offerors
or any subsidiary before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding could
reasonably be expected to materially adversely affect the condition (financial
or otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise, other than as set
forth in the Prospectus, (iv) each of the Offerors shall have complied, in all
material respects, with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Time, (v) the other
representations and warranties of the Offerors set forth in Section l(a) shall
be accurate in all material respects as though expressly made at and as of the
Closing Time, and (vi) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
been initiated or to the best knowledge of the Offerors threatened by the
Commission. At the Closing Time, the Underwriter shall have received a
certificate of the Chairman or the President, and the Chief Financial Officer or
Controller, of the Company, dated as of the Closing Time, to such effect.
(d) At the time that this Agreement is executed by the Company, you
shall have received from Deloitte & Touche LLP a letter or letters, dated such
date, in form and substance satisfactory to you, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the 1933 Act and the published 1933 Act Regulations, and stating in
effect that:
With respect to the Company:
(i) in their opinion, the consolidated financial statements as of June
30, 1997 and 1996, and for each of the years in the three year period ended
June 30, 1997 and the related financial statement schedules, if any,
included or incorporated by reference in the Registration Statement and the
Prospectus and covered by their opinions included therein comply as to form
in all material respects with the applicable accounting requirements of the
1933 Act and the published 1933 Act Regulations;
(ii) on the basis of a reading of the minutes of all meetings of the
stockholders of the Company and the Bank, of the Board of Directors of the
Company and the Bank and of the Audit and Executive Committees of the Board
of Directors of the Bank since June 30, 1997, inquiries of certain
officials of the Company and its subsidiaries responsible for financial and
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accounting matters, and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) at a specified date not more than three days prior to the
date of this Agreement, there was any increase in notes or
subordinated debentures payable, advances from the Federal Home Loan
Bank, real estate owned, or any decrease in allowance for loan losses
of the Company and its consolidated subsidiaries or any decrease in
total assets, total deposits or stockholders' equity of the Company
and its consolidated subsidiaries or any increase in the number of
outstanding shares of capital stock of the Company and its
consolidated subsidiaries, in each case as compared with amounts shown
in the financial statements at ____ __, 1997 in the Registration
Statement; or
(B) for the period from ____ __, 1997 to a specified date not
more than three days prior to the date of this Agreement, there was
any decrease in consolidated net interest income, non-interest income
or net income or the (split-adjusted) total or fully diluted per share
amounts of net income or any increase in the consolidated provision
for loan losses, in each case as compared with the comparable period
in the preceding year.
(iii) in addition to the procedures referred to in clause (ii) above,
they have performed other specified procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement (including the Selected
Consolidated Financial Data) (having compared such items with, and have
found such items to be in agreement with, the financial statements of the
Company or general accounting records of the Company, as applicable, which
are subject to the Company's internal accounting controls or other data and
schedules prepared by the Company from such records).
(iv) on the basis of a review of schedules provided to them by the
Company, nothing came to their attention that caused them to believe that
the pro forma information, set forth in the Prospectus under the headings
"Capitalization" on page __ had not been correctly calculated on the basis
described therein.
(e) At the Closing Time, the Underwriter shall have received from
Deloitte & Touche LLP letters, in form and substance satisfactory to the
Underwriter and dated as of the Closing Time, to the effect that they reaffirm
the statements made in the letter(s) furnished pursuant to Section 5(d), except
that the inquiries specified in Section 5(d) shall be made based upon the latest
available unaudited interim consolidated financial statements and the specified
date referred to shall be a date not more than three days prior to the Closing
Time.
(f) At the Closing Time, counsel for the Underwriter shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling
19
<PAGE>
them to pass upon the issuance and sale of the Preferred Securities as
contemplated in this Agreement and the matters referred to in Section 5(c) and
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Offerors, the performance of
any of the covenants of the Offerors, or the fulfillment of any of the
conditions herein contained; all proceedings taken by the Company at or prior to
the Closing Time in connection with the authorization, issuance and sale of the
Preferred Securities and the Junior Subordinated Debentures as contemplated in
this Agreement shall be satisfactory in form and substance to the Underwriter
and to counsel for the Underwriter.
(g) Between the date of this Agreement and the Closing Time, (i) no
downgrading shall have occurred in the rating accorded any securities of the
Company or any deposit instruments of the Bank by any "nationally recognized
statistical rating organization," as that term is defined by the Commission for
purposes of Rule 436(g) (2) under the 1933 Act and (ii) no such organization
shall have given any notice of any intended or potential downgrading or of any
surveillance or review, with possible negative implications, of its rating of
any of the Company's securities or any deposit instruments of the Bank.
(h) The Company shall have paid, or made arrangements satisfactory to
the Underwriter for the payment of, all such expenses as may be required by
Section 4 hereof.
(i) In the event the Underwriter exercises its option provided in
Section 2 hereof to purchase all or any portion of the Option Securities, the
obligations of the Underwriter to purchase the Option Securities that it has
agreed to purchase shall be subject to the accuracy of the representations and
warranties of the Offerors contained herein and of the statements in any
certificates furnished by the Offerors hereunder as of such Option Closing Date
(as if made on such date), to the performance by the Offerors of their
obligations hereunder and to the receipt by you on the Option Closing Date of:
(1) A certificate, dated the Option Closing Date, of the Chairman
or the President and the Chief Financial Officer or Controller of the
Company confirming that the certificate delivered on the Closing Time
pursuant to Section 5(c) hereof remains true as of the Option Closing
Date;
(2) The favorable opinion of Silver, Freedman & Taff L.L.P.,
counsel for the Company, addressed to you and dated the Option Closing
Date, in form satisfactory to Thacher Proffitt & Wood, your counsel,
relating to the Option Securities and otherwise to the same effect as
the opinion required by Section 5(b) hereof;
(3) The favorable opinion of Richards, Layton & Finger, special
Delaware counsel for the Offerors, addressed to you and dated the
Option Closing Date, in form satisfactory to Thacher Proffitt & Wood,
your counsel,
20
<PAGE>
relating to the Option Securities and otherwise to the same effect as
the opinion required by Section 5(b) hereof;
(4) The favorable opinion of ______________, counsel for the
Indenture Trustee and the Delaware Trustee, addressed to you and dated
the Option Closing Date, relating to the Option Securities and
otherwise to the same effect as the opinion required by Section 5(b)
hereof;
(5) The favorable opinion of Thacher Proffitt & Wood, dated the
Option Closing Date, relating to the Option Shares and otherwise to
the same effect as the opinion required by Section 5(b) hereof; and
(6) Letters from Deloitte & Touche LLP addressed to the
Underwriter and dated the Option Closing Date, in form and substance
satisfactory to the Underwriter and substantially the same in form and
substance as the letters furnished to the Underwriter pursuant to
Section 5(d) hereof.
(j) The Preferred Securities, the Guarantee and the Junior
Subordinated Debentures shall have been qualified or registered for sale, or
subject to an available exemption from such qualification or registration, under
the Blue Sky Laws of such jurisdictions as shall have been reasonably specified
by the Underwriter and the offering contemplated by this Agreement shall have
been cleared by the NASD.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by the Underwriter on notice to the Offerors at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other Party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 6, 7, 10 and 12
shall remain in effect.
21
<PAGE>
Section 5A. Conditions of Offeror's Obligations. The obligations of
-----------------------------------
the Offerors to sell and deliver the portion of the Preferred Securities
required to be delivered as and when specified in this Agreement are subject to
the conditions that the Registration Statement shall have become effective and
that as of the Closing Time (or the Option Closing Date with respect to the
Option Securities) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened, and there shall have been no change in the
Internal Revenue Code of 1986 or the regulations promulgated thereunder that
reasonably would be expected to adversely effect the ability of the Company to
deduct the interest paid by it under the Junior Subordinated Debentures.
Section 6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Underwriter,
officers, directors, employees, agents, and counsel of the Underwriter, and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20(a) of the 1934 Act, against any loss, liability,
claim, damage, and expense whatsoever (which shall include, but not be limited
to amounts incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim or investigation whatsoever
and any and all amounts paid in settlement of any claim or litigation), as and
when incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, contained in (A) any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto
or in any document incorporated by reference therein or required to be delivered
with any Preliminary Prospectus or the Prospectus or (B) in any application or
other document or communication (collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify the
Preferred Securities under the "blue sky" or securities laws thereof or filed
with the Commission or any securities exchange; unless such statement or
omission or alleged statement or omission was made in reliance upon and in
conformity with written information concerning the Underwriter, the Underwriting
Agreement or the compensation of the Underwriter furnished to the Company by or
on behalf of the Underwriter expressly for inclusion in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant, or agreement of the Company
contained in the Underwriting Agreement. The foregoing indemnification with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter (or its directors, officers, employees and controlling persons
within the meaning of the federal securities laws) if the person asserting any
such losses, claims, damages or liabilities against the Underwriter (or such
other persons) purchased Preferred Securities and a copy of the Prospectus (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of the Underwriter
to such person, if such is required by law, in connection with the written
confirmation of the sale of
22
<PAGE>
such Preferred Securities to such person and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability, provided that the Company delivered the Prospectus, as
amended or supplemented, to the Underwriter on a timely basis to permit such
delivery or sending. For purposes of this section, the term "expense" shall
include, but not be limited to, counsel fees and costs, court costs, out-of-
pocket costs and compensation for the time spent by the Underwriter's directors,
officers, employees and counsel according to his or her normal hourly billing
rates. The indemnification provisions shall also extend to all affiliates of
the Underwriter, its respective directors, officers, employees, legal counsel,
agents and controlling persons within the meaning of the federal securities
laws. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have to the Underwriter or the persons
entitled to the benefit of these indemnification provisions.
(b) The Underwriter agrees to indemnify and hold harmless the
Offerors, their directors, officers who signed the Registration Statement, and
each person, if any, who controls the Offerors within the meaning of Section 15
of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) above, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or any application in
reliance upon and in conformity with written information about the Underwriter,
the Underwriting Agreement, or the compensation of the Underwriter, furnished to
either of the Offerors by the Underwriter expressly for use in the Registration
Statement (or any amendment thereto) or such Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or in any application.
(c) An indemnified party shall give prompt notice to the indemnifying
party if any action, suit, proceeding or investigation is commenced in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from its obligations
to indemnify hereunder, except to the extent that the indemnifying party has
been prejudiced in any material respect by such failure. If it so elects within
a reasonable time after receipt of such notice, an indemnifying party may assume
the defense of such action, including the employment of counsel satisfactory to
the indemnified parties and payment of all expenses of the indemnified party in
connection with such action. Such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such action
or the indemnifying party shall not have promptly employed counsel satisfactory
to such indemnified party or parties or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties which are different from or
additional to those available to one or more of the indemnifying parties, in any
of which events such fees and expenses shall be borne by the indemnifying party
and the indemnifying party shall not have the right to direct the defense of
such
23
<PAGE>
action on behalf of the indemnified party or parties. The Company shall be
liable for any settlement of any claim against the Underwriter (or its
directors, officers, employees, affiliates or controlling persons), made with
the Company's written consent, which consent shall not be unreasonably withheld.
The Company shall not, without the written consent of the Underwriter, settle or
compromise any claim against it based upon circumstances giving rise to an
indemnification claim against the Company hereunder unless such settlement or
compromise provides that the Underwriter and the other indemnified parties shall
be unconditionally and irrevocably released from all liability in respect to
such claim.
(d) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court that such indemnification may not
be enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the
Underwriter, on the other hand, shall contribute to the amount paid or payable
by such indemnified persons as a result of such loss, liability, claim, damage
and expense in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other hand, from the underwriting, and also the relative fault of the Company,
on the one hand, and the Underwriter, on the other hand, in connection with the
statements, acts or omissions which resulted in such loss, liability claim,
damage and expense, and any other relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation or
omission shall be entitled to contribution from any person who is not also found
liable for such fraudulent misrepresentation or omission. Notwithstanding the
foregoing, the Underwriter shall not be obligated to contribute any amount
hereunder that exceeds the amount of the underwriting commission paid by the
Company to the Underwriter with respect to the Preferred Securities purchased by
the Underwriter.
(e) The indemnity and contribution agreements contained herein are in
addition to any liability which the Company may otherwise have to the
Underwriter.
(f) Neither termination nor completion of the engagement of the
Underwriter nor any investigation made by or on behalf of the Underwriter shall
affect the indemnification obligations of the Company or the Underwriter
hereunder, which shall remain and continue to be operative and in full force and
effect.
Section 7. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. The representations, warranties, indemnities, agreements and other
- --------
statements of the Offerors or its officers or trustees set forth in or made
pursuant to this Agreement will remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Offerors or the
Underwriter or any controlling person and will survive delivery of and payment
for the Preferred Securities.
24
<PAGE>
Section 8. Offering by the Underwriter. The Trust and the Company
---------------------------
are advised by the Underwriter that the Underwriter proposes to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriter deems
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
Section 9. Termination of Agreement.
------------------------
(a) You may terminate this Agreement, by notice to the Offerors, at
any time at or prior to the Closing Time (i) if there has been, since the
respective dates as of which information is given in the Registration Statement,
any material adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any outbreak or escalation of existing
hostilities or other national or international calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
the Underwriter's reasonable judgment, impracticable to market the Preferred
Securities or enforce contracts for the sale of the Preferred Securities, or
(iii) if trading in any securities of the Company has been suspended by the
Commission or the National Association of Securities Dealers, Inc., or if
trading generally on the New York Stock Exchange or in the over-the-counter
market has been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by such
exchange or by order of the Commission, the National Association of Securities
Dealers, Inc. or any other governmental authority with appropriate jurisdiction
over such matters, or (iv) if a banking moratorium has been declared by federal,
New Jersey or New York authorities, or (v) if there shall have been such
material and substantial change in the market for securities in general or in
political, financial or economic conditions as in your reasonable judgment makes
it inadvisable to proceed with the Offering, sale and delivery of the Preferred
Securities on the terms contemplated by the Prospectus, (vi) if you reasonably
determine (which determination shall be in good faith) that there has not been
satisfactory disclosure of all relevant financial information relating to the
Offerors in the Offerors' disclosure documents and that the sale of the
Preferred Securities is unreasonable given such disclosures or (vii) if the
Price Determination Agreement has not been executed by all the parties hereto to
5:30 p.m. on the first business day following the date of this Agreement.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6 and 7 shall remain in effect.
Section 10. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices shall be addressed as follows:
25
<PAGE>
If to the Underwriter:
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Attention: Bruce G. Miller, Senior Vice President
with a copy to:
Robert C. Azarow
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
If to the Company or the Trust:
PennFed Financial Services, Ltd.
622 Eagle Rock Avenue
West Orange, New Jersey 07052
Attention: President
with a copy to:
Dave M. Muchnikoff, P.C.
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
Section 11. Parties. This Agreement is made solely for the benefit of
-------
the Underwriter, and the officers, directors, employees, agents and counsel of
the Underwriter specified in Section 6, the Trust and the Company and, to the
extent expressed, any person controlling the Trust, the Company or the
Underwriter, and the directors of the Company, or administrators of the Trust,
their respective officers who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from the Underwriter of the Preferred Securities.
Section 12. Arbitration. Any claims, controversies, demands,
-----------
disputes or differences between or among the parties hereto or any persons bound
hereby arising out of, or by virtue of, or in connection with, or otherwise
relating to this Agreement shall be submitted to and settled by arbitration
conducted in New Jersey before one or three arbitrators, each of whom shall be
knowledgeable in the field of securities law and investment banking. Such
arbitration shall otherwise
26
<PAGE>
be conducted in accordance with the rules then obtaining of the American
Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or in any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such arbitrator may be enforced in any court having
jurisdiction thereof.
Section 13. Governing Law and Time. This Agreement shall be governed
----------------------
by the laws of the State of New Jersey. Specified times of the day refer to New
York City time.
Section 14. Counterparts. This Agreement may be executed in one or
------------
more counterparts, and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company, the Trust and the
Underwriter in accordance with its terms.
Very truly yours,
PENNFED CAPITAL TRUST I
By:
-------------------------------------------
Name:
Title: Administrator
PENNFED FINANCIAL SERVICES, INC.
By:
-------------------------------------------
Name: Joseph L. LaMonica
Title: President and CEO
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By:
--------------------------
Name: David P. Downs
Title: Senior Vice President
27
<PAGE>
EXHIBIT A
PENNFED CAPITAL TRUST I
(a Delaware business trust)
_________ Preferred Securities
___% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Preferred Security)
PRICE DETERMINATION AGREEMENT
-----------------------------
_______, 1997
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date hereof
(the "Underwriting Agreement") among PennFed Capital Trust I, a Delaware
business trust, (the "Trust"), PennFed Financial Services, Inc. (the "Company"
and together with the Trust, the "Offerors") and the Underwriter named above
(the "Underwriter"). The Underwriting Agreement provides for the purchase by
the Underwriter from the Trust, subject to the terms and conditions set forth
therein, of _________ shares, subject to a _______ adjustment (to cover over-
allotments, if any), of the _____% Cumulative Trust Preferred Securities of the
Trust (the "Preferred Securities"). This Agreement is the Price Determination
Agreement referred to in the Underwriting Agreement.
Pursuant to Section 2 of the Underwriting Agreement, the Offerors
agree with the Underwriter as follows:
1. The public offering price per Preferred Security shall be $25.
2. The purchase price for the Preferred Securities to be paid by
the Underwriter shall be $25 per Preferred Security.
3. The commission per Preferred Security to be paid by the Company
to the Underwriter for their commitments hereunder shall be $_____ per
Preferred Security.
4. The interest rate on the Preferred Securities shall be _____%
per annum.
<PAGE>
The Offerors represent and warrant to the Underwriter that the
representations and warranties of the Offerors set forth in Section 1(a) of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
This Agreement shall be governed by the laws of the State of New Jersey.
If the foregoing is in accordance with the understanding of the Underwriter
of the agreement between the Underwriter and the Offerors, please sign and
return to the Company a counterpart hereof, whereupon this instrument, along
with all counterparts and together with the Underwriting Agreement, shall be a
binding agreement between the Underwriter and the Offerors in accordance with
its terms and the terms of the Underwriting Agreement.
Very truly yours,
PENNFED CAPITAL TRUST I
By:
--------------------------------
Name:
Title: Administrator
PENNFED FINANCIAL SERVICES, INC.
By:
--------------------------------
Joseph L. LaMonica
President and CEO
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By:
----------------------------
David M. Downs
Senior Vice President
<PAGE>
EXHIBIT B
---------
[to be attached]
<PAGE>
EXHIBIT C
---------
The opinion of counsel, as special Delaware counsel to the Company and the Trust
to be delivered pursuant to Section 5(b)(ii) of the Underwriting Agreement shall
be substantially to the effect that:
1. The Trust has been duly created and is validly existing in good standing as a
business trust under the Delaware Business Trust Act, 12 Del. C. Section 3801 et
seq. (the "Delaware Act"), and all filings required under the laws of the State
of Delaware with respect to the creation and valid existence of the Trust as a
business trust have been made.
2. Under the Delaware Act and the Trust Agreement the Trust has the trust power
and authority to own its property and to conduct its business, all as described
in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of the Company
and the Property Trustee and the Delaware Trustee, and is enforceable against
the Company and the Trustees, in accordance with its terms.
4. Under the Delaware Act and the Trust Agreement, the Trust has the trust power
and authority to execute and deliver, and to perform its obligations under, the
Underwriting Agreement and to issue and perform its obligations under the
Preferred Securities and the Common Securities.
5. Under the Delaware Act and the Trust Agreement, the execution and delivery by
the Trust of the Underwriting Agreement, and the performance by the Trust of its
obligations thereunder, have been duly authorized by all necessary trust action
on the part of the Trust.
6. The Preferred Securities have been duly authorized by the Trust Agreement and
are duly and validly issued and, subject to the qualifications set forth herein,
fully paid and nonassessable undivided beneficial interests in the assets of the
Trust and are entitled to the benefits of the Trust Agreement. The Holders, as
beneficial owners of the Trust, will be entitled to the same limitations of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware. We note
that the Holders may be obligated pursuant to the Trust Agreement, (i) to
provide indemnity and/or security in connection with and pay taxes or
governmental charges arising from transfers or exchanges of Preferred Securities
Certificates and the issuance of replacement Preferred Securities Certificates,
and (ii) to provide security or indemnity in connection with requests of or
directions to the Property Trustee to exercise its rights and powers under the
Trust Agreement.
7. Under the Delaware Act and the Trust Agreement, the issuance of the Preferred
Securities and Common Securities is not subject to preemptive rights.
8. The Common Securities have been duly authorized by the Trust Agreement and
are duly and validly issued undivided beneficial interests in the assets of the
Trust and are entitled to the benefits of the Trust Agreement.
9. The issuance and sale by the Trust of the Preferred Securities and Common
Securities, the purchase by the Trust of the Subordinated Debentures, the
execution, delivery and performance by the Trust of the Underwriting Agreement,
the consummation by the Trust of the transactions
<PAGE>
contemplated by the Underwriting Agreement and the compliance by the Trust with
its obligations thereunder will not violate (i) any of the provisions of the
Certificate of Trust or the Trust Agreement or (ii) any applicable Delaware law
or administrative regulation.
10. The Delaware Trustee is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of Delaware.
11. The Delaware Trustee has the requisite power and authority to execute and
deliver the Trust Agreement, and has taken all necessary corporate action to
authorize the execution and delivery of the Trust Agreement.
2
<PAGE>
EXHIBIT D
---------
The opinion of counsel to Trust Company and Delaware Trustee to be delivered
pursuant to Section 5(b)(iii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of New York.
2. The Indenture Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Indenture, and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of the Indenture.
3. The Guarantee Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Guarantee Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of the Guarantee Agreement.
4. The Property Trustee has the requisite power and authority to execute and
deliver the Trust Agreement, and has taken all necessary corporate action to
authorize the execution and delivery of the Trust Agreement.
5. Each of the Indenture and the Guarantee Agreement has been duly executed and
delivered by the Indenture Trustee and the Guarantee Trustee, respectively, and
constitutes a legal, valid and binding obligation of the Indenture Trustee and
the Guarantee Trustee, respectively, enforceable against the Indenture Trustee
and the Guarantee Trustee, respectively, in accordance with its respective
terms, except that certain payment obligations may be enforceable solely against
the assets of the Trust and except that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and transfer or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether such enforceability, is considered in a
proceeding in equity or at law), and by the affect of applicable public policy
on the enforceability of provisions relating to indemnification or contribution.
6. The Subordinated Debentures delivered on the date hereof have been duly
authenticated by the Indenture Trustee in accordance with the terms of the
Indenture.
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PENNFED FINANCIAL SERVICES, INC.
AND
THE BANK OF NEW YORK,
AS TRUSTEE
INDENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
DUE _______ __, 2027
DATED AS OF ________ __, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS 2
Section 1.1 Definitions of Terms 2
ARTICLE II ISSUE, DESCRIPTION, TERMS, CONDITIONS 10
REGISTRATION AND EXCHANGE OF THE
DEBENTURES
Section 2.1 Designation And Principal Amount 10
Section 2.2 Maturity 10
Section 2.3 And Payment 10
Section 2.4 Interest 11
Section 2.5 Execution And Authentications 12
Section 2.6 of Transfer And Exchange 13
Section 2.7 Temporary Debentures 14
Section 2.7A Global Securities 14
Section 2.8 Mutilated, Destroyed, Lost or Stolen Debentures 15
Section 2.9 Cancellation 16
Section 2.10 Benefit of Indenture 17
Section 2.11 Authentication Agent 17
Section 2.12 Right of Set-off 17
Section 2.13 Cusip Numbers 18
ARTICLE III REDEMPTION OF DEBENTURES 18
Section 3.1 Redemption 18
Section 3.2 Special Event Redemption 18
Section 3.3 Optional Redemption by Company 19
Section 3.4 Notice of Redemption 19
Section 3.5 Payment Upon Redemption 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
Section 3.6 No Sinking Fund 20
ARTICLE IV EXTENSION OF INTEREST PAYMENT 21
PERIOD
Section 4.1 Extension of Interest Payment Period 21
Section 4.2 Notice of Extension 21
Section 4.3 Limitation on Transactions 22
ARTICLE V PARTICULAR COVENANTS OF THE 22
COMPANY
Section 5.1 Payment of Principal And Interest 22
Section 5.2 Maintenance of Agency 22
Section 5.3 Paying Agents 23
Section 5.4 Appointment to Fill Vacancy in Office of Trustee 24
Section 5.5 Compliance With Consolidation Provisions 24
Section 5.6 Limitation on Transactions 24
Section 5.7 Covenants as to The Trust 25
Section 5.8 Covenants as to Purchases 25
ARTICLE VI DEBENTURE HOLDERS' LISTS AND 26
REPORTS BY THE COMPANY AND THE
TRUSTEES
Section 6.1 Company to Furnish Trustee Names And Addresses 26
of Debenturesholders
Section 6.2 Preservation of Information Communications With 26
Debenture Holders
Section 6.3 Reports by The Company 26
Section 6.4 Reports by The Trustee 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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PAGE
----
<S> <C> <C>
Section 6.5 Statements As to Default 27
ARTICLE VII REMEDIES OF THE TRUSTEE AND 28
DEBENTURE HOLDERS ON EVENT OF
DEFAULT
Section 7.1 Events of Default 28
Section 7.2 Collection of Indebtedness And Suits For 30
Enforcement by Trustee
Section 7.3 Application of Moneys Collected 31
Section 7.4 Limitation on Suits 31
Section 7.5 Rights And Remedies Cumulative; Delay or 32
Omission Not Waiver
Section 7.6 Control by Debenture Holders 33
Section 7.7 Undertaking to Pay Costs 33
Section 7.8 Direct Action by Holders of Preferred Securities 34
ARTICLE VIII FORM OF DEBENTURE AND ORIGINAL 34
ISSUE
Section 8.1 Form of Debenture 34
Section 8.2 Original Issue of Debentures 34
ARTICLE IX CONCERNING THE TRUSTEE 34
Section 9.1 Certain Duties And Responsibilities 34
Section 9.2 Notice of Defaults 36
Section 9.3 Certain Rights of Trustee 36
Section 9.4 Trustee Not Responsible For Recitals, Etc. 37
Section 9.5 May Hold Debentures 37
Section 9.6 Moneys Held in Trust 38
Section 9.7 Compensation And Reimbursement 38
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
Section 9.8 Reliance on Officers' Certificate 39
Section 9.9 Disqualification: Conflicting Interests 39
Section 9.10 Corporate Trustee Required Eligibility 39
Section 9.11 Resignation And Removal; Appointment of 39
Successor
Section 9.12 Acceptance of Appointment by Successor 41
Section 9.13 Merger, Conversion, Consolidation or Succession 41
to Business
Section 9.14 Preferential Collection of Claims Against The 42
Company
ARTICLE X CONCERNING THE DEBENTURE HOLDERS 42
Section 10.1 Evidence of Action by Holders 42
Section 10.2 Proof of Execution by Debenture Holders 42
Section 10.3 Who May Be Deemed Owners 43
Section 10.4 Certain Debentures Owned by Company Disregarded 43
Section 10.5 Actions Binding on Future Debenture Holders 43
ARTICLE XI SUPPLEMENTAL INDENTURES 44
Section 11.1 Supplemental Indentures Without The Consent of 44
Debenture Holders
Section 11.2 Supplemental Indentures With Consent of Debenture 45
Holders
Section 11.3 Effect of Supplemental Indentures 46
Section 11.4 Debentures Affected by Supplemental Indentures 46
Section 11.5 Execution of Supplemental Indentures 46
ARTICLE XII SUCCESSOR CORPORATION 47
Section 12.1 Company May Consolidate, Etc. 47
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
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----
<S> <C> <C>
Section 12.2 Successor Corporation Substituted 47
Section 12.3 Evidence of Consolidation, Etc. to Trustee 48
ARTICLE XIII SATISFACTION AND DISCHARGE 48
Section 13.1 Satisfaction And Discharge of Indenture 48
Section 13.2 Discharge of Obligations 48
Section 13.3 Deposited Money to Be Held in Trust 49
Section 13.4 Payment of Monies Held by Paying Agents 49
Section 13.5 Repayment to Company 49
ARTICLE XIV IMMUNITY OF INCORPORATORS, 50
STOCKHOLDERS, OFFICERS AND
DIRECTORS
Section 14.1 No Recourse 50
ARTICLE XV MISCELLANEOUS PROVISIONS 50
Section 15.1 Effect on Successors And Assigns 50
Section 15.2 Actions by Successor 50
Section 15.3 Surrender of Company Powers 51
Section 15.4 Notices 51
Section 15.5 Governing Law 51
Section 15.6 Treatment of Debentures as Debt 51
Section 15.7 Compliance Certificates And Opinions 51
Section 15.8 Payments on Business Days 52
Section 15.9 Conflict With Trust Indenture Act 52
Section 15.10 Counterparts 52
Section 15.11 Separability 52
Section 15.12 Assignment 52
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
Section 15.13 Acknowledgment of Rights 53
ARTICLE XVI SUBORDINATION OF DEBENTURES 53
Section 16.1 Agreement to Subordinate 53
Section 16.2 Default on Senior Debt or Subordinated Debt 53
Section 16.3 Liquidation; Dissolution; Bankruptcy 54
Section 16.4 Subrogation 55
Section 16.5 Trustee to Effectuate Subordination 56
Section 16.6 Notice by The Company 56
Section 16.7 Rights of The Trustee; Holders of Senior 57
Indebtedness
Section 16.8 Subordination May Not Be Impaired 57
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
310(a) 9.10
310(b) 9.9
9.11
310(c) N/A
311(a) 9.14
311(b) 9.14
311(c) N/A
312(a) 6.1
6.2(a)
312(b) 6.2(c)
312(c) 6.2(c)
313(a) 6.4(a)
313(b) 6.4(b)
313(c) 6.4(a)
6.4(b)
313(d) 6.4(c)
314(a) 6.3(a)
314(b) N/A
314(c) 15.7
314(d) N/A
314(e) 15.7
314(f) N/A
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
315(a) 9.1(a)
9.3
315(b) 9.2
315(c) 9.1(a)
315(d) 9.1(b)
315(e) 7.7
316(a) 1.1
7.6
316(b) 7.4(b)
316(c) 10.1(b)
317(a) 7.2
317(b) 5.3
318(a) 15.9
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Indenture
and shall not affect the interpretation of any of its terms or provisions.
viii
<PAGE>
INDENTURE
INDENTURE, dated as of ________ __, 1997, between PENNFED FINANCIAL
SERVICES, INC., a Delaware corporation (the "Company"), and THE BANK OF NEW
YORK, a New York banking corporation (the "Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance of
unsecured securities to be known as its ____% Junior Subordinated Deferrable
Interest Debentures due ______ __, 2027 (hereinafter referred to as the
"Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in this Indenture;
and
WHEREAS, PennFed Capital Trust I, a Delaware statutory business trust (the
"Trust"), has offered to the public $__________ aggregate liquidation amount of
its Preferred Securities (as defined herein) and proposes to invest the proceeds
from such offering, together with the proceeds of the issuance and sale by the
Trust to the Company of $_________ aggregate liquidation amount of its Common
Securities (as defined herein), in $__________ aggregate principal amount of the
Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects, and
WHEREAS, to provide the terms and conditions upon which the Debentures are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures and
intending to be legally bound hereby:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.1 and shall include the
plural as well as the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act, or that are by reference in the Trust
Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the Securities
Act as in force at the date of the execution of this instrument. All accounting
terms used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with Generally Accepted Accounting Principles as in
effect at the time of computation.
"Additional Interest" shall have the meaning set forth in Section 2.4.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an executive officer, director or general partner.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depositary for such Global Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.11.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board.
2
<PAGE>
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means, with respect to the Debentures, any day other than a
Saturday or a Sunday or a day on which federal or state banking institutions in
the Borough of Manhattan, The City of New York, or the State of Delaware are
authorized or required by law, executive order or regulation to close, or a day
on which the Corporate Trust Office of the Trustee or the Property Trustee is
closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities
under the Trust Agreement, there is more than an insubstantial risk that the
Preferred Securities would not constitute "Tier 1 Capital" (or the then
equivalent thereof) applied as if the Company (or its successor) were a bank
holding company for purposes of the capital adequacy guidelines of the Federal
Reserve (or any successor regulatory authority with jurisdiction over bank
holding companies), or any capital adequacy guidelines as then in effect and
applicable to the Company.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer, the
treasurer or any vice president of the Company. The Certificate need not comply
with the provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets of
the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of (i) distributions and (ii)
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
3
<PAGE>
"Company" means PennFed Financial Services, Inc., a corporation duly
organized and existing under the laws of the State of Delaware, and, subject to
the provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be principally administered,
which office at the date hereof is located at 101 Barclay Street, Floor 21 West,
New York, New York 10286, Attention: Corporate Trust Trustee Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.4.
"Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.6(b).
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person, whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options, swaps and similar arrangements; (vii) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
4
<PAGE>
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Depositary" means, with respect to the Debentures issuable or issued in
whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 2.3. The initial
Depositary shall be The DTC.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.
"DTC" shall mean The Depository Trust Company.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
statute, in each case as amended from time to time.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting principles
as are generally accepted at the time of any computation required hereunder.
"Global Security" means a Debenture evidencing all or part of the
Debentures, issued to the Depositary or its nominee, and registered in the name
of such Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
5
<PAGE>
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in a
Board Resolution or in an indenture supplemental hereto with respect to the
Debentures as the fixed date on which an installment of interest with respect to
the Debentures is due and payable.
"Investment Company Act" means the Investment Company Act of 1940, and any
statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, to the effect that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law"), the Trust is or shall be considered an "investment
company" that is required to be registered under the Investment Company Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on which
the principal shall be due and payable together with all accrued and unpaid
interest thereon including Compounded Interest and Additional Interest, if any
as set forth in Section 2.2.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary, of the
Company, and delivered to the Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Indenture shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable
such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
6
<PAGE>
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered to
the Trustee in accordance with the terms hereof.
"Outstanding" when used with reference to the Debentures, means, subject to
the provisions of Section 10.4, as of any particular time, all Debentures
theretofore authenticated and delivered by the Trustee under this Indenture,
except (a) Debentures theretofore canceled by the Trustee or any paying agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Debentures or portions thereof for the payment or
redemption of which moneys or Governmental Obligations in the necessary amount
shall have been deposited in trust with the Trustee or with any paying agent
(other than the Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own paying agent); provided,
however, that if such Debentures or portions of such Debentures are to be
redeemed prior to the maturity thereof, notice of such redemption shall have
been given as provided in Article III or provision satisfactory to the Trustee
shall have been made for giving such notice; (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.6 and (d) Debentures paid pursuant
to Section 2.8.
"Person" means any individual, corporation, partnership, joint-venture,
trust, joint-stock company, unincorporated organization or government or any
agency or political subdivision thereof.
"Place of Payment" means the place or places where the principal of and
interest on the Debentures are payable in accordance with the terms of this
Indenture.
"Predecessor Debenture" means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.8 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.
"Preferred Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means the Preferred Securities Guarantee,
as amended from time to time, by and between the Company, as guarantor, and the
Trustee, executed and delivered for the benefit of the Holders of the Preferred
Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
7
<PAGE>
"Responsible Officer" when used with respect to the Trustee means any vice
president, any assistant vice president, any assistant secretary, any assistant
treasurer, any corporate trust officer or any other officer or assistant officer
of the Trustee customarily performing functions similar to those performed by
the Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Scheduled Maturity Date" means ________ __, 2027.
"Securities Act" means the Securities Act of 1933, or any successor
statute, in each case as amended from time to time.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under Section 1111 (b) of the
United States Bankruptcy Code of 1978, as amended, was without recourse to the
Company; (ii) any Debt of the Company to any of its subsidiaries; and (iii) any
Debt to any employee of the Company.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, an Investment Company Event or a Capital
Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Debentures), except that
Subordinated Debt shall not include debentures sold by the Company to the Trust.
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its
8
<PAGE>
Subsidiaries; and (iii) any limited partnership of which such Person or any of
its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel, to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of issuance of the Preferred Securities under the Trust Agreement,
there is more than an insubstantial risk that (i) the Trust is, or shall be
within 90 days after the date of such Opinion of Counsel, subject to United
States federal income tax with respect to income received or accrued on the
Debentures; (ii) interest payable by the Company on the Debentures is not, or
within 90 days after the date of such Opinion of Counsel, shall not be,
deductible by the Company, in whole or in part, for United States federal income
tax purposes; or (iii) the Trust is, or shall be within 90 days after the date
of such Opinion of Counsel, subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges. The Trust or the
Company shall request and receive such Opinion of Counsel with regard to such
matters within a reasonable period of time after the Trust or the Company shall
have become aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Trust" means PennFed Capital Trust I, a Delaware statutory business trust
created by the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
_______ __, 1997, of the Trust, as amended, modified or supplemented in
accordance with the applicable provisions thereof, among the trustees of the
trust named therein, the Company, as depositor, and the holders from time to
time of undivided beneficial ownership interests in the assets of the Trust,
including all exhibits thereto, including, for all purposes of the Trust
Agreement, and any such modification, amendment or supplement, the provisions of
the Trust Indenture Act that are deemed to be a part of and govern the Trust
Agreement and any such modification, amendment or supplement, respectively.
"Trustee" means The Bank of New York and, subject to the provisions of
Article IX, shall also include its successors and assigns, and, if at any time
there is more than one Person acting in such capacity hereunder, "Trustee"
shall mean each such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 11.1, 11.2, and 12.1 and any statute
successor thereto, in each case as amended from time to time.
"Trust Securities" means the Common Securities and Preferred Securities,
collectively.
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"Voting Stock" as applied to stock of any Person, means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
There is hereby authorized Debentures designated the "______ Junior
Subordinated Deferrable Interest Debentures due _______ __, 2027," limited in
aggregate principal amount to $_________ which amount shall be as set forth in
any written order of the Company for the authentication and delivery of
Debentures pursuant to Section 2.5.
SECTION 2.2 MATURITY.
The Maturity Date shall be the Scheduled Maturity Date.
SECTION 2.3 FORM AND PAYMENT.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the holder at such address as shall appear in the Debenture
Register or by wire transfer to an account maintained by the holder as specified
in the Debenture Register, provided that the holder provides proper wire
transfer instructions by the regular record date. Notwithstanding the foregoing,
so long as the holder of any Debentures is the Property Trustee, the payment of
the principal of and interest (including Compounded Interest and Additional
Interest, if any) on such Debentures held by the Property Trustee shall be made
at such place and to such account as may be designated by the Property Trustee.
Debentures shall be issuable in whole or in part in the form of one or more
Global Securities and, in such case, the Depositary for such Global Securities
shall be DTC.
SECTION 2.4 INTEREST.
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(a) Each Debenture shall bear interest at the rate of ______% per annum
(the "Coupon Rate") from the original date of issuance until the principal
thereof becomes due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article IV) quarterly in arrears on
January 31, April 30, July 31, and October 31 of each year (each, an "Interest
Payment Date," commencing on January 31, 1998), to the Person in whose name such
Debenture or any Predecessor Debenture is registered, at the close of business
on the regular record date for such interest installment, next preceding such
Interest Payment Date.
(b) The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, shall be computed on the
basis of the actual number of days elapsed in such period. In the event that any
date on which interest is payable on the Debentures is not a Business Day, then
payment of interest payable on such date shall be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
SECTION 2.5 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, President or one of its Vice Presidents, under its corporate
seal attested by its Secretary or one of its Assistant Secretaries. Signatures
may be in the form of a manual or facsimile signature. The Company may use the
facsimile signature of any Person who shall have been a Chief Executive Officer,
President or Vice President thereof, or of any Person who shall have been a
Secretary or Assistant Secretary thereof, notwithstanding the fact that at the
time the Debentures shall be authenticated and delivered or disposed of such
Person shall have ceased to be the Chief Executive Officer, President or a Vice
President, or the Secretary or an Assistant Secretary, of the Company. The seal
of the Company may be in the form of a facsimile of such seal and may be
impressed, affixed, imprinted or otherwise reproduced on the Debentures. The
Debentures may contain such
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notations, legends or endorsements required by law, stock exchange rule or
usage. Each Debenture shall be dated the date of its authentication by the
Trustee.
(b) A Debenture shall not be valid until authenticated manually by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication, together with a written order of the Company for
the authentication and delivery of such Debentures signed by its Chief Executive
Officer, President or any Vice President and its Secretary or any Assistant
Secretary, and the Trustee in accordance with such written order shall
authenticate and make available for delivery such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture.
(e) The Trustee shall not be required to authenticate such Debentures if
the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
SECTION 2.6 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the office or
agency of the Company designated for such purpose, for other Debentures and for
a like aggregate principal amount, upon payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, all as provided in this
Section 2.6. In respect of any Debentures so surrendered for exchange, the
Company shall execute, the Trustee shall authenticate and such office or agency
shall deliver in exchange therefor the Debenture or Debentures that the
Debenture holder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose or such other location designated by the Company a
register or registers (herein referred to as the "Debenture Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
register the Debentures and the transfers of Debentures as in this Article II
provided and which at all reasonable times shall be open for inspection by the
Trustee. The registrar for the purpose of registering Debentures and transfer of
Debentures as herein provided shall be appointed as authorized by Board
Resolution (the "Debenture Registrar"). Upon surrender for transfer of any
Debenture at the office or agency of the Company designated for such purpose,
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the Company shall execute, the Trustee shall authenticate and such office or
agency shall make available for delivery in the name of the transferee or
transferees a new Debenture or Debentures for a like aggregate principal amount.
All Debentures presented or surrendered for exchange or registration of
transfer, as provided in this Section 2.6, shall be accompanied (if so required
by the Company or the Debenture Registrar) by a written instrument or
instruments of transfer, in form satisfactory to the Company or the Debenture
Registrar, duly executed by the registered holder or by such holder's duly
authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, other than exchanges
pursuant to Section 2.7, Section 3.5(b) and Section 11.4 not involving any
transfer.
(d) The Company shall not be required (i) to issue, exchange or register
the transfer of any Debentures during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of less
than all the Outstanding Debentures and ending at the close of business on the
day of such mailing; nor (ii) to register the transfer of or exchange any
Debentures or portions thereof called for redemption.
(e) Notwithstanding any other provision of this Indenture, transfers and
exchanges of Debentures and beneficial interests in a Global Security shall be
made only in accordance with this Section 2.6(e).
(i) A Debenture that is not a Global Security may be transferred, in
whole or in part, to a Person who takes delivery in the form of
another Debenture that is not a Global Security as provided in this
Section 2.6.
(ii) A beneficial interest in a Global Security may be exchanged for a
Debenture that is not a Global Security as provided in Section 2.7A.
SECTION 2.7 TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may execute,
and the Trustee shall authenticate and deliver, temporary Debentures (printed,
lithographed, or typewritten). Such temporary Debentures shall be substantially
in the form of the definitive Debentures in lieu of which they are issued, but
with such omissions, insertions and variations as may be appropriate for
temporary Debentures, all as may be determined by the Company. Every temporary
Debenture shall be executed by the Company and be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with like
effect, as the definitive Debentures. Without unnecessary delay the Company
shall execute and shall furnish definitive Debentures and thereupon any or all
temporary Debentures may be surrendered in exchange therefor (without charge to
the holders), at the office or agency of the Company designated for such
purpose, and the Trustee shall authenticate and such office or agency shall
deliver in exchange for such temporary Debentures an
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equal aggregate principal amount of definitive Debentures, unless the Company
advises the Trustee to the effect that definitive Debentures need not be
executed and furnished until further notice from the Company. Until so
exchanged, the temporary Debentures shall be entitled to the same benefits under
this Indenture as definitive Debentures authenticated and delivered hereunder.
SECTION 2.7A GLOBAL SECURITIES.
(a) Each Global Security issued under this Indenture shall be registered
in the name of the Depositary designated by the Company for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Debentures registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Debentures or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Securities Registrar for exchange or cancellation as provided
in this Article II. If any Global Security is to be exchanged for other
Debentures or cancelled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article II or (ii) the principal amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the principal amount of such Debenture to be
so exchanged for a beneficial interest therein, as the case may be, by means of
an appropriate adjustment made on the records of the Securities Registrar,
whereupon the Trustee, in accordance with Applicable Procedures, shall instruct
the Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a Global
Security by the Depositary, accompanied by registration instructions, the
Trustee shall, subject to Section 2.6 and as otherwise provided in this Article
II, authenticate and make available for delivery any Debentures issuable in
exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Debenture authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article II, Section 3.5 or Article IX or
otherwise, shall be authenticated and delivered in the form of, and
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shall be, a Global Security, unless such Debenture is registered in the name of
a Person other than the Depositary for such Global Security or a nominee
thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Debenture, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or agent. Neither the
Trustee nor the Securities Registrar shall have any liability in respect of any
transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
SECTION 2.8 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become mutilated
or be destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon the Company's request the Trustee (subject as
aforesaid) shall authenticate and make available for delivery, a new Debenture
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Debenture, or in lieu of and in substitution for the Debenture
so destroyed, lost or stolen. In every case the applicant for a substituted
Debenture shall furnish to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and the Trustee evidence to their satisfaction of the destruction,
loss or theft of the applicant's Debenture and of the ownership thereof. The
Trustee may authenticate any such substituted Debenture and make available for
delivery the same upon the written request or authorization of any officer of
the Company. Upon the issuance of any substituted Debenture, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith. In case any Debenture
that has matured or is about to mature shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Debenture, pay
or authorize the payment of the same (without surrender thereof except in the
case of a mutilated Debenture) if the applicant for such payment shall furnish
to the Company and the Trustee such security or indemnity as they may require to
save them harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Company and the Trustee of the destruction, loss or theft of
such Debenture and of the ownership thereof.
(b) Every replacement Debenture issued pursuant to the provisions of this
Section 2.8 shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Debenture shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
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Debentures duly issued hereunder. All Debentures shall be held and owned upon
the express condition that the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.9 CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption, exchange
or registration of transfer shall, if surrendered to the Company or any paying
agent, be delivered to the Trustee for cancellation, or, if surrendered to the
Trustee, shall be canceled by it, and no Debentures shall be issued in lieu
thereof except as expressly required or permitted by any of the provisions of
this Indenture. On request of the Company at the time of such surrender, the
Trustee shall deliver to the Company canceled Debentures held by the Trustee. In
the absence of such request the Trustee may dispose of canceled Debentures in
accordance with its standard procedures. If the Company shall otherwise acquire
any of the Debentures, however, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Debentures
unless and until the same are delivered to the Trustee for cancellation.
SECTION 2.10 BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied, shall
give or be construed to give to any Person, other than the parties hereto and
the holders of the Debentures (and, with respect to the provisions of Article
XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or
claim under or in respect of this Indenture, or under any covenant, condition or
provision herein contained; all such covenants, conditions, and provisions being
for the sole benefit of the parties hereto and of the holders of the Debentures
(and, with respect to the provisions of Article XVI, the holders of Senior
Indebtedness).
SECTION 2.11 AUTHENTICATION AGENT.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to act
on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. All references in
this Indenture to the authentication of Debentures by the Trustee shall be
deemed to include authentication by an Authenticating Agent. Each Authenticating
Agent shall be acceptable to the Company and shall be a corporation that has a
combined capital and surplus, as most recently reported or determined by it,
sufficient under the
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laws of any jurisdiction under which it is organized or in which it is doing
business to conduct a trust business, and that is otherwise authorized under
such laws to conduct such business and is subject to supervision or examination
by federal or state authorities. If at any time any Authenticating Agent shall
cease to be eligible in accordance with these provisions, it shall resign
immediately.
(b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto.
SECTION 2.12 RIGHT OF SET-OFF.
With respect to the Debentures initially issued to the Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make in respect of any
such Debenture to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Preferred
Securities Guarantee relating to such Debenture or to a holder of Preferred
Securities pursuant to an action undertaken under Section 7.8 of this Indenture.
SECTION 2.13 CUSIP NUMBERS.
The Company in issuing the Debentures may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Debentureholders; provided that any such
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notice may state that no representation is made as to the correctness of such
numbers either as printed on the Debentures or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures, and any such redemption shall not be affected
by any defect in or omission or such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1 REDEMPTION.
Subject to the Company having received prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies, the Company
may redeem the Debentures issued hereunder on and after the dates set forth in
and in accordance with the terms of this Article III.
SECTION 3.2 SPECIAL EVENT REDEMPTION.
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Subject to the Company having received prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies, if a
Special Event has occurred and is continuing, then, notwithstanding Section 3.3,
the Company shall have the right upon not less than 30 days nor more than 60
days notice to the holders of the Debentures to redeem the Debentures, in whole
but not in part, for cash within 180 days following the occurrence of such
Special Event (the "180-Day Period") at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest thereon to
the date of such redemption (the "Redemption Price"), provided that if at the
time there is available to the Company the opportunity to eliminate, within the
180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Company, the Trust
or the holders of the Trust Securities issued by the Trust, the Company shall
pursue such Ministerial Action in lieu of redemption, and, provided further,
that the Company shall have no right to redeem the Debentures while the Trust is
pursuing any Ministerial Action pursuant to its obligations under the Trust
Agreement. The Redemption Price shall be paid prior to 12:00 noon, New York
time, on the date of such redemption or such earlier time as the Company
determines, provided that the Company shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.
SECTION 3.3 OPTIONAL REDEMPTION BY COMPANY.
Except as otherwise may be specified in this Indenture, the Company shall
have the right to redeem the Debentures, in whole or in part, from time to time,
on or after ________ __, 2002, at a Redemption Price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest thereon to
the date of such redemption. Any redemption pursuant to this Section 3.3 shall
be made upon not less than 30 days nor more than 60 days notice to the holder of
the Debentures, at the Redemption Price. If the Debentures are only partially
redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata
or by lot or in such other manner as the Trustee shall deem appropriate and fair
in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New
York time, on the date of such redemption or at such earlier time as the Company
determines provided that the Company shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to redeem all
or a portion of the Debentures in accordance with the right reserved so to do,
the Company shall, or shall cause the Trustee to, upon receipt of 45 days
written notice from the Company, give notice of such redemption to holders of
the Debentures to be redeemed by mailing, first class postage prepaid, a notice
of such
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redemption not less than 30 days and not more than 60 days before the date fixed
for redemption to such holders at their last addresses as they shall appear upon
the Debenture Register unless a shorter period is specified in the Debentures to
be redeemed. Any notice that is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the registered
holder receives the notice. In any case, failure duly to give such notice to the
holder of any Debenture designated for redemption in whole or in part, or any
defect in the notice, shall not affect the validity of the proceedings for the
redemption of any other Debentures. In the case of any redemption of Debentures
prior to the expiration of any restriction on such redemption provided in the
terms of such Debentures or elsewhere in this Indenture, the Company shall
furnish the Trustee with an Officers' Certificate evidencing compliance with any
such restriction. Each such notice of redemption shall identify the Debenture to
be redeemed (including CUSIP numbers, if any) and shall specify the date fixed
for redemption and the Redemption Price and shall state that payment of the
Redemption Price shall be made at the office or agency of the Company or at the
Corporate Trust Office, upon presentation and surrender of such Debentures, that
interest accrued to the date fixed for redemption shall be paid as specified in
said notice and that from and after said date interest shall cease to accrue. If
less than all the Debentures are to be redeemed, the notice to the holders of
the Debentures shall specify the particular Debentures to be redeemed. If the
Debentures are to be redeemed in part only, the notice shall state the portion
of the principal amount thereof to be redeemed and shall state that on and after
the redemption date, upon surrender of such Debenture, a new Debenture or
Debentures in principal amount equal to the unredeemed portion thereof shall be
issued.
(b) If less than all the Debentures are to be redeemed, the Company shall
give the Trustee at least 45 days notice in advance of the date fixed for
redemption as to the aggregate principal amount of Debentures to be redeemed,
and thereupon the Trustee shall select, by lot or in such other manner as it
shall deem appropriate and fair in its discretion, the portion or portions
(equal to $25 or any integral multiple thereof) of the Debentures to be redeemed
and shall thereafter promptly notify the Company in writing of the numbers of
the Debentures to be redeemed, in whole or in part. The Company may, if and
whenever it shall so elect pursuant to the terms hereof, by delivery of
instructions signed on its behalf by its President or any Vice President,
instruct the Trustee or any paying agent to call all or any part of the
Debentures for redemption and to give notice of redemption in the manner set
forth in this Section 3.4, such notice to be in the name of the Company or its
own name as the Trustee or such paying agent may deem advisable. In any case in
which notice of redemption is to be given by the Trustee or any such paying
agent, the Company shall deliver or cause to be delivered to, or permit to
remain with, the Trustee or such paying agent, as the case may be, such
Debenture Register, transfer books or other records, or suitable copies or
extracts therefrom, sufficient to enable the Trustee or such paying agent to
give any notice by mail that may be required under the provisions of this
Section 3.4.
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SECTION 3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed as
above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become due and payable on the date and at the
place stated in such notice at the applicable Redemption Price, and interest on
such Debentures or portions of Debentures shall cease to accrue on and after the
date fixed for redemption, unless the Company shall default in the payment of
such Redemption Price with respect to any such Debenture or portion thereof. On
presentation and surrender of such Debentures on or after the date fixed for
redemption at the place of payment specified in the notice, said Debentures
shall be paid and redeemed at the Redemption Price (but if the date fixed for
redemption is an interest payment date, the interest installment payable on such
date shall be payable to the registered holder at the close of business on the
applicable record date pursuant to Section 2.4).
(b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall make available for
delivery to the holder thereof, at the expense of the Company, a new Debenture
of authorized denomination in principal amount equal to the unredeemed portion
of the Debenture so presented.
SECTION 3.6 NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time and from time to time during the term of the
Debentures, to defer payments of interest by extending the interest payment
period of such Debentures for a period not exceeding 20 consecutive quarters
(the "Extended Interest Payment Period"), during which Extended Interest Payment
Period no interest shall be due and payable; provided that no Extended Interest
Payment Period may extend beyond the Maturity Date. Interest, which has been
deferred because of the extension of the interest payment period pursuant to
this Section 4.1, shall bear interest thereon at the rate of ______ per annum,
compounded quarterly during the Extended Interest Payment Period (the
"Compounded Interest''). At the end of the Extended Interest Payment Period, the
Company shall calculate (and deliver such calculation to the Trustee) and pay
all interest accrued and unpaid on the Debentures, including any Additional
Interest and Compounded Interest (together, "Deferred Interest") that shall be
payable to the holders of the Debentures in whose names the Debentures are
registered in the Debenture Register on the first record date after the end of
the Extended Interest Payment Period. Before the termination of any Extended
Interest Payment Period, the Company may further extend such period, provided
that such period together with all such further extensions
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thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity
Date of the Debentures. Upon the termination of any Extended Interest Payment
Period and upon the payment of all Deferred Interest then due, the Company may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extended Interest
Payment Period.
SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period one Business Day before the earlier of (i) the next succeeding
date on which Distributions on the Trust Securities issued by the Trust are
payable; or (ii) the date the Trust is required to give notice of the record
date or the date such Distributions are payable to The Nasdaq Stock Market's
National Market of other applicable self-regulatory organization or to holders
of the Preferred Securities issued by the Trust, but in any event at least one
Business Day before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period at least one Business Day
before the earlier of (i) the next succeeding Interest Payment Date; or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to The Nasdaq Stock Market's National Market or other
applicable self-regulatory organization or to holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a) or
(b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in
the Minimum Extended Interest Payment Period permitted under Section 4.1.
SECTION 4.3 LIMITATION ON TRANSACTIONS.
If (i) the Company shall exercise its right to defer payment of interest as
provided in Section 4.1; (ii) there shall have occurred any Event of Default; or
(iii) the Company is in default with respect to its obligations under the
Preferred Securities Guarantee, then (a) the Company will not, and will not
permit any Subsidiary to, declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
the Company's capital stock (other than (1) the reclassification of any class of
the Company's capital stock into another class of its capital stock; (2)
dividends or distributions payable in any class of the Company's common stock,
(3) any declaration of a dividend in connection with the implementation of a
shareholder rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (4)
payments under the Preferred Securities Guarantee and (5)
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purchases of the Company's common stock related to the rights under any of the
Company's benefit plans for its or its subsidiaries' directors, officers or
employees); (b) the Company will not, and will not permit any Subsidiary to,
make any payment of interest, principal or premium, if any, or repay, repurchase
or redeem any debt securities issued by the Company which rank pari passu with
or junior to the Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any Subsidiary of the Company
if such guarantee ranks pari passu with or junior to the Debentures; provided,
however, that notwithstanding the foregoing the Company may make payments
pursuant to its obligations under the Preferred Securities Guarantee; and (c)
the Company shall not redeem, purchase or acquire less than all of the
outstanding Debentures or any of the Preferred Securities.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the principal
of and interest on the Debentures at the time and place and in the manner
provided herein.
SECTION 5.2 MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in the Place of Payment where (i) Debentures may be
presented for payment; (ii) Debentures may be presented as hereinabove
authorized for registration of transfer and exchange; and (iii) notice and
demands to or upon the Company in respect of the Debentures and this Indenture
may be given or served, such designation to continue with respect to such office
or agency until the Company shall, by written notice signed by its President or
a Vice President and delivered to the Trustee, designate some other office or
agency for such purposes or any of them. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
notices and demands. In addition to any such office or agency, the Company may
from time to time designate one or more offices or agencies where the Debentures
may be presented for registration or transfer and for exchange in the manner
provided herein, and the Company may from time to time rescind such designation
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Place of Payment for
such purposes. The Company shall give the Trustee prompt written notice of any
such designation or rescission thereof.
SECTION 5.3 PAYING AGENTS.
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(a) If the Company shall appoint one or more paying agents for the
Debentures, other than the Trustee, the Company shall cause each such paying
agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for the
payment of the principal of or interest on the Debentures (whether
such sums have been paid to it by the Company or by any other obligor
of such Debentures) in trust for the benefit of the Persons entitled
thereto;
(ii) that it shall give the Trustee prompt written notice of any
failure by the Company (or by any other obligor of such Debentures) to
make any payment of the principal of or interest on the Debentures
when the same shall be due and payable;
(iii) that it shall, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii) above, upon the
written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such paying agent; and
(iv) that it shall perform all other duties of paying agent as set
forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to the
Debentures, it shall on or before each due date of the principal of or interest
on such Debentures, set aside, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay such principal or interest
so becoming due on Debentures until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and shall promptly notify the Trustee
of such action, or any failure (by it or any other obligor on such Debentures)
to take such action. Whenever the Company shall have one or more paying agents
for the Debentures, it shall, prior to each due date of the principal of or
interest on any Debentures, deposit with the paying agent a sum sufficient to
pay the principal or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or interest, and (unless
such paying agent is the Trustee) the Company shall promptly notify the Trustee
of this action or failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the
agreement to hold sums in trust as provided in this Section 5.3 is subject to
the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture or
for any other purpose, pay, or direct any paying agent to pay, to the Trustee
all sums held in trust by the Company or such paying agent, such sums to be held
by the Trustee upon the same terms and conditions as those upon which such sums
were held by the Company or such paying agent; and, upon such payment by any
paying agent to the Trustee, such paying agent shall be released from all
further liability with respect to such money.
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SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or convey, transfer or
lease all or substantially all of its property and assets to any other entity
and no entity shall consolidate with or merge into the Company or convey,
transfer or lease substantially all of its properties and assets to the Company,
unless the provisions of Article XII hereof are complied with.
SECTION 5.6 LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to its payment of any obligations
under the Preferred Securities Guarantee relating to the Trust; or (iii) the
Company shall have given notice of its election to defer payments of interest on
such Debentures by extending the interest payment period as provided in this
Indenture and such period, or any extension thereof, shall be continuing, then
(a) the Company may not, and may not permit any Subsidiary to, declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (1) the reclassification of any class of the Company's capital stock
into another class of capital stock, (2) dividends or distributions payable in
any class of the Company's common stock, (3) any declaration of a dividend in
connection with the implementation of a shareholder rights plan, or the issuance
of stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, (4) payments under the Preferred Securities
Guarantee and (5) purchases of the Company's common stock related to the rights
under any of the Company's benefit plans for its or its subsidiaries' directors,
officers or employees); (b) the Company shall not make any payment of interest,
principal or premium, if any, or repay, repurchase or redeem any debt securities
issued by the Company which rank pari passu with or junior to the Debentures;
provided, however, that the Company may make payments pursuant to its
obligations under the Preferred Securities Guarantee; and (c) the Company shall
not redeem, purchase or acquire less than all of the outstanding Debentures or
any of the Preferred Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding, the
Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the
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Company's ownership of the Common Securities; (ii) not voluntarily terminate,
wind up or liquidate the Trust, except upon prior regulatory approval if then so
required under applicable capital guidelines or regulatory policies and use its
reasonable efforts to cause the Trust (a) to remain a business trust, except in
connection with a distribution of Debentures, the redemption of all of the Trust
Securities of the Trust or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement; and (b) to otherwise continue not to
be treated as an association taxable as a corporation or partnership for United
States federal income tax purposes; and (iii) use its reasonable efforts to
cause each holder of Trust Securities to be treated as owning an individual
beneficial interest in the Debentures. In connection with the distribution of
the Debentures to the holders of the Preferred Securities issued by the Trust
upon a Dissolution Event, the Company shall use its best efforts to list such
Debentures on The Nasdaq Stock Market's National Market or on such other
exchange as the Preferred Securities are then listed.
SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to _______ __, 2002, the Company shall not purchase any Debentures,
in whole or in part, from the Trust.
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ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
SECTION 6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTURE HOLDERS
The Company shall furnish or cause to be furnished to the Trustee (a)
within one Business Day after January and June 30/th/ of each year a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the holders of the Debentures as of such regular record date, provided that the
Company shall not be obligated to furnish or cause to furnish such list at any
time that the list shall not differ in any respect from the most recent list
furnished to the Trustee by the Company; and (b) at such other times as the
Trustee may request in writing within 30 days after the receipt by the Company
of any such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished; provided, however, that,
in either case, no such list need be furnished if the Trustee shall be the
Debenture Registrar.
SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as registrar for the Debentures (if acting in
such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.
SECTION 6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within 15
days after the Company is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of such Sections, then to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
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information, documents and reports that may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to time
by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
6.3 and delivered to Debenture holders or the Company's stockholders as may be
required by rules and regulations prescribed from time to time by the
Commission.
(d) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 6.4 REPORTS BY THE TRUSTEE.
(a) The Trustee shall transmit to Debentureholders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee
shall, within sixty days after each May 15 following the date of this Indenture
deliver to Debentureholders a brief report, dated as of such May 15, which
complies with the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission to
Debentureholders, be filed by the Trustee with each stock exchange, if any, upon
which the Debentures are listed with the Commission and with the Company will
promptly notify the Trustee when any Debentures become listed on any stock
exchange.
SECTION 6.5 STATEMENTS AS TO DEFAULT.
(a) The Company will deliver to the Trustee annually, within 120 days
after the end of each of its fiscal years, a certificate, from its principal
executive officer, principal financial officer or principal accounting officer,
stating whether or not to the best knowledge of the signer thereof the
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Company is in compliance (without regard to periods of grace or notice
requirements) with all conditions and covenants under this Indenture, and if the
Company shall not be in compliance, specifying such non-compliance and the
nature and status thereof of which such signer may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and in
any event within five days after the Company becomes aware of the occurrence of
any Event of Default or an event which, with notice or the lapse of time or
both, would constitute an Event of Default, an Officers' Certificate setting
forth the details of such Event of Default or Default and the action which the
Company proposes to take with respect thereto.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and is
continuing:
(i) the Company defaults in the payment of any installment of
interest (including Additional Interest or Compounded Interest, if
any) upon any of the Debentures, as and when the same shall become due
and payable, and continuance of such default for a period of 30 days;
provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this
purpose;
(ii) the Company defaults in the payment of the principal on the
Debentures as and when the same shall become due and payable whether
at maturity, upon redemption, by declaration of acceleration of
maturity or otherwise;
(iii) the Company fails to observe or perform any other of its
covenants or agreements with respect to the Debentures for a period of
90 days after the date on which written notice of such failure,
requiring the same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given to the Company by
the Trustee, by registered or certified mail, or to the Company and
the Trustee by the holders of at least 25% in aggregate principal
amount of the Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any Bankruptcy
Law (i) commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to
the appointment of a Custodian of it or for
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all or substantially all of its property; or (iv) makes a general
assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in an
involuntary case; (ii) appoints a Custodian of the Company for all or
substantially all of its property; or (iii) orders the liquidation of
the Company, and the order or decree remains unstayed and in effect
for 60 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved,
wound-up its business or otherwise terminated its existence except in
connection with (i) the distribution of Debentures to holders of Trust
Securities in liquidation of their interests in the Trust; (ii) the
redemption of all of the outstanding Trust Securities of the Trust; or
(iii) certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then Outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
holders of a majority in aggregate principal amount of the Debentures then
Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest (including Additional Interest and Compounded Interest,
if any) upon all the Debentures and the principal of any and all Debentures that
shall have become due otherwise than by acceleration (with interest upon such
principal, and upon overdue installments of interest, at the rate per annum
expressed in the Debentures to the date of such payment or deposit) and the
amount payable to the Trustee under Section 9.6; and (ii) any and all Events of
Default under this Indenture, other than the nonpayment of principal on
Debentures that shall not have become due by their terms, shall have been
remedied or waived as provided in Section 7.6. No such rescission and annulment
shall extend to or shall affect any subsequent default or impair any right
consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored
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respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company and the Trustee shall continue as though no
such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (1) in case it shall default in the payment
of any installment of interest (including Additional Interest and Compounded
Interest) on any of the Debentures, and such default shall have continued for a
period of 90 Business Days; or (2) in case it shall default in the payment of
the principal of any of the Debentures when the same shall have become due and
payable, whether upon maturity of the Debentures or upon redemption or upon
declaration or otherwise, then, upon demand of the Trustee, the Company shall
pay to the Trustee, for the benefit of the holders of the Debentures, the whole
amount that then shall have been become due and payable on all such Debentures
for principal or interest, or both, as the case may be, with interest upon the
overdue principal and (if the Debentures are held by the Trust or a trustee of
the Trust, without duplication of any other amounts paid by the Trust or trustee
in respect thereof) upon overdue installments of interest at the rate per annum
expressed in the Debentures; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and the
amount payable to the Trustee and its counsel under Section 9.7.
(b) If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or other obligor upon
the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company or the creditors or property of either, the Trustee shall
have power to intervene in such proceedings and take any action therein that may
be permitted by the court and shall (except as may be otherwise provided by law)
be entitled to file such proofs of claim and other papers and documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed for the entire amount due and payable by the
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee and its counsel under Section 9.7; and any
receiver, assignee or trustee in bankruptcy or reorganization is hereby
authorized by each of the holders of the Debentures to make such payments to the
Trustee, and, in the event that the Trustee shall consent to the making of such
payments directly to such Debentureholders, to pay to the Trustee any amount due
it under Section 9.7.
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(d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to Debentures, may be enforced
by the Trustee without the possession of any of such Debentures, or the
production thereof at any trial or other proceeding relating thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for payment to the Trustee of any amounts due under Section 9.7, be
for the ratable benefit of the holders of the Debentures. In case of an Event of
Default hereunder, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Debentureholder any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Debentureholder in
any such proceeding.
SECTION 7.3 APPLICATION OF MONEYS COLLECTED.
Any moneys collected by the Trustee pursuant to this Article VII with
respect to the Debentures shall be applied in the following order, at the date
or dates fixed by the Trustee and, in case of the distribution of such moneys on
account of principal or interest, upon presentation of the Debentures, and
notation thereon the payment, if only partially paid, and upon surrender thereof
if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Debentures for principal and interest, respectively.
FOURTH: Any remaining balance to the Company.
SECTION 7.4 LIMITATION ON SUITS.
(a) No holder of any Debenture shall have any right by virtue or by
availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or
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under or with respect to this Indenture or for the appointment of a receiver or
trustee, or for any other remedy hereunder, unless (i) such holder previously
shall have given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than 25% in
aggregate principal amount of the Debentures then Outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; and (iv) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity, shall have failed to institute any such action, suit or proceeding;
and (v) during such 60 day period, the holders of a majority in principal amount
of the Debentures do not give the Trustee a direction inconsistent with the
request.
(b) Notwithstanding anything contained herein to the contrary or any other
provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. For the protection and enforcement
of the provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.8, all powers and remedies
given by this Article VII to the Trustee or to the Debentureholders shall, to
the extent permitted by law, be deemed cumulative and not exclusive of any other
powers and remedies available to the Trustee or the holders of the Debentures,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Indenture or otherwise
established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 7.4, every power and remedy
given by this Article VII or by law to the Trustee or the Debentureholders may
be exercised
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from time to time, and as often as shall be deemed expedient, by the Trustee or
by the Debentureholders.
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the Debentures
at the time Outstanding, determined in accordance with Section 10.4, shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee; provided, however, that such direction shall not be in conflict
with any rule of law or with this Indenture. Subject to the provisions of
Section 9.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability. The holders of a majority in aggregate
principal amount of the Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.4, may on behalf of the holders of all
of the Debentures waive any past default in the performance of any of the
covenants contained herein and its consequences, except (i) a default in the
payment of the principal of or interest on, any of the Debentures as and when
the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the consent of the
holder of each Outstanding Debenture is required, such waiver shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such waiver. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Debentures shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures by
such holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party
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litigant; but the provisions of this Section 7.7 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Debentureholder, or
group of Debentureholders holding more than 10% in aggregate principal amount of
the Outstanding Debentures, or to any suit instituted by any Debentureholder for
the enforcement of the payment of the principal of or interest on the
Debentures, on or after the respective due dates expressed in such Debenture or
established pursuant to this Indenture.
SECTION 7.8 DIRECT ACTION BY HOLDERS OF PREFERRED SECURITIES.
Any registered holder of the Preferred Securities issued by the Trust shall
have the right, upon the occurrence of an Event of Default described in Section
7.1(a)(i) or 7.1(a)(ii), to institute a suit directly against the Company for
enforcement of payment to such holder of principal of and (subject to Sections
2.4 and 4.1) interest (including any Additional Interest) on the Debentures
having a principal amount equal to the aggregate Liquidation Amount (as defined
in the Trust Agreement) of such Preferred Securities held by such holder. The
Company may not amend this Indenture to remove this right to institute a suit
directly against the Company without the prior consent of the holders of all the
Preferred Securities.
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1 FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A
attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of up to $__________ may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
make available for delivery said Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its President, or any Vice
President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default that may have occurred, shall undertake to
perform with respect to the Debentures
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such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants shall be read into this Indenture against
the Trustee. In case an Event of Default has occurred that has not been cured or
waived, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall, with respect to
the Debentures, be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable with respect to the
Debentures except for the performance of such duties and obligations
as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to the Debentures conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Indenture;
(2) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
the holders of not less than a majority in principal amount of the
Debentures at the time outstanding relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this
Indenture with respect to the Debentures; and
(4) none of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or liability is not reasonably
assured to it under
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the terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 9.2 NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the Debentures,
as their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of any default in the payment of the principal or
interest (including Additional Interest and Compounded Interest, if any) on any
Debenture, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
the directors and/or Responsible Officers of the Trustee determines in good
faith that the withholding of such notice is in the interests of the holders of
such Debentures; and provided, further, that in the case of any default of the
character specified in Section 7.1(a)(iii), no such notice to holders of
Debentures need be sent until at least 30 days after the occurrence thereof. For
the purposes of this Section 9.2, the term "default" means any event which is,
or after notice or lapse of time or both, would become, an Event of Default with
respect to the Debentures.
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(a) The Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by the President or any Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or an
Event of Default, other than an Event of Default specified in Section 7.1(a)(i)
or (ii), unless and until it receives notification of such Event of Default from
the Company or by holders of at least 25% of the aggregate principal amount of
the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted hereunder in good faith and in reliance thereon;
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(e) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
any of the Debentureholders, pursuant to the provisions of this Indenture,
unless such Debentureholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred therein or thereby; nothing contained herein shall, however, relieve
the Trustee of the obligation, upon the occurrence of an Event of Default (that
has not been cured or waived) to exercise with respect to the Debentures such of
the rights and powers vested in it by this Indenture, and to use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, but the Trustee in its discretion may make such
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney; and
(h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for the correctness of the same.
(b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by the
Company of any of the Debentures or of the proceeds of such Debentures, or for
the use or application of any moneys paid over by the Trustee in accordance with
any provision of this Indenture, or for the use or application of any moneys
received by any paying agent other than the Trustee.
SECTION 9.5 MAY HOLD DEBENTURES.
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The Trustee or any paying agent or registrar for the Debentures, in its
individual or any other capacity, may become the owner or pledgee of Debentures
and, subject to Sections 9.9 and 9.14, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, paying agent or Debenture
Registrar.
SECTION 9.6 MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree in writing with the Company to pay thereon.
SECTION 9.7 COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee and their
agents for, and to hold them harmless against, any and all loss, damage, claims,
liability or expense, including taxes (other than taxes based upon, measured by
or determined by the income of the Trustee), arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent that such loss, damage, claim, liability
or expense is due to its own negligence or bad faith.
The Trustee shall have a lien prior to the Debentures as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 9.7, except with respect to funds held in trust
for the benefit of the holders of particular Debentures. When the Trustee incurs
expenses or renders services in connection with an Event of Default specified in
Section 7.1(a)(iv), Section 7.1(a)(v) or 7.1(a)(vi), the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable Bankruptcy Law.
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The provisions of this Section shall survive the termination of this
Indenture.
SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the administration
of the provisions of this Indenture the Trustee shall deem it necessary or
desirable that a matter be proved or established prior to taking or suffering or
omitting to take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered to the Trustee and
such certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered or
omitted to be taken by it under the provisions of this Indenture upon the faith
thereof.
SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10 CORPORATE TRUSTEE REQUIRED ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures issued
hereunder which shall at all times be a corporation organized and doing business
under the laws of the United States of America or any State or Territory thereof
or of the District of Columbia or a corporation or other Person permitted to act
as trustee by the Commission, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $50,000,000, and
subject to supervision or examination by federal, state, territorial, or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.10, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee with respect to Debentures by written instrument, in
duplicate, executed by order of the Board
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of Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 30 days after the
mailing of such notice of resignation, the resigning Trustee may petition at the
expense of the Company any court of competent jurisdiction for the appointment
of a successor trustee with respect to Debentures, or any Debentureholder who
has been a bona fide holder of a Debenture or Debentures for at least six months
may, subject to the provisions of Section 9.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper, appoint a successor trustee.
(b) In case at any time any one of the following shall occur
(i) the Trustee shall fail to comply with the provisions of Section
9.9 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 9.10 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then, in any such
case, the Company may remove the Trustee with respect to all
Debentures and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of
which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee, or, subject to the provisions of
Section 9.9, unless the Trustee's duty to resign is stayed as provided
herein, any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, on behalf of that
holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the consent of the Company. If no successor trustee shall have been so appointed
and have accepted appointment within 30 days after such notification, the
Trustee may petition at the expense of the Company any court of competent
jurisdiction for the appointment of a successor trustee with respect to
Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, subject to the provisions
of Section
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9.9, on behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may appoint a
successor trustee.
(d) No resignation or removal of the Trustee and no appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective until acceptance of
appointment by the successor trustee as provided in Section 9.12.
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.
(b) Upon request of any successor trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor trustee all such rights, powers and trusts referred to in
paragraph (a) of this Section 9.12.
(c) No successor trustee shall accept its appointment unless at the time
of such acceptance such successor trustee shall be qualified and eligible under
this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided in
this Section 9.12, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Debentureholders,
as their names and addresses appear upon the Debenture Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided that
such corporation shall be qualified under the provisions of Section 9.9 and
eligible under the provisions of Section 9.10, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding. In case any Debentures shall
have
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been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Debentures so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Debentures.
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 31l(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the Debentures
may take any action (including the making of any demand or request, the giving
of any notice, consent or waiver or the taking of any other action), the fact
that at the time of taking any such action the holders of such majority or
specified percentage have joined therein may be evidenced by any instrument or
any number of instruments of similar tenor executed by such holders of
Debentures in Person or by agent or proxy appointed in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Debentureholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Debentureholders of record at the close of business on the record date shall
be computed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of Outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.
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Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture Register
of such Debentures or by a certificate of the Debenture Registrar thereof.
(c) The Trustee may require such additional proof of any matter referred
to in this Section 10.2 as it shall deem necessary.
SECTION 10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any Debenture,
the Company, the Trustee, any paying agent, any Authenticating Agent and any
Debenture Registrar may deem and treat the Person in whose name such Debenture
shall be registered upon the books of the Company as the absolute owner of such
Debenture (whether or not such Debenture shall be overdue and notwithstanding
any notice of ownership or writing thereon made by anyone other than the
Debenture Registrar) for the purpose of receiving payment of or on account of
the principal of and interest on such Debenture (subject to Section 2.3) and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any Authenticating Agent nor any Debenture Registrar shall be affected by
any notice to the contrary.
SECTION 10.4 CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling or
controlled by, or under common control with the Company or any other obligor on
the Debentures shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver, only Debentures that a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. The Debentures so owned that have
been pledged in good faith may be regarded as Outstanding for the purposes of
this Section 10.4, if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and that
the pledgee is not a Person directly or indirectly, controlling or controlled
by, or under direct or indirect common control with the Company or any such
other obligor. In case of a dispute as to such right, any decision by the
Trustee taken upon the advice of counsel shall be full protection to the
Trustee.
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
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At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures specified
in this Indenture in connection with such action, any holder of a Debenture that
is shown by the evidence to be included in the Debentures the holders of which
have consented to such action may, by filing written notice with the Trustee,
and upon proof of holding as provided in Section 10.2, revoke such action so far
as concerns such Debenture. Except as aforesaid any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor, on registration of transfer thereof or in place
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action shall be conclusively binding upon the
Company, the Trustee and the holders of all the Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the holders
of all or any of the Debentures or to surrender any right or power herein
conferred upon the Company;
(e) to evidence the succession of another corporation to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Debentures contained;
(f) to convey, transfer, assign, mortgage or pledge to or with the Trustee
any property or assets which the Company may desire to convey, transfer, assign,
mortgage or pledge;
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(g) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, as herein set forth;
(h) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
(i) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures; or
(j) to qualify or maintain the qualification of this Indenture under the
Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 11.1 may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time Outstanding, notwithstanding any of the
provisions of Section 11.2.
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders of
not less than a majority in aggregate principal amount of the Debentures at the
time Outstanding, the Company, when authorized by Board Resolutions, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner not
covered by Section 11.1 the rights of the holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall without
the consent of the holders of each Debenture then Outstanding and affected
thereby, (i) extend the fixed maturity of any Debentures, reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon (other than the Company's right to defer interest pursuant to this
Indenture), without the consent of the holder of each Debenture so affected; or
(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture; provided further, that
if the Debentures are held by the Trust or a trustee of the Trust, such
supplemental indenture shall not be effective until the holders of a majority in
liquidation preference of Trust Securities of the Trust shall have consented to
such supplemental indenture; provided further, that if the consent of the holder
of each Outstanding Debenture is required, such supplemental indenture shall not
be effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
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consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the provisions
of this Article XI, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the Trustee,
the Company and the holders of Debentures shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion but
shall not be obligated to enter into such supplemental indenture. The Trustee,
subject to the provisions of Section 9.1, may receive an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant to this
Article XI is authorized or permitted by, and conforms to, the terms of this
Article XI and that it is proper for the Trustee under the provisions of this
Article XI to join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register.
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Any failure of the Trustee to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, the
Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of, in the case of the Company, the due and punctual
payment of the principal of and interest on all of the Debentures Outstanding
and the due and punctual performance of all of the covenants and conditions of
this Indenture to be performed by the Company, as the case may be, such
successor corporation shall succeed to and be substituted for the Company, with
the same effect as if it had been named as the Company herein, and thereupon the
predecessor corporation shall be relieved of all obligations and covenants under
this Indenture and the Debentures.
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(b) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition such changes in phraseology and form (but not in substance)
may be made in the Debentures thereafter to be issued as may be appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures shall
prevent the Company from merging into itself or acquiring by purchase or
otherwise all or any part of the property of any other Person (whether or not
affiliated with the Company).
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any Debentures
that shall have been destroyed, lost or stolen and that shall have been replaced
or paid as provided in Section 2.8) and Debentures for whose payment money or
Governmental Obligations have theretofore been deposited in trust or segregated
and held in trust by the Company (and thereupon repaid to the Company or
discharged from such trust, as provided in Section 13.5); or (b) all such
Debentures not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations sufficient or a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; then this Indenture shall
thereupon cease to be of further effect except for the provisions of Sections
2.3, 2.6, 2.8, 5.1, 5.2, 5.3 and 9.10, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.7 and 13.5, that
shall survive to such date and thereafter, and the Trustee, on demand of the
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
SECTION 13.2 DISCHARGE OF OBLIGATIONS.
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If at any time all Debentures not heretofore delivered to the Trustee for
cancellation or that have not become due and payable as described in Section
13.1 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Company shall also pay or cause to be paid all other
sums payable hereunder by the Company, then after the date such moneys or
Governmental Obligations, as the case may be, are deposited with the Trustee,
the obligations of the Company under this Indenture shall cease to be of further
effect except for the provisions of Sections 2.3, 2.6, 2.8, 5.1, 5.2, 5.3, 9.7,
9.10 and 13.5 hereof that shall survive until such Debentures shall mature and
be paid. Thereafter, Sections 9.7 and 13.5 shall survive.
SECTION 13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee pursuant
to Sections 13.1 or 13.2 shall be held in trust and shall be available for
payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 13.1 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the holders of Outstanding Debentures.
SECTION 13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture, all
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
SECTION 13.5 REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any paying agent or
the Trustee, or then held by the Company in trust, for payment of principal of
or interest on the Debentures that are not applied but remain unclaimed by the
holders of such Debentures for at least two years after the date upon which the
principal of or interest on such Debentures shall have respectively become due
and payable, shall be repaid to the Company, as the case may be, on May 31 of
each year or (if then held by the Company) shall be discharged from such trust;
and thereupon the paying agent and the Trustee shall be released from all
further liability, with respect to such money's or Governmental Obligations, and
the holder of any of the Debentures entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof.
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ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or on behalf of the Company shall bind their respective successors
and assigns, whether so expressed or not.
SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
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SECTION 15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority of
its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand that by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures to or on the Company may be given
or served by being deposited first class postage prepaid in a post-office letter
box addressed (until another address is filed in writing by the Company with the
Trustee), as follows: PennFed Financial Services, Inc., 622 Eagle Rock Avenue,
West Orange, New Jersey 07052, Attention: President. Any notice, election,
request or demand by the Company or any Debentureholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made in writing at the Corporate Trust Office of the Trustee.
SECTION 15.5 GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without regard to conflicts
of law principles.
SECTION 15.6 TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness and not
as equity for federal income tax purposes. The provisions of this Indenture
shall be interpreted to further this intention.
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture
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shall include (1) a statement that the Person making such certificate or opinion
has read such covenant or condition; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (3) a statement that, in the
opinion of such Person, he has made such examination or investigation as, in the
opinion of such Person, is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (4) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with.
SECTION 15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.4) be made
on the next succeeding Business Day with the same force and effect as if made on
the nominal date of maturity or redemption, and no interest shall accrue for the
period after such nominal date.
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the
Trust Indenture Act, such imposed duties shall control.
SECTION 15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.
SECTION 15.11 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture or in
the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12 ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company shall remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
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parties hereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties hereto.
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Debentures held by the
Trust or a trustee of the Trust, if the Property Trustee fails to enforce its
rights under this Indenture as the holder of the Debentures held as the assets
of the Trust, any holder of Preferred Securities may institute legal proceedings
directly against the Company to enforce such Property Trustee's rights under
this Indenture without first instituting any legal proceedings against such
Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), the Company acknowledges that a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Debentures.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on all
Debentures issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Debt and Subordinated Debt (collectively, "Senior
Indebtedness") to the extent provided herein, whether outstanding at the date of
this Indenture or thereafter incurred. No provision of this Article XVI shall
prevent the occurrence of any default or Event of Default hereunder.
SECTION 16.2 DEFAULT ON SENIOR DEBT OR SUBORDINATED DEBT.
In the event and during the continuation of any default by the Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received
by the Trustee when such payment
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is prohibited by the preceding sentence of this Section 16.2, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness or their respective representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Company or the
Trustee in writing within 90 days of such payment of the amounts then due and
owing on the Senior Indebtedness and only the amounts specified in such notice
to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution or winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with any
insolvency or bankruptcy proceeding of the Company, all amounts due upon all
Senior Indebtedness of the Company shall first be paid in full, or payment
thereof provided for in money in accordance with its terms, before any payment
is made by the Company on account of the principal or interest on the
Debentures; and upon any such liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors, marshaling of assets,
any payment by the Company, or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the holders of
the Debentures or the Trustee would be entitled to receive from the Company,
except for the provisions of this Article XVI, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the holders of the Debentures
or by the Trustee under this Indenture if received by them or it, directly to
the holders of Senior Indebtedness of the Company (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders,
as calculated by the Company) or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay such Senior Indebtedness in
full, in money or money's worth, after giving effect to any concurrent payment
or distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness of the
Company, as the case may be, remaining
54
<PAGE>
unpaid to the extent necessary to pay such Senior Indebtedness in full in money
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, as
the case may be, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment; and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XVI
are and are intended solely for the purposes of defining the relative rights of
the holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company, its
creditors (other than the holders of Senior Indebtedness of the Company), and
the holders of the Debentures, the obligation of the Company, which is absolute
and unconditional, to pay to the holders of the Debentures the principal of and
interest on the Debentures as and when the same shall become due and payable in
55
<PAGE>
accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Debentures and creditors of the Company, as the
case may be, other than the holders of Senior Indebtedness of the Company, nor
shall anything herein or therein prevent the Trustee or the holder of any
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XVI of the holders of such Senior Indebtedness in respect of cash,
property or securities of the Company, as the case may be, received upon the
exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company referred to
in this Article XVI, the Trustee, subject to the provisions of Article IX, and
the holders of the Debentures shall be entitled to conclusively rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the holders of the Debentures, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof authorizes
and directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any and
all such purposes.
SECTION 16.6 NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article XVI. Notwithstanding the provisions
of this Article XVI or any other provisions of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor, and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1, shall not be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the
56
<PAGE>
purposes for which they were received, and shall not be affected by any notice
to the contrary that may be received by it within two Business Days prior to
such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the Company
(or a trustee on behalf of such holder) to establish that such notice has been
given by a holder of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XVI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XVI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and reimbursement
of expenses as set forth in Section 9.7 shall not be subject to the
subordination provisions of this Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XVI, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to have any fiduciary duty to the holders of such Senior Indebtedness
and, subject to the provisions of Section 9.1, the Trustee shall not be liable
to any holder of such Senior Indebtedness if it shall in good faith mistakenly
pay over or deliver to holders of Debentures, the Company or any other Person
money or assets to which any holder of such Senior Indebtedness shall be
entitled by virtue of this Article XVI or otherwise.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness of
the Company to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
57
<PAGE>
(b) Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness of the Company may, at any time and from time
to time, without the consent of or notice to the Trustee or the holders of the
Debentures, without incurring responsibility to the holders of the Debentures
and without impairing or releasing the subordination provided in this Article
XVI or the obligations hereunder of the holders of the Debentures to the holders
of such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
PENNFED FINANCIAL SERVICES, INC.
By: ________________________________
Name: _______________________________
Title: ______________________________
THE BANK OF NEW YORK, AS TRUSTEE
By: ________________________________
Name: _______________________________
Title: ______________________________
59
<PAGE>
EXHIBIT 4.3
EXHIBIT A
FACE OF DEBENTURE
NO. $ __________
CUSIP NO. ___________
PENNFED FINANCIAL SERVICES, INC.
____% SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE __________, 2027
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
PENNFED FINANCIAL SERVICES, INC., a Delaware corporation (the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to The Bank of New
York, as Property Trustee for PennFed Financial Services, Inc. Trust I, or
registered assigns, the principal sum of Dollars ($__________) on _______ __,
____ (the "Stated Maturity"), and to pay interest on said principal sum from
________ __, 1997, or from the most recent interest payment date (each such
date, an "Interest Payment Date") to which interest has been paid or duly
provided for, quarterly (subject to deferral as set forth herein) in arrears on
January 31, April 30, July 31 and October 31 of each year commencing January 31,
1998, at the rate of ____% per annum until the principal hereof shall have
become due and payable, and on any overdue principal and (without duplication)
on any overdue installment of interest at the rate of ____% per annum compounded
quarterly. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on this Debenture is not a business
day, then payment of interest payable on such date shall be made on the next
succeeding day that is a business day (and without any interest or other payment
in respect of any such delay), except that, if such business day is in the next
succeeding calendar year, such payment shall be made on the preceding business
day, in each case with the same force and effect as if made on such date. The
interest installment so payable, and punctually, paid or duly provided for, on
any Interest Payment Date shall, as provided in the Indenture, be paid to the
person in whose name this Debenture (or one or more Predecessor Debentures, as
defined in said Indenture) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the business day next preceding such Interest Payment Date unless otherwise
provided in the Indenture. Any such interest installment not punctually paid or
duly provided for shall forthwith cease to be payable to the registered holders
on such regular record date and may be paid to the Person in whose name this
Debenture (or one or more Predecessor Debentures) is registered
<PAGE>
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered holders of the Debentures not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the registered holder at such address
as shall appear in the Debenture Register. Notwithstanding the foregoing, so
long as the holder of this Debenture is the Property Trustee, the payment of the
principal of and interest on this Debenture shall be made at such place and to
such account as may be designated by the Trustee.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions; (b)
authorizes and directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate to acknowledge or effectuate the subordination
so provided; and (c) appoints the Trustee his or her attorney-in-fact for any
and all such purposes. Each holder hereof, by his or her acceptance hereof,
hereby waives all notice of the acceptance of the subordination provisions
contained herein and in the Indenture by each holder of Senior Indebtedness,
whether now outstanding or hereafter incurred, and waives reliance by each such
holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
This Debenture shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of New York without regard to conflicts of laws principles.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
PENNFED FINANCIAL SERVICES, INC.
BY: _________________________
Name: _________________________
Title: _________________________
Attest: ________________________
By: ________________________
Name: ________________________
Title: ________________________
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
Dated:
THE BANK OF NEW YORK as Trustee or Authentication Agent
By: __________________________ By: ___________________
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfer this Security
certificate to:
________________________________________________________________________
________________________________________________________________________
(Insert assignees social security or tax identification number)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________
________________________________________________________________________
__________________________________________________________ agent to transfer
this Security certificate on the books of the Company. The agent may substitute
another to act for him or her.
Date:________________________________
Signature:___________________________
______________________________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:__________________________
_________________________________
/1./ Signature must be guaranteed by an "eligible guarantor institution" that
is a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities and Exchange Act of 1934, as amended.
2
<PAGE>
REVERSE OF DEBENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company (herein
sometimes referred to as the "Debentures"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture dated as of ________
__, 1997 (the "Indenture") duly executed and delivered between the Company and
The Bank of New York, as Trustee (the "Trustee"), to which Indenture reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. The Debentures are limited in aggregate principal
amount as specified in the Indenture.
The Company has the right to redeem this Debenture at the option of the
Company, without premium or penalty (i) at any time on or after ________ __,
2002 in whole or in part, or (ii) at any time in certain circumstances in whole
(but not in part) upon the occurrence of a Special Event, in each case at a
Redemption Price equal to 100% of the principal amount plus any accrued but
unpaid interest, to the date of such redemption (the "Redemption Price"). The
Redemption Price shall be paid prior to 12:00 noon, Eastern Standard Time, on
the date of such redemption or at such earlier time as the Company determines.
Any redemption pursuant to this paragraph shall be made upon not less than 30
days nor more than 60 days notice, at the Redemption Price. If the Debentures
are only partially redeemed by the Company, the Debentures shall be redeemed pro
rata or by lot or by any other method utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of the Debentures
except as provided in the Indenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon (except for
deferrals of interest as described below), without the consent of the holder of
each Debenture so affected; or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of each Debenture
then outstanding and affected thereby. The Indenture also contains provisions
permitting the holders of a majority in
<PAGE>
aggregate principal amount of the Debentures at the time outstanding, on behalf
of all of the holders of the Debentures, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture, and its consequences, except a default in the payment
of the principal of or interest on any of the Debentures. Any such consent or
waiver by the registered holder of this Debenture (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Debenture and of any Debenture issued in
exchange therefor or in place thereof (whether by registration of transfer or
otherwise or whether any notation of such consent or waiver is made upon this
Debenture).
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal and interest on this Debenture
at the time and place and at the rate and in the money herein prescribed.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of the Debentures and from time
to time to extend the interest payment period of such Debentures for up to 20
consecutive quarters (each, an "Extended Interest Payment Period"), at the end
of which period the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Debentures to the
extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extended Interest Payment Period, the Company
may further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters. At the termination of any such
Extended Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Company may commence a new
Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount shall be
issued to the designated transferee or transferees. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and the Debenture Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
interest
2
<PAGE>
due hereon and for all other purposes, and neither the Company nor the Trustee
nor any paying agent nor any Debenture Registrar shall be affected by any notice
to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect of the Indenture, against any incorporator, stockholder, officer or
director, past, present or future, as such, of the Company or any predecessor or
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issuance hereof, expressly waived and released. The Debentures are issuable
only in registered form without coupons in denominations of $25 and any integral
multiple thereof.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Note is unsecured by any collateral, including the assets of the
Company or any of its subsidiaries or other affiliates.
3
<PAGE>
EXHIBIT 4.4
CERTIFICATE OF TRUST
OF
PENNFED CAPITAL TRUST I
THIS Certificate of Trust of PennFed Capital Trust I (the "Trust"), dated
as of September 15, 1997, is being duly executed and filed by the undersigned,
as trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (S)3801, et seq.).
- ------- -- ----
1. Name. The name of the business trust formed hereby is PennFed Capital
----
Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By:/s/ Mary Jane Morrissey
-----------------------------------------
Name: Mary Jane Morrissey
Title:
LUCY T. TINKER, as Trustee
/s/ Lucy T. Tinker
--------------------------------------------
JEFFREY J. CARFORA, as Trustee
/s/ Jeffrey J. Carfora
--------------------------------------------
<PAGE>
TRUST AGREEMENT
OF
PENNFED CAPITAL TRUST I
THIS TRUST AGREEMENT, dated as of September 15, 1997, is made among PennFed
Financial Services, Inc., a Delaware corporation, as "Depositor" and Lucy T.
Tinker and Jeffrey J. Carfora as "Administrative Trustees" and The Bank of New
York (Delaware) as "Delaware Trustee" (the Delaware Trustee and the
Administrative Trustees together, the "Trustees"). The Depositor and the
Trustees hereby agree as follows:
1. The trust created hereby shall be known as "PennFed Capital Trust I"
(the "Trust"), in which name the Trustees or the Depositor, to the extent
provided herein, may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. It is the intention of the parties hereto that the Trust
created hereby constitute a business trust under Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. (S) 3801, et seq. (the "Business Trust Act"), and that
------- -- ---
this document constitute the governing instrument of the Trust. The Trustees are
hereby authorized and directed to execute and file a certificate of trust with
the Delaware Secretary of State in such form as the Trustees may approve.
3. An amended and restated Trust Agreement satisfactory to each party to
it and substantially in the form to be included as an exhibit to the
Registration Statement (the "1933 Act Registration Statement") referred to
below, or in such other form as the parties thereto may approve, will be entered
into to provide for the contemplated operation of the Trust created hereby and
the issuance of the Preferred or Capital Securities and Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustees shall not have any duty or obligation
hereunder or with respect of the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by applicable law or
otherwise. Notwithstanding the foregoing, the Trustees may take all actions
deemed proper as are necessary to effect the transactions contemplated herein.
4. The Depositor, as the Depositor of the Trust, is hereby authorized (i)
to file with the Securities and Exchange Commission (the "Commission") and to
execute, in the case of the 1933 Act Registration Statement and 1934 Act
Registration Statement (as herein defined), on behalf of the Trust, (a) the 1933
Act Registration Statement, including pre-effective or post-effective amendments
to such Registration Statement, relating to the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of the Preferred or Capital
Securities of the Trust, (b) any preliminary prospectus or prospectus or
supplement thereto relating to the Capital or Preferred Securities required to
be filed pursuant to the 1933 Act, and (c) a Registration Statement on Form 8-A
or other appropriate form (the "1934 Act Registration Statement") (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the Preferred or Capital Securities of the Trust under the
Securities Exchange Act of 1934, as amended; (ii) to file with the Nasdaq Stock
Market or other exchange, and execute on behalf of
<PAGE>
the Trust a listing application and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Preferred or Capital Securities to be listed on the
Nasdaq Stock Market or such other exchange; (iii) to file and execute on behalf
of the Trust such applications, reports, surety bonds, irrevocable consents,
appointments of attorney for service of process and other papers and documents
as shall be necessary or desirable to register the Preferred or Capital
Securities under the securities or "Blue Sky" laws of such jurisdictions as the
Depositor, on behalf of the Trust, may deem necessary or desirable; and (iv) to
execute, deliver and perform on behalf of the Trust an underwriting agreement
with the Depositor and the underwriter or underwriters of the Preferred or
Capital Securities of the Trust. In the event that any filing referred to in
clauses (i)-(iii) above is required by the rules and regulations of the
Commission, the Nasdaq Stock Market or other exchange, or state securities or
Blue Sky laws to be executed on behalf of the Trust by the Trustees, the
Trustees, in their capacities as trustees of the Trust, are hereby authorized
and directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing, it being understood that the Trustees, in their
capacities as trustees of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, the Nasdaq Stock Market or other
exchange, or state securities or Blue Sky laws. In connection with all of the
foregoing, the Trustees, solely in their capacities as trustees of the Trust,
and the Depositor hereby constitute and appoint Joseph L. LaMonica and Patrick
D. McTernan as his, her or its, as the case may be, true and lawful attorneys-
in-fact and agents with full power of substitution and resubstitution for the
Depositor or in the Depositor's name, place and stead, in any and all
capacities, to sign any and all amendments (including all pre-effective and
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
any other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his respective substitute or substitutes, shall do or cause to be
done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be three and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Depositor which
may increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Depositor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware (with regard to conflict of laws
principles).
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed as of the day and year first above written.
PENNFED FINANCIAL SERVICES, INC.,
as Depositor
By: /s/ Joseph L. LaMonica
-------------------------------------------
Joseph L. LaMonica
President and Chief Executive Officer
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Mary Jane Morrissey
-------------------------------------------
Name: Mary Jane Morrissey
Title:
LUCY T. TINKER,
as Administrative Trustee
/s/ Lucy T. Tinker
--------------------------------------------------
JEFFREY J. CARFORA,
as Administrative Trustee
/s/ Jeffrey J. Carfora
--------------------------------------------------
-3-
<PAGE>
EXHIBIT 4.6
AMENDED AND RESTATED TRUST AGREEMENT
AMONG
PENNFED FINANCIAL SERVICES, INC., AS DEPOSITOR
THE BANK OF NEW YORK, AS PROPERTY TRUSTEE
THE BANK OF NEW YORK (DELAWARE), AS DELAWARE TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF ________ __, 1997
PENNFED CAPITAL TRUST I
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I DEFINED TERMS 2
Section 101. Definitions 2
ARTICLE II ESTABLISHMENT OF THE TRUST 10
Section 201. Name 10
Section 202. Office of The Delaware Trustee; Principal Place of 10
Business
Section 203. Initial Contribution of Trust Property; 11
Organizational Expenses
Section 204. Issuance of The Preferred Securities 11
Section 205. Issuance of The Common Securities; Subscription 11
And Purchase of Debentures
Section 206. Declaration of Trust 12
Section 207. Authorization to Enter Into Certain Transactions 12
Section 208. Assets of Trust 16
Section 209. Title to Trust Property 16
ARTICLE III PAYMENT ACCOUNT 16
Section 301. Payment Account 16
ARTICLE IV DISTRIBUTIONS; REDEMPTION 16
Section 401. Distributions 16
Section 402. Redemption 17
Section 403. Subordination of Common Securities 19
Section 404. Payment Procedures 20
Section 405. Tax Returns And Reports 20
Section 406. Payments of Taxes, Duties, Etc. of The Trust 20
Section 407. Payments Under Indenture 21
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE V TRUST SECURITIES CERTIFICATES 21
Section 501. Initial Ownership 21
Section 502. The Trust Securities Certificates 21
Section 503. Execution And Delivery of Trust Securities 22
Certificates
Section 503a. Global Preferred Securities 22
Section 504. Registration of Transfer And Exchange of Preferred 24
Securities Certificates
Section 505. Mutilated, Destroyed, Lost or Stolen Trust 25
Securities Certificates
Section 506. Persons Deemed Securityholders 26
Section 507. Access to List of Securityholders' Names And 26
Addresses
Section 508. Maintenance of Office or Agency 26
Section 509. Appointment of Paying Agent 26
Section 510. Ownership of Common Securities by Depositor 27
Section 511. Notices to Clearing Agency 27
Section 511a. Definitive Preferred Securities And Temporary 27
Preferred Securities
Section 512. Rights of Securityholders 28
Section 513. CUSIP Numbers 30
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; 31
VOTING
Section 601. Limitations on Voting Rights 31
Section 602. Notice of Meetings 32
Section 603. Meetings of Preferred Securityholders 32
Section 604. Voting Rights 32
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 605. Proxies, Etc. 32
Section 606. Securityholder Action by Written Consent 33
Section 607. Record Date For Voting And Other Purposes 33
Section 608. Acts of Securityholders 33
Section 609. Inspection of Records 34
ARTICLE VII REPRESENTATIONS AND WARRANTIES 34
Section 701. Representations And Warranties of The Property 34
Trustee And The Delaware Trustee
Section 702. Representations And Warranties of Depositor 36
ARTICLE VIII TRUSTEES 36
Section 801. Certain Duties And Responsibilities 36
Section 802. Certain Notices 37
Section 803. Certain Rights of Property Trustee 38
Section 804. Not Responsible For Recitals or Issuance of 40
Securities
Section 805. May Hold Securities 40
Section 806. Compensation; Indemnity; Fees 40
Section 807. Corporate Property Trustee Required; Eligibility of 41
Trustees
Section 808. Conflicting Interests 41
Section 809. Co-trustees And Separate Trustee 42
Section 810. Resignation And Removal; Appointment of 43
Successor
Section 811. Acceptance of Appointment by Successor 44
Section 812. Merger, Conversion, Consolidation or Succession to 45
Business
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 813. Preferential Collection of Claims Against Depositor 45
or Trust
Section 814. Reports by Property Trustee 45
Section 815. Reports to The Property Trustee 46
Section 816. Evidence of Compliance With Conditions Precedent 46
Section 817. Number of Trustees 46
Section 818. Delegation of Power 47
Section 819. Voting 47
ARTICLE IX DISSOLUTION, LIQUIDATION AND 47
MERGER
Section 901. Dissolution Upon Expiration Date 47
Section 902. Early Dissolution 47
Section 903. Termination 48
Section 904. Liquidation 48
Section 905. Mergers, Consolidations, Amalgamations or 50
Replacements of The Trust
ARTICLE X MISCELLANEOUS PROVISIONS 51
Section 1001. Limitation of Rights of Securityholders 51
Section 1002. Amendment 51
Section 1003. Separability 52
Section 1004. Governing Law 52
Section 1005. Payments Due on Non-business Day 52
Section 1006. Successors 53
Section 1007. Headings 53
Section 1008. Reports, Notices And Demands 53
Section 1009. Agreement Not to Petition 54
</TABLE>
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<PAGE>
<TABLE>
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<S> <C> <C>
Section 1010. Trust Indenture Act; Conflict With Trust Indenture 54
Act
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee 55
And Indenture
</TABLE>
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities Certificate
-v-
<PAGE>
CROSS-REFERENCE TABLE
Section of Section of Amended
Trust Indenture Act and Restated
of 1939, as amended Trust Agreement
------------------- ---------------
310(a)(1) 807
310(a)(2) 807
310(a)(3) 807
310(a)(4) 207(a)(ii)
310(b) 808
311(a) 813
311(b) 813
312(a) 507
312(b) 507
312(c) 507
313(a) 814(a)
313(a)(4) 814(b)
313(b) 814(b)
313(c) 1008
313(d) 814(c)
314(a) 815
314(b) Not Applicable
314(c)(1) 816
314(c)(2) 816
314(c)(3) Not Applicable
314(d) Not Applicable
314(e) 101,816
315(a) 801(a), 803(a)
315(b) 802, 1008
315(c) 801(a)
315(d) 801, 803
316(a)(2) Not Applicable
316(b) Not Applicable
316(c) 607
317(a)(1) Not Applicable
317(a)(2) Not Applicable
317(b) 509
318(a) 1010
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect any interpretation of any of its terms or provisions.
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ________ __, 1997, among
(i) PennFed Financial Services, Inc., a Delaware corporation (including any
successors or assigns, the "Depositor"), (ii) The Bank of New York, a New York
banking corporation, as property trustee (in such capacity, the "Property
Trustee" and, in its separate corporate capacity and not in its capacity as
Property Trustee, the "Bank"), (iii) The Bank of New York (Delaware), a Delaware
banking corporation, as Delaware Trustee (the "Delaware Trustee"), (iv)
_________________, an individual, and _________________, an individual, each of
whose address is c/o PennFed Financial Services, Inc., 622 Eagle Rock Avenue,
West Orange, New Jersey 07052 (each an "Administrative Trustee" and
collectively the "Administrative Trustees") (the Property Trustee, the Delaware
Trustee and the Administrative Trustees referred to collectively as the
"Trustees"), and (v) the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Property Trustee and the Delaware Trustee have
heretofore duly declared and established a business trust, PennFed Capital Trust
I, pursuant to the Delaware Business Trust Act by the entering into of that
certain Trust Agreement, dated as of _______ __, 1997 (the "Original Trust
Agreement"), and by the execution and filing by the Delaware Trustee, the
Depositor and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on _______ __, 1997, the
form of which is attached as Exhibit A; and
WHEREAS, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities (as defined
herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and
sale of the Preferred Securities (as defined herein) by the Trust pursuant to
the Underwriting Agreement (as defined herein); and (iii) the acquisition by the
Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein).
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein)
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows.
<PAGE>
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein", "hereof and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement solely in such
Person's capacity as Administrative Trustee of the Trust formed and continued
hereunder and not in such Person's individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an executive officer, director or general partner.
-2-
<PAGE>
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Preferred Security or beneficial interest therein, the rules
and procedures of the Depositary for such Preferred Security, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the Preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking liquidation or reorganization of or in respect of such
Person under the United States Bankruptcy Code of 1978, as amended, or any other
similar applicable federal or state law, and the continuance of any such decree
or order unvacated and unstayed for a period of 90 days; or the commencement of
an involuntary case under the United States Bankruptcy Code of 1978, as amended,
in respect of such Person, which shall continue undismissed for a period of 90
days or entry of an order for relief in such case; or the entry of a decree or
order of a court having jurisdiction in the premises for the appointment on the
ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee
or assignee in bankruptcy or insolvency of such Person or of its property, or
for the winding up or liquidation of its affairs, and such decree or order shall
have remained in force unvacated and unstayed for a period of 60 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States Bankruptcy
Code of 1978, as amended, or other similar applicable Federal or State law, or
the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or custodian
or liquidator or trustee or assignee in bankruptcy or insolvency of such Person
or of its property, or shall make a general assignment for the benefit of
creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on which
banking institutions in the Borough of Manhattan, The City of New York, or the
State of Delaware are authorized or required by law, executive order or
regulation to remain closed, or a day on which the Property Trustee's Corporate
Trust Office or the Corporate Trust Office of the Debenture Trustee is closed
for business.
-3-
<PAGE>
"Capital Treatment Event" has the meaning specified in Section 1.1 of the
Indenture.
"Certificate Depositary Agreement" means the agreement among the Trust, the
Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date,
substantially in the form attached as Exhibit B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act. DTC shall be the initial Clearing
Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, or any successor statute,
in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein. Common Securities rank pari
passu with the Preferred Securities; provided, however, that upon the occurrence
of an Event of Default, the right of holders of Common Securities to payment in
respect of (i) distributions, and (ii) payments upon liquidation, redemption and
otherwise are subordinated to the right of holders of Preferred Securities.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal corporate trust office of the Property Trustee located in
New York, New York, and (ii) when used with respect to the Debenture Trustee,
the principal corporate trust office of the Debenture Trustee located in New
York, New York.
-4-
<PAGE>
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1 of
the Indenture.
"Debenture Trustee" means The Bank of New York, a banking corporation
organized under the laws of the State of New York, and any successor thereto, as
trustee under the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's
______% Junior Subordinated Deferrable Interest Debentures due 2027, issued
pursuant to the Indenture.
"Definitive Preferred Securities Certificates" means the Preferred
Securities Certificates issued in certificated, fully registered form (non-
global) as provided in Section 503A.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to
time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor Trustee appointed as herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Depositary" means with respect any Global Preferred Security issuable or
issued in whole or in part in the form of one or more Global Preferred Security,
the Person designated as Depositary by the Depositor.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 401(b).
"DTC" means The Depository Trust Company.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
-5-
<PAGE>
(b) default by the Trust or the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate liquidation preference of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
statute, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in Section 4.1
of the Indenture.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 503A.
"Guarantee" means the Preferred Securities Guarantee Agreement executed and
delivered by the Depositor, as guarantor, and The Bank of New York, as Preferred
Guarantee Trustee, contemporaneously with the execution and delivery of this
Trust Agreement, for the benefit of the Holders of the Preferred Securities, as
amended from time to time.
"Indenture" means the Indenture, dated as of_______ __, 1997 between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented from
time to time.
-6-
<PAGE>
"Investment Company Act," means the Investment Company Act of 1940, or any
successor statute, in each case as amended from time to time.
"Investment Company Event" has the meaning specified in Section 1.1 of the
Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which shall be used to pay the Redemption Price of such Trust
Securities; and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a termination or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed. Each
Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debentures.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Chief Executive Officer, President or a Vice President and by the Chief
Financial Officer, the Treasurer or an Assistant Treasurer or the Controller or
an Assistant Controller or the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the officers signing
an Officers' Certificate given pursuant to Section 816 shall be the principal
executive, financial or accounting officer of the Depositor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
-7-
<PAGE>
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may
be counsel for the Trust, the Property Trustee, or the Depositor, but not an
employee of any thereof, and who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals to
this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means, as of
the date of determination, all Preferred Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in
lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 504, 505 and 511a; provided, however, that in determining
whether the Holders of the requisite Liquidation Amount of the Outstanding
Preferred Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Preferred Securities owned by the
Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be
disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Preferred Securities
that such Trustee actually knows to be so owned shall be so disregarded and (b)
the foregoing shall not apply at any time when all of the outstanding Preferred
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. Preferred Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustees the pledgee's right so to act with
respect to such Preferred Securities and that the pledgee is not the Depositor
or any Affiliate of the Depositor.
"Owners" means each Person who is the beneficial owner of a beneficial
interest in a Global Preferred Security as reflected in the records of the
Clearing Agency or, if a Clearing Agency participant is not the Owner, then as
reflected in the records of a Person maintaining an account with such Clearing
Agency (directly or indirectly, in accordance with the rules of such Clearing
Agency).
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 509 and shall initially be the Bank.
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"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures shall be held and from which the Property Trustee shall make
payments to the Securityholders in accordance with Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as Exhibit
E.
"Property Trustee" means the Person identified as the "Property Trustee,"
in the Preamble to this Trust Agreement solely in its capacity as Property
Trustee of the Trust and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures, allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities is registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means PennFed Capital Trust I, a Delaware business trust created
and continued hereby.
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"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939, as amended, is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) any cash on deposit in, or
owing to, the Payment Account; and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
_______ __, 1997, among the Trust, the Depositor and the Underwriter named
therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "PennFed Capital
Trust I," as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees may engage in the transactions
contemplated hereby, make and execute contracts and other instruments on behalf
of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
The address of the Property Trustee in the State of Delaware is c/o The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711, Attention: Corporate Trust Department, or such other address in the State
of Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal executive office of the
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Trust is c/o PennFed Financial Services, Inc., 622 Eagle Rock Avenue, West
Orange, New Jersey 07052.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in connection
with the Original Trust Agreement of the sum of $10.00, which constituted the
initial Trust Property. The Depositor shall pay organizational expenses of the
Trust as they arise or shall, upon request of any Trustee, promptly reimburse
such Trustee for any such expenses paid by such Trustee. The Depositor shall
make no claim upon the Trust Property for the payment of such expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
The Depositor on behalf of the Trust and pursuant to the Original Trust
Agreement, executed and delivered the Underwriting Agreement. Contemporaneously
with the execution and delivery of this Trust Agreement, an Administrative
Trustee, on behalf of the Trust, shall execute in accordance with Section 502
and deliver in accordance with the Underwriting Agreement, Preferred Securities
Certificates, registered in the name of the Persons entitled thereto, in an
aggregate amount of 1,200,000 Preferred Securities having an aggregate
Liquidation Amount of $30,000,000 against receipt of the aggregate purchase
price of such Preferred Securities of $___________, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee. If the
underwriters exercise their Option and there is an Option Closing Date (as such
terms are defined in the Underwriting Agreement), then an Administrative
Trustee, on behalf of the Trust, shall execute in accordance with Section 502
and deliver in accordance with the Underwriting Agreement, additional Preferred
Securities Certificates, registered in the name of the Persons entitled thereto,
in an aggregate amount of up to 180,000 Preferred Securities having an aggregate
Liquidation Amount of up to $4,500,000 against receipt of the aggregate purchase
price of such Preferred Securities of $_________, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF
DEBENTURES.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor in an aggregate amount of
Common Securities having an aggregate Liquidation Amount of $___________ against
payment by the Depositor of such amount, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee. Contemporaneously
therewith, an Administrative Trustee on behalf of the Trust, shall subscribe to
and purchase from the Depositor corresponding amounts of Debentures, registered
in the name of the Property Trustee on behalf of the Trust and having an
aggregate principal amount equal to $___________ (being the sum of the amounts
delivered to the Property Trustee pursuant to (i) the second sentence of Section
204; and (ii) the first sentence of Section 205(a)), and, in satisfaction of the
purchase price for such Debentures, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the sum of $___________.
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(b) If the underwriters exercise the Option and there is an Option
Closing Date, then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and deliver to the Depositor, Common
Securities Certificates, r egistered in the name of the Depositor, in an
aggregate amount of Common Securities having an aggregate Liquidation Amount of
up to $___________ against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor corresponding amounts of
Debentures, registered in the name of the Trust and having an aggregate
principal amount of up to $___________, and, in satisfaction of the purchase
price of such Debentures, the Property Trustee, on behalf of the Trust, shall
deliver to the Depositor the amount received from one of the Administrative
Trustees pursuant to the last sentence of Section 204 (being the sum of the
amounts delivered to the Property Trustee pursuant to (i) the third sentence of
Section 204; and (ii) the first sentence of this Section 205(b)).
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures;
and (b) to engage in those activities necessary, convenient or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall be one of the Trustees of the
Trust for the sole and limited purpose of fulfilling the requirements of Section
3807 of the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207 and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the following:
(i) As among the Trustees, each Administrative Trustee shall have the
power and authority to act on behalf of the Trust with respect to the
following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver and
perform on behalf of the Trust, the Expense Agreement,
Certificate Depositary Agreement and such other agreements or
documents as may be necessary or desirable in connection with the
purposes and function of the Trust;
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(C) assisting in the registration of the Preferred Securities
under the Securities Act of 1933, as amended, and under state
securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities upon
The Nasdaq Stock Market's National Market or such securities
exchange or exchanges as shall be determined by the Depositor and
the registration of the Preferred Securities under the Exchange
Act, and the preparation and Filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust
Agreement; (F) the appointment of a Paying Agent, authenticating
agent and Securities Registrar in accordance with this Trust
Agreement;
(F) the appointment of a Paying Agent, authenticating agent and
Securities Registrar in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of
cancellation with the Secretary of State of the State of
Delaware;
(H) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory
business trust under the laws of the State of Delaware and of
each other jurisdiction in which such existence is necessary to
protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for
which the Trust was created;
(I) assisting in the registration or listing of the Preferred
Securities with DTC or upon such other trading facilities or
exchanges as shall be determined by the Depositor and the
preparation and filing of all periodic and other reports and
other documents pursuant to the foregoing; and
(J) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is
necessary or advisable to give effect to the terms of this Trust
Agreement for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to the
following matters:
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(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms of
this Trust Agreement;
(E) the exercise of all of the rights, powers and privileges of
a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the
execution of the certificate of cancellation with the Secretary
of State of the State of Delaware;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee may from time
to time determine is necessary or advisable to give effect to the
terms of this Trust Agreement and protect and conserve the Trust
Property for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder);
(J) registering transfers of the Trust Securities in accordance
with this Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii), the
Property Trustee shall have none of the duties, liabilities,
powers or the authority of the Administrative Trustees set forth
in Section 207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, setoff or otherwise dispose of any
of the Trust Property or interests therein, including to Securityholders, except
as expressly provided herein; (iii) take any action that would cause the Trust
to fail or cease to qualify as a "grantor trust" for United States
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federal income tax purposes; (iv) incur any indebtedness for borrowed money or
issue any other debt; or (v) take or consent to any action that would result in
the placement of a Lien on any of the Trust Property. The Administrative
Trustees shall defend all claims and demands of all Persons at any time claiming
any Lien on any of the Trust Property adverse to the interest of the Trust or
the Securityholders in their capacity as Securityholders.
(c) In connection with the issuance and sale of the Preferred Securities,
the Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission and
the execution on behalf of the Trust of a registration statement on
the appropriate form in relation to the Preferred Securities and the
Debentures, including any amendments thereto;
(ii) the determination of the states in which to take appropriate
action to qualify or, register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions which
must be taken by or on behalf of the Trust, and advise the Trustees of
actions they must take on behalf of the Trust, and prepare for
execution and filing any documents to be executed and filed by the
Trust or on behalf of the Trust, as the Depositor deems necessary or
advisable in order to comply with the applicable laws of any such
States;
(iii) the preparation for filing by the Trust and execution on behalf
of the Trust of an application to The Nasdaq Stock Market's National
Market or a national stock exchange or other organizations for listing
upon notice of issuance of any Preferred Securities and to file or
cause an Administrative Trustee to file thereafter with such exchange
or organization such notifications and documents as may be necessary
from time to time;
(iv) the preparation for filing by the Trust with the Commission and
the execution on behalf of the Trust of a registration statement on
Form 8-A relating to the registration of the Preferred Securities
under Section 12(b) or 12(g) of the Exchange Act, including any
amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement providing for the sale of the Preferred
Securities; and
(vi) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust shall not be deemed to be an "investment
company" required to be registered under the Investment
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Company Act, shall be classified as a "grantor trust" and not as an association
taxable as a corporation for United States federal income tax purposes and so
that the Debentures shall be treated as indebtedness of the Depositor for United
States federal income tax purposes. In this connection, subject to Section 1002,
the Depositor and the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Administrative Trustees determines in their discretion to be
necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
The Trust Securities represent undivided beneficial interests in the Trust
Property, and Distributions (including Additional Amounts) will be made on the
Trust Securities at the rate and
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on the dates that payments of interest (including of Additional Interest, as
defined in the Indenture) are made on the Debentures. Accordingly:
(a) Distributions on the Trust Securities shall be cumulative, and shall
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from ______ __,1997, and,
except during any Extended Interest Payment Period with respect to the
Debentures, shall be payable quarterly in arrears on January 31, April 30, July
31 and October 31 each year, commencing on January 31, 1998. If any date on
which a Distribution is otherwise payable on the Trust Securities is not a
Business Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, payment of such Distribution shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date (each date on which distributions are payable in
accordance with this Section 401(a), a "Distribution Date").
(b) Assuming payments of interest on the Debentures are made when due (and
before giving effect to Additional Amounts, if applicable), Distributions on the
Trust Securities shall be payable at a rate of ______% per annum of the
Liquidation Amount of the Trust Securities. The amount of Distributions payable
for any full period shall be computed on the basis of a 360 day year of twelve
30-day months. The amount of Distributions for any partial period shall be
computed on the basis of the number of days elapsed in a 360 day year of twelve
30 day months. During any Extended Interest Payment Period with respect to the
Debentures, Distributions on the Preferred Securities shall be deferred for a
period equal to the Extended Interest Payment Period. The amount of
Distributions payable for any period shall include the Additional Amounts, if
any.
(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
15th day of the month in which the Distribution is payable.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee in the
name of and at the expense of the Trust by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date to
each Holder of Trust Securities to be redeemed, at such Holder's address
appearing in the Securities Register. The Property Trustee shall have no
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responsibility for the accuracy of any CUSIP number contained in such notice.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of
the particular Trust Securities to be redeemed;
(v) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date
with respect to each such Trust Security; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has immediately available funds then on hand and available in the
Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then, by 10:00 a.m., New York City time, on the Redemption
Date, subject to Section 402(c), the Property Trustee will, so long as the
Preferred Securities are in book-entry-only form, irrevocably deposit with the
Clearing Agency for the Preferred Securities funds sufficient to pay the
applicable Redemption Price and will give such Clearing Agency irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof.
If the Preferred Securities are no longer in book-entry-only form, the Property
Trustee, subject to Section 402(c), will provide the Paying Agent with
irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption shall cease,
except the right of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
and such Securities shall cease to be Outstanding. In the event that any date on
which any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date shall be made on the next
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succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day falls in the
next calendar year, such payment shall be made on the immediately preceding
Business Day, in each case, with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Depositor pursuant to the Guarantee, Distributions
on such Trust Securities shall continue to accumulate, at the then applicable
rate, from the Redemption Date originally established by the Trust for such
Trust Securities to the date such Redemption Price is actually paid, in which
case the actual payment date shall be the date fixed for redemption for purposes
of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be made
to the record holders thereof as they appear on the Securities Register for the
Trust Securities on the relevant record date, which shall be one Business Day
prior to the relevant Redemption Date; provided, however, in the event that the
Preferred Securities do not remain in book-entry form, the relevant record date
shall be the date 15 days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $____ or an integral multiple of
$____ in excess thereof), of the Liquidation Amount of Preferred Securities of a
denomination larger than $25. The Property Trustee shall promptly notify the
Securities Registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part, to the portion
of the Liquidation Amount of Preferred Securities which has been or is to be
redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 402(f), pro rata among the Common Securities and the
Preferred Securities based on the Liquidation Amount of the Trust Securities,
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
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Outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all Outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting from a
Debenture Event of Default, the Holder of Common Securities shall be deemed to
have waived any right to act with respect to any such Event of Default under
this Trust Agreement until the effect of all such Events of Default with respect
to the Preferred Securities shall have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Preferred Securities and not the Holder of the Common Securities,
and only the Holders of the Preferred Securities shall have the right to direct
the Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Preferred Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
Register or, if the Preferred Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments in respect of the Common Securities shall be made in such
manner as shall be mutually agreed between the Property Trustee and the Common
Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
Form required to be filed in respect of the Trust in each taxable year of the
Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to
each Securityholder the appropriate Internal Revenue Service form required to be
furnished to such Securityholder or the information required to be provided on
such form. The Administrative Trustees shall provide the Depositor with a copy
of all such returns and reports promptly after such filing or furnishing. The
Property Trustee shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the written direction of an Administrative Trustee or the Depositor,
shall promptly pay any taxes, duties or
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governmental charges of whatsoever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Holder of Preferred Securities shall be
reduced by the amount of any corresponding payment such Holder (or any related
Owner) has directly received under the Indenture pursuant to Section 512(b) or
(c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
(a) The Preferred Securities Certificates shall be issued in minimum
denominations of $25 Liquidation Amount and integral multiples of $25 in excess
thereof, and the Common Securities Certificates shall be issued in denominations
of $25 Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Trust by manual, facsimile or
imprinted signature of at least one Administrative Trustee and the Property
Trustee shall authenticate and register the Preferred Securities Certificates,
except as provided in Section 503. Trust Securities Certificates bearing the
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates or did not hold such offices at
the date of delivery of such Trust Securities Certificates. A transferee of a
Trust Securities Certificate shall become a Securityholder, and shall be
entitled to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Sections 504 and 511a.
(b) Upon their original issuance, Preferred Securities Certificates shall
be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of the
Depositary and registered in the name of the Depositary's nominee. Unless and
until it is exchangeable in whole or in part for the Preferred Securities in
definitive form, a global security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
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(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date and on the date on which the Underwriters exercise the
option to purchase additional Preferred Securities, as applicable (the "Option
Closing Date"), the Administrative Trustees shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and
205, to be executed by manual, facsimile or imprinted signature on behalf of the
Trust by at least one of the Administrative Trustees and delivered to the
Property Trustee and upon such delivery, the Property Trustee shall authenticate
and register the Preferred Securities Certificates and make available for
delivery such Preferred Securities Certificates upon the written order of the
Depositor, executed by its Chairman of the Board, Chief Executive Officer or
President or any Vice President and the Chief Financial Officer, Treasurer or an
Assistant Treasurer or Secretary or Assistant Secretary without further
corporate action by the Depositor, in authorized denominations.
SECTION 503A GLOBAL PREFERRED SECURITIES.
(a) Each Global Preferred Security issued under this Trust Agreement shall
be registered in the name of the Clearing Agency designated by the Depositor for
the related Global Preferred Securities or a nominee thereof and delivered to
such Clearing Agency or a nominee thereof or custodian therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no Global
Preferred Securities may be exchanged in whole or in part for Preferred
Securities registered, and no transfer of Global Preferred Securities in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Securities or a nominee thereof unless (a) the
Clearing Agency advises the Property Trustee in writing that the Clearing Agency
is no longer willing or able to properly discharge its responsibilities with
respect to the Global Preferred Securities, and the Administrative Trustees are
unable to locate a qualified successor, (b) the Trust at its option advises the
Clearing Agency in writing that it elects to eliminate the global system through
the Clearing Agency, (c) after the occurrence of a Debenture Event of Default or
(d) pursuant to the following sentence. All or any portion of a Global
Preferred Security may be exchanged for a Preferred Security that has a like
aggregate principal amount and is not a Global Preferred Security upon 20 days'
prior written request made by the Clearing Agency or its authorized
representative to the Property Trustee; provided, however that no Definitive
Preferred Security shall be issued in an amount representing less than [___]
Preferred Securities. Upon the occurrence of any event specified in clause (a),
(b) or (c) above, the Administrative Trustees shall notify the Clearing Agency
and the Clearing Agency shall notify all Owners of beneficial interests in
Global Preferred Securities, the Delaware Trustee, the Property Trustee and the
Administrative Trustees of the occurrence of such event and of the availability
of the Definitive Preferred Securities to such Owners requesting the same;
provided, however, that no Definitive Preferred Securities shall be issued in an
amount representing less than $25 in aggregate Liquidation Amount of Preferred
Securities. Upon surrender to the Administrative Trustees of the typewritten
Preferred Securities Certificate or
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certificates representing the Global Preferred Securities held by the Clearing
Agency, accompanied by registration instructions, the Administrative Trustees,
or any one of them, shall execute a Definitive Preferred Securities Certificate
in accordance with the instructions of the Clearing Agency. Neither the
Securities Registrar nor the Trustees shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of the Definitive Preferred
Securities Certificate, the Trustees shall recognize the Holder of a Definitive
Preferred Securities Certificate as a Securityholder. Definitive Preferred
Securities Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Administrative
Trustees, as evidenced by the execution thereof by the Administrative Trustees
or any one of them.
(c) If any Global Preferred Security is to be exchanged for Definitive
Preferred Securities Certificates or cancelled in part, or if Definitive
Preferred Securities Certificates are to be exchanged in whole or in part for a
Global Preferred Security, then either (i) such Global Preferred Security shall
be so surrendered for exchange or cancellation as provided in this Article V or
(ii) the aggregate Liquidation Amount represented by such Global Preferred
Security shall be reduced, subject to Section 502, or increased, by an amount
equal to the Liquidation Amount represented by that portion of the Global
Preferred Security to be so exchanged or cancelled, or equal to the Liquidation
Amount represented by such Definitive Preferred Securities Certificates to be
so exchanged for beneficial interests in the Global Preferred Security
represented thereby, as the case may be, by means of an appropriate adjustment
made on the records of the Securities Registrar, whereupon the Property Trustee,
in accordance with the Applicable Procedures, shall instruct the Clearing Agency
or its authorized representative to make a corresponding adjustment to its
records. Upon surrender to the Administrative Trustees or the Securities
Registrar of the Global Preferred Security by the Clearing Agency, accompanied
by registration instructions, the Administrative Trustees, or any one of them,
shall execute the Definitive Preferred Securities Certificates in accordance
with the instructions of the Clearing Agency and Section 502 hereof; provided,
however, that no Definitive Preferred Securities Certificates shall be issued in
an amount representing less than $25 in Aggregate Liquidation Amount of
Preferred Securities. None of the Securities Registrar, the Trustees or the
Administrative Trustees shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Preferred Securities
Certificates, the Trustees and Administrative Trustees shall recognize the
Holders of the Definitive Preferred Securities Certificates as Securityholders.
The Definitive Preferred Securities Certificates shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the Administrative Trustees, as evidenced by the execution thereof by the
Administrative Trustees or any one of them.
(d) Every Definitive Preferred Security executed and delivered upon
registration of, transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V or
Article IV or otherwise, shall be executed and delivered in the form of, and
shall be, a Global Preferred Security, unless such Definitive Preferred Security
is registered in the name of a Person other than the Clearing Agency for such
Global Preferred Security or a nominee thereof.
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(e) The Clearing Agency or its nominee, as registered owner of a Global
Preferred Security, shall be the Holder of such Global Preferred Security for
all purposes under this Trust Agreement and the Global Preferred Security, and
Owners with respect to a Global Preferred Security shall hold such interests
pursuant to the Applicable Procedures. The Securities Registrar and the
Trustees shall be entitled to deal with the Clearing Agency for all purposes of
this Trust Agreement relating to the Global Preferred Securities (including the
payment of the Liquidation Amount of and Distributions on the beneficial
interests in Global Preferred Securities represented thereby and the giving of
instructions or directions to Owners of Global Preferred Securities represented
thereby) as the sole Holder of the Global Preferred Securities represented
thereby and shall have no obligations to the Owners thereof. Neither the
Property Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Clearing Agency.
The rights of the Owners of the Global Preferred Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Preferred
Securities Certificate are issued pursuant to Section 503B, the initial Clearing
Agency will make global transfers among the Clearing Agency Participants and
receive and transmit payments on the Preferred Securities to such Clearing
Agency Participants.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES
CERTIFICATES
(a) The Property Trustee shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Preferred Securities Certificates (herein referred to as the "Securities
Register") in which the registrar and transfer agent (the "Securities
Registrar"), subject to such reasonable regulations as it may prescribe, shall
provide for the registration of Preferred Securities Certificates and Common
Securities Certificates (subject to Section 510 in the case of the Common
Securities Certificates) and registration of transfers and exchanges of
Preferred Securities Certificates as herein provided. The Property Trustee shall
be the initial Securities Registrar.
Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 508, the
Administrative Trustees or any one of them shall execute and the Property
Trustee shall authenticate and make available for delivery, in the name of the
designated transferee or transferees, one or more new Preferred Securities
Certificates in authorized denominations of a like aggregate Liquidation Amount
dated the date of execution by such Administrative Trustee or Trustees. The
Securities Registrar shall not be required to register the transfer of any
Preferred Securities that have been called for redemption. At the option of a
Holder, Preferred Securities Certificates may be exchanged for other Preferred
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Preferred Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 508.
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Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly authorized
in writing. Each Preferred Securities Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Property Trustee in accordance with its customary practice. The Trust shall not
be required to (i) issue, register the transfer of, or exchange any Preferred
Securities during a period beginning at the opening of business 15 calendar days
before the date of mailing of a notice of redemption of any Preferred Securities
called for redemption and ending at the close of business on the day of such
mailing; or (ii) register the transfer of or exchange of any Preferred
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Preferred Securities being redeemed in part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Preferred
Securities Certificates.
(b) Trust Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Trust Agreement. To
the fullest extent permitted by law, any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
(i) A Trust Security that is not a Global Preferred Security may be
transferred, in whole or in part, to a Person who takes delivery in
the form of another Trust Security that is not a Global Security as
provided in Section 504(a).
(ii) Subject to this Section 504, Preferred Securities shall be
freely transferable.
(iii) A beneficial interest in Global Preferred Security may be
exchanged for a Preferred Security that is not a Global Preferred
Security as provided in Section 503A.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate, and (b) there shall be delivered to the Securities Registrar and
the Administrative Trustees such security or indemnity as may be required by
them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser,
the Administrative Trustees, or any one of them, on behalf of the Trust shall
execute by manual, facsimile or imprinted signature and the Property Trustee in
the case of a Preferred Securities Certificate shall authenticate and make
available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section 505, the
Administrative
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Trustees or the Securities Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Securities Certificate issued pursuant to this
Section 505 shall constitute conclusive evidence of an undivided beneficial
interest in the assets of the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Securities Certificate shall be found at any
time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent, the Securities Registrar and Depositor
shall treat any Persons in whose name any Trust Securities are issued as the
owner of such Trust Securities for the purpose of receiving Distributions and
for all other purposes whatsoever, and neither the Trust, the Trustees, the
Administrative Trustees, the Securities Registrar nor the Depositor shall be
bound by any notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the
Securityholders as of the most recent record date (a) within one Business Day
after January 1 and June 30 of each year; and (b) promptly after receipt by any
Administrative Trustee or the Depositor of a request therefor from the Property
Trustee in order to enable the Property Trustee to discharge its obligations
under this Trust Agreement, in each case to the extent such information is in
the possession or control of the Administrative Trustees or the Depositor and is
not identical to a previously supplied list or has not otherwise been received
by the Property Trustee in its capacity as Securities Registrar. The rights of
Securityholders to communicate with other Securityholders with respect to their
rights under this Trust Agreement or under the Trust Securities, and the
corresponding rights of the Trustee shall be as provided in the Trust Indenture
Act. Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee or the Administrative Trustees accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Preferred Securities Certificates
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
corporate trust office at 101 Barclay Street, Floor 21 West, New York, New York
Attn: Corporate Trust Trustee Administration, as the principal corporate trust
office for such purposes. The Property Trustee shall give prompt written notice
to the Depositor, the Administrative Trustees and to the Securityholders of any
change in the location of the Securities Register or any such office or agency.
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SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Property Trustee may revoke
such power and remove the Paying Agent if such Trustee determines in its sole
discretion that the Paying Agent shall have failed to perform its obligation
under this Trust Agreement in any material respect. The Paying Agent shall
initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee, and acceptable to an Administrative Trustees and the
Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustee and the
Property Trustee. In the event that the Property Trustee shall no longer be the
Paying Agent or a successor Paying Agent shall resign or its authority to act be
revoked, the Property Trustee shall appoint a successor that is reasonably
acceptable to the Administrative Trustees to act as Paying Agent to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent shall hold all sums, if any,
held by it for payment to the Securityholders in trust for the benefit of the
Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and, upon removal of a Paying Agent, such Paying Agent shall
also return all funds in its possession to the Property Trustee. The provisions
of Sections 801, 803 and 806 shall apply to the Property Trustee also in its
role as Paying Agent, for so long as the Property Trustee shall act as Paying
Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Trust Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial and
record ownership of the Common Securities. To the fullest extent permitted by
law, any attempted transfer of the Common Securities (other than a transfer
pursuant to Section 12.1 of the Indenture) shall be void. The Administrative
Trustees shall cause each Common Securities Certificate issued to the Depositor
to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A
SUCCESSOR IN INTEREST TO THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND
SECTION 510 OF THIS TRUST AGREEMENT."
SECTION 511. NOTICES TO CLEARING AGENCY.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Trustees shall
give all such notices and communications specified herein to be given to the
Clearing Agency, and shall have no obligations to the Owners.
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SECTION 511A. DEFINITIVE PREFERRED SECURITIES CERTIFICATE AND TEMPORARY
PREFERRED SECURITIES.
(a) If (a) the Clearing Agency advises the Trustees in writing that the
Clearing Agency is no longer willing or able to discharge properly its
responsibilities with respect to the Preferred Security, and the Depositor is
unable to locate a qualified successor, (b) the Trust at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency or (c) after the occurrence of a Debenture Event of Default,
Holders of a beneficial interest in Preferred Security representing beneficial
interests aggregating at least a majority of the Liquidation Amount advise the
Administrative Trustees in writing that the continuation of a book-entry system
though the Clearing Agency is no longer in the best interest of the Holders of
Preferred Securities, then the Administrative Trustees shall notify the Clearing
Agency and the Clearing Agency shall notify the Holders of Preferred Securities
and the other Trustees of the occurrence of such event and of the availability
of a Definitive Preferred Security to Holders of such class requesting the same.
(b) Pending the preparation of permanent Definitive Preferred Securities
Certificates, an Administrative Trustee may cause to be executed and delivered
on behalf of the Trust temporary Preferred Securities (the "Temporary Preferred
Securities"), which Temporary Preferred Securities are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the Definitive Preferred Securities Certificates
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations of the officers executing such
Temporary Preferred Securities may determine, as evidenced by their execution
thereof.
If Temporary Preferred Securities are issued, an Administrative Trustee
will cause Definitive Preferred Securities Certificates to be prepared without
unreasonable delay. After the preparation of the Definitive Preferred
Securities Certificates, the Temporary Preferred Securities shall be
exchangeable for Definitive Preferred Securities Certificates upon surrender of
the Temporary Preferred Securities at any office or agency of the Depositor
designated herein, without charge to the Holder. Upon surrender for
cancellation of any one or more Temporary Preferred Securities, the Depositor
shall execute and an Administrative Trustee shall execute by manual, facsimile
or imprinted signature and the Property Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
Definitive Preferred Securities Certificates of authorized denominations. Until
so exchanged the Temporary Preferred Securities shall in all respects be
entitled to the same benefits as Definitive Preferred Securities Certificates.
SECTION 512. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights. When issued and delivered to Holders
of the Trust
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Securities against payment of the purchase price therefor, the Trust Securities
shall be fully paid and nonassessable, undivided beneficial interests in the
assets of the Trust. The Holders of the Trust Securities, in their capacities as
such, shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Preferred Securities then
Outstanding shall have such right to make such declaration by a notice in
writing to the Depositor, the Property Trustee and the Debenture Trustee; and
upon any such declaration such principal amount of and the accrued interest on
all of the Debentures shall become immediately due and payable, provided that
the payment of principal and interest on such Debentures shall remain
subordinated to the extent provided in the Indenture.
At any time after such declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture Trustee
a sum sufficient to pay
(A) all overdue installments of interest on all of the
Debentures,
(B) any accrued Additional Interest on all of the Debentures,
(C) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at
the rate borne by the Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under
the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the
Property Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other
than the non-payment of the principal of the Debentures which has
become due solely by such acceleration, have been cured or waived as
provided in the Indenture.
If the Property Trustee fails to annul any such declaration and waive such
default, the Holders of at least a majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor,
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the Property Trustee and the Debenture Trustee, subject to the satisfaction of
the conditions set forth in clause (i) and (ii) of this Section 512.
The Holders of at least a majority in Liquidation Amount of the Preferred
Securities may, on behalf of the Holders of all the Preferred Securities, waive
any past default under the Indenture, except a default in the payment of
principal and interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debenture. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Preferred
Securities all or part of which is represented by Global Preferred Securities, a
record date shall be established for determining Holders of Outstanding
Preferred Securities entitled to join in such notice, which record date shall be
at the close of business on the day the Property Trustee receives such notice.
The Holders on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not such Holders
remain Holders after such record date; provided, that, unless such declaration
of acceleration, or rescission or annulment, as the case may be, shall have
become effective by virtue of the requisite percentage having joined in such
notice prior to the day which is 90 days after the record date, such notice of
declaration of acceleration, or rescission and annulment, as the case may be,
shall automatically and without further action by any Holder be cancelled and of
no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy
of a Holder, from giving, after expiration of such 90-day period, a new written
notice of declaration of acceleration, or rescission and annulment thereof, as
the case may be, that is identical to a written notice which has been cancelled
pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 512.
(c) For so long as any Preferred Securities remain Outstanding, if, upon a
Debenture Event of Default arising from the failure to pay interest or principal
on the Debentures, any Holders of Preferred Securities then Outstanding shall,
to the fullest extent permitted by law and subject to the terms of this Trust
Agreement and the Indenture, have the right to institute a proceeding directly
against the Depositor for enforcement of payment to such Holder of principal of
or interest on the Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities of such Holder.
SECTION 513. CUSIP NUMBERS.
The Depositor in issuing the Debentures may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Debentures or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures,
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and any such redemption shall not be affected by any defect in or omission of
such numbers. The Depositor will promptly notify the Property Trustee of any
change in the CUSIP numbers.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512, 810 and 1002
and in the Indenture and as otherwise required by law, no Holder of Preferred
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under Article VII of
the Indenture; (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable; or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of at least a majority in Liquidation Amount of all
Outstanding Preferred Securities; provided, however, that where a consent under
the Indenture would require the consent of each Holder of Outstanding Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior written consent of each Holder of Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of the
Holders of the Outstanding Preferred Securities, except by a subsequent vote of
the Holders of the Outstanding Preferred Securities. The Property Trustee shall
notify each Holder of Outstanding Preferred Securities of any notice of default
received from the Debenture Trustee with respect to the Debentures. In addition
to obtaining the foregoing approvals of the Holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Administrative Trustees shall
provide to the Property Trustee, at the expense of the Depositor, an Opinion of
Counsel to the effect that the Trust shall continue to be classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes on account of such action.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise; or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class shall be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. No amendment to this Trust
Agreement
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may be made if, as a result of such amendment, the Trust would cease to be
classified as a grantor trust or would be classified as an association taxable
as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled to
vote upon the written request of the Preferred Securityholders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation Amount)
and the Administrative Trustees or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on any
matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding
Preferred Securities (based upon their aggregate Liquidation Amount), present in
person or by proposal shall constitute a quorum at any meeting of
Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding more
than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of the
Securityholders unless this Trust Agreement requires a greater number of
affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $25 of Liquidation
Amount represented by their Trust Securities in respect of any matter as to
which such Securityholders are entitled to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the
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Administrative Trustees may direct, for verification prior to the time at which
such vote shall be taken. When Trust Securities are held jointly by several
Persons, any one of them may vote at any meeting in person or by proxy in
respect of such Trust Securities, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Trust Securities. A proxy purporting to be executed by or on
behalf of a Securityholder shall be deemed valid unless challenged at or prior
to its exercise, and, the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding a majority of all Outstanding Trust
Securities (based upon their aggregate Liquidation Amount) entitled to vote in
respect of such action (or such larger proportion thereof as shall be required
by any express provision of this Trust Agreement) shall consent to the action in
writing (based upon their aggregate Liquidation Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of any Distribution or other action as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Securityholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by an agent duly appointed in writing, and, except as otherwise
expressly provided herein, such action shall become effective when such
instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 801) conclusive in favor
of the Trustees, if made in the manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
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execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Trustee receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE AND THE
DELAWARE TRUSTEE.
The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, as of the date hereof, hereby represents and warrants for the
benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation, duly
organized, validly existing and in good standing under the laws of the State of
New York;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
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(c) the Delaware Trustee is a Delaware banking corporation, duly
organized, validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee and the Delaware Trustee and constitutes the valid and
legally binding agreement of the Property Trustee and the Delaware Trustee
enforceable against each of them in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equity principles;
(f) the execution, delivery and performance by the Property Trustee and
the Delaware Trustee of this Trust Agreement has been duly authorized by all
necessary corporate or other action on the part of the Property Trustee and
Delaware Trustee and does not require any approval of stockholders of the
Property Trustee or the Delaware Trustee and such execution delivery and
performance shall not (i) violate the charter or by-laws of the Property Trustee
or the Delaware Trustee; (ii) violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of any indenture, mortgage, credit agreement, license
or other agreement or instrument to which the Property Trustee or the Delaware
Trustee is a party or by which it is bound; or (iii) violate any law,
governmental rule or regulation of the State of New York or the State of
Delaware, as the case may be, governing the banking or trust powers of the
Property Trustee or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Property Trustee or the Delaware
Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee
contemplated herein or therein requires the consent or approval of, the giving
of notice to, the registration with or the taking of any other action with
respect to any governmental authority or agency under any existing New York or
Delaware law governing the banking or trust powers of the Property Trustee or
the Delaware Trustee, as the case may be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Property Trustee
or the Delaware Trustee , as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
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SECTION 702. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or the
Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall have been, duly and validly executed, issued and delivered
by the Administrative Trustees pursuant to the terms and provisions of, and in
accordance with the requirements of, this Trust Agreement and the
Securityholders shall be, as of such date, entitled to the benefits of this
Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Bank or the Property Trustee, as the case may
be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as provided
by this Trust Agreement and, in the case of the Property Trustee, by the Trust
Indenture Act. Notwithstanding the foregoing, no provision of this Trust
Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. No Administrative Trustee shall be liable for its act or omissions hereunder
except as a result of its own gross negligence or bad faith or willful
misconduct. The Property Trustee's liability shall be determined under the Trust
Indenture Act. Whether or not therein expressly so provided, every provision of
this Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustees shall be subject to the provisions of this
Section 801. To the extent that, at law or in equity, an Administrative Trustee
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to the Securityholders, such Administrative Trustee shall not be liable
to the Trust or to any Securityholder for such Trustee's good faith reliance on
the provisions of this Trust Agreement. The provisions of this Trust Agreement,
to the extent that they restrict the duties and liabilities of the
Administrative Trustees otherwise existing at law or in equity, are agreed by
the Depositor and the Securityholders to replace such other duties and
liabilities of the Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. With respect to the
relationship of each Securityholder and the Trustee, each Securityholder, by its
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acceptance of a Trust Security, agrees that it shall look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 801(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a majority in
Liquidation Amount of the Trust Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the
Payment Account shall be to deal with such Property in a similar
manner as the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Trust Agreement and the
Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree in writing
with the Depositor and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the
Payment Account maintained by the Property Trustee pursuant to Section
301 and except to the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for monitoring
the compliance by the Administrative Trustees or the Depositor with
their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for the negligence, default or misconduct
of the Administrative Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit, in the
manner and to the extent provided in
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Section 1008, notice of such Event of Default to the Securityholders, the
Administrative Trustees and the Depositor, unless such Event of Default shall
have been cured or waived.
(b) The Administrative Trustees shall transmit, to the Securityholders and
the Property Trustee in the manner and to the extent provided in Section 1008,
notice of the Depositor's election to begin or further extend an Extended
Interest Payment Period on the Debentures (unless such election shall have been
revoked) within the time specified for transmitting such notice to the holders
of the Debentures pursuant to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may conclusively rely and shall be protected in
acting or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action; or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with other provisions contained
herein; or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Preferred Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor, provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within 10
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than 2 Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers' Certificate which,
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upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement) or any filing under tax or securities laws or any re-
recording, refiling, or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates) and the advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon and in accordance with such advice, the Property Trustee
shall have the right at any time to seek instructions concerning the
administration of this Trust Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys, provided that the Property Trustee shall be responsible for its own
negligence or recklessness with respect to selection of any agent or attorney
appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request written instructions from the Holders of the Trust
Securities which written instructions may only be given by the Holders of the
same proportion in Liquidation Amount of the Trust Securities as would be
entitled to direct the Property Trustee under the terms of the Trust Securities
in respect of such remedy, right or action; (ii) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received; and (iii) shall be protected in acting in accordance with such written
instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of this
Trust Agreement shall be deemed to impose any duty or obligation on the Property
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall be
illegal, or in which the
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Property Trustee shall be unqualified or incompetent in accordance with
applicable law, to perform any such act or acts, or to exercise any such right,
power, duty or obligation. No permissive power or authority available to the
Property Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as the
Trustees and the Depositor may agree in writing for all services rendered by
them hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative Trustees, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for, and
to hold the Trustees harmless against, any and all loss, damage, claim,
liability, penalty or expense, including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or willful misconduct on its
part, arising out of or in connection with the acceptance or administration of
this Trust Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the acceptance, exercise or
performance of any of its powers or duties hereunder, except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence, bad
faith or willful misconduct (or, in the case of the Administrative Trustees, any
such expense, disbursement or advance as may be attributable to its, his or her
gross negligence, bad faith or willful misconduct).
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The provisions of this Section 806 shall survive the termination of this
Trust Agreement or the earlier resignations or removal of any Trustee.
No Trustee may claim any Lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 806.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 7.1(a)(iv), Section 7.1(a)(v) or
7.1(a)(vi) of the Indenture, the expenses (including reasonable charges and
expenses of its counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable Bankruptcy Law.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section 807,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section 807, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware; or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Property Trust shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any
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jurisdiction in which any part of the Trust Property may at the time be located,
the Depositor shall have power to appoint, and upon the written request of the
Property Trustee, the Depositor shall for such purpose join with the Property
Trustee in the execution, delivery and performance of any instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to the extent required by law to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section 809. If
the Depositor does not join in such appointment within 15 days after the receipt
by it of a request so to do, or in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to make
such appointment. Any co-trustee or separate trustee appointed pursuant to this
Section 809 shall either be (i) a natural person who is at least 21 years of age
and a resident of the United States; or (ii) a legal entity with its principal
place of business in the United States that shall act through one or more
persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(i) The Trust Securities shall be executed and delivered and all
rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustees specified
hereunder, shall be exercised, solely by such Trustees and not by such
co-trustee or separate trustee.
(ii) The rights, powers, duties and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered
by such appointment shall be conferred or imposed upon and exercised
or performed by the Property Trustee or by the Property Trustee and
such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except
to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Property Trustee shall be
incompetent or unqualified to perform such act, in which event such
rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section 809, and, in case a Debenture Event of
Default has occurred and is continuing, the Property Trustee shall
have the power to accept the resignation of, or remove, any such
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co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee
or separate trustee so resigned or removed may be appointed in the
manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any
other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any act
of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant Trustee") and
no appointment of a successor Trustee pursuant to this Article VIII shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant Trustee
may resign at any time with respect to the Trust Securities by giving written
notice thereof to the Securityholders. If the instrument of acceptance by the
successor Trustee required by Section 811 shall not have been delivered to the
Relevant Trustee within 30 days after the giving of such notice of resignation,
the Relevant Trustee may petition, at the expense of the Depositor, any court of
competent jurisdiction for the appointment of a successor Relevant Trustee with
respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Common Securityholder at any time. In no event will the
Holders of the Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested exclusively
in the Common Securityholder. If an instrument of acceptance by a Successor
Trustee required by Section 8.11 shall have not been delivered to the Relevant
Trustee within 30 days after the giving of such notice of removal, the Relevant
Trustee may petition, at the expense of the Depositor, any court of competent
jurisdiction for the appointment of a Successor Relevant Trustee with respect to
the Trust Securities.
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(d) If any Trustee shall resign, be removed or become incapable of acting
as Trustee, or if a vacancy shall occur in the office of any Trustee for any
cause, at a time when no Debenture Event of Default shall have occurred and be
continuing, the Common Securityholder, by act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees with respect to the Trust Securities and the Trust, and the successor
Trustee shall comply with the applicable requirements of Section 811. If the
Property Trustee or the Delaware Trustee, as the case may be, shall resign, be
removed or become incapable of continuing to act as the Property Trustee at a
time when a Debenture Event of Default shall have occurred and is continuing,
the Preferred Securityholders, by Act of the Securityholders of a majority in
Liquidation Amount of the Preferred Securities then Outstanding delivered to the
retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee
or Trustees with respect to the Trust Securities and the Trust, and such
successor Trustee shall comply with the applicable requirements of Section 811.
If an Administrative Trustee shall resign, be removed or become incapable of
acting as Administrative Trustee, at a time when a Debenture Event of Default
shall have occurred and be continuing, the Common Securityholder, by Act of the
Common Securityholder delivered to an Administrative Trustee, shall promptly
appoint a successor Administrative Trustee or Administrative Trustees with
respect to the Trust Securities and the Trust, and such successor Administrative
Trustee or Administrative Trustees shall comply with the applicable requirements
of Section 811. If no successor Relevant Trustee with respect to the Trust
Securities shall have been so appointed by the Common Securityholder or the
Preferred Securityholders and accepted appointment in the manner required by
Section 811, any Securityholder who has been a Securityholder of Trust
Securities on behalf of himself and all others similarly situated may petition a
court of competent jurisdiction for the appointment of a successor Trustee with
respect to the Trust Securities.
(e) The Administrative Trustee shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee who is a natural person dies
or becomes, in the opinion of the Depositor, incompetent or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by (a)
the unanimous act of the remaining Administrative Trustees if there are at least
two of them; or (b) otherwise by the Depositor (with the successor in each case
being a Person who satisfies the eligibility requirement for Administrative
Trustees as forth in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant Trustee
with respect to the Trust Securities and the Trust, the retiring Relevant
Trustee and each successor Relevant Trustee with respect to the Trust Securities
shall execute and deliver an instrument hereto wherein each successor Relevant
Trustee shall accept such appointment and which shall contain such provisions as
shall be necessary or desirable to transfer and confirm to, and to vest in, each
successor Relevant Trustee all the rights, powers, trusts and duties of the
retiring Relevant Trustee with respect
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to the Trust Securities and the Trust and, upon the execution and delivery of
such instrument, the resignation or removal of the retiring Relevant Trustee
shall become effective to the extent provided therein and each such successor
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Relevant
Trustee with respect to the Trust Securities and the Trust, but, on request of
the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall
upon payment of its charges hereunder, duly assign, transfer and deliver to such
successor Relevant Trustee all Trust Property, all proceeds thereof and money
held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance such successor Relevant Trustee shall be qualified
and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of such Relevant Trustee, shall be the
successor of such Relevant Trustee hereunder, provided such Person shall be
otherwise qualified and eligible under this Article VIII, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Trust (or any other obligor upon the Debentures or the Trust
Securities), the Property Trustee shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any such
other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) The Property Trustee shall transmit to Securityholders such reports
concerning the Property Trustee and its actions under this Trust Agreement as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto. If required by Section 313(a) of the Trust
Indenture Act, the Property Trustee shall, within sixty days after each May 15
following the date of the Trust Agreement, deliver to Securityholders a brief
report, dated as of such May 15, which complies with the provisions of such
Section 313(a).
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(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with The Nasdaq Stock Market's
National Market, and each national securities exchange or other organization
upon which the Trust Securities are listed, and also with the Commission so long
as the Preferred Securities are registered under the Securities Exchange Act and
the Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form in
the manner and at the times required by Section 314 of the Trust Indenture Act.
Delivery of such reports, information and documents to the Property Trustee
is for information purposes only and the Property Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Depositor's
compliance with any of its covenants hereunder (as to which the Property Trustee
is entitled to rely exclusively on Officers' Certificates).
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be four, provided that the Holder of all
of the Common Securities by written instrument may increase or decrease the
number of Administrative Trustees. The Property Trustee and the Delaware Trustee
may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 810.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of a Trustee shall not operate to dissolve,
terminate or annul the Trust. Whenever a vacancy in the number of Administrative
Trustees shall occur, until such vacancy is filled by the appointment of an
Administrative Trustee in accordance with Section 810, the Administrative
Trustees in office, regardless of their number (and notwithstanding any other
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provision of this Agreement), shall have all the powers granted to the
Administrative Trustees and shall discharge all the duties imposed upon the
Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
207(a); and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by not
less than a majority of the Administrative Trustees, unless there are only two,
in which case both must consent.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on _______
__, 2027 (the "Expiration Date") subject to distribution of the Trust Property
in accordance with Section 904.
SECTION 902. EARLY DISSOLUTION.
The first to occur of any of the following events is an "Early Termination
Event" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the Depositor
at any time (which direction is wholly optional and within the discretion of the
Depositor) to dissolve the Trust and distribute the Debentures to
Securityholders in exchange for the Preferred Securities in accordance with
Section 904;
(c) the redemption of all of the Preferred Securities in connection with
the redemption of all of the Debentures; and
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(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 904, or upon the
redemption of all of the Trust Securities pursuant to Section 402, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge
of all administrative duties of the Administrative Trustees, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders; and (d) the filing of a Certificate of Cancellation by the
Administrative Trustees under the Delaware Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d) of
Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by
the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 904(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed
to represent a Like Amount of Debentures;
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or,
if Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees shall deem appropriate;
(iv) state the CUSIP number; and
(v) state the office or agency of the Trust where Securities should
be surrendered.
(b) Except where Section 902(c) or 904(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee shall establish a record date for such distribution (which
shall be not more than 45 days prior to the Liquidation Date) and, either itself
acting as exchange agent or through the appointment of a separate exchange
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agent, shall establish such procedures as it shall deem appropriate to effect
the distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the Liquidation
Date, (i) the Trust Securities shall no longer be deemed to be Outstanding; (ii)
certificates representing a Like Amount of Debentures shall be issued to holders
of Trust Securities Certificates upon surrender of such certificates to the
Administrative Trustees or their agent for exchange; (iii) the Depositor shall
use its reasonable efforts to have the Debentures listed on The Nasdaq Stock
Market's National Market or SmallCap Market or on such other securities exchange
or other organization as the Preferred Securities are then listed or traded;
(iv) any Trust Securities Certificates not so surrendered for exchange shall be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal shall be made to holders of Trust
Securities Certificates with respect to such Debentures): and (v) all rights of
Securityholders holding Trust Securities shall cease, except the right of such
Securityholders to receive Debentures upon surrender of Trust Securities
Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Administrative Trustees not to be
practical, the Trust Property shall be liquidated, and the Trust shall be wound-
up or terminated, by the Property Trustee in such manner as the Property Trustee
determines. In such event, Securityholders shall be entitled to receive out of
the assets of the Trust available for distribution to Securityholders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the Liquidation Amount per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If, upon any such winding-up or
termination, the Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis (based
upon Liquidation Amounts). The Holder of the Common Securities shall be entitled
to receive Liquidation Distributions upon any such winding-up or termination pro
rata (determined as aforesaid) with Holders of Preferred Securities, except
that, if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except pursuant to this Section 905
or Section 904. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, the Trust may merge
with or into, consolidate, amalgamate, be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety a trust organized
as such under the laws of any state; provided, that (i) such successor entity
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either (a) expressly assumes all of the obligations of the Trust with respect to
the Preferred Securities; or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise; (ii) the Depositor expressly
appoints a trustee of such successor entity possessing substantially the same
powers and duties as the Property Trustee as the holder of the Debentures; (iii)
the Successor Securities are registered or listed, or any Successor Securities
shall be registered or listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities are
then registered or listed (including, if applicable, the Nasdaq Stock Market's
National Market), if any; (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect; (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Depositor has received an
Opinion of Counsel to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect: and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity shall be required
to register as an "investment company" under the Investment Company Act, and
(viii) the Depositor or any permitted successor or assignee owns all of the
common securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of Holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the successor entity to be classified as other than a grantor trust for
United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death, incapacity, dissolution, bankruptcy or termination of any Person
having an interest, beneficial or otherwise, in Trust Securities shall not
operate to terminate this Trust Agreement, nor dissolve, terminate or annul the
Trust, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or
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bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the Trustees
and the Depositor, without the consent of any Securityholders, (i) as provided
in Section 811 with respect to acceptance of appointment by a successor Trustee;
(ii) to cure any ambiguity, correct or supplement any provision herein or
therein which may be inconsistent with any other provision herein or therein, or
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, that shall not be inconsistent with the other provisions
of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Trust shall be classified for United States federal income tax purposes as a
grantor trust at all times that any Trust Securities are outstanding or to
ensure that the Trust shall not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in the case
of clause (ii), such action shall not adversely affect in any material respect
the interests of any Securityholder, and any such amendments of this Trust
Agreement shall become effective when notice thereof is given to the
Securityholders.
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Trust Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's status
as a grantor trust for United Status federal income tax purposes or the Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 603 or 606 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date; or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 603 or 606 hereof), this
paragraph (c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an "investment company" under the Investment Company Act or to fail or
cease to be classified as a grantor trust for United States federal income tax
purposes.
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(e) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees shall promptly provide to the Depositor a copy of such
amendment.
(f) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day which is a Business Day (except as otherwise
provided in Sections 401(a) and 402(d)), with the same force and effect as
though made on the date fixed for such payment, and no distribution shall
accumulate thereon for the period after such date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust or the Relevant Trustee(s),
including any successor by operation of law. Except as contemplated by Article
XII of the Indenture and pursuant to which the assignee agrees in writing to
perform the Depositor's obligations hereunder, the Depositor shall not assign
its obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
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<PAGE>
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a
Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to PennFed Financial
Services, Inc., 622 Eagle Rock Avenue, West Orange, New Jersey 07052,
Attention: President, facsimile no.: (201) 669-2919. Such notice, demand or
other communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees
shall be given in writing addressed (until another address is published by the
Trust) as follows: (a) with respect to the Property Trustee to The Bank of New
York, 101 Barclay Street, 21W, New York, New York 10286, Attention: Corporate
Trust Trustee Administration; (b) with respect to the Delaware Trustee, to The
Bank of New York (Delaware), c/o The Bank of New York, 101 Barclay Street, Floor
21 West, New York, New York 10286; and (c) with respect to the Administrative
Trustees, to them at the address above for notices to the Depositor, marked
"Attention: Administrative Trustees of PennFed Capital Trust I." Such notice,
demand or other communication to or upon the Trust or the Property Trustee shall
be deemed to have been sufficiently given or made only upon actual receipt of
the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been dissolved in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws" or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor takes action in violation of this
Section 1009, the Property Trustee agrees, for the benefit of Securityholders,
that at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be stopped and precluded
therefrom. The provisions of this Section 1009 shall survive the termination of
this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
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<PAGE>
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
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<PAGE>
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE
OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS AMONG THE TRUST AND SUCH
SECURITYHOLDER AND SUCH OTHERS.
PENNFED FINANCIAL SERVICES, INC., AS DEPOSITOR
By:___________________________________________
Name: Joseph L. LaMonica
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, AS PROPERTY TRUSTEE
By:_______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NEW YORK (DELAWARE), AS DELAWARE TRUSTEE
By:_______________________________
Name: ____________________________
Title: ___________________________
By:_______________________________
Name: ____________________________
Title: As Administrative Trustee
By:_______________________________
Name: ____________________________
Title: As Administrative Trustee
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<PAGE>
EXHIBIT 4.8
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
PENNFED FINANCIAL SERVICES, INC.
AND
THE BANK OF NEW YORK
_______________, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation
ARTICLE II TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application
Section 2.2 Lists of Holders of Securities
Section 2.3 Reports by the Preferred Guarantee Trustee Section 2.4
Periodic Reports to Preferred Guarantee Trustee Section
2.5 Evidence of Compliance with Conditions Precedent
Section 2.6 Events of Default; Waiver
Section 2.7 Event of Default; Notice
Section 2.8 Conflicting Interests
ARTICLE III POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers And Duties of The Preferred Guarantee Trustee
Section 3.2 Certain Rights of Preferred Guarantee Trustee
Section 3.3 Not Responsible For Recitals or Issuance of Guarantee
ARTICLE IV PREFERRED GUARANTEE TRUSTEE
Section 4.1 Preferred Guarantee Trustee; Eligibility
ARTICLE V GUARANTEE
Section 5.1 Guarantee
Section 5.2 Waiver of Notice and Demand
Section 5.3 Obligations Not Affected
Section 5.4 Rights of Holders
Section 5.5 Guarantee of Payment
Section 5.6 Subrogation
Section 5.7 Independent Obligations
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C> <C>
ARTICLE VI LIMITATION OF TRANSACTIONS;
SUBORDINATION
Section 6.1 Limitation of Transactions
Section 6.2 Ranking
ARTICLE VII TERMINATION
Section 7.1 Termination
ARTICLE VIII INDEMNIFICATION
Section 8.1 Exculpation
Section 8.2 Indemnification
ARTICLE IX MISCELLANEOUS
Section 9.1 Successors and Assigns
Section 9.2 Amendments
Section 9.3 Notices
Section 9.4 Benefit
Section 9.5 Governing Law
</TABLE>
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<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE SECTION OF GUARANTEE AGREEMENT
ACT OF 1939, AS AMENDED
<S> <C>
310(a) 4.1 (a)
3 10(b) 4.1 (a), 2.8
310(c) Not Applicable
31 l(a) 2.2(b)
31 1 (b) 2.2(b)
31 1 (c) Not Applicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Not Applicable
314(c) 2.5
314(d) Not Applicable
314(e) 1.1,2.5,3.2
314(f) 2.1,3.2
315(a) 3. 1 (d)
315(b) 2.7
315(c) 3.1
315(d) 3. 1 (d)
316(a) 1.1,2.6, 5.4
316(b) 5 3
317(a) 3.1
317(b) Not Applicable
318(a) 2. 1 (a)
</TABLE>
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<S> <C>
318(b) 2.1
318(c) 2. 1 (b)
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or provisions
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<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of __________, 1997, is executed and delivered by PENNFED
FINANCIAL SERVICES, INC., a Delaware corporation (the "Guarantor"), and THE BANK
OF NEW YORK, a New York Banking corporation, as trustee (the "Preferred
Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Preferred Securities (as defined herein) of PennFed Capital
Trust I, a Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of __________, 1997, among the trustees of the Trust named
herein, the Guarantor, as depositor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof preferred securities, having an aggregate liquidation amount
of $___, designated the _______% Cumulative Trust Preferred Securities (the
"Preferred Securities") representing undivided beneficial ownership interests in
the assets of the Trust and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Trust and the
proceeds thereof, will be used to purchase the Junior Subordinated Deferrable
Interest Debentures due 2027 (the "Junior Subordinated Debentures") of the
Guarantor which will be deposited with The Bank of New York, as Property Trustee
under the Trust Agreement, as trust assets; and
WHEREAS, as an incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
<PAGE>
(b) terms defined in the Trust Agreement in effect on the date of
execution of this Preferred Securities Guarantee have the same meaning when used
in this Preferred Securities Guarantee unless otherwise defined herein;
(c) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which federal or state
banking institutions in the Borough of Manhattan, The City of New York, or the
State of Delaware are authorized or required by law, executive order or
regulation to close or a day on which the Corporate Trust Office of the
Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at The Bank of New York, 101
Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate
Trust Trustee Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the _______% Junior Subordinated Debentures due 2027, of
the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money
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<PAGE>
borrowed; (ii) every obligation of such Persons evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of such Person; (vi) all indebtedness of such person
whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products, including interest rate,
foreign exchange rate and commodity forward contracts, options and swaps and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another Person
the payments of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Preferred Securities Guarantee.
"Guarantor" means PennFed Financial Services, Inc., a Delaware corporation.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions (as defined in the
Trust Agreement) that are required to be paid on such Preferred Securities, to
the extent the Trust shall have funds available therefor, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price"), to the extent the Trust has funds available therefor,
with respect to any Preferred Securities called for redemption by the Trust, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with the distribution of Junior Subordinated
Debentures to the Holders in exchange for Preferred Securities as provided in
the Trust Agreement or a redemption of all of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment, to the extent
the Trust shall have funds available therefor (the "Liquidation Distribution"),
and (b) the amount of assets of the Trust remaining available for distribution
to Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records of
the Trust, of any Preferred Securities; provided, however, that, in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate
of the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
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<PAGE>
"Indenture" means the Indenture dated as of ________ __, 1997, among the
Debenture Issuer and The Bank of New York, as trustee, and any indenture
supplemental thereto pursuant to which certain subordinated debt securities of
the Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Junior Subordinated Debentures" shall have the meaning set forth in the
Recitals hereto.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments. "Majority in liquidation amount of the
Preferred Securities" means the holders of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all of the Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means The Bank of New York, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition of
Guarantee Payments.
-4-
<PAGE>
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer of the Preferred Guarantee Trustee, including any vice-
president, any assistant vice-president, any assistant secretary, any assistant
treasurer or other officer customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officers knowledge of and familiarity with the
particular subject.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1 of
the Indenture.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
(b) If and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require, of
the names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of such date, (i) within one Business Day after January 1 and June
30 of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
15 days before such List of Holders is given to the Preferred Guarantee Trustee;
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The
Preferred Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
-5-
<PAGE>
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
The Preferred Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with
the requirements of Section 313 (d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act. Delivery of such reports, information and documents to the
Preferred Guarantee Trustee is for informational purposes only and the Preferred
Guarantee Trustee's receipt of such shall not constitute constructive notice of
any information contained therein or determinable from information contained
herein, including the Guarantor's compliance with any of its covenants hereunder
(as to which the Preferred Guarantee Trustee is entitled to rely exclusively on
Officer's Certificates).
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c) may be given in
the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, that the Preferred Guarantee Trustee shall be protected in withholding
such notice if and so long as
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<PAGE>
a Responsible Officer of the Preferred Guarantee Trustee in good faith
determines that the withholding of such notice is in the interest of the Holders
of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge
of any Event of Default unless the Preferred Guarantee Trustee shall have
received written notice, or of which a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Trust Agreement shall
have obtained actual knowledge.
SECTION 2.8 CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred
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<PAGE>
Securities Guarantee, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be construed
to relieve the Preferred Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Preferred Guarantee
Trustee shall be determined solely by the express provisions of
this Preferred Securities Guarantee, and the Preferred
Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this
Preferred Securities Guarantee against the Preferred Guarantee
Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed herein, upon any
certificates or opinions furnished to the Preferred Guarantee
Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates
or opinions that by any provision hereof are specifically
required to be furnished to the Preferred Guarantee Trustee,
the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the
Preferred Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the written direction of the Holders of not less
than a Majority in liquidation amount of the Preferred Securities
relating to the time, method and place of conducting any proceeding
for any remedy available to the Preferred Guarantee Trustee, or
exercising any trust or power conferred upon the Preferred Guarantee
Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred
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<PAGE>
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it
under the terms of this Preferred Securities Guarantee or indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee, against
such risk or liability is not reasonably assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or
omitting any action hereunder, the Preferred Guarantee Trustee (unless
other evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and conclusively rely upon an
Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see to
any recording, filing or registration of any instrument (or any
rerecording, refiring or reregistration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel of its
situation, and the advice or opinion of such counsel with respect to
legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion. Such counsel
may be counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Preferred
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Securities Guarantee from any court of competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred
Securities Guarantee at the request or direction of any Holder, unless
such Holder shall have provided to the Preferred Guarantee Trustee
such security and indemnity, reasonably satisfactory to the Preferred
Guarantee Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Preferred Guarantee
Trustee's agents, nominees or custodians) and liabilities that might
be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the
Preferred Guarantee Trustee; provided that, nothing contained in this
Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee
Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Preferred
Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or
by or through agents, nominees, custodians or attorneys, and the
Preferred Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(ix) any action taken by the Preferred Guarantee Trustee or its
agents hereunder shall bind the Holders of the Preferred Securities,
and the signature of the Preferred Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action. No
third party shall be required to inquire as to the authority of the
Preferred Guarantee Trustee to so act or as to its compliance with any
of the terms and provisions of this Preferred Securities Guarantee,
both of which shall be conclusively evidenced by the Preferred
Guarantee Trustee's or its agent's taking such action;
(x) whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Preferred Guarantee Trustee (i)
may request written instructions from the Holders of a Majority in
liquidation amount of the Preferred Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
written instructions are received, and (iii) shall be protected in
conclusively relying on or
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acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as
an institutional trustee under the Trust Indenture Act,
authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000,
and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes
of this Section 4.1 (a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition
as published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1 (a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
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(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(c), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor except during an
Event of Default.
(b) The Preferred Guarantee Trustee may be removed for cause at any time
by Act (within the meaning of Section 608 of the Trust Agreement) of the Holders
of at least a Majority in liquidation amount of the Preferred Securities,
delivered to the Preferred Guarantee Trustee.
(c) The Preferred Guarantee Trustee shall not be removed in accordance
with Sections 4.2(a) and 4.2(b) until a Successor Preferred Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Preferred Guarantee Trustee and delivered to the
Guarantor.
(d) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(e) If no Successor Preferred Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.2 within 60 days after
delivery of an instrument of resignation, the resigning Preferred Guarantee
Trustee may petition any court of competent jurisdiction for appointment of a
Successor Preferred Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Preferred Guarantee Trustee.
(f) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(g) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to
the date of such termination, removal or resignation.
ARTICLE V
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GUARANTEE
SECTION 5.1 GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3 OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Junior Subordinated Debentures);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the
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<PAGE>
Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or consent
required in connection with the Preferred Securities (or the common equity
securities issued by the Trust), including the failure to receive any regulatory
approval required in connection with the redemption of the Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4 RIGHTS OF HOLDERS.
(a) The Guarantor expressly acknowledges that: (i) this Guarantee will be
deposited with the Preferred Guarantee Trustee to be held for the benefit of the
Holder; (ii) the Preferred Guarantee Trustee has the right to enforce this
Preferred Securities Guarantee; and (iii) Holders of a Majority in liquidation
amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Preferred Guarantee Trustee
under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5 GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection. This Preferred Securities Guarantee will not be discharged except
by payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Trust).
SECTION 5.6 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent
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<PAGE>
required by mandatory provisions of law) be entitled to enforce or exercise any
right that it may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.7 INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Preferred Securities, and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if there shall have
occurred an Event of Default under this Preferred Securities Guarantee, an Event
of Default under the Trust Agreement or during an Extended Interest Payment
Period (as defined in the Indenture), then (a) the Guarantor shall not, and
shall not permit any Subsidiary to, declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
the reclassification of any class of the Company's capital stock into another
class of capital stock, (ii) dividends or distributions payable in any class of
the Company's common stock, (iii) any declaration of a dividend in connection
with the implementation of a shareholder rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto and (iv) purchases of the Company's common stock related
to the rights under any of the Company's benefit plans for its or its
subsidiaries' directors, officers or employees), and (b) the Guarantor shall
not, and shall not permit any Subsidiary to, make any payment of interest or
principal on or repay, repurchase or redeem any debt securities issued by the
Guarantor which rank pari passu with or junior to the Junior Subordinated
Debentures; and (c) the Guarantor shall not redeem, purchase or acquire less
than all of the outstanding Debentures or any of the Preferred Securities.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank (i) subordinate and junior in right of payment to
all other Senior Indebtedness of the Guarantor, (ii) pari passu with the most
senior preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the
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Guarantor in respect to any preferred securities or preference stock of any
Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Preferred Securities, (ii) upon full payment of
the amounts payable in accordance with the Trust Agreement upon liquidation of
the Trust, or (iii) upon distribution of the Junior Subordinated Debentures to
the Holders of the Preferred Securities. Notwithstanding the foregoing, this
Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 EXCULPATION.
(a) No Indemnified Person shall be liable, reasonable or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 INDEMNIFICATION.
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The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any and all loss, liability or
expense, including taxes (other than taxes based on the income of the Guarantee
Trustee) incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee. The provisions
of this Section shall survive the termination of the Guarantee Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding, except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article XII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Guarantees obligations hereunder, and any purported
assignment that is not in accordance with these provisions shall be void.
SECTION 9.2 AMENDMENTS.
Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Preferred Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority in liquidation amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
SECTION 9.3 NOTICES.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first-class mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
The Bank of New York
101 Barclay Street
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<PAGE>
Floor 21 West
New York, New York 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Trustee Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
PennFed Financial Services, Inc.
622 Eagle Rock Avenue
West Orange, New Jersey 07052
Facsimile No. (973) 669-2919
Attention: President
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.4 BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1 (a), is not
separately transferable from the Preferred Securities.
SECTION 9.5 GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This Preferred Securities Guarantee is executed as of the day and year
first above written.
PENNFED FINANCIAL SERVICES, INC. AS GUARANTOR
By: ________________________________
Name: _______________________________
Title: ______________________________
THE BANK OF NEW YORK, AS
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PREFERRED GUARANTEE TRUSTEE
By: _______________________________
Name: _______________________________
Title:_______________________________
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EXHIBIT 4.9
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT, dated as of _________ __, 1997, between PennFed Financial
Services, Inc., a Delaware corporation (the "Corporation") having its principal
office at 622 Eagle Rock Avenue, West Orange, New Jersey 07052, and PennFed
Capital Trust I, a Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities, Series A (the
"Common Securities") to and receive debentures from the Corporation and to issue
and sell ___% Trust Preferred Securities, Series A (the "Preferred Securities")
with such powers, preferences and special rights and restrictions are set forth
in the Amended and Restated Trust Agreement of the Trust, dated as of _________
__, 1997, as the same may be amended from time to time (the "Trust Agreement");
WHEREAS, the Corporation will directly or indirectly own all of the Common
Securities of the Trust and will issue the debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Corporation hereby agrees shall benefit
the Corporation and which purchase the Corporation acknowledges will be made in
reliance upon the execution and delivery of this Agreement, the Corporation and
Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by the Corporation.
Subject to the terms and conditions hereof, the Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust, other than obligations of the Trust to pay
to holders of any Preferred Securities or other similar interests in the Trust
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the case may be. This Agreement is intended
to be for the benefit of, and to be enforceable by, all such Beneficiaries,
whether or not such Beneficiaries have received notice hereof.
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Preferred Securities
<PAGE>
or any Beneficiary must restore payment of any sums paid under the Preferred
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by the Corporation and The Bank of New York, as guarantee trustee or
under the Agreement for any reason whatsoever. This Agreement is continuing,
irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
The Corporation hereby waives notice of acceptance of this Agreement and of
any Obligation to which it applies or may apply, and the Corporation hereby
waives presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of the Corporation under
this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or
any action on the part of the Trust granting indulgence or extension of any
kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Trust
or any of the assets of the Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Corporation with respect to the happening of any of, the
foregoing.
Section 1.5 Enforcement.
A Beneficiary may enforce this Agreement directly against the Corporation
and the Corporation waives any right or remedy to require that any action be
brought against the Trust or any other person or entity before proceeding
against the Corporation.
2
<PAGE>
Section 1.6. Subrogation.
The Corporation shall be subrogated to all (if any) rights of the Trust in
respect of any amounts paid to the Beneficiaries by the Corporation under this
Agreement; provided, however, that the Corporation shall not (except to the
extent required by mandatory provisions of law) be entitled to enforce or
exercise any rights which it may acquire by way of subrogation of any indemnity,
reimbursement of other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the Beneficiaries.
Section 2.2 Amendment.
So long as there remains any Beneficiary or any Preferred Securities are
outstanding, this Agreement shall not be modified or amended in any manner
adverse to such Beneficiary or to the holders of the Preferred Securities.
Section 2.3 Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail) or by registered or
certified mail, addressed as follows (and if so given, shall be deemed given
when mailed):
PennFed Capital Trust I
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
PennFed Financial Services, Inc.
622 Eagle Rock Avenue
West Orange, New Jersey 07052
Facsimile No.: (973) 669-2919
Attention: President
3
<PAGE>
Section 2.4. Choice of Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES THEREOF.
THE AGREEMENT is executed as of the day and year first above written.
PENNFED FINANCIAL SERVICES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
PENNFED CAPITAL TRUST I
By:____________________________________
Name:__________________________________
Title: Administrative Trustee
---------------------------------
4
<PAGE>
EXHIBIT 12.1
PENNFED FINANCIAL SERVICES, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1997 1996 1995 1994 1993
----------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before income tax expense..... $11,091 $12,952 $ 9,561 $ 7,447 $ 7,317
Add: Interest on borrowed funds........ 12,901 5,520 1,522 789 1
------ ------ ------ ------ -------
Earnings before fixed charges excluding
Interest on deposits................. 23,992 18,472 11,083 8,236 7,318
Interest on deposits................... 40,172 33,601 25,631 20,036 23,381
------ ------ ------ ------ -------
Earnings before fixed charges.......... $64,164 $52,073 $36,714 $28,272 $30,699
====== ====== ====== ====== =======
Fixed charges:
Interest on borrowed funds............. $12,901 $ 5,520 $ 1,522 $ 789 $ 1
------ ------ ------ ------ -------
Fixed charges excluding interest on
desposits............................. 12,901 5,520 1,522 789 1
Interest on deposits 40,172 33,601 25,631 20,036 23,381
------ ------ ------ ------ -------
Total fixed charges.................. $53,073 $39,121 $27,153 $20,825 $23,382
====== ====== ====== ====== =======
Ratio of earnings to fixed charges
excluding interest on deposits........ 1.86x 3.35x 7.28x 10.44x 7318.00x
====== ====== ====== ====== ========
Ratio of earnings to fixed charges
Including interest on deposits........ 1.21x 1.33x 1.35x 1.36x 1.31x
====== ====== ====== ====== =======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of PennFed Capital
Trust I on Form S-2 of our report dated July 31, 1997, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/Deloitte & Touche L.L.P.
Deloitte & Touche L.L.P.
Parsippany, New Jersey
September 17, 1997
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
PENNFED FINANCIAL SERVICES, INC.
(Exact name of obligor as specified in its charter)
Delaware 22-3297339
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
622 Eagle Rock Avenue
West Orange, New Jersey 07052
(Address of principal executive offices) (Zip code)
______________________
__% Junior Subordinated Deferrable Interest Debentures
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of September, 1997.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
--------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New
York, N.Y, 10288 And Foreign and Domestic Subsidiaries a member of the Federal
Reserve System, at the close of business March 31, 1997, published in accordance
with a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act:
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
ASSETS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... $8,249,820
Interest-bearing balances.................................... 1,031,025
Securities:
Held-to-maturity securities.................................. 1,118,463
Available-for-sale securities................................ 3,005,838
Federal funds sold and Securities purchased under agreements
to resell..................................................... 3,100,281
Loans and lease financing receivables:
Loans and leases, act of unearned income..................... 32,895,077
LESS: Allowance for loan and lease losses.................... 699,877
LESS: Allocated transfer risk reserve........................ 429
Loans and leases, net of unearned income, allowance, and
reserve..................................................... 32,260,771
Assets held in trading accounts............................... 1,715,214
Premises and fixed assets (including capitalized leases)...... 684,704
Other real estate owned....................................... 21,738
Investments in unconsolidated subsidiaries and associated com-
panies...................................................... 195,761
Customer liability to this bank on acceptances outstanding.... 1,152,899
Intangible assets............................................. 683,503
Other assets.................................................. 1,526,113
-----------
Total assets.................................................. $54,746,131
===========
LIABILITIES
Deposits
In domestic offices.......................................... $25,514,961
Noninterest bearing.......................................... 10,564,652
Interest-bearing............................................. 15,050,309
In foreign offices, Edge and Agreement subsidiaries, and IBFs 15,103,615
Noninterest-bearing.......................................... 550,944
Interest-bearing............................................. 14,542,671
Federal funds purchased and Securities sold under agreements
to repurchase............................................... 2,093,286
Demand notes issued to the US Treasury........................ 239,354
Trading liabilities........................................... 1,399,064
Other borrowed money:
With remaining maturity of one year or less.................. 2,075,092
With remaining maturity of more than one year................ 20,679
Bank's liability on acceptances executed and outstanding...... 1,160,012
Subordinated notes and debentures 1,014,400
Other liabilities............................................. 1,840,245
-----------
Total liabilities............................................. 50,560,708
===========
EQUITY CAPITAL
Common stock.................................................. 942,284
Surplus....................................................... 731,319
Undivided profits and capital reserves........................ 2,544,303
Net unrealized holding gains (losses) on available-for-sale
securities.................................................. ( 19,449)
Comulative foreign currency transiation adjustments........... ( 13,034)
-----------
Total equity Capital.......................................... 4,185,423
-----------
Total liabilities and equity Capital.......................... $54,746,131
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been named by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan A. Griffith
J Carter Bacot Directors
Thomas A. Renyi
<PAGE>
EXHIBIT 25.2
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
PENNFED CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
622 Eagle Rock Avenue
West Orange, New Jersey 07052
(Address of principal executive offices) (Zip code)
______________________
__% Trust Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Name Address
- ----------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of September, 1997.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
-----------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New
York, N.Y, 10288 And Foreign and Domestic Subsidiaries a member of the Federal
Reserve System, at the close of business March 31, 1997, published in accordance
with a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act:
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
ASSETS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... $8,249,820
Interest-bearing balances.................................... 1,031,025
Securities:
Held-to-maturity securities.................................. 1,118,463
Available-for-sale securities................................ 3,005,838
Federal funds sold and Securities purchased under agreements
to resell..................................................... 3,100,281
Loans and lease financing receivables:
Loans and leases, act of unearned income..................... 32,895,077
LESS: Allowance for loan and lease losses.................... 699,877
LESS: Allocated transfer risk reserve........................ 429
Loans and leases, net of unearned income, allowance, and
reserve..................................................... 32,260,771
Assets held in trading accounts............................... 1,715,214
Premises and fixed assets (including capitalized leases)...... 684,704
Other real estate owned....................................... 21,738
Investments in unconsolidated subsidiaries and associated com-
panies...................................................... 195,761
Customer liability to this bank on acceptances outstanding.... 1,152,899
Intangible assets............................................. 683,503
Other assets.................................................. 1,526,113
-----------
Total assets.................................................. $54,746,131
===========
LIABILITIES
Deposits
In domestic offices.......................................... $25,514,961
Noninterest bearing.......................................... 10,564,652
Interest-bearing............................................. 15,050,309
In foreign offices, Edge and Agreement subsidiaries, and IBFs 15,103,615
Noninterest-bearing.......................................... 550,944
Interest-bearing............................................. 14,542,671
Federal funds purchased and Securities sold under agreements
to repurchase............................................... 2,093,286
Demand notes issued to the US Treasury........................ 239,354
Trading liabilities........................................... 1,399,064
Other borrowed money:
With remaining maturity of one year or less.................. 2,075,092
With remaining maturity of more than one year................ 20,679
Bank's liability on acceptances executed and outstanding...... 1,160,012
Subordinated notes and debentures 1,014,400
Other liabilities............................................. 1,840,245
-----------
Total liabilities............................................. 50,560,708
===========
EQUITY CAPITAL
Common stock.................................................. 942,284
Surplus....................................................... 731,319
Undivided profits and capital reserves........................ 2,544,303
Net unrealized holding gains (losses) on available-for-sale
securities.................................................. ( 19,449)
Comulative foreign currency transiation adjustments........... ( 13,034)
-----------
Total equity Capital.......................................... 4,185,423
-----------
Total liabilities and equity Capital.......................... $54,746,131
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been named by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan A. Griffith
J Carter Bacot Directors
Thomas A. Renyi
<PAGE>
EXHIBIT 25.3
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
PENNFED FINANCIAL SERVICES, INC.
(Exact name of obligor as specified in its charter)
Delaware 22-3297339
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
622 Eagle Rock Avenue
West Orange, New Jersey 07052
(Address of principal executive offices) (Zip code)
______________________
Guarantee of __% Trust Preferred Securities
of PENNNFED CAPITAL TRUST I
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Name Address
- ----------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of September, 1997.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
---------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New
York, N.Y, 10288 And Foreign and Domestic Subsidiaries a member of the Federal
Reserve System, at the close of business March 31, 1997, published in accordance
with a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act:
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
ASSETS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... $8,249,820
Interest-bearing balances.................................... 1,031,025
Securities:
Held-to-maturity securities.................................. 1,118,463
Available-for-sale securities................................ 3,005,838
Federal funds sold and Securities purchased under agreements
to resell..................................................... 3,100,281
Loans and lease financing receivables:
Loans and leases, act of unearned income..................... 32,895,077
LESS: Allowance for loan and lease losses.................... 699,877
LESS: Allocated transfer risk reserve........................ 429
Loans and leases, net of unearned income, allowance, and
reserve..................................................... 32,260,771
Assets held in trading accounts............................... 1,715,214
Premises and fixed assets (including capitalized leases)...... 684,704
Other real estate owned....................................... 21,738
Investments in unconsolidated subsidiaries and associated com-
panies...................................................... 195,761
Customer liability to this bank on acceptances outstanding.... 1,152,899
Intangible assets............................................. 683,503
Other assets.................................................. 1,526,113
-----------
Total assets.................................................. $54,746,131
===========
LIABILITIES
Deposits
In domestic offices.......................................... $25,514,961
Noninterest bearing.......................................... 10,564,652
Interest-bearing............................................. 15,050,309
In foreign offices, Edge and Agreement subsidiaries, and IBFs 15,103,615
Noninterest-bearing.......................................... 550,944
Interest-bearing............................................. 14,542,671
Federal funds purchased and Securities sold under agreements
to repurchase............................................... 2,093,286
Demand notes issued to the US Treasury........................ 239,354
Trading liabilities........................................... 1,399,064
Other borrowed money:
With remaining maturity of one year or less.................. 2,075,092
With remaining maturity of more than one year................ 20,679
Bank's liability on acceptances executed and outstanding...... 1,160,012
Subordinated notes and debentures 1,014,400
Other liabilities............................................. 1,840,245
-----------
Total liabilities............................................. 50,560,708
===========
EQUITY CAPITAL
Common stock.................................................. 942,284
Surplus....................................................... 731,319
Undivided profits and capital reserves........................ 2,544,303
Net unrealized holding gains (losses) on available-for-sale
securities.................................................. ( 19,449)
Comulative foreign currency transiation adjustments........... ( 13,034)
-----------
Total equity Capital.......................................... 4,185,423
-----------
Total liabilities and equity Capital.......................... $54,746,131
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been named by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan A. Griffith
J Carter Bacot Directors
Thomas A. Renyi
