As filed with the Securities and Exchange Commission on December 15, 1997
REGISTRATION NO. 333-38685
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WEBSTER PREFERRED CAPITAL CORPORATION
(Exact name of registrant as specified in its governing instruments)
145 BANK STREET,
WATERBURY, CONNECTICUT 06702, (203) 578-2286
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
JOHN V. BRENNAN,
WEBSTER PREFERRED CAPITAL CORPORATION, 145 BANK STREET
WATERBURY, CONNECTICUT 06702, (203) 578-2335
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Stuart G. Stein, Esq. Kenneth T. Cote, Esq.
Hogan & Hartson L.L.P. Brown & Wood LLP
555 Thirteenth Street, N.W. One World Trade Center
Washington, D.C. 20004 New York, NY 10048
(202) 637-8575 (212) 839-5354
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE
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AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
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% Cumulative Redeemable Preferred Stock,
Series A, par value $1.00 per share ...... 40,000 $ 1,000* $ 40,000,000*
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%Cumulative Redeemable Preferred Stock,
Series B, par value $1.00 per share ...... 1,000,000 $ 10* $ 10,000,000* **
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* Estimated solely for purposes of determining registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.
** Registration fee previously paid upon filing of Registration Statement on
October 24, 1997. Tabular data is presented solely to reflect a change in the
designation of the securities offered and the number of shares being
registered. The maximum aggregate offering price also has been reduced from
$76.5 million to $50.0 million.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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.
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<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED DECEMBER 15, 1997
PROSPECTUS
$50,000,000
WEBSTER PREFERRED CAPITAL
CORPORATION
[LOGO]
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40,000 SHARES 1,000,000 SHARES
% CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES A % CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B
(LIQUIDATION PREFERENCE $1,000 PER SHARE) (LIQUIDATION PREFERENCE $10 PER SHARE)
</TABLE>
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Webster Preferred Capital Corporation (the "Company"), which was
incorporated in 1997 as a wholly-owned subsidiary of Webster Bank, is hereby
offering (the "Offering") 40,000 shares of its Series A % Cumulative Redeemable
Preferred Stock, liquidation preference $1,000 per share (the "Series A
Preferred Shares"), and 1,000,000 shares of its Series B % Cumulative Redeemable
Preferred Stock, liquidation preference $10 per share (the "Series B Preferred
Shares," and together with the Series A Preferred Shares, the "Preferred
Shares"). Although there is no minimum investment in the Series B Preferred
Shares, such shares are subject to a maximum investment of 5,000 shares by any
one beneficial owner. See "Glossary" commencing on page 60 for definitions of
many of the terms used in this Prospectus.
Dividends on the Series A Preferred Shares are payable at the rate of % per
annum (an amount equal to $ per annum per share), and dividends on the Series B
Preferred Shares are payable at the rate of % per annum (an amount equal to $
per annum per share), in all cases if, when and as declared by the Board of
Directors of the Company. Dividends on the Preferred Shares are cumulative and,
if declared, payable on January 15, April 15, July 15 and October 15 in each
year, commencing January 15, 1998.
(continued on next page...)
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. AMONG THE RISKS THAT
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ARE THE FOLLOWING:
o The Company will continue to be controlled by and totally reliant on
Webster Bank after the Offering;
o The Company is dependent in every phase of its operations on the diligence
and skill of the officers and employees of Webster Bank;
o There may be conflicts of interest between Webster Bank and the Company;
o The Company's investment and operating policies and strategies (including
the composition of the Mortgage Assets) may be changed at any time without
the consent of the Company's stockholders;
o Federal regulators could subject the Company or Webster Bank to certain
actions which could have an adverse effect on the Company's operations;
o If the Company fails to qualify as a REIT for federal income tax purposes,
dividends available for distribution to the Company's stockholders would be
decreased; and
o The Company, which was incorporated in 1997, has a limited operating
history, and the Company and Webster Bank have not previously managed or
operated a REIT.
-----------
THE PREFERRED SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE COMPANY IS NOT AN INVESTMENT IN WEBSTER BANK OR
WEBSTER BANK'S PARENT, WEBSTER FINANCIAL CORPORATION ("WEBSTER"). THE PREFERRED
SHARES ARE NOT EXCHANGEABLE INTO CAPITAL STOCK OR ANY OTHER SECURITIES OF
WEBSTER BANK OR WEBSTER.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (3)
- --------------------------------------------------------------------------------
Per Series A Preferred Share ...... $1,000.00 $ $
- --------------------------------------------------------------------------------
Per Series B Preferred Share ...... $ 10.00 $ $
- --------------------------------------------------------------------------------
Total .............................. $ $ $
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- --------------------------------------------------------
(1) Plus accrued dividends, if any, from December , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
-----------
The Preferred Shares are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Preferred Shares offered hereby
will be made in New York, New York on or about December , 1997.
-----------
Merrill Lynch & Co. Keefe, Bruyette & Woods, Inc.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1997.
<PAGE>
(cover page continued . . . .)
The Series A Preferred Shares are not redeemable prior to January 15, 1999
(except upon the occurrence of a Tax Event, as defined under "Description of
Preferred Shares -- Series A and Series B Early Redemption"). Upon the
occurrence of a Tax Event, and at any time on and after January 15, 1999 through
January 14, 2001, the Series A Preferred Shares may be redeemed at the option of
the Company, in whole but not in part, at the Series A Early Redemption Price.
The Series A Preferred Shares are required to be redeemed by the Company on
January 15, 2001 at a redemption price of $1,000 per share, plus accrued and
unpaid dividends thereon. See "Description of Preferred Shares -- Series A
Preferred Shares -- Redemption" and "Description of Preferred Shares -- Series A
and Series B Early Redemption."
The Series B Preferred Shares are not redeemable prior to January 15, 2003
(except upon the occurrence of a Tax Event). Upon the occurrence of a Tax Event,
the Series B Preferred Shares may be redeemed at the option of the Company, in
whole but not in part, at the Series B Early Redemption Price. On and after
January 15, 2003, the Series B Preferred Shares may be redeemed at the option of
the Company, in whole or in part, at a redemption price of $10 per share, plus
accrued and unpaid dividends, if any, thereon. See "Description of Preferred
Shares -- Series B Preferred Shares -- Redemption" and "Description of Preferred
Shares -- Series A and Series B Early Redemption."
The Company is a wholly-owned subsidiary of Webster Bank and was formed by
Webster Bank to provide a cost-effective means of raising funds, including
capital, for Webster Bank. All of the Company's current Mortgage Assets have
been contributed by or purchased from Webster Bank. All of the Company's common
stock, par value $.01 per share ("Common Stock"), is owned by Webster Bank.
Webster Bank has indicated that, for so long as any Preferred Shares are
outstanding, Webster Bank intends to maintain direct ownership of 100% of the
outstanding Common Stock of the Company. Pursuant to the Company's Certificate
of Incorporation, the Company cannot redeem, or make any other payments or
distributions in respect of, shares of its Common Stock to the extent such
redemption, payments or distributions would cause the Company's total
stockholders' equity (as determined in accordance with GAAP) to be less than
250% of the aggregate liquidation value of the issued and outstanding Preferred
Shares.
The Preferred Shares are not subject to any sinking fund and are not
convertible into any other securities of the Company. The Preferred Shares are
not secured by any assets, including the assets of the Company, Webster Bank or
Webster.
Prior to this Offering, there has been no market for the Preferred Shares.
The Series A Preferred Shares will not be listed on any exchange. The Series B
Preferred Shares have been approved for inclusion in the Nasdaq Stock Market
under the symbol "WBSTP." However, there can be no assurance that an active, or
any, trading market will develop or be maintained for the Preferred Shares.
The Company expects to qualify as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the taxable year ending
December 31, 1997. Individuals or entities are not permitted to purchase in the
Offering, or thereafter to beneficially own, more than 5,000 Series B Preferred
Shares. See "Description of Capital Stock of the Company -- Restrictions on
Ownership and Transfer."
THE PREFERRED SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"), THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY
OTHER GOVERNMENTAL AGENCY.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED SHARES
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS, THE
PURCHASE OF PREFERRED SHARES TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The 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.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION ...................................................... iii
FORWARD LOOKING INFORMATION ................................................ iii
PROSPECTUS SUMMARY ......................................................... 1
The Company ............................................................... 1
Webster Bank .............................................................. 1
Risk Factors .............................................................. 2
The Offering .............................................................. 3
Business and Strategy ..................................................... 5
Selected Financial Data ................................................... 7
Tax Status of the Company ................................................. 8
RISK FACTORS ............................................................... 9
Control by Webster Bank ................................................... 9
Dependence upon Webster Bank as Advisor and Servicer ...................... 9
Conflicts of Interest ..................................................... 9
Risk of Future Revisions in Policies and Strategies by Board of Directors 10
No Third Party Valuation of the Mortgage Assets ........................... 10
Regulatory Impact on the Company .......................................... 10
Tax Risks ................................................................. 11
Limited Operating History of the Company .................................. 12
Geographic Concentration .................................................. 12
Limited Voting Rights ..................................................... 12
Potential Lack of Active Market for Preferred Shares ...................... 12
Risks Related to Changes in Interest Rates ................................ 12
Real Estate Market Conditions ............................................. 13
Environmental Considerations .............................................. 13
Legal Considerations ...................................................... 13
Delays in Liquidating Defaulted Mortgage Loans ............................ 13
No Credit Enhancement or Special Hazard Insurance ......................... 14
Risk Associated with Leverage ............................................. 14
THE COMPANY ................................................................ 14
WEBSTER BANK ............................................................... 15
CONFLICTS OF INTEREST ...................................................... 16
USE OF PROCEEDS ............................................................ 17
CAPITALIZATION ............................................................. 17
BUSINESS AND STRATEGY ...................................................... 18
General ................................................................... 18
Dividend Policy ........................................................... 18
Liquidity and Capital Resources ........................................... 19
General Description of Mortgage Assets; Investment Policy ................. 19
Management Policies ....................................................... 20
Description of Mortgage Assets ............................................ 22
Servicing ................................................................. 27
Competition ............................................................... 29
Legal Proceedings ......................................................... 29
SELECTED FINANCIAL DATA .................................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 31
Introduction .............................................................. 31
Asset Quality ............................................................. 31
Liquidity and Capital Resources ........................................... 31
Asset/Liability Management ................................................ 31
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i
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Results of Operations ................................................... 32
Impact of Inflation and Changing Prices .................................. 32
MANAGEMENT ................................................................ 33
Directors and Executive Officers ......................................... 33
Employees; Compensation of Directors, Officers and Employees ............. 33
Audit Committee .......................................................... 34
Limitations on Liability and Indemnification of Directors and Officers ... 34
The Advisor .............................................................. 34
BENEFITS TO WEBSTER BANK .................................................. 35
DESCRIPTION OF PREFERRED SHARES ........................................... 36
General .................................................................. 36
Ranking .................................................................. 36
Rights upon Liquidation .................................................. 36
Voting Rights ............................................................ 37
Restrictions on Ownership ................................................ 37
Ratings .................................................................. 37
Listing on Nasdaq Stock Market ........................................... 37
Series A Preferred Shares ................................................ 37
Series B Preferred Shares ................................................ 39
Series A and Series B Early Redemption ................................... 40
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY ............................... 42
Common Stock ............................................................. 42
Preferred Stock .......................................................... 42
Restrictions on Ownership and Transfer ................................... 43
Super-Majority Director Approval ......................................... 43
Business Combinations .................................................... 44
FEDERAL INCOME TAX CONSEQUENCES ........................................... 44
Taxation of the Company .................................................. 45
Requirements for Qualification as a REIT ................................. 46
Failure of the Company to Qualify as a REIT .............................. 49
Taxation of Taxable U.S. Stockholders of the Company Generally ........... 50
Backup Withholding for Company Distributions ............................. 51
Taxation of Tax-Exempt Stockholders of the Company ....................... 51
Taxation of Non-U.S. Stockholders of the Company ......................... 52
Other Tax Consequences for the Company and its Stockholders .............. 54
ERISA CONSIDERATIONS ...................................................... 55
General .................................................................. 55
Plan Asset Regulation .................................................... 55
Effect of Plan Asset Status .............................................. 56
Prohibited Transactions .................................................. 56
Unrelated Business Taxable Income ........................................ 57
INFORMATION REGARDING WEBSTER AND WEBSTER BANK ............................ 57
UNDERWRITING .............................................................. 58
EXPERTS ................................................................... 59
RATINGS ................................................................... 59
LEGAL MATTERS ............................................................. 59
GLOSSARY .................................................................. 60
INDEX TO FINANCIAL STATEMENTS OF WEBSTER PREFERRED CAPITAL
CORPORATION .............................................................. F-1
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ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement (of which this
Prospectus forms a part) on Form S-11 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Shares offered hereby. 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 SEC.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information regarding the Company and the Preferred
Shares offered hereby, reference is made to the Registration Statement and the
exhibits thereto.
The Registration Statement and the exhibits forming a part thereof filed by
the Company with the SEC can be inspected at and copies can be obtained at the
public reference facilities maintained by the Securities and Exchange Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the SEC: 7 World Trade Center, Suite
1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC's Web site is http://www.sec.gov.
The Certificate of Incorporation establishing the rights, preferences and
limitations of the Preferred Shares provides that the Company shall maintain its
status as a reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for as long as any of the Preferred Shares are
outstanding and pursuant thereto will furnish stockholders with annual reports
containing audited financial statements.
FORWARD LOOKING INFORMATION
Certain information contained in this Prospectus constitutes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. Such information can be identified by
the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate," "intend," "continue," or "believes" or the
negatives thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" in this Prospectus constitute cautionary statements
identifying important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause the actual results,
performance or achievements of the Company to differ materially from those
reflected in such forward-looking statements. The Company also may provide
projections, forecasts or estimates of future performance or cash flows of the
Company. Projections, forecasts and estimates are forward-looking statements and
will be based upon certain assumptions. Actual events are difficult to predict
and may be beyond the Company's control. Actual events may differ from those
assumed. Some important factors that would cause actual results that differ
materially from those in any forward-looking statements include changes in
interest rates; business, market, financial or legal conditions; and differences
in the actual allocation of the assets of the Company from those assumed, among
others. Accordingly, there can be no assurance that any estimated returns,
projections, forecasts or estimates can be realized or that actual returns or
results will not be materially lower than those that may be estimated.
iii
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. Capitalized terms used
herein and not otherwise defined are as defined in the Glossary appearing
beginning on page 60 of this Prospectus.
THE COMPANY
Webster Preferred Capital Corporation is a Connecticut corporation
incorporated in March 1997. The Company was formed by Webster Bank to provide a
cost-effective means of raising funds, including capital, on a consolidated
basis for Webster Bank. The Company's strategy is to acquire, hold and manage
real estate mortgage assets ("Mortgage Assets"). In March 1997, Webster Bank
contributed $617.0 million of Mortgage Assets, net as part of the formation of
the Company. As of September 30, 1997, all of the Mortgage Assets owned by the
Company are whole loans secured by first mortgages or deeds of trusts on single
family (one to four units) residential real estate properties ("Residential
Mortgage Loans"). Although the Company may acquire and hold a variety of
Mortgage Assets, its present intention is to acquire only Residential Mortgage
Loans and investment grade mortgage securities or interests in or obligations
backed by pools of Mortgage Loans ("Mortgage-Backed Securities"). The Company
intends to hold such assets primarily for income, thereby seeking to generate
net income for distribution to its stockholders based on the spread between the
interest income on the Mortgage Assets and the cost of its capital and
operations. The Company may invest up to 5% of the total value of its portfolio
in assets other than Residential Mortgage Loans and Mortgage-Backed Securities
eligible to be held by REITs. In addition to whole loans secured by a first
mortgage or deed of trust on a commercial real estate property or a multi-family
property ("Commercial Mortgage Loans"), such assets could include cash and cash
equivalents. As of September 30, 1997, approximately 34.4% of the Company's
Mortgage Loans are fixed rate loans and approximately 65.6% are adjustable rate
loans. In November 1997, Webster Bank contributed approximately $120.4 million
in cash to the Company, which was used by the Company to purchase
Mortgage-Backed Securities. During the first quarter of 1998, Webster Bank
anticipates contributing approximately $800 million of additional Mortgage
Assets or cash to the Company.
All of the Company's Common Stock is owned by Webster Bank. Webster Bank
has indicated to the Company that, for as long as any Preferred Shares are
outstanding, Webster Bank intends to maintain direct ownership of 100% of the
outstanding Common Stock of the Company. Pursuant to the Company's Certificate
of Incorporation, the Company cannot redeem, or make any other payments or
distributions in respect of, shares of its Common Stock to the extent such
redemption, payments or distributions would cause the Company's total
stockholders' equity (as determined in accordance with GAAP) to be less than
250% of the aggregate liquidation value of the issued and outstanding Preferred
Shares. The Preferred Shares are not exchangeable into capital stock or any
other securities of Webster Bank or Webster, and will not constitute regulatory
capital of either Webster Bank or Webster.
The Company will elect to be treated as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), and will generally not be subject to
federal and Connecticut state income tax to the extent that it distributes its
earnings to its stockholders and maintains its qualification as a REIT.
Furthermore, the Company and Webster Bank will benefit significantly from
federal and state tax treatment of dividends paid by the Company as a result of
its qualification as a REIT.
The principal executive offices of the Company are located at 145 Bank
Street, Waterbury, Connecticut 06702, and its telephone number is (203)
578-2286.
WEBSTER BANK
Webster Bank is the federal savings bank subsidiary of Webster, both of
which are headquartered in Waterbury, Connecticut. Deposits at Webster Bank are
FDIC insured. Webster Bank currently serves customers from 84 banking offices
located in New Haven, Fairfield, Litchfield,
1
<PAGE>
Hartford and Middlesex Counties in Connecticut. Webster Bank's focus is on
providing financial services to individuals, families and businesses. It
emphasizes four business lines -- consumer banking, business banking, mortgage
banking and trust and investment management services. These lines are supported
by centralized administration, marketing, finance and operations. Webster Bank's
goal is to provide banking services that are fairly priced, reliable and
convenient.
On October 27, 1997, Webster announced a definitive agreement to acquire
Eagle Financial Corp. ("Eagle") on a stock for stock basis in a tax-free
exchange fixed at 0.84 shares of Webster common stock for each share of Eagle
common stock. At the time of the announcement, Eagle reported approximately $2.1
billion in total assets, $1.1 billion in loans, net and $1.4 billion in deposits
and operated 30 branches. Subsequent to the acquisition, Webster will have
approximately $8.8 billion in total assets and over 110 branch offices prior to
the consolidation of overlapping branches. Webster currently anticipates
recognizing acquisition related charges of approximately $18.9 million on a
before tax basis.
As a result of the Offering, Webster Bank will benefit from federal and
state tax treatment of dividends paid by the Company as a result of its
qualification as a REIT, and will receive advisory and servicing fees and
dividends in respect of the Common Stock. Webster Bank also will retain any
ancillary fees, including, but not limited to, late payment charges, prepayment
fees, penalties and assumption fees collected in connection with the Mortgage
Loans serviced by it. In addition, Webster Bank, as Servicer, will receive any
benefit derived from interest earned on collected principal and interest
payments between the date of collection and the date of remittance to the
Company and from interest earned on tax and insurance impound funds with respect
to Mortgage Loans serviced by the Servicer.
RISK FACTORS
The purchase of Preferred Shares offered hereby is subject to certain
risks. See "Risk Factors" commencing on page 9. Among such risks are the
following:
o The Company was organized as a wholly-owned subsidiary of Webster Bank and
will continue to be controlled by and totally reliant on Webster Bank after
the Offering.
o The Company is dependent in every phase of its operations on the diligence
and skill of the officers and employees of Webster Bank.
o There may be conflicts of interest between Webster Bank and the Company.
o The Company's investment and operating policies (including the composition
of the Mortgage Assets) may be changed at any time without the consent of
the Company's stockholders.
o Third party evaluations of the Company's Mortgage Assets were not obtained
in connection with the Offering and are not expected to be obtained for
future acquisitions and dispositions.
o Webster Bank is a regulated entity, and because the Company is a subsidiary
of Webster Bank, under certain circumstances federal regulators could
require Webster Bank and the Company to alter, reduce or terminate their
activities. Regulators also could require, among other things, that Webster
Bank restrict transactions between the two organizations, including the
transfer of assets; or divest or liquidate the Company; or require that
Webster Bank be sold. Regulatory actions affecting Webster Bank, as the
sole owner of the Company's Common Stock, could have an adverse effect on
the operations of the Company. Under certain circumstances, certain of
these requirements could result in the Company's failure to qualify as a
REIT.
o If the Company fails to maintain its qualification as a REIT for federal
income tax purposes, it will be subject to federal and Connecticut state
income tax on its taxable income at regular corporate rates, resulting in a
decrease in the cash available for distribution to the Company's
stockholders.
2
<PAGE>
o The Company, which was incorporated in 1997, has a limited operating
history. The Company and Webster Bank have not previously managed or
operated a REIT.
o Risks associated with mortgage loans generally, and particularly the
geographic concentration of substantially all of the Company's mortgage
loan portfolio in Connecticut, could adversely affect the value of the
Preferred Shares and the Mortgage Assets held by the Company.
o Holders of Preferred Shares will have limited voting rights.
o The Series A Preferred Shares will not be listed on any securities
exchange. The Series B Preferred Shares have been approved for inclusion in
the Nasdaq Stock Market under the symbol "WBSTP." However, there can be no
assurance that an active, or any, trading market will develop or be
maintained for the Preferred Shares.
o Changes in interest rates may affect the value of the Company's Mortgage
Assets.
THE OFFERING
For a more complete description of the terms of the Preferred Shares
specified in the following summary, see "Description of Preferred Shares."
GENERAL
ISSUER .................. Webster Preferred Capital Corporation, a Connecticut
corporation and a wholly-owned subsidiary of Webster
Bank.
SECURITIES OFFERED ...... 40,000 Series A Preferred Shares.
1,000,000 Series B Preferred Shares. Although there
is no minimum investment in the Series B Preferred
Shares, such shares are subject to a maximum
investment of 5,000 shares by any one beneficial
owner.
RANKING.................. The Series A Preferred Shares and the Series B
Preferred Shares are of equal rank with respect to
dividend rights and the distribution of assets upon
liquidation. The Preferred Shares rank senior to the
Company's Common Stock with respect to dividend
rights and the distribution of assets upon
liquidation. Additional shares of the preferred
stock, par value $1.00 per share, of the Company
(the "Preferred Stock") ranking senior to the
Preferred Shares may not be issued without the
approval of persons holding at least 66 2/3% of the
aggregate liquidation value of the Preferred Shares.
LIQUIDATION PREFERENCE... The liquidation preference for each Series A
Preferred Share is $1,000, plus an amount equal to
the accrued and unpaid dividends, if any, thereon.
The liquidation preference for each Series B
Preferred Share is $10, plus an amount equal to the
accrued and unpaid dividends, if any, thereon. See
"Description of Preferred Shares -- Rights Upon
Liquidation."
VOTING RIGHTS............ Holders of Preferred Shares will not have any voting
rights, except as expressly provided herein. On any
matter on which holders of the Preferred Shares may
vote, each Preferred Share will be entitled to vote
proportionately based upon the liquidation
preference associated with such Preferred Share. In
certain circumstances when the Company has failed to
declare or
3
<PAGE>
pay dividends, holders of Preferred Shares have the
right to elect two directors to the Board of
Directors of the Company. See "Description of
Preferred Shares -- Voting Rights."
LISTING ON NASDAQ STOCK
MARKET.................. Prior to this Offering, there has been no market for
the Preferred Shares. The Series A Preferred Shares
will not be listed on any exchange. The Series B
Preferred Shares have been approved for inclusion in
the Nasdaq Stock Market under the symbol "WBSTP."
However, there can be no assurance that an active,
or any, trading market will develop or be maintained
for the Preferred Shares.
RATINGS.................. The Series A Preferred Shares will be rated by
Standard & Poor's Rating Group ("S&P") and by Fitch
IBCA, Inc. ("Fitch IBCA"). The Series B Preferred
Shares will be rated by S&P and by Fitch IBCA. A
security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization.
SERIES A MANDATORY
REDEMPTION.............. The Company is required to redeem all outstanding
Series A Preferred Shares on January 15, 2001 at a
redemption price of $1,000 per share, plus accrued
and unpaid dividends.
SERIES B
OWNERSHIP LIMITS........ Beneficial ownership by any individual or entity of
more than 5,000 Series B Preferred Shares is
restricted in order to preserve the Company's status
as a REIT for federal income tax purposes. See
"Description of Capital Stock -- Restrictions on
Ownership and Transfer."
DIVIDENDS ON THE PREFERRED
SHARES.................. Dividends on the Series A Preferred Shares are
payable at the rate of % per annum ($ per annum per
share), if, when and as declared by the Board of
Directors of the Company. Dividends on the Series B
Preferred Shares are payable at the rate of % per
annum ($ per annum per share), if, when and as
declared by the Board of Directors of the Company.
Dividends on the Preferred Shares are cumulative
and, if declared, payable on January 15, April 15,
July 15 and October 15 in each year, commencing
January 15, 1998. See "Description of Preferred
Shares -- Series A Preferred Shares -- Dividends"
and "Description of Preferred Shares -- Series B
Preferred Shares -- Dividends."
REDEMPTION OF PREFERRED
SHARES.................. The Series A Preferred Shares are not redeemable
prior to January 15, 1999 (except upon the
occurrence of a Tax Event). Upon the occurrence of a
Tax Event, and at any time on and after January 15,
1999 through January 14, 2001, the Series A
Preferred Shares may be redeemed at the option of
the Company, in whole but not in part, at the Series
A Early Redemption Price. The Series A Preferred
Shares are required to be redeemed by the Company on
January 15, 2001, at a redemption price of $1,000
per share, plus accrued and unpaid dividends
thereon. See "Description of Preferred Shares --
Series A Preferred Shares -- Redemption" and
"Description of Preferred Shares -- Series A and
Series B Early Redemption."
4
<PAGE>
The Series B Preferred Shares are not redeemable
prior to January 15, 2003 (except upon the
occurrence of a Tax Event). Upon the occurrence of a
Tax Event, the Series B Preferred Shares may be
redeemed at the option of the Company, in whole but
not in part, at the Series B Early Redemption Price.
On and after January 15, 2003, the Series B
Preferred Shares may be redeemed at the option of
the Company, in whole or in part, at a redemption
price of $10 per share, plus accrued and unpaid
dividends, if any, thereon. See "Description of
Preferred Shares -- Series B Preferred Shares --
Redemption" and "Description of Preferred Shares --
Series A and Series B Early Redemption."
USE OF PROCEEDS ......... In anticipation of the Offering, the Company has
been reinvesting its net income in additional
Mortgage Assets. Accordingly, approximately $40
million of the net proceeds of the Offering will be
used to fund payments to Webster Bank of cash
dividends of the Company's 1997 net income. The
remaining net proceeds from the Offering will be
used to fund operations and purchase additional
Mortgage Assets. See "Use of Proceeds."
BUSINESS AND STRATEGY
The Company's principal business objective is to acquire, hold and manage
Mortgage Assets to generate net income for distribution to stockholders. The
Company presently intends to acquire Mortgage Assets only with capital, and not
to incur borrowings for such purposes. At September 30, 1997, the Company held
$625.6 million of Mortgage Assets, net, all of which were contributed by or
purchased from Webster Bank. In November 1997, Webster Bank contributed
approximately $120.4 million in cash to the Company, which was used by the
Company to purchase Mortgage-Backed Securities. During the first quarter of
1998, Webster Bank anticipates contributing approximately $800 million of
additional Mortgage Assets or cash to the Company.
The Company's Mortgage Assets presently consist of whole loans ("Mortgage
Loans"), all of which are Residential Mortgage Loans. In November 1997, Webster
Bank contributed approximately $120.4 million in cash to the Company, which was
used by the Company to purchase Mortgage-Backed Securities. At the time of such
purchase, all such Mortgage-Backed Securities were rated at least AA by at least
one nationally recognized independent rating organization or represented
interests in or obligations backed by pools of Mortgage Loans issued or
guaranteed by the Government National Mortgage Association ("GNMA"). The
Mortgage Loans underlying the Mortgage-Backed Securities are secured by single
family residential real estate properties located in the United States. The
Company has acquired all of its Mortgage Assets from Webster Bank. Any future
acquisitions from Webster Bank will be on terms that are comparable to those
that could be obtained by the Company if such Mortgage Assets were purchased
from unrelated third parties. It is the intention of Webster Bank and the
Company that loans purchased from Webster Bank will not result in gain or loss
to Webster Bank. Accordingly, the Company primarily intends to purchase newly
originated loans of Webster Bank, or more seasoned loans at then current market
rates. The Company may also from time to time acquire additional Mortgage Assets
from unrelated third parties. As of the date of this Prospectus, the Company has
not adopted any arrangements or procedures by which it would purchase Mortgage
Assets from unrelated third parties, and the Company has not entered into any
agreements with any third parties with respect to the purchase of Mortgage
Assets. The Company anticipates that it would purchase Mortgage Assets from
unrelated third parties only if neither Webster Bank nor any affiliate of
Webster Bank had an amount or type of Mortgage Asset sufficient to meet the
requirements of the Company.
5
<PAGE>
Residential Mortgage Loans held by the Company represent first lien
positions and have been originated and underwritten in conformity with standards
generally applied by the originator at the time the Residential Mortgage Loans
were originated. The Company's Mortgage Assets presently consist solely of
Residential Mortgage Loans, and the Company currently intends to maintain
substantially all of its assets in Mortgage Assets consisting of either
Residential Mortgage Loans or Mortgage-Backed Securities. The Company also may
invest in Commercial Mortgage Loans or in other assets eligible to be held by a
REIT, but has no present intention to do so. The Company's current policy
prohibits the acquisition of any Mortgage Loan or any interest in a Mortgage
Loan (other than an interest resulting from the acquisition of Mortgage-Backed
Securities), which Mortgage Loan (i) is more than 30 days past due in the
payment of principal or interest at the time of acquisition; (ii) is or was at
any time during the preceding 12 months in nonaccrual status or renegotiated due
to the financial deterioration of the borrower; or (iii) has been, more than
once during the preceding 12 months, more than 30 days past due in the payment
of principal or interest. Loans that are in a "nonaccrual status" are generally
loans that are past due 90 days or more in principal or interest. See "Business
and Strategy -- Description of Mortgage Assets."
ADVISORY AGREEMENT. The Company has entered into an advisory service
agreement with Webster Bank (the "Advisory Agreement") pursuant to which Webster
Bank administers the day-to-day operations of the Company. Webster Bank in its
role as advisor under the terms of the Advisory Agreement is hereinafter
referred to as the "Advisor." The Advisor is responsible for (i) monitoring the
credit quality of Mortgage Assets held by the Company, (ii) advising the Company
with respect to the acquisition, management, financing and disposition of the
Company's Mortgage Assets, and (iii) holding documents relating to the Mortgage
Assets as custodian on behalf of the Company. The Advisor may at any time
without the Company's consent subcontract all or a portion of its obligations
under the Advisory Agreement to one or more of its affiliates that are involved
in the business of managing real estate mortgage assets. If no affiliate of the
Advisor is engaged in the business of managing real estate mortgage assets, the
Advisor may, with the approval of the Board of Directors of the Company,
subcontract out all or a portion of its obligations under the Advisory Agreement
to unrelated third parties. However, the Advisor will not be discharged or
relieved from its obligations under the Advisory Agreement in connection with
any subcontracting of its obligations under the Advisory Agreement. The Advisor
and its personnel have substantial experience in mortgage finance and in the
administration of Mortgage Loans.
The Advisory Agreement has an initial term of two years, and will be
renewed automatically for additional one-year periods unless notice of
nonrenewal is delivered by either party to the other party. The Advisory
Agreement may be terminated by the Company at any time upon 90 days' prior
written notice. Under the Advisory Agreement, the Company will pay the Advisor
an advisory fee of $150,000 per year. See "Management -- The Advisor."
ADDITIONAL INVESTMENTS. The Company may from time to time purchase
additional Mortgage Assets out of net proceeds received in connection with the
Offering, the repayment or disposition of Mortgage Assets, the issuance of
additional shares of Preferred Stock or additional capital contributions with
respect to the Common Stock. The Company does not currently intend to issue any
additional shares of Preferred Stock. The Company anticipates that, prior to its
issuance of additional shares of Preferred Stock, it will take into
consideration Webster Bank's funding requirements and an assessment of other
available options for raising any necessary capital. See "Benefits to Webster
Bank."
MANAGEMENT. Currently, the Company's Board of Directors is composed of
three members and it has three officers. The Company has no other employees.
Each of the Company's directors and officers also is an officer of Webster Bank.
See "Management."
6
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below is based upon and should be
read in conjunction with the Company's financial statements and notes thereto
appearing elsewhere herein. The Company's financial statements for the period
ended June 30, 1997 have been audited by the Company's independent accountants.
The Company's financial statements for the period ended September 30, 1997 are
unaudited. All adjustments necessary for the fair presentation of financial
position and results of operations for interim periods have been included.
Results for interim periods are not necessarily indicative of results for the
year.
FINANCIAL CONDITION DATA:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT JUNE 30, 1997
----------------------- -----------------
(In Thousands)
<S> <C> <C>
Assets:
Cash ................................................ $ 12,942 $ 13,415
Total Mortgage Loans, Net ........................... 625,621 613,519
Accrued Interest Receivable ......................... 3,935 3,751
Prepaid Expenses and Other Assets ................... 101 107
--------- ---------
Total Assets ....................................... $642,599 $630,792
========= =========
Liabilities and Shareholders' Equity:
Total Liabilities ................................... $ 392 $ 274
Shareholder's Equity:
Preferred Stock ..................................... 2,000 2,000
Common Stock ........................................ 1 1
Paid in Capital ..................................... 615,021 615,021
Retained Earnings ................................... 25,185 13,496
--------- ---------
Total Shareholder's Equity ......................... 642,207 630,518
--------- ---------
Total Liabilities and Shareholder's Equity ....... $642,599 $630,792
========= =========
</TABLE>
INCOME STATEMENT DATA:*
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE THREE MONTHS FROM MARCH 17, 1997 FROM MARCH 17, 1997
ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997
---------------------- ------------------------ -----------------------
(In Thousands)
<S> <C> <C> <C>
Interest Income:
Net Interest Income ................ $11,790 $25,403 $13,613
Provision for Loan Losses .......... -- -- --
-------- -------- --------
Net Interest Income After Provision
for Loan Losses ................. 11,790 25,403 13,613
Noninterest Expenses ................. 51 110 59
-------- -------- --------
Income Before Taxes .................. 11,739 25,293 13,554
Income Taxes ......................... -- -- --
-------- -------- --------
Net Income ........................... 11,739 25,293 13,554
Preferred Stock Dividends ............ 50 108 58
-------- -------- --------
Net Income Available to Common Share-
holder .............................. $11,689 $25,185 $13,496
======== ======== ========
</TABLE>
- ----------
* No ratio of earnings to fixed charges is presented because the Company has no
fixed charges.
7
<PAGE>
TAX STATUS OF THE COMPANY
The Company will elect to be treated as a REIT under Sections 856 through
860 of the Code, commencing with its taxable year ending December 31, 1997, and
believes that its organization and proposed method of operation will enable it
to meet the requirements for qualification as a REIT. As a REIT, the Company
generally will not be subject to federal and Connecticut state income tax on net
income and capital gains that it distributes to the holders of its Common Stock
and Preferred Stock.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
to stockholders at least 95% of its "REIT taxable income" (not including capital
gains and certain items of non-cash income). If the Company fails to qualify as
a REIT in any taxable year, it will be subject to federal and Connecticut state
income tax at regular corporate rates. Notwithstanding qualification for
taxation as a REIT, the Company may be subject to federal, state and/or local
tax. See "Risk Factors -- Tax Risks" and "Federal Income Tax Consequences."
In connection with the Offering, Hogan & Hartson L.L.P., the Company's
special counsel, will render an opinion which provides that (1) the Company is
organized and has operated, as of the date of the opinion, in conformity with
the requirements for qualification and taxation as a REIT under the Code, and
the Company's proposed method of operation, as described in this Prospectus and
in a representation letter of the Company, should enable it to continue to meet
the requirements for qualification and taxation as a REIT; and (2) the
discussion in this Prospectus under the caption "Federal Income Tax
Consequences," to the extent that it constitutes matters of law or legal
conclusions, is correct in all material respects.
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus before
purchasing Preferred Shares in the Offering.
CONTROL BY WEBSTER BANK
The Company was organized as a wholly-owned subsidiary of Webster Bank, and
after the Offering will continue to be controlled by and, through advisory and
servicing agreements, totally reliant on Webster Bank. The Company's Board of
Directors consists entirely of Webster Bank employees and, through the advisory
and servicing agreements, Webster Bank and its affiliates are involved in every
aspect of the Company's existence. Webster Bank administers the day-to-day
activities of the Company in its role as Advisor under the Advisory Agreement,
and acts as Servicer of the Company's Mortgage Loans under the Servicing
Agreement. In addition, all of the officers of the Company are also officers of
Webster Bank. As the holder of all of the outstanding voting stock of the
Company, Webster Bank generally will have the right to elect all of the
directors of the Company.
DEPENDENCE UPON WEBSTER BANK AS ADVISOR AND SERVICER
The Company is dependent on the diligence and skill of the officers and
employees of Webster Bank as its Advisor for the selection, structuring and
monitoring of the Company's Mortgage Assets. See "Management." In addition, the
Company is dependent upon the expertise of Webster Bank as its Servicer for the
servicing of the Mortgage Loans. The personnel deemed most essential to the
Company's operations are Webster Bank's loan servicing and administration
personnel, and the staff of its finance department. The loan servicing and
administration personnel will advise the Company in the selection of Mortgage
Assets, and provide loan servicing oversight. The finance department will assist
in the administrative operations of the Company. The Advisor may subcontract all
or a portion of its obligations under the Advisory Agreement to one or more
affiliates, and under certain conditions to non-affiliates, involved in the
business of managing Mortgage Assets. The Advisor may assign its rights or
obligations under the Advisory Agreement, and the Servicer may assign its rights
and obligations under the Servicing Agreement, to any affiliate of the Company
involved in the business of managing real estate mortgage assets. Under the
Advisory Agreement, the Advisor may subcontract out its obligations to unrelated
third parties with the approval of the Board of Directors of the Company. In the
event the Advisor or the Servicer subcontracts or assigns its rights or
obligations in such a manner, the Company will be dependent upon the
subcontractor or affiliate to provide services. See "Management -- The Advisor"
and "Business and Strategy -- Servicing."
CONFLICTS OF INTEREST
Presently, the Company believes that its best interests and the best
interests of the holders of the Preferred Shares are identical to those of
Webster Bank. However, Webster Bank and its affiliates may in the future have
interests which are not necessarily identical to those of the Company.
Consequently, conflicts of interest may arise with respect to transactions,
including without limitation, future acquisitions of Mortgage Assets from
Webster Bank and/or affiliates of Webster Bank; servicing of Mortgage Loans;
future dispositions of Mortgage Loans to Webster Bank or affiliates of Webster
Bank; and the modification of the Advisory Agreement or the Servicing Agreement.
It is the intention of the Company and Webster Bank that any agreements and
transactions between the Company, on the one hand, and Webster Bank and/or its
affiliates, on the other hand, are fair to all parties and consistent with
market terms, including the prices paid and received for Mortgage Assets on
their acquisition or disposition by the Company or in connection with the
servicing of Mortgage Loans. Also, the Advisory Agreement provides that nothing
contained in such agreement shall prevent Webster Bank, its affiliates, or an
officer, director, employee or stockholder from engaging in any activity,
including without limitation, purchasing and managing real estate mortgage
assets, rendering services and investment advice with respect to real estate
investment opportunities to any other person (including other REITs) and
managing other investments (including the investments of Webster Bank and its
affiliates). Although the Company and Webster Bank intend that the dealings
between the Company and Webster Bank and its
9
<PAGE>
affiliates be fair, there can be no assurance that agreements or transactions
will be on terms as favorable to the Company as those that could have been
obtained from unaffiliated third parties. See "Business and Strategy --
Management Policies -- Relationship with Webster Bank Policies."
RISK OF FUTURE REVISIONS IN POLICIES AND STRATEGIES BY BOARD OF DIRECTORS
The Board of Directors of the Company has established the investment
policies, operating policies and strategies of the Company. All material
investment policies, operating policies and strategies of the Company are
described in this Prospectus. These policies may be amended or revised from time
to time at the discretion of the Board of Directors without a vote of the
Company's stockholders, including holders of the Preferred Shares. The ultimate
effect of any change in the policies and strategies of the Company on a holder
of Preferred Shares may be positive or negative. For example, although the
Company currently intends to maintain substantially all of its assets in a
combination of Residential Mortgage Loans and Mortgage-Backed Securities, the
Company may in the future acquire other Mortgage Assets, such as Commercial
Mortgage Loans, which have a different and distinct risk profile. See "Business
and Strategy -- Management Policies."
No Third Party Valuation of the Mortgage Assets
No third party valuations of the Mortgage Assets currently owned by the
Company were obtained for purposes of the Offering. In addition, although the
Company and Webster Bank intend that future acquisitions or dispositions of
Mortgage Assets be on a fair value basis, it is not anticipated that third party
valuations will be obtained in connection with future acquisitions and
dispositions of Mortgage Assets even in circumstances where an affiliate of the
Company is selling the Mortgage Assets to, or purchasing the Mortgage Assets
from, the Company.
REGULATORY IMPACT ON THE COMPANY
Webster Bank, which owns 100% of the Company's Common Stock, is subject to
supervision and regulation by, among others, the Office of Thrift Supervision
(the "OTS") and the FDIC. Because the Company is a subsidiary of Webster Bank,
such federal banking regulatory authorities will have the right to examine the
Company and its activities. If Webster Bank becomes "undercapitalized" under
"prompt corrective action" initiatives of the federal bank regulators, such
regulatory authorities will have the authority to require, among other things,
Webster Bank or the Company to alter, reduce or terminate any activity that the
regulator determines poses an excessive risk to Webster Bank. The Company does
not believe that its activities presently do, or in the future will, pose a risk
to Webster Bank; however there can be no assurance in that regard. The
regulators also could restrict transactions between Webster Bank and the Company
including the transfer of assets; require Webster Bank to divest or liquidate
the Company; or require that Webster Bank be sold. Webster Bank could further be
directed to take any other action that the regulatory agency determines will
better carry out the purpose of prompt corrective action. Webster Bank could be
subject to these prompt corrective action restrictions if federal regulators
determined that Webster Bank was in an unsafe or unsound condition or engaging
in an unsafe or unsound practice. In light of Webster Bank's control of the
Company, as well as the Company's dependence and reliance upon the skill and
diligence of Webster Bank officers and employees, some or all of the foregoing
actions and restrictions could have an adverse effect on the operations of the
Company, including causing the Company's failure to qualify as a REIT.
Webster Bank would become "undercapitalized" for purposes of the OTS prompt
corrective action regulations if it had a core capital (or leverage) ratio of
less than 4.00%, or 3.00% if Webster Bank is rated composite 1 under the CAMEL
rating system in its most recent examination, a Tier 1 risk-based capital ratio
of less than 4.00% or a total risk-based capital ratio of less than 8.00%. At
September 30, 1997, Webster Bank's core capital (or leverage) ratio was 5.74%,
its Tier 1 risk-based capital ratio was 12.43% and its total risk-based capital
ratio was 13.69%. See "Webster Bank."
Pursuant to OTS regulations and the Company's Certificate of Incorporation,
the Company is required to maintain a separate corporate existence from Webster
Bank, notwithstanding that Webster Bank owns all of the Common Stock and that
all of the directors and officers of the Company are Webster Bank employ-
10
<PAGE>
ees. In the event Webster Bank should be placed into receivership by federal
bank regulators, such federal bank regulators would be in control of Webster
Bank. There can be no assurance that they would not cause Webster Bank, as sole
holder of the Common Stock, to take action adverse to holders of Preferred
Shares.
Tax Risks
ADVERSE CONSEQUENCES OF FAILURE TO QUALITY AS A REIT. The Company intends
to operate so as to qualify as a REIT under the Code, commencing with its
taxable year ending December 31, 1997. Although the Company believes that it
will be owned and organized and will operate in such a manner, and Hogan &
Hartson L.L.P. will render certain opinions, described under "Prospectus Summary
- -- Tax Status of the Company," regarding the Company's qualification as a REIT,
no assurance can be given that the Company will be able to operate in such a
manner so as to qualify as a REIT or to remain so qualified. Qualification as a
REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances, not entirely within
the Company's control and not addressed by the opinion of Hogan & Hartson
L.L.P., may affect the Company's ability to qualify as a REIT. Although the
Company is not aware of any proposal in Congress to amend the tax laws in a
manner that would materially and adversely affect the Company's ability to
operate as a REIT, no assurance can be given that new legislation or new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws in the future with respect to qualification as
a REIT or the federal income tax consequences of such qualification.
The Company is relying on the opinion of Hogan & Hartson L.L.P., special
counsel to the Company, regarding various issues affecting the Company's ability
to qualify, and retain qualification, as a REIT. Such legal opinions are not
binding on the Internal Revenue Service (the "IRS") or the courts.
If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for distributions to stockholders in computing
its federal taxable income and would be subject to federal and Connecticut state
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. As a result, the amount available for
distribution to the Company's stockholders would be reduced for the year or
years involved. In addition, unless entitled to relief under certain statutory
provisions, the Company would also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost. A
failure of the Company to qualify as a REIT would not by itself give the Company
the right to redeem the Preferred Shares, nor would it give the holders of the
Preferred Shares the right to have their shares redeemed. See "Description of
Preferred Shares -- Series A Preferred Shares -- Redemption" and "Description of
Preferred Shares -- Series B Preferred Shares -- Redemption."
Notwithstanding that the Company currently intends to operate in a manner
designed to qualify as a REIT, future economic, market, legal, tax or other
considerations may cause the Company to determine that it is in the best
interest of the Company and the holders of its Common Stock and Preferred Stock
to revoke the REIT election. The tax law prohibits the Company from electing
treatment as a REIT for the four taxable years following the year of such
revocation. See "Federal Income Tax Consequences."
In the event that the Company has insufficient available cash on hand or is
otherwise precluded from making dividend distributions in amounts sufficient to
maintain its status as a REIT or to avoid imposition of an excise tax, the
Company may avail itself of consent dividend procedures. A consent dividend is a
hypothetical dividend, as opposed to an actual dividend, declared by the Company
and treated for U.S. federal tax purposes as though it had actually been paid to
stockholders who were the owners of shares on the last day of the year and who
executed the required consent form, and then recontributed by those stockholders
to the Company. The Company would use the consent dividend procedures only with
respect to its Common Stock.
REIT REQUIREMENTS WITH RESPECT TO STOCKHOLDER DISTRIBUTIONS. To obtain
favorable tax treatment as a REIT qualifying under the Code, the Company
generally will be required each year to distribute as dividends to its
stockholders at least 95% of its "REIT taxable income" (excluding capital gains
and certain items of non-cash income). Failure to comply with this requirement
would result in the Compa-
11
<PAGE>
ny's income being subject to tax at regular corporate rates. In addition, the
Company will be subject to a 4% nondeductible excise tax on the amount, if any,
by which certain distributions considered as paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income for the
calendar year, 95% of its capital gains net income for the calendar year and any
undistributed taxable income from prior periods. Under certain circumstances,
federal regulatory authorities may restrict the ability of the Company, as a
subsidiary of Webster Bank, to make distributions to its stockholders. Such a
restriction could result in the Company's failure to meet REIT requirements with
respect to stockholder distributions. See "-- Regulatory Impact on the Company."
REDEMPTION UPON OCCURRENCE OF A TAX EVENT. At any time following the
occurrence of a Tax Event, even if such Tax Event occurs prior to January 15,
1999 with respect to the Series A Preferred Shares and prior to January 15, 2003
with respect to the Series B Preferred Shares, the Company will have the right
to redeem the Preferred Shares in whole but not in part, at the Series A Early
Redemption Price and the Series B Early Redemption Price, respectively. The
occurrence of a Tax Event will not, however, give the holders of the Preferred
Shares any right to have such shares redeemed. See "Description of Preferred
Shares -- Series A Preferred Shares -- Redemption," and "Description of
Preferred Shares -- Series B Preferred Shares -- Redemption," and "Description
of Preferred Shares -- Series A and Series B Early Redemption."
LIMITED OPERATING HISTORY OF THE COMPANY
As the Company was incorporated and began its operations in March 1997, the
operating history of the Company is limited. The Company and Webster Bank have
not previously managed or operated a REIT.
GEOGRAPHIC CONCENTRATION
Certain geographic regions of the United States may from time to time
experience natural disasters or weaker regional economic conditions and housing
markets, and, consequently, may experience higher rates of loss and delinquency
on Mortgage Loans generally. Any concentration of the Mortgage Loans in such a
region may present risks in addition to those present with respect to Mortgage
Loans generally. Substantially all of the residential properties underlying the
Mortgage Assets presently are located in Connecticut. These Mortgage Assets may
be subject to a greater risk of default than other comparable Mortgage Assets in
the event of adverse economic, political or business developments or natural
hazards that may affect such region and the ability of property owners in such
region to make payments of principal and interest on the underlying mortgages.
LIMITED VOTING RIGHTS
Holders of Preferred Shares will not have any voting rights, except as
expressly provided herein. On any matter on which holders of the Preferred
Shares may vote, each Preferred Share will be entitled to vote proportionately
based upon the liquidation preference associated with such Preferred Share. In
certain circumstances when the Company has failed to declare or pay dividends,
holders of Preferred Shares have the right to elect two directors to the Board
of Directors of the Company. See "Description of Preferred Shares -- Voting
Rights."
POTENTIAL LACK OF ACTIVE MARKET FOR PREFERRED SHARES
The Series A preferred shares will not be listed on any securities
exchange. the Series B preferred Shares have been approved for inclusion in the
Nasdaq Stock Market. However, there can be no assurance that an active, or any,
trading market will develop or be maintained for the Preferred Shares.
Consequently, there can be no assurance as to the liquidity of the trading
markets for the Preferred Shares.
RISKS RELATED TO CHANGES IN INTEREST RATES
The results of the Company's operations will be affected by various
factors, many of which are beyond the control of management. Because the Company
does not intend to incur any borrowings, the Company's net income will be
dependent primarily upon the yield on its Mortgage Assets. Accordingly,
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<PAGE>
net income over time will vary as a result of changes in interest rates, the
behavior of which involve various risks and uncertainties, and the supply of and
demand for Mortgage Assets. Prepayment rates and interest rates depend upon the
nature and terms of the Mortgage Assets, the geographic location of the real
estate securing the Mortgage Loans included in or underlying the Mortgage
Assets, conditions in financial markets, the fiscal and monetary policies of the
United States government and the Board of Governors of the Federal Reserve
System, competition and other factors, none of which can be predicted with any
certainty. While increases in interest rates will generally increase the yields
on the Company's adjustable-rate Mortgage Assets, decreasing rates typically
would decrease such yields and also may result in increased levels of
prepayments. Under such circumstances, the Company may not be able to reinvest
at a favorable yield.
REAL ESTATE MARKET CONDITIONS
The results of the Company's operations will be affected by various
factors, many of which are beyond the control of the Company, such as local and
other economic conditions affecting the values of the properties underlying the
Mortgage Assets and the ability of mortgagees to make payments of principal and
interest on their Mortgage Loans. A decline in the value of properties
underlying the Mortgage Assets may cause a higher level of defaults on Mortgage
Loans. There can be no assurance that a decline in local or other economic
conditions will not adversely affect Mortgage Assets currently owned by the
Company or acquired by the Company in the future.
ENVIRONMENTAL CONSIDERATIONS
In the event that the Company is forced to foreclose on a defaulted
mortgage loan to recover its investment in such Mortgage Loan, the Company may
be subject to environmental liabilities in connection with the underlying real
property which could exceed the value of the real property. Although the Company
intends to exercise due diligence to discover potential environmental
liabilities prior to the acquisition of any property through foreclosure,
hazardous substances or wastes, contaminants, pollutants or sources thereof (as
defined by state and federal laws and regulations) may be discovered on
properties during the Company's ownership or after a sale thereof to a third
party. If such hazardous substances are discovered on a property which the
Company has acquired through foreclosure or otherwise, the Company may be
required to remove those substances and clean up the property. There can be no
assurance that in such a case the Company would not incur full recourse
liability for the entire costs of any removal and clean-up, that the cost of
such removal and clean-up would not exceed the value of the property or that the
Company could recoup any of such costs from any third party. The Company may
also be liable to property owners, tenants and other users of neighboring
properties. In addition, the Company may find it difficult or impossible to sell
the property prior to or following any such clean-up.
LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other charges
and require certain disclosures to borrowers. In addition, most states have
other laws, public policy and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and practices which may
apply to the servicing and collection of the Mortgage Loans. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Company to collect all or part of the principal of or interest on
the Mortgage Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the Company to damages and administrative
sanctions.
DELAYS IN LIQUIDATING DEFAULTED MORTGAGE LOANS
Even assuming that the mortgaged properties underlying the mortgage loans
held by the Company provide adequate security for such Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Mortgage Loans, with corresponding delays in the receipt of related
proceeds by the Company. An action to foreclose on a mortgaged property securing
a Mortgage Loan is regulated by state statutes and rules and is subject to many
of the delays and expenses of other lawsuits if
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<PAGE>
defenses or counterclaims are interposed, sometimes requiring several years to
complete. In some states, an action to obtain a deficiency judgment is not
permitted following a non-judicial sale of a mortgaged property. In Connecticut,
where substantially all of the properties currently securing the Company's
Mortgage Loans are located, foreclosures are judicial and an action to obtain a
deficiency judgment is only permitted following a judicial foreclosure of a
mortgaged property. In the event of a default by a mortgagor, these
restrictions, among other things, may impede the ability of the Company to
foreclose on or sell the mortgaged property or to obtain proceeds sufficient to
repay all amounts due on the related Mortgage Loan. In addition, the Servicer of
the Company's Mortgage Loans will be entitled to deduct from collections
received all expenses reasonably incurred in attempting to recover amounts due
and not yet repaid on liquidated Mortgage Loans, including legal fees and costs
of legal action, real estate taxes and maintenance and preservation expenses,
thereby reducing amounts available to the Company.
NO CREDIT ENHANCEMENT OR SPECIAL HAZARD INSURANCE
The Company generally does not intend to obtain credit enhancements such as
mortgagor bankruptcy insurance or to obtain special hazard insurance for its
Mortgage Loans, other than standard hazard insurance, which will in each case
only relate to individual Mortgage Loans. Accordingly, during the time it holds
Mortgage Loans for which third party insurance is not obtained, the Company will
be subject to risks of borrower defaults and bankruptcies and special hazard
losses that are not covered by standard hazard insurance (such as those
occurring from earthquakes or floods). In addition, in the event of a default on
any Mortgage Loan held by the Company resulting from declining property values
or worsening economic conditions, among other factors, the Company would bear
the risk of loss of principal to the extent of any deficiency between (i) the
value of the related mortgaged property, plus any payments from an insurer (or
guarantor in the case of Commercial Mortgage Loans) and (ii) the amount owing on
the Mortgage Loan.
RISK ASSOCIATED WITH LEVERAGE
Although the Company does not currently intend to incur any indebtedness in
connection with the acquisition and holding of Mortgage Assets, the Company may
do so at any time. See "Business and Strategy -- Management Policies -- Capital
and Leverage Policies." To the extent the Company were to change its policy with
respect to the incurrence of indebtedness, the Company would be subject to risks
associated with leverage, including, without limitation, changes in interest
rates and prepayment risk.
THE COMPANY
Webster Preferred Capital Corporation is a Connecticut corporation
incorporated in March 1997. THE Company was formed by Webster Bank to provide a
cost-effective means of raising funds, including capital, on a consolidated
basis for Webster Bank. The Company's strategy is to acquire, hold and manage
Mortgage Assets. In March 1997, Webster Bank contributed $617.0 million of
Mortgage Assets, net as part of the formation of the Company. As of September
30, 1997, all of the Mortgage Assets owned by the Company are Residential
Mortgage Loans. Although the Company may acquire and hold a variety of Mortgage
Assets, its present intention is to acquire only Residential Mortgage Loans and
Mortgage-Backed Securities. The Company intends to hold such assets primarily
for income, thereby seeking to generate net income for distribution to its
stockholders based on the spread between the interest income on the Mortgage
Assets and the cost of its capital and operations. The Company may invest up to
5% of the total value of its portfolio in assets other than Residential Mortgage
Loans and Mortgage-Backed Securities eligible to be held by REITs. In addition
to Commercial Mortgage Loans, such assets could include cash and cash
equivalents. As of September 30, 1997, approximately 34.4% of the Company's
Mortgage Loans are fixed rate loans and 65.6% are adjustable rate loans. In
November 1997, Webster Bank contributed approximately $120.4 million in cash to
the Company, which was used by the Company to purchase Mortgage-Backed
Securities. During the first quarter of 1998, Webster Bank anticipates
contributing approximately $800 million of additional Mortgage Assets or cash to
the Company.
All of the Company's Common Stock is owned by Webster Bank. Webster Bank
has indicated to the Company that, for as long as any Preferred Shares are
outstanding, Webster Bank intends to maintain direct ownership of 100% of the
outstanding Common Stock of the Company. Pursuant to the
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Company's Certificate of Incorporation, the Company cannot redeem, or make any
other payments or distributions in respect of, shares of its Common Stock to the
extent such redemption, payments or distributions would cause the Company's
total stockholders' equity (as determined in accordance with GAAP) to be less
than 250% of the aggregate liquidation value of the issued and outstanding
Preferred Shares. The Preferred Shares are not exchangeable into capital stock
or other securities of Webster Bank or Webster, and will not constitute
regulatory capital of either Webster Bank or Webster.
The Company will elect to be treated as a REIT under the Code and will
generally not be subject to federal and Connecticut state income tax to the
extent that it distributes its earnings to its stockholders and maintains its
qualification as a REIT. Furthermore, the Company and Webster Bank will benefit
significantly from federal and state tax treatment of dividends paid by the
Company as a result of its qualification as a REIT. The dividends payable on the
Preferred Shares will be deductible for federal income tax purposes as a result
of the Company's qualification as a REIT. Also as a result of the Company's
qualification as a REIT, as well as its qualification under certain Connecticut
tax law requirements, Webster Bank will be able to deduct from its income,
dividends received on the Common Stock for Connecticut corporation income tax
purposes.
WEBSTER BANK
Webster Bank is the federal savings bank subsidiary of Webster, both of
which are headquartered in Waterbury, Connecticut. Deposits at Webster Bank are
FDIC insured. Webster Bank currently serves customers from 84 banking offices
located in New Haven, Fairfield, Litchfield, Hartford and Middlesex Counties in
Connecticut. Webster Bank's focus is on providing financial services to
individuals, families and businesses. It emphasizes four business lines --
consumer banking, business banking, mortgage banking and trust and investment
management services. These lines are supported by centralized administration,
marketing, finance and operations. Webster Bank's goal is to provide banking
services that are fairly priced, reliable and convenient.
The Webster Bank consolidated financial information as of September 30,
1997 includes the Company, as well as Derby Savings Bank ("Derby") and People's
Savings Bank & Trust ("People's"), both of which were acquired by Webster Bank
in 1997 in transactions accounted for as pooling of interests. At September 30,
1997, Webster Bank had total consolidated assets of $6.7 billion, total deposits
of $4.3 billion, and shareholder's equity of $438.6 million or 6.5% of total
assets. At September 30, 1997, Webster Bank had total loans receivable of $3.7
billion, which included $2.9 billion in residential mortgage loans, $275.0
million in commercial real estate loans, $185.1 million in commercial and
industrial loans and $448.6 million in consumer loans (consisting primarily of
home equity loans). At September 30, 1997, nonaccrual loans and other real
estate owned ("OREO") were $49.2 million. At that date, Webster Bank's allowance
for loan losses was $52.3 million, or 136.6% of nonaccrual loans, and its total
allowance for loan and OREO losses was $52.8 million, or 106.1% of nonaccrual
loans and OREO.
At September 30, 1997, Webster Bank had regulatory capital significantly in
excess of all applicable capital requirements as detailed below:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------------------------------
TIER 1 TIER 1 TOTAL
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL RISK-BASED CAPITAL
------------------ ------------------ ----------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
---------- ------- ---------- ------- ----------- ----------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Webster Bank:
Actual Regulatory Capital ............ $378,897 5.67% $383,940 5.74% $ 383,940 12.43% $422,729 13.69%
Minimum Regulatory Requirement ....... 100,208 1.50 200,568 3.00 123,537 4.00 247,074 8.00
--------- ----- --------- ----- ---------- ------- --------- -------
Excess Over Requirement .............. $278,689 4.17% $183,372 2.74% $ 260,403 8.43% $175,655 5.69%
</TABLE>
Since 1991, Webster Bank has experienced significant growth, primarily as a
result of acquisitions. In September 1991, Webster Bank acquired certain assets
and $247 million of deposit liabilities of Suffield Bank in an FDIC assisted
transaction. In 1992, Webster Bank acquired $1.3 billion of the assets, all of
the deposits and certain other liabilities of First Constitution Bank, New
Haven, Connecticut in an
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<PAGE>
FDIC assisted transaction. In March 1994, Webster Bank completed a
conversion/acquisition of Bristol Savings Bank and its $453 million in deposits.
Also in 1994, Webster Bank acquired Shoreline Bank and Trust Company with
approximately $51 million of assets. In November 1995, Webster Bank acquired
Shelton Savings Bank with approximately $298 million of assets, including $224
million of loans and approximately $273 million of deposits. In February 1996,
Webster Bank acquired 20 branch banking offices from Shawmut Bank Connecticut,
N.A., assuming approximately $845 million in deposits and acquiring
approximately $586 million in loans. In 1997, Webster Bank acquired Derby with
approximately $1.2 billion of assets, and People's with approximately $479
million of assets and an additional $327 million of trust assets under
management. Webster Bank also acquired Sachem Trust National Association in 1997
with approximately $300 million of trust assets under management.
On October 27, 1997, Webster announced a definitive agreement to acquire
Eagle on a stock for stock basis in a tax-free exchange fixed at 0.84 shares of
Webster common stock for each share of Eagle common stock. At the time of the
announcement, Eagle had approximately $2.1 billion in total assets, $1.1 billion
in loans, net and $1.4 billion in deposits and operated 30 branches. Subsequent
to the acquisition, Webster will have approximately $8.8 billion in total assets
and over 110 branch offices prior to the consolidation of overlapping branches.
Webster currently anticipates recognizing acquisition related charges of
approximately $18.9 million on a before tax basis.
As a result of the Offering, Webster Bank will benefit from federal and
state tax treatment of dividends paid by the Company as a result of its
qualification as a REIT. The dividends payable on the Preferred Shares will be
deductible by the Company for federal and Connecticut state income tax purposes
as a result of its qualification as a REIT. Also as a result of the Company's
qualification as a REIT, as well as its qualification under certain Connecticut
tax law requirements, Webster Bank will be able to deduct from its income the
dividends received on the Common Stock for Connecticut state income tax
purposes. Webster Bank also will be entitled to receive advisory and servicing
fees and dividends in respect of the Common Stock and will be entitled to retain
any ancillary fees, including, but not limited to, late payment charges,
prepayment fees, penalties and assumption fees collected in connection with the
Mortgage Loans serviced by it. In addition, Webster Bank, as Servicer, will
receive any benefit derived from interest earned on collected principal and
interest payments between the date of collection and the date of remittance to
the Company and from interest earned on tax and insurance impound funds with
respect to Mortgage Loans serviced by the Servicer.
CONFLICTS OF INTEREST
Presently, the Company believes that its best interests and the best
interests of the holders of the Preferred Shares are identical to those of
Webster Bank. However, Webster Bank and its affiliates may in the future have
interests which are not necessarily identical to those of the Company.
Consequently, conflicts of interest may arise with respect to transactions,
including without limitation, future acquisitions of Mortgage Assets from
Webster Bank and/or affiliates of Webster Bank; servicing of Mortgage Loans;
future dispositions of Mortgage Loans to Webster Bank or affiliates of Webster
Bank; and the modification of the Advisory Agreement or the Servicing Agreement.
It is the intention of the Company and Webster Bank that any agreements and
transactions between the Company, on the one hand, and Webster Bank and/or its
affiliates, on the other hand, are fair to all parties and consistent with
market terms, including the prices paid and received for Mortgage Assets on
their acquisition or disposition by the Company or in connection with the
servicing of Mortgage Loans. Also, the Advisory Agreement provides that nothing
contained in such agreement shall prevent Webster Bank, its affiliates, or an
officer, director, employee or stockholder from engaging in any activity,
including without limitation, purchasing and managing real estate mortgage
assets, rendering services and investment advice with respect to real estate
investment opportunities to any other person (including other REITs) and
managing other investments (including the investments of Webster Bank and its
affiliates). Although the Company and Webster Bank intend that the dealings
between the Company and Webster Bank and its affiliates be fair, there can be no
assurance that agreements or transactions will be on terms as favorable to the
Company as those that could have been obtained from unaffiliated third parties.
See "Business and Strategy -- Management Policies -- Relationship with Webster
Bank Policies."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Preferred Shares
offered hereby are estimated to be $ million. In anticipation of the Offering,
the Company has been reinvesting its net income in additional Mortgage Assets.
Accordingly, approximately $40 million of the net proceeds of the Offering will
be used to fund payments to Webster Bank of cash dividends of the Company's 1997
net income. See "Business and Strategy." The Company will use the remaining net
proceeds received in connection with the Offering to fund operations and
purchase additional Mortgage Assets. The Company expects that it will purchase
any such additional Mortgage Assets during the first calendar quarter following
completion of the Offering. Pending such expected acquisition of additional
Mortgage Assets, the Company will invest the net Offering proceeds not used to
fund 1997 dividends in short-term securities or money market investments.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect the consummation of the Offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
ACTUAL AS ADJUSTED
---------------- ------------
(In Thousands, Except Share
Data)
<S> <C> <C>
Shareholders' Equity
Series A ____% Cumulative Redeemable Preferred Stock, par value
$1.00 per hare; none authorized, issued and outstanding, actual;
and 40,000 shares authorized, issued and outstanding, as adjusted ...... $ -- $ 40
Series B ___% Cumulative Redeemable Preferred Stock, par value $1.00
per share; none authorized, issued and outstanding, actual; and
1,000,000 shares authorized, issued and outstanding, as adjusted -- 1,000
10% Cumulative Non-Convertible Preferred Stock, $1,000 stated value
per share; 2,000 shares authorized, issued and outstanding, actual; no
shares authorized, issued and outstanding, as adjusted ................. 2,000 (1) -- (1)
Common Stock, par value $0.01 per share; 1,000 shares authorized, and
100 shares issued and outstanding, actual and as adjusted .............. 1 1
Additional Paid-in Capital ............................................... 615,021 (2)
Retained Earnings ........................................................ 25,185 25,185
---------- -------
Total Capitalization ...................................................... $ 642,207 $
========== =======
</TABLE>
- ----------
(1) Prior to the Offering, the Company redeemed from Webster Bank the 2,000
shares of preferred stock shown as outstanding at September 30, 1997.
Webster Bank concurrently contributed the proceeds of that redemption to the
Company, which is reflected as a $2 million addition to the paid-in capital
account of the Company in the "As Adjusted" column.
(2) The Company was formed with an initial capitalization of $617.0 million in
Mortgage Assets, net. In addition, in November 1997, Webster Bank
contributed approximately $120.4 million in cash to the Company, which was
used by the Company to purchase Mortgage-Backed Securities. The additional
paid-in capital, as adjusted, of $ million represents (i) the $617.0 million
total capital contribution made by Webster Bank in the form of Mortgage
Assets to the Company, (ii) the approximately $120.4 million cash
contribution made by Webster Bank in November 1997 and used by the Company
to purchase Mortgage-Backed Securities, (iii) the $2 million addition to the
paid-in capital account of the Company resulting from the redemption of
2,000 outstanding shares of preferred stock, and (iv) the $___ million
raised in the Offering, less the aggregate par value of the Common Stock and
Preferred Shares, and the organizational and Offering expenses.
17
<PAGE>
BUSINESS AND STRATEGY
GENERAL
The Company's strategy is to acquire, hold and manage Mortgage Assets to
generate net income for distribution to stockholders. In March 1997, Webster
Bank contributed $617.0 million of Mortgage Assets, net as part of the formation
of the Company. In November 1997, Webster Bank contributed approximately $120.4
million in cash to the Company, which was used by the Company to purchase
Mortgage-Backed Securities. During the first quarter of 1998, Webster Bank
anticipates contributing approximately $800 million of additional Mortgage
Assets or cash to the Company.
In order to preserve its status as a REIT under the Code, substantially all
of the assets of the Company will consist of Mortgage Loans, Mortgage-Backed
Securities and other qualified REIT real estate assets of the type set forth in
Section 856(c)(6)(B) of the Code. See "Federal Income Tax Consequences."
DIVIDEND POLICY
The Company currently expects to pay an aggregate amount of dividends with
respect to its outstanding shares of capital stock equal to not less than 100%
of the Company's "REIT taxable income" (excluding capital gains and certain
items of non-cash income). In order to remain qualified as a REIT, the Company
must distribute annually at least 95% of its "REIT taxable income" (excluding
capital gains and certain items of non-cash income) to stockholders. The Company
anticipates that none of the distributions on the Preferred Shares and none or
no material portion of the distributions on the Common Stock will constitute
non-taxable returns of capital.
Dividends will be declared at the discretion of the Board of Directors
after considering the Company's distributable funds, financial requirements, tax
considerations and other factors. The Company's distributable funds will consist
primarily of interest and principal payments on the Mortgage Assets held by it,
and the Company anticipates that a significant portion of such assets will bear
interest at adjustable rates. Accordingly, if there is a decline in interest
rates, the Company may experience a decrease in income available to be
distributed to its stockholders. However, the Company currently expects that
both its cash available for distribution and its "REIT taxable income" will
exceed the amount needed to pay dividends on the Preferred Shares, even in the
event of a significant decline in interest rate levels, because (i) the
Company's Mortgage Assets are interest bearing, (ii) the Preferred Shares are
not expected to exceed 15% of the Company's capitalization, and (iii) the
Company does not anticipate incurring any indebtedness. As indicated below under
"-- Description of Mortgage Assets," as of September 30, 1997, the weighted
average interest rate of the Company's Residential Mortgage Loans was
approximately 7.65% per annum.
The Company expects that it will, after taking into consideration the
dividends on the Preferred Shares, pay dividends to Webster Bank as the holder
of its Common Stock. Because the tax return of Webster Bank is not consolidated
with the Company, the dividends payable to Webster Bank as to any year must be
paid before the end of such year.
There are several limitations on the Company's ability to pay dividends on
the Common Stock (none of which should adversely affect the legal right of the
Company to pay dividends in respect of the Preferred Shares). If the Company
fails to declare full dividends on the Preferred Shares in any dividend period,
the Company may not make any dividends, other than consent dividends, or other
distributions with respect to the Common Stock for such dividend period. See
"Federal Income Tax Consequences -- Requirements for Qualification as a REIT --
Annual Distribution Requirements." The Connecticut Corporation Law provides that
no dividend distribution may be made if, after giving it effect: (1) the Company
would not be able to pay its debts as they become due in the usual course of
business; or (2) the Company's total assets would be less than the sum of its
total liabilities plus, unless the certificate of incorporation of the Company
permits otherwise, the amount that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. It is, however, possible that these limitations on
the Company's ability to pay dividends on the Common Stock and
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<PAGE>
Preferred Stock could affect the ability of the Company to qualify as a REIT for
federal income tax purposes, unless the Company avails itself of consent
dividend procedures. See "Federal Income Tax Consequences -- Requirements for
Qualification as a REIT."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity need will be to fund the acquisition of
additional Mortgage Assets as Mortgage Assets held by the Company are repaid and
to fund dividends on outstanding capital stock. The acquisition of additional
Mortgage Assets will be funded with the proceeds of interest and principal
repayments on the Company's portfolio of Mortgage Assets. The Company does not
anticipate that it will have any other material capital expenditures. The
Company believes that cash generated from the payment of interest and principal
on its Mortgage Assets will provide sufficient funds to meet its operating
requirements and to pay dividends in accordance with the requirements to be
taxed as a REIT for the foreseeable future. To the extent that the Company
accumulates cash in order to meet its dividend requirements, it may invest such
cash in short term securities or money market investments.
GENERAL DESCRIPTION OF MORTGAGE ASSETS; INVESTMENT POLICY
RESIDENTIAL MORTGAGE LOANS. The Company may from time to time acquire both
conforming and nonconforming Residential Mortgage Loans. Conventional conforming
Residential Mortgage Loans comply with the requirements for inclusion in a loan
guarantee program sponsored by either the Federal Home Loan Mortgage Corporation
("FHLMC") or Fannie Mae. Under current guidelines, effective January 1, 1998,
the maximum principal balance allowed on conforming Residential Mortgage Loans
ranges from $227,150 ($340,725 for Residential Mortgage Loans secured by
mortgaged properties located in either Alaska or Hawaii) for one unit
residential loans to $436,600 ($654,900 for Residential Mortgage Loans secured
by mortgaged properties located in either Alaska or Hawaii) for four unit
residential loans. Nonconforming Residential Mortgage Loans are Residential
Mortgage Loans that do not qualify in one or more respects for purchase by
Fannie Mae or FHLMC under their standard programs. The nonconforming Residential
Mortgage Loans that the Company purchases will be nonconforming generally
because they have original principal balances which exceed the limits for FHLMC
or Fannie Mae programs. The Company's nonconforming Residential Mortgage Loans
are expected to meet the requirements for sale to national private mortgage
conduit programs or other investors in the secondary mortgage market.
Each Residential Mortgage Loan will be evidenced by a promissory note
secured by a mortgage or deed of trust or other similar security instrument
creating a first lien on a single family (one to four unit) residential
property, including stock allocated to a dwelling unit in a residential
cooperative housing corporation. Residential real estate properties underlying
Residential Mortgage Loans consist of individual dwelling units, individual
cooperative apartment units, individual condominium units, two to four family
dwelling units, planned unit developments and townhouses.
The Company does not intend to invest in subprime loans.
MORTGAGE-BACKED SECURITIES. The Company may from time to time acquire
fixed-rate or adjustable-rate Mortgage-Backed Securities representing interests
in pools of Mortgage Loans. A portion of any of the Mortgage-Backed Securities
that the Company purchases may have been originated by Webster Bank by
exchanging pools of Mortgage Loans for the Mortgage-Backed Securities. The
Mortgage Loans underlying the Mortgage-Backed Securities will be secured by
single family residential properties located throughout the United States.
The Company intends to acquire only investment grade Mortgage-Backed
Securities issued or guaranteed by Fannie Mae, FHLMC and GNMA. The Company does
not intend to acquire any interest-only, principal-only or high-risk
Mortgage-Backed Securities. Further, the Company does not intend to acquire any
residual interests in real estate mortgage conduits or any interests, other than
as a creditor, in any taxable mortgage pools.
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<PAGE>
OTHER REAL ESTATE ASSETS. Although the Company presently intends to invest
only in Residential Mortgage Loans and Mortgage-Backed Securities, the Company
may invest up to 5% of the total value of its portfolio in assets other than
Residential Mortgage Loans and Mortgage-Backed Securities eligible to be held by
REITs. In addition to Commercial Mortgage Loans, such assets could include cash
and cash equivalents. The Company does not intend to invest in securities or
interests of persons primarily engaged in real estate activities.
MANAGEMENT POLICIES
In administering the Company's Mortgage Assets, the Advisor has a high
degree of autonomy. The Board of Directors, however, has adopted certain
policies to guide administration of the Company and the Advisor with respect to
the acquisition and disposition of assets, use of capital and leverage, credit
risk management and certain other activities. These policies, which are
discussed below, may be amended or revised from time to time at the discretion
of the Board of Directors without a vote of the Company's stockholders,
including holders of the Preferred Shares. See also "-- Dividend Policy."
ASSET ACQUISITION AND DISPOSITION POLICIES. Subsequent to the Offering, the
Company anticipates that it will purchase additional Mortgage Assets on a
monthly basis. The Company intends to acquire all or substantially all of such
Mortgage Assets from Webster Bank and/or affiliates of Webster Bank, on terms
that are comparable to those that could be obtained by the Company if such
Mortgage Assets were purchased from unrelated third parties, out of proceeds
received in connection with the repayment or disposition of Mortgage Assets or
the issuance of additional shares of Preferred Stock or the contribution of
additional capital by Webster Bank. The Company does not presently intend to
incur borrowings to acquire Mortgage Assets. See "-- Capital and Leverage
Policies." The Company may also from time to time acquire Mortgage Assets from
unrelated third parties. As of the date of this Prospectus, the Company has not
adopted any arrangements or procedures by which it would purchase Mortgage
Assets from unrelated third parties, and the Company has not entered into any
agreements with any third parties with respect to the purchase of Mortgage
Assets. The Company anticipates that it would purchase Mortgage Assets from
unrelated third parties only if neither Webster Bank nor any affiliate of
Webster Bank had an amount or type of Mortgage Asset sufficient to meet the
requirements of the Company. The Company currently anticipates that the Mortgage
Assets that it purchases will include Residential Mortgage Loans, as described
in "-- Description of Mortgage Assets," and Mortgage-Backed Securities, although
if Webster Bank and/or any of its affiliates develop additional Mortgage Asset
products, the Company may purchase such additional types of Mortgage Assets. In
addition, the Company may also from time to time acquire limited amounts of
other assets eligible to be held by REITs. The Company currently anticipates
that it will not acquire the right to service any Mortgage Loans it acquires in
the future. The Company anticipates that any servicing arrangement that it
enters into in the future will contain fees and other terms consistent with
secondary market standards.
The Company currently intends to maintain substantially all of its assets
in a combination of Residential Mortgage Loans and Mortgage-Backed Securities.
As indicated above, the Company may invest in other assets eligible to be held
by REITs. The Company primarily intends to purchase newly originated loans of
Webster Bank, or more seasoned loans at then current market rates. The Company's
current policy prohibits the acquisition of any Mortgage Loan or any interest in
a Mortgage Loan (other than an interest resulting from the acquisition of
Mortgage-Backed Securities), which Mortgage Loan (i) is more than 30 days past
due in the payment of principal or interest at the time of proposed acquisition;
(ii) is or was at any time during the preceding 12 months in nonaccrual status
or renegotiated due to financial deterioration of the borrower; or (iii) has
been, more than once during the preceding 12 months, more than 30 days past due
in the payment of principal or interest. Loans that are in a "nonaccrual status"
are generally loans that are past due 90 days or more in principal or interest.
The Company intends to aggressively seek collections on delinquent and
nonaccrual loans consistent with Webster Bank's policies in that regard.
The Company currently does not intend to invest in the securities of other
issuers for the purpose of exercising control, to engage in the purchase and
sale (or turnover) of investments, to offer securities in exchange for property,
or to repurchase or otherwise reacquire its shares or other securities (except
as described elsewhere in this Prospectus).
20
<PAGE>
CAPITAL AND LEVERAGE POLICIES. The Company presently does not anticipate
any additional funding requirements. To the extent that the Board of Directors
determines that additional funding is required, the Company may raise such funds
through additional equity offerings, debt financing or retention of cash flow
(after consideration of provisions of the Code requiring the distribution by a
REIT of a certain percentage of taxable income and taking into account taxes
that would be imposed on undistributed taxable income), or a combination of
these methods.
The Company will have no debt outstanding following completion of the
Offering, and the Company does not currently intend to incur any indebtedness.
However, the organizational documents of the Company do not contain any
limitation on the amount or percentage of debt, funded or otherwise, the Company
might incur.
The Company may also issue additional series of Preferred Stock. However,
the Company may not issue additional shares of Preferred Stock senior to the
Preferred Shares without the consent of persons holding at least 66 2/3% of the
aggregate liquidation value of Preferred Shares at that time. The Company
anticipates that, prior to its issuance of additional shares of Preferred Stock,
it will take into consideration Webster Bank's funding requirements and an
assessment of other available options for raising any necessary capital.
Credit Risk Management Policies. The Company intends that each Mortgage
Loan acquired from Webster Bank, an affiliate of Webster Bank or an unrelated
third party in the future will represent a first lien position and will be
originated in the ordinary course of the originator's real estate lending
activities based on the underwriting standards generally applied (at the time of
origination) for the originator's own account. See "-- Description of Mortgage
Assets -- Mortgage Loan Underwriting Standards." The Company also intends that
all Mortgage Loans held by the Company will be serviced pursuant to the
Servicing Agreement, which requires the Servicer to service the Company's
Mortgage Loans in a manner substantially the same as for similar work performed
by the Servicer for transactions on its own behalf. It also requires the
Servicer to take all reasonable steps necessary to comply with and to use its
best efforts to cause the Company to comply with any applicable federal and
state statutes or regulations or private mortgage insurance requirements while
servicing all loans pursuant to the Servicing Agreement.
RELATIONSHIP WITH WEBSTER BANK POLICIES. Because of the nature of the
Company's relationship with Webster Bank and its affiliates, it is the Company's
policy that the terms of any financial dealings with Webster Bank and its
affiliates will be consistent with those available from third parties in the
mortgage lending industry. It is the intention of the Company and Webster Bank
that any agreements and transactions between the Company, on the one hand, and
Webster Bank or its affiliates, on the other hand, including, without
limitation, the purchase of Mortgage Loans, are fair to all parties and are
consistent with market terms for such types of transactions. The Servicing
Agreement provides that foreclosures and dispositions of the Mortgage Loans are
to be performed with a view toward maximizing the recovery by the Company as
owner of the Mortgage Loans, and the Servicer shall service the Mortgage Loans
solely with a view toward the interests of the Company, and without regard to
the interests of Webster Bank or any of its affiliates. However, there can be no
assurance that any such agreement or transaction will be on terms as favorable
to the Company as would have been obtained from unaffiliated third parties.
There are no provisions in the Company's amended and restated certificate
of incorporation (the "Certificate of Incorporation") limiting any officer,
director, security holder or affiliate of the Company from having any direct or
indirect pecuniary interest in any Mortgage Asset to be acquired or disposed of
by the Company or in any transaction in which the Company has an interest or
from engaging in acquiring, holding and managing Mortgage Assets. As described
herein, it is expected that Webster Bank and its affiliates will have direct
interests in transactions with the Company (including without limitation the
sale of Mortgage Assets to the Company); however, it is not currently
anticipated that any of the officers or directors of the Company will have any
interests in such Mortgage Assets.
OTHER POLICIES. The Company intends to operate in a manner that will not
subject it to regulation under the Investment Company Act of 1940, as amended.
The Company does not intend to (i) invest in the securities of other issuers for
the purpose of exercising control over such issuers, (ii) underwrite securities
of other issuers, (iii) actively trade in loans or other investments, (iv) offer
securities in ex-
21
<PAGE>
change for property, or (v) make loans to third parties, including without
limitation officers, directors or other affiliates of the Company. The Company
may, under certain circumstances, purchase Preferred Shares in the open market
or otherwise. The Company has no present intention of causing the Company to
repurchase any shares of its capital stock, and any such action would be taken
only in conformity with applicable federal and state laws and the requirements
for qualifying as a REIT.
The Company does not currently intend to make loans to other persons or to
underwrite securities of other issuers.
The Company intends to publish and distribute to stockholders, in
accordance with the rules of the Nasdaq Stock Market, annual reports containing
financial statements prepared in accordance with generally accepted accounting
principles and certified by the Company's independent public accountants. The
Company will maintain its status as a reporting company under the Exchange Act,
for as long as any of the Preferred Shares are outstanding.
The Company currently intends to make investments and operate its business
at all times in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT. However, future economic, market, legal, tax or other
considerations may cause the Board of Directors to determine that it is in the
best interests of the Company and its stockholders to revoke its REIT status.
DESCRIPTION OF MORTGAGE ASSETS
GENERAL. Information with respect to the Company's Mortgage Assets is
presented as of September 30, 1997. The Company's portfolio of Mortgage Assets
may or may not have the characteristics described below at future dates,
although the Company currently intends to maintain substantially all of its
assets in a combination of Residential Mortgage Loans and Mortgage-Backed
Securities. Residential Mortgage Loans are whole loans secured by first
mortgages or deeds of trusts on single family (one to four units) residential
real estate properties. Mortgage-Backed Securities are investment grade mortgage
securities or interests in or obligations backed by pools of Mortgage Loans.
Although the Company has no present intention to acquire Commercial Mortgage
Loans, such loans would be whole loans secured by a first mortgage or deed of
trust on a commercial real estate property or a multi-family property.
At September 30, 1997, the Residential Mortgage Loans owned by the Company
had an aggregate outstanding principal balance of $625.4 million. The Company's
Residential Mortgage Loans at September 30, 1997 were originated in the ordinary
course of the real estate lending activities of Webster Bank or acquired by
Webster Bank as a result of acquisitions. All of the Company's Residential
Mortgage Loans at September 30, 1997 were originated generally in accordance
with the underwriting standards customarily employed by the originator during
the period in which such Mortgage Loans were originated.
22
<PAGE>
The following tables set forth the composition of the Company's loan
portfolio in dollar amounts and in percentages at September 30, 1997 and June
30, 1997, and a reconciliation of loans receivable, net:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT JUNE 30, 1997
----------------------- -----------------
(In Thousands)
<S> <C> <C>
Residential Mortgage Loans ........................ $ 625,389 $ 613,627
Mortgage Loans Net Items:
Allowance for Loan Losses ....................... (1,538) (1,544)
Premiums and Deferred Fees on Loans, Net ........ 1,770 1,436
--------- ---------
Residential Mortgage Loans, Net ................. $ 625,621 $ 613,519
========= =========
</TABLE>
All of the Company's Residential Mortgage Loans at September 30, 1997 were
originated between January 1979 and July 1997, and have an original term to
stated maturity of up to 30 years. The following tables set forth information
regarding the origination dates of the Company's Residential Mortgage Loans:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL BALANCE AGGREGATE PRINCIPAL BALANCE
YEAR IN WHICH RESIDENTIAL OF RESIDENTIAL MORTGAGE OF RESIDENTIAL MORTGAGE
MORTGAGE LOANS WERE ORIGINATED LOANS AT SEPTEMBER 30, 1997 LOANS AT JUNE 30, 1997
- -------------------------------- ----------------------------- ----------------------------
(In Thousands)
<S> <C> <C>
1979-1984 ...................... $ 1,866 $ 1,881
1985-1989 ...................... 51,962 54,840
1990-1994 ...................... 272,256 284,996
1995 ........................... 90,461 93,738
1996 ........................... 118,389 121,049
1997 ........................... 90,455 57,123
---------- ----------
$ 625,389 $ 613,627
========== ==========
</TABLE>
At September 30, 1997, the weighted average Loan-to-Value Ratio of the
Residential Mortgage Loans was 63.9%. "Loan-to-Value Ratio" means the ratio
(expressed as a percentage) of the current principal amount of such Mortgage
Loan to the lesser of (i) the appraised value at origination of the underlying
mortgaged property and (ii) if the Mortgage Loan was made to finance the
acquisition of property, the purchase price of the mortgaged property. The
mortgage notes with respect to all of the Residential Mortgage Loans at
September 30, 1997 contain "due-on-sale" provisions, which restrict the
assumption of the Residential Mortgage Loan by a proposed transferee and
accelerate the payment of the outstanding principal balance of the Residential
Mortgage Loan.
The following table sets forth the contractual maturity and interest-rate
sensitivity of the Company's Residential Mortgage Loans at September 30, 1997:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY
------------------------------------------------------
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
Residential Mortgage Loans:
Fixed Rate ............... $ 50 $ 314 $ 215,001 $ 215,365
Adjustable Rate .......... 211,301 185,007 13,716 410,024
---------- ---------- ---------- ----------
Total .................. $ 211,351 $ 185,321 $ 228,717 $ 625,389
========== ========== ========== ==========
</TABLE>
23
<PAGE>
At September 30, 1997, (i) $3.9 million of the Residential Mortgage Loans
were more than 30 days past due in the payment of principal or interest; (ii)
$1,115,000 were in nonaccrual status; and (iii) $6.7 million were more than once
during the preceding 12 months, more than 30 days past due in the payment of
principal or interest.
The Company has established allowances for loan losses in an amount deemed
prudent by management based in large part on the loss experience of Webster Bank
in determining the adequacy of loan loss allowances. 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 the Company
determines a problem asset to be uncollectible, it either establishes a specific
allowance for expected losses or charges-off expected losses to the allowance
for loan losses. As a subsidiary of Webster Bank, the Company's determination as
to the amount of its valuation allowances is subject to review by the OTS which
can order the establishment of additional valuation allowances.
The following table sets forth certain information regarding the Company's
loans accounted for on a nonaccrual basis at September 30, 1997. The Company
has no real estate acquired through foreclosure.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
----------------------
(In Thousands)
<S> <C>
Residential Mortgage Loans Accounted for on a
Nonaccrual Basis .............................. $ 1,115
Real Estate Acquired Through Foreclosure ........ --
-------
Total ........................................ $ 1,115
=======
</TABLE>
Interest on nonaccrual loans that would have been recorded as additional
income for the period from March 17, 1997 (date of inception) to September 30,
1997 had the loans been current in accordance with their original terms
approximated $49,757.
The following table sets forth information as to delinquent loans in the
Company's loans receivable portfolio before net items.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
PERCENTAGE
PRINCIPAL OF LOANS
BALANCES RECEIVABLE
----------- -----------
(In Thousands)
<S> <C> <C>
Residential Mortgage Loans Past Due 30-89 Days
and Still Accruing ......................... $2,752 .4%
</TABLE>
The Company's allowance for loan losses at September 30, 1997 totaled $1.5
million. All of such allowances are attributable to Residential Mortgage Loans,
which are the only loans held by the Company at that date. In assessing the
specific risks inherent in the portfolio, management takes into consideration
the risk of loss on the Company's nonaccrual loans and watch list loans
including an analysis of the collateral for the loans. Other factors considered
are loss experience (including that of Webster Bank), loan concentrations, local
economic conditions and other factors. As of September 30, 1997, the Company has
incurred $6,118 in charge-offs, and has not made any provisions for loan losses
charged to operations.
24
<PAGE>
The following table sets forth certain information with respect to each
type of Residential Mortgage Loan owned by the Company at September 30, 1997:
<TABLE>
<CAPTION>
AGGREGATE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRINCIPAL LOAN-TO- MONTHS REMAINING
LOAN TYPE BALANCE VALUE RATIO TO MATURITY
- ----------------------------------------------- --------------- ------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
15 Year Fixed Rate Residential Mortgage Loans $ 54,165 46.9% 142
20 Year Fixed Rate Residential Mortgage Loans 1,679 63.6 208
25 Year Fixed Rate Residential Mortgage Loans 831 71.4 274
30 Year Fixed Rate Residential Mortgage Loans 158,690 66.2 319
Adjustable Rate Residential Mortgage Loans .... 410,024 66.0 317
---------
Total ........................................ $ 625,389
=========
</TABLE>
As of September 30, 1997, $215.3 million or 34.4% of the Residential
Mortgage Loans bore interest at a fixed rate and $410.0 million or 65.6% bore
interest at adjustable rates. The interest rate on an "adjustable rate mortgage"
or an "ARM" is typically tied to an index (such as the interest rate on United
States Treasury Bills) and is adjustable periodically. ARMs are typically
subject to lifetime interest rate caps and/or periodic interest rate caps. As of
September 30, 1997, the interest rates of the Residential Mortgage Loans ranged
from 4.75% per annum to 9.50% per annum and the weighted average interest rate
was 7.65% per annum.
The following tables contain certain additional data with respect to the
interest rates of certain of the Residential Mortgage Loans owned by the Company
as of September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
RESIDENTIAL AGGREGATE BY AGGREGATE
CURRENT INTEREST RATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------------- ---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Fixed Rate Loans:
6.501%-7.000% .......................... 221 $ 25,365 4.0%
7.001%-7.500% .......................... 575 77,917 12.5
7.501%-8.000% .......................... 668 107,155 17.1
8.001%-8.500% .......................... 13 1,969 0.3
8.501%-9.000% .......................... 14 1,790 0.3
9.001%-9.500% .......................... 8 1,169 0.2
------ ---------- ------
Total Fixed Rate Loans ............... 1,499 215,365 34.4
------ ---------- ------
Adjustable Rate Loans:
4.501%-5.000% .......................... 3 231 -
5.001%-5.500% .......................... 1 82 -
5.501%-6.000% .......................... 24 8,137 1.3
6.001%-6.500% .......................... 36 16,994 2.7
6.501%-7.000% .......................... 207 48,478 7.8
7.001%-7.500% .......................... 408 82,704 13.2
7.501%-8.000% .......................... 782 126,688 20.3
8.001%-8.500% .......................... 516 88,267 14.1
8.501%-9.000% .......................... 197 36,026 5.8
9.001%-9.500% .......................... 16 2,417 0.4
------ ---------- ------
Total Adjustable Rate Loans .......... 2,190 410,024 65.6
------ ---------- ------
Total Residential Mortgage Loans ........ 3,689 $ 625,389 100.0%
====== ========== ======
</TABLE>
"Gross Margin," with respect to an ARM, means the applicable fixed
percentage which is added to the applicable index to calculate the current
interest rate paid by the borrower of such adjustable rate Residential Mortgage
Loan (without taking into account any interest rate caps or minimum interest
25
<PAGE>
rates). As of September 30, 1997, the weighted average Gross Margin of the
adjustable rate Residential Mortgage Loans was approximately 2.79%. The
following table sets forth certain additional data with respect to the Gross
Margin of the adjustable rate Residential Mortgage Loans owned by the Company as
of September 30, 1997:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF AGGREGATE BY AGGREGATE
GROSS MARGIN MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------- ---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Less than 2.75% ........... 146 $ 17,687 4.3%
2.75% ..................... 1,484 312,370 76.2
Greater than 2.75% ........ 560 79,967 19.5
------ ---------- ------
Total .................... 2,190 $ 410,024 100.0%
====== ========== ======
</TABLE>
The current portfolio of Residential Mortgage Loans includes loans directly
originated by Webster Bank, as well as loans acquired by Webster Bank in
connection with its merger and acquisition activity over recent years. The
interest rate of each type of ARM product owned by the Company at September 30,
1997 adjusts at the times (each, a "Rate Adjustment Date") and in the manner
described below subject to lifetime interest rate caps, to minimum interest
rates and, in the case of most ARMs owned by the Company at September 30, 1997,
to maximum periodic adjustment increases or decreases, each as specified in the
mortgage note relating to the ARM. Information set forth below regarding
interest rate caps and minimum interest rates applies to the Residential
Mortgage Loans owned by the Company at September 30, 1997 only. Mortgage Loans
purchased by the Company after that date may be subject to different interest
rate caps and minimum interest rates.
Each ARM bears interest at its initial interest rate until its first Rate
Adjustment Date. Effective with each Rate Adjustment Date, the monthly principal
and interest payment on an adjustable rate Mortgage Loan will be adjusted to an
amount that will fully amortize the then-outstanding principal balance of such
Residential Mortgage Loan over its remaining term to stated maturity and that
will be sufficient to pay interest at the adjusted interest rate. Certain of the
types of Residential Mortgage Loan products that are ARMs contain an option,
which may be exercised by the mortgagor, to convert the ARM into a fixed rate
loan for the remainder of the mortgage term. If a Residential Mortgage Loan that
is an ARM is converted into a fixed rate loan, the interest rate will be
determined at the time of conversion as specified in the mortgage note relating
to such Mortgage Loan and will remain fixed at such rate until the stated
maturity of such Residential Mortgage Loan. Mortgage Loans owned by the Company
at September 30, 1997 generally allow the mortgagor to prepay at any time some
or all of the outstanding principal balance of the Mortgage Loan without a fee
or penalty.
Current ARM products offered by Webster Bank include six month, one-year
and three-year ARMs. Webster Bank also offers five-year and ten-year fixed rate
Residential Mortgage Loans with the ability to automatically convert to a
one-year ARM after five or ten years, respectively.
MORTGAGE LOAN UNDERWRITING STANDARDS. Webster Bank has represented to the
Company that all of the Mortgage Loans contributed by Webster Bank to the
Company in March 1997 were originated generally in accordance with the
underwriting policies customarily employed by the originator during the period
in which those Residential Mortgage Loans were originated.
In the Mortgage Loan approval process, Webster Bank assesses both the
borrower's ability to repay the Mortgage Loan and the adequacy of the proposed
security. Credit approval is vested with the board of directors of Webster Bank
and delegated to certain officers in accordance with the credit authorizations
approved by the board of directors of Webster Bank. Any significant Mortgage
Loan not conforming to Webster Bank's approved policies must be approved by the
executive vice president of mortgage banking or the chief executive officer of
Webster Bank. All Mortgage Loans of $3.0 million or more are presented to the
board of directors of Webster Bank for final approval.
The approval process for all types of Mortgage Loans includes on-site
appraisals of the properties securing such loans and a review of the applicant's
financial records and credit, payment and banking
26
<PAGE>
history, and tax returns. Webster Bank generally lends up to 95% of the
appraised value of single family residential dwellings to be owner-occupied.
Webster Bank requires title insurance policies protecting the priority of
Webster Bank's liens for all Mortgage Loans and also requires fire and casualty
insurance for permanent Mortgage Loans. The borrower selects the insurance
carrier, subject to Webster Bank's approval. Generally, for any Residential
Mortgage Loan in an amount exceeding 80% of the appraised value of the security
property, Webster Bank currently requires mortgage insurance from an independent
mortgage insurance company.
Substantially all Mortgage Loans originated by Webster Bank contain a
"due-on-sale" clause providing that Webster Bank may declare a Mortgage Loan
immediately due and payable in the event, among other things, that the borrower
sells the property securing the loan without the consent of Webster Bank.
GEOGRAPHIC DISTRIBUTION. Approximately 92% of the residential real estate
properties underlying the Company's Residential Mortgage Loans as of September
30, 1997 were located in Connecticut. The remaining properties are located
primarily in Massachusetts, New York and Rhode Island. Consequently, these
Residential Mortgage Loans may be subject to a greater risk of default than
other comparable Residential Mortgage Loans in the event of adverse economic,
political or business developments in Connecticut that affect the ability of
residential property owners in any of these areas to make payments of principal
and interest on the underlying mortgages.
Loan-to-Value Ratios; Insurance. Approximately 95% of the Company's
Residential Mortgage Loans as of September 30, 1997 having Loan-to-Value Ratios
of greater than 80%, are insured under primary mortgage guaranty insurance
policies. At the time of origination of the Residential Mortgage Loans, each of
the primary mortgage insurance policy insurers was approved by Fannie Mae or
FHLMC. A standard hazard insurance policy is required to be maintained by the
mortgagor with respect to each Residential Mortgage Loan in an amount equal to
the replacement value or the principal balance of such Residential Mortgage
Loan, whichever is less. If the residential real estate property underlying a
Residential Mortgage Loan is located in a flood zone, such Residential Mortgage
Loan may also be covered by a flood insurance policy as required by law. No
special hazard insurance policy or mortgagor bankruptcy insurance will be
maintained by the Company with respect to its Residential Mortgage Loans.
SERVICING
The mortgage loans owned by the Company are serviced by Webster Bank
pursuant to the terms of the Servicing Agreement. Webster Bank in its role as
servicer under the terms of the Servicing Agreement is herein referred to as the
"Servicer." The Servicer will receive fees at an annual rate of (i) 8 basis
points for fixed rate loan servicing and collection work, (ii) 8 basis points
for variable rate loan servicing and collection work and (iii) 5 basis points
for all other services to be provided, in each case based on the daily
outstanding balances of all of the Company's loans for which the Servicer is
responsible.
The Servicing Agreement generally requires the Servicer to service the
Company's Mortgage Loans in a manner substantially the same as for similar work
performed by the Servicer for transactions on its own behalf. It also requires
the Servicer to use its best efforts to comply with any applicable federal and
state statutes or regulations or private mortgage insurance requirements while
servicing all loans pursuant to the Servicing Agreement. The Servicer will
collect and remit principal and interest payments, administer mortgage escrow
accounts, submit and pursue insurance claims and initiate and supervise
foreclosure proceedings on the Mortgage Loans it services. The Servicer will
also provide accounting and reporting services required by the Company for such
Mortgage Loans. The Servicer may, in its discretion, arrange with a defaulting
borrower a schedule for the liquidation of delinquencies, provided that, in the
case of Residential Mortgage Loans, no primary mortgage guaranty insurance
coverage is adversely affected. The Servicer may also be directed by the
Company, at any time during the servicing process, to dispose of any Mortgage
Loan which is placed in a nonaccrual status, renegotiated due to the financial
deterioration of the borrower or which has been, more than once during the
preceding 12 months, more than 30 days past due in the payment of principal or
interest. The Servicer may from time to time assign all or a portion of its
rights and obligations under the Servicing Agreement to an affiliate
27
<PAGE>
of the Company. The Servicer will not, in connection with the assignment of any
of its obligations under the Servicing Agreement, be discharged or relieved in
any respect from its obligation to the Company to perform its obligations under
the Servicing Agreement.
The Servicer will be required to pay all expenses related to the
performance of its duties under the Servicing Agreement. The Servicer will be
required to make advances of taxes and required insurance premiums that are not
collected from borrowers with respect to any Mortgage Loan serviced by it,
unless it determines that such advances are nonrecoverable from the mortgagor,
insurance proceeds or other sources with respect to such Mortgage Loan. If such
advances are made, the Servicer generally will be reimbursed prior to the
Company being reimbursed out of proceeds related to such Mortgage Loan. The
Servicer also will be entitled to reimbursement by the Company for expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans
serviced by it and in connection with the restoration of mortgaged property. If
claims are not made or paid under applicable insurance policies or if coverage
thereunder has ceased, the Company will suffer a loss to the extent that the
proceeds from liquidation of the mortgaged property, after reimbursement of the
Servicer's expenses in the sale, are less than the outstanding principal balance
of the related Mortgage Loan. The Servicer will be responsible to the Company
for any loss suffered as a result of the Servicer's failure to make and pursue
timely claims or as a result of actions taken or omissions made by the Servicer
which cause the policies to be cancelled by the insurer. The Servicer may
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage or deed of trust, obtain a deed in lieu of foreclosure or otherwise
acquire title to a mortgaged property underlying a Mortgage Loan by operation of
law or otherwise in accordance with the terms of the Servicing Agreement. Under
the Servicing Agreement, the Servicer also provides certain investment and fund
management services to the Company.
In the event of a material breach of a party's obligations under the
Servicing Agreement, the non defaulting party may terminate the Servicing
Agreement ten days after written notice and a demand to the other party if such
breach has not been cured. The Company also has the right to terminate the
Servicing Agreement on 30 days' notice if the Servicer alters its reporting
practices in a manner that is not acceptable to the Company. In the event that
the Servicer is no longer an affiliate of the Company, the Servicing Agreement
will terminate.
The Servicing Agreement provides that the Company and the Servicer will
indemnify each other against any loss or damage resulting from any claim or
demand to the extent it results from a breach of the covenants, representations
and warranties contained in the Servicing Agreement. The Servicing Agreement
also provides that the Company will indemnify the Servicer from and against all
loss arising from that agreement. The Servicing Agreement further provides that
the liability of the Servicer to the Company for any loss due to the Servicer's
performing or failing to perform the services under the Servicing Agreement
shall be contingent on the Company's compliance with its obligations under that
agreement and shall be limited to those losses sustained by the Company which
are a direct result of the Servicer's negligence or willful misconduct. The
Servicing Agreement also provides that in the event of interruption, delay or
unavailability of services under the Servicing Agreement, or any errors or
omissions in the services or any loss of data, the Servicer's only liability to
the Company is to restore such service as promptly as reasonably practicable,
and in the case of an error or omission or loss of data, to correct such error
or omission or regenerate any lost data. It also provides that the Servicer
shall not be obligated to correct an error or omission in the services provided
if it would not ordinarily correct such error or omission. The Servicing
Agreement provides that the Servicer shall not be liable for any failure or
delay in the performance of services thereunder that is caused by any event
beyond the control of the Servicer. It further provides that the aggregate
amount of any money damages to which the Company and any other parties claiming
though the Company may be entitled to as a result of a claim against the
Servicer are limited to an amount equal to the lesser of (a) the actual amount
of such losses or (b) the aggregate amount payable by the Company to the
Servicer as set forth in the Servicing Agreement. The Servicing Agreement also
provides that the Servicer shall not be liable under the agreement for any loss
to the Company caused by an error or omission of the Servicer unless the Company
informs the Servicer of such error or omission within two business days after
its discovery. The Servicing Agreement further provides that in no event will
the Servicer be liable for any lost profit or other indirect, special or
consequential damages which the Company may incur as a result of the Servicing
Agreement even if the
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<PAGE>
Servicer is aware of the possibility of such damages. It also provides that the
Servicer shall not be liable for acts beyond the Servicer's control.
The Servicer has certified to the Company that all of its relevant systems
are, or will be, in compliance with requirements to serve in the year 2000 and
beyond. The Servicer also has represented to the Company that the Servicer
requires similar certifications of any vendors with whom it does business.
The Servicer will be entitled to retain any late payment charges,
prepayment fees, penalties and assumption fees collected in connection with the
Mortgage Loans serviced by it. The Servicer will receive any benefit derived
from interest earned on collected principal and interest payments between the
date of collection and the date of remittance to the Company and from interest
earned on tax and insurance impound funds with respect to Mortgage Loans
serviced by it. At the end of each calendar month, the Servicer remits amounts
due to the Company net of all fees and charges due to the Servicer.
When any mortgaged property underlying a Mortgage Loan is conveyed by a
mortgagor, the Servicer generally will enforce any "due-on-sale" clause
contained in the Mortgage Loan, to the extent permitted under applicable law and
governmental regulations. The terms of a particular Mortgage Loan or applicable
law, however, may provide that the Servicer is prohibited from exercising the
"due-on-sale" clause under certain circumstances related to the security
underlying the Mortgage Loan and the buyer's ability to fulfill the obligations
under the related mortgage note. Upon any assumption of a Mortgage Loan by a
transferee, a fee equal to a specified percentage of the outstanding principal
balance of the Mortgage Loan is typically required, which sum will be retained
by the Servicer as additional servicing compensation.
COMPETITION
The Company does not anticipate that it will engage in the business of
originating Mortgage Loans. It does anticipate that it will purchase additional
Mortgage Assets and that all or substantially all of these Mortgage Assets will
be purchased from Webster Bank and affiliates of Webster Bank. Accordingly, the
Company does not expect to compete with mortgage conduit programs, investment
banking firms, savings and loan associations, banks, thrift and loan
associations, finance companies, mortgage bankers or insurance companies in
acquiring its Mortgage Assets.
Webster Bank actively competes in the loan origination market, primarily
with other financial institutions such as banks and savings and loans, as well
as other mortgage companies and mortgage brokers. To the extent that Webster
Bank is not successful in originating Mortgage Loans, the Company expects that
it would purchase Mortgage Assets in the secondary market. The Company believes
the secondary mortgage market is a large and liquid market. However, under
circumstances where competition for mortgage origination adversely effects
Webster Bank, there can be no assurance as to the availability of Mortgage
Assets.
LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings other than routine litigation incidental
to its business.
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SELECTED FINANCIAL DATA
The selected financial data set forth below is based upon and should be
read in conjunction with the Company's financial statements and notes thereto
appearing elsewhere herein. The Company's financial statements for the period
ended June 30, 1997 have been audited by the Company's independent accountants.
The Company's financial statements for the period ended September 30, 1997 are
unaudited. All adjustments necessary for the fair presentation of financial
position and results of operations for interim periods have been included.
Results of interim periods are not necessarily indicative of results for the
year.
FINANCIAL CONDITION DATA:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT JUNE 30, 1997
----------------------- -----------------
(In Thousands)
<S> <C> <C>
Assets:
Cash ................................................ $ 12,942 $ 13,415
Total Mortgage Loans, Net ........................... 625,621 613,519
Accrued Interest Receivable ......................... 3,935 3,751
Prepaid Expenses and Other Assets ................... 101 107
-------- --------
Total Assets ...................................... $642,599 $630,792
======== ========
Liabilities and Shareholders' Equity:
Total Liabilities ................................... $ 392 $ 274
Shareholder's Equity:
Preferred Stock ..................................... 2,000 2,000
Common Stock ........................................ 1 1
Paid in Capital ..................................... 615,021 615,021
Retained Earnings ................................... 25,185 13,496
-------- --------
Total Shareholder's Equity ........................ 642,207 630,518
-------- --------
Total Liabilities and Shareholder's Equity ...... $642,599 $630,792
======== ========
</TABLE>
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE THREE MONTHS FROM MARCH 17, 1997 FROM MARCH 17, 1997
ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997
---------------------- ------------------------ -----------------------
(In Thousands)
<S> <C> <C> <C>
Interest Income:
Net Interest Income ................. $11,790 $25,403 $13,613
Provision for Loan Losses ........... -- -- --
------- ------- -------
Net Interest Income After Provision
for Loan Losses .................. 11,790 25,403 13,613
Noninterest Expenses ................. 51 110 59
------- ------- -------
Income Before Taxes .................. 11,739 25,293 13,554
Income Taxes ......................... -- -- --
------- ------- -------
Net Income ........................... 11,739 25,293 13,554
Preferred Stock Dividends ............ 50 108 58
------- ------- -------
Net Income Available to Common
Shareholder ......................... $11,689 $25,185 $13,496
======= ======= =======
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is a wholly-owned subsidiary of Webster Bank and was
incorporated in March 1997 to provide a cost-effective means of raising funds,
including capital, on a consolidated basis for Webster. Total assets were $642.6
million and $630.8 million at September 30, 1997 and June 30, 1997,
respectively, consisting primarily of Mortgage Loans, net.
The Company will elect to be treated as a REIT under the Code, and will
generally not be subject to federal income tax to the extent that it distributes
its earnings to its stockholders and maintains its qualification as a REIT.
Furthermore, the Company and Webster Bank will benefit significantly from
federal and state tax treatment of dividends paid by the Company as a result of
its qualification as a REIT. The following discussion of the Company's financial
condition and results of operations should be read in conjunction with the
Company's financial statements and other financial data included elsewhere
herein.
ASSET QUALITY
GENERAL. The Company presently maintains asset quality by acquiring
Residential Mortgage Loans that have been conservatively underwritten,
aggressively managing nonaccrual assets and maintaining adequate reserve
coverage. Residential Mortgage Loans comprised 100% of the total loan portfolio
at September 30, 1997 and June 30, 1997.
NONACCRUAL ASSETS. The following table sets forth information regarding
nonaccrual assets at September 30, 1997 and June 30, 1997:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT JUNE 30, 1997
----------------------- -----------------
(In Thousands)
<S> <C> <C>
Nonaccrual Assets:
Loans Accounted for on a Nonaccrual Basis:
Residential Fixed Rate Loans ............ $ 53 $ 53
Residential Variable Rate Loans ......... 1,062 580
------ ----
Total ................................. $1,115 $633
====== ====
</TABLE>
At September 30, 1997, the allowance for loan losses was $1.5 million, or
137.9% of nonaccrual assets and .25% of total Mortgage Loans, net. At June 30,
1997, the allowance for loan losses was $1.5 million or 243.9% of nonaccrual
assets and .25% of total Mortgage Loans, net. Management believes that the
allowance for loan losses is adequate to cover expected losses in the portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for the Company are net cash flows from
operating activities and investing activities. Net cash flows from investing
activities primarily include the purchase and maturity of Residential Mortgage
Loans. While scheduled loan amortization and short term investments are
predictable sources of funds, loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. One of the inherent risks
of investing in loans is the ability of such instruments to incur prepayments of
principal prior to maturity at prepayment rates different than those estimated
at the time of purchase. This generally occurs because of changes in market
interest rates. The market values of fixed rate loans are sensitive to
fluctuations in market interest rates, declining in value as interest rates
rise. If interest rates decrease, the market value of loans generally will tend
to increase with the level of prepayments also normally increasing.
ASSET/LIABILITY MANAGEMENT
The goal of the Company's asset/liability policy is to manage interest rate
risk so as to maximize net interest income over time in changing interest rate
environments while maintaining acceptable levels of risk. The Company must
provide for sufficient liquidity for daily operations. The Company prepares
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<PAGE>
estimates of the level of prepayments and the effect of such prepayments on the
level of future earnings due to reinvestment of funds at rates different than
those that currently exist. The Company is unable to predict future fluctuations
in interest rates and as such the market values of certain of the Company's
financial assets are sensitive to fluctuations in market interest rates. Changes
in interest rates can affect the value of its loans and other interest-earning
assets.
RESULTS OF OPERATIONS
From the March 17, 1997 date of inception of the Company to September 30,
1997, the Company reported net income of $25.2 million, or $251,850 per share.
Because the Company was formed in March 1997, there are no comparable results
from previous periods. Total interest income for the period amounted to $25.4
million, net of servicing fees. The average balance of total Mortgage Loans for
the period was $621.9 million, net, and the average yield was 7.66%. There were
no provisions for loan losses for the period. Noninterest expenses amounted to
$110,000. No income tax expense was recorded for the period.
From the March 17, 1997 date of inception of the Company to June 30, 1997,
the Company reported net income of $13.5 million, or $134,960 per share. Because
the Company was formed in March 1997, there are no comparable results from
previous periods. Total interest income for the period amounted to $13.6
million, net of servicing fees. The average balance of total Mortgage Loans for
the period was $616.1 million, net, and the average yield was 7.68%. There were
no provisions for loan losses for the period. Noninterest expenses amounted to
$59,000. No income tax expense was recorded for the period.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data of the Company presented herein
have been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services. In the
current interest rate environment, the maturity structure of the Company's
assets is critical to the maintenance of acceptable performance levels.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors currently consists of three members.
Directors are elected for a one-year term. The Company currently has three
officers. The Company has no other employees.
The persons who are current directors and executive officers of the Company
are as follows:
NAME AGE POSITION AND OFFICES HELD
- ----------------------------- ----- -----------------------------
John V. Brennan ............. 45 President and Director
Ross M. Strickland .......... 48 Director
Harriet Munrett Wolfe ....... 44 Director
Gregory S. Madar ............ 35 Vice President and Secretary
Peter J. Swiatek ............ 38 Vice President and Treasurer
The following is a summary of the experience of the executive officers and
directors of the Company:
John V. Brennan is the President and a director of the Company. He is also
the Executive Vice President, Chief Financial Officer and Treasurer of Webster
and Webster Bank. Mr. Brennan, a certified public accountant, joined Webster
Bank in 1986 as Senior Vice President and Treasurer. He was elected Chief
Financial Officer in 1990 and Executive Vice President in 1991. Prior to joining
Webster Bank, he was a senior manager with the accounting firm of KPMG Peat
Marwick LLP.
Ross M. Strickland is a director of the Company. He is also the Executive
Vice President -- Mortgage Banking of Webster and Webster Bank, positions he has
held since his employment in 1991. Prior to joining Webster Bank, he was
Executive Vice President of Residential Lending with the former Northeast
Savings, F.A., Hartford, Connecticut, from 1988 to 1991. Prior to joining
Northeast Savings, he was National Sales Manager, Credit Resources Group, for
Shearson Lehman Brothers.
Harriet Munrett Wolfe is a director of the Company. She is also the Senior
Vice President, Counsel and Secretary of Webster and Webster Bank. Mrs. Wolfe
joined Webster and Webster Bank in March 1997 as Senior Vice President and
Counsel, and was appointed Secretary in June 1997. Prior to joining Webster and
Webster Bank, she was in private practice. From November 1990 to January 1996,
she was Vice President and Senior Counsel of Shawmut Bank Connecticut, N.A.,
Hartford, Connecticut. Prior to joining Shawmut, she was Associate Legal Counsel
and Assistant Secretary of the former Citytrust, Bridgeport, Connecticut.
Gregory S. Madar is the Vice President and Secretary of the Company. He is
also Vice President and Tax Manager of Webster Bank. Mr. Madar, a certified
public accountant, joined Webster Bank in 1995. Prior to joining Webster Bank,
he was Controller of Millane Nurseries, Inc. from 1993 to 1995. Prior to joining
Millane Nurseries, he was a tax manager with KPMG Peat Marwick LLP in Hartford.
He was associated with KPMG from 1987 to 1993.
Peter J. Swiatek is the Vice President and Treasurer of the Company. He is
also Senior Vice President and Controller of Webster Bank and Controller of
Webster Financial Corporation. Mr. Swiatek joined Webster in 1990 as Vice
President of Accounting. He was elected Controller in 1992 and Senior Vice
President in 1993. Prior to joining Webster Bank, Mr. Swiatek was the Controller
of the former The Bank of Hartford.
EMPLOYEES; COMPENSATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Company currently has three officers, none of whom receive separate
compensation as employees of the Company. The Company has retained the Advisor
to perform certain functions pursuant to the Advisory Agreement described below
under "-- The Advisor." Each officer of the Company currently is also an officer
of Webster Bank. The Company will maintain corporate records and audited
financial statements that are separate from those of Webster Bank and any of
Webster Bank's affiliates.
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<PAGE>
It is not currently anticipated that the officers, directors or employees of the
Company will have any pecuniary interest in any Mortgage Asset to be acquired or
disposed of by the Company or in any transaction in which the Company has an
interest.
The Company does not intend to pay the directors of the Company fees for
their services as directors. Although no direct compensation will be paid by the
Company, under the Advisory Agreement, the Company will reimburse Webster Bank
for its proportionate share of the salaries of such persons.
AUDIT COMMITTEE
The entire Board of Directors serves as the Company's audit committee,
which reviews the engagement of the Company's independent accountants and the
functions performed by the independent accountants pursuant to the terms of the
accountants' engagement. The audit committee will also review the adequacy of
the Company's internal accounting controls.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation eliminates, to the fullest
extent permitted by the Connecticut Business Corporation Act, as amended (the
"Connecticut Corporation Law"), the personal liability of a director to the
Company and its stockholders for monetary damages for breach of such director's
duty. The Company's Certificate of Incorporation and amended and restated
by-laws (the "By-Laws") require the Company to indemnify any director, officer,
employee or agent of the Company, to the fullest extent permitted by applicable
law, including the Connecticut Corporation Law, and if applicable, the rules and
regulations of the OTS. The By-Laws also entitle any director or officer to be
reimbursed for the expenses of prosecuting any claim against him or her arising
out of his or her status as such, and empower the Company to purchase and
maintain insurance to protect any director or officer against any liability
asserted against him or her, or incurred by him or her, arising out of his or
her status as such.
THE ADVISOR
In connection with the formation of the Company and the consummation of the
Offering as described herein, the Company has entered into the Advisory
Agreement with Webster Bank to administer the day-to-day operations of the
Company. Webster Bank in its role as advisor under the terms of the Advisory
Agreement is herein referred to as the "Advisor." The Advisor is responsible for
(i) monitoring the credit quality of the Mortgage Assets held by the Company,
(ii) advising the Company with respect to the acquisition, management, financing
and disposition of the Company's Mortgage Assets, and (iii) maintaining custody
of the documents related to the Company's Mortgage Assets. The Advisor may at
any time subcontract all or a portion of its obligations under the Advisory
Agreement to one or more of its affiliates involved in the business of managing
Mortgage Assets. If no affiliate of the Advisor is engaged in the business of
managing Mortgage Assets, the Advisor may, with the approval of a majority of
the Board of Directors, subcontract all or a portion of its obligations under
the Advisory Agreement to unrelated third parties. The Advisor may assign its
rights or obligations under the Advisory Agreement to any affiliate of the
Company. The Advisor will not, in connection with the subcontracting of any of
its obligations under the Advisory Agreement, be discharged or relieved in any
respect from its obligations under the Advisory Agreement.
The Advisor and its affiliates have substantial experience in the mortgage
lending industry, both in the origination and in the servicing of mortgage
loans. At September 30, 1997, the Advisor and its affiliates (including the
Company) owned approximately $2.9 billion of Residential Mortgage Loans. In
their Residential Mortgage Loan business, the Advisor and its affiliates
originate and purchase Residential Mortgage Loans and then sell such loans to
investors, primarily in the secondary market, while generally retaining the
rights to service such loans. The Advisor and its affiliates also purchase
servicing rights on Residential Mortgage Loans. At September 30, 1997, in
addition to loans serviced for its own portfolio, the Advisor and its affiliates
serviced Residential Mortgage Loans having an aggregate principal balance of
approximately $1.8 billion.
34
<PAGE>
The Advisory Agreement has an initial term of two years, and will be
renewed automatically for additional one-year periods unless notice of
nonrenewal is delivered by either party to the other party. The Advisory
Agreement may be terminated by the Company at any time upon 90 days' prior
written notice. The Advisor will be entitled to receive an advisory fee equal to
$150,000 per year with respect to the advisory services provided by it to the
Company. The fee may be revised to reflect changes in the actual costs incurred
by the Advisor in providing services.
The Advisory Agreement provides that the liability of the Advisor to the
Company for any loss due to the Advisor's performing or failing to perform the
services under the Advisory Agreement shall be limited to those losses sustained
by the Company which are a direct result of the Advisor's negligence or willful
misconduct. It also provides that under no circumstances shall the Advisor be
liable for any consequential or special damages and that in no event shall the
Advisor's total combined liability to the Company for all claims arising under
or in connection with the Advisory Agreement be more than the total amount of
all fees payable by the Company to the Advisor under the Advisory Agreement
during the year immediately proceeding the year in which the first claim giving
rise to such liability arises. The Advisory Agreement also provides that to the
extent that third parties make claims against the Advisor arising out of the
services provided thereunder, the Company will indemnify the Advisor against all
loss arising therefrom.
BENEFITS TO WEBSTER BANK
Webster Bank expects to realize the following benefits in connection with
the Offering and other transactions constituting the formation of the Company:
o Webster Bank will benefit from federal and state tax treatment of dividends
paid by the Company as a result of its qualification as a REIT. The
dividends payable on the Preferred Shares will be deductible by the Company
for federal and Connecticut state income tax purposes as a result of the
Company's qualification as a REIT. Also as a result of the Company's
qualification as a REIT, as well as its qualification under certain
Connecticut tax law requirements (including that capital contributions from
unrelated parties, as of the end of the relevant tax period, exceed 5% of
the Company's total real estate assets), Webster Bank will be able to
deduct from its income, dividends received on the Common Stock for
Connecticut corporation income tax purposes.
o Webster Bank will receive advisory and servicing fees and dividends in
respect of the Common Stock. The advisory fees currently are set at
$150,000 per year, and the servicing fees currently are set at an annual
rate of (i) 8 basis points for fixed rate loan servicing and collection
work, (ii) 8 basis points for variable rate loan servicing and collection
work and (iii) 5 basis points for all other services to be provided, in
each case based on the daily outstanding balances of all of the Company's
loans for which the Servicer is responsible. The Company generally will be
required to pay dividends to stockholders of at least 95% of its "REIT
taxable income" (excluding capital gains and certain items of non-cash
income).
o Webster Bank will retain any ancillary fees, including, but not limited to,
late payment charges, prepayment fees, penalties and assumption fees
collected in connection with the Mortgage Loans serviced by it. In
addition, Webster Bank, as Servicer, will receive any benefit derived from
interest earned on collected principal and interest payments between the
date of collection and the date of remittance to the Company and from
interest earned on tax and insurance impound funds with respect to Mortgage
Loans serviced by the Servicer.
In connection with the initial contribution of Mortgage Assets by Webster
Bank as part of the Company's formation, Webster Bank and the Company entered
into a mortgage assignment agreement, which provides that Webster Bank in no way
shall be liable for any act or omission of the Company that results in liability
to a mortgagor and that the Company will indemnify Webster Bank for any
liability that results to Webster Bank from an act or omission by the Company.
The Servicing Agreement and the Advisory Agreement also provide for certain
limitations on the liability of Webster Bank. See "Business and Strategy --
Servicing" and "Management -- The Advisor."
35
<PAGE>
DESCRIPTION OF PREFERRED SHARES
The following summary sets forth the material terms and provisions of the
Series A Preferred Shares and the Series B Preferred Shares, and is qualified in
its entirety by reference to the terms and provisions of the Company's
Certificate of Incorporation, which has been filed with SEC as an exhibit to the
Registration Statement of which this Prospectus forms a part. See "Description
of Capital Stock of the Company."
GENERAL
The Series A preferred shares and Series B preferred shares constitute two
authorized series of the Preferred Stock of the Company, which Preferred Stock
may be issued from time to time in one or more series with such rights,
preferences and limitations as are determined by the Company's Board of
Directors. The Board of Directors has authorized the Company to issue the
Preferred Shares offered hereby, subject to limitations prescribed by
Connecticut law and the Company's Certificate of Incorporation.
When issued, the Preferred Shares will be validly issued, fully paid and
nonassessable. The holders of the Preferred Shares will have no preemptive
rights with respect to any shares of the capital stock of the Company or any
other securities of the Company convertible into or carrying rights or options
to purchase any such shares. The Preferred Shares will not be subject to any
sinking fund or except as set forth below under "-- Series A Preferred Shares --
Redemption," other obligation of the Company for their repurchase or retirement.
The Preferred Shares are not exchangeable into capital stock or any other
securities of Webster Bank or Webster Bank's parent, Webster.
RANKING
The Series A Preferred Shares and the Series B Preferred Shares are of
equal rank with respect to dividend rights and rights upon liquidation. The
Preferred Shares rank senior to the Company's Common Stock with respect to
dividend rights and the distribution of assets upon liquidation. Additional
shares of Preferred Stock ranking senior to the Preferred Shares may not be
issued without the approval of persons holding at least 66 2/3% of the aggregate
liquidation value of the Preferred Shares and any other series of Preferred
Stock ranking on a parity with the Preferred Shares as to dividends or the
distribution of assets upon liquidation.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Preferred Shares at the time
outstanding will be entitled to receive out of assets of the Company available
for distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or any other class of stock ranking junior to the
Preferred Shares upon liquidation, liquidating distributions in the amount of
$1,000 per Series A Preferred Share and $10 per Series B Preferred Share, plus
accrued and unpaid dividends, if any, thereon to the date of distribution.
After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of Preferred Shares will have no right or claim
to any of the remaining assets of the Company. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the corresponding amounts
payable on all shares of other classes or series of capital stock of the Company
ranking on a parity with the Preferred Shares as to the distribution of assets
upon any liquidation, dissolution or winding up of the affairs of the Company,
then the holders of the Preferred Shares and such other classes or series of
capital stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
For such purposes, the consolidation or merger of the Company with or into
any other entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute
liquidation, dissolution or winding up of the Company.
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<PAGE>
VOTING RIGHTS
Except as expressly required by applicable law, or except as indicated
below, the holders of the Preferred Shares will not be entitled to vote. In the
event the holders of Preferred Shares are entitled to vote as indicated below,
each Preferred Share will be entitled to vote proportionately based upon the
liquidation preference associated with such Preferred Share.
If at any time the Company has failed to pay or declare and set aside for
payment the full amount of any quarterly dividend on the Preferred Shares, the
number of directors then constituting the Board of Directors of the Company will
be increased by two (if not already increased by two due to a default in
preference dividends), and the holders of the Preferred Shares (and any other
series of Preferred Stock ranking on a parity with the Preferred Shares as to
dividends or the distribution of assets upon liquidation and upon which like
voting rights have been conferred and are exercisable) will be entitled to elect
such two additional directors to serve on the Company's Board of Directors at
the next annual meeting of stockholders of the Company. Each director elected by
the holders of shares of the Preferred Stock shall continue to serve as such
director until the later of (i) the expiration of the full term for which he or
she shall have been elected or (ii) the payment of all accrued and unpaid
dividends on the Preferred Stock.
The affirmative vote or consent of persons holding at least 66 2/3% of the
aggregate liquidation value of the Preferred Shares and any other series of
Preferred Stock ranking on a parity with the Preferred Shares as to dividends or
the distribution of assets upon liquidation similarly affected, will be required
(i) to create, authorize or issue shares of Preferred Stock ranking senior to
the Preferred Shares as to dividends or distribution of assets or (ii) alter or
change the provisions of the Company's Certificate of Incorporation so as to
adversely affect the powers, preferences or special rights of the Preferred
Shares and any such other series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the Series B
Preferred Shares, see "Description of Capital Stock -- Restrictions on Ownership
and Transfer."
RATINGS
The Series A Preferred Shares will be rated ____ by S&P and ___ by Fitch
IBCA. The Series B Preferred Shares will be rated ____ by S&P and ____ by Fitch
IBCA. A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization.
LISTING ON NASDAQ STOCK MARKET
Prior to this Offering, there has been no market for the Preferred Shares.
The Series A Preferred Shares will not be listed on any exchange. The Series B
Preferred Shares have been approved for inclusion in the Nasdaq Stock Market
under the symbol "WBSTP." However, there can be no assurance that an active, or
any, trading market will develop or be maintained for the Preferred Shares.
SERIES A PREFERRED SHARES
The Company's Certificate of Incorporation designates 40,000 shares of
Preferred Stock as "Series A ___% Cumulative Redeemable Preferred Stock."
As of the date of this Prospectus, no Series A Preferred Shares are
outstanding and, accordingly, there has not been a market for Series A Preferred
Shares. There is no assurance that a secondary market for the Series A Preferred
Shares will develop or, in the event such a market for the Series A Preferred
Shares does develop, that Series A Preferred Shares will trade at or close to a
price of $1,000 per share.
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The Bank of New York will serve as transfer agent, registrar and dividend
disbursement agent for the Series A Preferred Shares. The registrar for the
Series A Preferred Shares will send notices to holders of Series A Preferred
Shares of any meetings at which the holders of such Preferred Shares have the
right to elect directors of the Company.
DIVIDENDS. Holders of Series A Preferred Shares shall be entitled to
receive, if, when and as declared by the Board of Directors of the Company out
of assets of the Company legally available therefor, cumulative cash dividends
at the rate of % per annum (an amount equal to $ per share per annum). Dividends
on the Series A Preferred Shares, if declared, shall be payable quarterly on
January 15, April 15, July 15 and October 15 in each year, at such annual rate
commencing January 15, 1998. Dividends in each quarterly period will accrue from
the day following the previous dividend payment date (except that dividends
payable on January 15, 1998 shall accrue from the date of original issue),
whether or not declared or paid for the prior quarterly period. Each declared
dividend shall be payable to holders of record as they appear at the close of
business on the stock register of the Company on such record dates, not
exceeding 45 days preceding the payment dates thereof, as shall be fixed by the
Board of Directors of the Company.
So long as any Series A Preferred Shares are outstanding, the Company may
not (except as set forth below or elsewhere in this Prospectus) (i) declare, pay
or set aside for payment any dividend or other distribution (other than
dividends or distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock or any other stock or
securities ranking junior to the Series A Preferred Shares as to dividends and
the distribution of assets upon liquidation) in respect of its Common Stock or
any other stock of the Company ranking junior to or on a parity with the Series
A Preferred Shares as to dividends or the distribution of assets upon
liquidation, (ii) redeem, purchase or otherwise acquire for any consideration
(or pursuant to any sinking fund therefor) any shares of Common Stock or any
such junior shares or parity shares (and other than pursuant to a conversion or
exchange into junior shares or securities), unless as to both (i) and (ii)
above, full cumulative dividends on all outstanding Series A Preferred Shares
shall have been declared for all dividend periods terminating on or prior to the
date of payment in respect of such dividend, distribution, redemption, purchase
or acquisition, or (iii) take any action in respect of its Common Stock of the
nature referred to in the foregoing clause (i) or (ii) if, as a result thereof,
the amount of the Company's stockholders' equity (as determined in accordance
with GAAP) would be less than 250% of the aggregate liquidation value of the
issued and outstanding Preferred Shares.
When dividends are not paid in full (or a sum sufficient for such full
payment is not set apart) upon the Series A Preferred Shares and the shares of
any other series of capital stock of the Company ranking on a parity as to
dividends with the Series A Preferred Shares (including the Series B Preferred
Shares), dividends may be declared upon the Series A Preferred Shares and any
other such parity shares, but only if such dividends are declared pro rata so
that the amount of dividends declared per share on the Series A Preferred Shares
and such other shares shall in all cases bear to each other the same ratio that
the amount of accrued but unpaid dividends per share on the Series A Preferred
Shares and such other parity shares bear to each other. Unless full cumulative
dividends required to be paid on the Series A Preferred Shares from the date of
original issue have been or contemporaneously are declared and paid or set aside
for payment and amounts required for the redemption of the Series A Preferred
Shares have been paid or set aside for payment, the declaration or payment of
dividends on the Common Stock will be prohibited.
For a discussion of the tax treatment of distributions to stockholders, see
"Federal Income Tax Consequences -- Taxation of Taxable U.S. Stockholders of the
Company Generally" and "Federal Income Tax Consequences -- Taxation of Non-U.S.
Stockholders of the Company."
REDEMPTION. The Series A Preferred Shares are not redeemable prior to
January 15, 1999 (except upon the occurrence of a Tax Event). Upon the
occurrence of a Tax Event, and at any time on and after January 15, 1999 through
January 14, 2001, the Series A Preferred Shares may be redeemed at the option of
the Company, in whole but not in part, at the Series A Early Redemption Price,
on not less than 30 nor more than 60 days' notice by mail.The Series A Preferred
Shares are required to be
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redeemed by the Company, on January 15, 2001, at a redemption price of $1,000
per share, plus accrued and unpaid dividends, if any, thereon to the date of
redemption. See "Federal Income Tax Consequences -- Series A and Series B Early
Redemption."
SERIES B PREFERRED SHARES
The Company's Certificate of Incorporation designates 1,000,000 shares of
Preferred Stock as "Series B % Cumulative Redeemable Preferred Stock."
As of the date of this Prospectus, no Series B Preferred Shares are
outstanding and, accordingly, there has not been a market for the Series B
Preferred Shares. There is no assurance that a secondary market for the Series B
Preferred Shares will develop or, in the event such a market for the Series B
Preferred Shares does develop, that Series B Preferred Shares will trade at or
close to a price of $10 per share.
The Bank of New York will serve as transfer agent, registrar and dividend
disbursement agent for the Series B Preferred Shares. The registrar for the
Series B Preferred Shares will send notices to holders of Series B Preferred
Shares of any meetings at which holders of such Preferred Shares have the right
to elect directors of the Company.
DIVIDENDS. Holders of Series B Preferred Shares shall be entitled to
receive, if, when and as declared by the Board of Directors of the Company out
of assets of the Company legally available therefor, cumulative cash dividends
at the rate of % per annum (an amount equal to $ per share per annum). Dividends
on the Series B Preferred Shares, if declared, shall be payable quarterly on
January 15, April, July 15 and October 15 in each year at such annual rate,
commencing January 15, 1998. Dividends in each quarterly period will accrue from
the day following the previous dividend payment date (except that dividends
payable on January 15, 1998 shall accrue from the date of original issue) ,
whether or not declared or paid for the prior quarterly period. Each declared
dividend shall be payable to holders of record as they appear at the close of
business on the stock register of the Company on such record dates, not
exceeding 45 days preceding the payment dates thereof, as shall be fixed by the
Board of Directors of the Company.
So long as any Series B Preferred Shares are outstanding, the Company may
not (except as set forth below or elsewhere in this Prospectus) (i) declare, pay
or set aside for payment any dividend or other distribution (other than
dividends or distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock or any other stock or
securities ranking junior to the Series B Preferred Shares as to dividends and
the distribution of assets upon liquidation) in respect of its Common Stock or
any other stock of the Company ranking junior to or on a parity with the Series
B Preferred Shares as to dividends or the distribution of assets upon
liquidation, (ii) redeem, purchase or otherwise acquire for any consideration
(or pursuant to any sinking fund therefor) any shares of Common Stock or any
such junior shares or parity shares (and other than pursuant to a conversion or
exchange into junior shares or securities), unless as to both (i) and (ii)
above, full cumulative dividends on all outstanding Series B Preferred Shares
shall have been declared for all dividend periods terminating on or prior to the
date of payment in respect of such dividend, distribution, redemption, purchase
or acquisition, or (iii) take any action in respect of its Common Stock of the
nature referred to in the foregoing clause (i) or (ii) if, as a result thereof,
the amount of the Company's stockholders' equity (as determined in accordance
with GAAP) would be less than 250% of the aggregate liquidation value of the
issued and outstanding Preferred Shares.
When dividends are not paid in full (or a sum sufficient for such full
payment is not set apart) upon the Series B Preferred Shares and the shares of
any other series of capital stock of the Company ranking on a parity as to
dividends with the Series B Preferred Shares (including the Series A Preferred
Shares), dividends may be declared upon the Series B Preferred Shares and any
other such parity shares, but only if such dividends are declared pro rata so
that the amount of dividends declared per share on the Series B Preferred Shares
and such other shares shall in all cases bear to each other the same ratio that
the amount of accrued but unpaid dividends on the Series B Preferred Shares and
such other parity
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shares bear to each other. Unless full cumulative dividends required to be paid
on the Series B Preferred Shares from the date of original issue have been or
contemporaneously are declared and paid or set aside for payment, the
declaration or payment of dividends on the Common Stock will be prohibited.
For a discussion of the tax treatment of distributions to stockholders, see
"Federal Income Tax Consequences -- Taxation of Taxable U.S. Stockholders of the
Company Generally" and "Federal Income Tax Consequences -- Taxation of Non-U.S.
Stockholders of the Company."
REDEMPTION. The Series B Preferred Shares are not redeemable prior to
January 15, 2003 (except upon the occurrence of a Tax Event). Upon the
occurrence of a Tax Event, the Series B Preferred Shares may be redeemed at the
option of the Company, in whole but not in part, at the Series B Early
Redemption Price. On or after January 15, 2003, the Series B Preferred Shares
may be redeemed at the option of the Company, in whole or in part, at any time
or from time to time on not less than 30 nor more than 60 days' notice by mail,
at a redemption price of $10 per share, plus accrued and unpaid dividends, if
any, thereon to the date of redemption. See "-- Series A and Series B Early
Redemption."
SERIES A AND SERIES B EARLY REDEMPTION
The Series A Preferred Shares are not redeemable prior to January 15, 1999
(except upon the occurrence of a Tax Event). Upon the occurrence of a Tax Event,
and at any time on and after January 15, 1999 through January 14, 2001, the
Series A Preferred Shares may be redeemed at the option of the Company, in whole
but not in part, at the Series A Early Redemption Price. The Series B Preferred
Shares are not redeemable prior to January 15, 2003 (except upon the occurrence
of a Tax Event). Upon the occurrence of a Tax Event, the Series B Preferred
Shares may be redeemed at the option of the Company, in whole but not in part,
at the Series B Early Redemption Price.
The per share Series A Early Redemption Price and the per share Series B
Early Redemption Price shall be equal to the Make-Whole Amount of such Preferred
Shares. The "Make-Whole Amount" shall be equal to the greater of (x) 100% of the
liquidation preference of the Series A Preferred Shares or the Series B
Preferred Shares, as the case may be, to be redeemed or (y) the sum, as
determined by a Quotation Agent (as defined below), of the present values of the
remaining scheduled payments of dividends on such Preferred Shares to the
Applicable Par Redemption Date, discounted to the redemption date on a quarterly
basis (assuming a 360-day year consisting of 12 30-day months) at the Adjusted
Treasury Rate, plus, in the case of each of clauses (x) and (y), accrued and
unpaid dividends, if any, thereon to the date of redemption.
A "Tax Event" means the receipt by the Company of an opinion of a
nationally recognized law firm experienced in such matters to the effect that,
as a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (ii) any judicial decision,
official administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt such procedures or regulations) ("Administrative Action") or
(iii) any amendment to, clarification of, or change in the official position or
the interpretation of such Administrative Action or judicial decision or any
interpretation or pronouncement that provides for a position with respect to
such Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such amendment, clarification or change is made known, which amendment,
clarification or change is effective or such pronouncement or decision is
announced on or after the date of issuance of the Preferred Shares, there is a
substantial risk that (a) dividends paid or to be paid by the Company with
respect to the capital stock of the Company are not, or will not be, fully
deductible by the Company for United States federal income tax purposes, (b) the
Company is, or will be, subject to more than a de minimis amount of other taxes,
duties or other governmental charges or (c) dividends received or to be received
by Webster Bank from the Company are not, or will not be, fully deductible by
Webster Bank for Connecticut corporation income tax purposes.
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"Applicable Par Redemption Date" means January 14, 2001 with respect to the
Series A Preferred Shares and January 15, 2003 with respect to the Series B
Preferred Shares.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date plus .25%.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the period
from the date of redemption through the Applicable Par Redemption Date that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate fixed-income securities
of comparable maturity for such remaining period.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company. "Reference Treasury Dealer" means a nationally-recognized U.S.
government securities dealer in New York, New York selected by the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Company obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 5:00 p.m., New York,
New York time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed not less than 30 days but not more
than 60 days before the redemption date to each holder of Preferred Shares being
redeemed at its registered address. Unless the Company defaults in payment of
the Applicable Redemption Price, on and after the redemption date dividends
cease to accrue on the Preferred Shares called for redemption.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The following summary of the terms of the capital stock of the Company does
not purport to be complete and is subject in all respects to the applicable
provisions of the Connecticut Corporation Law and the Certificate of
Incorporation and By-Laws of the Company.
COMMON STOCK
GENERAL. The Company is authorized to issue 1,000 shares of Common Stock.
There are currently 100 issued and outstanding shares of Common Stock, all of
which are owned by Webster Bank.
DIVIDENDS. Subject to the preferential rights of holders of any series of
Preferred Stock, holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of assets legally available
therefor. In order to remain qualified as a REIT, the Company must distribute
annually at least 95% of its annual "REIT taxable income" (not including capital
gains and certain items of non-cash income) to stockholders. See "Federal Income
Tax Considerations."
VOTING RIGHTS. Subject to the rights, if any, of the holders of any series
of Preferred Stock, all voting rights are vested in the Common Stock. The
holders of Common Stock are entitled to one vote per share. All of the issued
and outstanding shares of Common Stock currently are held by Webster Bank.
RIGHTS UPON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, after there have
been paid or set aside for the holders of all series of Preferred Stock the full
preferential amounts to which such holders are entitled, the holders of Common
Stock will be entitled to share equally and ratably in any assets remaining
after the payment of all debts and liabilities.
PREFERRED STOCK
Prior to the Offering, the Company redeemed from Webster Bank the 2,000
shares of preferred stock shown as outstanding at September 30, 1997. Webster
Bank concurrently contributed the proceeds of that redemption to the Company,
which is reflected as a $2 million addition to the paid-in capital account of
the Company. The Company is currently authorized to issue 3,000,000 shares of
Preferred Stock, (i) 40,000 of which will be designated Series A % Cumulative
Redeemable Preferred Stock, par value $1.00 per share, liquidation preference
$1,000 per share, and (ii) 1,000,000 of which will be designated Series B ____%
Cumulative Redeemable Preferred Stock, par value $1.00 per share, liquidation
preference $1.00 per share.
Subject to limitations prescribed by Connecticut law and the Company's
Certificate of Incorporation, the Board of Directors or, if then constituted, a
duly authorized committee thereof, is authorized to issue, from the authorized
but unissued shares of capital stock of the Company, Preferred Stock in such
series as the Board of Directors may determine and to establish, from time to
time, the number of shares of Preferred Stock to be included in any such series
and to fix the designation and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the shares of any such series, and such
other subjects or matters as may be fixed by resolution of the Board of
Directors.
The Preferred Shares, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable.
Either the Certificate of Incorporation or a certificate of amendment
relating to each series of Preferred Stock will set forth the preferences and
other terms of such series, including without limitation the following: (1) the
title and stated value, if any, of such series; (2) the number of shares of such
series and the liquidation preference per share of such series; (3) the dividend
rate(s), period(s), and/or payment date(s) or method(s) of calculation thereof
applicable to such series; (4) whether such series is cumulative or not and, if
cumulative, the date from which dividends on such series shall accumulate; (5)
the provision for a sinking fund, if any, for such series; (6) the provision for
redemption, if applicable, of such series; (7) the relative ranking and
preferences of such series as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; (8) any limitations on
issuance of
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any series of Preferred Stock ranking senior to or on a parity with such series
of Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; (9) any other specific
terms, preferences, rights, limitations or restrictions of such series; and (10)
any voting rights of such series.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Company's Certificate of Incorporation contains certain restrictions on
the number of shares of Preferred Stock that individual stockholders may
directly or beneficially own. For the Company to qualify as a REIT under the
Code, no more than 50% of the value of its outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year (the "One Hundred
Persons Test"). The Certificate of Incorporation of the Company contains
restrictions on the acquisition and ownership of Preferred Stock intended to
ensure compliance with the One Hundred Persons Test. Such provisions include a
restriction that if any transfer of shares of capital stock of the Company would
cause the Company to be owned by fewer than 100 persons, such transfer shall be
null and void and the intended transferee will acquire no rights to the stock.
Subject to certain exceptions specified in the Company's Certificate of
Incorporation, no natural person or entity is permitted to own more than 5,000
shares of the aggregate liquidation value (the "Ownership Limit") of the Series
B Preferred Shares.
The Certificate of Incorporation provides that shares of Preferred Stock
owned, or deemed to be owned, by, or transferred to a stockholder in excess of
the Ownership Limit, or which would cause the Company to fail to qualify as a
REIT (the "Excess Shares"), will automatically be transferred, by operation of
law, to a trustee as a trustee of a trust for the exclusive benefit of a charity
to be named by the Company as of the day prior to the day the prohibited
transfer took place. Any distributions paid prior to the discovery of the
prohibited transfer or ownership are to be repaid by the original transferee to
the Company and by the Company to the trustee; any vote of the shares while the
shares were held by the original transferee prior to the Company's discovery
thereof shall be void ab initio and the original transferee shall be deemed to
have given its proxy to the trustee. Any unpaid distributions with respect to
the original transferee will be rescinded as void ab initio. In liquidation, the
original transferee stockholder's ratable share of the Company's assets would be
limited to the price paid by the original transferee for the Excess Shares or,
if no value was given, the price per share equal to the closing market price on
the date of the purported transfer. The trustee of the trust shall promptly sell
the shares to any person whose ownership is not prohibited, whereupon the
interest of the trust shall terminate. Proceeds of the sale shall be paid to the
original transferee up to its purchase price (or, if the original transferee did
not purchase the shares, the value on its date of acquisition) and any remaining
proceeds shall be paid to a charity to be named by the Company.
All certificates representing Series B Preferred Shares will bear a legend
referring to the restrictions described above.
The Company's Certificate of Incorporation requires that any person who
beneficially owns 0.5% (or such lower percentage as may be required by the Code
or the Treasury Regulations) of the outstanding shares of any series of
Preferred Stock of the Company must provide certain information to the Company
within 30 days of December 31 of each year. In addition, each stockholder shall
upon demand be required to disclose to the Company in writing such information
as the Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership on the Company's status as a
REIT and to ensure compliance with the Ownership Limit.
SUPER-MAJORITY DIRECTOR APPROVAL
The Certificate of Incorporation requires approval by two-thirds of the
Company's Board of Directors in order for the Company to file a voluntary
petition of bankruptcy.
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BUSINESS COMBINATIONS
The Connecticut Corporation Law establishes special requirements with
respect to "business combinations" between a Connecticut corporation or any
majority-owned subsidiary of a Connecticut corporation and any person (other
than the corporation or any of its subsidiaries) who beneficially owns, directly
or indirectly, 10% or more of the voting power of the outstanding shares of
voting stock of the corporation; any person who is an affiliate of the
corporation and at any time within the two years immediately prior to the date
in question beneficially owned 10% of more of the voting power of the then
outstanding shares of voting stock; or generally an affiliate or associate of an
interested shareholder (an "Interested Shareholder"), subject to certain
exemptions. "Business combinations" generally include (i) any merger,
consolidation or statutory share exchange; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets (other than in the
usual and regular course of business) that has an aggregate book value of ten
percent or more of the total market value of the corporation's outstanding
shares or its net worth; (iii) certain issuances or transfers of equity
securities that have an aggregate market value of five percent or more of the
total market value of the corporation's outstanding shares; (iv) the adoption of
a plan of liquidation or dissolution that is proposed by an Interested
Shareholder; and (v) any reclassification of securities or any merger,
consolidation or share exchange of the corporation with any of its subsidiaries
which has the effect of increasing by 5% or more of the total number of
outstanding shares the proportionate amount of any class of equity securities
owned by an Interested Shareholder. In general, an Interested Shareholder may
not engage in a "business combination" with the corporation unless the business
combination is approved by the affirmative vote of (i) the board of directors of
the corporation and (ii) (a) the holders of 80% of the voting power of the
outstanding shares of voting stock of the corporation and (b) the holders of
two-thirds of the voting power of the outstanding shares other than voting stock
held by the Interested Shareholder with whom the business combination is to be
effected, unless, among other things, the consideration received by the
corporation's common stockholders and other stockholders meets certain price
requirements and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his shares. Further, a
corporation may not engage in a business combination with an Interested
Shareholder for a period of five years after the Interested Shareholder's stock
acquisition date unless the business combination or purchase of stock is
approved prior to the stock acquisition date by the board of directors of the
corporation and by a majority of the nonemployee directors of which there shall
be at least two. These provisions of the Connecticut Corporation Law do not
apply to business combinations that are excepted under the Connecticut
Corporation Law. The Certificate of Incorporation exempts from the Connecticut
Corporation Law any business combination with Webster Bank or Webster.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax consequences
regarding the Offering. The following description is for general information
only, is not exhaustive of all possible tax consequences, and is not intended to
be (and should not be construed as) tax advice. For example, this summary does
not give a detailed discussion of any state, local or foreign tax consequences.
In addition, the discussion is intended to address only those federal income tax
considerations that are generally applicable to all stockholders of the Company.
It does not discuss all aspects of federal income taxation that might be
relevant to a specific stockholder in light of its particular investment or tax
circumstances. The description does not purport to deal with all aspects of
taxation that may be relevant to stockholders subject to special treatment under
the federal income tax laws, including, without limitation, insurance companies,
financial institutions, broker-dealers, tax-exempt organizations (except to the
extent discussed under the heading "-- Taxation of Tax-Exempt Stockholders of
the Company") or foreign corporations and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"-- Taxation of Non-U.S. Stockholders of the Company").
The information in this section is based on the Code, current, temporary
and proposed income tax regulations promulgated under the Code (the "Treasury
Regulations"), the legislative history of the Code, current administrative
interpretations and practices of the IRS (including its practices and policies
as endorsed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer
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that receives such a ruling), and court decisions, all as of the date hereof. As
discussed below, the Taxpayer Relief Act of 1997 (the "1997 Act") contains
certain changes to the REIT qualification requirements and the taxation of REITs
that may be material to a holder of Preferred Shares, but which will become
effective only for the Company's taxable years commencing on or after January 1,
1998. No assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and practices and court decisions will not
significantly change the current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Company. Thus, no assurance can be provided that the statements
set forth herein (which do not bind the IRS or the courts) will not be
challenged by the IRS or will be sustained by a court if so challenged.
EACH PROSPECTIVE PURCHASER OF PREFERRED SHARES IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE OWNERSHIP
AND DISPOSITION OF THE SHARES OF AN ENTITY ELECTING TO BE TAXED AS A REIT IN
LIGHT OF ITS SPECIFIC TAX AND INVESTMENT SITUATIONS AND THE SPECIFIC FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.
TAXATION OF THE COMPANY
The Company will elect to be treated as a REIT under Sections 856 through
860 of the Code commencing with its taxable year ending December 31, 1997. The
Company believes that it is organized, has operated, and will continue to
operate in such a manner as to qualify for taxation as a REIT under the Code.
The Company intends to continue to operate in such a manner, but no assurance
can be given that it will continue to operate in such a manner so as to qualify
or remain qualified as a REIT.
Sections 856 through 860 of the Code and the corresponding Treasury
Regulations are highly technical and complex. The following sets forth the
material aspects of the rules that govern the federal income tax treatment of a
REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
Hogan & Hartson L.L.P. has acted as special counsel to the Company in
connection with the Offering. In the opinion of Hogan & Hartson L.L.P.,
commencing with the Company's taxable year ending December 31, 1997, the Company
is organized and has operated, as of the date of such opinion, in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation should enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is conditioned upon certain representations made by the Company as
to factual matters relating to the organization and operation of the Company and
its Mortgage Assets. In addition, this opinion is based upon the factual
representations of the Company concerning its business and properties as set
forth in this Prospectus and assumes that the actions described in this
Prospectus are completed in a timely fashion. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet on an ongoing
basis (through actual annual operating results, distribution levels and
diversity of share ownership) the various qualification tests imposed under the
Code discussed below, the results of which will not be reviewed by Hogan &
Hartson L.L.P. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. See "-- Failure of the Company to Qualify as a
REIT."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is distributed
currently to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows:
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o The Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
o Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference.
o If the Company has (i) net income from the sale or other disposition
of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income.
o If the Company has net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business
other than foreclosure property or sales to which Section 1033 of the
Code applies), such income will be subject to a 100% tax.
o If the Company should fail to satisfy the 75% gross income test or the
95% gross income test (each as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test multiplied
by (b) a fraction intended to reflect the Company's profitability.
o If the Company should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company would
be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
REQUIREMENTS FOR QUALIFICATION AS A REIT
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest, (iii) that would be taxable
as a domestic corporation, but for Sections 856 through 859 of the Code, (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (v) the beneficial ownership of which is held by
100 or more persons, (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) and (vii) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of twelve
months, or during a proportionate part of a taxable year of less than twelve
months. Conditions (v) and (vi) will not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For purposes of
conditions (v) and (vi), pension funds and certain other tax-exempt entities are
treated as individuals, subject to a "look-through" exception in the case of
condition (vi). In the opinion of Hogan & Hartson L.L.P., the Company does not
constitute a financial institution within the meaning of condition (iv).
The Company believes that it will have issued sufficient shares with
sufficient diversity of ownership in the Offering to allow it to satisfy
conditions (v) and (vi). In addition, the Company's Certificate of Incorporation
provides for restrictions regarding the transfer and ownership of its shares,
which restrictions are intended to assist the Company in continuing to satisfy
the share ownership requirements described in (v) and (vi) above. Such ownership
and transfer restrictions are described in "Description of Capital Stock of the
Company -- Restrictions on Ownership and Transfer." These restrictions, however,
may not ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above. If the Company fails to satisfy such
share ownership requirements, the Company's status as a REIT will terminate. See
"-- Failure of the Company to Qualify as a REIT."
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Treasury Regulations require that the Company each year demand from certain
record owners of its shares certain information in order to assist the Company
in ascertaining that the share ownership requirements described above are
satisfied. Pursuant to the 1997 Act, for the Company's taxable years commencing
on or after January 1, 1998, if the Company were to fail to comply with these
Treasury Regulation requirements for any year, it would be subject to a $25,000
penalty. If the Company's failure to comply was due to intentional disregard of
the requirements, the penalty is increased to $50,000. However, if the Company's
failure to comply was due to reasonable cause and not willful neglect, no
penalty would be imposed. If the Company complies with the regulatory rules on
ascertaining its actual owners but does not know, or would not have known by
exercising reasonable diligence, whether it failed to meet the requirement that
it not be closely held, the Company will be treated as having met the
requirement. These rules enacted as part of the 1997 Act are a change to the
prior law, under which a REIT would be disqualified if it failed to comply with
these Treasury Regulations.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company will have a calendar taxable
year.
In order to qualify as a REIT, the Company cannot have at the end of any
taxable year any undistributed "earnings and profits" that are attributable to a
"C corporation" taxable year. The Company is a newly formed entity that will
make a REIT election for its first taxable year. Hence, the Company itself has
no undistributed "C corporation earnings and profits."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements.
o First, at least 75% of the Company's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be
derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain
types of temporary investments.
o Second, at least 95% of the Company's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be
derived from such real property investments, dividends, interest,
including certain hedging instruments, and gain from the sale or
disposition of stock or securities, including certain hedging
instruments (or from any combination of the foregoing).
o Third, for the 1997 taxable year, the Company must derive less than
30% of its gross income from the sale or other disposition of (i) real
property held for less than four years (other than foreclosure
property and involuntary conversions), (ii) stock or securities held
for less than one year, and (iii) property in a prohibited
transaction. Pursuant to the 1997 Act, the Company will not have to
meet this test for its taxable years commencing on or after January 1,
1998.
For interest to qualify as "interest on obligations secured by mortgages on
real property or on interests in real property," the obligation must be secured
by real property having a fair market value at the time of acquisition at least
equal to the principal amount of the loan. The term "interest" includes only an
amount that constitutes compensation for the use or forbearance of money. For
example, a fee received or accrued by a lender which is in fact a charge for
services performed for a borrower rather than a charge for the use of borrowed
money is not includible as interest; amounts earned as consideration for
entering into agreements to make loans secured by real property, although not
interest, are otherwise treated as within the 75% and 95% classes of gross
income so long as the determination of those amounts does not depend on the
income or profits of any person. By statute, the term interest does not include
any amount based on income or profits except that the Code provides that (i)
interest "based on a fixed percentage or percentages of receipts or sales" is
not excluded and (ii) when the REIT makes a loan that provides for interest
based on the borrower's receipts or sales and the borrower leases under one or
more leases based on income or profits, only a portion of the contingent
interest paid by the borrower will be disqualified as interest.
Rents received or deemed received by the Company will qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if certain statutory conditions are met that limit rental
income essentially to rentals on investment-type properties. In the event that a
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REIT acquires by foreclosure property that generates income that does not
qualify as "rents from real property," such income will be treated as qualifying
for three years following foreclosure (which period may be extended by the IRS
so long as (i) all leases entered into after foreclosure generate only
qualifying rent, (ii) only limited construction takes place, and (iii) within 90
days of foreclosure, any trade or business in which the property is used is
conducted by an independent contractor from which the REIT derives no income).
Pursuant to the 1997 Act, for taxable years commencing on or after January 1,
1998, this grace period will be extended to the close of the third year
following the year of foreclosure. In the event the special foreclosure property
rules apply to qualify otherwise unqualified income, the net income that
qualifies only under the special rule for foreclosure property will be subject
to tax, as described above.
The Company anticipates that all the interest on its Mortgage Assets will
satisfy the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because non-qualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above under "-- Taxation of the
Company," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets.
o First, at least 75% of the value of the Company's total assets must be
represented by real estate assets including (i) its allocable share of
real estate assets held by partnerships in which the Company owns an
interest and (ii) stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (at
least five years) debt offering of the Company, cash, cash items and
government securities.
o Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class.
o Third, of the investments included in the 25% asset class, the value
of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including, for example, as a
result of an additional capital contribution of proceeds of an offering of
shares by the Company such as this Offering), the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance. If the Company fails to cure noncompliance with the asset
tests within such time period, the Company would cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (i) the sum of (a) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the
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Company's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of noncash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment date after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. The Company, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a stockholder would
include its proportionate share of such amount in income, as long-term capital
gain, and would be treated as having paid its proportionate share of the tax
paid by the Company with respect to such amount. The stockholder's basis in its
shares would be increased by the amount the stockholder included in income and
decreased by the amount of the tax the stockholder is treated as having paid.
The Company would make an appropriate adjustment to its earnings and profits.
For a more detailed description of the tax consequences to a stockholder of such
a designation, see "-- Taxation of Taxable U.S. Stockholders of the Company
Generally." The Company intends to make timely distributions sufficient to
satisfy these annual distribution requirements.
The Company anticipates that it will generally have sufficient cash or
liquid assets to enable it to satisfy the distribution requirements described
above. See "Business and Strategy -- Dividend Policy." It is possible, however,
that the Company, from time to time, may not have sufficient cash or other
liquid assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at taxable income of the Company. If such timing differences occur, in
order to meet the distribution requirements, the Company may find it necessary
to arrange for short-term, or possibly long-term, borrowings or to pay dividends
in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
The Company may avail itself of consent dividend procedures set out in
Section 565 of the Code and the related Treasury Regulations to satisfy the 95%
distribution requirement or to avoid imposition of an excise tax. A consent
dividend is a hypothetical dividend that is treated for U.S. federal tax
purposes as though it actually had been paid in cash on the last day of the
year. To avail itself of the consent dividend procedures, the Company would have
to obtain consent on Form 972 from the stockholders who were actual owners of
shares on the last day of the year. The amount of hypothetical dividend would be
treated as though it actually had been paid to the consenting stockholder and
then recontributed by the stockholder to the Company. The Company would avail
itself of consent dividend procedures only with respect to the Common Stock. The
consent dividend procedures are practical in this case because all of the Common
Stock is expected to be held by a single holder.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and if the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash
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available for distribution by the Company to its stockholders. In addition, if
the Company fails to qualify as a REIT, all distributions to stockholders will
be taxable as ordinary income, to the extent of the Company's current and
accumulated earnings and profits, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS OF THE COMPANY GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of Preferred
Shares who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) is an estate the income of which is subject
to United States federal income taxation regardless of its source, or (iv) is a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
DISTRIBUTIONS GENERALLY. As long as the Company qualifies as a REIT,
distributions made by the Company out of its current or accumulated earnings and
profits (and not designated as capital gain dividends) will constitute dividends
taxable to its taxable U.S. Stockholders as ordinary income. Such distributions
will not be eligible for the dividends received deduction in the case of such
U.S. Stockholders that are corporations. U.S. Stockholders that are corporations
may be required to treat up to 20% of certain capital gain dividends as ordinary
income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in its shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in its shares taxable as capital gains (provided
that the shares have been held as a capital asset). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
CAPITAL GAIN DISTRIBUTIONS. Distributions made by the Company that are
properly designated by the Company as capital gain dividends will be taxable to
taxable non-corporate (individuals, estates or trusts) U.S. Stockholders as gain
from the sale or exchange of a capital asset held for more than one year (to the
extent that they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which such non-corporate U.S.
Stockholder has held his Preferred Shares. On November 10, 1997, the IRS issued
Notice 97-64, which provides generally that the Company may classify portions of
its designated capital gain dividend as (i) a 20% gain distribution (which would
be taxable to non-corporate U.S. Stockholders at a maximum rate of 20%), (ii) an
unrecaptured Section 1250 gain distribution (which would be taxable to
non-corporate U.S. Stockholders at a maximum rate of 25%), or (iii) a 28% rate
gain distribution (which would be taxable to non-corporate U.S. Stockholders at
a maximum rate of 28%). (If no designation is made, the entire designated
capital gain dividend will be treated as a 28% rate gain distribution.) Notice
97-64 provides that a REIT must determine the maximum amounts that it may
designate as 20% and 25% rate capital gain dividends by performing the
computation required by the Code as if the REIT were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. Notice
97-64 further provides that designations made by the REIT only will be effective
to the extent that they comply with Revenue Ruling 89-81, which requires that
distributions made to different classes of shares be composed proportionately of
dividends of a particular type.
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Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable corporate U.S.
Stockholders as long-term capital gains (to the extent that they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which such U.S. Stockholder has held its Preferred Shares. Such
U.S. Stockholders may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income.
CERTAIN DISPOSITIONS OF SHARES. Upon any sale or other disposition of
Preferred Shares, a U.S. Stockholder will recognize gain or loss for federal
income tax purposes in an amount equal to the difference between (i) the amount
of cash and the fair market value of any property received on such sale or other
disposition and (ii) the holder's adjusted basis in such Preferred Shares for
tax purposes. Such gain or loss will be capital gain or loss if the Preferred
Shares have been held by the U.S. Stockholder as a capital asset.
In the case of a U.S. Stockholder who is an individual or an estate or
trust, such gain or loss will be mid-term capital gain or loss if such shares
have been held for more than one year but not more than 18 months and long-term
capital gain or loss if such shares have been held for more than 18 months. In
the case of a U.S. Stockholder that is a corporation, such gain or loss will be
long-term capital gain or loss if such shares have been held for more than one
year. In general, any loss recognized by a U.S. Stockholder upon the sale or
other disposition of shares in the Company that have been held for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss, to the extent of distributions received by such U.S.
Stockholder from the Company which were required to be treated as long-term
capital gains.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may designate its net capital gain so that
with respect to retained net capital gains, a U.S. Stockholder would include its
proportionate share of such gain in income, as long-term capital gain, and would
be treated as having paid its proportionate share of the tax paid by the Company
with respect to the gain. The U.S. Stockholder's basis in its shares would be
increased by its share of such gain and decreased by its share of such tax. With
respect to such long-term capital gain of a U.S. Stockholder that is an
individual or an estate or trust, the IRS, as described above in this section,
has authority to issue regulations that could apply the special tax rate
applicable generally to the portion of the long-term capital gains of an
individual or an estate or trust attributable to deductions for depreciation
taken with respect to depreciable real property. IRS Notice 97-64, described
above in this section, did not address the taxation of non-corporate REIT
stockholders with respect to retained net capital gains.
BACKUP WITHHOLDING FOR COMPANY DISTRIBUTIONS
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See "-- Taxation of Non-U.S.
Stockholders of the Company."
TAXATION OF TAX-EXEMPT STOCKHOLDERS OF THE COMPANY
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
(except certain tax-exempt stockholders described below) has not held its
Preferred Shares as "debt financed property" within the meaning of the Code and
such Preferred Shares are not otherwise used in a trade or business, the
dividend income from the
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Company will not be UBTI to a tax-exempt stockholder. Similarly, income from the
sale of Preferred Shares will not constitute UBTI unless such tax-exempt
stockholder has held such Preferred Shares as "debt financed property" within
the meaning of the Code or has used the Preferred Shares in a trade or business.
For tax-exempt stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective stockholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code, and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts." A REIT is a "pension held REIT" if
(i) it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Code provides that stock owned by qualified trusts shall be
treated for purposes of the "not closely held" requirement as owned by the
beneficiaries of the trust (rather than by the trust itself), and (ii) either
(a) at least one such qualified trust holds more than 25% (by value) of the
interests in the REIT, or (b) one or more such qualified trusts, each of which
owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the UBTI
earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (ii) the total gross income of the REIT. A
de minimis exception applies where the percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts.
Based on the anticipated ownership of shares immediately following the
Offering, and as a result of certain limitations on transfer and ownership of
shares contained in the Certificate of Incorporation, the Company does not
expect to be classified as a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of the ownership
and disposition of Preferred Shares by persons that, for purposes of such
taxation, are not U.S. Stockholders (collectively, "Non-U.S. Stockholders") are
complex, and no attempt is made herein to provide more than a brief summary of
such rules. Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Stockholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in Preferred Shares, including any reporting
requirements.
DISTRIBUTIONS BY THE COMPANY. Distributions by the Company to a Non-U.S.
Stockholder that are neither attributable to gain from sales or exchanges by the
Company of United States real property interests nor designated by the Company
as capital gains dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic stockholders are
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taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's Preferred Shares, but
rather will reduce the adjusted basis of such Preferred Shares. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Stockholder's
Preferred Shares, they will give rise to gain from the sale or exchange of its
Preferred Shares, the tax treatment of which is described below. As a result of
a legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate) will
be subject to withholding at a rate of 10%. However, the Non-U.S. Stockholder
may seek a refund of such amounts from the IRS if it subsequently determined
that such distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company, and the amount withheld exceeded the
Non-U.S. Stockholder's United States tax liability, if any, with respect to the
distribution.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Preferred Shares is effectively connected with the Non-U.S. Stockholder's
United States trade or business, in which case the Non-U.S. Stockholder will be
subject to the same treatment as domestic stockholders with respect to such gain
(except that a stockholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA") distributions to a Non-U.S. Stockholder that are attributable to gain
from sales or exchanges by the Company of United States real property interests
will cause the Non-U.S. Stockholder to be treated as recognizing such gain as
income effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability.
SALE OF PREFERRED SHARES. Gain recognized by a Non-U.S. Stockholder upon
the sale or exchange of Preferred Shares generally will not be subject to United
States taxation unless such shares constitute a "United States real property
interest" within the meaning of FIRPTA. The Preferred Shares will not constitute
a "United States real property interest" so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock is held directly or indirectly by Non-U.S. Stockholders. The Company
believes that at the closing of the Offering it will be a "domestically
controlled REIT," and therefore that the sale of Preferred Shares will not be
subject to taxation under FIRPTA. However, no
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assurance can be given that the Company will continue to be a "domestically
controlled REIT." Notwithstanding the foregoing, gain from the sale or exchange
of Preferred Shares not otherwise subject to FIRPTA will be taxable to a
Non-U.S. Stockholder if the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
Even if the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Stockholder of Preferred Shares would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if
(i) the Preferred Shares are "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., with respect to
the Series B Preferred Shares, the Nasdaq Stock Market) and (ii) such Non-U.S.
Stockholder owned 5% or less of the value of the Company's stock throughout the
five year period ending on the date of the sale or exchange. If gain on the sale
or exchange of Preferred Shares were subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to regular United States federal income
tax with respect to such gain in the same manner as a U.S. Stockholder (subject
to any applicable alternative minimum tax, a special alternative minimum tax in
the case of nonresident alien individuals and the possible application of the
30% branch profits tax in the case of foreign corporations), and the purchaser
of the Preferred Shares would be required to withhold and remit to the IRS 10%
of the purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Preferred Shares by or through a foreign office of a
foreign broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Preferred Shares by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or business
in the United States or (c) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by United States stockholders) for United States
tax purposes, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Stockholder and certain other conditions are met, or the
stockholder otherwise establishes an exemption. Payment to or through a United
States office of a broker of the proceeds of a sale of Preferred Shares is
subject to both backup withholding and information reporting unless the
stockholder certifies under penalty of perjury that the stockholder is a
Non-U.S. Stockholder, or otherwise establishes an exemption. A Non-U.S.
Stockholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The IRS has recently finalized regulations regarding the withholding and
information reporting rules discussed above. In general, these regulations do
not alter the substantive withholding and information reporting requirements but
unify certifications procedures and forms and clarify and modify reliance
standards. These regulations generally are effective for payments made after
December 31, 1998, subject to certain transition rules. Valid withholding
certificates that are held on December 31, 1998, will remain valid until the
earlier of December 31, 1999 or the date of expiration of the certificate under
rules currently in effect (unless otherwise invalidated due to changes in the
circumstances of the person whose name is on such certificate). A Non-U.S.
Stockholder should consult its own advisor regarding the effect of the new
Treasury Regulations.
OTHER TAX CONSEQUENCES FOR THE COMPANY AND ITS STOCKHOLDERS
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax
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treatment of the Company and its stockholders may not conform to the Federal
Income Tax Considerations discussed above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
ERISA CONSIDERATIONS
GENERAL
In evaluating the purchase of Preferred Shares, a fiduciary of a qualified
profit-sharing, pension or stock bonus plan, including a plan for self-employed
individuals and their employees or any other employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), a
collective investment fund or separate account in which such plans invest and
any other investor using assets that are treated as the assets of an employee
benefit plan subject to ERISA (each, a "Plan" and collectively, "Plans") should
consider (a) whether the ownership of Preferred Shares is in accordance with the
documents and instruments governing such Plan; (b) whether the ownership of
Preferred Shares is solely in the interest of Plan participants and
beneficiaries and otherwise consistent with the fiduciary's responsibilities and
in compliance with the requirements of Part 4 of Title I of ERISA, including, in
particular, the diversification, prudence and liquidity requirements of Section
404 of ERISA and the prohibited transaction provisions of Section 406 of ERISA
and Section 4975 of the Code; (c) whether the Company's assets are treated as
assets of the Plan; and (d) the need to value the assets of the Plan annually.
In addition, the fiduciary of an individual retirement account under Section 408
of the Code (an "IRA") considering the purchase of Preferred Shares should
consider whether the ownership of Preferred Shares would result in a non-exempt
prohibited transaction under Section 4975 of the Code.
The fiduciary investment considerations summarized below provide a general
discussion that does not include all of the fiduciary investment considerations
relevant to Plans and, where indicated, IRAs. This summary is based on the
current provisions of ERISA and the Code and regulations and rulings thereunder,
and may be changed (perhaps adversely and with retroactive effect) by future
legislative, administrative or judicial actions. PLANS AND IRAS THAT ARE
PROSPECTIVE PURCHASERS OF PREFERRED SHARES SHOULD CONSULT WITH AND RELY UPON
THEIR OWN ADVISORS IN EVALUATING THESE MATTERS IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
PLAN ASSET REGULATION
Under Department of Labor ("DOL") regulations governing what constitutes
the assets of a Plan or IRA ("Plan Assets") for purposes of ERISA and the
related prohibited transaction provisions of the Code (the "Plan Asset
Regulation," 29 C.F.R. ss. 2510.3-101), when a Plan or IRA makes an equity
investment in another entity, the underlying assets of the entity will not be
considered Plan Assets if the equity interest is a "publicly-offered security."
For purposes of the Plan Asset Regulation, a "publicly-offered security" is
a security that is (a) "freely transferable," (b) part of a class of securities
that is "widely held," and (c) sold to the Plan or IRA as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and part of a class of securities that is registered under
the Exchange Act within 120 days (or such later time as may be allowed by the
SEC) after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. The Preferred Shares will be registered
under the Securities Act and the Exchange Act within the time periods specified
in the Plan Asset Regulation.
The Plan Asset Regulation provides that a security is "widely held" only if
it is a part of the class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the control of
the issuer. The Company expects the Series B Preferred Shares to be "widely
held" upon the completion of the Offering.
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The Plan Asset Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The Plan Asset Regulation further provides
that when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with the Preferred Shares, certain restrictions
ordinarily will not, alone or in combination, affect the finding that such
securities are "freely transferable." The Company believes that any restrictions
imposed on the transfer of the Preferred Shares are limited to the restrictions
on transfer generally permitted under the Plan Asset Regulation and are not
likely to result in the failure of the Series B Preferred Shares to be "freely
transferable."
A Plan should not acquire or hold the Preferred Shares if the Company's
underlying assets will be treated as the assets of such Plan. However, the
Company believes that under the Plan Asset Regulation the Series B Preferred
Shares should be treated as "publicly-offered securities" and, accordingly, the
underlying assets of the Company should not be considered to be assets of any
Plan or IRA investing in the Series B Preferred Shares.
EFFECT OF PLAN ASSET STATUS
ERISA generally requires that the assets of a Plan be held in trust and
that the trustee, or an investment manager (within the meaning of Section 3(38)
of ERISA), have exclusive authority and discretion to manage and control the
assets of the Plan. As discussed above, the assets of the Company under current
law do not appear likely to be assets of the Plans receiving Series B Preferred
Shares as a result of the Offering. However, if the assets of the Company were
deemed to be assets of the Plans under ERISA, certain directors and officers of
the Company might be deemed fiduciaries with respect to the Plans that invest in
the Company and the prudence and other fiduciary standards set forth in ERISA
would apply to them and to all investments.
If the assets of the Company were deemed to be Plan Assets, transactions
between the Company and parties in interest or disqualified persons with respect
to the investing Plan or IRA could be prohibited transactions unless a statutory
or administrative exemption is available. In addition, investment authority
would also have been improperly delegated to such fiduciaries, and, under
certain circumstances, Plan fiduciaries who make the decision to invest in the
Preferred Shares could be liable as co-fiduciaries for actions taken by the
Company that do not conform to the ERISA standards for investments under Part 4
of Title I of ERISA.
PROHIBITED TRANSACTIONS
Section 406 of ERISA provides that Plan fiduciaries are prohibited from
causing the Plan to engage in certain types of transactions. Section 406(a)
prohibits a fiduciary from knowingly causing a Plan to engage directly or
indirectly in, among other things: (a) a sale or exchange, or leasing, of
property with a party in interest; (b) a loan or other extension of credit with
a party in interest; (c) a transaction involving the furnishing of goods,
services or facilities with a party in interest; or (d) a transaction involving
the transfer of Plan Assets to, or use of Plan Assets by or for the benefit of,
a party in interest. Additionally, Section 406 prohibits a Plan fiduciary from
dealing with Plan Assets in its own interest or for its own account, from acting
in any capacity in any transaction involving the Plan on behalf of a party (or
representing a party) whose interests are adverse to the interests of the Plan,
and from receiving any consideration for its own account from any party dealing
with the Plan in connection with a transaction involving Plan Assets. Similar
provisions in Section 4975 of the Code apply to transactions between
disqualified persons and Plans and IRAs and result in the imposition of excise
taxes on such disqualified persons.
If a prohibited transaction has occurred, Plan fiduciaries involved in the
transaction could be required to (a) undo the transaction, (b) restore to the
Plan any profit realized on the transaction and (c) make good to the Plan any
loss suffered by it as a result of the transaction. In addition, parties in
interest or disqualified persons would be required to pay excise taxes or
penalties.
If the investment constituted a prohibited transaction under Section
408(e)(2) of the Code by reason of the Company engaging in a prohibited
transaction with the individual who established an IRA or his or her
beneficiary, the IRA would lose its tax-exempt status. The other penalties for
prohibited transactions would not apply.
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Thus, the acquisition of the Preferred Shares by a Plan could result in a
prohibited transaction if an Underwriter, the Company, Webster Bank or any of
their affiliates is a party in interest or disqualified person with respect to
the Plan. Any such prohibited transaction could be treated as exempt under ERISA
and the Code if the Preferred Shares were acquired pursuant to and in accordance
with one or more "class exemptions" issued by the Department of Labor, such as
Prohibited Transaction Class Exemption ("PTCE") 75-1 (an exemption for certain
transactions involving employee benefit plans and broker-dealers (such as the
Underwriters), reporting dealers, and banks), PTCE 84-14 (an exemption for
certain transactions determined by an independent qualified professional asset
manager), PTCE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts), PTCE 91-38 (an exemption for certain
transactions involving bank collective investment funds), PTCE 95-60 (an
exemption for certain transactions involving an insurance company's general
account) and PTCE 96-23 (an exemption for certain transactions determined by a
qualifying in-house asset manager).
A Plan should not acquire the Preferred Shares pursuant to the Offering if
such acquisition will constitute a non-exempt prohibited transaction.
UNRELATED BUSINESS TAXABLE INCOME
Plan fiduciaries should also consider the consequences of holding more than
10% of the Preferred Shares if the Company is "predominantly held" by qualified
trusts. See "Federal Income Tax Consequences -- Taxation of Tax-Exempt
Stockholders of the Company."
INFORMATION REGARDING WEBSTER AND WEBSTER BANK
Webster is the savings and loan holding company of Webster Bank, and as
such, its primary business is the business of Webster Bank. Webster is subject
to the informational requirements of the Exchange Act, and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information can be obtained at prescribed rates from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, such reports, proxy statements and other information filed by Webster
may be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the SEC's Web
site is (http://www.sec.gov). Webster's common stock is traded on the Nasdaq
Stock Market. Reports, proxy statements and other information concerning Webster
can be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company, Webster Bank, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Keefe, Bruyette & Woods, Inc.
(the "Underwriters"), the Company has agreed to sell to the Underwriters, and
each of the Underwriters has severally agreed to purchase, the number of
Preferred Shares set forth opposite its name below.
NUMBER OF SERIES A NUMBER OF SERIES B
UNDERWRITERS PREFERRED SHARES PREFERRED SHARES
- ------------------------------------- -------------------- -------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ...........
Keefe, Bruyette & Woods, Inc. ......
------- ----------
Total ........................... 40,000 1,000,000
======= ==========
In the Purchase Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Preferred Shares
being sold pursuant to the Purchase Agreement if any are purchased.
The Underwriters have advised the Company that they propose initially to
offer the Series A Preferred Shares directly to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial public offering of
the Series A Preferred Shares, the public offering price, concession and
discount may be changed.
The Underwriters have advised the Company that they propose initially to
offer the Series B Preferred Shares directly to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial public offering of
the Series B Preferred Shares, the public offering price, concession and
discount may be changed.
In the Purchase Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company has agreed that for a period of 90 days from the date of this
Prospectus it will not, without the prior written consent of Merrill Lynch,
directly or indirectly, offer, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of any Preferred Shares or securities of the
Company which are substantially similar to or convertible into or exchangeable
for Preferred Shares.
The Series B Preferred Shares have been approved for inclusion in the
Nasdaq Stock Market. Prior to the Offering, there has been no public market for
the Series B Preferred Shares. The Underwriters have advised the Company that
they intend to make a market in the Series B Preferred Shares prior to the
commencement of trading on the Nasdaq Stock Market. The Underwriters will have
no obligation to make a market in the Series B Preferred Shares, however, and
may cease market making activities, if commenced, at any time.
In connection with the Offering, the rules of the SEC permit the
Underwriters to engage in certain transactions that stabilize the price of the
Preferred Shares. Such transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Preferred Shares.
If the Underwriters create a short position in the Preferred Shares in
connection with the Offering (i.e., if they sell more Preferred Shares than are
set forth on the cover page of this Prospectus), the Underwriters may reduce
that short position by purchasing Preferred Shares in the open market.
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The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Preferred Shares in the
open market to reduce the Underwriters' short position or to stabilize the price
of the Preferred Shares, they may reclaim the amount of the selling concession
from the selling group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters 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 Shares. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment banking services to
affiliates of the Company, for which such Underwriters or their affiliates have
received or will receive customary fees and commissions.
EXPERTS
The financial statements of Webster Preferred Capital Corporation as of
June 30, 1997 and for the period March 17, 1997 (date of inception) to June 30,
1997, included in this Prospectus, have been so included in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing in this Prospectus and given upon the authority of said firm as
experts in accounting and auditing.
RATINGS
The Series A Preferred Shares will be rated ____ by S&P and _____ by Fitch
IBCA and the Series B Preferred Shares will be rated _____ by S&P and _____ by
Fitch IBCA. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. No person is obligated to maintain any rating on
the Preferred Shares, and, accordingly, there can be no assurance that the
respective ratings assigned to the Preferred Shares upon initial issuance will
not be lowered or withdrawn by the assigning rating organization at any time
thereafter.
LEGAL MATTERS
The validity of the Preferred Shares offered hereby will be passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain tax matters
described under "Federal Income Tax Consequences" will be passed upon for the
Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by Brown
& Wood LLP, New York, New York.
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GLOSSARY
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date plus .25%.
"Advisor" means Webster Bank in its role as advisor under the Advisory
Agreement.
"Advisory Agreement" means the Advisory Service Agreement, made as of
October 20, 1997, between Webster Bank and the Company.
"Applicable Par Redemption Date" means January 15, 2001 with respect to the
Series A Preferred Shares and January 15, 2003 with respect to the Series B
Preferred Shares.
"ARM" or "adjustable rate mortgage" means a Mortgage Loan with an interest
rate that is typically tied to an index (such as the interest rate on United
States Treasury Bills) and is adjustable periodically. ARMs are typically
subject to lifetime interest rate caps and/or periodic interest rate caps.
"Board of Directors" means the board of directors of the Company.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a day on which banking institutions in New York City
are authorized or required by law or executive order to close.
"By-Laws" means the Amended and Restated By-Laws of the Company.
"Certificate of Incorporation" means the Amended and Restated Certificate
of Incorporation of the Company.
"Commercial Mortgage Loans" means whole loans secured by a first mortgage
or deed of trust on a commercial real estate property or a multi-family
property.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Webster Preferred Capital Corporation, a Connecticut
corporation.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Company obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the period
from the date of redemption through the Applicable Par Redemption Date that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate fixed-income securities
of comparable maturity for such remaining period.
"Connecticut Corporation Law" means the Connecticut Business Corporation
Act, as amended, as in effect from time to time or any successor statute
thereto.
"Derby" means Derby Savings Bank.
"DOL" means the United States Department of Labor.
"Eagle" means Eagle Financial Corp., a Delaware corporation.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Fitch IBCA" means Fitch IBCA, Inc.
"Five or Fewer Test" means the Code requirement that no more than 50% of
the value of the Company's outstanding shares of capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than the
first year) or during a proportionate part of a shorter taxable year.
"GAAP" means generally accepted accounting principles.
"GNMA" means the Government National Mortgage Association.
"Gross Margin" means, with respect to a Residential Mortgage Loan that is
an ARM, the applicable fixed percentage which is added to the applicable index
to calculate the current interest rate paid by the borrower of the adjustable
rate Residential Mortgage Loan (without taking into account any interest rate
caps or minimum interest rates). Gross Margin is inapplicable to fixed rate
Residential Mortgage Loans.
"Interested Shareholder" generally means any person (other than the
corporation or any of its subsidiaries) who beneficially owns, directly or
indirectly, 10% or more of the voting power of the outstanding shares of voting
stock of a corporation; any person who is an affiliate of the corporation and at
any time within the two years immediately prior to the date in question
beneficially owned 10% or more of the voting power of the then outstanding
shares of voting stock; or generally an affiliate or associate of an interested
shareholder.
"IRA" means an individual retirement account under Section 408 of the Code.
"IRS" means the Internal Revenue Service.
"Loan-to-Value Ratio" means, with respect to any Mortgage Loan, the ratio
(expressed as a percentage) of the current principal amount of such Mortgage
Loan to the lesser of (i) the appraised value at origination of the underlying
mortgaged property and (ii) if the Mortgage Loan was made to finance the
acquisition of property, the purchase price of the mortgaged property.
"Make Whole Amount" means that amount which is equal to the greater of (x)
100% of the liquidation preference of the Series A Preferred Shares or the
Series B Preferred Shares, as the case may be, to be redeemed or (y) the sum, as
determined by a Quotation Agent, of the present values of the remaining
scheduled payments of dividends on such Preferred Shares to the Applicable Par
Redemption Date, discounted to the redemption date on a quarterly basis
(assuming a 360-day year consisting of 12 30-day months) at the Adjusted
Treasury Rate, plus, in the case of each of clauses (x) and (y), accrued and
unpaid dividends thereon, if any, to the date of redemption.
"Mortgage Assets" means real estate mortgage assets, including but not
limited to Residential Mortgage Loans, Mortgage-Backed Securities and Commercial
Mortgage Loans.
"Mortgage-Backed Securities" means securities rated at least AA by at least
one nationally recognized independent rating organization at the time of
purchase by the Company, or representing interests in or obligations backed by
pools of Mortgage Loans issued or guaranteed by Fannie Mae, FHLMC and GNMA.
"Mortgage Loans" means whole loans secured by single family (one to four
units) residential real estate properties or by commercial real estate
properties.
"Nasdaq Stock Market" means The Nasdaq Stock Market's National Market Tier.
61
<PAGE>
"1997 Act" means the Taxpayer Relief Act of 1997.
"National Association of Securities Dealers" means the National Association
of Securities Dealers, Inc.
"Non-U.S. Stockholders" means holders of Preferred Shares that, for
purposes of United States federal income taxation, are not U.S. Stockholders.
"Offering" means the offering of Series A Preferred Shares and Series B
Preferred Shares pursuant to this Prospectus.
"One Hundred Persons Test" means the Code requirement that the capital
stock of the Company must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year or during a proportionate part of a shorter
taxable year.
"OREO" means other real estate owned.
"OTS" means the Office of Thrift Supervision.
"Ownership Limit" means the provision in the Company's Certificate of
Incorporation limiting any natural person or entity from owning more than $5,000
Series B Preferred Shares.
"People's" means People's Savings Bank & Trust.
"Plan" means a qualified profit-sharing, pension or stock bonus plan,
including a plan for self-employed individuals and their employees or any other
employee benefit plan subject to ERISA, a collective investment fund or separate
account in which such plans invest and any other investor using assets that are
treated as the assets of an employee benefit plan subject to ERISA.
"Plan Asset Regulation" means the DOL regulations governing what
constitutes the assets of a Plan or IRA for purposes of ERISA and the related
prohibited transaction provisions of the Code, 29 C.F.R. Sec. 2510.3-101.
"Plan Assets" means the assets of a Plan or IRA for purposes of ERISA.
"Preferred Shares" means the Series A Preferred Shares and the Series B
Preferred Shares offered hereby.
"Preferred Stock" means the preferred stock, par value $1.00 per share, of
the Company.
"Prospectus" means this prospectus, as the same may be amended or
supplemented.
"PTCE" means a Prohibited Transaction Class Exemption.
"Purchase Agreement" means the Purchase Agreement among the Company,
Webster Bank and the Underwriters.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company. "Reference Treasury Dealer" means a nationally-recognized U.S.
government securities dealer in New York, New York selected by the Company.
"Rate Adjustment Date" means, with respect to any ARM, a date on which the
interest rate on such ARM adjusts.
"Rating Agencies" means S&P and Fitch IBCA.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 5:00 p.m., New York,
New York time, on the third Business Day preceding such redemption date.
"Registration Statement" means the registration statement filed by the
Company with the SEC on Form S-11 under the Securities Act with respect to the
Preferred Shares.
62
<PAGE>
"REIT" means a real estate investment trust as defined pursuant to Section
856 of the Code, or any successor provisions thereof.
"REIT taxable income" shall have the meaning set forth in "Federal Income
Tax Consequences -- Requirements for Qualifications as a REIT -- Annual
Distribution Requirements."
"Residential Mortgage Loan" means a whole loan secured by a first mortgage
or deed of trust on a single family (one to four units) residential real estate
property.
"S&P" means Standard & Poor's Ratings Group.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Early Redemption Price" has the meaning set forth in "Description
of Preferred Shares -- Series A and Series B Early Redemption."
"Series A Preferred Shares" means the shares of Series A % Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Company offered
hereby.
"Series B Early Redemption Price" has the meaning set forth in in
"Description of Preferred Shares -- Series A and Series B Early Redemption."
"Series B Preferred Shares" means the shares of Series B % Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Company offered
hereby.
"Servicer" means Webster Bank in its role as servicer under the Servicing
Agreement.
"Servicing Agreement" means the Master Service Agreement, dated March 17,
1997, between Webster Bank and the Company, pursuant to which Webster Bank
services the Mortgage Loans owned by the Company.
"Tax Event" means the receipt by the Company of an opinion of a nationally
recognized law firm experienced in such matters to the effect that, as a result
of (i) any amendment to, clarification of, or change (including any announced
prospective change) in, the laws or treaties (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (ii) any judicial decision, official administrative
pronouncement, published or private ruling, regulatory procedure, notice or
announcement (including any notice or announcement of intent to adopt such
procedures or regulations) ("Administrative Action") or (iii) any amendment to,
clarification of, or change in the official position or the interpretation of
such Administrative Action or judicial decision or any interpretation or
pronouncement that provides for a position with respect to such Administrative
Action or judicial decision that differs from the theretofore generally accepted
position, in each case, by any legislative body, court, governmental authority
or regulatory body, irrespective of the manner in which such amendment,
clarification or change is made known, which amendment, clarification, or change
is effective or such pronouncement or decision is announced on or after the date
of issuance of the Preferred Shares, there is a substantial risk that (a)
dividends paid or to be paid by the Company with respect to the capital stock of
the Company are not, or will not be, fully deductible by the Company for United
States federal income tax purposes, (b) the Company is, or will be, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges or (c) dividends received or to be received by Webster Bank from the
Company are not, or will not be, fully deductible by Webster Bank for
Connecticut corporation business tax purposes.
"Treasury Regulations" means the income tax regulations promulgated under
the Code.
"UBTI" means unrelated business taxable income.
"Underwriters" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Keefe, Bruyette & Woods, Inc., the Underwriters to whom the Company will sell
the Preferred Shares pursuant to the terms of the Purchase Agreement.
63
<PAGE>
"U.S. Stockholder" means a holder of Preferred Shares who (for United
States federal income tax purposes) (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, (iii) is an estate the income of which is subject to United States
federal income taxation regardless of its source or (iv) is a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust.
"U.S. Treasury Securities" means any obligations issued by the United
States and backed by the full faith and credit of the United States which are
not zero coupon securities, but which may include such zero coupon securities
having a maturity of less than one year that are sold at a discount from their
face amount.
"Webster" means Webster Financial Corporation, a Delaware corporation and
the parent of Webster Bank.
"Webster Bank" means Webster Bank, a federally chartered and federally
insured savings bank, and the parent of the Company.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
WEBSTER PREFERRED CAPITAL CORPORATION
PAGE
----
Statement of Condition at September 30, 1997 (unaudited) ............... F-2
Statements of Income for the Three Months ended September 30, 1997 and for
the Period from March 17, 1997 (Date of Inception) to September 30, 1997
(unaudited) ........................................................... F-3
Statement of Shareholder's Equity for the Period from March 17, 1997 (Date
of Inception) to September 30, 1997 (unaudited) ....................... F-4
Statement of Cash Flows for the Period from March 17, 1997 (Date of
Inception) to September 30, 1997 (unaudited) .......................... F-5
Notes to Financial Statements .......................................... F-6
Independent Auditors' Report ........................................... F-10
Statement of Condition at June 30, 1997 ................................ F-11
Statement of Income for the Period from March 17, 1997 (Date of Inception)
to June 30, 1997. .................................................... F-12
Statement of Shareholder's Equity for the Period from March 17, 1997 (Date
of Inception) to June 30, 1997 ........................................ F-13
Statement of Cash Flows for the Period from March 17, 1997 (Date of
Inception) to June 30, 1997 ........................................... F-14
Notes to Financial Statements .......................................... F-15
F-1
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF CONDITION - UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1997
-----------------
<S> <C>
Assets:
Cash ............................................................... $ 12,942
Residential Mortgage Loans .......................................... 627,159
Allowance for Loan Losses .......................................... (1,538)
---------
Total Loans, Net (Note 2) ....................................... 625,621
Accrued Interest Receivable ....................................... 3,935
Prepaid Expenses and Other Assets (Note 3) ........................ 101
---------
Total Assets ................................................... $ 642,599
=========
Liabilities and Shareholder's Equity:
Accrued Dividend Payable .......................................... $ 108
Accrued Expenses and Other Liabilities .............................. 284
---------
Total Liabilities ................................................ 392
Shareholder's Equity: (Note 4)
10% Cumulative Non-Convertible Preferred Stock ($1,000 stated value)
Authorized -- 2,000 shares
Issued -- 2,000 shares at September 30, 1997 ..................... 2,000
Common Stock, par value $.01 per share:
Authorized -- 1,000 shares
Issued -- 100 shares at September 30, 1997 ..................... 1
Paid in Capital ................................................ 615,021
Retained Earnings ................................................ 25,185
---------
Total Shareholder's Equity ....................................... 642,207
---------
Total Liabilities and Shareholder's Equity ..................... $ 642,599
=========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
THREE MONTHS MARCH 17, 1997
ENDED (DATE OF INCEPTION)
SEPTEMBER 30, 1997 TO SEPTEMBER 30, 1997
-------------------- ----------------------
<S> <C> <C>
Interest Income:
Loans ................................................ $ 11,921 $ 25,671
Less: Service Fees (Note 5) ........................ (131) (268)
--------- ---------
Total Net Interest Income ........................... 11,790 25,403
Provision for Loan Losses ........................... -- --
--------- ---------
Net Interest Income After Provision for Loan Losses 11,790 25,403
--------- ---------
Noninterest Expenses:
Advisory Fee Expense (Note 6) ........................ 38 90
Amortization of Start-up Costs ..................... 7 12
Other Noninterest Expenses ........................... 6 8
--------- ---------
Total Noninterest Expenses ........................ 51 110
Income Before Taxes ................................. 11,739 25,293
Income Taxes (Note 7) .............................. -- --
--------- ---------
Net Income .......................................... 11,739 25,293
Preferred Stock Dividends ........................... 50 108
--------- ---------
Net Income Available to Common Shareholder ......... $ 11,689 $ 25,185
========= =========
Net Income per Common Share ........................ $ 116,890 $ 251,850
========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF SHAREHOLDER'S EQUITY - UNAUDITED
FOR THE PERIOD FROM MARCH 17, 1997
(DATE OF INCEPTION) TO SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED COMMON PAID IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 17, 1997 ........................... $ -- $-- $ -- $ -- $ --
Contribution by Webster Bank ..................... 2,000 1 615,021 -- 617,022
Net Income ....................................... -- -- -- 13,554 13,554
Dividends Paid or Accrued - Preferred Stock ...... -- -- -- (58) (58)
-------- ---- --------- -------- --------
Balance, June 30, 1997 ........................... 2,000 1 615,021 13,496 630,518
Net Income ....................................... -- -- -- 11,739 11,739
Dividends Paid or Accrued - Preferred Stock ...... -- -- -- (50) (50)
-------- ---- --------- -------- --------
Balance, September 30, 1997 ..................... $ 2,000 $ 1 $615,021 $ 25,185 $642,207
======== ==== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 17, 1997
(DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
----------------------
<S> <C>
Operating Activities:
Net Income .................................................................. $ 25,293
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating
Activities:
Increase in Accrued Interest Receivable .................................... (3,935)
Increase in Accrued Liabilities .......................................... 284
Increase in Prepaid Expenses and Other Assets .............................. (101)
Amortization of Deferred Fees ............................................. (9)
Amortization of Mortgage Premium .......................................... 251
----------
Net Cash Provided by Operating Activities ................................. 21,783
----------
Investing Activities:
Purchase of Loans ......................................................... (60,330)
Principal Repayments of Loans ............................................. 51,488
----------
Net Cash Used by Investing Activities .................................... (8,842)
----------
Financing Activities:
Investment from Webster Bank ................................................ 1
----------
Net Cash Provided by Financing Activities ................................. 1
----------
Increase in Cash and Cash Equivalents ....................................... 12,942
Cash and Cash Equivalents at Beginning of Period ........................... --
----------
Cash and Cash Equivalents at End of Period ................................. $ 12,942
==========
Supplemental Disclosures:
Income Taxes Paid ......................................................... $ --
Interest Paid ............................................................ --
Supplemental Schedule of Financing Activity:
Contribution of Mortgage Assets, net by Webster Bank
In Exchange for 100 Shares of Common Stock and
2,000 Shares of 10% Cumulative Non-Convertible Preferred Stock ......... 617,022
</TABLE>
See accompanying notes to financial statements .
F-5
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BUSINESS
Webster Preferred Capital Corporation ("the Company") is a Connecticut
corporation incorporated in March 1997 and a wholly owned subsidiary of Webster
Bank. The Company was organized to provide a cost-effective means of raising
funds, including equity capital, on a consolidated basis for Webster Financial
Corporation. The Company will acquire, hold and manage real estate mortgage
assets ("Mortgage Assets"). In March 1997, Webster Bank contributed
approximately $617.0 million of Mortgage Assets, net as part of the formation of
the Company. As of September 30, 1997, all of the Mortgage Assets owned by the
Company are whole loans secured by first mortgages or deeds of trusts on single
family (one to four unit) residential real estate properties ("Residential
Mortgage Loans"). Although the Company may acquire and hold a variety of
Mortgage Assets, its present intention is to acquire only Residential Mortgage
Loans and certain mortgage-backed securities. As of September 30, 1997,
approximately 34.4% of the Company's Residential Mortgage Loans are fixed rate
loans and approximately 65.6% are adjustable rate loans.
The Company intends to elect to be treated as a Real Estate Investment
Trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"),
and will generally not be subject to federal income tax to the extent that it
distributes its earnings to its stockholders and maintains its qualification as
a REIT. All of the shares of the Company's Common Stock, par value $0.01 per
share, are owned by Webster Bank, which is a federally chartered and federally
insured savings bank. Webster Bank has indicated to the Company that, for as
long as any Preferred Shares are outstanding, Webster Bank intends to maintain
direct ownership of 100% of the outstanding Common Stock of the Company.
B) BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheets
and revenues and expenses for the periods presented. The actual results of the
Company could differ from those estimates. Material estimates that are
susceptible to near term changes include the determination of the allowance for
loan losses.
C) ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, current and anticipated
economic conditions and other pertinent factors which, in management's judgment,
deserve current recognition in estimating loan losses.
Management believes that the allowance for loan losses is adequate. While
management believes it uses the best available information to recognize losses
on loans, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process of Webster Bank, periodically may review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance for loan losses based on judgments
different from those of management.
D) FORECLOSED PROPERTIES
Foreclosed properties consist of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed
properties are reported at the lower of fair value less estimated selling
expenses or cost with an allowance for losses to provide for declines in value.
Operating expenses are charged to current period earnings and gains and losses
upon disposition are reflected in the statements of income when realized.
F-6
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
E) LOANS
Loans are stated at the principal amounts outstanding. Interest on loans is
credited to income as earned based on the rate applied to principal amounts
outstanding. Interest which is more than 90 days past due is not accrued. Such
interest ultimately collected, if any, is credited to income in the period
received.
F) STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers cash on
hand and in banks to be cash equivalents.
NOTE 2: RESIDENTIAL MORTGAGE LOANS
CARRYING
AMOUNT
---------------
(In Thousands)
Residential Mortgage Loans:
Fixed Rate 15 yr Loans ........................ $ 54,165
Fixed Rate 20 yr Loans ........................ 1,679
Fixed Rate 25 yr Loans ........................ 831
Fixed Rate 30 yr Loans ........................ 158,690
---------
Total Fixed Rate Loans ........................ 215,365
---------
Variable Rate 15 yr Loans ..................... 4,929
Variable Rate 20 yr Loans ..................... 3,655
Variable Rate 25 yr Loans ..................... 8,247
Variable Rate 30 yr Loans ..................... 393,193
---------
Total Variable Rate Loans ..................... 410,024
---------
Total Residential Mortgage Loans ............... 625,389
Premiums and Deferred Fees on Loans, Net ...... 1,770
Less Allowance for Loan Losses ............... (1,538)
---------
Residential Mortgage Loans, Net ............ $ 625,621
=========
In March 1997, Webster Bank contributed approximately $617.0 million of
Mortgage Assets, net as part of the formation of the Company. The $617.0 million
consisted of $215.8 million of fixed rate loans and $401.3 million of variable
rate loans, net of premiums, deferred fees on loans and an allowance for loan
losses. Loans purchased in the quarter ending September 30, 1997 totaled $34.8
million, which consisted of $5.0 million of fixed rate loans and $29.8 million
of variable rate loans.
The following table sets forth certain information regarding the Company's
loans accounted for on a nonaccrual basis at September 30, 1997. The Company had
no real estate acquired through foreclosure at that date.
SEPTEMBER 30, 1997
-------------------
(In Thousands)
Residential Mortgage Loans Accounted for on a Nonaccrual
Basis ................................................ $ 1,115
Real Estate Acquired Through Foreclosure ............... --
--------
Total ................................................ $ 1,115
========
F-7
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
The Company's Residential Mortgage Loans are exempt from the disclosure
provisions of the Statement of Financial Accounting Standard ("SFAS") No.114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
whereby large groups of smaller balance loans, are collectively evaluated for
impairment.
A detail of the change in the allowance for loan losses for the period
ending September, 30 1997 follows:
FOR THE PERIOD FROM
MARCH 17, 1997
(DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
----------------------
(In Thousands)
Balance at Beginning of Period ......... $ --
Acquired Allowance for Loan Losses ...... 1,544
Provisions Charged to Operations ......... --
Charge-offs ........................... (6)
Recoveries .............................. --
--------
Balance at End of Period ............ $ 1,538
========
NOTE 3: PREPAID EXPENSES
Prepaid expenses represent organization costs which were incurred during
the formation of the Company. These expenses are being amortized over periods of
3 and 5 years.
NOTE 4: SHAREHOLDER'S EQUITY
The Company has authorized 1,000 shares of $.01 par value common stock and
2,000 shares of $.01 par value ($1,000 stated value) 10% cumulative
nonconvertible preferred stock. On March 17, 1997, Webster Bank contributed
$617.0 million of Mortgage Assets, net in exchange for 100 shares of common
stock and 2,000 shares of preferred stock.
NOTE 5: SERVICING
The mortgage loans owned by the Company are serviced by Webster Bank
pursuant to the terms of the Servicing Agreement. Webster Bank in its role as
Servicer under the terms of the Servicing Agreement is herein referred to as the
"Servicer". The Servicer will receive fees at an annual rate of (i) 8 basis
points for fixed rate loan servicing and collection, (ii) 8 basis points for
variable rate loan servicing and collection and (iii) 5 basis points for all
other services to be provided, in each case based on the daily outstanding
balances of all the Company's loans for which the Servicer is responsible.
The Servicer is entitled to retain any late payment charges, prepayment
fees, penalties and assumption fees collected in connection with Mortgage Loans
serviced by it. The Servicer receives the benefit, if any, derived from interest
earned on collected principal and interest payments between the date of
collection and the date of remittance to the Company and from interest earned on
tax and insurance impound funds with respect to Mortgage Loans serviced by it.
At the end of each calendar month, the Servicer is required to invoice the
Company for all fees and charges due to the Servicer.
NOTE 6: ADVISORY SERVICES
Advisory services are being provided pursuant to an agreement with Webster
Bank to provide the Company with the following types of services: administer the
day-to-day operations, monitor the credit quality of the real-estate mortgage
assets, advise with respect to the acquisition, management, financing,
F-8
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
and disposition of real estate mortgage assets and provide the necessary
executive administration, human resource, accounting and control, technical
support, record keeping, copying, telephone, mailing and distribution. The
agreement also provides for investment and funds management services.
Operating expenses outside the scope of the agreement are paid directly by
Webster Preferred Capital Corporation. Such expenses include but are not limited
to the following: fees for third party consultants, attorneys, and external
auditors and any other expenses incurred that are not directly related to the
agreement.
NOTE 7: INCOME TAXES
The Company intends to elect to be treated as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1997, and believes that its organization and proposed method of operation will
enable it to meet the requirements for qualification as a REIT. As a REIT, the
Company generally will not be subject to federal income tax on net income and
capital gains that it distributes to the holders of its Common Stock and
Preferred Stock. Therefore, no provision for federal income taxes has been
included in the accompanying financial statements.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distributes
to stockholders at least 95% of its "REIT taxable income" (not including capital
gains and certain items of non-cash income). If the Company fails to qualify as
a REIT in any taxable year, it will be subject to federal income tax at regular
corporate rates.
F-9
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholder
Webster Preferred Capital Corporation
Waterbury, Connecticut:
We have audited the accompanying statement of condition of Webster Preferred
Capital Corporation (a wholly-owned subsidiary of Webster Bank) as of June 30,
1997, and the related statements of income, shareholder's equity, and cash flows
for the period March 17, 1997 (date of inception) to June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Webster Preferred Capital
Corporation as of June 30, 1997, and the results of its operations and its cash
flows for the period March 17, 1997 (date of inception) to June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
October 15, 1997
Hartford, Connecticut
F-10
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-----------------
<S> <C>
Assets:
Cash ............................................................... $ 13,415
Residential Mortgage Loans ....................................... 615,063
Allowance for Loan Losses .......................................... (1,544)
--------
Total Loans, Net (Note 2) ....................................... 613,519
Accrued Interest Receivable ....................................... 3,751
Prepaid Expenses and Other Assets (Note 3) ........................ 107
--------
Total Assets ................................................... $630,792
========
Liabilities and Shareholders' Equity:
Accrued Dividend Payable .......................................... $ 58
Accrued Expenses and Other Liabilities ........................... 216
--------
Total Liabilities ................................................ 274
Shareholder's Equity: (Note 4)
10% Cumulative Non-Convertible Preferred Stock ($1,000 stated value)
Authorized -- 2,000 shares
Issued -- 2,000 shares at June 30, 1997 ........................ 2,000
Common Stock, par value $.01 per share:
Authorized -- 1,000 shares
Issued -- 100 shares at June 30, 1997 ........................... 1
Paid in Capital ................................................... 615,021
Retained Earnings ................................................ 13,496
--------
Total Shareholder's Equity .................................... 630,518
--------
Total Liabilities and Shareholder's Equity ..................... $630,792
========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF INCOME
FOR THE PERIOD FROM MARCH 17, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE PERIOD
FROM MARCH 17, 1997
(DATE OF INCEPTION)
TO JUNE 30, 1997
--------------------
Interest Income:
Loans ................................................ $ 13,750
Less: Service Fees (Note 5) ........................... (137)
--------
Total Net Interest Income ........................... 13,613
Provision for Loan Losses .............................. --
--------
Net Interest Income After Provision for Loan Losses ... 13,613
--------
Noninterest Expenses:
Advisory Fee Expense (Note 6) ........................ 52
Amortization of Start-up Costs ........................ 6
Other Noninterest Expenses ........................... 1
--------
Total Noninterest Expenses ........................... 59
Income Before Taxes .................................... 13,554
Income Taxes (Note 7) ................................. --
--------
Net Income ............................................. 13,554
Preferred Stock Dividends .............................. 58
--------
Net Income Available to Common Shareholder ............ $ 13,496
========
Net Income per Common Share ........................... $134,960
========
See accompanying notes to financial statements.
F-12
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM MARCH 17, 1997
(DATE OF INCEPTION) TO JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED COMMON PAID IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 17, 1997 ........................ $ -- $-- $ -- $ -- $ --
Contribution by Webster Bank .................. 2,000 1 615,021 -- 617,022
Net Income .................................... -- -- -- 13,554 13,554
Dividends Paid or Accrued-Preferred Stock ...... -- -- -- (58) (58)
------- ---- --------- ------- --------
Balance, June 30, 1997 ........................ $2,000 $ 1 $615,021 $13,496 $630,518
======= ==== ========= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 17, 1997
(DATE OF INCEPTION)
TO JUNE 30, 1997
--------------------
<S> <C>
Operating Activities:
Net Income ............................................................ $ 13,554
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by
Operating Activities:
Increase in Accrued Interest Receivable ........................... (3,751)
Increase in Accrued Liabilities .................................... 216
Increase in Prepaid Expenses and Other Assets ..................... (107)
Amortization of Deferred Fees ....................................... 24
Amortization of Mortgage Premium .................................... 125
---------
Net Cash Provided by Operating Activities .............................. 10,061
---------
Investing Activities:
Purchase of Loans ...................................................... (25,028)
Principal Repayments of Loans .......................................... 28,381
---------
Net Cash Provided by Investing Activities ........................... 3,353
---------
Financing Activities:
Investment from Webster Bank .......................................... 1
---------
Net Cash Provided by Financing Activities ........................... 1
---------
Increase in Cash and Cash Equivalents ................................. 13,415
Cash and Cash Equivalents at Beginning of Period ........................ --
---------
Cash and Cash Equivalents at End of Period .............................. $ 13,415
=========
Supplemental Disclosures:
Income Taxes paid ...................................................... $ --
Interest Paid ......................................................... --
Supplemental Schedule of Financing Activity:
Contribution of Mortgage Assets, net by Webster Bank In Exchange for 100
Shares of Common Stock and 2,000 Shares of 10% Cumulative Non-
Convertible Preferred Stock .......................................... 617,022
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BUSINESS
Webster Preferred Capital Corporation ("the Company") is a Connecticut
corporation incorporated in March 1997 and a wholly owned subsidiary of Webster
Bank. The Company was organized to provide a cost-effective means of raising
funds, including equity capital, on a consolidated basis for Webster Financial
Corporation. The Company will acquire, hold and manage real estate mortgage
assets ("Mortgage Assets"). In March 1997, Webster Bank contributed
approximately $617.0 million of Mortgage Assets, net as part of the formation of
the Company. As of June 30, 1997, all of the Mortgage Assets owned by the
Company are whole loans secured by first mortgages or deeds of trusts on single
family (one to four unit) residential real estate properties ("Residential
Mortgage Loans"). Although the Company may acquire and hold a variety of
Mortgage Assets, its present intention is to acquire only Residential Mortgage
Loans and certain mortgage-backed securities. As of June 30, 1997, approximately
35.4% of the Company's Residential Mortgage Loans are fixed rate loans and
approximately 64.6% are adjustable rate loans.
The Company intends to elect to be treated as a Real Estate Investment
Trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"),
and will generally not be subject to federal income tax to the extent that it
distributes its earnings to its stockholders and maintains its qualification as
a REIT. All of the shares of the Company's Common Stock, par value $0.01 per
share, are owned by Webster Bank, which is a federally chartered and federally
insured savings bank. Webster Bank has indicated to the Company that, for as
long as any Preferred Shares are outstanding, Webster Bank intends to maintain
direct ownership of 100% of the outstanding Common Stock of the Company.
B) BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheets
and revenues and expenses for the periods presented. The actual results of the
Company could differ from those estimates. Material estimates that are
susceptible to near term changes include the determination of the allowance for
loan losses.
C) ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, current and anticipated
economic conditions and other pertinent factors which, in management's judgment,
deserve current recognition in estimating loan losses.
Management believes that the allowance for loan losses is adequate. While
management believes it uses the best available information to recognize losses
on loans, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process of Webster Bank, periodically may review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance for loan losses based on judgments
different from those of management.
D) FORECLOSED PROPERTIES
Foreclosed properties consist of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed
properties are reported at the lower of fair value less estimated selling
expenses or cost with an allowance for losses to provide for declines in value.
Operating expenses are charged to current period earnings and gains and losses
upon disposition are reflected in the statements of income when realized.
F-15
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
E) LOANS
Loans are stated at the principal amounts outstanding. Interest on loans is
credited to income as earned based on the rate applied to principal amounts
outstanding. Interest which is more than 90 days past due is not accrued. Such
interest ultimately collected, if any, is credited to income in the period
received.
F) STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers cash on
hand and in banks to be cash equivalents.
NOTE 2: RESIDENTIAL MORTGAGE LOANS
AT JUNE 30, 1997
-----------------------
CARRYING
AMOUNT FAIR VALUE
--------- -----------
(In Thousands)
Residential Mortgage Loans:
Fixed Rate 15 yr Loans ........................ $ 51,676 $ 51,615
Fixed Rate 20 yr Loans ........................ 1,632 1,636
Fixed Rate 25 yr Loans ........................ 835 828
Fixed Rate 30 yr Loans ........................ 162,884 162,045
-------- ---------
Total Fixed Rate Loans ..................... 217,027 216,124
-------- ---------
Variable Rate 15 yr Loans ..................... 4,823 4,882
Variable Rate 20 yr Loans ..................... 2,977 3,022
Variable Rate 25 yr Loans ..................... 7,975 8,129
Variable Rate 30 yr Loans ..................... 380,825 385,938
-------- ---------
Total Variable Rate Loans .................. 396,600 401,971
-------- ---------
Total Residential Mortgage Loans ............... 613,627 $618,095
=========
Premiums and Deferred Fees on Loans, Net ...... 1,436
Less Allowance for Loan Losses ............... (1,544)
--------
Residential Mortgage Loans, Net ............ $613,519
========
In March 1997, Webster Bank contributed $617.0 million of Mortgage Assets,
net as part of the formation of the Company. The $617.0 million consisted of
$215.8 million of fixed rate loans, and $401.3 million of variable rate loans,
net of premiums, deferred fees on loans and an allowance for loan losses.
The following table sets forth certain information regarding the Company's
loans accounted for on a nonacccrual basis at June 30, 1997. The Company had no
real estate acquired through foreclosure at that date.
AT JUNE 30, 1997
-----------------
(In Thousands)
Residential Mortgage Loans accounted for on a nonaccrual basis $633
Real estate acquired through foreclosure .................... --
-----
Total ..................................................... $633
=====
The Company's Residential Mortgage Loans are exempt from the disclosure
provisions of Statement of Financial Accounting Standard ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
whereby large groups of smaller balance loans, are collectively evaluated for
impairment.
F-16
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
SUMMARY OF ESTIMATED FAIR VALUES
In estimating the fair value of residential real estate loans, loans with
similar financial characteristics were classified by type. The types were fixed
rate loans with a maturity of 30, 25, 20, and 15 years and variable rate loans
with a maturity of at 30, 25, 20 and 15 years. The fair value of each category
is calculated by discounting scheduled cash flows through estimated maturity
using market discount rates. Adjustments were made to reflect credit and rate
risks inherent in the portfolio.
The calculation of fair value estimates of financial instruments is
dependent upon certain subjective assumptions and involves significant
uncertainties, resulting in variability in estimates with changes in
assumptions. Potential taxes and other expenses that would be incurred in an
actual sale or settlement are not reflected in the amounts disclosed. Fair value
estimates are not intended to reflect the liquidation value of the financial
instruments.
NOTE 3: PREPAID EXPENSES
Prepaid expenses represent organization costs which were incurred during
the formation of the company. These expenses are being amortized over periods of
3 and 5 years.
NOTE 4: SHAREHOLDER'S EQUITY
The Company has authorized 1,000 shares of $.01 par value common stock and
2,000 shares of $.01 par value ($1,000 stated value) 10% cumulative
nonconvertible preferred stock. On March 17, 1997, Webster Bank contributed
$617.0 million of Mortgage Assets, net in exchange for 100 shares of common
stock and 2,000 shares of preferred stock.
NOTE 5: SERVICING
The mortgage loans owned by the Company are serviced by Webster Bank
pursuant to the terms of the Servicing Agreement. Webster Bank in its role as
Servicer under the terms of the Servicing Agreement is herein referred to as the
"Servicer". The Servicer will receive fees at an annual rate of (i) 8 basis
points for fixed rate loan servicing and collection, (ii) 8 basis points for
variable rate loan servicing and collection and (iii) 5 basis points for all
other services to be provided, in each case based on the daily outstanding
balances of all the Company's loans for which the Servicer is responsible.
The Servicer will be entitled to retain any late payment charges,
prepayment fees, penalties and assumption fees collected in connection with
Mortgage Loans serviced by it. The Servicer will receive any benefit derived
from interest earned on collected principal and interest payments between the
date of collection and the date of remittance to the Company and from interest
earned on tax and insurance impound funds with respect to Mortgage Loans
serviced by it. At the end of each calendar month, the Servicer is required to
invoice the Company for all fees and charges due to the Servicer.
NOTE 6: ADVISORY SERVICES
Advisory services are being provided pursuant to an agreement with Webster
Bank to provide the Company with the following types of services: administer the
day-to-day operations, monitor the credit quality of the real estate mortgage
assets, advise with respect to the acquisition, management, financing, and
disposition of real estate mortgage assets and provide the necessary executive
administration, human resource, accounting and control, technical support,
record keeping, copying, telephone, mailing and distribution. The agreement also
provides for investment and funds management services.
Operating expenses outside the scope of the agreement will be paid directly
by Webster Preferred Capital Corporation. Such expenses would include but not be
limited to the following: fees for third party consultants, attorneys, external
auditors and any other expenses incurred that are not directly related to the
agreement.
F-17
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
NOTE 7: INCOME TAXES
The Company intends to elect to be treated as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1997, and believes that its organization and proposed method of operation will
enable it to meet the requirements for qualification as a REIT. As a REIT, the
Company generally will not be subject to federal income tax on net income and
capital gains that it distributes to the holders of its Common Stock and
Preferred Stock. Therefore, no provision for federal income taxes has been
included in the accompanying financial statements.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distributes
to stockholders at least 95% of its "REIT taxable income" (not including capital
gains and certain items of non-cash income). If the Company fails to qualify as
a REIT in any taxable year, it will be subject to federal income tax at regular
corporate rates.
F-18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
======================================= ==================================================
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY WEBSTER PREFERRED CAPITAL
THIS PROSPECTUS. IF GIVEN OR MADE, SUCH CORPORATION
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR 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. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO 40,000 SHARES
CHANGE IN THE FACTS SET FORTH IN THIS % CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES A
PROSPECTUS OR IN THE AFFAIRS OF THE (LIQUIDATION PREFERENCE $1,000 PER SHARE)
COMPANY SINCE THE DATE HEREOF.
-------------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information ......... iii
Forward Looking Information ... iii
Prospectus Summary ............ 1
Risk Factors .................. 9
The Company ..................... 14
Webster Bank .................. 15
Conflicts of Interest ......... 16
Use of Proceeds ............... 17 1,000,000 SHARES
Capitalization ............... 17 % CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B
Business and Strategy ......... 18 (LIQUIDATION PREFERENCE $10 PER SHARE)
Selected Financial Data ......... 30
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations .................. 31
Management ..................... 33
Benefits to Webster Bank ...... 35
Description of Preferred Shares 36
Description of Capital Stock of
the Company ................. 42
Federal Income Tax Consequences 44
ERISA Considerations ............ 55 --------------------------------------
Information Regarding Webster
and Webster Bank ............. 57 P R O S P E C T U S
Underwriting .................. 58
Experts ........................ 59 --------------------------------------
Ratings ........................ 59
Legal Matters .................. 59
Glossary ........................ 60
Index to Financial Statements ... F-1
-------------------------------------
UNTIL 1998 (THE 25TH DAY AFTER THE MERRILL LYNCH & CO.
OFFERING DATE, ALL DEALERS EFFECTING KEEFE, BRUYETTE & WOODS, INC.
TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. DECEMBER , 1997
======================================= ==================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fee .................. $ 23,182
Nasdaq application fee ............... 1,000
Printing and Engraving Expenses ...... 150,000
Legal Fees and Expenses ............... 300,000
Accounting Fees and Expenses ......... 100,000
Blue Sky Fees and Expenses ............ 5,000
NASD filing fee ........................ 5,500
Miscellaneous ........................ 15,318
---------
Total .............................. $600,000
=========
- ----------
* To be completed by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
See response to Item 33 below.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
On March 17, 1997, the Company issued 100 shares of Common Stock, par value
$0.01 per share, and 2,000 shares of preferred stock, par value $0.01 per share,
to Webster Bank upon the contribution to the Company by Webster Bank of
approximately $617.0 million of Mortgage Assets, net as part of the formation of
the Company. Prior to the Offering, the Company redeemed the 2,000 shares of
preferred stock issued to Webster Bank. Webster Bank concurrently contributed
the proceeds of that redemption to the Company, which is reflected as a $2
million addition to the paid-in capital account of the Company. In December
1997, the Company and its sole stockholder approved an amended and restated
certificate of incorporation that authorized the issuance of the Series A
Preferred Shares and Series B Preferred Shares with par values of $1.00 per
share. The shares of Common Stock and preferred stock issued to Webster Bank in
March 1997 were issued in reliance upon the exemption from registration under
Section 4(2) of the Securities Act.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 33-770 to 33-778 of the Connecticut Corporation Law set forth
certain circumstances under which directors, officers, employees and agents
shall and may be indemnified against liability that they may incur in their
capacity as such. Because the Company is an operating subsidiary of Webster
Bank, Section 545.121 of the rules and regulations of the OTS also may require
indemnification of directors, officers and employees.
The Certificate of Incorporation of the Company limits to the fullest
extent permitted by the Connecticut Corporation Law the personal liability of
its directors to the Company or its stockholders for monetary damages for breach
of duty as a director.
The Certificate of Incorporation provides that the Company shall indemnify
any director, officer, employee or agent of the Company to the fullest extent
permitted by applicable law, including the Connecticut Corporation Law and if
applicable Section 545.121 of the rules and regulations of OTS. It also provides
that any such indemnification shall continue as to any person who has ceased to
be a
II-1
<PAGE>
director, officer, employee or agent and may inure to the benefit of the heirs,
executors and administrators of such a person. The Certificate of Incorporation
also provides that the Company shall indemnify directors for prior acts or
failure to act.
The By-Laws also empower the Company to purchase and maintain insurance on
behalf of any director, officer, employee or agent of the Company, or any
individual who, while a director, officer, employee or agent of the Company,
serves at the Company's request as a director, officer, partner, trustee,
employee or agent of another domestic or foreign corporation, partnership, joint
venture, trust, employee benefit plan or other entity, against liability
asserted against or incurred by such individual in that capacity or arising out
of such individual's status as a director, officer, employee or agent, whether
or not the Company would have the power to indemnify or advance expenses to any
such individual against the same liability under the Connecticut Corporation
Law.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company 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 Securities
Act and will be governed by the final adjudication of such issue.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not Applicable. See "Use of Proceeds" in Prospectus.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Webster Preferred Capital Corporation
attached to the Prospectus:
Statement of Condition at September 30, 1997 (unaudited)
Statement of Income for the Three Months ended September 30, 1997 and
for the period from March 17, 1997 (Date of Inception) to September
30, 1997 (unaudited)
Statement of Shareholder's Equity for the Period from March 17, 1997
(Date of Inception) to September 30, 1997 (unaudited)
Statement of Cash Flows for the Period from March 17, 1997 (Date of
Inception) to September 30, 1997 (unaudited)
Notes to Financial Statements
Independent Auditors' Report
Statement of Condition at June 30, 1997
Statement of Income for the Period from March 17, 1997 (Date of
Inception) to June 30, 1997
Statement of Shareholder's Equity for the Period from March 17, 1997
(Date of Inception) to June 30, 1997
Statement of Cash Flows for the Period from March 17, 1997 (Date of
Inception) to June 30, 1997
Notes to Financial Statements
II-2
<PAGE>
(b) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
1 Form of Purchase Agreement among the Company, Webster Bank and the
Underwriters.
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.
3.2 Form of Amended and Restated By-Laws of the Company.
4.1 Specimen of certificate representing Series A __% Cumulative Redeemable
Preferred Stock.
4.2 Specimen of certificate representing Series B __ % Cumulative Redeemable
Preferred Stock.
5 Form of opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of that firm.
8 Form of opinion of Hogan & Hartson L.L.P. as to certain tax matters,
including the consent of that firm.
10.1 Mortgage Assignment Agreement, made as of March 17, 1997, by and between
Webster Bank and the Company.*
10.2 Master Service Agreement, dated March 17, 1997, between Webster Bank and
the Company.*
10.3 Form of Advisory Service Agreement, made as of October 20, 1997, by and
between Webster Bank and the Company.
21 Subsidiaries of the Company.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5 and
Exhibit 8).
24 Power of Attorney (incorporated herein by reference from the signature
page of the Registra- tion Statement on Form S-11 filed by the Company
on October 24, 1997).
27 Financial Data Schedule.
- ----------
* Previously filed.
ITEM 37. UNDERTAKINGS.
(a) The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) The undertaking concerning indemnification is included as part of the
response to Item 34.
(c) The Company hereby undertakes that:
(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 Company 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waterbury, State of Connecticut, on December 12,
1997.
WEBSTER PREFERRED CAPITAL CORPORATION
(Issuer)
By: /s/ John V. Brennan
------------------------------------------
John V. Brennan
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 12, 1997.
SIGNATURE TITLE
----------- --------------
/s/ John V. Brennan President and a Director (Principal
- -------------------------------- Executive Officer)
John V. Brennan
/s/ Peter J. Swiatek Vice President and Treasurer (Principal
- -------------------------------- Financial Officer and Principal
Peter J. Swiatek Accounting Officer)
/s/ Ross M. Strickland* Director
- --------------------------------
Ross M. Strickland
/s/ Harriet Munrett Wolfe* Director
- --------------------------------
Harriet Munrett Wolfe
* /s/ Peter J. Swiatek
- -------------------------------------
By: Peter J. Swiatek, as power of attorney
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------
<S> <C>
1 Form of Purchase Agreement among the Company, Webster Bank and the
Underwriters.
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated By-Laws of the Company.
4.1 Specimen of certificate representing Series A ____% Cumulative Redeemable
Preferred Stock.
4.2 Specimen of certificate representing Series B __ % Cumulative Redeemable Pre-
ferred Stock.
5 Form of opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of that firm.
8 Form of opinion of Hogan & Hartson L.L.P. as to certain tax matters, including
the consent of that firm.
10.1 Mortgage Assignment Agreement, made as of March 17, 1997, by and between
Webster Bank and the Company.*
10.2 Master Service Agreement, dated March 17, 1997, between Webster Bank and the
Company.*
10.3 Form of Advisory Service Agreement, made as of October 20, 1997, by
and between Webster Bank and the Company.
21 Subsidiaries of the Company.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5 and Exhibit 8).
24 Power of Attorney (incorporated herein by reference from the signature page of
the Registration Statement on Form S-11 filed by the Company on October 24,
1997).
27 Financial Data Schedule.
</TABLE>
- ----------
* Previously filed.
II-5
EXHIBIT 1
WEBSTER PREFERRED CAPITAL CORPORATION
(a Connecticut corporation)
40,000 Shares
% Cumulative Redeemable Preferred Stock, Series A
(Liquidation Preference $1,000 Per Share)
1,000,000 Shares
% Cumulative Redeemable Preferred Stock, Series B
(Liquidation Preference $10 Per Share)
PURCHASE AGREEMENT
------------------
December , 1997
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
KEEFE, BRUYETTE & WOODS, INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Webster Preferred Capital Corporation, a Connecticut corporation (the
"Company"), hereby confirms its agreement with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Keefe, Bruyette
& Woods, Inc. (collectively, the "Underwriters," which term shall also include
any underwriter substituted as hereinafter provided in Section 10 hereof), with
respect to the issue and sale by the Company and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of
shares of the Company's (i) ___% Cumulative Redeemable Preferred Stock, Series A
(liquidation preference $1,000 per share) (the "Series A Preferred Shares") and
(ii) ___% Cumulative Redeemable Preferred Stock, Series B (liquidation
preference $10 per share) (the "Series B Preferred Shares" and together with the
Series A Preferred Shares, the "Preferred Shares") set forth in Schedule A
hereto. As the organizer of the Company and as an inducement to the Underwriters
to enter into this Agreement, Webster Bank, a federal savings bank
<PAGE>
(the "Bank"), also joins as a party to this Agreement for the purpose of making
certain representations and warranties to the Underwriters as set forth in
Section 1 hereof.
The Company understands that the Underwriters propose to make a public
offering of the Preferred Shares as soon as the Underwriters deem such offering
advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-11, as amended (No. 333-38685),
covering the registration of the Securities under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such prospectus or in such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (i) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (ii) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and schedules thereto at
the time it became effective and including the Rule 430A Information and the
Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the form
first furnished to the Underwriters for use in connection with the offering of
the Securities is herein called the "Prospectus." If Rule 434 is relied on, the
term "Prospectus" shall refer to the preliminary prospectus dated December 15,
1997 together with the Term Sheet and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
2
<PAGE>
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time referred to in Section 2(c) hereof, and agrees with each
Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933
Act and no proceedings for that purpose have been instituted or
are pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the Commission
for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became or become effective and at the Closing Time, the
Registration Statement, the Rule 462(b) Registration Statement and
any amendments and supplements thereto complied and will comply in
all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not 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 not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or
any such amendment or supplement was issued and at the Closing
Time, included or will include an untrue statement of a material
fact or omitted or will 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. If Rule
434 is used, the Company will comply with the requirements of Rule
434 and the Prospectus shall not be "materially different", as
such term is used in Rule 434, from the prospectus included in the
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or
the Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by any Underwriter
expressly for use in the Registration Statement or the Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the
1933 Act, complied when so filed in all material respects with the
1933 Act Regulations and each preliminary prospectus and the
Prospectus delivered to the Underwriters for use in connection
with this offering was identical in all material aspects to the
electronically transmitted copies
3
<PAGE>
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(ii) Independent Accountants. KPMG Peat Marwick LLP, the
accountants who certified the financial statements included in the
Registration Statement, are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements and the
related notes thereto included in the Prospectus present fairly
the financial position of the Company as of the dates indicated
and the results of operations, stockholder=s equity and cash flows
for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis
throughout the periods involved, except as disclosed in the notes
to such financial statements; the supporting schedules, if any,
included in the Prospectus present fairly, in all material
respects, the information required to be stated therein; and the
summary financial data included in the Prospectus present fairly,
in all material respects, the information shown therein and have
been compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change, or
any development involving a prospective material adverse change,
in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or
not arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered into
by the Company, other than those in the ordinary course of
business, which are material with respect to the Company, and (C)
there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good
standing under the laws of the State of Connecticut and has
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under
this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
4
<PAGE>
(vi) No Subsidiaries. The Company has no subsidiaries.
(vii) Capitalization and Authorization. The authorized,
issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement). The
shares of issued and outstanding capital stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable. None of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other
similar rights of any securityholder of the Company. All of the
outstanding shares of common stock, par value $.01 per share, of
the Company (the "Common Stock") are owned by the Bank, free and
clear of any liens, charges or encumbrances.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Description of Common Stock. The Common Stock conforms
to all statements relating thereto contained in the Prospectus and
such description conforms to the rights set forth in the
instruments defining the same.
(x) Authorization and Description of Preferred Shares. The
Preferred Shares have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable; the Preferred Shares
conform to the statements relating thereto contained in the
Prospectus and such description conforms to the provisions of the
Amended and Restated Certificate of Incorporation of the Company
(the "Certificate of Incorporation"); the relative rights,
preferences, interests and powers of the Preferred Shares are as
set forth in the Certificate of Incorporation; no holder of the
Preferred Shares will be subject to personal liability by reason
of being such a holder; and the issuance of the Preferred Shares
is not subject to the preemptive or other similar rights of any
securityholder of the Company.
(xi) Absence of Defaults and Conflicts. The Company is not in
violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or
instrument to which the Company is a party or by which it may be
bound, or to which any of the property or assets of the Company is
subject (collectively, "Agreements and Instruments") except for
such defaults that would not result in a Material Adverse Effect;
and the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein and in
the Registration Statement (including the issuance and sale of the
Preferred Shares
5
<PAGE>
and the use of the proceeds from the sale of the Preferred Shares
as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations
hereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant
to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would
not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or
by-laws of the Company or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, known to
the Company, having jurisdiction over the Company or any of its
assets, properties or operations. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any
note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened, against
or affecting the Company, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
in the reasonable judgment of the Company might result in a
Material Adverse Effect, or which in the reasonable judgment of
the Company might materially and adversely affect the properties
or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company
of its obligations hereunder; the aggregate of all pending legal
or governmental proceedings to which the Company is a party or of
which any of its property or assets is the subject which are not
described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not, in the
reasonable judgment of the Company, result in a Material Adverse
Effect.
(xiii) Authorization of Other Agreements. Each of the
agreements listed in Schedule C hereto has been duly authorized,
executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company and is enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
applicability relating to or affecting the enforcement of
creditors' rights.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto
which have not been so described and filed as required.
6
<PAGE>
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company
of its obligations hereunder, in connection with the offering,
issuance or sale of the Preferred Shares hereunder or the
consummation of the transactions contemplated by this Agreement,
except such as have been already obtained or as may be required
under the 1933 Act or the 1933 Act Regulations or state securities
laws, and except for the filing of the Certificate of
Incorporation with the appropriate agency in the State of
Connecticut.
(xvi) Title to Property. The Company has good and marketable
title to all of its properties, in each case free and clear of all
liens, encumbrances and defects, except such as stated in the
Prospectus or such as do not materially affect the value of such
properties in the aggregate to the Company.
(xvii) Possession of Licenses and Permits. The Company
possesses such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated
by it or proposed to be operated by it as described in the
Prospectus; the Company is in compliance with the terms and
conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, in the
reasonable judgment of the Company, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in
full force and effect would not, in the reasonable judgment of the
Company, have a Material Adverse Effect; and the Company has not
received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling
or finding, would, in the reasonable judgment of the Company,
result in a Material Adverse Effect.
(xviii) Investment Company Act. The Company is not, and upon
the issuance and sale of the Preferred Shares as herein
contemplated and the application of the net proceeds therefrom as
described in the Prospectus 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.
(xix) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
7
<PAGE>
(xx) Agreements. The representations and warranties of the
Company contained in the servicing agreements between the Company
and the Bank are, as of the date hereof and will be as of Closing
Time, true and correct.
(xxi) REIT Qualification. The Company is organized and
carries on its business so as to qualify as a "real estate
investment trust" (a "REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), and no
transaction or other event has occurred which would cause the
Company not to enable it to qualify as a REIT for its current
taxable year or for future taxable years.
(xxii) Lack of Dividend Taxation. Dividends paid or to be
paid by the Company with respect to the capital stock of the
Company are or will be fully deductible by the Company for United
States federal income tax purposes and the dividends received or
to be received by the Bank from the Company are or will be fully
deductible by the Bank for Connecticut corporation income tax
purposes.
(b) Representations and Warranties by the Bank. The Bank represents and warrants
to each Underwriter as of the date hereof and as of the Closing Time referred to
in Section 2(c) hereof, and agrees with each Underwriter as follows:
(i) No Material Adverse Change in Business. Except as
otherwise provided in a report filed pursuant to the Securities
Exchange Act of 1934, as amended (the A1934 Act@), since the
respective dates as of which information is given in the
Prospectus, except as otherwise stated therein, (A) there has been
no material adverse change, or any development involving a
prospective material adverse change, in the condition (financial
or otherwise), earnings, business affairs or business prospects of
the Bank and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, (B)
there have been no transactions entered into by the Bank or any of
its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Bank and its
subsidiaries considered as one enterprise and (C) there has been
no dividend or distribution of any kind declared, paid or made by
the Bank on any class of its capital stock except for quarterly
dividends paid on the Bank's common stock.
(ii) Good Standing of the Bank . The Bank has been duly
organized and is validly existing as a federal savings bank under
the laws of the United States of America with full power
(corporate and other) and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and as presently conducted. The Bank is duly qualified
as a foreign corporation to transact business in all places where
such qualification is necessary or, to the extent not so
qualified, where the failure to obtain such qualification would
not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of
the Bank and its subsidiaries, considered as one
8
<PAGE>
enterprise, whether or not arising in the ordinary course of
business. The Bank is a member in good standing of the Federal
Home Loan Bank of Boston, and the Bank's deposit accounts are
insured by the Federal Deposit Insurance Corporation (the "FDIC")
to the fullest extent provided under applicable law and the rules
and regulations of the FDIC, and no proceedings for the
termination or revocation of such insurance are pending or, to the
knowledge of the Bank, threatened.
(iii) Good Standing of the Subsidiaries. Each subsidiary of
the Bank has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of
its incorporation, has full power (corporate and other) and
authority to own, lease and operate its properties and conduct its
business as described in the Prospectus and as presently conducted
and is duly qualified as a foreign corporation to transact
business and is in good standing in all places where such
qualification or good standing is necessary or to the extent not
so qualified or not in good standing, where the failure to obtain
such qualification or to be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs or business prospects of the Bank and
its subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification; the activities of the subsidiaries of
the Bank are permitted to subsidiaries of a federal savings bank
under applicable law and the rules and regulations of the Office
of Thrift Supervision (the AOTS@); all of the issued and
outstanding capital stock of each subsidiary of the Bank has been
duly authorized and validly issued and is fully paid and
non-assessable and is owned, directly or through other
subsidiaries of the Bank, by the Bank; and all of the capital
stock of each subsidiary of the Bank that is owned by the Bank,
directly or through other subsidiaries of the Bank, is owned free
and clear of any pledge, lien, encumbrance, claim or equity.
(iv) Capitalization. All of the outstanding shares of common
stock of the Bank have been duly authorized and validly issued to
and are owned of record by Webster Financial Corporation, a
Delaware corporation, are fully paid and nonassessable, and are
not subject to any pledges, liens, security interests, charges,
claims, equities and encumbrances of any kind.
(v) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Bank.
(vi) Absence of Defaults and Conflicts. Neither the Bank nor
any of its subsidiaries is in violation of its federal stock
charter or certificate of incorporation, as the case may be, or
by-laws; nor is the Bank or any of its subsidiaries in default in
the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture,
mortgage,
9
<PAGE>
loan agreement, note, lease or other agreement or instrument to
which the Bank or any of its subsidiaries is a party or by which
it or any of them or any of their properties may be bound, except
for such defaults which would not, in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs or business prospects of the Bank and
its subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business; and the execution and
delivery of this Agreement, the incurrence of the obligations
herein set forth and the consummation of the transactions herein
contemplated have been duly authorized by all necessary corporate
action of the Bank and will not result in any violation of the
federal stock charter or by-laws of the Bank or the certificate of
incorporation or by-laws of any of its subsidiaries, and do not
and will not contravene or conflict with, or constitute a default
under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Bank or any of
its subsidiaries under, (A) any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument to
which the Bank or any of its subsidiaries is a party or by which
it or any of them or any of their properties may be bound, except
for breaches or defaults which would not, in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs or business prospects of the Bank and
its subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (B) any existing
applicable law, rule or regulation or (C) any judgment, order or
decree of, or agreement with, any government or governmental
instrumentality or court, domestic or foreign, having jurisdiction
over the Bank or any of its subsidiaries or any of their
respective properties.
(vii) Regulatory Compliance. Except as disclosed in the
Prospectus, the Bank and its subsidiaries are conducting their
respective businesses in compliance in all material respects with
all laws, rules, regulations, decisions, directives and orders
(including, without limitation, all regulations and orders of, or
agreements with, the OTS and the FDIC) applicable to them. There
is no action, suit, investigation or proceeding before or by any
government, governmental instrumentality or court, domestic or
foreign, now pending or, to the knowledge of the Bank, threatened
against or affecting the Bank or any of its subsidiaries (A) that
is required to be disclosed in the Prospectus and not disclosed
therein, (B) that could result in any material adverse change in
the condition (financial or otherwise), earnings, business affairs
or business prospects of the Bank and its subsidiaries, considered
as one enterprise, (C) that could materially and adversely affect
the properties, assets or leasehold interests thereof or (D) that
could adversely affect the consummation of the transactions
contemplated in this Agreement. All pending legal or governmental
proceedings to which the Bank or any of its subsidiaries is a
party or of which any of their property is the subject, which are
not described in the Prospectus, including ordinary routine
litigation incidental to their respective businesses, would not
have a material adverse effect
10
<PAGE>
on the condition (financial or otherwise), earnings, business
affairs or business prospects of the Bank and its subsidiaries,
considered as one enterprise.
(viii) Absence of Labor Dispute. No labor dispute with the
employees of the Bank or any subsidiary exists or, to the
knowledge of the Bank, is imminent, which may reasonably be
expected to result in a material adverse change in the condition
(financial or otherwise), earnings, business affairs or business
prospects of the Bank and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of
business.
(ix) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Bank of
its obligations hereunder, in connection with the offering,
issuance or sale of the Preferred Shares hereunder or the
consummation of the transactions contemplated by this Agreement
except such as have been already obtained or as may be required
under applicable law, or the rules and regulations of the OTS, the
rules and regulations of the FDIC or state securities laws.
(x) Possession of Licenses and Permits. The Bank and its
subsidiaries possess Governmental Licenses issued by the
appropriate federal, state, local or foreign regulatory agencies
or bodies necessary to conduct the business now operated by each
of them; the Bank and its subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not, singly or in the
aggregate, in the reasonable judgment of the Bank, result in a
material adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Bank and
its subsidiaries, considered as one enterprise; all of the
Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and
effect would not, in the reasonable judgment of the Bank, result
in a material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
the Bank and its subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business; and
neither the Bank nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification
of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result, in the reasonable judgment of the Bank, in
a material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
the Bank and its subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business.
(xi) Title to Property. The Bank and its subsidiaries have
good and marketable title to all of their respective properties,
in each case free and clear of
11
<PAGE>
all liens, encumbrances and defects, except such as stated in the
Prospectus or such as do not materially affect the value of such
properties in the aggregate to the Bank and its subsidiaries
considered as one enterprise.
(xii) Bank Ownership of Company Common Stock. At the Closing
Time and so long as any Preferred Shares remain outstanding, the
Bank will be the beneficial owner of 100% of the outstanding
Common Stock of the Company.
(xiii) Intellectual Property. The Bank and its subsidiaries
own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") presently
employed by them in connection with the business now operated by
them or reasonably necessary in order to conduct such business,
and neither the Bank nor any of its subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the
interest of the Bank or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly
or in the aggregate, in the reasonable judgment of the Bank, is
likely to result in a material adverse effect in the condition
(financial or otherwise), earnings, business affairs or business
prospects of the Bank and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of
business.
(xiv) Authorization of Other Agreements. Each of the
agreements listed in Schedule C hereto to which the Bank is a
party has been duly authorized, executed and delivered by the Bank
and constitutes a valid and legally binding obligation of the Bank
and is enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar
laws of general applicability relating to or affecting the
enforcement of creditors' rights.
(xv) Agreements. The representations and warranties of the
Bank contained in the mortgage assignment agreement between the
Company and the Bank and the servicing agreements between the
Company and the Bank are, as of the date hereof and will be as of
Closing Time, true and correct.
(c) Officer's Certificates. Any certificate signed by any
officer of the Company or the Bank delivered to the Underwriters or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Company or the Bank, as applicable, to each Underwriter as to the matters
covered thereby.
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SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Preferred Shares. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B for each of the
Series A Preferred Shares and the Series B Preferred Shares, the number of
Series A Preferred Shares and Series B Preferred Shares set forth in Schedule A
opposite the name of such Underwriter, plus any additional number of Series A
Preferred Shares and Series B Preferred Shares which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Preferred Shares shall be made at the offices of Brown &
Wood LLP at One World Trade Center, New York, New York 10048, or at such other
place as shall be agreed upon by the Underwriters and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriters and the Company (such time and date of payment and delivery being
herein called "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Underwriters for the respective accounts of the Underwriters of certificates
for the Preferred Shares to be purchased by them. It is understood that each
Underwriter has authorized the Underwriters, for its account, to accept delivery
of, receipt for, and make payment of the purchase price for the Preferred Shares
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Preferred Shares to be purchased by any
Underwriter whose funds have not been received by the Closing Time but such
payment shall not relieve such Underwriter from its obligations hereunder.
(c) Denominations; Registration. Certificates for the Preferred
Shares shall be in such denominations and registered in such names as the
Underwriters may request in writing at least one full business day before the
Closing Time. The certificates for the Preferred Shares will be made available
for examination and packaging by the Underwriters in The City of New York not
later than 10:00 A.M. (Eastern time) on the business day prior to the Closing
Time.
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SECTION 3. Covenants.
---------
The Company covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Underwriters immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall 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 by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, (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
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes, and (v) of any action
by the OTS that would have a material adverse effect on the transactions
contemplated by this Agreement. The Company will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems necessary
to ascertain promptly whether the form of prospectus transmitted for filing
under Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company will make
every reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Underwriters
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Underwriters with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document without the consent of the Underwriters
or counsel for the Underwriters, which consent shall not be unreasonably
withheld.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Underwriters and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Underwriters, without charge, a conformed
copy of the Registration Statement as originally filed and of each amendment
thereto (without exhibits). The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter
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reasonably requested, and the Company hereby consents to the use of such copies
for purposes permitted by the 1933 Act. The Company will furnish to each
Underwriter, without charge, during the period when the Prospectus is required
to be delivered under the 1933 Act or the 1934 Act such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Preferred Shares 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 Shares,
any event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters or for the Company, to
amend the Registration Statement or amend or supplement the Prospectus in order
that the Prospectus will not include any untrue statements of a material fact or
omit to state a material fact 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 opinion of 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 statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company will
furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Preferred Shares
for offering and sale under the applicable securities laws of such states and
other jurisdictions as the Underwriters may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
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. In each
jurisdiction in which the Preferred Shares have been so qualified, the Company
will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
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(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Preferred Shares in the manner specified in
the Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Series B Preferred Shares on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market of companies that have securities that
are traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.
(j) Restriction on Sale of Preferred Shares. During a period of 90
days from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any Preferred Shares or any securities
convertible into or exercisable or exchangeable for Preferred Shares or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Preferred Shares, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of the
Preferred Shares or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the Preferred Shares being sold pursuant to this
Agreement.
(k) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods and to the extent required by the 1934 Act and
the rules and regulations of the Commission thereunder.
(l) REIT Qualification. Except to the extent that a Tax Event (as
defined in the Prospectus) shall have occurred, the Company will, in a timely
manner, make the elections and take the procedural steps described in the
Prospectus under the heading "Federal Income Tax Consequences" to meet the
requirements to qualify, for its taxable year ending December 31, 1997, as a
REIT under the Code, as is in effect on the date hereof and use every reasonable
effort to do so.
(m) No Objection. The National Association of Securities Dealers,
Inc. (the "NASD") has confirmed that it has not raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangement.
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SECTION 4. Payment of Expenses.
(a) Expenses. The Company covenants and agrees with the several
Underwriters to pay or cause to be paid all expenses incident to the performance
of their obligations under this Agreement, including (i) the preparation,
printing and filing of the Registration Statement (including financial
statements and exhibits) as originally filed and of each amendment thereto, (ii)
the preparation, printing and delivery to the Underwriters of this Agreement and
such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Preferred Shares, (iii) the
preparation, issuance and delivery of the certificates for the Preferred Shares
to the Underwriters, including any stock or other transfer taxes and any stamp
or other duties payable upon the sale, issuance or delivery of the Preferred
Shares to the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Preferred
Shares under securities laws in accordance with the provisions of Section 3(f)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Preferred Shares, (ix) any fees charged
by securities rating services for rating the Preferred Shares, (x) the filing
fees incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by NASD of the terms of the sale of
the Preferred Shares, and (xi) the fees and expenses incurred in connection with
the listing of the Series B Preferred Shares on the Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by
the Underwriters in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company covenants and agrees with the Underwriters to
reimburse the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Bank contained in Section
1 hereof or in certificates of any officer of the Company delivered pursuant to
the provisions hereof, to the performance by the Company of its covenants and
other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A
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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)
or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have
been filed with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of Closing
Time, of Hogan & Hartson L.L.P., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each Underwriter.
(c) Opinion of Counsel for Bank. At Closing Time, the Underwriters
shall have received the favorable opinion, dated as of Closing Time, of Hogan &
Hartson L.L.P., counsel for the Bank, in form and substance satisfactory to
counsel for the Underwriters, together with signed or reproduced copies of such
letter for each Underwriter.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of Closing
Time, of Brown & Wood LLP, counsel for the Underwriters. In giving such opinion
such counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the United
States, upon the opinions of counsel satisfactory to the Underwriters. 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 and certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change, or any
development involving a material adverse change, in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company or the Bank and its subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business, and the Underwriters shall
have received a certificate of the Chairman and Chief Executive Officer, the
President or a Vice President and of the chief financial or chief accounting
officer of each of the Company and the Bank, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change with respect to
the Company or the Bank and its subsidiaries considered as one enterprise, as
the case may be, (ii) the representations and warranties in Sections l(a) and/or
l(b) hereof, as the case may be, are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (iii) the Company or
the Bank, as the case may be, have complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission, and (v) there
has been no action by the OTS that would have a material adverse effect on the
transactions contemplated by this Agreement.
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(f) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the Underwriters shall have received from KPMG Peat Marwick LLP
a letter dated such date, in form and substance satisfactory to the
Underwriters, together with signed or reproduced copies of such letter for each
Underwriter containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the Underwriters
shall have received from KPMG Peat Marwick LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (f) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.
(h) Maintenance of Rating. At Closing Time, the Series A Preferred
Shares shall be rated ___ by Fitch IBCA, Inc. ("Fitch IBCA") and "___" by
Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. ("S&P"), and
the Series B Preferred Shares shall be rated by ___ Fitch IBCA and "___" by S&P,
and the Company shall have delivered to the Underwriters a letter dated the
Closing Time, from each such rating agency, or other evidence satisfactory to
the Underwriters, confirming that the Preferred Shares have such ratings; and
since the date of this Agreement, there shall not have occurred a downgrading in
the rating assigned to the Preferred Shares or any of the Company's securities
by any "nationally recognized statistical rating agency," as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and
no such organization shall have publicly announced that it has under
surveillance or review its rating of the Preferred Shares or any of the
Company's securities.
(i) Approval of Listing. At Closing Time, the Series B Preferred
Shares shall have been approved for inclusion on the Nasdaq National Market,
subject only to official notice of issuance.
(j) Additional Documents. At Closing Time, counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Preferred Shares as herein contemplated, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Company
and the Bank in connection with the issuance and sale of the Preferred Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and counsel for the Underwriters.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Underwriters by notice to the Company at any
time at or prior to Closing Time and such termination shall be without liability
of any party to any other party except as provided in Section
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4 and except that Sections 1, 6, 7, and 8 shall survive any such termination and
remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company ; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not
apply to any (x) loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by any Underwriter expressly for use in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) or (y) with respect to any preliminary
prospectus to the extent that any such loss, liability, claim, damage or expense
of an Underwriter results solely from the fact that such Underwriter sold
Preferred Shares to a person as to whom the Company shall establish that there
was not sent by commercially reasonable means, at or prior to the written
confirmation of such
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sale, a copy of the Prospectus in any case where such delivery is required by
the 1933 Act Regulations, if the Company has previously furnished copies thereof
in sufficient quantity to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission of a
material fact contained in the preliminary prospectus that was corrected in the
Prospectus.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, 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), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such 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).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
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(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement; provided that an indemnifying party shall not be
liable for any such settlement effected without its consent if such indemnifying
party (1) reimburses such indemnified party in accordance with such request to
the extent it considers such request to be reasonable and (2) provides written
notice to the indemnified party substantiating the unpaid balance as
unreasonable, in each case prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Preferred
Shares pursuant to this Agreement or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Preferred
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Preferred Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Preferred Shares as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
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The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Preferred Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Preferred Shares set forth opposite their respective
names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
----------------------------------------------------------
All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Bank submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company or the Bank, and shall survive
delivery of the Preferred Shares to the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change, or any development involving a prospective
23
<PAGE>
material adverse change, in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company or the Bank and
its subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of Merrill Lynch, impracticable to market
the Preferred Shares or to enforce contracts for the sale of the Preferred
Shares, or (iii) if trading in any securities of the Company has been suspended
or materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) if a banking
moratorium has been declared by either Federal, New York or Connecticut
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7, and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by one or more of the Underwriters.
------------------------------------------
If one or more of the Underwriters shall fail at Closing Time to
purchase any of the Preferred Shares which it or they are obligated to purchase
under this Agreement (the "Defaulted Preferred Shares"), the Underwriters shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Preferred Shares in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Underwriters shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Preferred Shares does not exceed
10% of the number of Preferred Shares to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Preferred Shares exceeds 10% of the
number of Preferred Shares to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
24
<PAGE>
In the event of any such default which does not result in a termination
of this Agreement, either the Underwriters or the Company shall have the right
to postpone Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Underwriters shall be directed to
Merrill Lynch at North Tower, World Financial Center, New York, New York
10281-1201, attention of Henry Michaels; notices to the Bank shall be directed
to it at Webster Plaza, 145 Bank Street, Waterbury, Connecticut 06702, attention
of John V. Brennan; and notices to the Company shall be directed to it at 145
Bank Street, Waterbury, Connecticut 06702, attention of John V. Brennan.
SECTION 12. Parties.
-------
This Agreement shall inure to the benefit of and be binding upon the
Underwriters, the Company and the Bank and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Underwriters, the Company
and the Bank and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Bank and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Preferred Shares from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME.
------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN,
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect Of Headings.
------------------
The Article and Section headings herein are for convenience only and
shall not affect the construction hereof.
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to each of the Company and the Bank a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement between the Underwriters and the Company and the Bank
in accordance with its terms.
Very truly yours,
WEBSTER PREFERRED CAPITAL
CORPORATION
By
Name:
Title:
WEBSTER BANK
By
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
KEEFE, BRUYETTE & WOODS, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
--------------------------------
Authorized Signatory
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Preferred Shares
Series A Preferred Series B Preferred
Shares Shares
------ ------
Underwriters
------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................
Keefe, Bruyette & Woods, Inc..............
Total...........................
27
</TABLE>
<PAGE>
SCHEDULE B
WEBSTER PREFERRED CAPITAL CORPORATION
40,000 Shares
____% Cumulative Redeemable Preferred Stock, Series A
(Liquidation Preference $1,000 Per Share)
1,000,000 Shares
____% Cumulative Redeemable Preferred Stock, Series B
(Liquidation Preference $10 Per Share)
1. The initial public offering price per share for the Series A
Preferred Shares, determined as provided in said Section 2, shall be $____. The
initial public offering price per share for the Series B Preferred Shares,
determined as provided for in said Section 2, shall be $____.
2. The purchase price per share for the Series A Preferred Shares to be
paid by the Underwriters shall be $___, being an amount equal to the initial
public offering price set forth above less $___ per share. The purchase price
per share for the Series B Preferred Shares to be paid by the Underwriters shall
be $____, being an amount equal to the initial public offering price set forth
above less $___ per share.
3. The dividend rate on the Series A Preferred Shares will be ____ %
per annum. The dividend rate on the Series B Preferred Shares will be ____% per
annum.
28
<PAGE>
SCHEDULE C
LIST OF OTHER AGREEMENTS ENTERED INTO BY THE COMPANY
1. Mortgage Assignment Agreement, dated as of March 17, 1997, by
and between the Company and the Bank.
2. Master Service Agreement, dated as of March 17, 1997, by and
between the Company and the Bank.
3. Advisory Service Agreement, dated as of October 20 , 1997, by
and between the Company and the Bank.
29
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
WEBSTER PREFERRED CAPITAL CORPORATION
---------------------------------------
Pursuant to Section 33-801 of the
Connecticut Business Corporation Act
---------------------------------------
Webster Preferred Capital Corporation (the "Corporation"), a
corporation organized and existing under the Connecticut Business Corporation
Act, as amended, and having its principal office in the State of Connecticut at
145 Bank Street, Waterbury, Connecticut 06702,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Webster Preferred Capital
Corporation. The Corporation desires to amend and restate its amended and
restated certificate of incorporation as currently in effect.
SECOND: The Corporation's Amended and Restated Certificate of
Incorporation set forth below contains amendments requiring shareholder
approval.
THIRD: This Amended and Restated Certificate of Incorporation was
duly approved in accordance with Sections 33-801 and 33-797 of the Connecticut
Business Corporation Act, as amended, by the Corporation's Board of Directors at
a meeting held on December ___, 1997 and by the sole stockholder of the
Corporation by written consent dated December ___, 1997.
FOURTH: The text of the Corporation's amended and restated
certificate of incorporation as currently in effect is hereby amended and
restated in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Webster Preferred Capital Corporation
(the "Corporation").
-1-
<PAGE>
ARTICLE II
REGISTERED OFFICE AND AGENT; INCORPORATOR
The registered office of the Corporation shall be located at One
Commercial Plaza, Hartford, Connecticut 06103. The registered agent of the
Corporation at such address shall be CT Corporation System. The name of the
Incorporator of the Corporation is Josephina Rotman Childress and the address of
the Incorporator is 53 State Street, Boston, Massachusetts 02109.
ARTICLE III
PURPOSES AND POWERS
The Corporation is being formed to engage in the real estate business
and to engage in any other lawful act or activity for which corporations may be
organized under the Connecticut Business Corporation Act, as amended (the
"Connecticut Business Corporation Act"). The foregoing purposes shall be in no
way limited or restricted by reference to, or inference from, the terms of any
other clause of this Amended and Restated Certificate of Incorporation (this
"Certificate of Incorporation"), and each shall be regarded as independent. The
foregoing purposes are also to be construed as powers of the Corporation, and
shall be in addition to and not in limitation of the general powers of
corporations under the laws of the State of Connecticut. However,
notwithstanding the foregoing and any other provision of this Certificate of
Incorporation, the Corporation may be operated solely for the purpose of
performing functions which Webster Bank is empowered to perform directly.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1 AUTHORIZED SHARES.
The total number of shares which the Corporation shall have the
authority to issue is 3,001,000 shares, consisting of (i) 1,000 shares of common
stock, par value $.01 per share (the "Common Stock"), and (ii) 3,000,000 shares
of serial preferred stock, par value $1.00 per share (the "Preferred Stock").
Subject to the limitations prescribed by applicable law and this
Certificate of Incorporation, the Board of Directors, or if then constituted, a
duly authorized committee thereof, is authorized to issue, from authorized but
unissued shares of capital stock of the Corporation, Preferred Stock in such
series as the Board of Directors may establish, from time to time, and to
determine the preferences, limitations and relative rights of each series
thereof (if any).
-2-
<PAGE>
A certificate of amendment, which shall be effective without
shareholder action, relating to each series of Preferred Stock shall set forth
the preferences and other terms of such series, including without limitation the
following: (1) the title and stated value, if any, of such series, (2) the
number of shares of such series and the liquidation preference per share of such
series; (3) the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such series; (4) whether such series is
cumulative or not, and if cumulative, the date from which dividends on such
series shall accumulate; (5) the provision for a sinking fund, if any, for such
series; (6) the provision for redemption, if applicable, of such series; (7) the
relative ranking and preferences of such series as to any limitations on
issuance of any series of Preferred Stock ranking senior to or on a parity with
each series of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Corporation; (8)
any voting rights of such series; and (9) any other specific terms, preferences,
rights, limitations or restrictions of such series.
The terms, limitations and relative rights and preferences of each
class of shares and series thereof (if any) are as follows:
SECTION 4.2 COMMON STOCK.
4.2.1 DIVIDEND RIGHTS
---------------
Subject to Section 4.3.1 hereof, the Board of Directors may declare
dividends on the Common Stock payable out of assets of the Corporation legally
available therefor, and the holders of the Common Stock shall be entitled to
receive such dividends if, when and as declared by the Board of Directors of the
Corporation.
4.2.2 LIQUIDATION RIGHTS
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of, or any distribution of assets of the Corporation, after
payment to the holders of all series of the Preferred Stock the full
preferential amounts to which such holders are entitled, the remaining assets of
the Corporation after payment of all debts and liabilities of the Corporation,
shall be distributed to the holders of the Common Stock, according to their
respective shares.
4.2.3 VOTING RIGHTS
-------------
Unless otherwise provided by this Certificate of Incorporation or
applicable law, all right to vote and all voting power incident to the
Corporation's capital stock shall be vested exclusively in the holders of the
Common Stock, subject to the rights of the holders of any series of Preferred
Stock to elect directors under specified circumstances. Each share of Common
Stock shall have one vote on matters to be voted upon by holders of Common
Stock.
-3-
<PAGE>
SECTION 4.3 SERIAL PREFERRED STOCK.
4.3.1 DIVIDEND RIGHTS
---------------
The holders of shares of Preferred Stock shall be entitled to receive
from the assets of the Corporation legally available therefor, if, when and as
declared by the Board of Directors of the Corporation, dividends and, if
applicable, any accrued and unpaid dividends thereon, in accordance with the
respective terms of the series creating such shares of Preferred Stock, before
any dividends shall be declared or paid (other than dividends payable in shares
of stock of the Corporation) on the Common Stock.
4.3.2 LIQUIDATION RIGHTS
------------------
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of, or any distribution of the assets of the Corporation, the
holders of Preferred Stock shall be entitled to be paid the respective
liquidation preference, and if applicable, any accrued and unpaid dividends
thereon, in accordance with the respective terms of the series creating such
shares of Preferred Stock, before any distribution is made to the holders of the
Common Stock.
4.3.3 VOTING RIGHTS
-------------
Except as otherwise specifically provided in this Certificate of
Incorporation or required by applicable law, the holders of the Preferred Stock
shall have no right to vote at any meeting of shareholders or otherwise and
shall not be entitled to notice of any such meeting, except in each case as may
be specifically required by law.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.1 BOARD OF DIRECTORS.
The Board of Directors shall consist of not less than three directors.
Subject to the rights of the holders of any series of Preferred Stock to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time pursuant to resolutions adopted by the Board of Directors of
the Corporation, as provided in the By-Laws.
SECTION 5.2 LIMITATION ON LIABILITY OF DIRECTORS.
The personal liability of a director to the Corporation or the
shareholders of the Corporation for monetary damages for breach of duty as a
director shall be
-4-
<PAGE>
limited to an amount that is not less than the compensation received by the
director for serving the Corporation during the year of the violation if such
breach did not (A) involve a knowing and culpable violation of law by the
director, (B) enable the director or an associate as defined in Section 33-840
of the Connecticut Business Corporation Act, to receive an improper personal
economic gain, (C) show a lack of good faith and a conscious disregard for the
duty of the director to the Corporation, (D) constitute a sustained and
unexcused pattern of inattention that amounted to an abdication of the
director's duty to the Corporation, or (E) create liability under Section 33-757
of the Connecticut Business Corporation Act.
ARTICLE VI
COVENANTS OF THE CORPORATION
The Corporation hereby covenants as follows:
(a) The Corporation shall not file a voluntary petition of bankruptcy
without the approval of two-thirds of the Board of Directors of the Corporation.
(b) The Corporation will: (i) prepare and maintain its financial
statements, transactions, books and records, corporation documents, bank
accounts and other assets separate from those of any other person or entity;
(ii) maintain separate offices through which its business is conducted (except
that the Corporation may lease office space on the premises of Webster Bank as
may be necessary to the Corporation's operations); (iii) be adequately financed
and capitalized as a separate unit in light of the reasonably foreseeable
obligations of a business of its size and character; (iv) maintain an arms'
length relationship with affiliates and any other parties furnishing services to
it; (v) maintain its books, records, resolutions and agreements as official
records; (vi) conduct its business in its own name; (vii) pay its own
liabilities out of its own funds and other assets, (viii) observe all corporate
formalities necessary to maintain its identity as an entity separate and
distinct from Webster Bank, all other affiliates and any other person or entity,
(ix) hold appropriate meetings of its Board of Directors to authorize its
corporate actions; (x) participate in the fair and reasonable allocation of any
and all overhead expenses and other common expenses for facilities, goods or
services provided to multiple entities; (xi) use its own stationery, invoices
and checks; (xii) hold itself out to the public and identify itself as a
separate and distinct entity under its own name and not as a division or part of
any person or entity; and (xiii) hold its assets in its own name.
(c) All borrowings by the Corporation will indicate that Webster Bank
has not guaranteed the debt of the Corporation unless that is, in fact, the
case.
(d) The Company will not: (i) fail to correct any known
misunderstanding regarding its separate identity; (ii) commingle its funds or
other assets with those of
-5-
<PAGE>
any other person or entity; (iii) assume, guarantee or became obligated for the
debts of any affiliate or other entity (other than a subsidiary) or hold out its
credit as being available to satisfy the obligations of any affiliate or other
entity (other than a subsidiary); (iv) acquire obligations or securities of its
shareholders (except for the acquisition by the Corporation of mortgage or
mortgage-related assets from Webster Bank); (v) pledge any of its assets (or
permit any of its assets to be pledged) for the benefit of any other person or
entity; (vi) identify its shareholders or any of its affiliates as a division or
part of it; (vii) engage (either as transferor or transferee) in any material
transaction with any affiliate other than for fair value and on terms similar to
those obtainable in arms' length transactions with unaffiliated parties, or
engage in any transaction with any affiliate involving any intent to hinder,
delay or defraud any person or entity; or (viii) engage in any business activity
other than as permitted by this Certificate of Incorporation.
(e) To the extent that the statements set forth in Sections (b) and (d)
above of this Article VI relate to the separate business operations of the
Corporation and Webster Bank, such statements are qualified to the extent that
Webster Bank, in its capacity as Servicer under the Master Service Agreement
between the Corporation and Webster Bank and as Advisor under the Advisory
Service Agreement between the Corporation and Webster Bank, is authorized to
take, and does take, action on behalf of the Corporation in order properly to
perform its duties and responsibilities under those agreements. Such statements
are also qualified to the extent that for accounting and reporting purposes, the
Corporation may be included in the consolidated financial statements of Webster
Bank or Webster Financial Corporation in accordance with generally accepted
accounting principles.
ARTICLE VII
LIMITATIONS ON OWNERSHIP AND TRANSFER
(A) CERTAIN DEFINITIONS.
-------------------
The following terms shall have the following meanings:
(1) "Acquire" shall mean the acquisition of Beneficial Ownership of
shares of Capital Stock by any means including, without limitation, (i) a
Transfer, (ii) the acquisition of direct ownership of shares by any Person,
including through the exercise of Acquisition Rights or any other option,
warrant, pledge, other security interest or similar right to acquire shares, and
(iii) the acquisition of indirect ownership of shares (taking into account the
constructive ownership rules of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code) by a Person who is an individual within the meaning of
Section 542(a)(2) of the Code, including, without limitation, through the
acquisition by any Person of Acquisition Rights or
-6-
<PAGE>
any option, warrant, pledge, security interest, or similar right to acquire
shares. The term "Acquisition" shall have the correlative meaning.
(2) "Acquisition Rights" shall mean rights to Acquire shares of Capital
Stock pursuant to: (i) exercise of any option to acquire shares of Capital Stock
or (ii) any pledge of shares of Capital Stock.
(3) "Beneficial Ownership" shall mean ownership of shares of Capital
Stock by a Person who is treated or would be treated as an owner of such Capital
Stock either directly or indirectly, or constructively through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
(4) "Capital Stock" shall mean all classes or series of capital stock
of the Corporation including without limitation, the Common Stock and Preferred
Stock.
(5) "Charitable Beneficiary" shall mean one or more beneficiaries of
the Trust as determined pursuant to Section 7(m), each of which shall be an
organization described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the
Code.
(6) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
(7) "Initial Public Offering" means the closing of the sale of shares
of Preferred Stock pursuant to the Corporation's first effective registration
statement for such Preferred Stock, filed under the Securities Act of 1933, as
amended.
(8) "Market Price" shall mean the net asset value per share of Common
Stock or Preferred Stock, as the case may be, as determined in good faith by the
Board of Directors.
(9) "Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of
the Code), a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended; but does not include an underwriter which participates in a public
offering of Capital Stock for a period of 90 days following the purchase by such
underwriter of the Capital Stock, provided that the ownership of Capital Stock
by such underwriter would not result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code, or would otherwise result in
the Corporation failing to qualify as a REIT.
-7-
<PAGE>
(10) "Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which would result in a violation of Section 7(b), the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired shares of Capital Stock if such Transfer had not violated the
provisions of Section 7(b). The Purported Beneficial Transferee and the
Purported Record Transferee may be the same Person.
(11) "Purported Record Transferee" shall mean the Person who would have
been the record holder of the Capital Stock if such Transfer had not violated
the provisions of Section 7(b). The Purported Beneficial Transferee and the
Purported Record Transferee may be the same Person.
(12) "REIT" shall mean a "real estate investment trust" under Section
856 of the Code.
(13) "REIT Provisions of the Code" means Sections 856 through 860 of
the Code and any successor or other provisions of the Code relating to real
estate investment trusts (including provisions as to the attribution of
ownership of beneficial interests therein) and the regulations promulgated
thereunder.
(14) "Restriction Termination Date" shall mean the first day after the
date of the closing of the Initial Public Offering on which the Corporation
determines that is no longer in the best interests of the Corporation to attempt
to, or continue to, qualify as a REIT.
(15) "Transfer" shall mean any sale, transfer, gift, assignment, devise
or other disposition of Capital Stock that results in a change in the record,
Beneficial Ownership of Capital Stock or the right to vote or receive dividends
on Capital Stock (including without limitation (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Capital Stock or the right to vote or receive dividends on Capital Stock or (ii)
the sale, transfer, assignment or other disposition or grant of any Acquisition
Rights or other securities or rights convertible into or exchangeable for
Capital Stock, or the right to vote or receive dividends on Capital Stock),
whether voluntary or involuntary, whether of record, Beneficially or
constructively and whether by operation of law or otherwise.
(16) "Trust" shall mean the trust created pursuant to 7(l) hereof.
(17) "Trustee" shall mean the Person unaffiliated with the Corporation,
or the Purported Beneficial Transferee, that is appointed by the Corporation to
serve as trustee of the Trust.
-8-
<PAGE>
(B) RESTRICTIONS.
------------
During the period commencing on the date of the Initial Public Offering
and prior to the Restriction Termination Date:
(i) No Person shall Acquire any shares of Capital Stock
if, as a result of such Acquisition, the Capital
Stock would be Beneficially Owned by less than 100
Persons (determined without reference to any rules of
attribution); and
(ii) No Person shall Acquire or Beneficially Own any
shares of Capital Stock if, as a result of such
Acquisition or Beneficial Ownership, the
Corporation would be "closely held" within the
meaning of Section 856(h) of the Code (without
regard to whether the purported Acquisition,
Transfer, or other event takes place during the
second half of a taxable year) or otherwise would
result in the corporation failing to qualify as a
REIT.
(C) REMEDIES FOR BREACH.
-------------------
(1) If, notwithstanding the other provisions contained in this Article
VII, there is a purported Transfer, Acquisition, change in the capital structure
of the Corporation or other event (including, without limitation, a change in
the relationship between two or more Persons that causes the application of
Section 544 of the Code, as modified by Section 856(h)), that, if effective,
would result in the violation of one or more of the restrictions or ownership
and transfer described in Section 7(b), then (i) in the case of a Transfer or
Acquisition, that number of shares of Capital Stock purported to be Transferred
or Acquired that otherwise would cause such Person to violate Section 7(b)
(rounded up to the next whole share) shall be automatically transferred to a
Trust for the benefit of a Charitable Beneficiary, as described in Section 7(l)
of this Article VII, effective as of the close of business on the day
immediately prior to the date of such purported Transfer or Acquisition, and
such Person shall acquire no rights in such shares of Capital Stock; (ii) in the
case of any event other than a Transfer or Acquisition (a "Beneficial Ownership
Event"), that number of shares of Capital Stock that would be owned by Persons
(the "Affected Persons") as a result of such Beneficial Ownership Event that
otherwise would violate Section 7(b) (rounded up to the next whole share) shall
be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7(l) of this Article VII, effective as of
the close of business on the day immediately prior to such Beneficial Ownership
Event, and such Affected
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<PAGE>
Person or Persons shall acquire no rights (or have no continuing rights) in such
shares of Capital Stock; or (iii) if the transfer to the Trust described in
either clause (i) or clause (ii) hereof would not be effective for any reason to
prevent any Person from Beneficially Owning Stock in violation of Section 7(b),
then the Transfer, Acquisition, or other Beneficial Ownership Event that would
otherwise cause such Person to violate Section 7(b) shall be void ab initio.
(2) Notwithstanding the other provisions hereof, any Transfer or
Acquisition of shares of Capital Stock that, if effective, would result in the
Capital Stock being beneficially owned by less than 100 Persons (determined
without reference to any rules of attribution) shall be void ab initio, and the
intended transferee shall acquire no rights in such shares of Capital Stock.
(3) In addition to, and without limitation by, subsections (1) and (2)
above, if the Board of Directors or its designees shall at any time determine in
good faith that a Transfer, Acquisition or other event has taken place in
violation of Section 7(b) or that a Person intends to Acquire, has attempted to
Acquire, or may Acquire direct ownership, beneficial ownership (determined
without reference to any rules of attribution) or Beneficial Ownership of any
Stock in violation of Section 7(b), the Board of Directors or its designees
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, but not limited to, causing the
Corporation to refuse to give effect to such Transfer or other event on the
books of the Corporation or instituting proceedings to enjoin such Transfer or
other event; provided, however, that any Transfer or Acquisition (or, in the
case of events other than a Transfer or Acquisition, ownership or Beneficial
Ownership) in violation of Section 7(b) shall automatically result in the
transfer to the Trust described in Section 7(1), irrespective of any action (or
non-action) by the Board of Directors.
(4) Nothing contained in this Section 7(c) shall limit the authority of
the Board of Directors to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders by
preservation of the Corporation's status as a REIT.
(D) NOTICE OF RESTRICTED TRANSFER.
-----------------------------
Any Person who Acquires or attempts or intends to Acquire shares of
Capital Stock in violation of Section 7(b) or any Person who is a transferee in
a Transfer or is otherwise affected by an event other than a Transfer that
results in a violation of Section 7(b), shall immediately give written notice to
the Corporation of such Transfer or other event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer or attempted, intended or
purported Transfer or other event on the Corporation's status as a REIT.
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<PAGE>
(E) OWNERS REQUIRED TO PROVIDE INFORMATION.
--------------------------------------
From the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date:
(1) every stockholder of record of more than 0.5% (or such lower
percentage as required by the Code or regulations promulgated thereunder) of the
number or value of any series of the outstanding Capital Stock of the
Corporation shall, within 30 days after December 31 of each year, give written
notice to the Corporation stating the name and address of such record
stockholder, the number of shares of Capital Stock Beneficially Owned by it, and
a description of how such shares of Capital Stock are held; provided that a
shareholder of record who holds outstanding Capital Stock of the Corporation as
nominee for another person, which other person is required to include in gross
income, for U.S. federal income tax purposes, the dividends received on such
Capital Stock (an "Actual Owner"), shall give written notice to the Corporation
stating the name and address of such Actual Owner and the number of shares of
such Actual Owner with respect to which the stockholder of record is nominee.
(2) every Actual Owner of more than 0.5% (or such lower percentage as
required by the Code or regulations promulgated thereunder) of the number or
value of any series of the outstanding Capital Stock of the Corporation who is
not a stockholder of record of the Corporation, shall within 30 days after
December 31 of each year give written notice to the Corporation stating the name
and address of such Actual Owner, the number of shares of Capital Stock
Beneficially Owned, and a description of how such shares of Capital Stock are
held.
(3) each person who is a Beneficial Owner or constructive owner of
Capital Stock and each Person (including the shareholder of record) who is
holding Capital Stock for a Beneficial Owner or Constructive Owner shall provide
to the Corporation such information as the Corporation may request, in good
faith, in order to determine the Corporation's compliance with the REIT
provisions of the Code.
(F) REMEDIES NOT LIMITED.
--------------------
Nothing contained in this Article VII shall limit the authority of the
Board of Directors to take such other action as it deems necessary or advisable
to protect the Corporation and the interests of its shareholders in preserving
the Corporation's status as a REIT.
(G) AMBIGUITY.
---------
In the case of an ambiguity in the application of any of the
provisions of this Article VII, including any definition contained in Section
7(a), the Board of
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<PAGE>
Directors shall have the power to determine the application of the provisions of
this Article VII with respect to any situation based on the facts known to it.
(H) LEGEND.
------
Each certificate for shares of Capital Stock shall bear substantially
the following legend:
"The shares represented by this certificate are subject to
restrictions on transfer and ownership for the purpose of the
Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as
amended. Subject to certain further restrictions and except as
expressly provided in the Corporation's Amended and Restated
Certificate of Incorporation, no Person may Beneficially Own
shares of Capital Stock of the Corporation if, as a result of
such Acquisition or Beneficial Ownership, the Capital Stock
would be held by less than 100 Persons. Any Person who
Beneficially Owns or attempts to Beneficially Own shares of
Capital Stock in excess of the above limitations must
immediately notify the Corporation, any shares of Capital
Stock so held may be subject to mandatory sale in certain
events, certain purported acquisitions of shares of Capital
Stock in excess of such limitations shall be void ab initio,
and any shares of Capital Stock purported to be Acquired or
Beneficially Owned in excess of such limitation will be
automatically transferred to a Trust for the benefit of a
Charitable Beneficiary. A Person who attempts to Beneficially
Own shares of Capital Stock in violation of the ownership
limitations set forth in Section 7(b) of the Amended and
Restated Certificate of Incorporation of the Corporation shall
have no claim, cause of action, or any other recourse
whatsoever against a transferor of shares. All capitalized
terms in this legend have the meanings defined in the
Corporation's Amended and Restated Certificate of
Incorporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each shareholder who
so requests."
(I) TERMINATION OF REIT STATUS.
--------------------------
The Board of Directors shall take no action to terminate the
Corporation's status as a REIT or to amend the provisions of this Article VII
until such time as (i)
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the Board of Directors adopts a resolution recommending that the Corporation
terminate its status as a REIT or amend this Article VII, as the case may be,
(ii) the Board of Directors presents the resolution at an annual or special
meeting of the stockholders and (iii) such resolution is approved by at least a
majority of all the votes entitled to be cast on the matter.
(J) NASDAQ SETTLEMENT.
-----------------
Nothing in this Article VII shall preclude the settlement of any
transaction with respect to the shares of Capital Stock of the Corporation
entered into through the facilities of The Nasdaq Stock Market's National Market
System or such other securities exchange on which any of the Capital Stock may
then be traded. Any transferee in such a transaction shall be subject to all of
the provisions and limitations set forth in this Article VII.
(K) SEVERABILITY.
------------
If any provision of this Article VII or Section 7(c) or any application
of any such provision is determined to be invalid by any Federal or state court
having jurisdiction over the issue, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.
(L) TRANSFER OF STOCK IN TRUST
--------------------------
(1) Ownership in Trust; Status of Shares Held in Trust. Upon any
purported Transfer (whether or not such Transfer is the result of a transaction
engaged in through the facilities of The Nasdaq Stock Market's National Market
System), Acquisition or other event that results in the transfer of Capital
Stock to a Trust pursuant to Section 7(b) such shares of Capital Stock shall be
deemed to have been transferred to the Trustee in its capacity as Trustee for
the exclusive benefit one or more Charitable Beneficiaries. The Trustee shall be
appointed by the Corporation and shall be a Person unaffiliated with the
Corporation, any Purported Beneficial Transferee or Purported Record Transferee.
Each Charitable Beneficiary shall be designated by the Corporation as provided
in Section 7(m). Shares of Capital Stock so held in Trust shall be issued and
outstanding stock of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
shares of Capital Stock held in Trust by the Trustee, shall have no rights to
dividends and shall not possess any rights to vote or other rights attributable
to the shares held in Trust. The Purported Record Transferee and the Purported
Beneficial Transferee of shares of Capital Stock in violation of Section 7(b)
shall have no claim, cause of action, or any other recourse whatsoever against
the purported transferor of such shares.
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<PAGE>
(2) Dividend Rights. The Trustee shall have all rights to dividends
with respect to shares of Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or distribution paid prior to the discovery by the Corporation that the shares
of Capital Stock have been transferred to the Trustee with respect to such
shares shall be paid over to the Trustee by the recipient thereof upon demand,
and any dividend declared but unpaid shall be paid when due to the Trustee. Any
dividends or distributions so paid over to the Trustee shall be held in trust
for the Charitable Beneficiary.
(3) Rights upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of or any distribution of the
assets of the Corporation, the Trustee shall be entitled to receive, ratably
with each other holder of Capital Stock of the class of Capital Stock that is
held in the Trust, that portion of the assets of the Corporation available for
distribution to the holders of such class (determined based upon the ratio that
the number of shares of such class of Capital Stock held by the Trustee bears to
the total number of shares of such class of Capital Stock then outstanding ).
The Trustee shall distribute any such assets received in respect of the Capital
Stock held in the Trust in any liquidation, dissolution or winding up of, or
distribution of the assets of the Corporation in accordance with subsection (4)
of this Section 7(1).
(4) Sale of Shares by Trustee. Within twenty days of receiving notice
from the Corporation that shares of Capital Stock have been transferred to the
Trust, the Trustee of the Trust shall sell the shares held in Trust to a Person,
designated by the Trustee, whose ownership of the shares of Capital Stock held
in the Trust would not violate the ownership limitations set forth in Section
7(b). Upon such sale, the interest of the Charitable Beneficiary in the shares
sold shall terminate and the Trustee shall distribute the net proceeds of the
sale to the Purported Record Transferee and to the Charitable Beneficiary as
provided in this subsection (4). The Purported Record Transferee shall receive
the lesser of (1) (x) the price per share such Purported Record Transferee paid
for the Capital Stock in the purported Transfer that resulted in the transfer of
shares of Capital Stock to the Trust, or (y) if the Transfer or other event that
resulted in the transfer of shares of Capital Stock to the Trust was not a
transaction in which the Purported Record Transferee gave full value for such
shares of Capital Stock, a price per share equal to the Market Price on the date
of the purported Transfer or other event that resulted in the transfer of such
shares of Capital Stock to the Trust and (2) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust. Any
net sales proceeds in excess of the amount payable to the Purported Record
Transferee shall be immediately paid to the Charitable Beneficiary. If, prior to
the discovery by the Corporation that shares of Capital Stock have been
transferred to the Trustee, such shares are sold by the Purported Record
Transferee, then (i) such shares shall be deemed to have been sold on behalf of
the Trust and (ii) to the extent that the Purported Record Transferee received
an
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<PAGE>
amount for such shares that exceeds the amount such Purported Record Transferee
was entitled to receive pursuant to this subsection (4), such excess shall be
paid to the Trustee upon demand. The Trustee should have the right and power
(but not the obligation) to offer any share of Capital Stock held in the Trust
for sale to the Corporation on such terms and conditions as the Trustee shall
determine appropriate.
(5) Voting and Notice Rights. The Trustee shall have all voting rights
and rights to receive any notice of any meetings, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. The Purported
Record Transferee shall have no voting rights with respect to shares held in
Trust.
(M) DESIGNATION OF CHARITABLE BENEFICIARY.
-------------------------------------
By written notice to the Trustee, the Corporation shall designate one
or more nonprofit organizations to be the Charitable Beneficiary of the interest
in the Trust such that (i) the share of Capital Stock held in the Trust would
not violate the restrictions set forth in Section 7(b) in the hands of such
Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS
The "Business Combination" provisions of the Connecticut Business
Corporation Act, Sections 33-840 to 33-845, shall not apply to Webster Financial
Corporation or Webster Bank.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify the directors, officers, employees and
agents of the Corporation to the fullest extent permitted by applicable law,
including the Connecticut Business Corporation Act, and if applicable, 12 C.F.R.
ss. 545.121, as may be amended from time to time by the Office of Thrift
Supervision. Any such indemnification shall continue as to any person who has
ceased to be a director, officer, employee or agent and may inure to the benefit
of the heirs, executors and administrators of such a person.
The Corporation shall indemnify a director for liability, as defined in
subdivision (5) of Section 33-770 of the Connecticut Business Corporation Act,
to any person for any action taken, or any failure to take any action, as a
director, except liability (a) that involved a knowing and culpable violation of
law by the
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<PAGE>
director, (b) enabled the director or an associate, as defined in Section 33-840
of the Connecticut Business Corporation Act, to receive an improper personal
gain, (c) showed a lack of good faith and a conscious disregard for the duty of
the director to the Corporation under circumstances in which the director was
aware that his conduct or omission created an unjustifiable risk of serious
injury to the Corporation, (d) constituted a sustained and unexcused pattern of
inattention that amounted to an abdication of the director's duty to the
Corporation, or (e) created liability under Section 33-757 of the Connecticut
Business Corporation Act.
ARTICLE XI
AMENDMENT OF CERTIFICATE OF INCORPORATION
This Certificate of Incorporation may be amended in accordance with the
Connecticut Business Corporation Act.
ARTICLE XII
AMENDMENT OF BY-LAWS
The By-Laws may provide that the Board of Directors as well as the
shareholders may make, amend or repeal the By-Laws of the Corporation, except as
otherwise required by statute, by the By-Laws, or by this Certificate of
Incorporation.
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed on behalf of the Corporation by the undersigned,
thereunto duly authorized on this ____ day of December, 1997.
By
---------------------
John V. Brennan
President
Attest:
------------------------------
Gregory S. Madar
Vice President and Secretary
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<PAGE>
CERTIFICATE OF AMENDMENT
RIGHTS AND PREFERENCES
OF THE
SERIES A ____% CUMULATIVE REDEEMABLE PREFERRED STOCK
PAR VALUE $1.00 PER SHARE
OF
WEBSTER PREFERRED CAPITAL CORPORATION
--------------------------------------------
Pursuant to Section 33-666(d) of the
Connecticut Business Corporation Act
--------------------------------------------
WEBSTER PREFERRED CAPITAL CORPORATION (the "Corporation"), a corporation
organized and existing under the Connecticut Business Corporation Act, as
amended,
DOES HEREBY CERTIFY:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation authorizes the issuance of 3,000,000 shares of the Corporation's
preferred stock, par value $1.00 per share, in one or more series, and
authorizes the Board of Directors to fix by resolution or resolutions the
designation of each series of Preferred Stock and the powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
SECOND: The Board of Directors of the Corporation at a meeting held on
December __, 1997, did duly adopt this Certificate of Amendment providing for
the designation, powers, preferences and rights, and the qualifications,
limitations and/or restrictions thereof, of the Series A ___% Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors, in accordance
with the provisions of the Amended and Restated Certificate of Incorporation of
the Corporation, hereby approves the issuance of Series A ___% Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Corporation and
hereby fixes the
<PAGE>
designation of such series and the powers, preferences, rights, and
qualifications, limitations and restrictions thereof in addition to those set
forth in said Amended and Restated Certificate of Incorporation as follows:
1. Designation; Ranking.
(a) The designation of the series of Preferred Stock created by this
Certificate of Amendment shall be "Series A _____% Cumulative Redeemable
Preferred Stock," par value $1.00 per share, of Webster Preferred Capital
Corporation (the "Corporation") (hereinafter referred to as "Series A Preferred
Shares"), and the number of shares constituting such series shall be 40,000,
which number may be increased (but not above the total number of shares of
Preferred Stock of the Corporation) or decreased (but not below the number of
shares then outstanding) from time to time by the Board of Directors.
(b) The Series A Preferred Shares shall rank prior to the common stock of
the Corporation, par value $.01 per share (the "Common Stock") as to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Corporation (the Common Stock, together with any other class
or series of stock of the Corporation ranking junior to the Series A Preferred
Shares as to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, being hereinafter
referred to as "Junior Stock"). The Series B Preferred Shares are on a parity
with the shares of Series B ___% Cumulative Preferred Stock of the Corporation,
par value $1.00 per share (the "Series A Preferred Shares"), as to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Corporation (the Series B Preferred Shares, together with any
other class or series of stock of the Corporation ranking on a parity with the
Series A Preferred Shares as to the payment of dividends and the distribution of
assets upon the liquidation, dissolution or winding up of the Corporation being
hereinafter referred to as "Parity Stock").
2. Dividend Rights.
(a) The holders of Series A Preferred Shares shall be entitled to receive,
if, when and as declared by the Board of Directors of the Corporation, out of
assets of the Corporation legally available therefor, cash dividends, accruing
from December __, 1997 at the rate of _____% per annum of the $1,000 liquidation
preference (an amount equal to $___ per share per annum), and no more, payable,
if, when and as declared by the Board of Directors, quarterly on January 15,
April 15, July 15, and October 15 in each year (each quarterly period ending on
any such date being hereinafter referred to as a "dividend period"), at such
annual rate commencing January 15, 1998. Dividends in each quarterly period
shall accrue from the day following the previous dividend payment date (except
that dividends payable on January 15, 1998 shall accrue from the date of
original issue), whether or not declared or paid for the prior quarterly period.
Each declared dividend will be payable to holders of record as they appear at
the close of business on the stock register of the Corporation on such record
dates, not exceeding 45 days preceding the payment dates thereof, as shall be
fixed by the Board of Directors of the Corporation. The date of initial issuance
of Series A Preferred Shares is hereinafter referred to the "Issue Date."
2
<PAGE>
Dividends payable on the Series A Preferred Shares (i) for any period other than
a full dividend period, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months and (ii) for each full dividend period, shall
be computed by dividing the annual dividend rate by four.
(b) Dividends on Series A Preferred Shares shall be cumulative from the
Issue Date, whether or not there shall be funds legally available for the
payment of such dividends. If there shall be outstanding shares of any series of
Junior Stock or Parity Stock, no dividends shall be declared or paid or set
apart for payment on any such series for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the Series
A Preferred Shares for all dividend periods terminating on or prior to the date
of payment of such dividends. If dividends on the Series A Preferred Shares and
on any series of Parity Stock are in arrears, in making any dividend payment on
account of such arrears, the Corporation shall make payments ratably upon all
outstanding Series A Preferred Shares and shares of such series of Parity Stock
in proportion to the respective amounts of dividends in arrears on the Series A
Preferred Shares and on such series of Parity Stock to the date of such dividend
payment. Holders of Series A Preferred Shares shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends on such shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments which
may be in arrears.
(c) Unless full cumulative dividends on all outstanding Series A Preferred
Shares and the shares on any series of Parity Stock shall have been or
contemporaneously are declared and paid or set aside for payment for all past
dividend periods, no dividend (other than a dividend in Common Stock or in any
other Junior Stock) shall be declared upon the Common Stock or upon any other
Junior Stock, nor shall any Common Stock or any other Junior Stock be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation (except by conversion into or exchange for Junior
Stock), nor shall any action be taken in respect of any Common Stock or any
Junior Stock or Parity Stock if, as a result thereof, the amount of the
Corporation's shareholders' equity (as determined in accordance with generally
accepted accounting principles) would be less than 250% of the aggregate
liquidation preference of the issued and outstanding Series A Preferred Shares
and Series B Preferred Shares.
3. Liquidation Preferences.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
Series A Preferred Shares shall be entitled to receive out of the assets of the
Corporation available for distribution to shareholders an amount equal to $1,000
per share plus an amount equal to all accrued and unpaid dividends, if any,
thereon to the date of such distribution, and no more, before any distribution
shall be made to the holders of Junior Stock. After payment of the full amount
of such liquidating distributions, the holders of Series A Preferred
3
<PAGE>
Shares will not be entitled to any further participation in any distribution of
the remaining assets of the Corporation.
(b) In the event that the assets of the Corporation available for
distribution to shareholders upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full the amounts payable with respect to the Series A
Preferred Shares and any other shares of Parity Stock, the holders of Series A
Preferred Shares and the holders of such Parity Stock shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they would otherwise be entitled.
(c) The merger or consolidation of the Corporation with or into any other
entity, the merger or consolidation of any other entity with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 3.
4. Redemption.
(a) Mandatory Redemption. The Corporation shall redeem all outstanding
Series A Preferred Shares on January 15, 2001 at a redemption price equal to the
$1,000 liquidation preference thereof plus accrued and unpaid dividends thereon
to the date of redemption.
(b) Optional Redemption. Except upon the occurance of a Tax Event, the
Series A Preferred Shares are not redeemable prior to January 15, 1999. Upon the
occurance of a Tax Event and at any time on or after January 15, 1999 through
January 14, 2001, the Corporation, at its option, may redeem Series A Preferred
Shares, at any time or from time to time, in whole but not in part, at the
Series A Early Redemption Price.
The "Series A Early Redemption Price" shall equal the greater of (i) $1,000
for each Series A Preferred Share to be redeemed or (ii) the sum, as determined
by a Quotation Agent, of the present values of the remaining scheduled payments
of dividends on such Series A Preferred Shares to January 15, 2001, discounted
to the redemption date on a quarterly basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of
each of clause (i) and clause (ii), accrued and unpaid dividends, if any,
thereon to the date of redemption.
"Tax Event" means the receipt by the Corporation of an opinion of a
nationally recognized law firm experienced in such matters to the effect that,
as a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (ii) any judicial decision,
official administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt such procedures or regulations) ("Administrative Action") or
(iii) any
4
<PAGE>
amendment to, clarification of, or change in the official position or the
interpretation of such Administrative Action or judicial decision or any
interpretation or pronouncement that provides for a position with respect to
such Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such amendment, clarification or change is made known, which amendment,
clarification, or change is effective or such pronouncement or decision is
announced on or after the date of issuance of the Series A Preferred Shares,
there is a substantial risk that (a) dividends paid or to be paid by the
Corporation with respect to the capital stock of the Corporation are not, or
will not be, fully deductible by the Corporation for United States federal
income tax purposes, (b) the Corporation is, or will be, subject to more than a
de minimis amount of other taxes, duties or other governmental charges or (c)
dividends received or to be received by Webster Bank from the Corporation are
not, or will not be, fully deductible by Webster Bank for Connecticut
corporation income tax purposes.
"Adjusted Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date plus .25%.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the period
from the date of redemption through January 15, 2001 that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate fixed-income securities of comparable maturity
for such remaining period.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means a nationally-recognized U.S.
government securities dealer in New York, New York selected by the Corporation.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Corporation obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Corporation, of the bid and asked prices for the Comparable Treasury Issue
(expressed in
5
<PAGE>
each case as a percentage of its principal amount) quoted in writing to the
Corporation by such Reference Treasury Dealer at 5:00 p.m., New York City time,
on the third Business Day preceding such redemption date.
(c) If less than all the outstanding Series A Preferred Shares are to be
redeemed, the shares to be redeemed shall be selected pro rata as nearly as
practicable or by lot, or by such other method as the Board of Directors may
determine to be fair and appropriate.
(d) Notice of any redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to each holder of record of the Series A Preferred Shares to be
redeemed, at their respective addresses appearing on the stock books of the
Corporation. Notice so mailed shall be conclusively presumed to have been duly
given whether or not actually received. Such notice shall state: (i) the date
fixed for redemption; (ii) the redemption price; (iii) the number of Series A
Preferred Shares to be redeemed and if less than all the shares held by such
holder are to be redeemed, the number of such shares to be so redeemed from such
holder; (v) the place where certificates for such shares are to be surrendered
for payment of the redemption price; and (vi) that after such date fixed for
redemption the shares to be redeemed shall not accrue dividends. If such notice
is mailed as aforesaid, and if on or before the date fixed for redemption funds
sufficient to redeem the shares called for redemption are set aside by the
Corporation in trust for the account of the holders of the shares to be
redeemed, notwithstanding the fact that any certificate for shares called for
redemption shall not have been surrendered for cancellation, on and after the
redemption date the shares represented thereby so called for redemption shall be
deemed to be no longer outstanding, dividends thereon shall cease to accrue, and
all rights of the holders of such shares as stockholders of the Corporation
shall cease, except the right to receive the redemption price, without interest,
upon surrender of the certificate representing such shares. Upon surrender in
accordance with the aforesaid notice of the certificate for any shares so
redeemed (duly endorsed or accompanied by appropriate instruments of transfer,
if so required by the Corporation in such notice), the holders of record of such
shares shall be entitled to receive the redemption price, without interest. In
case fewer than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
(e) Any provision of this Section 4 to the contrary notwithstanding, in the
event that any quarterly dividend payable on the Series A Preferred Shares shall
be in arrears and until all such dividends in arrears shall have been paid or
declared and set apart for payment, the Corporation shall not redeem any Series
A Preferred Shares unless all outstanding Series A Preferred Shares are
simultaneously redeemed and shall not purchase or otherwise acquire any Series A
Preferred Shares except in accordance with a purchase or exchange offer made on
the same terms to all holders of record of Series A Preferred Shares for the
purchase of all outstanding shares thereof.
6
<PAGE>
5. Voting Rights. Other than as expressly required by applicable law, the
Series A Preferred Shares shall not have any voting powers either general or
special, except that:
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of the aggregate liquidation preference of the
Series A Preferred Shares and of the shares of any one or more series of Parity
Stock at the time outstanding, given in person or by proxy, either in writing or
by a vote at a meeting called for the purpose at which the holders of Series A
Preferred Shares and any such other series of Parity Stock shall vote together
as a separate class, shall be necessary for authorizing, effecting or validating
the amendment, alteration or repeal of any of the provisions of the Amended and
Restated Certificate of Incorporation or of any amendment or supplement thereto
(including any certificate of amendment or any similar document relating to any
series of Preferred Stock) of the Corporation, so as to adversely affect the
powers, preferences, rights, privileges, qualifications, limitations and
restrictions of the Series A Preferred Shares and any such other series of
Parity Stock.
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of the aggregate liquidation preference of the
Series A Preferred Shares and any other series of Parity Stock, at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of Series A Preferred Shares
and any such other series of Parity Stock shall vote together as a single class
without regard to series, shall be necessary to create, authorize or issue, or
reclassify any authorized stock of the Corporation into, or create, authorize or
issue any obligation or security convertible into or evidencing a right to
purchase, any shares of any class of stock of the Corporation ranking prior to
the Series A Preferred Shares and any other series of Parity Stock. Subject to
the foregoing, the Corporation's Amended and Restated Certificate of
Incorporation may be amended to increase the number of authorized shares of
Preferred Stock without the vote of the holders of Preferred Stock, including
the Series A Preferred Shares.
(c) If at any time the Corporation has failed to pay or declare and set
aside for payment the full amount of any quarterly dividend on the Series A
Preferred Shares, the holders of the outstanding Series A Preferred Shares shall
have the exclusive right, voting separately as a class together with holders of
shares of any one or more other series of Parity Stock and upon which like
voting rights have been conferred and are exercisable, to elect two directors of
the Corporation at the Corporation's next annual meeting of shareholders. At
elections for such directors, each holder of Series A Preferred Shares shall be
entitled to one vote for each share held or, if the holders of shares of any
series of Parity Stock are entitled vote, holders shall vote based on the
respective liquidation preferences of the Series A Preferred Shares and such
series of Parity Stock. Upon the vesting of such right in the holders of Series
A Preferred Shares, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding Series A
Preferred Shares (either alone or together with the holders of shares of any one
or more
7
<PAGE>
series of Parity Stock) as hereinafter set forth. The right of the holders of
Series A Preferred Shares, voting separately as a class to elect (either alone
or together with the holders of shares of any one or more series of Parity
Stock) members of the Board of Directors of the Corporation as aforesaid shall
continue until such time as all dividends accrued on the Series A Preferred
Shares shall have been paid in full or declared and set apart for payment, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent default
of the character above mentioned.
(d) Each director elected by the holders of Series A Preferred Shares
shall continue to serve as such director until the later of (i) the expiration
of the full term for which he or she shall have been elected or (ii) all accrued
and unpaid dividends on the Series A Preferred Shares shall have been paid in
full or declared and set aside for payment. If the office of any director
elected by the holders of Series A Preferred Shares voting as a class becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office, or otherwise, the remaining director elected by the holders of
Series A Preferred Shares voting as a class may choose a successor who shall
hold office for the unexpired term in respect of which such vacancy occurred.
Whenever the term of office of the directors elected by the holders and the
special voting powers vested in the holders of Series A Preferred Shares as
provided in this subsection (d) shall have expired, the number of directors
shall be such number as may be provided for in the Amended and Restated
Certificate of Incorporation or the Amended and Restated By-Laws, irrespective
of any increase made pursuant to the provisions of this subsection (d).
6. Reacquired Shares. Series A Preferred Shares redeemed, or otherwise
purchased or acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Shares without designation as to
series.
7. No Sinking Fund. Series A Preferred Shares are not subject to the
operation of a sinking fund.
8. No Conversion Rights. Series A Preferred Shares are not convertible into
any other securities of the Corporation and are not exchangeable into capital
stock or any other securities of Webster Bank or Webster Financial Corporation.
9. Reporting Company. For so long as there are any Series A Preferred
Shares outstanding, the Corporation shall maintain its status as a reporting
company under the Securities Exchange Act of 1934, as amended, and will furnish
shareholders with annual reports containing audited financial statements.
FURTHER RESOLVED, that the officers of the Corporation, and each of them,
are hereby authorized, for and on behalf of and in the name of the Corporation,
to file a copy of the foregoing with the Secretary of State of the State of
Connecticut in accordance with the provisions of Sections 33-608 and 33-666 of
the Connecticut Business Corporation Act.
8
<PAGE>
IN WITNESS WHEREOF, WEBSTER PREFERRED CAPITAL CORPORATION, has caused this
Certificate of Amendment to be signed by John V. Brennan, its President and
Gregory S. Madar, its Secretary, and its Corporate Seal to be hereunder affixed
this ____ day of December, 1997.
WEBSTER PREFERRED CAPITAL CORPORATION
[Seal]
By
-----------------------------------
John V. Brennan
President
Attest:
--------------------------------
Gregory S. Madar
Secretary
9
<PAGE>
CERTIFICATE OF AMENDMENT
RIGHTS AND PREFERENCES
OF THE
SERIES B ____% CUMULATIVE REDEEMABLE PREFERRED STOCK
PAR VALUE $1.00 PER SHARE
OF
WEBSTER PREFERRED CAPITAL CORPORATION
--------------------------------------------
Pursuant to Section 33-666(d) of the
Connecticut Business Corporation Act
--------------------------------------------
WEBSTER PREFERRED CAPITAL CORPORATION (the "Corporation"), a corporation
organized and existing under the Connecticut Business Corporation Act, as
amended,
DOES HEREBY CERTIFY:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation authorizes the issuance of 3,000,000 shares of the Corporation's
preferred stock, par value $1.00 per share, in one or more series, and
authorizes the Board of Directors to fix by resolution or resolutions the
designation of each series of Preferred Stock and the powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
SECOND: The Board of Directors of the Corporation at a meeting held on
December __, 1997, did duly adopt this Certificate of Amendment providing for
the designation, powers, preferences and rights, and the qualifications,
limitations and/or restrictions thereof, of the Series B ___% Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors, in accordance
with the provisions of the Amended and Restated Certificate of Incorporation of
the Corporation, hereby approves the issuance of Series B ___% Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the Corporation and
hereby fixes the
<PAGE>
designation of such series and the powers, preferences, rights, and
qualifications, limitations and restrictions thereof in addition to those set
forth in said Amended and Restated Certificate of Incorporation as follows:
1. Designation; Ranking.
(a) The designation of the series of Preferred Stock created by this
Certificate of Amendment shall be "Series B _____% Cumulative Redeemable
Preferred Stock," par value $1.00 per share, of Webster Preferred Capital
Corporation (the "Corporation") (hereinafter referred to as "Series B Preferred
Shares"), and the number of shares constituting such series shall be 1,000,000,
which number may be increased (but not above the total number of shares of
Preferred Stock of the Corporation) or decreased (but not below the number of
shares then outstanding) from time to time by the Board of Directors.
(b) The Series B Preferred Shares shall rank prior to the common stock of
the Corporation, par value $.01 per share (the "Common Stock") as to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Corporation (the Common Stock, together with any other class
or series of stock of the Corporation ranking junior to the Series B Preferred
Shares as to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, being hereinafter
referred to as "Junior Stock"). The Series B Preferred Shares are on a parity
with the shares of Series A ___% Cumulative Preferred Stock of the Corporation,
par value $1.00 per share (the "Series A Preferred Shares"), as to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Corporation (the Series A Preferred Shares, together with any
other class or series of stock of the Corporation ranking on a parity with the
Series B Preferred Shares as to the payment of dividends and the distribution of
assets upon the liquidation, distribution or winding up of the Corporation being
hereinafter referred to as "Parity Stock").
2. Dividend Rights.
(a) The holders of Series B Preferred Shares shall be entitled to receive,
if, when and as declared by the Board of Directors of the Corporation, out of
assets of the Corporation legally available therefor, cash dividends, accruing
from December __, 1997 at the rate of _____% per annum of the $10 liquidation
preference (an amount equal to $___ per share per annum), and no more, payable,
if, when and as declared by the Board of Directors, quarterly on January 15,
April 15, July 15, and October 15 in each year (each quarterly period ending on
any such date being hereinafter referred to as a "dividend period"), at such
annual rate commencing January 15, 1998. Dividends in each quarterly period
shall accrue from the day following the previous dividend payment date (except
that dividends payable on January 15, 1998 shall accrue from the date of
original issue), whether or not declared or paid for the prior quarterly period.
Each declared dividend will be payable to holders of record as they appear at
the close of business on the stock register of the Corporation on such record
dates, not exceeding 45 days preceding the payment dates thereof, as shall be
fixed by the Board of Directors of the Corporation. The date of initial issuance
of Series B Preferred Shares is hereinafter referred to the "Issue Date."
2
<PAGE>
Dividends payable on the Series B Preferred Shares (i) for any period other than
a full dividend period, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months and (ii) for each full dividend period, shall
be computed by dividing the annual dividend rate by four.
(b) Dividends on Series B Preferred Shares shall be cumulative from the
Issue Date, whether or not there shall be funds legally available for the
payment of such dividends. If there shall be outstanding shares of any series of
Junior Stock or Parity Stock, no dividends shall be declared or paid or set
apart for payment on any such series for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the Series
B Preferred Shares for all dividend periods terminating on or prior to the date
of payment of such dividends. If dividends on the Series B Preferred Shares and
on any series of Parity Stock are in arrears, in making any dividend payment on
account of such arrears, the Corporation shall make payments ratably upon all
outstanding Series B Preferred Shares and shares of such series of Parity Stock
in proportion to the respective amounts of dividends in arrears on the Series B
Preferred Shares and on such series of Parity Stock to the date of such dividend
payment. Holders of Series B Preferred Shares shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends on such shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments which
may be in arrears.
(c) Unless full cumulative dividends on all outstanding Series B Preferred
Shares and the shares on any series of Parity Stock shall have been or
contemporaneously are declared and paid or set aside for payment for all past
dividend periods, no dividend (other than a dividend in Common Stock or in any
other Junior Stock) shall be declared upon the Common Stock or upon any other
Junior Stock, nor shall any Common Stock or any other Junior Stock be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation (except by conversion into or exchange for Junior
Stock), nor shall any action be taken in respect of any Common Stock or any
Junior Stock or Parity Stock if, as a result thereof, the amount of the
Corporation's shareholders' equity (as determined in accordance with generally
accepted accounting principles) would be less than 250% of the aggregate
liquidation preference of the issued and outstanding Series A Preferred Shares
and Series B Preferred Shares.
3. Liquidation Preferences.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
Series B Preferred Shares shall be entitled to receive out of the assets of the
Corporation available for distribution to shareholders an amount equal to $10
per share plus an amount equal to all accrued and unpaid dividends, if any,
thereon to the date of such distribution, and no more, before any distribution
shall be made to the holders of Junior Stock. After payment of the full amount
of such liquidating distributions, the holders of Series B Preferred
3
<PAGE>
Shares will not be entitled to any further participation in any distribution of
the remaining assets of the Corporation.
(b) In the event that the assets of the Corporation available for
distribution to shareholders upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full the amounts payable with respect to the Series B
Preferred Shares and any other shares of Parity Stock, the holders of Series B
Preferred Shares and the holders of such Parity Stock shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they would otherwise be entitled.
(c) The merger or consolidation of the Corporation with or into any other
entity, the merger or consolidation of any other entity with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 3.
4. Redemption.
Except upon the occurance of a Tax Event, the Series B Preferred Shares are
not redeemable prior to January 15, 2003. Upon the occurance of a Tax Event, the
Corporation, at its option, may redeem the Series B Preferred Shares, at any
time or from time to time, in whole but not in part, at the Series B Early
Redemption Price. On or after January 15, 2003, the Corporation, at its option,
may redeem the Series B Preferred Shares, at any time or from time to time, in
whole or in part, at a redemption price of $10 per share plus accrued and unpaid
dividends, if any, thereon, to the date of redemption.
The "Series B Early Redemption Price" shall equal the greater of (i) $10
for each Series B Preferred Share to be redeemed or (ii) the sum, as determined
by a Quotation Agent, of the present values of the remaining scheduled payments
of dividends on such Series B Preferred Shares to January 15, 2003, discounted
to the redemption date on a quarterly basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of
each of clause (i) and clause (ii), accrued and unpaid dividends, if any,
thereon to the date of redemption.
"Tax Event" means the receipt by the Corporation of an opinion of a
nationally recognized law firm experienced in such matters to the effect that,
as a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (ii) any judicial decision,
official administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt such procedures or regulations) ("Administrative Action") or
(iii) any
4
<PAGE>
amendment to, clarification of, or change in the official position or the
interpretation of such Administrative Action or judicial decision or any
interpretation or pronouncement that provides for a position with respect to
such Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such amendment, clarification or change is made known, which amendment,
clarification, or change is effective or such pronouncement or decision is
announced on or after the date of issuance of the Series B Preferred Shares,
there is a substantial risk that (a) dividends paid or to be paid by the
Corporation with respect to the capital stock of the Corporation are not, or
will not be, fully deductible by the Corporation for United States federal
income tax purposes, (b) the Corporation is, or will be, subject to more than a
de minimis amount of other taxes, duties or other governmental charges or (c)
dividends received or to be received by Webster Bank from the Corporation are
not, or will not be, fully deductible by Webster Bank for Connecticut
corporation income tax purposes.
"Adjusted Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date plus .25%.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the period
from the date of redemption through January 15, 2003 that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate fixed-income securities of comparable maturity
for such remaining period.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means a nationally-recognized U.S.
government securities dealer in New York, New York selected by the Corporation.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Corporation obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Corporation, of the bid and asked prices for the Comparable Treasury Issue
(expressed in
5
<PAGE>
each case as a percentage of its principal amount) quoted in writing to the
Corporation by such Reference Treasury Dealer at 5:00 p.m., New York City time,
on the third Business Day preceding such redemption date.
(b) If less than all the outstanding Series B Preferred Shares are to be
redeemed, the shares to be redeemed shall be selected pro rata as nearly as
practicable or by lot, or by such other method as the Board of Directors may
determine to be fair and appropriate.
(c) Notice of any redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to each holder of record of the Series B Preferred Shares to be
redeemed, at their respective addresses appearing on the stock books of the
Corporation. Notice so mailed shall be conclusively presumed to have been duly
given whether or not actually received. Such notice shall state: (i) the date
fixed for redemption; (ii) the redemption price; (iii) the number of Series B
Preferred Shares to be redeemed and if less than all the shares held by such
holder are to be redeemed, the number of such shares to be so redeemed from such
holder; (v) the place where certificates for such shares are to be surrendered
for payment of the redemption price; and (vi) that after such date fixed for
redemption the shares to be redeemed shall not accrue dividends. If such notice
is mailed as aforesaid, and if on or before the date fixed for redemption funds
sufficient to redeem the shares called for redemption are set aside by the
Corporation in trust for the account of the holders of the shares to be
redeemed, notwithstanding the fact that any certificate for shares called for
redemption shall not have been surrendered for cancellation, on and after the
redemption date the shares represented thereby so called for redemption shall be
deemed to be no longer outstanding, dividends thereon shall cease to accrue, and
all rights of the holders of such shares as stockholders of the Corporation
shall cease, except the right to receive the redemption price, without interest,
upon surrender of the certificate representing such shares. Upon surrender in
accordance with the aforesaid notice of the certificate for any shares so
redeemed (duly endorsed or accompanied by appropriate instruments of transfer,
if so required by the Corporation in such notice), the holders of record of such
shares shall be entitled to receive the redemption price, without interest. In
case fewer than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
(d) Any provision of this Section 4 to the contrary notwithstanding, in the
event that any quarterly dividend payable on the Series B Preferred Shares shall
be in arrears and until all such dividends in arrears shall have been paid or
declared and set apart for payment, the Corporation shall not redeem any Series
B Preferred Shares unless all outstanding Series B Preferred Shares are
simultaneously redeemed and shall not purchase or otherwise acquire any Series B
Preferred Shares except in accordance with a purchase or exchange offer made on
the same terms to all holders of record of Series B Preferred Shares for the
purchase of all outstanding shares thereof.
6
<PAGE>
5. Voting Rights. Other than as expressly required by applicable law, the
Series B Preferred Shares shall not have any voting powers either general or
special, except that:
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of the aggregate liquidation preference of the
Series B Preferred Shares and of the shares of any one or more series of Parity
Stock at the time outstanding, given in person or by proxy, either in writing or
by a vote at a meeting called for the purpose at which the holders of Series B
Preferred Shares and any such other series of Parity Stock shall vote together
as a separate class, shall be necessary for authorizing, effecting or validating
the amendment, alteration or repeal of any of the provisions of the Amended and
Restated Certificate of Incorporation or of any amendment or supplement thereto
(including any certificate of amendment or any similar document relating to any
series of Preferred Stock) of the Corporation, so as to adversely affect the
powers, preferences, rights, privileges, qualifications, limitations and
restrictions of the Series B Preferred Shares and any such other series of
Parity Stock.
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of the aggregate liquidation preference of the
Series B Preferred Shares and any other series of Parity Stock, at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of Series B Preferred Shares
and any such other series of Parity Stock shall vote together as a single class
without regard to series, shall be necessary to create, authorize or issue, or
reclassify any authorized stock of the Corporation into, or create, authorize or
issue any obligation or security convertible into or evidencing a right to
purchase, any shares of any class of stock of the Corporation ranking prior to
the Series B Preferred Shares and any other series of Parity Stock. Subject to
the foregoing, the Corporation's Amended and Restated Certificate of
Incorporation may be amended to increase the number of authorized shares of
Preferred Stock without the vote of the holders of Preferred Stock, including
the Series B Preferred Shares.
(c) If at any time the Corporation has failed to pay or declare and set
aside for payment the full amount of any quarterly dividend on the Series B
Preferred Shares, the holders of the outstanding Series B Preferred Shares shall
have the exclusive right, voting separately as a class together with holders of
shares of any one or more other series of Parity Stock and upon which like
voting rights have been conferred and are exercisable, to elect two directors of
the Corporation at the Corporation's next annual meeting of shareholders. At
elections for such directors, each holder of Series B Preferred Shares shall be
entitled to one vote for each share held or, if the holders of shares of any
series of Parity Stock are entitled vote, holders shall vote based on the
respective liquidation preferences of the Series B Preferred Shares and such
series of Parity Stock. Upon the vesting of such right in the holders of Series
B Preferred Shares, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding Series B
Preferred Shares (either alone or together with the holders of shares of any one
or more
7
<PAGE>
series of Parity Stock) as hereinafter set forth. The right of the holders of
Series B Preferred Shares, voting separately as a class to elect (either alone
or together with the holders of shares of any one or more series of Parity
Stock) members of the Board of Directors of the Corporation as aforesaid shall
continue until such time as all dividends accrued on the Series B Preferred
Shares shall have been paid in full or declared and set apart for payment, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent default
of the character above mentioned.
(d) Each director elected by the holders of Series B Preferred Shares
shall continue to serve as such director until the later of (i) the expiration
of the full term for which he or she shall have been elected or (ii) all accrued
and unpaid dividends on the Series B Preferred Shares shall have been paid in
full or declared and set aside for payment. If the office of any director
elected by the holders of Series B Preferred Shares voting as a class becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office, or otherwise, the remaining director elected by the holders of
Series B Preferred Shares voting as a class may choose a successor who shall
hold office for the unexpired term in respect of which such vacancy occurred.
Whenever the term of office of the directors elected by the holders and the
special voting powers vested in the holders of Series B Preferred Shares as
provided in this subsection (d) shall have expired, the number of directors
shall be such number as may be provided for in the Amended and Restated
Certificate of Incorporation or the Amended and Restated By-Laws, irrespective
of any increase made pursuant to the provisions of this subsection (d).
6. Reacquired Shares. Series B Preferred Shares redeemed, or otherwise
purchased or acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Shares without designation as to
series.
7. No Sinking Fund. Series B Preferred Shares are not subject to the
operation of a sinking fund or any other obligation of the Corporation to
redeem, repurchase or retire the Series B Preferred Shares.
8. No Conversion Rights. Series B Preferred Shares are not convertible into
any other securities of the Corporation and are not exchangeable into capital
stock or any other securities of Webster Bank or Webster Financial Corporation.
9. Reporting Company. For so long as there are any Series B Preferred
Shares outstanding, the Corporation shall maintain its status as a reporting
company under the Securities Exchange Act of 1934, as amended, and will furnish
shareholders with annual reports containing audited financial statements.
10. Ownership and Transfer Restrictions.
(a) During the period commencing on the date of the initial public
offering and prior to the Restriction Termination Date, no person shall
beneficially own more than 5,000 shares of Series B Preferred Stock (determined
without reference to any rules of attribution). "Beneficial Ownership" shall
mean ownership of shares of the capital stock of the Corporation by a person who
is treated or would be treated as an owner of such capital stock either directly
or indirectly or constructively through the application of Section 544 of the
Internal Revenue Code of 1986, as amended (the "Code"), as modified by Section
856(h)(1)(B)of the Code. "Initial Public Offering" means the closing of the sale
of Series B Preferred Shares and Series A Preferred Shares pursuant to the
Corporation's first effective registration statement for such Preferred Stock,
filed under the Securities Act of 1933, as amended. "Restriction Termination
Date" shall mean the first day after the date of the closing of the Initial
Public Offering on which the Corporation determines that it is no longer in the
best interest of the Corporation to attempt to, or continue to qualify as a real
estate investment trust.
(b) Each certificate for Series B Preferred Shares shall bear
substantially the following legend:
"The shares represented by this certificate are subject to
restrictions on transfer and ownership for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended. Subject to
certain further restrictions and except as expressly provided in the
Corporation's Amended and Restated Certificate of Incorporation, no
Person may Beneficially Own shares of Capital Stock of the Corporation
if, as a result of such Acquisition or Beneficial Ownership, (i) such
Person would Beneficially Own Series B ___% Cumulative Redeemable
Preferred Stock of the Corporation in excess of 5,000 shares the
Corporation would be "closely held" within the meaning of Section
856(h) of the Code, or (ii) the Capital Stock would be held by less
than 100 Persons. Any Person who Beneficially Owns or attempts to
Beneficially Own shares of Capital Stock in excess of the above
limitations must immediately notify the Corporation, any shares of
Capital Stock so held may be subject to mandatory sale in certain
events, certain purported acquisitions of shares of Capital Stock in
excess of such limitations shall be void ab inito, and any shares of
Capital Stock purported to be Acquired or Beneficially Owned in excess
of such limitation will be automatically transferred to a Trust for
the benefit of Charitable Beneficiary. A Person who attempts to
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Beneficially Own shares of Capital Stock in violation of the ownership
limitations set forth in Section 7(b) of the Amended and Restated
Certificate of Incorporation of the Corporation shall have no claim,
cause of action, or any other recourse whatsoever against a transferor
of shares. All capitalized terms in this legend have the meanings
defined in the Corporation's Amended and Restated Certificate of
Incorporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each shareholder who so
requests.
FURTHER RESOLVED, that the officers of the Corporation, and each of them,
are hereby authorized, for and on behalf of and in the name of the Corporation,
to file a copy of the foregoing with the Secretary of State of the State of
Connecticut in accordance with the provisions of Sections 33-608 and 33-666 of
the Connecticut Business Corporation Act.
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IN WITNESS WHEREOF, WEBSTER PREFERRED CAPITAL CORPORATION, has caused this
Certificate of Amendment to be signed by John V. Brennan, its President and
Gregory S. Madar, its Secretary, and its Corporate Seal to be hereunder affixed
this ____ day of December, 1997.
WEBSTER PREFERRED CAPITAL CORPORATION
[Seal]
By
-----------------------------------
John V. Brennan
President
Attest:
--------------------------------
Gregory S. Madar
Secretary
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EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
WEBSTER PREFERRED CAPITAL CORPORATION
I. OFFICES
1.1 Registered Office. The principal office of the Corporation shall be
located in Waterbury, Connecticut.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Connecticut, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
II. MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings. All meetings of the shareholders for the
election of Directors shall be held in Connecticut, at such place as may be
fixed from time to time by the Board of Directors, or at such other place,
within or without the State of Connecticut, as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof. Meetings of shareholders for any other
purpose may be held at such time and place, within or without the State of
Connecticut, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
2.2 Annual Meetings. A meeting of shareholders for the election of
Directors and for other corporate business shall be held annually at such date
and at such time as the Board of Directors may determine. Such date and such
time shall be stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
2.3 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Board of Directors or by the
President, and shall be called by the President upon the written request of the
holders of at least ten percent of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting. Such request
shall include a statement of the purpose or purposes of the proposed meeting and
notice thereof shall be given. If the President shall not, within fifteen days
after receipt of such shareholders' request, so call such meeting, such
shareholders may call such meeting.
2.4 Notice of Meetings. Written notice of the annual meeting and
special meetings, stating the place, date and hour of the meeting and in the
case of a special meeting, the purpose or purposes of the meeting, shall be
given to each shareholder entitled to vote at such meetings, by leaving such
notice with him at
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his residence or usual place of business, or by mailing a copy thereof addressed
to him at his last known post office address as last shown on the stock records
of the Corporation, postage prepaid, not less than ten nor more than sixty days
before the date of the meeting, provided that any one or more shareholders, as
to himself or themselves, may waive such notice in writing or by attendance at
the meeting without protest. Written notice of a special meeting shall be given
to shareholders within thirty days after the date the written request by a
shareholder was delivered to the Corporation's Secretary. Written notice of a
special meeting of shareholders shall state the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called. Such notice
shall be deemed given when deposited in the United States mail.
2.5 Business at Special Meetings. Business transacted at any special
meeting of shareholders shall be limited to the purposes stated in the notice.
2.6 List of Shareholders. The officer who has charge of the share
transfer books of the Corporation shall prepare and make, after the record date
for a meeting of shareholders has been fixed, a complete list of the
shareholders entitled to notice of such meeting, arranged in alphabetical order
and arranged by voting group, and within each voting group by class or series of
shares, and showing the address of each shareholder and the number of shares
registered in the name of each shareholder. Such list shall be open to the
examination of any shareholder, during ordinary business hours, beginning two
business days after notice of the meeting is given and continuing through the
meeting, either at the principal office of the Corporation or at a place
identified in the meeting in the city where the meeting will be held. The list
shall also be produced and kept open at the time and place of the meeting during
the whole time thereof, and may be inspected by any shareholder who is present,
his agent, or attorney. The share transfer book shall be the only evidence as to
who are the shareholders entitled to examine the share transfer book, the list
required by this section or the books of the Corporation, or to vote in person
or by proxy at any meeting of shareholders.
2.7 Quorum at Meetings. Except as otherwise provided by statute or by
the Certificate of Incorporation, the holders of a majority of the shares
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business, except that when specified business is to be voted on by a class or
series voting as a single class, the holders of a majority of the shares of such
class or series shall constitute a quorum for the transaction of business. If,
however, such quorum shall not be present or represented at any such meeting of
the shareholders, the shareholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time to another time and place, without notice other than announcement at the
meeting of such other time and place. At the adjourned meeting at which a quorum
shall be present or represented, any business may be
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transacted which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
2.8 Voting and Proxies. Unless otherwise provided in the Certificate of
Incorporation, and subject to the provisions of Section 6.4 of these By-Laws,
each shareholder shall be entitled to one vote on each matter, in person or by
proxy, for each share of the Corporation's capital stock having voting power
which is held by such shareholder. No proxy shall be voted or acted upon after
eleven months from its date, unless the proxy provides for a longer period. A
duly executed proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
2.9 Required Vote. When a quorum is present at any meeting of
shareholders, all matters shall be determined, adopted and approved by the vote
(which need not be by ballot) of the holders of a majority of the votes cast
with respect to the matter, including, if applicable, the majority of votes
entitled to be cast by each class or series of stock entitled to vote separately
on the matter, unless the proposed action is one upon which, by express
provision of statutes or of the Certificate of Incorporation, a different vote
is specified and required, in which case such express provision shall govern and
control the decision of such question.
2.10 Action Without a Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of shareholders of the Corporation, or any action which may be
taken at any annual or special meeting of such shareholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by all of the persons who
would be entitled to vote upon such action at a meeting at which all shares
entitled to vote thereon were present and voted, or by their duly authorized
attorneys.
III. DIRECTORS
3.1 Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the shareholders.
3.2 Number and Election. The number of Directors which shall constitute
the whole Board shall be at least three. The Board of Directors may increase the
number of directorships by a concurring vote of Directors holding a majority of
the directorships prior to the vote on the increase. Subject to the rights of
the holders of
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any series of Preferred Stock of the Corporation to elect additional directors
under specified circumstances, only holders of the Common Stock of the
Corporation will be entitled to vote in the election of directors. The Directors
shall be elected at the annual meeting of the shareholders, except as provided
in Section 3.3 hereof, and each Director elected shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
Directors need not be shareholders.
3.3 Vacancies. Subject to the rights of the holders of any series of
the Preferred Stock of the Corporation to elect additional directors under
specified circumstances, vacancies and newly created directorships resulting
from any increase in the authorized number of Directors may be filled by a
majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director, and each Director so chosen shall hold office until the
next annual election and until his successor is elected and qualified, or until
his earlier resignation or removal. If there are no Directors in office, then an
election of Directors may be held in the manner provided by statute.
3.4 Place of Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Connecticut.
3.5 Regular Meeting. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
3.6 Special Meetings. Special meetings of the Board may be called by
the President with at least twelve hours notice to each Director, either
personally or by telephone, facsimile, mail or other equivalent means, unless
such notice has been waived. Special meetings shall be called by the President
or Secretary in like manner and on like notice on the written request of
one-third of the total number of Directors.
3.7 Quorum and Vote at Meetings. At all meetings of the Board, a
majority of the total number of Directors, shall constitute a quorum for the
transaction of business. The vote of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. The directors present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal or departure of enough directors to leave less than a quorum. If a
quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting to another time and place,
without notice other than announcement at the meeting of such other time and
place.
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3.8 Telephone Meetings. Members of the Board of Directors or any
Committee designated by the Board may participate in a meeting of such Board or
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
3.9 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any Committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or Committee.
3.10 Committees of Directors. The Board of Directors may by resolution
passed by a majority of the whole Board, designate one or more Committees, each
Committee to consist of two or more of the Directors of the Corporation. The
Board of Directors may designate one or more Directors as alternate members of
any Committee, who may replace any absent or disqualified member at any meeting
of the Committee. Any such Committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such Committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless otherwise expressly provided in the
resolution, no such Committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger. Such Committee or Committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors. Unless otherwise specified in the resolution of the Board of
Directors designating the Committee, at all meetings of each such Committee of
directors, a majority of the total number of members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of the members of the Committee present at any meeting at which there is a
quorum shall be the act of the Committee. Each Committee shall keep regular
minutes of its meetings and report the same to the Board of Directors, when
required.
3.11 Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of Directors. The Directors may be paid their expenses, if
any, of
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attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing Committees may be paid like compensation for attending
Committee meetings.
3.12 Removal. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, at
a meeting of shareholders called expressly for that purpose, any Director may be
removed with or without cause by a vote of the holders of a majority of the
shares then entitled to vote at an election of Directors.
IV. NOTICES OF MEETINGS
4.1 Waivers of Notice. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-Laws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders, Directors or members of a
Committee of Directors need be specified in any written waiver of notice, unless
so required by the Certificate of Incorporation, by statute or by these By-Laws.
V. OFFICERS.
5.1 Positions. The officers of the Corporation shall be a President and
a Secretary, and such other officers as the Board of Directors may appoint,
including a Chairman of the Board, a Treasurer and one or more Vice Presidents,
Assistant Secretaries and Assistant Treasurers, who shall exercise such powers
and perform such duties as shall be determined from time to time by the Board.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide; provided, however, that in no
event shall the President and the Secretary be the same person.
5.2 Appointment. The officers of the Corporation shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
shareholders.
5.3 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors.
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5.4 Term of Office. The officers of the Corporation shall hold office
until their successors are chosen and qualify or until their earlier resignation
or removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer elected or appointed by the Board of Directors may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the Board of Directors or by action of any authorized officer. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
5.5 Fidelity Bonds. The Corporation may secure the fidelity of any or
all of its officers or agents by bond or otherwise.
5.6 President. The President shall be the Chief Executive Officer of
the Corporation, shall be ex officio a member of all standing committees, shall
have general and active management of the business of the Corporation, shall
ensure that all orders and resolutions of the Board of Directors are carried
into effect, and, unless otherwise provided by the Board of Directors, shall
preside at all meetings of the shareholders and the Board of Directors. The
President shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
5.7 Vice President. In the absence of the President or in the event of
the President's inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
5.8 Chairman of the Board. If the Directors shall appoint a Chairman of
the Board, the Chairman shall, when present, preside at all meetings of the
Board of Directors and shall perform such other duties and have such other
powers as may be vested in the Chairman by the Board of Directors.
5.9 Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders, and shall record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose, and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or by the
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President, under whose supervision the Secretary shall be. The Secretary shall
have custody of the corporate seal of the Corporation, and the Secretary, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and when so affixed it may be attested by the signature of the
Secretary or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by such officer's signature. The
Secretary or an Assistant Secretary may also attest all instruments signed by
the chairman of the board, the President or any Vice President.
5.10 Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there shall have been no such determination, then in the order
of their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary, and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
5.11 Treasurer.
5.11.1 Duties. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President, and to the Board of Directors at its regular
meetings, or when the Board of Directors so requires, an account of all
transactions as Treasurer and of the financial condition of the Corporation.
5.11.2 Bond. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the Treasurer's office and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind, in the Treasurer's possession or under the Treasurer's control
and belonging to the Corporation.
5.12 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there shall have been no such determination, then in the order
of their election), shall, in the absence of the Treasurer or in the event of
the Treasurer's inability or refusal to act, perform the duties and exercise the
powers of
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the Treasurer, and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
VI. CAPITAL STOCK
6.1 Certificates of Stock. The shares of the Corporation shall be
represented by Certificates. Every holder of stock shall be entitled to have a
certificate signed by, or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, or the President or Vice President, and by
the Treasurer and/or Assistant Treasurer, or the Secretary or an Assistant
Secretary of such Corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar whose signature or
facsimile signature appears on a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
6.2 Lost Certificates. The Board of Directors may direct a new
certificate or certificates of stock to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming that the certificate of stock has been lost, stolen or
destroyed. When authorizing such issuance of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to advertise
the same in such manner as the Board shall require and/or to give the
Corporation a bond, in such sum as the Board may direct, as indemnity against
any claim that may be made against the Corporation on account of the certificate
alleged to have been lost, stolen or destroyed or on account of the issuance of
such new certificate.
6.3 Transfers. The transfer of stock and certificates that represent
the stock shall be effected in accordance with the laws of the State of
Connecticut. Any restriction on the transfer of a security imposed by the
Corporation shall be noted conspicuously or referred to on the security.
6.4 Fixing Record Date. In order that the Corporation may determine the
shareholders entitled to notice of, or to vote at, any meeting of shareholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than
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seventy nor less than ten days before the date of such meeting, nor more than
seventy days prior to any other action. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting or
of shareholders entitled to receive payment of a distribution, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such distribution is adopted, as the case may be, shall
be the record date for such determination of shareholders. A determination of
shareholders of record entitled to notice of, or to vote at, a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
The Board of Directors shall fix a new record date if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
6.5 Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, to receive notifications, to vote as such owner,
and to exercise all the rights and powers of an owner; and the Corporation shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Connecticut.
VII. INSURANCE
The Corporation may purchase and maintain insurance on behalf of an
individual who is a director, officer, employee or agent of the Corporation, or
who, while a director, officer, employee or agent of the Corporation, serves at
the Corporation's request as a director, officer, partner, trustee, employee or
agent of another domestic or foreign corporation, partnership, joint venture,
trust, employee benefit plan or other entity, against liability asserted against
or incurred by such person in that capacity or arising from that person's status
as a director, officer, employee or agent, whether or not the Corporation would
have the power to indemnify or advance expenses to such person against the same
liability under the Connecticut Business Corporation Act, as amended
VIII. GENERAL PROVISIONS
8.1 Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation and the laws of
the State of Connecticut, may be declared by the Board of Directors at any
regular or special meeting. Dividends may be in cash, in property, or in shares
of the Corporation's capital stock, subject to the provisions, if any, of the
Certificate of Incorporation.
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8.2 Reserves. The Directors of the Corporation may set apart, out of
the funds of the Corporation available for dividends, a reserve or reserves for
any proper purpose and may abolish any such reserve.
8.3 Execution of Instruments. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
8.5 Seal. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Connecticut." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
8.6 Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Board of Directors' action may be
executed on behalf of the Corporation by the Chairman of the Board, the
President, the Treasurer or any other officer, employee or agent of the
Corporation, as the Board of Directors may authorize by general or specific
vote.
8.7 Voting of Securities. The Chairman of the Board, the President, the
Treasurer or any other officer, employer or agent of the Corporation, as the
Board of Directors may authorize by general or specific vote, may waive notice
of and act on behalf of the Corporation, or appoint another person or persons to
waive notice of and act as proxy or attorney in fact for the Corporation with or
without discretionary power and/or power of substitution at any meeting of
stockholders or shareholders of any other organization, any securities of which
are held by the Corporation.
IX. AMENDMENTS
These By-laws may be altered, amended or repealed and new by-laws may be adopted
by the vote of a majority of the Board of Directors, except as otherwise
required by statute, by the Certificate of Incorporation, or by these By-laws.
EXHIBIT 4.1
Number Cusip No. Shares
SERIES A __% CUMULATIVE REDEEMABLE PREFERRED SHARES
TRANSFER OF THE SHARES IS SUBJECT TO THE RESTRICTIONS SPECIFIED IN THE
CERTIFICATE OF AMENDMENT CREATING AND ESTABLISHING THE SHARES FILED WITH THE
SECRETARY OF STATE OF THE STATE OF CONNECTICUT AND IN EACH PURCHASER'S LETTER, A
COPY OF WHICH IS FILED WITH THE SECRETARY OF THE CORPORATION AND ITS TRANSFER
AGENT AND MAY BE EXAMINED AT THE OFFICE OF THE CORPORATION OR ITS TRANSFER
AGENT.
WEBSTER PREFERRED CAPITAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF CONNECTICUT
THIS CERTIFIES THAT
is registered as the holder of____ fully paid and non-assessable registered
shares of Series A __% Cumulative Redeemable Preferred Shares, par value $1.00
per share (the "Shares") of Webster Preferred Capital Corporation (the
"Corporation") transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney, upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the signatures of the duly authorized officers of the Corporation.
Dated:
COUNTERSIGNED AND REGISTERED
THE BANK OF NEW YORK, TRANSFER AGENT AND REGISTRAR PRESIDENT
By:______________________________________________
Authorized Signatory SECRETARY
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
The Corporation will furnish to any stockholder upon request and without charge
a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Secretary of
the Corporation or its Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--.......Custodian.......
(Cust) (Minor)
TEN ENT--as tenants by the entireties
under Uniform Gifts to Minors
JT TEN --as joint tenants with right of Act..................................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received,________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------
| |
|
| |
-------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- ------------------------------------------------------------------------Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
-----------------------------------------------------------
Notice: The signature to this assignment must correspond
with the name as written upon the face of the certificate
in every particular, without alteration or enlargement or
any change whatever.
EXHIBIT 4.2
Number Cusip No. Shares
SERIES B __% CUMULATIVE REDEEMABLE PREFERRED SHARES
TRANSFER OF THE SHARES IS SUBJECT TO THE RESTRICTIONS SPECIFIED IN THE
CERTIFICATE OF AMENDMENT CREATING AND ESTABLISHING THE SHARES FILED WITH THE
SECRETARY OF STATE OF THE STATE OF CONNECTICUT AND IN EACH PURCHASER'S LETTER, A
COPY OF WHICH IS FILED WITH THE SECRETARY OF THE CORPORATION AND ITS TRANSFER
AGENT AND MAY BE EXAMINED AT THE OFFICE OF THE CORPORATION OR ITS TRANSFER
AGENT.
WEBSTER PREFERRED CAPITAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF CONNECTICUT
THIS CERTIFIES THAT
is registered as the holder of ______ fully paid and non-assessable registered
shares of Series B __% Cumulative Redeemable Preferred Shares, par value $1.00
per share (the "Shares") of Webster Preferred Capital Corporation (the
"Corporation") transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney, upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the signatures of the duly authorized officers of the Corporation.
Dated:
COUNTERSIGNED AND REGISTERED
THE BANK OF NEW YORK, TRANSFER AGENT AND REGISTRAR PRESIDENT
By:______________________________________________
Authorized Signatory SECRETARY
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
The Corporation will furnish to any stockholder upon request and without charge
a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Secretary of
the Corporation or its Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--.......Custodian.......
(Cust) (Minor)
TEN ENT--as tenants by the entireties
under Uniform Gifts to Minors
JT TEN --as joint tenants with right of Act..................................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received,________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------
| |
|
| |
-------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- ------------------------------------------------------------------------Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
-----------------------------------------------------------
Notice: The signature to this assignment must correspond
with the name as written upon the face of the certificate
in every particular, without alteration or enlargement or
any change whatever.
EXHIBIT 5
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
December ___, 1997
Board of Directors
Webster Preferred Capital Corporation
Webster Plaza
145 Bank Street
Waterbury, Connecticut 06702
Ladies and Gentlemen:
We are acting as special counsel to Webster Preferred Capital Corporation,
a Connecticut corporation (the "Company"), in connection with its registration
statement on Form S-11, as amended (the "Registration Statement") filed with the
Securities and Exchange Commission relating to the proposed public offering of
40,000 shares of the Company's Series A ___% Cumulative Redeemable Preferred
Stock, par value $1.00 per share, liquidation preference $1,000.00 per share,
and 1,000,000 shares of the Company's Series B ___% Cumulative Redeemable
Preferred Stock, par value $1.00 per share, liquidation preference $10.00 per
share, all of which shares (the "Shares") are to be sold by the Company. This
opinion letter is furnished to you at your request to enable you to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (section)
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement;
2. The Amended and Restated Certificate of Incorporation of the Company, as
certified by the Secretary of the Company on the date hereof as then being
complete, accurate and in effect.
3. The By-Laws of the Company, as amended to date, as certified by the
Secretary of the Company on the date hereof as then being complete, accurate and
in effect.
4. The proposed form of the Purchase Agreement among the Company, Webster
Bank and the Underwriters identified therein, filed as Exhibit 1 to the
Registration Statement (the "Purchase Agreement").
5. Resolutions of the Board of Directors of the Company adopted at a
meeting held on December __, 1997, as certified by the Secretary of the Company
on the date hereof as then being complete, accurate and in effect, relating to
the issuance and sale of the Shares and arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the Connecticut
Business Corporation Act, as amended. We express no opinion herein as to any
other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the opinion
that following (i) final action of the Board of Directors of the Company
approving the price of the Shares, (ii) execution and delivery by the Company of
the Purchase Agreement, (iii) effectiveness of the Registration Statement, (iv)
issuance of the Shares pursuant to the terms of the Purchase Agreement, and (v)
receipt by the Company of the consideration for the Shares specified in the
resolutions of the Board of Directors, the Shares will be validly issued, fully
paid and nonassessable under the Connecticut Business Corporation Act, as
amended.
<PAGE>
Board of Directors
Webster Preferred Capital Corporation
December , 1997
Page 2
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are an
"expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
EXHIBIT 8
December ___, 1997
Webster Preferred Capital Corporation
Webster Plaza
145 Bank Street
Waterbury, Connecticut 06702
Ladies and Gentlemen:
We have acted as special counsel to Webster Preferred Capital Corporation,
a Connecticut corporation (the "Company"), in connection with the issuance and
sale of 40,000 shares of the Company's Series A ____% Cumulative Redeemable
Preferred Stock, par value $1.00 per share, liquidation preference $1,000.00 per
share (the "Series A Preferred Shares") and 1,000,000 shares of the Company's
Series B __% Cumulative Redeemable Preferred Stock, par value $1.00 per share,
liquidation preference $10.00 per share (the "Series B Preferred Shares," and
together with the Series A Preferred Shares, the "Preferred Shares").
Capitalized terms used in this letter and not otherwise defined herein have the
meaning set forth in the prospectus ("Prospectus") included as part of the
Company's Registration Statement on Form S-11 (No. 333-38685) filed with the
Securities and Exchange Commission on October 24, 1997 and amended on December
__, 1997 (the "Registration Statement").
The opinions set forth in this letter are based on relevant provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder (including proposed and temporary Regulations), and interpretations
of the foregoing as expressed in court decisions, the legislative history, and
existing administrative rulings and practices of the Internal Revenue Service
(including its practices and policies in issuing private letter rulings, which
are not binding on the Internal Revenue Service except with respect to a
taxpayer that receives such a ruling), all as of the date hereof. These
provisions and interpretations are subject to change, which may or may not be
retroactive in effect, that might result in modifications of our opinion. Our
opinion does not foreclose the possibility of a contrary determination by the
Internal Revenue Service or a court of competent jurisdiction, or of a contrary
position by the Internal Revenue Service or the Treasury Department in
regulations or rulings issued in the future.
In rendering our opinion, we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the following:
(1) the Registration Statement; and
(2) the Amended and Restated Certificate of Incorporation of the Company
(the "Certificate of Incorporation"), as certified by the Secretary of the
Company on the date hereof as being complete, accurate and in effect.
The opinions set forth in this letter also are premised on certain written
representations of the Company contained in a letter to us dated as of the date
hereof (the "Management Representation Letter").
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct, and all of the obligations imposed by any such documents on the
parties thereto have been and will be performed or satisfied in accordance with
their terms. Moreover, we have assumed that the Company has been and will
continue to be operated in the manner described in the Certificate of
Incorporation and the Prospectus. We also have assumed the
<PAGE>
Webster Preferred Capital Corporation
December __, 1997
Page 2
genuineness of all signatures, the proper execution of all documents, the
authenticity of all documents submitted to us as originals, the conformity to
originals of documents submitted to us as copies, and the authenticity of the
originals from which any copies were made.
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in the documents we reviewed. We
consequently have assumed that the information presented in the documents we
reviewed or otherwise furnished to us accurately and completely describes all
material facts relevant to our opinion. No facts have come to our attention,
however, that would cause us to question the accuracy and completeness of such
facts or documents in a material way.
Based upon, and subject to, the foregoing and the next paragraph below
following the numbered paragraphs, we are of the opinion that:
1. The Company is organized and has operated, as of the date hereof, in
conformity with the requirements for qualification and taxation as a real
estate investment trust ("REIT") under the Code, and the Company's
proposed method of operation, as described in the Prospectus and in the
Management Representation Letter, should enable it to continue to meet the
requirements for qualification and taxation as a REIT; and
2. The discussion in the Prospectus under the caption "Federal Income Tax
Consequences," to the extent that it constitutes matters of law or legal
conclusions, is correct in all material respects.
The Company's qualification and taxation as a REIT depend upon the
Company's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Code and described in the
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its distributions to stockholders,
and the diversity of its share ownership. Hogan & Hartson L.L.P. will not review
the Company's compliance with these requirements on a continuing basis. No
assurance can be given that the actual results of the operations of the Company,
the sources of its income, the nature of its assets, the level of the Company's
distributions to stockholders and the diversity of its share ownership for any
given taxable year will satisfy the requirements under the Code for
qualification and taxation as a REIT.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by reference the
discussions of federal income tax issues, which we assisted in preparing, in the
section of the Prospectus under the heading "Federal Income Tax Consequences."
We assume no obligation to advise you of any changes in the foregoing
subsequent to the date of this opinion letter, and we are not undertaking to
update the opinion letter from time to time. This opinion letter has been
prepared solely for your use in connection with the issuance and sale of the
Preferred Shares on the date of this opinion letter and should not be quoted in
whole or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the captions "Prospectus
Summary -- Tax Status of the Company," "Risk Factors -- Tax Risks," "Legal
Matters" and "Federal Income Tax Conseqences" in the Prospectus which is a part
thereof. In giving such consent, we do not admit that we are in the category of
person whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
EXHIBIT 10.3
ADVISORY SERVICE AGREEMENT
This Advisory Service Agreement ("Agreement") is made as of this 20th day
of October 1997, by and between Webster Bank (the "Advisor"), a federal savings
bank with an office located at Waterbury, CT and Webster Preferred Capital
Corporation ("WPCC"), a Connecticut corporation with an office located at
Waterbury, CT.
WITNESSETH THAT:
WHEREAS, WPCC intends to qualify as a "real estate investment trust"
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, WPCC desires to obtain from the Advisor various advisory and
management services to avail itself of the experience and assistance of the
Advisor and to have the Advisor undertake, on WPCC's behalf, the duties and
responsibilities hereinafter set forth, subject to the control and supervision
of the Board of Directors of WPCC as provided for herein; and
WHEREAS, the Advisor desires to render such advisory and management
services to the Company subject to the control and supervision of the Board of
Directors of WPCC, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the parties
hereby agree as follows:
1. TERM.
The term of this Agreement shall commence as of October 20, 1997 and shall
continue until October 19, 1999. Unless a notice to terminate this Agreement is
sent by either party to the other party at least ninety (90) days prior to
October 19, 1999, this Agreement shall be automatically renewed for a one year
period. Thereafter, the Agreement shall continue to be automatically renewed for
successive one year periods unless a termination notice is sent by either party
to the other party at least ninety (90) days prior to the end of the then
existing renewal term.
2. ADVISORY SERVICES.
The Advisor shall consult with the Board of Directors and the officers of
WPCC and shall, at the request of the Board of Directors and/or the officers of
WPCC, furnish advice and recommendations with respect to all aspects of the
business and affairs of WPCC. Subject to the control and discretion and at the
request of the Board of Directors of WPCC, the Advisor shall provide the
following services (together with the services set forth in Section 6 and
Section 7 hereof, the "Services"):
(a) administer the day-to-day operations and affairs of WPCC, including
without limitation the performance or supervision of the functions
described in this Section 2;
(b) monitor the credit quality of the real estate mortgage assets held by
WPCC;
(c) advise WPCC with respect to the acquisition, management, financing and
disposition of WPCC's real estate mortgage assets;
(d) establish and provide necessary services for WPCC, including executive,
administrative, human resource, accounting and control, technical
support, secretarial, recordkeeping, copying, mailing and distribution
facilities;
(e) provide WPCC with office space pursuant to a lease, conference room
facilities, office equipment and supplies (including computers, copy
machines and fax machines) and personnel necessary for the Services to be
performed by the Advisor hereunder and to perform the daily business of
WPCC;
1
<PAGE>
(f) arrange for the investment and management of any short-term investments
of WPCC and provide any investment and fund management services in a
manner consistent with Exhibit D to the Master Service Agreement, dated
March 17, 1997, between the Advisor and WPCC;
(g) monitor and supervise the performance of all parties who have contracts
to perform services for WPCC, provided that the Advisor shall have no
duty to assume the obligations or guarantee the performance of such
parties under such contracts;
(h) establish and maintain such bank accounts in the name of WPCC as may be
required by WPCC and approved by the Board of Directors of WPCC and
ensure that all funds collected by the Advisor in the name of or on
behalf of WPCC shall be held in trust and shall not be commingled with
the Advisor's own funds or accounts;
(i) arrange for the execution and delivery of such documents and instruments
by the officers of WPCC as may be required in order to perform the
functions herein described and to take any other required action
contemplated by the terms of this Agreement;
(j) arrange for insurance for WPCC including liability insurance, errors and
omissions policies and officers and directors policies, which shall cover
and insure WPCC, members of the Board of Directors and the officers of
WPCC in amounts and with deductibles and insurers approved by the Board
of Directors of WPCC;
(k) maintain proper books and records of WPCC's affairs and furnish or cause
to be furnished to the Board of Directors such periodic reports and
accounting information as may be required from time to time by the Board
of Directors of WPCC, including, but not limited to, quarterly reports of
all income, expenses and distributions of WPCC;
(l) consult and work with legal counsel for WPCC in implementing WPCC
decisions and undertaking measures consistent with all pertinent federal,
state and local laws and rules or regulations of governmental or
quasi-governmental agencies, including, but not limited to, federal and
state securities laws, the Code as it relates to WPCC's qualification as
a REIT, and the regulations promulgated under each of the foregoing;
(m) consult and work with independent accountants for WPCC in connection with
the preparation of financial statements, annual reports and tax returns;
(n) prepare and distribute in consultation with the independent accountants
for WPCC, annual reports to stockholders which contain audited financial
statements;
(o) furnish reports to the Board of Directors of WPCC, which include reports
concerning WPCC's investments;
(p) maintain custody of the documents related to WPCC's mortgage assets; and
(q) as reasonably requested by WPCC, make reports to WPCC of its performance
of the foregoing Services and furnish advice and recommendations with
respect to other aspects of the business of WPCC.
3. OPERATING EXPENSES; EXPENSES OF THE ADVISOR.
(a) "Operating Expenses" for any period means all of the operating expenses
of WPCC (with the exception of those expenses to be borne by the Advisor
in accordance with Section 3(b) hereof), including without limitation,
the following:
(i) interest, taxes and other expenses incurred in connection with the
real estate mortgage assets of WPCC;
(ii) expenses related to the officers, directors and employees of WPCC,
including without limitation any fees or expenses of the directors;
2
<PAGE>
(iii) fees and expenses payable to accountants, appraisers, external
auditors, consultants, attorneys, collection and paying agents and
all other persons who contract with or are retained by WPCC or by
the Advisor on behalf of WPCC;
(iv) legal and other expenses incurred in connection with advice
concerning, obtaining or maintaining WPCC's status as a REIT, the
determination of WPCC's taxable income, any formal or informal
administrative action or legal proceedings which involve a
challenge to the REIT status of WPCC or any claim that the
activities of WPCC, any member of the Board of Directors or any
officer of WPCC were improper;
(v) expenses relating to communications and reports to stockholders of
WPCC, including without limitation the costs of preparing,
printing, duplicating and mailing the certificates for the stock of
WPCC, proxy solicitation materials and reports to stockholders, and
the costs of arranging meetings of stockholders;
(vi) the costs of insurance described in Section 2 hereof, including
directors and officers liability insurance covering the directors
and officers of WPCC;
(vii) expenses relating to the acquisition, disposition and ownership of
real estate mortgage assets of WPCC, including, without limitation
and to the extent not paid by others, legal fees and other expenses
for professional services and fees;
(viii)expenses connected with the payments of dividends or interest or
distributions in cash or any other form made or caused to be made
by the Board of Directors to the stockholders of WPCC;
(ix) expenses connected with any office or office facilities maintained
by WPCC separate from the office of the Advisor, including without
limitation rent, telephone, utilities, office furniture and
equipment and machinery; and
(x) other miscellaneous expenses of WPCC which are not expenses of the
Advisor under Section 3(b) hereof.
(b) Without regard to the compensation received pursuant to Section 4
hereof, the Advisor shall bear the following expenses:
(i) employment expenses of the personnel employed by the Advisor,
including without limitation salaries, wages, payroll taxes and the
cost of employee benefit plans; and
(ii) rent, telephone equipment, utilities, office furniture and
equipment and machinery and other office expenses of the Advisor
incurred in connection with the maintenance of any office facility
of the Advisor.
(c) WPCC shall reimburse the Advisor within 30 days of a written request by
the Advisor for any Operating Expenses paid or incurred by the Advisor on behalf
of WPCC.
4. FEES.
(a) An annual advisory fee of $150,000 shall be payable by WPCC to the
Advisor for Services rendered by the Advisor hereunder. Payment by WPCC is due
and payable monthly upon receipt of an invoice from the Advisor.
(b) The Advisor may revise the rate set forth in Paragraph 4(a) above to
reflect changes in the actual costs incurred by the Advisor in providing the
Services to WPCC.
5. PERFORMANCE OF SERVICES; CHANGES.
(a) In performing Services under this Agreement, the scope of work
undertaken by the Advisor and the manner of its performance shall be
substantially the same as for similar work performed by the Advisor for
transactions on its own behalf, with such modifications as may be appropriate in
order to accomplish the purposes of this Agreement.
3
<PAGE>
(b) The Advisor shall give WPCC reasonable notice of all changes affecting
WPCC's activities as these changes pertain to the Services. If a change referred
to in Paragraph 5(a) above (including a revision of the annual advisory fee
pursuant to Section 4(b) hereof) is not acceptable to WPCC, WPCC may terminate
this Agreement upon thirty (30) days' notice, provided such notice is given
within ten (10) days after WPCC has received notice of the change.
6. MAINTENANCE OF RECORDS; EXAMINATIONS.
The advisor shall at all times, establish and maintain appropriate books of
account, records and accounting practices related to the Services performed
hereunder and permit such examinations as may be required by relevant state and
federal agencies. Such books and records shall be accessible for inspection by
the Board of Directors of WPCC and representatives of WPCC at all times. It is
understood and agreed that the performance of the Services is or might be
subject to regulation and examination by authorized representatives of state and
federal agencies, including but not limited to, the Office of Thrift Supervision
and the Federal Deposit Insurance Corporation. Each party is and shall be
authorized to submit or furnish to any such regulatory agency reports,
information, assurances and other data as may be required by or reasonably
requested of it under applicable laws and regulations, including, without
limitation, any appropriate notifications concerning the initiation or
termination of this Agreement or any of the Services provided to WPCC.
7. REIT QUALIFICATION AND COMPLIANCE.
The Advisor shall consult and work with WPCC's legal counsel in maintaining
WPCC's qualification as a REIT. Notwithstanding any other provisions of this
Agreement to the contrary, the Advisor shall refrain from any action which, in
its reasonable judgment or in the judgment of the Board of Directors of WPCC (of
which the Advisor has received written notice), would adversely affect the
qualification of WPCC as a REIT or which would violate any law, rule or
regulation of any governmental body or agency having jurisdiction over WPCC or
its securities, or which would otherwise not be permitted by the amended and
restated certificate of incorporation or by-laws of WPCC. Furthermore, the
Advisor shall take any action which, in its judgment or the judgment of the
Board of Directors of WPCC (of which the Advisor has received written notice),
may be necessary to maintain the qualification of WPCC as a REIT or prevent the
violation of any law or regulation of any governmental body or agency having
jurisdiction over WPCC or its securities.
8. SUBCONTRACTING.
The advisor may at any time subcontract all or a portion of its obligations
under this agreement to one or more affiliates of the Advisor that are involved
in the business of managing real estate mortgage assets without the consent of
WPCC. If no affiliate of the Advisor is engaged in the business of managing real
estate mortgage assets, the Advisor may, with the approval of a majority of the
Board of Directors of WPCC, subcontract all or a portion of its obligations
under this Agreement to unrelated third parties. Notwithstanding the foregoing,
the Advisor will not, in connection with subcontracting any of its obligations
under this Agreement, be discharged or relieved in any respect from its
obligations under this Agreement.
9. OTHER ACTIVITIES OF THE ADVISOR.
(a) Nothing herein contained shall prevent the Advisor, an affiliate of the
Advisor or an officer, director, employee or stockholder of the Advisor from
engaging in any activity, including without limitation originating, purchasing
and managing real estate mortgage assets, rendering of services and investment
advice with respect to real estate investment opportunities to any other person
(including other REITs) and managing other investments (including the
investments of the Advisor and its affiliates).
(b) Officers, directors, employees, stockholders and agents of the Advisor
or of any affiliate of the Advisor may serve as officers, directors, employees
or agents of WPCC, but shall receive no compensation (other than reimbursement
for expenses) from WPCC for such service.
4
<PAGE>
10. LIMITATIONS OF LIABILITY.
THE ADVISOR SHALL USE ITS BEST EFFORTS TO PROVIDE COMPETENT PERSONNEL AND
RELIABLE EQUIPMENT FOR THE purpose of performing Services for WPCC under this
Agreement. The liability of the Advisor to WPCC for any loss due to the
Advisor's performing or failing to perform the Services shall be limited to
those losses sustained by WPCC which are a direct result of the Advisor's
negligence or willful misconduct. Because of the nature of the Services to be
performed hereunder and because of the impracticability, difficulty or
impossibility of ascertaining and measuring the Advisor's liability to WPCC or
any third party for any loss or damage by reason of any error caused by the
Advisor's negligence or otherwise, the parties hereby agree that under no
circumstances shall the Advisor be liable for any consequential or special
damages and in no event shall the Advisor's total combined liability to WPCC for
all claims arising under or in connection with this Agreement be more than the
total amount of all fees payable by WPCC to the Advisor under this Agreement
during the year immediately preceding the year in which the first claim giving
rise to any such liability arises. For purposes of this Section 10, a "year"
shall be deemed to begin on October 20th and run until October 19th of the
ensuing calendar year. If the Advisor carries insurance against the type of loss
incurred, WPCC agrees to cooperate in furnishing proof of loss in a form
satisfactory to the Advisor's insurance company and to assist the Advisor and
its insurance company in settlement of this claim.
11. FORCE MAJEURE.
Neither party shall be responsible for any resulting loss if fulfillment of
any term or provision of this agreement is delayed or prevented by fire, flood,
earthquake, act of God, labor difficulties or by any other cause not within the
control of the party whose performance is delayed or prevented. If the foregoing
shall occur and such situations shall continue to prevent performance for a
continuous period of sixty (60) days, then either party may notify the other
party of its intention to terminate this Agreement and this Agreement shall
terminate upon receipt of such notice.
12. DEFAULT; REMEDIES.
(a) The occurrence of any of the following shall be an event of default
("Event of Default") hereunder:
(i) the failure of WPCC to pay any fee or charge within 30 days after
its receipt of an invoice or written request for reimbursement from
the Advisor for fees or expenses reimbursable hereunder;
(ii) the filing of a petition in bankruptcy by or against either party
or the appointment of a receiver for either party which petition or
appointment is not discharged within thirty (30) days; or
(iii) a material breach by either party of any of its obligations
hereunder.
(b) In the event of any Event of Default, the non-breaching party shall
provide a written notice of such Event of Default and a demand that such Event
of Default be cured. In the event that the breaching party fails in good faith
to cure such Event of Default within fifteen (15) days following receipt of such
notice and demand, the non-defaulting party may terminate this Agreement by
notice to the defaulting party.
(c) In the event of a termination by either party pursuant to this Section
12(b), WPCC shall nonetheless remain liable for the payment to the Advisor of
all reasonable outstanding fees and charges as of the date of such termination.
13. INDEPENDENT CONTRACTOR.
In performing the Services, the Advisor shall be deemed to have an
independent contractual relationship with WPCC and shall not be deemed to have
any contractual or other relationship with WPCC's mortgagors. Nothing in this
Agreement shall be deemed to create a joint venture or partnership between the
parties. In no event shall any of WPCC's mortgagors be considered a third party
beneficiary of this Agreement. To the extent that third parties may make claims
against the Advisor arising out of the Services provided hereunder, WPCC agrees
to indemnify and hold harmless the Advisor from and against all loss, liability,
claim, action, demand, or suits, including attorney's fees arising therefrom.
5
<PAGE>
14. RELATIONSHIP OF PARTIES; ASSIGNMENT.
Each of the parties hereto hereby acknowledges that it is an affiliate of
the other party hereto. WPCC shall not assign this Agreement nor any of its
rights or obligations hereunder without the prior written consent of the
Advisor. The Advisor may assign this Agreement and any of its rights and
obligations (including, without limitation, its obligation to provide Services)
to any affiliate of WPCC. In the event WPCC is no longer an affiliate of the
Advisor or its successors or assigns, this Agreement shall automatically
terminate.
15. SEVERABILITY.
Whenever possible, each provision of the Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be in effect only to the extent of such
prohibition or invalidity, without invalidating the remainder of the provisions
of this Agreement.
16. CONFIDENTIALITY.
The Advisor shall regard and preserve as confidential all data of a
proprietary and/or confidential nature related to the business of WPCC. The
Advisor will take the same precautions to preserve such confidential information
as it takes with respect to the Advisor's own confidential information.
17. NOTICES.
All notices to be sent under this Agreement shall be mailed by first class
mail, postage prepaid and addressed as follows:
If to the Advisor: Peter K. Mulligan
Executive Vice President
Webster Bank
Webster Plaza
145 Bank Street
Waterbury, CT 06702
If to WPCC: Gregory S. Madar
Vice President and Secretary
Webster Preferred Capital Corporation
145 Bank Street
Waterbury, CT 06702
Either party may give written notice to the other to change the place of the
mailing of such notices.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties hereto. It
shall supersede any and all other previous writings and communications between
the parties.
19. AMENDMENT.
No modification or amendment of this Agreement shall be valid unless such
modification or amendment is in writing and executed by both parties.
20. GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Connecticut.
21. HEADINGS.
The section headings herein have been inserted for convenience of reference
only and shall not be construed to affect the meaning, construction or effect of
this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized representatives as of the date first written above.
WEBSTER BANK
By:
----------------------------------
Name: Peter K. Mulligan
Title: Executive Vice President
WEBSTER PREFERRED CAPITAL CORPORATION
By:
----------------------------------
Name: Gregory S. Madar
Title: Vice President and Secretary
7
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Webster Preferred Capital Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
Hartford, Connecticut
December 15, 1997
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